<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998.
REGISTRATION NO. 333-50735
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
RAGEN MACKENZIE GROUP INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<S> <C> <C>
WASHINGTON 6211 91-1898738
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
999 THIRD AVENUE, SUITE 4300
SEATTLE, WASHINGTON 98104
(206) 343-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
V. LAWRENCE BENSUSSEN
CHIEF FINANCIAL OFFICER
RAGEN MACKENZIE GROUP INCORPORATED
999 THIRD AVENUE, SUITE 4300
SEATTLE, WASHINGTON 98104
(206) 343-5000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------
COPIES TO:
STEWART M. LANDEFELD BENJAMIN F. STEPHENS
DAVID F. MCSHEA HILLEL T. COHN
MICHAEL C. PIRAINO WILLIAM W. BARKER
PERKINS COIE LLP GRAHAM & JAMES LLP/RIDDELL WILLIAMS P.S.
1201 THIRD AVENUE, 40TH FLOOR 1001 FOURTH AVENUE PLAZA, SUITE 4500
SEATTLE, WASHINGTON 98101-3099 SEATTLE, WASHINGTON 98154
(206) 583-8888 (206) 624-3600
--------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 1, 1998
2,250,000 SHARES
RAGEN MACKENZIE GROUP INCORPORATED
COMMON STOCK
----------
Of the 2,250,000 shares of Common Stock offered hereby (the "Offering"),
1,462,500 shares are being sold by Ragen MacKenzie Group Incorporated (the
"Company" or "Ragen MacKenzie") and 787,500 shares are being sold by certain
shareholders (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. Prior to the Offering, there has been no
public market for the Company's Common Stock. Pursuant to the Conduct Rules of
the National Association of Securities Dealers, Inc. (the "NASD"), the initial
public offering price will be determined by negotiations between the Company
and the Underwriters in accordance with the recommendation of Raymond James &
Associates, Inc., a "Qualified Independent Underwriter." It is currently
anticipated that the initial public offering price of the Common Stock will be
between $14.00 and $16.00 per share. See "Underwriting" for factors to be
considered in determining the initial public offering price. Application has
been made to have the Common Stock listed on the Nasdaq National Market under
the symbol "RMGI." The Company is also considering making application to have
the Common Stock listed instead on the New York Stock Exchange under the symbol
"RMG."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF MATERIAL
RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $ $
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $1,200,000, payable by the Company,
and excluding a $100,000 nonaccountable expense allowance payable by the
Company to Raymond James & Associates, Inc. See "Underwriting."
(3) The Selling Shareholders have granted to the Underwriters a 30-day option
to purchase up to an aggregate of 337,500 additional shares of Common Stock
on the same terms and conditions as the shares offered hereby solely to
cover over-allotments, if any. See "Underwriting." If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will
be $ , $ , $ and $ , respectively.
----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to certain other conditions, including the right of the Underwriters to
withdraw, cancel, modify or reject any order in whole or in part. It is
expected that delivery of certificates representing the shares will be made on
or about , 1998, at the offices of Raymond James & Associates, Inc.,
St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC. RAGEN MACKENZIE INCORPORATED
The date of this Prospectus is , 1998
<PAGE>
[MAP OF THE UNITED STATES AND PART OF CANADA SHOWING LOCATIONS OF RAGEN
MACKENZIE OFFICES, RAGEN MACKENZIE INDEPENDENT CONTRACTOR OFFICES AND
CORRESPONDENT OFFICES]
The following marks are trademarks or service marks of the Company: "Ragen
MacKenzie Incorporated" and "Ragen MacKenzie Group Incorporated." All other
trademarks or service marks appearing in this Prospectus are trademarks or
service marks of the respective companies that utilize them.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains certain forward-looking statements that involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company or industry trends to
differ materially from those expressed or implied by such forward-looking
statements. Such factors include, among others, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
Ragen MacKenzie is the leading regional brokerage firm headquartered in the
Pacific Northwest. The Company's primary business is retail securities
brokerage, which it conducts through its Seattle headquarters and 10 additional
offices in Washington, Oregon and Alaska, which include four offices operated
by independent contractors. One of the most important elements of Ragen
MacKenzie's success has been the use of its proprietary equity research
products to support a large portion of the Company's business. The Company's
research department covers approximately 100 publicly traded companies
headquartered in the Pacific Northwest and maintains a recommended list of
selected regional and national stocks (the "Recommended List"). Other aspects
of the Company's business include proprietary trading of certain fixed income
securities, institutional brokerage services, correspondent brokerage services
and investment banking services.
The Company has experienced significant revenue growth over the past five
years while increasing profitability. Total revenues have increased at a
compound annual growth rate of 17.3% from fiscal 1993 through fiscal 1997, from
$46.8 million to $88.6 million. The Company's significant revenue growth is due
in part to growth in customer assets and the number of customer accounts,
increases in the number and productivity of retail brokers and the substantial
increases in stock values over the past several years. The Company's customer
account balances doubled from $4.6 billion in September 1995 to $9.2 billion in
March 1998. The Company's net income increased from $4.9 million to $15.4
million from fiscal 1993 through fiscal 1997, and its pretax profit margin was
29.4% for the six-month period ended March 27, 1998.
The Company believes that its success has been primarily attributable to its
proprietary research and its approach to the retail brokerage business, which
is to attract and retain highly productive, experienced brokers in selected
cities throughout the Pacific Northwest. As of March 27, 1998, Ragen
MacKenzie's 78 retail brokers had on average more than 17 years of industry
experience. The Company's retail brokers generated average commissions per
broker of $403,600, $537,900 and $548,900 in fiscal 1995, 1996 and 1997,
respectively. The industry average annual commissions per broker were $305,900
and $358,800 in 1995 and 1996, respectively (1997 comparative information is
not yet available). Revenues from the Company's retail brokerage activities,
excluding net interest earned on retail brokerage customer balances, grew at a
compound annual growth rate of 14.9% from $21,439,000 to $37,326,000 from
fiscal 1993 through fiscal 1997, and represented approximately 43.8%, 42.1% and
41.2%, respectively, of the Company's total revenues during fiscal 1996 and
1997 and for the six-month period ended March 27, 1998.
Ragen MacKenzie's research department, which currently consists of nine
professional research analysts, utilizes a value-oriented, contrarian approach
to investing. The Company relies primarily on proprietary research products,
rather than research products purchased from independent research
organizations. The Company believes that the services provided by the research
department have a significant impact on virtually all of Ragen MacKenzie's
revenue-generating activities, including retail and institutional brokerage,
correspondent brokerage services and investment banking.
The size of the capital markets and the volume of trading in the securities
markets have increased substantially in recent years, as has the demand for
securities investments. Initial public offerings and total common equity issued
in the United States public markets grew from $1.4 billion and $12.8 billion,
respectively, in 1980, to $10.2 billion and $19.2 billion, respectively, in
1990, to $43.9 billion and $118.4 billion, respectively, in 1997. The
combination of increasing flows of funds into the equity markets and new
issuance activity has
3
<PAGE>
contributed to significantly higher trading volumes. From 1980 to 1997, average
daily trading volume grew at a compound annual rate of 15.6% on the New York
Stock Exchange (the "NYSE") and 20.7% on the Nasdaq National Market ("Nasdaq").
More recently, the combined NYSE and Nasdaq average daily trading volumes grew
at a compound annual rate of 22.1% for the five years ended 1997 and increased
22.9% in 1997 over 1996.
The Company is the leading regional brokerage firm headquartered in the
Pacific Northwest, based on total revenues and net income in fiscal 1997, and
has demonstrated a history of success and steady growth, capitalizing on
national and regional trends in the securities industry. The Company believes
that the Pacific Northwest will continue to experience positive economic
development and that such development will present the Company with further
opportunity for growth within the region.
BUSINESS STRATEGY
The Company believes that the quality and depth of its proprietary research
will continue to help it attract and retain highly productive brokers and
retail, institutional and correspondent customers. The
Company intends to use the quality of its research to grow each aspect of its
business and increase its visibility as the leading regional brokerage firm
headquartered in the Pacific Northwest. The Company's strategy includes the
following key elements:
. Continued Focus on Proprietary Research Coverage. The Company plans to
continue leveraging the competitive advantages provided by the quality and
depth of its proprietary research coverage. The Company intends to increase the
size of its research staff by recruiting, hiring and training additional
research analysts. The Company also intends to continue focusing its research
efforts on public companies headquartered in the Pacific Northwest, as well as
a selected list of other public companies, in each case utilizing a value-
oriented, contrarian philosophy of investment analysis.
. Increase Number of Brokers. The Company intends to expand its retail
brokerage services by continuing to recruit experienced, productive retail
brokers. The Company believes that its proprietary research provides it with a
significant competitive advantage in attracting and retaining experienced,
productive retail brokers. From the beginning of fiscal 1993 to March 27, 1998,
the Company increased the number of retail brokers from 51 to 78. For the 12
months ended March 27, 1998, the average production per retail broker for the
Company was over $560,000. Average production per retail broker (also referred
to as average commissions) is calculated by dividing total retail brokerage
revenue for the period (excluding interest earned on customer balances) by the
average of the number of retail brokers at the beginning and end of the period.
The Company intends to continue focusing its recruiting efforts on experienced,
productive retail brokers and typically does not hire inexperienced or trainee
brokers.
. Expand Correspondent Brokerage Business. The Company intends to increase
market penetration and expand the geographic coverage of its correspondent
brokerage business by leveraging efficiencies of its clearing operations and
the quality of the Company's proprietary research coverage. The Company
believes that expanding its correspondent business will positively impact
margins, because it believes that such expansion will increase revenues without
a significant increase in costs.
. Expand Investment Banking Services. The Company intends to increase its
investment banking business by recruiting experienced investment banking
professionals and leveraging its research coverage of companies headquartered
in the Pacific Northwest. The Company plans to capitalize on increased merger
and acquisition activity in the Pacific Northwest, which it believes will
result from the significant economic growth in the region. In light of recent
consolidation among investment banking firms, the Company also intends to
capitalize on its regional focus.
. Supplement Internal Growth With Strategic Acquisitions. The Company intends
to pursue, on an opportunistic basis, acquisitions of other firms with
complementary businesses that would strengthen or expand the Company's product
or financial service offerings and position within the Pacific Northwest. The
Company plans to focus on smaller regional firms that may realize benefits from
affiliation with a larger firm while retaining their regional focus.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by:
The Company.................... 1,462,500 shares
The Selling Shareholders....... 787,500 shares(1)
Common Stock to Be Outstanding
After the Offering............ 12,490,309 shares(2)
Use of Proceeds................ To pay down current short-term borrowings
that bear interest at 5.9% as of March 27,
1998. See "Use of Proceeds" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Liquidity and Capital
Resources."
Proposed Nasdaq National Market
Symbol........................ "RMGI"(3)
</TABLE>
- --------
(1) Shares of Common Stock owned by affiliates of Ragen MacKenzie Group
Incorporated represent approximately 18.3% of the shares of Common Stock
offered in the Offering and, assuming the exercise of the over-allotment
option granted by certain Selling Shareholders to the Underwriters,
approximately 22.7% of the aggregate number of shares of Common Stock
offered in the Offering and pursuant to the over-allotment option.
(2) Based on shares outstanding at May 21, 1998. Does not include (i) 1,027,866
shares of Common Stock issuable upon the exercise of stock options
outstanding and exercisable under the Company's stock option plans as of
May 21, 1998 with a weighted average per share exercise price of $5.45 and
(ii) 512,655 shares of Common Stock issuable upon the exercise of stock
options that the Company has agreed to issue upon satisfaction of certain
performance goals or that have been issued and will vest upon satisfaction
of certain performance goals. The number of shares of Common Stock offered
by the Company and the Selling Shareholders in the Offering represent in
the aggregate approximately 18.0% of the Common Stock to be outstanding
after the Offering (assuming no exercise of the Underwriters' over-
allotment option).
(3) The Company is considering making application to have the Common Stock
listed on the NYSE under the symbol "RMG."
THE COMPANY
Ragen MacKenzie Group Incorporated, a Washington corporation, was
incorporated in April 1998 to serve as a holding company for all of the
operations of Ragen MacKenzie Incorporated ("RMI") pursuant to the
Reorganization described below. RMI was incorporated as a Washington
corporation in 1987, the year in which it succeeded to the business of Cable,
Howse & Ragen, a Washington limited partnership formed in 1982. The
Reorganization will take place prior to the completion of the Offering.
Following the Reorganization, Ragen MacKenzie Group Incorporated will operate
as a holding company and will be the sole shareholder of RMI. Unless the
context otherwise requires, (i) references to "Ragen MacKenzie" and the
"Company" refer to Ragen MacKenzie Group Incorporated and its predecessor and
subsidiary, RMI, and (ii) the information in this Prospectus assumes
consummation of the Reorganization without exercise of dissenters' rights.
The Company's executive offices are located at 999 Third Avenue, Suite 4300,
Seattle, Washington 98104, and its telephone number is (206) 343-5000.
5
<PAGE>
REORGANIZATION
Prior to the completion of the Offering, RMI will merge with and into a
wholly owned subsidiary of Ragen MacKenzie Group Incorporated for the purpose
of creating a holding company structure with Ragen MacKenzie Group Incorporated
as the parent corporation of RMI (the "Reorganization"). Shareholders who were
previously shareholders of RMI immediately prior to the Reorganization (other
than those who properly exercise dissenters' rights) will become shareholders
of Ragen MacKenzie Group Incorporated immediately after the Reorganization. The
primary purposes of the Reorganization are to provide flexibility for the
business operations and management of the Company and to broaden the Company's
alternatives for future financing.
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
SIX-MONTH
FISCAL YEAR ENDED PERIOD ENDED
------------------------------------------------- -------------------
SEPT. 24, SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, MARCH 28, MARCH 27,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Principal transactions,
net.................... $18,335 $20,412 $21,683 $23,526 $23,566 $11,240 $12,912
Commissions............. 17,986 18,275 19,553 28,516 30,758 14,588 17,821
Other................... 2,577 3,814 2,524 3,569 4,078 2,219 3,034
------- ------- ------- ------- ------- ------- -------
Total operating
revenues.............. 38,898 42,501 43,760 55,611 58,402 28,047 33,767
Interest income......... 7,876 11,316 18,641 24,210 30,179 13,932 18,365
------- ------- ------- ------- ------- ------- -------
Total revenues......... 46,774 53,817 62,401 79,821 88,581 41,979 52,132
Interest expense........ 4,876 6,978 13,052 16,230 19,694 9,138 12,154
------- ------- ------- ------- ------- ------- -------
Net revenues........... 41,898 46,839 49,349 63,591 68,887 32,841 39,978
------- ------- ------- ------- ------- ------- -------
Non-interest expenses:
Compensation and
benefits(2)(3)......... 23,053 25,419 25,925 33,924 35,176 16,878 20,728
Key person death
benefits plan(4)....... 1,150 800 2,450 -- (5,000) (5,000) --
Occupancy and equipment. 3,725 3,921 3,949 3,938 4,714 2,097 2,641
Communications.......... 2,028 2,620 2,588 2,776 3,276 1,528 1,774
Clearing and exchange
fees................... 1,938 1,963 2,282 2,344 2,338 1,161 1,428
Other................... 2,028 2,359 2,381 3,854 3,534 1,837 1,634
------- ------- ------- ------- ------- ------- -------
Total non-interest
expenses.............. 33,922 37,082 39,575 46,836 44,038 18,501 28,205
------- ------- ------- ------- ------- ------- -------
Income before taxes on
income................. 7,976 9,757 9,774 16,755 24,849 14,340 11,773
Taxes on income......... 3,109 3,752 3,672 6,254 9,460 5,348 4,518
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 4,867 $ 6,005 $ 6,102 $10,501 $15,389 $ 8,992 $ 7,255
======= ======= ======= ======= ======= ======= =======
Earnings per common
share(5):
Basic.................. $ 0.68 $ 0.79 $ 0.73 $ 1.10 $ 1.54 $ 0.91 $ 0.70
Diluted................ 0.63 0.72 0.68 1.04 1.44 0.85 0.66
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX-MONTH PERIOD
AS OF AND FOR THE FISCAL YEAR ENDED ENDED
------------------------------------------------- -------------------
SEPT. 24, SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, MARCH 28, MARCH 27,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Pretax income as a
percentage of net
revenues............... 19.0% 20.8% 19.8% 26.3% 36.1% 43.7% 29.4%
Annual return on average
equity(6).............. 29.1% 25.0% 18.5% 23.3% 25.1% 31.1% 19.3%
Assets in retail
brokerage accounts (in
millions)(7)........... N/A N/A $4,629 $5,862 $8,806 $6,571 $9,190
Number of employees(7).. 216 221 232 245 271 256 287
Number of retail
brokers(7)............. 56 62 65 65 74 67 78
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 27, 1998
------------------------
ACTUAL AS ADJUSTED(8)
--------- --------------
<S> <C> <C>
BALANCE SHEETS DATA:
Total assets.......................................... $ 697,314 $698,001
Long-term borrowings.................................. -- --
Shareholders' equity.................................. 79,882 97,807
Book value per common share outstanding(9)............ 7.40 7.98
</TABLE>
7
<PAGE>
- --------
(1) The Company utilizes a 52- or 53-week fiscal year ending on the Friday on
or immediately prior to September 30. Fiscal 1994 was a 53-week year and
fiscal 1993 and fiscal 1995 through 1997 were 52-week years. The six-month
periods ended March 28, 1997 and March 27, 1998 each contain 26 weeks.
(2) Compensation and benefits includes a nondeductible expense recorded for
the appreciation in book value between the option grant date and the
option exercise date for stock options granted under RMI's 1989 Stock
Option Plan (the "1989 Plan"), RMI's 1993 Stock Option Plan (the "1993
Plan") and RMI's 1996 Stock Option Plan (the "1996 Plan," collectively
with the 1989 Plan and the 1993 Plan referred to as the "Assumed Plans")
of $1,213,000, $1,471,000, $955,000, $3,125,000, $2,223,000, $1,323,000
and $1,150,000 during fiscal 1993 through 1997 and the six-month periods
ended March 28, 1997 and March 27, 1998, respectively. Upon consummation
of the Offering, the existing option plans will become fixed-award, fair-
value-based plans and the Company will make future stock option grants
pursuant to a newly formed fixed-award stock option plan. Accordingly,
future changes in the market value of the Common Stock will generally not
result in ongoing charges to compensation expense.
(3) Compensation and benefits includes an expense recorded for the
appreciation in book value between the grant date and the exercise date
for stock appreciation rights ("Repurchase SARs") granted under RMI's
book-value-based 1997 Share Repurchase Plan (the "Share Repurchase Plan")
of $66,000 and $135,000 during fiscal 1997 and the six-month period ended
March 27, 1998, respectively. No expenses were incurred during any other
periods since no Repurchase SARs under the Share Repurchase Plan were
outstanding during such periods. The Share Repurchase Plan will terminate
upon consummation of the Offering.
(4) Reflects amounts recorded for benefits under the Key Person Death Benefits
Plan (the "Death Benefits Plan"). The Death Benefits Plan provided for
certain payments to the estates of certain key employee-shareholders upon
their deaths. The Death Benefits Plan was unfunded, but the Company had
accrued amounts totaling $5,000,000 through the end of fiscal 1996 that
were deemed necessary to pay plan benefits. In February 1997, the Board of
Directors of RMI (the "RMI Board") approved the termination of the Death
Benefits Plan and the Company recorded a pretax nonrecurring benefit of
$5,000,000, which reflects the reversal of the amount previously accrued
for plan benefits. The Company had no outstanding obligations or any
future obligations under the Death Benefits Plan at termination date. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Death Benefits Plan."
(5) Basic earnings per share ("Basic EPS") is calculated by dividing net
income by the weighted average number of shares outstanding. Diluted
earnings per share ("Diluted EPS") also includes the dilutive effect of
the issuance of stock options. For the purpose of calculating the dilutive
effect of stock options in Diluted EPS, the Company utilizes the per-share
book value at the end of each corresponding period, as the Share
Repurchase Plan permits selling shareholders to offer their shares to the
Company for redemption at book value as calculated in accordance with the
terms of the Share Repurchase Plan.
(6) Amounts reflected for the six-month periods represent annualized amounts.
(7) Shown as of the end of period.
(8) Adjusted to give effect to the following nonrecurring items, which will be
recorded in the quarter that the Offering is consummated, assuming an
initial public offering price of $15.00 per share: (i) $3,574,000 in
compensation-related stock option expense arising from recognition of the
difference between the estimated market value of the Common Stock, based
on the assumed initial public offering price, and the book value of the
Common Stock immediately preceding the Offering, for all variable-award,
book-value-based stock options estimated to be outstanding on the date of
consummation of the Offering (estimated to be 450,000 stock options),
resulting from conversion of the Assumed Plans from variable-award, book-
value-based plans to fixed-award, fair-value-based plans, (ii) $1,277,000
in compensation expense (net of tax) related to the Share Repurchase Plan
for the difference between the market value of the Common Stock, based on
the assumed initial public offering price, and the book value of the
Common Stock immediately preceding the Offering, for all book-value-based
Repurchase SARs outstanding on the date of consummation of the Offering,
and (iii) the sale by the Company of 1,462,500 shares of Common Stock in
the Offering and the application of the estimated net proceeds therefrom.
(9) Book value per common share outstanding is calculated by dividing total
shareholders' equity by the number of shares of common stock outstanding
as of March 27, 1998, or as described in footnote 8 above.
8
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. Investors should carefully
review the information contained elsewhere in this Prospectus and should
particularly consider the information stated below.
GENERAL RISKS OF THE SECURITIES INDUSTRY
The securities industry, by its nature, is subject to numerous and
substantial risks, including the risk of declines in price level and volume of
transactions, losses resulting from the ownership, trading or underwriting of
securities, risks associated with principal activities, the failure of
counterparties to meet commitments, customer, employee or issuer fraud risk,
litigation, customer claims alleging improper sales practices, errors and
misconduct by brokers, traders and other employees and agents (including
unauthorized transactions by brokers), and errors and failure in connection
with the processing of securities transactions. Many of these risks may
increase in periods of market volatility or reduced liquidity. In addition,
the amount and profitability of activities in the securities industry are
affected by many national and international factors, including economic,
political and market conditions; broad trends in industry and finance; level
and volatility of interest rates; legislative and regulatory changes; currency
values; inflation; and availability of short-term and long-term funding and
capital, all of which are beyond the control of the Company.
Several current trends are also affecting the securities industry, including
increasing consolidation, increasing use of technology, increasing use of
discount and online electronic brokerage services, greater self reliance of
individual investors and greater investment in mutual funds. These trends
could result in the Company's facing increased competition from larger broker-
dealers, a need for increased investment in technology, or potential loss of
customers or reduction in commission income. There can be no assurance that
these trends or future changes will not have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
RISK OF REDUCED REVENUE DURING PERIODS OF LOWER PRICES OR REDUCED TRADING
VOLUME.
The Company's revenue and profitability may be adversely affected by
declines in the volume of securities transactions and in market liquidity,
which generally result in lower revenues from trading activities and
commissions. Lower securities price levels may also result in a reduced volume
of transactions, as well as losses from declines in the market value of
securities held in trading, investment and underwriting positions. In periods
of low volume, the fixed nature of certain expenses, including salaries and
benefits, computer hardware and software costs, communications expenses and
office leases, will adversely affect profitability. Sudden sharp declines in
market values of securities and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets in which the Company
may incur losses in its principal trading and market-making activities.
DEPENDENCE ON, AND ABILITY TO RETAIN AND RECRUIT, KEY PERSONNEL
The Company's business depends on the highly skilled, and often highly
specialized, individuals it employs. Retention of research, sales and trading,
management, investment banking and administrative professionals is
particularly important to the Company's prospects. Highly skilled employees of
brokerage firms, particularly traders, research analysts and retail and
institutional brokers, are currently heavily recruited. The level of
competition for key personnel has increased recently. The loss of a research
or sales and trading professional or key manager, particularly a senior
professional or manager with a broad range of contacts or clients, could
materially adversely affect the Company's results of operations or cash flows.
The Company believes that it will need to increase the number of its
personnel to meet its growth objectives. Competition for employees with the
qualifications desired by the Company is intense, especially with respect to
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research analysts and highly productive sales and trading professionals. The
Company believes that continuing competition may cause its compensation costs
to increase. The failure to recruit and retain new employees in a timely
manner could materially adversely affect the Company's results of operations
or cash flows.
The Company depends on a number of key employees, including Lesa A. Sroufe,
Chief Executive Officer, Robert J. Mortell, Jr., President and Chief Operating
Officer, Mark A. McClure, Executive Vice President, V. Lawrence Bensussen,
Chief Financial Officer, and John L. MacKenzie, an employee and a director.
Although these employees, together with a number of other significant
employees, have entered into limited noncompetition and nonsolicitation
agreements, the majority of the Company's employees are not subject to
noncompetition or nonsolicitation agreements that would prevent them from
leaving and competing with the Company and soliciting clients of the Company.
The Company has historically attempted to attract and retain employees by
offering equity-based incentive compensation arrangements that are tied to the
book value of the Common Stock. After the Offering, the value of stock options
granted by the Company will be tied to the market value of the Common Stock,
which may fluctuate for a variety of reasons, including reasons unrelated to
the Company's performance. There can be no assurance that the incentive
compensation offered by the Company after the Offering will be as effective in
recruiting and retaining personnel as were the Company's prior equity-based
incentive compensation arrangements, particularly if the market price of the
Common Stock declines or fails to appreciate sufficiently.
The Company believes that the structure of its equity-based incentive
compensation arrangements has, in the past, provided employees with
disincentives to terminate employment, due to the Company's rights to
repurchase, at book value, Common Stock held by employees, which has accounted
in part for the Company's low historic turnover rate. Termination of the
Company's repurchase rights, and increased liquidity for employees' shares of
Common Stock upon consummation of the Offering, may substantially reduce the
effectiveness of the Company's compensation arrangements in providing
employees additional incentives to remain with the Company.
RECENT CHANGES TO MANAGEMENT
Although the Company's senior executives have worked together at RMI for
several years, RMI has changed its Chief Executive Officer twice in the past
two years. Brooks G. Ragen served as RMI's Chief Executive Officer from June
1987 to September 1996, at which time he resigned from that position as part
of a succession of management. Mr. Ragen remained as a director of RMI until
May 1998. Upon Mr. Ragen's resignation in 1996, Stanley G. Freimuth, one of
the Company's most productive brokers and the manager of the Company's second
largest office, in Bellevue, Washington, was named Chief Executive Officer.
Mr. Freimuth oversaw the Company's evaluation of its strategic alternatives
and, upon completion of this process and the decision to pursue an initial
public offering, Mr. Freimuth chose to resign and to continue servicing his
brokerage clients and managing the Company's Bellevue office; Mr. Freimuth
worked with management to determine his successor. Lesa A. Sroufe was named
Chief Executive Officer in February 1998 in order to oversee the Company's
transition toward becoming a public company. There can be no assurance that
these changes in management will not have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
In addition, there can be no assurance that management will be able to
successfully implement the Company's growth strategy or that such strategy
will be effective. The inability of management to succeed in such efforts
could have an adverse effect on the Company's business, financial condition,
results of operations or cash flows.
RISKS RELATING TO DEPARTURE OF BROOKS G. RAGEN
Brooks G. Ragen, a founder of RMI's predecessor, RMI's former Chairman and
Chief Executive Officer, RMI's largest shareholder and a senior, highly
productive retail broker with RMI, has entered into a 36-month agreement
commencing upon effectiveness of the Offering pursuant to which he intends to
establish and be employed by a newly formed company that will serve as a
correspondent of RMI. A correspondent of RMI is an independent broker-dealer
which contracts with RMI to clear and execute securities transactions on
behalf of the
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correspondent's customers on a fully disclosed basis, and to maintain
possession or control of all account assets of the correspondent's customers.
The Company believes that after Mr. Ragen's departure, Mr. Ragen or his new
company intends to hire, on or before January 1, 1999, up to two professional
and three administrative employees of the Company, who constitute Mr. Ragen's
current client service team. See "Certain Relationships and Related
Transactions." Mr. Ragen and his client service team's production accounted
for approximately $2.8 million (3.2%) and $1.5 million (2.9%) of RMI's total
revenues in the fiscal year ended September 26, 1997 and the six-month period
ended March 27, 1998, respectively, and it is estimated that Mr. Ragen's
activities accounted for a similar percentage of net income during those
periods. The Company expects that many of Mr. Ragen's customers, several of
which are significant customers of RMI, will become customers of Mr. Ragen's
new company, a correspondent of RMI. The departure of Mr. Ragen could result
in the loss of current and potential new customers. There can be no assurance
that a change in the nature of Mr. Ragen's relationship with the Company will
not, by reason of the loss of retail brokerage clients, corporate finance
referrals, or otherwise, have a material adverse effect on the Company's
business, financial condition, results of operations or cash flows.
DEPENDENCE ON PROPRIETARY RESEARCH
A significant portion of the Company's retail and institutional brokerage
and correspondent business is derived from recommendations made by the
Company's research department. If an investment strategy derived from the buy
and sell recommendations made by the Company's research department were to
underperform key market indices, if clients or brokers otherwise perceived
less value in the Company's research or if the Company's research department
decreased the number of buy and sell recommendations, the volume of the
Company's business could decline, resulting in a loss of clients or brokers or
difficulties in attracting new clients or brokers. In addition, there can be
no assurance that the Company will be able to retain the services of key
members of its research department. Any decline in the perceived value of the
Company's research or in the number of recommendations or the loss of key
members of the Company's research department could have a material adverse
effect on the Company's business, financial condition, results of operations
or cash flows.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenues and operating results may fluctuate from quarter to
quarter and from year to year due to a variety of factors, including the
volume of retail and institutional brokerage transactions (as affected in part
by the number of buy and sell recommendations made by the Company's research
department), market conditions, the performance of stocks recommended by the
Company to retail and institutional clients, results of proprietary trading,
variations in expenditures for personnel, litigation expenses and the expenses
of expanding existing, and entering new, businesses. The Company could
experience declines in net income or losses if demand for its services
declines more quickly than the Company's ability to change its cost structure.
The Company's selective approach to the expansion of its retail brokerage
business may also result in a lack of predictability in revenues and income
growth. Due to the foregoing and other factors, there can be no assurance that
the Company will be able to sustain profitability on a quarterly or annual
basis.
REGIONAL CONCENTRATION
Most of the Company's customers, in particular in the retail brokerage and
correspondent businesses, are located in the Pacific Northwest. In addition,
the Company's research covers approximately 100 Northwest companies, many of
which are in the software, high-technology, biotechnology, retail, aerospace
or natural resources industries. Any significant business disruption or
economic downturn that particularly affects clients or companies in the
Pacific Northwest or the health of the industries concentrated in that region
could have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.
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COMPETITION
The securities industry is intensely competitive. Ragen MacKenzie competes
directly with national and regional full-service broker-dealers and a broad
range of other financial service firms. Many of the Company's competitors have
substantially greater capital and financial and other resources, and greater
name recognition, than the Company. In addition, the Company competes for
assets with a variety of broker-dealers and financial entities, including
mutual funds which have enjoyed significant growth in recent years as many
retail investors have sought the diversification and other perceived benefits
available from such investment vehicles.
Competition has intensified as numerous securities firms have either ceased
operations or have been acquired by or merged into other firms. Such mergers
and acquisitions have increased competition from these firms, many of which
have significantly greater equity capital and financial and other resources
than the Company. Many of these firms, because of their significantly greater
financial capital and scope of operations, are able to offer their customers
more product offerings, broader research capabilities, access to international
markets and other products and services not offered by the Company, which may
provide such firms with competitive advantages over the Company. The
increasing competition and consolidation in the Company's principal businesses
could strengthen the Company's competitors and adversely affect the Company's
business.
The Company also faces competition from companies offering discount and/or
electronic brokerage services, including brokerage services provided over the
Internet. These services represent a rapidly expanding segment of the
securities industry. These competitors may have lower costs or provide fewer
services, and may offer their customers more favorable commissions, fees or
other terms than those offered by the Company. Commissions charged to
customers of discount and electronic brokerage services have steadily
decreased over the past several years, and the Company expects such decreases
to continue. In addition, disintermediation may occur as issuers attempt to
sell their securities directly to purchasers, including sales using electronic
media such as the Internet. To the extent that issuers and purchasers of
securities transact business without the assistance of financial
intermediaries such as the Company, the Company's operating results could be
adversely affected. There can be no assurance that the rapid development of
discount and/or electronic brokerages, the decrease of commissions at such
brokerages and the potential of disintermediation will not have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows. See "Business--Competition."
The Company believes that the principal competitive factors in the
securities industry are the quality and ability of professional personnel, and
relative prices of services and products offered. The Company and many of its
competitors use direct solicitation of potential customers as a means of
increasing business and furnish investment research publications in an effort
to attract existing and potential clients. Many of the Company's competitors
also engage in advertising programs, which the Company does not use to any
significant degree. The Company believes that its ability to compete for
retail customers depends largely upon the skill, reputation and experience of
its retail brokers and the perceived value of its research product. However,
there can be no assurance that these factors will continue to enable the
Company to remain competitive.
MANAGEMENT OF GROWTH OF NEW AND EXISTING BUSINESSES
The Company plans to expand through internal growth and, when the
opportunity arises, may expand through acquisitions into related businesses,
which may include businesses in which the Company may not have prior
experience. Any such expansion could require significant capital resources and
divert management's attention from the Company's existing businesses. There
can be no assurance that the Company will be able to attract the personnel or
expertise necessary for any such expansion, or that any such expansion will be
successful. The failure of any such expansion could have a material adverse
effect on the Company's business, financial condition, results of operations
or cash flows. Over the past several years, the Company has experienced growth
in its business activities and the number of its employees. Ongoing growth
will require the addition of new personnel, particularly retail brokers. There
can be no assurance that management will be able to manage the Company's
growth effectively, and any such failure could have an adverse effect on the
Company's business, financial condition, results of operations or cash flows.
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The Company's growth has required and will continue to require increased
investment in management personnel, financial and management systems and
controls, and facilities, which, in the absence of continued revenue growth,
would cause the Company's operating margins to decline from current levels. In
addition, as is common in the securities industry, the Company is and will
continue to be highly dependent on the effective and reliable operation of its
communications and information systems. The Company believes that significant
future growth may require implementation of new and enhanced communications
and information systems and training of its personnel to operate such systems.
In addition, the scope of procedures for ensuring compliance with applicable
regulations and NASD rules have changed as the size and complexity of the
Company's business has changed. Further growth may require the Company to
implement additional compliance procedures. Any difficulty or significant
delay in the implementation or operation of existing or new systems, or
compliance procedures, or the training of personnel, could adversely affect
the Company's ability to manage growth. See "Business--Accounting,
Administration and Operations."
RISKS OF PROPRIETARY TRADING
The Company engages in proprietary trading of certain fixed income
securities, including U.S. government and agency zero coupon bonds and certain
types of collateralized mortgage obligations ("CMOs"). In its trading
activities, the Company generally acts as a wholesaler, buying round-lot and
odd-lot positions, selling round-lot and odd-lot positions, and acting as a
market-maker in odd-lot positions. In such transactions, the Company acts as a
principal, undertaking the risk of a change in the price of such securities or
being unable to resell such securities or cover short positions. These risks
are exacerbated by the relative illiquidity of many of the securities that the
Company trades, and by the Company's trading of CMOs, which can be more
volatile than other securities as a result of the uncertainty of the timing of
the cash flows from the residential mortgages that underlie such securities.
Any losses from the Company's proprietary trading activities, including as a
result of unauthorized trading by employees of the Company, could have a
material adverse effect on the Company's business, financial condition,
results of operations or cash flows.
It is not possible to hedge completely the risks associated with interest
rate fluctuations for many of the fixed income securities that the Company
trades, primarily because the price movements of financial instruments
typically used to hedge long positions in such securities may not precisely
mirror the price movements of the hedged securities under all market
conditions. Consequently, there can be no assurance that any procedures to
prevent such loss will be successful. Any such loss could have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows. See "Business--Principal Transactions--Proprietary
Trading."
RISK RELATING TO CORRESPONDENT BROKERAGE SERVICES
RMI acts as a clearing broker for 18 correspondents with approximately 435
registered representatives. These correspondents, also known as "introducing
brokers," are licensed broker-dealers which operate sales offices and depend
on RMI for back-office operations, including the execution and clearance of
all trades. RMI does not supervise the sales practices of introducing brokers.
The Company's clearing agreement with its correspondents requires the
introducing brokers to indemnify and hold RMI harmless against any claims that
may result from the sales practices of the introducing brokers. However, there
can be no assurance that the Company will be adequately protected by virtue of
such indemnity obligations against damages that may result from misconduct by
introducing brokers.
In addition, all accounts introduced by correspondents are carried on the
books of RMI. RMI is responsible to such customers for any errors it may
commit in executing trades on their behalf. Errors in performing clearing
functions or reporting could lead to civil penalties imposed by the Securities
and Exchange Commission (the "Commission"), NASD, NYSE and other regulatory
bodies. Errors in the clearing process also may lead to civil liability for
actions in negligence brought by parties who are financially harmed as a
result of clerical errors related to the handling of customer funds and
securities. There can be no assurance that any of such errors will not have a
material adverse effect on the Company's business, financial condition,
results of operations or cash
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flows. Any extensions of credit to such customers are the responsibility of
RMI and expose the Company to risk of loss. See "--Risks of Extension of
Credit." The term "customers," as used in this Prospectus, refers to clients
of RMI, or to clients of correspondents, depending on the context.
The expenses associated with correspondent brokerage services are generally
fixed, and therefore any loss of revenues associated with these services may
have a disproportionate effect on net income. A small number of correspondents
account for a significant portion of the Company's correspondent business, and
the Company has not entered into long-term contracts with its correspondents.
The loss of any of these significant correspondents could have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.
POTENTIAL LOSSES DUE TO FRAUD OR MISTAKES
The Company is exposed to the risk of significant losses as a result of
customer fraud, employee errors, misconduct and fraud (including unauthorized
transactions by traders) and failures in connection with the processing of
securities transactions. There can be no assurance that the Company's risk
management procedures and internal controls will prevent such losses from
occurring.
RISKS OF EXTENSION OF CREDIT
In connection with its clearing and execution services, the Company makes
margin loans to its customers and correspondents' customers that are
collateralized by securities of the recipients of such margin loans, and
periodically borrows securities to cover trades. By permitting the purchase of
securities on margin, the Company is subject to risks inherent in extending
credit, especially during periods of rapidly declining markets in which the
value of the collateral held by the Company could fall below the amount of a
customer's indebtedness secured by such collateral. The Company also from time
to time extends credit to its correspondents to support their trading
activities. Correspondents may not have sufficient capital to repay their
obligations to the Company. In the normal course of business, the Company's
customer and correspondent clearing activities also obligate the Company to
settle transactions with brokers and other financial institutions even if its
customers fail to meet their obligations to the Company. Although customers
are required to complete their transactions on a specified settlement date
(generally three business days after the trade date), the Company may incur
losses if such obligations are not met. In addition, in accordance with
regulatory guidelines, the Company collateralizes borrowings of securities by
depositing cash or securities with lending institutions. Failure to maintain
cash deposit levels at all times at least equal to the value of the related
securities can subject the Company to risk of loss should there be sharp
changes in market values of substantial amounts of securities or parties to
the borrowing transactions fail to honor their commitments. See "Business--
Interest Income and Customer Financing."
REGULATION
RMI's business and the securities industry in general are subject to
extensive regulation in the United States at both the federal and state
levels, as well as by self-regulatory organizations ("SROs") such as the NYSE
and the NASD. In addition, the Commission, the NYSE and various other
regulatory agencies have stringent rules with respect to the protection of
customers and maintenance of specified levels of net capital by broker-
dealers. A significant operating loss or any unusually large charge against
net capital could curtail the Company's ability to expand or even continue its
existing level of business. See "Regulation" and "Net Capital Requirements."
The regulatory environment in which the Company operates is subject to change.
The Company may be adversely affected as a result of new or revised
legislation or regulations imposed by the Commission, other U.S. governmental
regulators or SROs. The Company also may be adversely affected by changes in
the interpretation or enforcement of existing laws and rules by the
Commission, other federal and state governmental authorities and SROs.
RMI is subject to periodic examination by the Commission, SROs and various
state authorities. RMI's sales practice operations, record-keeping,
supervisory procedures and financial position may be reviewed during such
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examinations to determine if they comply with the rules and regulations
designed to protect customers and protect the solvency of broker-dealers.
Examinations may result in the issuance of a letter to RMI noting perceived
deficiencies and requesting RMI to take corrective action. Deficiencies could
lead to further investigation and the possible institution of administrative
proceedings, which may result in the issuance of an order imposing sanctions
upon RMI and/or its personnel. Sanctions against RMI may include a censure,
cease and desist order, monetary penalties or an order suspending RMI for a
period of time from conducting certain or all of its securities operations.
Sanctions against individuals may include a censure, cease and desist order,
monetary penalties or an order restricting the individual's activities or
suspending the individual from association with RMI. In egregious cases, RMI
or its personnel could be expelled from an SRO or barred from the securities
industry. RMI has never been the subject of any administrative proceedings by
the Commission, an SRO or any state authority. However, there can be no
assurance that such proceedings will not be initiated against RMI or its
personnel in the future.
The Company's business may be materially affected not only by regulations
applicable to it as a financial market intermediary, but also by regulations
of general application. For example, the volume and profitability of the
Company's or its customers' trading activities in a specific period could be
affected by, among other things, existing and proposed tax legislation,
antitrust policy and other governmental regulations and policies (including
the interest rate policies of the Federal Reserve Board) and changes in
interpretation or enforcement of existing laws and rules that affect the
business and financial communities. See "Regulation."
RISK OF POTENTIAL NYSE AND NASD ENFORCEMENT PROCEEDINGS
As part of its regular examination cycle, the NYSE inspected RMI in 1997.
Following that inspection, various issues regarding registration and
bookkeeping requirements, order execution procedures and supervision relating
to such requirements and procedures were referred to the NYSE's Division of
Enforcement (the "Division") for further consideration. In addition, the
Commission and NASD Regulation (the "NASDR") are also aware of the issues
raised by the NYSE inspection. The Division, as well as the Commission and the
NASDR, are considering what further steps, if any, to take. Those steps could
include a determination that no enforcement proceeding is appropriate,
undertaking further inquiries, or commencing an enforcement proceeding.
Although the Company believes that there are defenses in connection with these
issues, there can be no assurance that the Division, the NASDR or another
regulator, will not commence an enforcement proceeding. Based on
communications with the NASD, the Company believes that an NASDR enforcement
proceeding may be commenced. If an enforcement proceeding were commenced and
that proceeding were to result in a conclusion that RMI or its employees,
including executives with ultimate supervisory responsibility, violated or
failed to enforce securities rules or regulations, sanctions for such
violations could range from a letter of caution or censure, to financial costs
and penalties or various limitations on firm or employee activity, including
individual suspensions. There can be no assurance that such sanctions,
including suspensions of the Company's employees or executives, would not have
a material adverse effect on the Company's business, financial condition,
results of operations, cash flows or timing of the Offering. See "Regulation."
LITIGATION AND POTENTIAL SECURITIES LAW LIABILITY
Many aspects of the Company's business involve substantial risks of
liability. There has been an increase in litigation and arbitration within the
securities industry in recent years, including class action suits seeking
substantial damages. Broker-dealers such as RMI are subject to claims by
dissatisfied customers, including claims alleging they were damaged by
improper sales practices such as unauthorized trading, churning, sale of
unsuitable securities, use of false or misleading statements in the sale of
securities, mismanagement and breach of fiduciary duty. RMI may be liable for
the unauthorized acts of its retail brokers and independent contractors if it
fails to adequately supervise their conduct. As an underwriter, the Company
may be subject to substantial potential liability under federal and state law
and court decisions, including liability for material misstatements and
omissions in prospectuses or otherwise with respect to securities offerings.
The Company may be required to contribute to a settlement, defense costs or a
final judgment in certain legal proceedings or arbitrations
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involving past underwriting and in actions that may arise in the future. As is
common in the securities industry, the Company does not carry insurance that
would cover any such payments. From time to time, in connection with hiring
retail brokers, the Company is subject to litigation by a broker's former
employer. In addition, the charter documents of Ragen MacKenzie Group
Incorporated and of RMI provide for indemnification of Ragen MacKenzie Group
Incorporated's and RMI's officers and directors. The adverse resolution of any
legal proceedings involving the Company could have a material adverse effect
on its business, financial condition, results of operations or cash flows. See
"Business--Litigation and Potential Securities Law Liability."
MARKET, CREDIT AND LIQUIDITY RISKS ASSOCIATED WITH MARKET-MAKING, PRINCIPAL
TRADING AND UNDERWRITING ACTIVITIES
The Company's market-making, principal trading and underwriting activities
often involve the purchase, sale or short sale of securities as principal.
Such activities subject the Company's capital to significant risks from
markets that may be characterized by relative illiquidity or that may be
particularly susceptible to rapid fluctuations in liquidity. Such market
conditions could limit the Company's ability to resell securities purchased or
to repurchase securities sold short. Such activities subject the Company's
capital to significant risks, including market, credit, counterparty and
liquidity risks. Market risk relates to the risk of fluctuating values based
on market prices without any action on the part of the Company. Credit risk
relates generally to the ability of third parties to whom the Company has
extended credit to repay amounts owed to the Company. Counterparty risk
relates to whether a financial counterparty will fulfill its contractual
obligations, which may include delivery of securities or payment of funds.
Liquidity risk relates to the Company's inability to liquidate assets or
redirect the deployment of assets contained in illiquid investments. In
addition, the Company tends to concentrate its trading positions in a more
limited number of portfolio companies than many other national securities
brokerages, which might result in higher trading losses than would occur if
the Company's positions were less concentrated.
DEPENDENCE ON SYSTEMS
The Company's business is highly dependent on communications and information
systems, primarily systems provided by nationally recognized third-party
vendors. Any failure or interruption of the Company's systems or systems
provided by third-party vendors could cause delays or other problems in the
Company's securities trading activities, which could have a material adverse
effect on the Company's business, financial condition, results of operations
or cash flows. In addition, there can be no assurance that the Company, or
companies that have systems on which the Company's systems rely, will not
suffer any systems failures or interruptions, whether caused by an earthquake,
fire, other natural disaster, power or telecommunications failure, act of God,
act of war or otherwise, or that the Company's backup procedures and
capabilities in the event of any such failure or interruption will be
adequate.
YEAR 2000 COMPLIANCE
Failures and interruptions of the Company's systems or systems provided to
the Company by third-party vendors may result from the inability of certain
systems (including those of the Company and, in particular, those of third-
party vendors to the Company) to recognize the Year 2000. The Company has
undertaken a project to identify and take appropriate actions with respect to
systems that are non-Year 2000 compliant and intends for such actions to be
substantially implemented by the end of 1998. The Company expects that its
total costs of Year 2000 compliance for its systems will not be material.
There can be no assurance, however, that any Year 2000 issue relating to the
Company's systems or those of third-party vendors to RMI will be resolved by
the upcoming turn of the century or that the costs incurred by the Company in
addressing the issue will not exceed its current expectation. The failure of
the Company to implement its Year 2000 corrections in a timely fashion or in
accordance with its current costs estimates, or the failure of other companies
to correct Year 2000 issues or their non-Year 2000 compliant systems on which
the Company's systems rely in a timely fashion, could have a material adverse
effect on the Company's business, financial condition, results of operations
or cash flows. The Company has not sought or obtained insurance coverage for
possible losses or damages as a result of Year 2000 issues or non-Year 2000
compliant systems.
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EARNINGS CHARGES IN QUARTER OFFERING IS CONSUMMATED
In connection with certain events relating to the Offering and upon
consummation of the Offering, the Company will record nonrecurring charges to
earnings, resulting in an estimated net charge to earnings of $4,851,000 in
the quarter in which the Offering is completed, assuming an initial public
offering price of $15.00 per share. Given the magnitude of the net charge, the
Company may report a loss for the quarter in which such charge is incurred.
Upon consummation of the Offering, the Company's existing variable-award,
book-value-based stock option plans will become fixed-award, fair-value-based
plans. Accordingly, the Company will be required to record compensation
expense of approximately $3,574,000 based on the difference between the book
value of the Company's stock immediately preceding the Offering and the
estimated fair market value of the stock (assuming an initial public offering
price of $15.00 per share) for all variable-award, book-value-based stock
options estimated to be outstanding on the date of the Offering (estimated to
be 450,000 stock options). Future stock options will be granted as fixed-award
stock options under the Company's 1998 Plan. Upon consummation of the
Offering, the Company will also record compensation expense (net of tax) in
the amount of $1,277,000 (assuming an initial public offering price of $15.00
per share), which reflects the increase in the value of the Repurchase SARs
outstanding under the Share Repurchase Plan. The Share Repurchase Plan will
terminate upon consummation of the Offering, at which time the Company's
liabilities under the Share Repurchase Plan will be determinable and final.
See footnote 8 to the table set forth in "Prospectus Summary--Summary
Financial Information" and Note 15 of the Company's Notes to Consolidated
Financial Statements.
CONSTRAINTS IMPOSED BY NET CAPITAL REQUIREMENTS
The Commission, the NYSE, and various other securities exchanges and other
regulatory bodies in the United States have rules with respect to net capital
requirements that affect RMI as a broker-dealer. These rules are designed to
ensure that broker-dealers maintain adequate regulatory capital in relation to
their liabilities and their business activities. These rules (the "Net Capital
Requirement Rules") have the effect of requiring that a substantial portion of
a broker-dealer's assets be kept in cash or highly liquid investments. Failure
to maintain the required net capital may subject a firm to suspension or
revocation of its registration by the Commission and suspension or expulsion
by the NASD and other regulatory bodies, and ultimately may require its
liquidation. Compliance by RMI with such Net Capital Requirement Rules could
limit certain operations that require intensive use of capital, such as
underwriting or trading activities. The Net Capital Requirement Rules could
also restrict the ability of the Company to withdraw capital, even in
circumstances where RMI has more than the minimum amount of required capital,
which, in turn, could limit the ability of the Company to pay dividends,
implement its strategies, pay interest on and repay the principal of its debt
and redeem or repurchase shares of outstanding capital stock. In addition, a
change in such Net Capital Requirement Rules or the imposition of new rules
affecting the scope, coverage, calculation or amount of such net capital
requirements, or a significant operating loss or any large charge against net
capital, could have similar adverse effects.
RISKS OF UNDERWRITTEN TRANSACTIONS
RMI from time to time participates in corporate and, to a lesser extent,
municipal securities distributions as a co-manager of an underwriting
syndicate or as a member thereof, or as a member of a selling group.
Underwriting syndicate or selling group participation involves economic and
regulatory risks. Underwriting syndicates agree to purchase securities at a
discount from the public offering price. If the securities are sold below the
syndicate cost, an underwriter is exposed to losses on the securities it has
committed to purchase. In some cases, as a result of illiquid markets, an
underwriter may be unable to resell securities it has committed to purchase.
In the past several years, investment banking firms have increasingly
underwritten offerings with fewer syndicate participants or, in some cases,
without an underwriting syndicate. In addition, under federal securities laws,
other laws and court decisions, an underwriter is exposed to substantial
potential liability for material misstatements or omissions of fact in the
prospectus used to describe the securities being offered. Losses resulting
from underwritten transactions, particularly as a result of securities
litigation, could have a material
17
<PAGE>
adverse effect on the Company's business, financial condition, results of
operations or cash flows. See "Business--Investment Banking and Underwriting."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND EMPLOYEES
The Company's directors and executive officers, in the aggregate, and the
Company's employees, in the aggregate, will beneficially own approximately
15.2% and 75.2%, respectively, of the outstanding shares of Common Stock after
the Offering (approximately 15.2% and 72.8%, respectively, if the
Underwriters' over-allotment option is exercised in full). As a result, the
Company's directors, executive officers and employees, acting together, would
be able to significantly influence or control many matters requiring approval
by the shareholders of the Company, including, without limitation, the
election of directors and approval of significant corporate transactions, and
will have power to prevent shareholder action or approvals requiring a
majority vote. In addition, this concentration of ownership and voting power
may have the effect of accelerating, delaying or preventing a change in
control of the Company or otherwise affect the ability of any shareholder to
influence the policies of the Company. See "Management."
RISKS TO COMPANY OF REGULATED SUBSIDIARY
Substantially all of the Company's revenues will be generated by RMI. Ragen
MacKenzie Group Incorporated, the issuer of the shares offered hereby, will
rely exclusively on distributions from RMI for funds to pay dividends,
implement its strategies and redeem or repurchase shares of outstanding
capital stock. Ragen MacKenzie Group Incorporated's ability to receive
distributions from RMI may be limited by the Net Capital Requirement Rules,
restrictions that may be imposed by any borrowing arrangements, or by the
earnings, financial condition and cash requirements of RMI. Additionally,
there can be no assurance that RMI will be able to obtain funds through
financing activities. These factors may impose limitations on or prevent Ragen
MacKenzie Group Incorporated from paying dividends, implementing its
strategies or repurchasing shares of its capital stock.
ANTITAKEOVER CONSIDERATIONS
Ragen MacKenzie Group Incorporated's Board of Directors (the "RMGI Board")
has the authority to issue up to 10,000,000 shares of Preferred Stock,
$.01 par value per share (the "Preferred Stock"), in one or more series and to
fix the designations, preferences, limitations and relative rights with
respect to such shares without any further vote or action by Ragen MacKenzie
Group Incorporated's shareholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. This
authority, together with certain provisions of Ragen MacKenzie Group
Incorporated's Amended and Restated Articles of Incorporation (the "Articles")
and Bylaws, may have the effect of making it more difficult for a third party
to acquire, or discouraging a third party from attempting to acquire, control
of Ragen MacKenzie Group Incorporated, even if shareholders may consider such
a change in control to be in their best interests. In addition, Washington law
contains certain provisions that may have the effect of delaying, deterring or
preventing a hostile takeover of Ragen MacKenzie Group Incorporated. See
"Description of Capital Stock."
CONFLICTS OF INTEREST FROM SELF-UNDERWRITING
Raymond James & Associates, Inc. ("Raymond James") and RMI are acting as the
representatives of the Underwriters (the "Representatives"). Accordingly,
underwriting discounts and commissions received by RMI will benefit the
Company. As the parent company of Ragen MacKenzie Group Incorporated before
the Reorganization and a wholly owned subsidiary of Ragen MacKenzie Group
Incorporated after the Reorganization, RMI's role as one of the
Representatives will create certain conflicts of interest. Pursuant to Rule
2720 of the Conduct of Rules of the NASD, Raymond James, which does not have
such a conflict, will act as a "Qualified Independent Underwriter" in the
Offering. See "Underwriting--Determination of Price."
18
<PAGE>
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or,
if developed, will be sustained following the Offering. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and the Underwriters in accordance with the recommendation of
Raymond James, in its role as a "Qualified Independent Underwriter," and may
not be indicative of the market price of the Common Stock after the Offering.
For a discussion of the factors to be considered in determining the initial
public offering price, see "Underwriting-- Determination of Price." Certain
factors, such as sales of Common Stock into the market by existing
shareholders, fluctuations in operating results of the Company or its
competitors, market conditions generally for equity securities of similar
companies and market conditions generally for companies in the securities
industry could cause the market price of the Common Stock to fluctuate
substantially. In addition, the market prices of many securities have been
highly volatile in recent years, often as a result of factors unrelated to a
company's operations. Accordingly, the market price of the Common Stock may
decline even if the Company's results of operations or prospects have not
changed.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 12,490,309 shares of
Common Stock outstanding (assuming no further exercises of outstanding vested
options to acquire Common Stock after May 21, 1998). As of May 21, 1998, there
were 1,027,866 shares issuable upon exercise of outstanding vested options.
All of the shares of Common Stock outstanding immediately prior to the
Offering were registered in connection with the Reorganization on a
registration statement on Form S-4. Common Stock received by nonaffiliates of
Ragen MacKenzie Group Incorporated or RMI in the Reorganization or purchased
in the Offering are freely resalable without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), unless subject to restrictions
on resale under lock-up agreements with the Underwriters. Approximately
10,519,808 shares, including shares issuable upon exercise of outstanding
vested options, are subject to lock-up agreements in addition to any notice,
manner of sale and volume restrictions that may be imposed on affiliates of
Ragen MacKenzie Group Incorporated or of RMI by Rule 145, with respect to
shares received in the Reorganization, and on affiliates of Ragen MacKenzie
Group Incorporated by Rule 144, with respect to shares purchased in the
Offering or acquired upon exercise of options registered after the Offering.
Under the lock-up agreements, the Company, all executive officers and
directors of the Company, the Selling Shareholders and certain other holders
of Common Stock have agreed not to sell, directly or indirectly, or, in
certain circumstances, have agreed to restrict sales of, during certain
periods, any shares owned by them without the prior written consent of Raymond
James. An aggregate of approximately 10,519,808 shares, including shares
issuable upon exercise of outstanding vested options, are subject to such
lock-up agreements. Of these shares, the following number of shares will be
available for sale free of the lock-up agreements at the following times,
subject to, in certain instances, the resale limitations of Rules 144 and 145:
160,321 shares 90 days following the closing of the Offering, 2,165,291
additional shares 180 days following the closing of the Offering,
616,169 additional shares 270 days following the closing of the Offering and
7,578,027 additional shares 360 days following the closing of the Offering.
Raymond James may, in its sole discretion, and at any time without notice,
release all or any portion of the shares subject to the lock-up agreements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act immediately following the consummation of the Reorganization to
register the future issuance of shares of Common Stock under the Assumed
Plans, the 1998 Stock Incentive Compensation Plan (the "1998 Plan") and the
Employee Stock Purchase Plan (the "Form S-8"). Shares issued under the Assumed
Plans, the 1998 Plan and the Employee Stock Purchase Plan after the effective
date of the Form S-8 will be freely tradeable in the open market, unless
subject to the lock-up agreements and, in the case of sales by affiliates of
Ragen MacKenzie Group Incorporated, to certain requirements of Rule 144. As of
May 21, 1998, options to purchase approximately 1,027,866 such shares of
Common Stock were vested.
19
<PAGE>
The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that such sales
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the prospect of such
sales, could adversely affect the market price of the Common Stock or the
future ability of the Company to raise capital through an offering of equity
securities. See "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of $7.02 per share in net tangible book value, as
adjusted, based on an assumed initial public offering price of $15.00 per
share. To the extent that currently outstanding options to purchase Common
Stock are exercised, purchasers of Common Stock will experience additional
dilution. See "Dilution."
THE COMPANY
Ragen MacKenzie Group Incorporated, a Washington corporation, was
incorporated in April 1998 to serve as a holding company for all of the
operations of RMI pursuant to the Reorganization. RMI was incorporated as a
Washington corporation in 1987, the year in which it succeeded to the business
of Cable, Howse & Ragen, a Washington limited partnership formed in 1982. The
Reorganization will take place prior to the completion of the Offering.
Following the Reorganization, the Company will operate as a holding company
and will be the sole shareholder of RMI. Unless the context otherwise
requires, (i) references to "Ragen MacKenzie" and the "Company" refer to Ragen
MacKenzie Group Incorporated and its predecessor and subsidiary, RMI, and
(ii) the information in this Prospectus assumes consummation of the
Reorganization without exercise of dissenters' rights.
The Company's executive offices are located at 999 Third Avenue, Suite 4300,
Seattle, Washington 98104, and its telephone number is (206) 343-5000.
REORGANIZATION
Prior to the completion of the Offering, RMI will merge with and into a
wholly owned subsidiary of Ragen MacKenzie Group Incorporated for the purpose
of creating a holding company structure with Ragen MacKenzie Group
Incorporated as the parent corporation of RMI. Shareholders who were
previously shareholders of RMI immediately prior to the Reorganization (other
than those who properly exercise dissenters' rights) will become shareholders
of Ragen MacKenzie Group Incorporated immediately after the Reorganization.
The primary purposes of the Reorganization are to provide flexibility for the
business operations and management of the Company and to broaden the Company's
alternatives for future financing.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 1,462,500
shares of Common Stock in the Offering, assuming an initial public offering
price of $15.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$19.2 million. The Company intends to use the net proceeds to pay down current
short-term borrowings that bear interest at 5.9% as of March 27, 1998. The
Company intends to use the increased borrowing capacity that will be made
available as a result of such pay-down of short-term borrowings for working
capital and other general corporate purposes, including expansion of the
Company's research department and retail brokerage and correspondent
businesses, possible expansion into related securities businesses and possible
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The Company will not receive any proceeds from shares of Common Stock sold
by the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has not previously paid dividends on its Common Stock and has no
present intention to pay dividends in the future. The timing and amount of
future dividends, if any, will be determined by the RMGI Board and will
depend, among other factors, on the Company's earnings, financial condition
and cash requirements at the time such payment is considered.
21
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization as of March 27,
1998, and as adjusted to give effect to (i) nonrecurring charges that will be
recorded in the quarter that the Offering is completed and (ii) the sale by
the Company of 1,462,500 shares of Common Stock in the Offering at an assumed
initial public offering price of $15.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses, and
application of the estimated net proceeds therefrom. See footnote 8 to the
table set forth in "Prospectus Summary--Summary Financial Information."
<TABLE>
<CAPTION>
MARCH 27, 1998
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings..................................... $ 56,900 $ 39,662
Long-term debt............................................ -- --
Shareholders' equity:
Preferred Stock: $0.01 par value per share; 10,000,000
shares authorized, none outstanding.................... -- --
Common Stock: $0.01 par value per share; 50,000,000
shares authorized; 10,790,870 shares issued and
outstanding, actual; 12,253,370 shares issued and
outstanding, as adjusted(1)............................ 108 123
Additional paid-in capital.............................. 22,950 45,711
Retained earnings....................................... 56,824 51,973
-------- --------
Total shareholders' equity............................ 79,882 97,807
-------- --------
Total capitalization.................................. $136,782 $137,469
======== ========
</TABLE>
- --------
(1) Based on shares outstanding at March 27, 1998. Does not include (i)
1,231,255 shares of Common Stock issuable upon the exercise of stock
options outstanding and exercisable under the Company's stock option plans
as of March 27, 1998 with a weighted average per share exercise price of
$5.21 and (ii) 605,555 shares of Common Stock issuable upon the exercise
of stock options that the Company has agreed to issue upon satisfaction of
certain performance goals or that have been issued and will vest upon
satisfaction of certain performance goals.
22
<PAGE>
DILUTION
As of March 27, 1998, the Company's net tangible book value was
approximately $79,882,000, or $7.40 per share of Common Stock. Net tangible
book value per share represents the Company's total assets less intangible
assets less total liabilities divided by the number of shares of Common Stock
outstanding. Without taking into account any other changes in net tangible
book value, as adjusted, after March 27, 1998, other than to give effect to
(i) the nonrecurring charges that will be recorded in the quarter that the
Offering is completed (see footnote 1 below) and (ii) the sale by the Company
of 1,462,500 shares of Common Stock in the Offering at an assumed initial
public offering price of $15.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses, and the receipt by
the Company of the estimated net proceeds therefrom (see footnote 8 to the
table set forth in "Prospectus Summary--Summary Financial Information"), the
net tangible book value of the Company as of March 27, 1998, as adjusted,
would have been approximately $97.8 million, or $7.98 per share. This
represents an immediate increase in net tangible book value, as adjusted, of
$0.58 per share to existing shareholders and an immediate dilution of $7.02
per share to purchasers of shares of Common Stock in the Offering, as
illustrated by the following:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $15.00
Net tangible book value per share as of March 27, 1998........ $7.40
Net tangible book value per share as of March 27, 1998, as
adjusted(1).................................................. 7.28
-----
Increase per share attributable to new investors.............. .70
-----
Net tangible book value per share after the Offering, as
adjusted(2).................................................... 7.98
------
Dilution per share to new investors............................. $ 7.02
======
</TABLE>
The following table summarizes as of March 27, 1998, after giving effect to
the Offering, the differences between existing shareholders and purchasers of
shares of Common Stock in the Offering with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:
<TABLE>
<CAPTION>
SHARES
PURCHASED(3)(4) TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.. 10,790,870 88.1% $15,417,868 41.2% $1.43
New investors.......... 1,462,500 11.9 21,937,500 58.8 15.00
---------- ----- ----------- -----
Total................ 12,253,370 100.0% $37,355,368 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Adjusted to give effect to the following nonrecurring items, which will be
recorded in the quarter that the Offering is consummated, assuming an
initial public offering price of $15.00 per share: (i) $3,574,000 in
compensation-related stock option expense arising from recognition of the
difference between the estimated market value of the Common Stock, based
on the assumed initial public offering price, and the book value of the
Common Stock immediately preceding the Offering, for all variable-award,
book-value-based stock options estimated to be outstanding on the date of
consummation of the Offering (estimated to be 450,000 stock options),
resulting from conversion of the Assumed Plans from variable-award, book-
value-based plans to fixed-award, fair-value-based plans, and (ii)
$1,277,000 in compensation expense (net of tax) related to the Share
Repurchase Plan for the difference between the market value of the Common
Stock, based on the assumed initial public offering price, and the book
value of the Common Stock immediately preceding the Offering, for all
book-value-based Repurchase SARs outstanding on the date of consummation
of the Offering.
(2) See footnote 8 to "Prospectus Summary--Summary Financial Information."
(3) Based on shares outstanding at March 27, 1998. Does not include (i)
1,231,255 shares of Common Stock issuable upon the exercise of stock
options outstanding and exercisable under the Company's stock option
23
<PAGE>
plans as of March 27, 1998 with a weighted average per share exercise price
of $5.21 and (ii) 605,555 shares of Common Stock issuable upon the exercise
of stock options that the Company has agreed to issue upon satisfaction of
certain performance goals or that have been issued and will vest upon
satisfaction of certain performance goals.
(4) The above table is based on ownership as of March 27, 1998. Sales by the
Selling Shareholders in the Offering will reduce the number of shares held
by existing shareholders to 10,003,370 shares, or 81.6% (78.9% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after the Offering, and will
increase the number of shares held by new investors to 2,250,000 shares,
or 18.4% (21.1% if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock outstanding after the
Offering. See "Principal and Selling Shareholders."
24
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified in their entirety by,
and should be read in conjunction with, the Consolidated Financial Statements
of the Company and the Notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this Prospectus. The statements of income data for each of the fiscal years
in the three-year period ended September 26, 1997 and the balance sheets data
as of September 27, 1996 and September 26, 1997 have been derived from the
audited financial statements of the Company, which were audited by Deloitte &
Touche LLP, independent auditors, as indicated in their report included
elsewhere in this Prospectus. The statements of income data for fiscal 1993
and 1994 and the balance sheets data as of September 24, 1993, September 30,
1994 and September 29, 1995 are derived from audited financial statements that
are not included herein. The statements of income data and the balance sheets
data as of and for the six-month periods ended March 28, 1997 and March 27,
1998 are derived from unaudited financial statements included herein which, in
the opinion of management of the Company, reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
financial data for such periods. The results of operations for the six-month
period ended March 27, 1998 are not necessarily indicative of results that may
be expected for any other interim period or for the full year. The Company
utilizes a 52- or 53-week fiscal year ending on the Friday on or immediately
prior to September 30. Fiscal 1994 was a 53-week year and fiscal 1993 and
fiscal 1995 through 1997 were 52-week years. The six-month periods ended March
28, 1997 and March 27, 1998 each contain 26 weeks.
<TABLE>
<CAPTION>
SIX-MONTH
FISCAL YEAR ENDED PERIOD ENDED
------------------------------------------------- -------------------
SEPT. 24, SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, MARCH 28, MARCH 27,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Principal transactions,
net.................... $18,335 $20,412 $21,683 $23,526 $23,566 $11,240 $12,912
Commissions............. 17,986 18,275 19,553 28,516 30,758 14,588 17,821
Other................... 2,577 3,814 2,524 3,569 4,078 2,219 3,034
------- ------- ------- ------- ------- ------- -------
Total operating
revenues.............. 38,898 42,501 43,760 55,611 58,402 28,047 33,767
Interest income......... 7,876 11,316 18,641 24,210 30,179 13,932 18,365
------- ------- ------- ------- ------- ------- -------
Total revenues......... 46,774 53,817 62,401 79,821 88,581 41,979 52,132
Interest expense........ 4,876 6,978 13,052 16,230 19,694 9,138 12,154
------- ------- ------- ------- ------- ------- -------
Net revenues........... 41,898 46,839 49,349 63,591 68,887 32,841 39,978
------- ------- ------- ------- ------- ------- -------
Non-interest expenses:
Compensation and
benefits(1)(2)......... 23,053 25,419 25,925 33,924 35,176 16,878 20,728
Key person death
benefits plan(3)....... 1,150 800 2,450 -- (5,000) (5,000) --
Occupancy and equipment. 3,725 3,921 3,949 3,938 4,714 2,097 2,641
Communications.......... 2,028 2,620 2,588 2,776 3,276 1,528 1,774
Clearing and exchange
fees................... 1,938 1,963 2,282 2,344 2,338 1,161 1,428
Other................... 2,028 2,359 2,381 3,854 3,534 1,837 1,634
------- ------- ------- ------- ------- ------- -------
Total non-interest
expenses.............. 33,922 37,082 39,575 46,836 44,038 18,501 28,205
------- ------- ------- ------- ------- ------- -------
Income before taxes on
income................. 7,976 9,757 9,774 16,755 24,849 14,340 11,773
Taxes on income......... 3,109 3,752 3,672 6,254 9,460 5,348 4,518
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 4,867 $ 6,005 $ 6,102 $10,501 $15,389 $ 8,992 $ 7,255
======= ======= ======= ======= ======= ======= =======
Earnings per common
share(4):
Basic.................. $ 0.68 $ 0.79 $ 0.73 $ 1.10 $ 1.54 $ 0.91 $ 0.70
Diluted................ 0.63 0.72 0.68 1.04 1.44 0.85 0.66
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX-MONTH
AS OF AND FOR THE FISCAL YEAR ENDED PERIOD ENDED
-------------------------------------------- -------------------
SEPT. SEPT. SEPT. SEPT. SEPT. MARCH 28, MARCH 27,
24, 1993 30, 1994 29, 1995 27, 1996 26, 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Pretax income as a
percentage of net
revenues............... 19.0% 20.8% 19.8% 26.3% 36.1% 43.7% 29.4%
Annual return on average
equity(5).............. 29.1% 25.0% 18.5% 23.3% 25.1% 31.1% 19.3%
Assets in retail
brokerage accounts (in
millions)(6)........... N/A N/A $4,629 $5,862 $8,806 $6,571 $9,190
Number of employees(6).. 216 221 232 245 271 256 287
Number of retail
brokers(6)............. 56 62 65 65 74 67 78
BALANCE SHEETS DATA (IN
THOUSANDS):
Total assets............ $310,139 $300,868 $436,068 $483,968 $665,877 $596,936 $697,314
Subordinated debentures. 1,148 815 -- -- -- -- --
Shareholders' equity.... 20,020 28,096 37,776 52,523 70,248 63,008 79,882
</TABLE>
- --------
(1) Compensation and benefits includes a nondeductible expense recorded for
the appreciation in book value between the option grant date and the
option exercise date for stock options granted under the Assumed Plans of
$1,213,000, $1,471,000, $955,000, $3,125,000, $2,223,000, $1,323,000 and
$1,150,000 during fiscal 1993 through 1997 and the six-month periods
ended March 28, 1997 and March 27, 1998, respectively. Upon consummation
of the Offering, the existing option plans will become fixed-award, fair-
value-based plans and the Company will make future stock option grants
pursuant to a newly formed fixed-award stock option plan. Accordingly,
future changes in the market value of the Common Stock will generally not
result in ongoing charges to compensation expense.
(2) Compensation and benefits includes an expense recorded for the
appreciation in book value between the grant date and the exercise date
for the Repurchase SARs granted under RMI's book-value-based Share
Repurchase Plan of $66,000 and $135,000 during fiscal 1997 and the six-
month period ended March 27, 1998, respectively. No expenses were
incurred during any other periods since no Repurchase SARs under the
Share Repurchase Plan were outstanding during such periods. The Share
Repurchase Plan will terminate upon consummation of the Offering.
(3) Reflects amounts recorded for benefits under the Death Benefits Plan. The
Death Benefits Plan provided for certain payments to the estates of
certain key employee-shareholders upon their deaths. The Death Benefits
Plan was unfunded, but the Company had accrued amounts totaling
$5,000,000 through the end of fiscal 1996 that were deemed necessary to
pay plan benefits. In February 1997, the RMI Board approved the
termination of the Death Benefits Plan and the Company recorded a pretax
nonrecurring benefit of $5,000,000, which reflects the reversal of the
amount previously accrued for plan benefits. The Company had no
outstanding obligations or any future obligations under the Death
Benefits Plan at termination date. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Death Benefits
Plan."
(4) Basic EPS is calculated by dividing net income by the weighted average
number of shares outstanding. Diluted EPS also includes the dilutive
effect of the issuance of stock options. For the purpose of calculating
the dilutive effect of stock options in Diluted EPS, the Company utilizes
the per-share book value at the end of each corresponding period as the
Share Repurchase Plan permits selling shareholders to offer their shares
to the Company for redemption at book value as calculated in accordance
with the terms of the Share Repurchase Plan.
(5) Amounts reflected for the six-month periods represent annualized amounts.
(6) Shown as of end of period.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with "Selected
Financial Data" and the Company's consolidated financial statements and the
related notes thereto included elsewhere in this Prospectus. In addition to
historical information, the following contains certain forward-looking
statements that involve known and unknown risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements as a result of certain factors, including
those discussed in "Risk Factors," "Business" and elsewhere in this
Prospectus.
OVERVIEW
Ragen MacKenzie is the leading regional brokerage firm headquartered in the
Pacific Northwest. The Company's primary business is retail securities
brokerage, which it conducts through its Seattle headquarters and 10
additional offices in Washington, Oregon and Alaska, which include four
offices operated by independent contractors. This business is directly
supported by the Company's proprietary research efforts, which are based on a
value-oriented, contrarian approach to investing. The Company's research
department covers approximately 100 publicly traded companies headquartered in
the Pacific Northwest and maintains the Recommended List, which includes
selected regional and national stocks. Other aspects of the Company's business
include proprietary trading of certain fixed income securities, institutional
brokerage services, correspondent brokerage services and investment banking
services.
The Company has experienced significant revenue growth over the past five
years while increasing profitability. Total revenues have increased at a
compound annual growth rate of 17.3% from fiscal 1993 through fiscal 1997,
from $46.8 million to $88.6 million. The Company's significant revenue growth
is due in part to growth in customer assets and number of customer accounts,
increases in the number and productivity of retail brokers and the substantial
increases in stock values over the past several years. The Company's customer
account balances doubled from $4.6 billion in September 1995 to $9.2 billion
in March 1998. The Company's net income increased from $4.9 million to $15.4
million from fiscal 1993 through fiscal 1997, and its pretax profit margin
increased from 19.0% to 36.1% from fiscal 1993 to fiscal 1997. Results of
operations during these periods reflected accruals and reversal of amounts
provided under the Death Benefits Plan, which was terminated in 1997. Amounts
provided for benefits accrued under the plan in 1993 resulted in a decrease in
margins from 21.8% to 19.0% for that year. The reversal of the amounts
previously accrued under the plan upon its termination resulted in an increase
in margins in 1997 from 28.8% to 36.1%. See "--Death Benefits Plan."
The Company's profitability is affected by many factors, including retail
brokerage activities, which generate revenues from customer trading activity
and interest on customer assets held by the Company pending investment,
changes in the number and productivity of the retail brokers, the level of
securities trading volume, the volatility of securities prices and interest
rates, economic conditions nationally and in the Pacific Northwest, income tax
legislation and the general level of market prices for securities. While the
Company's compensation expense is variable, many of its activities have fixed
operating costs that do not decrease with reduced levels of activity.
The increase in the Company's profitability over the last five years has
been principally due to the growth in the number of retail brokers from 51 to
78 from the beginning of fiscal 1993 to March 27, 1998, an increase in broker
productivity from $390,000 in fiscal 1993 to $560,000 for the 12-month period
ended March 27, 1998, increases in customer account balances, increases in the
Company's proprietary trading activities and a focus on containing expenses.
The Company's profitability is also affected by changes in the volume of its
correspondent business. As a substantial portion of the expenses associated
with the Company's correspondent brokerage services are fixed, changes in
revenues associated with these services may have a disproportionate impact on
net income.
27
<PAGE>
During the six-month period ended March 27, 1998, the Company experienced
increased levels of revenues compared to the corresponding period in fiscal
1997. In particular, revenues in RMI's retail brokerage business grew 20.5%,
primarily due to significant growth in trading volume, an increase in average
gross revenues per broker, and growth in the number of retail brokers over the
comparative period. While the increase in trading volume generally resulted
from market fluctuations during the quarter ended December 31, 1997, the
addition of new brokers during the second half of fiscal 1997 contributed to
the overall growth in retail revenues during the six-month period ended March
27, 1998. Additionally, the annualized percentage increase in revenues and net
income of RMI's U.S. government and agency zero coupon bond trading operation
in the first six months of fiscal 1998 was higher than in prior periods,
resulting in part from continued improvements to trading systems, including
adding new features to an existing automatic order system, and to the
opportunistic reconstitution of certain U.S. government and agency zero coupon
bonds.
Declining interest rates and an improving economic environment contributed
to a significant increase in activity in the equity markets in the United
States during the latter part of 1995, which continued throughout 1996 and
1997. The Company's financial results have been and may continue to be subject
to fluctuations due to the factors described above, or other factors.
Consequently, the results of operations for a particular period may not be
indicative of results to be expected for other periods.
Brooks G. Ragen has entered into a 36-month agreement commencing on the
closing of the Offering pursuant to which he has indicated that he intends to
establish and be employed by a newly formed company that will serve as a
correspondent of RMI. See "Risk Factors--Risks Relating to Departure of Brooks
G. Ragen" and "Certain Relationships and Related Transactions." Mr. Ragen and
his client service team's production accounted for approximately $2.8 million
(3.2%) and $1.5 million (2.9%) of RMI's total revenues in the fiscal year
ended September 26, 1997 and the six-month period ended March 27, 1998,
respectively, and it is estimated that Mr. Ragen's team accounted for a
similar percentage of net income during those periods. The Company believes
that, during the term of the agreement, the effect on net income of Mr.
Ragen's customers moving their business from RMI to the new company will be
negligible, as the Company believes the resulting net reduction in revenues
will be offset by the resulting reduction in expenses. For a discussion of
other risks associated with Mr. Ragen's departure and other changes in
management, see "Risk Factors--Recent Changes to Management."
DEATH BENEFITS PLAN
In 1992, the Company adopted the Death Benefits Plan, which provided for the
payment of supplemental benefits to the heirs of certain employee-shareholders
in the event of their deaths. Benefits to be paid under the provisions of the
Death Benefits Plan were determined as a function of the employee-
shareholder's ownership of Common Stock and were to be provided to the heirs
as a supplement to payments made by the Company in conjunction with the
redemption of the book-value-based Common Stock. Provisions in the aggregate
amount of $5,000,000 were made in fiscal 1992 through 1996 to record the
obligation under the Death Benefits Plan.
In February 1997, the Company adopted the Share Repurchase Plan pursuant to
which certain employees may elect to receive a right to a Repurchase SAR upon
the redemption of the shareholder's Common Stock. The amount to be paid to the
Repurchase SAR holder is generally determined as the appreciation in the
Common Stock over the two-year period subsequent to the Repurchase SAR grant
date. As the Share Repurchase Plan served to provide additional liquidity in
the Company's Common Stock, the Company elected to terminate the Death
Benefits Plan. Accordingly, the previously established accruals under the
Death Benefits Plan were reversed, resulting in a reduction of non-interest
expenses of $5,000,000 in the second quarter of fiscal 1997. The Share
Repurchase Plan will terminate upon consummation of the Offering.
As the operation of the Death Benefits Plan has resulted in significant
charges and credits to results of operations that will not continue in the
future, the following information is provided to present information regarding
the financial results of the Company, excluding the effects of the Death
Benefits Plan, to assist in the future analysis of results and trends.
Management believes that this is useful information; however, this
28
<PAGE>
presentation is not in conformity with generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to the GAAP
presentation. Upon consummation of the Offering, certain other costs of
operating as a public company will be incurred in the future that are not
reflected in this presentation.
<TABLE>
<CAPTION>
SIX-MONTH
FISCAL YEAR ENDED PERIOD ENDED
------------------------------------------------- -------------------
SEPT. 24, SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, MARCH 28, MARCH 27,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical income before
taxes on income........ $7,976 $ 9,757 $ 9,774 $16,755 $24,849 $14,340 $11,773
Adjusted for accrual
(reversal) of Death
Benefits Plan.......... 1,150 800 2,450 -- (5,000) (5,000) --
------ ------- ------- ------- ------- ------- -------
Historical income before
taxes, as revised...... 9,126 10,557 12,224 16,755 19,849 9,340 11,773
Taxes on income,
adjusted to eliminate
effect of Death
Benefits Plan.......... 3,500 4,024 4,529 6,254 7,710 3,598 4,518
------ ------- ------- ------- ------- ------- -------
Adjusted net income..... $5,626 $ 6,533 $ 7,695 $10,501 $12,139 $ 5,742 $ 7,255
====== ======= ======= ======= ======= ======= =======
Historical net income as
reported............... $4,867 $ 6,005 $ 6,102 $10,501 $15,389 $ 8,992 $ 7,255
====== ======= ======= ======= ======= ======= =======
</TABLE>
COMPONENTS OF REVENUES AND EXPENSES
Operating Revenues. The Company's revenues are derived primarily from
principal transactions, commissions and interest income. Principal
transactions revenues include net revenues from the trading of securities by
RMI as a principal, including sales credits and trading profits or losses, and
are primarily derived from RMI's activities as a market-maker on Nasdaq and
facilitating sales to customers and other dealers. Additionally, RMI derives
principal transactions revenues from trading debt securities, primarily as
part of its wholesale trading activity and for the benefit of its retail
customers. Principal transactions revenues are affected primarily by
fluctuations in transaction volume as well as by changes in the market value
of securities for which RMI acts as principal. Commissions revenues include
revenues resulting from executing transactions in securities as an agent and
selling concessions on underwriting transactions. Other revenues include
primarily fees from investment advisory services and investment banking
revenues (other than selling concessions).
Interest. Interest income is derived principally from investing customer
credit balances, administrative fees earned on customer money-market accounts,
lending to customers on margin and trading inventories. Interest expense
reflects interest paid on customer credit balances and interest paid on bank
loans and security repurchase agreements used to finance U.S. government,
agency and mortgage-backed securities inventory.
Non-Interest Expenses. Compensation and benefits expenses include sales
commissions, trading and incentive compensation, which are primarily variable
and are based on revenue production, and salaries, payroll taxes, employee
benefits and temporary employee costs, which are relatively fixed in nature,
and stock option expense. Occupancy and equipment expenses include rent and
utility charges paid for the Company's facilities, expenditures for facilities
repairs and upgrades, and depreciation of computer, telecommunications and
office equipment. Communications expenses include charges from third-party
providers of telecommunications services, printing and mailing costs for
customer communications and news and market data services. Clearing and
exchange fees include the cost of securities clearance, floor brokerage and
exchange fees. Other expenses include state and local taxes, professional fees
and miscellaneous expenses.
EFFECTS OF INFLATION
Historically, inflation has not had a material effect on the Company's
financial condition, results of operations or cash flows. The rate of
inflation, however, affects the Company's expenses, such as employee
compensation, rent and communications. Increases in these expenses may not be
readily recoverable in the price the Company charges for its services.
Inflation can have significant effects on interest rates, which in turn can
affect prices and activities in the securities markets. These fluctuations may
have an adverse effect on the Company's operations.
29
<PAGE>
EARNINGS CHARGES IN QUARTER OFFERING IS CONSUMMATED
In connection with certain events relating to the Offering and upon
consummation of the Offering, the Company will record nonrecurring charges to
earnings, resulting in an estimated net charge to earnings of $4,851,000 in
the quarter in which the Offering is completed, assuming an initial public
offering price of $15.00 per share. Given the magnitude of the net charge, the
Company may report a loss for the quarter in which such charge is incurred.
Upon consummation of the Offering, the Company's existing variable-award,
book-value-based stock option plans will become fixed-award, fair-value-based
plans. Accordingly, the Company will be required to record compensation
expense of approximately $3,574,000 based on the difference between the book
value of the Company's stock immediately preceding the Offering and the
estimated fair market value of the stock (assuming an initial public offering
price of $15.00 per share) for all variable-award, book-value-based stock
options estimated to be outstanding on the date of consummation of the
Offering (estimated to be 450,000 stock options). Future stock options will be
granted as fixed-award stock options under the 1998 Plan. Upon consummation of
the Offering, the Company will also record compensation expense (net of tax)
in the amount of $1,277,000 (assuming an initial public offering price of
$15.00 per share), which reflects the increase in the value of the Repurchase
SARs outstanding under the Share Repurchase Plan. The Share Repurchase Plan
will terminate upon consummation of the Offering, at which time the Company's
liabilities under the Share Repurchase Plan will be determinable and final.
See footnote 8 to the table set forth in "Prospectus Summary--Summary
Financial Information" and Note 15 of the Company's Notes to Consolidated
Financial Statements.
30
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data stated as a percentage of net revenues:
<TABLE>
<CAPTION>
SIX-MONTH
FISCAL YEAR ENDED PERIOD ENDED
----------------------------- -------------------
SEPT. 29, SEPT. 27, SEPT. 26, MARCH 28, MARCH 27,
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Principal transactions, net.. 43.9% 37.0% 34.2% 34.2% 32.3%
Commissions.................. 39.6 44.8 44.7 44.4 44.6
Other........................ 5.1 5.6 5.9 6.8 7.6
----- ----- ----- ----- -----
Total operating revenues... 88.6 87.4 84.8 85.4 84.5
Interest income.............. 37.8 38.1 43.8 42.4 45.9
----- ----- ----- ----- -----
Total revenues............. 126.4 125.5 128.6 127.8 130.4
Interest expense............. 26.4 25.5 28.6 27.8 30.4
----- ----- ----- ----- -----
Net revenues............... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Non-interest expenses:
Compensation and benefits(1). 52.5 53.3 51.1 51.4 51.9
Key person death benefits
plan(2)..................... 5.0 -- (7.3) (15.2) --
Occupancy and equipment...... 8.0 6.2 6.8 6.4 6.6
Communications............... 5.3 4.4 4.8 4.6 4.4
Clearing and exchange fees... 4.6 3.7 3.4 3.5 3.6
Other........................ 4.8 6.1 5.1 5.6 4.1
----- ----- ----- ----- -----
Total non-interest ex-
penses.................... 80.2 73.7 63.9 56.3 70.6
----- ----- ----- ----- -----
Income before taxes on in-
come........................ 19.8 26.3 36.1 43.7 29.4
Taxes on income.............. 7.4 9.8 13.7 16.3 11.3
----- ----- ----- ----- -----
Net income................... 12.4% 16.5% 22.4% 27.4% 18.1%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) See footnotes 1 and 2 to the table set forth in "Selected Financial Data."
(2) See footnote 3 to the table set forth in "Selected Financial Data."
COMPARISON OF SIX MONTHS ENDED MARCH 27, 1998 AND MARCH 28, 1997
Net revenues increased by $7,137,000, or 21.7%, to $39,978,000 for the first
six months of fiscal 1998 as compared to the same period in fiscal 1997.
Revenues increased in virtually all of the Company's major areas of activity
during the first six months of fiscal 1998 as compared to the same period in
fiscal 1997.
Revenues from principal transactions increased by $1,672,000, or 14.9%, to
$12,912,000 for the first six months of fiscal 1998 as compared to the same
period in fiscal 1997. Revenues from principal transactions in equity
securities increased by $160,000, or 2.9%, to $5,657,000 for the first six
months of fiscal 1998 as compared to the same period in fiscal 1997. Increased
revenue was due to increased equity trading volumes, which was partially
offset by narrowing margins due to increased competition and greater
regulatory supervision of these markets. Revenues from principal transactions
in debt securities increased by $1,512,000, or 26.3%, to $7,255,000, due
primarily to increased trading volume in U.S. government and agency zero
coupon bonds, resulting in part from continued improvements to trading
systems, including adding new features to an existing automatic order system,
and to the opportunistic reconstitution of certain U.S. government and agency
zero coupon bonds. Similar opportunities for growth in the trading of U.S.
government and agency zero coupon bonds may not recur in future periods.
31
<PAGE>
Commissions revenues increased by $3,233,000, or 22.2%, to $17,821,000 for
the first six months of fiscal 1998 as compared to the same period in fiscal
1997. The increase was primarily due to significant growth in trading volume,
an increase in average gross revenues per broker, and growth in the number of
retail brokers. While the increase in trading volume generally resulted from
increased volatility in securities prices during the quarter ended December
31, 1997, successful recruiting efforts during the second half of fiscal 1997
also contributed to the overall growth in revenues during the six-month period
ended March 27, 1998.
Other income increased by $815,000, or 36.7%, to $3,034,000 for the first
six months of fiscal 1998 compared to the same period in fiscal 1997,
primarily due to increases in fees from investment advisory services and
higher revenues relating to underwriting.
Net interest income increased by $1,417,000, or 29.6%, to $6,211,000 for the
first six months of fiscal 1998 as compared to the same period of fiscal 1997.
Interest income increased by $4,433,000, or 31.8%, to $18,365,000 primarily
due to increased customer credit, money-market and margin balances. Interest
expense increased by $3,016,000, or 33.0%, to $12,154,000, primarily due to a
significant increase in customer credit balances.
Non-interest expenses increased by $9,704,000, or 52.5%, to $28,205,000 for
the first six months of fiscal 1998 as compared to the same period of fiscal
1997. This increase consists primarily of a nonrecurring $5,000,000 benefit
related to the reversal of the amounts previously accrued under the Death
Benefits Plan in the six-month period ended March 28, 1997, and increases in
compensation and benefits expenses during the six-month period ended March 27,
1998.
Compensation and benefits expenses increased by $3,850,000, or 22.8%, to
$20,728,000 for the first six months of fiscal 1998 as compared to the same
period in fiscal 1997. Commission and other sales compensation expenses
increased by $1,931,000, or 25.1%, to $9,616,000 for the fiscal 1998 period,
primarily as a result of the increase in principal transactions and commission
revenues and, to a lesser extent, an increase in guaranteed broker salary
payments for recently hired brokers. The remaining increase in employee
compensation and benefits was due to increased staffing to support the
Company's expanding retail brokerage business and higher incentive bonus
compensation paid to trading-related personnel generally resulting from
increased trading profits.
The Death Benefits Plan was terminated during the six-month period ended
March 28, 1997, which resulted in the Company's recording a benefit of
$5,000,000 during the 1997 fiscal period. No expense or benefit was recorded
during the first six months of fiscal 1998, as this plan has been terminated.
See footnote 3 to the table set forth in "Selected Financial Data," Note 11 of
the Company's Notes to Consolidated Financial Statements and "--Death Benefits
Plan."
Occupancy and equipment expenses increased $544,000, or 25.9%, to
$2,641,000, due to the Company's investment in technology and expansion of the
retail sales force. Communications expenses increased by $246,000, or 16.1%,
to $1,774,000, primarily reflecting higher printing and mailing costs due to
higher trading volume and growth in the number of customer accounts. Clearing
and exchange fees increased by $267,000, or 23.0%, to $1,428,000, due to
higher trading volume in retail and correspondent brokerage services. Other
expenses decreased by $203,000, or 11.1%, to $1,634,000 due to refunds
obtained from the State of Washington and the City of Seattle for overpayment
of taxes in prior years, which were partially offset by higher professional
fees.
The Company's effective income tax rate was 38.4% in the first six months of
fiscal 1998 and 37.3% in the first six months of fiscal 1997. The Company's
effective income tax rate was higher than the federal statutory rate primarily
due to nondeductible stock option plan expenses. Assuming the conversion of
the variable-award, book-value-based stock option plans to fixed-award, fair-
value-based stock option plans upon consummation of the Offering, the
Company's effective income tax rate is expected to be lower in future periods.
See "--Earnings Charges in Quarter Offering Is Consummated."
32
<PAGE>
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
Net revenues increased by $5,296,000, or 8.3%, to $68,887,000 for fiscal
1997 as compared to fiscal 1996. The increase in net revenues was primarily
due to increased revenues in the Company's retail brokerage business,
including a significant increase in net interest income earned on retail
customer balances and increases in retail brokerage commissions.
Revenues from principal transactions did not change significantly from
fiscal 1996 to fiscal 1997. Revenues of the Company from principal
transactions in equity securities decreased by $318,000, or 2.7%, to
$11,312,000. The decrease reflects narrowing margins due to increased
competition and greater regulatory supervision of these markets, which was
partially offset by increased equity trading volumes. Revenues from trading
debt securities increased by $358,000, or 3.0%, to $12,254,000 primarily due
to increased trading volumes in municipal bonds and corporate bonds, which was
partially offset by a decrease in revenues from trading mortgage-backed
securities as a result of the Company's reduction of its activities in the CMO
market.
Commissions revenues increased by $2,242,000, or 7.9%, to $30,758,000 for
fiscal 1997 as compared to fiscal 1996. The increase in commissions revenues
reflects higher volume resulting from strong equity markets, an increase in
the average retail gross revenue per broker, and the continued expansion of
the Company's retail sales force, which was partially offset by a decrease in
selling concessions on underwriting transactions.
Other income increased by $509,000, or 14.3%, to $4,078,000 for fiscal 1997
as compared to fiscal 1996, primarily due to an increase in fees from
investment advisory services.
Net interest income increased by $2,505,000, or 31.4%, to $10,485,000 for
fiscal 1997 as compared to fiscal 1996. Interest income increased by
$5,969,000, or 24.7%, to $30,179,000 due to significant growth in customer
credit, margin and money-market balances. Interest expense increased by
$3,464,000, or 21.3%, to $19,694,000 for fiscal 1997 as compared to fiscal
1996, primarily due to increased customer credit balances.
Non-interest expenses decreased by $2,798,000, or 6.0%, to $44,038,000 for
fiscal 1997 as compared to fiscal 1996, primarily as a result of the reversal
of amounts previously accrued for the Death Benefits Plan, which was partially
offset by increases in compensation and benefits.
Compensation and benefits expenses increased by $1,252,000, or 3.7%, to
$35,176,000 for fiscal 1997 as compared to fiscal 1996. Commission and other
sales compensation expenses increased by $1,023,000, or 6.6%, to $16,506,000
for fiscal 1997 as a result of the increase in commission and principal
transaction revenues. The remaining increase in employee compensation was
primarily due to increased staffing to support the Company's expanding retail
brokerage business, partially offset by a decrease in stock option expense.
See footnote 1 to the table set forth in "Selected Financial Data" for a
discussion of the stock option expense.
Death Benefits Plan expense in 1997 reflects the Company's decision to
terminate the plan and reverse all amounts previously accrued but unpaid under
the plan. As a result of this decision, the Company recorded a benefit of
$5,000,000 upon the termination of the Death Benefits Plan. There were no
expenses accrued for benefits under the plan in fiscal 1996 as a liability for
the maximum amount of benefits that could be paid under the plan had been
accrued in prior years. See footnote 3 to the table set forth in "Selected
Financial Data," Note 11 of the Company's Notes to Consolidated Financial
Statements and "--Death Benefits Plan."
Occupancy and equipment expenses increased $776,000, or 19.7%, to
$4,714,000, due to the Company's investment in technology and expansion of the
retail sales force. Communications expenses increased by $500,000, or 18.0%,
to $3,276,000, reflecting higher telecommunications, printing and mailing
costs due to increased trading volume and growth in the number of customer
accounts. Other expenses decreased by $320,000, or 8.3%, to $3,534,000,
primarily due to lower professional fees.
The Company's effective income tax rate was 38.1% in fiscal 1997 and 37.3%
in fiscal 1996. The Company's effective income tax rate was higher than the
federal statutory rate primarily due to nondeductible
33
<PAGE>
stock option plan expense. Assuming the conversion of the variable-award,
book-value-based stock option plans to fixed-award, fair-value-based stock
option plans upon consummation of the Offering, the Company's effective income
tax rate is expected to be lower in future periods. See "--Earnings Charges in
Quarter Offering Is Consummated."
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
Net revenues increased by $14,242,000, or 28.9%, to $63,591,000 for fiscal
1996 as compared to fiscal 1995. The increase in net revenues was due
primarily to increases in retail brokerage commissions and principal
transactions and a significant increase in net interest income from retail
customer balances.
Revenues from principal transactions increased by $1,843,000, or 8.5%, to
$23,526,000 for fiscal 1996 as compared to fiscal 1995. Revenues from
principal transactions in equity securities increased by $1,160,000, or 11.1%,
to $11,630,000. The increase was primarily due to higher volumes resulting
from improved retail equity market conditions. Revenues from trading debt
securities increased by $683,000, or 6.1%, to $11,896,000 due to an increase
in revenues from trading in U.S. government and agency zero coupon bonds,
which was offset in large part by a decrease in revenues from trading in
municipal bonds, primarily due to reduced volume in municipal bond trading.
Commissions revenues increased by $8,963,000, or 45.8%, to $28,516,000 for
fiscal 1996 as compared to fiscal 1995. The increase in commissions revenues
was primarily due to increased average retail and institutional production and
higher volumes resulting from strong retail equity market conditions, combined
with an increase in selling concessions on underwriting transactions in fiscal
1996 compared with fiscal 1995.
Other income increased by $1,045,000, or 41.4%, to $3,569,000 for fiscal
1996 as compared to fiscal 1995, primarily due to an increase in investment
banking revenues, including revenues relating to underwriting participations
and fees from investment advisory services.
Net interest income increased by $2,391,000, or 42,8%, to $7,980,000 for
fiscal 1996 as compared to fiscal 1995. Interest income increased by
$5,569,000, or 29.9%, to $24,210,000 primarily due to significant growth in
customer credit and margin balances, which was offset by a decrease in
interest earned from trading mortgage-backed securities due to reduced
inventory levels and lower interest rates earned on customer balances.
Interest expense increased by $3,178,000, or 24.3%, to $16,230,000 for fiscal
1996 as compared to fiscal 1995, due to increased customer credit balances,
which were partially offset by lower interest rates paid on such balances.
Non-interest expenses increased by $7,261,000, or 18.3%, to $46,836,000 for
fiscal 1996 as compared to fiscal 1995, primarily due to increases in
compensation and benefits, which were partially offset by a decrease in Death
Benefits Plan expense.
Compensation and benefits expenses increased by $7,999,000, or 30.9%, to
$33,924,000 for fiscal 1996 as compared to fiscal 1995. Commission and other
sales compensation expenses increased by $3,577,000, or 30.0%, to $15,483,000
as a result of the increase in commission and principal transaction revenues.
The remaining increase in compensation expense primarily reflects an increase
in stock option expense and higher incentive bonus compensation paid to
trading and non-production-related personnel generally resulting from
increased operating revenues and improved profitability of the Company. See
footnote 1 to the table set forth in "Selected Financial Data" for a
discussion of the stock option expense.
Death Benefits Plan expense decreased to zero in fiscal 1996 as compared
with a $2,450,000 expense recorded in fiscal 1995. No expense accrued in
fiscal 1996 as a liability for the maximum amount of benefits that could be
paid under the plan had been accrued in prior years. See footnote 3 to the
table set forth in "Selected Financial Data" and Note 11 of the Company's
Notes to Consolidated Financial Statements.
Occupancy and equipment expenses were generally unchanged, while
communications expense and clearing and exchange fees increased moderately in
fiscal 1996 due to increased trading volume and growth in the number
34
<PAGE>
of customer accounts. Other expenses increased by $1,473,000, or 61.9%, to
$3,854,000, due to higher state and local taxes in 1996 combined with refunds
received in 1995 for overpayments in prior years and increased professional
fees.
The Company's effective income tax rate was 37.3% in fiscal 1996 and 37.6%
in fiscal 1995. The Company's effective income tax rate was higher than the
federal statutory rate primarily due to nondeductible stock option plan
expense. Assuming the conversion of the variable-award, book-value-based stock
option plans to fixed-award, fair-value-based stock option plans upon
consummation of the Offering, the Company's effective income tax rate is
expected to be lower in future periods. See "--Earnings Charges in Quarter
Offering Is Consummated."
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied a large portion of its funding needs
with its own capital resources, consisting largely of internally generated
retained earnings and funds received upon exercise of employee stock options.
A majority of the Company's assets are highly liquid and short term in nature.
The Company's cash, cash equivalents and liquid assets, consisting of
receivables from customers, brokers and dealers, securities purchased under
agreements to resell, securities owned, securities borrowed and deposits with
clearing organizations, represented 98.7%, 99.5% and 99.4% of the Company's
assets as of September 27, 1996, September 26, 1997 and March 27, 1998,
respectively. Substantially all of the Company's receivables are secured by
customer securities or security transactions in the process of settlement.
The majority of the Company's assets are financed through daily operations
by securities sold under repurchase agreements, securities sold but not yet
purchased, bank loans, securities loaned and payables to customers, brokers
and dealers. Short-term funding is generally obtained at rates relating to
daily federal funds rates. Other borrowing costs are negotiated depending on
prevailing market conditions. The Company monitors overall liquidity by
tracking the extent to which unencumbered marketable assets exceed short-term
unsecured borrowings. The Company maintains borrowing arrangements with two
financial institutions, which funds are used primarily to finance U.S.
government and agency zero coupon bond inventories. As of March 27, 1998, the
Company had a secured bank line of credit with a borrowing limit of
$85,000,000 with $56,900,000 outstanding, and a security repurchase
arrangement with $35,125,000 outstanding. The ratio of assets to equity as of
March 27, 1998 was approximately 8.7:1. Upon consummation of the Offering, at
an assumed offering price of $15.00 per share, this ratio will decline to
approximately 7.1:1.
Certain minimum amounts of capital must be maintained by the Company to
satisfy the regulatory requirements of the Commission and the NYSE. RMI's
regulatory net capital has historically exceeded these minimum requirements.
See "Net Capital Requirements."
The Company believes that its current level of equity capital, combined with
funds anticipated to be generated from operations and the anticipated net
proceeds from the Common Stock sold in the Offering, will be adequate to fund
its operations for at least 18 to 24 months.
YEAR 2000 COMPLIANCE
The Company has undertaken a project to identify and take appropriate
actions with respect to systems that are non-Year 2000 compliant and intends
for such actions to be substantially implemented by December 1998. This
project includes steps whereby the Company will identify systems provided by
third-party vendors on which the Company relies. Where Year 2000 issues exist
relating to these systems, the Company will require that the vendors take such
actions as are necessary to become Year 2000 compliant. The Company plans to
monitor the actions taken by the vendors and test for compliance where
appropriate. The Company expects that its total costs of Year 2000 compliance
for its systems will not be material. There can be no assurance, however, that
any Year 2000 issue relating to the Company's systems or those of third-party
vendors to the Company will be resolved by the upcoming turn of the century or
that the costs incurred by the Company in addressing the issue will not
35
<PAGE>
exceed its current expectation. The failure of the Company to implement its
Year 2000 corrections in a timely fashion or in accordance with its current
cost estimates, or the failure of other companies to correct Year 2000 issues
or their non-Year 2000 compliant systems on which the Company's systems rely
in a timely fashion, could have a material adverse effect on the Company's
business, financial condition, results of operations or cash flows. The
Company has not sought or obtained insurance coverage for possible losses or
damages as a result of Year 2000 issues or non-Year 2000 compliant systems.
See "Risk Factors--Year 2000 Compliance."
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 AND NO. 131
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is the total of net income and all
other nonowner changes in equity.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 is effective for periods beginning after December 15, 1997. SFAS No.
131 requires an enterprise to report certain additional financial and
descriptive information about its reportable operating segments.
The Company will adopt these pronouncements during fiscal 1999. Management
has not yet determined what reportable operating segments will be provided
upon adoption of SFAS No. 131. As both pronouncements are disclosure and
presentation related, implementation of SFAS No. 130 and No. 131 will not
impact the Company's financial position, results of operations or cash flows.
36
<PAGE>
BUSINESS
COMPANY OVERVIEW
Ragen MacKenzie is the leading regional brokerage firm headquartered in the
Pacific Northwest. The Company's primary business is retail securities
brokerage, which it conducts through its Seattle headquarters and 10
additional offices in Washington, Oregon and Alaska, which include four
offices operated by independent contractors. This business is directly
supported by the Company's proprietary research efforts, which are based on a
value-oriented, contrarian approach to investing. The Company's research
department covers approximately 100 publicly traded companies headquartered in
the Pacific Northwest and maintains the Recommended List, which includes
selected regional and national stock. Other aspects of the Company's business
include proprietary trading of certain fixed income securities, institutional
brokerage services, correspondent brokerage services and investment banking
services. Revenues generated from the Company's retail securities brokerage
services, institutional brokerage services, proprietary trading of certain
fixed income securities and correspondent brokerage services constituted
42.1%, 7.1%, 6.1% and 3.5%, respectively, of the Company's total revenues in
fiscal 1997; revenues from investment banking services in fiscal 1997 were
insignificant.
The Company has experienced significant revenue growth over the past five
years while increasing profitability. Total revenues have increased at a
compound annual growth rate of 17.3% from fiscal 1993 through fiscal 1997,
from $46.8 million to $88.6 million. The Company's significant revenue growth
is due in part to growth in customer assets and number of customer accounts,
increases in the number and productivity of retail brokers and the substantial
increases in stock values over the past several years. The Company's customer
account balances doubled from $4.6 billion in September 1995 to $9.2 billion
in March 1998. The Company's net income increased from $4.9 million to $15.4
million from fiscal 1993 through fiscal 1997, and its pretax profit margin
increased from 19.0% in fiscal 1993 to 36.1% in fiscal 1997. Results of
operations during these periods reflected accruals and reversal of amounts
provided under the Death Benefits Plan, which was terminated in 1997. Amounts
provided for benefits accrued under the plan in 1993 resulted in a decrease in
margins from 21.8% to 19.0% for that year. The reversal of the amounts
previously accrued under the plan upon its termination resulted in an increase
in margins in 1997 from 28.8% to 36.1%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Death Benefits
Plan." The following table compares pretax profit margins for the Company
during this period with industry averages for securities firms during the past
five years.
PRETAX PROFIT MARGINS BASED ON NET REVENUES
<TABLE>
<CAPTION>
YEAR
----------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ragen MacKenzie(1)......................... 19.0% 20.8% 19.8% 26.3% 36.1%(2)
Industry Average--National Securities
Firms(3).................................. 15.3% 2.4% 12.7% 15.9% 15.0%
Industry Average--Regional Securities
Firms(4).................................. 16.1% 10.0% 13.9% 15.9% 13.5%
</TABLE>
- --------
(1) Data presented for Ragen MacKenzie's fiscal year.
(2) Reflects the effect of a $5,000,000 nonrecurring benefit from the
termination of the Death Benefits Plan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Death Benefits
Plan." If such nonrecurring benefit had not been realized by the Company,
its pretax profit margin would have been 28.8% in 1997.
(3) NYSE member firms doing a public business. Source: Securities Industry
Association citing Securities Industry Database.
(4) The largest full-service broker-dealers (non-national full line and non-
New York City based), usually self-clearing with regional branch network
systems (i.e., Midwest, Northeast) providing a wide array of financial
services and products to both retail and institutional clients. This group
does not reflect all firms headquartered outside New York City. Source:
Securities Industry Association citing Securities Industry Database.
37
<PAGE>
BACKGROUND
Industry. The size of the capital markets and the volume of trading in the
securities markets have increased substantially in recent years, as has the
demand for securities investments. The Company believes that if these trends
continue in the future, the demand for full-service brokerage services, such
as those offered by the Company, will continue to increase.
The increased demand for securities investments is evident in the shift in
investors' preferences away from bank deposits and into marketable securities.
In 1980, households owned $1.3 trillion of marketable securities, representing
48% of their liquid financial assets compared to $9.9 trillion, or 76% of
household liquid financial assets in 1997, an increase of 660%. Over the same
period, bank deposits decreased from 52% to 24% of household liquid financial
assets. The arrival of a generation of "baby boomers" into what are considered
their prime investing years, ages 50 through 65, has also fueled the demand
for investment products. In 1996, the first baby boomers turned 50. It is
estimated that these individuals will inherit over $10 trillion from the
previous generation between 1995 and 2040.
The volume of equity securities offered to the public illustrates the
response to demand for investment products. Initial public offerings and total
common equity issued in the United States public markets grew from $1.4
billion and $12.8 billion, respectively, in 1980, to $10.2 billion and $19.2
billion, respectively, in 1990, to $43.9 billion and $118.4 billion,
respectively, in 1997. The combination of increasing flows of funds into the
equity markets and new issuance activity has contributed to significantly
higher trading volumes. From 1980 to 1997, average daily trading volume grew
at a compound annual rate of 15.6% on the NYSE and 20.7% on Nasdaq. More
recently, the combined NYSE and Nasdaq average daily trading volumes grew at a
compound annual rate of 22.1% for the five years ended 1997 and increased
22.9% in 1997 over 1996.
Regional. The Pacific Northwest has also experienced dramatic growth in
recent years. The population of the Pacific Northwest increased by 16.1% from
1990 to 1997 as compared to a 7.6% increase nationally. From 1990 to 1994, the
Gross State Product for the states of Idaho, Oregon and Washington increased
at a compound annual rate of 6.5% per year as compared to the United States
Gross State Product, which increased at a compound annual rate of 4.8% per
year for the same period. Venture capital companies invested $2.4 billion in
companies headquartered in Washington during the last three years, and the
state ranked 12th among the 50 states in dollar volume of initial public
offerings for locally headquartered companies in 1997. It is estimated that in
the Seattle area alone there were in excess of 50,000 households with a net
worth of greater than $1,000,000 in 1996.
The Company is the leading regional brokerage firm headquartered in the
Pacific Northwest, based on total revenues and net income in fiscal 1997, and
has demonstrated a history of success and steady growth by capitalizing on
national and regional trends in the securities industry. The Company believes
that the Pacific Northwest will continue to experience positive economic
development and that such development will present the Company with further
opportunity for growth within the region.
BUSINESS STRATEGY
The Company believes that the quality and depth of its proprietary research
will continue to help it attract and retain highly productive brokers and
retail, institutional and correspondent customers. The Company intends to use
the quality of its research to grow each aspect of its business and increase
its visibility as the leading regional brokerage firm headquartered in the
Pacific Northwest. The Company's strategy includes the following key elements:
Continued Focus on Proprietary Research Coverage. The Company plans to
continue leveraging the competitive advantages provided by the quality and
depth of its proprietary research coverage. The Company
38
<PAGE>
intends to increase the size of its research staff by recruiting, hiring and
training additional research analysts. The Company also intends to continue
focusing its research efforts on public companies headquartered in the Pacific
Northwest, as well as a selected list of other public companies, in each case
embracing a value-oriented, contrarian philosophy of investment analysis.
Increase Number of Brokers. The Company intends to expand its retail
brokerage services by continuing to recruit experienced, productive retail
brokers. The Company believes that its proprietary research provides it with a
significant competitive advantage in attracting and retaining experienced,
productive retail brokers. From the beginning of fiscal 1993 to March 27,
1998, the Company increased the number of retail brokers from 51 to 78. For
the 12 months ended March 27, 1998, the average production per retail broker
for the Company was over $560,000. Average production per retail broker (also
referred to as average commissions) is calculated by dividing total retail
brokerage revenue for the period (excluding interest earned on customer
balances) by the average of the number of retail brokers at the beginning and
end of the period. The Company intends to continue focusing its recruiting
efforts on experienced, productive retail brokers and typically does not hire
inexperienced or trainee brokers.
Expand Correspondent Brokerage Business. The Company intends to increase
market penetration and expand the geographic coverage of its correspondent
brokerage business by leveraging efficiencies of its clearing operations and
the quality of its proprietary research coverage. The Company believes that
expanding its correspondent business will positively impact margins, because
it believes that such expansion will increase revenues without a significant
increase in costs. The Company uses the strength of its "back office" systems
and personnel to market correspondent brokerage services to other regional
brokerage firms which choose not to establish their own back office
operations. The Company plans to capitalize upon (i) the growing need of small
brokerage firms for correspondent services due to a potential increase in net
capital requirements from $50,000 to $500,000 proposed by the National
Securities Clearing Corporation for brokerages providing clearing services;
(ii) the increasing trend among small brokerage firms to reduce fixed costs
associated with clearing activities; and (iii) the increased number of the
Company's correspondent customers outside the Pacific Northwest.
Expand Investment Banking Services. The Company intends to increase its
investment banking business by recruiting experienced investment banking
professionals and leveraging its research coverage of companies headquartered
in the Pacific Northwest. The Company plans to capitalize on increased merger
and acquisition activity in the Pacific Northwest, which it believes will
result from significant economic growth in the region. In light of recent
consolidation among investment banking firms, the Company also intends to
capitalize on its regional focus.
Supplement Internal Growth With Strategic Acquisitions. The Company intends
to pursue, on an opportunistic basis, acquisitions of other firms with
complementary businesses that would strengthen or expand the Company's product
or financial service offerings and position within the Pacific Northwest. The
Company plans to focus on smaller regional firms that may realize benefits
from affiliation with a larger firm while retaining their regional focus.
BROKERAGE SERVICES
Retail Brokerage. The Company's approach to the retail brokerage business is
to attract and retain highly productive, experienced brokers in selected
cities throughout the Pacific Northwest. The Company's retail brokerage
business has developed by establishing and maintaining relationships with high
net worth individuals. RMI, a full-service brokerage firm, offers its
customers brokerage services relating to corporate equity and debt securities
and U.S. government and municipal securities, including stocks followed by
RMI's research analysts and underwritings in which RMI participates in the
underwriting syndicate. The Company's retail brokers focus on recommending the
purchase and sale of stocks and bonds, particularly based on current purchase
and sale recommendations on the Recommended List. The Company has not
historically offered its customers proprietary products, such as mutual funds
or other types of products created by other investment banks. Commissions are
charged on agency transactions in listed securities and securities traded on
Nasdaq. In addition to retail commissions, RMI generates fee revenue from
asset-based investment advisory services paid by retail clients in lieu of
commissions or sales credits on each transaction. When RMI executes
transactions as a principal, it
39
<PAGE>
charges markups or markdowns in lieu of commissions. See "--Principal
Transactions--Market-Making and Other Transactions." From fiscal 1993 through
fiscal 1997, revenues from RMI's retail brokerage activities grew at a
compound annual growth rate of 14.9% from $21,439,000 to $37,326,000,
excluding interest earned on retail brokerage customer balances, while the
number of retail brokers grew at a compound annual growth rate of 7.7%. During
fiscal 1996 and 1997 and the six-month period ended March 27, 1998, revenues
from RMI's retail brokerage activities, excluding interest earned on retail
brokerage customer balances, constituted approximately 43.8%, 42.1% and 41.2%,
respectively, of the Company's total revenues.
The Company has been able to recruit and retain experienced and productive
brokers who seek to establish and maintain personal relationships with high
net worth individuals. The Company generally does not hire inexperienced
brokers or trainees to work as retail brokers. The Company believes that its
performance-based equity incentive compensation has been a key component in
its ability to recruit new brokers. The productivity of the Company's retail
brokers is evident when compared with that of the industry in general. The
following table compares the average annual commissions per broker for the
Company to industry averages over the past three years.
RAGEN MACKENZIE RETAIL BROKER STATISTICS
<TABLE>
<CAPTION>
AVERAGE ANNUAL COMMISSIONS PER
RETAIL BROKER
-------------------------------
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Ragen MacKenzie(1)......................... $403,600 $537,900 $548,900
Industry(2)................................ $305,900 $358,800 Not Available
</TABLE>
- --------
(1) Data presented for Ragen MacKenzie's fiscal year.
(2) Source: Securities Industry Association.
The Company believes that continuing to add experienced, highly productive
brokers is an integral part of its growth strategy.
In addition to executing transactions, Ragen MacKenzie provides services to
individual investors, including portfolio strategy, research services and
investment advice, as well as other services such as sales of restricted
securities. As of March 27, 1998, Ragen MacKenzie employed 78 retail brokers
who had on average more than 17 years of industry experience, and had
independent contractor relationships with 11 additional brokers who had on
average more than 15 years of industry experience. Assets in customer
accounts, including correspondents and independent contractors, totaled
approximately $9.2 billion as of March 27, 1998. Certain of Ragen MacKenzie's
retail brokers exercise discretionary authority over investment decisions in
certain customer accounts. Trades in these accounts are generally based on the
Recommended List.
The Company conducts its retail brokerage operations through seven offices
in Washington and Oregon. Most of the Company's retail clients are located in
the Pacific Northwest. The following table sets forth as of March 27, 1998,
the location of the Company's retail offices, the fiscal year each office
opened and the number of retail brokers in each office:
<TABLE>
<CAPTION>
FISCAL YEAR NUMBER OF
LOCATION OF RETAIL OFFICE OFFICE OPENED RETAIL BROKERS
------------------------- ------------- --------------
<S> <C> <C>
Seattle, Washington........................... 1982 35
Bellevue, Washington.......................... 1990 13
Portland, Oregon.............................. 1991 11
Tacoma, Washington............................ 1991 4
Walla Walla, Washington....................... 1991 6
Bend, Oregon.................................. 1995 5
Eugene, Oregon................................ 1996 4
</TABLE>
The Company has contractual arrangements with independent contractors that
operate offices located in Fairbanks, Alaska, and Mt. Vernon, Anacortes and
Mill Creek, Washington using the Ragen MacKenzie name.
40
<PAGE>
These offices were established in the late 1980s, prior to the expansion of the
Company's retail operations through Company-owned offices. The Company provides
research, management, compliance and clearing services for these offices in
return for a portion of gross retail revenues. These offices, in turn, are
responsible for their own operating expenses. All of the brokers in these
offices are registered as associated persons of RMI and RMI is responsible for
supervising their securities' activities.
Institutional Brokerage. The Company's institutional brokerage strategy is to
leverage the research department's coverage of companies headquartered in the
Pacific Northwest to provide value-added, niche-oriented brokerage service to a
variety of institutional customers throughout the United States. The Company
provides institutional customers with research, trading and sales services in
Nasdaq and exchange-listed equity securities, and distributes equity securities
in connection with offerings underwritten by RMI. The Company's institutional
customers include banks, retirement funds, mutual funds, investment advisors
and insurance companies. The Company provides services to a nationwide
institutional client base, as well as several institutional customers located
in Europe. The Company currently has seven institutional brokers. The Company
employs a NYSE floor broker and two listed equity traders who work with other
broker-dealers, institutions and the Company's floor broker to facilitate
institutional trades and retail customer block trades. The Company generally
seeks to hire professionals with relevant experience and develop them into
successful institutional brokers rather than relying on institutional brokers
trained by other firms. During fiscal 1997, revenues from RMI's institutional
brokerage activities constituted approximately 7.1% of the Company's total
revenues.
The Company believes that a significant portion of its institutional
brokerage commissions are received as a consequence of providing institutions
with research reports and services regarding specific corporations and
industries, particularly in the Pacific Northwest, and securities market
information. The Company utilizes its trading knowledge and expertise, and
active trading focus on Pacific Northwest stocks, to provide institutional
clients with value-added service. The Company's total institutional commission
revenues are ultimately dependent on institutional clients' assessment of the
value of the research services and trading expertise provided by the Company.
Equity Research Focus. One of the most important elements of the Company's
success has been the use of its proprietary equity research products to support
a large portion of the Company's business. Ragen MacKenzie's research
department, which currently consists of nine professional research analysts,
embraces a value-oriented, contrarian approach to investing. This approach is
based on an analysis of economic fundamentals, using among other tools price-
to-earnings multiples and price-to-book value comparisons relative to historic
valuations and the research department's own earnings forecasts. The Company
relies primarily on proprietary research products, rather than on research
products purchased from independent research organizations. The Company's
research analysts generally provide coverage for companies in more than one
industry, but apply similar criteria to each company they follow. The Company
believes that the services provided by the research department have a
significant impact on virtually all of Ragen MacKenzie's revenue-generating
activities, including retail and institutional brokerage, market-making and
investment banking.
Recommended List. The Company's value-oriented Recommended List is national
in scope and principally serves the Company's retail brokerage customers. The
Recommended List focuses on stocks that are out of favor due to reduced or
below average consensus expectations of a company's prospects and attempts to
maintain a disciplined approach by establishing purchase price limits and
making sell recommendations when target prices are achieved. This investment
philosophy is based on the premise that depressed stocks may offer a lower risk
profile upon a negative outcome, yet offer superior return opportunities to
investors if future prospects are brighter than earlier thought. The
Recommended List was initially established as of January 2, 1974 by John L.
MacKenzie, while he was employed at another Seattle-based brokerage firm. The
Recommended List has since been maintained continuously under the direction of
Mr. MacKenzie or by Lesa A. Sroufe, the Company's Chief Executive Officer and
former Director of Research. The Recommended List is not distributed publicly
but is made available only to the Company's retail brokers, independent
contractors, retail customers and correspondents.
41
<PAGE>
The Company's management believes that its research philosophy and
Recommended List have been a significant element in the growth and
profitability of its retail equity business since being adopted by the Company
in 1988, and have contributed to Ragen MacKenzie's ability to attract and
retain retail brokers. The Recommended List contains buy, hold or sell
recommendations for a limited number of stocks and generally does not include
ongoing recommendations of Pacific Northwest stocks covered by the Company's
analysts.
Pacific Northwest Regional Equity Research. The Company believes that a
significant portion of its institutional equity brokerage business is
attributable to its Pacific Northwest regional equity research.
Ragen MacKenzie analysts closely track approximately 100 publicly traded
companies headquartered in the Pacific Northwest and work to provide investors
with up-to-date, value-added analysis and advice. The Company believes that
its proximity to and niche focus on Pacific Northwest companies in many cases
provides it with a competitive advantage over broker-dealers headquartered
outside the region. The Company makes its analysts' reports on Pacific
Northwest companies publicly available. The Company's analysts work closely
with sales and trading professionals to provide its institutional investor
customers with current company and industry analysis.
In addition to publishing its written research, Ragen MacKenzie hosts
frequent research forums where Pacific Northwest companies make presentations,
and in 1998 hosted its 17th Annual Pacific Northwest Conference. These annual
conferences highlight selected publicly traded companies in the region, and
have been held in Seattle, Washington and Portland, Oregon.
PRINCIPAL TRANSACTIONS
Market-Making and Other Transactions. The Company engages in trading as a
principal when it executes trades in Nasdaq equity securities or other over-
the-counter ("OTC") securities as a market-maker, and in municipal bonds,
corporate debt and U.S. government and agency securities. The Company
receives, in lieu of commissions, markups or markdowns that constitute
revenues from principal transactions when it executes transactions on a
principal basis. Principal transactions with customers are generally effected
at a net price within or equal to the current interdealer price plus or minus
a markup or markdown. The Company generally does not take a significant
inventory position in any single equity, municipal or corporate debt security,
as the trading department's objective is to facilitate sales to customers and
to other dealers, not to generate profits based on trading for the Company's
own account.
Revenues from principal transactions depend on the general trend of prices
and the level of activity in the securities market, employee skill in market-
making activities and inventory size. Trading activities carried out as a
principal require a commitment of capital, and create an opportunity for
profit and risk of loss due to market fluctuations. As of March 31, 1998, the
Company made markets in the common stock or equity securities of approximately
110 companies that were traded on Nasdaq, and approximately 16 companies that
were traded otherwise in the OTC market. The Company's market-making
activities are concentrated in Pacific Northwest stocks that are followed by
Ragen MacKenzie's research department. See "Risk Factors--General Risks of the
Securities Industry."
Proprietary Trading. Rather than trading a wide variety of securities in
direct competition with Wall Street firms, the Company has developed a niche
strategy to the proprietary trading of certain fixed-income securities,
including U.S. government and agency zero coupon bonds and certain types of
CMOs. In its trading activities, Ragen MacKenzie generally acts as a
wholesaler, buying round-lot and odd-lot positions, selling odd-lot positions,
and acting as a market-maker in odd-lot positions. The majority of the
Company's counterparties in these transactions are regional broker-dealers.
The Company's proprietary trading operations seek to generate profits based on
trading spreads, rather than through the facilitation of sales to customers or
speculation on the direction of the market. During fiscal 1997, revenues from
RMI's proprietary trading activities constituted approximately 6.1% of the
Company's total revenues.
Ragen MacKenzie maintains a dealer-to-dealer zero coupon trading desk that
makes markets and maintains inventory in odd-lot U.S. government and agency
zero coupon bonds and related securities, including among others, U.S.
Treasury Separate Trading of Registered Interest and Principal Securities
(STRIPS), Coupons Under
42
<PAGE>
Book-Entry System (CUBES), Certificates of Accrual on Treasury Securities
(CATS), Treasury Investment Growth Receipts (TIGRS) and Financing Corporation
(FICO) STRIPS. The Company also has a CMO trading desk that trades CMOs with
other broker-dealers or banks.
The level of positions carried in Ragen MacKenzie's trading accounts
fluctuates significantly. The size of the securities positions on any one date
may not be representative of the Company's exposure on another date because
the securities positions vary substantially depending on economic and market
conditions, the allocation of capital among types of inventories, underwriting
commitments, customer demands and trading volume. The aggregate value of
inventories that the Company may carry is limited by certain requirements of
the Net Capital Rule (as hereinafter defined). See "Net Capital Requirements."
The Company has established procedures designed to reduce the risks of its
proprietary trading activities. In particular, it employs a hedging strategy
for both its CMO and zero coupon trading desks that is designed to insulate
the net value of its trading inventory from fluctuations in the general level
of interest rates. However, it is not possible to hedge completely the risks
associated with interest rate fluctuations for some of the fixed income
securities that the Company trades, primarily because the price movements of
financial instruments typically used to hedge long positions in such
securities may not precisely mirror the price movements of the hedged
securities under all market conditions. In addition to its hedging procedures,
the Company seeks to mitigate the various risks associated with its
proprietary trading activities by avoiding positions in those CMOs that are
most sensitive to changes in interest rates and by subjecting its trading
inventory positions and profit and loss statements to daily review by senior
management of RMI. Senior management reviews daily the profit and loss and
inventory positions of the CMO and zero coupon trading desks. There can be no
assurance, however, that such procedures will prevent any such loss, and any
such loss could have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. See "--Risk
Management" and "Risk Factors--Risks of Proprietary Trading."
CORRESPONDENT BROKERAGE SERVICES
The Company provides clearing services on a fully disclosed basis to 18
correspondents with approximately 435 registered representatives principally
located in the Pacific Northwest. In a fully disclosed clearing transaction,
the identity of the correspondent's client is known to Ragen MacKenzie, and
Ragen MacKenzie performs a variety of services for the correspondent,
including integrated trade execution, clearing, maintaining custody of certain
assets of the correspondent's clients, mailing confirmation and monthly
statements and other customized services. Correspondents also receive
information and recommendations provided by Ragen MacKenzie's research
department, including the Recommended List. Although revenues from
correspondent brokerage services comprise a relatively small percentage of
total revenues from year to year, a substantial portion of the expenses
associated with correspondent brokerage services are fixed, and therefore
changes in revenues associated with these services may have a disproportionate
effect on net income. During fiscal 1997, revenues from RMI's correspondent
brokerage services constituted approximately 3.5% of the Company's total
revenues.The Company believes that its competitive strengths in this business
are its ability to perform the physical trade execution and clearing functions
that are typical in such relationships, and its provision of its market-making
capabilities and proprietary research products to its correspondent clients.
The execution and clearing process requires the performance of a series of
complex data-processing intensive steps. The execution process begins when the
correspondent accepts its client's order for the purchase or sale of
securities and transmits the order to Ragen MacKenzie's order entry or trading
desks for execution. Ragen MacKenzie, in turn, routes the order to a market to
effect the execution. Ragen MacKenzie receives payment for an order flow in
executing some listed and Nasdaq transactions. A written confirmation
containing the details of each transaction is automatically produced and
delivered to the correspondent's client and posted to the account at the time
of execution.
Ragen MacKenzie typically clears the transaction by taking possession of the
correspondent's client's cash, if securities are being purchased, or
certificate, if any, if securities are being sold, and by delivering cash or
certificates to the broker for the other party to the transaction. Ragen
MacKenzie collects from the correspondent's client the money due on the
transaction, including the commission charged by the correspondent,
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deducts from the commission the charge for execution and clearing and any
other amounts due Ragen MacKenzie, and remits the net commission to the
correspondent on a monthly basis. Cash or certificates received by Ragen
MacKenzie for the correspondent's client are either held in the account or
delivered to the client. Ragen MacKenzie sends the correspondent's client a
monthly or quarterly statement of the client's account. The actual clearing
functions for multiple transactions involving many brokerage firms are more
complex than as described above. The securities industry has established a
netting process whereby securities and money are delivered or received between
brokerage firms through central clearing houses instead of matching each buyer
and seller in a transaction and making delivery to and receiving payment from
each of them.
INVESTMENT BANKING AND UNDERWRITING
The Company's investment banking strategy is directed at building a balanced
mix of corporate security underwriting, private financings and financial
advisory services with a geographical focus on the Pacific Northwest. In
particular, the Company has targeted co-manager roles on underwritings lead-
managed by national investment banks. Financial advisory services include
advice on mergers, acquisitions, divestitures, fairness opinions, valuations
and financing strategies. During fiscal 1997, investment banking services
constituted an insignificant percentage of the Company's total revenues.
Underwriting. Ragen MacKenzie participates in corporate securities
distributions as a member of an underwriting syndicate or of a selling group
and, from time to time, acts as a co-manager of an underwriting syndicate. The
Company's syndicate department coordinates the distribution of co-managed
equity underwritings, accepts invitations to participate in underwritings
managed by other investment banking firms and allocates Ragen MacKenzie's
selling allotments to its retail offices and institutional clients.
Participation in an underwriting syndicate or selling group involves both
economic and regulatory risks. An underwriter or selling group member may
incur losses if it is forced to resell the securities it is committed to
purchase at less than the agreed purchase price. In addition, under the
federal securities laws, other statutes and court decisions with respect to
underwriters' liabilities and limitations on indemnification of underwriters
by issuers, an underwriter is subject to substantial potential liability for
material misstatements or omissions in prospectuses and other communications
with respect to underwritten offerings.
Financial Advisory Services. Ragen MacKenzie also assists in arranging
mergers, acquisitions and divestitures and on occasion engages in structuring,
managing and marketing private offerings of corporate securities. The Company
also has the capability to provide fairness opinions, valuations and financial
consulting services.
INTEREST INCOME AND CUSTOMER FINANCING
A significant portion of the Company's revenues are derived from net
interest income, the major portion of which relates to customer account
balances. Customer transactions are effected on either a cash or a margin
basis. Cash-basis purchases require full payment by the designated settlement
date, generally the third business day following the transaction date. The
Company is at risk if a customer fails to settle a trade and the value of the
securities declines on a purchase transaction or increases on a sales
transaction subsequent to the transaction date.
The following table presents aggregate customer credit balances, customer
margin balances and customer money market balances for the Company in each of
the past five fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------
SEPT. 24, SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26,
1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Customer credit balances. $156,613 $175,231 $250,927 $289,224 $ 406,017
Customer margin balances. 47,207 55,228 59,607 86,709 105,378
Customer money market
balances................ 199,231 218,708 301,729 340,645 531,693
-------- -------- -------- -------- ----------
Total.................. $403,051 $449,167 $612,263 $716,578 $1,043,088
======== ======== ======== ======== ==========
</TABLE>
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<PAGE>
In margin transactions, the Company extends credit to the customer, which is
collateralized by securities and cash in the customer's account, and receives
income from interest charged on the extension of credit. The customer is
charged for such margin financing at interest rates based on the broker's call
rate (the prevailing interest rate charged by banks on secured loans to
broker-dealers), plus an additional amount, depending on the average net debit
balance in the customer's accounts, the activity level in the accounts and the
applicable cost of funds. The Company's interest revenues are affected by the
volume of customer borrowing and prevailing interest rates. Customer margin
balances were $105.8 million as of March 27, 1998.
Margin lending by the Company is subject to the margin regulations
("Regulation T") of the Board of Governors of the Federal Reserve System, NYSE
margin requirements and the Company's internal policies, which in many
instances are more stringent than Regulation T and the NYSE requirements. In
most transactions, Regulation T limits the amount loaned to a customer for the
purchase of a particular security to a percentage of the purchase price
(generally 50% for equity securities). Furthermore, in the event of a decline
in the value of the collateral, the NYSE regulates the percentage of customer
cash or securities that must be on deposit at all times as collateral for the
loans. The Company is subject to the risk of a market decline, which could
reduce the value of its collateral below the customer's indebtedness before
the collateral could be sold. Agreements with margin account customers permit
the Company to liquidate customers' securities with or without prior notice in
the event of an insufficient amount of margin collateral. Despite such
agreements, the Company may be unable to liquidate customers' securities for
various reasons, including that the pledged securities may not be actively
traded, there is an undue concentration of certain securities pledged, or a
stop order is issued with regard to pledged securities. See "Risk Factors--
General Risks of the Securities Industry."
Customers will at times accumulate credit balances in their accounts as a
result of dividend payments, interest or principal on securities held, funds
received in connection with sales of securities and cash deposits made by
customers pending investment. Ragen MacKenzie pays interest on such credit
balances pending investment of such funds. The Company uses available credit
balances to lend funds to customers purchasing securities on margin. Excess
customer credit balances are invested in securities purchased under agreements
to resell (reverse repurchase agreements), all of which were obligations of
the U.S. government and its agencies, held in a segregated cash account for
the benefit of customers in accordance with applicable regulations or invested
on behalf of customers in a cash management account. The Company generates net
interest income from the positive interest rate spread between the rate earned
from margin lending and alternative short-term investments and the rate paid
on customer credit balances.
RMI is a member of the Securities Investor Protection Corporation ("SIPC"),
which protects customer accounts up to specified limits in the event of
liquidation. Additionally, RMI maintains insurance coverage in order to insure
customer accounts up to $14.5 million in excess of SIPC coverage per customer.
Security Repurchase Activities. Repurchase agreements are used to finance
the Company's securities inventory, while reverse repurchase agreements are
used to invest monies for the exclusive benefit of customers and to cover
short positions in the Company's trading of debt securities. The Company is at
risk to the extent that it does not properly match the contracts, or its
counterparties are unable to meet their obligations, especially during periods
of rapidly changing interest rates and fluctuations in market conditions. The
Company generally takes physical possession of securities purchased under
agreements to resell, which agreements provide the Company with the right to
maintain the relationship between the market value of the collateral and the
securities sold under repurchase agreements as a means of financing portions
of its trading inventories and facilitating hedging transactions.
ACCOUNTING, ADMINISTRATION AND OPERATIONS
The Company's accounting, administration and operations personnel are
responsible for financial controls, internal and external financial reporting,
compliance with regulatory and legal requirements, office and personnel
services, the Company's information and telecommunications systems and
processing the Company's securities transactions. Operations department
managers have worked on average more than 20 years in the securities
45
<PAGE>
industry. The Company utilizes its own facilities and management information
systems department, and the services of an outside software provider under a
servicing contract, for the electronic processing relating to recording all
data pertinent to securities transactions and general accounting. The Company
believes that its communications and information systems are sufficient to
accommodate its growth in the near term; however, the Company believes
anticipated future growth may require implementation of new and enhanced
communications and information systems and training of personnel to operate
such systems. Any difficulty or significant delay in the implementation or
operation of existing or new systems, the integration of management and other
personnel or the training of personnel could adversely affect the Company's
ability to manage growth. See "Risk Factors--Dependence on Systems."
RISK MANAGEMENT
Exposure to risk and the ways the Company manages the various types of risks
on a day-to-day basis are critical to Ragen MacKenzie's survival and financial
success. The Company monitors its operating, principal, credit, correspondent
and investment banking risks on a daily basis through a number of control
procedures designed to identify and evaluate the various risks to which it is
exposed. There can be no assurance, however, that the Company's risk
management procedures and internal controls will prevent losses from occurring
as a result of such risks.
The Company's risk as principal relates to the fact that it owns a variety
of investments that are subject to changes in value and could result in the
Company's incurring material gains or losses. The Company also engages in
proprietary trading and makes dealer markets in equity securities, investment-
grade corporate debt, U.S. government and agency securities and mortgage-
backed securities. As such, Ragen MacKenzie may be required to maintain
certain amounts of inventories in order to facilitate customer order flow. The
Company seeks to cover its exposure to market risk by limiting its net long or
short positions, by selling or buying similar instruments and by utilizing
various financial instruments such as futures. The Company also often acts as
a principal in customer-related transactions in financial instruments, which
exposes it to risks of default by customers and counterparties.
Trading activities generally result in the creation of inventory positions.
Trading and inventory accounts are monitored on an ongoing basis, and Ragen
MacKenzie has established written position limits. Position and exposure
reports are prepared at the end of each trading day by operations staff in
each of the business groups engaged in trading activities for traders, trading
managers, department managers and management personnel. Such reports are
reviewed independently on a daily basis by Ragen MacKenzie's corporate
accounting group. In addition, on a daily basis, the corporate accounting
group prepares a consolidated summarized position report indicating both long
and short exposure, which is distributed to various levels of management
throughout RMI and which enables senior management to review inventory levels
and monitor results of the trading groups. The Company also reviews and
monitors, at various levels of management, inventory, pricing, concentration
and securities ratings.
In addition to position and exposure reports, the Company produces a daily
revenue report that summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of its business groups. The
daily revenue report is distributed to various levels of senior management,
and together with the position and exposure report assists senior management
in monitoring and reviewing overall activity of the trading groups.
Credit risk relating to various financing activities is reduced by the
industry practice of obtaining and maintaining collateral. The Company
monitors its exposure to counterparty risk on a daily basis by using credit
exposure information and monitoring collateral values. Senior management
approves various actions, including setting higher margin requirements for
large or concentrated accounts, requiring a reduction of either the level of
margin debt or investment in high-risk securities or, in some cases, requiring
the transfer of the account to another broker-dealer. The Company actively
manages the credit exposure relating to its trading activities by
46
<PAGE>
entering into master agreements that permit netting, when feasible, monitoring
the creditworthiness of counterparties and their related trading limits on an
ongoing basis, requesting additional collateral when deemed necessary and
limiting the amount and duration of exposure to individual counterparties.
Management of risk relating to clearing activities for the Company's
correspondent firms begins with a review by certain members of senior
management of each prospective correspondent firm prior to commencing the
relationship. This review includes an examination of the firm's employees,
trading history and finances. Each new correspondent is required to maintain a
security deposit. The amount required is based upon the volume and type of
business to be done. The correspondent agreement requires each correspondent
to submit to RMI copies of all financial information they are required to file
with the Commission and the NASD monthly or quarterly, including Financial and
Operational Combined Uniform Single Reports ("FOCUS Reports"). Correspondent
FOCUS Reports and other financial statements are reviewed by management.
Additionally, each correspondent's settlements are reviewed daily.
RMI's Executive Committee has served as RMI's commitment committee. The
committee's objectives are to review potential clients and engagements,
utilize experience with similar clients and situations and analyze RMI's
potential role. The Company seeks to control the risks associated with its
investment banking activities by reviewing the details of potential
transactions prior to accepting an engagement.
COMPETITION
The securities industry is intensely competitive. Ragen MacKenzie competes
directly with national and regional full-service broker-dealers and a broad
range of other financial service firms. Many of the Company's competitors have
substantially greater capital and financial and other resources, and greater
name recognition, than the Company. In addition, the Company competes for
assets with a variety of broker-dealers and financial entities, including
mutual funds, which have enjoyed significant growth in recent years as many
retail investors have sought the diversification and other perceived benefits
available from such investment vehicles.
Competition has intensified as numerous securities firms have either ceased
operations or have been acquired by or merged into other firms. Such mergers
and acquisitions have increased competition from these firms, many of which
have significantly greater equity capital and financial and other resources
than the Company. Many of these firms, because of their significantly greater
financial capital and scope of operations, are able to offer their customers
more product offerings, broader research capabilities, access to international
markets and other products and services not offered by the Company, which may
provide such firms with competitive advantages over the Company. The
increasing competition and consolidation in the Company's principal businesses
could strengthen the Company's competitors and adversely affect the Company's
business.
The Company also faces competition from companies offering discount and/or
electronic brokerage services, including brokerage services provided over the
Internet. These services represent a rapidly expanding segment of the
securities industry. These competitors may have lower costs or provide fewer
services, and may offer their customers more favorable commissions, fees or
other terms than those offered by the Company. Commissions charged to
customers of discount and electronic brokerage services have steadily
decreased over the past several years, and the Company expects such decreases
to continue. In addition, disintermediation may occur as issuers attempt to
sell their securities directly to purchasers, including sales using electronic
media such as the Internet. To the extent that issuers and purchasers of
securities transact business without the assistance of financial
intermediaries such as the Company, the Company's operating results could be
adversely affected. There can be no assurance that the rapid development of
discount and/or electronic brokerages, the decrease of commissions at such
brokerages and the potential of disintermediation will not have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.
The Company believes that the principal competitive factors in the
securities industry are the quality and ability of professional personnel, and
relative prices of services and products offered. The Company and many of its
competitors use direct solicitation of potential customers as a means of
increasing business and furnish investment research publications in an effort
to attract existing and potential clients. Many of the Company's competitors
also engage in advertising programs, which the Company does not use to any
significant degree.
47
<PAGE>
The Company believes that its ability to compete for retail customers depends
largely upon the skill, reputation and experience of its retail brokers and
the perceived value of its research product. The Company believes that these
assets will continue to prove attractive to a segment of the investing public
which prefers the advice and personal relationship available from a full-
service broker-dealer, and which is comfortable dealing with an established
regional firm. However, there can be no assurance that these factors will
continue to enable the Company to remain competitive.
PROPERTIES
The Company occupies an aggregate of approximately 28,191 square feet of
space in Seattle, Washington, under a lease expiring on February 28, 2002. The
Company also leases space for its branch offices located in Bellevue, Tacoma,
Kirkland and Walla Walla, Washington, and Portland, Eugene and Bend, Oregon.
EMPLOYEES
As of March 31, 1998, the Company had approximately 287 full-time and part-
time employees, of whom 179 are holders of Company stock. None of the
Company's employees is covered by a collective bargaining arrangement. The
Company believes that relations with its employees are good.
LITIGATION AND POTENTIAL SECURITIES LAW LIABILITY
Many aspects of the Company's business involve substantial risks of
liability. There has been an increase in litigation and arbitration within the
securities industry in recent years, including class action suits seeking
substantial damages. Broker-dealers such as RMI are subject to claims by
dissatisfied customers, including claims alleging they were damaged by
improper sales practices such as unauthorized trading, churning, sale of
unsuitable securities, use of false or misleading statements in the sale of
securities, mismanagement and breach of fiduciary duty. RMI may be liable for
the unauthorized acts of its retail brokers and independent contractors if it
fails to adequately supervise their conduct. As an underwriter, the Company
may be subject to substantial potential liability under federal and state law
and court decisions, including liability for material misstatements and
omissions in prospectuses or otherwise with respect to securities offerings.
The Company may be required to contribute to a settlement, defense costs or a
final judgment in certain legal proceedings or arbitrations involving past
underwriting and in actions that may arise in the future. As is common in the
securities industry, the Company does not carry insurance that would cover any
such payments. In addition, the charter documents of Ragen MacKenzie Group
Incorporated and of RMI provide for indemnification of Ragen MacKenzie Group
Incorporated's and RMI's officers and directors. The adverse resolution of any
legal proceedings involving the Company could have a material adverse effect
on its business, financial condition, results of operations or cash flows.
From time to time the Company has been, and may become, a party to legal
proceedings related to its retail brokerage operations, its participation in
underwriting syndicates or other aspects of the securities business. In
addition, the Company may from time to time contribute to certain adverse
final judgments, defense costs or settlements in actions arising out of its
participation in underwriting syndicates. The Company is not currently a party
to any material pending legal proceedings.
48
<PAGE>
REGULATION
The Company's business and the securities industry in general are subject to
extensive regulation in the United States at both the federal and state
levels, as well as by SROs.
In the United States, the Commission is the federal agency primarily
responsible for the regulation of broker-dealers and investment advisers doing
business in the United States, and the Board of Governors of the Federal
Reserve System promulgates regulations applicable to securities credit
transactions involving broker-dealers and certain other United States
institutions. RMI is registered as a broker-dealer and investment adviser with
the Commission. Certain aspects of broker-dealer regulation has been delegated
to securities-industry SROs, principally the NASD and national securities
exchanges such as the NYSE, which has been designated by the Commission as
RMI's primary regulator. These SROs adopt rules (subject to Commission
approval) that govern the industry, and, along with the Commission, conduct
periodic examinations of RMI's operations. Securities firms are also subject
to regulation by state securities administrators in those states in which they
conduct business. RMI is registered as a broker-dealer in all states and the
District of Columbia.
Broker-dealers are subject to regulations covering all aspects of the
securities industry, including sales practices, trade practices among broker-
dealers, capital requirements, the use and safekeeping of customers' funds and
securities, record-keeping and reporting requirements, supervisory and
organizational procedures intended to ensure compliance with securities laws
and to prevent unlawful trading on material nonpublic information, employee-
related matters, including qualification, and licensing of supervisory and
sales personnel, limitations on extensions of credit in securities
transactions, clearance and settlement procedures, requirements for the
registration, underwriting, sale and distribution of securities and rules of
the SROs designed to promote high standards of commercial honor and just and
equitable principles of trade. A particular focus of the applicable
regulations concerns the relationship between broker-dealers and their
customers. As a result, many aspects of the relationship between broker-
dealers and customers are subject to regulation, including, in some instances,
"suitability" determinations as to certain customer transactions, limitations
on the amounts that may be charged to customers, timing of proprietary trading
in relation to customers' trades and disclosures to customers.
Much of the Company's market-making business involves securities traded on
Nasdaq. Nasdaq's operations have been the subject of extensive scrutiny,
including allegations of collusion among Nasdaq market-makers by the media and
by governmental regulators, including the Antitrust Division of the Justice
Department. RMI has not been identified as the target of any specific
investigation. The Justice Department recently settled its civil complaint
against 24 other securities firms. The complaint alleged that the defendant
firms violated antitrust laws by maintaining artificially high spreads between
buy and sell prices for Nasdaq stocks and intimidating other market-makers
which offered investors better prices on Nasdaq stocks. The settlement
agreement prohibits such actions and establishes procedures to monitor Nasdaq
traders, including random taping of conversations on Nasdaq desks, spot checks
by regulators, secret taping of traders suspected of violating the rules,
quarterly compliance reports and appointment of an antitrust compliance
officer. The Company is not bound by the terms of the settlement, but if it
were required to establish procedures similar to those outlined in the
settlement, the resulting compliance costs could have a material adverse
effect on its business, financial condition, results of operations or cash
flows. Moreover, the settlement, together with changes to Nasdaq's operations
agreed upon by the NASDR and the Commission in August 1996, which are
applicable to all securities firms, could result in more narrow spreads
between the buy and sell prices of Nasdaq stocks, thereby reducing the
Company's trading profits.
As an investment adviser registered with the Commission, RMI is subject to
the requirements of the Investment Advisers Act of 1940, as amended, and the
Commission's regulations thereunder, as well as state securities laws and
regulations. Such requirements relate to, among other things, limitations on
the ability of investment advisers to charge performance-based or
nonrefundable fees to clients, record-keeping and reporting requirements,
disclosure requirements and limitations on principal transactions between an
adviser or its affiliates and advisory clients, as well as general antifraud
prohibitions. Pursuant to the National Securities Markets Improvement Act of
1996 and the Investment Advisors Supervision Coordination Act, and the
provisions
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thereunder, investment advisors such as RMI with more than $25 million of
assets under management are regulated solely by the Commission and are no
longer regulated by the states.
RMI also is subject to "Risk Assessment Rules" imposed by the Commission.
These rules require, among other things, that certain broker-dealers maintain
and preserve certain information, describe risk management policies,
procedures and systems and report on the financial condition of certain
affiliates whose financial and securities activities are reasonably likely to
have a material impact on the broker-dealers' financial and operational
condition.
Additional legislation, changes in rules promulgated by the Commission,
state regulatory authorities or SROs, or changes in the interpretation or
enforcement of existing laws and rules may directly affect the mode of
operation and profitability of broker-dealers. The Commission, SROs and state
securities commissions may conduct administrative proceedings, which can
result in censure, fines, the issuance of cease-and-desist orders or the
suspension or expulsion of a broker-dealer, its officers or employees. The
principal purpose of regulating and disciplining broker-dealers is the
protection of customers and the securities markets, rather than the protection
of creditors and shareholders of broker-dealers.
As a registered broker-dealer, RMI is required to establish and maintain a
system to supervise the activities of its retail brokers, including its
independent contractor offices, and other securities professionals. The
supervisory system must be reasonably designed to achieve compliance with
applicable securities laws and regulations, as well as SRO rules. The SROs
have established minimum requirements for such supervisory systems; however,
each broker-dealer must establish procedures that are appropriate for the
nature of its business operations. Failure to establish and maintain an
adequate supervisory system may result in sanctions imposed by the Commission
or an SRO that could limit RMI's ability to conduct its securities business.
Moreover, under federal law, and certain state securities laws, RMI may be
held liable for damages resulting from the unauthorized conduct of its account
executives to the extent that RMI has failed to establish and maintain an
appropriate supervisory system.
The Company has never been subject to disciplinary actions by any applicable
regulating authority. RMI is a member of SIPC, which, in the event of the
liquidation of a broker-dealer, provides protection for customer accounts held
by RMI of up to $500,000 for each customer, subject to a limitation of
$100,000 for cash balance claims. RMI pays an annual assessment to SIPC as a
member. RMI also maintains insurance coverage in order to insure customer
accounts up to $14.5 million in excess of SIPC coverage per customer. There is
no SIPC coverage for the accounts of officers, directors or beneficial owners
of 5% or more of any class of equity security of the Company. In addition, RMI
has made arrangements for optional custody of customer funds and securities
through The Bank of New York, which certain customers may choose for a fee,
which provide safekeeping and are not subject to the $500,000 SIPC limitation
for securities claims.
As part of its regular examination cycle, the NYSE inspected RMI in 1997.
Following that inspection, various issues regarding registration and
bookkeeping requirements, order execution procedures and supervision relating
to such requirements and procedures were referred to the Division for further
consideration. In addition, the Commission and the NASDR are also aware of the
issues raised by the NYSE inspection. The Division, as well as the Commission
and the NASDR, are considering what further steps, if any, to take. Those
steps could include a determination that no enforcement proceeding is
appropriate, undertaking further inquiries, or commencing an enforcement
proceeding. Based on communications with the NASD, the Company believes that
an NASDR enforcement proceeding may be commenced. Although the Company
believes that there are defenses in connection with these issues, there can be
no assurance that the Division, the NASDR or another regulator, will not
commence an enforcement proceeding. If an enforcement proceeding were
commenced and that proceeding were to result in a conclusion that RMI or its
employees, including executives with ultimate supervisory responsibility,
violated or failed to enforce securities rules or regulations, sanctions for
such violations could range from a letter of caution or censure to financial
costs and penalties or various limitations on firm or employee activity,
including individual suspensions. There can be no assurance that such
sanctions, including suspensions of the Company's employees or executives,
would not have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.
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<PAGE>
NET CAPITAL REQUIREMENTS
As a registered broker-dealer and member of the NYSE, RMI is subject to Rule
15c3-1 (the "Net Capital Rule") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which has also been adopted through
incorporation by reference in NYSE Rule 325. The Net Capital Rule, which
specifies minimum net capital requirements for registered brokers and dealers,
is designed to measure the general financial integrity and liquidity of a
broker-dealer and requires that at least a minimum part of its assets be kept
in relatively liquid form.
Net capital is essentially defined as net worth (assets minus liabilities,
as determined under GAAP), plus qualifying subordinated borrowings, less the
value of all of a broker-dealer's assets that are not readily convertible into
cash (such as goodwill, furniture, prepaid expenses, exchange seats and
unsecured receivables), and further reduced by certain percentages (referred
to as "haircuts") of the market value of a firm's securities to reflect the
possibility of a market decline prior to disposition.
RMI has elected to compute net capital under the alternative method of
calculation permitted by the Net Capital Rule. Under this alternative method,
RMI is required to maintain minimum net capital, as defined in the Net Capital
Rule, equal to the greater of $250,000 and 2% of the amount of "aggregate
debit items" computed in accordance with the Formula for Determination of
Reserve Requirements for Brokers and Dealers (Exhibit A to Rule 15c3-3 under
the Exchange Act). Generally, aggregate debit items are assets that have as
their source customer transactions, and consist primarily of margin loans.
Failure to maintain the required net capital may subject a firm to suspension
or revocation of registration by the Commission and suspension or expulsion by
the NYSE and other regulatory bodies, and ultimately may require its
liquidation. Further, the decline in a broker-dealer's net capital below
certain "early warning levels," even though above minimum capital
requirements, could cause material adverse consequences to the broker-dealer.
For example, the Net Capital Rule prohibits payments of dividends, redemption
of stock, the prepayment of subordinated indebtedness and payments in respect
of subordinated indebtedness principal if thereafter net capital would be less
than 5% of aggregate debit items. Under NYSE Rule 326, a member firm is
required to reduce its business if its net capital (after giving effect to
scheduled maturities of subordinated indebtedness or other planned withdrawals
of regulatory capital in the following six months) is less than $312,500 or 4%
of aggregate debit items. NYSE Rule 326 also prohibits the expansion of
business if net capital (after giving effect to scheduled maturities of
subordinated indebtedness or other planned withdrawals of regulatory capital
in the following six months) is less than $375,000 or 5% of aggregate debit
items for 15 consecutive days.
The Commission's capital rules also (i) require that broker-dealers notify
it and the NYSE, in writing, two business days prior to making withdrawals or
other distributions of equity capital or lending money to certain related
persons if such withdrawals would exceed, in any 30-day period, 30% of the
broker-dealer's excess net capital and that they provide such notice within
two business days after any such withdrawal or loan that would exceed, in any
30-day period, 20% of the broker-dealer's excess net capital, (ii) prohibit a
broker-dealer from withdrawing or otherwise distributing equity capital or
making related-party loans if after such distribution or loan the broker-
dealer has net capital of less than $300,000 or 5% of aggregate debit items
and certain other circumstances, and (iii) provide that the Commission may, by
order, prohibit withdrawals of capital from a broker-dealer for a period of up
to 20 business days if the withdrawals would exceed, in any 30-day period, 30%
of the broker-dealer's excess net capital and the Commission believes such
withdrawals would be detrimental to the financial integrity of the firm or
would unduly jeopardize the broker-dealer's ability to pay its customer claims
or other liabilities.
Compliance with the Net Capital Rule could limit those operations of RMI
that require the intensive use of capital, such as underwriting and trading
activities and the financing of customer account balances, and also could
restrict the Company's ability to withdraw capital, which, in turn, could
limit the Company's ability to pay dividends, repay subordinated debt and
redeem or purchase shares of its outstanding Common Stock.
51
<PAGE>
RMI has been in compliance at all times with all aspects of the Net Capital
Rule. As of March 27, 1998, RMI was required to maintain minimum net capital,
in accordance with Commission rules, of approximately $2.2 million and had
total net capital (as so computed) of approximately $68.5 million, or
approximately $66.3 million in excess of 2% of aggregate debit items and $63.0
million in excess of 5% of aggregate debit items.
52
<PAGE>
MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The directors, director nominees and executive officers of Ragen MacKenzie
Group Incorporated and their ages and positions as of April 16, 1998, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lesa A. Sroufe.......... 40 Chief Executive Officer and Chairman of the Board
Robert J. Mortell, Jr... 52 President, Chief Operating Officer, Treasurer and Director
Mark A. McClure......... 46 Executive Vice President and Director
V. Lawrence Bensussen... 39 Senior Vice President, Chief Financial Officer and Secretary
John L. MacKenzie....... 61 Director
Kirby L. Cramer (1)..... 61 Director Nominee
Arthur W. Harrigan, Jr.
(1).................... 54 Director Nominee
Peter B. Madoff (1)..... 52 Director Nominee
Gregory B. Maffei (1)... 38 Director Nominee
</TABLE>
- --------
(1) Nominees for election as directors will be elected immediately prior to
the Reorganization.
Lesa A. Sroufe became Chief Executive Officer and Chairman of the RMGI Board
in April 1998. She has served as a director of RMI since joining RMI in
November 1988, and as a member of the Executive Committee of the RMI Board
since November 1993. Since February 1998, Ms. Sroufe has served as RMI's Chief
Executive Officer. Prior to such time, she served as RMI's Director of
Research. Ms. Sroufe also served as a Senior Vice President of RMI from
November 1988 until November 1996 and as Executive Vice President from
November 1996 until February 1998. From 1980 to 1988, she was a research
analyst with the Foster & Marshall division of Shearson Lehman Hutton ("Foster
& Marshall"), a stock brokerage firm, and became Director of Research for
Foster & Marshall in 1986. Ms. Sroufe holds a bachelor's degree in business
from the University of Washington and is a Chartered Financial Analyst.
Robert J. Mortell, Jr. became President, Chief Operating Officer, Treasurer
and a director of the Company in April 1998. He has served as a director and a
member of the Executive Committee of the RMI Board since RMI's incorporation
in 1987, and as President and Chief Operating Officer of RMI since April 1996.
Mr. Mortell served as RMI's Co-Chief Operating Officer from 1990 to April 1996
and as Chief Financial Officer from 1987 until July 1996. From 1972 to 1982,
Mr. Mortell was employed by Foster & Marshall in various capacities within the
operations area and, in 1981, became its Treasurer. Mr. Mortell holds a
bachelor's degree in finance from Seattle University.
Mark A. McClure became Executive Vice President and a director of the
Company in April 1998. He has served as the Executive Vice President and a
director of RMI, and as a member of the Executive Committee of the RMI Board,
since November 1996. Mr. McClure has been a retail account executive since
joining RMI in June 1994, and has served as the Director of Regional Branch
Offices since June 1996. Mr. McClure served as Senior Vice President of RMI
from June 1994 to November 1996. Mr. McClure was a Vice President and retail
account executive with Kidder, Peabody and Co., a stock brokerage firm, from
1976 to 1994, and served as an Assistant Manager from January 1987 to June
1994. Mr. McClure holds a bachelor's degree in business from Washington State
University.
V. Lawrence Bensussen became Senior Vice President, Chief Financial Officer
and Secretary of the Company in April 1998. He has served as Chief Financial
Officer of RMI since July 1996 and as a director of RMI since November 1996.
Mr. Bensussen joined RMI as assistant controller in 1986, becoming Vice
President and Controller in 1987 and Senior Vice President in 1990. From 1984
to 1986, he was an accountant at Laventhol & Horwarth CPAs. Mr. Bensussen
holds a bachelor's degree in accounting from the University of Washington and
is a Certified Public Accountant.
53
<PAGE>
John L. MacKenzie became a director of the Company in April 1998. He has
served as a director of RMI since joining RMI in November 1988, and as
President of RMI from November 1988 until November 1990. He has served as a
member of the Executive Committee of the RMI Board since November 1989. Mr.
MacKenzie began his career as a research analyst in 1960 with Murphy Favre, a
stock brokerage and money management firm. From 1972 to 1986, he was Director
of Research for Foster & Marshall. He holds a bachelor's degree in accounting
from the University of Iowa.
Kirby L. Cramer is a director nominee of the Company. Mr. Cramer is Chairman
Emeritus of Hazleton Laboratories Corporation and a Trustee Emeritus and
former President of the University of Virginia's Colgate Darden Graduate
School of Business Administration. Mr. Cramer is also past Chairman of the
Advisory Board of the School of Business Administration of the University of
Washington. He also serves on the board of directors of Immunex Corporation,
ATL Ultrasound, Inc., Unilab, Inc., The Commerce Bank of Washington, Lachner
Corporation, Northwestern Trust Company, SonoSight, Inc. and certain privately
held companies.
Arthur W. Harrigan, Jr. is a director nominee of the Company. Mr. Harrigan
was a partner of the law firm Lane Powell Moss & Miller from 1975 until 1985
and, since January 1986, has been a partner of the law firm Danielson Harrigan
& Tollefson LLP. Mr. Harrigan holds a bachelor's degree from Harvard College
and a law degree from Columbia Law School, and is a Fellow of the American
College of Trial Lawyers.
Peter B. Madoff is a director nominee of the Company. Since 1965, Mr. Madoff
has served as Senior Managing Director of Bernard L. Madoff Investment
Securities. Mr. Madoff serves on the board of directors of the Cincinnati
Stock Exchange and, from 1993 until 1994, served as the Vice Chairman of the
Board of Directors of the National Association of Securities Dealers, Inc. He
holds a bachelor's degree from Queens College and a law degree from Fordham
Law School.
Gregory B. Maffei is a director nominee of the Company. Mr. Maffei has
served as Chief Financial Officer of Microsoft Corporation ("Microsoft") since
July 1997. He joined Microsoft in April 1993, where he served as Director of
Business Development and Investments until April 1994, Treasurer from April
1994 to June 1996 and Vice President, Corporate Development from June 1996 to
July 1997. Mr. Maffei holds a bachelor's degree from Dartmouth College and a
master's degree in business administration from Harvard Business School, where
he was a Baker Scholar. Mr. Maffei also serves on the board of directors of
Cort Business Services Corporation and Mobile Telecommunications Technologies
Corp.
DIRECTOR COMMITTEES AND COMPENSATION
The RMGI Board currently has no committees. Prior to the Offering, the
Company will establish an audit committee and a compensation committee. The
audit committee will review the functions of the Company's management and
independent auditors pertaining to the Company's consolidated financial
statements and will perform such other related duties and functions as are
deemed appropriate by the audit committee and the RMGI Board. The compensation
committee will determine officer and director compensation and administer the
Company's compensation plans. See"--Compensation Plans."
Directors who are employees of Ragen MacKenzie Group Incorporated or RMI
receive no additional compensation for their service as directors. The Company
pays each nonemployee director $5,000 per year plus reimbursement of expenses
incurred in connection with his or her service as a director. In addition, the
Company grants a nonqualified stock option for 25,000 shares of Common Stock
to each nonemployee director on the date the director is first appointed or
elected to the RMGI Board, which fully vests on the first anniversary of the
date of grant, and, commencing with the Company's 1999 Annual Meeting of
Shareholders, will grant an additional, fully vested nonqualified stock option
for 5,000 shares of Common Stock to each nonemployee director immediately
following each annual meeting of shareholders.
54
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ragen MacKenzie Group Incorporated currently has no compensation committee,
and its officers and directors have not deliberated concerning executive
compensation. Prior to the Offering, the Company will establish a compensation
committee. See "--Director Committees and Compensation." No executive officer
of the Company serves as a member of the compensation committee of any entity
that has one or more executive officers serving as a member of the RMGI Board.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to
compensation paid by RMI for the fiscal year ended September 26, 1997 to the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company during fiscal 1997 (collectively, the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION
--------------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL UNDERLYING COMPENSATION
POSITION SALARY($) BONUS($) COMMISSIONS($) OPTIONS(#) ($)(1)
------------------ --------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Lesa A. Sroufe.......... 263,876 364,000 -- 35,000 882
Chief Executive Officer
Robert J. Mortell, Jr... 397,875 328,000 -- -- 900
President, Chief
Operating
Officer and Treasurer
Mark A. McClure......... 147,875 280,000 214,691 8,750 4,058
Executive Vice
President
V. Lawrence Bensussen... 123,475 120,000 -- -- 499
Senior Vice President,
Chief Financial Officer
and Secretary
Stanley G. Freimuth(2).. 9,000 888,670 979,406 -- 3,579
</TABLE>
- --------
(1) Represents premiums paid by RMI with respect to life insurance for the
benefit of the Named Executive Officers and, for Messrs. McClure and
Freimuth, also includes $3,210 and $2,675, respectively, in cash
payments made upon the exercise of stock options in amounts equal to the
difference between the exercise price of such options and a price
contractually agreed upon by RMI and the Named Executive Officer.
(2) Mr. Freimuth served as RMI's Chief Executive Officer from October 1996
to February 1998.
55
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended September
26, 1997.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK
--------------------------------------------- PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE(2) 5%($) 10%($)
---- ---------- ------------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Lesa A. Sroufe.......... 19,425 4.7% 5.14 3/11/99 10,234 20,967
15,575 3.8% 5.14 1/2/00 11,853 24,786
Robert J. Mortell, Jr... -- -- -- -- -- --
Mark A. McClure......... 8,750 2.1% 5.14 11/30/98 4,200 8,570
V. Lawrence Bensussen... -- -- -- -- -- --
Stanley G. Freimuth..... -- -- -- -- -- --
</TABLE>
- --------
(1) All options were granted at book value on the date of grant. Mr. McClure
will be entitled to a cash payment equal to $2.28 per share upon exercise
of such options.
(2) Options for 19,425 shares and 15,575 shares were granted to Ms. Sroufe on
March 11, 1997 and an option for 8,750 shares was granted to Mr. McClure
on February 4, 1997. The options were immediately exercisable on the date
of grant except that the option for 15,575 shares granted to Ms. Sroufe
vested on January 2, 1998.
(3) The assumed rates of growth are prescribed by the Commission for
illustrative purposes only and are not intended to forecast or predict
future stock prices.
OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding option
exercises by the Named Executive Officers during the fiscal year ended
September 26, 1997, and unexercised stock options held by the Named Executive
Officers as of September 26, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
VALUE OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END ($)(2)
SHARES ACQUIRED REALIZED --------------------------------- -------------------------
NAME ON EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lesa A. Sroufe.......... -- -- 43,925 15,575 89,149 19,002
Robert J. Mortell, Jr... -- -- -- -- -- --
Mark A. McClure......... 42,000 110,790 36,750 -- 83,635 --
V. Lawrence Bensussen... 7,000 19,170 7,000 -- 18,240 --
Stanley G. Freimuth..... 35,000 92,325 33,425 -- 91,121 --
</TABLE>
- --------
(1) Calculated based on the difference between the exercise price and the book
value per share on the date of exercise.
(2) Calculated based on the difference between the exercise price and the book
value of $6.36 per share at September 26, 1997.
56
<PAGE>
COMPENSATION PLANS
EXECUTIVE COMPENSATION POOL AND PERFORMANCE BONUS PLAN
RMI's Executive Committee, which currently consists of Stanley G. Freimuth,
Lesa A. Sroufe, Mark A. McClure and Robert J. Mortell, Jr., are compensated
for their management service from a compensation pool (the "Base Pool") and
are further entitled to participate in RMI's executive performance bonus plan
(the "Bonus Plan"). Historically, the Base Pool and the Bonus Plan have been
administered by the Chief Executive Officer. Following the Reorganization, the
Company intends for the Base Pool and the Bonus Plan, if continued, to be
administered by a committee (the "Committee") of the RMGI Board comprised of
nonemployee directors. The Base Pool provides that the management services
component of base salaries for the eligible group is an aggregate of $800,000,
to be divided among the eligible group. The Bonus Plan provides for an award
pool from which awards may be paid to eligible employees. The amount included
in the award pool for any year will equal a percentage of adjusted pretax net
income of RMI for the year, before providing for incentive compensation and
extraordinary items ("Pool Income"). The award pool shall consist of 10% of
Pool Income, if any, from $8,000,000 to $10,000,000; 9% of Pool Income, if
any, from $10,000,000 to $20,000,000; 8% of Pool Income, if any, from
$20,000,000 to $30,000,000; and 7% of Pool Income, if any, in excess of
$30,000,000. At the conclusion of each fiscal year, the award pool is
allocated among the eligible employees; in no event will the percentage
portion of the award pool allocated to any participant exceed 50% of the award
pool. The Committee may establish criteria that it deems appropriate for
awards under the Bonus Plan, which may or may not be tied to pretax operating
income of RMI, so long as the amounts of the awards fall within the maximum
amounts described above. The RMGI Board may at any time terminate, suspend or
modify the Bonus Plan and the terms and conditions of any award thereunder
that has not been paid. No award may be granted under the Bonus Plan during
any period of suspension or after its termination. Awards previously made
under the Bonus Plan for the last fiscal year are reflected in the Summary
Compensation Table.
RESTRICTED STOCK PURCHASE PLAN
The Company plans to implement a Restricted Stock Purchase Plan (the
"Restricted Stock Purchase Plan") upon or shortly after consummation of the
Offering. Certain of RMI's executive officers and other key employees would be
eligible to participate in the Restricted Stock Purchase Plan. Eligible
employees, consisting of employees whose compensation in the prior year
equaled or exceeded $100,000, would be permitted to defer a portion of their
base pay (ranging from 15% of base pay for employees whose compensation is at
least $100,000 to 25% of base pay for employees whose compensation is at least
$500,000) to purchase Common Stock at a discount that similarly would range
from 15% to 25% of the trading price of the Common Stock on the purchase date,
which would be January 1 and July 1 of each year. No later than December 20
and June 20 of each year, eligible employees would have the choice of electing
to use their deferred pay to purchase short-term Treasury Notes at the same
discount that would be available to them for the purchase of Common Stock. The
number of shares of Common Stock available to be purchased under the
Restricted Stock Purchase Plan would be determined annually by the RMGI Board.
If less shares are available than requested, a pro rata share of each eligible
employee's deferrals would be used to purchase Treasury Notes. The Common
Stock and the Treasury Notes would vest over three years following the date of
purchase unless vesting was extended by the plan administrator with the
consent of the employee. The RMGI Board presently intends to allocate
approximately 400,000 shares of Common Stock for issuance pursuant to the
Restricted Stock Purchase Plan. These shares would be issued under the 1998
Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company also plans to implement on Employee Stock Purchase Plan (the
"ESPP") upon or shortly after consummation of the Offering. The ESPP is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended, and permits eligible employees of the Company and its subsidiaries to
purchase Common Stock through payroll deductions of up to 15% of their
compensation, provided that no employee may purchase Common Stock worth more
than $15,000 in any calendar year. Employees who are eligible to
57
<PAGE>
participate in the Restricted Stock Purchase Plan will not be eligible to
participate in the ESPP. An aggregate of 200,000 shares of Common Stock are
authorized for issuance under the ESPP.
The ESPP will be implemented with six-month offering periods, the first such
period to commence on July 1, 1998. Thereafter, offering periods will begin on
each January 1 and July 1. The price of Common Stock purchased under the ESPP
will be the lesser of 85% of the average fair market value of the Common Stock
during the offering period and 85% of the fair market value of the Common
Stock on the last day of the offering period, except that the price cannot be
less than the lesser of 85% of the fair market value on the first and last day
of the offering period. The RMGI Board may establish a different purchase
price for any future offerings that is not less than 85% of the lesser of the
fair market value of the Common Stock on the first and last day of the
offering period. The ESPP does not have a fixed expiration date, but may be
terminated by the RMGI Board at any time. No shares have been issued under the
ESPP.
1998 STOCK INCENTIVE COMPENSATION PLAN
The purpose of the 1998 Plan is to enhance the long-term shareholder value
of the Company by offering employees, directors, officers, consultants,
agents, advisors and independent contractors of the Company and its
subsidiaries an opportunity to participate in the Company's growth and
success, and to encourage them to remain in the service of the Company and its
subsidiaries and to acquire and maintain stock ownership in the Company. The
1998 Plan includes stock option, stock appreciation right ("SAR"), stock award
(including restricted stock), performance award and other stock-based award
features. The 1998 Plan is a long-term incentive compensation plan that is
designed to provide a competitive and balanced incentive reward program for
participants. Upon consummation of the Offering, a maximum of 2,000,000 shares
of Common Stock will be available for issuance under the 1998 Plan.
Approximately 285 persons will be eligible to receive awards under the 1998
Plan. No awards will be made under the 1998 Plan until after consummation of
the Offering.
Stock Option Grants. The Compensation Committee of the RMGI Board (the "Plan
Administrator") will have the authority to select individuals who are to
receive options under the 1998 Plan and to specify the terms and conditions of
each option so granted (incentive or nonqualified), the exercise price (which
must be at least equal to the fair market value of the Common Stock on the
date of grant with respect to incentive stock options), the vesting provisions
and the option term. For purposes of the 1998 Plan, fair market value means
the closing price as reported by The Nasdaq Stock Market on the date of grant.
Unless otherwise provided by the Plan Administrator, an option granted under
the 1998 Plan expires three years from the date of grant or, if earlier, three
months after termination of the optionee's employment or services, other than
termination for cause, and except that, in the case of disability or death,
the option will be exercisable for a one-year period after such termination.
Stock Appreciation Rights. The Plan Administrator may grant SARs separately
or in tandem with a stock option award. A SAR is an incentive award that
permits the holder to receive, for each share covered by the SAR, an amount
equal to the amount by which the fair market value of a share of Common Stock
on the date of exercise exceeds the exercise price of such share (the "base
price"). A SAR granted in tandem with a related option will generally have the
same terms and provisions as the related option with respect to
exercisability, and the base price of such SAR will generally be equal to the
exercise price under the related option. A SAR granted separately will have
such terms as the Plan Administrator may determine, except that, unless
otherwise established by the Plan Administrator, a standalone SAR will have a
10-year term, will have a base price at least equal to 85% of the fair market
value of the Common Stock and will be subject to the same provisions relating
to termination of employment or services as stock options.
Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Such restrictions may be based on
continuous service with the Company or its subsidiaries or the achievement of
such performance goals as the Plan Administrator may determine. Holders of
restricted stock are recorded as shareholders of the Company and have, subject
to certain restrictions, all the rights of shareholders with respect to such
shares.
58
<PAGE>
Performance Awards. The Plan Administrator is authorized under the 1998 Plan
to grant performance awards that may be denominated in cash, shares of Common
Stock, or any combination thereof. The Plan Administrator is authorized to
determine the nature, length and starting date of the performance period for
each performance award and the performance objectives to be used in valuing
the performance award and determining the extent to which the performance
award has been earned.
Other Stock-Based Awards. The Plan Administrator may grant other stock-based
awards under the 1998 Plan pursuant to which shares of Common Stock are or may
in the future be acquired, or awards denominated in stock units, including
awards valued using measures other than market value. Such other stock-based
awards may be granted alone or in addition to or in tandem with any award of
any type granted under the 1998 Plan and must be consistent with the 1998
Plan's purpose.
Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
splits and other capital adjustments.
Corporate Transactions. In the event of certain Corporate Transactions (as
defined below), each outstanding option, SAR and restricted stock award under
the 1998 Plan will automatically accelerate so that it will become 100% vested
immediately before the Corporate Transaction, except that acceleration will
not occur if such option, SAR or restricted stock award is, in connection
with the Corporate Transaction, to be assumed by the successor corporation or
parent thereof. Any option, SAR or restricted stock award that is assumed or
replaced in the Corporate Transaction and does not otherwise accelerate at
that time shall be accelerated in the event the holder is an executive officer
and such holder, for Good Reason (as defined in the 1998 Plan), or the
successor corporation, without Cause (as defined in the 1998 Plan), terminates
the holder's employment or services within two years following such Corporate
Transaction. "Corporate Transaction," as defined in the 1998 Plan, includes
(i) the consummation of a merger or consolidation of the Company in which it
is not the surviving corporation or pursuant to which shares of Common Stock
are converted into cash, securities or other property (other than a merger or
consolidation in which holders of the Company's outstanding securities
immediately before such transaction own at least two-thirds of the outstanding
voting securities of the capital stock of the surviving corporation following
such transaction), (ii) the consummation of a sale, lease, exchange or other
transfer of all or substantially all of the Company's assets (other than a
transfer to a majority-owned subsidiary), (iii) the approval by the holders of
Common Stock of any plan or proposal for the Company's liquidation or
dissolution, or (iv) the acquisition by a person, within the meaning of
Section 3(a)(9) or Section 13(d)(3) (as in effect on the date of adoption of
the 1998 Plan) of the Exchange Act of a majority or more of the Company's
outstanding voting securities.
ASSUMED PLANS
Upon consummation of the Reorganization, the Company will assume obligations
of RMI under the 1996 Plan, the 1993 Plan and the 1989 Plan. The terms of the
1996 Plan are substantially the same as the terms of the 1998 Plan. The terms
of the 1993 Plan and the 1989 Plan are substantially the same as the terms of
the 1998 Plan as it relates to stock options. As of May 21, 1998, there were
1,027,866 shares of common stock of RMI issuable upon the exercise of stock
options outstanding and exercisable under the Assumed Plans and 512,655 shares
of common stock of RMI issuable upon the exercise of stock options that the
Company has agreed to issue upon satisfaction of certain performance goals, or
that have been issued and will vest upon satisfaction of certain performance
goals. See Note 12 of Notes to the Company's Consolidated Financial
Statements. No additional options will be granted under the Assumed Plans
after consummation of the Reorganization.
59
<PAGE>
EMPLOYMENT CONTRACTS
Mark A. McClure, the Company's Executive Vice President, is employed by RMI
pursuant to an employment agreement, dated June 16, 1994, as amended by an
addendum dated June 3, 1997 (the "McClure Agreement"). Under the McClure
Agreement, which is effective until his employment is terminated, Mr. McClure
is compensated on a commission basis for his activities as a broker. In
addition, Mr. McClure is obligated to commit 75% to 80% of his time to
management efforts at RMI, for which he is to be compensated with a base
salary of $100,000 per year. The McClure Agreement provides that RMI may
terminate Mr. McClure's employment for "cause," as defined in the McClure
Agreement.
CHANGE-IN-CONTROL ARRANGEMENTS UNDER OPTION PLANS
The vesting of stock options, SARs and restricted stock awards outstanding
under the 1998 Plan and the Assumed Plans may accelerate upon the occurrence
of certain corporate transactions involving the Company, as provided in such
plans. See "Management--Compensation Plans."
BENEFITS TO AFFILIATES FROM THE OFFERING
Certain affiliates of the Company or RMI will benefit from the Offering,
which benefits are described below.
Interests in Share Repurchase Plan
Robert J. Mortell, Jr., a director and executive officer of the Company, is
a participant in the Share Repurchase Plan. Pursuant to the terms of the Share
Repurchase Plan, Mr. Mortell is entitled to receive a cash payment equal to
the difference between the price at which RMI repurchased shares from him
($5.72 per share, based on book value, as required by the Share Repurchase
Plan) and the per share proceeds to the Company in the Offering, provided that
the Offering is completed prior to the end of the eighth quarter after the
date RMI repurchased shares from Mr. Mortell. The Offering is expected to be
completed prior to the end of this period. At an assumed initial public
offering price of $15.00 per share, Mr. Mortell would be entitled to an
aggregate payment of $72,424. The Company expects that such amount will be
paid by the Company within 30 days after closing of the Offering.
Potential Severance Payments Under Noncompetition Agreements
Each of Lesa A. Sroufe, Robert J. Mortell, Jr., Mark A. McClure, V. Lawrence
Bensussen, John L. MacKenzie and Stanley G. Freimuth has entered into a
noncompetition and nonsolicitation agreement with RMI (the "Noncompetition
Agreements") with a 30-month term commencing on the closing of an
underwritten, initial public offering by Ragen MacKenzie Group Incorporated
that results in aggregate net proceeds to Ragen MacKenzie Group Incorporated
and selling shareholders of at least $15,000,000, provided that such offering
occurs on or before December 31, 1998 (a "1998 IPO Closing"). Under the terms
of each Noncompetition Agreement, if any such individual is terminated by RMI
without "cause" (as defined in the Noncompetition Agreement) during the term
of such Noncompetition Agreement, then RMI shall pay such individual a
severance payment equal to the lesser of three months' annual base salary or
the annual base salary that the individual would have received if his or her
employment had continued until the end of such term. In addition, each other
director of RMI has entered into a noncompetition and nonsolicitation
agreement with RMI with a 24-month term commencing on a 1998 IPO Closing,
which agreement provides that if such individual is terminated by RMI without
"cause" during the agreement's term, then RMI shall pay such individual a
severance payment equal to $50,000. The officers and directors that are
parties to the agreements have an interest in the Offering because it
commences the agreements providing for severance payments.
60
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Brooks G. Ragen, 64, a founder of RMI's predecessor and former RMI Chairman
and Chief Executive Officer, is RMI's largest shareholder and a senior, highly
productive retail broker of RMI. In anticipation of the Offering, Mr. Ragen
and the Company have entered into an agreement pursuant to which he intends to
establish and be employed by a newly formed company that will serve as a
correspondent of RMI. A correspondent of RMI is an independent broker-dealer
which contracts with RMI to clear and execute securities transactions on
behalf of the correspondent's customers on a fully disclosed basis, and to
maintain possession or control of all account assets of the correspondent's
customers. The Company believes that after Mr. Ragen's departure, Mr. Ragen or
his new company intends to hire, on or before January 1, 1999, up to three
professional and three administrative employees of the Company, who constitute
Mr. Ragen's current client service team, and one former employee of RMI. Mr.
Ragen has agreed during the term of the agreement, which expires 36 months
after the closing of the Offering, to conduct all or substantially all of his
Commission- and NASD-regulated business, except for business currently
conducted with one outside investment advisor, and certain corporate finance
activities, through RMI. Mr. Ragen has agreed not to compete with RMI
otherwise than through his new company. Mr. Ragen has agreed not to employ
current employees of the Company who are subject to noncompetition agreements
until after January 1, 2001. If he does not form the new company, Mr. Ragen
has agreed to be bound by the terms of a 30-month noncompetition agreement
substantially similar to that entered into by the senior executives of the
Company. See "Employment Contracts, Termination of Employment and Change-in-
Control Arrangements." Although the Company has structured fees charged to Mr.
Ragen's new company in a way that it believes to be fair to both parties,
there can be no assurance that Mr. Ragen's departure will not have a material
adverse effect on the Company's business, financial condition, results of
operations, cash flows or prospects. See "Risk Factors--Risks Relating to
Departure of Brooks G. Ragen." As part of its understanding with Mr. Ragen,
the Company has agreed that Mr. Ragen may sell in the Offering at least 40% of
the shares that he will own in the Company as of the Reorganization, and as
reasonably close to 50% of the shares as possible. A portion of such shares
will be sold in the primary offering in the Offering, and the balance will be
included in the underwriters' over-allotment option. Mr. Ragen has agreed
that, except for those shares sold in the Offering, he will be subject to the
same restrictions on transfer that apply to other employees of the Company.
Although Mr. Ragen and the Company have agreed to release claims that he or it
may have against the other, neither the Company nor Mr. Ragen currently has
any pending claims against the other. Mr. Ragen has agreed that, once it has
been formed, Mr. Ragen's new company will become a party to the agreement
between Mr. Ragen and the Company. Mr. Ragen will continue to receive
compensation with respect to corporate finance advisory assignments originated
by him. The portion of fees payable to Mr. Ragen will vary depending on
various factors, including his role in originating the transaction. With
respect to one ongoing assignment, RMI has agreed to pay Mr. Ragen 17.5% of
the fees, if any, earned by RMI, which could result in payments to Mr. Ragen
of fees between $100,000 and $200,000. See "Risk Factors--Risks Relating to
Departure of Brooks G. Ragen."
Cameron B. Ragen, Brooks Ragen's son, has been employed by the Company since
September 1994. For the fiscal years ended September 29, 1995, September 27,
1996 and September 26, 1997 and the six months ended March 27, 1998, Cameron
B. Ragen received compensation of $59,116, $89,468, $112,965 and $78,458,
respectively. Teresa A. James, John MacKenzie's daughter, has been employed by
the Company since August 1992. For the fiscal years ended September 29, 1995,
September 27, 1996 and September 26, 1997 and the six months ended March 27,
1998, Teresa A. James received compensation of $94,007, $86,070, $98,992 and
$42,284, respectively. William R. Mortell, Robert J. Mortell Jr.'s son, has
been employed by the Company since February 1994. For the fiscal years ended
September 29, 1995, September 27, 1996 and September 26, 1997 and the six
months ended March 27, 1998, William R. Mortell received compensation of
$28,795, $39,504, $48,025 and $35,500, respectively. The Company believes that
the terms of such employment were at least as favorable to the Company as
would have been obtainable in arm's-length dealings with unrelated third
parties.
Robert J. Mortell, Jr., an executive officer and director of the Company, is
a participant in the Share Repurchase Plan, pursuant to which RMI redeemed
from Mr. Mortell 8,800 shares of common stock of RMI on
61
<PAGE>
April 11, 1997 for $50,336 (the book value of the shares as of the end of the
Company's fiscal quarter preceding redemption). Under the Share Repurchase
Plan, Mr. Mortell will be entitled to a cash payment equal to the difference
between the book value of the shares at the time of the redemption and the
initial public offering price in the Offering. This payment by RMI to
Mr. Mortell may be in excess of $60,000.
Peter B. Madoff, a director nominee to the RMGI Board, is Senior Managing
Director of Bernard L. Madoff Investment Securities ("BMIS"), which executes
orders to purchase or sell securities at the request of RMI, as one of several
third-party market firms. Payments by BMIS to RMI in connection with such
services were $142,513, $215,712, $220,308 and $166,776 for the fiscal years
ended September 29, 1995, September 27, 1996 and September 26, 1997 and for
the six months ended March 27, 1998, respectively.
Arthur W. Harrigan, Jr., a director nominee to the RMGI Board, is a partner
of the law firm Danielson Harrigan & Tollefson LLP, which the Company has
retained in the current fiscal year in connection with certain matters
relating to the Reorganization and the Offering.
Robert J. Mortell, Jr. and Mark A. McClure have pledged 309,526 and 63,350
shares of common stock of RMI, respectively, to commercial banks as security
for individual lines of credit. The Company has in the past delivered letters
to banks indicating its desire to significantly limit the number of shares of
common stock of RMI held by nonemployees. In particular, the Company has
stated in such letters that, subject to certain regulations requiring RMI to
maintain specified amounts of capital, it has followed a policy of
repurchasing shares of common stock of RMI held by shareholders who default on
loans secured by such shares. The Company intends to notify such banks of the
termination of its repurchase policy upon the consummation of the Offering.
The Company, in the ordinary course of its business, extends credit to
margin accounts in which certain of its officers and directors and director
nominees may have an interest. These extensions of credit have been made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with nonaffiliated
persons, and do not involve more than a normal risk of collectibility or
present other unfavorable features. From time to time and in the ordinary
course of its business, the Company also enters into transactions involving
the purchase or sale of securities as principal from, or to, directors,
officers and employees and accounts in which they have an interest. Such
purchases and sales are effected on substantially the same terms as similar
transactions with unaffiliated third parties.
During fiscal 1995, 1996 and 1997, John MacKenzie's aggregate compensation
from the Company was $536,885, $461,423 and $812,215, respectively. During
fiscal 1995, 1996 and 1997, Brooks Ragen's aggregate compensation from the
Company was $808,094, $487,909 and $699,807, respectively. Mr. Ragen and his
client service team's production accounted for approximately $2.8 million
(3.2%) and $1.5 million (2.9%) of RMI's total revenues in the fiscal year
ended September 26, 1997 and the six-month period ended March 27, 1998,
respectively, and it is estimated that Mr. Ragen's team accounted for a
similar percentage of net income during those periods.
62
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of May 21, 1998, certain information with
respect to the beneficial ownership of the Common Stock by (i) each person
known by the Company to beneficially own more than 5% of the Common Stock,
(ii) each director and director nominee of the Company, (iii) each of the
Named Executive Officers, (iv) each Selling Shareholder and (v) all of the
Company's directors, director nominees and executive officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE NUMBER OF BENEFICIAL OWNERSHIP
OFFERING SHARES AFTER THE OFFERING
-------------------- OFFERED --------------------
NAME AND ADDRESS SHARES PERCENTAGE HEREBY SHARES PERCENTAGE
---------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Brooks G. Ragen............ 1,002,841 9.1% 408,897 593,944 4.7%
c/o Ragen MacKenzie
Incorporated
999 Third Avenue, Suite
4300
Seattle, WA 98104
John L. MacKenzie(1)....... 977,625 8.8 0 977,625 7.8
c/o Ragen MacKenzie
Incorporated
999 Third Avenue, Suite
4300
Seattle, WA 98104
Stanley G. Freimuth........ 556,675 5.0 0 556,675 4.5
c/o Ragen MacKenzie
Incorporated
999 Third Avenue, Suite
4300
Seattle, WA 98104
Lesa A. Sroufe............. 262,500 2.4 0 262,500 2.1
Robert J. Mortell, Jr...... 441,776 4.0 0 441,776 3.5
Mark A. McClure............ 121,100 1.1 0 121,100 *
V. Lawrence Bensussen(2)... 105,000 * 0 105,000 *
Kirby L. Cramer............ 0 * 0 0 *
Arthur W. Harrigan, Jr. ... 0 * 0 0 *
Peter B. Madoff............ 0 * 0 0 *
Gregory B. Maffei.......... 0 * 0 0 *
+Coleen E. Anderson........ 120,000 1.1 35,000 85,000 *
+Sandra J. Devaney......... 15,750 * 2,275 13,475 *
+T. Scott Eaton............ 237,188 2.2 17,500 219,688 1.8
+Bonnie R. Fadden.......... 15,400 * 700 14,700 *
+Timothy H. Ganahl......... 168,784 1.5 47,189 121,595 *
+Peter C. Hanson(3)........ 199,805 1.8 67,536 132,269 1.1
Nancy Ketcham.............. 25,739 * 9,008 16,731 *
David Lewis................ 240,600 2.2 7,000 233,600 1.8
+James B. Lockwood......... 72,800 * 15,260 57,540 *
+Dan Nelson................ 137,000 1.2 18,900 118,100 *
+Barbara A. Powell......... 78,736 * 21,515 57,221 *
+Dale W. Slater............ 221,284 2.0 45,500 175,784 1.4
+Jeanne E. Stauffer(4)..... 63,000 * 2,100 60,900 *
+Robert B. Strong(5)....... 116,858 1.1 17,150 99,708 *
+Thomas B. Tawresey(6)..... 66,489 * 21,000 45,489 *
+James E. Webster.......... 147,810 1.3 33,460 114,350 *
Bagley Wright.............. 170,821 1.5 17,500 153,321 1.2
All directors, director
nominees and executive
officers as a group
(9 persons)(7)............ 1,908,001 17.2 0 1,908,001 15.2
</TABLE>
- --------
* Less than 1%.
+ Employee of RMI.
63
<PAGE>
(1) Includes 50,400 shares issuable upon exercise of stock options that are
exercisable within 60 days of May 21, 1998.
(2) Does not include 35,000 shares that would be issuable upon exercise of a
stock option that the Company currently intends to grant to Mr. Bensussen
at or prior to the consummation of the Offering at an exercise price equal
to the initial public offering price.
(3) Includes 4,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of May 21, 1998.
(4) Includes 9,100 shares issuable upon exercise of stock options that are
exercisable within 60 days of May 21, 1998.
(5) Includes 3,325 shares issuable upon exercise of stock options that are
exercisable within 60 days of May 21, 1998.
(6) Includes 2,500 shares issuable upon exercise of stock options that are
exercisable within 60 days of May 21, 1998.
(7) Includes 50,400 shares issuable upon exercise of stock options that are
exercisable within 60 days of May 21, 1998.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Articles and Bylaws,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part. Immediately prior to the closing of the
Offering, the Company's authorized capital stock will consist of 50,000,000
shares of common stock, $0.01 par value per share ("Common Stock"), and
10,000,000 shares of Preferred Stock.
COMMON STOCK
As of May 21, 1998 (after giving effect to the Reorganization and assuming,
as of May 21, 1998, the conversion of all classes of then outstanding capital
stock into Common Stock immediately prior to the closing of the Offering),
there were 11,027,809 shares of Common Stock outstanding held of record by
approximately 200 shareholders. Subject to preferences that may be applicable
to any Preferred Stock outstanding at the time, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of the Company's liabilities and
the liquidation preference, if any, of any outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no rights to
convert their Common Stock into any other securities, and there are no
redemption provisions with respect to such shares. All the outstanding shares
of Common Stock are fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of Preferred Stock
that the Company may designate and issue in the future.
PREFERRED STOCK
The RMGI Board has the authority to issue up to 10,000,000 shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences, limitations and relative, participating, optional or other rights
thereof, including dividend rights, conversion rights, voting rights,
redemption terms, liquidation preferences and the number of shares
constituting each such series, without any further vote or action by the
Company's shareholders. The Preferred Stock may be issued from time to time in
one or more series as may be determined from time to time by the RMGI Board
and stated in the resolutions providing for the issuance of these shares. The
RMGI Board shall have the authority to fix and determine and to amend the
relative rights of the shares of any series that is not yet issued. No shares
of Preferred Stock have been issued. The issuance of Preferred Stock could
have one or more of the following effects: (i) restrict Common Stock dividends
if Preferred Stock dividends have not been paid, (ii) dilute the voting power
and equity interest of holders of Common Stock to the extent that any series
of Preferred Stock has voting rights or is convertible into Common Stock or
(iii) prevent current holders of Common Stock from participating in the
Company's assets upon liquidation until any liquidation preferences granted to
holders of Preferred Stock are satisfied. In addition, the issuance of
Preferred Stock may, under certain circumstances, have the effect of
discouraging a change in control of the Company by, for example, granting
voting rights to holders of Preferred Stock that require approval by the
separate vote of the holders of Preferred Stock for any amendment to the
Articles or any reorganization, consolidation or merger (or other similar
transaction involving the Company). As a result, the issuance of Preferred
Stock may discourage bids for the Company's Common Stock at a premium over the
market price therefor and could have a material adverse effect on the market
value of the Common Stock. The RMGI Board does not presently intend to issue
any shares of Preferred Stock. See "Risk Factors--Antitakeover
Considerations."
WASHINGTON ANTITAKEOVER STATUTE
Washington law contains certain provisions that may have the effect of
delaying, deterring or preventing a takeover or change in control of the
Company. Chapter 23B.19 of the Washington Business Corporation Act
65
<PAGE>
(the "WBCA") prohibits the Company, with certain exceptions, from engaging in
certain significant business transactions with an "acquiring person" (defined
as a person who acquires 10% or more of the Company's voting securities
without the prior approval of the RMGI Board) for a period of five years after
such acquisition. The prohibited transactions include, among others, a merger
with, disposition of assets to, or issuance or redemption of stock to or from,
the acquiring person, or otherwise allowing the acquiring person to receive
any disproportionate benefit as a shareholder. After the five-year period, the
Company may engage in otherwise proscribed transactions, so long as the
transaction complies with certain fair price provisions of the statute or is
approved by a majority of disinterested shareholders within each voting group
entitled to vote separately. The Company may not exempt itself from coverage
of this statute. These statutory provisions may have the effect of delaying,
deterring or preventing a change in control of the Company.
CERTAIN PROVISIONS IN ARTICLES
The Company's Bylaws permit the RMGI Board to establish by resolution the
authorized number of directors, which shall not be less than three or more
than 15. The Company's Articles provide that the RMGI Board shall be divided
into two classes at the first election of directors after the first primary
public offering of equity securities by the Company pursuant to a registration
statement filed under the Securities Act. At the first election of the
Company's directors to such classified Board of Directors (i) each Class I
director would be elected to a term expiring at the next ensuing annual
meeting of shareholders and (ii) each Class II director would be elected to a
term expiring at the second ensuing annual meeting of shareholders. At each
annual meeting of shareholders following the meeting at which the RMGI Board
would be initially classified, the successors to directors whose terms are
expiring will be elected to serve from the time of election and qualification
until the second annual meeting following election. If necessary to maintain
the relative equality among classes of directors created due to vacancies or
removals of directors, directors may be elected to a class the term of which
expires prior to the second annual meeting of shareholders following such
election. This system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
the Company and may maintain the incumbency of the RMGI Board, as it generally
makes it more difficult for shareholders to replace a majority of directors.
Under Washington law, a merger, share exchange, dissolution or sale of
substantially all the assets of a corporation must be approved by each voting
group entitled to vote separately by two-thirds of all the votes entitled to
be cast, unless otherwise provided in the articles of incorporation. Under
Washington law, a corporation may provide for a greater or lesser vote, so
long as the vote provided for each voting group entitled to vote separately is
not less than a majority of all the votes entitled to be cast by that voting
group. The Company's Articles require that certain business combinations
(including a merger, share exchange and the sale, lease, exchange, mortgage,
pledge, transfer or other disposition or encumbrance of a substantial part of
the Company's assets other than in the usual and regular course of business)
be approved by the holders of not less than two-thirds of the outstanding
shares, unless such business combination has been approved by a majority of
Continuing Directors (defined as those individuals who were members of the
RMGI Board on April 30, 1998 or were elected thereafter on the recommendation
of a majority of Continuing Directors), in which case the affirmative vote
required shall be a majority of the outstanding shares. Under the Company's
Articles and Bylaws, the shareholders may call a special meeting only upon the
request of holders of at least 25% of the outstanding shares. The Articles
also provide that changes to certain provisions of the Articles, including
those regarding amendment of certain provisions of the Company's Bylaws or
Articles, the classified Board of Directors, special voting provisions for
business combinations and special meetings of shareholders, must be approved
by the holders of not less than two-thirds of the outstanding shares.
The foregoing provisions of the Company's Articles may have the effect of
delaying, deterring or preventing a change in control of the Company.
66
<PAGE>
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Articles include a provision that limits the liability of the Company's
directors to the fullest extent permitted by the WBCA as it currently exists
or as it may be amended in the future. Consequently, subject to the WBCA, no
person shall be liable to the Company or its shareholders for monetary damages
resulting from such person's conduct as a director of the Company. Amendments
to the Articles may not adversely affect any right of a director of the
Company with respect to acts or omissions occurring prior to such amendment.
Section 23B.08.320 of the WBCA provides that the Articles may not limit any
director's liability for acts or omissions involving intentional misconduct or
knowing violations of law, unlawful distributions or transactions from which
the director personally receives benefits in money, property or services to
which the director is not legally entitled. In addition, Washington law
provides for broad indemnification by the Company of its officers and
directors. The Company's Bylaws implement this indemnification. Insofar as the
indemnity for liabilities arising under the Securities Act may be permitted to
directors or officers of the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 12,490,309 shares of
Common Stock outstanding (assuming no further exercises of outstanding vested
options to acquire Common Stock after May 21, 1998). As of May 21, 1998, there
were 1,027,866 shares issuable upon exercise of outstanding vested options.
All of the shares of Common Stock outstanding immediately prior to the
Offering were registered in connection with the Reorganization on a
registration statement on Form S-4. Common Stock received by nonaffiliates of
Ragen MacKenzie Group Incorporated or RMI in the Reorganization or purchased
in the Offering are freely resalable without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), unless subject to restrictions
on resale under lock-up agreements with the Underwriters. Approximately
10,519,808 shares, including shares issuable upon exercise of outstanding
vested options, are subject to lock-up agreements in addition to any notice,
manner of sale and volume restrictions that may be imposed on affiliates of
Ragen MacKenzie Group Incorporated or of RMI by Rule 145, with respect to
shares received in the Reorganization, and on affiliates of Ragen MacKenzie
Group Incorporated by Rule 144, with respect to shares purchased in the
Offering or acquired upon exercise of options registered after the Offering.
Under the lock-up agreements, the Company, all executive officers and
directors of the Company, the Selling Shareholders and certain other holders
of Common Stock have agreed not to sell, directly or indirectly, or, in
certain circumstances, have agreed to restrict sales of, during certain
periods, any shares owned by them without the prior written consent of Raymond
James. An aggregate of approximately 10,519,808 shares, including shares
issuable upon exercise of outstanding vested options, are subject to such
lock-up agreements. Of these shares, the following number of shares will be
available for sale free of the lock-up agreements at the following times,
subject to, in certain instances, the resale limitations of Rules 144 and 145:
160,321 shares 90 days following the closing of the Offering, 2,165,291
additional shares 180 days following the closing of the Offering,
616,169 additional shares 270 days following the closing of the Offering and
7,578,027 additional shares 360 days following the closing of the Offering.
Raymond James may, in its sole discretion, and at any time without notice,
release all or any portion of the shares subject to the lock-up agreements.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who is an affiliate of Ragen MacKenzie Group
Incorporated would be entitled to sell, within any three-month period, that
number of shares that does not exceed the greater of 1% of the then-
outstanding shares of Common Stock (approximately 124,903 shares) and the
average weekly trading volume in the Common Stock during the four calendar
weeks immediately preceding the date on which the notice of sale is filed with
the Commission, provided that certain manner of sale and notice requirements
and requirements as to the availability of current public information about
the Company are satisfied (the "Permitted Amount"). As defined in Rule 144, an
"affiliate" of an issuer is a person who directly or indirectly through the
use of one or more intermediaries controls, or is controlled by, or is under
common control with, such issuer.
In general, under Rule 145, as currently in effect, a person (or persons
whose shares are aggregated) who is an affiliate of Ragen MacKenzie Group
Incorporated (whether or not an affiliate of RMI) would be entitled to sell
the Permitted Amount. Affiliates of RMI who are not affiliates of Ragen
MacKenzie Group Incorporated may (i) sell the Permitted Amount, (ii) sell
shares subject only to the requirement of current public information about the
Company once the shares are held at least one year after the date of
acquisition and (iii) freely sell their shares two years after the date of
acquisition. Nonaffiliates of both Ragen MacKenzie Group Incorporated and RMI
are not subject to the restrictions of Rule 144 or 145.
The Company intends to file a registration statement on Form S-8 under the
Securities Act immediately following the consummation of the Reorganization to
register the future issuance of shares of Common Stock under the Assumed
Plans, the 1998 Plan and the ESPP. Shares issued under the Assumed Plans and
the 1998 Plan after the effective date of the Form S-8 will be freely
tradeable in the open market, unless subject to the lock-up agreements and, in
the case of sales by affiliates of Ragen MacKenzie Group Incorporated, subject
to certain requirements of Rule 144. As of May 21, 1998, options to purchase
approximately 1,027,866 such shares of Common Stock were vested.
68
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a significant public market for the Common
Stock will be developed or be sustained after the Offering. The Company is
unable to estimate the number of shares that may be sold in the future by its
existing shareholders or the effect, if any, that such sales will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the prospect of such sales, could
adversely affect the market price of the Common Stock or the future ability of
the Company to raise capital through an offering of equity securities.
69
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions contained in the Underwriting
Agreement dated as of the date hereof, each Underwriter named below has
severally agreed to purchase, and the Company and the Selling Shareholders
have agreed to sell to such Underwriter, the number of shares of Common Stock
set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
---- ------------
<S> <C>
Raymond James & Associates, Inc. ...............................
Ragen MacKenzie Incorporated....................................
---------
Total ........................................................ 2,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Raymond James and RMI are acting as
Representatives, propose to offer part of the shares directly to the public at
the initial public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price that
represents a concession not in excess of $ per share under the initial
public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. The Representatives have advised the Company that the Underwriters do
not intend to confirm any sales to any accounts over which they exercise
discretionary authority. Raymond James has from time to time provided advisory
services to the Company and has received compensation therefor.
Although RMI, a subsidiary of the Company, is acting as one of the
Representatives, under the terms of the Underwriting Agreement, it is not
empowered to make decisions or to take action on behalf of all the
Underwriters without the consent of Raymond James. Thus, the consent of
Raymond James will be required to approve legal and other documents required
to be delivered by or on behalf of the Company and to determine whether
certain conditions to the consummation of the Offering have been satisfied or
to waive the satisfaction of such conditions.
RMI has committed to purchase from the Company and the Selling Shareholders
approximately % of the shares of Common Stock being offered hereby on the
same basis as the other Underwriters. To the extent that part or all of such
shares are not resold by RMI at a price equal to the per share Proceeds to
Company set forth on the cover page of this Prospectus, the funds derived from
the Offering by the Company and its subsidiaries on a consolidated basis would
be reduced. Future resales of such shares by RMI, if made at a price per share
less than the per share amount of Proceeds to Company, could also result in
additional dilution to purchasers of Common Stock in the Offering, and any
such sales could have an adverse effect on the market price of the Common
Stock. Moreover, until resold, any such shares will be eliminated in
consolidation as if they were not outstanding for purposes of any future
computation of earnings per common share and book value per common share. RMI
intends to resell any shares that it is unable to resell in the Offering from
time to time, at prevailing market prices, subject to applicable prospectus
delivery requirements. During any period that RMI is reselling shares, the
Company and RMI will be subject to restrictions imposed by Regulation M under
the Exchange Act on any repurchase of Common Stock. Certain of the Selling
Shareholders are account executives of the Company and will receive
commissions, on the same basis as other account executives of RMI, with
respect to any shares of Common Stock that he or she sells (as an account
executive) in the Offering.
70
<PAGE>
The Selling Shareholders have granted the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
337,500 additional shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, excluding the underwriting
discounts and commissions. The Underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, in connection with the
Offering. To the extent that such option is exercised, each Underwriter will
be obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares set forth
opposite each Underwriter's name above bears to the total number of shares
listed above.
The Representatives have informed the Company that they do not expect sales
to accounts over which the Underwriters have discretionary authority to exceed
five percent of the total number of shares of Common Stock offered by them.
The Company, all executive officers and directors of the Company, the
Selling Shareholders and certain other shareholders have agreed not to sell,
directly or indirectly during certain periods, or to limit sales during
certain periods, any shares owned by them without the prior written consent of
Raymond James pursuant to the terms of certain lock-up agreements for periods
ranging from 90 to 360 days after consummation of the Offering.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
DETERMINATION OF PRICE
Under Rule 2720 of the NASD Conduct Rules, when a member of the NASD, such
as RMI, participates in the distribution of its parent company's securities,
the public offering price can be no higher than that recommended by a
"Qualified Independent Underwriter" meeting certain standards. In accordance
with this requirement, Raymond James has agreed to serve in such a role by
recommending the initial public offering price and by conducting due
diligence.
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop on
completion of the Offering. The initial public offering price will be
determined by negotiations between the Company and the Underwriters in
accordance with the recommendation of Raymond James in its role as a
"Qualified Independent Underwriter." Among the factors considered in
determining the initial public offering price will be the information set
forth in this Prospectus and otherwise available to Raymond James, an
evaluation of the growth rate, earnings, assets, capital structure, relative
competitive position and earnings potential of the Company and its industry,
market prices of and financial and operating data concerning comparable
companies with publicly traded securities, and the general condition of the
securities markets at the time of the Offering.
SUBSEQUENT RESTRICTIONS
Securities industry regulations prohibit a member corporation, after the
completion of a distribution of securities of its parent to the public, from
effecting any transaction (except on an unsolicited basis) for the account of
any customer in, or making any recommendation with respect to, any such
security. Thus, following the Offering, RMI and the Company will not be
permitted to make recommendations regarding the purchase or sale of the Common
Stock.
Pursuant to the NASD Bylaws, if any employee of RMI, any person associated
(as defined in such Bylaws) with RMI or any of the Company's other
subsidiaries, or any immediate family member of such employee or associated
person, purchases any of the shares offered hereby, such person may not sell,
transfer, assign, pledge or hypothecate such shares for a period of five
months following the effective date of the Offering.
71
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed on for the Company by Perkins Coie LLP,
Seattle, Washington. Certain legal matters will be passed on for the
Underwriters by Graham & James LLP/Riddell Williams P.S. Certain legal matters
will be passed on for the Selling Shareholders by Preston Gates & Ellis LLP.
EXPERTS
The consolidated financial statements of Ragen MacKenzie Group Incorporated
as of September 26, 1997 and September 27, 1996 and for each of the three
years in the period ended September 26, 1997, included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This Prospectus, which constitutes part of the
Registration Statement, omits certain information contained in the
Registration Statement and the exhibits thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. The Commission also maintains a web site that contains a copy of
the Registration Statement and all exhibits thereto, as well as reports, proxy
and information statements and other information regarding registrants that
file electronically, including the Company, with the Commission at
http://www.sec.gov. The Registration Statement, including the exhibits
thereto, may be inspected on the Commission's web site or inspected or copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
copies may be obtained at the prescribed rates from the Public Reference
Section of the Commission at its principal office in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by independent auditors and may furnish its shareholders with
quarterly reports for the first three quarters of each fiscal year containing
unaudited summary consolidated financial information.
72
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Statements of Financial Condition as of September 27, 1996,
September 26, 1997 and
March 27, 1998 (unaudited).............................................. F-3
Consolidated Statements of Income for the Fiscal Years Ended September
29, 1995, September 27, 1996 and September 26, 1997 and the Six-Month
Periods Ended March 28, 1997 (unaudited) and
March 27, 1998 (unaudited).............................................. F-4
Consolidated Statements of Cash Flows for the Fiscal Years Ended
September 29, 1995, September 27, 1996 and September 26, 1997 and the
Six-Month Periods Ended March 28, 1997 (unaudited) and
March 27, 1998 (unaudited).............................................. F-5
Consolidated Statements of Changes in Shareholders' Equity for the Fiscal
Years Ended September 29, 1995, September 27, 1996 and September 26,
1997 and the Six-Month Period Ended March 27, 1998 (unaudited).......... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
The accompanying consolidated financial statements give effect to the
completion of the formation of Ragen MacKenzie Group Incorporated as the
holding company for all operations of Ragen MacKenzie Incorporated, and the
reorganization of Ragen MacKenzie Incorporated pursuant to which it will
become a wholly-owned subsidiary of Ragen MacKenzie Group Incorporated, which
will take place prior to the effective date of the Offering. The following
report is in the form which will be furnished by Deloitte & Touche LLP upon
completion of the formation of the holding company and the reorganization as
described in Note 1 to the consolidated financial statements and assuming that
from June 1, 1998 to the date of such completion no other material events have
occurred that would affect the accompanying consolidated financial statements
or required disclosures therein.
"INDEPENDENT AUDITORS' REPORT
Board of Directors
Ragen MacKenzie Group Incorporated
Seattle, Washington
We have audited the accompanying consolidated statements of financial
condition of Ragen MacKenzie Group Incorporated and subsidiary (the Company)
as of September 26, 1997, and September 27, 1996, and the related consolidated
statements of income, cash flows, and changes in shareholders' equity for each
of the three years in the period ended September 26, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Ragen MacKenzie Group
Incorporated and subsidiary as of September 26, 1997, and September 27, 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended September 26, 1997, in conformity with generally
accepted accounting principles.
Seattle, Washington"
Deloitte & Touche LLP
Seattle, Washington
June 1, 1998
F-2
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 26, MARCH 27,
1996 1997 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH................................... $ 1,770 $ 4,980 $ 4,518
CASH AND MARKET VALUE OF SECURITIES
SEGREGATED FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS.......................... 226,766 306,704 317,555
DEPOSITS WITH CLEARING ORGANIZATIONS... 1,007 1,007 1,207
RECEIVABLE FROM:
Brokers, dealers, and clearing
organizations....................... 1,466 1,399 3,562
Customers............................ 86,709 105,378 105,814
SECURITIES OWNED, at market value...... 78,681 122,778 132,822
SECURITIES PURCHASED UNDER AGREEMENTS
TO RESELL............................. 75,343 111,917 123,097
SECURITIES BORROWED.................... 5,781 8,097 4,606
FURNITURE, EQUIPMENT, AND LEASEHOLD
IMPROVEMENTS, at cost, less
accumulated depreciation and
amortization of $3,205, $3,629, and
$3,867 (unaudited).................... 844 888 989
OTHER ASSETS........................... 5,601 2,729 3,144
-------- -------- --------
TOTAL.................................. $483,968 $665,877 $697,314
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Borrowings........................... $ 20,325 $ 17,750 $ 56,900
Payable to:
Brokers, dealers, and clearing
organizations...................... 4,374 10,300 9,648
Customers, including free credit
balances of $274,939, $391,602, and
$373,537 (unaudited)............... 289,224 406,017 387,595
Securities sold but not yet
purchased, at market value.......... 69,600 106,629 118,148
Securities sold under agreement to
repurchase.......................... 34,688 41,600 35,125
Accrued compensation and related
benefits............................ 9,018 8,139 6,194
Other liabilities and accrued
expenses............................ 4,216 5,194 3,822
-------- -------- --------
Total liabilities.................. 431,445 595,629 617,432
COMMITMENTS AND CONTINGENCIES (Notes 9
and 15)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value--
Authorized 10,000,000 shares; no
shares issued and outstanding....... -- -- --
Common stock, $0.01 par value--
Authorized, 50,000,000 shares;
issued and outstanding, 9,893,100,
10,242,889, and 10,790,870
(unaudited) shares.................. 99 102 108
Additional paid-in capital........... 18,244 20,577 22,950
Retained earnings.................... 34,180 49,569 56,824
-------- -------- --------
Total shareholders' equity......... 52,523 70,248 79,882
-------- -------- --------
TOTAL.................................. $483,968 $665,877 $697,314
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX-MONTH PERIOD ENDED
----------------------------------------- -----------------------
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 26, MARCH 28, MARCH 27,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Principal
transactions, net.... $21,683 $23,526 $23,566 $11,240 $12,912
Commissions........... 19,553 28,516 30,758 14,588 17,821
Other................. 2,524 3,569 4,078 2,219 3,034
------- ------- ------- ------- -------
Total operating
revenues........... 43,760 55,611 58,402 28,047 33,767
Interest income....... 18,641 24,210 30,179 13,932 18,365
------- ------- ------- ------- -------
Total revenues...... 62,401 79,821 88,581 41,979 52,132
Interest expense...... 13,052 16,230 19,694 9,138 12,154
------- ------- ------- ------- -------
Net revenues........ 49,349 63,591 68,887 32,841 39,978
------- ------- ------- ------- -------
NON-INTEREST EXPENSES:
Compensation and
benefits............. 25,925 33,924 35,176 16,878 20,728
Key person death
benefits plan........ 2,450 (5,000) (5,000)
Occupancy and
equipment............ 3,949 3,938 4,714 2,097 2,641
Communications........ 2,588 2,776 3,276 1,528 1,774
Clearing and exchange
fees................. 2,282 2,344 2,338 1,161 1,428
Other................. 2,381 3,854 3,534 1,837 1,634
------- ------- ------- ------- -------
Total non-interest
expenses........... 39,575 46,836 44,038 18,501 28,205
------- ------- ------- ------- -------
INCOME BEFORE TAXES ON
INCOME................. 9,774 16,755 24,849 14,340 11,773
TAXES ON INCOME......... 3,672 6,254 9,460 5,348 4,518
------- ------- ------- ------- -------
NET INCOME.............. $ 6,102 $10,501 $15,389 $ 8,992 $ 7,255
======= ======= ======= ======= =======
EARNINGS PER COMMON
SHARE:
Basic................. $ 0.73 $ 1.10 $ 1.54 $ 0.91 $ 0.70
Diluted............... 0.68 1.04 1.44 0.85 0.66
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX-MONTH PERIOD ENDED
----------------------------------------- -----------------------
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 26, MARCH 28, MARCH 27,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............. $ 6,102 $10,501 $15,389 $ 8,992 $ 7,255
Adjustments to
reconcile net income
to net cash provided
(used) by operating
activities:
Depreciation and
amortization......... 424 377 425 195 238
Noncash key person
death benefits plan
expense (reversal)... 2,450 (5,000) (5,000)
Stock option expense.. 955 3,125 2,223 1,323 1,150
Deferred tax expense
(benefit)............ (1,164) (716) 2,476 2,214 (37)
Cash provided (used)
by changes in
operating assets and
liabilities:
Cash and market value
of securities
segregated for the
exclusive benefit of
customers............ (69,866) (25,961) (79,938) (61,586) (10,851)
Deposits with
clearing
organizations........ (240) 10 (200)
Receivable from:
Brokers/dealers and
clearing
organizations....... (513) 1,539 67 (2,084) (2,163)
Customers............ (4,380) (27,101) (18,669) 947 (436)
Securities owned...... (36,268) 2,634 (44,097) (25,393) (10,044)
Securities purchased
under agreements to
resell............... (21,135) 1,996 (36,574) (26,641) (11,180)
Securities borrowed... (1,754) 862 (2,316) 1,122 3,491
Other assets.......... 89 (791) 396 (1,639) (378)
Payable to:
Brokers/dealers and
clearing
organizations....... (420) (887) 5,926 6,526 (652)
Customers............ 75,696 38,297 116,791 52,882 (18,422)
Securities sold but
not yet purchased.... 22,733 (9,930) 37,029 27,663 11,519
Securities sold under
agreement to
repurchase........... (15,698) 31,836 6,912 (719) (6,475)
Accrued compensation
and related
benefits............. (1,439) 988 4,122 1,261 (1,945)
Other liabilities and
accrued expenses..... 2,031 405 979 (604) (1,372)
------- ------- ------- ------- -------
Net cash provided
(used) by operating
activities, carried
forward............... (42,397) 27,184 6,141 (20,541) (40,502)
------- ------- ------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX-MONTH PERIOD ENDED
----------------------------------------- -----------------------
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 26, MARCH 28, MARCH 27,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided
(used) by operating
activities,
brought forward....... $(42,397) $27,184 $ 6,141 $(20,541) $(40,502)
-------- ------- ------- -------- --------
INVESTING ACTIVITIES:
Purchases of furniture,
equipment, and
leasehold
improvements.......... (232) (246) (469) (382) (339)
-------- ------- ------- -------- --------
FINANCING ACTIVITIES:
Proceeds from
(repayment) of
borrowings, net....... 40,982 (27,557) (2,575) 20,475 39,150
Proceeds from issuance
of common stock....... 2,211 2,233 1,830 993 2,058
Repurchases of common
stock................. (403) (1,112) (1,717) (823) (829)
-------- ------- ------- -------- --------
Net cash provided
(used) by financing
activities............ 42,790 (26,436) (2,462) 20,645 40,379
-------- ------- ------- -------- --------
INCREASE (DECREASE) IN
CASH................... 161 502 3,210 (278) (462)
CASH:
Beginning of period.... 1,107 1,268 1,770 1,770 4,980
-------- ------- ------- -------- --------
End of period.......... $ 1,268 $ 1,770 $ 4,980 $ 1,492 $ 4,518
======== ======= ======= ======== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for:
Interest............... $ 13,399 $15,959 $19,797 $ 9,165 $ 12,379
Federal income taxes... 4,450 7,700 6,000 4,500 5,600
Conversion of
subordinated loans to
common stock.......... 815
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, October 1, 1994....... 8,009,827 $ 80 $10,439 $17,577 $28,096
Stock options exercised....... 1,152,816 12 2,199 2,211
Repurchase and retirement of
common stock................. (141,400) (2) (401) (403)
Conversion of subordinated
loans to common stock........ 285,250 3 812 815
Noncash compensation--Stock
Options...................... 955 955
Net income.................... 6,102 6,102
---------- ---- ------- ------- -------
BALANCE, September 29, 1995.... 9,306,493 93 14,004 23,679 37,776
Stock options exercised....... 879,032 9 2,224 2,233
Repurchase and retirement of
common stock................. (292,425) (3) (1,109) (1,112)
Noncash compensation--Stock
Options...................... 3,125 3,125
Net income.................... 10,501 10,501
---------- ---- ------- ------- -------
BALANCE, September 27, 1996.... 9,893,100 99 18,244 34,180 52,523
Stock options exercised....... 670,425 7 1,812 1,819
Repurchase and retirement of
common stock................. (322,770) (4) (1,713) (1,717)
Issuance of common stock...... 2,134 11 11
Noncash compensation--Stock
Options...................... 2,223 2,223
Net income.................... 15,389 15,389
---------- ---- ------- ------- -------
BALANCE, September 26, 1997.... 10,242,889 102 20,577 49,569 70,248
Stock options exercised
(unaudited).................. 670,950 7 2,022 2,029
Repurchase and retirement of
common stock (unaudited)..... (127,402) (1) (828) (829)
Issuance of common stock
(unaudited).................. 4,433 29 29
Noncash compensation--Stock
Options (unaudited).......... 1,150 1,150
Net income (unaudited)........ 7,255 7,255
---------- ---- ------- ------- -------
BALANCE, March 27, 1998
(unaudited)................... 10,790,870 $108 $22,950 $56,824 $79,882
========== ==== ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
Corporate reorganization: Ragen MacKenzie Group Incorporated, a Washington
corporation, was formed for the purpose of becoming the holding company and
sole shareholder of Ragen MacKenzie Incorporated (RMI). In June 1998, the
shareholders of RMI approved the Agreement and Plan of Merger (the "merger
agreement") pursuant to which their shares of RMI were converted into an equal
number of shares of Ragen MacKenzie Group Incorporated, and under which RMI
became a wholly owned subsidiary of Ragen MacKenzie Group Incorporated. In
addition, the merger agreement provided that Ragen MacKenzie Group
Incorporated assumed the obligations of RMI with respect to RMI's outstanding
stock options to purchase or acquire shares of common stock of RMI granted
pursuant to RMI's option plans and other arrangements entitling persons to
receive stock options.
As RMI and Ragen MacKenzie Group Incorporated were entities under common
control, the accompanying financial statements give effect to the exchange and
merger as if it were a pooling-of-interest. Accordingly, the financial
statements reflect the transaction as if it had occurred as of the beginning
of the earliest period presented, and the assets, liabilities and
shareholders' equity are recorded based upon their historical carrying
amounts. No intangible assets were created and recorded as a result of this
transaction.
Nature of operations: RMI is engaged in securities brokerage and related
investment services that include retail and institutional brokerage of
securities, investment research, market making, trading, underwriting, and
distribution of corporate securities and correspondent clearing. RMI is
registered with the Securities and Exchange Commission (the SEC) as a
broker/dealer, is a member firm of the New York Stock Exchange (the NYSE) and
has retail offices located in Washington, Oregon, and Alaska.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements include the
accounts of Ragen MacKenzie Group Incorporated and its subsidiary, RMI
(collectively the Company). All significant intercompany accounts and
transactions have been eliminated upon consolidation.
Reporting period: The Company utilizes fiscal periods to report its results
of operations. The Company's fiscal year ends on the Friday on or immediately
prior to September 30. Results of operations for the fiscal years ended
September 29, 1995, September 27, 1996, and September 26, 1997 consist of 52-
week periods. Results of operations for the six-month periods ended March 28,
1997 and March 27, 1998 consist of 26-week periods.
Revenue recognition: Principal transactions and commission revenue and
expense are generally recorded on a settlement date basis, which is not
materially different from recording such transactions at trade date.
Securities owned and securities sold but not yet purchased are recorded at
quoted fair values, with resulting unrealized appreciation and depreciation
included in revenues from principal transactions.
Fair value of financial instruments: All of the Company's financial
instruments are carried at fair value or contracted amounts which approximate
fair value.
Assets, which are recorded at contracted amounts approximating fair value,
consist primarily of short-term secured receivables, including securities
purchased under agreements to resell, securities borrowed, and certain other
receivables. Similarly, the Company's short-term liabilities, including
borrowings, securities sold under agreements to repurchase, and certain other
payables, are recorded at contracted amounts approximating fair value. These
instruments generally have variable interest rates and short-term maturities,
in many cases overnight, and, accordingly, are not materially affected by
changes in interest rates.
F-8
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
Cash: Cash as reflected in the consolidated statements of cash flows
consists of balances in bank accounts used in operations and excludes amounts
held for the exclusive benefit of customers pursuant to SEC Rule 15c3-3.
Receivable from and payable to brokers/dealers: Amounts receivable from and
payable to brokers/dealers consist primarily of the contract value of
securities which have not been delivered or received as of the date of the
statement of financial condition.
Receivable from and payable to customers: Amounts receivable from and
payable to customers arise from normal securities margin and cash
transactions. Securities owned by customers and either held as collateral for
these transactions or held in safekeeping are not reflected in the statements
of financial condition. Management considers the receivable adequately
collateralized. As such, no allowances for credit losses have been provided
for the receivables. Receivables from and payable to customers are recorded on
a settlement date basis, which is not materially different from recording such
transactions at trade date.
Securities under agreement to resell and repurchase: Repurchase and resale
agreements are treated as financing arrangements and are carried at contract
amounts reflective of the amounts at which the securities will be subsequently
reacquired or resold as specified in the respective agreements. Resale
agreements are collateralized by U.S. Government and government agency
obligations. The Company's policy is to take physical possession or control of
securities purchased under agreements to resell. The Company monitors the
market value of the underlying securities as compared to the related
receivable, including accrued interest, and requires additional collateral
where deemed appropriate.
Furniture, equipment, and leasehold improvements: Furniture and equipment
are stated at cost, and are depreciated on a straight-line method basis over
the estimated useful life of the asset, generally three to five years.
Leasehold improvements are amortized using the straight-line method over the
lesser of the respective lease term or the estimated life of the improvement.
Management periodically evaluates furniture, equipment, and leasehold
improvements for impairment whenever events or circumstances indicate the
carrying amount may not be recoverable.
Securities-lending activities: Securities borrowed and securities loaned are
financing arrangements which are recorded as the amount of cash collateral
advanced or received. Securities-borrowed transactions require the Company to
deposit cash, letters of credit, or other collateral with the lender. With
respect to securities loaned, the Company receives collateral in the form of
cash or other collateral in an amount generally in excess of the market value
of securities loaned. The Company monitors the market value of securities
borrowed and loaned on a daily basis, with additional collateral obtained or
refunded as necessary.
Income taxes: The Company accounts for income taxes under the asset and
liability method. Under this method, deferred income taxes are recorded for
the temporary differences between the financial reporting and tax bases of the
Company's assets and liabilities. These deferred taxes are measured by the
provisions of currently enacted tax laws. Management believes that it is more
likely than not that the Company will generate sufficient taxable income to
provide for the realization of the deferred tax asset.
Recently issued accounting standards: In June 1997, the Financial Accounting
Standards Board (the FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income is the total of net income and all other nonowner changes
in stockholders' equity.
F-9
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. SFAS No. 131
requires an enterprise to report certain additional financial and descriptive
information about its reportable operating segments.
The Company will adopt SFAS No. 130 during fiscal 1999. Management has not
yet determined what reportable operating segments will be provided upon
adoption of SFAS No. 131. As both pronouncements are disclosure and
presentation related, implementation of SFAS No. 130 and No. 131 will not have
an impact on the Company's financial condition, results of operations, or cash
flows.
Use of estimates in the preparation of the financial statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the period. Such estimates relate to the fair value of certain financial
instruments. Actual results could differ from such estimates.
Unaudited Interim Information: The financial information as of March 27,
1998 and for the six-month periods ended March 28, 1997 and March 27, 1998 is
unaudited. In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, necessary for
fair presentation of the results of such periods. The results of operations
for the six-month period ended March 27, 1998 are not necessarily indicative
of the results to be expected for the full year.
Reclassifications: Certain reclassifications of prior years' balances have
been made to conform with the current year's presentation. The
reclassifications include reclassifying interest expense as a reduction of net
revenues, and amounts paid for common shares in excess of par value to
additional paid-in capital.
NOTE 3: CASH AND MARKET VALUE OF SECURITIES SEGREGATED FOR THE EXCLUSIVE
BENEFIT OF CUSTOMERS
Cash and market value of securities segregated for the exclusive benefit of
customers under Rule 15c3-3 of the SEC consists primarily of securities
purchased under agreements to resell. Such agreements, which are accounted for
as collateralized financing transactions, are recorded at their contractual
amounts and totalled $226,160,000, $306,222,000 and $317,074,000 at September
27, 1996, September 26, 1997 and March 27, 1998, respectively.
Securities purchased under agreements to resell were delivered by
appropriate entry into the Company's account for the exclusive benefit of
customers maintained at a custodian bank under written custodial agreements
that explicitly recognize the Company's interest in the securities. At
September 26, 1997 and March 27, 1998, these securities, all of which were
U.S. Government and government agency obligations, had a market value of
$309,290,000 and $320,249,000, respectively. The agreements to resell
securities purchased were with two counterparties and have a stated maturity
of one day.
F-10
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
NOTE 4: MARKETABLE SECURITIES OWNED AND MARKETABLE SECURITIES SOLD BUT NOT YET
PURCHASED
Marketable securities owned and marketable securities sold but not yet
purchased consist of trading securities at quoted market values as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, 1996 SEPTEMBER 26, 1997 MARCH 27, 1998
--------------------------------------- ------------------
(UNAUDITED)
SOLD BUT SOLD BUT SOLD BUT
NOT YET NOT YET NOT YET
OWNED PURCHASED OWNED PURCHASED OWNED PURCHASED
--------- ------------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Corporate bonds, deben-
tures, and notes....... $ 2,524 $ 36 $ 1,710 $ 447 $ 5,279 $ 1,053
U.S. Government and gov-
ernment agency obliga-
tions.................. 56,985 69,065 107,925 105,411 117,468 115,746
Collateralized mortgage
obligations............ 15,188 9,461 86 6,168 308
State and municipal ob-
ligations.............. 2,559 2,311 11 2,142 35
Corporate stocks........ 1,425 499 1,371 674 1,765 1,006
--------- --------- -------- -------- -------- --------
$ 78,681 $ 69,600 $122,778 $106,629 $132,822 $118,148
========= ========= ======== ======== ======== ========
</TABLE>
Securities sold but not yet purchased represent obligations of the Company
to deliver the specified security, and thereby create a liability to purchase
the security in the market at prevailing prices. Accordingly, these
transactions result in off-balance-sheet risk, as the Company's ultimate
obligation to satisfy the sale of securities sold but not yet purchased may
exceed the amount recognized in the statements of financial condition.
NOTE 5: BORROWINGS
Borrowings under a secured credit facility authorized up to $85,000,000 are
callable on demand, collateralized by 90% of the value of certain securities
pledged ($35,521,000, $74,835,000 and $88,439,000 at September 27, 1996,
September 26, 1997, and March 27, 1998, respectively), and bear interest at
the prevailing broker rate (5.8%, 5.9% and 5.9% at September 27, 1996,
September 26, 1997, and March 27, 1998, respectively).
NOTE 6: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
At September 27, 1996, September 26, 1997 and March 27, 1998, the market
value of the securities sold subject to repurchase was $38,036,000,
$42,434,000 and $35,831,000, respectively, and the average effective interest
rate at these dates on the transactions was 5.5%, 6.0% and 5.8%, respectively.
NOTE 7: INCOME TAXES
Taxes on income included in the statements of income consist of the
following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX-MONTH PERIOD ENDED
---------------------- -----------------------
1995 1996 1997 1997 1998
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal current tax expense..... $4,836 $6,970 $6,984 $3,134 $4,555
Federal deferred tax expense
(benefit)...................... (1,164) (716) 2,476 2,214 (37)
------ ------ ------ ------ ------
Total taxes on income........... $3,672 $6,254 $9,460 $5,348 $4,518
====== ====== ====== ====== ======
</TABLE>
F-11
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
The components of the provision (benefit) for deferred income taxes consist
of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX-MONTH PERIOD ENDED
---------------------- -----------------------
1995 1996 1997 1997 1998
------- ----- ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred compensation and bene-
fit plans...................... $ (857) $ -- $1,727 $1,750 $(47)
Other liabilities and accrued
expenses....................... (218) (245) 245 135
Other........................... (89) (471) 504 329 10
------- ----- ------ ------ ----
Total deferred tax expense (ben-
efit).......................... $(1,164) $(716) $2,476 $2,214 $(37)
======= ===== ====== ====== ====
</TABLE>
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX-MONTH PERIOD ENDED
--------------------- -----------------------
1995 1996 1997 1997 1998
----- ----- ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory rate................. 35% 35% 35% 35% 35%
Nondeductible stock option plan
expense....................... 3 2 3 3 3
Nontaxable income.............. (1) (1)
Other.......................... 1
----- ----- ----- --- ---
Effective tax rate............. 38% 37% 38% 37% 38%
===== ===== ===== === ===
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets, included in other assets, are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 26, MARCH 27,
1996 1997 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred compensation and benefit
plans................................. $1,750 $ 23 $ 70
Other liabilities and accrued expenses. 1,135 890 890
Other.................................. 732 228 218
------ ------ ------
Total deferred tax asset............... $3,617 $1,141 $1,178
====== ====== ======
</TABLE>
There were no deferred tax liabilities at September 27, 1996, September 26,
1997 or March 27, 1998. The Company determined that no valuation allowance
against deferred tax assets at September 27, 1996, September 26, 1997, or
March 27, 1998 was necessary.
NOTE 8: LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
In September 1995, the Company called for redemption of its outstanding
debentures totalling $815,000. At the election of the holders, the debentures
were converted into 285,250 shares of common stock of the Company.
The convertible subordinated debentures were subject to subordination
agreements, all of which were authorized by the NYSE for inclusion in the
Company's calculation of net capital at September 30, 1994.
F-12
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
NOTE 9: LEASES, COMMITMENTS, AND CONTINGENT LIABILITIES
The Company leases certain office space under noncancellable operating
leases which expire through 2002. Certain of these leases contain escalation
clauses based upon increased costs incurred by the lessor. Future minimum
rentals under the terms of the lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER (IN THOUSANDS)
--------------------- --------------
<S> <C>
1998..................................................... $1,090
1999..................................................... 977
2000..................................................... 921
2001..................................................... 765
2002..................................................... 303
------
$4,056
======
</TABLE>
Total rental expense under the leases for fiscal 1995, 1996, 1997, and the
six-month periods ended March 28, 1997 and March 27, 1998 was $862,000,
$916,000, $990,000, $471,000 and $608,000, respectively.
In the normal course of business, there are various lawsuits, claims, and
contingencies pending against the Company, which in the opinion of management,
will be resolved with no material impact on the Company's financial position
or results of operations.
NOTE 10: NET CAPITAL REQUIREMENTS
The Company is subject to the Uniform Net Capital Rule 15c3-1 (the Rule)
under the Securities Exchange Act of 1934. The Company has elected to compute
net capital under the alternative provisions of the Rule, which require the
Company to maintain net capital, as defined, equal to the greater of
$1,000,000 or 2% of aggregate debit items arising from customer transactions,
as defined. At September 26, 1997, the Company's net capital was $59,851,000
which was 54% of aggregate debit items, and which exceeded the minimum net
capital requirement of $2,233,000 by $57,618,000.
At March 27, 1998, the Company's net capital was $68,461,000 which was 62%
of aggregate debit items, which exceeded the minimum net capital requirement
of $2,197,000 by $66,264,000 and which was $62,967,000 in excess of 5% of
aggregate debit items.
The net capital rules of the NYSE also provide that equity capital may not
be withdrawn or cash dividends paid without notification if resulting net
capital would be less than 5% of aggregate debit items.
NOTE 11: EMPLOYEE BENEFITS
The Company maintains a voluntary defined contribution 401(k) plan available
to all full-time employees of the Company. Employees may defer a portion of
their compensation limited by overall maximums, subject to antidiscrimination
tests as set forth in the Internal Revenue Code (IRC). The Company provides a
discretionary matching contribution (100% of the participant's contribution)
up to a maximum of 4% of the participant's total earnings. The Company does
not match the contribution for participants with total earnings greater than a
specified limit. The Company's accrual for matching contributions was $100,000
in 1995, $115,000 in 1996, $110,000 in 1997 and $75,000 and $70,000 for the
six-month periods ended March 28, 1997 and March 27, 1998, respectively.
F-13
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
In 1992 the Company adopted a key person death benefits plan, an unfunded
plan under which certain payments would have been made to the estates of key
employees upon their deaths. In February 1997, the Company's Board of
Directors approved the termination of the key person death benefits plan. Upon
termination, the Company recorded a nonrecurring benefit of $5,000,000 which
constitutes reversal of the amount previously accrued for plan benefits. The
Company had no outstanding obligations nor any future obligations under the
key person death benefits plan at termination date.
NOTE 12: SHAREHOLDERS' EQUITY
In connection with the formation of the Company in April 1998, the Board of
Directors authorized 10,000,000 shares of $0.001 par value per share preferred
stock of which none are issued or outstanding, and 50,000,000 shares of $0.001
par value per share common stock. The par value of preferred and common shares
were subsequently changed from $0.001 to $0.01 by amendment to the Company's
Articles of Incorporation effective April 22, 1998. A summary of the common
stock by class, after giving effect to the reorganization and share
conversion, is as follows:
<TABLE>
<CAPTION>
COMMON SHARES
STOCK SHARES ISSUED AND
CLASS AUTHORIZED OUTSTANDING
------ ---------- -----------
(UNAUDITED)
<S> <C> <C>
Common Stock....................................... 30,000,000 --
Class B common stock............................... 19,000,000 10,301,444
Class C common stock............................... 500,000 274,176
Class D common stock............................... 500,000 215,250
---------- ----------
50,000,000 10,790,870
========== ==========
</TABLE>
The Company maintains variable award stock option plans under which
incentive stock options and nonqualified stock options to acquire common stock
are awarded. Options to purchase shares of common stock are generally 100%
vested at date of grant and typically expire two years from the date of grant.
All options are granted at prices based upon a formula which is consistently
applied from period to period. The Company follows the variable plan
accounting provisions of Accounting Principles Board Opinion (APB) No. 25 in
recording the effect of its stock option plans. As such, changes in the
formula-based value between option grant dates and option exercise dates are
recorded as a component of compensation expense. Such expense totaled
$955,000, $3,125,000, $2,223,000, $1,323,000 and $1,150,000 for the fiscal
years ended September 29, 1995, September 27, 1996 and September 26, 1997 and
for the six-month periods ended March 28, 1997 and March 27, 1998,
respectively. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the provisions
F-14
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
of SFAS No. 123, the Company's net income for fiscal 1996 and 1997 would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income:
As reported............................................. $10,501 $15,389
Pro forma............................................... 13,365 17,418
</TABLE>
<TABLE>
<CAPTION>
1996 1997
------------- -------------
BASIC DILUTED BASIC DILUTED
----- ------- ----- -------
<S> <C> <C> <C> <C>
Earnings per common share:
As reported............................... $1.10 $1.04 $1.54 $1.44
Pro forma ................................ 1.40 1.32 1.74 1.63
</TABLE>
The per share weighted average fair value of stock options granted during
the fiscal years ended September 27, 1996, and September 26, 1997, was $0.31
and $0.51, respectively, on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions: 1996--expected
dividend yield of -0-%, risk-free interest rate of 5.8%, and an expected life
of 1.8 years; 1997--expected dividend yield of -0-%, risk-free interest rate
of 5.9%, and an expected life of 1.8 years. Under the provisions of SFAS No.
123 for nonpublic entities, no assumptions were made for expected volatility.
At March 27, 1998, there were 3,599,834 shares of unissued common stock
reserved for issuance under the plans, of which options for the purchase of
2,368,579 shares were available for future grants. The price ranges of options
exercised were $1.07 to $3.17 in 1995, $1.14 to $3.75 in 1996, $2.45 to $6.00
in 1997 and $2.98 to $6.74 during the six-month period ended March 27, 1998. A
summary of stock option activity under the stock option plans follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding, September 30, 1994...................... 2,688,161 $2.25
Granted............................................ 1,160,425 3.25
Exercised.......................................... (1,531,761) 1.92
Expired and canceled............................... (131,600) 2.41
---------- -----
Outstanding, September 29, 1995...................... 2,185,225 2.92
Granted............................................ 854,980 3.61
Exercised.......................................... (970,550) 2.59
Expired and canceled............................... (155,925) 3.36
---------- -----
Outstanding, September 27, 1996...................... 1,913,730 3.36
Granted............................................ 436,490 5.68
Exercised.......................................... (670,425) 2.71
Expired and canceled............................... (86,975) 3.74
---------- -----
Outstanding, September 26, 1997...................... 1,592,820 4.18
Granted (unaudited)................................ 344,405 6.63
Exercised (unaudited).............................. (670,950) 3.02
Expired and canceled (unaudited)................... (35,020) 5.18
---------- -----
Outstanding March 27, 1998 (unaudited)............... 1,231,255 $5.21
========== =====
</TABLE>
F-15
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
Additional information regarding options outstanding as of March 27, 1998,
is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
- -------------------------------------------------------------------------------------
NUMBER WEIGHTED AVERAGE
OUTSTANDING REMAINING WEIGHTED
RANGE OF AND CONTRACTUAL AVERAGE
EXERCISE PRICES EXERCISABLE LIFE (YEARS) EXERCISE PRICE
- --------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$3.75 467,355 0.24 $3.75
5.14-6.0 362,290 1.09 5.57
$6.36-6.74 401,610 1.99 6.60
---------- --------- ---- -----
$3.75-6.74 1,231,255 1.06 $5.21
========== ========= ==== =====
</TABLE>
The Company also enters into arrangements with certain employees, entitling
the employee to receive fully vested options subject to attainment of specific
performance goals, generally related to commission volume. Under the
performance-based arrangements, 523,775, 579,325 and 605,555 options to
receive shares or rights to receive options to purchase shares of common stock
have been committed to employees at September 27, 1996, September 26, 1997 and
March 27, 1998, respectively. Rights to receive options will convert into
outstanding stock options at such time as performance measures are met.
Performance-based arrangements typically terminate two to five years from the
date of grant if performance has not been achieved. Such arrangements may
require the Company to make a cash payment to the option award recipient to
the extent that the maximum option price in the contractual arrangement is
below the formula-based option value currently used to exchange shares of
common stock at the date the performance measures are met. Per share exercise
amounts related to the 605,555 outstanding commitments at March 27, 1998,
range from $1.36 to $9.50. Compensation expense for fiscal 1995, 1996 and 1997
and the six-month periods ended March 28, 1997 and March 27, 1998 included
$201,000, $171,000, $250,000, $87,000 and $56,000, respectively, under such
arrangements.
Generally, options under the plans, as well as unmet performance-based
arrangements, become exercisable in full immediately prior to the occurrence
of a "Corporate Transaction" or "Change in Control" as defined in the plan
documents. Management does not believe these definitions include an initial
public offering transaction.
In February 1997, the Company's Board of Directors approved the adoption of
the Share Repurchase Plan. Under terms of the plan, an eligible shareholder
may elect to receive a stock appreciation right (Repurchase SAR) upon the
redemption of the shareholder's stock in the Company. Upon satisfactory
election, and subject to certain limitations regarding maximum number of
Repurchase SAR shares to be issued to an individual within any 12-month
period, a Repurchase SAR is granted as of the date of share redemption for
each share redeemed by the Company. The amount to be paid to the Repurchase
SAR holder is generally determined as the appreciation, if any, in the
Company's book value from the grant date through the close of the eighth
fiscal quarter thereafter times the number of Repurchase SAR shares. Under
this plan, the Company granted 124,500 and 193,159 Repurchase SARs and accrued
compensation expense of $66,000 and $135,000 related to the outstanding rights
for the year ended September 26, 1997 and the six-month period ended March 27,
1998.
The Share Repurchase Plan provides that eligible holders of common stock, as
defined, may request the Company to redeem their shares upon execution of
certain agreements specified in the Plan. At the sole discretion of the
Company's Board of Directors, including upon consideration of a redemption
request by a shareholder, the Plan may be modified or canceled at any time
without notification of, or approval by, the holders of common stock. As a
result, the Company has determined that the redemption of shares by eligible
shareholders under the Plan is not outside of the control of the Company.
Accordingly, such shares have not been classified as
F-16
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
mandatorily redeemable common stock in the accompanying consolidated statement
of financial condition. The Company's Board of Directors suspended the Plan in
February 1998 in connection with the planned share exchange and merger
described in note 15 to the consolidated financial statements.
NOTE 13: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company's customer and correspondent
clearance activities obligate the Company to settle transactions with brokers
and other financial institutions even if its customers fail to meet their
obligations to the Company. Customers are required to complete their
transactions on settlement date, generally three business days after trade
date. If customers do not fulfill their contractual obligations, the Company
may incur losses. The Company has established procedures to reduce this risk
by requiring deposits from customers for certain types of trades.
The Company also buys and sells collateralized mortgage obligations. The
settlement dates for these transactions may be longer than other transactions,
occasionally up to 30 days. Due to this longer settlement period, the risk
that the Company may incur losses if customers do not fulfill their
contractual obligations is greater. The Company has established procedures to
reduce this risk and believes it is unlikely there will be a material impact
on the financial statements.
As customers write option contracts or sell securities short, the Company
may incur losses in the event customers do not fulfill their obligations and
the collateral in the customer's account is not sufficient to fully cover
losses which customers may incur from these strategies. To control this risk,
the Company monitors required margin levels daily, and customers are required
to deposit additional collateral, or reduce positions, when necessary.
From time to time, the Company also enters into financial futures contracts
for the purpose of hedging certain dealing activities. As such, any futures
contract commitments are considered held for trading purposes and are carried
at market value. Financial futures contracts are transactions in which one
party agrees to deliver a financial instrument to a counterparty at a
specified price on a specified date. Risk arises from the possibility of
unfavorable changes in the market price of the underlying financial
instrument.
At September 26, 1997 and March 27, 1998 the contract value of the Company's
financial futures commitments was $6,600,000 and $1,900,0000, respectively.
There were no financial futures commitments at September 27, 1996. The
contract amounts of these instruments reflect the Company's extent of
involvement in the particular class of financial instrument. They do not
include positions which may substantially reduce any potential market risk and
do not represent the Company's risk of loss due to counterparty
nonperformance.
The fair value of the financial futures contracts, based upon the net
unrealized gain or loss in the market value of the contracts at September 26,
1997 and March 27, 1998, was not material. The average fair value of such
financial instruments for the fiscal year ended September 26, 1997 and the
six-month period ended March 27, 1998 and the total net gain or loss arising
from such trading activities during these periods was not material.
NOTE 14: EARNINGS PER COMMON SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS
are required to be computed using the methods prescribed by SFAS No.128,
Earning per Share. Basic EPS is calculated using the weighted average number
of common shares outstanding for the period and diluted EPS is computed using
the weighted
F-17
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
average number of common shares and dilutive common equivalent shares
outstanding. For the purpose of calculating the dilutive effect of stock
options in Diluted EPS, the Company utilizes the per-share book value at the
end of each corresponding period as the Company's Share Repurchase Plan
permits selling shareholders to offer their shares to the Company for
redemption at book value as calculated in accordance with the terms of the
Plan. The following table sets forth the computations for historical basic and
diluted earnings per common share (in thousands except per share amounts):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX-MONTH PERIOD ENDED
---------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
-------------- --------------- --------------- -------------- --------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED
------ ------- ------- ------- ------- ------- ------ ------- ------ -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NUMERATOR:
Net income............. $6,102 $6,102 $10,501 $10,501 $15,389 $15,389 $8,992 $8,992 $7,255 $7,255
DENOMINATOR:
Weighted average shares
outstanding........... 8,352 8,352 9,546 9,546 10,014 10,014 9,927 9,927 10,426 10,426
Dilutive effect of
stock options......... 563 570 657 627 493
------ ------ ------- ------- ------- ------- ------ ------ ------ ------
Adjusted weighted
average shares
outstanding............ 8,352 8,915 9,546 10,116 10,014 10,671 9,927 10,554 10,426 10,919
------ ------ ------- ------- ------- ------- ------ ------ ------ ------
Earnings per common
share.................. $ 0.73 $ 0.68 $ 1.10 $ 1.04 $ 1.54 $ 1.44 $ 0.91 $ 0.85 $ 0.70 $ 0.66
====== ====== ======= ======= ======= ======= ====== ====== ====== ======
</TABLE>
NOTE 15: SUBSEQUENT EVENTS
The Board of Directors of the Company has authorized the filing of a
registration statement with the SEC relating to an initial public offering of
common stock (the IPO). Upon successful completion of the IPO, the holders of
shares of Class B, C and D common stock will receive shares of Common Stock as
a result of the conversion of their current holdings. Also at that time, the
Company's variable-award, book-value-based stock option plans will be
converted to fixed-award, fair-value-based stock option plans, which will be
operated and accounted for as fixed-award plans under the provisions of APB
No. 25. This conversion will result in a new measurement date for all then
outstanding options and in a compensation charge based upon the difference
between the estimated initial public offering price and the book value
established at the most recent period immediately preceding the IPO. The
Company will be required to record compensation expense of approximately
$3,574,000 based on the difference between the book value of the Company's
stock immediately preceding the IPO and the estimated fair market value of the
stock (assuming an initial public offering price of $15.00 per share) for all
variable-award, book-value-based stock options estimated to be outstanding on
the date of consummation of the IPO (estimated to be 450,000 stock options).
The expense recorded as a result of the new measurement date for the
outstanding options will be a noncash, nonrecurring item. Subsequent to the
conversion of the Company's stock option plans, changes in the market value of
the Company's stock will not result in compensation expense. The Company will
also record compensation expense (net of tax) in the amount of $1,277,000
(assuming an initial public offering price of $15.00 per share), which
reflects the increase in the value of the Repurchase SARs outstanding
underlying the Share Repurchase Plan. In addition, the Board of Directors of
RMI resolved to terminate the Share Repurchase Plan (see Note 12) concurrent
with the successful completion of the IPO.
The Company adopted the 1998 Stock Incentive Compensation Plan on May 29,
1998, and intends to adopt a restricted stock purchase plan. Both plans will
become effective upon consummation of the IPO.
* * * *
F-18
<PAGE>
[PICTURE OF SEVERAL RAGEN MACKENZIE INCORPORATED RESEARCH REPORTS SPREAD OUT
WITH THE SKYLINE OF SEATTLE, WASHINGTON IN THE BACKGROUND]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS, OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 20
Reorganization............................................................ 20
Use of Proceeds........................................................... 21
Dividend Policy........................................................... 21
Capitalization............................................................ 22
Dilution.................................................................. 23
Selected Financial Data................................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 37
Regulation................................................................ 49
Net Capital Requirements.................................................. 51
Management................................................................ 53
Certain Relationships and Related Transactions............................ 62
Principal and Selling Shareholders........................................ 64
Description of Capital Stock.............................................. 66
Shares Eligible for Future Sale........................................... 69
Underwriting.............................................................. 71
Legal Matters............................................................. 73
Experts................................................................... 73
Additional Information.................................................... 73
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,250,000 SHARES
RAGEN MACKENZIE
GROUP
INCORPORATED
COMMON STOCK
----------------
PROSPECTUS
----------------
RAYMOND JAMES & ASSOCIATES, INC.
RAGEN MACKENZIE INCORPORATED
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the sale of the Common Stock being registered hereby. All
amounts shown are estimates, except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 12,213
NASD filing fee.................................................. 4,640
Nasdaq National Market listing fee............................... 84,875
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 250,000
Directors' and Officers' Liability Insurance..................... 250,000
Transfer Agent and Registrar fees................................ 5,000
Miscellaneous expenses........................................... 33,272
----------
Total.......................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Bylaws (Exhibit 3.2 hereto)
provides for indemnification of the registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law. The
directors and officers of the registrant may also be indemnified against
liability they may incur in that capacity pursuant to a liability insurance
policy to be maintained by the registrant for such purpose.
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as a director, except
in certain circumstances involving intentional misconduct, knowing violations
of law or illegal corporate loans or distributions, or any transaction from
which the director personally receives a benefit in money, property or
services to which the director is not legally entitled. Article 8 of the
registrant's Amended and Restated Articles of Incorporation (Exhibit 3.1
hereto) contains provisions implementing, to the fullest extent permitted by
Washington law, such limitations on a director's liability to the registrant
and its shareholders.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and
directors, and by the registrant of the Underwriters, for certain liabilities,
including liabilities arising under the Securities Act, in connection with
matters specifically provided in writing by the Underwriters for inclusion in
this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The registrant issued 100 shares of its common stock in consideration of a
payment of $1,000 to Ragen MacKenzie Incorporated on April 15, 1998. The sale
and issuance of these securities were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Articles of Incorporation of Ragen MacKenzie
Group Incorporated.
3.2+ Bylaws of Ragen MacKenzie Group Incorporated.
5.1 Opinion of Perkins Coie LLP as to the legality of the securities
being registered.
10.1+ Master Note of RMI in favor of Bank America National Trust and
Savings Association, dated July 9, 1997.
10.2+ Security Agreement between RMI and Bank America National Trust and
Savings Association, dated October 14, 1995.
10.3+ Lease Agreement between Wright-Carlyle Seattle and RMI, dated
November 8, 1983, as amended December 19, 1988, August 24, 1992,
June 1, 1993, July 20, 1995, April 30, 1997 and June 6, 1997.
10.4+ Form of Noncompetition and Nonsolicitation Agreement executed as of
April 14, 1998, by RMGI and each of Lesa A. Sroufe, Robert J.
Mortell, Jr., Mark A. McClure, V. Lawrence Bensussen and John L.
MacKenzie.
10.5 Severance and Correspondent Clearing Agreement between RMI and
Brooks G. Ragen, executed April 17, 1998.
10.6+ Agreement and Release between RMI and Scott McAdams, dated March 22,
1998.
10.7+ RMI 1989 Stock Option Plan.
10.8+ RMI 1993 Stock Option Plan.
10.9+ RMI 1996 Stock Incentive Compensation Plan.
10.10+ RMI 1997 Share Repurchase Plan.
10.11 RMGI 1998 Stock Incentive Compensation Plan.
10.12+ ABC Brokerage Accounting System Agreement between Pershing Division
of Donaldson, Lufkin & Jenrette Securities Corporation and RMI,
dated April 1, 1997.
10.13 Agreement and Plan of Merger dated as of May 29, 1998.
10.14 Employment Agreement between Ragen MacKenzie Incorporated and Mark
A. McClure, dated June 16, 1994, as amended by an addendum dated
June 3, 1997.
10.15 RMGI Employee Stock Purchase Plan.
10.16 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Mark
McClure dated June 16, 1994.
10.17 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Mark
McClure dated February 25, 1997.
10.18 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Stan
Freimuth dated April 29, 1996.
10.19 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Stan
Freimuth dated June 11, 1996.
21.1+ Subsidiaries of the Registrant
23.1 Consent of Perkins Coie LLP (contained in opinion filed as Exhibit
5.1 hereto)
23.2* Consent of Deloitte & Touche LLP
23.3+ Consent of Arthur W. Harrigan, Jr.
23.4+ Consent of Kirby L. Cramer
23.5+ Consent of Peter B. Madoff
23.6 Consent of Gregory B. Maffei
24.1+ Power of Attorney
</TABLE>
- --------
*To be filed by Amendment.
+Previously filed.
II-2
<PAGE>
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the
registrant or related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Seattle, State of Washington, on the 31st day of May, 1998.
RAGEN MACKENZIE GROUP INCORPORATED
/s/ Robert J. Mortell, Jr.
By: _________________________________
Robert J. Mortell, Jr.
President and Chief Operating
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 31st day of May, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Lesa A. Sroufe* Chairman of the Board and Chief
______________________________________ Executive Officer (Principal
Lesa A. Sroufe Executive Officer)
/s/ Robert J. Mortell, Jr. President, Chief Operating Officer,
______________________________________ Treasurer and Director
Robert J. Mortell, Jr.
V. Lawrence Bensussen* Senior Vice President, Chief Financial
______________________________________ Officer and Secretary (Principal
V. Lawrence Bensussen Financial and Accounting Officer)
Mark A. McClure* Executive Vice President and Director
______________________________________
Mark A. McClure
John L. MacKenzie* Director
______________________________________
John L. MacKenzie
</TABLE>
/s/ Robert J. Mortell, Jr.
*By: _______________________
Robert J. Mortell, Jr.
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Articles of Incorporation of Ragen MacKenzie
Group Incorporated.
3.2+ Bylaws of Ragen MacKenzie Group Incorporated.
5.1 Opinion of Perkins Coie LLP as to the legality of the securities being
registered.
10.1+ Master Note of RMI in favor of Bank America National Trust and Savings
Association, dated July 9, 1997.
10.2+ Security Agreement between RMI and Bank America National Trust and
Savings Association, dated October 14, 1995.
10.3+ Lease Agreement between Wright-Carlyle Seattle and RMI, dated November
8, 1983, as amended December 19, 1988, August 24, 1992, June 1, 1993,
July 20, 1995, April 30, 1997 and June 6, 1997.
10.4+ Form of Noncompetition and Nonsolicitation Agreement executed as of
April 14, 1998, by RMGI and each of Lesa A. Sroufe, Robert J. Mortell,
Jr., Mark A. McClure, V. Lawrence Bensussen and John L. MacKenzie.
10.5 Severance and Correspondent Clearing Agreement between RMI and Brooks
G. Ragen, executed April 17, 1998.
10.6+ Agreement and Release between RMI and Scott McAdams, dated March 22,
1998.
10.7+ RMI 1989 Stock Option Plan.
10.8+ RMI 1993 Stock Option Plan.
10.9+ RMI 1996 Stock Incentive Compensation Plan.
10.10+ RMI 1997 Share Repurchase Plan.
10.11 RMGI 1998 Stock Incentive Compensation Plan.
10.12+ ABC Brokerage Accounting System Agreement between Pershing Division of
Donaldson, Lufkin & Jenrette Securities Corporation and RMI, dated
April 1, 1997.
10.13 Agreement and Plan of Merger dated as of May 29, 1998.
10.14 Employment Agreement between Ragen MacKenzie Incorporated and Mark A.
McClure, dated June 16, 1994, as amended by an addendum dated June 3,
1997.
10.15 RMGI Employee Stock Purchase Plan.
10.16 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Mark
McClure dated June 16, 1994.
10.17 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Mark
McClure dated February 25, 1997.
10.18 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Stan
Freimuth dated April 29, 1996.
10.19 Ragen MacKenzie Incorporated Agreement to Grant Stock Option to Stan
Freimuth dated June 11, 1996.
21.1+ Subsidiaries of the Registrant
23.1 Consent of Perkins Coie LLP (contained in opinion filed as Exhibit 5.1
hereto)
23.2* Consent of Deloitte & Touche LLP
23.3+ Consent of Arthur W. Harrigan, Jr.
23.4+ Consent of Kirby L. Cramer
23.5+ Consent of Peter B. Madoff
23.6 Consent of Gregory B. Maffei
24.1+ Power of Attorney
</TABLE>
- --------
*To be filed by Amendment.
+Previously filed.
<PAGE>
EXHIBIT 1.1
2,250,000 Shares
RAGEN MACKENZIE GROUP INCORPORATED
Common Stock
______________
UNDERWRITING AGREEMENT
St. Petersburg, Florida
_____________, 1998
RAYMOND JAMES & ASSOCIATES, INC.
RAGEN MACKENZIE INCORPORATED
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
Ragen MacKenzie Group Incorporated, a Washington corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell an aggregate of 1,462,500 authorized and unissued shares (the
"Company Firm Shares") of the Company's common stock, par value $0.01 per share,
to the several Underwriters named in Schedule I hereto (the "Underwriters").
Certain shareholders of the Company, named in Schedule II hereto (the "Selling
Shareholders"), acting severally and not jointly, propose, subject to the terms
and conditions stated herein, to issue and sell an aggregate of 787,500
authorized and outstanding shares (the "Shareholder Firm Shares") of the
Company's common stock, par value $0.01 per share, to the Underwriters. The
Company Firm Shares and the Shareholder Firm Shares are hereafter collectively
referred to as the "Firm Shares." In addition, the Selling Shareholders, acting
severally and not jointly, have agreed to sell to the Underwriters, upon the
terms and conditions set forth herein, up to an additional 337,500 authorized
and outstanding shares of the Company's common stock, par value $0.01 per share
(the "Additional Shares"), solely to cover over-allotments by the Underwriters,
if any. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares." The Company's common stock, par value $0.01 per
share, including the Shares, is hereinafter referred to as the "Common Stock."
Raymond James & Associates, Inc. and Ragen Mackenzie Incorporated are acting as
the representatives of the several Underwriters and in such capacity are
hereinafter referred to as the "Representatives."
<PAGE>
Each of the Company and each Selling Shareholder wishes to confirm as
follows its agreement with you and the other several Underwriters, on whose
behalf you are acting, in connection with the several purchases of the Shares
from the Company and the Selling Shareholders.
SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 (File No.
333-50735), including a prospectus subject to completion, relating to the
Shares. Such registration statement (including all financial schedules and
exhibits), as amended at the time when it became effective and as may thereafter
be amended by post-effective amendment, together with (any documents
incorporated by reference therein and any registration statement filed by the
Company pursuant to Rule 462(b) under the Act, is referred to in this Agreement
as the "Registration Statement." The term "Prospectus" as used in this Agreement
means (i) the prospectus in the form included in the Registration Statement, or
(ii) if the prospectus included in the Registration Statement omits information
in reliance upon Rule 430A under the Act and such information is included in a
prospectus filed with the Commission pursuant to Rule 424(b) under the Act or as
part of a post-effective amendment to the Registration Statement after the
Registration Statement becomes effective, the prospectus as so filed, or (iii)
if the prospectus included in the Registration Statement omits information in
reliance upon Rule 430A under the Act and such information is included in a term
sheet (as described in Rule 434(c) under the Act) filed with the Commission
pursuant to Rule 424(b) under the Act, the prospectus included in the
Registration Statement and such term sheet, taken together. The prospectus
subject to completion in the form included in the Registration Statement at the
time of the initial filing of such Registration Statement with the Commission
and as such prospectus is amended from time to time until the date upon which
the Registration Statement was declared effective by the Commission is referred
to in this Agreement as the "Prepricing Prospectus."
SECTION 2. AGREEMENTS TO SELL AND PURCHASE.
The Company hereby agrees to sell the Firm Shares, and each Selling
Shareholder hereby agrees to sell such number of Firm Shares and Additional
Shares as is set forth opposite such Selling Shareholder's name on Schedule II
hereto, to the Underwriters and, upon the basis of the representations,
warranties and agreements of the Company and the Selling Shareholders herein
contained and subject to all the terms and conditions set forth herein, each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders the aggregate number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I hereto (or such number of Firm Shares
as adjusted pursuant to Section 10 hereof), at a purchase price of $__________
per Share (the "purchase price per Share").
In addition, each Selling Shareholder also agrees to sell to the
Underwriters up to said number of Additional Shares as is set forth opposite
such Selling Shareholder's
2
<PAGE>
name on Schedule II hereto, and upon the basis of the representations,
warranties and agreements of the Company and the Selling Shareholders herein
contained and subject to all the terms and conditions set forth herein, the
Underwriters shall have the right for 30 days from the date upon which the
Registration Statement is declared effective by the Commission to purchase from
the Selling Shareholders up to 337,500 Additional Shares, at the purchase price
per Share for the Firm Shares. The Additional Shares shall, if purchased, be
purchased solely for the purpose or covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to purchase the
number of Additional Shares (subject to such adjustments as you may determine to
avoid fractional shares) which bears the same proportion to the number of
Additional Shares to be sold as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares as
adjusted pursuant to Section 10 hereof) bears to the total number of Firm
Shares.
SECTION 3. TERMS OF PUBLIC OFFERING. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in our judgment is advisable and initially to
offer the Shares upon the terms set forth in the Prospectus.
SECTION 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, [four]
business days after the date hereof (the "Closing Date"). The place of closing
for the Firm Shares and the Closing Date may be varied by agreement between you
and the Company.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the offices of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m.,
St. Petersburg, Florida time, on such date or dates (the "Additional Closing
Date" (which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than three nor later than ten business
days after the giving of the notice hereinafter referred to), as shall be
specified in a written notice from you an behalf of the Underwriters to the
Company, of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. Such notice may be given to the Company by
you at any time within 30 days after the date upon which the Registration
Statement is declared effective by the Commission. The place of closing for the
Additional Shares and the Additional Closing Date may be varied by agreement
between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and such denominations as
you shall request prior to 1:00 p.m., St. Petersburg, Florida time, on the
second full business day preceding the Closing Date or the Additional Closing
Date, as the case may be. Such certificates shall be made available to you in
St. Petersburg, Florida for inspection and
3
<PAGE>
packaging not later than 9:30 a.m., St. Petersburg, Florida time, on the
business day immediately preceding the Closing Date or the Additional Closing
Date, as the case may be. The certificates evidencing the Firm Shares and any
Additional Shares to be purchased hereunder shall be delivered to you on the
Closing Date or the Additional Closing Date, as the case may be, against payment
of the purchase price therefor by wire transfer or certified or official bank
check or checks payable in same day funds. If the Representatives so elect,
delivery of the Shares may be made by credit through full fast transfer to the
accounts at the Depository Trust Company designated by the Representatives.
The certificates in negotiable form for the Firm Shares and Additional
Shares have been placed in custody (for delivery under this Agreement) under the
Custody Agreement (as defined below). Each Selling Shareholder agrees that the
certificates for the Shares for such Selling Shareholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Shareholder for such custody, including the Power of
Attorney (as defined below) is to that extent irrevocable and that the
obligations of such Selling Shareholder hereunder shall not be terminated by the
act of such Selling Shareholder or by operation of law, whether by the death or
incapacity of such Selling Shareholder or the occurrence of any other event,
except as specifically provided herein or in the Custody Agreement. If any
Selling Shareholder should die or be incapacitated, or if any other such event
should occur, before the delivery of the certificates for the Shares to be sold
by such Selling Shareholder hereunder, such Shares, except as specifically
provided herein or in the Custody Agreement, shall be delivered by the Custodian
(as defined below) in accordance with the terms and conditions of this Agreement
as if such death, incapacity or other event had not occurred, regardless of
whether the Custodian shall have received notice of such death or other event.
SECTION 5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing (i) when the Registration Statement has
become effective (if not effective as of the time and date of this Agreement)
and when any post-effective amendment to the Registration Statement or any
registration statement filed pursuant to Rule 462(b) under the Act if filed or
becomes effective, (ii) if Rule 430A under the Act is employed, when the
Prospectus or term sheet (as described in Rule 434(b) under the Act) has been
timely filed pursuant to Rule 424(b) under the Act, (iii) of any request by the
Commission for amendments or supplements to the Registration Statement, any
Prepricing Prospectus or the Prospectus or for additional information, (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of the suspension of qualification of the Shares
for offering or sale in any jurisdiction or the initiation (or threatened
initiation) of an proceeding for such purposes, and (v) within the period of
time referred to in Section 5(c) below, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or results of
operations, or of any event that comes to the attention of the Company that
makes any statement made in the
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Registration Statement or the Prospectus (as then amended or supplemented) or
that requires the making of any additions thereto or changes therein in order to
make the statements therein not misleading in any material respect, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act of any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(b) The Company will furnish to you, without charge, two signed
copies of the Registration Statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits
thereto, and will also furnish to you, without charge, such number of conformed
copies of the Registration Statement as originally filed and of each amendment
thereto as you may reasonably request.
(c) The Company will not file any amendment to the Registration
Statement, file any registration statement pursuant to Rule 462(b) under the Act
or make any amendment or supplement to the Prospectus of which you shall not
previously have been advised (with a reasonable opportunity to review such
amendment or supplement) or to which you have reasonably objected after being so
advised, or which is not in compliance with the Act. The Company will prepare
and file with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel of the several
Underwriters may be necessary or advisable in connection with the distribution
of the Shares by the Underwriters.
(d) The Company has delivered or will deliver to you, without charge,
in such quantities as you have requested or may hereafter reasonably request,
copies of each form of the Prepricing Prospectus. The Company consents to the
use, in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Company.
(e) As soon after the execution and delivery of this Agreement as is
practicable and thereafter from time to time for such period as in the
reasonable opinion of counsel for the Underwriters a prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or a dealer,
the Company will deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
they may reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or dealer.
If
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during such period of time any event shall Occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary to supplement
or amend the Prospectus to comply with the Act or any other law, the Company
will promptly prepare and file with the Commission an appropriate supplement or
amendment thereto, and will furnish to each Underwriter and to each dealer who
has previously requested Prospectuses, without charge, a reasonable number of
copies thereof.
(f) The Company will cooperate with you and counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process in suits, other
documents as may be reasonably necessary in order to effect such registration or
qualification, provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process in suits, in any
jurisdiction where it is not now so subject. In each jurisdiction in which the
Shares shall have been qualified as above provided, the Company will make and
file such statements and reports in each year as are or may be required by the
laws of such jurisdiction. In the event that the qualification of the Shares in
any jurisdiction is suspended, the Company shall so advise you promptly in
writing.
(g) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a 12-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as practicable after the
end of such period, which consolidated earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act, and will
advise you in writing when such statement has been so made available.
(h) During the period of five years hereafter, the Company will
furnish to you (i) as soon as practicable after the end of each fiscal year a
copy of its Annual Report on Form 10-K, (ii) as soon as available, a copy of
each report or definitive proxy statement of the Company filed with the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or mailed to stockholders, and (iii) from time to time such other
information concerning the Company as you may reasonably request. Until the
termination of the offering of the Shares, the Company will timely file all
documents, and any amendments to previously filed documents, required to be
filed by it pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.
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(j) If Rule 430A under the Act is employed, the Company will timely
file the Prospectus or term sheet (as described in Rule 434(b) under the Act)
pursuant to Rule 424(b) under the Act.
(k) The Company will not sell, contract to sell or otherwise dispose
of any Common Stock or rights to purchase Common Stock until after the date 180
days from the effective date of the Registration Statement, without the prior
written consent of Raymond James & Associates, Inc., except to the underwriters
pursuant to this Agreement, and except that the Company may issue Common Stock
upon the exercise or conversion of warrants, stock options, preferred stock or
convertible debentures issued and outstanding at the time of effectiveness of
the Registration Statement and described in the Registration Statement, and
except that the Company may grant options under the Company's Stock Option
Plans.
(l) The Company will not, directly or indirectly, take any action
that would constitute, or any action designed, or which might reasonably be
expected to cause or result in or constitute, under the Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(m) If at any time during the 90-day period after the first date that
any of the Shares are released by you for sale to the public, any rumor,
publication, or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common Stock (including
the Shares) has been or is likely to be materially affected (regardless of
whether such rumor, publication, or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you of
advising the Company to the effect set forth above, promptly consult with you
concerning the advisability and substance of, and, if appropriate, disseminate,
a press release or other public statement responding to or commenting on such
rumor, publication, or event.
(n) The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Shares, or otherwise conduct its
business, in such a manner as would require the Company or any Subsidiary (as
defined below) to register as an investment company under the Investment Company
Act of 1940, as amended.
(o) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of its incorporation or the rules of the Nasdaq National
Market or any national securities exchange on which the Common Stock is then
listed, a registrar (which, if permitted by applicable laws and rules, may be
the same entity as the transfer agent) for its Common Stock.
(p) The Company hereby agrees that this Agreement shall be deemed,
for all purposes, to have been made and entered into in Pinellas County,
Florida. The Company agrees that any dispute hereunder shall be litigated solely
in the Circuit Court of the State of Florida in Pinellas County, Florida or in
the United States District Court
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for the Middle district of Florida, Tampa Division, and further agrees to submit
itself to the personal jurisdiction of such courts.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter and each Selling Shareholder on the
date hereof, and shall be deemed to represent and warrant to each Underwriter
and each Selling Shareholder on the Closing Date and the Additional Closing
Date, that:
(a) The Registration Statement has been declared effective by the
Commission under the Act and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. Each Prepricing
Prospectus included as part of the Registration Statement as originally filed or
as part of any amendment or supplement thereto, or filed pursuant to Rule 424(a)
under the Act, complied when so filed in all material respects with the
provisions of the Act, except that this representation and warranty does not
apply to statements in or omissions from such Prepricing Prospectus (or any
amendment or supplement thereto) made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you expressly for use therein.
(b) The Commission has not issued any order preventing or suspending
the use of any Prepricing Prospectus, and the Prepricing Prospectus included as
part of the Registration Statement declared effective by the Commission complies
as to form in all material respects with the requirements of the Act. The
Registration Statement, in the form in which it became effective and also in
such form as it may be when any post-effective amendment thereto shall become
effective, and any registration statement filed pursuant to Rule 462(b) under
the Act, complies and will comply in all material respects with the provisions
of the Act and does not and will not at any such times contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in or
omissions from the Registration Statement (or any amendment or supplement
thereto) made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein. The Prospectus, and any
supplement or amendment thereto, when filed with the Commission under Rule
424(b) under the Act, complies and will comply in all material respects with the
provisions of the Act and does not and will not at any such times contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements, in the light of the circumstances under which
they were made, not misleading, except that this representation and warranty
does not apply to statements in or omissions from the Prospectus (or any
amendment or supplement thereto) made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you expressly for use therein.
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(c) The capitalization of the Company is as set forth in the
Prospectus as of the date set forth therein. All the outstanding shares of
Common Stock (including without limitation the Shareholder Firm Shares and the
Additional Shares) and other securities of the Company have been duly authorized
and validly issued, are fully paid and nonassessable and are free of any
preemptive or similar rights; all offers and sales of the capital stock,
warrants, options and debt or other securities of the Company and the Subsidiary
(as defined below) prior to the date hereof (including without limitation the
Shareholder Firm Shares and Additional Shares) were made in compliance with the
Act and all other applicable state, federal and foreign laws or regulations, or
any actions under the Act or any state, federal or foreign laws or regulations
in respect of any such offers or sales are effectively barred by effective
waivers or statutes of limitation; the Shares to be issued and sold to the
Underwriters by the Company hereunder have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable and free
of any preemptive or similar rights, the securities of the Company conform to
the description thereof in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), the form of certificate for the Shares
conforms to the corporate law of the State of Washington; and the delivery of
certificates for the Shares to be issued and sold by the Company pursuant to the
terms of this Agreement and payment for such Shares will pass valid marketable
title to such shares, free and clear of any voting trust arrangements, liens,
encumbrances, equities, claims or defects in title to the several Underwriters
purchasing such Shares in good faith and without notice of any lien, claim or
encumbrance.
(d) The Company is a corporation duly organized and validly existing
under the laws of the State of Washington with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as presently conducted and as described in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure to so
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and RMI taken as a whole; RMI is duly registered as a broker-
dealer under the Exchange Act and as an investment adviser under the Investment
Adviser's Act of 1940 and with each state in which it is required to be so
registered.
(e) Ragen Mackenzie Incorporated, a Washington corporation ("RMI" or
"Subsidiary"), is the only Subsidiary of the Company as of the date hereof. Each
of the Company and RMI is a corporation duly organized and validly existing
under the laws of its state of incorporation with full corporate power and
authority to own, lease and operate its property and to conduct its business as
presently conducted and as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
require such registration or qualification, except where the
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failure to so register or qualify does not have a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiary, taken as a whole. All of the
outstanding shares of capital stock of the Subsidiary have been duly authorized
and validly issued, are fully paid and nonassessable, and are owned by the
Company directly, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance. Except for the Subsidiary, the Company does not own
a material interest in or control, directly or indirectly, any other
corporation, partnership, joint venture, association, trust or other business
organization.
(f) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or the Subsidiary, or
to which the Company or the Subsidiary, or to which their respective properties
are subject, that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) but are not described as
required. There are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or fled as required
or incorporated by reference as permitted by the Act. All such contracts to
which the Company or any Subsidiary is a party have been duly authorized,
executed and delivered by the Company or the respective Subsidiary, constitute
valid and binding agreements of the Company or the respective Subsidiary and are
enforceable against the Company or the respective Subsidiary in accordance with
the terms thereof.
(g) Neither the Company nor the Subsidiary is in violation of its
articles of incorporation or bylaws or other charter documents, or of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Company or the Subsidiary or of any decree of any court or governmental agency
or body having jurisdiction over the Company or the Subsidiary, or in default in
any material respect in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other instrument
to which the Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any of their respective properties may be bound.
(h) The execution and delivery of this Agreement, and the performance
by the Company of its obligations under this Agreement, have been duly and
validly authorized by the Company, and this Agreement has been duly
executed and delivered by the Company and constitutes the valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms.
(i) None of the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) is or may be void or
voidable by any person or entity, (ii) requires any consent, approval,
authorization or other order
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of or registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as may be
required for the registration of the Shares under the Act and compliance with
the securities or Blue Sky laws of various jurisdictions, all of which will be,
or have been, effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the articles of incorporation or bylaws or other charter documents, of the
Company or any subsidiary, or (iii) conflicts or will conflict with or
constitutes a breach of, or a default under, any agreement, indenture, lease or
other instrument to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary or any of their respective properties may be
bound, or violates any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any Subsidiary or any
of their respective properties, or results in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to the terms of any agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
may be bound or to which the property or assets of the Company or any Subsidiary
is subject.
(j) Except as described in the Prospectus, neither the Company nor
RMI has outstanding at the Closing Date (and the Additional Closing Date, if
applicable) except for Options granted pursuant to the Company's Stock Option
Plan after the Closing Date, and will not have outstanding any options to
purchase, or any warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell, any shares
of Common Stock or any such warrants or convertible securities or obligations.
Except as has been complied with or waived, no holder of securities of the
Company or any other person has rights to the registration of any securities of
the Company because of the filing of the Registration Statement.
(k) Deloitte & Touche LLP, the certified public accountants who have
certified the consolidated financial statements filed as part of the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), are independent public accountants as required by the Act. The
consolidated financial statements, together with related schedules and notes,
forming part of the Registration Statement and the Prospectus (and any amendment
or supplement thereto), present fairly both the historical and pro forma
consolidated financial position, results of operations and changes in financial
position of the Company and the Subsidiaries on the basis stated therein at the
respective dates or for the respective periods to which they apply, such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved and all adjustments necessary for a fair presentation of the
results for such period have been made, and the other financial and statistical
information and data set forth in the Registration Statement and Prospectus (and
any amendment or supplement thereto) is accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company. No financial statements or schedules are required to be included in or
incorporated by reference into the Registration Statement that have not been so
included or incorporated.
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(l) Subsequent to the respective dates as of which such information
is given in the Registration Statement and the Prospectus (or any amendment or
supplement thereto), neither the Company nor the Subsidiary has incurred any
liability or obligation, direct or contingent, or entered into any transaction,
whether or not in the ordinary course of business, that is material to the
Company and the Subsidiary, taken as a whole, and there has not been any
material change in the capital stock, or material increase in the short-term
debt or long-term debt, of the Company or the Subsidiary, or any material
adverse change, or any development involving or which may reasonably be expected
to involve a potential future material adverse change, in the condition
(financial or other), business, net worth or results of operations of the
Company and the Subsidiary, taken as a whole.
(m) The Company and the Subsidiary have good and marketable title to
all property (real and personal) described in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) as being owned by the
Company or such Subsidiary, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the Registration
Statement and the Prospectus (or any amendment or supplement thereto) or such as
are not materially burdensome and do not interfere in any material respect with
the use of the property or the conduct of the business of the Company and the
Subsidiary, taken as a whole, and the property (real and personal) held under
lease by the Company or any Subsidiary, as applicable, is held by them under
valid, subsisting and enforceable leases with only such exceptions as in the
aggregate are not materially burdensome and do not interfere in any material
respect with the conduct of the business of the Company and the Subsidiary,
taken as a whole.
(n) The Company and RMI have not distributed and will not distribute
prior to the Closing Date (or the Additional Closing Date, if any) any offering
material in connection with the offering and sale of the Shares other than the
Prepricing Prospectus and the Registration Statement, the Prospectus or other
materials permitted by the Act and distributed with the prior written approval
of the Underwriters. The Company and RMI have not taken, directly or indirectly,
any action which constituted or any action designed, or which might reasonably
be expected to cause or result in or constitute, under the Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(o) Neither the Company nor any Subsidiary is an "investment
company," an "affiliated person" of, or "promoter" or "principal underwriter"
for an investment company within the meaning of the Investment Company Act of
1940, as amended.
(p) The Company and the Subsidiary have all permits, licenses,
franchises, approvals, consents and authorizations of governmental or regulatory
authorities or private persons or entities (hereinafter "permit" or "permits")
as are necessary to own their respective properties and to conduct their
respective businesses in the manner described in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subject to such
qualifications as may be set forth
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therein, except where the failure to have obtained any such permit has not had
and will not have a material adverse effect upon the condition (financial or
other) or the business of the Company and the Subsidiaries, taken as a whole;
the Company and the Subsidiary have fulfilled and performed all of their
material obligations with respect to each such permit and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination of any such permit or result in any other material impairment of the
rights of the holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as described in
the Prospectus, such permits contain no restrictions that are materially
burdensome to the Company and the Subsidiaries, taken as a whole.
(q) The Company and the Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which they are engaged;
and the Company has no reason to believe that the Company and the Subsidiary
will not be able to renew their existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue their respective businesses as a comparable cost.
(r) The Company and the Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) Neither the Company nor the Subsidiary has, directly or
indirectly, at any time during the past five years (i) made any unlawful
contribution to any candidate for political office, or failed to disclose fully
any contribution in violation of law, or (ii) made any payment to any federal,
state or foreign governmental official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof or applicable foreign
jurisdictions.
(t) Except as set forth in the Registration Statement and the
Prospectus, neither the Company nor the Subsidiary has violated any
environmental, safety or similar law applicable to their respective businesses,
nor any federal or state law relating to discrimination in the hiring, promotion
or pay of employees nor any applicable federal or state wages and hours laws,
nor any provisions of the Employee Retirement Income Security Act or the rules
and regulations promulgated thereunder, which in each case might result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company and the Subsidiary, taken as a whole. No
labor disturbance by the employees of the Company or the Subsidiary exists to
the best of the Company and RMI's knowledge, or is imminent. No
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collective bargaining agreement exists with any of the Company's or any
Subsidiary's employees and, to the Company's knowledge, no such agreement is
imminent. Neither the employment by the Company or any Subsidiary of their key
personnel nor the activities of such individuals at the Company or any
Subsidiary conflicts with, constitutes a breach of, or otherwise violates any
employment, noncompetition, nondisclosure or similar agreement or covenant by
which such individuals may be bound.
(u) The Company and the Subsidiary own and have full right, title and
interest in and to, or have the right to use, each material trade name,
trademark, service mark, patent, copyright, license, and other rights and all
know-how (including trade secrets and other unpatented and/or proprietary or
confidential information, systems, or procedures) (collectively, "Intellectual
Property Rights") under which the Company and the Subsidiary conducts all or any
portion of their respective businesses, which Intellectual Property Rights are
adequate to conduct such businesses as conducted or as proposed to be conducted
or as described in the Registration Statement and the Prospectus (or any
amendment or supplement thereto); except as otherwise disclosed in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), neither the Company nor the Subsidiary has created any lien or
encumbrance on, or granted any right or license with respect to, its respective
Intellectual Property Rights; there is no claim pending against the Company or
the Subsidiary with respect to any of their respective Intellectual Property
Rights; neither the Company nor the Subsidiary has received notice that, nor is
the Company aware that, any Intellectual Property Right which they use or have
used in the conduct of their respective businesses infringed or infringes upon
or conflicted or conflicts with the rights of any third party, which
infringement of conflict could have a material adverse effect upon the condition
(financial or other) of the Company and the Subsidiary, taken as a whole; and
the Company is not aware of any facts which, with the passage of time or
otherwise, would cause the Company or the Subsidiary to infringe upon or
otherwise violate the Intellectual Property Rights of any third party.
(v) A registration statement on Form 8-A has been filed under Section
12(g) of the Exchange Act. The Common Stock Application has been designated for
inclusion on the Nasdaq National Market ("NNM") under the symbol "RMGI."
(w) All federal, state, local and foreign tax returns required to be
filed by or on behalf of the Company and the Subsidiary with respect to all
periods ended prior to the date of this Agreement have been filed (or are the
subject of valid extension) with the appropriate federal, state, local and
foreign authorities and all such tax returns, as filed, are accurate in all
material respects. All federal, state, local and foreign taxes (including
estimated tax payments) required to be shown on all such tax returns or claimed
to be due from or with respect to the respective businesses of the Company and
the Subsidiaries have been paid or reflected as a liability on the consolidated
financial statements of the Company for appropriate periods. All deficiencies
asserted as a result of any federal, state, local or foreign tax audits have
been paid or finally settled and no issue has been raised in any such audit
which, by application of the same or similar principles, reasonably could be
expected to result in a proposed
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deficiency for any other period not so audited. No state of facts exist or has
existed which would constitute grounds for the assessment of any material tax
liability with respect to the periods that have not been audited by appropriate
federal, state local or foreign authorities. There are no outstanding agreements
or waivers extending the statutory period of limitation applicable to any
federal, state, local or foreign tax return for any period.
(x) The Company and the Subsidiaries are in compliance with all
provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to
Disclosure of Doing Business with Cuba; if the Company or any Subsidiary
commences engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if any,
concerning the business of the Company or any Subsidiary with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate in
a form acceptable to the Department.
(y) RMI is registered as a broker-dealer with the Commission and
under the Laws of all fifty U.S. states, the District of Columbia and Puerto
Rico, is a member of the NASD, the NYSE, the American Stock Exchange and the
Pacific Stock Exchange and, is in compliance with all applicable Laws, rules,
regulations, orders, by-laws and similar requirements in connection wish such
registrations and membership, including without limitation Rule 15c-1 under the
Securities Exchange Act of 1934 (the "Net Capital Rule"), except where the
failure to be so registered or in such compliance would not have a material
adverse effect on the Company and its subsidiaries taken as a whole .
(z) To the extent required by applicable law, rule or regulation, RMI
is appropriately registered with Canadian securities regulatory authorities and
is in compliance with all applicable laws and regulations in connection
therewith except where the failure to be so registered or in such compliance
would not have a material adverse effect on the Company and its subsidiaries
taken as a whole.
(aa) RMI is registered as an investment advisor with the Commission,
is registered or exempt from regulation in all fifty states, the District of
Columbia and Puerto Rico, and is in compliance in all material respects with all
applicable laws, rules, regulations, orders and similar requirements in
connection therewith except where the failure to be so registered or in such
compliance would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(bb) The Company and the Subsidiary have filed all financial reports
and registrations, reports, statements, notices, and other Filings required to
be filed by the Company or the Subsidiary with any governmental agency or
industry organization having authority for enforcing laws and regulations
applicable to the company's business as a broker-dealer and investment adviser
in the United States, including,
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without limitation, the SEC, the NASD, the NYSE, and state securities
commissions (each, a "Financial Regulatory Authority") or any other governmental
agency, body or official, including all required amendments or supplements to
any of the above, except for Filings, the failure of which to make would not
have a material adverse effect on the Company and its subsidiaries taken as a
whole (collectively, including the financial reports, the "Filings"). Each
Filing complied as to form and substance in all material respects with the
applicable law or regulation requiring such Filing to be filed and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading and each financial
report was true, complete and correct in all material respects, and complied in
all material respects with applicable accounting principles and the regulatory
requirements applicable to such report.
SECTION 6A. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder, severally and not jointly, represents and warrants to
each Underwriter and the Company on the date hereof, and shall be deemed to
represent and warrant to each Underwriter and the Company on the Closing Date
and the Additional Closing Date, that:
(a) Such Selling Shareholder has full right, power and authority to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder hereunder; and upon delivery of such Shares hereunder and payment of
the purchase price as herein contemplated, each of the Underwriters will obtain
valid marketable title to the Shares purchased by it from such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, including any liability for estate or inheritance
taxes, or any liability to or claims of any creditor, devisee, legatee or
beneficiary of such Selling Shareholder.
(b) Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
a Power of Attorney (the "Power of Attorney") appointing Robert J. Mortell, Jr.
and V. Larry Bensussen as attorneys-in-fact (collectively, the "Attorneys" and
individually, an "Attorney") and a Letter of Transmittal and Custody Agreement
(the "Custody Agreement") with Chase Mellon Shareholder Services, LLC, as
custodian (the "Custodian"); each of the Power of Attorney and the Custody
Agreement constitutes a valid and binding agreement of such Selling Shareholder,
enforceable against such Selling Shareholder in accordance with its terms, and
each of such Selling Shareholder's Attorneys, acting alone, is authorized to
execute and deliver this Agreement and the certificate referred to in Section
9(i) hereof on behalf of such Selling Shareholder, subject to the minimum
purchase price as provided in the Power of Attorney to determine the purchase
price to be paid by the several Underwriters to such Selling Shareholder as
provided in Section 2 hereof, to authorize the delivery of the Shares to be sold
by the Selling Shareholders under this Agreement and to duly endorse (in blank
or otherwise) the certificate or certificates representing such Shares or a
stock power or powers with respect thereto, to accept payment therefor, and
otherwise to act on behalf of such Selling Shareholder in connection with this
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Agreement. Certificates in negotiable form for all Shares to be sold by such
Selling Shareholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Shareholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
(c) All authorizations, approvals, consents and orders necessary for
the execution and delivery by such Selling Shareholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of such
Selling Shareholder of this Agreement and the sale and delivery of the Shares to
be sold by the Selling Shareholders under this Agreement (other than such
authorizations, approvals or consents as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Shareholder, if other than a natural person, has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to be;
and such Selling Shareholder has full right, power, and authority to enter into
and perform its obligations under this Agreement and such Power of Attorney and
Custody Agreement, and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder under this Agreement.
(d) Such Selling Shareholder will not offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, Common
Stock, during the period from the Closing Date to the date 180 days following
the effective date of the Registration Statement, inclusive, without the prior
written consent of Raymond James & Associates, Inc. [consent to Bagley Wright
terms?]
(e) Certificates in negotiable form for all Shares to be sold by such
Selling shareholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Shareholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by such Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Shareholder and constitutes the valid
and binding agreement of such Selling Shareholder, enforceable against such
Selling Shareholder in accordance with its terms; and the performance of this
Agreement and the consummation of the transactions herein contemplated will not
result in a breach of or default under any material bond, debenture, note or
other evidence of indebtedness, or any material contract, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument to which
such Selling Shareholder is a party or by which such Selling Shareholder or any
Selling Shareholder Shares hereunder may be bound or, to the best of such
Selling Shareholder's knowledge, result in any violation of any law, order,
rule, regulation, writ, injunction or decree of any court or governmental agency
or body or, if such Selling Shareholder is other than a natural person, result
in any violation of any provisions of the charter, bylaws or other
organizational documents of such Selling Shareholder.
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(g) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares, except as required by regulatory obligations in
connection with such Selling Shareholders performance of employment obligations,
to the extent such Selling Shareholder is an RMI employee.
(i) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Shares to be sold by
such Selling Shareholders under this Agreement that is contained in the
representations and warranties of such Selling Shareholder in such Selling
Shareholder's Power of Attorney or set forth in the Registration Statement and
the Prospectus is, and on the Closing Date will be, true, correct and complete,
and does not, and on the Closing Date will not, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make such statements not misleading.
(j) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date and
will advise one of its Attorneys prior to the Closing Date if any statement to
be made on behalf of such Selling Shareholder in the certificate contemplated by
Section 9(i) would be inaccurate if made as of the Closing Date.
(k) Such Selling Shareholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Shareholders to the Underwriters pursuant to
this Agreement, and such Selling Shareholder does not own any capital stock of
the Company or warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
(l) Such Selling Shareholder is not aware (without having conducted
any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 6 above is untrue or
inaccurate, or, in the case of Brocks Ragen that the description of the
Severance and Correspondent Clearing Agreement between him and RMI is true,
correct and complete, and does not, and on the Closing Date will not,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make such statements not
misleading.
SECTION 7. EXPENSES. The Company hereby agrees with the several
Underwriters that the Company will pay or cause to be paid the costs and
expenses
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associated with the following: (i) the preparation, printing or reproduction,
and filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Prepricing Prospectus, the
Prospectus, each registration statement filed pursuant to Rule 462(b) under the
Act, and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, each registration statement filed
pursuant to Rule 462(b) under the Act, and all amendments or supplements to any
of them, as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the offering of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and supplemental
Blue Sky Memoranda and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Shares; (v) the listing of
the Shares on the Nasdaq National Market; (vi) the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of the
several states as provided in Section 5(f) hereof (including the reasonable fees
and expenses of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such registration and qualification); (vii) the filing fees in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc, in connection with the offering; (viii) the
transportation and other expenses incurred by or on behalf of representatives of
the Company in connection with the presentations to prospective purchasers of
the Shares; (ix) the fees and expenses of the Company's accountants and the fees
and expenses of counsel (including local and special counsel) for the Company;
(x) the preparation, printing and distribution of bound volumes for the
Representatives and their counsel; (xi) the performance by the Company of its
other obligations under this Agreement; and (xii) $100,000 as a nonaccountable
expense allowance, to be paid to Raymond James & Associates, Inc. If the
transactions contemplated hereby are not consummated by reason of any failure,
refusal or inability on the part of the Company or any Selling Shareholder to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, the Company will reimburse
the several Underwriters for all reasonable out-of-pocket expenses (including
fees and disbursements of counsel for the several Underwriters) incurred by the
Underwriters in investigating, preparing to market or marketing the Shares. The
provisions of this Section 7 are intended to relieve the Underwriters from the
payment of the expenses and costs which the Selling Shareholders and the Company
hereby agree to pay, but shall not affect any agreement which the Selling
Shareholders and the Company may make, or may have made, for the sharing of such
expenses and costs. Such agreements shall not impair the obligations of the
Company and the Selling Shareholders hereunder to the several Underwriters.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION. The Company agrees to
indemnify and hold harmless you and each other Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities
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and expenses (including reasonable costs of investigation) arising out of or
based upon any breach of any representation, warranty, agreement or covenant of
the Company contained herein or any untrue statement or alleged untrue statement
of a material fact contained in any Prepricing Prospectus the Registration
Statement, the Prospectus, any amendment or supplement thereto, or in any
Registration Statement filed pursuant to Rule 462(b) under the Act, or arising
out of or based upon any omission or alleged omission to state therein a
material fact requited to be stated therein or necessary to make the statements
therein not misleading, or arising out of or based upon any untrue statement or
alleged untrue statement of any material fact contained in any audio or visual
materials used in connection with the marketing of the Shares, including,
without limitation, slide, videos, films and tape recordings, except insofar as
such losses, claims, damages, liabilities or expenses arise out of or are based
upon an untrue statement or omission or alleged untrue statement or omission
which has been made therein or omitted therefrom in reliance upon and in
conformity with the information relating to an Underwriter furnished in writing
to the Company by or on behalf of any Underwriter through you expressly for use
in connection therewith or arise out of materials prepared solely by the
Underwriters without the knowledge of the Company or any of its representatives
based upon material information obtained from sources other than, directly or
indirectly, the Company or its representatives. This indemnification shall be in
addition to any liability that the Company may otherwise have.
Each Selling Shareholder, severally and not jointly, agrees to indemnify
and hold harmless you and each other Underwriter and each person, if any, who
controls any underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any breach of any representation, warranty, agreement or
covenant of such Selling Shareholder contained herein or any untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus, the Registration Statement, the Prospectus, any amendment or
supplement thereto, or in any Registration Statement filed pursuant to Rule
462(b) under the Act, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to information relating to such Selling Shareholder furnished in writing by or
on behalf of such Selling Shareholder through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, any
amendment or supplement thereto, or any Registration Statement filed pursuant to
Rule 462(b) under the Act. This indemnification shall be in addition to any
liability that the Selling Shareholders or any Selling Shareholder may otherwise
have.
If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Company or any Selling Shareholder, such Underwriter or such
controlling person shall promptly notify in writing the party(s) against whom
indemnification is being sought (the "indemnifying party" or "indemnifying
parties"), and such indemnifying party(s) shall assume the defense thereof,
including the employment of counsel reasonably acceptable to such Underwriter or
such controlling person and payment of all fees and
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expenses. Such Underwriter or any such controlling person shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the indemnifying party(s)
has (have) agreed in writing to pay such fees and expenses, (ii) the
indemnifying party(s) has (have) failed to assume the defense and employ counsel
reasonably acceptable to the Underwriter or such controlling person, or (iii)
the named parties to any such action (including any impleaded parties) include
both such Underwriter or such controlling person and the indemnifying party(s),
and such Underwriter or such controlling person shall have been advised by its
counsel that representation of such indemnified party and any indemnifying
party(s) by the same counsel would be inappropriate under applicable standards
of professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the indemnifying party(s) shall not have the right to assume the
defense of such action on behalf of such Underwriter or such controlling
person). The indemnifying party(s) shall not be liable for any settlement of any
such action effected without its (their) written consent, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, the indemnifying party(s) agrees to indemnify and hold harmless any
Underwriter and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment, but in
the case of a judgment only to the extent stated in the immediately preceding
paragraph.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement, and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, and each Selling Shareholder,
to the same extent as the foregoing indemnity from the Company and each Selling
Shareholder to each Underwriter, but only with respect to information relating
to such Underwriter furnished in writing by or on behalf of such underwriter
through you expressly for use in the Registration Statement, the Prospectus or
any Prepricing Prospectus, any amendment or supplement thereto, or any
Registration Statement filed pursuant to Rule 462(b) under the Act. If any
action or claim shall be brought or asserted against the Company, any of its
directors, any such officers, or any such controlling person or any Selling
Shareholder based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, any amendment or supplement thereto, or any Registration
Statement filed pursuant to Rule 462(b) under the Act, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph, such
Underwriter shall have the rights and duties given to the Company and the
Selling Shareholders by the preceding paragraph (except that if the Company or
any Selling Shareholder shall have assumed the defense thereof such Underwriter
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such Underwriter's expense), and the Company, its directors, any
such officers, and any such controlling persons and the Selling Shareholders
shall have the rights and duties given to the Underwriters by the immediately
preceding paragraph. This indemnification shall be in addition to any liability
the Underwriters or any Underwriter may otherwise have.
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If the indemnification provided for in this Section 8 is unavailable to an
indemnified party under the first, second or fourth paragraph hereof in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then an indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company or the Selling Shareholders, as applicable, on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company or
the Selling Shareholders, as applicable, on the one hand and the Underwriters on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company or the
Selling Shareholders, as applicable, on the one hand and the Underwriters on the
other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares (before deducting expenses) received by
the Company or the Selling Shareholders, as applicable, bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus; provided
that, in the event that the Underwriters shall have purchased any Additional
Shares hereunder, any determination of the relative benefits received by the
Company or the Selling Shareholders, as applicable, or the Underwriters from the
offering of the Shares shall include the net proceeds (before deducting
expenses) received by the Company or the Selling Shareholders, as applicable,
and the underwriting discounts and commissions received by the Underwriters,
from the sale of such Additional Shares, in each case computed on the basis of
the respective amounts set forth in the notes to the table on the cover page of
the Prospectus. The relative fault of the Company or the Selling Shareholders,
as applicable on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Shareholders, as
applicable, on the one hand or by the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
In any event, neither the Company nor any Selling Shareholder will, without
the prior written consent of the Representatives, settle or compromise or
consent to the entry of any judgment in any proceeding or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not the Representatives or any person who controls the
Representatives within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of all
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
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The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 8 was
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the fifth paragraph
of this Section 8. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
the fifth paragraph of this Section 8 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8 are several in proportion to the respective number of Firm Shares set
forth opposite their names in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof) and not joint.
Notwithstanding the foregoing, the liability of each Selling Shareholder
under the representations and warranties contained in Section 6A hereof and
under the indemnity agreements contained in the provisions of this Section 8
shall be limited to an amount equal to the initial public offering price of the
Shares sold by such Selling Shareholder to the Underwriters minus the amount of
the underwriting discount paid thereon to the Underwriters by such Selling
Shareholder. The Company and such Selling Shareholders may agree, as among
themselves and without limiting the rights of (he Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
In any proceeding relating to the Registration Statement, any Preliminary
Prospectus, the Prospectus, any supplement or amendment thereto, or any
registration statement filed pursuant to Section 462(b) of the Act, each party
against whom contribution may be sought under this Section 8 hereby consents to
the jurisdiction of any court having jurisdiction over any other contributing
party, agrees that process issuing from such court may be served upon him or it
by any other contributing party and consents to the service of such process and
agrees that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is a
party.
Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Shareholders set
forth in this Agreement shall remain operative and in full
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force and effect, regardless of (i) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or any person controlling the Company, or any Selling
Shareholder, (ii) acceptance of any Shares and payment therefor hereunder, and
(iii) any termination of this Agreement. A Successor to any Underwriter or any
person controlling any Underwriter, to the Company, its directors or officers,
or any person controlling the Company, or any Selling Shareholder, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
SECTION 9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York City time, on the date hereof, or at such later date
and time as shall be consented to in writing by you, and all filings required by
Rules 424(b) and 430A under the Act shall have been timely made; and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction.
(b) Subsequent to the effective date of the Registration Statement
there shall not have occurred any change, or any development involving, or which
might reasonably be expected to involve, a potential future material adverse
change, in the condition (financial or other), business, properties, net worth
or results of operations of the Company and the Subsidiaries, taken as a whole,
not contemplated by the Prospectus (or any supplement thereto), that in your
reasonable opinion, as Representatives of the several Underwriters, would
materially and adversely affect the market for the Shares.
(c) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Perkins Coie, counsel for the Company, dated
the Closing Date (and the Additional Closing Date, if any), satisfactory to you
and your counsel, to the effect that:
(i) The Company is a corporation duly incorporated under the
laws of the State of Washington, and validly existing in good standing,
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), and
is duly registered and qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature of its properties
or the conduct of its business requires such registration or qualification,
except where the failure to so register or qualify does not have a material
adverse effect on the condition (financial or other), business, properties,
net worth or results of operation of the Company and the Subsidiaries,
taken as a whole.
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(ii) The Subsidiary is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and qualified to conduct its business and
is in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify does not
have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operation of the Company and
the Subsidiaries, taken as it whole. All issued and outstanding shares of
capital stock of the Subsidiary have been validly issued and are fully paid
and nonassessable and to such counsel's knowledge free and clear of all
liens, encumbrances, equities and claims. To such counsel's knowledge, the
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than the subsidiary.
(iii) The authorized capital stock and other securities of the
Company conform in all material respects as to legal matters to the
description thereof contained in the Prospectus under the caption
"Description of Securities."
(iv) All shares of capital stock or other securities of the
Company other than the Shares to be issued and sold by the Company
hereunder have been duly authorized and validly issued, are fully paid and
nonassessable and to such counsel's knowledge have not been issued in
violation of any co-sale right, registration right, right of first refusal,
preemptive right, or other similar right.
(v) The Shares to be issued and sold to the Underwriters and by
the Company, when issued and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable and free and clear of all liens, encumbrances,
equities and claims and to the best knowledge of such counsel after
reasonable inquiry will not have been issued in violation of any co-sale
right, registration right, right of first refusal, preemptive right, or
other similar right.
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<PAGE>
(vi) The form of certificates for the Shares conforms to the
requirements of the applicable corporate laws of the State of Washington.
(vii) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel after reasonable inquiry, no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose are pending before or threatened
by the Commission.
(viii) The Company has all requisite corporate power and
authority to enter into this Agreement and to issue, sell and deliver the
Shares to be sold by it to the Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by the Company
and RMI and is valid, legal and binding agreement of the Company and RMI
enforceable against the Company in accordance with its terms, except as
enforceability thereof may be limited by (A) the application of bankruptcy,
reorganization, insolvency and other laws affecting creditors' rights
generally, and (B) equitable principles being applied at the discretion of
a court before which any proceeding may be brought; and the Company has
adequate authorization and has taken all action necessary to authorize the
indemnification provisions contained in Section 8 herein.
(ix) To the knowledge of such counsel after reasonable inquiry,
neither the Company nor any Subsidiary is in violation of any law,
ordinance, administrative or governmental rule or regulation applicable to
the Company or any Subsidiary or of any decree of any court or governmental
agency or body having jurisdiction over the Company or any Subsidiary
except where such violation does not and will not have a material adverse
effect on the condition (financial or other), business, properties, net
worth or results of operation of the Company and the Subsidiaries, taken as
a whole.
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(x) The property described in the Registration Statement and
the Prospectus (or any amendment or supplement thereto) as held under lease
by the Company or any Subsidiary is held under valid, subsisting and
enforceable leases, with only such exceptions as in the aggregate are not
material and do not interfere in any material respect with the conduct of
the business of the Company and the Subsidiaries, taken as a whole.
(xi) Such counsel has reviewed all agreements, contracts,
indentures, leases or other documents or instruments referred to in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) (other than routine contracts entered into by the Company or any
Subsidiary to the extent summarized or disclosed therein, entered into in
the normal course of business) and such agreements, contracts, indentures,
leases or other documents or instruments are fairly summarized or disclosed
therein, and filed as exhibits thereto or incorporated by reference therein
as required, and such counsel does not know, after reasonable inquiry, of
any agreements, contracts, indentures, leases or other documents or
instruments required to be so summarized or disclosed or filed which have
not been so summarized or disclosed or filed.
(xii) The statements under the captions "Risk Factors--Anti-
Takeover Considerations," "--Shares Eligible for Future Sale,"
"Business Regulation," "Description of Capital Stock" and "Shares Eligible
for Future Sale" in the Registration Statement and the Prospectus, insofar
as such statements constitute a summary of documents referred to therein or
matters of law, are accurate summaries and fairly and correctly summarize
and present in all material respects the information called for with
respect to such documents and matters. Such counsel has no reason to
believe that the descriptions in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) of statutes,
regulations or legal or governmental proceedings are other than accurate or
fail to present fairly the information required to be shown, provided that
such counsel need express no opinion to matters relating to Federal, State
or SEC regulated broker dealers.
(xv) Neither the Company nor any Subsidiary is, nor will any of
them become, as a result of the consummation of the transactions
contemplated
27
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hereby and the application of the net proceeds therefrom as set forth in
the Registration Statement and the Prospectus (or any amendment or
supplement thereto) under the caption "Use of Proceeds," an "investment
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
(xvi) To the best knowledge of such counsel after reasonable
inquiry, other than as described or contemplated in the Prospectus (or any
supplement thereto), there are no legal or governmental proceedings pending
or threatened against the Company or the Subsidiary or to which the
Company or the Subsidiary or any of their respective properties are
subject, which are required to be described in the Registration Statement
or Prospectus (or any amendment or supplement thereto).
(d) You shall have received on the Closing Date, and the Additional
Closing Date, if any, an opinion of Foster, Pepper & Shefelman, regulatory
counsel to RMI and the Company, to the effect that such counsel are special
regulatory counsel for the Company and RMI and have read the Registration
Statement and the Prospectus, including, particularly the portions of the
Registration Statement and the Prospectus referred to below and that:
(i) RMI is registered as a broker-dealer with the Commission and
under the laws of all fifty U.S. states, the District of Columbia and
Puerto Rico, is a member of the NASD, the NYSE, the American Stock Exchange
and the Pacific Stock Exchange and, to such counsel's knowledge, no
proceedings have been threatened against RMI nor has RMI received any
notice of proceeding relating to the revocation or modification of any such
registration.
(ii) RMI is registered as an investment advisor with Commission,
is registered in those states in which registration is necessary to conduct
its business, to such counsel's knowledge, no proceedings have been
threatened against RMI nor has RMI received any notice of proceeding
relating to the revocation or modification of any such registration.
(iii) The statements under the captions "Risk Factors -
Regulation", "Risk of NYSE and NASD Enforcement Proceedings", "-Constraints
Imposed by Net Capital Requirements", "Business - Regulation", "-Net
Capital Requirement", insofar as such statements constitute a summary of
matters of law correctly summarize and present in all material respects the
information called for with respect to such matters. Such counsel has no
reason to believe that the statements contained under the captions set
forth in the preceding sentence, or any other descriptions in the
Registration Statement and Prospectus (or any amendment or supplement
thereto) of statutes, regulations or legal or governmental proceedings
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statement
therein not misleading.
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(e) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Preston Gates & Ellis, counsel for the
Selling Shareholders, dated the Closing Date (and the Additional Closing Date,
if any) satisfactory to you and your counsel, to the effect that
(i) Each Selling Shareholder that is not a natural person has
full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of each
Selling shareholder that is not a natural person has been duly authorized
by such Selling Shareholder has been duly executed and delivered by or on
behalf of such Selling Shareholder; and the Power of Attorney and Custody
Agreement of each Selling Shareholder constitutes the valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
(ii) Each of the Selling Shareholders has full right, power and
authority to enter into and to perform its obligations under this Agreement
and to
29
<PAGE>
sell, transfer, assign and deliver the Shares to be sold by such Selling
Shareholder hereunder;
(iii) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Shareholder and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except insofar as the indemnification and contribution provisions
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally
or by general equitable principles;
(iv) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling
Shareholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of any defect
in the title of any of such Selling Shareholders to the Shares being
purchased from such Selling Shareholders;
In rendering such opinion, counsel may rely upon an opinion or opinions,
each dated the Closing Date (and the Additional Closing Date, if applicable), of
other counsel as to the laws of a jurisdiction other than the State of
Washington, provided that (1) each such local counsel is acceptable to you, (2)
each such opinion so relied upon is addressed to counsel and you, (3) such
reliance is expressly authorized by each opinion so relied upon and a copy of
each such opinion is delivered to you and is in form and substance satisfactory
to you, and (4) counsel shall state in their opinion that they believe that they
and you are justified in relying thereon. In rendering such opinion, local
counsel may rely, to the extent they deem such reliance proper, as to matters of
fact upon certificates of officers of the Company and of government officials.
Copies of all such certificates shall be furnished to you and your counsel on
the Closing Date (and the Additional Closing Date, if applicable).
In rendering such opinion, in each case where such opinion is qualified by
"the knowledge of such counsel after reasonable inquiry," such counsel may rely
as to matters of fact upon certificates of executive and other officers and
employees of the Company as you and such counsel shall deem are appropriate and
such other procedures as you and such counsel shall mutually agree; provided,
however, in each such case, such counsel shall state that it has no knowledge
contrary to the information contained in such certificates or developed by such
procedures and knows of no reason why you should not reasonably rely upon the
information contained in such certificates or developed by such procedures.
In addition to the opinion set forth above, counsel to the Company shall
state that during the course of the preparation of the Registration Statement
and the Prospectus, and any amendments or supplements thereto, nothing has come
to the attention of such
30
<PAGE>
counsel which has caused it to believe that the Registration Statement, as of
the time it became effective under the Act, the Prospectus or any amendment or
supplement thereto, on the date it was filed pursuant to Rule 424(b), as of the
respective dates when such documents were filed with the Commission, and the
Registration Statement and the Prospectus, or any amendment or supplement
thereto, as of the Closing Date (except for the financial statements and other
financial and statistical information contained therein or omitted therefrom,
and the matters covered by the opinion of Foster, Pepper & Sheffelman as to
which no opinion need be expressed), contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statement therein not misleading. With respect to such
statement, counsel shall state that although such counsel did not undertake to
determine independently the accuracy, completeness and fairness of the
statements contained in the Registration Statement or in the Prospectus and
takes no responsibility therefor (except to the extent specifically set forth
herein), such counsel did participate in discussions and meetings with officers
and other representatives of the Company and discussions with the auditor for
the Company in connection with the preparation of the Registration Statement and
the Prospectus, and it is on the basis of the foregoing (relying as to certain
factual matters on the information provided to such counsel and not on an
independent investigation) that such counsel is making such statement.
(f) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Graham & James LLP/Riddell Williams P.S.,
counsel for the Underwriters, dated the Closing Date (and the Additional Closing
Date, if any), with respect to the issuance and sale of the Firm Shares, the
Registration Statement and other related matters as you may reasonably request,
and the Company and its counsel shall have furnished to your counsel such
documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(g) You shall have received letters addressed to you and dated the
date hereof and the Closing Date (and the Additional Closing Date, if any) from
Deloitte & Touche independent certified public accountants, substantially in the
forms heretofore approved by you.
(h) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be,
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock or other securities of the Company
nor any material increase in the short-term or long-term debt of the Company
(other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been since the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), except as may otherwise be
stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), any material adverse change (present or potential future)
in the condition (financial or other), business properties, net worth or results
of operation of the Company and the Subsidiaries shall not have any liabilities
or obligations direct or contingent (whether or
31
<PAGE>
not in the ordinary course of business) that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and (v)
all of the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and as of the
date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you) to the effect set
forth in this Section 9(g) and in Section 9(h) hereof.
(i) The Company shall not have failed in any material respect at or
prior to the Closing Date to have performed or complied with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(j) You shall be satisfied that, and you shall have received a
certificate dated the Closing Date, from the Attorneys for each Selling
Shareholder to the effect that as of the Closing Date, they have not been
informed that: (i) the representations and warranties made by such Selling
Shareholder herein are not true or correct in any material respect on the
Closing Date; or (ii) such Selling Shareholder has not complied with any
obligation or satisfied any condition which is required to be performed or
satisfied on his or its part at or prior to the Closing Date.
(k) The Company and the Selling Shareholders shall have furnished or
caused to have been furnished to you such further certificates and documents as
you shall be reasonably requested.
(l) At or prior to the Closing Date, you shall have received the
written commitment of each of the Company's directors, executive officers and
shareholders set forth on Schedule III hereto, not to offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, Common
Stock, following the effective date of the Registration Statement, inclusive,
without the prior written consent of Raymond James & Associates, Inc., in sum
and substance satisfactory to you which commitments shall be in full force and
effect as of the Closing Date (and the Additional Closing Date, if any).]
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of the Additional Closing
Date of the conditions set forth in this Section 9, except that, if the
Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (j) shall be dated in
the Additional Closing Date and the opinions and letters
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referred to in paragraphs (c) through (f) shall be revised to reflect the sale
of Additional Shares.
SECTION 10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon the later of (a) the execution and delivery hereof by the parties
hereto, or (b) release of notification of the effectiveness of the Registration
Statement by the Commission.
If any one or more of the Underwriters shall fail or refuse to purchase
Firm Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Firm Shares, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in the Agreement Among Underwriters,
to purchase the Firm Shares which such defaulting Underwriter or Underwriters
agreed, but failed or refused to purchase. If any Underwriter or Underwriters
shall fail or refuse to purchase Firm Shares and the aggregate number of Firm
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares and arrangements satisfactory to you and the
Company for the purchase of such Firm Shares are not made with 36 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company or any Selling Shareholder. In any
such case that does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven (7) days, in order that the required changes, if any, in
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any such default
of any such Underwriter under this Agreement.
SECTION 11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or the Additional Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or The Nasdaq
Stock Market shall have been suspended or materially limited, (ii) trading of
any securities of the Company, including the Shares, on the New York Stock
Exchange, American Stock Exchange or The Nasdaq Stock Market shall have been
suspended or materially limited, whether as the result of a stop order by the
Commission or otherwise, (iii) a general moratorium on commercial banking
activities in New York or Florida shall have been declared by either federal or
state authorities, (iv) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions or other material event the effect
of which on the financial markets of the United States is such as to make it, in
your judgment, impracticable or inadvisable to market the Shares or to enforce
contracts for the sale of
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the Shares, or (v) the Company or any Subsidiary shall have, in the sole
judgment of the Representatives, sustained any loss or interference, material to
the Company and the Subsidiaries, taken as a whole, with their respective
businesses or properties from fire, flood, hurricane, accident, or other
calamity, whether or not covered by insurance, or from any labor disputes or any
legal or governmental proceeding, or there shall have been any material adverse
change (including, without limitation, a material change in management or
control of the Company) in the condition (financial or otherwise), business
prospects, net worth, or results of operations of the Company and the
Subsidiaries, taken as a whole, except in each case as described in, or
contemplated by, the Prospectus (excluding any amendment or supplement thereto).
Notice of such cancellation shall be promptly given to the Company and its
counsel by telegraph, telecopy or telephone and shall be subsequently confirmed
by letter.
All representations, warranties, covenants and agreements of the Company
and the Selling Shareholders herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person,
or by or on behalf of the Company or any Selling Shareholder, or any of their
officers, directors or controlling persons, and shall survive the delivery of
the Shares to the several Underwriter hereunder or termination of this
Agreement.
SECTION 12. APPROVAL OF RAYMOND JAMES. Ragen MacKenzie Incorporated,
which is serving as one of the Representatives hereunder, may not make, without
the prior written consent of Raymond James Associates, Inc., any decisions or
take any action on behalf of all the Underwriters, including, without limitation
(a) the approval of any legal or other documents required to be delivered by or
on behalf of the Company or the Selling Shareholder, (b) the determination
whether certain conditions to the consummation of the offering have been
satisfied, and (c) the waiver of the satisfaction of such conditions.
SECTION 13. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus, constitute all the information furnished by or on behalf of the
Underwriters through you or on your behalf as such information is referred to in
Sections 6(a), 6(b) and 8 hereof.
SECTION 14. NOTICES; SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, notice given pursuant to any of the provisions of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of the
Company at; or (ii) if to you, as the Underwriters, to (A) Raymond James &
Associates, Inc., 880 Carillon Parkway, St, Petersburg, Florida 33716,
Attention:_______________________________; and (B) Ragen MacKenzie Incorporated,
999 Third Avenue, Suite 4300, Seattle, Washington 98104, Attention: Lesa A.
Sroufe, Chief Executive Officer (with a copy to Stewart M. Landefeld, Perkins
Coie, 1201 Third Avenue, Seattle, Washington 98101 (with a copy to Benjamin F.
Stephens, Graham & James/Riddell Williams, 1001 Fourth Avenue Plaza, Seattle,
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Washington 98154); or (iii) if to one or more of the Selling Shareholders, to
Preston Gates & Ellis, as Attorney for the Selling Shareholders, at 701 Fifth
Avenue, Suite 5000, Seattle, WA , 98104-7078.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers and the other controlling
persons referred to in Section 8 hereof, and the Selling Shareholders, and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue or this Agreement.
Neither of the terms "successor" and "successors and assigns" as used in this
Agreement shall Include a purchaser from you of any of the Shares in his status
as such purchaser.
SECTION 15. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida
without reference to choice of law principles thereunder. This Agreement may be
signed in various counterparts which together shall constitute one and the same
instrument. This Agreement shall be effective when, but only when, at least one
counterpart hereof shall have been executed on behalf of each party hereto.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
RAGEN MACKENZIE GROUP INCORPORATED
By:_______________________________________
Name:_____________________________________
Title:____________________________________
SELLING SHAREHOLDERS
By:_______________________________________
Attorney-in-Fact for the Selling
Shareholders named in Schedule II
hereto
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<PAGE>
CONFIRMED as of the date first
above mentioned, on behalf of
itself and the other several
Underwriters named in Schedule I
hereto.
RAYMOND JAMES & ASSOCIATES, INC.
RAGEN MACKENZIE INCORPORATED
By: RAYMOND JAMES & ASSOCIATES, INC.
By:__________________________________
Authorized Representative
36
<PAGE>
SCHEDULE I
UNDERWRITERS
Number of
Name Firm Shares
- ---- -----------
Raymond James & Associates Inc.....................................
===========
TOTAL..............................................................
37
<PAGE>
SCHEDULE II
SELLING SHAREHOLDERS
Number of
Number of Additional
Name Firm Shares Shares
- ---- ----------- -----------
Raymond James & Associates Inc.....................
=========== ===========
TOTAL..............................................
38
<PAGE>
SCHEDULE III
LOCK-UP AGREEMENTS
Name
- ----
39
<PAGE>
EXHIBIT 5.1
June 1, 1998
Ragen MacKenzie Group Incorporated
999 Third Avenue, Suite 4300
Seattle, WA 98104
Gentlemen and Ladies:
We have acted as counsel to you in connection with the proceedings for the
authorization and issuance by Ragen MacKenzie Group Incorporated (the "Company")
of up to 1,462,500 shares (the "Company Shares") of the Company's common stock,
$.01 par value per share (the "Common Stock"), and the sale of up to 787,500
shares of the Common Stock (the "Selling Shareholder Shares") offered by certain
of the Company's shareholders (the "Selling Shareholders"), together with an
additional 337,500 shares of Common Stock if and to the extent the underwriters
exercise an over-allotment option granted by the Selling Shareholders (the
"Over-Allotment Shares"), and the preparation and filing of a registration
statement on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), which you are filing with the
Securities and Exchange Commission with respect to the Company Shares, the
Selling Shareholder Shares and the Over-Allotment Shares (collectively, the
"Shares").
We have examined the Registration Statement and such documents and records
of the Company and other documents as we have deemed necessary for the purpose
of this opinion. Based upon the foregoing, we are of the opinion that upon the
happening of the following events:
(a) the filing and effectiveness of the Registration Statement and any
amendments thereto;
(b) due action by the Selling Shareholders authorizing the sale of the
Selling Shareholders Shares;
(c) due execution by the Company and registration by its registrar of the
Shares.
<PAGE>
June 1, 1998
Page 2
(d) the offering and sale of the Shares as contemplated by the
Registration Statement and in accordance with the resolutions of the
Board of Directors of the Company authorizing the sale and issuance of
the Company Shares and the aforesaid shareholder authorizations; and
(e) receipt by the Company and the Selling Shareholders of the
consideration required for the Shares contemplated by the Registration
Statement,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all post-
effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the reference to our firm in the Prospectus of the
Registration Statement under the heading "Legal Matters." In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ PERKINS COIE LLP
Perkins Coie LLP
ABM:bl
<PAGE>
EXHIBIT 10.5
RAGEN MACKENZIE INCORPORATED
BROOKS G. RAGEN
SEVERANCE AND CORRESPONDENT CLEARING
AGREEMENT
This Agreement is entered into by and between Brooks G. Ragen ("Mr. Ragen")
and Ragen MacKenzie Incorporated (the "Company").
RECITALS
A. Mr. Ragen was a founder, chairman and chief executive officer of the
Company and its predecessor entity, is the Company's largest shareholder, and is
the senior employee of the Company.
B. Both Mr. Ragen and the Company desire to establish a new relationship
between them in the anticipation of an initial public offering of equity
securities of the Company's parent corporation, Ragen MacKenzie Group
Incorporated (the "Holding Company").
AGREEMENT
Now, therefore, in consideration of the foregoing recitals and mutual
covenants contained below, the parties agree as follows:
1. ESTABLISHMENT OF INDEPENDENT CORPORATION
1.1 CREATION OF NEWCO
Mr. Ragen intends to and, subject to the May 15 election set forth below,
will promptly take all commercially reasonable steps to form a new corporation
or other entity ("NewCo") which will, beginning on a date (the "NewCo Employment
Date") no earlier than immediately following the IPO Closing Date (as defined
below) and no later than January 1, 1999, employ Mr. Ragen and certain members
of Mr. Ragen's working team at Ragen MacKenzie, as more precisely described
below.
1.2 EMPLOYEE DURING INTERIM
Through December 31, 1998, or such earlier date as permitted by Section 1.2
below, Mr. Ragen will continue to be an employee of the Company; provided,
however, that although Mr. Ragen intends to form NewCo as provided in this
<PAGE>
Section 1.2, nothing herein either requires him to terminate his employment with
the Company should he choose to stay (although Mr. Ragen acknowledges that he,
like other employees, is employed at will by the Company and subject to
termination as an "at will employee") or prevent him from retiring (subject to
the provisions of Section 10). Mr. Ragen will continue to be a positive and
constructive employee of the Company until the NewCo Employment Date. On or
before May 15, 1998, Mr. Ragen will give to the Company a binding, written
election, subject to regulatory and third party approval, as to which Mr.
Ragen's obligations shall be best efforts only, to form NewCo (and, subject to
regulatory approval, whether as a clearing customer or an independent
contractor) or to remain as an employee. Mr. Ragen and the Company will
amicably cooperate to find appropriate (high, west-side view) office space for
NewCo. Unless the parties agree otherwise, this space shall be located closely
to, but not, unless the parties agree, within, the 999 Third Avenue Building.
The parties shall work professionally and amicably toward a budget for the
build-out of this new space, which shall include a contribution toward a tenant
improvement budget by the Company of $40,000. Mr. Ragen currently intends, and
the parties shall work amicably to seek a NewCo opening in its new space on
October 1, 1998, which shall in no event open later than January 1, 1999. The
Company will make available to Mr. Ragen its resources for the formation of a
new branch, clearing customer or independent contractor, including personnel, in
order to facilitate Mr. Ragen's efforts to make his election with respect to
NewCo.
1.3 STATUS OF NEWCO
It is Mr. Ragen's intent that NewCo will register as an independent broker-
dealer and/or investment advisor with the appropriate state, federal and self-
regulatory entities, including the Securities and Exchange Commission (the
"SEC"), the National Association of Securities Dealers (the "NASD"), and related
entities. NewCo will file Focus reports, have its own operations staff, conduct
annual audits, and comply with other applicable regulatory requirements.
However, at Mr. Ragen's option, NewCo may be structured as an independent
contractor relationship with the Company which would not involve such
requirements.
1.4 NEWCO BUSINESS DURING TERM
For a 36 month period (the "Term") which beings on the date of the closing
(the "IPO Closing Date") of the Holding Company IPO (as defined below), and
except as set forth at Section 1.5 below, all categories of NewCo's and Mr.
Ragen's SEC and NASD regulated business will be conducted by means of a
clearing agreement (or, as specifically set forth herein, an independent
contractor agreement) with the Company, except as set forth in the following
sentence. As an exception to the foregoing sentence, NewCo may:
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(a) conduct business with Knowlton Brothers (subject to payment of
investment advisory fees as described below);
(b) engage in merger and acquisition advisory and private placement
services ("Corporate Finance"), beginning at the Commencement Date (as defined
below); and
(c) effect trades of municipal bonds solely as permitted at Section
1.5 below.
From the IPO Closing Date through the NewCo Employment Date, all activities
described in this Section 1.4 will be conducted by Mr. Ragen as an employee of
the Company. Beginning on the NewCo Employment Date through the balance of the
Term, these activities will be conducted with Mr. Ragen as an employee of NewCo.
1.5. MUNICIPAL BOND TRADING
Mr. Ragen and NewCo shall have and shall follow a policy that during the
Term all trades of municipal bonds will be conducted through the Company's
municipal bond trading desk so long as the Company provides reasonably
competitive market prices, and fulfills all applicable regulatory obligations.
1.6 NO COMPETITION EXCEPT WITHIN NEWCO
Mr. Ragen agrees that except as permitted in his employment by NewCo or as
permitted under this Agreement, he will not, directly or indirectly, during
the Term, be employed by, consult with or otherwise perform services for, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of or be connected with, in any manner, any organization
which, by reason of its activities as a broker, dealer, investment advisor,
investment company or related business (other than with the Knowlton Brothers as
provided herein), is subject to regulation by the SEC and which conducts
business in any state or province in which the Company conducts business (a
"Competitor"). Mr. Ragen shall be deemed to be related to or connected with a
competitor if such Competitor is (a) a partnership in which Mr. Ragen is a
general or limited partner or employee, (b) a corporation or association of
which Mr. Ragen is a shareholder, officer, employee or director, or (c) a
partnership, corporation or association of which Mr. Ragen is a member,
consultant or agent; provided, however, that nothing herein shall prevent the
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purchase or ownership by Mr. Ragen of shares which constitute less than ten
percent of the outstanding equity securities of a publicly or privately held
corporation, if Mr. Ragen has no other relationship with such corporation;
provided, further, that serving as an independent outside director of an entity
that is or owns a Competitor, shall be permitted and not in violation of this
Agreement.
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2. RECRUITMENT OF TEAM; NONSOLICITATION, NONDISPARAGEMENT AND NONDISCLOSURE
2.1 TEAM
The Company and Mr. Ragen will jointly notify Company employees Cameron
Ragen, Barbara Powell, Lauri Taft, Kelly Bitner and Nancy Davidson (together the
"Team") that each of them is free to either remain as an employee of the
Company, or to join NewCo as an employee commencing January 1, 1999 (or any
earlier NewCo Employment Date). Neither the Company nor Mr. Ragen will exert
pressure on these individuals to make a choice, but shall permit each to freely
make a decision with respect to his or her employment relationship.
2.2 TEAM NONCOMPETITION OBLIGATIONS
The Company will amend any employment or noncompetition agreement entered
into by any of the Team to provide for that individual's ability to compete with
the Company solely as an employee of NewCo and subject to limitation, and
benefits substantially equivalent to those of Mr. Ragen under this Agreement.
2.3 SCOTT MCADAMS
The Company agrees that Scott McAdams may work in the following manner as
an employee of NewCo. First, he may act strictly in an administrative capacity
to oversee the formation, regulatory compliance, capitalization and otherwise
administratively assist in the creation and establishment of NewCo until the
NewCo Employment Date. Second, beginning October 1, 1998, (or the NewCo
Employment Date, if earlier) Mr. McAdams may begin to prepare for the
commencement of his research operations at NewCo, including preparing research
reports to be issued following the NewCo Employment Date; in no event, however,
shall NewCo, through Mr. McAdams, or otherwise, publish research reports, or
otherwise engage in acts of trade or business until the NewCo Employment Date.
Except as otherwise provided pursuant to Sections 4.1, 4.2 or 4.4 hereof, Mr.
McAdams will refrain from contacting the Company's customers, from making public
announcements, being publicly interviewed, or otherwise publicly associated with
NewCo prior to the NewCo Employment Date.
The Company will amend its severance agreement with Mr. McAdams to provide
an amendment to and waiver of Mr. McAdams' obligations so as to provide for Mr.
McAdams' ability to compete with the Company to the extent that he does so
consistent with this Section 2.3.
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2.4 EMPLOYMENT OF 24-MONTH SENIOR PRODUCERS
Certain senior employees of the Company have executed employment and
noncompetition agreements (the "Producer Agreements"). These individual
signators are set forth at Exhibit A to this Agreement. During the Term,
neither Mr. Ragen nor the Company may solicit, any of the Producers as
employees or consultants without the prior written consent of the Company;
provided, however, that on or after January 1, 2001, Mr. Ragen and NewCo may
accept any of the Producers as employees.
2.5 NONSOLICITATION
During the Term, except as set forth in Sections 2.1 through 2.4 or
Sections 4.1 or 4.2, hereof, neither Mr. Ragen nor NewCo shall directly or
indirectly hire, retain, engage, accept as employees or consultants, solicit,
influence or entice, or attempt to hire, retain, engage, solicit, influence or
entice, any employee or consultant of the Company to cease his or her
relationship with the Company or solicit, influence, entice or in any way divert
any customer, distributor, partner, joint venturer or supplier of the Company to
do business or in any way become associated with any Competitor except (with
respect to distributors or suppliers) NewCo which may do business with such
distributor or supplier on a nonexclusive basis. Both NewCo and the Company may
accept and service (without solicitation) customers who are also customers of
the other. This subsection 2.5 shall apply during the Term and with respect to
any state or province in which the Company current conducts business.
2.6 NONDISPARAGEMENT
Neither Mr. Ragen (on his own behalf and on behalf of NewCo) nor the
Company (on its behalf and on behalf of its officers and directors and the
Holding Company and its officers and directors), will, during the Term, make any
statements that disparage or damage the reputation of the other, the other's
directors, officers, employees and representatives. For purposes of Section
2.4 and Section 2.5 hereof, "the Company" shall include any subsidiaries of the
Company (whether existing currently or in the future), any parent corporation of
the Company and any business ventures in which the Company, its subsidiaries or
its parent corporation may participate.
2.7 NONDISCLOSURE; RETURN OF MATERIALS
During the term of Mr. Ragen's employment by the Company and following
termination of such employment, Mr. Ragen will not disclose (except as required
by Mr. Ragen's duties to the Company), any confidential or proprietary concept,
design, process, technology, trade secret, customer list, plan, embodiment, or
invention, any other confidential or proprietary intellectual property or any
other confidential information, whether patentable or not, of the Company or its
affiliates of which
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Mr. Ragen becomes informed or aware during Mr. Ragen's employment, whether or
not developed by Mr. Ragen; provided, however, that Mr. Ragen and NewCo shall
have access to and, as appropriate, copies or originals of Mr. Ragen's and the
Team's present accounts and information as the parties shall amicably and
equitably agree to be reasonable and appropriate to permit the full servicing of
the Team's accounts, by NewCo. Except as otherwise provided herein, or with the
prior written consent of the Company, Mr. Ragen will return all documents, data
and other materials of whatever nature, including, without limitation research,
reports, embodiments, software and manuals to the Company provided by or
appurtenant to Mr. Ragen's position with the Company or to any intellectual
property and shall not retain or cause or allow any third party to retain
photocopies or other reproductions of the foregoing.
2.8 EQUITABLE RELIEF
Each of Mr. Ragen, NewCo, the Company and the Holding Company acknowledge
that their material covenants are essential to the other and to the other's
willingness to enter into this Agreement, that no party would enter into this
Agreement if it did not include Sections 1.2, 1.5, 1.6, 2, 3, 4, 5, 6, 7, 8, 9,
10 and 11 and that damages sustained by the Company or Mr. Ragen as a result of
a breach of this Agreement cannot be adequately remedied by monetary damages,
and each agrees that the others, notwithstanding any other provision of this
Agreement, including, without limitation, Section 17 (Arbitration) hereof, and
in addition to any other remedy it may have under this Agreement or at law,
shall be entitled to injunctive and other equitable relief to prevent or curtail
any breach of any provision of this Agreement, including, without limitation,
Sections 1.2, 1.5, 1.6, 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11. Each party agrees
that it will not claim or argue that monetary damages are an adequate substitute
for actual performance.
2.9 CONSIDERATION
Mr. Ragen and the Company acknowledge and agree that additional
consideration has been given to the Company and Mr. Ragen entering into this
Section 2, as well as other provisions of this Agreement, such additional
consideration including, without limitation, (a) Mr. Ragen's foregoing of that
redemption of his shares of common stock at book value which would have been
coupled with his ability to start NewCo without the restrictions as set forth
herein; (b) the Company receives the agreement of Mr. Ragen to do business as
set forth herein; and (c) the Company's proceeding with an initial public
offering..
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2.10 PERFORMANCE BY THE COMPANY
In consideration of the fees to be received by the Company from NewCo as
provided in Section 3, the Company shall provide services to NewCo consistent in
quality and timing as provided by the Company to its correspondents and
franchisees.
3. FEES
The following fee arrangements apply during the Term:
3.1 SEC-REGULATED BUSINESS GENERALLY
In regard to general SEC-regulated business, the Company will retain 25% of
revenue from all SEC-regulated business conducted by NewCo (subject to a $25.00
per ticket minimum). In the event that NewCo is restructured to serve as an
independent contractor-like relationship to the Company, the "25%" retainage
shall instead be "28%."
3.2 INVESTMENT ADVISORY RELATED BUSINESS
For investment advisory related business, the Company will (a) retain 23%
of all revenue derived from investment advisory fees; and (b) charge $.04 per
share on transactions, subject to a $25.00 per ticket minimum. This will apply
(by way of example, and not as a limitation) to management, profit-sharing and
other fees received from Knowlton Brothers. In the event that NewCo is
restructured to serve in an independent contractor-like relationship to the
Company, "23%" retainage shall instead be "26%."
3.3 FREE CREDIT BALANCES; MARGIN LOANS
The Company will pay 25 basis points as a rebate on free credit balance and
money market balance of NewCo. The Company will continue to provide favorable
lending rates on Mr. Ragen's clients' margin loans, in accordance with past
practice. In the event that NewCo is restructured to serve in an independent
contractor-like relationship to the Company, the Company will not provide any
rebate on free credit balances and money market balances of NewCo.
3.4 CORPORATE FINANCE
Through March 31, 1999, fees for Corporate Finance activities shall be
negotiated between the Company and Mr. Ragen in a manner consistent with their
recent past practices. After March 31, 1999, there shall be no retainage or fee
sharing with regard to Corporate Finance activities except as the parties may
otherwise agree.
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3.5 TRANSFER OF ASSETS
No transfer of assets will be made out of NewCo to money managers,
investment advisors, etc. (other than with the Knowlton Brothers, the fees for
which are addressed in Section 3.2) for which Mr. Ragen, his team, or NewCo will
be paid, unless compensation arrangements satisfactory to the Company are
established and implemented.
3.6 MATERIAL CHANGE IN PAYOUT TO PRODUCERS
If, during the last 24 months of the 36-month Term, there is a material
change to the payout arrangements by the Company's largest retail brokers, then
the Company, Mr. Ragen and NewCo shall agree on an equitable adjustment of the
25% retainage for general SEC-regulated business. For example, if payout
arrangements to the Company's largest retail brokers were to be increased from
40% to 44% (a 10% increase) then the retainage for general SEC-regulated
business would be decreased from 25% to 22.5% (a 10% decrease) and the retainage
for revenue derived from investment advisory fees would be reduced from 23% to
20.7% (a 10% decrease).
4. COMMUNICATIONS
4.1 APRIL 1998 PRELIMINARY COMMUNICATIONS
The Company and Mr. Ragen shall, immediately following the filing by the
Holding Company of a registration statement for an initial public offering on
Form S-1, jointly communicate to Mr. Ragen's customers with respect to Mr.
Ragen's proposed new status with the Company, as described in this Agreement.
The parties shall jointly and amicably characterize this as arising from Mr.
Ragen's desire to return to his long-time role as a chief executive officer of a
securities business, without the administrative and logistical demands of a
publicly-held entity.
4.2 FORMAL CLIENT COMMUNICATIONS
Since NewCo will continue to clear with the Company, the initial written
client communications notifying clients of the NewCo arrangements shall be made
cooperatively and, if possibly, jointly. The initial communications by both
parties shall clearly state that although clients are free to keep their
accounts at the Company or to move their accounts to NewCo, all transfers to
NewCo would be made expeditiously and amicably, but accounts would also be
serviced by the Company if they remained. Such communications shall name the
Team members joining NewCo; shall indicate what personnel will be available at
the Company to service accounts that remain at the Company; and shall be
businesslike, courteous and otherwise in compliance with this Agreement.
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4.3 NAME OF NEWCO
The parties agree that, during the Term, the NewCo name may include Mr.
Ragen's name and shall be one of: "Brooks G. Ragen and Associates,
Incorporated" or a name consisting of three or more surnames that begin with
"McAdams," is followed by one or more surnames other than McAdams or Ragen,
which is or are then followed by "Ragen." In the use of the "Brooks G. Ragen
and Associates" name, the names "Brooks" shall be given equal prominence in all
commercial uses whether verbally (e.g., in advertising or by telephone), in
writing (e.g., letterhead or announcements) or electronically (e.g., web site),
with no shortening or over-emphasis of "Ragen." The parties recognize the
present value in the marketplace of the "Ragen MacKenzie" name, and acknowledge
a continuing need, including after the Term, to avoid confusion in the
marketplace between NewCo's name and the "Ragen MacKenzie" name. In no event
shall any name of NewCo be confusingly similar to "Ragen MacKenzie." NewCo may,
without the Company's consent, change its name to a name not containing "Ragen;"
otherwise, any changes to this name must be approved by a majority vote of the
independent outside directors of Holding Company.
4.4 REGISTRATION STATEMENT; ROAD SHOW
Mr. Ragen and the Company shall amicably agree upon language that carries
through the spirit of the April 1998 preliminary communication (described above)
in the Holding Company's registration statements, as well as in public
presentations based upon those statements pursuant to the marketing of the
Holding Company's initial public offering.
5. RESEARCH
During the Term, each of the Company and NewCo shall provide to the other
copies of its research, on a timely basis, without additional charge. In
consideration for the fees in Section 3, NewCo may distribute the Company's
research to NewCo customers. In the event that the Company elects to distribute
NewCo's research to the Company's customers, the Company and NewCo will
establish a reasonable pricing and payment policy.
6. PUBLIC OFFERING AND HOLDING COMPANY REORGANIZATION
6.1 SELLING SHAREHOLDER
The Company will permit Mr. Ragen, shall he so select, to sell at least 40%
and as reasonably close to 50% as possible, of his shares of Holding Company in
its initial public offering. The parties acknowledge that a portion of those
shares may be sold in the primary offering, and a portion pursuant to the
underwriters' overallotment
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option, generally ratably allocated. Mr. Ragen's rights in this Section 6.1 are
subject to his execution of selling shareholder documents in form to be
negotiated by and accepted to counsel to Mr. Ragen and Raymond James &
Associates, Inc.
6.2 PRICING COMMITTEE
The Holding Company will name a four-person pricing committee, of which Mr.
Ragen shall be one member.
6.3 LOCK-UP
Mr. Ragen will be unable to sell any shares not sold in the initial public
offering for a period of 6 months. In the period beginning 6 months and ending
12 months after the initial public offering, he will be able to sell only 25% of
his remaining shares. After 12 months, there shall be no further restrictions.
Mr. Ragen acknowledges that he will be required, and agrees, to sign a lockup
agreement together with selling stockholder and other ancillary agreements
reasonably requested by, and with, Raymond James & Associates, Inc. to this
effect.
6.4 Voting in Support of Holding Company Merger
Mr. Ragen shall vote his shares of the Company (or grant and not withdraw a
proxy) in favor of the Merger Agreement among the Company and two affiliated
corporations, the Holding Company and a transitory acquisition subsidiary of the
Holding Company, pursuant to which the Holding Company will become the sole
shareholder of the Company (as summarized herein and as described in the
Registration Statement on Form S-4, the "Holding Company Reorganization"). The
Holding Company Reorganization provides for, as described in the Registration
Statement on Form S-4, a merger pursuant to which the Company will merge with a
subsidiary of the Holding Company. Mr. Ragen and other shareholders of the
Company who are currently employees of the Company will receive "Class B common
stock", which is subject to restrictions intended to be substantively identical
to those to which they are currently bound. Non-employee shareholders will be
recipients of either "Class C common stock" (for owners of shares acquired
pursuant to the 1990 Stock Purchase Agreement) or "Class D common stock" (for
owners of shares acquired pursuant to 1995 Stock Purchase Agreements) pursuant
to which each holder will be subject to restrictions substantively identical to
the shareholder agreements to which they are currently bound. Mr. Ragen shall
support the Holding Company Reorganization and will not vote his Company shares
in favor of any action which would prevent the Holding Company Reorganization to
be realized, or otherwise impede, interfere with or attempt to discourage the
Holding Company Reorganization.
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7. MUTUAL RELEASE OF CLAIMS
Each of Mr. Ragen and the Company represents that he or it has not filed,
and agrees and warrants he or it will not file, any complaints, charges or
lawsuits against the other with any governmental agency or any court. Each of
Mr. Ragen and the Company expressly waives any claims against the other and each
releases the other (including its officers, directors, owners, control persons,
managers, agents and representatives) from any claims that he or it may have in
any way connected with Mr. Ragen's employment and the termination thereof. It
is understood that Mr. Ragen's release includes, but is not limited to, any
claims for wages, bonuses, employment benefits, or damages of any kind
whatsoever, arising out of any contracts, express or implied, any theory of
wrongful discharge or other legal restriction on the Company's right to
terminate employment, or any federal, state or other governmental statute or
ordinance, including, without limitation, Title VII of the Civil Rights Act of
1964, the federal Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Family Medical Leave Act, the Washington Law Against
Discrimination, or any other legal limitation on the employment relationship.
For purposes of this Section 18, the term the "Company" shall include all
of the officers, directors, owners, managers, agents, and representatives of the
Company.
This waiver and release shall not apply to claims that may arise from
actions or in actions that occur after the date hereof, nor preclude Mr. Ragen,
NewCo or the Company from filing a lawsuit for the exclusive purpose of
enforcing his or its rights under this Agreement.
8. CONDITIONS PRECEDENT
The obligations of Mr. Ragen (including Section 10) and the Company to
consummate the transactions contemplated by this Agreement shall be subject to
the closing of a firm commitment underwritten public offering of shares of
common stock of the Holding Company (the "Holding Company IPO") in which the
aggregate gross proceeds to the Holding Company and selling shareholders from
such offering shall be at least $15,000,000, and which shall have occurred on or
before December 31, 1998. In the event such a closing does not occur on or
before December 31, 1998, this Agreement shall be null and void, and shall have
no further force or effect; provided, however, that the failure of such a
closing to occur shall in no way invalidate any earlier closing of the Holding
Company Reorganization, rescind votes cast in favor of or actions taken in
furtherance of that Holding Company Reorganization, or negate Mr. Ragen's
continuing obligations under the last sentence of Section 6.4.
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9. EXECUTION OF AGREEMENT BY NEWCO; COOPERATION
As soon as NewCo is formed, Mr. Ragen will cause NewCo to execute this
agreement as a co-obligor with Mr. Ragen. NewCo and Mr. Ragen will be jointly
responsible for the covenants of Mr. Ragen and NewCo set forth in this
agreement. The Holding Company and the Company shall be jointly responsible for
the covenants of the Company and the Holding Company set forth in this
Agreement. Each party (including NewCo and the Holding Company) will use
commercially reasonable efforts to cooperate with each other party in connection
with any steps required to be taken as part of its obligations under this
agreement. Each party will use all reasonable efforts to take promptly, or
cause to be taken promptly, all things necessary, proper or appropriate to
satisfy their respective obligations in this agreement. NewCo will enter into
the Company's customary form of clearing agreement and margin agreement,
modified, as necessary, to provide for the terms set forth herein.
10. 30-MONTH NONCOMPETITION/NONSOLICITATION COVENANTS
Mr. Ragen agrees that, in the event that he elects not to proceed with the
establishment of NewCo pursuant to the terms of this agreement, he shall be
bound by the Executive Employment Agreement between Ragen MacKenzie Incorporated
and Brooks G. Ragen set forth as Exhibit B (Section 10) hereto, as if it were
dated the date of this agreement, and as if it were fully executed by Mr. Ragen
as "Employee" and the Company and "Ragen MacKenzie Incorporated". The terms of
that Executive Employment Agreement are expressly incorporated herein by this
reference, and become binding upon Mr. Ragen and the Company, in the event that
Mr. Ragen elects not to proceed with formation and consummation of the expected
commencement of business within NewCo on the Commencement Date. All provisions
of this Agreement shall remain in full force and effect except for those that
depend upon the existence of NewCo.
11. EARLY TERMINATION; RECIPROCAL CHANGE OF CONTROL EVENTS
If and to the extent that, after the IPO Closing Date and during the Term,
the Company and/or the Holding Company provides change of control agreements to
its key executives or senior producers (whether pursuant to the Producer
Agreements, comparable agreement for senior management or otherwise), it and Mr.
Ragen will amend this Agreement to provide for early termination of the Term
upon such a change of control, which change of control will be defined in a
manner substantively identical to the way in which it is defined in such change
of control agreement.
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12. REPRESENTATIONS AND WARRANTIES
In order to induce the other to enter into this Agreement, each of Mr.
Ragen and the Company represents and warrants to the other that neither the
execution nor the performance of this Agreement by the representing party will
violate or conflict in any way with any other agreement by which the
representing party may be bound, or with any other duties imposed upon the
representing party by corporate or other statutory or common law. Each of the
parties shall have the Agreement approved by its Board of Directors prior to the
IPO Closing Date.
13. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 10 business days' prior
written notice of the existence and the nature of such breach before taking
further action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 10 business-day
period.
14. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall specifically
refer to this Agreement and shall be personally delivered or sent by telecopy or
other electronic facsimile transmission or by registered or certified mail,
return receipt requested, at the address set forth below or at such other
address as may hereafter be designated by notice given in compliance with the
terms hereof:
If to Mr. Ragen: Brooks G. Ragen
999 Third Avenue, Suite 4300
Seattle, WA 98104
[This shall automatically become the
------------------------------------
NewCo address, without further action or notice]
------------------------------------------------
Copy to: C. Kent Carlson
Preston Gates & Ellis
701 Fifth Ave., Suite 5000
Seattle, WA 98104
If to the Company: Chief Executive Officer
Ragen MacKenzie Incorporated
999 Third Avenue, Suite 4300
Seattle, WA 98104
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Copy to: Stewart M. Landefeld
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
If notice is mailed, such notice shall be effective upon mailing, or if notice
is personally delivered or sent by telecopy or other electronic facsimile
transmission, it shall be effective upon receipt.
15. ASSIGNMENT
This Agreement is personal to Mr. Ragen and shall not be assignable by Mr.
Ragen. The Company may, subject to Section 11, assign its rights hereunder to
(a) any corporation resulting from any merger, consolidation or other
reorganization to which the Company is a party, (b) any parent corporation of
the Company whether existing currently or in the future, or (c) any corporation,
partnership, association or other person to which the Company may transfer all
or substantially all of the assets and business of the Company existing at such
time. All of the terms and provisions of this Agreement shall be binding on and
shall inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
16. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
17. ARBITRATION FOR MONETARY DAMAGES
Except as provided in Section 2.7 hereof, any controversies or claims for
monetary damages arising out of or relating to this Agreement (but not for
matters appropriate for equitable relief) shall be fully and finally settled by
arbitration in accordance with the rules, constitutions, or by-laws of the
National Association of Securities Dealers, Inc., as may be amended from time to
time. The prevailing party shall be entitled to costs, expenses and reasonable
attorneys' fees. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
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18. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, termination or discharged and signed by the
Company and Mr. Ragen, and each such amendment, modification, waiver,
termination or discharge shall be effective only in the specific instance and
for the specific purpose for which given. No provision of this Agreement shall
be varied, contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and Mr. Ragen.
19. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
20. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
21. HEADINGS
All headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
22. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant to
this Agreement, may be executed in any number of counterparts, each of which
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counterparts, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute one and the same
instrument.
23. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and Mr. Ragen with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and Mr. Ragen with respect to
such subject matter are hereby superseded and nullified in their entireties.
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IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above. NewCo/Brooks G. Ragen & Associates, Inc.
shall be added as a subsequent signatory in accordance with the terms of this
Agreement.
RAGEN MACKENZIE INCORPORATED
By /s/ Lesa A. Sroufe
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Its CEO
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RAGEN MACKENZIE GROUP, INCORPORATED
By /s/ Robert J. Mortell, Jr
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Its President
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BROOKS G. RAGEN
By /s/ Brooks G. Ragen
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BROOKS G. RAGEN & ASSOCIATES, INC.
By /s/ V. Lawrence Bensussen
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Its Chief Financial Officer
-----------------------------------
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EXHIBIT 10.11
RMI GROUP INCORPORATED
1998 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the RMI Group Incorporated 1998 Stock Incentive Compensation
Plan (the "Plan") is to enhance the long-term shareholder value of RMI Group
Incorporated, a Washington corporation (the "Company"), by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of the Company and its Subsidiaries (as defined in
Section 2) to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Subsidiaries and to acquire
and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 AWARD
"Award" means an award or grant made to a Participant pursuant to the Plan,
including, without limitation, awards or grants of Options, Stock Appreciation
Rights, Stock Awards, Performance Awards, Other Stock-Based Awards or any
combination of the foregoing (including any Dividend Equivalent Rights granted
in connection with such Awards).
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CAUSE
"Cause" means a reportable matter under Section 13, 14, or 15 of Form U-5
Uniform Termination Notice (or equivalent sections of its successor notice) or
other misconduct or disclosure of confidential information.
2.4 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 COMMON STOCK
"Common Stock" means the Class B common stock, par value $.01 per share, of
the Company; provided, however, that if a "Conversion Event" for the Class B
common stock (as
<PAGE>
defined in the Company's Articles of Incorporation) has occurred, the "Common
Stock" means the Common Stock, par value $.01 per share, of the Company.
2.6 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or pursuant to
which shares of the Common Stock are converted into cash, securities or other
property, if following such merger or consolidation the holders of the Company's
outstanding voting securities immediately prior to such merger or consolidation
own less than 66-2/3% of the outstanding voting securities of the surviving
corporation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation" is
defined in Section 8.3) of the Company;
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company; or
(d) Acquisition by a person, within the meaning of Section 3(a)(9) or
of Section 13(d)(3) (as in effect on the date of adoption of the Plan) of the
Exchange Act of a majority or more of the Company's outstanding voting
securities (whether directly or indirectly, beneficially or of record).
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.7 DISABILITY
"Disability" has the meaning set forth in Section 7.6.
2.8 DIVIDEND EQUIVALENT RIGHT
"Dividend Equivalent Right" means an Award granted under Section 13.
2.9 EARLY RETIREMENT
"Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
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2.10 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 FAIR MARKET VALUE
The "Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing selling price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing selling
price for the Common Stock as such price is officially quoted in the composite
tape of transactions on such exchange for a single trading day. If there is no
such reported price for the Common Stock for the date in question, then such
price on the last preceding date for which such price exists shall be
determinative of the Fair Market Value.
2.12 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice by the Holder:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the Holder's
reasonable judgment, represents a substantial reduction in the status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to the Holder of any duties or responsibilities that, in the Holder's
reasonable judgment, are materially inconsistent with such status, title,
position or responsibilities; or any removal of the Holder from or failure to
reappoint or reelect the Holder to any of such positions, except in connection
with the termination of the Holder's employment for Cause, for Disability or as
a result of his or her death, or by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Successor Corporation's requiring the Holder (without the
Holder's consent) to be based at any place outside a 35-mile radius of his or
her place of employment prior to a Corporate Transaction, except for reasonably
required travel on the Successor Corporation's business that is not materially
greater than such travel requirements prior to the Corporate Transaction;
(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Holder was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Holder with
compensation and benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each material employee
benefit plan, program and practice as in effect immediately prior to the
Corporate Transaction;
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(e) any material breach by the Successor Corporation of its
obligations to the Holder under the Plan or any substantially equivalent plan of
the Successor Corporation; or
(f) any purported termination of the Holder's employment or services
for Cause by the Successor Corporation that does not comply with the terms of
the Plan or any substantially equivalent plan of the Successor Corporation.
2.13 GRANT DATE
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
2.14 HOLDER
"Holder" means (i) the Participant to whom an Award is granted; (ii) for a
Holder who has died, the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights under the Award have passed by will or by
the applicable laws of descent and distribution, or the beneficiary designated
in accordance with Section 14; or (iii) the person(s) to whom an Award has been
transferred in accordance with Section 14.
2.15 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.16 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.17 OPTION
"Option" means the right to purchase Common Stock granted under Section 7.
2.18 OTHER STOCK-BASED AWARD
"Other Stock-Based Award" means an Award granted under Section 12.
2.19 PARTICIPANT
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, director, officer, consultant, agent, advisor
or independent contractor of the Company or a Subsidiary who has been designated
by the Plan Administrator as eligible to participate in the Plan.
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2.20 PERFORMANCE AWARD
"Performance Award" means an Award granted under Section 11, the payout of
which is subject to achievement through a performance period of performance
goals prescribed by the Plan Administrator.
2.21 PLAN ADMINISTRATOR
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.22 RESTRICTED STOCK
"Restricted Stock" means shares of Common Stock granted under Section 10,
the rights of ownership of which are subject to restrictions prescribed by the
Plan Administrator.
2.23 RETIREMENT
"Retirement" means retirement as of the individual's normal retirement date
under the Company's 401(k) Plan or other similar successor plan applicable to
salaried employees or, if no such plan exists, as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.24 SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
2.25 STOCK APPRECIATION RIGHT
"Stock Appreciation Right" means an Award granted under Section 9.
2.26 STOCK AWARD
"Stock Award" means an Award granted under Section 10.
2.27 SUBSIDIARY
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.28 SUCCESSOR CORPORATION
"Successor Corporation" has the meaning set forth in Section 16.2.
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SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board (the "Plan Administrator"). If and so long as the Common
Stock is registered under Section 12(b) or 12(g) of the Exchange Act, the Plan
shall be administered by the Compensation Committee of the Board, except to the
extent the Board appoints another committee (which term includes a subcommittee)
to administer the Plan, and the Board shall consider in selecting the Plan
Administrator, with respect to any persons likely to become subject to Section
16 of the Exchange Act, the provisions regarding (a) "outside directors" as
contemplated by Section 162(m) of the Code and (b) "nonemployee directors" as
contemplated by Rule 16b-3 under the Exchange Act. The Board may delegate the
responsibility for administering the Plan with respect to designated classes of
eligible Participants to different committees consisting of two or more members
of the Board, subject to such limitations as the Board deems appropriate.
Committee members shall serve for such term as the Board may determine, subject
to removal by the Board at any time. To the extent consistent with applicable
law, the Board may authorize the Chief Executive Officer or President of the
Company to grant Awards to eligible Participants, within the limits specifically
prescribed by the Board.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 16.1, a
maximum of 2,000,000 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares.
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4.2 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan. Shares that are subject to tandem Awards shall be counted only once.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards, Performance Awards, Other
Stock-Based Awards and Dividend Equivalent Rights. Awards may be granted
singly, in combination or in tandem so that the settlement or payment of one
automatically reduces or cancels the other. Awards may also be made in
combination or in tandem with, in replacement of, as alternatives to, or as the
payment form for, grants or rights under any other employee or compensation plan
of the Company.
6.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
Awards shall be deemed to be Participants and Holders.
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SECTION 7. AWARDS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be ten years from the Grant Date.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5; provided, however,
that no fewer than 100 shares (or the remaining shares then purchasable under
the Option, if less than 100 shares) may be purchased upon any exercise of
options hereunder and that only whole shares will be issued pursuant to the
exercise of any Option.
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or check, or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, and subject to such limitations as the Plan
Administrator may determine, a combination of cash and/or check (if any) and
one or more of the following alternative forms: (a) the tendering (either
actually or, if and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, by attestation) of Common Stock already
owned by the Holder for at least six months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price or (b) if
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and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, delivery of a properly executed exercise notice, together with
irrevocable instructions, to (i) a brokerage firm designated by the Company to
deliver promptly to the Company the aggregate amount of sale or loan proceeds to
pay the Option exercise price and any withholding tax obligations that may arise
in connection with the exercise and (ii) the Company to deliver the certificates
for such purchased shares directly to such brokerage firm, all in accordance
with the regulations of the Federal Reserve Board. In addition, to the extent
permitted by the Plan Administrator in its sole discretion, the exercise price
for shares purchased under an Option may be paid, either singly or in
combination with one or more of the alternative forms of payment authorized by
this Section 7.5, by (y) a full-recourse note delivered pursuant to Section 14
or (z) such other consideration as the Plan Administrator may permit.
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In the case of termination of the Holder's employment or services other
than by reason of Disability, death, or Cause, the Option shall be exercisable,
to the extent of the number of shares purchasable by the Holder at the date of
such termination, only within three months after the date of such termination,
but in no event later than the remaining term of the Option. Any portion of an
Option that is not exercisable on the date of termination of the Holder's
employment or services shall terminate on such date, unless the Plan
Administrator determines otherwise.
In the case of termination of the Holder's employment or services by reason
of Disability, the Option shall be exercisable, to the extent of the number of
shares purchasable by the Holder at the date of such termination, only within
one year after the date of such termination, but in no event later than the
remaining term of the Option. As used in the Plan, the term "Disability" refers
to a mental or physical impairment of the Holder which is expected to result in
death or which has lasted or is expected to last for a continuous period of 12
months or more and which causes the Holder to be unable, in the opinion of the
Company and two independent physicians, to perform his or her duties for the
Company and to be engaged in any substantial gainful activity. Disability shall
be deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of Disability to the Plan
Administrator.
Any Option exercisable at the time of the Holder's death may be exercised,
to the extent of the number of shares purchasable by the Holder at the date of
the Holder's death, by the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights under the Award have passed by will or the
applicable laws of descent and distribution or the beneficiary designated
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pursuant to Section 15 at any time or from time to time within one year after
the date of death, but in no event later than the remaining term of the Option.
In the case of termination of the Holder's employment or services for
Cause, the Option shall automatically terminate upon first notification to the
Holder of such termination, unless the Plan Administrator determines otherwise.
If a Holder's employment or services with the Company are suspended pending an
investigation of whether the Holder shall be terminated for Cause, all the
Holder's rights under any Option likewise shall be suspended during the period
of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
Unless the Plan Administrator determines otherwise, a leave of absence approved
in accordance with Company procedures shall not be considered a termination of
employment or services, except that with respect to Incentive Stock Options such
leave of absence shall be subject to any requirements of Section 422 of the
Code.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 10% SHAREHOLDERS
If a Participant owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this
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Section 8.3, "parent corporation" and "subsidiary corporation" shall have the
meanings attributed to those terms for purposes of Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed ten years.
8.5 EXERCISABILITY
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean Disability or, if it
differs, "disability" as that term is defined for purposes of Section 22(e)(3)
of the Code.
8.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date of
the Incentive Stock Option and one year from the date of exercise. A
Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Participant shall give the Company
prompt notice of any disposition of shares acquired by the exercise of an
Incentive Stock Option prior to the expiration of such holding periods.
8.7 PROMISSORY NOTES
The amount of any promissory note delivered pursuant to Section 14 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 GRANT OF STOCK APPRECIATION RIGHTS
The Plan Administrator may grant a Stock Appreciation Right separately or
in tandem with a related Option.
9.2 TANDEM STOCK APPRECIATION RIGHTS
A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to surrender to the Company all or a portion of the
related Option and to receive an
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appreciation distribution (in shares of Common Stock or cash or any combination
of shares and cash, as the Plan Administrator, in its sole discretion, shall
determine at any time) in an amount equal to the excess of the Fair Market Value
for the date the Stock Appreciation Right is exercised over the exercise price
per share of the right, which shall be the same as the exercise price of the
related Option. A tandem Stock Appreciation Right will have the same other terms
and provisions as the related Option. Upon and to the extent a tandem Stock
Appreciation Right is exercised, the related Option will terminate.
9.3 STAND-ALONE STOCK APPRECIATION RIGHTS
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution in
an amount equal to the excess of the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of the right.
A stand-alone Stock Appreciation Right will have such terms as the Plan
Administrator may determine, except that the term of the right, if not otherwise
established by the Plan Administrator, shall be ten years from the Grant Date.
9.4 EXERCISE OF STOCK APPRECIATION RIGHTS
Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 relating
to the termination of a Holder's employment or services shall apply equally, to
the extent applicable, to the Holder of a Stock Appreciation Right.
SECTION 10. STOCK AWARDS
10.1 GRANT OF STOCK AWARDS
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions, if
any (which may be based on continuous service with the Company or the
achievement of performance goals, where such goals may be stated in absolute
terms or relative to comparison companies), as the Plan Administrator shall
determine, in its sole discretion, which terms, conditions and restrictions
shall be set forth in the instrument evidencing the Award. The terms, conditions
and restrictions that the Plan Administrator shall have the power to determine
shall include, without limitation, the manner in which shares subject to Stock
Awards are held during the periods they are subject to restrictions and the
circumstances under which forfeiture of Restricted Stock shall occur by reason
of termination of the Holder's services.
10.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of
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the Holder's estate or as the appropriate court directs, the appropriate number
of shares of Common Stock.
10.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 11. PERFORMANCE AWARDS
11.1 PLAN ADMINISTRATOR AUTHORITY
Performance Awards may be denominated in cash, shares of Common Stock or
any combination thereof. The Plan Administrator is authorized to grant
Performance Awards and shall determine the nature, length and starting date of
the performance period for each Performance Award and the performance objectives
to be used in valuing Performance Awards and determining the extent to which
such Performance Awards have been earned. Performance objectives and other
terms may vary from Participant to Participant and between groups of
Participants. Performance objectives may be stated in absolute terms or
relative to comparison companies, as the Plan Administrator shall determine, in
its sole discretion. Performance periods may overlap and Participants may
participate simultaneously with respect to Performance Awards that are subject
to different performance periods and different performance factors and criteria.
The Plan Administrator shall determine for each Performance Award the range
of dollar values or number of shares of Common Stock (which may, but need not,
be shares of Restricted Stock pursuant to Section 10), or a combination thereof,
to be received by the Participant at the end of the performance period if and to
the extent that the relevant measures of performance for such Performance Awards
are met. The earned portion of a Performance Award may be paid currently or on
a deferred basis with such interest or earnings equivalent as may be determined
by the Plan Administrator. Payment shall be made in the form of cash, whole
shares of Common Stock (which may, but need not, be shares of Restricted Stock
pursuant to Section 10), Options or any combination thereof, either in a single
payment or in annual installments, all as the Plan Administrator shall
determine.
11.2 ADJUSTMENT OF AWARDS
The Plan Administrator may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Plan Administrator
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances. The Plan
Administrator also may adjust the performance goals and measurements applicable
to Performance Awards and thereby reduce the amount to be received by any
Participant pursuant to such Awards if and to the extent that the Plan
Administrator deems it appropriate.
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11.3 PAYOUT UPON TERMINATION
The Plan Administrator shall establish and set forth in each instrument
that evidences a Performance Award whether the Award will be payable, and the
terms and conditions of such payment, if a Holder ceases to be employed by, or
to provide services to, the Company or its Subsidiaries, which provisions may be
waived or modified by the Plan Administrator at any time. If not so established
in the instrument evidencing the Performance Award, the Award will be payable
according to the following terms and conditions, which may be waived or modified
by the Plan Administrator at any time. If during a performance period a
Participant's employment or services with the Company terminate by reason of the
Participant's Retirement, Early Retirement at the Company's request, Disability
or death, such Participant shall be entitled to a payment with respect to each
outstanding Performance Award at the end of the applicable performance period
(a) based, to the extent relevant under the terms of the Award, on the
Participant's performance for the portion of such performance period ending on
the date of termination and (b) prorated for the portion of the performance
period during which the Participant was employed by the Company, all as
determined by the Plan Administrator. The Plan Administrator may provide for an
earlier payment in settlement of such Performance Award discounted at a
reasonable interest rate and otherwise in such amount and under such terms and
conditions as the Plan Administrator deems appropriate.
Except as otherwise provided in Section 16 or in the instrument evidencing
the Performance Award, if during a performance period a Participant's employment
or services with the Company terminate other than by reason of the Participant's
Retirement, Early Retirement at the Company's request, Disability or death, then
such Participant shall not be entitled to any payment with respect to the
Performance Awards relating to such performance period, unless the Plan
Administrator shall otherwise determine. The provisions of Section 7.6
regarding leaves of absence and termination for Cause shall apply to Performance
Awards.
SECTION 12. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 10) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone or in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the Plan's purpose.
SECTION 13. DIVIDEND EQUIVALENT RIGHTS
Any Awards under the Plan may, in the Plan Administrator's discretion, earn
Dividend Equivalent Rights. In respect of any Award that is outstanding on the
dividend record date for Common Stock, the Participant may be credited with an
amount equal to the cash or stock dividends or other distributions that would
have been paid on the shares of Common Stock covered by such Award had such
covered shares been issued and outstanding on such dividend record date. The
Plan Administrator shall establish such rules and procedures governing the
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crediting of Dividend Equivalent Rights, including the timing, form of payment
and payment contingencies of such Dividend Equivalent Rights, as it deems are
appropriate or necessary.
SECTION 14. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or director of the
Company) in acquiring shares of Common Stock pursuant to an Award granted under
the Plan, the Plan Administrator, in its sole discretion, may authorize, either
at the Grant Date or at any time before the acquisition of Common Stock pursuant
to the Award, (a) the extension of a loan to the Holder by the Company, (b) the
payment by the Holder of the purchase price, if any, of the Common Stock in
installments, or (c) the guarantee by the Company of a loan obtained by the
grantee from a third party. The terms of any loans, installment payments or
loan guarantees, including the interest rate and terms of and security for
repayment, will be subject to the Plan Administrator's discretion; provided,
however, that repayment of any Company loan to the Holder shall be secured by
delivery of a full-recourse promissory note for the loan amount executed by the
Holder, together with any other form of security determined by the Plan
Administrator. The maximum credit available is the purchase price, if any, of
the Common Stock acquired, plus the maximum federal and state income and
employment tax liability that may be incurred in connection with the
acquisition.
SECTION 15. ASSIGNABILITY
No Option, Stock Appreciation Right, Performance Award, Other Stock-Based
Award or Dividend Equivalent Right granted under the Plan may be assigned,
pledged or transferred by the Holder other than by will or by the laws of
descent and distribution, and during the Holder's lifetime, such Awards may be
exercised only by the Holder; provided, however, that any shares issuable upon
the exercise of an Option may be issued in the name of an individual retirement
account, as defined in the Code, for the benefit of the Participant.
Notwithstanding the foregoing, and to the extent permitted by Section 422 of the
Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit a Holder of such Awards
to designate a beneficiary who may exercise the Award or receive compensation
under the Award after the Holder's death; provided, however, that any Award so
assigned or transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the Award.
SECTION 16. ADJUSTMENTS
16.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to
shareholders other than a normal cash dividend, or other change in the Company's
corporate or capital structure results in (a) the outstanding shares, or any
securities exchanged therefor or received in their place, being exchanged for a
different number or class of securities of the
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Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator
shall make proportional adjustments in (i) the maximum number and kind of
securities subject to the Plan as set forth in Section 4.1 and (ii) the number
and kind of securities that are subject to any outstanding Award and the per
share price of such securities, without any change in the aggregate price to be
paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a Corporate Transaction shall not be governed by
this Section 16.1 but shall be governed by Section 16.2.
16.2 CORPORATE TRANSACTION
(a) Except as otherwise provided in the instrument that evidences the
Award, in the event of any Corporate Transaction, each Option, Stock
Appreciation Right or Restricted Stock Award that is at the time outstanding
shall automatically accelerate so that each such Award shall, immediately prior
to the specified effective date for the Corporate Transaction, become 100%
vested.
(b) Such Award shall not so accelerate, however, if and to the extent that
such Award is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof (the "Successor
Corporation") or to be replaced with a comparable award for the purchase of
shares of the capital stock of the Successor Corporation. The determination of
Award comparability shall be made by the Plan Administrator, and its
determination shall be conclusive and binding. Any such Award granted to an
"executive officer" (as that term is defined for purposes of Section 16 of the
Exchange Act) of the Company that is assumed or replaced in the Corporate
Transaction and does not otherwise accelerate at that time shall be accelerated
in the event the Holder's employment or services should subsequently terminate
within two years following such Corporate Transaction, unless such employment or
services are terminated by the Successor Corporation for Cause or by the Holder
voluntarily without Good Reason.
(c) All such Awards shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except to
the extent assumed by the Successor Corporation.
(d) The acceleration will not occur if, in the opinion of the Company's
accountants, it would render unavailable "pooling of interest" accounting for a
Corporate Transaction that would otherwise qualify for such accounting
treatment.
16.3 FURTHER ADJUSTMENT OF AWARDS
Subject to Section 16.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to Awards. Such
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authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, payment or settlement or lifting restrictions, differing methods for
calculating payments or settlements, alternate forms and amounts of payments and
settlements and other modifications, and the Plan Administrator may take such
action with respect to all Participants, to certain categories of Participants
or only to individual Participants. The Plan Administrator may take such action
before or after granting Awards to which the action relates and before or after
any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.
16.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 17. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, exercise, payment or settlement of any Award. Subject to the Plan and
applicable law, the Plan Administrator may, in its discretion, permit the Holder
to satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any Award or any shares of Common Stock issuable pursuant
to an Award or from any cash amounts otherwise due or to become due from the
Company to the Participant an amount equal to such taxes. The Company may also
deduct from any Award any other amounts due from the Participant to the Company
or a Subsidiary.
SECTION 18. AMENDMENT AND TERMINATION OF PLAN
18.1 AMENDMENT OF PLAN
The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted or that may be used in payment of Stock
Appreciation Rights, Performance Awards, Other Stock-Based Awards or Dividend
Equivalent Rights under the Plan or that may be issued as Stock Awards, (b)
modify the class of persons eligible to receive Options, or (c) otherwise
require shareholder approval under any applicable law or regulation.
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18.2 TERMINATION OF PLAN
The Board may suspend or terminate the Plan at any time. The Plan will
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than ten years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.
18.3 MODIFICATION AND AMENDMENT OF AWARD
Subject to the requirements of Section 422 of the Code with respect to
Incentive Stock Options and to the terms and conditions and within the
limitations of the Plan, the Plan Administrator may modify or amend outstanding
Awards granted under the Plan. The modification or amendment of an outstanding
Award, or the amendment or termination of the Plan, shall not, without the
consent of the Holder, impair or diminish any of the Holder's rights or any of
the obligations of the Company under such Award. Except as otherwise provided
in the Plan, no outstanding Award shall be terminated without the consent of the
Holder. Unless the Holder agrees otherwise, any changes or adjustments made to
outstanding Incentive Stock Options granted under the Plan shall be made in such
a manner so as not to constitute a "modification" as defined in Section 425(h)
of the Code and so as not to cause any Incentive Stock Option issued hereunder
to fail to continue to qualify as an "incentive stock option" as defined in
Section 422(b) of the Code.
SECTION 19. GENERAL
19.1 AWARD AGREEMENTS
Awards granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
19.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS
None of the Plan, participation in the Plan as a Participant or any action
of the Plan Administrator taken under the Plan shall be construed as giving any
person any right to be retained in the employ of the Company or limit the
Company's right to terminate the employment or services of any person.
19.3 REGISTRATION
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if
made. The Company may restrict the exercise of any Option and may adopt
exercise control restrictions in order to maintain any exemption requirements of
federal or state securities laws. The Company may refuse the exercise of any
Option for which an exemption from registration
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under federal and state securities laws is unavailable. The Company may issue
certificates for shares with such legends and subject to such restrictions on
transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
19.4 NO RIGHTS AS A SHAREHOLDER
No Option, Stock Appreciation Right, Performance Award or Other Stock-Based
Award shall entitle the Holder to any cash dividend (except to the extent
provided in an Award of Dividend Equivalent Rights), voting or other right of a
shareholder unless and until the date of issuance under the Plan of the shares
that are the subject of such Award, free of all applicable restrictions.
19.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Participants who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an "incentive stock option" within the
meaning of Section 422 of the Code.
19.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
19.7 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
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Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 20. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
Adopted by the Board on ____________________, 1998 and approved by the
Company's sole shareholder on ________________, 1998.
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PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
<TABLE>
<CAPTION>
Date of
Adoption/
Amendment/ Date of Shareholder
Adjustment Section Effect of Amendment Approval
---------- ------- ------------------- ---------
<S> <C> <C> <C>
</TABLE>
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EXHIBIT 10.13
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 29, 1998,
among Ragen MacKenzie Incorporated, a Washington corporation (the "Company"),
Ragen MacKenzie Group Incorporated, a Washington corporation and a direct
wholly owned subsidiary of the Company ("Holding Company"), and RMGI Merger
Corp., a Washington corporation and a wholly owned subsidiary of Holding
Company ("Merger Sub").
WHEREAS, the Company and Merger Sub desire to merge on the terms and subject
to the conditions set forth in this Agreement;
WHEREAS, the sole shareholder of each of Holding Company and Merger Sub and
the board of directors of each of the Company, Holding Company and Merger Sub
have approved the merger of Merger Sub with and into the Company on the terms
and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Washington Business Corporation Act (the "WBCA"),
at the Effective Time (as hereinafter defined) Merger Sub shall be merged with
the Company and the separate corporate existence of Merger Sub shall thereupon
cease (the "Merger"). The Company shall be the surviving corporation in the
Merger (hereinafter sometimes referred to as the "Surviving Corporation").
SECTION 1.2 EFFECTIVE TIME
The Merger shall become effective as of the date and at such time (the
"Effective Time") as a copy of this Agreement pursuant to Section 23B.11.050
of the WBCA and any other documents necessary to effect the Merger in
accordance with the WBCA shall be filed with the Secretary of State of the
State of Washington and become effective.
SECTION 1.3 EFFECTS OF THE MERGER
The Merger shall have the effects set forth in Section 23B.11.060 of the
WBCA.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 ARTICLES OF INCORPORATION AND BYLAWS
(a) The Restated Articles of Incorporation, as amended, of the Company (the
"Articles of Incorporation") in effect immediately prior to the Effective Time
shall, at the Effective Time, be the Articles of Incorporation of the
Surviving Corporation until the same shall be further altered, amended or
repealed as therein provided.
(b) The Bylaws of the Company in effect immediately prior to the Effective
Time shall, at the Effective Time, be the Bylaws of the Surviving Corporation.
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SECTION 2.2 DIRECTORS AND OFFICERS
At and after the Effective Time, the board of directors of the Surviving
Corporation shall be comprised of the directors of the Merger Sub immediately
prior to the Effective Time, in each case until their respective successors
have been duly elected or until the next annual meeting of shareholders,
whichever is later, or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws. At and after the Effective Time, the officers of the Surviving
Corporation shall be the officers of the Company immediately prior to the
Effective Time, in each case until their respective successors have been duly
appointed or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of any holder of any capital stock of the Company or Merger Sub:
(a) each share of common stock, par value $.01 per share, of the Company
("Company Common Stock") (other than Dissenting Shares (as hereinafter
defined)) issued and outstanding immediately prior to the Effective Time
shall, subject to Section 3.3 hereof, be converted as follows:
(i) each share of Company Common Stock owned by each of the
shareholders set forth below, having been originally acquired from the
Company pursuant to the 1990 Stock Purchase Agreement dated December
28, 1990, among the Company and five investors, will be converted into
one share of Class C common stock, par value $.01 per share, of the
Holding Company (the "Class C Common Stock"):
NAME OF 1990 STOCK PURCHASE AGREEMENT HOLDER:
Robert Arnold
Kay Calhoun
Janet Ketchum
Nancy Ketchum
Mary Williams
Bagley Wright; and
(ii) each share of Company Common Stock owned by each of the
shareholders set forth below, having been originally acquired form the
Company pursuant to a 1995 Stock Purchase Agreement dated September 22,
1995, each between the Company and one of the following five
shareholders, will be converted into one share of Class D common stock,
par value $.01 per share, of the Holding Company (the "Class D Common
Stock"):
NAME OF 1995 STOCK PURCHASE AGREEMENT HOLDER:
Charles Anderson
Peter Eising
Frank Kitchell
KSA Company
W. Hunter Simpson; and
(iii) each share of Company Common Stock owned by any other
shareholder of the Company, having been originally acquired form the
Company pursuant to any agreement other than the 1990 Stock Purchase
Agreement or the 1995 Stock Purchase Agreements, will be converted into
one share of Class B common stock, par value $.01 per share, of the
Holding Company (the "Class B Common Stock").
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The Class B Common Stock, Class C Common Stock and Class D Common
Stock of the Holding Company are together referred to herein as
"Reorganization Common Stock."
(b) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one share of common stock, par value $.01 per share, of the Surviving
Corporation; and
(c) each share of Common Stock, par value $.01 per share, of Holding
Company issued and outstanding immediately prior to the Effective Time
shall be canceled and shall cease to exist and no payment or distribution
shall be made with respect thereto.
SECTION 3.2 EXCHANGE OF STOCK CERTIFICATES
At and after the Effective Time, each certificate theretofore representing
shares of Company Common Stock, without any action on the part of the Company,
Holding Company or the holder thereof, shall be deemed to represent a right to
receive certificates representing that number of shares of Reorganization
Common Stock into which the shares of Company Common Stock were converted
pursuant to Section 3.1 hereof (together with any dividends or other
distributions from Holding Company with respect to such shares from the time
of conversion until the exchange of certificates). At and after the Effective
Time, there shall be no further registrations or transfers on the stock
transfer books of the Surviving Corporation of the shares of the Company
Common Stock which were outstanding immediately prior to the Effective Time.
SECTION 3.3 DISSENTING SHARES
(a) Notwithstanding anything to the contrary contained in this Agreement,
holders of Company Common Stock with respect to which dissenters' rights, if
any, are granted by reason of the Merger under the WBCA and who do not vote in
favor of the Merger and otherwise comply with Chapter 23B.13 of the WBCA
("Dissenting Shares"), shall not be entitled to shares of Reorganization
Common Stock pursuant to Section 3.1 hereof, unless and until the holder
thereof shall have failed to perfect or shall have effectively withdrawn or
lost such holder's right to dissent from the Merger under the WBCA, and shall
be entitled to receive only the payment provided for by Chapter 23B.13 of the
WBCA. If any such holder shall have failed to perfect or shall have
effectively withdrawn or lost such holder's dissenters' rights under the WBCA,
such holder's Dissenting Shares shall thereupon be deemed to be outstanding
shares of Reorganization Common Stock.
(b) Any payments relating to Dissenting Shares shall be made solely by the
Surviving Corporation and no funds or other property have been or will be
provided by Holding Company or any of its other direct or indirect
subsidiaries for such payment.
ARTICLE IV
CONDITIONS TO MERGER
SECTION 4.1 CONDITIONS
The obligations of the Company under this Agreement to effect the Merger are
subject to (a) approval of this Agreement by the affirmative vote of holders
of not less than two-thirds of the outstanding shares of Company Common Stock
entitled to vote at the Special Meeting of the Company shareholders at which
the matter will be considered, (b) any third party or regulatory approvals,
and (c) perfection by no more than 2% of the Company's shareholders of their
dissenters' rights.
SECTION 4.2 WAIVER
Notwithstanding anything to the contrary contained in this Agreement, any or
all of the conditions to the obligation of the Company to effect the Merger
set forth in Section 4.1 may be waived by the unilateral action of the Board
of Directors of the Company or the unilateral action of the Board of Directors
of Holding Company.
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ARTICLE V
MISCELLANEOUS
SECTION 5.1 OPTIONS
At the Effective Time, each option to purchase shares or other right to
acquire shares of Company Common Stock granted under each of the Company's
1989 Stock Option Plan, the 1993 Stock Option Plan and the 1996 Stock
Incentive Compensation Plan (collectively, the "Assumed Plans") and each
arrangement entitling persons to receive an option (the "Assumed
Arrangements") to purchase shares of Company Common Stock, which is
outstanding immediately prior to the Effective Time, shall be converted into
and become an option or right to purchase or acquire or Assumed Arrangement
for an option to acquire the same number of shares of Class B Common Stock;
provided, however, that if a "Conversion Event" for the Class B Common Stock
(as defined in the Company's Articles of Incorporation) occurs, the conversion
shall be into an option or right to purchase or acquire or Assumed Arrangement
for an option to acquire the same number of shares of common stock, par value
$.01 per share, of Holding Company ("Holding Company Common Stock"); at the
same option price per share, upon the same terms and subject to the same
conditions set forth in the option or right to acquire or purchase shares and
in the Assumed Plans (or in the Assumed Arrangement for an option, in the care
of Assumed Arrangements for options) as in effect at the Effective Time. The
same number of shares of Class B Common Stock (or Holding Company Common
Stock, as the case may be) shall be reserved for purposes of the Assumed Plans
and Assumed Arrangements as is equal to the number of shares of Company Common
Stock so reserved as of the Effective Time. As of the Effective Time, Holding
Company will assume the Assumed Plans and Assumed Arrangements and all
obligations of the Company under the Assumed Plans and Assumed Arrangements,
and the outstanding options and other rights to acquire or purchase shares of
Company Common Stock granted pursuant to the Assumed Plans and Assumed
Arrangements.
SECTION 5.2 OTHER EMPLOYEE BENEFIT PLANS [RESERVED]
SECTION 5.3 AMENDMENT
This Agreement may be amended by written agreement of the parties hereto at
any time prior to the Effective Time.
SECTION 5.4 ABANDONMENT
At any time prior to the Effective Time, this Agreement may be terminated
and abandoned by the unilateral action of the Board of Directors of the
Company or the unilateral action of the Board of Directors of Holding Company.
SECTION 5.5 COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties.
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SECTION 5.6 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Washington, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
RAGEN MACKENZIE INCORPORATED
/s/ Robert J. Mortell, Jr.
_____________________________________
By: Robert J. Mortell, Jr.
Its: President
RAGEN MACKENZIE GROUP INCORPORATED
/s/ Lesa A. Sroufe
_____________________________________
By: Lesa A. Sroufe
Its: Chief Executive Officer
RMGI MERGER CORP.
/s/ V. Lawrence Bensussen
_____________________________________
By: V. Lawrence Bensussen
Its: President
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
RAGEN MACKENZIE INCORPORATED
MARK MCCLURE
This Agreement dated as of the effective date indicated on the signature
page hereto, is between Ragen MacKenzie Incorporated, a corporation organized
under the laws of the state of Washington ("RMI") and Mark McClure ("Broker").
1. Employment. Broker will join RMI on June 16, 1994, and will be
----------
employed as a registered representative of RMI in accordance with the rules and
regulations of the New York Stock Exchange, Inc. During Broker's employment,
Broker shall serve RMI faithfully and to the best of his ability under the
direction of the Executive Committee of RMI, devoting substantially all of his
working time, attention, and energies to the business of RMI. Broker shall not
engage in any other business activity (except the management of personal
investments which in the aggregate do not interfere with the performance of
Broker's duties hereunder), without first obtaining the written consent of RMI.
2. Registration. Upon employment, Broker will promptly complete all
------------
application papers necessary in order to be admitted as a registered
representative of RMI in accordance with the rules and regulations of the New
York Stock Exchange, Inc., any other self-regulatory organization, or any state
having jurisdiction over the business activities of Broker or RMI. Broker shall
become a registered representative of RMI upon completion of all required
filings and upon receipt of all required approvals and licenses.
3. Term. Commencing on the effective date indicated on the signature page
----
hereto, this Agreement shall continue for so long as Broker is employed by RMI,
except those sections which specifically state that they shall be effective
following Broker's termination of employment.
4. Vested Stock Options. Broker shall be granted the options to purchase
--------------------
authorized but unissued common stock of RMI, par value $0.01 (the "Stock"),
subject to the terms and conditions of the attached Incentive Stock Option
Letter Agreement and the Ragen MacKenzie Incorporated 1993 Stock Option Plan.
Purchase of the Stock upon exercise of the options shall be contingent upon
Broker's execution of the Subscription Agreement and Shareholders Agreement
attached hereto as Attachments A and B respectively. In connection with the
purchase of the Stock, Broker knows that the Stock has not been registered under
either federal or state securities laws, and
<PAGE>
Broker represents and warrants that Broker is purchasing such Stock for
investment for Broker's own account and not on behalf of any other person, nor
with a view to, or for resale or other distribution of the Stock. Broker also
understands that RMI is under no obligation and has no intention to register the
Stock or take any actions as to make available exemptions from the registration
requirements of the state and federal securities laws and that the Stock cannot
be sold or otherwise distributed in the absence of an exemption from such
registration requirements. Broker also acknowledges that Attachments A and B
hereto contain rights of first refusal with respect to sales of such Stock and
other transfer restrictions, and Broker agrees to abide by such restrictions.
Broker agrees to cooperate fully with RMI and to provide any information which
may be necessary to enable RMI to qualify for applicable exemptions from
registration requirements with respect to the sale of the Stock to Broker
hereunder.
5. Contingent Options. Broker shall also be granted further options to
------------------
purchase authorized but unissued common stock of RMI, par value $0.01, subject
to the terms and conditions of the attached Agreement to Grant Stock Option.
6. Disclosure of Information and Retention of Records. Broker agrees that
--------------------------------------------------
he shall not at any time, either during his tenure as a registered
representative or employee or after such tenure, divulge to any person, firm or
corporation, any nonpublic information received by him concerning RMI's
customers, clients, and accounts (other than accounts directly serviced by
Broker), or the business or financial aspects of RMI or its business. The
parties agree that monetary damages are not adequate to compensate RMI for a
breach of this section and that injunctive relief shall be available to RMI.
7. Compensation. As compensation for Broker's services hereunder, and,
------------
contingent upon Broker's continued employment hereunder, Broker shall be paid
the following amounts:
a) During the first six months of Broker's employment (ending as of
the end of December 16, 1994), Broker shall be paid $17,333 per month. At
RMI's option, such amount may be paid as of the end of each month, or
prepaid in one or more lump sum payments. During the first six months of
Broker's employment (ending as of the end of the December, 1994 commission
month), Broker shall be paid 40% of Broker's aggregate gross commissions in
excess of $130,000 generated during such six month period. Such payment
shall be made as of the end of each month after such level of aggregate
gross commissions has been exceeded until the end of the sixth month of
Broker's employment.
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<PAGE>
b) Thereafter, during each fiscal year of RMI (ending September 30),
Broker shall be paid monthly the percentages ("Pay-Out Rate") of gross
commissions generated during such month in accordance with the then current
RMI commission schedule. The commission schedule set forth below is current
as of the effective date of this agreement but may be altered from time to
time by RMI in accordance with changes generally made applicable to retail
representatives. For fiscal years 1994 and 1995, Broker's initial Pay-Out
Rate shall be 40%. The initial Pay-Out Rate during any subsequent fiscal
year shall be based on the level of Broker's gross commissions for the
immediately prior full fiscal year.
<TABLE>
<CAPTION>
Gross Commissions
Year to Date or
Prior Fiscal Year
Whichever is Greater Pay-Out Rate
- -------------------- ------------
<S> <C>
Less than $125,000 25%
$125,000 - $150,000 30% retroactive to
beginning of fiscal year
$150,000 - $175,000 35% retroactive to
beginning of fiscal year
Greater than $175,000 40% retroactive to
beginning of fiscal year
</TABLE>
c) Broker shall be involved in management efforts at the Corporation,
and shall be directed in those efforts by John MacKenzie. Broker shall
also be additionally compensated so long as he is actively involved in
management efforts at the Corporation, as follows:
1) For the first twelve months, ending June 16, 1995, Broker
will commit 20%-25% of his time to management efforts, and shall be
compensated at a rate of $50,000 per year.
2) For the second twelve months, ending June 16, 1996, Broker
will commit 40%-50% of his time to management efforts, and shall be
compensated at a rate of $100,000 per year.
3) For the third twelve months, ending June 16, 1997, Broker
will commit 60%-75 % of his time to management efforts, and shall be
compensated at a rate of $150,000 per year.
-3-
<PAGE>
4) After June 16, 1997, Broker will commit 75%-80% of his time
to management efforts, and shall be compensated at a rate of $200,000
per year.
The above payments do not preclude the possibility of a bonus for
management services.
8. Indemnification. RMI shall indemnify Broker and hold him harmless from
---------------
any claim, judgment, order, award, or other damages, including reasonable
attorneys' fees incurred by Broker as the result of any suit or arbitration
proceeding initiated by Kidder Peabody ("Former Employer") or any affiliate
thereof in connection with Broker's termination of employment with Former
Employer and assuming duties with RMI, provided however, that RMI shall not be
liable for payment of any outstanding indebtedness or other obligation owing to
Former Employer by Broker which does not arise as a result of Broker's
termination of employment with Former Employer. Therefore RMI will not be
liable for the repayment to Former Employer of advances, bonuses, "up front"
money or incentives of any kind paid to Broker by Former Employer, or for sums
arising out of claims by customers of the Former Employer for the period their
account was with the Former Employer. Broker's damages, in the event of any
injunctive decree against Broker, shall be limited to the payment monthly, for a
period not to exceed six (6) months, of the compensation described in Section 7
hereof. In the event such a proceeding is initiated against Broker, RMI shall
assume, through its counsel, the defense of such action and shall be liable for
all fees, costs, and awards incurred in connection with said proceedings.
Broker may, at his own expense, also engage counsel of his own choosing to
work with RMI's counsel in furthering Broker's defense, provided, that Broker's
counsel shall not control Broker's defense without the written approval of RMI,
which approval may provide, among other things, that RMI's obligation to
indemnify and hold Broker harmless under this paragraph shall terminate.
9. Termination. RMI may terminate Broker's employment at any time without
-----------
notice upon the good faith determination by the Executive Committee of RMI that
Broker should be terminated for "cause". Cause shall include a material breach
of any obligation created by this Agreement; failure to become approved or
termination of any such approval by the New York Stock Exchange or any other
exchange or securities association of which RMI is a member, if such approval is
required; or gross misconduct, theft, fraud, criminal conduct, any conduct that
is actually or potentially harmful to RMI or its reputation, or failure by
Broker to meet reasonable performance standards as may be set by the Executive
Committee from time to time. If Broker's employment is terminated under this
Section, RMI's compensation
-4-
<PAGE>
obligation to Broker and all other obligations of either party to the other
under this Agreement (except those as set forth herein which state they shall
survive the termination of this Agreement) shall terminate as of the last day of
the month in which termination occurs.
10. Miscellaneous.
-------------
a. This Agreement and all documents executed and delivered hereunder
shall be deemed to be contracts under the laws of the state of Washington
and for all purposes shall be construed in accordance with such laws.
b. Except as otherwise expressly provided in this Agreement, all
communications, requests, consents, and other notices provided for in this
Agreement shall be in writing and shall be deemed given if mailed by
certified or registered mail, postage prepaid, addressed as follows:
(i) If to RMI, to Ragen MacKenzie Incorporated, 999 Third Avenue,
Suite 4300, Seattle, Washington 98104, Attention: Robert J.
Mortell, Jr.
(ii) If to Broker, to the business address of Broker as shown on the
records of RMI.
Notwithstanding the foregoing provisions of this Section, so long as
Broker is employed by RMI, any such communication, request, consent, or
other notice shall be deemed given if delivered as follows: If to RMI, by
hand delivery to any member of the Executive Committee; if to Broker, by
hand delivery to him.
c. This Agreement describes the entire compensation promised the
Broker and supersedes any prior oral or written agreement.
d. This Agreement encompasses the entire contract between Broker and
RMI and supersedes any prior oral or written agreement. No provision of
this Agreement shall be altered, amended, revoked, or waived except by an
instrument in writing signed by the party sought to be charged with such
amendment, revocation, or waiver. Except as herein provided to the
contrary, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective legal representatives,
heirs, successors, and assigns.
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<PAGE>
DATED AND EFFECTIVE as of the 16th day of June, 1994.
RAGEN MACKENZIE INCORPORATED, BROKER:
A Washington Corporation:
__________________________ _________________________
Robert J. Mortell, Jr. Mark McClure
Secretary and Chief Financial Officer
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<PAGE>
ADDENDUM TO THE EMPLOYMENT AGREEMENT OF
MARK MCCLURE
This addendum dated as of the effective date indicated below, is between
Ragen MacKenzie Incorporated, a corporation organized under the laws of the
state of Washington ("RMI") and Mark McClure ("Broker"). Subsection (c) of the
section entitled "Compensation" in the Employment agreement between RMI and
------------
Broker dated June 16, 1994 is hereby entirely revoked and nullified. In
substitution for that subsection, the following is hereby agreed between RMI and
Broker.
c) Broker shall be involved in management efforts at the
Corporation, and shall be directed in those efforts by Stan Freimuth.
Broker shall also be additionally compensated so long as he is
actively involved in management efforts at the Corporation, as
follows:
1) For the first twelve months, ending June 16, 1995,
Broker will commit 20% -25 % of his time to management
efforts, and shall be compensated at a rate of $50,000 per
year.
2) For the second twelve months, ending June 16, 1996,
Broker will commit 40%-50% of his time to management
efforts, and shall be compensated at a rate of $100,000 per
year.
3) For the period from June 17, 1996 to September 30, 1996,
Broker will commit 60% -75% of his time to management
efforts, and shall be compensated at a rate of $150,000 per
year.
4) For the period from October 1, 1996 to September 30,
1997, Broker will commit 60 -75% of his time to management
efforts and shall be compensated at the rate of $100,000 per
year and be entitled to a $50,000 draw versus the Executive
Committee management bonus he may receive on September 30,
1997.
5) After October 1, 1997, Broker will commit 75%-80% of his
time to management efforts, and shall be compensated at a
rate of $100,000 per year, without any draw versus a
possible future Executive Committee management bonus.
-7-
<PAGE>
The above payments neither preclude nor guarantee the
possibility of a bonus for management services.
DATED AND EFFECTIVE as of the 3rd day of June, 1997.
RAGEN MACKENZIE INCORPORATED
A Washington Corporation BROKER:
______________________________ ___________________________
Robert J. Mortell, Jr. Mark McClure (Broker)
President
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<PAGE>
EXHIBIT 10.15
RAGEN MACKENZIE, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I-PURPOSE
1.01. PURPOSE.
The Ragen MacKenzie, Inc. Employee Stock Purchase Plan is intended to provide a
method whereby employees of Ragen MacKenzie, Inc. and its subsidiary
corporations (hereinafter referred to as the "Company") will have an opportunity
to acquire a proprietary interest in the Company through the purchase of shares
of the Common Stock of the Company. It is the intention of the Company to have
the Plan qualify as an "employee stock purchase plan" under (S)423 of the
Internal Revenue Code of 1986 as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit the operation of the Plan in a
manner consistent with the requirements of that section of the Code.
ARTICLE II-DEFINITIONS
2.01. COMPENSATION
"Compensation" shall mean regular cash compensation, including cash bonuses and
commissions, but excluding severance pay, relocation bonuses, payments in lieu
of vacation, sick leave, or any other special payments.
2.02. COMMITTEE
"Committee" shall mean the individuals appointed by the Company's Board of
Directors, as described in Article XI.
2.03. ELIGIBLE EMPLOYEE
"Eligible Employee" means any employee:
(a) whose customary employment is for more than twenty (20) hours per week
and more than five (5) months per year,and
(b) who is not a highly compensated employee (as defined in section 414(q)
of the Code) with Compensation in excess of $100,000 per year.
Provided, however, that the Committee may decrease the eligibility requirements
under paragraph (a) for any future Offering.
2.04. SUBSIDIARY CORPORATION
"Subsidiary Corporation" shall mean any present or future corporation which:
1
<PAGE>
(a) would be a "subsidiary corporation" of Ragen MacKenzie, Inc., as that
term is defined in (S)424(f) of the Code, and
(b) is a domestic "subsidiary corporation" incorporated under the laws of
any state, or
(c) if not a domestic corporation, is designated as a Subsidiary
Corporation by the Committee.
ARTICLE III-ELIGIBILITY AND PARTICIPATION
3.01. INITIAL ELIGIBILITY.
Any Eligible Employee who has completed ninety (90) days' employment and is
employed by the Company on the date his participation in the Plan is to become
effective may participate in Offerings under the Plan which commence on or after
such ninety (90) day period; provided, however, that the Committee may decrease
or increase (up to two years) this minimum requirement for any future Offering.
3.02. LEAVE OF ABSENCE.
For purposes of participation in the Plan, a person on leave of absence shall be
deemed to be an Eligible Employee for the first 90 days of such leave of
absence, and such employee's employment shall be deemed to have terminated at
the close of business on the 90th day of such leave of absence, unless such
employee returns to regular full-time or part-time employment (as the case may
be) prior to the close of business on such 90th day. Termination by the Company
of any employee's leave of absence, other than termination of such leave of
absence on return to full time or part time employment, shall terminate such
employee's participation in the Plan and right to exercise any option.
3.03. RESTRICTIONS ON PARTICIPATION.
Notwithstanding any provisions of the Plan to the contrary, no employee shall be
granted an option to participate in the Plan:
(a) if, immediately after the grant, such employee would own stock, and/or
hold outstanding options to purchase stock, possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company (for
purposes of this paragraph, the rules of (S)424(d) of the Code shall apply in
determining stock ownership of any employee); or
(b) which permits his rights to purchase stock under all employee stock
purchase plans of the Company to accrue at a rate which exceeds $15,000 in
fair market value of the stock (determined at the time such option is granted)
for each calendar year in which such option is outstanding.
3.04. COMMENCEMENT OF PARTICIPATION.
An Eligible Employee may become a participant by completing an authorization for
a payroll deduction on the form provided by the Company and filing it with the
office of the Treasurer of the Company on or before the date set by the
Committee, which date shall be prior to the Offering Commencement Date for the
Offering (as such terms are defined in (S)4.01 below). Payroll deductions for a
participant shall commence on the applicable Offering Commencement Date when his
authorization for a payroll
2
<PAGE>
deduction becomes effective and shall end on the Offering Termination Date of
the Offering to which such authorization is applicable, unless sooner terminated
by the participant as provided in Article VIII.
ARTICLE IV-OFFERINGS
4.01. SEMI-ANNUAL OFFERINGS.
The Plan will be implemented and operated through semi-annual offerings of the
Company's Common Stock (the "Offerings") beginning on the 1st day of January and
the 1st day of July each year and terminating on June 30th or December 31,
respectively. As used in the Plan, "Offering Commencement Date" means the
January 1 or July 1, as the case may be, on which the particular Offering begins
and "Offering Termination Date" means the June 30 or December 31 as the case may
be, on which the particular Offering terminates.
ARTICLE V-PAYROLL DEDUCTIONS
5.01. AMOUNT OF DEDUCTION.
At the time a participant files his authorization for payroll deduction, he
shall elect to have deductions made from his pay on each payday during the time
he is a participant in an Offering at the rate of any whole percentage, from 1%
to 15% of his Compensation in effect at the Offering Commencement Date of such
Offering. In the case of a part-time hourly employee, such employee's
Compensation during an Offering shall he determined by multiplying such
employee's hourly rate of pay in effect on the Offering Commencement Date by the
number of regularly scheduled hours of work for such employee during such
Offering.
5.02. PARTICIPANT'S ACCOUNT.
All payroll deductions made for a participant shall be credited to his account
under the Plan. A participant may not make any separate cash payment into such
account except when on leave of absence, and then only as provided in
(S)5.04(c).
5.03. CHANGES IN PAYROLL DEDUCTIONS.
A participant may discontinue his participation in the Plan as provided in
Article VIII, but no other change can be made during an Offering and,
specifically, a participant may not alter the amount of his payroll deductions
for that Offering.
5.04. LEAVE OF ABSENCE.
If a participant goes on a leave of absence, such participant shall have the
right to elect:
(a) to withdraw the balance in his or her account pursuant to (S)7.02,
(b) to discontinue contributions to the Plan but remain a participant in the
Plan, or
3
<PAGE>
(c) remain a participant in the Plan during such leave of absence, authorizing
deductions to be made from payments by the Company to the participant during
such leave of absence and undertaking to make cash payments to the Plan at the
end of each payroll period to the extent that amounts payable by the Company
to such participant are insufficient to meet such participant's authorized
Plan deductions.
ARTICLE VI-GRANTING OF OPTIONS
6.01. NUMBER OF OPTION SHARES.
On the Offering Commencement Date of each Offering, a participating employee
shall be deemed to have been granted an option to purchase a maximum number of
shares of the stock of the Company equal to an amount determined as follows: an
amount equal to (i) that percentage of the employee's Compensation which he has
elected to have withheld (but not in any case in excess of 15%) multiplied by
(ii) the employee's Compensation during the period of the Offering (iii) divided
by the purchase price of the option shares determined as provided in (S)6.02
below.
6.02. PURCHASE PRICE.
The purchase price of the option shares shall be the lesser of 85% of the
average daily fair market value of the stock during the Offering period or 85%
of the fair market value of the shares at the date of Exercise; provided,
however, that the Committee may establish a different purchase price for any
Offering based upon a different formula or fixed amount; and provided further,
that in no event may the purchase price be less than the lesser of 85% of the
fair market value of the shares at the date of Grant or 85% of the fair market
value of the shares at the date of Exercise. Fair market value as of any day
shall mean the closing bid price as reported on the National Association of
Securities Dealers Automated Quotation System or, if the stock is traded on a
stock exchange, the closing price for the stock on the principal such exchange.
If Common Stock of the Company is not admitted to trading on any date for which
closing prices of the stock are to be determined, then the fair market value of
the stock on that date shall be established by the Committee.
ARTICLE VII-EXERCISE OF OPTIONS
7.01. AUTOMATIC EXERCISE.
Unless a participant gives written notice to the Company as hereinafter
provided, his option for the purchase of stock with payroll deductions made
during any Offering will be deemed to have been exercised automatically on the
Offering Termination Date applicable to such Offering, for the purchase of the
number of full or fractional shares of stock which the accumulated payroll
deductions in his account at that time will purchase at the applicable option
price (but not in excess of the number of shares for which options have been
granted to the employee pursuant to (S)6.01), and any excess in his account at
that time will be returned to him.
4
<PAGE>
7.02. WITHDRAWAL OF ACCOUNT.
By written notice to the Treasurer of the Company, at any time prior to the
Offering Termination Date applicable to any Offering, a participant may elect to
withdraw all the accumulated payroll deductions in his account at such time.
7.03. FRACTIONAL SHARES.
Offerings may be made and exercised in full and fractional shares of stock,
unless the Committee determines that fractional shares will not be issued. If
the Committee makes such a determination that fractional shares will not be
issued under the Plan, any accumulated payroll deductions which would have been
used to purchase fractional shares will be returned to any employee promptly
following the termination of an Offering, without interest.
7.04. TRANSFERABILITY OF OPTION.
During a participant's lifetime, options held by such participant shall not be
transferable and shall be exercisable only by that participant.
7.05 DELIVERY OF STOCK.
As promptly as practicable after the Offering Termination Date of each Offering,
the Company will deliver to each participant, as appropriate, the stock
purchased upon exercise of his option.
ARTICLE VIII-WITHDRAWAL
8.01. IN GENERAL.
As indicated in (S)7.02, a participant may withdraw payroll deductions credited
to his account under the Plan at any time by giving written notice to the
Treasurer of the Company. All of the participant's payroll deductions credited
to his account will be paid to him promptly after receipt of his notice of
withdrawal, and no further payroll deductions will be made from his pay during
such Offering.
8.02. EFFECT ON SUBSEQUENT PARTICIPATION.
A participant's withdrawal from any Offering will not have any effect upon his
eligibility to participate in any succeeding Offering or in any similar plan
which may hereafter be adopted by the Company.
8.03. TERMINATION OF EMPLOYMENT.
Upon termination of the participant's employment for any reason (including
retirement but excluding death while in the employ of the Company or during the
continuation of a leave of absence for a period beyond 90 days), the payroll
deductions credited to his account will be returned to him, or, in the case of
his death subsequent to the termination of his employment, to the person or
persons entitled thereto under (S)12.01.
5
<PAGE>
8.04. TERMINATION OF EMPLOYMENT DUE TO DEATH.
Upon termination of the participant's employment because of his death, his
beneficiary (as defined in (S)12.01) shall have the right to elect, by written
notice given to the Treasurer of the Company prior to the earlier of the
Offering Termination Date or the expiration of a period of sixty (60) days
commencing with the date of the death of the participant, either:
(a) to withdraw all of the payroll deductions credited to the participant's
account under the Plan, or
(b) to exercise the participant's option for the purchase of stock on the
Offering Termination Date next following the date of the participant's death
for the purchase of the number of full and fractional shares of stock which
the accumulated payroll deductions in the participant's account at the date of
the participant's death will purchase at the applicable option price, and any
excess in such account will be returned to said beneficiary, without interest.
In the event that no such written notice of election shall be duly received by
the office of the Treasurer of the Company, the beneficiary shall automatically
be deemed to have elected, pursuant to paragraph (b), to exercise the
participant's option.
8.05. LEAVE OF ABSENCE.
A participant on leave of absence shall, subject to the election made by such
participant pursuant to (S)5.04, continue to be a participant in the Plan so
long as such participant is on continuous leave of absence. A participant who
has been on leave of absence for more than 90 days and who therefore is not an
Eligible Employee for the purpose of the Plan shall not be entitled to
participate in any Offering commencing after the 90th day of such leave of
absence. Notwithstanding any other provisions of the Plan, unless a participant
on leave of absence returns to regular full-time or part-time employment with
the Company at the earlier of the termination of such leave of absence or three
months from the 90th day of such leave of absence, such participant's
participation in the Plan shall terminate on whichever of such dates first
occurs.
ARTICLE IX-INTEREST
9.01. PAYMENT OF INTEREST
No interest will be paid or allowed on any money paid into the Plan or credited
to the account of any participant employee; except, however, that interest shall
be paid on any and all money which is distributed to an employee or his
beneficiary pursuant to the provisions of (S)(S)7.02, 8.01, 8.03, 8.04 and
10.01. Such distributions shall bear simple interest during the period from the
date of withholding to the date of return at the regular passbook savings
account rates per annum in effect at Seafirst Bank, Seattle, Washington during
the applicable Offering period, or if such rates are not published or otherwise
available for such purpose, at the regular passbook savings account rates per
annum in effect during such period at another major commercial bank in Seattle,
Washington selected by the Committee. Where the amount returned represents an
excess amount in an employee's account after such account has been applied to
the purchase of stock (except amounts attributable to fractional shares under
(S)7.03), the employee's account shall be deemed to have been applied first
toward purchase of stock under the Plan, so that interest shall be paid on the
last deposits to the account during the period which results in the excess
amount.
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<PAGE>
ARTICLE X-STOCK
10.01. MAXIMUM SHARES.
The maximum number of shares which shall be issued under the Plan (subject to
adjustment upon changes in capitalization of the Company as provided in
(S)12.04) shall be 200,000 shares for all Offerings. If the total number of
shares for which options are exercised on any Offering Termination Date in
accordance with Article VI exceeds the maximum number of shares allowable under
the preceding sentence, the Company shall make a pro rata allocation of the
shares available for delivery and distribution in as nearly a uniform manner as
shall be practicable and as it shall determine to be equitable, and the balance
of payroll deductions credited to the account of each participant under the Plan
shall be returned to him as promptly as possible.
10.02. PARTICIPANT'S INTEREST IN OPTION STOCK.
The participant will have no interest in stock covered by his option until such
option has been exercised.
10.03. REGISTRATION OF STOCK.
Stock to be delivered to a participant under the Plan will be registered in the
name of the participant, or if the participant so directs by written notice to
the Treasurer of the Company prior to the Offering Termination Date applicable
thereto, in the names of the participant and one such other person as may be
designated by the participant, as joint tenants with rights of survivorship or
as tenants by their entireties, to the extent permitted by applicable law.
10.04. RESTRICTIONS ON EXERCISE.
The Board of Directors may, in its discretion, require as conditions to the
exercise of any option that the shares of Common Stock reserved for issuance
upon the exercise of the option shall have been duly listed, upon official
notice of issuance, upon a stock exchange, and that either:
(a) a Registration Statement under the Securities Act of 1933, as amended,
with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of purchase, in form
and substance satisfactory to the Company, that it is his intention to
purchase the shares for investment and not for resale or distribution.
ARTICLE XI-ADMINISTRATION
11.01. APPOINTMENT OF COMMITTEE
The Board of Directors shall appoint a committee (the "Committee") to administer
the Plan, which shall consist of no fewer than two members of the Board of
Directors. Members of the Committee may purchase stock under the Plan, if
otherwise eligible; however, no Committee member who participates in the Plan
may vote on any Board action with respect to the Plan.
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<PAGE>
11.02. AUTHORITY OF COMMITTEE
Subject to the express provisions of the Plan, the Committee shall have plenary
authority in its discretion to interpret and construe any and all provisions of
the Plan, to adopt rules and regulations for administering the Plan, and to make
all other determinations deemed necessary or advisable for administering the
Plan. The Committee's determination on the foregoing matters shall be
conclusive.
11.03. RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE
The Board of Directors may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of its
members as its Chairman and shall hold its meetings at such times and places as
it shall deem advisable and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. The Committee may correct any defect or
omission or reconcile any inconsistency in the Plan, in the manner and to the
extent it shall deem desirable. Any decision or determination reduced to writing
and signed by a majority of the members of the Committee shall be as fully
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
ARTICLE XII-MISCELLANEOUS
12.01. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary who is to receive
any stock and/or cash under the terms of the Plan. Such designation of
beneficiary may be changed by the participant at any time by written notice to
the Treasurer of the Company. Upon the death of a participant, and upon receipt
by the Company of proof of identity and existence at the participant's death of
a beneficiary validly designated by him under the Plan, the Company shall
deliver such stock and/or cash to such beneficiary. In the event of the death
of a participant, and in the absence of a beneficiary validly designated under
the Plan who is living at the time of such participant's death, the Company
shall deliver such stock and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such stock and/or cash to the spouse or to any one or more dependents of
the participant as the Company may designate. No beneficiary shall, prior to
the death of the participant by whom he has been designated, acquire any
interest in the stock or cash credited to the participant under the Plan.
12.02. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account nor any rights
with regard to the exercise of an option or to receive stock under the Plan may
be assigned, transferred, pledged, or otherwise disposed of in any way by the
participant other than by will or the laws of descent and distribution, and any
such attempted assignment, transfer, pledge or other disposition shall be
without effect.
8
<PAGE>
12.03. USE OF FUNDS.
No payroll deductions received or held by the Company under this Plan may be
used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions from other general assets.
12.04. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
If, while any options are outstanding, the outstanding shares of Common Stock of
the Company have increased, decreased, changed into, or been exchanged for a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization, reclassification, stock split, reverse
stock split or similar transaction, appropriate and proportionate adjustments
may be made by the Committee in the number and/or kind of shares which are
subject to purchase under outstanding options and on the option exercise price
or prices applicable to such outstanding options. In addition, in any such
event, the number and/or kind of shares which may be offered in the Offerings
described in Article IV hereof shall also be proportionately adjusted. No
adjustments shall be made for stock dividends. For the purposes of this
paragraph, any distribution of shares to shareholders in an amount aggregating
20% or more of the outstanding shares shall be deemed a stock split, and any
distributions of shares aggregating less than 20% of the outstanding shares
shall be deemed a stock dividend.
Upon the dissolution or liquidation of the Company, or upon a reorganization,
merger or consolidation of the Company with one or more corporations as a result
of which the Company is not the surviving corporation, or upon a sale of
substantially all of the property or stock of the Company to another
corporation, the holder of each option then outstanding under the Plan, upon the
exercise of such option at the next Offering Termination Date, will be entitled
to receive the cash, securities and/or property under the same terms which other
shareholders of the Common stock were entitled to receive upon and at the time
of such transaction. The Board of Directors shall take such steps in connection
with such transactions as the Board shall deem necessary to assure that the
provisions of this (S)12.04 shall thereafter be applicable, as nearly as
reasonably may be determined, in relation to the cash, securities and/or
property to which the holder of such option might thereafter be entitled.
12.05. AMENDMENT AND TERMINATION.
The Plan shall not have a fixed termination date. The Board of Directors shall
have complete power and authority to terminate or amend the Plan; provided,
however, that the Board of Directors shall not, without the approval of the
stockholders of the Corporation (i) increase the maximum number of shares which
may be issued under the Plan (except pursuant to (S) 12.04), or (ii) amend the
requirements as to the class of employees eligible to purchase stock under the
Plan. No termination, modification, or amendment of the Plan may, without the
consent of an employee then having an option to purchase stock under the Plan,
adversely affect the rights of such employee under such option.
12.06. EFFECTIVE DATE.
The Plan shall become effective as of the date of the initial public offering of
the Company, subject to approval by the holders of the majority of the Common
Stock present and represented at a special or annual meeting of the shareholders
held on or before the date that is one year after the effective date of the
Plan. If the Plan is not so approved, the Plan shall not become effective.
9
<PAGE>
12.07. NO EMPLOYMENT RIGHTS.
The Plan does not, directly or indirectly, create any right for the benefit of
any employee or class of employees to purchase any shares under the Plan, or
create in any employee or class of employees any right with respect to
continuation of employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise modify,
an employee's employment at any time.
12.08. EFFECT OF PLAN.
The provisions of the Plan shall, in accordance with its terms, be binding upon,
and inure to the benefit of, all successors of each employee participating in
the Plan, including, without limitation, such employee's estate and the
executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such employee.
12.09. GOVERNING LAW.
The laws of the State of Washington will govern all matters relating to this
Plan, except to the extent it is superseded by the laws of the United States.
Executed this ______ day of ______________, 1998.
RAGEN MACKENZIE, INC.
By:
---------------------------------------------
Title:
------------------------------------------
10
<PAGE>
EXHIBIT 10.16
RAGEN MacKENZIE INCORPORATED
AGREEMENT TO GRANT STOCK OPTION
TO: Mark McClure
We are please to inform you that Ragen MacKenzie Incorporated (the
"Corporation") hereby agrees to grant to you a stock option (the "Option") under
the Stock Option Plan of the Corporation in effect on the date of such grant
(the "Plan"). The grant of the Option will be conditioned upon your first
achieving gross production of at least $750,000 during any twelve consecutive
months (the "Current Production Goal") prior to June 16, 1999 (the "Goal
Deadline"). The option will entitle you to purchase a number of shares of the
Common Stock of the Corporation, equal to $25,000 divided by the Denominator
[the lower of $24.00, as proportionately adjusted to reflect any subdivision,
combination, reclassification or other recapitalization of the Company's common
stock into a greater or lesser number of shares (the "Ceiling Price"), or the
fully diluted net book value per share as of the date the Current Production
Goal is reached]. No fractional options shall be granted; round the result to
the nearest whole number divisible by 25. The minimum number of options which
can be earned under this agreement is 1,050. The maximum number of options
which can be earned under this agreement is 1,450.
For example, if the fully diluted net book value per share is $17.18 as of the
date the Current Production Goal is reached, then would earn options on 1,450
shares. ($25,000/$17.18 = 1,455, rounded down to 1,450). If the fully diluted
net book value per share is $24.00 as of the date the Current Production Goal is
reached, then you would earn options on 1,050 shares. ($25,000/$24.00 = 1,042,
rounded up to 1050.)
The per share exercise price of the Option will be the book value per share of
the Corporation's Common Stock on the rate of grant of the Option (which is
expected to be on or near the date you achieve the Current Production Goal). In
the event that book value per share on the date of grant is higher then the
Denominator, at such time as you exercise all or any portion of the Option, the
Corporation will make a cash payment to you (the "Equalization Payment") in an
amount equal to the difference between the Denominator and book value per share
on the date grant for each share purchased. The Equalization Payment will be
treated as ordinary income to you. (In the event that, prior to the Goal
deadline, the Option has not yet been granted, and a change of control of the
Corporation occurs that would result, under the Stock Option Plan of the
Corporation then available for option grants, in acceleration of vesting of
outstanding options, then, prior to such change of control, the Corporation
shall grant the Option, and the Option shall be vested and exercisable, whether
or not the Current Production Goal has been achieved, all subject to the terms
of such Stock Option Plan.)
The other terms of the Option will be as set forth in the Plan and in the
Option Letter Agreement evidencing the Option. It is anticipated that certain
of the terms to which the Option will be subject will be as follows:
Exercise: During your lifetime only you will be able to exercise the
--------
Option. The Option may also be exercised in the event of your death by the
personal representative of your estate or the beneficiary thereto. The
Administrator of the Plan may, in its sole discretion at the time of exercise,
determine that the exercise of the Option is subject to your prior execution of
a Shareholders Agreement, in the form in use at the time of the exercise,
whereby under certain circumstances you grant to the Corporation a right of
first offer to purchase the shares acquired by you upon exercise of the Option.
Payment for Shares: The Option may be exercised by the delivery of cash, a
------------------
personal check (unless at the time of exercise, the Administrator of the Plan
determines otherwise), or a bank certified or cashier's check.
Nature of the Option: The Company will use its best efforts to provide that
--------------------
the Option is treated as an incentive stock option or its equivalent.
Termination: The Option will terminate two (2) years from the date of
-----------
grant thereof or upon the earlier cessation of your relationship with the
Corporation or a related corporation, unless cessation is due to death or total
disability, in which case the Option shall terminate three (3) months after
cessation of such relationship.
<PAGE>
Transfer of Option: The Option will not be transferable except by will
-------------------
or by applicable laws of descent and distribution.
The effective date of this Agreement is the 16th day of June, 1994.
Very truly yours,
RAGEN MacKENZIE INCORPORATED
By
--------------------------
Robert J. Mortell, Jr.
Secretary
<PAGE>
EXHIBIT 10.17
CO #222
RAGEN MACKENZIE INCORPORATED
AGREEMENT TO GRANT STOCK OPTION
TO: Mark McClure
We are pleased to inform you that Ragen MacKenzie Incorporated (the
"Corporation") hereby agrees to grant to you a stock option (the "Option") under
the Stock Option Plan of the Corporation in effect on the date of such grant
(the "Plan"). The grant of the Option will be conditioned upon your first
achieving gross production of at least $850,000 during any twelve consecutive
months (the "Current Production Goal") prior to November 30, 1999 (the "Goal
-----------------
Deadline"). The Option will entitle you to purchase a number of shares of the
Common Stock of the Corporation, equal to $20,000 divided by the Denominator [
the lower of $46.00, as proportionately adjusted to reflect any subdivision,
combination, reclassification or other recapitalization of the Company's common
stock into a greater or lesser number of shares (the "Ceiling Price"), or the
fully diluted net book value per share as of the date the Current Production
Goal is reached]. No fractional options shall be granted; round the result to
the nearest whole number divisible by 25. The minimum number of options which
can be earned under this agreement is 425. The maximum number of options which
can be earned under this agreement is 550.
For example, if the fully diluted net book value per share is $35.98 as of the
date the Current Production Goal is reached, then you would earn options on 550
shares. ($20,000/$35.98 = 556 rounded to 550.) If the fully diluted net book
value per share is $46.00 as of the date the Current Production Goal is reached,
then you would earn options on 425 shares. ($20,000/$46.00 = 435, rounded to
425).
The per share exercise price of the Option will be the book value per share of
the Corporation's Common Stock on the date of grant of the Option (which is
expected to be on or near the date you achieve the Current Production Goal). In
the event that book value per share on the date of grant is higher than the
Denominator, at such time as you exercise all or any portion of the Option, the
Corporation will make a cash payment to you (the "Equalization Payment") in an
amount equal to the difference between the Denominator and book value per share
on the date of grant for each share purchased. The Equalization Payment will
be treated as ordinary income to you. (In the event that, prior to the Goal
Deadline, the Option has not yet been granted, and a change of control of the
Corporation occurs that would result, under the Stock Option Plan of the
Corporation then available for option grants, in acceleration of vesting of
outstanding options, then, prior to such change of control, the Corporation
shall grant the Option, and the Option shall be vested and exercisable, whether
or not the Current Production Goal has been achieved, all subject to the terms
of such Stock Option Plan.)
The other terms of the Option will be as set forth in the Plan and in the
Option Letter Agreement evidencing the Option. It is anticipated that certain
of the terms to which the Option will be subject will be as follows:
<PAGE>
Exercise: During your lifetime only you will be able to exercise the
--------
Option. The Option may also be exercised in the event of your death by the
personal representative of your estate or the beneficiary thereto. The
Administrator of the Plan may, in its sole discretion at the time of exercise,
determine that the exercise of the Option is subject to your prior execution of
a Shareholders Agreement, in the form in use at the time of the exercise,
whereby under certain circumstances you grant to the Corporation a right of
first offer to purchase the shares acquired by you upon exercise of the Option.
Payment for Shares: The Option may be exercised by the delivery of cash,
------------------
a personal check (unless at the time of exercise, the Administrator of the Plan
determines otherwise), or a bank certified or cashier's check.
Nature of the Option: The Company will use its best efforts to provide
--------------------
that the Option is treated as an incentive stock option or its equivalent.
Termination: The Option will terminate two (2) years form the date of
-----------
grant thereof or upon the earlier cessation of your relationship with the
Corporation or a related corporation, unless cessation is due to death or total
disability, in which case the Option shall terminate three (3) months after
cessation of such relationship.
Transfer of Option: The Option will not be transferable except by will or
------------------
by applicable laws of descent and distribution.
The effective date of this Agreement is February 25, 1997.
Very truly yours,
RAGEN MacKENZIE INCORPORATED
By /s/ Stanley G. Freimuth
-----------------------------
Stanley G. Freimuth
Chairman of the Board
<PAGE>
EXHIBIT 10.18
CO #178
RAGEN MacKENZIE INCORPORATED
AGREEMENT TO GRANT STOCK OPTION
TO: Stan Freimuth
We are pleased to inform you that Ragen MacKenzie Incorporated (the
"Corporation") hereby agrees to grant to you a stock option (the "Option") under
the Stock Option Plan of the Corporation in effect on the date of such grant
(the "Plan"). The grant of the Option will be conditioned upon your first
achieving gross production of at least $2,750,000 during any twelve consecutive
months (the "Current Production Goal") prior to April 29, 1999 (the "Goal
--------------
Deadline"). The Option will entitle you to purchase a number of shares of the
Common Stock of the Corporation, equal to $55,125 divided by the Denominator
[the lower of $35.00, as proportionately adjusted to reflect any subdivision,
combination, reclassification or other recapitalization of the Company's common
stock into a greater or lesser number of shares (the "Ceiling Price") or the
fully diluted net book value per share as of the date the Current Production
Goal is reached]. No fractional options shall be granted; round the result to
the nearest whole number divisible by 25. The minimum number of options which
can be earned under this agreement is 1,575. The maximum number of options
which can be earned under this agreement is 2,100.
For example, if the fully diluted net book value per share is $26.28 as of the
date the Current Production Goal is reached, then you would earn options on
2,100 shares. ($55,125/$26.28 = 2,098, rounded to 2,100.) If the fully
diluted net book value per share is $35.00 as of the date the Current Production
Goal is reached, then you would earn options on 1,575 shares. ($55,125/$35.00 =
1.575.)
The per share exercise price of the Option will be the book value per share of
the Corporation's Common Stock on the date of grant of the Option (which is
expected to be on or near the date you achieve the Current Production Goal). In
the event that book value per share on the date of grant is higher than the
Denominator, at such time as you exercise all or any portion of the Option, the
Corporation will make a cash payment to you (the "Equalization Payment") in an
amount equal to the difference between the Denominator and book value per share
on the date of grant for each share purchased. The Equalization Payment will be
treated as ordinary income to you. (In the event that, prior to the Goal
Deadline, the Option has not yet been granted, and a change of control of the
Corporation occurs that would result, under the Stock Option Plan of the
Corporation then available for option grants, in acceleration of vesting of
outstanding options, then, prior to such change of control, the Corporation
shall grant the Option, and the Option shall be vested and exercisable, whether
or not the Current Production Goal has been achieved, all subject to the terms
of such Stock Option Plan.)
The other terms of the Option will be as set forth in the Plan and in the
Option Letter Agreement evidencing the Option. It is anticipated that certain
of the terms to which the Option will be subject will be as follows:
Exercise: During your lifetime only you will be able to exercise the
--------
Option. The Option may also be exercised in the event of your death by the
personal representative of your estate or the beneficiary thereto. The
Administrator of the Plan may, in its sole discretion at the time of exercise,
determine that the exercise of the Option is subject to your prior execution of
a Shareholders Agreement, in the form in use at the time of the exercise,
whereby under certain circumstances you grant to the Corporation a right of
first offer to purchase the shares acquired by you upon exercise of the Option.
Payment for Shares: The Option may be exercised by the delivery of cash,
------------------
a personal check (unless at the time of exercise, the Administrator of the Plan
determines otherwise), or a bank certified or cashier's check.
Nature of the Option: The Company will use its best efforts to provide
--------------------
that the Option is treated as an incentive stock option or its equivalent.
Termination: The Option will terminate two (2) years from the date of
-----------
grant thereof or upon the earlier cessation of your relationship with the
Corporation or a related corporation, unless cessation is due to death or total
disability, in which case the Option shall terminate three (3) months after
cessation of such relationship.
<PAGE>
Transfer of Option: The Option will not be transferable except by will
------------------
or by applicable laws of descent and distribution.
The effective date of this Agreement is the 29th day of April, 1996.
Very truly yours,
RAGEN MacKENZIE INCORPORATED
By /s/ Robert J. Mortell, Jr.
--------------------------
Robert J. Mortell, Jr.
Secretary
<PAGE>
EXHIBIT 10.19
RAGEN MacKENZIE INCORPORATED
AGREEMENT TO GRANT STOCK OPTION
TO: Stan Freimuth
We are pleased to inform you that Ragen MacKenzie Incorporated (the
"Corporation") hereby agrees to grant to you a stock option (the "Option") under
the Stock Option Plan of the Corporation in effect on the date of such grant
(The "Plan"). The grant of the Option will be conditioned upon your first
achieving gross production of at least 53,000,000 during any twelve consecutive
months (the "Current Production Goal") prior to June 11, 1999 (the "Goal
-------------
Deadline"). The Option will entitle you to purchase a number of shares of the
Common Stock of the Corporation, equal to $50,000 divided by the Denominator
[the lower or $37.00, as proportionately adjusted to reflect any subdivision,
combination, reclassification or other recapitalization of the Company's common
stock into greater or lesser number of shares (the "Ceiling Price") or the fully
diluted net book value per share as of the date the Current Production Goal is
reached]. No fractional options shall be granted; round the result to the
nearest whole number divisible by 25. The minimum number of options which can be
earned under this agreement is 1,350. The maximum number of options which can be
earned under this agreement is 1,900.
For example, if the fully diluted net book value per share is $26.28 as of the
date the Current Production Goal is reached, then you would earn options on
1,900 shares. ($50,000/$26.28 = 1,903 rounded to 1,900). If the fully diluted
net book value per share is $37.00 as of the date the Current Production Goal is
reached, then you would earn options on 1,350 shares. ($50,000/$37.00 = 1351,
rounded to 1350).
The per share exercise price of the Option will be the book value per share of
the Corporation's Common Stock on the date of grant of the Option (which is
expected to be on or near the date you achieve the Current Production Goal). In
the event that book value per share on the date of grant is higher than the
Denominator, at such time as you exercise all or any portion of the Option, the
Corporation will make a cash payment to you (the "Equalization Payment") in an
amount equal to the difference between the Denominator and book value per share
on the date of grant for each share purchased. The Equalization Payment will be
treated as ordinary income to you. (In the event that, prior to the Goal
Deadline, the Option has not yet been granted, and a change of control of the
Corporation occurs that would result, under the Stock Option Plan of the
Corporation then available for option grants, in acceleration of vesting of
outstanding options, then, prior to such change of control, the Corporation
shall grant the Option, and the Option shall be vested and exercisable, whether
or not the Current Production Goal has been achieved, all subject to the terms
of such Stock Option Plan.)
The other terms of the Option will be as set forth in the Plan and in
the Option Letter Agreement evidencing the Option. It is anticipated that
certain of the terms to which the Option will be subject will be as follows:
Exercise: During your lifetime only you will be able to exercise the
---------
Option. The Option may also be exercised in the event of your death by the
personal representative of your estate or the beneficiary thereto. The
Administrator of the Plan may, in its sole discretion at the time of exercise,
determine that the exercise of the Option is subject to your prior execution of
a Shareholders Agreement, in the form in use at the time of the exercise,
whereby under certain circumstances you grant to the Corporation a right of
first offer to purchase the shares acquired by you upon exercise of the Option.
Payment for Shares: The Option may be exercised by the delivery of cash,
-------------------
a personal check (unless at the time of exercise, the Administrator of the Plan
determines otherwise), or a bank certified or cashier's check.
Nature of the Option: The Company will use its best efforts to provide
---------------------
that the Option is treated as an incentive stock option or its equivalent.
Termination: The Option will terminate two (2) years from the date of
-----------
grant thereof or upon the earlier cessation of your relationship with the
Corporation or a related corporation, unless cessation is due to death or total
disability, in which case the Option shall terminate three (3) months after
cessation of such relationship.
<PAGE>
Transfer of Option: The Option will not be transferable except by will
------------------
or by applicable laws of descent and distribution.
The effective date of this Agreement is the 11th day of June, 1996.
Very truly yours,
RAGEN MacKENZIE INCORPORATED
By /s/ Robert J. Mortell, Jr.
---------------------------
Robert J. Mortell, Jr.
President
<PAGE>
EXHIBIT 23.6
CONSENT TO BE NAMED IN REGISTRATION STATEMENT
I, the undersigned, hereby consent to be named as a nominee for election as
a director of Ragen MacKenzie Group Incorporated ("RMGI") in the Form S-4 and
the Form S-1 Registration Statements that were initially filed by RMGI with the
Securities and Exchange Commission on April 17, 1998 and April 22, 1998,
respectively.
DATED: 4/28/98 Signature: /s/ Gregory B. Maffei
-----------------------------
Print name: Gregory B. Maffei
----------------------------
