<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
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 (PENDING)
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</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
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
RAGEN MACKENZIE GROUP INCORPORATED
999 THIRD AVENUE, SUITE 4300
SEATTLE, WASHINGTON 98104
PHONE: (206) 343-5000
FAX: (206) 464-0901
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
Copies to:
STEWART M. LANDEFELD
DAVID F. MCSHEA
MICHAEL C. PIRAINO
PERKINS COIE LLP
1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98101-3099
PHONE: (206) 583-8888
FAX: (206) 583-8500
--------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS TO THE REORGANIZATION (THE "REORGANIZATION") OF THE REGISTRANT AND
ITS SUBSIDIARIES, INCLUDING RAGEN MACKENZIE INCORPORATED, A WASHINGTON
CORPORATION, PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DESCRIBED IN THE
ENCLOSED PROXY STATEMENT/PROSPECTUS HAVE BEEN SATISFIED OR WAIVED.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ---------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B common stock, $.001 par
value............................. 12,034,015(2) $7.40 $89,051,711 $26,270
- ---------------------------------------------------------------------------------------------------------
Class C common stock, $.001 par
value............................. 274,176(3) $7.40 $2,028,902 $598
- ---------------------------------------------------------------------------------------------------------
Class D common stock, $.001 par
value............................. 215,250(4) $7.40 $1,592,850 $470
- ---------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) of the Securities Act of 1933, as amended,
based on the book value of the shares of common stock of Ragen MacKenzie
Incorporated on March 27, 1998.
(2) Based on the maximum number of shares of Class B common stock of Holding
Company to be issued in connection with the Reorganization described
herein, assuming exercise of all outstanding options, and all options that
may to be granted pursuant to agreements to grant options, to purchase
common stock, $.01 par value per share, of Ragen MacKenzie Incorporated.
Includes also such indeterminate number of shares of common stock, $.001
par value per share, of Holding Company as from time to time may be issued
upon conversion of the Class B common stock registered hereunder.
(3) Includes such indeterminate number of shares of common stock, $.001 par
value per share, of Holding Company as from time to time may be issued
upon conversion of the Class C common stock registered hereunder.
(4) Includes such indeterminate number of shares of common stock, $.001 par
value per share, of Holding Company as from time to time may be issued
upon conversion of the Class D common stock registered hereunder.
--------------
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, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
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<PAGE>
PRELIMINARY PROXY MATERIALS
RAGEN MACKENZIE INCORPORATED
999 THIRD AVENUE, SUITE 4300
SEATTLE, WASHINGTON 98104
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JUNE , 1998
----------------
TO OUR SHAREHOLDERS:
A Special Meeting of Shareholders of Ragen MacKenzie Incorporated ("RMI")
will be held at 10:00 a.m. Pacific Daylight Time on [day of meeting], June ,
1998, at [location of meeting], for the following purposes:
1. To consider and act upon a reorganization of RMI and its subsidiaries
as described in the accompanying Proxy Statement/Prospectus (the
"Reorganization") to be effected pursuant to an Agreement and Plan of
Merger dated as of May , 1998 (the "Merger Agreement"), by and among RMI,
Ragen MacKenzie Group Incorporated, a recently formed Washington
corporation and a wholly owned subsidiary of RMI ("Holding Company"), and
RMGI Merger Corp., a recently formed Washington corporation and a wholly
owned subsidiary of Holding Company ("Merger Sub"). The Merger Agreement
contemplates, among other things, that Merger Sub will merge with RMI, with
RMI as the surviving corporation (the "Merger"). As a result of the Merger
and certain related transactions: (a) RMI will become a wholly owned
subsidiary of Holding Company and (b) each share of common stock, par value
$.001 per share, of RMI (other than shares held by holders who have
properly exercised dissenters' rights under Washington law) (i) originally
acquired from RMI pursuant to the 1990 Stock Purchase Agreement among RMI
and five investors will be converted into one share of Class C common
stock, par value $.001 per share, of Holding Company, (ii) originally
acquired from RMI pursuant to the 1995 Stock Purchase Agreements among RMI
and five investors will be converted into one share of Class D common
stock, par value $.001 per share, of Holding Company, and (iii) otherwise
acquired from RMI will be converted into one share of Class B common stock,
par value $.001 per share, of Holding Company;
2. To consider and act upon a proposal to direct RMI to elect three
additional directors to the Board of Directors of Holding Company
immediately prior to effectiveness of the Reorganization; and
3. To transact such other business as may properly come before the
Special Meeting.
Further information as to the Reorganization to be considered and acted upon
at the Special Meeting can be found in the accompanying Proxy
Statement/Prospectus.
Only shareholders of record at the close of business on May , 1998 are
entitled to notice of, and to vote at, the Special Meeting.
By Order of the Board of Directors
Michael W. Reinhardt
Assistant Secretary
Seattle, Washington
May , 1998
EACH SHAREHOLDER IS URGED TO COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES.
<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 APRIL 17, 1998
RAGEN MACKENZIE INCORPORATED
999 THIRD AVENUE, SUITE 4300
SEATTLE, WASHINGTON 98104
(206) 343-5000
PROXY STATEMENT
-----------
RAGEN MACKENZIE GROUP INCORPORATED
999 THIRD AVENUE, SUITE 4300
SEATTLE, WASHINGTON 98104
(206) 343-5000
PROSPECTUS
-----------
This Proxy Statement/Prospectus and the accompanying form of proxy are
furnished in connection with the solicitation of proxies by the Board of
Directors of Ragen MacKenzie Incorporated ("RMI") for use at a Special Meeting
of Shareholders of RMI to be held at 10:00 a.m. Pacific Daylight Time on [day
of meeting], June , 1998 at [location of meeting], and at any adjournment or
postponement thereof (the "Special Meeting"). Only shareholders of record at
the close of business on May , 1998 (the "Record Date") will be entitled to
notice of, and to vote at, the Special Meeting.
At the Special Meeting, shareholders will be asked to approve a
reorganization of RMI and its subsidiaries to be effected pursuant to an
Agreement and Plan of Merger dated as of May , 1998 (the "Merger Agreement"),
by and among RMI, Ragen MacKenzie Group Incorporated, a recently formed
Washington corporation and wholly owned subsidiary of RMI ("Holding Company"),
and RMGI Merger Corp., a recently formed Washington corporation and a wholly
owned subsidiary of Holding Company ("Merger Sub") (such reorganization,
including the Merger (as hereinafter defined), shall be referred to herein as
the "Reorganization"). The Merger Agreement contemplates, among other things,
that Merger Sub will merge with RMI, with RMI as the surviving corporation (the
"Merger"). As a result of the Merger and certain related transactions: (i) RMI
will become a wholly owned subsidiary of Holding Company and (ii) each
outstanding share of common stock, par value $.001 per share, of RMI ("RMI
Stock") (other than shares held by holders who have properly exercised
dissenters' rights under Washington law), (a) originally acquired from RMI
pursuant to the 1990 Stock Purchase Agreement among RMI and five investors will
be converted into one share of Class C common stock, par value $.001 per share,
of Holding Company (the "Class C common stock"), (b) originally acquired from
RMI pursuant to the 1995 Stock Purchase Agreements among RMI and five investors
will be converted into one share of Class D common stock, par value $.001 per
share, of Holding Company (the "Class D common stock"), and (c) otherwise
acquired from RMI will be converted into one share of Class B common stock, par
value $.001 per share, of Holding Company (the "Class B common stock" and,
together with the Class C common stock and the Class D common stock, the
"Reorganization Common Stock"). See "Proposal I: The Reorganization."
At the Special Meeting, shareholders will also be asked to approve a proposal
to direct RMI to elect three additional directors to the Board of Directors of
Holding Company immediately prior to effectiveness of the Reorganization. See
"Proposal II: Election of Directors to Holding Company Board."
This Proxy Statement/Prospectus also serves as the Prospectus of Holding
Company under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the issuance of up to 12,523,441 shares of Reorganization
Common Stock in connection with the Reorganization. Further information
concerning the shares offered hereby is contained in "Proposal I: The
Reorganization--Comparison of Shareholder Rights--Certain Substantive
Differences in Articles of Incorporation and Bylaws" and "--Description of
Holding Company Capital Stock."
-----------
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 PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The principal executive offices of RMI are located at 999 Third Avenue, Suite
4300, Seattle, Washington 98104. The principal executive offices of Holding
Company are located at 999 Third Avenue, Suite 4300, Seattle, Washington 98104.
It is anticipated that this Proxy Statement/Prospectus and the accompanying
proxy will first be sent to shareholders on or about May , 1998.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE REORGANIZATION.
-----------
The date of this Proxy Statement/Prospectus is May , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
FORWARD-LOOKING STATEMENTS................................................ 2
SUMMARY................................................................... 3
RISK FACTORS.............................................................. 11
THE SPECIAL MEETING....................................................... 20
PROPOSAL I: THE REORGANIZATION............................................ 22
Current Corporate Structure............................................. 22
The Reorganization...................................................... 22
Recommendation of the RMI Board; Reasons for the Reorganization......... 23
Exchange of Certificates in the Merger.................................. 23
Material Federal Income Tax Consequences................................ 24
Accounting.............................................................. 24
Merger Agreement........................................................ 25
Holding Company Articles of Incorporation and Bylaws.................... 25
Description of Holding Company Capital Stock............................ 25
Washington Antitakeover Statute......................................... 28
Certain Provisions in Holding Company Articles.......................... 29
Director and Officer Indemnification and Liability...................... 29
Certain Effects of the Reorganization................................... 30
Comparison of Shareholder Rights--Certain Substantive Differences in
Articles of Incorporation and Bylaws................................... 30
Regulatory Matters...................................................... 33
Interests of Certain Persons in the Reorganization...................... 33
Rights of Dissenting Shareholders....................................... 35
Certain Information Regarding Holding Company........................... 36
PROPOSAL II: ELECTION OF DIRECTORS TO HOLDING COMPANY BOARD............... 37
BUSINESS OF THE COMPANY................................................... 38
Company Overview........................................................ 38
Background.............................................................. 38
Business Strategy....................................................... 39
Brokerage Services...................................................... 40
Principal Transactions.................................................. 43
Correspondent Brokerage Services........................................ 44
Investment Banking and Underwriting..................................... 45
Interest Income and Customer Financing.................................. 45
Accounting, Administration and Operations............................... 46
Risk Management......................................................... 47
Competition............................................................. 48
Properties.............................................................. 48
Employees............................................................... 49
Litigation and Potential Securities Law Liability....................... 49
REGULATION................................................................ 50
NET CAPITAL REQUIREMENTS.................................................. 52
SELECTED FINANCIAL DATA................................................... 54
</TABLE>
i
<PAGE>
<TABLE>
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PAGE
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<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 56
Overview................................................................ 56
Death Benefits Plan..................................................... 57
Components of Revenues and Expenses..................................... 58
Effects of Inflation.................................................... 58
Earnings Charges if IPO Consummated..................................... 59
Results of Operations................................................... 60
Liquidity and Capital Resources......................................... 64
Year 2000 Compliance.................................................... 64
Statement of Financial Accounting Standards No. 130 and 131............. 65
MANAGEMENT OF HOLDING COMPANY............................................. 66
Directors, Director Nominees and Executive Officers..................... 66
Director Committees and Compensation.................................... 67
Compensation Committee Interlocks and Insider Participation............. 67
Executive Compensation.................................................. 68
Compensation Plans...................................................... 70
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS.............. 73
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 74
HOLDING COMPANY BENEFICIAL OWNERSHIP...................................... 75
RMI BENEFICIAL OWNERSHIP.................................................. 76
INDEPENDENT AUDITORS...................................................... 77
OTHER BUSINESS............................................................ 77
LEGAL OPINION............................................................. 77
TAX OPINION............................................................... 78
EXPERTS................................................................... 78
FINANCIAL STATEMENTS...................................................... F-1
ANNEX A: AGREEMENT AND PLAN OF MERGER..................................... A-1
ANNEX B: ARTICLES OF INCORPORATION AND BYLAWS OF RAGEN MACKENZIE GROUP
INCORPORATED............................................................. B-1
ANNEX C: CHAPTER 23B.13 OF THE WASHINGTON BUSINESS CORPORATION ACT
(DISSENTERS' RIGHTS)..................................................... C-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Under the rules and regulations of the Securities and Exchange Commission
(the "Commission"), the solicitation of RMI's shareholders to approve the
Reorganization constitutes an offering of Reorganization Common Stock to be
issued in connection therewith. Accordingly, Holding Company has filed a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act with respect to such offering, and this Proxy
Statement/Prospectus constitutes a Prospectus of Holding Company filed as part
of the Registration Statement. This Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement in
connection with the Reorganization described herein, certain of which
information is omitted or permitted by Commission rules. The Registration
Statement, including exhibits, may be inspected or copied at prescribed rates
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact made in this Proxy
Statement/Prospectus or incorporated herein by reference are "forward-looking
statements." In particular, the statements under the headings "Summary," and
those located elsewhere herein regarding industry prospects, Holding Company's
future results of operations or financial position are forward-looking
statements. Forward-looking statements represent management's current
expectations and are inherently uncertain. Investors are warned that Holding
Company's actual results may differ significantly from management's
expectations and, therefore, from the results discussed in such forward-
looking statements. Factors that might cause such differences include, but are
not limited to, those described in "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business
of the Company."
No person has been authorized to give any information or to make any
representations not contained in this Proxy Statement/Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by RMI or Holding Company. This Proxy Statement/Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any jurisdiction to any person to whom it
is unlawful to make such offer or solicitation in such jurisdiction. This
Proxy Statement/Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than those to which it
relates. The delivery of this Proxy Statement/Prospectus at any time does not
imply that the information herein is correct as of any time subsequent to its
date.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Proxy Statement/Prospectus and the
Annexes hereto. Shareholders are urged to read this Proxy Statement/Prospectus
and the Annexes in their entirety. Unless otherwise indicated, all references
herein to the "Company" or "Ragen MacKenzie" refer to RMI, prior to the
Reorganization, and to Holding Company and RMI as its consolidated subsidiary,
after the Reorganization.
Background.................. RMI is a broker-dealer registered with the
Commission and is a member of the New York Stock
Exchange (the "NYSE"). RMI's primary business is
retail securities brokerage, which it conducts
through its Seattle, Washington headquarters and
10 additional offices, including four offices
operated by independent contractors, in
Washington, Oregon and Alaska. Other aspects of
RMI's business include proprietary trading of
certain fixed income securities, institutional
brokerage services and correspondent brokerage
services.
The Holding Company
Reorganization.............. The Board of Directors of RMI (the "RMI Board")
has approved the Reorganization pursuant to
which, subject to shareholder and NYSE approval,
RMI will become a wholly owned subsidiary of
Holding Company. Shareholders who were previously
shareholders of RMI immediately prior to the
Reorganization (other than those who properly
exercise dissenters' rights under Washington law)
will be shareholders of Holding Company
immediately after the Reorganization, and the
business of Holding Company after the
Reorganization will be conducted primarily
through RMI as an operating subsidiary of Holding
Company. As a result of the Merger, each
outstanding share of RMI Stock (other than shares
held by holders who have properly exercised
dissenters' rights under Washington law) (i)
originally acquired from RMI pursuant to the 1990
Stock Purchase Agreement among RMI and five
investors will be converted into one share of
Class C common stock, (ii) originally acquired
from RMI pursuant to the 1995 Stock Purchase
Agreements among RMI and five investors will be
converted into one share of Class D common stock,
and (iii) otherwise acquired from RMI will be
converted into one share of Class B common stock.
See "Proposal I: The Reorganization--The
Reorganization." Each holder of shares of Class
B, C or D common stock immediately after the
Reorganization will be subject to certain
restrictions on transfer and, in the case of
holders of Class B and D common stock, rights of
redemption by Holding Company under the Articles
of Incorporation of Holding Company (the "Holding
Company Articles") that are substantially similar
to restrictions and rights applicable to such
holder as an RMI shareholder immediately prior to
the Reorganization pursuant to certain
shareholder agreements. See "Proposal I: The
Reorganization--Description of Holding Company
Capital Stock" and "--Comparison of Shareholder
Rights--Certain Substantive Differences in
Articles of Incorporation and Bylaws--Shareholder
Agreements Restricting Transfer of Common Stock."
In the event of a "Conversion
3
<PAGE>
Event," which includes a firm commitment
underwritten public offering of common stock,
$.001 par value per share, of Holding Company
(the "Common Stock") that meets certain criteria,
the Class B, C and D common stock will
automatically convert into Common Stock that is
not subject to the restrictions on transfer or
rights of redemption applicable to Class B, C and
D common stock under the Holding Company
Articles. See "Proposal I: The Reorganization--
Description of Holding Company Capital Stock--
Common Stock" and "--Certain Information
Regarding Holding Company" and "Risk Factors--No
Assurance of Initial Public Offering;
Restrictions on Transfers of Stock."
Recommendation of the RMI
Board; Reasons for the
Reorganization.............. The RMI Board has approved the Reorganization,
adopted the Merger Agreement attached hereto on
Annex A and unanimously recommends the approval
of the Reorganization (which includes approval of
the Merger Agreement) by the shareholders of RMI.
In making its decision to recommend the
Reorganization to the shareholders, the RMI Board
considered a number of factors, including (i)
shareholder liquidity and access to capital
markets and (ii) greater flexibility with respect
to future expansion. See "Proposal I: The
Reorganization--Recommendation of the Board;
Reasons for the Reorganization." In addition, the
RMI Board believes that the holding company
structure will facilitate an initial public
offering and the creation of a public market for
the Common Stock. There can be no assurance that
an initial public offering will occur at or after
the Reorganization. See "Risk Factors--No
Assurance of Initial Public Offering;
Restrictions on Transfers of Stock."
Record Date................. Only holders of record of RMI Stock at the close
of business on May , 1998, which has been fixed
as the Record Date, are entitled to notice of,
and to vote at, the Special Meeting.
Quorum; Vote Required....... The presence in person or by proxy of holders
representing a majority of the voting power of
RMI Stock entitled to vote is necessary to
constitute a quorum for the transaction of
business at the Special Meeting. The affirmative
vote of the holders of not less than two-thirds
of the outstanding shares of RMI Stock, present
in person or represented by proxy and entitled to
vote at the Special Meeting, is required to
approve the Reorganization. The affirmative vote
of the holders of not less than a majority of the
outstanding shares of RMI Stock, present in
person or represented by proxy and entitled to
vote at the Special Meeting, is required to
approve the proposal to direct RMI to elect three
additional directors to the Holding Company's
Board of Directors (the "Holding Company Board")
immediately prior to effectiveness of the
Reorganization]. Abstentions and broker nonvotes
will be counted as votes against approval of the
Reorganization and the proposal to direct RMI to
elect three additional directors to the Holding
Company Board. See "The Special Meeting--Quorum;
Vote Required."
4
<PAGE>
Material Federal Income Tax
Consequences................ RMI has received an opinion of Perkins Coie
LLP, counsel to RMI ("Tax Counsel"), to the
effect that it is the opinion of Tax Counsel
that, subject to the assumptions and the
limitations set forth in "Proposal I: The
Reorganization--Material Federal Income Tax
Consequences," the material federal income tax
consequences of the Merger for a holder of RMI
Stock who is a citizen or resident of the United
States are as follows: (i) the Merger will
qualify as an exchange pursuant to Section 351 of
the Internal Revenue Code of 1986, as amended
(the "Code"), (ii) no gain or loss will be
recognized by the holders of RMI Stock as a
result of the conversion of RMI Stock solely for
Reorganization Common Stock pursuant to the
Merger, (iii) the tax basis of the Reorganization
Common Stock received by each such holder
pursuant to the Merger will be the same as the
holder's basis in RMI Stock converted in the
Merger, and (iv) the holding period of such
Reorganization Common Stock will include the
period during which such holder held RMI Stock
converted in the Merger, provided that such RMI
Stock was held as a capital asset on the date of
the exchange.
In rendering such opinion, Tax Counsel has relied
upon certain factual assumptions and upon
representations contained in certificates of RMI.
See "Proposal I: The Reorganization--Material
Federal Income Tax Consequences" for a more
detailed description of the above federal income
tax matters and information with respect to the
applicability of the foregoing to certain
taxpayers subject to special treatment.
Accounting Treatment........ The Merger will be accounted for as if it were a
"pooling of interests" for financial reporting
purposes. As a result, the historical book basis
of RMI's assets and accounting methods will carry
over after consummation of the Merger. See
"Proposal I: The Reorganization--Accounting."
Merger Agreement............ The Merger Agreement has been unanimously adopted
and approved by the Board of Directors of each of
RMI, Holding Company and Merger Sub, and by the
sole shareholder of each of Holding Company and
Merger Sub, and each of such companies has
executed the Merger Agreement. The Merger
Agreement provides, among other things, that (i)
Merger Sub will be merged with RMI, with RMI as
the surviving corporation, and (ii) each share of
RMI Stock outstanding immediately before the
Effective Time (as hereinafter defined) (other
than shares held by holders who have properly
exercised dissenters' rights under Washington
law) (a) originally acquired from RMI pursuant to
the 1990 Stock Purchase Agreement among RMI and
five investors will be converted into one share
of Class C common stock, (b) originally acquired
from RMI pursuant to the 1995 Stock Purchase
Agreements among RMI and five investors will be
converted into one share of Class D common stock,
and (c) otherwise acquired from RMI will be
converted into one share of Class B common
5
<PAGE>
stock. It is a condition precedent to the
Reorganization that holders of no more than 2% of
RMI Stock perfect dissenters' rights, which
condition is waivable by the unilateral action of
the Holding Company Board or the RMI Board.
As a result of the Merger and certain related
transactions, RMI will become a wholly owned
subsidiary of Holding Company.
The Merger Agreement provides that RMI, Holding
Company and Merger Sub may by written agreement
amend the Merger Agreement at any time prior to
the Effective Time and that the Merger Agreement
may be terminated and abandoned at any time by
unilateral action of the RMI Board or the Holding
Company Board. See "Proposal I: The
Reorganization--Merger Agreement."
Directors and Management.... The current directors of Holding Company, Lesa A.
Sroufe, John L. MacKenzie, Robert J. Mortell,
Jr., Mark McClure, will serve as the directors of
Holding Company immediately after the
Reorganization. In addition, the Holding Board
has nominated Kirby L. Cramer, Arthur W.
Harrigan, Jr. and Peter B. Madoff for election to
the Holding Company Board immediately prior to
effectiveness of the Reorganization. See
"Proposal II: Election of Directors to Holding
Company Board." The following current executive
officers of Holding Company will continue to
serve as its executive officers after the
Reorganization: Lesa A. Sroufe, Chairman of the
Board and Chief Executive Officer, Robert J.
Mortell, Jr., President, Chief Operating Officer
and Treasurer, Mark A. McClure, Executive Vice
President, and V. Lawrence Bensussen, Senior Vice
President, Chief Financial Officer and Secretary.
See "Proposal I: The Reorganization--Certain
Information Regarding Holding Company."
Dividend Policy............. Holding Company currently expects to retain all
future earnings to finance the operation and
expansion of its business and does not anticipate
declaring or paying any cash dividends in the
foreseeable future. See "Proposal I: The
Reorganization--Certain Information Regarding
Holding Company--Dividend Policy."
Certain Effects of the
Reorganization.............. Upon consummation of the Merger, in accordance
with the terms of the Merger Agreement, Holding
Company will assume certain obligations and
liabilities of RMI, including RMI's obligations
under the RMI 1989 Stock Option Plan (the "1989
Plan"), the RMI 1993 Stock Option Plan (the "1993
Plan") and the RMI 1996 Stock Incentive
Compensation Plan (the "1996 Plan")
(collectively, the "Assumed Plans") and the RMI
1997 Share Repurchase Plan (the "Share Repurchase
Plan"). A vote in favor of the Reorganization,
including the Merger, will constitute approval of
Holding Company's assumption of RMI's obligations
under the Assumed Plans. As required by certain
shareholder agreements, RMI consents to the
transfer of RMI Stock and its exchange for
Reorganization Common Stock. Upon consummation of
the Merger in accordance with the terms of the
Merger Agreement, these shareholder agreements
will be terminated. See "Proposal I: The
Reorganization--Certain Effects of the
Reorganization."
6
<PAGE>
Certain Substantive
Differences in Articles of
Incorporation and Bylaws.... After the Reorganization, the business and
legal affairs of Holding Company will be governed
by the Holding Company Articles and Holding
Company's Bylaws (the "Holding Company Bylaws")
attached hereto as Annex B. There are certain
differences between the Holding Company Articles
and Bylaws and RMI's Restated Articles of
Incorporation, as amended (the "RMI Articles"),
and Bylaws, as amended (the "RMI Bylaws"), that
will result in changes in the rights of
shareholders if the Merger is consummated.
Shareholders will no longer be subject to
contractual limitations on the transfer of RMI
Stock. Instead, restrictions will be included in
the Holding Company Articles. For holders of
Class B common stock and Class D common stock,
the Holding Company Articles provide that Holding
Company will have (as RMI has had pursuant to
shareholder agreements) a right to redeem a
holder's shares of Class B common stock or Class
D common stock at any time for a price equal to
book value. For Class B common stock, Class C
common stock and Class D common stock, the
Holding Company Articles provide (as have been
provided pursuant to shareholder agreements with
RMI) that no transfer may be made (except, in the
case of Class C and Class D holders, to immediate
family member, certain trusts or by inheritance)
unless an offer is made to Holding Company and
other holders of Reorganization Common Stock
employed by Holding Company or an affiliate, to
acquire the shares at the lower of book value or
the proposed transfer price. No such restrictions
apply to the Common Stock. Other differences
between the charter documents of RMI and those of
Holding Company include differences with respect
to (i) mergers or sales of substantially all of a
corporation's assets, (ii) special and annual
meetings of shareholders, (iii) amendments to the
articles of incorporation, (iv) the creation of
blank check preferred stock, (v) the creation of
a staggered board, and (vi) the elimination of
cumulative voting. See "Proposal I: The
Reorganization--Comparison of Shareholder
Rights--Certain Substantive Differences in
Articles of Incorporation and Bylaws."
Rights of Dissenting
Shareholders................ A record holder of RMI Stock will have the right
to dissent with respect to the Merger and,
subject to certain conditions, will be entitled
to receive a cash payment equal to the fair value
of his or her shares under the Washington
Business Corporation Act (the "WBCA"). Any RMI
shareholder who intends to exercise his or her
dissenter's rights must not vote his or her
shares in favor of the Reorganization and must
satisfy the procedural requirements concerning
dissenters' rights specified in the WBCA, which
is attached hereto as Annex C. See "Proposal I:
The Reorganization--Rights of Dissenting
Shareholders."
Regulatory Matters.......... The business of RMI and Holding Company and the
securities industry in general are subject to
extensive regulation in the United
7
<PAGE>
States. As a consequence, the Reorganization must
be approved by the NYSE. See "Proposal I: The
Reorganization--Regulatory Matters."
Initial Public Offering..... Holding Company plans to file a Registration
Statement on Form S-1 in connection with the
initial public offering of 2,250,000 shares of
its common stock (the "IPO"), to occur at or
after the Effective Time. There can be no
assurance that the IPO will occur. Shareholders
of RMI are cautioned not to rely on the
possibility of the IPO when determining whether
to vote in favor of the Reorganization. See
"Proposal I: The Reorganization--Certain
Information Regarding Holding Company--Initial
Public Offering" and "Risk Factors--No Assurance
of Initial Public Offering; Restrictions on
Transfer of Stock."
Transfer Agent and
Registrar................... The transfer agent and registrar for the Common
Stock will be ChaseMellon Shareholder Services
L.L.C. (the "Transfer Agent").
Election of Directors....... The Holding Company Board has nominated three
additional directors for election to such Board
immediately prior to effectiveness of the
Reorganization. The RMI Board recommends that RMI
shareholders approve a proposal to direct RMI to
elect three additional directors to the Holding
Company Board. See "Proposal II: Election of
Directors to Holding Company Board."
8
<PAGE>
SUMMARY FINANCIAL INFORMATION(1)
<TABLE>
<CAPTION>
SIX-MONTH
FISCAL YEAR ENDED PERIOD ENDED
--------------------------------------- -------------------
SEPT. SEPT. SEPT. SEPT. SEPT.
24, 30, 29, 27, 26, MARCH 28, MARCH 27,
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT 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 17,315
------- ------- ------- ------- ------- ------- -------
Total revenues.......... 46,774 53,817 62,401 79,821 88,581 41,979 51,082
Interest expense........ 4,876 6,978 13,052 16,230 19,694 9,138 11,104
------- ------- ------- ------- ------- ------- -------
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
======= ======= ======= ======= ======= ======= =======
Basic earnings per
share(5)............... $ 0.68 $ 0.79 $ 0.73 $ 1.10 $ 1.54 $ 0.91 $ 0.70
Diluted earnings per
share(5)............... 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).............. 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)
--------- --------------
BALANCE SHEETS DATA:
<S> <C> <C>
Total assets........................................... $ 697,314 $
Long-term borrowings................................... --
Stockholders' equity................................... 79,882
Book value per common share outstanding(9)............. 7.40
</TABLE>
9
<PAGE>
- --------
(1) RMI 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 variable-award,
book-value-based stock option 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. If the IPO is consummated, the existing option plans
will become fixed-award, fair-market-value-based plans and Holding Company
will make future stock option grants pursuant to a newly formed fixed-
award stock option plan that will generally provide for grants at market
value as determined by reference to the trading price of Holding Company's
shares. Accordingly, future changes in the market value of the Common
Stock will generally not result in ongoing, mark-to-market 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 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.
If the IPO is consummated, RMI intends to terminate the Share Repurchase
Plan.
(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 RMI 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 RMI recorded a
pretax nonrecurring benefit of $5,000,000, which reflects the reversal of
the amount previously accrued for plan benefits. RMI 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 requires selling shareholders to offer their shares to the Company at
book value at the date of tender.
(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,
assuming the IPO is consummated after the Reorganization, will be recorded
in the quarter that the IPO is consummated, assuming an estimated initial
public offering price of $ per share: (i) $ in
compensation-related stock option expense arising from recognition of the
difference between the estimated market value of the Common Stock, based
on the estimated initial public offering price, and the book value of the
Common Stock immediately preceding the IPO, for all variable-award, book-
value-based stock options outstanding on the date of consummation of the
IPO, resulting from conversion of the Assumed Plans from variable-award,
book-value-based plans to fixed-award, market-value-based plans, (ii)
$ 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 estimated initial public offering price, and the book
value of the Common Stock immediately preceding the IPO, for all book-
value-based Repurchase SARs outstanding on the date of consummation of the
IPO, and (iii) the sale of shares of Common Stock in the IPO 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 RMI Stock outstanding as
of March 27, 1998, or as described in footnote 8 above.
10
<PAGE>
RISK FACTORS
This Proxy Statement/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 Proxy
Statement/Prospectus. Shareholders of RMI should carefully review the
information contained elsewhere in this Proxy Statement/Prospectus and should
particularly consider the information stated below. See "Forward-Looking
Statements." The following risks apply to RMI currently and will apply to
Holding Company and its consolidated subsidiary following the Reorganization,
except "--No Assurance of Initial Public Offering; Restrictions on Transfers
of Stock," "--Holding Company Structure; Risks of Regulated Subsidiary" and
"--Antitakeover Considerations," which refer to risks relating solely to
ownership of Holding Company stock following the Reorganization. Unless
otherwise indicated, all references herein to the "Company" or "Ragen
MacKenzie" refer to RMI, prior to the Reorganization, and to Holding Company
and RMI as its consolidated subsidiary, after the Reorganization.
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. Any one or more
of these factors may contribute to declines in the volume of securities
transactions and in market liquidity, which generally will 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.
Several current trends are also affecting the securities industry, including
increasing consolidation, increased use of technology, increasing use of
discount and online electronic brokerage services, and greater self-reliance
of individual investors and greater investment in mutual funds. 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.
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 and adversely affect the Company's results of operations or cash
flows.
The Company believes 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 research
analysts and highly-productive sales and trading professionals. The Company
believes that continuing
11
<PAGE>
competition may cause its compensation costs to increase. The failure to
retain and recruit new employees in a timely manner could materially and
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. If the IPO is consummated, the value of stock
options granted by the Company will be tied to the market value of the Common
Stock, which may fluctuate for reasons unrelated to the Company's performance.
There can be no assurance that the incentive compensation offered by the
Company after an IPO 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-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, RMI Stock held by employees, which has accounted in part for the
Company's low historic turnover rate. Although the Holding Company Articles
provide for Holding Company to have the right to repurchase, at book value,
Class B and Class D common stock, as well as a right of first refusal with
respect to Class B, Class C and Class D common stock, these restrictions on
transfer will be eliminated upon the closing of an initial public offering
meeting certain criteria. Termination of the Company's repurchase rights, and
increased liquidity for employees' shares of Common Stock if an initial public
offering is consummated, 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; ARRANGEMENT WITH BROOKS G. RAGEN
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; Lesa A. Sroufe has been Chief Executive Officer of the Company
since February 1998. Any disruption in the Company's operation as a result of
these changes could have a material adverse effect on the Company's business,
financial condition and results of operations. 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.
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 an agreement pursuant to
which he intends to establish and be employed by a newly formed corporation
that will serve as a clearing customer of RMI. See "Certain Relationships and
Related Transactions." 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
12
<PAGE>
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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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.
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, 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
13
<PAGE>
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 of the Company--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 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 RMI's competitors also
engage in advertising programs, which RMI 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 and results of
operations. 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.
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 National Association of Securities Dealers, Inc. ("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 of the Company--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
14
<PAGE>
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 of the Company--Principal
Transactions--Proprietary Trading."
RISKS ASSOCIATED WITH CLEARING OPERATIONS AND 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 all back-office operations, including the execution and clearance
of all trades. RMI does not supervise the sales practices of introducing
brokers and depends on the introducing brokers to comply with all applicable
requirements governing the relationship between brokers and their customers.
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 as customers of the Company. 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 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 and results of
operations. 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 expenses associated with correspondent brokerage services are generally
fixed, and therefore any loss of revenues associated with these services may
have a disproportionate impact 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.
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
15
<PAGE>
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 and parties to the borrowing transactions
fail to honor their commitments. See "Business of the Company--Interest Income
and Customer Financing."
REGULATION; NYSE INSPECTION
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 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.
The Company is subject to periodic examination by the Commission, the SROs
and various state authorities. The Company's sales practice operations,
record-keeping, supervisory procedures and financial position may be reviewed
during such examinations to determine if they comply with the rules and
regulations designed to protect customers and ensure the solvency of broker-
dealers. Examinations may result in the issuance of a letter to the Company
noting perceived deficiencies and requesting the Company 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 the Company and/or its personnel. Sanctions
against the Company may include a censure, cease and desist order, monetary
penalties or an order suspending the Company 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 the Company. In egregious cases, the Company
or its personnel could be expelled from an SRO or barred from the securities
industry. The Company 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 the
Company 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."
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
16
<PAGE>
that the Division, 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, cash flows or timing of the proposed IPO. 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 the Company 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. 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 of the Company--
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; YEAR 2000 COMPLIANCE
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. Such failures and interruptions 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
17
<PAGE>
respect to systems that are non-Year 2000 compliant and intends for such
actions to be 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
and 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 such systems failure or interruption, 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.
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. These Net Capital Requirement Rules could
also restrict the ability of Holding 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 Holding 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
The Company 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 adverse effect on the Company's business,
financial condition and results of operations. See "Business of the Company--
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
53.1% and 95.4%, respectively, of the outstanding shares of Reorganization
Common Stock immediately after the Reorganization, assuming the Reorganization
occurs prior
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<PAGE>
to an IPO. 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 veto power with respect to
shareholder action or approval 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 of Holding Company."
NO ASSURANCE OF INITIAL PUBLIC OFFERING; RESTRICTIONS ON TRANSFERS OF STOCK
Although Holding Company is actively pursuing an initial public offering,
and has filed a registration statement with the Commission, there can be no
assurance such an initial public offering will occur. Factors that could
postpone or prevent an initial public offering include, by way of example,
conditions of the public equity market, RMI's results of operations, market
perception of Holding Company and RMI, and other factors. If an initial public
offering does not occur, the holders of Reorganization Common Stock will
continue to have illiquid shares and the Class B, Class C and Class D common
stock will continue to be subject to significant restrictions. These
restrictions include a right of Holding Company to redeem Class B and Class D
common stock for book value. Restrictions also include a right of first
refusal, at a price equal to the lower of book value or the proposed transfer
price, in respect of Class B, Class C and Class D common stock. See "Proposal
I: The Reorganization--Description of Holding Company Common Stock."
HOLDING COMPANY STRUCTURE; RISKS OF REGULATED SUBSIDIARY
Immediately after the Reorganization, substantially all of the Company's
revenues will be generated by RMI. Holding Company, 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. Holding Company's ability to receive distributions
from RMI may be limited by the Net Capital 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 Holding Company from paying dividends,
implementing its strategies or repurchasing shares of its capital stock.
ANTITAKEOVER CONSIDERATIONS
The Holding Company Board has the authority to issue up to 10,000,000 shares
of Preferred Stock, $.001 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 Holding Company'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 the Holding Company 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 the Holding Company, even if shareholders acquiring shares in the
Reorganization 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 the
Holding Company. See "Proposal I: The Reorganization--Description of Holding
Company Capital Stock."
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<PAGE>
THE SPECIAL MEETING
PURPOSE
The Special Meeting will be held at 10:00 a.m. Pacific Daylight Time on [day
of meeting], June , 1998, at [name of location of meeting and address], or
at any postponement or adjournment thereof, to consider and vote on (i) the
Reorganization and (ii) a proposal to direct RMI to elect three additional
directors to the Holding Company Board immediately prior to effectiveness of
the Reorganization.
BOARD RECOMMENDATION
THE RMI BOARD HAS DETERMINED THAT THE REORGANIZATION AND THE MERGER ARE
ADVISABLE AND IN THE BEST INTERESTS OF RMI AND RMI'S SHAREHOLDERS AND HAS
APPROVED THE REORGANIZATION PURSUANT TO THE TERMS OF THE MERGER AGREEMENT. THE
RMI BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
REORGANIZATION (WHICH INCLUDES APPROVAL OF THE MERGER AGREEMENT) AT THE
SPECIAL MEETING AND "FOR" APPROVAL OF THE PROPOSAL TO DIRECT RMI TO ELECT
THREE ADDITIONAL DIRECTORS TO THE HOLDING COMPANY BOARD IMMEDIATELY PRIOR TO
EFFECTIVENESS OF THE REORGANIZATION.
RECORD DATE; VOTING RIGHTS
Only holders of record of RMI Stock at the close of business on May ,
1998, which has been fixed as the Record Date, are entitled to notice of and
to vote at the Special Meeting. At the close on business on the Record Date,
shares of RMI Stock were outstanding, each of which entitles the
registered holder thereof to one vote.
QUORUM; VOTE REQUIRED
The presence in person or by proxy of holders representing a majority of the
voting power of RMI Stock entitled to vote is necessary to constitute a quorum
for the transaction of business at the Special Meeting. The affirmative vote
of the holders of not less than two-thirds of the outstanding shares of RMI
Stock, present in person or represented by proxy and entitled to vote at the
Special Meeting, is required to approve the Reorganization. The affirmative
vote of the holders of not less than a majority of the outstanding shares of
RMI Stock, present in person or represented by proxy and entitled to vote at
the Special Meeting, is required to approve the proposal to direct RMI to
elect three additional directors to the Holding Company Board immediately
prior to effectiveness of the Reorganization.
An abstention with respect to approval of the Reorganization will be counted
for purposes of establishing a quorum, but will have the effect of a vote cast
against approval of the Reorganization and the proposal to direct RMI to elect
three additional directors to the Holding Company Board.
PROXIES
RMI Stock represented by properly executed proxies received at or before the
Special Meeting that have not been revoked will be voted at the Special
Meeting in accordance with the instructions contained therein. RMI Stock
represented by properly executed proxies for which no instruction is given
will be voted "FOR" approval of the Reorganization and "FOR" approval of the
proposal to direct RMI to elect three additional directors to the Holding
Company Board. RMI's shareholders are requested to complete, sign, date and
return promptly the enclosed proxy card in the postage-prepaid envelope
provided for this purpose to ensure that their shares are voted. A shareholder
may revoke a proxy at any time before it is voted by signing and returning a
later-dated
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<PAGE>
proxy with respect to the same shares, by filing with the Secretary of RMI a
written revocation bearing a later date or by attending and voting in person
at the Special Meeting. Mere attendance at the Special Meeting will not in and
of itself revoke a proxy.
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies (except for any
proxies that have theretofore effectively been revoked or withdrawn) will be
voted in the same manner as such proxies would have been voted at the original
convening of the Special Meeting, notwithstanding that such proxies may have
been effectively voted on the same or any other matter at a previous meeting.
RMI will bear the cost of soliciting proxies from its shareholders. In
addition to solicitation by mail, directors, officers and employees of RMI may
solicit proxies by telephone, telegram or otherwise. Such directors, officers
and employees of RMI will not receive additional compensation for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. The Company may retain a proxy solicitor to assist it in
soliciting proxies in connection with the Special Meeting.
SHAREHOLDERS AGREEMENTS; RMI GRANTS PRIOR WRITTEN CONSENT
Each holder of RMI Stock has an obligation to make an offer to RMI prior to
transferring RMI Stock without the prior written consent of RMI. As a result
of the Reorganization and Merger, each share of RMI Stock (other than shares
held by holders who have properly exercised dissenters' rights under
Washington Law) will be converted into one share of Reorganization Common
Stock, and Holding Company will own 100% of the capital stock of RMI. RMI
hereby consents in writing to each holder of RMI Stock to vote in favor of,
and take such steps as may be necessary to consummate, the Reorganization and
Merger, notwithstanding the fact that the Merger results in a transfer of
ownership of RMI from current holders of RMI Stock to Holding Company.
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<PAGE>
PROPOSAL I:
THE REORGANIZATION
CURRENT CORPORATE STRUCTURE
RMI recently organized two direct or indirect wholly owned subsidiaries in
anticipation of the holding company restructure: (i) Holding Company, a wholly
owned subsidiary of RMI and (ii) Merger Sub, a wholly owned subsidiary of
Holding Company. Each of Holding Company and Merger Sub was created solely for
the purpose of implementing the Reorganization, and neither of such
corporations has conducted any business. See "--Certain Effects of the
Reorganization."
The current corporate structure of RMI and its subsidiaries that were formed
for the purpose of implementing the Reorganization is as follows:
Ragen MacKenzie
Incorporated
("RMI")
-----------------
Ragen MacKenzie
Group
Incorporated
("Holding
Company")
-----------------
RMGI Merger
Corp.
("Merger Sub")
-----------------
THE REORGANIZATION
RMI, Holding Company and Merger Sub have entered into the Merger Agreement
pursuant to which (subject to approval by RMI's shareholders and the NYSE)
Merger Sub will merge with RMI, with RMI as the surviving corporation.
Pursuant to the terms of the Merger, each share of RMI Stock outstanding
immediately prior to the Effective Time (other than shares held by holders who
have properly exercised dissenters' rights under Washington law) (i)
originally acquired from RMI pursuant to the 1990 Stock Purchase Agreement
among RMI and five investors will be converted into one share of Class C
common stock, (ii) originally acquired from RMI pursuant to the 1995 Stock
Purchase Agreements among RMI and five investors will be converted into one
share of Class D common stock, and (iii) otherwise acquired from RMI will
automatically be converted into one share of Class B common stock. A copy of
the Merger Agreement is attached as Annex A to this Proxy
Statement/Prospectus. Immediately following the Merger, RMI will transfer to
Holding Company all the outstanding shares of RMI. As a result of the
Reorganization, RMI will become a wholly owned subsidiary of Holding Company.
Following the Reorganization, Holding Company's operations will be conducted
primarily through RMI as the operating subsidiary of Holding Company.
The Merger Agreement contemplates that the Merger will become effective, and
all other steps in the Reorganization will be completed, after the required
shareholder and regulatory approvals have been received (such effective time
of the Merger, the "Effective Time"), unless the RMI Board or the Holding
Company Board heretofore has elected to abandon such plan.
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<PAGE>
The corporate structure resulting from the Reorganization will be as
follows:
Ragen MacKenzie
Group
Incorporated
("Holding
Company")
-----------------
Ragen MacKenzie
Incorporated
("RMI")
-----------------
RECOMMENDATION OF THE RMI BOARD; REASONS FOR THE REORGANIZATION
The RMI Board has adopted the Merger Agreement and unanimously recommends
approval of the Reorganization (which includes approval of the Merger
Agreement) by the shareholders of RMI. The RMI Board and management believe
that the Reorganization is in the best interests of RMI and its shareholders.
In making its decision to recommend the Reorganization to shareholders, the
RMI Board considered a number of factors, including, without limitation, the
following:
Flexible Financing Opportunities/Public Market. The RMI Board believes that
the holding company structure will broaden the alternatives for future
financing, allowing for (i) access to capital markets, (ii) the possibility of
separate financings at subsidiary levels, and (iii) the financing of future
acquisitions through Holding Company directly. In addition, the RMI Board
believes that the holding company structure will facilitate an IPO after the
consummation of the Reorganization and the creation of a public market for the
Common Stock of Holding Company. There can be no assurance that an IPO will
occur at or after the Effective Time. See "Risk Factors--No Assurance of
Initial Public Offering; Restrictions on Transfers of Stock."
Flexibility for Business Operations and Management. The RMI Board also
believes that the Reorganization will provide flexibility for both the
business operations and management of RMI and Holding Company within the
resulting corporate structure, which structure the RMI Board believes will
facilitate control of the Company's growth strategy. In particular, a holding
company structure will facilitate the creation of separate subsidiaries and
the allocation of business functions among subsidiaries so that the Company
can maximize economic efficiencies, take advantage of business opportunities
as they develop and structure its lines of business to attain increased
regulatory flexibility and efficiency.
EXCHANGE OF CERTIFICATES IN THE MERGER
Promptly after the Effective Time, the Transfer Agent will mail a
transmittal form and instructions to each holder of record of certificates
that immediately prior to the Effective Time represented outstanding shares of
RMI Stock (the "Certificates"), which form and instructions are to be used in
forwarding the Certificates for surrender and exchange for certificates
representing that number of whole shares of Reorganization Common Stock that
such holder has the right to receive pursuant to the Merger. RMI shareholders
are requested not to surrender their Certificates for exchange until such
transmittal form and instructions are received. At and after the Effective
Time and until surrendered as provided above, Certificates will be deemed to
represent the right to receive certificates representing that number of whole
shares of Reorganization Common Stock into which the shares of RMI Stock
formerly represented by such Certificates were converted in the Merger and a
cash payment in lieu of any fractional shares. The holders of Certificates
will not be entitled to receive dividends or other distributions from Holding
Company until such Certificates are so surrendered. Upon surrender of a
Certificate, there shall be paid to the person in whose name such shares of
Reorganization Common Stock are issued any dividends or other distributions
that have a record date after the Effective Time and that became payable prior
to surrender with respect to such shares of Reorganization Common Stock. After
such surrender, there shall be paid
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<PAGE>
to the person in whose name the Reorganization Common Stock is issued any
dividends or other distributions on such shares that have a record date after
the Effective Time and prior to such surrender and a payment date after such
surrender, and such payment will be made on the payment date. In no event
shall the persons entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth the opinion of Tax Counsel as to the
material U.S. federal income tax consequences of the Reorganization for
holders of RMI Stock. This discussion does not address all aspects of federal
income taxation that may be relevant to holders of RMI Stock in light of their
particular tax circumstances or who are subject to special treatment under the
Code, including, without limitation, holders who are not citizens or residents
of the United States, dealers in securities, holders in whose hands the RMI
Stock is not a capital asset, banks, insurance companies, tax-exempt entities
and holders of shares subject to restrictions tied to employment. Furthermore,
the tax consequences to holders of stock options or other rights to acquire
RMI Stock are not discussed. Finally, this discussion does not address any
state, local or foreign tax considerations.
This discussion is based on the Code, Treasury Regulations thereunder and
the administrative rulings and court decisions as of the date hereof. All the
foregoing are subject to change, and any such change could affect the
continuing validity of this discussion. No ruling has been requested from the
Internal Revenue Service (the "IRS") with respect to the tax consequences of
the Reorganization, and there can be no assurance that the IRS will not
disagree with the conclusion and analysis set forth herein. Holders of RMI
Stock are urged to consult with their own tax advisors regarding the federal
income tax consequences of the Reorganization to them based on their
particular tax circumstances, as well as the effects of state, local and
foreign law.
Tax Counsel's opinion assumes that the Reorganization will take place as
described in the Merger Agreement, that certain factual matters represented by
RMI are true and correct, and that RMI will reconfirm such factual matters as
of the Effective Time. Based on these assumptions, and subject to the other
limitations discussed above, it is the opinion of Tax Counsel that the
following are the material federal income tax consequences of the
Reorganization to a holder of RMI Stock:
(i) the Merger will qualify as an exchange under Section 351(a) of the
Code,
(ii) no gain or loss will be recognized by the holders of RMI Stock
solely as a result of the conversion of RMI Stock solely for Reorganization
Common Stock pursuant to the Merger,
(iii) the tax basis of the Reorganization Common Stock received by each
holder pursuant to the Merger will be the same as the holder's basis in RMI
Stock converted in the Merger, and
(iv) the holding period of such Reorganization Common Stock will include
the period during which such holder held RMI Stock converted in the Merger.
A successful IRS challenge to the qualification of the Merger as an exchange
under Section 351 of the Code may result in a holder of RMI Stock recognizing
gain or loss with respect to each share of RMI Stock surrendered equal to the
difference between the holder's basis in such share and the fair market value,
as of the Effective Time, of the Reorganization Common Stock received in
exchange by each holder pursuant to the Merger. In such event, a shareholder's
aggregate basis in the Reorganization Common Stock would equal such fair
market value and his or her holding period for such stock would begin the day
after the Effective Time.
ACCOUNTING
The Merger will be accounted for as if it were a "pooling of interests" for
financial reporting purposes. As a result, the historical book basis of RMI's
assets and accounting methods will carry over after consummation of the
Reorganization.
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MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached hereto as Annex A and incorporated
herein by reference. The following summary is qualified in its entirety by
reference to the complete text of the Merger Agreement, which provides, among
other things, that:
(i) Merger Sub will be merged with RMI, with RMI as the surviving
corporation;
(ii) each share of RMI Stock outstanding immediately prior to the
Effective Time (other than shares held by holders who have properly
exercised dissenters' rights under Washington law) (a) if originally
acquired from RMI pursuant to the 1990 Stock Purchase Agreement among RMI
and five investors, will be converted into one share of Class C common
stock (b) if originally acquired for RMI pursuant to the 1995 Stock
Purchase Agreements among RMI and five investors, will be converted into
one share of Class D Common Stock, and (c) if otherwise acquired from RMI,
will be automatically converted into one share of Class B common stock; and
(iii) the Common Stock presently held by RMI will be canceled.
As a result of the Merger, RMI will become a wholly owned subsidiary of
Holding Company and all the Reorganization Common Stock outstanding
immediately after the Merger will be owned by the holders of RMI Stock
outstanding immediately prior to the Effective Time.
The Merger Agreement provides that RMI, Holding Company and Merger Sub may
by written agreement amend the Merger Agreement at any time prior the
Effective Time, and that the Merger Agreement may be terminated and abandoned
at any time by unilateral action of the RMI Board or the Holding Company
Board. A further condition to closing is that no more than 2% of RMI's
shareholders perfect dissenters' right in connection with the Reorganization,
which condition is waivable by the unilateral action of the Holding Company
Board or the RMI Board.
HOLDING COMPANY ARTICLES OF INCORPORATION AND BYLAWS
The Holding Company Articles and Bylaws, copies of which are attached as
Annex B hereto, are significantly different from the RMI Articles and Bylaws.
Such changes will impact the rights of holders of Common Stock. See "--
Comparison of Shareholder Rights--Certain Substantive Differences in Articles
of Incorporation and Bylaws."
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK
The following summary of the capital stock of Holding Company is qualified
in its entirety by reference to the complete text of the Holding Company
Articles, a copy of which is attached as Annex B hereto.
The authorized capital stock of Holding Company consists of 60,000,000
shares, of which 50,000,000 shares are designated as common stock, par value
$.001 per share (the "New Common Stock"), and 10,000,000 shares of Preferred
Stock. The New Common Stock is subject to the rights and preferences of the
Preferred Stock.
COMMON STOCK
As of April 16, 1998, the Common Stock was held of record by RMI and a total
of 100 shares were outstanding or committed for issuance. In addition, no
options to purchase shares of Common Stock were outstanding.
Of the 50,000,000 shares of New Common Stock, 30,000,000 shares have been
designated as "Common Stock," without further designation, 19,000,000 shares
have been designated as "Class B common stock," 500,000 shares have been
designated as "Class C common stock" and 500,000 shares have been designated
as "Class D common stock." The powers, rights and preferences of the Common
Stock, Class B common stock, Class C common stock and Class D common stock are
described below. Each share of Common Stock, Class B common stock, Class C
common stock and Class D common stock entitles the holder to one vote.
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Each of the Class B common stock, the Class C common stock and the Class D
common stock is convertible into Common Stock upon a "Conversion Event," which
is defined as any of the following:
(i) immediately prior to such time as Holding Company shall close a firm
commitment underwritten public offering of shares of Common Stock in which
the aggregate gross proceeds from such offering to Holding Company and any
selling shareholders shall be at least $15,000,000; or
(ii) the determination by the Holding Company Board, which determination
may be made on a class-by-class basis, that the conversion of Class B
common stock, Class C common stock or Class D common stock into shares of
Common Stock is in the best interests of Holding Company. Such
determination, if made, with respect to one or more, but fewer than all,
classes shall apply only to the designated class and shall not constitute a
"Conversion Event" with respect to other classes; or
(iii) the Holding Company Board and shareholders of Holding Company vote,
as required by law, for the merger or consolidation of Holding Company with
any unaffiliated corporation, or for the sale of all or substantially all
the assets of Holding Company, or for its liquidation; or
(iv) the holders of two-thirds of the then-outstanding shares of New
Common Stock (which includes the Common Stock, Class B common stock, Class
C common stock and Class D common stock) of Holding Company agree in
writing to such conversion.
In the event of conversion, each outstanding share of Class B common stock,
Class C common stock or Class D common stock shall automatically convert into
one share of Common Stock.
The Holding Company Articles provide for restrictions on transfer of the
Class B common stock, the Class C common stock and Class D common stock. The
Common Stock has no restrictions with respect to its transfer, except as
otherwise required by law, including federal and state securities laws.
Class B common stock has two significant restrictions. These restrictions
are similar to those set forth in the subscription agreements or shareholder
agreements pursuant to which employees of RMI acquired their shares. See "--
Comparison of Shareholder Rights--Certain Substantive Differences in Articles
of Incorporation and Bylaws." First, the Class B common stock may not be
transferred, encumbered or otherwise disposed of without the prior written
consent of Holding Company, unless each holder has made an offer to sell those
shares (an "Offer") to Holding Company, and the Offer has not been accepted.
The Offer must be made to Holding Company, and to all holders of New Common
Stock who are employees, officers or directors of Holding Company, or its
affiliates. The Offer must consist of a written offer to transfer all such
shares, with details of the proposed transfer terms. If the Offer is not
accepted by Holding Company within 30 days, the other holders to whom the
Offer was made may, at their election, choose to acquire the shares within 30
days of their receipt of the Offer. The purchase price for the offered shares
shall be the lower of the proposed transfer price, or book value of the Class
B common stock. If the Offer is accepted by none of Holding Company or by
other recipients to the Offer, the transfer may be made only in accordance
with the terms set forth in the Offer, and then within 30 days of the
expiration of time provided for acceptance of the Offer. A death, disposition
by marital dissolution or divorce, bankruptcy, termination of employment with
Holding Company, or termination of employment with an affiliate of Holding
Company, shall each be deemed a proposed transfer, subject to the right of
first offer. The Holding Company Articles, like the relevant shareholder
agreement, provide for specific performance of the transfer restrictions.
The second principal restriction to which the Class B common stock is
subject is a right of redemption at book value at the request of Holding
Company. Holding Company has no obligation to affect the redemption on a pro
rata or other equitable basis among holders of Class B common stock. Notice of
redemption shall be provided by registered or certified mail at least 10 days
prior to the date fixed for redemption.
Restrictions on the Class C common stock are generally similar to those of
the Class B common stock, with two principal exceptions. Similar to Class B
common stock, the Class C common stock may not be transferred, encumbered or
otherwise disposed of without the prior written consent of Holding Company,
unless each holder has made an Offer to Holding Company and the Offer has not
been accepted. The Offer must be made to Holding
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Company, and to all holders of New Common Stock who are employees, officers or
directors of Holding Company, or its affiliates. The Offer must consist of a
written offer to transfer all such shares, with details of the proposed
transfer terms. If the Offer is not accepted by Holding Company within 30
days, the other holders to whom the Offer was made may, at their election,
choose to acquire the shares within 30 days of their receipt of the Offer. The
purchase price for the offered shares shall be the lower of the proposed
transfer price or book value of the Class C common stock. If the Offer is
accepted by none of Holding Company or by other recipients to the Offer, the
transfer may be made only in accordance with the terms set forth in the Offer,
and then within 30 days of the expiration of time provided for acceptance of
the Offer. A death, disposition by marital dissolution or divorce, bankruptcy,
termination of employment with Holding Company, or termination of employment
with an affiliate of Holding Company, shall each be deemed a proposed
transfer, subject to the right of first offer.
Holders of Class C common stock may transfer the Class C common stock to
immediate family members or trusts (the beneficiaries of which include only
the holder of the Class C common stock and immediate family members) or by
will or intestate succession. Holders of Class B common stock do not have this
right of intrafamily transfer. Any person to whom the Class C common stock is
transferred in this manner takes the Class C common stock subject to all
restrictions set forth in the Holding Company Articles, and the Holding
Company is entitled to require such persons to sign an acknowledgment thereof
prior to effecting the transfer.
The Holding Company does not have a right of redemption of the Class C
common stock.
Restrictions on the Class D common stock are generally similar to those of
the Class C common stock, with one principal exception. Similar to Class B and
Class C common stock, the Class D common stock may not be transferred,
encumbered or otherwise disposed of without the prior written consent of
Holding Company, unless each holder has made an Offer to Holding Company and
the Offer has not been accepted. The Offer must be made to Holding Company,
and to all holders of New Common Stock who are employees, officers or
directors of Holding Company, or its affiliates. The Offer must consist of a
written offer to transfer all such shares, with details of the proposed
transfer terms. If the Offer is not accepted by Holding Company within
30 days, the other holders to whom the Offer was made may, at their election,
choose to acquire the shares within 30 days of their receipt of the Offer. The
purchase price for the offered shares shall be the lower of the proposed
transfer price or book value of the Class D common stock. If the Offer is
accepted by none of Holding Company or by other recipients to the Offer, the
transfer may be made only in accordance with the terms set forth in the Offer,
and then within 30 days of the expiration of time provided for acceptance of
the Offer. A death, disposition by marital dissolution or divorce, bankruptcy,
termination of employment with Holding Company, or termination of employment
with an affiliate of Holding Company, shall each be deemed a proposed
transfer, subject to the right of first offer. The Holding Company Articles,
like the 1995 Stock Purchase Agreements, provide for specific performance of
the transfer restrictions.
Holders of Class D common stock, like holders of Class C common stock, may
transfer the Class D common stock to immediate family members or trusts (the
beneficiaries of which include only the holder of Class D common stock and
immediate family members) or by will or intestate succession. Holders of Class
B common stock do not have this right of intrafamily transfer. Any person to
whom the Class D common stock is transferred in this manner takes the Class D
common stock subject to all the restrictions set forth in the Holding Company
Articles, and the Holding Company is entitled to require such persons to sign
an acknowledgement thereof prior to effecting the transfer.
The second principal restriction to which the Class D common stock is
subject is a right of redemption at the request of Holding Company. As for
Class B common stock, but not for Class C common stock, Holding Company may
redeem Class D common stock at book value. Holding Company has no obligation
to affect the redemption on a pro rata or other equitable basis among holders
of Class D common stock. Notice of redemption shall be provided by registered
or certified mail at least 10 days prior to the date filed for redemption.
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
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the Holding Company Board out of funds legally available therefor. Holding
Company does not intend to pay dividends on the Common Stock for the
foreseeable future. See "--Certain Information Regarding Holding Company--
Dividend Policy." In the event of a liquidation, dissolution or winding up of
Holding Company, holders of Common Stock are entitled to share ratably in all
assets remaining after payment of Holding 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 Holding
Company may designate and issue in the future.
PREFERRED STOCK
The Holding Company 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 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 Holding 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 Holding Company Board and stated in
the resolutions providing for the issuance of those shares. The Holding
Company Board shall have the authority to fix and to 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 New Common Stock
dividends if Preferred Stock dividends have not been paid, (ii) dilute the
voting power and equity interest of holders of New Common Stock to the extent
that any series of Preferred Stock has voting rights or is convertible into
New Common Stock, or (iii) prevent current holders of New Common Stock from
participating in Holding 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 Holding 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 Holding Company Articles or any reorganization, consolidation
or merger (or other similar transaction involving Holding Company). As a
result, if there is a market for the New Common Stock by reason of an IPO or
otherwise, the issuance of the Preferred Stock may discourage bids for the New
Common Stock at a premium over the market price therefor and could have a
material adverse effect on the market value of the New Common Stock. The
Holding Company 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 a company
(a "Reporting Company") with a class of securities registered under Section 15
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus is a part, Holding Company will be a Reporting Company.
Chapter 23B.19 of the WBCA prohibits a Reporting 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 such
Reporting Company's voting securities without the prior approval of such
Reporting Company's board of directors) 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, such
Reporting 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. A Reporting 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 a Reporting
Company.
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CERTAIN PROVISIONS IN HOLDING COMPANY ARTICLES
The Holding Company Bylaws permit the Holding Company Board to establish by
resolution the authorized number of directors, which shall not be less than
three or more than 15. The Holding Company Articles provide that the Holding
Company Board shall be divided into two classes at the first election of
directors after the first primary public offering of equity securities by
Holding Company pursuant to a registration statement filed under the
Securities Act. At the first election of Holding Company 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 the shareholders. At each annual meeting of shareholders
following the meeting at which the Holding Company 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 Holding Company
and may maintain the incumbency of the Holding Company 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 to be cast. The Holding Company
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 Holding 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 Holding Company 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 Holding Company 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 Holding Company
Articles also provide that changes to certain provisions of the Holding
Company Articles, including those regarding amendment of certain provisions of
the Holding Company 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.
These provisions may have the effect of delaying, deterring or preventing a
change in control of Holding Company.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Holding Company Articles include a provision that limits the liability
of Holding 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 Holding Company or its
shareholders for monetary damages resulting from such person's conduct as a
director of Holding Company. Amendments to the Holding Company Articles may
not adversely affect any right of a director of Holding Company with respect
to acts or omissions occurring prior to such amendment. Section 23B.08.320 of
the WBCA provides that the Holding Company 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 Holding Company of its officers and
directors. The Holding Company Bylaws implement this indemnification to the
fullest extent permitted by law. Insofar as
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the indemnity for liabilities arising under the Securities Act may be
permitted to directors or officers of Holding Company pursuant to the
foregoing provisions, Holding 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.
CERTAIN EFFECTS OF THE REORGANIZATION
In accordance with the terms of the Merger Agreement, upon consummation of
the Reorganization (i) Holding Company will assume certain obligations and
liabilities of RMI, including RMI's obligations under the Share Repurchase
Plan and the Assumed Plans, including each outstanding option, and each
outstanding agreement to grant an option, to purchase or acquire any shares of
RMI Stock under the Assumed Plans, and (ii) each such option, or agreement to
grant an option, will, upon consummation of the Merger, be converted into an
option, or an agreement to grant an option, to purchase or acquire an equal
number of shares of Class B common stock, subject to the terms of the Assumed
Plans and such options and agreements. A vote in favor of the Reorganization,
including the Merger, will constitute approval of Holding Company's assumption
of RMI's obligations under the Assumed Plans and such outstanding options and
agreements.
In connection with the Merger, RMI will consent to the transfer of RMI Stock
that is subject to certain shareholder agreements. Upon consummation of the
Merger in accordance with the terms of the Merger Agreements, the shareholder
agreements will be terminated.
COMPARISON OF SHAREHOLDER RIGHTS--CERTAIN SUBSTANTIVE DIFFERENCES IN ARTICLES
OF INCORPORATION AND BYLAWS
General. As a result of the Reorganization, holders of RMI Stock will become
shareholders of Holding Company. The following is a summary of certain
differences in shareholder rights arising from distinctions between the RMI
Articles and Bylaws and the Holding Company Articles and Bylaws. The summary
is qualified by and should be read in conjunction with the Holding Company
Articles, a copy of which is attached as Annex B to this Proxy
Statement/Prospectus.
Authorized Capital Stock. RMI's authorized capital stock consists of
20,000,000 shares of RMI Stock, par value $.01 per share. The Holding Company
Articles provide for an aggregate of 60,000,000 shares of capital stock,
50,000,000 of which will be New Common Stock, par value $.001 per share, and
10,000,000 of which will be Preferred Stock, par value $.001 per share.
Preferred Stock. The Holding Company 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 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 Holding
Company's shareholders. No shares of Preferred Stock have been issued. The
issuance of Preferred Stock could have one or more of the following effects:
(i) restrict New Common Stock dividends if Preferred Stock dividends have not
been paid, (ii) dilute the voting power and equity interest of holders of New
Common Stock to the extent that any series of Preferred Stock has voting
rights or is convertible into New Common Stock or (iii) prevent current
holders of New Common Stock from participating in Holding 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 Holding 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 Holding Company Articles or any
reorganization, consolidation or merger (or other similar transaction
involving Holding Company). As a result, if there is a market for the New
Common Stock by reason of an initial public offering or otherwise, the
issuance of such Preferred Stock may discourage bids for the New Common Stock
at a premium over the market price therefor and could have a material adverse
effect on the market value of the New Common Stock. The Holding Company Board
does not presently intend to issue any shares of Preferred Stock.
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Shareholder Agreements Restricting Transfer of Common Stock. The holders of
RMI Stock are subject to agreements (the "Shareholder Agreements") which
restrict their transfer of RMI Stock. The Shareholder Agreements for all
employees of RMI and its affiliates provide for two significant restrictions.
First, RMI has a right to redeem the RMI Stock at the request of RMI. The
purchase price for the redeemed shares shall be the book value of the RMI
Stock, as determined by the accountants then employed by RMI, at the end of
the last fiscal year preceding the date in which the notice of redemption was
made.
Eleven holders of RMI stock are not employees of RMI or its affiliates. Five
of these eleven shareholders acquired shares in 1995 pursuant to the 1995
Stock Purchase Agreements in a redemption of certain convertible subordinated
debentures; six of these shareholders own shares that were acquired in 1990
pursuant to the 1990 Stock Purchase Agreement, in the exchange of certain
convertible debentures. These shareholders are described below as the
"Nonemployee Shareholders."
All RMI shareholders, including the Nonemployee Shareholders, are subject to
shareholder agreements that provide for a right of first refusal on behalf of
RMI. Pursuant to that right of first refusal, no holder of RMI Stock may
transfer RMI Stock without the prior written consent of RMI unless the holder
has first made an Offer to sell such holder's shares to RMI and to all holders
of RMI Stock who are employees, officers, or directors of RMI or affiliates
(the "Employee Shareholders"). If RMI has not accepted the Offer within 30
days, the Offer may be accepted by the Employee Shareholders within 30 days
after their receipt of the Offer. The purchase price for shares acquired
pursuant to this restriction shall be the lower of book value, as established
by RMI's outside accountants, or the proposed transfer price to a third party
as described in the Offer.
The Nonemployee Shareholders have a right, which is not available to the
Employee Shareholders, to transfer their shares to family members. Pursuant to
the 1990 Stock Purchase Agreement and the 1995 Stock Purchase Agreements,
Nonemployee Shareholders may transfer shares to immediate family members,
trusts (the beneficiaries of which include only the Nonemployee Shareholder
and immediate family members), or by will or intestate succession. Any
recipient of RMI Stock pursuant to such an intra-family transfer takes the RMI
Stock subject to all restrictions on transfer, and RMI may require such
persons to sign an acknowledgment thereof prior to effecting that transfer on
RMI's books and records.
The manner in which the restrictions on transfer under the Shareholder
Agreements may be terminated varies with the term of the particular
Shareholder Agreement. The 1990 Stock Purchase Agreement, to which five
Nonemployee Shareholders are subject, permits transfer pursuant to any merger
or consolidation of RMI resulting in the change in control of RMI, or pursuant
to any sale of all or substantially all the assets or common stock of RMI to a
person or persons not controlling RMI. The 1995 Stock Purchase Agreements, to
which five Nonemployee Shareholders are subject, also permits transfer
pursuant to any merger or consolidation of RMI resulting in the change in
control of RMI, or pursuant to any sale of all or substantially all the assets
or common stock of RMI, to a person or persons not then controlling RMI.
Moreover, the restrictions on transfer under the 1995 Stock Purchase
Agreements may be terminated upon the first to occur of (i) a vote of the RMI
Board and shareholders as required by law for the merger or consolidation of
RMI with any unaffiliated corporation, or for the sale of all or substantially
all the assets of RMI, or for its liquidation, or (ii) the agreement in
writing by two-thirds of the then-outstanding shares of common stock of RMI to
termination of those restrictions or of similar Shareholder Agreement
restrictions entered into between RMI and other shareholders.
A 1987 Subscription Agreement to which one shareholder, Brooks G. Ragen, is
subject provides for termination of the restrictions upon (a) a vote of the
RMI Board and shareholders as required by law for the merger or consolidation
of RMI with any unaffiliated corporation, or for the sale of all or
substantially all of RMI's assets, or for RMI's liquidation or (b) an
agreement in writing by the holders of two-thirds of the then-outstanding
shares of RMI Stock to the termination of the restrictions on transfer.
The form of Shareholder Agreement executed between RMI and Employee
Shareholders between 1988 and 1992 provides for termination of restrictions on
transfer upon the first to occur of either (i) the RMI Board and shareholders
voting as required by law for the merger or consolidation or RMI with any
unaffiliated corporation,
31
<PAGE>
or for the sale of all or substantially all the assets of RMI, or for RMI's
liquidation or (ii) an agreement in writing by the holders of two-thirds of
common stock of RMI to a termination of the restrictions.
The form of Shareholder Agreement entered into between RMI and Employee
Shareholders between 1992 and 1995 provides for termination of the
restrictions in a manner similar to that of the Shareholder Agreement used
between 1988 to 1992. The Shareholder Agreement into which RMI entered into
with Employee Shareholders between 1994 and 1998 provided for termination of
restrictions in a manner similar to that of the Shareholder Agreement used
between 1988 and 1992.
There will be no agreements among shareholders providing for termination of
restrictions of New Common Stock. However, the Reorganization Common Stock
will have limitations on transfer as set forth in the Holding Company
Articles. These restrictions are summarized under "--Description of Holding
Company Capital Stock--Common Stock."
Board of Directors. The RMI Articles provide that each member of the RMI
Board shall serve until the next annual meeting of shareholders. The Holding
Company Articles and Bylaws, on the other hand, require at the first election
of directors after the first primary, public offering of equity securities by
Holding Company, that the Holding Company Board shall be divided into two
classes as nearly equal in number as possible, and provide that members of
each class will be elected for a term of two years and until their successors
are elected and qualified, with one class being elected annually.
The RMI Articles provide that the number of directors will be determined
pursuant to the RMI Bylaws, which number may be increased or decreased as
provided therein. The RMI Bylaws permit a range in the number of RMI's
directors from one to 20 and allow for a change in the number, either an
increase or decrease, by a vote of a majority of the directors present at a
meeting, as long as a decrease in the number would not shorten the term of any
incumbent director. The Holding Company Bylaws permit a range in the number of
Holding Company's directors from three to 15 and allow for a change in the
number, either an increase or decrease, by amendment to the Holding Company
Bylaws, as long as a decrease in the number would not shorten the term of any
incumbent director.
Vacancies in the Boards of Directors of both RMI and Holding Company may be
filled by a majority vote of the remaining directors, although less than a
quorum. The RMI Bylaws and the Holding Company Bylaws permit a director
elected to fill a vacancy to serve only until the next succeeding annual
election.
The RMI Bylaws provide that a director may be removed with or without cause
by a majority of the shares entitled to vote at an election of directors. By
contrast, the Holding Company Bylaws provide a director may be removed only
for cause by the holders of no less than two-thirds of the shares entitled to
elect the director.
Annual Meeting of Shareholders. The RMI Bylaws provide that the annual
meeting of shareholders shall be held on the third Thursday in November in
each year for the purpose of electing directors and transacting such other
business as may properly come before the meeting. The Holding Company Bylaws
provide that the annual meeting of the shareholders shall be held each year
within 90 to 180 days after the fiscal year-end for the purpose of electing
directors and transacting such other business as may properly come before the
meeting. In addition, the Holding Company Bylaws permit the Holding Company
Board, at any time prior to commencement of the annual meeting, to postpone
the annual meeting for a period of up to 120 days.
Business for Annual Shareholders Meetings. The WBCA does not limit the
business to be conducted at an annual meeting, and all matters appropriate for
shareholder action may be considered at the annual meeting. A corporation's
articles or bylaws, however, may restrict the business permitted at an annual
meeting. The RMI Articles and Bylaws contain no such restrictions. The Holding
Company Bylaws restrict the business to be conducted at an annual meeting to
that (i) brought by or at the direction of the Holding Company Board or
(ii) brought before the meeting by a shareholder entitled to vote at the
meeting, but only if such shareholder proposals are in writing and are
received by the secretary of Holding Company at least 60 days and not more
than 90 days before the annual meeting.
32
<PAGE>
Special Meetings of Shareholders. The RMI Bylaws provide that the holders of
not less than 10% of all the outstanding shares entitled to vote at the
meeting may call special meetings of the shareholders for any purpose. By
contrast, the Holding Company Articles and Bylaws provide that, upon
qualification of the corporation as a "public company," special meetings of
shareholders may be called at the written request of not less than 25% of all
the outstanding shares entitled to vote on any issue proposed to be considered
at such special meeting.
Voting Rights. The RMI Articles and Bylaws permit shareholders to cumulate
their votes for election of directors. The Holding Company Articles prohibit
cumulative voting in elections of directors. Shareholders of both companies
have no preemptive rights to subscribe for, or acquire, additional shares of
stock that may be offered by either company.
For information about the effects of the Reorganization on the voting rights
of shareholders in connection with business combinations, see "--Mergers,
Consolidations and Sales of Assets" below.
Mergers, Consolidations and Sales of Assets. 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 to be cast. The RMI Articles do not provide for a greater or lesser
vote in such circumstances. The Holding Company Articles, however, 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 Holding 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, in which
case the affirmative vote required shall be a majority of the outstanding
shares.
Amendment of Governing Instruments. Under the WBCA, a corporation's board of
directors is authorized, unless the articles of incorporation otherwise
provide, to make various changes to the corporation's articles of
incorporation, including changes of corporate name, changes in the number of
outstanding shares in order to effectuate a stock split or stock dividend in
the corporation's own shares and to change or eliminate provisions with
respect to the par value of its stock. Other amendments to a corporation's
articles of incorporation must be recommended to the shareholders by the board
of directors (unless the board determines that, because of a conflict of
interest or other special circumstances, it should make no recommendations),
and approved by two-thirds of all votes entitled to be cast by each voting
group which has a right to vote on such amendment. The articles 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
to be cast by that voting group. The RMI Articles do not provide for a greater
or lesser vote to amend the RMI Articles. The Holding Company Articles, on the
other hand, can be amended or repealed by the affirmative vote of the holders
of a majority of the outstanding shares. In addition, the Holding Company
Articles provide that changes to certain provisions of the Holding Company
Articles, including those regarding amendment of certain provisions of the
Holding Company 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.
REGULATORY MATTERS
In connection with the Reorganization, and before it is consummated, Holding
Company will need to be approved by the NYSE as an "approved person" of RMI,
as that term is used in the Constitution of the New York Stock Exchange.
Approval has been requested from the NYSE.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Certain directors and officers of Holding Company and RMI have interests,
described below, that may present them with potential conflicts of interest in
connection with the Reorganization.
33
<PAGE>
Certain directors of RMI (one of whom is also an executive officer of RMI
and a director and executive officer of Holding Company) are participants in
the Share Repurchase Plan, under which RMI will redeem RMI Stock owned by an
eligible shareholder for a price equal to (or less than) the book value for
such RMI Stock and, at the end of the eighth fiscal quarter of RMI after the
redemption, will pay an additional compensatory payment per share redeemed
equal to the difference between (i) the book value per share of RMI Stock that
was redeemed, and (ii) the book value per share of RMI Stock at the end of
such eighth fiscal quarter (the "Stock Appreciation Amount"). If RMI or a
parent of RMI (such as Holding Company after the Reorganization) makes a
public offering of its shares prior to the end of the applicable eighth fiscal
quarter, the amount received per share of stock in the public offering
replaces the book value per share as of such eighth fiscal quarter for
purposes of calculating the applicable Stock Appreciation Amount. If the IPO
is consummated prior to the end of the eighth fiscal quarter of RMI after a
director who is listed below has elected to participate in the Share
Repurchase Plan, such director will be entitled to a cash payment calculated
in accordance with the foregoing sentence. The Company expects that the
aggregate amount of any such Stock Appreciation Amount will be paid by the
Company within 30 days after the closing of an IPO, if an IPO is consummated.
The following table, for each director who has elected to participate in the
Share Repurchase Plan, lists the number of shares of RMI Stock redeemed from
such directors by RMI under the Share Repurchase Plan and the book value of
such RMI Stock at the time of the redemption:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
RMI STOCK REDEEMED BOOK VALUE OF SUCH
PURSUANT TO THE RMI STOCK AT THE
SHARE REPURCHASE TIME OF THE
RMI DIRECTOR PLAN REDEMPTION
------------ ------------------- ------------------
<S> <C> <C>
Peter C. Hanson............ 23,000 $5.72
12,000 $6.00
5,761 $6.36
David D. Lewis............. 35,300 $5.72
16,000 $6.74
Robert J. Mortell, Jr.(1).. 8,800 $5.72
Daniel F. Nelson. 18,400 $5.72
Thomas B. Tawresey......... 2,000 $5.14
11,000 $5.72
398 $6.00
James E. Webster........... 5,000 $6.00
</TABLE>
- --------
(1) Mr. Mortell is also an executive officer of RMI and a director and
executive officer of Holding Company.
The interests of the persons listed above in the Share Repurchase Plan
constitute an interest in the Reorganization to the extent that the
Reorganization may facilitate the IPO and thereby cause the calculation of the
Stock Appreciation Amount to be based in part on the amount received per share
in the IPO. There can be no assurance that the IPO will occur at or after the
Reorganization, if at all. See "Risk Factors--No Assurance of Initial Public
Offering."
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 Holding Company that results in
aggregate net proceeds to Holding Company 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
34
<PAGE>
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 Reorganization to
the extent that it may facilitate an IPO, which commences the agreements
providing for severance payments. There can be no assurance that the IPO will
occur after the Reorganization, if it all. See "Risk Factors--No Assurance of
Initial Public Offering; Restrictions on Transfers of Stock."
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of RMI Stock are entitled to dissenters' rights with respect to the
Merger under Chapter 23B.13 of the WBCA. The following discussion is not a
complete statement of the law pertaining to dissenters' rights under the WBCA
and is qualified in its entirety by the full text of Chapter 23B.13 of the
WBCA, which is reprinted in its entirety as Annex C to this Proxy
Statement/Prospectus.
A record shareholder of RMI Stock will have the right to dissent with
respect to the Merger and, subject to certain conditions, will be entitled to
receive a payment of the fair value of his or her shares under the WBCA. Each
beneficial owner asserting dissenters' rights (each an "RMI Dissenting
Holder") must assert such rights with respect to all shares of which such
shareholder is the beneficial owner or over which such shareholder has power
to direct the vote, and such shareholder must submit to RMI, with or prior to
such beneficial owner's assertion of dissenters' rights, the record
shareholder's written consent to such dissent. A record shareholder may assert
dissenters' rights as to fewer than all the shares registered in such
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies RMI in writing of the name
and address of each person on whose behalf such shareholder asserts
dissenters' rights. An RMI Dissenting Holder (i) must deliver to RMI, before
the vote on the Merger is taken, written notice of such shareholder's intent
to demand payment for such shareholder's shares if the Merger is effectuated
and (ii) must not vote his or her shares in favor of the Merger. Such notice
should be delivered to RMI at its principal executive offices, 999 Third
Avenue, Suite 4300, Seattle, Washington 98104, Attention: Michael W.
Reinhardt. A shareholder who does not satisfy both these requirements will not
be entitled to dissenters' rights.
If the Merger is approved by the shareholders of RMI, RMI shall send written
notice not later than 10 days after the Effective Time to each RMI Dissenting
Holder (i) stating where such shareholder must send his or her written payment
demand, (ii) stating where and when certificates representing RMI Stock must
be deposited, (iii) containing a form for demanding payment which requires
that the dissenter certify whether or not he or she acquired beneficial
ownership before the first public announcement of the terms of the Merger, and
(iv) setting a date by which such written payment demand must be received.
Such notice must be accompanied by a copy of Chapter 23B.13 of the WBCA. An
RMI Dissenting Holder who does not demand payment in accordance with the terms
of such notice will not be entitled to dissenters' rights.
RMI shall pay to each RMI Dissenting Holder who complies with the procedures
described above, within 30 days after the Effective Time, the amount that RMI
estimates to be the fair value of such dissenter's shares, plus accrued
interest. RMI will provide, along with such payment, certain financial
information, including RMI's balance sheet, income statement and statement of
changes in shareholders' equity for its last fiscal year and RMI's latest
available interim financial statements, if any, an explanation of how RMI
estimated the fair value of the shares, an explanation of how the accrued
interest was calculated and certain other information; provided, however, that
RMI may elect to withhold such payment from any dissenter who was not the
beneficial owner of the shares of RMI Stock as to which dissenters' rights are
asserted before the date of first public announcement of the Merger. Any RMI
Dissenting Holder who is dissatisfied with such payment or such offer may,
within 30 days of such payment or offer for payment, notify RMI in writing of
such shareholder's estimate of the fair value of his or her shares and the
amount of interest due, and demand payment thereof.
If any RMI Dissenting Holder's demand for payment is not settled within 60
days after receipt by RMI of such demand, the WBCA requires that RMI commence
a proceeding in King County Superior Court, and petition the court to
determine the fair value of the shares and accrued interest, naming all RMI
Dissenting Holders whose
35
<PAGE>
demands remain unsettled as parties to the proceeding. The court may appoint
one or more persons as appraisers to receive evidence and recommend the fair
value of the shares. The dissenters will be entitled to the same discovery
rights as parties in the other civil actions. Each dissenter made a party to
the proceeding will be entitled to judgment for the amount, if any, by which
the court finds the fair value of his or her shares, plus accrued interest,
exceeds the amount paid by RMI.
Court costs and approval fees will be assessed against RMI, except that the
court may assess such costs against some or all of the dissenters to the
extent that the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts of the respective parties in amounts that the
court finds equitable (i) against RMI, if the court finds that it did not
substantially comply with certain provisions of the WBCA concerning
dissenters' rights and (ii) against either the dissenter or RMI, if the court
finds that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith. If the court finds that
services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated, and that the fees should not be assessed
against RMI, the court may award to such counsel reasonable fees to be paid
out of the amounts awarded to all dissenters who benefited from the
proceedings.
CERTAIN INFORMATION REGARDING HOLDING COMPANY
Dividend Policy. Holding Company currently expects to retain all future
earnings to finance the operation and expansion of its business and does not
anticipate declaring or paying any cash dividends in the foreseeable future.
Initial Public Offering. Holding Company plans to file with the Commission a
Registration Statement on Form S-1 with respect to the public offering of
2,250,000 shares of the Common Stock. The IPO will not be consummated unless
the Reorganization is approved and consummated. There can be no assurance that
the IPO will occur. Shareholders of RMI are cautioned not to rely on the
possibility of the IPO in determining whether to vote in favor of the
Reorganization. See "Risk Factors--No Assurance of Initial Public Offering;
Restrictions on Transfers of Stock."
Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock will be ChaseMellon Shareholder Services L.L.C.
THE RMI BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE REORGANIZATION (WHICH INCLUDES APPROVAL OF THE MERGER AGREEMENT).
PROXIES WILL BE VOTED FOR THE REORGANIZATION UNLESS INSTRUCTIONS TO THE
CONTRARY ARE GIVEN.
36
<PAGE>
PROPOSAL II:
ELECTION OF DIRECTORS TO HOLDING COMPANY BOARD
The Holding Company Board currently consists of four directors: Lesa A.
Sroufe, John L. MacKenzie, Mark A. McClure and Robert J. Mortell, Jr. The
number of directors on the Holding Company Board has been fixed at seven, and
the Holding Company Board has nominated the following three individuals for
election as a director of the Holding Company Board immediately prior to
effectiveness of the Reorganization to serve for a term expiring at the first
annual meeting of shareholders of Holding Company after the Reorganization:
Kirby L. Cramer
Arthur W. Harrigan, Jr.
Peter B. Madoff
RMI, as the sole shareholder of Holding Company prior to the Reorganization,
has the power to elect these nominees to the Holding Company Board. The RMI
Board requests that the RMI shareholders vote in favor of this proposal to
direct RMI to elect the three nominees listed above to the Holding Company
Board immediately prior to effectiveness of the Reorganization. Each of the
nominees has indicated that he is able and willing to serve as a director. If
any nominee becomes unable or unwilling to serve, the proxies will be voted to
direct RMI to elect such other person as shall be designated by the Holding
Company Board. Unless instructions to the contrary are specified in a properly
signed and returned proxy, the proxies will be voted in favor of the three
nominees listed above.
THE RMI BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO DIRECT RMI TO ELECT THE THREE NOMINEES TO THE HOLDING COMPANY
BOARD IMMEDIATELY PRIOR TO EFFECTIVENESS OF THE REORGANIZATION.
37
<PAGE>
BUSINESS OF THE COMPANY
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, including four offices operated by independent
contractors, in Washington, Oregon and Alaska. This business is directly
supported by RMI'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 a recommended list of selected regional and
national stocks (the "Recommended List"). Other aspects of RMI's business
include proprietary trading of certain fixed income securities, institutional
brokerage services and correspondent brokerage 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 the end of fiscal 1993 to the end of
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, number of customer
accounts and increases in the number and productivity of retail brokers. 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 the end of fiscal 1993 to the end of 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 "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Death Benefits Plan." The following table compares pretax
profit margins for RMI 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>
RMI(1)...................................... 19.0% 20.8% 19.8% 26.3% 36.1%(2)
Industry Average(3)......................... 15.3% 2.4% 12.7% 15.9% 15.0%
</TABLE>
- --------
(1) Data presented for RMI's fiscal year.
(2) Reflects the $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."
(3) NYSE member firms doing a public business.
BACKGROUND
Industry. The size of the capital markets and the volume of trading in the
securities markets have increased substantially in recent years, and with it
the demand for securities investments. The Company believes that these trends
will continue in the future, and consequently the demand for high-quality
brokerage services, such as those offered by RMI, 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
38
<PAGE>
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 has historically been considered
their prime investing years, ages 50 through 65, has also fueled the demand
for investment products. In 1996, the first 3.4 million baby boomers turned
50; the impact of this generation on the capital markets is expected to
continue to build through the year 2010, when 57 million people will be
between the ages of 50 through 65. Additionally, it is estimated that these
individuals will inherit over $10 trillion from the previous generation
between 1990 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 market 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 compounded 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 compounded 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 has 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 5.1% per year as compared to the United
States Gross State Product, which increased at a compound annual rate of 3.8%
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 premier regional brokerage firm headquartered in the
Pacific Northwest and has a demonstrated history of success and steady growth
capitalizing on national and regional trends in the securities industry. The
Company believes the Pacific Northwest will continue to experience positive
economic development and that such development will present RMI 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 attract and retain highly productive brokers, retail,
institutional and correspondent customers. The Company intends to use the
quality of its research to grow all aspects 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. Ragen MacKenzie 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 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 the quality and depth of its proprietary
research provides it a significant competitive advantage in attracting and
retaining experienced, productive retail brokers. From the beginning of fiscal
1993, the Company increased the number of retail brokers from 51 to 78. In the
12 months ended March 27, 1998, the average gross production per retail broker
for the Company was over $560,000. The Company intends to continue focusing
its recruiting efforts on experienced, productive retail brokers and typically
does not hire inexperienced or trainee brokers.
39
<PAGE>
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 expanding its correspondent business will positively impact margins,
as the Company is able to increase revenue without significant additional
investment in infrastructure. 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 resulting from the
significant economic growth in the region. In light of recent consolidation
among investment banking firms, the Company also intends to capitalize on
opportunities available to investment banks maintaining a regional focus.
Supplement Internal Growth With Strategic Acquisitions. The Company intends
to pursue, on an opportunistic basis, acquisitions of other firms with
complementary businesses which 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. Ragen MacKenzie, 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 charges markups or markdowns in lieu of
commissions. See "--Principal Transactions--Market-Making and Other Principal
Transactions." From fiscal 1993 to 1997, direct revenues from RMI's retail
brokerage activities grew at a compounded 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 compounded
annual growth rate of 7.7%. During fiscal 1996 and 1997 and the six months
ended March 27, 1998, direct revenues from RMI's retail brokerage activities
represented approximately 42.7%, 42.1% and 41.2%, respectively, of RMI'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
40
<PAGE>
of RMI'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 RMI to industry averages over the past three years.
RMI RETAIL BROKER STATISTICS
<TABLE>
<CAPTION>
AVERAGE ANNUAL COMMISSION PER
RETAIL BROKER
-------------------------------
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
RMI(1)..................................... $403,600 $537,900 $548,900
Industry................................... $305,900 $358,800 Not Available
</TABLE>
- --------
(1) Data presented for RMI's fiscal year.
The Company believes that continuing to add experienced, highly productive
brokers is an integral part of RMI's growth strategy.
In addition to executing transactions, RMI 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, RMI 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 RMI'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 RMI's retail clients are located in the
Pacific Northwest. The following table sets forth as of March 27, 1998, the
location of RMI's retail offices, the fiscal year each office opened and the
number of retail brokers in each office:
<TABLE>
<CAPTION>
LOCATION OF RETAIL FISCAL YEAR NUMBER OF
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. These offices were
established in the late 1980s, prior to the expansion of RMI'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 with RMI as associated persons and the Company 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
41
<PAGE>
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 RMI'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.
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 RMI.
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 RMI's business. Ragen MacKenzie's research
department, which currently consists of nine professional research analysts,
embraces a value-oriented, contrarian philosophy of 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, and not 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 RMI'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 serves principally RMI'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, RMI's Chief Executive Officer and former
Director of Research. The Recommended List is not distributed publicly but is
made available only to RMI's retail brokers, independent contractors, retail
customers and correspondents.
The Company's management believes that the research philosophy and its
Recommended List have been a significant element in the growth and
profitability of RMI's retail equity business since being adopted by RMI in
1988, and have contributed to RMI'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 RMI'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 RMI 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.
42
<PAGE>
In addition to publishing its written research, RMI 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 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
which 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
RMI'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 27, 1998, RMI
made markets in the common stock or other equity securities of approximately
115 companies that were trading on Nasdaq or otherwise in the over-the-counter
("OTC") market. The Company's market-making activities are concentrated in
Pacific Northwest stocks that are followed by RMI'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, RMI 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, RMI 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 RMI's counterparts 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.
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 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 RMI's trading accounts fluctuates
significantly. The size of the securities positions on any one date may not be
representative of RMI'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
RMI 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, RMI employs a hedging strategy
for both its CMO and zero coupon trading desks which 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 which RMI 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,
RMI seeks to mitigate the various
43
<PAGE>
risks associated with its proprietary trading activities by avoiding positions
in those CMOs which 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 RMI's
business, financial condition and results of operations. 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 436 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 physically maintains the client's account and performs a
variety of services as agent for the correspondent, including integrated trade
execution, clearing, client account processing 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 impact on net income. The Company believes that its
competitive strengths in this business are its ability to perform the physical
trade execution and clearing functions which are typical in such
relationships, and its provision of Ragen MacKenzie's 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 electronically transmits the order to Ragen MacKenzie's order
entry or trading desks for execution. Ragen MacKenzie, in turn, routes the
order to the market in which it believes it can effect the best 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 client's account at the time of execution.
Ragen MacKenzie 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, 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.
44
<PAGE>
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, RMI 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.
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 RMI'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 RMI 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. $156,413 $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................ 199,231 218,708 301,727 340,659 531,745
-------- -------- -------- -------- ----------
Total.................. $402,851 $449,167 $612,261 $716,592 $1,043,140
======== ======== ======== ======== ==========
</TABLE>
In margin transactions, RMI 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.
45
<PAGE>
Margin lending by RMI is subject to the margin regulations ("Regulation T")
of the Board of Governors of the Federal Reserve System, NYSE margin
requirements and RMI'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 RMI to liquidate
customers' securities with or without prior notice in the event of an
insufficient amount of margin collateral. Despite such agreements, RMI 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 or reimbursement upon the customer's
request. 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, or 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.
Ragen MacKenzie is a member of SIPC, which insures 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
RMI's securities inventory, while reverse repurchase agreements are used to
invest monies for the exclusive benefit of customers and to cover short
positions in RMI'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 RMI 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, RMI's information and telecommunications systems and processing
RMI's securities transactions. Operations department managers have worked on
average more than 20 years in the securities 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 the
Company's 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 its 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; Year 2000
Compliance."
46
<PAGE>
RISK MANAGEMENT
Exposure to risk and the ways RMI manages the various types of risks on a
day-to-day basis are critical to RMI'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 RMI is
exposed. There can be no assurance, however, that RMI's risk management
procedures and internal controls will prevent losses from occurring as a
result of such risks.
The Company's principal risk relates to the fact that it owns a variety of
investments which are subject to changes in value and could result in RMI'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, RMI 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 RMI to
risks of default by customers and counterparts.
Trading activities generally result in the creation of inventory positions.
Trading and inventory accounts are monitored on an ongoing basis, and RMI 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 RMI's corporate accounting group. In
addition, 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, RMI produces a daily revenue
report which 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. Prior to opening a
margin account, RMI obtains a credit report on the customer to determine
credit worthiness. In addition, RMI actively manages the credit exposure
relating to its trading activities by entering into master agreements which
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 RMI's correspondent
firms begins with a review by certain members of senior management of each
prospective clearing 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. This includes 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.
47
<PAGE>
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 thoroughly 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 a 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, 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 offers. 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 or results of operations.
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 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 RMI's competitors also
engage in advertising programs, which RMI 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. 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.
48
<PAGE>
EMPLOYEES
As of March 27, 1998, RMI had approximately 287 full-time and part-time
employees, of whom 179 are holders of RMI Stock. None of RMI'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
From time to time RMI has become, and may become, a party to legal
proceedings related to its retail brokerage operations, its participation in
underwriting syndicates or other aspects of its securities industry. In
addition, RMI may contribute to certain adverse final judgments, defense costs
or settlements in actions arising out of its participation in underwriting
certain issues in which it is not a named defendant but which are the subject
of litigation. The Company is not currently a party to any material pending
legal proceedings.
The IRS is currently conducting an audit of RMI. The Company cannot predict
the results of the audit, and there can be no assurance that the results of
the audit will not have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.
49
<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 the
Company's primary regulator. These SROs adopt rules (subject to Commission
approval) that govern the industry, and, along with Commission, conduct
periodic examinations of the Company's operations. Securities firms are also
subject to regulation by state securities administrators in those states in
which they conduct business. The Company 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 securities business, 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 and results of operations.
Moreover, the settlement, together with changes to Nasdaq's operations agreed
upon by the NASD and the Commission in August 1996, 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, the Company 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
50
<PAGE>
Improvement Act of 1996 and the Investment Advisors Supervision Coordination
Act, and the provisions 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.
The Company 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 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 which 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 which could limit RMI's ability to conduct its
securities industry 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. The Company is a member of SIPC, which, in the event of
the liquidation of a broker-dealer, provides protection for customer accounts
held by the Company of up to $500,000 for each customer, subject to a
limitation of $100,000 for cash balance claims. The Company pays an annual
assessment to SIPC as a member. The Company 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, the Company has made arrangements for optional
custody of customer funds and securities through The Bank of New York, which
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. Although the Company believes that there are defenses in
connection with these issues, there can be no assurance that the Division, 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 or results of operations.
51
<PAGE>
NET CAPITAL REQUIREMENTS
As a registered broker-dealer and member of the NYSE, the Company is subject
to Rule 15c3-1 (the "Net Capital Rule") under 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 generally accepted accounting principles), 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.
The Company has elected to compute net capital under the alternative method
of calculation permitted by the Net Capital Rule. Under this alternative
method, the Company 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 the
Company 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.
52
<PAGE>
The Company has been in compliance at all times with all aspects of the Net
Capital Rule. As of March 27, 1998, the Company 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.
53
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified in their entirety by,
and should be read in conjunction with, the Financial Statements of RMI and
the Notes thereto and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this Proxy
Statement/Prospectus. The statements of income data for each of the fiscal
years in the three-year period ended September 26, 1997 and the balance sheet
data as of September 27, 1996 and September 26, 1997 have been derived from
the audited financial statements of RMI, which were audited by Deloitte &
Touche LLP, independent auditors, as indicated in their report included
elsewhere in this Proxy Statement/Prospectus. The statements of income data
for fiscal 1993 and 1994 and the balance sheet 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 sheet 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 RMI, 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 AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT 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 17,315
------- ------- ------- ------- ------- ------- -------
Total revenues......... 46,774 53,817 62,401 79,821 88,581 41,979 51,082
Interest expense........ 4,876 6,978 13,052 16,230 19,694 9,138 11,104
------- ------- ------- ------- ------- ------- -------
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
======= ======= ======= ======= ======= ======= =======
Basic earnings per
share(4)............... $ 0.68 $ 0.79 $ 0.73 $ 1.10 $ 1.54 $ 0.91 $ 0.70
Diluted earnings per
share(4)............... 0.63 0.72 0.68 1.04 1.44 0.85 0.66
</TABLE>
54
<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 SHEET DATA:
Total assets............ $310,139 $300,868 $436,068 $483,968 $665,877 $596,936 $697,314
Subordinated debentures. 1,148 815 -- -- -- -- --
Stockholders' 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 RMI's variable-award,
book-value-based stock option 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. If the IPO is consummated, the existing option plans
will become fixed-award, fair-value-based plans and Holding 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, mark-to-market 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. If the IPO is
consummated, RMI intends to terminate the Share Repurchase Plan.
(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 RMI 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 RMI recorded a pretax nonrecurring benefit of
$5,000,000, which reflects the reversal of the amount previously accrued
for plan benefits. RMI 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 Plan. See Note 11 of RMI's Notes to Financial
Statements.
(5) Amounts reflected for the six-month periods represent annualized amounts.
(6) Shown as of end of period.
55
<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 RMI's financial statements and the related notes thereto
included elsewhere in this Proxy Statement/Prospectus. In addition to
historical information, the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" 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 of the Company" and elsewhere in
this Proxy Statement/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, including four offices operated by independent
contractors, in Washington, Oregon and Alaska. This business is directly
supported by RMI'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 a recommended list of selected regional and
national stocks. Other aspects of RMI's business include institutional
brokerage services, correspondent brokerage services and proprietary trading
of certain fixed income securities.
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 the end of fiscal 1993 to the end of
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, number of customer
accounts and increases in the number and productivity of retail brokers. 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 the end of fiscal 1993 to the end of 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 revenue 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.
56
<PAGE>
During the six-month period ended March 27, 1998, RMI 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 1997, the addition
of new brokers during the second half of fiscal 1997 contributed to the
overall growth in retail revenue 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.
DEATH BENEFITS PLAN
In 1992, RMI 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 RMI Stock and were to be provided to the heirs as a supplement to
payments made by RMI in conjunction with the redemption of the book-value-
based RMI Stock. Provisions in the aggregate amount of $5,000,000 were made in
the years 1992 through 1996 to record the obligation under the Death Benefits
Plan.
In February 1997, RMI 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 RMI Stock. The amount to be paid to the
Repurchase SAR holder is generally determined as the appreciation in the RMI
Stock over the two-year period subsequent to the Repurchase SAR grant date. As
the Share Repurchase Plan served to provide additional liquidity in RMI Stock,
RMI 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 be terminated if the IPO is
consummated.
57
<PAGE>
As the operation of the Death Benefits Plan has resulted in significant
charges and credits to RMI's results of operations that will not continue in
the future, the following information is provided to present information
regarding the financial results of RMI, 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
presentation is not in conformity with generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to the GAAP
presentation. In addition, if the IPO is consummated, 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 expense includes 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 expense includes 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
58
<PAGE>
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 impact on the
Company's operations.
EARNINGS CHARGES IF IPO CONSUMMATED
In connection with certain events relating to the IPO, if the IPO is
consummated the Company will record nonrecurring charges to earnings,
resulting in an estimated net charge to earnings of $ in the quarter
in which the IPO is completed, assuming an initial public offering price of
$ 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 IPO, 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 $ 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 if the IPO is consummated (assuming an initial
public offering price of $ per share). Future stock options will be granted
as fixed-award stock options under the Company's 1998 Stock Incentive
Compensation Plan. If the IPO is consummated, the Company will also record
compensation expense in the amount of $ (assuming an initial public
offering price of $ per share), which reflects the increase in the value of
the RMI Stock underlying the Share Repurchase Plan. The Company intends to
terminate the Share Repurchase Plan if the IPO is consummated, at which time
the Company's liabilities under the Share Repurchase Plan will be determinable
and final. See footnote 6 to the table set forth in "Summary--Summary
Financial Information" and Note 14 of RMI's Notes to Financial Statements.
59
<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 43.3
----- ----- ----- ----- -----
Total revenues............. 126.4 125.5 128.6 127.8 127.8
Interest expense............. 26.4 25.5 28.6 27.8 27.8
----- ----- ----- ----- -----
Net revenues............... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Non-interest expenses:
Compensation and benefits(1). 52.5 53.4 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 6.0 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 predominately 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.
60
<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
1997, successful recruiting efforts during the second half of fiscal 1997 also
contributed to the overall growth in revenue 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 $3,383,000, or 24.3%, to $17,315,000 primarily
due to increased customer credit, money market and margin balances. Interest
expense increased by $1,966,000, or 21.5%, to $11,104,000, 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 was terminated. See
footnote 3 to the table set forth in "Selected Financial Data," Note 3 of
RMI's Notes to 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 was 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 expense. Assuming the conversion of the
variable-award, book-value-based stock option plans to a market-value-based
stock option plan if the IPO is consummated, the Company's effective income
tax rate is expected to be lower in future periods. See "--Earnings Charges if
IPO Consummated."
61
<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 revenue 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 10 of RMI's Notes to 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.
62
<PAGE>
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 stock option plan
expense. Assuming the conversion of the variable-award, book-value-based stock
option plans to a market-value-based stock option plan if the IPO is
consummated, the Company's effective income tax rate is expected to be lower
in future periods. See "--Earnings Charges if IPO 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 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 was 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 revenue 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 1996 as compared with
$2,450,000 expense recorded in fiscal 1995. No expense was accrued in 1996 as
a liability for the maximum amount of benefits that could be paid under this
plan had been accrued in prior years. See footnote 3 to the table set forth in
"Selected Financial Data" and Note 10 of RMI's Notes to Financial Statements.
63
<PAGE>
All other operating expenses increased by $1,712,000, or 15.3%, to
$12,912,000 for fiscal 1996 as compared to fiscal 1995. Occupancy and
equipment expenses were generally unchanged, while communications expense and
clearing and exchange fees increased moderately in 1996 due to increased
trading volume and growth in the number 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, market-value-based stock option plans if the IPO
is consummated, the Company's effective income tax rate is expected to be
lower in future periods. See "--Earnings Charges if IPO 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 employees 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 27, 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 rate. 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. If the IPO is consummated, at an
assumed offering price of $ per share, this ratio will decline to
approximately : .
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 by it in the IPO, will be adequate to fund
its operations for at least 18 to 24 months. See "Risk Factors."
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 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 and
results of operations.
64
<PAGE>
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 display 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 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 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
impact the Company's financial position, results of operations or cash flows.
65
<PAGE>
MANAGEMENT OF HOLDING COMPANY
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The directors, director nominees and executive officers of Holding Company
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
Arthur W. Harrigan, Jr.
(1).................... 54 Director Nominee
Kirby L. Cramer (1)..... 61 Director Nominee
Peter B. Madoff (1)..... 52 Director Nominee
</TABLE>
- --------
(1) Nominees for election as directors of Holding Company will be elected by
RMI immediately prior to the Reorganization.
Lesa A. Sroufe 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 had 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. In April 1998, Ms. Sroufe became Chief
Executive Officer and Chairman of the Board of Holding Company. From 1980 to
1988, she was a research analyst with the Foster & Marshall division of
Shearson Lehman Hutton, a stock brokerage firm, and became Director of
Research for that division 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. 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 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. In April 1998, Mr. Mortell became
President, Chief Operating Officer, Treasurer and a director of Holding
Company. 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 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. In April 1998, Mr. McClure became Executive Vice
President and a director of Holding Company. 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 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. In April 1998, Mr. Bensussen became
Senior Vice President, Chief Financial Officer and Secretary of Holding
Company. 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.
66
<PAGE>
John L. MacKenzie 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. In April 1998, he became a director of Holding Company. 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.
Arthur W. Harrigan, Jr. is a nominee for election by RMI as a director of
Holding Company. Mr. Harrigan was a partner in 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.
Kirby L. Cramer is a nominee for election by RMI as a director of Holding
Company. Mr. Cramer served as Chairman of the Board and Chief Executive
Officer of Hazleton Laboratories Corp., a biological research company, from
1968 until 1987 and, since 1987, has served as Hazelton's Chairman Emeritus.
In addition, Mr. Cramer currently serves on the board of directors of Immunex
Corporation, ATL Ultrasound, Inc., SonoSight, Inc., Unilab Corporation, Landec
Corporation, Northwestern Trust Company, The Commerce Bank of Washington and
Pharmaceutical Product Development, Inc.
Peter B. Madoff is a nominee for election by RMI as a director of Holding
Company. Since 1965, Mr. Madoff has served as Senior Managing Director of
Bernard C. Madoff Investment Securities.
DIRECTOR COMMITTEES AND COMPENSATION
The Holding Company Board currently has no committees. Prior to or shortly
after consummation of the Reorganization, Holding 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 Board of Directors. The compensation committee will determine officer
and director compensation and administer the Company's compensation plans.
See ""--Compensation Plans."
Directors who are employees of Holding Company receive no additional
compensation for their service as directors. Nonemployee directors will
receive compensation to be established prior to or shortly after consummation
of the Reorganization.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Holding Company currently has no compensation committee, and its officers
and directors have not deliberated concerning executive compensation. Prior to
or shortly after consummation of the Reorganization, Holding Company will
establish a compensation committee. See "--Director Committees and
Compensation." No executive officer of Holding 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 Holding Company Board.
67
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to
compensation paid by RMI in the fiscal year ended September 26, 1997 to the
Chief Executive Officer and the four other most highly compensated executive
officers of Holding Company during fiscal 1997 (collectively the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION
-------------------------------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING COMPENSATION
POSITION SALARY($) BONUS($) COMMISSIONS($) COMPENSATION($) OPTIONS(#) ($)(1)
------------------ --------- --------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lesa A. Sroufe.......... 263,876 377,062 -- -- 35,000 882
Chief Executive Officer
Robert J. Mortell, Jr... 397,875 362,925 -- -- -- 900
President, Chief
Operating
Officer and Treasurer
Mark A. McClure......... 147,875 325,752 214,691 -- 8,750 4,058
Executive Vice
President
V. Lawrence Bensussen... 123,475 123,735 -- -- -- 499
Senior Vice President,
Chief Financial Officer
and Secretary
Stanley G. Freimuth(2).. 9,000 1,284,323 979,406 -- -- 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, represents $3,210 and $2,675, respectively, in cash payments
made upon the exercise of stock options in amounts equal to the
difference between the exercise price of such options and a price
contractually agreed upon by RMI and the Named Executive Officer.
(2) Mr. Freimuth served as RMI's Chief Executive Officer from October 1996
to February 1998. He plans to resign as RMI's Chairman of the Board upon
consummation of the Reorganization. Mr. Freimuth will not be an
executive officer or director of Holding Company following the
Reorganization.
68
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended September
26, 1997.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK
---------------------------------------------- PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH)(2) DATE(3) 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) Based on a total of 411,990 shares subject to options granted to employees
in fiscal 1997.
(2) All options were granted at book value on the date of grant. Mr. McClure
will be entitled to a cash payment equal to $2.28 per share upon exercise
of such options.
(3) Options for 19,425 shares and 15,575 shares were granted to Ms. Sroufe on
March 11, 1997 and options for 8,750 shares were granted to Mr. McClure on
February 4, 1997. Options granted were immediately exercisable on the date
of grant except that the options granted for 15,575 shares vested on
January 2, 1998.
(4) The assumed rates of growth are prescribed by the Commission for
illustrative purposes only and are not intended to forecast or predict
future stock prices.
OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding option
exercises by the Named Executive Officers during the fiscal year ended
September 26, 1997, and unexercised stock options held by the Named Executive
Officers as of September 26, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
VALUE OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END ($)(2)
SHARES ACQUIRED REALIZED --------------------------------- -------------------------
NAME ON EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lesa A. Sroufe.......... -- -- 43,925 15,575 188,993 19,002
Stanley G. Freimuth..... 35,000 92,325 33,425 -- 91,121 --
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 --
</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.
69
<PAGE>
COMPENSATION PLANS
EXECUTIVE COMPENSATION POOL AND PERFORMANCE BONUS PLAN
RMI's Executive Committee, consisting 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, Holding Company
intends for the Base Plan and the Bonus Plan, if continued, to be administered
by a committee (the "Committee") of the Holding Company 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 Holding Company Board (or, prior to the
Reorganization, the RMI 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
In the event of an initial public offering of Holding Company's equity
securities, Holding Company plans to implement a Restricted Stock Purchase
Plan (the "Restricted Stock Purchase Plan"). Certain of RMI's executive
officers and other key employees would be eligible to participate in the
Restricted Stock Purchase Plan. Eligible 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 Holding Company 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
Holding Company Board presently intends to allocate approximately 1,500,000
shares of Common Stock for issuance pursuant to the Restricted Stock Purchase
Plan. These shares would be issued under the 1998 Stock Incentive Compensation
Plan.
1998 STOCK INCENTIVE COMPENSATION PLAN
No awards will be made under the 1998 Stock Incentive Compensation Plan (the
"1998 Plan") until after the consummation of the Reorganization. The purpose
of the 1998 Plan is to enhance the long-term shareholder value of Holding
Company by offering employees, directors, officers, consultants, agents,
advisors and independent contractors of Holding Company and its subsidiaries
an opportunity to participate
70
<PAGE>
in Holding Company's growth and success, and to encourage them to remain in
the service of Holding Company and its subsidiaries and to acquire and
maintain stock ownership in Holding 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. A maximum
of 4,000,000 shares of New Common Stock will be available for issuance under
the 1998 Plan. Approximately 285 persons will be eligible to receive awards
under the 1998 Plan.
Stock Option Grants. The Compensation Committee of the Holding Company 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 New 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, if the New Common Stock is listed on Nasdaq, 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 New 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 New 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 New 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 Holding 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 Holding Company and have,
subject to certain restrictions, all the rights of shareholders with respect
to such shares.
Performance Awards. The Plan Administrator is authorized under the 1998 Plan
to grant performance awards that may be denominated in cash, shares of New
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 New 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.
71
<PAGE>
Corporate Transactions. In the event of certain Corporate Transactions (as
defined in the 1998 Plan), 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 (the "Successor Corporation"). 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, 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.
ASSUMED PLANS
Upon consummation of the Reorganization, Holding Company will assume certain
obligations of RMI under the 1996 Plan, the 1993 Plan and the 1989 Plan. See
"Proposal I: The Reorganization--Certain Effects of the Reorganization." 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 March 27,
1998, 3,599,834 shares of unissued RMI Stock were reserved for issuance under
the Assumed Plans. In addition, as of March 27, 1998, options for 1,231,255
shares of RMI Stock were outstanding and exercisable and RMI agreed to grant
options to purchase a total of 605,555 shares of RMI Stock under RMI's then
current stock option plans contingent upon satisfaction of certain performance
goals. See Note 11 of Notes to RMI's Financial Statements. Of the outstanding
options under the Assumed Plans, options for 443,555 shares will expire,
pursuant to their terms, unless exercised by June 26, 1998. No additional
options will be granted under the Assumed Plans after consummation of the
Reorganization.
72
<PAGE>
TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
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
Noncompetition Agreements with a 30-month term commencing on 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 the 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.
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 Holding Company, as provided in
such plans. See "Management of Holding Company--Compensation Plans."
73
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Brooks G. Ragen, a founder of RMI's predecessor and former RMI Chairman and
Chief Executive Officer, is RMI's largest shareholder and a senior retail
broker of RMI. In anticipation of the proposed IPO, Mr. Ragen and the Company
have agreed to establish a new relationship, pursuant to which Mr. Ragen
intends to form a new entity to serve as a clearing customer of RMI, thereby
enabling Mr. Ragen to continue his business. On or before January 1999, Mr.
Ragen's entity intends to hire Mr. Ragen, up to five current employees of RMI,
and one former employee of RMI. Mr. Ragen has agreed to conduct all or
substantially all of his Commission- and NASD-regulated business through RMI,
except for business currently conducted with one outside investment advisor,
and certain corporate finance activities. Mr. Ragen has agreed not to compete
with RMI otherwise than through Mr. Ragen's entity. If he does not form the
new entity, 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 RMI. See "Termination of Employment and Change-in-Control
Arrangements." Although the Company has structured fees charged to Mr. Ragen's
entity 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 or
prospects. As part of its understanding with Mr. Ragen, the Company has agreed
that Mr. Ragen may sell at least 40% of the shares that he will own in Holding
Company as of the Reorganization and, as reasonably close to 50% of the shares
as possible, in the proposed IPO. A portion of such shares will be sold in the
primary offering in the proposed IPO, and the balance will be included in the
underwriters' over-allotment option. Mr. Ragen has agreed that, except for
those shares sold in the proposed IPO, he will be subject to the same
restrictions on transfer that apply to other employees of the Company. Each of
Mr. Ragen and the Company has agreed to release claims that he or it may have
against the other. Mr. Ragen has agreed that, once it has been formed, Mr.
Ragen's entity will become a party to the agreement between Mr. Ragen and RMI.
Mr. Ragen will continue to receive compensation with respect to corporate
finance advisory assignments originated by him.
Cameron B. Ragen, Brooks Ragen's son, has been employed by RMI since
September 1994. For the fiscal year ended September 26, 1997 and the six
months ended March 27, 1998, Cameron B. Ragen received compensation of
$112,965 and $78,458, respectively.
Teresa A. James, John MacKenzie's daughter, has been employed by RMI since
August 1992. For the fiscal year ended September 26, 1997 and the six months
ended March 27, 1998, Teresa A. James received compensation of $98,992 and
$42,284, respectively.
William R. Mortell, Robert J. Mortell Jr.'s son, has been employed by RMI
since February 1994. For the fiscal year ended September 26, 1997 and the six
months ended March 27, 1998, William R. Mortell received compensation of
$48,025 and $35,500, respectively.
The Company believes that the terms of such employment were at least as
favorable to RMI as would have been obtainable in arm's-length dealings with
unrelated third parties.
Robert J. Mortell, Jr., an executive officer and director of Holding
Company, is a participant in the Share Repurchase Plan, pursuant to which RMI
redeemed 8,800 shares of RMI Stock on 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 (i) the book value of the shares at the end of
the eighth quarter after the redemption or (ii) if the proposed IPO occurs,
the initial public offering price. This payment by RMI to Mr. Mortell may be
in excess of $60,000.
Peter B. Madoff, a nominee for election by RMI as a director of Holding
Company, is Senior Managing Director of Bernard C. 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
RMI to BMIS for such services were $ , $198,371 and $220,308 for the
fiscal years ended September 29, 1995, September 27, 1996 and September 26,
1997, respectively.
74
<PAGE>
Arthur W. Harrigan, Jr., a nominee for election by RMI as a director of
Holding Company, is a partner of the law firm Danielson Harrigan & Tollefson
LLP, which RMI has retained in the current fiscal year in connection with
certain matters relating to the Reorganization and the proposed IPO.
Robert J. Mortell, Jr. and Mark A. McClure have pledged 309,526 and 63,350
shares of RMI Stock, respectively, to commercial banks as security for
individual lines of credit. RMI has in the past delivered letters to banks
indicating RMI's desire to significantly limit the number of shares of RMI
Stock held by nonemployees. In particular, RMI 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 RMI
Stock held by shareholders who default on loans secured by such shares. The
Company intends to deliver like letters to such banks notifying them of the
termination of its repurchase policy as of the consummation of the IPO, if it
occurs.
RMI, 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.
HOLDING COMPANY BENEFICIAL OWNERSHIP
From the formation of Holding Company until the Effective Time, RMI has
owned and will own 100% of the capital stock of Holding Company.
75
<PAGE>
RMI BENEFICIAL OWNERSHIP
The following table sets forth as of April 15, 1998, certain information
with respect to the beneficial ownership of the RMI Stock by (i) each person
known by RMI to beneficially own more than 5% of the RMI Stock, (ii) each
director of RMI, (iii) each of the four highest paid executive officers and
Chief Executive Officer of RMI, and (iv) all of RMI's directors and executive
officers as a group. Except as otherwise indicated, RMI believes that the
beneficial owners of the RMI Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect
to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------
NAME AND ADDRESS NUMBER PERCENTAGE
---------------- --------- ----------
<S> <C> <C>
Brooks G. Ragen(1)................................... 1,002,841 9.4%
c/o Ragen MacKenzie Incorporated
999 Third Avenue, Suite 4300
Seattle, WA 98104
John L. MacKenzie(2)................................. 1,010,525 9.4%
c/o Ragen MacKenzie Incorporated
999 Third Avenue, Suite 4300
Seattle, WA 98104
Stanley G. Freimuth(3)............................... 556,675 5.2%
c/o Ragen MacKenzie Incorporated
999 Third Avenue, Suite 4300
Seattle, WA 98104
Lesa A. Sroufe(4).................................... 262,500 2.4%
Robert J. Mortell, Jr................................ 441,776 4.1%
Mark A. McClure(5)................................... 121,100 1.1%
V. Lawrence Bensussen(6)............................. 105,000 *
David D. Lewis....................................... 240,600 2.2%
T. Scott Eaton....................................... 237,188 2.2%
Glen W. Hamilton(7).................................. 302,841 2.8%
Jefferson E. Bruner(8)............................... 183,575 1.7%
Gregg M. Ose......................................... 128,240 1.2%
Timothy H. Ganahl.................................... 168,784 1.6%
Peter C. Hanson(9)................................... 199,805 1.9%
Daniel F. Nelson..................................... 137,000 1.3%
Michael McMillen, Jr.(10)............................ 121,265 1.1%
Dale W. Slater(11)................................... 221,284 2.1%
Thomas B. Tawresey(12)............................... 66,489 *
Richard W. Tschetter(13)............................. 176,050 1.6%
Timothy J. Tucker(14)................................ 112,000 1.0%
James E. Webster(15)................................. 147,810 1.4%
All directors and executive officers as a group (21
persons)(16)........................................ 5,943,348 54.5%
</TABLE>
- --------
* Less than 1%.
(1) Does not include 18,550 shares issuable pursuant to agreements to grant
options if certain performance goals are met.
(2) Includes 50,400 shares issuable to Mr. MacKenzie upon exercise of stock
options that are exercisable within 60 days, 28,000 shares held by Teresa
A. James, Mr. MacKenzie's daughter, and 4,900 shares issuable to Ms. James
upon exercise of stock options that are exercisable within 60 days of
April 15, 1998. Mr. MacKenzie disclaims beneficial ownership of Ms. James'
shares and options.
(3) Includes 15,925 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998. Does not include 20,475
shares issuable pursuant to agreements to grant options if certain
performance goals are met.
76
<PAGE>
(4) Includes 52,500 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998.
(5) Includes 36,750 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998. Does not include 10,325
shares issuable pursuant to agreements to grant options if certain
performance goals are met.
(6) Includes 7,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998.
(7) Does not include 6,475 shares issuable pursuant to agreements to grant
options if certain performance goals are met.
(8) Includes 19,075 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998. Does not include 20,065
shares issuable pursuant to agreements to grant options if certain
performance goals are met.
(9) Includes 4,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998.
(10) Includes 23,965 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998. Does not include 13,860
shares issuable pursuant to agreements to grant options if certain
performance goals are met.
(11) Does not include 5,850 shares issuable pursuant to agreements to grant
options if certain performance goals are met.
(12) Includes 2,500 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998. Does not include 2,425
shares issuable pursuant to agreements to grant options if certain
performance goals are met.
(13) Includes 17,150 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 15, 1998. Does not include 17,065
shares issuable pursuant to agreements to grant options if certain
performance goals are met.
(14) Does not include 35,000 shares issuable pursuant to agreements to grant
options if certain performance goals are met.
(15) Does not include 5,850 shares issuable pursuant to agreements to grant
options if certain performance goals are met.
(16) See footnotes 1-10 above.
INDEPENDENT AUDITORS
Deloitte & Touche LLP served as Ragen MacKenzie Incorporated's independent
auditors for the fiscal year ended September 26, 1997, and continues to serve
in such capacity, and will serve as auditors for Ragen MacKenzie Group
Incorporated. Representatives of Deloitte & Touche LLP are expected to be
present at the Special Meeting and will have the opportunity to make a
statement if they so desire and to respond to appropriate questions.
OTHER BUSINESS
Management knows of no other business that will be presented for action at
the Special Meeting. If other business requiring a vote of the shareholders
should come before the Special Meeting, the persons designated as proxies will
vote or refrain from voting in accordance with their best judgment.
LEGAL OPINION
The legality of the shares of Reorganization Common Stock to be issued in
connection with the Reorganization is being passed upon for Holding Company by
Perkins Coie LLP, Seattle, Washington.
77
<PAGE>
TAX OPINION
The tax consequences of the Merger to the shareholders of RMI will be passed
upon at the Effective Time by Perkins Coie LLP. See "Proposal I: The
Reorganization--Material Federal Income Tax Consequences."
EXPERTS
The financial statements of Ragen MacKenzie Incorporated as of September 26,
1997 and September 27, 1996 and for each of the three years in the period
ended September 26, 1997, and the statement of financial condition of Ragen
MacKenzie Group Incorporated as of April 16, 1998 included in this Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and have been so
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RAGEN MACKENZIE GROUP INCORPORATED
Independent Auditors' Report............................................. F-2
Statement of Financial Condition as of April 16, 1998.................... F-3
Note to Statement of Financial Condition................................. F-4
RAGEN MACKENZIE INCORPORATED
Independent Auditors' Report............................................. F-5
Statements of Financial Condition as of September 27, 1996, September 26,
1997 and
March 27, 1998 (unaudited).............................................. F-6
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-7
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-8
Statements of Changes in Stockholders' 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-10
Notes to Financial Statements............................................ F-11
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ragen MacKenzie Group Incorporated
Seattle, Washington
We have audited the accompanying statement of financial condition of Ragen
MacKenzie Group Incorporated (the Company) as of April 16, 1998. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statement presents fairly , in all material
respects, the financial position of the Company as of April 16, 1998, in
conformity with generally accepted accounting principles .
Deloitte & Touche LLP
Seattle, Washington
April 16, 1998
F-2
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
STATEMENT OF FINANCIAL CONDITION
APRIL 16, 1998
<TABLE>
<CAPTION>
APRIL 16,
1998
---------
<S> <C>
ASSETS
Cash................................................................. $1,000
------
TOTAL ASSETS....................................................... $1,000
======
STOCKHOLDER'S EQUITY
Preferred Stock, $0.001 par value-Authorized 10,000,000 shares; no
shares issued and outstanding.......................................
Common Stock, $0.001 par value-- Authorized 50,000,000 shares; 100
shares issued and outstanding....................................... $1,000
------
TOTAL STOCKHOLDER'S EQUITY......................................... $1,000
======
</TABLE>
See Note to Statement of Financial Condition.
F-3
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTE TO STATEMENT OF FINANCIAL CONDITION
APRIL 16, 1998
BASIS OF PRESENTATION: Ragen MacKenzie Group Incorporated (the Company), a
Washington Corporation, was formed for the purpose of becoming the sole
shareholder of Ragen MacKenzie Incorporated (RMI) pursuant to an Agreement and
Plan of Merger (the merger agreement). The merger agreement, which is subject
to shareholder approval, provides that all issued and outstanding common
shares of RMI, other than those held by dissenters, will be exchanged for an
equivalent number of common shares of the Company and RMI will become a wholly
owned subsidiary of the Company. In addition, the Company will ensure the
obligations of RMI with respect to RMI's outstanding stock options, stock
appreciation rights and other performance-based arrangements. The Company
intends to serve as the holding company for all operations of RMI upon
completion of the exchange of shares and completion of the merger.
RMI capitalized the Company through the purchase of 100 shares of common
stock.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ragen MacKenzie Incorporated
Seattle, Washington
We have audited the accompanying statements of financial condition of Ragen
MacKenzie Incorporated (the Company) as of September 27, 1996, and September
26, 1997, and the related statements of income, cash flows, and changes in
stockholders' 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 financial statements present fairly, in all material
respects, the financial position of Ragen MacKenzie Incorporated as of
September 27, 1996, and September 26, 1997, and the results of its operations
and its cash flows for each of the three years in the period ended September
26, 1997, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
November 6, 1997
(April 13, 1998 as to note 14)
F-5
<PAGE>
RAGEN MACKENZIE INCORPORATED
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 STOCKHOLDERS' 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 8
and 14)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value--
Authorized, 20,000,000 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 stockholders' equity......... 52,523 70,248 79,882
-------- -------- --------
TOTAL.................................. $483,968 $665,877 $697,314
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
RAGEN MACKENZIE INCORPORATED
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 17,315
------- ------- ------- ------- -------
Total revenues...... 62,401 79,821 88,581 41,979 51,082
Interest expense...... 13,052 16,230 19,694 9,138 11,104
------- ------- ------- ------- -------
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 noninterest
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 Financial Statements.
F-7
<PAGE>
RAGEN MACKENZIE INCORPORATED
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 Financial Statements.
F-8
<PAGE>
RAGEN MACKENZIE INCORPORATED
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 $ 11,329
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 Financial Statements.
F-9
<PAGE>
RAGEN MACKENZIE INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' 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 Financial Statements.
F-10
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: Ragen MacKenzie Incorporated (the Company) is
registered with the Securities and Exchange Commission (the SEC) as a
broker/dealer and is a member firm of the New York Stock Exchange (the NYSE).
The Company 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. The Company has retail offices located
in Washington, Oregon, and Alaska.
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.
Cash: Cash as reflected in the 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
F-11
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
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.
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.
F-12
<PAGE>
RAGEN MACKENZIE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
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 2: 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.
NOTE 3: 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.
F-13
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
NOTE 4: 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 5: 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 6: 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)
------ ------ ------ ------ ------
$3,672 $6,254 $9,460 $5,348 $4,518
====== ====== ====== ====== ======
</TABLE>
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>
F-14
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
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 7: 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.
NOTE 8: 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.
F-15
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
NOTE 9: 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 10: 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.
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 11: STOCKHOLDERS' EQUITY
The Company maintains variable award stock option plans under which
incentive stock options and nonqualified stock options 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
F-16
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
at the grant dates for awards under those plans consistent with the provisions
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 have been made for expected
volatility.
At March 27, 1998, there were 3,599,834 shares of unissued common stock
reserved for issuance under the plan, 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 plan 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-17
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO 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.
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 January 1997, the Company's shareholders approved an amendment to the
Company's Amended and Restated Articles of Incorporation in connection with a
7-for-1 split of the Company's common stock that increased the authorized
number of shares of common stock from 14,000,000 to 20,000,000 shares. All
common, common equivalent shares, and option awards have been restated to give
effect to the stock split.
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 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,
F-18
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
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 mandatorily redeemable common stock in the
accompanying 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 14 to the financial statements.
NOTE 12: 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.
F-19
<PAGE>
RAGEN MACKENZIE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED MARCH 28, 1997 AND
MARCH 27, 1998 IS UNAUDITED)
NOTE 13: 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 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 basic and diluted
net income 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 14: SUBSEQUENT EVENTS
During the quarter ended March 27, 1998, the Company's Board of Directors
authorized the formation of a newly formed company, Ragen MacKenzie Group
Incorporated (the Holding Company), for the purpose of becoming the sole
shareholder of the Company pursuant to an Agreement and Plan of Merger (the
merger agreement). The merger agreement, which is subject to shareholder
approval, provides that all issued and outstanding common shares of the
Company, other than those held by dissenters, will be exchanged for an
equivalent number of common shares of the Holding Company. Ragen MacKenzie
Group Incorporated intends to serve as the holding company for all operations
of the Company upon completion of the exchange of shares and completion of the
merger. In addition, the Company authorized the filing of a registration
statement with the SEC relating to an initial public offering of common stock
of the Holding Company (the IPO), and approved the termination of the Share
Repurchase Plan subject to the successful completion of the proposed IPO.
Upon successful completion of the IPO, 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 option value established at the most recent period immediately
preceding the IPO. 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.
In conjunction with upon the effectiveness of the IPO, the Company intends
to adopt certain incentive stock option and related benefit plans.
F-20
<PAGE>
ANNEX A: AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May , 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) At the Effective Time, the Articles of Incorporation of the Company, as
in effect immediately prior to the Effective Time, shall be amended so that
the operative provisions read in their entirety exactly as the Articles of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, except that the name of the corporation specified therein shall be
"Ragen MacKenzie Incorporated."
(b) At the Effective Time, the Bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be amended so that they read in
their entirety exactly as the Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, except that the name of the corporation specified
therein shall be Ragen MacKenzie Incorporated.
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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 Company immediately
prior to the Effective Time, and 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 elected or
appointed and qualified 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 $.001 per share, of the
Holding Company:
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 $.001 per share, of the Holding Company:
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 $.001 per share, of the
Holding Company.
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 $.001 per share, of the Surviving
Corporation; and
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(c) each share of Common Stock, par value $.001 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).
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 New 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 New
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.
SECTION 3.4 CLOSING OF TRANSFER BOOKS
From and after the Effective Time, the stock transfer books of the Company
(but not of the Surviving Corporation) shall be closed and no transfer of
shares of Company Common Stock shall thereafter be made. If, after the
Effective Time, certificates formerly representing shares of Company Common
Stock are presented to the Surviving Corporation, they shall be canceled and
exchanged for certificates representing shares of Reorganization Common Stock
as set forth in Section 3.1 hereof.
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 holders of not less than a
majority of the outstanding shares of Company Common Stock in accordance with
the Articles of Incorporation of the Company, (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 1989 Stock
Option Plan, the 1993 Stock Option Plan and the 1996 Stock Incentive
Compensation Plan (collectively, the "Assumed Plans"), which is outstanding
immediately prior to the Effective Time, shall be converted into and become an
option or right to purchase or acquire the same number of shares of Class B
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 as in effect at the Effective Time.
The same number of shares of Class B common stock shall be reserved for
purposes of the Assumed Plans 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 all obligations of the
Company under the Option Plans, and the outstanding options and other rights
to acquire or purchase shares of Company Common Stock granted pursuant to the
Assumed Plans.
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
_____________________________________
By:
Its:
RAGEN MACKENZIE GROUP INCORPORATED
_____________________________________
By:
Its:
RMGI MERGER CORP.
_____________________________________
By:
Its:
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ANNEX C: CHAPTER 23B.13 OF THE
WASHINGTON BUSINESS CORPORATION ACT
(DISSENTERS' RIGHTS)
23B.13.010 DEFINITIONS
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under RCW 23B.13.020 and who exercises that right when and in the
manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the
extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
23B.13.020 RIGHT TO DISSENT
(1) A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the
corporation is a subsidiary that is merged with its parent under RCW
23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares.
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(2) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this chapter may not challenge the corporate action creating
the shareholder's entitlement unless the action fails to comply with the
procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent
with respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair value
of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person
and notifies the corporation in writing of the name and address of each
person on whose behalf the shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if
the shares as to which the dissenter dissents and the dissenter's other
shares were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days
after effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was
taken and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must (a) deliver to
the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effected, and (b) not vote such shares in favor of the
proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220 DISSENTERS' NOTICE
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
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(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 DUTY TO DEMAND PAYMENT
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed
corporate action is effected or the restriction is released under RCW
23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date
of the proposed corporate action.
23B.13.250 PAYMENT
(1) Except as provided in RCW 23B.13.270, within thirty days of the later of
the effective date of the proposed corporate action, or the date the
payment demand is received, the corporation shall pay each dissenter who
complied with RCW 23B.13.230 the amount the corporation estimates to be
the fair value of the shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity
for that year, and the latest available interim financial statements,
if any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
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(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 FAILURE TO TAKE ACTION
(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release any transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it
must send a new dissenters' notice under RCW 23B.13.220 and repeat the
payment demand procedure.
23B.13.270 AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the
shares before the date set forth in the dissenters' notice as the date of
the first announcement to news media or to shareholders of the terms of
the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full
satisfaction of the dissenter's demand. The corporation shall send with
its offer an explanation of how it estimated the fair value of the shares,
an explanation of how the interest was calculated, and a statement of the
dissenter's right to demand payment under RCW 23B.13.280.
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of
interest due, and demand payment of the dissenter's estimate, less any
payment under RCW 23B.13.250, or reject the corporation's offer under RCW
23B.13.270 and demand payment of the dissenter's estimate of the fair
value of the dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within sixty
days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not return
the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B. 13.300 COURT ACTION
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the court to determine the fair value of
the shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
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(2) The corporation shall commence the proceeding in the superior court of the
county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of
the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as
in an action against their shares and all parties must be served with a
copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of
this chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or in any amendment to it.
The dissenters are entitled to the same discovery rights as parties in
other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment (a)
for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation, or (b) for the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the corporation elected to
withhold payment under RCW 23B.13.270.
23B.13.310 COURT COSTS AND COUNSEL FEES
(1) The court in a proceeding commenced under RCW 23B.13.300 shall determine
all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under RCW
23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") 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 (the "Bylaws")
provides for indemnification of the registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law.
Section 23B.08.320 of the WBCA authorizes a corporation to eliminate or
limit a director's personal liability to the corporation or its shareholders
for monetary damages for conduct as a director, except in certain
circumstances involving acts or omissions, intentional misconduct by a
director or knowing violations of law by a director or distributions illegal
under Washington law, or any transaction from which the director will
personally receive a benefit in money, property or services to which the
director is no legally entitled. Article 8 of the registrant's Articles of
Incorporation (the "Articles of Incorporation") 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 above discussion of the WBCA and the registrant's Bylaws and Articles of
Incorporation is not intended to be exhaustive and is qualified in its
entirety by reference to such statute, the Bylaws and the Articles of
Incorporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
2.1 Agreement and Plan of Merger dated as of May , 1998 (attached to
Proxy Statement/Prospectus as Annex A).
3.1* Articles of Incorporation of Ragen MacKenzie Group Incorporated
(attached to Proxy Statement/Prospectus as Annex B).
3.2* Bylaws of Ragen MacKenzie Group Incorporated (attached to Proxy
Statement/Prospectus as Annex B).
4.1* Specimen Common Stock Certificates.
5.1* Opinion of Perkins Coie LLP as to the legality of the securities
being registered.
8.1* Opinion of Perkins Coie LLP regarding tax matters.
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 by
RMGI and each of Lesa A. Sroufe, Robert J. Mortell, Jr., Mark A.
McClure, V. Lawrence Bensussen and John L. MacKenzie, each of which
is dated April 14, 1998.
10.5* Severance and Correspondent Clearing Agreement between RMI and
Brooks G. Ragen, dated April , 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.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
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.
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
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
99.1 Form of Proxy
</TABLE>
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* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(b) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment 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.
(c) 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 foregoing provisions, 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 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.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on the 16th day of April, 1998.
RAGEN MACKENZIE GROUP INCORPORATED
/s/ Robert J. Mortell, Jr.
By: _________________________________
Robert J. Mortell, Jr.
President and Chief Operating
Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Robert J. Mortell and V. Lawrence Bensussen, and each of them, with
full power of substitution and resubstitution and full power to act without
the other, as his or her true and lawful attorney-in-fact and agent to act in
his or her name, place and stead and to execute in the name and on behalf of
each person, individually and in each capacity stated below, and to file, any
and all amendments to this Registration Statement, including any and all post-
effective amendments and amendments thereto and any registration statement
relating to the same offering as this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their and his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 16th day of April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ Lesa A. Sroufe Chairman of the Board and Chief Executive
____________________________________ Officer (Principal Executive Officer)
Lesa A. Sroufe
/s/ Robert J. Mortell, Jr. President, Chief Operating Officer,
____________________________________ Treasurer and Director
Robert J. Mortell, Jr.
/s/ V. Lawrence Bensussen Senior Vice President, Chief Financial
____________________________________ Officer and Secretary (Principal
V. Lawrence Bensussen Financial and Accounting Officer)
/s/ Mark A. McClure Executive Vice President and Director
____________________________________
Mark A. McClure
/s/ John L. MacKenzie Director
____________________________________
John L. MacKenzie
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of May , 1998 (attached to
Proxy Statement/Prospectus as Annex A).
3.1* Articles of Incorporation of Ragen MacKenzie Group Incorporated
(attached to Proxy Statement/Prospectus as Annex B).
3.2* Bylaws of Ragen MacKenzie Group Incorporated (attached to Proxy
Statement/Prospectus as Annex B).
4.1* Specimen Common Stock Certificates.
5.1* Opinion of Perkins Coie LLP as to the legality of the securities
being registered.
8.1* Opinion of Perkins Coie LLP regarding tax matters.
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, 1998, 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 by
RMGI and each of Lesa A. Sroufe, Robert J. Mortell, Jr., Mark A.
McClure, V. Lawrence Bensussen and John L. MacKenzie, each of which
is dated April 14, 1998.
10.5* Severance and Correspondent Clearing Agreement between RMI and
Brooks G. Ragen, dated April , 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.
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
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
99.1 Form of Proxy
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 10.1
MASTER NOTE
(BROKER CALL LOANS)
July 9, 1997 San Francisco, California
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay, in lawful
money of the United States of America and immediately available funds, to the
order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank") at
Bank's office located at 1850 Gateway Boulevard, Concord, California 94520, or
such other place as the holder may from time to time designate, the aggregate
unpaid principal amount of all advances made by Bank from time to time from and
after the date hereof in its sole discretion to or for the benefit of Borrower
under this Note (each, an "Advance"), on demand, or if no demand, on
_______________, 19__, together with interest accrued thereon, payable in
arrears on the first day of each calendar month beginning with the first such
day to occur after the date hereof, and on maturity or demand, at such rate or
rates as may be offered by Bank and accepted by Borrower with respect to each
such Advance (which acceptance shall in any event be deemed to occur with
respect to any Advance upon receipt by Borrower of the proceeds of such
Advance). Any amount not paid when due (whether on demand, at maturity, by
acceleration or otherwise) shall bear interest at the Reference Rate plus 2% per
annum, which interest shall be payable on demand. ("Reference Rate" means the
rate of interest publicly announced from time to time by Bank in San Francisco,
California, as its Reference Rate. The Reference Rate is a rate set by Bank
based upon various factors including Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans. Bank may price loans at, above or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of business on
the day specified in the public announcement of such change.) Unless otherwise
agreed by Bank, no Advances will be made hereunder after _______________, 19___.
All obligations of Borrower under this Note shall be secured by a security
agreement (as amended, supplemented or otherwise modified from time to time, the
"Security Agreement") executed by Borrower as debtor granting a security
interest in securities.
The loan account records maintained by Bank shall at any time be conclusive
evidence as to the amount of any Advance, its interest rate and outstanding
amount at such time, absent manifest error. All interest will be calculated on
the basis of a 360-day year, actual days elapsed (except that interest based on
the Reference Rate shall be calculated on the basis of a 365-day year). If any
payment of principal of or interest on this Note shall become due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in computing the
amount of interest due and payable; provided that the interest accrued during
such extension of time shall not be due and payable
<PAGE>
until the next applicable interest payment date occurring after such succeeding
Business Day (whether such next applicable interest payment date occurs as a
result of a demand, at maturity, by acceleration or otherwise). "Business Day"
shall mean any day other than (i) Saturday or Sunday or (ii) any other day on
which commercial banks in San Francisco, California, are authorized or required
by law to close.
Borrower represents, warrants and covenants (and each request for an
Advance under this Note shall be deemed a representation and warranty by
Borrower as of the date of such Advance) that:
(a) Borrower is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization;
(b) Borrower has the power and authority and all governmental
licenses, authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver and perform its obligations under this Note and
the Security Agreement;
(c) Borrower is properly licensed and in good standing in, and where
required has qualified under and complied with the fictitious name statute of,
each jurisdiction in which Borrower is doing business;
(d) Borrower is properly registered as a broker or dealer with the
Securities and Exchange Commission and all other regulatory authorities with
which such registration may be required by applicable law;
(e) The execution, delivery and performance by Borrower of this Note
and the Security Agreement have been duly authorized and do not and will not
conflict with the terms of any certificate or charter, bylaw, or other
organization papers of Borrower;
(f) This Note and the Security Agreement constitute the legal, valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms;
(g) The execution, delivery, and performance of this Note and Security
Agreement are not in conflict with any law or any indenture, agreement or
undertaking to which Borrower is a party or by which Borrower is bound or
affected, and, other than in favor of Bank, will not result in the creation or
imposition of (or the obligation to create or impose) any lien, charge or
encumbrance on, or security interest in, any of its property pursuant to the
provisions of any of the foregoing;
(h) There are no actions, suits, proceedings, claims or disputes
pending, or to the best knowledge of Borrower, threatened or contemplated, at
law, in
-2-
<PAGE>
equity, in arbitration or before any governmental or regulatory authority,
against Borrower which, if determined adversely to Borrower, would have a
materially adverse effect on the financial condition, business, properties or
operations of Borrower, and Borrower is not in default with respect to any
order, writ, injunction, decree, or demand of any court or other governmental or
regulatory authority; and
(i) Borrower has complied with the requirements of the stock
exchange(s) of which it is a member and all federal, state, and local laws,
rules, regulations, orders and directions of any governmental authority having
jurisdiction over it or its business, including but not limited to Regulation T
of the Board of Governors of the Federal Reserve System.
At Bank's sole discretion in each instance, Bank may accept telephone
requests to make Advances. Borrower assumes all risks regarding the validity,
authenticity, due authorization and correct interpretation of any such request
purported to be made by or on behalf of Borrower and agrees that its obligations
hereunder shall not be affected in any way by Bank's failure to receive or
provide written confirmation of any such request or of the terms of any offer or
acceptance relating to any Advance. Borrower hereby authorizes Bank to charge
any deposit account of Borrower now or hereafter maintained with Bank for
amounts due hereunder.
If any of the pledged securities with respect to any Advance are margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve System ("Regulation U")), either (a) Borrower will provide Bank a Form
U-1 Purpose Statement and Bank and Borrower will comply with the restrictions
imposed by Regulation U with respect to such Advance, or (b) if Borrower is
eligible for one or more of the broker-dealer exemptions set forth in Regulation
U, 12 C.F.R. section 221.5(c) with respect to such Advance, Borrower will
provide Bank a written certification or statement as to the purpose of such
Advance in accordance with 12 C.F.R. section 221.5(b).
If Borrower shall become insolvent, or any voluntary or involuntary case,
action or proceeding seeking liquidation, reorganization, appointment of a
receiver, trustee or custodian, assignment for the benefit of creditors, or
similar relief shall be commenced by or against, and with respect to, Borrower,
then (a) the amount of all unpaid Advances, together with all accrued interest,
shall automatically become immediately due and payable, without demand, notice
of nonpayment, presentment, protest or notice of dishonor (all of which are
expressly waived), and (b) Bank shall be under no obligation to fund any further
Advances, including any as to which an offer and acceptance of terms has
occurred. However, nothing in this Note shall be deemed a commitment by, or
otherwise create any obligation of, Bank to make Advances to Borrower.
-3-
<PAGE>
Borrower shall pay holder upon demand for all costs, expenses and
attorneys' fees (including allocated costs of in-house counsel) incurred in
connection with the enforcement or attempted enforcement of this Note, the
Security Agreement and any other documents required hereunder or in connection
herewith.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF
THE STATE OF CALIFORNIA. No delay or omission on the part of the holder in
exercising any right hereunder shall operate as a waiver of such right. If any
provision of this Note shall be held invalid or unenforceable in whole or in
part, such invalidity or unenforceability shall not affect the remaining
provisions hereof.
RAGEN MACKENZIE, INCORPORATED
-----------------------------
By: Robert J. Mortell
-----------------
Printed Name: ROBERT J MORTELL
----------------
Title: PRESIDENT
---------
Address for Notices to Bank:
Bank of America National Trust
and Savings Association
- ------------------------------
- ------------------------------
- ------------------------------
ATTN:
------------------------
Address for Notices to Borrower:
RAGEN MACKENZIE, INCORPORATED
ATTN: JEANNE E STAUFFER
- ------------------------------
999 THIRD AVENUE, SUITE 4300
- ------------------------------
SEATTLE, WA 98104
- ------------------------------
-4-
<PAGE>
EXHIBIT 10.2
SECURITY AGREEMENT/1/
(1) In consideration of any financial accommodation given, to be given or
continued to RAGEN MACKENZIE, INCORPORATED ("Debtor") by Bank of America
National Trust and Savings Association (including its predecessor in interest,
Security Pacific National Bank, "Secured Party"), and as collateral security for
the payment of all debts, obligations or liabilities now or hereafter existing,
absolute or contingent, of Debtor to Secured Party ("Indebtedness"), Debtor
pursuant to the provisions of the Uniform Commercial Code of the State of
California hereby pledges and grants to Secured Party a security interest in all
securities now or hereafter pledged to Secured Party by Debtor by book entry
through The Depository Trust Company ("DTC") and all securities now or hereafter
delivered to and deposited with Secured Party, and all money and property
heretofore delivered or which shall hereafter be delivered to or come into the
possession (actual or constructive), custody or control of Secured Party in any
manner or for any purpose whatever during the existence of this Security
Agreement, and whether held in a general or special account or deposit or for
safekeeping or otherwise, together with any stock or conversion rights, rights
to subscribe, liquidating dividends or preferences, stock dividends, dividends,
dividends paid in stock, new securities, rights to interest and principal,
interest and principal payments, or any other property to which Debtor is or may
hereafter become entitled to receive on account of such property, and the
proceeds (including without limitation any insurance proceeds), increase and
products of any of the foregoing or replacements thereof or substitutions
therefor ("Collateral"). In the event that Debtor receives any such property,
Debtor will receive such property in trust for Secured Party and will
immediately deliver or pledge it to Secured Party. In the event of any physical
delivery of certificates or other instruments evidencing the Collateral by
Debtor to Secured Party, if such certificates or instruments are not in bearer
form, Debtor shall also deliver to Secured Party an undated stock or bond power,
as appropriate, to cover each such certificate or instrument, duly executed in
blank. Secured Party shall have no duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession other
than as set forth in Section 9-207 of the Uniform Commercial Code of the State
of California.
(2) The pledge or purported pledge of securities by Debtor hereunder shall
constitute a representation and warranty by Debtor that Debtor owns the
securities free and clear of any security interest (other than the security
interest herein granted), lien or other encumbrance (except as designated under
paragraph 3 hereof).
___________________
/1/ This Security Agreement is to be used only for securities pledged through
The Depository Trust Company (other than Federal book-entry securities) or
by physical delivery to Secured Party.
<PAGE>
(3) At the time of pledge of any securities by Debtor to Secured Party
hereunder, Debtor shall designate (pursuant to the rules and procedures of DTC,
if applicable) whether such securities are carried for the account of one or
more customers (as defined in Rule 8c-1 or Rule 15c2-1 of the Securities and
Exchange Commission). The designation shall constitute a representation and
warranty to Secured Party concerning the facts indicated in the designation and
that Debtor is pledging the securities in compliance with those Rules.
Securities designated as customer securities shall not be held by Secured Party
as security for any loans to Debtor on securities not held for the account of
customers. Certificates for customer securities delivered to Secured Party will
be physically segregated from such other securities.
(4) Debtor shall at all times maintain with Secured Party Collateral of a
character and value satisfactory to Secured Party.
(5) At any time, without notice, and at the expense of Debtor, Secured
Party in its name or in the name of Debtor may, but shall not be obligated to:
(a) collect by legal proceedings or otherwise, endorse, receive and receipt for
all dividends, interest, principal payments and other sums now or hereafter
payable upon or on account of said Collateral; (b) make any compromise or
settlement it deems desirable or proper with reference to the Collateral; (c)
insure, process and preserve the Collateral; (d) participate in any
recapitalization, reclassification, reorganization, consolidation, redemption,
stock split, merger or liquidation of any issuer of securities that constitute
Collateral, and in connection therewith may deposit or surrender control of the
Collateral, accept money or other property in exchange for the Collateral, and
take such action as it deems proper in connection therewith, and any other money
or property received in exchange for the Collateral shall be applied to the
Indebtedness or held by Secured Party thereafter as Collateral pursuant to the
provisions hereof; (e) cause Collateral to be transferred to its name or to the
name of its nominee; (f) exercise as to the Collateral all the rights, powers
and remedies of an owner necessary to exercise its rights under this paragraph
(5), but, except pursuant to paragraph (9) hereof, Secured Party will not vote
any securities constituting Collateral except as instructed by Debtor.
(6) Debtor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Collateral, and upon the failure of Debtor to do so
Secured Party at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
(7) All advances, charges, costs and expenses, including attorneys' fees
(including allocated costs of in-house counsel), incurred or paid by Secured
Party in exercising any right, power or remedy conferred by this Security
Agreement or in the enforcement thereof, shall become a part of the Indebtedness
secured hereunder and shall be paid to Secured Party by Debtor immediately and
without demand, with interest thereon at the Reference Rate plus 2% per annum.
"Reference Rate" means the rate of
-2-
<PAGE>
interest publicly announced from time to time by Bank of America National Trust
and Savings Association ("BofA") in San Francisco, California, as its Reference
Rate. The Reference Rate is a rate set by BofA based upon various factors
including BofA's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. BofA may price
loans at, above or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the day specified in the public
announcement of such change.
(8) At the option of Secured Party and without necessity of demand or
notice, all or any part of the Indebtedness shall immediately become due and
payable irrespective of any agreed maturity upon the happening of any of the
following events ("Events of Default"): (a) failure to keep or perform any of
the terms or provisions of this Security Agreement; (b) default in the payment
of principal of or interest on any Indebtedness when due or any other default by
Debtor under any document or instrument evidencing any Indebtedness; (c) failure
of Secured Party to have a perfected security interest in all of the Collateral,
prior to the interest of any other party; (d) any deterioration or impairment of
the Collateral or any part thereof or any decline or depreciation in the value
or market price thereof (whether actual or reasonably anticipated), which causes
the Collateral in the judgment of Secured Party to become unsatisfactory as to
character or value; (e) the levy of any attachment, execution or other process
against Debtor, or any of the Collateral; (f) the insolvency of Debtor or of any
comaker, accommodation maker, surety or guarantor of any of the Indebtedness or
of any endorser of any note or other document evidencing any of the
Indebtedness, or the commencement of any voluntary or involuntary case, action
or proceeding seeking liquidation, reorganization, appointment of a receiver,
trustee or custodian, assignment for the benefit of creditors or similar relief
by or against, and with respect to, Debtor or any such comaker, accommodation
maker, surety, guarantor or endorser. Upon the happening of any of the
foregoing specified events, any agreement for further financial accommodation by
Secured Party shall terminate at its option. Notwithstanding anything to the
contrary contained in this paragraph 8, upon the occurrence of any of the Events
of Default specified in clause (f) of the first sentence of this paragraph 8
with respect to Debtor, (i) all of the Indebtedness shall immediately become due
and payable and (ii) any agreement for further financial accommodation by
Secured Party shall immediately terminate, in each case automatically and
without requirement of notice or demand of any kind. However, nothing in this
Security Agreement shall be deemed a commitment by Secured Party for any further
financial accommodation.
(9) Upon the happening of any Event of Default, Secured Party may then
exercise as to such Collateral all the rights, powers and remedies of an owner
including the right to vote any securities constituting Collateral, and may
elect to sell the Collateral in one or more sales after giving a notice (if any
notice is required) in writing by mail to Debtor of such sale at least five (5)
days before the date fixed for such sale; the proceeds
-3-
<PAGE>
of such sale shall be applied to: (a) the reasonable expenses of retaking,
holding, preparing for sale, selling and the like, attorneys' fees and legal
expenses (including allocated costs of in-house counsel) incurred by Secured
Party and (b) the Indebtedness secured by the security interest herein created
and the surplus if any to the person or persons entitled thereto; if there be a
deficiency, Debtor will promptly pay the same to Secured Party; the Secured
Party may buy at any public sale and if the Collateral is customarily sold in a
recognized market, or is the subject of widely or regularly distributed standard
price quotations, Secured Party may buy at private sale. Any sale may be
conducted by an auctioneer or by an officer, attorney or agent of Secured Party.
Debtor hereby expressly agrees that the securities constituting Collateral under
this Agreement are securities of a type customarily sold on a recognized market
and as such, no notice of any sale or disposition of any of the pledged
securities need be given unless trading in a particular security shall have been
suspended or ceased on all recognized markets at such time. Debtor recognizes
that Secured Party, after an Event of Default, may be unable to effect public
sale of all or a portion of the Collateral by reason of certain prohibitions
contained in the Federal Securities Act of 1933, as amended (or any successor
federal statute), and applicable state securities laws, but may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree, among other things, to acquire such Collateral for their
own account for investment and not engage in a distribution or resale thereof.
(10) Secured Party shall be under no duty or obligation whatsoever, (a) to
make or give any presentment, demands for performances, notices of
nonperformance, protests, notices of protest or notices of dishonor in
connection with any obligations or evidences of indebtedness held by Secured
Party as Collateral, or in connection with any obligation or evidences of
Indebtedness which constitute in whole or in part the Indebtedness secured
hereunder, or (b) to give Debtor notice of, or to exercise any subscription
rights or privileges, any rights or privileges to exchange, convert or redeem or
any other rights or privileges relating to or affecting any Collateral held by
Secured Party.
(11) Debtor waives any right to require Secured Party to (a) proceed
against any person, (b) proceed against or exhaust any Collateral, or (c) pursue
any other remedy in Secured Party's power; and waives any defense arising by
reason of any disability or other defense of Debtor or any other person, or by
reason of the cessation from any cause whatsoever of the liability of Debtor or
any other person. Until all Indebtedness shall have been paid in full Debtor
shall have no right of subrogation and waives any right to enforce any remedy
which Secured Party now has or may hereafter have against Debtor or against any
other person and waives any benefit of and any right to participate in any
Collateral or security whatsoever now or hereafter held by Secured Party.
Debtor authorizes Secured Party without notice or demand and without affecting
Debtor's liability hereunder or on the Indebtedness, from time to time to: (a)
renew, extend, accelerate or otherwise change the time for payment of, or
otherwise change the terms of,
-4-
<PAGE>
the Indebtedness or any part thereof, including increase or decrease of the rate
of interest thereon; (b) take and hold security, other than the Collateral
herein described for the payment of the Indebtedness or any part thereof, and
exchange, enforce, waive and release the Collateral herein described or any part
thereof or any such other security; and (c) release or substitute Debtor, or any
of the endorsers or guarantors of the Indebtedness or any part thereof, or any
other parties thereto.
(12) Secured Party may at any time release the Collateral or any part
thereof to Debtor and, as applicable, either (a) the entry of the release on the
books of DTC, or (b) the physical delivery of such collateral by Secured Party
to Debtor, shall be a complete and full acquittance for the Collateral so
released, and Secured Party shall thereafter be discharged from any liability or
responsibility therefor.
(13) Upon the transfer of all or any part of the Indebtedness, Secured
Party may transfer all or any part of the Collateral and shall be fully
discharged thereafter from all liability and responsibility with respect to such
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Secured Party hereunder with respect to such Collateral so
transferred; but with respect to any Collateral not so transferred Secured Party
shall retain all rights and powers hereby given.
(14) This is a continuing Security Agreement and all the rights, powers
and remedies hereunder shall apply to all past, present and future Indebtedness
of Debtor to Secured Party, including that arising under successive transactions
which shall either continue the Indebtedness, increase or decrease it, or from
time to time create new Indebtedness after all or any prior Indebtedness has
been satisfied, and notwithstanding the bankruptcy, insolvency, receivership or
conservatorship of Debtor, or any other event or proceeding affecting Debtor.
(15) Until all Indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at the time
specified hereunder irrespective of the fact that the Indebtedness or any part
thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased.
(16) The rights, powers and remedies given to Secured Party by this
Security Agreement shall be in addition to all rights, powers and remedies given
to Secured Party by virtue of any statute or rule of law. Secured Party may
exercise its banker's lien or right of setoff with respect to the Indebtedness
in the same manner as if the Indebtedness were unsecured. Any forbearance or
failure or delay by Secured Party in exercising any right, power or remedy
hereunder shall not be deemed to be a waiver of such right, power or remedy, and
any single or partial exercise of any right, power or remedy hereunder shall not
preclude the further exercise thereof; and every right, power and remedy of
-5-
<PAGE>
Secured Party shall continue in full force and effect until such right, power or
remedy is specifically waived by an instrument in writing executed by Secured
Party.
(17) Debtor represents and warrants that Debtor has its chief executive
office in the state specified on the signature page hereof. Debtor agrees to
give Secured Party at least thirty (30) days' notice before changing the
location of its chief executive office to another state.
(18) Debtor agrees that, from time to time upon written requests of
Secured Party, it will execute and deliver such further documents and do such
other acts and things as Secured Party reasonably requests in order fully to
effect the purposes of this Agreement.
(19) The terms of this Agreement may be amended, waived or otherwise
modified only by an instrument in writing duly executed by Debtor and Secured
Party. This Agreement shall be binding upon Debtor and its successors and
assigns and shall inure to the benefit of Secured Party and its successors and
assigns. Debtor shall not assign or otherwise transfer its obligations
hereunder without the prior written consent of Secured Party.
(20) This Agreement may be executed in one or more counterparts and all of
such counterparts taken together shall constitute one and the same instrument.
(21) Secured Party may employ agents and attorneys-in-fact in connection
herewith and shall not incur any liability for any acts or omissions of such
agents or attorneys-in-fact, except for the gross negligence or willful
misconduct of any such agents or attorneys-in-fact.
(22) (a) Any controversy or claim between or among the parties arising
out of or relating to this Agreement or any agreements or instruments relating
hereto or delivered in connection herewith, and any claim based on or arising
from an alleged tort, shall at the request of any party be determined by
arbitration. The arbitration shall be conducted in accordance with the Unites
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of a provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
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<PAGE>
(b) No provision of this Paragraph shall limit the right of any party
to this Agreement to exercise self-help remedies such as setoff, foreclosures
against or sale of any real or personal property collateral or security, or
obtaining provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party
to resort to arbitration or reference.
(23) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF Debtor has executed this Security Agreement this 9th day
of July 1997.
Robert J. Mortell
__________________________________
By ROBERT J MORTELL
__________________________________
Title PRESIDENT
__________________________________
By
__________________________________
Title
__________________________________
Mailing Address:
999 3rd Avenue, Suite 4300
__________________________________
STREET ADDRESS
Seattle WA 98104
__________________________________
CITY STATE ZIP
TAXPAYER INFORMATION
(OWNER'S CERTIFICATION)
My Taxpayer Identification Number (TIN)
to be used for tax reporting purposes is
91-1374280
________________________________________
Under penalties of perjury, I certify that
the taxpayer information provided is correct
and complete.
X
________________________________________
OWNER'S SIGNATURE
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<PAGE>
(Holder of TIN to be used for tax reporting
purposes)
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<PAGE>
EXHIBIT 10.3
FIRST INTERSTATE CENTER
-------------
LEASE AGREEMENT
BETWEEN
WRIGHT-CARLYLE SEATTLE
A WASHINGTON GENERAL PARTNERSHIP
LANDLORD
AND
CABLE, HOWSE & RAGEN
TENANT
<PAGE>
LEASE AGREEMENT
FIRST INTERSTATE CENTER
THIS LEASE made this 8th day of November 1983 between WRIGHT-CARLYLE
SEATTLE, a Washington general partnership ("Landlord"), and CABLE, HOWSE & RAGEN
("Tenant").
As parties hereto, Landlord and Tenant agree:
1. LEASE DATA AND EXHIBITS: The following terms as used herein shall
have the meanings provided in this Section 1, unless otherwise specifically
modified by provisions of this Lease:
(a) Building: Known as FIRST INTERSTATE CENTER, Seattle,
Washington, situated on the real property more particularly
described in Section 2 hereof.
(b) Premises: Consisting of the floor area on the 43rd floor(s) as
outlined on the floor plan(s) of the Building, attached hereto
as Exhibit A, including tenant improvements, if any, as
described in Exhibit B.
(c) Tenant's Percentage of the Building: 2.29%. In the event a
portion of the Building is damaged or condemned or any other
event occurs which alters the rentable area of the Premises or
the rentable area of the Building, Landlord may adjust "Tenant's
Percentage of the Building" to properly reflect the proportion
of the rentable area of the Building (as altered by such event)
which is attributable to the rentable area of the Premises (as
altered by such event).
(d) Basic Plan Delivery Date: See Exhibit B.
(e) Commencement Date: February 3, 1984 or such earlier or later
date as provided in Section 3 hereof.
(f) Expiration Date: January 31, 1994.
<PAGE>
(g) Rent: $48,374.79 per month, payable on or before the first day
of each month. Rent shall be adjusted from time to time as
provided in Sections 7, 8 and 9 hereof. See Addendum to Lease.
(h) Security Deposit: $N/A.
(i) Parking: Tenant shall have the right to lease 12 parking stalls
in the Building, on an unassigned basis at the prevailing
monthly rates as established by the Landlord's parking operator
from time to time. The leasing of parking stalls by Tenant shall
be subject to such rules and regulations as Landlord's parking
operator may require from time to time.
See Addendum to Lease
(j) Notice Addresses:
Landlord: Wright-Carlyle Seattle
Suite 3200, 1111 Third Avenue
Seattle, Washington 98101
Tenant: Cable, Howse & Ragen
4170 Fifth Avenue Plaza
Seattle, WA 98104
Attn: Brooks Ragen
(k) Exhibits: The following exhibits or riders are made a part of
this Lease:
Exhibit A--Floor Plan of Premises
Exhibit B--Tenant Improvements
Exhibit B.1--Tenant Improvement Plans
Exhibit B.2--Tenant Improvements Paid by Tenant
Exhibit C--Addendum to Lease
2. PREMISES: Landlord does hereby lease to Tenant, and Tenant does
hereby lease from Landlord, upon the terms and conditions herein set forth, the
Premises described in Section 1(b) hereof as shown on Exhibit A attached hereto
and incorporated herein, together with rights of ingress and egress over common
areas in the Building located on the land ("Land") more particularly described
as:
That portion of the C. D. Boren Donation Land Claim located in Sections 31
and 32, Township 25 North, Range 4 East, W.M., in
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King County, Washington, described as follows:
Beginning at the intersection of the southeasterly line of Madison Street
as established in the Plat of Boren and Denny's Addition, according to the
plat thereof recorded in Volume 1 of Plats, page 27, in King County,
Washington, with the northeasterly line of Second Avenue as established in
King County Superior Court Cause No. 7097;
Thence north 59 degrees 21'29" east along said southeasterly line 235.12
feet to the southwesterly line of Third Avenue, as established in King
County Superior Court Cause No. 54135;
Thence south 30 degrees 37'35" east along said southwesterly line 239.95
feet to the northwesterly line of Marion Street, as established in said
Plat;
Thence south 59 degrees 21'40" west along said northwesterly line 235.11
feet to said northeasterly line of Second Avenue;
Thence north 30 degrees 37'36" west along said northeasterly line 239.9
feet to the point of beginning, being also described as:
Lots 1 through 8, Block 10, Town of Seattle, as laid out of the claims
of C. D. Boren and A. A. Denny (Commonly known as Boren & Denny's
Addition to the City of Seattle), according to the plat thereof recorded
in Volume 1 of Plats, page 27, in King County, Washington;
TOGETHER WITH vacated alley as provided by Ordinance Number 110128 of
the City of Seattle.
EXCEPT the southwesterly 12 feet of Lots 1, 4, 5 and 8, condemned in
District Court Cause Number 7097 for the widening of Second Avenue, as
provided by Ordinance NO. 1107 of the City of Seattle ; AND
EXCEPT the northeasterly 9 feet of Lots 2, 3, 6 and 7, condemned for
widening of Third Avenue in King County Superior Court Cause No. 54135,
as provided by Ordinance Number 14345 of the City of Seattle.
3. COMMENCEMENT AND EXPIRATION DATES:
(a) Commencement Date. The Commencement Date shall be:
(i) The date specified in Section 1(e) unless notice is
delivered pursuant to Section 3(a)(ii) or unless Tenant
occupies earlier, pursuant to Section 3(a)(iii);
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<PAGE>
(ii) Such later date as may be specified in a notice in anticipation
of such date which shall be delivered to Tenant at least 30
days before such date upon which the Premises, together with
the common facilities for access and service thereto, shall be
completed; or
(iii) If Tenant shall occupy the Premises for Permitted Uses prior to
the date specified in Section 1(e) or in the notice provided
under Section 3(a)(ii), the date of such occupancy.
(b) Tenant Obligations. If Tenant's tenant improvements are not completed
on the Commencement Date specified in Section 1(e) or as provided in
Section 3(a)(ii) above, whichever is applicable, due to the failure
of Tenant to fulfill any obligation pursuant to the terms of this
Lease or any exhibit hereto, including without limitation Tenant's
failure to comply with the Plan Delivery Dates described in Section
1(d) and Exhibit B, the Lease shall be deemed to have commenced upon
the Commencement Date specified in Section 1(e) or as provided in
Section 3(a)(ii) above, as applicable.
(c) Tenant Termination Rights. In the event a Commencement Date as
provided in Section 3(a)(ii) above does not occur within six months
following the Commencement Date specified in Section 1(e), Tenant may
terminate this Lease by written notice; provided, however, that such
six-month period may at Landlord's sole option be extended to a date
not later than two years from the Commencement Date specified in
Section 1(e) for delays due to casualties, acts of God, strikes,
shortages of labor or materials or other causes beyond the reasonable
control of Landlord. If the Commencement Date has not occurred within
such two-year period, this Lease shall be deemed null and void and
all rights and obligations of the parties shall terminate.
Termination under this Section 3(c) shall be Tenant's sole remedy and
Tenant shall have no other rights or claims hereunder at law or in
equity.
(d) Confirmation of Commencement Date. When a Commencement Date as
provided in Section 3(a)(ii) or (iii) above has been established as a
later or earlier date than the Commencement Date provided in Section
1(e) hereof, Landlord shall confirm the same to Tenant in writing.
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<PAGE>
(e) Expiration Date. The Lease shall expire on the date specified in
Section 1(f).
4. RENT: Tenant shall pay Landlord without notice the Rent stated in
Section 1(g) hereof and Additional Rent as provided in Sections 7, 8 and 9 and
nay other additional payments due under this Lease without deduction or offset
in lawful money of the United States in advance on or before the first day of
each month at Landlord's Notice Address set forth in Section 1(j) hereof, or to
such other party or at such other place as Landlord may hereafter from time to
time designate in writing. Rent and Additional Rent for any partial month at
the beginning or end of the Lease term shall be prorated.
5. SECURITY DEPOSIT: As security for the full and faithful performance
of every covenant and condition of this Lease to be performed by Tenant, Tenant
has paid to Landlord the Security Deposit as specified in Section 1(h) hereof,
receipt of which is hereby acknowledged. If Tenant shall default with respect
to any covenant or condition of this Lease, including but not limited to the
payment of Rent, Additional Rent or any other payment due under this Lease,
Landlord may apply all or any part of the Security Deposit to the payment of any
sum in default or any other sum which Landlord may be required to spend or incur
by reason of Tenant's default or any other sum which Landlord may in its
reasonable discretion deem necessary to spend or incur by reason of Tenant's
default. In such event, Tenant shall, within 5 days or written demand therefor
by Landlord, deposit with Landlord the amount so applied. If Tenant shall have
fully complied with all of the covenants and conditions of this Lease, but not
otherwise, the amount of the Security Deposit then held by Landlord shall be
repaid to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest hereunder) within 30 days after the expiration or sooner termination of
this Lease. In the event of Tenant's default, Landlord's right to retain the
Security Deposit shall be deemed to be in addition to any and all other rights
and remedies at law or in equity available to Landlord for Tenant's default
under this Lease. Landlord shall not be required to keep any Security Deposit
separate from its general funds and Tenant shall not be entitled to any interest
thereon.
6. USES: The Premises are to be used only for general office purposes
("Permitted Uses"), and for no other business or purpose without the prior
written consent of Landlord, which consent may be withheld if Landlord, in its
sole discretion, determines that any proposed use is inconsistent with or
detrimental to the maintenance and operation of the Building as a first-class
office building. No act shall be done in or about the Premises that is
unlawful. Tenant shall not commit any act that will increase the then existing
rate of insurance on the Building without Landlord's consent. Tenant shall
promptly pay upon demand that amount of the
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<PAGE>
increase in insurance rates caused by such acts or acts done by Tenant. Tenant
shall not commit or allow to be committed any waste upon the Premises, or any
public or private nuisance or other act which disturbs the quiet enjoyment of
any other tenant in the Building. Tenant shall not, without the written consent
of Landlord, use any apparatus, machinery or device in or about the Premises
which will cause any substantial noise, vibration or fumes. If any of Tenant's
office machines or equipment should disturb the quiet enjoyment of any other
tenant in the Building, then Tenant shall provide adequate insulation, or take
other action as may be necessary to eliminate the disturbance. Tenant shall
comply with all laws relating to its use or occupancy of the Premises and shall
observe such reasonable rules and regulations (not inconsistent with the terms
of this Lease) as may be adopted and made available to Tenant by Landlord from
time to time for the safety, care and cleanliness of the Premises or the
Building, and for the preservation of good order therein.
7. SERVICES AND UTILITIES:
(a) Standard Services. As long as Tenant is not in default under any
of the provisions of this Lease, Landlord shall cause to be
maintained the Premises and the public and common areas of the
Building, such as lobbies, elevators, stairs, corridors and
restrooms, in reasonably good order and condition consistent with
the operation and maintenance of the Building as a first-class
office building in downtown Seattle, except for damage occasioned
by any act or omission of Tenant or Tenant's officers,
contractors, agents, invitees, licensees or employees, the repair
of which damage shall be paid for by Tenant.
From 8:00 a.m. to 6:00 p.m. on weekdays and from 8:00 a.m.
to 1:00 p.m. on Saturday, excluding legal holidays ("Normal
Business Hours"), Landlord shall furnish the Premises with
electricity for lighting and operation of low power usage office
machines, water, heat and air conditioning, and elevator service.
During all other hours, Landlord shall furnish such
services, including elevator service as reasonably required to
provide access to the Premises, except for heat and air
conditioning. If requested by Tenant, Landlord shall furnish heat
and air conditioning at times other than Normal Business Hours
and the cost of such services as established by Landlord shall be
paid by Tenant as Additional Rent payable as provided in Section
4. Landlord shall also provide lamp replacement service
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<PAGE>
for Building Standard fluorescent light fixtures, toilet room
supplies, window washing at reasonable intervals, and customary
building janitorial service. No janitorial service shall be
provided Saturdays, Sundays or legal holidays. The costs of any
janitorial or other services provided or caused to be provided by
Landlord to Tenant which are in addition to the services
ordinarily provided Building tenants shall be paid in the manner
provided for payment of Rent in Section 4 of this Lease.
(b) Interruption of Services. Landlord shall not be liable for any
loss, injury or damage to person or property caused by or
resulting from any variation, interruption, or failure of such
services due to any cause whatsoever, or from failure to make any
repairs or perform any maintenance. No temporary interruption or
failure of such services incident to the making of repairs,
alterations, or improvements, or due to accident, strike or
conditions or events beyond Landlord's reasonable control shall
be deemed an eviction of Tenant or relieve Tenant from any of
Tenant's obligations hereunder.
(c) Additional Services. The Building Standard mechanical system is
designed to accommodate heating loads generated by lights and
equipment using up to 2.5 watts per square foot. Before
installing lights and equipment in the Premises which in the
aggregate exceed such amount, Tenant shall obtain the written
permission of Landlord. Landlord may refuse to grant such
permission unless Tenant shall agree to pay the costs of Landlord
for installation of supplementary air conditioning capacity or
electrical systems as necessitated by such equipment or lights.
In addition, Tenant shall in advance, on the first day of
each month during the Lease term, pay Landlord the reasonable
amount estimated by Landlord as the cost of furnishing
electricity for the operation of such equipment or lights and the
reasonable amount estimated by Landlord as the costs of operation
and maintenance of supplementary air conditioning units as
necessitated by Tenant's use of such equipment or lights. The
Rent stated in Section 1(g) hereof does not include any amount to
cover the cost of furnishing electricity or such additional air
conditioning for such purposes and such costs shall be paid by
Tenant in the manner provided for payment of Rent in Section 4
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<PAGE>
of this Lease. Landlord shall be entitled to install and operate
at Tenant's cost a monitoring/metering system in the Premises to
measure the added demands on electricity, heating, ventilation,
and air conditioning systems resulting from such equipment and
lights and from Tenant's after-hours heating, ventilation and air
conditioning service requirements. Tenant shall comply with
Landlord's instructions for the use of drapes, blinds and
thermostats in the Building.
In the event of nonpayment of amounts due from Tenant for
any of the above-described additional services, Landlord shall
have the same rights as it has with respect to the nonpayment of
Rent hereunder.
8. COSTS* OF OPERATIONS AND ENERGY:
(a) Definitions. In addition to the Rent provided in Section 1(g) of
this Lease, Tenant shall pay to Landlord increases under this
Section 8 as "Additional Rent," utilizing the following
definitions:
(i) "Operating Costs" shall include Costs of Energy and Other
Operating Costs.
(1) "Costs of Energy" shall mean all expenses paid or
incurred by Landlord in operation and maintenance of
the Building for electricity, including any
surcharges imposed, gas and similar energy sources.
(2) "Other Operating Costs" shall mean all other
expenses paid or incurred by Landlord for
maintaining, operating and repairing the Building
and the personal property used in conjunction
therewith, including, without limitation, the costs
of refuse collection, water, sewer and other
utilities services (excluding costs included in the
Costs of Energy), supplies, janitorial and cleaning
services,
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* Any charge for additional utilities and services shall be at Landlord's
actual cost plus a charge of twelve-and-a-half percent (12 1/2%) of such cost to
cover administration and overhead.
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<PAGE>
window washing, landscape maintenance, services of
independent contractors, compensation (including
employment taxes and fringe benefits) of all persons
who perform duties in connection with the operation,
maintenance and repair of the Building, its
equipment and the Land upon which it is situated,
insurance premiums, licenses, permits and inspection
fees, customary management fees, legal and
accounting expenses and any other expense or change
whether or not hereinabove described which in
accordance with generally accepted accounting and
management practices would be considered an expense
of maintaining, operating or repairing the Building,
excluding:
(A) Costs of any special services rendered to
individual tenants (excluding Tenant) for which
a special charge is made;
(B) Real Property Taxes (as defined in Section 9 of
this Lease); and
(C) Depreciation or amortization of costs required
to be capitalized in accordance with generally
accepted accounting practices (except Other
Operating Costs shall include amortization of
capital improvements made subsequent to the
initial development of the Building which are
designed with a reasonable probability of
improving the operating efficiency of the
Building, provided that such amortization costs
shall not exceed expected savings in operating
costs resulting from such capital
improvements).
(ii) "Lease Year" shall mean the twelve-month period commencing
January 1 and ending December 31.
(iii) "Base Services Year" shall mean the First Lease Year of
Building Operation or the Lease Year in which the
Commencement Date occurs, whichever year is later.
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<PAGE>
(iv) "First Lease Year of Building Operation" shall be 1984.
(v) "Actual Costs" shall mean the actual expenses paid or
incurred by Landlord for Operating Costs during any Lease
Year of the term hereof.
(vi) "Actual Costs Allocable to the Premises" shall mean the
Tenant's share of the Actual Costs determined by Tenant's
Percentage of the Building described in Section 1(c).
(vii) "Estimated Costs Allocable to the Premises" shall mean
Landlord's estimate of Actual Costs Allocable to the
Premises for the following Lease Year to be given by
Landlord to Tenant pursuant to Section 8(c) below.
(b) Base Amount. The "Base Amount" for purposes of this Section
shall be the aggregate of:
(i) Actual Costs Allocable to the Premises for the Base
Services Year for Other Operating Costs (excluding Costs of
Energy); and
(ii) With respect to Costs of Energy, an amount determined by
multiplying $452,900 (approximately $0.50 per square foot
of rentable area) by Tenant's Percentage of the Building
described in Section 1(c);
provided, however, that Landlord shall estimate to the extent
required the Actual Costs Allocable to the Premises for purposes
of determining the Base Amount in the statement furnished in
accordance with Section 8(c) below and payments shall be further
adjusted as appropriate at such time as Actual Costs are
determined in accordance with Section 8(d) below.
(c) Additional Rent for Estimated Increases in Costs. Prior to the
commencement of each Lease Year (except that, with respect to the
Base Services Year, Sections 8(c) and (d) shall apply only to the
Costs of Energy and shall exclude Other Operating Costs) during
the term hereof, Landlord shall furnish Tenant a written
statement of the Estimated Costs Allocable to the Premises for
such Lease Year, and a calculation of the Additional Rent as
follows: One-twelfth (1/12) of the amount, if any, by which such
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amount exceeds the Base Amount shall be Additional Rent payable
by Tenant as provided in Section 4 for each month during such
Lease Year. If at any time or times during such Lease Year, it
appears to Landlord that the Actual Costs Allocable to the
Premises will vary from Landlord's estimate by more than five
percent (5%) on an annual basis, Landlord may, by written notice
to Tenant, revise its estimate for such Lease Year and Additional
Rent payments by Tenant for such Lease Year shall be based on
such revised estimate.
(d) Actual Costs. Within 90 days after the close of each Lease Year
during the term hereof, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a written statement setting
forth the Actual Costs Allocable to the Premises during the
preceding Lease Year. If such costs for any Lease Year exceed
Estimated Costs Allocable to the Premises paid by Tenant to
Landlord pursuant to the preceding subsection (c), Tenant shall
pay the amount of such excess to Landlord as added Additional
Rent within 30 days after receipt of such statement by Tenant.
If such statement shows such costs to be less than the amount
paid by Tenant to Landlord pursuant to the preceding subsection
(c), then the amount of such overpayment by Tenant shall be
credited by Landlord to the next immediate Rent payable by
Tenant.
(e) Determinations. The determination of Actual Costs and Estimated
Costs Allocable to the Premises shall be made by Landlord.
(f) Beginning of Term. If this Lease shall commence on a day other
than the first day of a Lease Year, the amount of any adjustment
between Estimated and Actual Costs Allocable to the Premises with
respect to the Lease Year in which such commencement occurs shall
be prorated on the basis which the number of days from the
commencement of this Lease to the end of the Lease Year bears to
365; and any amount payable by Landlord to tenant or Tenant to
Landlord with respect to such adjustment shall be payable within
30 days after delivery by Landlord to Tenant of the statement of
Actual Costs Allocable to the Premises with respect to such Lease
Year.
(g) End of Term. If this Lease shall terminate on a day other than
the last day of a Lease Year, the amount of any adjustment
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<PAGE>
between Estimated and Actual Costs Allocable to the Premises with
respect to the Lease Year in which such termination occurs shall
be prorated on the basis which the number of days from the
commencement of such Lease Year to and including such termination
date bears to 365; and any amount payable by Landlord to Tenant
or Tenant to Landlord with respect to such adjustment shall be
payable within 30 days after delivery by Landlord to Tenant of
the statement of Actual Costs Allocable to the Premises with
respect to such Lease Year.
(h) Further Adjustment. In the event the average occupancy level of
the Building for the Base Services Year and/or any subsequent
Lease Year was or is not 90% or more of full occupancy, then the
Actual Costs for such year shall be proportionately adjusted by
Landlord to reflect those costs which would have occurred had the
Building been 90% occupied during such year.
(i) Base Rent. Notwithstanding anything to the contrary in this
Section 8 or in Section 9, the Rent payable by Tenant shall in no
event be less than the Rent specified in Section 1(g) of this
Lease.
(j) Nonpayment of Additional Rent. In the event of nonpayment of the
Additional Rent hereunder, Landlord shall have the same rights
with respect to such nonpayment as it has with respect to any
other nonpayment of Rent hereunder.
9. REAL PROPERTY TAXES:
(a) Definitions. In addition to the Rent provided in Section 1(g) of
this Lease, Tenant shall pay to Landlord increases under this
Section 9. The increases shall be made as provided herein,
utilizing the following definitions:
(i) "Real Property Taxes" shall mean taxes on real property
and personal property, including all tenant improvements
which are paid for by Landlord and not reimbursed by
tenants and taxes on property of tenants of the Building,
which have not been paid by such tenants directly to the
taxing authority; charges and assessments levied with
respect to the Land, the Building, any improvements,
fixtures and equipment, and all other property of
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Landlord, real or personal, used directly in the operation
of the Building and located in or on the Building; and any
taxes levied or assessed in addition to or in lieu of, in
whole or in part, such real property or personal property
taxes, or any other tax upon leasing of the Building or
rents collected, but not including any federal or state
income tax or franchise tax.
(ii) "Lease Year" shall mean the period defined in Section
8(a)(ii) herein.
(iii) "Tenant's Share of Real Property Taxes" shall mean the
amount of Real Property Taxes payable during any Lease
Year by Landlord multiplied by Tenant's Percentage of the
Building described in Section 1(c).
(iv) "Base Tax Amount" shall mean the sum of $913,300
(approximately $1.00 per square foot of rentable area)
multiplied by Tenant's Percentage of the Building.
(b) Additional Rent for Estimated Increase in Tenant's Share of Real
Property Taxes. Prior to the commencement of each Lease Year, or
as soon thereafter as practicable, Landlord shall furnish Tenant
with a written statement setting forth the estimate of Tenant's
Share of Real Property Taxes for such Lease Year. One-twelfth
(1/12) of the amount, if any, by which such estimate exceeds the
Base Tax Amount shall be Additional Rent payable by Tenant as
provided in Section 4 for each month during such Lease Year.
(c) Actual Real Property Taxes. Within 90 days after the close of
each Lease Year, during the term hereof, or as soon thereafter as
practicable, Landlord shall deliver to Tenant a written statement
setting forth the Tenant's Share of Real Property Taxes during
the preceding Lease Year. If Tenant's Share of Real Property
Taxes for any Lease Year exceeds the estimated Tenant's Share of
Real Property Taxes determined as provided in Section 9(b),
Tenant shall pay the amount of such excess to Landlord as added
Additional Rent within 30 days after receipt of such statement by
Tenant. If such statement shows such amount to be less than the
amount paid by Tenant to Landlord pursuant to Section 9(b), then
the amount of such overpayment shall be credited by Landlord to
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the next immediate Rent payable by Tenant, within 30 days
following the date of such statement.
(d) Personal Property Taxes. Tenant shall pay, prior to delinquency,
all Personal Property Taxes payable with respect to all Property
of Tenant located on the Premises or the Building and promptly
upon request of Landlord shall provide written proof of such
payment. As used herein, "Property of Tenant" shall include all
improvements which are paid for by Tenant. "Personal Property
Taxes" shall include all property taxes assessed against the
Property of Tenant, whether assessed as real or personal
property.
(e) Determinations. The determination of Tenant's Share of Real
Property Taxes shall be made by Landlord.
(f) Beginning of Term. If this Lease shall commence on a day other
than the first day of a Lease Year, the amount of any adjustment
between the estimated and actual Tenant's Share of Real Property
Taxes with respect to the Lease Year in which such commencement
occurs shall be prorated on the basis which the number of days
from the commencement of this Lease to the end of the Lease Year
bears to 365; and any amount payable by Landlord to Tenant or
Tenant to Landlord with respect to such adjustment shall be
payable within 30 days after delivery by Landlord to Tenant of
the statement of Tenant's Share of Real Property Taxes with
respect to such Lease Year.
(g) End of Term. If this Lease shall terminate on a day other than
the last day of a Lease Year, the amount of any adjustment
between the estimated and actual Tenant's Share of Real Property
Taxes with respect to the Lease Year in which such termination
occurs shall be prorated on the basis which the number of days
from commencement of such Lease Year to and including such
termination date bears to 365; and any amount payable by Landlord
to Tenant or Tenant to Landlord with respect to such adjustment
shall be payable within 30 days after delivery by Landlord to
Tenant of the statement of Tenant's share of Real Property Taxes
with respect to such Lease Year.
(h) Nonpayment of Additional Rent. In the event of nonpayment of
Additional Rent payable by Tenant hereunder, Landlord shall
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have the same rights with respect to such nonpayment as it has
with respect to any other nonpayment of Rent hereunder.
10. IMPROVEMENTS: Upon expiration or sooner termination of this Lease,
all improvements and additions to the Premises, except Tenant's trade fixtures,
shall be deemed property of Landlord.
11. CARE OF PREMISES: Tenant shall take good care of the Premises.
Tenant shall not make any alterations, additions or improvements ("Alterations")
in or to the Premises, or make changes to locks on doors, or add, disturb or in
any change any plumbing or wiring ("Changes") without first obtaining the
written consent of Landlord and, where appropriate, in accordance with plans and
specifications approved by Landlord. Any such Alterations or Changes shall not
adversely affect either the strength or exterior appearance, or the mechanical,
electrical, or plumbing services of the Building. Tenant shall reimburse
Landlord for any sums expended for examination and approval of the architectural
and mechanical plans and specifications for the Alterations and Changes. Tenant
shall also pay Landlord a sum equal to the direct costs incurred during any
inspection or supervision of the Alterations or Changes. All damage or injury
done to the Premises or Building by Tenant or any persons who may be in or upon
the Premises or Building with the express or implied consent of Tenant,
including but not limited to the cracking or breaking of any glass of windows
and doors, shall be paid for by Tenant and Tenant shall pay for all damage to
the Building caused by acts or omissions of Tenant or Tenant's officers,
contractors, agents, invitees, licensees, or employees. All normal repairs
necessary to maintain the Premises and the Building in a tenantable condition
shall be done by or under the Direction of Landlord and at Landlord's expense
except as otherwise provided herein. Necessary repairs shall be those
reasonably determined by Landlord as necessary to maintain the Premises and the
Building as a first-class office building.
12. ACCEPTANCE OF PREMISES: If this Lease shall be entered into prior to
the completion of construction of the Building or completion of tenant
improvements in the Premises, the acceptance of the Premises by Tenant shall be
deferred until the giving of written notice by Landlord to Tenant of the
completion of such construction. Within five days after Landlord gives such
notice, Tenant shall make such inspection of the Premises as Tenant deems
appropriate, and, except as otherwise specified by Tenant in writing to Landlord
within such period, Tenant shall be deemed to have accepted the Premises in
their then condition. If, as a result of such inspection, Tenant discovers
minor deviations or variations from the plans and specifications for Tenant's
improvements of a nature commonly found on a "punchlist" (as that term is used
in the construction industry), Tenant shall promptly notify Landlord of such
deviations. The existence of such punchlist items shall not
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postpone the Commencement Date of the Lease nor the obligation of Tenant to pay
Rent.
13. SPECIAL IMPROVEMENTS: Tenant shall reimburse Landlord for Landlord's
cost of making all special improvements requested by Tenant, including but not
limited to counters, partitioning, electrical and telephone outlets and plumbing
connections other than as shown in Exhibit B or other attachments hereto as
being furnished by Landlord.
14. ACCESS: Tenant shall permit Landlord and its agents to enter into and
upon the Premises at all reasonable times for the purpose of inspecting the same
or for the purpose of cleaning, repairing, altering or improving the Premises or
the Building. Nothing contained in this Section 14 shall be deemed to impose
any obligation upon Landlord not expressly stated elsewhere in this Lease. When
reasonably necessary Landlord may temporarily close entrances, doors, corridors,
elevators or other facilities without liability to Tenant by reason of such
closure and without such action by Landlord being construed as an eviction of
Tenant or release of Tenant from the duty of observing and performing any of the
provisions of this Lease. Landlord shall have the right to enter the Premises
for the purpose of showing the Premises to prospective tenants within the period
of 180 days prior to the expiration or sooner termination of the Lease term,
provided Landlord gives reasonable verbal notice to Tenant.
15. LIEN FOR RENT: Tenant hereby grants to Landlord a lien and security
interest on all property of Tenant now or hereafter placed in or upon the
Premises, and such property shall be and remain subject to such lien and
security interest of Landlord for payment of all Rent and other sums agreed to
be paid by Tenant herein. Said lien and security interest shall be in addition
to and cumulative of the Landlord's liens provided by law. This Lease shall
constitute a security agreement under the Washington version of the Uniform
Commercial Code ("UCC") so that Landlord shall have and may enforce a security
interest on all property of Tenant now or hereafter placed in or on the
Premises, including, but not limited to, all fixtures, machinery, equipment,
furnishings and other articles of personal property now or hereafter placed in
or upon the Premises by Tenant. Tenant shall execute as debtor such financing
statement or statements as Landlord may now or hereafter reasonably request in
order that such security interest or interests may be protected pursuant to the
UCC. Landlord may at its selection at any time file a copy of this Lease as a
financing statement. Landlord, as secured party, shall be entitled to all of
the rights and remedies afforded a secured party under the UCC. Notwithstanding
anything to the contrary in this Section, Landlord's Lien for Rent shall be
subordinate and inferior to the lien of any purchase money loan for furniture,
fixtures and equipment located on
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the Premises, and Landlord agrees to execute any documents which may be
necessary to further evidence such subordination.
16. DAMAGE OR DESTRUCTION:
(a) Damage and Repair. In case of damage to the Premises or the
Building by fire or other casualty, Tenant shall give immediate
notice to Landlord. If the Building is damaged by fire or any
other cause to such extent that the cost of restoration, as
reasonably estimated by Landlord, will equal or exceed 30% of the
replacement value of the Building (exclusive of foundations) just
prior to the occurrence of the damage, or if insurance proceeds
sufficient for restoration are for any reason unavailable, then
Landlord may no later than the sixtieth (60th) day following the
damage, give Tenant a notice of election to terminate this Lease.
In the event of such an election this Lease shall be deemed to
terminate on the third day after the giving of said notice, and
Tenant shall surrender possession of the Premises within a
reasonable time thereafter, and the Rent and Additional Rent
shall be apportioned as of the date of said surrender and any
Rent paid for any period beyond said date shall be repaid to
Tenant. If the cost of restoration as estimated by Landlord
shall amount to less than 30% of such replacement value of the
Building and insurance proceeds sufficient for restoration are
available, or if despite the cost Landlord does not elect to
terminate this Lease, Landlord shall restore the Building and the
Premises (to the extent of improvements to the Premises
originally provided by Landlord hereunder) with reasonable
promptness, subject to delays beyond Landlord's control and
delays in the making of insurance adjustments by Landlord, and
Tenant shall have no right to terminate this Lease except as
herein provided. To the extent that the Premises are rendered
untenantable, the Rent shall proportionately abate, except in the
event such damage resulted from or was contributed to, directly
or indirectly, by the act, fault or neglect of Tenant, Tenant's
officers, contractors, agents, employees, invitees or licensees,
in which event Rent shall abate only to the extent Landlord
receives proceeds from Landlord's rental income insurance policy
to compensate Landlord for loss of rent.
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(b) Destruction During Last Year of Term. In case the Building shall
be substantially destroyed by fire or other cause at any time
during the last Lease Year of this Lease, either Landlord or
Tenant may terminate this Lease upon written notice to the other
party hereto given within 60 days of the date of such
destruction.
(c) Business Interruption. No damages, compensation or claim shall
be payable by Landlord for inconvenience, loss of business or
annoyance arising from any repair or restoration of any portion
of the Premises or of the Building. Landlord shall use its best
efforts to effect such repairs promptly.
(d) Tenant Improvements. Landlord will not carry insurance of any
kind on any improvements paid for by Tenant as provided in
Exhibit B or on Tenant's furniture or furnishings or on any
fixtures, equipment, improvements or appurtenances of Tenant
under this Lease and Landlord shall not be obligated to repair
any damage thereto or replace the same.
(e) Express Agreement. The provisions of this Section shall be
considered an express agreement governing any case of damage or
destruction of the Building or Premises by fire or other
casualty.
17. WAIVER OF SUBROGATION: Whether the loss or damage is due to the
negligence of either Landlord or Tenant, their agents or employees, or any other
cause, Landlord and Tenant do each hereby release and relieve the other, their
agents or employees, from responsibility for, and waive their entire claim of
recovery for (i) any loss or damage to the real or personal property of either
located anywhere in the Building, including the Building itself, arising out of
or incident to the occurrence of any of the perils which are covered by their
respective fire insurance policies, with extended coverage endorsements, and
(ii) any loss resulting from business interruption at the Premises or loss of
rental income from the Building, arising out of or incident to the occurrence of
any of the perils which may be covered by the business interruption insurance
policy and by the loss of rental income insurance policy held by Landlord or
Tenant. Each party shall use best efforts to cause its insurance carriers to
consent to the foregoing waiver of rights or subrogation against the other
party. Notwithstanding the foregoing, no such release shall be effective unless
the aforesaid insurance policy or policies shall expressly permit such a release
or contain a waiver of the carrier's right to be subrogated.
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18. INDEMNIFICATION: Tenant shall defend and indemnify Landlord and save
it harmless from and against any and all liability, damages, costs or expenses,
including attorneys fees, arising from any act, omission, or negligence of
Tenant or its officers, contractors, licensees, agents, servants, employees,
guests, invitees, or visitors in or about the Building or Premises, or arising
from any injury or damage to any person or property, occurring in or about the
Building or Premises as a result of any act, omission or negligence of Tenant,
or its officers, contractors, licensees, agents, employees, guests or visitors,
or arising from any breach or default under this Lease by Tenant. Tenant shall
at its own expense, keep and maintain in full force and effect during the term
of this Lease, a policy of comprehensive public liability insurance insuring
Tenant's activities with respect to the Premises or the Building against loss,
damage or liability for personal injury or death or loss or damage to property
with a limit of not less than $1,000,000 combined single limit. Insurance
required under this Section shall be with companies rated A-XV or better in
Best's Insurance Guide. No insurance policy shall be canceled or reduced in
coverage and each such policy shall provide that it is not subject to
cancellation or a reduction in coverage except after thirty (30) days' prior
written notice to Landlord. Tenant shall deliver to Landlord upon the
Commencement Date and from time to time thereafter copies of policies of such
insurance or certificates evidencing the existence and amounts of same with loss
payable clauses satisfactory to Landlord. In no event shall the limits of such
policies be considered as limiting the liability of Tenant under this Lease.
The foregoing provisions shall not be construed to make Tenant responsible for
loss, damage, liability or expense resulting from injuries to third parties
caused by the negligence of Landlord, or its officers, contractors, licensees,
agents, employees, or invitees; provided, that in no event shall Landlord be
liable to Tenant for any damage to the Premises or for any loss, damage or
injury to any property therein or thereon resulting from acts by third parties
or occasioned by bursting, rupture, leakage or overflow of any plumbing or other
pipes (including, without limitation, water, steam and/or refrigerant lines),
sprinkler, tanks, drains, drinking fountains or washstands or other similar
cause in, above, upon or about the Premises or the Building.
Landlord shall not be liable for any loss or damage to person or property
sustained by Tenant or other persons, which may be caused by theft, or by any
act of neglect of any tenant or occupant of the Building or any third parties.
19. ASSIGNMENT AND SUBLETTING:
(a) Assignment or Sublease. Tenant shall not assign, mortgage,
encumber or otherwise transfer this Lease nor sublet the whole or
any part of the Premises without in each case first obtaining
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Landlord's written consent which may be withheld at Landlord's
sole discretion. No such assignment, subletting or other
transfer shall relieve Tenant of any liability under this Lease.
Consent to any such assignment, subletting or other transfer
shall not operate as a waiver of the necessity for consent to any
subsequent assignment, subletting or transfer. If such consent
is requested, Landlord reserves the right to terminate this
Lease, or, if consent is requested for subletting less than the
entire Premises, to terminate this Lease with respect to the
portion for which such consent is requested, at the proposed
effective date of such subletting, in which event Landlord shall
enter into the relationship of landlord and tenant with any such
subtenant or assignee, based on the rent (and/or other
compensation) and the term agreed to by such subtenant or
assignee and otherwise upon the terms and conditions of this
Lease. Each request for an assignment or subletting must be
accompanied by a processing fee of $250 in order to reimburse
Landlord for expenses, including attorneys fees, incurred in
connection with such request.
If Tenant is a corporation, any transfer of this Lease by
merger, consolidation or liquidation, or any change in the
ownership of, or power to vote, a majority of its outstanding
voting stock, shall constitute an assignment for the purpose of
this Section.
If Tenant is a partnership, any transfer of this Lease by
merger, consolidation, liquidation, dissolution, or any change in
the ownership of a majority of the partnership interests shall
constitute an assignment for the purpose of this Section.
Notwithstanding anything to the contrary in the foregoing, Tenant
shall have the right to assign or sublease to related entities,
provided that at least 50% of the general partnership interests
in each related entity are owned by the same people who own at
least 50% of the general partnership interests in Tenant at the
time of execution of this Lease. Landlord has given its consent
to Tenant subleasing to Cable, Howse & Cozadd.
(b) Assignee Obligations. As a condition to Landlord's approval, any
potential assignee otherwise approved by Landlord shall assume
all obligations of Tenant under this Lease and shall be jointly
and
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severally liable with Tenant for the payment of Rent and
performance of all terms, covenants and conditions of this Lease.
(c) Sublessee Obligations. Any sublessee shall assume all
obligations of Tenant as to that portion of the Premises which is
subleased to such sublessee and shall be jointly and severally
liable with Tenant for rental and other payments and performance
of all terms, covenants, and conditions of such approved
sublease. In connection with any sublease or assignment, Tenant
shall provide Landlord with copies of all assignments, subleases
and assumption instruments.
(d) Conditional Consents. Any consent by Landlord to any assignment
or subletting may be subject to such terms and conditions as
Landlord shall determine and all such terms and conditions shall
be binding upon any person holding by, under or through Tenant.
20. ADVERTISING: Tenant shall not inscribe any inscription, or post,
place, or in any manner display any sign, graphic, notice, picture, placard or
poster, or any advertising matter whatsoever, anywhere in or about the Premises
or the Building at places visible (either directly or indirectly as an outline
or shadow on a glass pane) from anywhere outside the Premises without first
obtaining Landlord's written consent thereto, such consent to be at Landlord's
sole discretion. Any such consent by Landlord shall be upon the understanding
and condition that Tenant will remove the same at the expiration or sooner
termination of this Lease and Tenant shall repair any damage to the Premises or
the Building caused thereby.
21. LIENS AND INSOLVENCY:
(a) Liens. Tenant shall keep the Premises and the Building free from
any liens arising out of any work performed and materials ordered
or obligations incurred by or on behalf of Tenant and hereby
indemnifies and holds Landlord harmless from any liability from
any such lien, including without limitation, liens arising from
the work performed pursuant to Section V of Exhibit B hereto. In
the event any lien is filed against the Building, the Land or the
Premises by any person claiming by, through or under Tenant.
Tenant shall, upon request of Landlord, at Tenant's expense
immediately furnish to Landlord a bond in form and amount and
issued by a surety satisfactory to Landlord, indemnifying
Landlord, the Land and the Building against all
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liability, costs and expenses, including attorneys fees, which
Landlord may incur as a result thereof. Provided that such bond
has been furnished to Landlord, Tenant, at its sole cost and
expense and after written notice to Landlord, may contest, by
appropriate proceedings conducted in good faith and with due
diligence, any lien, encumbrance or charge against the Premises
arising from work done or materials provided to and for Tenant,
if and only if, such proceedings suspend the collection thereof
from Landlord, Tenant and the Premises and neither the Premises,
the Building nor any part thereof or interest therein is or will
be in any danger of being sold, forfeited or lost.
(b) Insolvency. If Tenant becomes insolvent or voluntarily or
involuntarily bankrupt, or if a receiver, assignee or other
liquidating officer is appointed for the business of Tenant,
Landlord at its option may terminate this Lease and Tenant's
right of possession under this Lease and in no event shall this
Lease or any rights or privileges hereunder be an asset of Tenant
in any bankruptcy, insolvency or reorganization proceeding.
22. DEFAULT:
(a) Cumulative Remedies. All rights and remedies of Landlord herein
enumerated shall be cumulative, and none shall exclude any other
right or remedy allowed by law. In addition to the other
remedies in this Lease provided, Landlord shall be entitled to
restrain by injunction the violation or attempted violation of
any of the covenants, agreements or conditions of this Lease.
(b) Tenant's Right to Cure. Tenant shall have a period of three days
from the date of written notice from Landlord to Tenant within
which to cure any default in the payment of Rent, Additional Rent
and other sums due hereunder. Tenant shall have a period of 10
days from the date of written notice from Landlord to Tenant
within which to cure any other default hereunder; provided,
however, that with respect to any such default which cannot be
cured within 10 days, the default shall not be deemed to be
uncured if Tenant commences to cure within 10 days and for so
long as Tenant is diligently prosecuting the cure thereof.
(c) Vacation and Abandonment. Vacation shall be defined as a
prolonged absence from the Premises. Abandonment shall be
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defined as an absence from the Premises of five days or more
while Tenant is in default. Any vacation or abandonment by
Tenant shall be considered a default with no right to cure,
allowing Landlord to re-enter the Premises under Section 22(d).
(d) Landlord's Re-entry. Upon an uncured default of this Lease by
Tenant, Landlord, besides other rights or remedies it may have,
at its option, may enter the Premises or any part thereof, either
with or without process of law, and expel, remove or put out
Tenant or any other persons who may be thereon, together with all
personal property found therein; and Landlord may terminate this
Lease, or it may from time to time, without terminating this
Lease and as agent of Tenant, relet the Premises or any part
thereof for such term or terms (which may be for a term less than
or extending beyond the term hereof) and at such rental or
rentals and upon such other terms and conditions as Landlord in
its sole discretion may deem advisable, with the right to repair,
renovate, remodel, redecorate, alter and change the Premises,
Tenant remaining liable for any deficiency computed as
hereinafter set forth. In the case of any default, re-entry
and/or dispossession by summary proceedings or otherwise, all
Rent and Additional Rent shall become due thereupon and be paid
up to the time of such re-entry or dispossession, together with
such expenses as Landlord may incur for attorneys fees,
advertising expenses, brokerage fees and/or putting the Premises
in good order or preparing the same for re-rental, together with
interest thereon as provided in Section 38(g) hereof, accruing
from the date of any such expenditure by Landlord.
(e) Re-letting the Premises. At the option of Landlord, rents
received by Landlord from such re-letting shall be applied first
to the payment of any indebtedness from Tenant to Landlord other
than Rent and Additional Rent due hereunder; second, to the
payment of any costs and expenses of such re-letting and
including, but not limited to, attorneys fees, advertising fees
and brokerage fees, and to the payment of any repairs,
renovations, remodeling, redecoration, alterations and changes in
the Premises; third, to the payment of Rent and Additional Rent
due and to become due hereunder, and, if after so applying said
rents there is any deficiency in the Rent or Additional Rent to
be paid by Tenant under this Lease, Tenant shall pay any
deficiency to
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Landlord monthly on the dates specified herein and any payment
made or suits brought to collect the amount of the deficiency for
any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. The failure or
refusal of Landlord to re-let the Premises or any part or parts
thereof shall not release or affect Tenant's liability hereunder,
nor shall Landlord be liable for failure to re-let, or in the
event of re-letting, for failure to collect the rent thereof, and
in no event shall Tenant be entitled to receive any excess of net
rents collected over sums payable by Tenant to Landlord
hereunder. No such re-entry or taking possession of the Premises
shall be construed as an election on Landlord's part to terminate
this Lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such re-letting without termination,
Landlord may at any time thereafter elect to terminate this Lease
for such previous breach and default. Should Landlord at any time
terminate this Lease by reason of any default, in addition to any
other remedy it may have, it may recover from Tenant the amount
of Rent and Additional Rent reserved in this Lease for the
balance of the Term, as it may have been extended, over the then
fair market rental value of the Premises for the same period,
plus all court costs and attorneys fees incurred by Landlord in
the collection of the same.
(f) Waiver of Redemption Rights. Tenant, for itself, and on behalf
of any and all persons claiming through or under it; including
creditors of all kinds, does hereby waive and surrender all right
and privilege which they or any of them might have under or by
reason of any present or future law, to redeem the Premises or to
have a continuance of this Lease for the term hereof, as it may
have been extended, after having been dispossessed or ejected
therefrom by process of law or under the terms of this Lease or
after the termination of this Lease as herein provided.
(g) Nonpayment of Additional Rent. All costs and expenses which
Tenant assumes or agrees to pay to Landlord pursuant to this
Lease shall be deemed Additional Rent and, in the event of
nonpayment thereof, Landlord shall have all the rights and
remedies herein provided for in case of nonpayment of Rent.
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23. PRIORITY: This Lease is technically a sublease in that the Land is
subject to a Ground Lease ("Ground Lease") between First Interstate Bank of
Washington, N.A., as Ground Lessor and the Landlord named herein as Ground
Lessee. This Lease shall not terminate or be terminable by Tenant by reason of
any termination of the Ground Lease by summary proceedings or otherwise. If
requested by the Ground Lessor, Tenant shall enter into a new lease with the
Ground Lessor for the balance of the term of this Lease upon the same terms and
conditions as set forth herein, or shall attorn to the Ground Lessor provided
the Ground Lessor agrees to recognize this Lease as long as Tenant shall not be
in default hereunder beyond the period for curing the same. Tenant hereby
waives the provisions of any statute or rule of law now or hereafter in effect
which may give Tenant any right of election to terminate this Lease or to
surrender possession of the Premises in the event the Ground Lease is
terminated.
This Lease shall be subordinate to any first mortgage or deed of trust now
existing of hereafter placed upon the Land, the Building or the Premises or upon
Landlord's interest under the Ground Lease, created by or at the instance of
Landlord, and to any and all advances to be made thereunder, and to interest
thereon and all modifications, renewals and replacements or extensions thereof
("Landlord's Mortgage"), provided however, that the holder of any Landlord's
Mortgage or any person or persons purchasing or otherwise acquiring the Land,
Building or Premises at any sale or other proceeding under any Landlord's
Mortgage may elect to continue this Lease in full force and effect; and in such
event, Tenant shall attorn to such person or persons. Tenant shall properly
execute, acknowledge and deliver documents which the holder of any Landlord's
Mortgage may require to effectuate the provisions of this section. This Lease
shall not be subordinate to any mortgage or deed of trust now existing or
hereafter placed upon the Land, the Building or the Premises created by or at
the instance of the Ground Lessor (as contrasted with a mortgage or deed of
trust placed at the instance of Landlord and joined in by the Ground Lessor)
without the prior written consent of each of Tenant, Landlord, and the holder of
any Landlord's Mortgage. Tenant's subordination hereunder is conditioned upon
execution and delivery to Tenant of a fully executed Subordination, Non-
Disturbance, and Attornment Agreement in the form customarily used for the
Building with respect to the Premises.
24. SURRENDER OF POSSESSION: Subject to the terms of Section 16 relating
to damage and destruction, upon expiration of the term of this Lease, whether by
lapse of time or otherwise, Tenant shall promptly and peacefully surrender the
Premises to Landlord in as good condition as when received by Tenant from
Landlord or as thereafter improved, reasonable use and wear and tear excepted.
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25. REMOVAL OF PROPERTY: Tenant shall remove all of its moveable property
and trade fixtures which can be removed without damage to the Premises at the
termination of this Lease either by expiration of the term or other cause, and
shall pay Landlord any damages for injury to the Premises or Building resulting
from such removal. If Tenant shall fail to remove any of its property of any
nature whatsoever from the Premises or the Building at the termination of this
Lease or when Landlord has the right of re-entry, Landlord may remove and store
said property without liability for loss thereof or damage thereto, such storage
to be for the account and at the expense of Tenant. If Tenant shall not pay the
cost of storing any such property after it has been stored for a period of 30
days or more, Landlord may, at its option, sell, or permit to be sold, any or
all such property at public or private sale, in such manner and at such times
and places as landlord in its sole discretion may deem proper, without notice to
Tenant, unless notice is required under applicable statutes, and shall apply the
proceeds of such sale: first to the cost and expense of such sale, including
reasonable attorneys fees actually incurred; second, to the payment of the costs
or charges for storing any such property; third, to the payment of any other
sums of money which may then be or thereafter become due Landlord from Tenant
under any of the terms hereof; and, fourth, the balance, if any, to Tenant.
26. NON-WAIVER: Waiver by Landlord of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant, or condition or of any subsequent breach of the same or any other
term, covenant, or condition herein contained. The subsequent acceptance of
Rent or Additional Rent hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of Tenant to pay the particular Rent or Additional
Rent so accepted, regardless of Landlord's knowledge of such preceding breach at
the time of acceptance of such Rent or Additional Rent.
27. HOLDOVER: If Tenant shall, with the written consent of Landlord, hold
over after the expiration of the term of this Lease, such tenancy shall be
deemed a month-to-month tenancy, which tenancy may be terminated as provided by
applicable state law. During such tenancy, Tenant agrees to pay to Landlord the
greater of (a) rent based on the then quoted rates for similar space in the
Building and (b) the rent stated herein and to be bound by all of the terms,
covenants and conditions herein specified, so far as applicable.
28. CONDEMNATION:
(a) Entire Taking. If all of the Premises or such portions of the
Building as may be required for the reasonable use of the
Premises, are taken by eminent domain, this Lease shall
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<PAGE>
automatically terminate as of the date title vests in the
condemning authority and all Rents, Additional Rents and other
payments shall be paid to that date.
(b) Constructive Taking of Entire Premises. In the event of a taking
of a material part but less than all of the Building, where
Landlord shall reasonably determine that the remaining portions
of the Premises cannot be economically and effectively used by it
(whether on account of physical, economic, aesthetic or other
reasons), Landlord shall forward a written notice to Tenant of
such determination not more than 60 days after the date of
taking. The term of this Lease shall expire upon such date as
Landlord shall specify in such notice but not earlier than 60
days after the date of such notice.
(c) Partial Taking. In case of taking of a part of the Premises, or
a portion of the Building not required for the reasonable use of
the Premises, then this Lease shall continue in full force and
effect and the Rent shall be equitably reduced based on the
proportion by which the floor area of the Premises is reduced,
such Rent reduction to be effective as of the date title to such
portion vests in the condemning authority.
(d) Termination by Landlord. In the event that title to a part of
the Building other than the Premises shall be so condemned or
taken and if, in the opinion of the Landlord, the Building should
be restored in such a way as to alter the Premises materially,
the Landlord may terminate this Lease and the term and estate
hereby granted by notifying the Tenant of such termination within
60 days following the date of vesting of title, and this Lease
and the terms and estate hereby granted shall expire on the date
specified in the notice of termination, not less than 60 days
after the giving of such notice, as fully and completely as if
such date were the date hereinbefore set for the expiration of
the term of this Lease, and the Rent hereunder shall be
apportioned as of such date.
(e) Awards and Damages. Landlord reserves all rights to damage to
the Premises for any partial, constructive, or entire taking by
eminent domain, and Tenant hereby assigns to Landlord any right
Tenant may have to such damages or award, and Tenant shall make
no claim against Landlord or the condemning authority for
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<PAGE>
damages for termination of the leasehold interest or interference
with Tenant's business. Tenant shall have the right, however, to
claim and recover from the condemning authority compensation for
any loss to which Tenant may be put for Tenant's moving expenses,
business interruption or taking of Tenant's personal property
(not including Tenant's leasehold interest) provided that such
damages may be claimed only if they are awarded separately in the
eminent domain proceedings and not out of or as part of the
damages recoverable by Landlord.
29. NOTICES: All notices under this Lease shall be in writing and
delivered in person or sent by registered or certified mail, postage prepaid, to
Landlord and to Tenant at the Notice Addresses provided in Section 1(j)
(provided that after the Commencement Date any such notice may be so mailed or
delivered by hand to Tenant at the Premises) and to the holder of any mortgage
or deed of trust at such place as such holder shall specify to Tenant in
writing; or such other addresses as may from time to time be designated by any
such party in writing. Notices mailed as aforesaid shall be deemed given on the
date of such mailing.
30. COSTS AND ATTORNEYS FEES: If Tenant or Landlord shall bring any
action for any relief against the other, declaratory or otherwise, arising out
of this Lease, including any suit by Landlord for the recovery of Rent,
Additional Rent or other payments hereunder or possession of the Premises each
party shall, and hereby does, to the extent permitted by law, waive trial by
jury and the losing party shall pay the prevailing party a reasonable sum for
attorneys fees in such suit, at trial and on appeal, and such attorneys fees
shall be deemed to have accrued on the commencement of such action.
31. LANDLORD'S LIABILITY: Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of Landlord are made and intended not as personal covenants, undertakings and
agreements for the purpose of binding Landlord personally or the assets of
Landlord except Landlord's interest in the Premises and building, but are made
and intended for the purpose of binding only the Landlord's interest in the
Premises and Building, as the same may from time to time be encumbered. No
personal liability or personal responsibility is assumed by, nor shall at any
time be asserted or enforceable against Landlord or its partners or their
respective heirs, legal representatives, successors, and assigns on account of
the Lease or on account of any covenant, undertaking or agreement of Landlord in
this Lease contained.
32. LANDLORD'S CONSENT: Except as specified in other provisions of this
Lease, whenever Landlord's consent is required under the terms hereof, such
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<PAGE>
consent shall not be unreasonably withheld, provided, the withholding of
Landlord's consent due to any mortgagee's refusal to grant its consent, shall
not be deemed unreasonable.
33. ESTOPPEL CERTIFICATES: Tenant shall, from time to time, upon written
request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating: The date this Lease was executed and the
date it expires; the date the term commenced and the date Tenant accepted the
Premises; the amount of minimum monthly Rent and the date to which such Rent has
been paid; and certifying: That this Lease is in full force and effect and has
not been assigned, modified, supplemented or amended in any way (or specifying
the date and terms of agreement so affecting this Lease): that this Lease
represents the entire agreement between the parties as to this leasing; that all
conditions under this Lease to be performed by the Landlord have been satisfied,
including, but without limitation, all co-tenancy requirements, if any; that all
required contributions by landlord to Tenant on account of Tenant's improvements
have been received; that on this date there are no existing claims, defenses or
offsets which the Tenant has against the enforcement of this Lease by the
Landlord; that no Rent has been paid more than one month in advance; and that no
security has been deposited with Landlord (or, if so, the amount thereof). It
is intended that any such statement delivered pursuant to this paragraph may be
relied upon by a prospective purchaser of Landlord's interest or assignee of any
mortgage upon Landlord's interest in the Building. If Tenant shall fail to
respond within 10 days of receipt by Tenant of a written request by Landlord as
herein provided, Tenant shall be deemed to have given such certificate as above
provided without modification and shall be deemed to have admitted the accuracy
of any information supplied by Landlord to a prospective purchaser or mortgagee
and that this Lease is in full force and effect, that there are no uncured
defaults in Landlord's performance, that the security deposit is as stated in
the Lease, and that not more than one month's Rent has been paid in advance.
34. TRANSFER OF LANDLORD'S INTEREST: In the event of any transfer or
transfers of Landlord's interest in the Premises or in the Building, other than
a transfer for security purposes only, the transferor shall be automatically
relieved of any and all obligations and liabilities on the part of Landlord
accruing from and after the date of such transfer and Tenant agrees to attorn to
the transferee.
35. RIGHT TO PERFORM: If Tenant shall fail to pay any sum of money, other
than Rent and Additional Rent required to be paid by it hereunder or shall fail
to perform any other act on its part to be performed hereunder, and such failure
shall continue for 10 days after notice thereof by Landlord, Landlord may, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any obligations of
-29-
<PAGE>
Tenant, make any such payment or perform any such other act on Tenant's part to
be made or performed as provided in this Lease. Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of the nonpayment of sums due under this Section as in the case of default
by Tenant in the payment of Rent.
36. SUBSTITUTED PREMISES: If the Premises contain an area of 2,000 square
feet or less, Landlord shall have the right at any time prior to the
commencement of construction of Tenant's improvements in the Premises, upon
giving Tenant not less than 30 days' notice in writing, to provide and furnish
tenant with space elsewhere in the Building of approximately the same size as
the Premises and to place Tenant in such space. If Tenant gives Landlord
written notice of its refusal to be placed in such Substituted Premises within
such 30-day period, Landlord shall have the right to forthwith cancel and
terminate this Lease. If Landlord moves Tenant to such new space, this Lease
and each and all of its terms, covenants and conditions shall remain in full
force and effect and be deemed applicable to such new space, and such new space
shall thereafter be deemed to be the "Premises."
37. CORPORATE AUTHORITY: If Tenant is a corporation, each individual
executing this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of Tenant, in accordance
with a duly adopted resolution of the Board of Directors of Tenant and in
accordance with the bylaws of Tenant, and that this Lease is binding upon Tenant
in accordance with its terms. Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a certified copy of a resolution of
the Board of Directors of Tenant authorizing or ratifying the execution of this
Lease.
38. GENERAL:
(a) Headings. Titles to Sections of this Lease are not a part of
this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
(b) Heirs and Assigns. All of the covenants, agreements, terms and
conditions contained in this Lease shall inure to and be binding
upon Landlord and Tenant and their respective heirs, executors,
administrators, successors and assigns.
(c) No Brokers. Tenant represents and warrants to Landlord that it
has not engaged any broker, finder or other person who would be
entitled to any commission or fees in respect of the negotiation,
execution or delivery of this Lease and shall indemnify and hold
-30-
<PAGE>
harmless Landlord against any loss, cost, liability or expense
incurred by Landlord as a result of any claim asserted by any
such broker, finder or other person on the basis of any
arrangements or agreements made or alleged to have been made by
or on behalf of Tenant. The provisions of this Section 38(c)
shall not apply to brokers with whom Landlord has an express
written broker agreement.
(d) Entire Agreement. This Lease contains all covenants and
agreements between Landlord and Tenant relating in any manner to
the leasing, use and occupancy of the Premises and Tenant's use
of the Building and other matters set forth in this Lease. No
prior agreements or understandings pertaining to the same shall
be valid or of any force or effect and the covenants and
agreements of this Lease shall not be altered, modified or added
to except in writing signed by Landlord and Tenant, except for
that certain Subordination, Attornment, and Non-Disturbance
Agreement, in the form customarily used for the Building, with
respect to the Premises.
(e) Severability. Any provision of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or
invalidate any other provision hereof and the remaining
provisions hereof shall nevertheless remain in full force and
effect.
(f) Open Occupancy. To the extent required by law, this Building
shall be an open occupancy building.
(g) Overdue Payments. Any Rent, Additional Rent or other sums
payable by Tenant to Landlord under this Lease for which payment
is five (5) days late, shall bear interest at a rate equal to
three percent (3%) above the prime rate of interest charged from
time to time by First Interstate Bank of Washington, or its
successor, but not in excess of the highest lawful rate permitted
under applicable laws, calculated from the original due date
thereof to the date of payment.
(h) Force Majeure. Time periods for Landlord's performance under any
provisions of this Lease shall be extended for periods of time
during which the Landlord's performance is prevented due to
circumstances beyond the Landlord's control, including without
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<PAGE>
limitation, strikes, embargoes, governmental regulations, acts of
God, war or other strife.
(i) Right to Change Public Spaces. Landlord shall have the right at
any time after the completion of the Building, without thereby
creating an actual or constructive eviction or incurring any
liability to Tenant therefor, to change the arrangement or
location of such of the following as are not contained within the
Premises or any part thereof: entrances, passageways, doors and
doorways, corridors, stairs, toilets and other like public
service portions of the Building. Nevertheless, in no event
shall Landlord diminish any service, change the arrangement or
location of the elevators serving the Premises, make any change
which shall diminish the area of the Premises, make any change
which shall interfere with access to the Premises or change the
character of the Building from that of a first-class office
building.
(j) Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the state of Washington.
(k) Building Directory. Landlord shall maintain in the lobby of
Building a directory board which shall include the name of Tenant
and any other names reasonably requested by Tenant in proportion
to the number of listings given to comparable tenants of the
Building.
IN WITNESS WHEREOF this Lease has been executed the day and year first
above set forth.
LANDLORD: WRIGHT-CARLYLE SEATTLE, a Washington
general partnership
By: 999 Management Ltd., a Washington
limited partnership, Managing Agent
By: Wright Runstad & Company, General
Partner
By H. Jon Runstad
----------------------------------
H. Jon Runstad, President and
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<PAGE>
Chief Executive Officer
TENANT: CABLE, HOWSE & RAGEN
By
-------------------------------
Thomas J. Cable
By
-------------------------------
Elwood D. Howse, Jr.
By Brooks G. Ragen
-------------------------------
Brooks G. Ragen
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<PAGE>
STATE OF WASHINGTON )
) ss:
COUNTY OF SNOHOMISH )
THIS IS TO CERTIFY that on this 14th day of February, 1984, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared H. Jon Runstad, to me known to be
the President and Chief Executive Officer of WRIGHT RUNSTAD & COMPANY, the
general partner of 999 Management Ltd., the partnership that executed the within
and foregoing instrument as managing agent of WRIGHT-CARLYLE SEATTLE, a general
partnership, and acknowledged the said instrument to be the free and voluntary
act and deed of said general partnership for the uses and purposes therein
mentioned, and on oath stated that he was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Phyllis L. Carlson
-------------------------------------
Notary public in and for the state of
Washington, residing at Everett
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss:
COUNTY OF KING )
THIS IS TO CERTIFY that on this _________ day of ___________, 19____ before
me, the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared ____________________ and
____________________, to me known to be the ____________________ and
____________________ respectively, of ____________________, the corporation that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned and on oath stated that they were authorized
to execute said instrument, and that the seal affixed is the corporate seal of
said corporation.
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<PAGE>
WITNESS my hand and official seal the day and year in this certificate
first above written.
----------------------------------------
Notary public in and for the state of
Washington, residing at______________
TENANT PARTNERSHIP ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss:
COUNTY OF KING )
THIS IS TO CERTIFY that on this 9th day of November, 1983 before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Brooks Ragen and
____________________, partners, of Cable, Howse & Ragen, a partnership, to me
known to be the individuals described in and who executed the within and
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said partnership for the uses and purposes therein
mentioned, and on oath stated that they were authorized to execute said
instrument on behalf of said partnership.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Joanne E. Stauffer
----------------------------------------
Notary public in and for the state of
Washington, residing at Seattle, Wash.
TENANT INDIVIDUAL ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss:
COUNTY OF KING )
THIS IS TO CERTIFY that on this _________ day of ___________, 19____ before
me, the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared __________________________ and
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<PAGE>
___________________________________ to me known to be the individuals described
in and who executed the within and foregoing instrument, and acknowledged to me
that _____________ signed the same as ___________ free and voluntary act and
deed for the uses and purposes therein mentioned.
WITNESS my hand and official seal the day and year in this certificate
first above written.
----------------------------------------
Notary public in and for the state of
Washington, residing at _________
-36-
<PAGE>
FIRST AMENDMENT
TO LEASE AGREEMENT BETWEEN
WRIGHT-CARLYLE SEATTLE ("LANDLORD")
AND
RAGEN MACKENZIE INCORPORATED ("TENANT")
This First Amendment is to that certain Lease Agreement dated November 8,
1983, between Wright-Carlyle Seattle, a Washington general partnership, as
Landlord, and Cable, Howse & Ragen, hereinafter referred to as Ragen MacKenzie
Incorporated, a Washington corporation, as Tenant ("Lease").
As parties hereto, Landlord and Tenant agree to amend the Lease as follows:
9. Tenant's Identity: Hereinafter, Tenant shall be recognized as Cable,
-----------------
Howse & Ragen, doing business as Ragen MacKenzie Incorporated, a
Washington corporation.
10. Notice Addresses: Section 1(j) shall be amended to read:
----------------
Landlord: Wright-Carlyle Seattle
Suite 1010, 999 Third Avenue
Seattle, Washington 98104
Tenant: Ragen MacKenzie Incorporated
4300 First Interstate Center
999 Third Avenue
Seattle, Washington 98104
11. Ratification: Except as herein specifically provided, that Lease and
------------
this First Amendment to Lease are hereby ratified and approved.
12. The intent of this First Amendment is to change Tenant's name to Ragen
MacKenzie Incorporated.
Dated at Seattle, Washington, this 19th day of December, 1988.
LANDLORD: WRIGHT-CARLYLE SEATTLE,
a Washington general partnership
By: 999 MANAGEMENT LTD., a Washington
limited partnership
Its Managing Agent
<PAGE>
By: WRIGHT RUNSTAD ASSOCIATES
LIMITED PARTNERSHIP,
a Washington limited partnership
Its General Partner
By: WRIGHT RUNSTAD & COMPANY
a Washington corporation
Its General Partner
By: H. Jon Runstad
--------------
H. Jon Runstad
Its President and
Chief Executive Officer
TENANT: RAGEN MacKENZIE INCORPORATED
By: Robert J. Mortell, Jr.
----------------------
Robert J. Mortell Jr.
Chief Financial Officer
-2-
<PAGE>
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
THIS IS TO CERTIFY that on this 24th day of June, 1991, before me, the
undersigned, a notary public in and for the State of Washington, duly
commissioned and sworn, personally appeared H. Jon Runstad, to me known to be
the President and CEO of WRIGHT RUNSTAD & COMPANY, a corporation, to me known to
be the general partner of WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a
limited partnership, to me known to be the general partner of 999 MANAGEMENT
LTD., a limited partnership, to me known to be the managing agent of WRIGHT-
CARLYLE SEATTLE, a Washington general partnership, the general partnership that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation and
partnerships for the uses and purposes therein mentioned, and an oath stated
that said individual was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Phyllis L. Carlson
------------------------
Notary Public in and for the State of
Washington, residing at Seattle
My appointment expires 4/25/95
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
THIS IS TO CERTIFY that on this 16th day of December, 1988, before me, the
undersigned, a notary public in and for the State of Washington, duly
commissioned and sworn personally appeared Robert J. Mortell, Jr., to me known
to be the Chief Financial Officer of Ragen MacKenzie Incorporated, the
corporation that executed the within and foregoing instrument, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes
-3-
<PAGE>
therein mentioned, and on oath stated that they were authorized to execute said
instrument, and that the seal affixed is the corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Lauren Hazel Taft
----------------------
Notary Public in and for the State of
Washington, residing at Seattle
My appointment expires May 5, 1992
-4-
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
BETWEEN
WRIGHT-CARLYLE SEATTLE ("LANDLORD")
AND
RAGEN MACKENZIE INCORPORATED ("TENANT")
This Second Amendment is to that certain Lease Agreement dated November 8,
1983, as amended by First Amendment to Lease Agreement dated December 19, 1988,
by and between Wright-Carlyle Seattle, a Washington general partnership as
Landlord, and Cable, Hose & Ragen, hereinafter referred to as Ragen MacKenzie
Incorporated, a Washington corporation, as Tenant ("Lease").
As parties hereto, Landlord and Tenant agree to further amend the Lease as
follows:
1. SECTION 1(c) AGREED AREAS, SHALL BE AMENDED TO READ:
Agreed Areas: As used in this Lease, Landlord and Tenant agree to the
following areas and percentage: area of Building: 915,883 net
rentable square feet; area of Tenant's Premises: 21,109 net rentable
square feet on Floor 43; Tenant's Percentage of the Building:
approximately 2.30%.
In the event a portion of the Building is damaged or condemned or any
other event occurs which alters the rentable area of the Premises or
the rentable area of the Building, Landlord may adjust Tenant's
Percentage of the Building to properly reflect the proportion of the
rentable area of the Building (as altered by such event) which is
attributable to the rentable area of the Premises (as altered by such
event).
2. SECTION 1(e) COMMENCEMENT DATE, SHALL BE AMENDED TO READ:
Commencement Date of Initial Term of the Lease: February 3, 1984.
Commencement Date of Lease Extension: February 1, 1994.
3. SECTION 1(f) EXPIRATION DATE, SHALL BE AMENDED TO READ:
Expiration Date: January 31, 1999.
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
4. SECTION 1(g) RENT, SHALL BE AMENDED TO READ:
RENT. Rent shall be payable monthly on or before the first day of
each month. Rent for each year of the lease term as extended by this
Second Amendment shall be one-twelfth (1/12) of the annual rent
calculated by multiplying the dollar amounts set forth below times the
number of rentable square feet then included within the Premises.
Rent shall be adjusted from time to time as provided in Sections 9 -
10 of the Lease.
<TABLE>
<CAPTION>
Time Period $ per Square Foot per Year
- --------------------------- ---------------------------
<S> <C>
February 3, 1983 through $27.50
January 31, 1994
February 1, 1994 through $22.00*
February 28, 1995
March 1, 1995 through $22.00
January 31, 1997
February 1, 1997 through $24.00
January 31, 1998
February 1, 1998 through $24.50
December 31, 1998
January 1, 1999 through $24.50*
January 31, 1999
</TABLE>
- --------------
* Rent Abatement
(1) No Rent shall be due for the following months (the "Free Rent Months,"
collectively): February 1, 1994, through February 28, 1995, and January
1999.
(2) The entire Rent otherwise due and payable for the Free Rent Months shall
become immediately due and payable upon the occurrence of an event of
monetary or other material default by Tenant under this Lease.
-2-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
5. SECTION 1(i) PARKING, SHALL BE AMENDED TO READ:
Tenant shall have the right to lease twenty-one (21) parking stalls in
the Building, on an unassigned basis at the prevailing monthly rates
as established by the Landlord's parking operator from time to time.
The leasing of parking stalls by Tenant shall be subject to such rules
and regulations as Landlord, Landlord's parking operator and/or the
City of Seattle may require from time to time.
Landlord will work with Tenant to satisfy its parking needs to the
extent possible given the terms or conditions of the other leases in
the Building. So long as there is a surplus of parking stalls in the
Building garage due to First Interstate Bank not using all of the
parking called for in its lease, Tenant may lease up to forty-seven
(47) parking stalls in the Building garage.
6. SECTION 1(k) EXHIBITS, SHALL BE AMENDED TO READ:
<TABLE>
<S> <C>
Exhibit A - Floor Plan of Premises
Exhibit B - Tenant Improvements
Exhibit B.1 - Tenant Improvement Plans
Exhibit B.2 - Tenant Improvements Paid by Tenant
Exhibit C - Addendum to Lease
Exhibit D - Tenant Improvements to be Done in 1992 in Conjunction with the
Second Amendment
Exhibit E - Tenant Improvement Budget, dated 07/09/92
</TABLE>
7. SECTION 8, COSTS OF OPERATIONS AND ENERGY, SUBSECTION (a) DEFINITIONS,
SUBSECTION (i)(2)(C), SHALL BE AMENDED TO READ:
(C) Depreciation or amortization of costs required to be capitalized
in accordance with generally accepted accounting practices
(except Other Operating Costs shall include amortization of
capital improvements (i) made subsequent to initial development
of the Building which are designed with a reasonable probability
of improving the operating efficiency of the Building, provided
that such amortization shall not exceed the reasonably expected
-3-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
savings in operating costs, or (ii) which are reasonably
responsive to requirements imposed with respect to the Building
under any amendment to any applicable building, health, safety,
fire, nondiscrimination, or similar law or regulation ("law"), or
any new law, or any new interpretation of a law).
8. SECTION 8, COSTS OF OPERATIONS AND ENERGY, SUBSECTION (a) DEFINITIONS,
SUBSECTION (iii) "BASE SERVICES YEAR" IS AMENDED TO READ:
(iii) From the Commencement Date of the Lease through January 31,
1994, "Base Services Year" shall mean 1984. As of February 1,
1994, "Base Services Year" shall mean 1994.
9. SECTION 9, REAL PROPERTY TAXES, SUBSECTION (a) DEFINITIONS, SUBSECTION
(iv) "BASE TAX AMOUNT" IS AMENDED TO READ:
(iv) From the Commencement Date of the Lease through January 31,
1994, pass-throughs for increases in Real Property Taxes shall
be based on the "Base Tax Amount" of $913,300 (approximately
$1.00 per square foot of rentable area) multiplied by Tenant's
Percentage of the Building. As of February 1, 1994, pass-
throughs for increases in Real Property Taxes shall be based on
the "Base Tax Amount" as assessed in 1994 multiplied by
Tenant's Percentage of the Building.
10. SECTION 18, INDEMNIFICATION, SHALL BE RE-TITLED "INDEMNIFICATION AND
INSURANCE" AND SHALL BE AMENDED TO READ:
(A) INDEMNIFICATION: Tenant shall indemnify and hold Landlord
harmless from and against liabilities, damages, losses, claims
and expenses, including attorneys fees, arising from any act,
omission, or negligence of Tenant or its officers, contractors,
licensees, agents, employees, clients or customers in or about
the Building or Premises or arising from any injury or damage to
any person or property, occurring in or about the Building or
Premises or arising from any breach or default under this Lease
by Tenant. The foregoing provisions shall not be construed to
make Tenant responsible for loss, damage, liability or expense
resulting from injuries to third parties caused by the negligence
of Landlord, or its officers, contractors, licensees, agents,
employees, clients or customers or other tenants of the Building.
-4-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
Landlord shall indemnify and hold Tenant harmless from and
against all liabilities, damages, losses, claims and expenses,
including attorneys fees, arising from any act, omission or
negligence of Landlord or its officers, contractors, licensees,
agents or employees in or about the Building or Premises, or
arising from any injury or damage to any person or property,
occurring in or about the Building or Premises or arising from
any breach or default under this Lease by Landlord. The foregoing
provisions shall not be construed to make Landlord responsible
for loss, damage, liability or expense resulting from injuries to
third parties caused by the negligence of Tenant, or its
officers, contractors, licensees, agents, employees, clients or
customers or other tenants of the Building.
(B) INSURANCE:
(a) Tenant's Insurance. Tenant shall, throughout the term of
------------------
this Lease and any renewal hereof, at its own expense, keep
and maintain in full force and effect, a policy of
commercial general liability insurance, occurrence form,
with the Landlord as an additional insured, including
contractual liability coverage covering Tenant's obligations
under this Section 18, insuring Tenant's activities upon, in
or about the Premises or the Building against claims of
bodily injury or death or property damage or loss with a
limit of not less than One Million Dollars ($1,000,000)
combined single limit per occurrence.
Tenant shall also carry what is commonly referred to as "all
risk" coverage insurance (excluding earthquake and flood) on
Tenant's leasehold improvements in an amount not less than
one hundred percent (100%) of the current replacement value
thereof.
(b) Insurance Policy Requirements. All insurance policies
-----------------------------
required under this Section 18 shall be with companies
reasonably approved by Landlord and each policy shall
provide that it is not subject to cancellation or reduction
in limits except after forty-five (45) days' prior written
notice to Landlord, except after ten (10) days' prior
written notice
-5-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
to Landlord in the case of non-payment of
premium. Tenant shall deliver to Landlord upon the
Commencement Date and from time to time thereafter,
certificates evidencing the existence and amounts of all
such policies.
11. SECTION 19, ASSIGNMENT AND SUBLETTING, SHALL BE AMENDED BY THE
ADDITION OF SUBSECTION (e) TO READ:
(e) Notwithstanding the foregoing, in the event of an assignment by
merger, consolidation or liquidation, or any change in the
ownership of, or power to vote, a majority of Tenant's
outstanding voting stock, Landlord shall not unreasonably
withhold or delay its consent to the proposed assignment or
sublease if all of the following conditions are satisfied:
1) The use of the Premises would be a permitted use;
2) The proposed transferee is reputable, of sound financial
condition, and is sufficiently creditworthy to lease directly
from Landlord; and
3) The operations of the proposed assignee or sublessee would be
managed in a manner and by persons whose qualifications and
experience are reasonably acceptable to Landlord.
12. EXHIBIT C, ADDENDUM TO LEASE, ITEM 1, OPTIONS TO EXTEND TERM, IS
EXERCISED BY THIS SECOND AMENDMENT AND SHALL BE HENCEFORTH DELETED.
13. EXHIBIT C, ADDENDUM TO LEASE, ITEM 2, OPTIONS FOR EXPANSION, SHALL BE
HENCEFORTH DELETED (Tenant has passed on both Options One and Two).
14. EXHIBIT C, ADDENDUM TO LEASE, ITEM 3, PARKING, SHALL BE HENCEFORTH
DELETED. See Section 1(i), Parking, in this Second Amendment, above.
15. EXHIBIT C, ADDENDUM TO LEASE, ITEM 5, RIGHT OF FIRST OFFER, SHALL BE
AMENDED TO READ:
From June 1, 1992, through January 31, 1994, when space becomes
available on Floor 42 Landlord shall specify in writing to Tenant the
-6-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
exact space, time at which it will become available, and the rental
rate for such space. Tenant shall then respond in writing as to
whether or not Tenant will lease that space on the terms specified in
such letter. If Tenant responds in the negative or if Tenant does not
respond within twenty (20) days after the receipt of such letter,
Landlord may lease the space to another entity provided, however,
before Landlord shall lease the space to another entity at terms which
are substantially more favorable for the lessee than those specified
in the letter referenced above, Landlord shall reoffer the space to
Tenant on those more favorable terms. If Landlord finds it necessary
to reoffer this space to Tenant because of the change in terms, Tenant
shall have only ten (10) days to respond to this new offer.
From February 1, 1994, through January 31, 1999, Tenant shall have a
similar Right of First Offer on Floor 42, which shall be subordinate
to any expansion options and/or rights of first offer of any other
tenant which occupies more than 11,500 net rentable square feet on
Floor 42.
16. EXHIBIT C, ADDENDUM TO LEASE, ITEM 8, BROKERAGE FEE, SHALL BE ADDED TO
READ:
Landlord shall pay a brokerage fee of $3.50 per rentable square foot
for a total payment of $73,881.50 directly to Tenant upon full
execution of this Second Amendment.
17. EXHIBIT D, TENANT IMPROVEMENTS TO BE DONE IN 1992 IN CONJUNCTION WITH
THE SECOND AMENDMENT (THE "WORK LETTER"), AND EXHIBIT E, TENANT
IMPROVEMENT BUDGET, DATED 07/09/92, ATTACHED HERETO, SHALL BE
INSERTED.
18. EFFECTIVE DATE. This Second Amendment shall be effective as of June
1, 1992.
19. RATIFICATION. Except as herein specifically provided, the Lease, this
Second Amendment to the Lease Agreement, and all previous Amendments
to Lease Agreement, are hereby ratified and approved.
20. THE INTENT OF THIS SECOND AMENDMENT IS TO:
a. Revise Tenant's Percentage of Building based on the recalculation
of the rentable area of the Building.
-7-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
b. Extend the term of the Lease by 5 years.
c. Revise the rental rate schedule.
d. Revise the number of stalls Tenant may lease.
e. Revise definitions of Other Operating Costs.
f. Revise the Base Services Year as of 1994.
g. Revise the language in the Insurance section to reflect current
insurance coverages available and to name Landlord as an
additional insured.
h. Revise the language in the Assignment section to define the
conditions under which an assignment will be approved by Landlord.
i. Delete the extension option exercised by this Second Amendment.
j. Delete the expansion options.
k. Revise Tenant's Right of First Offer.
l. Acknowledge that Landlord will pay Tenant a brokerage fee in
conjunction with this Second Amendment.
m. Define the tenant improvements Landlord will provide in 1992 in
conjunction with this Second Amendment and the budget therefore.
DATED AT SEATTLE, WASHINGTON THIS 24TH DAY OF AUGUST, 1992.
LANDLORD: WRIGHT-CARLYLE SEATTLE,
a Washington general partnership
By: 999 MANAGEMENT LTD., a Washington limited partnership
Its Managing Agent
-8-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
By: WRIGHT RUNSTAD ASSOCIATES LIMITED
PARTNERSHIP,
a Washington limited partnership
Its General Partner
By: WRIGHT RUNSTAD & COMPANY
a Washington corporation
Its General Partner
By: H. Jon Runstad
----------------------
Its President and Chief Executive Officer
TENANT: RAGEN MacKENZIE INCORPORATED
By: Brooks G. Ragen
-----------------------
Its: Chairman
----------------
(Notary Acknowledgment attached)
-9-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 24th day of August, 1992, before me, the
---- ------
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared H. Jon Runstad, to me known to be
--------------
the President and CEO of WRIGHT RUNSTAD & COMPANY, a corporation, to me known to
-----------------
be the general partner of WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a
limited partnership, to me known to be the general partner of 999 MANAGEMENT
LTD, a limited partnership, to me known to be the managing agent of WRIGHT-
CARLYLE SEATTLE, a Washington general partnership, the general partnership that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation and
partnerships for the uses and purposes therein mentioned, and on oath stated
that said individual was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate
first above written.
[signature illegible]
---------------------
Notary Public in and for the state of Washington, residing at
Seattle
-------------------------------------------------------------
My appointment expires 3/29/96
-------
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 11th day of July, 1992, before me, the
---- ----
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Brooks G. Ragen, to me known to be
---------------
the CEO & Chairman of the Board of RAGEN MACKENZIE INCORPORATED, the corporation
---------------------------
that executed the within and foregoing instrument, and acknowledged the said
-10-
<PAGE>
Second Amendment to Lease Agreement
Ragen MacKenzie Incorporated
Page 2
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument, and that the seal affixed, if any, is the
corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Cheri Lee Hale
--------------------------------------
Notary Public in and for the state of
Washington, residing at
Bremerton, Washington
--------------------------------------
My appointment expires: 6-10-96
-------
-11-
<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
BETWEEN
WRIGHT-CARLYLE SEATTLE ("LANDLORD")
AND
RAGEN MACKENZIE INCORPORATED ("TENANT")
This Third Amendment is to that certain Lease Agreement dated November 8,
1983, as amended by First Amendment to Lease Agreement dated December 19, 1988,
and by Second Amendment to Lease Agreement dated August 24, 1992, by and between
Wright-Carlyle Seattle, a Washington general partnership as Landlord, and Ragen
MacKenzie Incorporated, a Washington corporation, as Tenant (the "Lease").
As parties hereto, Landlord and Tenant agree to further amend the Lease as
follows:
1. SECTION 1(c) AGREED AREAS, SHALL BE AMENDED TO READ:
Agreed Areas: As used in this Lease, Landlord and Tenant agree to the
following areas and percentage: area of Building: 915,883 net rentable
square feet; area of Tenant's Premises: 21,109 net rentable square feet on
Floor 43 and 2,130 net rentable square feet on Floor 37; Tenant's
Percentage of the Building: approximately 2.30% on Floor 43 and
approximately 0.23% on Floor 37.
In the event a portion of the Building is damaged or condemned or any other
event occurs which alters the rentable area of the Premises or the rentable
area of the Building, Landlord may adjust Tenant's Percentage of the
Building to properly reflect the proportion of the rentable area of the
Building (as altered by such event) which is attributable to the rentable
area of the Premises (as altered by such event).
2. SECTION 1(e) COMMENCEMENT DATE, SHALL BE AMENDED TO READ:
Commencement Date of Initial Term of the Lease: February 3, 1984.
Commencement Date of Lease Extension for Premises on Floor 43: February 1,
1994.
Commencement Date of the Term for the Premises on Floor 37: July 1, 1993,
or the date on which Tenant takes occupancy, whichever date is earlier.
<PAGE>
3. SECTION 1(f) EXPIRATION DATE, SHALL BE AMENDED TO READ:
The Expiration Date for the Premises on Floor 43 and on Floor 37 shall be
January 31, 1999.
4. SECTION 1(g) RENT, SHALL BE AMENDED TO READ:
Rent: Rent shall be payable monthly on or before the first day of each
----
month. Rent for each month of the lease term as extended by the Second
Amendment shall be one-twelfth (1/12) of the annual rent calculated by
multiplying the dollar amounts set forth below times the number of rentable
square feet then included within the Premises. Rent shall be adjusted from
time to time as provided in Sections 9 - 10 of the Lease.
A) Floor 43 Premises
<TABLE>
<CAPTION>
Time Period $ per Square Foot on Floor 43 per Year
- ---------------------------------------- --------------------------------------
<S> <C>
February 3, 1983 through January 31, 1994 $27.50
February 1, 1994 through February 28, 1995 $22.00*
March 1, 1995 through January 31, 1997 $22.00
February 1, 1997 through January 31, 1998 $24.00
February 1, 1998 through December 31, 1998 $24.50
January 1, 1999 through January 31, 1999 $24.50*
</TABLE>
- --------------
* Rent Abatement
(1) No Rent shall be due on the Floor 43 Premises for the following months (the
"Free Rent Months," collectively): February 1, 1994, through February 28,
1995, and January 1999.
(2) The entire Rent otherwise due and payable for the Free Rent Months shall
become immediately due and payable upon the occurrence of an event of
monetary or other material default by Tenant under this Lease.
-2-
<PAGE>
B) Floor 37 Premises
<TABLE>
<CAPTION>
Time Period $ per Square Foot on Floor 43 per Year
- ---------------------------------------- --------------------------------------
<S> <C>
July 1, 1993** through January 31, 1999 $18.75
</TABLE>
** or the date on which Tenant takes occupancy of the Floor 37 Premises,
whichever date is earlier.
5. SECTION 1(i) PARKING, SHALL BE AMENDED TO READ:
Tenant shall have the right to lease twenty-one (21) parking stalls in the
Building garage on an unassigned basis, and three (3) parking stalls in the
Building garage on an unassigned or executive valet basis, at Landlord's
sole discretion, at the prevailing monthly rates as established by the
Landlord's parking operator from time to time. The leasing of parking
stalls by Tenant shall be subject to such rules and regulations as
Landlord, Landlord's parking operator and/or the City of Seattle may
require from time to time.
Landlord will work with Tenant to satisfy its parking needs to the extent
possible given the terms or conditions of the other leases in the Building.
So long as there is a surplus of parking stalls in the Building garage due
to First Interstate Bank not using all of the parking called for in its
lease, Tenant may lease up to forty-seven (47) parking stalls in the
Building garage.
6. SECTION 1(k) EXHIBITS, SHALL BE AMENDED TO READ:
<TABLE>
<S> <C>
Exhibit A Floor Plan of Premises, dated 7/1/93
Exhibit B Tenant Improvements
Exhibit B.1 Tenant Improvement Plans
Exhibit B.2 Tenant Improvements Paid by Tenant
Exhibit C Addendum to Lease
Exhibit D Tenant Improvements to be Done in 1992 in
Conjunction with the Second Amendment
Exhibit E Tenant Improvement Budget, dated 07/09/92
Exhibit F Tenant Improvements to be Done in 1993 in
Conjunction with the Third Amendment
</TABLE>
7. SECTION 8, COST OF OPERATIONS AND ENERGY, SUBSECTION (a) DEFINITIONS,
SUBSECTION (iii) "BASE SERVICES YEAR" IS AMENDED TO READ:
-3-
<PAGE>
(iii) From the Commencement Date of the Lease through January 31, 1994,
"Base Services Year" for the Floor 43 Premises shall mean 1984. As of
February 1, 1994, "Base Services Year" for the Floor 43 Premises
shall mean 1994. The "Base Services Year" for the Floor 37 Premises
shall mean 1993.
8. SECTION 9, REAL PROPERTY TAXES, SUBSECTION (A) DEFINITIONS, SUBSECTION (IV)
"BASE TAX AMOUNT" IS AMENDED TO READ:
(iv) From the Commencement Date of the Lease through January 31, 1994,
pass-throughs for increases in Real Property Taxes shall be based on
the "Base Tax Amount" of $913,300 (approximately $1.00 per square
foot of rentable area) multiplied by Tenant's Percentage of the
Building. As of February 1, 1994, pass-throughs for increases in Real
Property Taxes for the Floor 43 Premises shall be based on the "Base
Tax Amount" as assessed in 1994 multiplied by Tenant's Percentage of
the Building on Floor 43.
Notwithstanding anything in the Lease or this Section 9 to the
contrary, pass-throughs for increases in Real Property Taxes for the
Floor 37 Premises shall be based on the "Base Tax Amount" as assessed
in 1993 multiplied by Tenant's Percentage of the Building on Floor
37.
9. EXHIBIT C, ADDENDUM TO LEASE, ITEM 5, RIGHT OF FIRST OFFER, SHALL BE
AMENDED TO READ:
A) Rights of First Offer on Floor 42
---------------------------------
(i) From June 1, 1992, through January 31, 1994, when space becomes
available on Floor 42, Landlord shall specify in writing to
Tenant the exact space, time at which it will become available,
and the rental rate for such space. Tenant shall then respond in
writing as to whether or not Tenant will lease that space on the
terms specified in such letter. If Tenant responds in the
negative or if Tenant does not respond within twenty (20) days
after the receipt of such letter, Landlord may lease the space to
another entity provided, however, before Landlord shall lease the
space to another entity at terms which are substantially more
favorable for the lessee than those specified in the letter
referenced above, Landlord shall reoffer the space to Tenant on
those more favorable terms. If Landlord finds it necessary to
re-offer this
-4-
<PAGE>
space to Tenant because of the change in terms, Tenant shall have
only ten (10) days to respond to this new offer.
(ii) From February 1, 1994, through January 31, 1999, Tenant shall
have a similar Right of First Offer on Floor 42, which shall be
subordinate to any expansion options and/or rights of first offer
of any other tenant which occupies more than 11,500 net rentable
square feet on Floor 42.
B) Rights of First Offer on Floor 42
---------------------------------
(i) From July 1, 1993, through January 31, 1999, Tenant shall have a
Right of First Offer on space contiguous to its Floor 37
Premises. Landlord shall specify in writing to Tenant the exact
space, availability, and the rental rate for such space as
proposed to a third party tenant. Tenant shall then have five
(5) business days to respond in writing to Landlord as to whether
or not Tenant will lease that space on the terms specified in
such letter. If Tenant responds in the negative or if Tenant
does not respond within such five-day period, Landlord may lease
the space to such third party tenant.
10. EXHIBIT C, ADDENDUM TO LEASE, ITEM 9, BROKERAGE FEE IN CONJUNCTION WITH
THIRD AMENDMENT, SHALL BE ADDED TO READ:
Landlord shall pay a brokerage fee of $3.50 per rentable square foot of the
Floor 37 Premises for a total payment of $7,455.00 directly to Tenant upon
full execution of this Third Amendment.
11. EXHIBIT C, ADDENDUM TO LEASE, ITEM 10, TENANT IMPROVEMENTS IN CONJUNCTION
WITH THIRD AMENDMENT, SHALL BE ADDED TO READ:
Landlord shall at its sole cost and expense provide and install the
improvements as shown in the Marvin Stein space plan dated May 7, 1993, as
shown on Exhibit F, attached hereto, using Building standard finishes.
12. EXHIBIT F, TENANT IMPROVEMENTS TO BE DONE IN 1993 IN CONJUNCTION WITH THE
THIRD AMENDMENT DATED MAY 7, 1993, ATTACHED HERETO, SHALL BE INSERTED.
-5-
<PAGE>
13. EFFECTIVE DATE. This Third Amendment shall be effective as of July 1,
1993, or the date on which Tenant takes occupancy of the Floor 37 Premises,
whichever date is earlier.
14. RATIFICATION. Except as herein specifically provided, the Lease, this
Third Amendment to the Lease Agreement, and all previous Amendments to
Lease Agreement, are hereby ratified and approved.
Dated at Seattle, Washington this 1st day of June, 1993.
LANDLORD: WRIGHT-CARLYLE SEATTLE,
a Washington limited partnership
By: 999 MANAGEMENT LTD.,
A Washington limited partnership
Its Managing Agent
By: WRIGHT RUNSTAD ASSOCIATES
LIMITED PARTNERSHIP,
A Washington limited partnership
Its General Partner
By: WRIGHT RUNSTAD &
COMPANY
A Washington corporation
Its General Partner
By: /s/ H. Jon Runstad
----------------------------
H. Jon Runstad
Its President and Chief Executive
Officer
TENANT: RAGEN MacKENZIE INCORPORATED
By: Robert J. Mortell, Jr.
-------------------------------
Its CFO
---------------------------
(Notary Acknowledgment attached)
-6-
<PAGE>
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 1st day of June, 1993, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared H. Jon Runstad to me known to be the
President and CEO of WRIGHT RUNSTAD & COMPANY, a corporation, to me known to be
the general partner of WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a limited
partnership, to me known to be the general partner of 999 MANAGEMENT LTD., a
limited partnership, to me known to be the managing agent of WRIGHT-CARLYLE
SEATTLE, a Washington general partnership, the general partnership that executed
the within and foregoing instrument, and acknowledged the said instrument to be
the free and voluntary act and deed of said corporation and partnerships for the
uses and purposes therein mentioned, and on oath stated that said individual was
authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate
first above written.
[signature illegible]
-------------------------------------------
Notary public in and for the state of
Washington, residing at Seattle
My appointment expires: 3/29/96
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 17th day of May, 1993, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Robert J. Mortell, Jr. to me known
to be the Chief Financial Officer/Co-Chief Operating Officer of Ragen MacKenzie
Incorporated, the corporation that executed the within and foregoing instrument,
and acknowledged the said instrument to be the free and voluntary act and deed
of said corporation for the uses and purposes therein mentioned, and on oath
stated that they were authorized to
-7-
<PAGE>
execute said instrument, and that the seal affixed, if any, is the corporate
seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Cheri L. Hale
-----------------------------------------------
Notary public in and for the state of
Washington, residing at Bremerton, Washington
My appointment expires: 6-10-94
-8-
<PAGE>
FOURTH AMENDMENT TO LEASE AGREEMENT
BETWEEN
WRIGHT-CARLYLE SEATTLE LIMITED PARTNERSHIP ("LANDLORD")
AND
RAGEN MACKENZIE INCORPORATED ("TENANT")
This Fourth Amendment is to that certain Lease Agreement dated
November 8, 1983, as amended by First Amendment to Lease Agreement
dated December 19,1988, by Second Amendment to Lease Agreement dated
August 24, 1992, and by Third Amendment to Lease Agreement dated June
1, 1993, by and between WRIGHT-CARLYLE SEATTLE LIMITED PARTNERSHIP, a
Washington limited partnership, as successor in the Lease to Wright-
Carlyle Seattle, a Washington general partnership, as Landlord, and
RAGEN MACKENZIE INCORPORATED, a Washington corporation, as successor
in the Lease to Cable, Howse & Ragen, as Tenant (the "Lease").
As parties hereto, Landlord and Tenant agree to further amend the
Lease as follows:
1. SECTION 1(C) EXPIRATION DATE, SHALL BE AMENDED TO READ:
Agreed Areas: As used in this Lease, Landlord and Tenant agree to the
following areas and percentage: area of Building is deemed to be
915,883 net rentable square feet; area of Tenant's Premises is deemed
to be: 21,109 net rentable square feet on Floor 43 and 3,502 net
rentable square feet on Floor 37; Tenant's Percentage of the Building
is deemed to be: approximately 2.30% on Floor 43 and approximately
0.38% on Floor 37. This reflects the addition of 1,372 net rentable
square feet on Floor 37, identified as the "09/01/95 Expansion Space"
on the attached Exhibit A.
In the event a portion of the Building is damaged or condemned or any
other event occurs which alters the rentable area of the Premises or
the rentable area of the Building, Landlord may adjust Tenant's
Percentage of the Building to properly reflect the proportion of the
rentable area of
<PAGE>
the Building (as altered by such event) which is attributable to the
rentable area of the Premises (as altered by such event).
2. SECTION 1(F) EXPIRATION DATE, REMAINS AS ESTABLISHED IN THE THIRD
AMENDMENT, TO READ:
The Expiration Date for the Premises on Floor 43 and on Floor 37 shall
be January 31, 1999.
3. SECTION 1(G) RENT, SHALL BE AMENDED TO READ:
Rent. Rent shall be payable monthly on or before the first day
----
of each month. Rent for each month of the lease term as extended by
the Second Amendment shall be one-twelfth (1/12) of the annual rent
calculated by multiplying the dollar amounts set forth below times the
number of rentable square feet then included within the Premises.
Rent shall be adjusted from time to time as provided in Sections 9 -
10 of the Lease.
A) FLOOR 43 PREMISES
<TABLE>
<CAPTION>
Time Period $ per Square Foot on Floor 43 per Year
----------- --------------------------------------
<S> <C>
02/03/84 through 01/31/94 $27.50
02/01/94 through 02/28/95 $22.00*
03/01/95 through 01/31/97 $22.00
02/01/97 through 01/31/98 $24.00
02/01/98 through 12/31/98 $24.50
01/01/99 through 01/31/99 $24.50*
</TABLE>
*Rent Abatement
--------------
(1) No Rent shall be due on the Floor 43 Premises for the following months (the
"Free Rent Months," collectively): February 1, 1994, through February 28,
1995, and the month of January 1999.
(2) The entire Rent otherwise due and payable for the Free Rent Months shall
become immediately due and payable upon the occurrence of an event of
monetary or other material default by Tenant under this Lease.
-2-
<PAGE>
B) FLOOR 37 PREMISES
Time Period $ per Square Foot on Floor 43 per Year
----------- ---------------------------------------
07/01/93 through 09/14/95 $18.75 on 2,130 RSF
09/15/95/(1)/ through 01/31/99 $18.75 on 2,130 RSF
$24.16 on 1,372 RSF/(2)/
/(1)/or the date on which Tenant takes occupancy of the 09/01/95
Expansion Space on Floor 37, whichever date is earlier.
/(2)/The rate of $24.16 is based on tenant improvement costs of $37.22
per square foot with a base rental rate of $20.00 per square foot. If
tenant improvement costs are lower, the rate will be adjusted accordingly.
-3-
<PAGE>
4. SECTION 1(K) EXHIBITS, SHALL BE AMENDED TO READ:
Exhibit A - Floor Plan of Premises, dated 09/01/95 (Fourth Amendment)
Exhibit B - Tenant Improvements (original Lease)
Exhibit B.1 - Tenant Improvement Plans (original Lease)
Exhibit B.2 - Tenant Improvements Paid by Tenant (original Lease)
Exhibit C - Addendum to Lease (revised by Fourth Amendment)
Exhibit D - Tenant Improvements to be Done in 1992 in Conjunction with the
Second Amendment (Second Amendment)
Exhibit E - Tenant Improvement Budget, dated 07/09/92 (Second Amendment)
Exhibit F - Tenant Improvements to be Done in 1993 in Conjunction with the
Third Amendment (Third Amendment)
Exhibit G - Tenant Improvements in Conjunction with Fourth Amendment
(Fourth Amendment)
5. SECTION 6, USES, IS AMENDED TO READ:
The Premises are to be used only for general office purposes
("Permitted Uses"), and for no other business or purpose without the prior
written consent of Landlord, which consent may be withheld if Landlord
determines that any proposed use is inconsistent with or detrimental to the
maintenance and operation of the Building as a first-class office building
in downtown Seattle, Washington or is inconsistent with any restriction on
use of the Premises, the Building or the Land contained in any lease,
mortgage or other agreement or instrument by which the Landlord is bound or
to which any of such property is subject. Tenant shall not commit any act
that will increase the then existing rate of insurance on the Building
without Landlord's consent. Tenant shall promptly pay upon demand the
amount of any increase in insurance rates caused by any act or acts of
Tenant. Tenant shall not commit or allow to be committed any waste upon the
Premises, or any public or private nuisance or other act which disturbs the
quiet enjoyment of any other tenant in the Building or which is unlawful or
which will cause any substantial noise, vibration, smoke or fumes. If
Tenant shall permit
-4-
<PAGE>
smoking in the Premises in compliance with any applicable laws or
regulations, Tenant shall be required to install, at Tenant's sole cost,
special tenant improvements designed to alleviate the spread of smoke
outside the Premises, including extending demising walls from structure
to structure and installing a dedicated exhaust system for the Premises.
If Tenant should disturb the quiet enjoyment of any other tenant in the
Building, Tenant shall provide adequate insulation or take other action
as may be necessary to eliminate the disturbance. Tenant shall comply
with all laws relating to its use or occupancy of the Premises and shall
observe such reasonable rules and regulations (not inconsistent with the
terms of this Lease) as may be adopted and made available to Tenant by
Landlord from time to time for the safety, care and cleanliness of the
Premises or the Building, and for the preservation of good order therein.
6. SECTION 8, COSTS OF OPERATIONS AND ENERGY, SUBSECTION (A) DEFINITIONS,
SUBSECTION (III) "BASE SERVICES YEAR" IS AMENDED TO READ:
(iii) From the Commencement Date of the Lease through January 31, 1994, "Base
Services Year" for the Floor 43 Premises shall mean 1984. As of February
1, 1994, "Base Services Year" for the Floor 43 Premises shall mean 1994.
The "Base Services Year" for the Floor 37 Premises shall mean 1996.
7. SECTION 9, REAL PROPERTY TAXES, SUBSECTION (A) DEFINITIONS, SUBSECTION
(IV) "BASE TAX AMOUNT" REMAINS AS ESTABLISHED IN THE THIRD AMENDMENT, TO
READ:
(iv) From the Commencement Date of the Lease through January 31, 1994, pass-
throughs for increases in Real Property Taxes shall be based on the "Base
Tax Amount" of $913,300 (approximately $1.00 per square foot of rentable
area) multiplied by Tenant's Percentage of the Building. As of February
1, 1994, pass-throughs for increases in Real Property Taxes for the Floor
43 Premises shall be based on the "Base Tax Amount" as assessed in 1994
multiplied by Tenant's Percentage of the Building on Floor 43.
Notwithstanding anything in the Lease or this Section 9 to the contrary,
pass-throughs for increases in Real Property Taxes for the Floor 37
Premises shall be based on the "Base Tax Amount" as assessed in 1996
multiplied by Tenant's Percentage of the Building on Floor 37.
-5-
<PAGE>
8. EXHIBIT C, ADDENDUM TO LEASE, ITEM 11, TENANT IMPROVEMENTS IN CONJUNCTION
WITH FOURTH AMENDMENT, SHALL BE ADDED TO READ:
Landlord shall at its sole cost and expense provide and install the
improvements as shown in the Gary Owen Design space plan dated 06/27/95,
and revised 06/29/96, as shown on Exhibit G, attached hereto, using
Building standard finishes.
9. EXHIBIT G, TENANT IMPROVEMENTS IN CONJUNCTION WITH THE FOURTH AMENDMENT,
GARY OWEN DESIGN SPACE PLAN DATED 06/13/95 AND APPROVED 07/13/95, ATTACHED
HERETO, IS INSERTED.
10. EFFECTIVE DATE. This Fourth Amendment shall be effective the earlier of the
date on which Tenant takes occupancy of the 09/01/95 Expansion Space upon
completion of improvements (estimated to be September 1, 1995).
11. RATIFICATION. Except as herein specifically provided, the Lease this Fourth
Amendment to the Lease Agreement, and all previous Amendments to Lease
Agreement, are hereby ratified and approved.
Dated at Seattle, Washington this 20th day of July, 1995.
TENANT
RAGEN MacKENZIE INCORPORATED
By: /s/ Robert J. Mortell, Jr.
--------------------------------
Robert J. Mortell, Jr.
Its Chief Financial Officer &
Co-Chief Operating Officer
TENANT CORPORATE ACKNOWLEDGMENT
State of Washington )
) ss.
County of King )
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<PAGE>
THIS IS TO CERTIFY that on this 20th day of July, 1995, before
me, the undersigned, a notary public in and for the state of
Washington, duly commissioned and sworn, personally appeared Robert J.
Mortell, Jr. to me known to be the Chief Financial Officer & Co-Chief
Operating Officer of Ragen MacKenzie Incorporated, the corporation
that executed the within and foregoing instrument, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes therein mentioned, and on oath
stated that they were authorized to execute said instrument, and that
the seal affixed, if any, is the corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this
certificate first above written.
Signature Cheri L. Hale
Printed Name Cheri L. Hale
Notary public in and for the state of
Washington, residing at Bremerton, WA
My appointment expires: 6-10-96
-7-
<PAGE>
LANDLORD: WRIGHT-CARLYLE SEATTLE LIMITED
PARTNERSHIP,
a Washington limited partnership
By: WRIGHT RUNSTAD PROPERTIES, L.P.,
A Delaware limited partnership
By: WRIGHT RUNSTAD ASSET
MANAGEMENT L.P.,
A Washington limited partnership
By: WRAM, Inc.
A Washington corporation
By: H. Jon Runstad
------------------------
H. Jon Runstad
Its Chairman and
Chief Executive Officer
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that I know or have satisfactory evidence that
H. Jon Runstad is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he
was authorized to execute the instrument and acknowledged it as the
Chairman and CEO of WRAM Inc., a corporation, to me known to be the
general partner of WRIGHT RUNSTAD ASSET MANAGEMENT L.P., a limited
partnership, to me known to be the general partner of WRIGHT RUNSTAD
PROPERTIES L.P., a limited partnership, to me known to be the general
partner of WRIGHT-CARLYLE SEATTLE LIMITED PARTNERSHIP, the Washington
limited partnership that executed the within and foregoing instrument,
and acknowledged the said instrument to be the free and voluntary act
and deed of said corporation and partnerships for the uses and
purposes therein
-8-
<PAGE>
mentioned, and on oath stated that said individual was authorized to
execute said instrument.
-9-
<PAGE>
WITNESS my hand and official seal this 2nd day of August, 1995.
Signature Corliss J. Perdarms
Printed Name Corliss J. Perdarms
Notary public in and for the state of
Washington, residing at Seattle
My appointment expires: 3/29/96
-10-
<PAGE>
FIFTH AMENDMENT TO LEASE AGREEMENT
BETWEEN
WRIGHT RUNSTAD PROPERTIES L.P. ("LANDLORD")
AND
RAGEN MACKENZIE INCORPORATED ("TENANT")
This Fifth Amendment is to that certain Lease Agreement dated November 8, 1983,
as amended by First Amendment to Lease Agreement dated December 19, 1988, by
Second Amendment to Lease Agreement dated August 24, 1992, and by Third
Amendment to Lease Agreement dated June 1, 1993, and by Fourth Amendment to
Lease Agreement dated July 20, 1995, by and between WRIGHT RUNSTAD PROPERTIES
L.P., a Delaware limited partnership, as successor in the Lease to Wright-
Carlyle Seattle Limited Partnership, a Washington general partnership, as
Landlord, and RAGEN MACKENZIE INCORPORATED, a Washington corporation, as
successor in the Lease to Cable, Howse & Ragen, as Tenant (the "Lease").
As parties hereto, Landlord and Tenant agree to further amend the Lease as
follows:
1. SECTION 1(F) EXPIRATION DATE IS AMENDED TO READ:
The Expiration Date for the Premises on Floor 43 and Floor 37 is
February 28, 2002.
2. SECTION 1(G) RENT, SHALL BE AMENDED TO READ:
Rent. Rent shall be payable monthly on or before the first day of
----
each month. Rent for each month of the lease term as extended shall be
one-twelfth (1/12) of the annual rent calculated by multiplying the
dollar amounts set forth below times the number of rentable square
feet then included within the Premises. Rent shall be adjusted from
time to time as provided in Section 7-8 of the Lease.
<TABLE>
<CAPTION>
NET RENTABLE BASE $ PER NET RENTABLE
TIME PERIOD FLOOR SQUARE FEET YEAR SQUARE FOOT PER YEAR
----------- ------ ------------ ---- ---------------------
<S> <C> <C> <C> <C>
04-01/97-12/31/98 43 21,109 1994 $24.00
37 (I) 2,130 1996 $18.75
37 (II) 1,372 1996 $24.16
01/01/99-01/31/99 43 21,109 1994 -0-*
</TABLE>
<PAGE>
<TABLE>
<CAPTION> NET RENTABLE BASE $ PER NET RENTABLE
TIME PERIOD FLOOR SQUARE FEET YEAR SQUARE FOOT PER YEAR
----------- ----- ------------ ---- --------------------
<S> <C> <C> <C> <C>
37(I) 2,130 1996 $18.75
37(II) 1,372 1996 $24.16
02/01/99-02/28/02 43 21,109 1997 $25.00
37(I) 2,130 1997 $25.00
37(II) 1,372 1997 $25.00
</TABLE>
*Rent Abatement
- -----------------------
(1) No Rent shall be due on the Floor 43 Premises for the following
months (the "Free Rent Months," collectively): February 1, 1994,
through February 28, 1995, and the month of January 1999.
(2) The entire Rent otherwise due and payable for the Free Rent Months
shall become immediately due and payable upon the occurrence of an
event of monetary or other material default by Tenant under this Lease
which is not cured within applicable notice and cure periods.
3. SECTION 1(K) EXHIBITS, SHALL BE AMENDED TO READ:
<TABLE>
<S> <C>
Exhibit A Floor Plan of Premises, dated 09/01/94 (Fourth Amendment)
Exhibit B Tenant Improvements (original Lease)
Exhibit B.1 Tenant Improvement Plans (original Lease)
Exhibit B.2 Tenant Improvements Paid by Tenant (original Lease)
Exhibit B.3 Tenant Improvements in Conjunction with Fifth Amendment (Fifth Amendment)
Exhibit C Addendum to Lease (revised by Fifth Amendment)
Exhibit D Tenant Improvements to be Done in 1992 in Conjunction with the Second Amendment (Second Amendment)
Exhibit E Tenant Improvement Budget, dated 07/09/92 (Second Amendment)
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Exhibit F Tenant Improvements to be Done in 1993 in Conjunction with the Third Amendment (Third Amendment)
Exhibit G Tenant Improvements in Conjunction with Fourth Amendment (Fourth Amendment)
Exhibit H 05/31/97 Expansion Space (Fifth Amendment)
Exhibit I Subordination Agreement (Fifth Amendment)
</TABLE>
4. SECTION 8 COSTS OF OPERATIONS AND ENERGY, AND SECTION 9, REAL PROPERTY
TAXES, ARE DELETED AND REPLACED WITH SECTION 8, ENTITLED "COSTS OF
OPERATIONS AND REAL ESTATE TAXES," TO READ AS FOLLOWS:
(A) ADDITIONAL RENT:
Tenant shall pay as Additional Rent its pro rata share of
increases in Taxes and Operating Costs in excess of Taxes and
Operating Costs in the applicable Base Year ("Base Amounts").
Operating Costs shall be adjusted to reflect 100% occupancy in the
Building. Increases in Taxes and in Operating Costs over the
applicable Base Amounts shall be determined and shall be payable
separately under this Section 8.
(B) DEFINITIONS:
(i) For the purposes of this section, "Taxes" shall mean taxes
and assessments (including special district levies) on real and
personal property payable during any calendar year or fiscal year,
based on the actual assessment period, with respect to the Land, the
Building and all property of Landlord, real or personal, used directly
in the operation of the Building and located in or on the Building,
together with any taxes levied or assessed in addition to or in lieu
of any such taxes or any tax upon leasing of the Building or the rents
collected (excluding any net income or franchise tax) ("Taxes").
(ii) For purposes of this Section, "Operating Costs" or "Costs"
shall mean all expenses of Landlord for maintaining, operating and
repairing the Land and Building and the personal property used in
connection therewith, including without limitation insurance premiums,
utilities, customary management fees and other expenses which in
accordance with generally accepted accounting and management
-3-
<PAGE>
practices would be considered an expense of maintaining, operating, or
repairing the Building ("Operating Costs" or "Costs"); excluding,
however: (I) Costs of any special services rendered to individual
tenants for which a separate charge is collected (II) leasing
commissions and other leasing expenses; (III) expenses for repairs or
other work reimbursed by insurance; (IV) legal expenses in enforcing
the terms of any lease; (V) principal or interest payments on any
mortgage or rents on any ground lease; and (VI) Costs of improvements
required to be capitalized in accordance with generally accepted
accounting principles, except Operating Costs shall include
amortization of capital improvements (A) made subsequent to initial
development of the Building which are designed with a reasonable
probability of improving the operating efficiency of the Building, or
providing savings in the cost of operating the Building; or (B) which
are reasonably responsive to requirements imposed with respect to the
Building under any amendment to any applicable building, health,
safety, fire, nondiscrimination, or similar law or regulation ("law"),
or any new law, or any new interpretation of an existing law ("new
interpretation"), which amendment, law or new interpretation is
adopted or arose after the Commencement Date of this Lease. For
purposes of this Lease, a new interpretation shall mean any
interpretation, enforcement or application of a law enacted prior to
the Commencement Date that imposes requirements with respect to the
Building that Landlord in the exercise of sound business judgment and
good faith at the time of Landlord's execution of this Lease would not
have deemed applicable to the Building.
(iii) "Year" shall mean the calendar year. Until February 1,
1999, "Base Year" shall mean the calendar year 1994 for that portion
of Tenant's Premises on Floor 43 and the calendar year 1996 for that
portion of Tenant's Premises located on Floor 37. As of February 1,
1999, "Base Year" shall mean the calendar year 1997 for all of
Tenant's Premises. The Base Operating Expenses for the Building for
1994 were $4,395,270. The Base Real Estate Taxes for the Building for
1994 were $1,745,923. The Base Operating Expenses for the Building
for 1996 were $4,568,205. The Base Real Estate Taxes for the Building
for 1996 were $1,633,473.
(C) ESTIMATED COSTS:
-4-
<PAGE>
At the beginning of each Year after the Base Year, Landlord shall
furnish Tenant a written statement of estimated Operating Costs and
Taxes for such year; a calculation of the amount, if any, by which
such estimated Operating Costs and Taxes will exceed the relevant Base
Amounts; and a calculation of Tenant's Pro Rata Share with respect to
Floor 43 and Floor 37 of any such amount. Tenant shall pay one-
twelfth (1/12) of that amount as Additional Rent for each month during
the year. If at any time during the year Landlord reasonably believes
that the actual Operating Costs or Taxes will vary from such estimated
Operating Costs or Taxes by more than five percent (5%) on an annual
basis, Landlord may by written notice to Tenant revise the estimate
for such year, and Additional Rent for the balance of such year shall
be paid based upon such revised estimates.
(D) ACTUAL COSTS:
Within ninety (90) days after the end of each Year after the Base
Year or as soon thereafter as practicable, Landlord shall deliver to
Tenant a written statement setting forth Tenant's Pro Rata Share with
respect to Floor 43 and Floor 37 of the actual Operating Costs and
Taxes in excess of the Base Amounts during the preceding year. If the
actual Operating Costs in excess of the Base Amount or actual Taxes in
excess of the Base Amount, or both, exceed the estimates for each paid
by Tenant during the year, Tenant shall pay the amount of such excess
to Landlord as Additional Rent within thirty (30) days after receipt
of such statement. If the actual Operating Costs in excess of the
Base Amount or actual Taxes in excess of the Base Amount, or both, are
less than the amount paid by Tenant to Landlord, then within 30 days
following the date of such statement the amount of such overpayment by
Tenant shall be, at Landlord's option, credited against any amounts
owed by Tenant under this Lease, refunded by check to Tenant, or
credited against the next Rent payable by Tenant hereunder.
Notwithstanding any other provision of this Section 8, Tenant shall
not receive any credit or offset against any other amount payable
under this Lease to the extent either actual Operating Costs or Taxes
are less than the applicable Base Amount.
(E) RECORDS AND ADJUSTMENTS:
Landlord shall keep records showing all expenditures made in
connection with Operating Costs and Taxes, and such records shall be
-5-
<PAGE>
available for inspection by Tenant within 120 days after receipt of
the statement of actual costs; Landlord and Tenant agree the results
of any such audit or review shall remain confidential. Tenant hereby
waives any right to any adjustment of sums paid under this Section 8
unless a claim in writing specifying the reasons therefor is delivered
to Landlord no later than twelve (12) months after the end of the year
for which the sums were paid. Operating Costs and Taxes shall be
prorated for any portion of a year at the beginning or end of the term
of this Lease. Notwithstanding this Section 8, the Rent payable by
Tenant shall in no event be less than the Rent specified in Section
1(g) of the Lease.
(F) PERSONAL PROPERTY TAXES:
Tenant shall pay all personal property taxes with respect to
property of Tenant located on the Premises or in the Building.
"Property of Tenant" shall include all improvements which are paid for
by Tenant and "personal property taxes" shall include all property
taxes assessed against the property of Tenant, whether assessed as
real or personal property.
-6-
<PAGE>
(G) ADJUSTMENT:
Landlord and Tenant acknowledge that the provisions of this
Section 8 replace former Sections 8 and 9 of the Lease.
5. SECTION 23, PRIORITY, IS AMENDED TO READ:
Tenant agrees that this Lease shall be subordinate to any first
mortgage or deed of trust now existing or hereafter placed upon the
Premises or the Building created by or at the instance of Landlord and
to any and all advances to be made thereunder and to interest thereon
and all renewals, replacements, or extensions thereof ("Landlord's
Mortgage"). Landlord shall use its best efforts to obtain a
subordination agreement substantially in the form attached as Exhibit
I to this Lease customarily used for the Building from the current
Holder of Landlord's Mortgage, Teachers Insurance and Annuity
Association ("TIAA"). Upon demand by Landlord or the holder of any
Landlord's Mortgage ("Holder"), Tenant shall execute and deliver
subordination and attornment agreements in form customarily used for
the Building. Notwithstanding the foregoing, upon demand of such
Holder, such Landlord's Mortgage shall be subordinate to this Lease;
provided, however, that in such event, notwithstanding such
subordination, such Landlord's Mortgage shall be superior to this
Lease with respect to (i) the right, claim and lien of the Landlord's
Mortgage in, to and upon any award or other compensation for any
taking by eminent domain of any part of the Premises or the Building
and the right of disposition thereof in accordance with the provisions
of the Landlord's Mortgage; and upon any proceeds payable under any
policies of fire and rental insurance upon the Premises or the
Building and to the right of disposition thereof in accordance with
the terms of the Landlord's Mortgage; (ii) any lien, right or judgment
which may have arisen at any time under the terms of the Lease; and
(iii) such other matters as may be specifically reserved by the Holder
of such Landlord's Mortgage in writing in connection with such
subordination.
Upon request Tenant shall attorn to the Holder of any Landlord's
Mortgage or any person or persons purchasing or otherwise acquiring
the Land, Building or Premises at any sale or other proceeding under
any Landlord's Mortgage. Tenant shall properly execute, acknowledge
and deliver instruments which the holder of any Landlord's Mortgage
may reasonably require to effectuate the provisions of this Section.
-7-
<PAGE>
6. THIS SECTION, HAZARDOUS MATERIALS, IS ADDED TO THE LEASE AS SECTION 39, TO
READ:
(a) Tenant Obligations. Tenant shall not dispose of or otherwise
------------------
allow the release of any hazardous waste or materials in, on or under
the Premises or the Building, or any adjacent property, or in any
improvements placed on the Premises. Tenant represents and warrants
to Landlord that Tenant's intended use of the Premises does not
involve the use, production, disposal or bringing on to the Premises
of any hazardous waste or materials, except only ordinary and general
office supplies typically used in first class downtown office
buildings and only in such quantities or concentrations as allowed
under applicable laws, rules and regulations. As used in this
Section, the term "hazardous waste or materials" includes any
substance, waste or material defined or designated as hazardous, toxic
or dangerous (or any similar term) by any statute, regulation, rule or
ordinance now or hereafter in effect. Tenant shall promptly comply
with all such statutes, regulations, rules and ordinances WITH RESPECT
TO ITS USE OF THE PREMISES, and if Tenant fails to so comply Landlord
may, after reasonable prior notice to Tenant (except in case of
emergency) effect such compliance itself. Tenant shall immediately
reimburse Landlord for all costs incurred in effecting such
compliance.
Tenant agrees to indemnify and hold harmless Landlord against any
and all losses, liabilities, suits, obligations, fines, damages,
judgments, penalties, claims, charges, cleanup costs, remedial
actions, costs and expenses (including, without limitation, consultant
fees, attorneys' fees and disbursements) which may be imposed on,
incurred or paid by, or asserted in connection with (i) any
misrepresentation, breach of warranty or other default by Tenant under
this Section, or (ii) the acts or omissions of Tenant, or any
subtenant or other person for whom Tenant would otherwise be liable,
resulting in the release of any hazardous waste or materials.
(b) Landlord Obligations. Landlord represents to Tenant that, to
--------------------
the best of Landlord's knowledge, no hazardous waste or materials have
been generated, stored or disposed of on the Premises other than in
compliance with all applicable laws. Landlord will hold Tenant
harmless from and indemnify Tenant against and from any actual costs
resulting from any breach of this representation or resulting from the
release of hazardous waste or materials on the Premises or Building by
-8-
<PAGE>
Landlord or its employees, agents or contractors. Landlord shall not
be responsible for any hazardous waste or materials resulting from the
acts of other tenants or occupants of the Building or other third
parties, or for consequential damages arising from the presence of any
hazardous wastes or materials on the Premises or in the Building..
7. THIS SECTION, TELECOMMUNICATIONS LINES AND EQUIPMENT, IS ADDED TO THE LEASE
AS SECTION 40, TO READ:
(A) LOCATION OF TENANT'S EQUIPMENT AND LANDLORD CONSENT:
(i) Tenant may install, maintain, replace, and remove communications
or computer wires, cables and related devices (collectively, the "Lines") at the
Building in or serving the Premises, only with Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Tenant is currently
using various lines in the Premises, and Tenant will have ongoing needs during
the Lease term to upgrade, repair, replace and maintain such lines, and Landlord
shall not unreasonably withhold its consent to reasonable requests and needs of
Tenant in connection with the upgrading, repair, replacement and maintenance of
such lines. Tenant shall locate all electronic telecommunications equipment
within the Premises and shall relocate all Tenant's equipment, which is located
within the Building telephone closets or riser spaces, at Tenant's cost, to the
Tenant's Premises. Any request for consent shall contain detailed plans,
drawings and specifications identifying all work to be performed, the time
schedule for completion of the work, the identity of the entity that will
provide service to the Lines and the identity of the entity that will perform
the proposed work (which entity shall be subject to Landlord's reasonable
approval). Landlord shall have a reasonable time (not to exceed 15 days) in
which to evaluate the request after it is submitted by Tenant.
(ii) Without in any way limiting Landlord's right to withhold its
consent, Landlord may consider the following factors, among others, in making
its determination: (A) the experience, qualifications and prior work practice
of the proposed contractor and its ability to provide sufficient insurance
coverage for its work at the Building; (B) whether or not the proposed work will
interfere with the use of any then existing Lines at the Building: (C) whether
or not an acceptable number of spare Lines and space for additional Lines shall
be maintained for existing and future occupants of the Building; (D) a
requirement that Tenant remove existing abandoned Lines located in or servicing
the Premises, as a condition to permitting the installation of new lines; (E)
whether or not Tenant is in default of any of its obligations under this Lease;
(F) whether the proposed work or resulting Lines will impose new obligations on
Landlord, expose Landlord to liability of any nature or description,
-9-
<PAGE>
increase Landlord's insurance premiums for the Building, create liabilities for
which Landlord is unable to obtain insurance protection or imperil Landlord's
insurance coverage; (G) whether Tenant's proposed service provider is willing to
pay reasonable monetary compensation for the use and occupation of the Building;
and (H) whether the work or resulting Lines would adversely affect the Land,
Building or any space in the Building in any manner.
(iii) Landlord's approval of, or requirements concerning, the Lines
or any equipment related thereto, the plans, specifications or designs related
thereto, the contractor or subcontractor, or the work performed hereunder, shall
not be deemed a warranty as to the adequacy thereof, and Landlord hereby
disclaims any responsibility or liability for the same. Landlord disclaims all
responsibility for the condition or utility of the intra-building network
cabling ("INC") and makes no representation regarding the suitability of the INC
for Tenant's intended use.
(iv) If Landlord consents to Tenant's proposal, Tenant shall (A) pay
all costs in connection therewith (including all costs related to new Lines);
(B) comply with all requirements and conditions of this Section; (C) use,
maintain and operate the Lines and related equipment in accordance with and
subject to all laws governing the Lines and equipment. Tenant shall further
insure that (I) Tenant's contractor complies with the provisions of this Section
and Landlord's reasonable requirements governing any work performed; (II)
Tenant's contractor provides all insurance reasonably required by Landlord;
(III) any work performed shall comply with all Laws; and (IV) as soon as the
work is completed, Tenant shall submit "as-built" drawings to Landlord.
(v) Landlord reserves the right to require that Tenant remove any
Lines located in or serving the Premises which are installed in violation of
these provisions, or which are at any time in violation of any laws or present a
dangerous (whether such Lines were installed by Tenant or any other party),
within three (3) days after written notice.
(vi) Tenant shall remove any Lines located in or serving the Premises
promptly upon the expiration or sooner termination of this Lease.
(B) LANDLORD'S RIGHTS:
Landlord may (but shall not have the obligation to):
(i) install new Lines at the Building;
(ii) create additional space for Lines at the Building; and
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<PAGE>
(iii) direct, monitor and/or supervise the installation,
maintenance, replacement and removal of, the allocation and periodic
re-allocation of available space (if any) for, and the allocation of
excess capacity (if any) on, any Lines now or hereafter installed at
the Building by Landlord, Tenant or any other party (but Landlord
shall have no right to monitor or control the information transmitted
through such Lines).
(C) INDEMNIFICATION:
In addition to any other indemnification obligations under this
Lease, Tenant shall indemnify and hold harmless Landlord and its
employees, agents, officers, and contractors from and against any and
all claims, demands, penalties, fines, liabilities, settlements,
damages, costs or expenses (including reasonable attorneys' fees)
arising out of or in any way related to the acts and omissions of
Tenant, Tenant's officers, directors, employees, agents, contractors,
subcontractors, subtenants, and invitees with respect to: (i) any
Lines or equipment related thereto installed by Tenant or its
contractor and serving Tenant in the Building; (ii) any personal
injury (including wrongful death) or property damage arising out of or
related to any Lines or equipment related thereto installed by Tenant
or its contractor and serving Tenant in the Building; (iii) any
lawsuit brought or threatened, settlement reached, or governmental
order, fine or penalty relating to such Lines or equipment related
thereto; and (iv) any violations or Laws or demands of governmental
authorities, or any reasonable policies or requirement of Landlord,
which are based upon or in any way related to such Lines or equipment.
This indemnification and hold harmless agreement shall survive the
termination of this Lease.
(D) LIMITATION OF LIABILITY:
Except to the extent arising from the negligence or willful
misconduct of Landlord or Landlord's agents or employees, Landlord
shall have no liability for damages arising from, and Landlord does
not warrant that the Tenant's use of any Lines will be free from the
following (collectively called "Line Problems"): (I) any shortages,
failures, variations, interruptions, disconnections, loss or damage
caused by the installation, maintenance, or replacement, use or
removal of Lines by or for other tenants or occupants at the Building,
by any failure of the environmental conditions or the power supply for
the Building to conform to any requirement of the Lines or any
associated equipment,
-11-
<PAGE>
or any other problems associated with any Lines by any other cause;
(ii) any failure of any Lines to satisfy Tenant's requirements; or
(iii) any eavesdropping or wire-tapping by unauthorized parties.
Landlord in no event shall be liable for damages by reason of loss of
profits, business interruption or other consequential damage arising
from any Line Problems. Under no circumstances shall any Line Problems
be deemed an actual or constructive eviction of Tenant, render
Landlord liable to Tenant for abatement of Rent, or relieve Tenant
from performance of Tenant's obligations under this Lease.
(E) ELECTROMAGNETIC FIELDS:
If Tenant at any time uses any equipment that may create an
electromagnetic field exceeding the normal insulation ratings of
ordinary twisted pair riser cable or cause radiation higher than
normal background radiation. Landlord reserves the right to require
Tenant to approximately insulate the Lines therefore (including riser
cables) to prevent such excessive electromagnetic fields or radiation.
8. EXHIBIT C, ADDENDUM TO LEASE, IS RE-WRITTEN IN ITS ENTIRETY TO READ:
1. Options to Extend Term (1992) - Exercised by Second Amendment and
-----------------------------
shall be henceforth deleted.
2. Options for Expansion (1992) - Henceforth deleted (Tenant passed on
----------------------------
both Options One and Two effective 1992).
3. Parking - Henceforth deleted.
-------
4. Existing Leases - Henceforth deleted.
---------------
5. Right of First Offer. From May 31, 1997, through the term of its
--------------------
current Lease and any extensions thereof, and subject to the existing
rights of current tenants, Tenant shall have an ongoing Right of First
Offer on all space which becomes available on Floor 37. Landlord
represents and warrants to Tenant that the following is a true and
complete list of all existing rights of current tenants with respect
to renewals or expansion on Floor 37: Fox Mason et al (expansion) and
Ellis & Li (renewal). Landlord shall specify in writing to Tenant the
exact space, availability, and the proposed rental rate for such
space. Tenant shall then have five (5) business days to respond in
writing to Landlord as to whether or not Tenant will lease that space
on the terms specified in such letter. If
-12-
<PAGE>
Tenant responds in the negative or if Tenant does not respond within
such five business-day period, Landlord may lease the space to such
third party tenant without further notice to Tenant; provided,
however, that before Landlord may lease the space to another party at
terms which are substantially more favorable for the lessee than those
specified in the letter referenced above, Landlord shall reoffer the
space to Tenant on those more favorable terms and Tenant shall have
five (5) business days to respond to this new offer.
6. Prepayment of Rent. [Unchanged] Tenant shall have the right to pay
------------------
twelve (12) months of Rent and/or Additional Rent (or an estimated of
Additional Rent if the twelve months extend beyond the then current
calendar year) as specified in the Lease at any time. At the time of
such prepayment, Tenant shall be entitled to discount the total rental
payments, applying a discount rate equal to the prime rate then being
quoted at [SeaFirst National Bank, Seattle Washington].
7. Building Security. [UNCHANGED]. The Building is equipped with a
-----------------
Honeywell card access control system. Each person that should be able
to enter the Building during hours other than Normal Business Hours
shall have his or her own card. By insertion of this card in the
cardreader, it will permit entry to the Building and other areas
within the Building. First, insertion of the card will allow access
to the main building lobby. Second, insertion of the card in the
elevator will allow a tenant to go only to the tenant's own floor.
Third, if the tenant is a monthly parker, this card will allow access
to the garage on a 24-hour basis, seven days a week. Insertion of
this card in the cardreader to gain entry to any of these spaces
provides a record at the Building's central computer of who entered
each access point (by card number) and the time of such entry. In
addition, if any of these cars are lost, they can be reported to the
Building's management and the Building's management can invalidate the
lost card and issue a new card with a new number.
[UNCHANGED] Landlord shall maintain security for the Building at a
level at least in accordance with the foregoing description. Should
Landlord determine to reduce the level of security for the Building,
Landlord shall give Tenant at least thirty (30) days prior written
notice during which period Tenant may give or withhold its consent.
Tenant shall not unreasonably withhold consent, provided Landlord
continues to provide a level of security adequate for Tenant's needs.
-13-
<PAGE>
Landlord has equipment to monitor the mechanical and elevator systems
throughout the Building.
8. Brokerage Fee [In Conjunction with Second Amendment]: Henceforth
----------------------------------------------------
deleted.
9. Brokerage Fee in Conjunction with Third Amendment: Henceforth
-------------------------------------------------
deleted.
10. Tenant Improvements in Conjunction with Third Amendment. Landlord
-------------------------------------------------------
shall at its sole cost and expense provide and install the
improvements as shown in the Marven Stein space plan dated May 7,
1993, as shown on Exhibit F, attached hereto, using Building standard
finishes.
11. Tenant Improvements in Conjunction with Fourth Amendment. Landlord
--------------------------------------------------------
shall at its sole cost and expense provide and install the
improvements as shown in the Gary Owen Design space plan dated
06/27/95, and revised 06/29/96, as shown on Exhibit G, attached
hereto, using Building standard finishes.
12. Option to Expand. Until May 31, 1997, Tenant shall have the option to
----------------
lease approximately 3,500 net rentable square feet contiguous to
Tenant's Floor 37 space in the location shown on Exhibit H attached
hereto ("05/31/97 Expansion Space"), coterminous with Tenant's
existing Premises. The rental rate for such expansion shall be $25.00
per net rentable square feet per year, with a Base Year of 1997.
Landlord shall provide Tenant with a tenant improvement allowance of
$50,000 to be used for improvements to the 05/31/97 Expansion Space
(the "05/31/97 Expansion Space Tenant Improvement Allowance").
Landlord shall pay the 05/31/97 Expansion Sheet Tenant Improvement
Allowance to Tenant within ten (10) days after Tenant's presentation
of invoices or other documentation showing that tenant improvement
work has been done. Any work to be done to the Premises shall be done
in accordance with the guidelines similar to those attached as Exhibit
B.3. A commission of $3.50 per net rentable square foot of the
05/31/97 expansion space shall be paid in conjunction with this
expansion upon Tenant's occupancy of the space, payable 80% to Behar
Company and 20% to Tenant. In the event Tenant does not exercise this
option by written notice to Landlord no later than May 31, 1997, this
option shall be of no further force or effect.
-14-
<PAGE>
In the event Tenant exercises this option to expand, Tenant shall be
entitled to purchase an additional two (2) permits to park automobiles
in the Building garage on a valet basis at the prevailing monthly
rates, and the rentable area of Tenant's Premises and Pro Rata Share
of the Building as presented in Section 1(c) of the Lease shall be
recalculated by Landlord and amended in this Lease to accurately
reflect the rentable square footage comprising the Premises based on
Final Plans for the Tenant's Floor 37 Premises. Such recalculation
shall be completed no later than thirty (30) days after completion of
Final Plans.
The space subject to such option shall become part of the Premises,
and Rent shall commence, effective the earlier of Tenant's occupancy
for purposes of operating its business or 75 days after Tenant
exercises this option.
14. Real Estate Commission in Conjunction with Fifth Amendment. Landlord
----------------------------------------------------------
shall pay a brokerage fee of $43,069.25 upon complete execution of
this Fifth Amendment, payable 80% to Behar Company and 20% to Tenant.
15. Option to Extend the Term of the Lease. Provided Tenant is not then
--------------------------------------
in default of any term or condition of this Lease beyond applicable
notice and cure periods, and has not assigned this Lease or sublet
seventy-five percent (75%) or more of the Premises, Tenant shall have
two (2) option(s) to extend the term of the Lease for an additional
period of five (5) years each (the "2002 Extended Term" and "2007
Extended Term," respectively) from the Expiration Date specified in
Section 1(f) of this Lease or the preceding Extended Term, as the case
may be. If Tenant exercised its renewal option(s), Landlord and
Tenant shall execute and deliver an amendment(s) to the Lease.
The Extended Terms shall be upon terms and conditions contained in
this Lease except that:
(A) Rent as set forth above shall be at the Fair Market Renewal
Rate, as hereinafter provided;
(B) No further tenant improvements or tenant improvement
allowance, real estate brokerage commission or further
options to extend or expand (as such items are defined
elsewhere in this Lease) shall be provided by Landlord with
respect to the Extended Term(s) of the Lease.
-15-
<PAGE>
"Fair Market Renewal Rate" shall mean the projected fully-serviced
fair market rental rate at the commencement of the Extended Term(s)
for renewal lease space in the Building or in comparable first-class
office buildings of similar size and stature in downtown Seattle for a
comparable term.
Landlord shall give written notice to Tenant no later than February
28, 2001, of the applicable Fair Market Renewal Rate for the 2002
Extended Term. Tenant shall exercise the extension option by written
notification to Landlord no later than June 1, 2001, or both options
shall expire and be of no further force or effect. In the event Tenant
exercises its option for the 2002 Extended Term, then Landlord shall
give written notice to Tenant no later than February 28, 2006, of the
applicable Fair Market Renewal Rate for the 2007 Extended Term. Tenant
shall exercise the extension option by written notification to
Landlord no later than June 1, 2006, or such option shall expire and
be of no further force or effect.
9. EFFECTIVE DATE. This Fifth Amendment shall be effective upon mutual
execution.
10. RATIFICATION. Except as herein specifically provided, the Lease, this
Fifth Amendment to the Lease Agreement, and all previous Amendments to
Lease Agreement, are hereby ratified and approved.
###
-16-
<PAGE>
Dated at Seattle, Washington this 30th day of April, 1997.
TENANT: RAGEN MACKENZIE INCORPORATED
By: Michael W. Reinhardt
--------------------
Its Asst. Corp. Secretary
---------------------
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 30th day of April, 1997, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Michael W. Reinhardt to me know to
be the assistant corporate secretary of Ragen MacKenzie, Inc. the corporation
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument, and that the seal affixed, if any, is the
corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Signature Nicole J. Resser
----------------
Printed Name Nicole J. Resser
----------------
Notary public in and for the state of Washington,
residing at 999 Third Ave. - Ste. 4300, Seattle, WA
---------------------------------------
98104
-----
My appointment expires: 3/29/2001
---------
-17-
<PAGE>
LANDLORD: WRIGHT RUNSTAD PROPERTIES L.P.
a Delaware limited partnership
By: WRIGHT RUNSTAD ASSET MANAGEMENT
L.P. a Washington limited partnership
Its general partner
By: WRAM, Inc.
a Washington corporation
Its general partner
By: H. J. Runstad
-------------
H. Jon Runstad
Its Chairman and
------------
Chief Executive Officer
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that I know or have satisfactory evidence that H. Jon
Runstad is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Chairman and CEO of WRAM, Inc., a
corporation, to me known to be the general partner of WRIGHT RUNSTAD ASSET
MANAGEMENT L.P., a limited partnership, to me known to be the general partner of
WRIGHT RUNSTAD PROPERTIES L.P., the limited partnership that executed the within
and foregoing instrument, and acknowledged the said instrument to be the free
and voluntary act and deed of said corporation and partnerships for the uses and
purposes therein mentioned, and on oath that said individual was authorized to
execute said instrument.
-18-
<PAGE>
WITNESS my hand and official seal this 12th day of May, 1997.
Signature Corliss J. Perdaems
-------------------
Printed Name Corliss J. Perdaems
-------------------
Notary public in and for the state of Washington,
residing at Seattle
-------
My appointment expires: 3/29/2000
---------
-19-
<PAGE>
SIXTH AMENDMENT TO LEASE AGREEMENT
BETWEEN
WRIGHT RUNSTAD PROPERTIES L.P. ("LANDLORD")
AND
RAGEN MACKENZIE INCORPORATED ("TENANT")
This Sixth Amendment is to that certain Lease Agreement dated November 8,
1983, as amended by First Amendment to Lease Agreement dated December 19, 1988,
by Second Amendment to Lease Agreement dated August 24, 1992, and by Third
Amendment to Lease Agreement dated June 1, 1993, and by Fourth Amendment to
Lease Agreement dated July 20, 1995, and by Fifth Amendment to Lease Agreement
dated April 30, 1997 by and between WRIGHT RUNSTAD PROPERTIES L.P., a Delaware
limited partnership, as successor in the Lease to Wright-Carlyle Seattle Limited
Partnership, a Washington general partnership, as Landlord, and RAGEN MACKENZIE
INCORPORATED, a Washington corporation, as successor in the Lease to Cable,
Howse & Ragen, as Tenant (the "Lease").
As parties hereto, Landlord and Tenant agree to further amend the Lease as
follows:
1. SECTION 1(c) AGREED AREAS, SHALL BE AMENDED TO READ:
Agreed Areas: As of the Effective Date of this Sixth Amendment, and as used
in this Lease, Landlord and Tenant agree to the following areas and
percentage: area of Building is deemed to be 915,883 net rentable square
feet; area of Tenant's Premises is deemed to be 21,109 net rentable square
feet on Floor 43 and approximately 7,082 net rentable square feet on Floor
37; Tenant's Percentage of the Building is deemed to be approximately 2.30%
on Floor 43 and approximately 0.78% on Floor 37. This reflects the
addition of approximately 3,580 net rentable square feet on Floor 37,
identified as the "07/24/97 Expansion Space" on the attached Exhibit A.
These numbers shall be verified by Landlord's architect within 30 days of
completion of Tenant's construction documents for the 07/24/97 Expansion
Space.
<PAGE>
In the event a portion of the Building is damaged or condemned or any other
event occurs which alters the rentable area of the Premises or the rentable
area of the Building, Landlord may adjust Tenant's Percentage of the
Building to properly reflect the proportion of the rentable area of the
Building (as altered by such event) which is attributable to the rentable
area of the Premises (as altered by such event).
2. SECTION 1(g) RENT, SHALL BE AMENDED TO READ:
Rent. Rent shall be payable monthly on or before the first day of each
----
month. Rent for each month of the lease term as hereby extended shall be
one-twelfth (1/12) of the annual rent calculated by multiplying the dollar
amounts set forth below times the number of rentable square feet then
included within the Premises. Rent shall be adjusted from time to time as
provided in Section 7-8 of the Lease.
<TABLE>
<CAPTION>
NET RENTABLE BASE $ PER NET RENTABLE
TIME PERIOD FLOOR SQUARE FEET YEAR SQUARE FOOT PER YEAR
----------- ----- ------------ ---- ---------------------
<S> <C> <C> <C> <C>
04-01/97-07/23/97** 43 21,109 1994 $24.00
37(I) 2,130 1996 $18.75
37(II) 1,372 1996 $24.16
07/24/97**-12/31/98 43 21,109 1994 $24.00
37(I) 2,130 1996 $18.75
37(II) 1,372 1996 $24.16
37(III) 3,580 1997 $25.00
01/01/99-01/31/99 43 21,109 1994 -0-*
37(I) 2,130 1996 $18.75
37(II) 1,372 1996 $24.16
37(III) 3,580 1997 $25.00
</TABLE>
*Rent Abatement
---------------
(1) No Rent is due on the Floor 43 Premises for the following months
(the "Free Rent Months," collectively): February 1, 1994, through February
28, 1995, and the month of January 1999.
(2) The entire Rent otherwise due and payable for the Free Rent Months
shall become immediately due and payable upon the occurrence of an event of
monetary or other material default by Tenant under this Lease which is not
cured within applicable notice and cure periods.
-2-
<PAGE>
**The effective date of the Sixth Amendment, and commencement of Rent for
the "07/24/97 Expansion Space," noted in this Section 1(g) as parcel "37
(III)," shall be upon Tenant's occupancy of the space for business
purposes, or July 24, 1997, whichever is the earlier.
3. SECTION 1(i) PARKING, SHALL BE AMENDED TO READ:
Tenant shall have the right to lease twenty-one (21) parking permits in the
Building garage, on an unassigned self-park basis at the prevailing monthly
rates as established by the Landlord or its parking operator from time to
time. In addition, Tenant shall have the right to purchase two (2) parking
permits in the Building garage, on a valet park basis, at the prevailing
monthly rates as established by Landlord or its parking operator from time
to time. The use of parking stalls by Tenant shall be subject to such
rules and regulations as Landlord, Landlord's parking operator and/or the
City of Seattle may require from time to time.
Landlord will work with Tenant to satisfy its parking needs to the extent
possible given the terms or conditions of the other leases in the Building.
So long as there is a surplus of parking stalls in the Building garage due
to First Interstate Bank not using all of the parking called for in its
lease, Tenant may lease up to forty-seven (47) parking stalls in the
Building garage.
4. SECTION 1(k) EXHIBITS, SHALL BE AMENDED TO READ:
<TABLE>
<S> <C>
Exhibit A - Floor Plan of Premises, dated 07/24/97 (Sixth Amendment)
Exhibit B - Tenant Improvements (original Lease)
Exhibit B.1 - Tenant Improvement Plans (original Lease)
Exhibit B.2 - Tenant Improvements Paid by Tenant (original Lease)
Exhibit B.3 - Tenant Improvements in Conjunction with Fifth Amendment (Fifth Amendment)
Exhibit B.4 - Tenant Improvements in Conjunction with Sixth Amendment (Sixth Amendment)
Exhibit C - Addendum to Lease (revised by Sixth Amendment)
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
Exhibit D - Tenant Improvements to be Done in 1992 in Conjunction with the Second Amendment (Second
Amendment)
Exhibit E - Tenant Improvement Budget, dated 07/09/92 (Second Amendment)
Exhibit F - Tenant Improvements to be Done in 1993 in Conjunction with the Third Amendment (Third Amendment)
Exhibit G - Tenant Improvements in Conjunction with Fourth Amendment (Fourth Amendment)
Exhibit H - 05/31/97 Expansion Space (Fifth Amendment; subsequent to the Sixth Amendment this is referred to
as the 07/24/97 Expansion Space)
Exhibit I - Subordination Agreement (Fifth Amendment)
</TABLE>
5. SECTION 8, COSTS OF OPERATIONS AND REAL ESTATE TAXES, (b) DEFINITIONS,
(iii) IS AMENDED TO READ:
(iii) "Year" shall mean the calendar year. Until February 1, 1999,
"Base Year" shall mean the calendar year 1996 for Parcel I and Parcel II
that portion of Tenant's Premises located on Floor 47 and the calendar year
1997 for Parcel III of that portion of Tenant's Premises located on Floor
37. As of February 1, 1999, "Base Year" shall mean the calendar year 1997
for all of Tenant's Premises. The Base Operating Expenses for the Building
for 1994 was $4,395,270. The Base Real Estate Taxes for the Building for
1994 was $1,745,923. The Base Operating Expenses for the Building for 1996
was $4,568,205. The Base Real Estate Taxes for the Building for 1996 was
$1,633,473.
6. EXHIBIT C, ADDENDUM TO LEASE, IS RE-WRITTEN IN ITS ENTIRETY TO READ:
1. Options to Extend Term (1992) - [Unchanged] Henceforth deleted
-----------------------------
(Exercised by Second Amendment)
2. Options for Expansion (1992) - [Unchanged] Henceforth deleted (Tenant
----------------------------
passed on both Options One and Two effective 1992).
3. Parking - [Unchanged] Henceforth deleted.
-------
-4-
<PAGE>
4. Existing Leases - [Unchanged] Henceforth deleted.
---------------
5. Right of First Offer. [Unchanged] From May 31, 1997, through the
--------------------
term of its current Lease and any extensions thereof, and subject to
the existing rights of current tenants, Tenant shall have an ongoing
Right of First Offer on all space which becomes available on Floor 37.
Landlord represents and warrants to Tenant that the following is a
true and complete list of all existing rights of current tenants with
respect to renewals or expansion on Floor 37: Fox Mason et al
(expansion) and Ellis & Li (renewal). Landlord shall specify in
writing to Tenant the exact space, availability, and the proposed
rental rate for such space. Tenant shall then have five (5) business
days to respond in writing to Landlord as to whether or not Tenant
will lease that space on the terms specified in such letter. If
Tenant responds in the negative or if Tenant does not respond within
such five business-day period, Landlord may lease the space to such
third party tenant without further notice to Tenant; provided,
however, that before Landlord may lease the space to another party at
terms which are substantially more favorable for the lessee than those
specified in the letter referenced above, Landlord shall reoffer the
space to Tenant on those more favorable terms and Tenant shall have
five (5) business days to respond to this new offer.
6. Prepayment of Rent. [Unchanged] Tenant shall have the right to
------------------
pay twelve (12) months of Rent and/or Additional Rent (or an estimated
of Additional Rent if the twelve months extend beyond the then current
calendar year) as specified in the Lease at any time. At the time of
such prepayment, Tenant shall be entitled to discount the total rental
payments, applying a discount rate equal to the prime rate then being
quoted at [Seafirst National Bank, Seattle Washington].
7. Building Security. [Unchanged] The Building is equipped with a
-----------------
Honeywell card access control system. Each person that should be able
to enter the Building during hours other than Normal Business Hours
shall have his or her own card. By insertion of this card in the
cardreader, it will permit entry to the Building
-5-
<PAGE>
and other areas within the Building. First, insertion of the card will
allow access to the main building lobby. Second, insertion of the card
in the elevator will allow a tenant to go only to the tenant's own
floor. Third, if the tenant is a monthly parker, this card will allow
access to the garage on a 24-hour basis, seven days a week. Insertion
of this card in the cardreader to gain entry to any of these spaces
provides a record at the Building's central computer of who entered
each access point (by card number) and the time of such entry. In
addition, if any of these cars are lost, they can be reported to the
Building's management and the Building's management can invalidate the
lost card and issue a new card with a new number.
Landlord shall maintain security for the Building at a level at least
in accordance with the foregoing description. Should Landlord
determine to reduce the level of security for the Building, Landlord
shall give Tenant at least thirty (30) days prior written notice
during which period Tenant may give or withhold its consent. Tenant
shall not unreasonably withhold consent, provided Landlord continues
to provide a level of security adequate for Tenant's needs.
In addition, Landlord has equipment to monitor the mechanical and
elevator systems throughout the Building.
8. Brokerage Fee [In Conjunction with Second Amendment]:
----------------------------------------------------
[Unchanged] Henceforth deleted.
9. Brokerage Fee in Conjunction with Third Amendment: [Unchanged]
-------------------------------------------------
Henceforth deleted.
10. Tenant Improvements in Conjunction with Third Amendment.
-------------------------------------------------------
[Unchanged] Landlord [has] at its sole cost and expense provide and
install[ed] the improvements as shown in the Marvin Stein space plan
dated May 7, 1993, as shown on Exhibit F, attached hereto, using
Building standard finishes.
11. Tenant Improvements in Conjunction with Fourth Amendment.
--------------------------------------------------------
[Unchanged] Landlord [has] at its sole cost and expense provide[d] and
install[ed] the improvements as shown in the Gary Owen Design space
plan dated 06/27/95, and revised 06/29/96,
-6-
<PAGE>
as shown on Exhibit G, attached hereto, using Building standard
finishes.
12. Option to Expand. [Exercised by means of Sixth Amendment and
----------------
henceforth deleted.]
13. [Intentionally left blank]
14. Real Estate Commission in Conjunction with Fifth Amendment.
----------------------------------------------------------
[Unchanged]. Landlord [has paid] a brokerage fee of $43,069.25
upon complete execution of [the] Fifth Amendment, payable 80% to
Behar Company and 20% to Tenant.
15. Option to Extend the Term of the Lease. [Unchanged]. Provided
--------------------------------------
Tenant is not then in default of any term or condition of this Lease
beyond applicable notice and cure periods, and has not assigned this
Lease or sublet seventy-five percent (75%) or more of the Premises,
Tenant shall have two (2) option(s) to extend the term of the Lease
for an additional period of five (5) years each (the "2002 Extended
Term" and "2007 Extended Term," respectively) from the Expiration Date
specified in Section 1(f) of this Lease or the preceding Extended
Term, as the case may be. If Tenant exercises its renewal option(s),
Landlord and Tenant shall execute and deliver an amendment(s) to the
Lease.
The Extended Terms shall be upon terms and conditions contained in
this Lease except that:
(A) Rent as set forth above shall be at the Fair Market Renewal Rate,
as hereinafter provided;
(B) No further tenant improvements or tenant improvement allowance,
real estate brokerage commission or further options to extend or
expand (as such items are defined elsewhere in this Lease) shall
be provided by Landlord with respect to the Extended Term(s) of
the Lease.
"Fair Market Renewal Rate" shall mean the projected fully-
serviced fair market rental rate at the commencement of the
Extended Term(s) for renewal lease space in the Building or in
comparable first-class office buildings of similar size and
stature in downtown Seattle for a comparable term.
-7-
<PAGE>
Landlord shall give written notice to Tenant no later than
February 28, 2001, of the applicable Fair Market Renewal Rate for
the 2002 Extended Term. Tenant shall exercise the extension
option by written notification to Landlord no later than June 1,
2001, or both options shall expire and be of no further force or
effect. In the event Tenant exercises its option for the 2002
Extended Term, then Landlord shall give written notice to Tenant
no later than February 28, 2006, of the applicable Fair Market
Renewal Rate for the 2007 Extended Term. Tenant shall exercise
the extension option by written notification to Landlord no later
than June 1, 2006, or such option shall expire and be of no
further force or effect.
16. Real Estate Commission in Conjunction with Sixth Amendment.
----------------------------------------------------------
[New] Landlord shall pay a brokerage fee of $12,530.00 (based on
the addition of 3,580 net rentable square feet by means of the
Sixth Amendment) upon Tenant's occupancy of the 07/24/97
Expansion Space, payable 80% to Behar Company and 20% to Tenant.
7. EFFECTIVE DATE. This Sixth Amendment shall be effective the earlier
of Tenant's occupancy of the "07/24/97 Expansion Space" for business
purposes or July 24, 1997.
8. RATIFICATION. Except as herein specifically provided, the Lease, this
Sixth Amendment to the Lease Agreement, and all previous Amendments to
Lease Agreement, are hereby ratified and approved.
DATED AT SEATTLE, WASHINGTON, THIS __6___ DAY OF ___JUNE_______, 1997.
- ----
TENANT: RAGEN MACKENZIE
INCORPORATED
By:[signature illegible]__________
---------------------
Its:_COO_____________________
---
-8-
<PAGE>
TENANT CORPORATE
ACKNOWLEDGMENT
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this __6th____ day of __June________, 1997,
--- ---- --
before me, the undersigned, a notary public in and for the state of Washington,
duly commissioned and sworn, personally appeared Robert J. Mortell, Jr., to me
----------------------
know to be the President and COO of Ragen MacKenzie Inc, the corporation that
----------------- -------------------
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument, and that the seal affixed, if any, is the
corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Signature__Nicole J. Resser____________
----------------
Printed Name_Nicole J. Resser__________
----------------
Notary Public in and for the State of Washington,
residing at 999 Third Ave., Suite 4300/Seattle WA
-------------------------------------
98104__________________________
My appointment expires:____2001_______
----
-9-
<PAGE>
LANDLORD: WRIGHT RUNSTAD PROPERTIES
L.P.
a Delaware limited partnership
BY: WRIGHT RUNSTAD ASSET
MANAGEMENT L.P.
A WASHINGTON LIMITED PARTNERSHIP
ITS GENERAL PARTNER
BY: WRAM, INC.
A WASHINGTON CORPORATION
ITS GENERAL PARTNER
BY:___H. JON RUNSTAD
--------------
ITS CHAIRMAN AND CHIEF
--------------------
EXECUTIVE OFFICER
-----------------
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
THIS IS TO CERTIFY that I know or have satisfactory evidence that H. Jon
------
Runstad is the person who appeared before me, and said person acknowledged that
- -------
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Chairman and CEO of WRAM, Inc., a
----------------
corporation, to me known to be the general partner of WRIGHT RUNSTAD ASSET
MANAGEMENT L.P., a limited partnership, to me known to be the general partner of
WRIGHT RUNSTAD PROPERTIES L.P., the limited partnership that executed the within
and foregoing instrument, and acknowledged the said instrument to be the free
and voluntary act and deed of said corporation and partnerships for the uses and
purposes therein mentioned, and on oath stated that said individual was
authorized to execute said instrument.
-10-
<PAGE>
WITNESS my hand and official seal this 13th day of June, 1997.
---- ---- --
Signature Janice E. Blackmore________
-------------------
Printed Name Janice E. Blackmore_____
-------------------
Notary public in and for the state of Washington, residing at
Seattle________
-------
My appointment expires 9/9/00_______
------
-11-
<PAGE>
EXHIBIT 10.4
FORM OF
NONCOMPETITION AND NONSOLICITATION AGREEMENT
BETWEEN
RAGEN MACKENZIE INCORPORATED
AND
EMPLOYEE [EXECUTIVE]
DATED AS OF ____________, 1998
<PAGE>
FORM OF
NONCOMPETITION AND NONSOLICITATION AGREEMENT
This Noncompetition And Nonsolicitation Agreement (the "Agreement"), dated
as of _______________, is entered by and between Ragen MacKenzie Incorporated.,
a Washington corporation ("RMI"), and __________________________ ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been and is presently employed by RMI; and
WHEREAS, RMI currently proposes to effect a recapitalization of its
business, in light of which both RMI and Employee have an interest in entering
an agreement reflecting their respective obligations to one another in the event
of termination of their employment relationship during the Term (defined below),
and the other matters set forth below;
A G R E E M E N T S:
- - - - - - - - - -
NOW, THEREFORE, for and in consideration of the foregoing premises and for
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, RMI and Employee hereby agree as follows:
1. TERM; CONDITION PRECEDENT; TERMINATION OF EMPLOYMENT RELATIONSHIP
The term of this Agreement shall be the thirty-month period (such thirty-
month period, the "Term") that commences on the date of closing of a firm
commitment underwritten public offering of shares of common stock of Ragen
MacKenzie Group Incorporated ("Holding Company") in which the aggregate gross
proceeds to 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 (an "IPO Closing"). The obligations of RMI and Employee under this
Agreement shall be subject to an IPO Closing. In the event that an IPO 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.
The employment relationship between RMI and Employee may be terminated by
either party, pursuant to the terms of this Agreement. The provisions of
Section 3 hereof shall survive the termination of Employee's employment for any
and all of the period from Employee's employment termination date until the end
of the Term, except that (a) the provisions of subsections 3.2 and 3.3 shall not
survive RMI's termination of Employee's employment without Cause, as defined
below and (b) the provisions of subsection 3.5 shall survive the termination of
Employee's employment and the end of the
<PAGE>
Term. The provisions of Section 7 hereof shall survive the termination of
Employee's employment and the end of the
1.1. BY RMI
With or without Cause (as defined below), RMI may terminate the employment
of Employee at any time during the Term upon giving Notice of Termination (as
defined below).
1.2. BY EMPLOYEE
Employee may terminate Employee's employment at any time, for any reason,
upon giving Notice of Termination.
1.3. AUTOMATIC TERMINATION
This Agreement and Employee's employment hereunder shall terminate
automatically upon the death or total disability of Employee. The term "total
disability" as used herein shall mean Employee's inability to perform the duties
normally performed in Employee's employment with RMI for a period or periods
aggregating 90 calendar days in any 12-month period as a result of physical or
mental illness, loss of legal capacity or any other cause beyond Employee's
control, unless Employee is granted a leave of absence by the Board of Directors
of RMI. Termination hereunder shall be deemed to be effective (a) at the end of
the calendar month in which Employee's death occurs or (b) immediately upon a
determination by the Board of Directors of RMI of Employee's total disability,
as defined above.
1.4. NOTICE
The term "Notice of Termination" shall mean at least 14 days' written
notice of termination of Employee's employment, during which period Employee's
employment and performance of services will continue; provided, however, that
RMI may, upon notice to Employee and without reducing Employee's compensation
during such period, excuse Employee from any or all of Employee's duties during
such period. The effective date of the termination of Employee's employment
hereunder shall be the date on which such 14 day period expires.
2. TERMINATION PAYMENTS
In the event of termination of the employment of Employee, all compensation
and benefits set forth in this Agreement shall terminate except as specifically
provided in this Section 2.
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<PAGE>
2.1. TERMINATION BY RMI
If RMI terminates Employee's employment without Cause during the Term,
Employee shall be entitled to receive (a) termination payments equal to the
lesser of (i) three months' annual base salary or (ii) the annual base salary
Employee would have received if Employee's employment hereunder had continued
until the end of the Term, and (b) any unpaid annual base salary which has
accrued for services already performed as of the date termination of Employee's
employment becomes effective. If Employee is terminated by RMI for Cause,
Employee shall not be entitled to receive any of the foregoing benefits, other
than those set forth in clause (b) above.
2.2. TERMINATION BY EMPLOYEE
In the case of the termination of Employee's employment by Employee,
Employee shall not be entitled to any payments hereunder, other than those set
forth in clause (b) of subsection 2.1.
2.3. TERMINATION AFTER THE END OF THE TERM
In the case of a termination of Employee's employment after the end of the
Term, Employee shall not be entitled to receive any payments hereunder, other
than those set forth in clause (b) of subsection 2.1.
2.4. PAYMENT SCHEDULE
All payments under this Section 2 shall be made to Employee at the same
intervals as payments of salary were made to Employee immediately prior to
termination.
2.5. CAUSE
Wherever reference is made in this Agreement to termination being with or
without Cause, "Cause" shall include, without limitation, the occurrence of one
or more of the following events:
(a) Failure or refusal to carry out the lawful duties normally
performed in Employee's position with RMI or any lawful directions of the
Board of Directors of RMI;
(b) Except by reason of death or disability, failure by Employee in
any material respect to devote Employee's full business attention and time
to the business and affairs of RMI or to use Employee's reasonable best
efforts to perform his or her professional or job responsibilities in a
professional manner;
(c) The rendering of any business, commercial or professional services
to any other firm or business without the prior written consent of RMI;
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<PAGE>
(d) Temporary loss (for a period of at least 90 days) or permanent
loss of Employee's license or other such qualification or authorization to
do business, or Employee's causing RMI or any other RMI Group Entity (as
defined in subsection 3.8) to so lose (or to be declined in an application
or notice to acquire) a license or such other qualification or
authorization to do business that is material to RMI or any other RMI Group
Entity, provided that whether a license or other qualification or
authorization to do business is material to RMI shall be determined by the
Board of Directors of RMI and such determination shall be binding on the
parties hereto;
(e) Conviction of or entry of a plea of nolo contendere by Employee in
a proceeding alleging violation by Employee of a state or federal criminal
law involving the commission of a crime against RMI or any other RMI Group
Entity, or a felony;
(f) Current use by Employee of illegal substances; deception, fraud,
misrepresentation or dishonesty by Employee; any incident materially
compromising Employee's reputation or ability to represent RMI with the
public; any act or omission by Employee which substantially impairs the
business, good will or reputation of RMI or any other RMI Group Entity; or
any other misconduct; or
(g) Any other material violation of any provision of this Agreement.
3. NONCOMPETITION, NONSOLICITATION AND NONDISPARAGEMENT
3.1. APPLICABILITY
If Employee's employment with RMI terminates for any reason during the
Term, Employee's obligations under this Section 3 shall continue in full force
and effect until the end of the Term, except that in the event of RMI's
termination of Employee's employment without Cause, as defined above, the
Employee's obligations under subsections 3.2 and 3.3 shall terminate.
3.2. SCOPE OF NONCOMPETITION
Employee agrees that Employee will not, directly or indirectly, during
Employee's employment and, if Employee's employment terminates before the end of
the Term, the remaining period of time until the end of 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,
underwriter or related business, is subject to regulation by the
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<PAGE>
Securities and Exchange Commission and which conducts business in any state or
province in which RMI conducts business (a "Competitor"). Employee shall be
deemed to be related to or connected with a Competitor if such Competitor is (a)
a partnership in which Employee is a general or limited partner, member or
employee, (b) a corporation, limited liability company or association of which
Employee is a shareholder, member, officer, manager, employee or director, or
(c) a partnership, corporation, limited liability company or association of
which Employee is a consultant or agent; provided, however, that nothing herein
shall prevent the purchase or ownership by Employee of shares which constitute
less than five percent of the outstanding equity securities of a publicly or
privately held corporation, if Employee has no other relationship with such
corporation.
3.3. SCOPE OF NONSOLICITATION
Employee shall not directly or indirectly solicit, influence or entice, or
attempt to solicit, influence or entice, any employee or consultant of RMI to
cease his or her relationship with RMI or solicit, influence, entice or in any
way divert any client, customer, distributor, partner, joint venturer, supplier
or service provider of RMI to do business or in any way become associated with
any Competitor. This subsection 3.3 shall apply during the time period and
geographical area described in subsection 3.2 hereof.
3.4. NONDISPARAGEMENT
Employee agrees that Employee will not at any time before the end of the
Term make any statements that disparage RMI, its directors, officers, employees
and representatives or that damage the reputation or goodwill of RMI.
3.5. NONDISCLOSURE; RETURN OF MATERIALS
During the term of Employee's employment by RMI and following termination
of such employment, Employee will not disclose (except as required by Employee's
duties to RMI), any concept, design, process, technology, trade secret, customer
list, plan, embodiment, or invention, any other intellectual property or any
other confidential information, whether patentable or not, of any RMI Group
Entity of which Employee becomes informed or aware during Employee's employment,
whether or not developed by Employee. In the event of the termination of
Employee's employment with RMI, Employee will return all documents, data and
other materials of whatever nature, including, without limitation, drawings,
specifications, research, reports, embodiments, software and manuals to RMI
which pertain to Employee's employment with RMI 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.
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<PAGE>
3.6. EQUITABLE RELIEF
Employee acknowledges that the provisions of this Section 3 are essential
to RMI, that RMI would not enter into this Agreement if it did not include this
Section 3 and that damages sustained by RMI as a result of a breach of this
Section 3 cannot be adequately remedied by damages, and Employee agrees that
RMI, notwithstanding any other provision of this Agreement, including, without
limitation, Section 7 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, this Section 3.
3.7. EFFECT OF VIOLATION
Employee and RMI acknowledge and agree that additional consideration has
been given for Employee entering into this Section 3, such additional
consideration including, without limitation, certain provisions for termination
payments pursuant to Section 2 of this Agreement. Violation by Employee of this
Section 3 shall relieve RMI of any obligation it may have to make such
termination payments, but shall not relieve Employee of Employee's obligations
under this Section 3.
3.8. DEFINITION OF RMI
For purposes of subsection 3.2, subsection 3.3 and subsection 3.4 hereof,
"RMI" shall include any subsidiaries of RMI (whether existing currently or in
the future), any parent corporation of RMI and any business ventures in which
RMI, its subsidiaries or its parent corporation may participate (whether
existing currently or in the future) (each of RMI, any direct or indirect
subsidiary thereof and any parent corporation thereof, an "RMI Group Entity").
4. 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 Employee:
--------------------------------
--------------------------------
--------------------------------
If to RMI: Ragen MacKenzie Incorporated
999 Third Avenue, Suite 4300
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<PAGE>
Seattle, WA 98104
Attn: General Counsel
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: Stewart Landefeld
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.
5. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by
Employee. RMI may assign its rights hereunder to (a) any corporation resulting
from any merger, consolidation or other reorganization to which RMI is a party,
(b) any parent corporation of RMI whether existing currently or in the future,
or (c) any corporation, partnership, association or other person to which RMI
may transfer all or substantially all of the assets and business of RMI existing
at such time. All of the terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns.
6. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of his, her or 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.
7. ARBITRATION
Subject to the provisions of subsection 3.6 hereof, any controversies or
claims arising out of or relating to this Agreement shall be fully and finally
settled by final and binding 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. The provisions of this Section 7 continue in effect for any and all
covered controversies or claims, whether before or after the end of the Term.
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<PAGE>
8. 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, terminated or discharged and signed by RMI and
Employee, 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 RMI and Employee.
9. 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.
10. 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.
11. 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.
12. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant to
Section 8 hereof, may be executed in any number of counterparts, each of which
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.
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<PAGE>
13. INTEGRATION
Except as set forth in the following sentence, this Agreement on and as of
the date of the commencement of the Term shall constitute the entire agreement
between RMI and Employee with respect to the subject matter hereof and all oral
or written communications, understandings or agreements between RMI and Employee
prior or contemporaneous to the commencement of the Term with respect to such
subject matter shall be hereby, as of the commencement of the Term, superseded
and nullified in their entireties. Notwithstanding the foregoing sentence, this
Agreement supplements and does not supersede any previously executed, written
employment agreement between RMI and Employee that may be currently in effect;
to the extent of any inconsistency or conflict between the terms of this
Agreement and the terms of any such previously executed employment agreement,
the terms of this Agreement shall, as of the commencement of the Term, control
and govern.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EMPLOYEE:
-----------------------------------------
RAGEN MACKENZIE INCORPORATED:
By
--------------------------------------
Its
----------------------------------
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<PAGE>
EXHIBIT 10.6
PRIVILEGED SETTLEMENT; NOT
ADMISSIBLE IN ANY LEGAL OR
ADMINISTRATIVE PROCEEDING
UNLESS AGREED TO AND EFFECTIVE
AGREEMENT AND RELEASE
THIS AGREEMENT AND RELEASE (the "Agreement") is entered into by Scott
McAdams (hereinafter referred to as "McAdams") and by RAGEN MACKENZIE
INCORPORATED (hereinafter referred to as "RMI").
RECITALS
A. McAdams has been employed by RMI and has resigned his employment,
effective March 31, 1998.
B. McAdams and RMI wish to enter into this Agreement to completely settle
any issues that may exist between them with respect to the employment
relationship between McAdams and RMI and its termination, and any continuing
obligations of the parties to one another following the end of the employment
relationship.
C. RMI has advised McAdams of his right to consult an attorney prior to
signing this Agreement and has provided him with at least 21 days to consider
its severance offer and to seek legal assistance.
D. This Agreement is not and should not be construed as an admission or
statement by either party that it or any other party has acted wrongfully or
unlawfully. Both parties expressly deny any wrongful or unlawful action.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
promises contained below, it is agreed as follows:
<PAGE>
1. EMPLOYMENT: ENDING DATE AND RESPONSIBILITIES
McAdams' employment with RMI shall terminate effective March 31, 1998 (the
"Termination Date"). McAdams will thereafter have no remaining employment
responsibilities to RMI.
2. SEVERANCE AND BENEFITS
2.1 RMI will pay McAdams his regular compensation through March 31, 1998,
and any accrued and unpaid vacation in the ordinary course and consistent with
RMI's policies. In addition, within thirty (30) days of March 31, 1998, RMI
will pay McAdams Four Thousand Seven Hundred Dollars ($4,700), less required and
customary withholding, representing estimated compensation for his management of
the MRM Fund through March 31, 1998. All benefits shall cease on the date of
termination of employment, except for McAdams' right under COBRA to self-pay
medical benefits under the RMI Medical Plan if he elects to do so.
2.2 Further, provided this Agreement has become effective as provided in
Section 8, on September 30, 1998, RMI shall pay McAdams a severance payment in
the amount of Sixty Thousand Dollars ($60,000), less required and customary
withholding.
3. REDEMPTION OF SHARES AND APPRECIATION RIGHTS
3.1 Redemption of Shares. On the Termination Date, McAdams shall tender
for redemption, and RMI shall redeem, all shares of stock of RMI owned by
McAdams and McAdams shall duly transfer such shares to RMI by delivery of the
applicable stock certificate or certificates representing such shares, duly
endorsed by McAdams or accompanied with duly executed assignment(s) separate
from certificate(s), with signatures guaranteed. RMI shall pay to McAdams the
book value of the shares so redeemed by April 30, 1998. Notwithstanding any
provision of this Agreement to the contrary, RMI shall not be required to effect
any redemption of the shares of stock of RMI owned by McAdams, or make any
payment for such shares, if such redemption or payment, if made, would result in
a violation of applicable law or a regulatory requirement applicable to RMI.
For purposes of this Section 3.1, the book value of shares shall be calculated
as of March 27, 1998, in accordance with Section 3.2(f).
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<PAGE>
3.2 Benefits - Appreciation Rights as Additional Severance Payment. Upon
redemption of the shares of stock of RMI owned by McAdams in accordance with
Section 3.1, McAdams shall have the right to a "Stock Appreciation Amount" in
the form of an additional severance payment, calculated as follows on a share by
share basis:
(a) The book value for each such share shall be calculated as of March
27, 1998 and again as of the end of the eighth fiscal quarter of RMI after
the end of the fiscal quarter of RMI ended March 27, 1998 (the "Eighth
Quarter").
(b) Except as otherwise provided in Section 3.2(d) and subject to the
adjustments as provided in Section 3.2(f), the Stock Appreciation Amount
shall be the amount, if any, by which such per share book value as of the
end of said Eighth Quarter exceeds said book value on March 27, 1998.
(c) Such Stock Appreciation Amount, if any, shall be paid on a per
share basis within thirty days after the calculation of the Eighth Quarter
book value.
(d) Notwithstanding anything to the contrary in Section 3.2(b) and
Section 3.2(c), if prior to the end of such Eighth Quarter there occurs a
"Corporate Disposition" (as defined in Section 3.5(a)), then the Stock
Appreciation Amount shall be the amount, if any, by which the amount (net
of expenses) received per share of common stock of RMI in such Corporate
Disposition exceeds the per share book value on March 27, 1998; provided,
however, that if the Corporate Disposition is the closing of an initial
public offering of stock of an Affiliated corporation that occurs after a
reorganization of RMI into a holding company structure pursuant to which
shareholders of RMI received shares of the Affiliated corporation in
exchange for or upon conversion of their shares of RMI, then the Stock
Appreciation Amount shall be the difference between (a) the product of the
amount (net of expenses) received per share of common stock of the
Affiliated corporation in such public offering multiplied by the number of
shares or fraction of share, as the case may be, of the Affiliated
corporation received per share of RMI by an RMI shareholder in connection
with the holding company reorganization minus (b) the per share book value
on March 27, 1998. The Stock Appreciation Amount pursuant to this Section
3.2 (d) shall be determined within 30 days after the Corporate Disposition
and shall be the final Stock Appreciation Amount. The Corporation shall
pay two-thirds of such Stock Appreciation Amount within 30
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<PAGE>
days of the occurrence of such Corporate Disposition and shall pay
one-sixth of such Stock Appreciation Amount, plus interest accruing on such
one-sixth amount at the prime rate of Seafirst Bank from the date of the
relevant Corporate Disposition through the date of such payment, within 30
days after the first anniversary and within 30 days after the second
anniversary of the Termination Date. Payment by RMI to McAdams of such
Stock Appreciation Amount in accordance with the foregoing sentence shall
fully discharge the obligations of RMI for any payment to be made with
respect to the shares of stock of RMI redeemed pursuant to Section 3.1.
(e) Notwithstanding the provisions of the foregoing clause (d), if the
consideration to be received by shareholders of RMI in connection with a
Corporate Disposition consists in whole or in part of shares or other
securities of another corporation, then the payment of the Stock
Appreciation Amount pursuant to Section 3.2(d) may be, if the Board of
Directors of RMI so elects, in the form of such shares or securities,
rather than cash, with the quantity of such shares or securities to be paid
in lieu of cash to be based on fair market values as determined by the
Board of Directors of RMI, and such determination shall be final and
binding on the parties hereto.
(f) The book value per share shall be established by the accountant or
accountants regularly employed by RMI at the time of such determination;
such value shall be net book value of each such share involved, calculated
in accordance with generally accepted accounting principles, and assuming
that all shares which have been redeemed by RMI but are still entitled to a
Stock Appreciation Amount under this Agreement or a similar payment under
any other plan or agreement of RMI are still outstanding, and that all
shares which can be purchased or acquired under outstanding options or
rights for a price equal to or less than the resulting per share book value
are also outstanding. The calculation of book value per share shall be
adjusted by such accountant or accountants as appropriate for any increase
or decrease in the number of issued shares of common stock of RMI resulting
from a reclassification, stock split, reverse stock split, stock dividend
or similar transaction and shall be adjusted by such accountant or
accountants as appropriate in the event of any reclassification of stock of
RMI or exchange of the stock of RMI for stock of an Affiliated corporation
so that the intent of this Section 3 may be effected as nearly as
reasonably practicable. All calculation and adjustments so made in good
faith by such accountant or accountants shall be conclusive and binding on
all parties. RMI shall pay all costs of calculating such Stock
Appreciation
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<PAGE>
Amounts, shall fully cooperate to enable such calculation to be made as
soon as practicable, and if requested, shall review the computation of the
book values with McAdams or his representative.
3.3 No Obligation to Effect Corporate Disposition. Neither RMI nor any
Affiliated corporation (defined below) has any obligation whatsoever to effect a
Corporate Disposition, or to take any other action which would or might increase
the amount of any Stock Appreciation Amount, and McAdams shall not promote in
any way any such transaction or action without the prior approval of RMI.
3.4 No Rights under Suspended 1997 Share Repurchase Plan. McAdams and RMI
acknowledge that RMI's 1997 Share Repurchase Plan, dated August 21, 1997, as
amended and supplemented (the "Share Repurchase Plan"), is currently suspended.
In consideration of the mutual promises set forth in this Agreement, McAdams
agrees that all shares redeemed pursuant to Section 3.1 (the "Redeemed Shares")
shall not be subject in any manner to the Share Repurchase Plan and McAdams
hereby irrevocably waives any and all of his rights of any nature whatsoever
pursuant to the Share Repurchase Plan that relate in any manner to the Redeemed
Shares or any associated stock appreciation amount in respect of the Redeemed
Shares, and agrees that effective as of the date hereof all of his rights at any
time under the Share Repurchase Plan in respect of the Redeemed Shares and any
related stock appreciation amount are revoked and of no further force and
effect.
3.5 Definitions. The following terms shall have the following meanings
when used in Section 3 of this Agreement:
(a) A "Corporate Disposition" shall mean any of the following events: (i)
any merger or consolidation of RMI in which RMI is not the continuing or
surviving corporation, or pursuant to which shares of RMI are converted into
cash, securities or other property, except that "Corporate Disposition" shall
not include any such merger or consolidation in which the holders of RMI's
outstanding voting securities immediately prior to such merger or consolidation
own at least 66-2/3% of the of the outstanding voting securities of either the
surviving corporation of such transaction or any direct or indirect parent
entity of such surviving corporation; (ii) consummation of any sale, lease,
exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of RMI's assets other than a transfer
of RMI's assets to an Affiliated corporation; (iii) approval in accordance with
applicable law by the holders of RMI's stock of any plan or proposal for the
liquidation or dissolution of RMI; or (iv) the closing of an initial public
offering of shares by RMI or an Affiliated corporation that are listed on a
national securities
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<PAGE>
exchange or The Nasdaq Stock Market. For purposes of clause (i) above, 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 this
Agreement) pursuant to the Securities Exchange Act of 1934, as amended.
(b) An Affiliated corporation shall mean a corporation which, together with
RMI, is part of an affiliated group as defined in Section 1504(a) of the
Internal Revenue Code of 1986, as amended, without giving effect to Section
1504(b) of said Code.
4. VALID CONSIDERATION
McAdams and RMI agreed that the payments McAdams is to receive pursuant to
Sections 2.2 and 3 above are not required by RMI policies or procedures or by
any contractual obligation of RMI, and are offered by RMI solely as
consideration for this Agreement.
5. CONFIDENTIALITY OF SETTLEMENT AGREEMENT
McAdams agrees that he will keep the terms of this Agreement confidential,
and that he will not disclose any information concerning this Agreement or its
terms to anyone other than his immediate family and/or his advisors, whom
McAdams will inform of and ask to honor this confidentiality clause. McAdams
may also disclose the terms of the noncompetition provision contained in Section
7 of this Agreement to any prospective employer to the extent necessary to avoid
any breach of the noncompetition provision. Nothing in this Section shall limit
disclosure that may be compelled by law.
6. GENERAL RELEASE OF CLAIMS BY MCADAMS
McAdams represents that he has not filed, and agrees and warrants he will
not file, any complaints, charges or lawsuits against RMI with any governmental
agency or any court. McAdams expressly waives any claims against RMI and
releases RMI (including its officers, directors, owners, managers, agents and
representatives) from any claims that he may have in any way connected with his
employment with RMI and the termination thereof. It is understood that this
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 RMI'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
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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 6, the term "RMI" shall include all of the
officers, directors, owners, managers, agents, and representatives of RMI.
This waiver and release shall not preclude McAdams from filing a lawsuit
for the exclusive purpose of enforcing his rights under this Agreement.
7. CONFIDENTIALITY, NONCOMPETITION, NONSOLICITATION AND NONDISPARAGEMENT
McAdams acknowledges that in the course of his employment with RMI he has
had access to Confidential Information that is important, competitively
sensitive and not generally known to the public, including, but not limited to,
RMI's business plan, bidding and pricing procedures, market strategies,
financial data, confidential personnel information and similar information.
McAdams recognizes his obligation to safeguard such Confidential Information and
not to disclose such information to other parties or to use it to the
competitive disadvantage of RMI. In addition, McAdams agrees that, for a period
of six (6) months following the Termination Date, he will not, except as
expressly permitted hereunder, directly or indirectly (a) operate, develop or
own any interest other that the ownership of less than 5% of the equity
securities of a publicly traded company, in any business which has significant
activities, or has announced intentions to focus significant resources, relating
to the ownership, management or operation of any organization which, by reason
of its activities as a broker, dealer, investment advisor, investment company or
related business, is subject to regulation by the Securities and Exchange
Commission and which conducts business in any state in which RMI conducts
business (a "Business"); (b) compete with RMI or its subsidiaries and affiliates
in the operation or development of any Business within the United States of
America; or (c) be employed by any entity which owns, manages or operates a
Business, provided that this will not prevent McAdams from employment with a
Business with a division that competes with RMI so long as his duties and
activities do not in any way support any activities that are competitive to RMI.
McAdams shall not be entitled to circumvent the provisions of the Section by
entering into a relationship with a Business as a consultant, director, advisor,
or otherwise, which has the effect of competing with RMI, its affiliates or
subsidiaries. McAdams shall be entitled to request RMI to consider specific
employment opportunities and to grant a waiver of the provisions of the section,
which waiver shall not be unreasonably withheld. McAdams further agrees that
for a
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period of two years after the Termination Date, he will not (d) interfere with,
solicit, disrupt, or attempt to disrupt any past, present or prospective
relationship, contractual or otherwise, between RMI or its subsidiaries or
affiliates and any customer, client, supplier or employee of RMI or its
subsidiaries or affiliates; or (e) solicit any employee of RMI or its
subsidiaries or affiliates to leave their employment with RMI or its
subsidiaries or affiliates, as the case may be, or hire any such employee to
work for a Business. McAdams further agrees that he will not at any time
following the Termination Date make any statements that disparage RMI, its
directors, officers, employees and representatives and/or that damage the
reputation and/or good will of RMI. BREACH BY MCADAMS OF ANY OBLIGATION UNDER
THIS SECTION 7 WILL EXCUSE AND RELEASE RMI FROM MAKING ANY FURTHER PAYMENT DUE
TO MCADAMS UNDER SECTIONS 2.2 AND 3 OF THIS AGREEMENT.
8. REVIEW AND REVOCATION PERIOD; EFFECTIVE DATE
McAdams and RMI agree that he shall have 21 days to review this Agreement
and consult legal counsel if he so chooses, during which time the proposed term
of the Agreement shall not be amended, modified or revoked by RMI. McAdams may
revoke this Agreement if he so chooses by providing notice of his decision to
revoke the Agreement to RMI within seven days following the date he signs this
Agreement. This Agreement shall become effective and enforceable upon
expiration of this seven-day revocation period.
9. SEVERABILITY
The provisions of this Agreement are severable, and if any part of it is
found to be unlawful or unenforceable, the other provisions of this Agreement
shall remain fully valid and enforceable to the maximum extent consistent with
applicable law.
10. KNOWING AND VOLUNTARY AGREEMENT
McAdams represents and agrees that he has read this Agreement, understands
its terms and the fact that it releases any claim he might have against RMI and
its agents, understands that he has had the right to consult counsel of choice
and has done so, and enters into this Agreement without duress or coercion from
any source.
11. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding between McAdams and RMI
and supersedes any prior agreements or understandings, express or implied,
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<PAGE>
pertaining to the terms of his employment with RMI and the termination of the
employment relationship. McAdams acknowledges that in executing this Agreement,
he does not rely upon any representation or statement by any representative of
RMI concerning the subject matter of this Agreement, except as expressly set
forth in the text of the Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates indicated below.
RAGEN MACKENZIE INCORPORATED
By: /s/ Lesa A. Sroufe /s/ Scott McAdams
----------------------------- -------------------------------
Scott McAdams
Title: Chief Executive Officer
-------------------------- Dated: 3/19/98
-------------------------
Dated: 3/22/98
--------------------------
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EXHIBIT 10.7
RAGEN MACKENZIE INCORPORATED
1989 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Ragen MacKenzie Incorporated 1989 Stock Option Plan
(this "Plan") is to provide a means whereby selected employees, directors
(subject to the restrictions contained in Sections 2 and 4), officers, agents,
consultants and independent contractors of Ragen MacKenzie Incorporated (the
"Company") or of any parent or subsidiary (as defined in subsection 5.7 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to purchase the Common
Stock (as defined in Section 3) of the Company, in order to attract and retain
the services or advice of such employees, directors, officers, agents,
consultants and independent contractors and to provide added incentive to them
by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or, in the event the Board shall appoint and/or authorize a
committee to administer this Plan, by such committee. The administrator of this
Plan shall hereinafter be referred to as the "Plan Administrator."
A member of the Board (or the committee) may be eligible, subject to the
restrictions set forth in Section 4, to participate in or receive or hold
options under this Plan; provided, however, that no member of the Board or the
committee shall vote with respect to the granting of an option hereunder to
himself or herself, as the case may be, and, provided that any option granted
under this Plan to a member of the committee for his or her services as such
shall be approved by the full Board and, provided further that any option
granted to a member of the committee in exchange for a previously outstanding
option may be approved by the committee rather than the full Board.
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator as
chairman. The Plan Administrator may hold meetings at such times and places as
it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced to
or approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
1989 STOCK OPTION PLAN PAGE 1
<PAGE>
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan, the
Plan Administrator shall have the authority, in its discretion, to determine all
matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options. Grants under this Plan need not be identical in any respect,
even when made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
corresponds to the requirements of Internal Revenue Code (the "Code") Section
422A, the regulations thereunder, and any amendments thereto.
SECTION 3. STOCK SUBJECT TO THIS PLAN
The stock subject to this Plan shall be the Company's Common Stock (the
"Common Stock") presently authorized but unissued or subsequently acquired by
the Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under this Plan shall not exceed 347,305 shares (including any
shares subject to options granted in exchange for currently outstanding options)
as such Common Stock was constituted on the effective date of this Plan. If any
option granted under this Plan shall expire, be surrendered, exchanged for
another option, cancelled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of this Plan, including for replacement options which
may be granted in exchange for such surrendered, cancelled or terminated
options.
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or any related
corporation. A nonqualified stock option may be granted to any employee,
director, officer, agent, consultant or independent contractor of the Company or
any related corporation, whether an individual or an entity. Any party to whom
an option is granted under this Plan shall be referred to hereinafter as an
"Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan
1989 STOCK OPTION PLAN PAGE 2
<PAGE>
Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the exercise
of each option and the price per share, or the formula or method for determining
the price per share, at which such option is exercisable (the "exercise price")
shall be as established by the Plan Administrator, provided that the Plan
Administrator shall act in good faith to establish the exercise price which
shall be not less than the fair market value per share of the Common Stock at
the time the option is granted with respect to incentive stock options and also
provided that, with respect to incentive stock options granted to greater than
10% shareholders, the exercise price shall be as required by Section 6.
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to granting
incentive stock options to greater than 10% shareholders, the term of each
incentive stock option shall be as established by the Plan Administrator and, if
not so established, shall be 10 years from the date it is granted but in no
event shall the term of any incentive stock option exceed 10 years. The term of
each nonqualified stock option shall be as established by the Plan
Administrator. To ensure that the Company or related corporation will achieve
the purpose and receive the benefits contemplated in this Plan, any option
granted to any Optionee hereunder shall, unless the condition of this sentence
is waived or modified in the agreement evidencing the option or by resolution
adopted by the Plan Administrator, be exercisable according to the schedule set
forth in each option agreement.
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2 above and to
any additional holding period required by applicable law, each option may be
exercised in whole or in part; 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 option rights hereunder and that
only whole shares will be issued pursuant to the exercise of any option. The
Plan Administrator may provide that the exercise of any option granted under
this Plan is subject to the prior execution by the Optionee of an agreement
restricting transferability of the Common Stock so purchased. During an
optionee's lifetime, any incentive stock options granted under this Plan are
personal to him or her and are exercisable solely by such optionee. Options
shall be
1989 STOCK OPTION PLAN PAGE 3
<PAGE>
exercised by delivery to the Company of notice of the number of shares with
respect to which the option is exercised, together with payment of the exercise
price.
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time the
notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to accept a
personal check) for the Common Stock being purchased.
The Plan Administrator can determine at the time the option is granted for
incentive stock options, or at any time before exercise for nonqualified stock
options, that additional forms of payment will be permitted. To the extent
permitted by the Plan Administrator and applicable laws and regulations
(including, but not limited to, federal tax and securities laws and regulations
and state corporate law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market value
to be determined in good faith by the Plan Administrator; or
(b) delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, 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, and
(ii) the Plan Administrator in its sole discretion shall specify the term and
other provisions of such note at the time an incentive stock option is granted
or at any time prior to exercise of a nonqualified stock option, and (iii) the
Plan Administrator may require that the Optionee pledge the Optionee's shares to
the Company for the purpose of securing the payment of such note and may require
that the certificate representing such shares be held in escrow in order to
perfect the Company's security interest, and (iv) the Plan Administrator in its
sole discretion may at any time restrict or rescind this right upon notification
to the Optionee.
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation shall have the right to retain and
withhold from any payment of cash or Common Stock under the Plan the amount of
taxes required by any government to be withheld or otherwise deducted and paid
with respect to such payment. At its discretion, the Company may require an
Optionee
1989 STOCK OPTION PLAN PAGE 4
<PAGE>
receiving shares of Common Stock to reimburse the Company for any such taxes
required to be withheld by the Company and withhold any distribution in whole or
in part until the Company is so reimbursed. In lieu thereof, the Company shall
have the right to withhold from any other cash amounts due or to become due from
the Company to the Optionee an amount equal to such taxes or retain and withhold
a number of shares having a market value not less than the amount of such taxes
required to be withheld by the Company to reimburse the Company for any such
taxes and cancel (in whole or in part) any such shares so withheld.
5.6 NONTRANSFERABILITY OF OPTION
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process; provided, however, that any shares
issuable upon the exercise of a nonqualified stock option granted under this
Plan may be issued in the name of an individual retirement account, as defined
in the Code, for the benefit of the Optionee. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of any option under this Plan or of any
right or privilege conferred hereby, contrary to the Code or to the provisions
of this Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred hereby shall be null and void. Notwithstanding
the foregoing, an Optionee may during the Optionee's lifetime, designate a
person who may exercise the option after the Optionee's death by giving written
notice of such designation to the Plan Administrator. Such designation may be
changed from time to time by the Optionee by giving written notice to the Plan
Administrator revoking any earlier designation and making a new designation.
5.7 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related corporation
ceases for any reason other than termination for cause, death or total
disability, and unless by its terms the option sooner terminates or expires,
then the Optionee's option shall terminate upon such cessation as to all shares
for which it has not theretofore been exercised, unless, in the case of a
nonqualified stock option, such provision is waived in the agreement evidencing
the option or by resolution adopted by the Plan Administrator within 90 days of
such cessation. If, in the case of an incentive stock option, an Optionee's
relationship with the Company or related corporation changes (i.e., from
employee to nonemployee, such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or related corporation
and the Optionee's incentive stock option shall terminate in accordance with
this subsection 5.7.
1989 STOCK OPTION PLAN PAGE 5
<PAGE>
If an Optionee is terminated for cause, any option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Optionee shall thereupon have no right to
purchase any shares pursuant to such option. "Termination for cause" shall mean
any resignation or discharge while there is a reportable matter under Section
13, 14, or 15 of Form U-5 Uniform Termination Notice (or equivalent sections of
its successor notice) or discharge for other misconduct or disclosure of
confidential information. If an Optionee's relationship with the Company or any
related corporation is suspended pending an investigation of whether or not the
Optionee shall be terminated for cause, all Optionee's rights under any option
granted hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the Optionee's option shall not terminate
and, in the case of an incentive stock option, cease to be treated as an
incentive stock option until the end of the three month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
this Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee 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 Optionee 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. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship between or
among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations
1989 STOCK OPTION PLAN PAGE 6
<PAGE>
other than the Company owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
5.8 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company or
any related corporation or within the three month period following cessation of
such relationship in the case of totally disabled optionees, any option held by
such Optionee to the extent that the Optionee would have been entitled to
exercise such option, may be exercised within three months after his or her
death by the personal representative of his or her estate or by the person or
persons to whom the Optionee's rights under the option shall pass by will or by
the applicable laws of descent and distribution.
5.9 STATUS OF SHAREHOLDER
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT
Nothing in this Plan or in any option granted pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ of the Company or
of a related corporation, or to interfere in any way with the right of the
Company or of any such related corporation to terminate his or her employment or
other relationship with the Company at any time.
5.11 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422A with respect to incentive
stock options and to the terms and conditions and within the limitations of this
Plan, the Plan Administrator may modify or amend outstanding options granted
under this Plan. The modification or amendment of an outstanding option shall
not, without the consent of the Optionee, impair or diminish any of his or her
rights or any of the obligations of the Company under such option. Except as
otherwise provided in this Plan, no outstanding option shall be terminated
without the consent of the Optionee. Unless the Optionee agrees otherwise, any
changes or adjustments made to outstanding incentive stock options granted under
this Plan shall be made in such a manner so as not to constitute a
"modification" as defined in Code Section 425(h) 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 Code Section 422A(b).
1989 STOCK OPTION PLAN PAGE 7
<PAGE>
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan, to
the extent that the aggregate fair market value (determined at the time the
incentive stock option is granted) of the stock with respect to which incentive
stock options are exercisable for the first time by the Optionee during any
calendar year (under this Plan and all other incentive stock option plans of the
Company, a related corporation or a predecessor corporation) exceeds $100,000,
such options shall be treated as nonqualified stock options. The previous
sentence shall not apply if the Internal Revenue Service publicly rules, issues
a private ruling to the Company, any Optionee, or any legatees, personal
representative or distributees of an Optionee or issues regulations changing or
eliminating such annual limit.
SECTION 6. GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If incentive stock options are granted under this Plan to employees who own
more than 10% of the total combined voting power of all classes of stock of the
Company or any related corporation, the term of such incentive stock options
shall not exceed five years and the exercise price shall be not less than 110%
of the fair market value of the Common Stock at the time the incentive stock
option is granted. This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an employee
shall be deemed to own the stock owned, directly or indirectly, by or for his or
her brothers, sisters, spouse, ancestors and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership, estate or trust
shall be deemed to be owned proportionately by or for its shareholders, partners
or beneficiaries. If an employee or a person related to the employee owns an
unexercised option or warrant to purchase stock of the Company, the stock
subject to that portion of the option or warrant which is unexercised shall not
be counted in determining stock ownership. For purposes of this Section 6,
stock owned by an employee shall include all stock actually issued and
outstanding immediately before the grant of the incentive stock option to the
employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be granted
under this Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), and
each such option, shall all be proportionately adjusted for any increase or
decrease in the number of issued
1989 STOCK OPTION PLAN PAGE 8
<PAGE>
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or any like capital adjustment, or the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION, REORGANIZATION OR CHANGE IN CONTROL
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK
Except as provided in subsection 7.1.2, upon a merger (other than a merger
of the Company in which the holders of Common Stock immediately prior to the
merger have the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the shareholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise such Optionee's
option in whole or in part whether or not the vesting requirements set forth in
the option agreement have been satisfied, unless the option agreement provides
otherwise.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger t other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1. The amount and price of converted options shall
be determined by adjusting the amount and price of the options granted hereunder
in the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. The converted
options shall be fully vested whether or not the vesting requirements set forth
in the option agreement have been satisfied, unless the option agreement
provides otherwise.
1989 STOCK OPTION PLAN PAGE 9
<PAGE>
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its determination
as to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so as not
to constitute a "modification" as defined in Code Section 425(h) and so as not
to cause his or her incentive stock option issued hereunder to fail to continue
to qualify as an incentive stock option as defined in Code Section 422A(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of any
shares hereunder. 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.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on stock
certificates in
1989 STOCK OPTION PLAN PAGE 10
<PAGE>
order to assure exemption from registration. The Plan Administrator may also
require such other action or agreement by the Optionees as may from time to time
be necessary to comply with the federal and state securities laws. THIS
PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE
OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan, provided
that except as set forth in Section 7, the approval of the holders of a majority
of the Company's outstanding shares of voting capital stock is necessary within
12 months before or after the adoption by the Board of any amendment which will:
(a) increase the number of shares which are to be reserved for the
issuance of options under this Plan;
(b) permit the granting of stock options to a class of persons other
than those presently permitted to receive stock options under this Plan; or
(c) require shareholder approval under applicable law.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten years
from the earlier of (a) the date on which this Plan is adopted by the Board or
(b) the date on which this Plan is approved by the shareholders of the Company.
No option may be granted after such termination or during any suspension of this
Plan. The amendment or termination of this Plan shall not, without the consent
of the option holder, alter or impair any rights or obligations under any option
theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as it
is approved by the holders of a majority of the Company's outstanding shares of
voting capital stock at any time within 12 months before or after the adoption
of this Plan.
1989 STOCK OPTION PLAN PAGE 11
<PAGE>
Adopted by the Board of Directors on November 21, 1989, and approved by the
shareholders on November 21, 1989.
1989 STOCK OPTION PLAN PAGE 12
<PAGE>
EXHIBIT 10.8
RAGEN MACKENZIE INCORPORATED
1993 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the 1993 Stock Option Plan (this "Plan") is to provide a
means whereby selected employees, directors, officers, agents, consultants,
advisors and independent contractors of Ragen MacKenzie Incorporated (the
"Company"), or of any parent or subsidiary (as defined in subsection 5.8 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to purchase the Common
Stock (as defined in Section 3) of the Company, in order to attract and retain
the services or advice of such employees, directors, officers, agents,
consultants, advisors and independent contractors and to provide added incentive
to such persons by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or, in the event the Board shall appoint and/or authorize a
committee to administer this Plan, by such committee. The administrator of this
Plan shall hereinafter be referred to as the "Plan Administrator."
In the event a member of the Board (or the committee) may be eligible,
subject to the restrictions set forth in Section 4, to participate in or receive
or hold options under this Plan, no member of the Board or the committee shall
vote with respect to the granting of an option hereunder to himself or herself,
as the case may be, and, if state corporate law does not permit a committee to
grant options to directors, then any option granted under this Plan to a
director for his or her services as such shall be approved by the full Board.
The members of any committee serving as Plan Administrator shall be
appointed by the Board for such term as the Board may determine. The Board may
from time to time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, may be filled by the Board.
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator as
chairman. The Plan Administrator may hold meetings at such times and places as
it shall determine. The acts of a majority of the members of the Plan
Administrator
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 1
<PAGE>
present at meetings at which a quorum exists, or acts reduced to or approved in
writing by all Plan Administrator members, shall be valid acts of the Plan
Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan, the
Plan Administrator shall have the authority, in its discretion, to determine all
matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options. Grants under this Plan need not be identical in any respect,
even when made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), the regulations thereunder and any amendments
thereto.
SECTION 3. STOCK SUBJECT TO THIS PLAN
The stock subject to this Plan shall be the Company's Common Stock (the
"Common Stock"), presently authorized but unissued or subsequently acquired by
the Company. Subject to adjustment as provided in Section 7, the aggregate
amount of Common Stock to be delivered upon the exercise of all options granted
under this Plan shall not exceed 230,000 shares as such Common Stock was
constituted on the effective date of this Plan. If any option granted under
this Plan shall expire or be surrendered, exchanged for another option,
cancelled or terminated for any reason without having been exercised in full,
the unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan, including for replacement options which may be granted in
exchange for such expired, surrendered, exchanged, cancelled or terminated
options.
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or any related
corporation. A nonqualified stock option may be granted to any employee,
director, officer, agent, consultant, advisor or independent contractor of the
Company or any related corporation, whether an individual or an entity. Any
party to whom an option is
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 2
<PAGE>
granted under this Plan shall be referred to hereinafter as an "Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the exercise
of each option and the price per share, or the formula or method for determining
the price per share, at which such option is exercisable (the "exercise price")
shall be as established by the Plan Administrator, provided that the Plan
Administrator shall act in good faith to establish the exercise price which
shall be not less than the fair market value per share of the Common Stock at
the time the option is granted with respect to incentive stock options and also
provided that, with respect to incentive stock options granted to greater than
10% shareholders, the exercise price shall be as required by subsection 6.1.
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to granting
incentive stock options to greater than 10% shareholders, the term of each
incentive stock option shall be as established by the Plan Administrator and, if
not so established, shall be 10 years from the date it is granted but in no
event shall it exceed 10 years. The term of each nonqualified stock option
shall be as established by the Plan Administrator and, if not so established,
shall be 10 years. To ensure that the Company or related corporation will
achieve the purpose and receive the benefits contemplated in this Plan, any
option granted to any Optionee hereunder shall, unless the condition of this
sentence is waived or modified in the agreement evidencing the option or by
resolution adopted at any time by the Plan Administrator, be exercisable
according to the schedule set forth in each option agreement.
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2, each option
may be exercised in whole or in part at any time and from time to time;
provided, however, that no fewer than 100 shares (or the remaining shares then
purchasable under the option, if less than 100 shares) may be
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 3
<PAGE>
purchased upon any exercise of option rights hereunder and that only whole
shares will be issued pursuant to the exercise of any option. The Plan
Administrator may provide that the exercise of any option granted under this
Plan is subject to the prior execution by the Optionee of an agreement
restricting transferability of the Common Stock so purchased. During an
Optionee's lifetime, any options granted under this Plan are personal to him or
her and are exercisable solely by such Optionee. Options shall be exercised by
delivery to the Company of notice of the number of shares with respect to which
the option is exercised, together with payment of the exercise price.
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time the
notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to accept a
personal check) for the Common Stock being purchased.
The Plan Administrator can determine at any time before exercise that
additional forms of payment will be permitted. To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state corporate
law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market value
to be determined in good faith by the Plan Administrator or
(b) delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, 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, (ii)
the Plan Administrator in its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock option is granted or at
any time prior to exercise of a nonqualified stock option, (iii) the Plan
Administrator may require that the Optionee pledge the Optionee's shares to the
Company for the purpose of securing the payment of such note and may require
that the certificate representing such shares be held in escrow in
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 4
<PAGE>
order to perfect the Company's security interest, and (iv) the Plan
Administrator in its sole discretion may at any time restrict or rescind this
right upon notification to the Optionee.
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation shall have the right to retain and
withhold from any payment of cash or Common Stock under this Plan the amount of
taxes required by any government to be withheld or otherwise deducted and paid
with respect to such payment. At its discretion, the Company may require an
Optionee receiving shares of Common Stock to reimburse the Company for any such
taxes required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or to
become due from the Company to the Optionee an amount equal to such taxes. The
Company may also retain and withhold or the Optionee may elect, subject to
approval by the Company at its sole discretion, to have the Company retain and
withhold a number of shares having a market value not less than the amount of
such taxes required to be withheld by the Company to reimburse the Company for
any such taxes and cancel (in whole or in part) any such shares so withheld.
5.6 HOLDING PERIODS
In order to obtain certain tax benefits afforded to incentive stock options
under Section 422 of the Code, an optionee must hold the shares issued upon the
exercise of an incentive stock option for two years after the date of grant of
the option and one year from the date of exercise. An optionee may be subject
to the alternative minimum tax at the time of exercise of an incentive stock
option.
The Plan Administrator may require an Optionee to give the Company prompt
notice of any disposition of shares of Common Stock acquired by the exercise of
an incentive stock option prior to the expiration of such holding periods.
Tax advice should be obtained when exercising any option and prior to the
disposition of the shares issued upon the exercise of any option.
5.7 NONTRANSFERABILITY OF OPTIONS
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 5
<PAGE>
of descent and distribution, and shall not be subject to execution, attachment
or similar process; provided, however, that any shares issuable upon the
exercise of a nonqualified stock option granted under this Plan may be issued in
the name of an individual retirement account, as defined in the Code, for the
benefit of the Optionee. Any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under this Plan or of any right or privilege
conferred hereby, contrary to the Code or to the provisions of this Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void. Notwithstanding the foregoing, if the
Company permits, an Optionee may, during the Optionee's lifetime, designate a
person who may exercise the option after the Optionee's death by giving written
notice of such designation to the Plan Administrator. Such designation may be
changed from time to time by the Optionee by giving written notice to the Plan
Administrator revoking any earlier designation and making a new designation.
5.8 TERMINATION OF RELATIONSHIP
5.8.1 Disability. If an Optionee's relationship with the Company
----------
or any related corporation ceases because of a total disability, the Optionee's
option shall not terminate or, in the case of an incentive stock option, cease
to be treated as an incentive stock option until the end of the three-month
period following such cessation (unless by its terms it sooner terminates and
expires). As used in this Plan, the term "total disability" refers to a mental
or physical impairment of the Optionee 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 Optionee 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. Total disability shall be
deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to the
Plan Administrator.
5.8.2 Death. If an Optionee dies while he or she has a
-----
relationship with the Company or any related corporation or within the three-
month period following cessation of such relationship in the case of totally
disabled Optionees, any option held by such Optionee, to the extent that the
Optionee would have been entitled to exercise such option, may be exercised
within three months after his or her death by the personal representative of his
or her estate or by the person or persons to whom the Optionee's rights under
the option shall pass by will or by the applicable laws of descent and
distribution.
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 6
<PAGE>
5.8.3 Termination for Reasons Other than Cause, Death or
--------------------------------------------------
Disability. If the Optionee's relationship with the Company or any related
- ----------
corporation ceases for any reason other than termination for cause, death or
total disability, and unless by its terms the option sooner terminates or
expires, then the Optionee's option shall terminate upon such cessation as to
all shares for which it has not theretofore been exercised, unless, in the case
of a nonqualified stock option, such provision is waived in the agreement
evidencing the option. If, in the case of an incentive stock option, an
Optionee's relationship with the Company or any related corporation changes
(i.e., from employee to nonemployee, such as a consultant), such change shall
constitute a termination of an Optionee's employment with the Company or any
related corporation and the Optionee's incentive stock option shall terminate in
accordance with this subsection 5.8.
5.8.4 Termination for Cause. If an Optionee is terminated for
---------------------
cause, any option granted hereunder shall automatically terminate as of the
first discovery by the Company of any reason for termination for cause, and such
Optionee shall thereupon have no right to purchase any shares pursuant to such
option. "Termination for cause" shall mean any resignation or discharge while
there is a reportable matter under Section 13, 14 or 15 of Form U-5 Uniform
Termination Notice (or equivalent sections of its successor notice) or discharge
for other misconduct or disclosure of confidential information. If an
Optionee's relationship with the Company or any related corporation is suspended
pending an investigation of whether or not the Optionee shall be terminated for
cause, all the Optionee's rights under any option granted hereunder likewise
shall be suspended during the period of investigation.
5.8.5 Change in Relationship. Options granted under the Plan
----------------------
shall not be affected by any change of relationship with the Company so long as
the Optionee continues to be an employee, director, officer, agent, consultant,
advisor or independent contractor of the Company or of a related corporation;
however, a change in an Optionee's status from an employee to a nonemployee
(e.g., consultant or independent contractor) shall result in the termination of
an outstanding incentive stock option held by such Optionee. The Plan
Administrator, in its absolute discretion, may determine all questions of
whether particular leaves of absence constitute a termination of services;
provided, however, that with respect to incentive stock options, such
determination shall be subject to any requirements contained in the Code. The
foregoing notwithstanding, with respect to incentive stock options, employment
shall not be deemed to continue beyond the first
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 7
<PAGE>
90 days of such leave, unless the Optionee's reemployment rights are guaranteed
by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
5.8.6 Extension of Term. Upon the cessation of employment in the
-----------------
case of an incentive stock option, or at any time prior to the expiration of the
option in the case of a nonqualified stock option, the Plan Administrator shall
have sole discretion in a particular circumstance to extend the exercise period
following such cessation to any date up to the termination or expiration of the
option; however, in the case of an incentive stock option, the option will no
longer qualify as an incentive stock option under the Code.
5.9 NO STATUS AS SHAREHOLDER
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.10 CONTINUATION OF RELATIONSHIP
Nothing in this Plan or in any option granted pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ or other
relationship of the Company or of a related corporation, or to interfere in any
way with the right of the Company or of any such related corporation to
terminate his or her employment or other relationship with the Company at any
time.
5.11 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to incentive
stock options and to the terms and
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 8
<PAGE>
conditions and within the limitations of this Plan, the Plan Administrator may
modify or amend outstanding options granted under this Plan. The modification or
amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any of the obligations
of the Company under such option. Except as otherwise provided in this Plan, no
outstanding option shall be terminated without the consent of the Optionee.
Unless the Optionee agrees otherwise, any changes or adjustments made to
outstanding incentive stock options granted under this Plan shall be made in
such a manner so as not to constitute a "modification" as defined in Code
Section 425(h) 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 Code Section 422(b).
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan, to
the extent that the aggregate fair market value of the stock (determined at the
time the incentive stock option is granted) with respect to which incentive
stock options are exercisable for the first time by the Optionee during any
calendar year (under this Plan and all other incentive stock option plans of the
Company, a related corporation or a predecessor corporation) exceeds $100,000,
such options shall be treated as nonqualified stock options. The previous
sentence shall not apply if the Internal Revenue Service issues a public rule,
issues a private ruling to the Company, any Optionee or any legatee, personal
representative or distributee of an Optionee or issues regulations changing or
eliminating such annual limit.
SECTION 6. GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If incentive stock options are granted under this Plan to employees who own
more than 10% of the total combined voting power of all classes of stock of the
Company or any related corporation, the term of such incentive stock options
shall not exceed five years and the exercise price shall be not less than 110%
of the fair market value of the Common Stock at the time the incentive stock
option is granted. This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an employee
shall be deemed to own the stock owned,
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1993 OPTION PLAN PAGE 9
<PAGE>
directly or indirectly, by or for his or her brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion of
the option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an employee
shall include all stock actually issued and outstanding immediately before the
grant of the incentive stock option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be granted
under this Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), and
each such option, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a split-up or consolidation of shares or any like capital adjustment, or
the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION OR REORGANIZATION
7.1.1 Cash, Stock or Other Property for Stock. Except as provided
---------------------------------------
in subsection 7.1.2, upon a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Company, as a result of which the shareholders of
the Company receive cash, stock or other property in exchange for or in
connection with their shares of Common Stock, any option granted hereunder shall
terminate, but the Optionee shall have the right immediately prior to any such
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise such Optionee's option in whole or in
part whether or not the vesting requirements set forth in the option agreement
have been satisfied, unless the option agreement provides otherwise.
7.1.2 Conversion of Options on Stock for Stock Exchange. If the
-------------------------------------------------
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 10
<PAGE>
a merger (other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of
Common Stock in the surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation or reorganization
(other than a mere reincorporation or the creation of a holding company), all
options granted hereunder shall be converted into options to purchase shares of
Exchange Stock unless the Company and the corporation issuing the Exchange
Stock, in their sole discretion, determine that any or all such options granted
hereunder shall not be converted into options to purchase shares of Exchange
Stock but instead shall terminate in accordance with the provisions of
subsection 7.1.1. The amount and price of converted options shall be determined
by adjusting the amount and price of the options granted hereunder in the same
proportion as used for determining the number of shares of Exchange Stock the
holders of the Common Stock receive in such merger, consolidation, acquisition
of property or stock, separation or reorganization. The converted options shall
be fully vested whether or not the vesting requirements set forth in the option
agreement have been satisfied, unless the option agreement provides otherwise.
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its determination
as to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so as not
to constitute a "modification" as defined in Code Section 425(h) and so as not
to cause his or her incentive stock option issued hereunder to fail to continue
to qualify as an incentive stock option as defined in Code Section 422(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 11
<PAGE>
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of any
shares hereunder. 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.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration. The Plan
Administrator may also require such other action or agreement by the Optionees
as may from time to time be necessary to comply with the federal and state
securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE
REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan, provided
that except as set forth in Section 7, and to the extent required by any
applicable law or requirement, the approval of a majority of stock represented
by
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 12
<PAGE>
shareholders voting either in person or by proxy at a duly held shareholders'
meeting is necessary within 12 months before or after the adoption by the Board
of any amendment which will:
(a) increase the number of shares that may be issued under this Plan;
(b) with respect to nonqualified stock options, materially modify the
requirements as to eligibility for participation in this Plan or, with respect
to incentive stock options, change the designation of the participants or class
of participants eligible for participation in this Plan;
(c) materially increase the benefits accruing to the participants
under this Plan; or
(d) otherwise require shareholder approval under any applicable law or
regulation including but not limited to Section 16(b) of the Exchange Act.
Any amendment made to this Plan which would constitute a "modification" to
incentive stock options outstanding on the date of such amendment, shall not be
applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten years
from the earlier of (a) the date on which this Plan is adopted by the Board or
(b) the date on which this Plan is approved by the shareholders of the Company.
No option may be granted after such termination or during any suspension of this
Plan. The amendment or termination of this Plan shall not, without the consent
of the option holder, alter or impair any rights or obligations under any option
theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as it
is approved by a majority of stock represented by shareholders voting either in
person or by proxy at a duly held shareholders' meeting any time within 12
months before or after the adoption of this Plan.
Plan adopted by the Board of Directors on January 26, 1993 and approved by the
shareholders on ___________________.
- --------------------------------------------------------------------------------
1993 OPTION PLAN PAGE 13
<PAGE>
EXHIBIT 10.9
RAGEN MACKENZIE INCORPORATED
1996 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the Ragen MacKenzie Incorporated 1996 Stock Incentive
Compensation Plan (the "Plan") is to enhance the long-term shareholder value of
296Ragen MacKenzie 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 common stock, par value $.01 per share, of the
Company.
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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 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) pursuant to the Exchange Act.
2.7 DISABILITY
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.8 DIVIDEND EQUIVALENT RIGHT
"Dividend Equivalent Right" means an Award granted under Section 13 of the
Plan.
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.
2.10 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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2.11 FAIR MARKET VALUE
"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 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;
(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 service
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.
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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 the Participant to whom an Award is granted or the personal
representative of a Holder who has died.
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.
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.
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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 expressly provided otherwise, 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 under Section 16.2.
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. 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
(the "Plan Administrator"). The Board shall consider in selecting such Plan
Administrator, with respect to any persons likely to become subject to Section
16 under 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
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Exchange Act. The Board may delegate the responsibility for administering the
Plan with respect to designated classes of eligible Participants to different
committees, 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.
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 2,100,000 shares of Common Stock (after giving effect to the 7-for-1
stock split declared November 19, 1996) shall be available for issuance under
the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares.
4.2 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
expire or are surrendered, exchanged for another option, canceled or terminated
for any reason without having been exercised in full (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 key
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.
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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.
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 10 years from the Grant Date.
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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 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
option rights 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, except that the Plan Administrator, in its sole
discretion, may, 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, authorize payment in cash and/or one or more of the following
alternative forms: (a) 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) 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; (b) a promissory
note delivered pursuant to Section 14; (c) if 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; or (d) 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.
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If a Holder's relationship with the Company or any related corporation
ceases because of a Total Disability, the Holder's Option shall not terminate
or, in the case of an Incentive Stock Option, cease to be treated as an
Incentive Stock Option until the end of the three-month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
this Plan, the term "Total 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. Total Disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of Total Disability to the Plan Administrator.
If an Holder dies while he or she has a relationship with the Company or
any related corporation or within the three-month period following cessation of
such relationship in the case of a Holder with a Total Disability, any Option
held by such Holder, to the extent that the Holder would have been entitled to
exercise such Option, may be exercised within three months after his or her
death by the personal representative of his or her estate or by the person or
persons to whom the Holder's rights under the Option shall pass by will or by
the applicable laws of descent and distribution.
If a Holder is terminated for cause, any Option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Holder shall thereupon have no right to
purchase any shares pursuant to such Option. If the Holder's relationship with
the Company or any related corporation ceases for any reason other than
termination for cause, death or Total Disability, and unless by its terms the
Option sooner terminates or expires, then the Holder's Option shall terminate
upon such cessation as to all shares for which it has not theretofore been
exercised, unless, in the case of a Nonqualified Stock Option, such provision is
waived in the agreement evidencing the Option.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence on the terms and conditions of
an Option shall be determined by the Plan Administrator, in its sole discretion.
7.7 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to Incentive
Stock Options and to the terms and conditions and within the limitations of this
Plan, the Plan Administrator may modify or amend outstanding Options granted
under this Plan. The modification or amendment of an outstanding Option shall
not, without the consent of the Holder, impair or diminish any of his or her
rights or any of the obligations of the Company under such Option. Except as
otherwise provided in this Plan, no outstanding Option 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
this Plan shall be made in such a manner so as not to
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constitute a "modification" as defined in Code Section 425(h) 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 Code Section 422(b).
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 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 10 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.
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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 date of grant
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 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,
except that if the right is exercised during a Window Period, the amount will be
equal to the excess of the Window Period Fair Market Value for the Window Period
during which the 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 exercise price per share of the
right must be at least equal to 85% of the Fair Market
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Value on the Grant Date and the term of the right, if not otherwise established
by the Plan Administrator, shall be 10 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. Stock
Appreciation Rights held by Participants who are subject to Section 16 of the
Exchange Act may be exercised solely in accordance with the requirements for
compliance with Rule 16b-3 under the Exchange Act.
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 related to profits, profit growth, profit
related return ratios, cash flow or total shareholder return, 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 deliver, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, a stock certificate for 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.
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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 based on profits, profit growth,
profit-related return ratios, cash flow or total shareholder return, where such
goals may be stated in absolute terms or relative to comparison companies , as
the Plan Administrator shall determine, in its sole discretion. Additional
performance measures may be used to the extent their use would comply with the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code. 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, except that,
to the extent required for compliance with the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code, no adjustment
shall be made that would result in an increase in the compensation of any
Participant whose compensation is subject to the limitation on deductibility
under Section 162(m) of the Code for the applicable year. 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
(i) 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 (ii) 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 of the Plan 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 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 a Nonqualified Stock Option granted under this Plan 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 Rule 16b-3 under the Exchange Act and 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 Company or of any other corporation or (b) new, different or
additional securities of the
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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
proportionate adjustments in (i) the maximum number and class of securities
subject to the Plan as set forth in Section 4.1 and (ii) the number and class 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.
16.2 CORPORATE TRANSACTION
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, except that
such 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. Such Award shall not so accelerate, however, if and to the extent
that (a) 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 or (b) such Award is
to be replaced with a cash incentive program of the Successor Corporation that
preserves the spread existing at the time of the Corporate Transaction and
provides for subsequent payout in accordance with the same vesting schedule
applicable to such Award. The determination of Award comparability under clause
(a) above shall be made by the Plan Administrator, and its determination shall
be conclusive and binding. 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. Any such Awards that
are assumed or replaced in the Corporate Transaction and do 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.
16.3 FURTHER ADJUSTMENT OF AWARDS
Subject to the preceding Section 16.2, and subject to the limitations set
forth in Section 11, 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
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
actions with respect to all Participants, to certain categories of Participants
or only to individual Participants. The Plan
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Administrator may take such actions 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. In such instances, the
Plan Administrator may, in its discretion and subject to the Plan and applicable
law, 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 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 which 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.
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 10 years after the earlier of the Plan's
adoption by the Board or approval by the shareholders.
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<PAGE>
18.3 CONSENT OF HOLDER
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, alter or impair any rights or
obligations under any Award theretofore granted under the Plan.
SECTION 19. GENERAL
19.1 AWARD AGREEMENTS
Awards granted under the Plan shall be evidenced by a written agreement
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which 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
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.
19.3 REGISTRATION; CERTIFICATES FOR SHARES
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 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
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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
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 or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of
the Company's shareholders after adoption of the Plan by the Board.
Adopted by the Board on November 19, 1996 and approved by the Company's
shareholders on January 30, 1997.
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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 10.10
RAGEN MACKENZIE INCORPORATED
1997 SHARE REPURCHASE PLAN
August 21, 1997
The following Plan is adopted by the Board of Directors with respect to the
redemption by Ragen MacKenzie Incorporated (the "Corporation") of outstanding
shares of the Corporation.
1. RIGHT TO AMEND OR TERMINATE PLAN; NO VESTED RIGHTS.
This Plan may be modified or terminated at any time or times by action of
the Board of Directors, and no shareholder, or prospective shareholder, shall
have any vested right to the benefits of this Plan except to the extent that
shares may be actually redeemed and entitled to benefits as set forth herein.
2. CONTINUED EFFECTIVENESS OF SHAREHOLDER AGREEMENTS.
Except to the extent that a redemption of shares pursuant to this Plan
grants to a shareholder rights in excess of those granted under any agreement
between such shareholder and this Corporation, this Plan shall not constitute a
modification or termination of any agreement between the Corporation and any of
its shareholders, and all such agreements shall be and continue in full force
and effect. Thus, except as provided in this Plan, the Corporation will
continue to repurchase shares only for book value as set forth in the applicable
agreements with shareholders.
3. BENEFITS - APPRECIATION RIGHTS AS ADDITIONAL COMPENSATORY PAYMENT.
If any shares of the Corporation owned by an Eligible Shareholder (as
defined in Section 5 below) are redeemed by the Corporation (whether pursuant to
this Plan, an agreement between the Shareholder and the Corporation, or
otherwise), for a price which, but for this Plan, would be equal to (or less
than) the book value for such shares, the Eligible Shareholder may elect to
participate in this Plan and receive a right to a "Stock Appreciation Amount" in
the form of an additional compensatory payment, calculated as follows on a share
by share basis:
<PAGE>
(a) The book value for each such share shall be calculated as of the
end of the fiscal quarter of the Corporation immediately preceding the date
as of which the obligation to effect the redemption was created ("Initial
Quarter") and again as of the end of the eighth fiscal quarter of the
Corporation thereafter ("Eighth Quarter").
(b) The Stock Appreciation Amount shall be the amount, if any, by
which such per share book value for said Eighth Quarter exceeds said book
values for the Initial Quarter.
(c) Such Stock Appreciation Amount, if any, shall be paid on a per
share basis within thirty days after the calculation of the Eighth Quarter
book value.
(d) If prior to the end of any such Eighth Quarter there occurs a
"Corporate Disposition" (as defined in Section 11), or a binding agreement
for a Corporate Disposition is entered into, then the amount (net of
expenses) to be received per share of this Corporation in such Corporate
Disposition, shall be substituted for the per share book value as of the
end of the Eighth Quarter for those shares of the Corporation for which an
Additional Payment would be owing with respect to the book value as of such
Eighth Quarter, and the resulting Stock Appreciation Amount shall be the
final Stock Appreciation Amount and its payment to the Participating
Shareholder shall fully discharge the obligations of the Corporation for
any Additional Payment to be made with respect to the shares subject to the
payment of such Stock Appreciation Amount.
(e) Notwithstanding the provisions of the foregoing clause (d), if the
consideration to be received by shareholders of the Corporation in
connection with a Corporate Disposition consists in whole or in part of
shares or other securities of another corporation, then the payment of the
Stock Appreciation Amount pursuant to this Section 3 may be in the form of
such shares or securities, rather than cash, with the quantity of such
shares or securities to be paid in lieu of cash to be based on fair market
values as determined by the Board of Directors of the Corporation, and such
determination shall be final and binding on all parties.
(f) The book value per share shall be established by the accountant or
accountants then regularly employed by the Corporation; such value shall be
net book value of each such share involved, calculated in accordance with
generally accepted accounting principles, and assuming that all shares
which
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have been redeemed but are still entitled to an Stock Appreciation Amount
under this Plan are still outstanding, and that all shares which can be
purchased or acquired under outstanding options or rights for a price equal
to or less than the resulting per share book value are also outstanding.
All calculation so made in good faith by such accountant or accountants
shall be conclusive and binding on all parties. The Corporation shall pay
all costs of calculating such Stock Appreciation Amounts, shall fully
cooperate to enable such calculation to be made as soon as practicable, and
if requested, shall review the computation of the book values with the
Shareholder to whom the amount is owing, or such Shareholder's
representative.
4. RIGHTS OF SHAREHOLDERS TO TENDER SHARES FOR REDEMPTION.
4.1 Subject to the provisions of Sections 4.2 (applicable to employees of
the Corporation or an Affiliated corporation) and 4.3, and notwithstanding any
provision of any agreement between the Corporation and a shareholder, such
shareholder may at any time, and from time to time, tender shares of the
Corporation owned by such Shareholder for redemption by the Corporation, and the
Corporation shall promptly effect such redemption, paying to the shareholder the
book value of the shares so redeemed, which book value shall be paid within
sixty days after such shares are duly transferred to the Corporation by delivery
of the applicable stock certificate or certificates, duly endorsed by the
shareholder (or accompanied with duly executed assignment(s) separate from
certificate(s), with signatures guaranteed. If the shareholder so tendering
shares is an Eligible Shareholder as herein provided, the provisions hereof for
Stock Appreciation Amounts may be applicable to such shares.
4.2 Notwithstanding the provisions of Section 4.1, the maximum number of
shares that may be tendered for redemption pursuant to Section 4.1 by a
shareholder who is at the time an employee of the Corporation or an Affiliated
corporation, shall not, when added to the number of shares so tendered by such
shareholders during the preceding period of twelve (12) months, exceed twenty
percent (20%) of the sum of the shares of the Corporation owned by such
shareholder at the time of such tender; provided, however, that the provisions
of this Section 4.2 shall not apply with respect to a shareholder/employee if
such shareholder/employee has acted in the capacity of a broker for the
Corporation or an Affiliated corporation and has transferred his or her entire
book of brokerage business to an employee/broker of the Corporation or an
Affiliated corporation.
4.3 Notwithstanding any provision of this Plan to the contrary, the
corporation shall not be required to effect any redemption of shares, or make
any
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payment for shares, if such redemption or payment, if made, would result in
a violation of applicable law or a regulatory requirement applicable to the
Corporation.
4.4 For purposes of this Section 4, the book value of shares shall be
calculated as set forth in Section 3 for the Initial Quarter.
5. ELIGIBILITY OF SHAREHOLDERS.
5.1 Subject to the provisions of Section 5.2 (pertaining to employees
terminated for cause), to be eligible to participate in this Plan a shareholder
of the Corporation must meet each of the following criteria:
(a) Have owned shares of the Corporation for at least sixty (60)
months;
(b) Have entered into a written agreement with the Corporation
entitling the Corporation to redeem, at its option, at any time or times,
all or any portion of the shares of the Corporation owned by such
shareholder for a price not greater than the book value of such shares as
of the end of the last fiscal quarter of the corporation preceding the date
of redemption; provided, however, the Corporation may, by action of its
Board of Directors acting in their sole discretion, waive the requirement
of this clause (b) for any shareholder who accepts an offer by the
Corporation to redeem the shares of the Corporation owned by such
shareholder.
However, to receive the benefits of this Plan, a shareholder must satisfy
the requirements of Section 6 below. A shareholder so satisfying said
requirements for eligibility to participate in this Plan, is herein called an
"Eligible Shareholder". Estates and personal representatives of shareholders of
the Corporation shall be deemed to have owned shares of the Corporation for the
time periods such shares were owned by the predecessor shareholder.
5.2 Notwithstanding any other provisions of this Plan, an employee of the
Corporation or an Affiliated corporation, whose employment is terminated at the
election of the Corporation or the Affiliated corporation for cause, shall not
thereafter be eligible to participate in this Plan. For purposes of this
Section 5.2, a termination for cause shall mean a termination of employment as
to which the Corporation's Board of Directors, by a vote of at least 60% of the
Directors then serving, has declared was for a breach of duty to the Corporation
or to a client or customer of the Corporation, or for the commission of a crime
or for an act or acts, or notoriety, which damages (or is likely to damage) the
Corporation, its business or reputation.
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<PAGE>
6. ELIGIBILITY TO PARTICIPATE IN THE PLAN.
6.1 In order to participate in this Plan with respect to any redemption of
shares by the Corporation, and be entitled to receive a Stock Appreciation
Amount, the Shareholder must first agree in writing to the terms of the Plan as
set forth herein, including (without limitation) the provisions of Sections 6.2,
6.4 and 9, in form approved by counsel to the Corporation. Such agreement must
be entered into before the expiration of fifteen days after a shareholder elects
to have shares redeemed pursuant hereto, or, in the case of the Corporation
electing to redeem a shareholder's shares, prior to the expiration of thirty
days after the Corporation so elects to effect such redemption. A shareholder
so agreeing to the terms of this Plan is herein referred to as a Participating
Shareholder.
6.2 The Agreement referred to in Section 6.1 shall include, and a
shareholder availing himself of the rights under this Plan shall agree to the
following provisions:
(a) to not directly or indirectly engage in or be an employee,
director officer, agent, or advisor to any organization that, by reason of
being engaged in business as a broker, dealer, investment advisor,
investment company or related business, is subject to regulation by the
Securities and Exchange Commission of the United States and which conducts
business in any state in which the Corporation conducts business, and to
not directly or indirectly assist any person not an employee of the
Corporation, or any other entity or business, in engaging in any such
business (but the maintenance of a personal brokerage or investment account
with such a business shall not be prohibited);
(b) to not directly or indirectly solicit any employees of the
Corporation to terminate their employment with the Corporation;
(c) to not make, publish or repeat any defamatory or disparaging
remarks concerning the Corporation or its employees; and
(d) to release and discharge this Corporation and its affiliated
corporations, and their officers and directors, from any and all claims,
obligations or liabilities, known and unknown, that such shareholder may
have or assert against any of them.
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<PAGE>
The obligations of the foregoing clauses (a), (b) and (c) of this Section
6.2 shall continue for a term ending upon the date payment is made of the Stock
Appreciation Amount pertaining to the specific agreement referred to in Section
6.1 (or the last date for such payment as provided in clause (c) of Section 3
if, for any reason, the payment is not owing or is not paid). In case of
successive redemptions of shares owned by a single shareholder, the two year
time period shall be applicable to each successive redemption. The provisions
of the release and discharge referred to in clause (d) shall be absolute,
unconditional and continuing. In the case of the redemption of twenty percent
(20%) or less of the shares owned by a shareholder, the remedies to the
Corporation for violation of clauses (a), (b) and (c) of this Section 6.2 shall
be limited to the denial of the payment of any Stock Appreciation Amount
otherwise owing. In the case of the redemption of all shares of the Company
then owned by a shareholder, the remedies of the Corporation for violation of
clauses (a) or (b) of this Section 6.2 shall include, but not be limited to,
denial of the payment of any Stock Appreciation Amount, and, in addition, the
Company shall be entitled to any other remedies available at law or in equity
for such violations, including damages, specific performance and other
injunctive relief.
6.3 Further, for a shareholder who is or was an employee of, or otherwise
similarly associated with, the Corporation or an Affiliated corporation in the
capacity of a broker, and who is having all shares of the Corporation owned by
such shareholder redeemed, participation in this Plan shall also be contingent
on such shareholder transferring his or her entire book of brokerage business to
an employee/broker of the Corporation or an Affiliated corporation. Further, as
a condition to such shareholder participating in this Plan, the party acquiring
such book of business must agree in writing with the Corporation, to the
satisfaction of the Corporation as follows: (a) for a period of two (2) years
after such acquisition, if such acquiring party's employment with the
Corporation or an Affiliated corporation is terminated for any reason
(voluntarily or involuntarily, constructively or actually), such acquiring party
shall on demand by the Corporation transfer such book of business (or the
business from such book that is then retained by the acquiring party), to
another employee/broker of the Corporation or an Affiliated corporation; and (b)
such acquiring party shall not during such period of two (2) years, solicit
business from (or directly or indirectly assist any other broker in soliciting
business from) any customer included in such book of business; and (c) such
acquiring party shall require such subsequent acquiring party to similarly agree
in writing with the Corporation to the terms specified in this sentence. The
Corporation will not be a party to such transfers except to the extent specified
in the preceding sentence, but will take such reasonable action as is within
its control to facilitate such transfer, and the Corporation must be notified in
writing of all terms of each such transfer promptly upon agreement
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being made for such transfer (or upon the making of the transfer, if there is no
prior agreement on terms).
6.4 Notwithstanding the entitlement of any shareholder to a Stock
Appreciation Amount pursuant to this Plan, it is recognized (and shall be
included in the agreement entered into pursuant to this Section 6), that neither
the Corporation nor any Affiliated corporation has any obligation whatsoever to
effect a Corporate Disposition, or to take any other action, which would or
might increase the amount of any Stock Appreciation Amount, and the shareholder
party to such agreement shall agree not to promote in any way any such
transaction or action without the prior approval of the Corporation.
7. RENEWAL OF RELEASE ON PAYMENT OF STOCK APPRECIATION AMOUNT.
Notwithstanding the other provisions of this Plan, before any payment is
made of an Stock Appreciation Amount, the shareholder will be required to renew
the covenants referred to in clauses (c) and (d) of Section 6.2 above.
8. OPTIONS NOT ELIGIBLE.
Except as provided in clause (f) of Section 3 for the calculation of per
share book values, shares of the Corporation covered by options which have not
been exercised will not be deemed to be outstanding shares for any purpose under
this Plan unless and until such shares are actually purchased pursuant to the
exercise of the applicable options.
9. ARBITRATION OF DISPUTES.
Any disputes with respect to the operation or performance of this Plan
shall be resolved by arbitration. Such arbitration shall be before the New York
Stock Exchange, Inc., or the National Association of Securities Dealers, Inc.,
or the Municipal Securities Rulemaking Board and in accordance with rules
obtaining of the selected organization. Either the Corporation or the
shareholder may elect which of such organizations the arbitration shall be
before. The first party to advise the other party in writing of such election
shall determine the arbitration forum. The award of the arbitrators, or of the
majority of them, shall be final, and judgment upon the award rendered may be
entered in any court, state or federal, having jurisdiction. Shareholders
agreeing to the terms of this Plan shall agree to the foregoing provisions of
this Section 9, and shall acknowledge that they have been advised that the
arbitration is final and binding on all parties, that rights to seek remedies in
court, including the right to a jury trial are being waived, that pre-
arbitration discovery is generally more limited than and different from court
proceeding, that the arbitration
<PAGE>
award is not required to include factual findings or legal reasoning and any
party's right to appeal or to seek modification of rulings by the arbitration is
strictly limited, and that the panel of arbitrators will typically include a
minority of arbitrators who were or are affiliated with the securities industry.
10. TERMINATION ON SALE.
Except for the payment of a Stock Appreciation Amount pursuant to clause
(d) of Section 3, this Plan shall automatically terminate upon the occurrence of
a Corporate Dissolution as defined in that clause (d).
11. DEFINITIONS.
The following terms shall have the following meanings when used in this
Plan:
11.1 A "Corporate Disposition" shall mean any of the following events:
(a) Any merger or consolidation of the Corporation in which the
Corporation is not the continuing or surviving corporation, or pursuant to
which shares of the Corporation are converted into cash, securities or
other property, if following such merger or consolidation the holders of
the Corporation's outstanding voting securities immediately prior to such
merger or consolidation own less than 66-2/3% of the 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 Corporation's assets other than a transfer of the Corporation's
assets to an Affiliated corporation;
(c) Approval in accordance with applicable law by the holders of the
Corporation's stock of any plan or proposal for the liquidation or
dissolution of the Corporation; or
(d) The Corporation or an Affiliated corporation makes a public
offering of its shares.
-8-
<PAGE>
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) pursuant to the Exchange Act.
11.2 The "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
11.3 An Affiliated corporation shall mean a corporation which, together
with the Corporation, is part of an affiliated group as defined in Section
1504(a) of the Internal Revenue Code of 1986, as amended, without giving effect
to Section 1504(b) of said Code.
-9-
<PAGE>
EXHIBIT 10.12
ABC BROKERAGE ACCOUNTING SYSTEM AGREEMENT
BETWEEN
PERSHING DIVISION OF DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION
AND
RAGAN MACKENZIE, INC.
DATED: APRIL 1, 1997
<PAGE>
CONTENTS
1. THE SYSTEM............................................................ 1
1.1 The System....................................................... 1
2. SOFTWARE AND SYSTEM DOCUMENTATION..................................... 1
2.1 Software and System Documentation Provided by ABC................ 1
2.2 License.......................................................... 1
2.3 Title to Software and System Documentation....................... 2
2.4 Modifications.................................................... 2
2.5 Additional Software.............................................. 3
2.6 Indemnity........................................................ 3
2.7 Confidentiality.................................................. 3
2.8 Care and Possession of System.................................... 3
3. SOFTWARE INSTALLATION (Not Applicable)................................ 4
3.1 Required Hardware................................................ 4
3.2 Software Installation............................................ 4
4. CONVERSION (Not Applicable)........................................... 4
4.1 Conversion....................................................... 4
5. PRICE, PAYMENT AND COSTS.............................................. 5
5.1 Price............................................................ 5
5.2 Taxes............................................................ 5
5.3 Payment.......................................................... 5
5.4 System Operators................................................. 5
5.5 Travel Costs..................................................... 6
5.6 Supplies......................................................... 6
6. TERM AND TERMINATION.................................................. 6
6.1 Term............................................................. 6
6.2 Termination by Customer.......................................... 6
6.3 Surviving Obligations............................................ 6
7. ABC SUPPORT........................................................... 7
7.1 Support Services................................................. 7
7.2 Enhancements..................................................... 7
7.3 Regulatory Compliance............................................ 7
7.4 Limitation....................................................... 8
<PAGE>
7.5 Cessation of Support............................................. 8
8. WARRANTIES AND LIMITATIONS OF LIABILITY............................... 8
8.1 Ownership........................................................ 8
8.2 Express Warranty................................................. 8
8.3 Warranty Disclaimer.............................................. 9
8.4 Limitation of Liability.......................................... 9
9. GENERAL............................................................... 9
9.1 Entire Agreement................................................. 9
9.2 Assignment....................................................... 9
9.3 Enforceability................................................... 10
9.4 Notices.......................................................... 10
9.5 Use of Name...................................................... 10
9.6 New York Law..................................................... 10
9.7 Arbitration...................................................... 10
9.8 Headings......................................................... 10
9.9 Authority to Sign................................................ 10
9.10 Delays........................................................... 11
-ii-
<PAGE>
TABLE OF SCHEDULES
SCHEDULE DESCRIPTION
- -------- -----------
A ABC Brokerage Accounting System Modules
B IBM AS/400 Processing System (Not Applicable)
C Price and Payment Schedule
D Form for Perpetual Software License Agreement
-1-
<PAGE>
ABC BROKERAGE SYSTEM AGREEMENT
AGREEMENT made this 1st day of April, 1997, between Pershing Division of
Donaldson, Lufkin & Jenrette Securities Corporation ("ABC"), with its principal
place of business at One Pershing Plaza, Jersey City, New Jersey 07399 and Ragen
MacKenzie, Inc. ("Customer") with its principal place of business at 999 Third
Avenue, Seattle, Washington 98104.
1. THE SYSTEM
1.1 THE SYSTEM
ABC agrees to provide to Customer and maintain the Software and System
Documentation as set forth in Schedule A (collectively known as the "System").
2. SOFTWARE AND SYSTEM DOCUMENTATION
2.1 SOFTWARE AND SYSTEM DOCUMENTATION PROVIDED BY ABC
A. "Software" collectively refers to all of the modules listed in
Schedule "A," any custom modifications provided under 2.4(A) below, all
enhancements and options provided under 7.2 below, and all other computer
programs and related material given or disclosed by ABC to Customer in relation
to this Agreement.
B. ABC shall provide the Software to Customer in object code form only.
C. Customer agrees to install, or reasonably attempt to install, the IBM
Operating System/400 compatible with the Hardware provided by Customer under
this Agreement.
D. ABC shall provide Customer with user documentation for the Software
(the "System Documentation").
2.2 LICENSE
A. In accordance with the terms herein, ABC grants to Customer, and
Customer accepts from ABC, a non-exclusive, non-transferable license to use the
Software and System Documentation during the term of Agreement ("the License").
B. Customer shall use the software only on the Customer Hardware on which
it has been installed by ABC. Customer shall not alter or modify the ABC
<PAGE>
software, data bases, data files or job flows or any other aspect thereof.
Customer shall not make the Software System Documentation, or any translation,
description, adaptation, modification, revision, copy or partial copy thereof,
in whole or part, available to any other person or entity (e.g. by sale,
transfer, publication, disclosure, display, licensure or otherwise). Customer
shall use the System for its internal use only, and shall in no event offer
brokerage accounting services to third parties, offer access to the system to
third parties on a time-sharing basis, or otherwise use the system in connection
with offering service as a computer service bureau. Notwithstanding the
foregoing, Customer is allowed to use the System to provide services to its
correspondents to whom it provides clearing and execution services.
2.3 TITLE TO SOFTWARE AND SYSTEM DOCUMENTATION
All software and documentation provided to Customer by ABC, including the
Software and the System Documentation, together with all modifications,
revisions, changes, copies, and partial copies thereof, are proprietary to ABC
and title thereto remains in ABC. All applicable rights to patents, copyrights,
trademarks and trade secrets in said materials are and shall remain in ABC. All
copies made by Customer of the Software, System Documentation, and all other
documentation and programs disclosed, used or developed hereunder, including
translations, compilations, partial copies with modifications and updated works,
are and shall remain the sole property of ABC. Customer agrees to reproduce and
incorporate all trade secret, copyright and other proprietary notices, which are
contained in the Software and System Documentation provided by ABC, in all
copies, partial copies or modifications thereof.
2.4 MODIFICATIONS
A. Customer may request ABC to make custom modifications to the Software.
ABC has the right to accept or reject any such request for modifications. If
ABC decides to develop a requested modification, it shall do so as mutually
agreed.
B. Customer may also add its own custom software to the ABC Software. ABC
shall provide file descriptions and advice (on a time and materials basis) to
Customer to effect any custom modifications. Customer software will not be
maintained by ABC. ABC does not represent or warrant that any subsequent
enhancements or other Software changes made by ABC will be compatible with any
Customer software.
-2-
<PAGE>
2.5 ADDITIONAL SOFTWARE
Customer may use any excess processing capacity available on the Hardware
for information processing other than that set forth in Schedule "A." In the
event the Customer uses the Hardware processing capacity for Customer
applications other than as set forth in Schedule "A," ABC shall not be
responsible for any degradation in System processing determined by ABC to result
from such additional use.
2.6 INDEMNITY
ABC shall defend and hold customer harmless from any action, expenses,
claims, demands, liabilities or costs including, without limitation, attorney
fees, judgments, punitive, exemplary damages and amounts paid in settlement with
respect to any threatened or pending action brought against Customer to the
extent that it is based on a claim that any Software or System Documentation
used within the scope of this Agreement infringes on any patents, copyrights,
license or other property right, provided that ABC is immediately notified in
writing of such claim. ABC shall not be responsible for any compromise or
settlement made without its consent.
2.7 CONFIDENTIALITY
A. Customer acknowledges that the Software, System Documentation and all
copies thereof constitute valuable trade secrets and other confidential
information belonging to ABC (the "Confidential Materials"). Customer agrees to:
(1) limit access to the Confidential Materials to its employees and ABC approved
agents (such approval shall not be unreasonably withheld) who are fully
instructed as to the confidentiality requirements for such materials and whose
access to same is necessary for Customer's authorized internal use of the
System; (2) promptly notify ABC of any known circumstances suggesting possible
unauthorized possession, use or knowledge of any confidential materials by third
parties or employees; and (3) safeguard the confidentiality of all the Software
and System Documentation with the same degree of care as it uses to safeguard
the confidentiality of its own most valuable and confidential business data.
2.8 CARE AND POSSESSION OF SYSTEM
Customer shall not in any manner part with, or surrender the possession of,
any of the Software, System Documentation or other materials provided by ABC
hereunder, nor allow same to be removed from Customer's possession or from its
place of business, nor permit same to be used by anyone except Customer, and its
properly authorized employees and agents. Customer shall take any and all
reasonable precautions to protect the Software and System Documentation from
damage or loss.
-3-
<PAGE>
Customer shall keep the Software and System Documentation free
and clear of all levies, liens, charges, encumbrances and claims.
3. SOFTWARE INSTALLATION (NOT APPLICABLE)
3.1 REQUIRED HARDWARE
A. Prior to Software installation, Customer shall have installed on its
premises and at Customer's cost an IBM AS/400 processing system. The equipment
configuration required for proper operation of the Software pursuant to this
Agreement (the "Hardware") is described in Schedule "B."
B. ABC shall not be responsible for any degradation in System processing
determined by ABC to result from Customer's addition to the Hardware, as set
forth in Schedule "B," of communications facilities, terminals, printers and any
other equipment.
C. Customer has the sole responsibility for the acquisition, preparation,
organization, maintenance and repair of the Hardware. All risk of loss or
damage to the Hardware, however caused, during ABC's performance of its
obligations within the scope of this Agreement shall be borne entirely by
Customer except those caused by ABC's gross negligence. All risks associated
with the preparation of Customer's computer room facility shall be borne
entirely by Customer.
D. Customer agrees to complete Hardware installation and preparation of
its computer room facility ninety (90) days prior to conversion.
3.2 SOFTWARE INSTALLATION
ABC shall deliver and install the Software.
4. CONVERSION (NOT APPLICABLE)
4.1 CONVERSION
A. ABC shall direct the conversion of the Customer from its current
brokerage accounting system to the ABC system. ABC's responsibilities shall
include converting Customer data files to the ABC required format, providing
manuals, and training of Customer personnel in the use and operation of the
System.
B. Customer agrees to cooperate with, and to assist, ABC in the
conversion process. Customer responsibilities shall include obtaining all
required data files from its existing brokerage accounting system or brokerage
accounting system vendor in
-4-
<PAGE>
electronic form, (magnetic tape) satisfactory to ABC on a timely basis,
verifying the accuracy and completeness of the conversion of these files by ABC,
and appointing a full-time conversion manager to coordinate all aspects of the
conversion. Customer will also make its personnel available for overtime work at
Customer's expense as required by the conversion.
C. Customer agrees to convert to the ABC System within one hundred eighty
(180) days from the date of this Agreement. If customer fails to convert within
one hundred eighty (180) days from the commencement of this Agreement, Customer
shall make monthly minimum payments pursuant to Schedule "C" until the
conversion is completed or this agreement is terminated pursuant to the
Agreement.
5. PRICE, PAYMENT AND COSTS
5.1 PRICE
Customer shall pay to ABC the prices, fees and costs as set forth in
Schedule C, and as set forth elsewhere in this Agreement.
5.2 TAXES
Customer shall, in addition to the other amounts payable under this
Agreement, pay all sales and other taxes, federal, state, or otherwise, however
designated, which are levied or imposed by reason of the transaction
contemplated by this Agreement. Without limiting the foregoing, Customer shall
promptly pay to ABC an amount equal to any such items actually paid, or required
to be collected or paid by ABC.
5.3 PAYMENT
Customer agrees to pay to ABC, within thirty (30) days after the date of
each invoice from ABC, the full amount said invoice. If Customer fails to pay
any amounts due as provided above, Customer shall additionally pay interest on
said amount to ABC at the rate of one and one-half percent (1-1/2%) per month
(but in no event more than the highest rate legally allowable) on such
delinquent amounts from the invoice date until date of payment.
5.4 SYSTEM OPERATORS
Customer agrees to hire and pay for all operators of the System at
Customer's premises. Customer shall limit use of the System to its employees
and consultants who have been trained and instructed in accordance with ABC's
requirements.
-5-
<PAGE>
5.5 TRAVEL COSTS
Throughout the term of this Agreement, Customer shall be solely responsible
for payment of all travel and living costs incurred by ABC to install, convert
and support the System.
5.6 SUPPLIES
Customer has sole responsibility to obtain, and shall pay all costs and
expenses related to, paper, forms and similar supplies necessary for day to day
operations of the System provided by ABC hereunder.
6. TERM AND TERMINATION
6.1 TERM
The initial term of this Agreement shall be for five (5) years, during
which time there will be no price increases. Either party may choose not to
renew the Agreement at the end of the five (5) year initial term by providing
the other party with one hundred eighty (180) days prior written notice. This
Agreement is not contingent on and shall not be affected by any other agreement
between the Customer and ABC.
6.2 TERMINATION BY CUSTOMER
Customer may terminate this Agreement prior to the expiration of the
initial five (5) year term, provided the Customer pays to ABC a termination
charge of: the monthly minimum fee as set forth in Schedule "C" times the
number of months remaining in the agreement.
6.3 SURVIVING OBLIGATIONS
Upon any termination, expiration, cancellation or non-renewal of this
Agreement by either Customer or ABC, then, notwithstanding any other provision
of this Agreement:
A. The Software license and other rights set forth in Section 2 with
respect to the Software and System Documentation shall terminate.
B. All confidentiality obligations hereunder, including without
limitation the provisions of Section 2.7, shall remain in force in perpetuity.
-6-
<PAGE>
7. ABC SUPPORT
7.1 SUPPORT SERVICES
ABC shall use best efforts to support use of the System by Customer on a
twenty-four (24) hour, seven (7) day a week basis. Said support shall include
the following, as reasonable under the circumstances: (A) phone advice, (B)
analysis from a terminal in New Jersey dialed into Customer's System, and (C)
sending ABC software maintenance support personnel to Customer's site as ABC
shall determine.
7.2 ENHANCEMENTS
Customer shall be entitled to receive enhancements to the Software and
Systems Documentation (the "Enhancements") referred to in 2.1(a) at no charge
upon ABC's announcement, as to each such Enhancement, that it is being made
generally available at no charge to ABC customers. ABC may provide Enhancements
to the existing Software that relate to functionality, performance and
efficiency, but is under no obligation to do so. If implementing said
Enhancements requires an upgrade to the IBM Operating System/400 or Hardware or
both, Customer shall have installed the appropriate IBM Operating System/400 or
Hardware upgrade prior to installation of the Enhancements. Customer is
required to have the Enhancements installed within sixty (60) days of being
informed by ABC that ABC is prepared to perform such installation. Customer
shall also have the right to purchase from ABC a license to use any software
module that is made available by ABC as an option, which shall be available to
the Customer at the cost provided on the ABC standard price list. The
Enhancements and options provided under this paragraph 7.2. shall be delivered
in object code form only.
ABC reserves the right to change the System specifications, data bases,
files, formats, data fields and application software without notice as it deems
necessary. Such change without notice will not cancel, alter or prevent the
enforcement of any provision of this Agreement.
7.3 REGULATORY COMPLIANCE
ABC shall use good faith efforts to modify the System to comply with the
rules and regulations of the regulatory and self-regulatory organizations within
whose jurisdiction the System operates where those rules and regulations can
most reasonably be complied with by the System. Customer shall be responsible
to inform ABC of how said changes affect its use of the System.
-7-
<PAGE>
7.4 LIMITATION
ABC IS RESPONSIBLE FOR MAINTAINING ONLY THE SOFTWARE PROVIDED BY ABC UNDER
THIS AGREEMENT AND IS NOT RESPONSIBLE FOR MAINTAINING COMPUTER PROGRAMS,
EQUIPMENT OR OTHER MATERIALS OR THINGS OBTAINED BY CUSTOMERS FROM OTHER SOURCES.
7.5 CESSATION OF SUPPORT
If ABC determines that it shall no longer support Customer's use of the
System, it shall provide Customer with one hundred eighty (180) days written
notice. The Customer may request within ninety (90) days of such notification
that ABC deliver to Customer a copy of the source code for the Software and its
related documentation, provided that Customer first executes a perpetual license
agreement, a copy of which is attached hereto as Schedule "D" and further
provided that Customer pays to ABC an amount equal to the monthly minimum fee as
set forth in Schedule "C" times the number of months remaining in the Agreement.
The Support provisions of this Agreement will also terminate immediately
upon the bankruptcy, liquidation or receivership of ABC, at which time ABC shall
immediately deliver a copy of the source code for the Software and its related
documentation to Customer, provided that Customer first signs a perpetual
license agreement for the software, a copy of which is attached hereto as
Schedule "D".
8. WARRANTIES AND LIMITATIONS OF LIABILITY
8.1 OWNERSHIP
ABC represents that it is the owner of, or has obtained licenses for, the
Software and System Documentation being licensed hereunder, and that it has the
right to grant Customer the license being granted hereunder.
8.2 EXPRESS WARRANTY
ABC represents that the System shall be in good working order. Customer
must immediately give ABC written notification setting forth any claimed defect
in detail. ABC shall use best efforts to remedy any such defect of which ABC
has been so notified, and which can be verified by ABC, in a manner consistent
with ABC's regular business practices.
-8-
<PAGE>
This warranty does not apply to corrections or remedies for difficulties or
defects due to changes to the System by Customer, or due to other causes
external to the Software as provided by ABC; Customer shall pay ABC at ABC's
standard rates for all such corrections and remedies.
The foregoing constitutes ABC's sole total obligation, and Customer's sole
and exclusive remedy, under the warranty given this paragraph 8.2.
8.3 WARRANTY DISCLAIMER
EXCEPT AS PROVIDED HEREIN, THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
8.4 LIMITATION OF LIABILITY
ABC's total liability to Customer for money damages shall not exceed
$10,000 regardless of the form in which any legal or equitable claim or action
relating to this Agreement may be asserted by Customer. IN NO EVENT WILL ABC OR
CUSTOMER BE RESPONSIBLE FOR SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES WHICH CUSTOMER MAY INCUR OR EXPERIENCE ON ACCOUNT OF ENTERING INTO OR
RELYING ON THIS AGREEMENT, EVEN IF ABC OR CUSTOMER HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. GENERAL
9.1 ENTIRE AGREEMENT
Customer acknowledges that it has not been induced to enter into this
Agreement by any representation or warranty not set forth herein. This
Agreement contains the entire understanding of the parties with respect to its
subject matter and supersedes all existing agreements and all other oral,
written or other communications between the parties concerning the subject
matter hereof. This Agreement cannot be modified in any way except by a writing
signed by both parties.
9.2 ASSIGNMENT
This Agreement may not be assigned by Customer in whole or in part without
the prior written consent of ABC. This Agreement shall be binding upon and be
binding upon and shall
-9-
<PAGE>
inure to the benefit of ABC and Customer, their respective successors and
permitted assigns.
9.3 ENFORCEABILITY
If any provision of this Agreement, or any portion thereof, shall be held
to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this Agreement, including without limitation
the limitations on ABC's liability, shall not be affected or impaired thereby.
9.4 NOTICES
All notices shall be in writing, hand-delivered or sent by registered or
certified mail, return receipt requested, and addressed to the parties at the
addresses set forth at the beginning of this Agreement or to any other address
upon notice to the other party.
9.5 USE OF NAME
Neither ABC nor Customer shall utilize the name of the other in any way
without the other's prior written consent, provided however, that Customer may
inform its customers that ABC is providing the System to Customer.
9.6 NEW YORK LAW
This Agreement and performance hereunder shall be governed by and construed
in accordance with the laws of the State of New York.
9.7 ARBITRATION
Any dispute between Customer and ABC arising out of this agreement or the
breach thereof shall be submitted to arbitration before the National Association
of Securities Dealers pursuant to its rules and judgment upon the award may be
entered in any court having jurisdiction thereof.
9.8 HEADINGS
The headings used in this Agreement are intended for convenience or
reference only and shall not affect interpretation of this agreement.
-10-
<PAGE>
9.9 AUTHORITY TO SIGN
The individuals executing this Agreement on behalf of ABC and Customer do
each hereby represent and warrant that they are duly authorized by all necessary
action execute this Agreement on behalf of their respective corporations.
9.10 DELAYS
Dates or times by which ABC or Customer are required to perform under this
Agreement shall be postponed automatically to the extent that ABC or Customer is
prevented from meeting them by causes beyond its reasonable control.
IN WITNESS WHEREOF, the parties have hereto affixed their hands and seals
as of the day and year first written above.
PERSHING DIVISION OF DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION
Dennis D. Castillo
---------------------------------------
By: Dennis D. Castillo
Title: Senior Vice President
Date: 4/7/97
Ragen MacKenzie, Inc.
Robert Mortell, Jr.
---------------------------------------
By: Robert Mortell, Jr.
Title: Managing Partner
Date: 4-15-97
-11-
<PAGE>
EXHIBIT 21.1
SUBSIDIARY OF REGISTRANT
RMGI Merger Corp., a Washington corporation and a wholly owned subsidiary of the
registrant.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Ragen MacKenzie Group
Incorporated on Form S-4 of our report dated November 6, 1997 (April 13, 1998 as
to note 14) on the financial statements of Ragen MacKenzie Incorporated as of
September 26, 1997 and September 27, 1996, and for each of the three years in
the period ended September 26, 1997, and our report dated April 16, 1998 on the
statement of financial condition of Ragen MacKenzie Group Incorporated as of
April 16, 1998, appearing in the Proxy Statement/Prospectus, which is a part of
this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Proxy Statement/Prospectus.
Deloitte & Touche LLP
Seattle, Washington
April 17, 1998
<PAGE>
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 to be filed by RMGI with the Securities and
Exchange Commission on or about April 17, 1998 and April 24, 1998, respectively.
Dated: 4/16/98 Signature: /s/ Arthur W. Harrigan, Jr.
----------------- ------------------------------
Print Name: Arthur W. Harrigan, Jr.
------------------------------
<PAGE>
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 to be filed by RMGI with the Securities and
Exchange Commission on or about April 17, 1998 and April 24, 1998, respectively.
Dated: 4/16/98 Signature: /s/ Kirby L. Cramer
----------------- ------------------------------
Print Name: Kirby L. Cramer
------------------------------
<PAGE>
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 to be filed by RMGI with the Securities and
Exchange Commission on or about April 17, 1998 and April 24, 1998, respectively.
Dated: 4/16/98 Signature: /s/ Peter B Madoff
----------------- ------------------------------
Print Name: Peter B. Madoff
------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-END> MAR-27-1998
<CASH> 4,518
<RECEIVABLES> 109,376
<SECURITIES-RESALE> 440,653
<SECURITIES-BORROWED> 4,606
<INSTRUMENTS-OWNED> 132,822
<PP&E> 988
<TOTAL-ASSETS> 697,314
<SHORT-TERM> (56,900)
<PAYABLES> (397,243)
<REPOS-SOLD> (35,125)
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> (118,148)
<LONG-TERM> 0
0
0
<COMMON> (108)
<OTHER-SE> (79,774)
<TOTAL-LIABILITY-AND-EQUITY> (697,314)
<TRADING-REVENUE> (12,912)
<INTEREST-DIVIDENDS> (17,315)
<COMMISSIONS> (17,821)
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> (3,034)
<INTEREST-EXPENSE> 11,104
<COMPENSATION> 20,728
<INCOME-PRETAX> (11,773)
<INCOME-PRE-EXTRAORDINARY> (11,773)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,255)
<EPS-PRIMARY> .70
<EPS-DILUTED> .66
</TABLE>
<PAGE>
Exhibit 99.1
RAGEN MACKENZIE INCORPORATED
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS ON JUNE __, 1998
The undersigned hereby appoint(s) Robert J. Mortell, Jr. and V. Lawrence
Bensussen and each of them as proxies, with full power of substitution, to
represent and vote as designated all shares of Common Stock of Ragen MacKenzie
Incorporated (the "Company") held of record by the undersigned on June __, 1998
at the Special Meeting of Shareholders of the Company to be held at the
[location and address of meeting], Washington, at 10:00 a.m. Pacific Daylight
Time on [day], June __, 1998, or any adjournment or postponement thereof, with
authority to vote upon the matters listed on the other side of this proxy card
and with discretionary authority as to any other matters that may properly come
before the meeting.
IMPORTANT--PLEASE DATE AND SIGN ON THE OTHER SIDE.
<PAGE>
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER IN
THE SPACE PROVIDED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE
PROPOSALS.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" the Proposals.
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<TABLE>
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FOR AGAINST ABSTAIN
(1) PROPOSAL TO APPROVE THE REORGANIZATION OF RAGEN [_] [_] [_]
MACKENZIE INCORPORATED (THE "COMPANY") AND ITS
SUBSIDIARIES TO BE EFFECTED PURSUANT TO AN
AGREEMENT AND PLAN OF MERGER DATED AS OF MAY __,
1998 BY AND AMONG THE COMPANY, RAGEN MACKENZIE
GROUP INCORPORATED, A WHOLLY OWNED SUBSIDIARY OF
THE COMPANY ("HOLDING COMPANY") AND RMGI MERGER
CORP, A WHOLLY OWNED SUBSIDIARY OF THE HOLDING
COMPANY.
FOR AGAINST ABSTAIN
(2) PROPOSAL TO DIRECT RAGEN MACKENZIE INCORPORATED [_] [_] [_]
TO ELECT KIRBY L. CRAMER, ARTHUR W. HARRIGAN,
JR. AND PETER MADOFF TO THE BOARD OF DIRECTORS
OF HOLDING COMPANY IMMEDIATELY PRIOR TO THE
REORGANIZATION.
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_________________________________________________
Signature(s)_________________________________________ Date ______________
Please sign exactly as your name appears hereon. Attorneys, trustees, executors
and other fiduciaries acting in a representative capacity should sign their
names and give their titles. An authorized person should sign on behalf of
corporations, partnerships, associations, etc., and give his or her title. If
your shares are held by two or more persons, each person must sign. Receipt of
the notice of meeting and proxy statement is hereby acknowledged.
