<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8186
DAIN RAUSCHER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 41-1228350
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
DAIN RAUSCHER PLAZA, 60 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402-4422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 371-2711
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value $.125 per share New York Stock Exchange, Inc.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of March 2, 2000, 12,798,598 shares of common stock were
outstanding, and the aggregate market value of the common shares (based upon the
closing price at March 2, 2000, on the New York Stock Exchange) of Dain Rauscher
Corporation held by non-affiliates was approximately $744,718,421.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant to be filed within 120 days of
December 31, 1999 are incorporated in Part III of this report.
<PAGE> 2
PART I
ITEM 1. BUSINESS:
(a) General Development of Business.
We (Dain Rauscher Corporation), a Minneapolis, Minnesota-based holding
company formed in 1973, provide investment advice and services to individual
investors in the western United States and investment banking services to
corporate and governmental clients nationwide through our principal subsidiary,
Dain Rauscher Incorporated ("DRI"). We also clear and settle securities trades
on a fully-disclosed basis for 166 correspondent brokerage firms through our
correspondent clearing unit, which is based in St. Louis, Missouri. Another
subsidiary, Insight Investment Management Inc. ("Insight") serves as investment
advisor to the Great Hall(R) Investment Funds (5 open-end money market mutual
funds) and provides fixed income portfolio management services to a variety of
private accounts. Dain Rauscher Lending Services Inc. was formed in 1997 to make
certain types of loans to customers that are collateralized by customers'
control and restricted securities. At December 31, 1999, we had approximately
3,700 employees located in 26 states. We are a Delaware corporation with
executive offices located at Dain Rauscher Plaza, 60 South Sixth Street,
Minneapolis, Minnesota 55402-4422. Our telephone number is (612) 371-2711.
(b) Financial Information About Industry Segments
For a discussion of our results by segment see Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(c) Narrative Description of Business
SECURITIES BUSINESS
General. Our broker-dealer subsidiary, Dain Rauscher Incorporated
(DRI), conducts securities and investment banking activities. DRI deals in
securities of, and is a market-maker in securities of, issuers based throughout
the United States. DRI's equity research, trading and investment banking
activities in recent years have evolved from a geographic orientation to one
focused on selected industry sectors. At December 31, 1999, DRI had 1,169 retail
sales representatives and 119 institutional sales representatives. DRI is a
member firm of the New York Stock Exchange, Inc. ("NYSE") and is registered with
NASDAQ as a market maker. At December 31, 1999, DRI was registered as a market
maker for 395 companies.
Our operating results are sensitive to many factors outside of our
control, including the general volatility of securities prices and interest
rates, trading volume of securities, income and capital gains tax legislation
and demand for investment banking services. Economic conditions in the business
sectors and geographic regions in which we operate also affect operating
results.
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Results by business line are discussed in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Revenue for each business line is generated from the following activities:
DAIN RAUSCHER CORPORATION
REVENUE BY SOURCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------
<S> <C> <C> <C>
Commissions:
Listed securities.................. $ 133,800 $ 130,594 $ 113,426
Mutual funds....................... 92,977 89,170 81,160
Over-the-counter securities........ 58,286 45,033 47,958
Insurance and annuity products..... 31,322 25,080 20,782
Options, commodities and other..... 14,663 9,790 11,521
----------- ----------- ------------
Total........................... 331,048 299,667 274,847
=========== =========== ============
Principal Transactions:
Equity securities.................. 94,371 71,732 75,699
Municipal securities............... 35,539 28,686 32,100
Government securities.............. 15,401 24,531 19,289
Corporate fixed income securities.. 18,359 12,544 15,483
Mortgage-backed and other.......... 14,927 13,099 9,579
----------- ----------- ------------
Total........................... 178,597 150,592 152,150
=========== =========== ============
Investment Banking and Underwriting:
Corporate.......................... 159,457 68,910 69,532
Municipal and other................ 48,621 56,560 41,748
----------- ----------- ------------
Total................................ 208,078 125,470 111,280
=========== =========== ============
Interest:
Customer margin accounts........... 96,379 88,994 78,945
Trading inventories and other...... 22,807 25,487 28,705
Deposits and short-term
investments.................... 16,032 14,857 14,842
----------- ----------- ------------
Total............................ 135,218 129,338 122,492
=========== =========== ============
Asset Management:
Individual and institutional
accounts........................ 50,411 37,571 28,763
Money market funds................. 25,032 23,632 17,541
----------- ----------- ------------
Total........................ 75,443 61,203 46,304
=========== =========== ============
Correspondent Clearing................ 22,452 17,873 19,827
Other................................. 64,302 36,192 23,775
----------- ----------- ------------
Total revenues.................. $ 1,015,138 $ 820,335 $ 750,675
=========== =========== ============
</TABLE>
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Commissions. As a securities broker, DRI acts as an agent in the
purchase and sale of securities, options, commodities and futures contracts
traded on various securities and commodities exchanges or in the
over-the-counter ("OTC") market. DRI charges a brokerage commission when acting
as an agent for the purchaser or seller of a security. If the security is listed
on an exchange, the transaction is generally completed through DRI's own floor
broker. If the security is traded in the OTC market, transactions are generally
completed with a market maker in the security. In addition, DRI also earns
commissions from transactions involving many other financial products, including
mutual funds and insurance and annuity products. DRI earns commissions from
individual and institutional investors.
Principal Transactions. DRI is a dealer in corporate, tax-exempt and
governmental fixed income securities and equity securities. DRI recognizes
profits or losses on transactions from securities held in inventory. Trading
securities requires a substantial capital commitment and exposes us to the risk
of loss if market prices of the securities held in inventory decrease. However,
DRI marks trading securities held in inventory to market, recognizing any
unrealized gains or losses on fluctuations in value as part of principal
transactions revenue.
See Item 8 "Note J to Consolidated Financial Statements" for further
discussion on our inventory and risk management policies.
Investment Banking and Underwriting Activities. DRI earns investment
banking fees by assisting clients with financial needs planning and by advising
them on raising and managing capital. We also help our clients implement
financing plans by managing or co-managing public offerings of securities or by
arranging private placements of securities with institutional or individual
investors. Our Equity Capital Markets Group originates, syndicates and
distributes securities of companies in five key sectors: consumer, energy,
financial services, health care and technology. Our syndicate department (part
of Equity Capital Markets) coordinates the distribution of managed and
co-managed corporate equity underwritings, accepts invitations to participate in
competitive or negotiated underwritings managed by other investment banking
firms, and allocates and merchandises DRI's selling allotments to our Private
Client Group branch offices, institutional clients and other broker-dealers. Our
Fixed Income Capital Markets Group originates, syndicates and distributes
securities of primarily municipalities, state and local agencies, and health
care agencies.
Participation in equity and tax-exempt securities underwritings can
expose us to significant risk, as it is possible that securities we have
committed to purchase cannot then be resold at the initial offering price. We
work under the provisions of federal and state securities laws and regulations
that can impose substantial potential liabilities for violations in connection
with an underwriters' sales of securities to the public. In addition to public
offerings and private placements, DRI provides other consulting services,
including valuations of securities and companies, arranging and evaluating
mergers and acquisitions and advising clients with respect to financing plans
and related matters.
Customer Financing. The majority of DRI's' net interest income is
related to customer balances. Our customers conduct their transactions on either
a cash or margin basis. Purchases on a cash basis require full payment by the
settlement date (generally the third business day following the transaction
date). DRI's balance sheet includes all of our customers' debit and credit
balances as well as those of the introducing correspondent firms serviced by our
correspondent clearing unit. DRI is at risk in the event a customer fails to
settle a trade and the value of the securities subsequently decline. When a
customer purchases securities on a margin basis, DRI extends credit to the
customer for a portion of the purchase price. The amount of the loan is subject
to margin regulations of the Federal Reserve Board, the NYSE and our internal
policies, which are generally more stringent than these regulations. DRI is at
risk of loss for customers who are unable to pay on margin loans where the
collateral is less than the amount of the loan as a result of declines in market
value. We charge interest at a floating rate based on the amount a customer
borrows. The rate is dependent on the customers' average margin balance,
activity level, and our cost of funds. See Item 8 "Note J to Consolidated
Financial Statements" for further discussion of these customer activities.
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Customers also accumulate credit balances in their accounts from
receipt of dividends, interest or principal on securities we hold on their
behalf, from funds received for the sale of securities, and from cash deposits
made by customers. DRI pays interest to customers on their credit balance. DRI
also uses available customer credit balances to lend funds to other customers
purchasing securities on margin. DRI weekly calculates the amount of customer
credit balances, if any, that must be segregated ("excess customer credit
balances") from other customer funds, based on regulations designed to protect
customer balances. Excess customer credit balances are invested in short-term
securities in accordance with these regulations. See Item 8 "Note M to
Consolidated Financial Statements" for further discussion of these regulatory
requirements. DRI generates net interest income from the interest rate spread
between the yield on customer debit balances and short-term investments and the
rate paid to customers on credit balances. DRI is a member of the Securities
Investor Protection Corporation ("SIPC"), which insures customer accounts up to
specified limits in the event of liquidation. We also maintain additional
coverage in order to further protect customer accounts in excess of SIPC
coverage.
Security Repurchase Activities. DRI acts as principal in the purchase
and sale to customers of U.S. government and government agency securities,
including repurchase agreements in these securities and certain other money
market instruments. DRI may match purchases and sales of these securities and is
at risk to the extent that the contracts are not properly matched or its
customers are unable to meet their obligations. These risks are higher during
periods of rapidly changing interest rates or fluctuations in market conditions.
In addition to requiring collateral, DRI takes physical possession of securities
purchased under agreements to resell. These repurchase agreements provide DRI
with the right to maintain the relationship between the market value of the
collateral held and the amount owed. DRI typically enters into these contracts
only with large, credit-worthy customers. DRI also utilizes securities sold
under repurchase agreements as a means of financing portions of its trading
inventories.
Research Activities. DRI has fixed income and equity research
departments that provide analysis, investment recommendations and market
information with an emphasis on companies in selected industry segments. At
December 31, 1999, DRI had 38 securities analysts. We also purchase products
from independent organizations to supplement our internal research activities.
Regulation. The securities industry is regulated by federal and state
governments, the various securities and commodities exchanges and other
self-regulatory bodies. Regulations cover all aspects of the securities business
including sales practices, registration and distribution of securities, trade
practices among broker-dealers, transactions with affiliates, conflicts of
interest, uses and safekeeping of customers' funds and securities, capital
levels of securities firms, record keeping and the conduct of employees.
Violations of these rules and regulations can result in censure, fines,
suspensions, revocation of the right to do business and private rights of action
for damages. DRI believes it has operated in compliance with applicable rules
and regulations in all material respects.
Uniform Net Capital Rule. See Item 8 "Note M to Consolidated Financial
Statements."
CLEARING SERVICES
DRI is also in the business of providing correspondent clearing
services. Our correspondents disclose to their customers that we are clearing
the customers' trades. As of December 31, 1999, DRI provided clearing services
to 166 correspondents. Correspondent firms are charged fees based on their use
of services.
MONEY MANAGEMENT AND OTHER SERVICES
Our subsidiary, Insight Management, is a registered investment advisor
providing fixed income portfolio management services to the Great Hall
Investment Funds, Inc. ("Great Hall") and to individual and institutional
clients. Great Hall is an open-end investment company that currently offers
shares in five separate money market mutual funds.
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COMPETITION
DRI encounters intense competition in its business as a broker-dealer,
competing directly with numerous firms, many of which have substantially greater
capital and other resources. We also encounter competition from banks, insurance
companies and financial institutions. In recent years, a number of banks have
acquired securities firms, gaining unprecedented entry into the securities
industry. These acquisitions have brought new sources of capital into the
securities industry, resulting in more formidable competitors. The
Gramm-Leach-Bliley Act, which became law on November 2, 1999, repealed the
66-year-old Glass-Steagall Act that had prohibited certain affiliations between
securities firms, banks, and insurance companies. This new legislation may have
a significant impact on future mergers, other alliances within our industry, or
the types of products and services offered by banks and other financial
institutions. In addition to industry changes, competition among securities
firms and other competitors for successful sales representatives, securities
traders, securities analysts and investment bankers is intense and continuous.
DRI competes with other securities firms and with banks, insurance
companies and other financial institutions based on service, product selection,
price, location and reputation in local markets. DRI does operate at a price
disadvantage to discount brokerage firms, although these firms do not offer
equivalent services. Insight competes with other fixed income portfolio managers
principally on the basis of portfolio performance, price and service.
EMPLOYEES
At December 31, 1999, we had approximately 3,700 full-time employees,
none of whom were represented by a collective bargaining unit.
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ITEM 2. PROPERTIES:
Our headquarters and administrative offices are located in two
buildings in downtown Minneapolis, Minnesota, including the Dain Rauscher Plaza.
One location contains back office and information technology operations. DRI has
an extensive branch office system for our Private Client group, which leases
office space in 87 locations throughout the country. We also lease space for 19
offices for our Fixed Income group and 12 offices for our Equity Capital Markets
group, although some of these offices lease combined space in a single location.
We believe that our facilities are suitable and adequate to meet our needs, and
are appropriately utilized.
ITEM 3. LEGAL PROCEEDINGS:
We are defendants in various pending actions, suits and proceedings
before courts, arbitrators and governmental agencies. Certain of these actions
claim substantial damages and, if determined adversely, could have a material
adverse effect on our consolidated financial condition or results of operations.
These actions include:
Midwest Life Insurance Company, in Liquidation v. Interra Financial
Incorporated, Dain Bosworth Incorporated and The Central National Life
Insurance Company of Omaha, Civ. Action No. 97-716 (U.S. Dist. Ct.,
Middle Dist. of Louisiana, filed 1997).
Securities and Exchange Commission v. Rauscher Pierce Refsnes, Inc.,
James R. Feltham and Dain Rauscher Incorporated, No. CIV98-0027 PHX
ROS (U.S. Dist. Ct., Arizona, filed 1998) and other claims by the
federal government alleging "yield-burning."
In addition, we have filed the following actions, which could have a
material effect on our consolidated financial condition or results of
operations:
John G. Kinnard and Company, Inc., Claimant-in-Arbitration, v. Dain
Rauscher, Inc. f/k/a Dain Bosworth, Inc.; Mark Hengesteg, Lee
Felicetta, Ron Click, Robb Belschner, Richard Clemmerson, Regan Rohl,
and David Clausen, Respondents-in-Arbitration, and Ross Strehlow and
Byron Ellingson, Respondents and Counterclaimants-in-Arbitration, and
Julie Rohl, Respondent and Third Party Claimant-in-Arbitration, Court
File No. CT 00-000351 (Hennepin County, Minnesota Dist. Ct.) (motion
to vacate a $16.6 million arbitration award against the Company).
Dain Rauscher Incorporated and Dain Rauscher Corporation v. The State
of Louisiana, through the Department of Insurance, the Department of
Insurance, the State of Louisiana, through the Office of Financial
Institutions, and the Office of Financial Institutions, Civ. Action
No. 466633 (East Baton Rouge Parish, Louisiana Dist. Ct.).
For a more detailed discussion of these actions and other litigation see Item 8,
"Note I to the Consolidated Financial Statements."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 1999.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following officers have been designated by the Board of Directors
of the Company as its current "executive officers" for SEC reporting purposes.
All officers are generally elected annually at the Board meeting held in
conjunction with the Company's annual stockholders meeting and hold such offices
until the following year, subject to their earlier death, resignation or
removal.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE
NAME AGE FOR THE PAST FIVE YEARS
- ---- --- ------------------------
<S> <C> <C>
John C. Appel...............................51 Vice Chairman, Dain Rauscher Corporation since January 1998. Senior
Executive Vice President, Fixed Income Capital Markets, Dain Rauscher
Incorporated, since January 2000. Chief Financial Officer, Dain Rauscher
Corporation, from January 1998 to December 1999. Chief Executive Officer,
Dain Bosworth, February 1997 to December 1997; President, Dain Bosworth, 1994
to December 1997. Executive Vice President, Dain Rauscher Corporation, 1990
to December 1997; Director, Dain Rauscher Corporation, since 1995. Member of
the Dain Rauscher Corporation Executive Committee.
Peter M. Grant..............................44 Executive Vice President, Equity Capital Markets, Dain Rauscher Incorporated,
since January 2000. Senior Vice President and Director of Institutional
Equity Sales, Equity Research, and Equity Trading, Equity Capital Markets,
Dain Rauscher Incorporated from March 1998 to December 1999. Managing
Director, domestic and International Equity Sales, UBS Securities L.L.C. from
1996 to 1998. Prior to 1996 Institutional Equity Sales Manager at CS First
Boston. Member of the Dain Rauscher Corporation Executive Committee.
David J. Parrin.............................45 Executive Vice President and Chief Financial Officer, Dain Rauscher
Corporation, since January 2000. Senior Vice President and Controller of Dain
Rauscher Corporation from April 1998 to December 1999. Senior Vice President
and Controller of US Bancorp, May 1994 to April 1998; Partner, Ernst & Young
1989 to May 1994. Member of the Dain Rauscher Corporation Executive
Committee.
Paula H. Phillippe..........................37 Executive Vice President and Director of Human Resources, Dain Rauscher
Corporation, since January 2000. Senior Vice President and Director of Human
Resources, Dain Rauscher Incorporated from April 1998 to December 1999. Vice
President and Director of Compensation and Benefits from September 1996 to
April 1998. Prior to 1996 Vice President and Assistant Director, Human
Resources, US Bancorp Piper Jaffray. Member of the Dain Rauscher Corporation
Executive Committee.
Carla J. Smith..............................42 Senior Vice President, General Counsel and Secretary, Dain Rauscher
Incorporated, since January 1998. Senior Vice President, Dain Rauscher
Corporation, since 1994; General Counsel and Secretary, Dain Rauscher
Corporation, since 1991.
</TABLE>
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<TABLE>
<S> <C> <C>
J. Scott Spiker.............................44 Senior Executive Vice President, Business Services Group, Dain Rauscher
Incorporated, since January 1998. Senior Executive Vice President, Dain
Rauscher Corporation, since October 1997. Chairman of the Board and Chief
Executive Officer, Insight Investment Management Inc., since January 1998.
President and Chief Executive Officer, Interra Advisory Services, Inc., 1995
to December 1997. Executive Vice President, Dain Rauscher Corporation, May
1996 to October 1997; Senior Vice President, Director of Strategic Planning
and Corporate Development, Dain Rauscher Corporation, 1994 and 1995. Senior
Vice President, Manager Employee Benefit Services, Norwest Bank Minnesota,
N.A., 1989 to 1994. Member of Dain Rauscher Corporation Executive Committee.
Ronald A.Tschetter.........................58 Senior Executive Vice President, Private Client Group, Dain Rauscher
Incorporated, since October 1997. Senior Executive Vice President, Dain
Rauscher Corporation, since October 1997. Executive Vice President, Private
Client Group, Dain Bosworth, 1991 to December 1997. Member of the Dain
Rauscher Corporation Executive Committee.
Irving Weiser...............................52 Chairman of the Board, Dain Rauscher Corporation, since 1995; Chief
Executive Officer, Dain Rauscher Corporation, since 1990; President and
Director, Dain Rauscher Corporation, since 1985. Chairman of the Board and
Chief Executive Officer, Dain Rauscher Incorporated, since January 1998.
Chairman of the Board, Dain Bosworth, 1990 to December 1997; Chief Executive
Officer, Dain Bosworth, 1990 to February 1997. Chairman of the Board,
Rauscher Pierce Refsnes, 1995 to December 1997; Acting President and Chief
Executive Officer, Rauscher Pierce Refsnes, 1995 to June 1996. President,
Dain Bosworth, 1990 to 1994. Member of Dain Rauscher Corporation Executive
Committee.
</TABLE>
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS:
(a) Market Information.
Our common stock trades on the NYSE under the symbol "DRC." Following
are the high and low sales prices per share by quarter for the last two years:
<TABLE>
<CAPTION>
1999 1998
QUARTER HIGH LOW HIGH LOW
------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
First $ 36-3/4 $ 28-5/16 $ 69 $ 53-1/2
Second 54-1/8 34-7/16 60-3/16 50-13/16
Third 58-7/16 45-1/4 58-3/4 31-3/16
Fourth 56-15/16 42-7/8 37-13/16 27-5/16
</TABLE>
(b) Holders.
At February 29, 2000, there were approximately 5,200 holders of our
common stock.
(c) Dividends.
Cash dividends per common share paid by quarter for the last two years
were as follows:
<TABLE>
<CAPTION>
QUARTER 1999 1998
------- ---- ----
<S> <C> <C>
First $.22 $.22
Second .22 .22
Third .22 .22
Fourth .22 .22
</TABLE>
Whether or not cash dividends will continue to be paid in the future
will depend on our future financial condition, earnings and available funds.
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ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
COMPOUND ANNUAL GROWTH
--------------------------------------------------------------------------------
(Dollars in thousands, except per-share 5-YEAR 10-YEAR 1999 1998 1997 1996 1995
amounts) ------ ------- ----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS*:
Total revenue........................... 15.4% 12.2% $ 1,015,138 $ 820,335 $ 750,675 $ 683,316 $ 606,747
Net revenue............................. 15.6 14.8 944,164 749,370 692,102 625,756 541,970
Pretax income........................... 21.4 38.9 104,867 12,484 76,755 87,402 56,271
Net income.............................. 21.2 34.0 66,590 7,990 49,275 56,811 35,873
Pretax margin (net revenue)............. 11.1% 1.7% 11.1% 14.0% 10.4%
Return on average equity................ 18.5 2.5 16.6 22.8 17.2
- -----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Net income*:
Basic................................ 20.7% 33.3% $ 5.35 $ .64 $ 4.01 $ 4.68 $ 2.96
Diluted.............................. 19.5 32.8 4.95 .61 3.77 4.49 2.85
Cash dividends.......................... .88 .88 .72 .56 .42-2/3
Book value.............................. 13.7 19.9 30.78 26.27 26.00 22.66 18.44
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION (AT YEAR END):
Cash.................................... $ 39,087 $ 47,273 $ 35,909 $ 34,387 $ 26,167
Total assets............................ 2,499,855 2,466,487 2,304,401 1,827,425 2,021,908
Long-term debt.......................... 150,807 112,505 15,659 27,290 41,410
Shareholders' equity.................... 389,750 329,773 319,091 275,886 222,494
Long-term debt-to-equity ratio.......... 38.7% 34.1% 4.9% 9.9% 18.6%
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION:
Common shares outstanding (in thousands) 12,661 12,553 12,275 12,175 12,065
Average number of employees............. 3,662 3,608 3,525 3,379 3,285
Average number of investment
executives........................... 1,296 1,271 1,267 1,263 1,271
Operating office locations at year end.. 97 103 96 91 91
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Excluding nonrecurring items, diluted earnings per share and pretax margin
would be: 1999: $5.22 and 11.9%; 1998: $2.73 and 7.5%; 1997: $4.51 and 13.3%.
(See Management's Discussion and Analysis for a complete description of these
items.)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
BUSINESS ENVIRONMENT
We are primarily engaged in securities brokerage, investment banking
and trading as a principal in equity and fixed income securities. All of these
activities are highly competitive and sensitive to many factors outside of our
direct control. Our business results may be affected by changes in interest
rates, income tax legislation, financial markets volatility or economic
conditions, all of which can affect demand for investment banking and securities
brokerage services. Changes in securities prices and trading volumes may also
affect revenue. Consequently, our net income can vary significantly from period
to period.
1999 RESULTS
Our 1999 net revenue increased 26% from 1998, with all revenue lines
showing year-over-year improvement. Investment banking and underwriting revenue
rose over 66% led by strong underwriting and advisory activity from our Equity
Capital Markets group. Commission revenue increased 10%, reflecting strong NYSE
and OTC volumes and higher productivity. Correspondent clearing revenue growth
of 26% also was due to active securities markets. Asset management fees grew by
23%, reflecting both rising valuations of assets under management and new assets
brought into our asset management programs. Revenue in 1999 includes gains from
the sale of investment securities, generally related to venture capital
investments made by our Equity Capital Markets group or from equity instruments
we may receive as compensation for underwriting transactions. However, half of
our 1999 pretax gains from the sales of equity investments were from a single
gain of $15.4 million from the sale of an investment made in connection with our
correspondent services business.
Our 1999 net income increased significantly, over 730%, from 1998. In
addition to higher revenue, 1999 operating expenses, as a percent of revenue,
declined. Compensation and benefits declined as a percent of net revenue to
62.1% from 64.9% in 1998, reflecting both the impact of higher revenue in the
retail and capital markets businesses and increased productivity. In 1999 we
closed or consolidated seven retail branch offices at a cost of $4.4 million
(pretax). Occupancy and equipment, travel and promotional, and other operating
expenses all rose in 1999, but these increases were in line with higher revenue
and were primarily due to higher investment banking activity, investments in
technology, or the opening of new offices for our Equity Capital Markets group.
Our 1999 operating expenses also included an accrual of $16.6 million for an
unfavorable NASD arbitration decision, as well as higher legal and other
professional fees.
IMPACT OF NONRECURRING ITEMS
Our 1999 net income per diluted share was $4.95, on a record $944.2
million of net revenue, an increase of 711% from the prior year. This $4.95 per
diluted share includes the after tax impact of the seven Private Client Group
office closings of $.21 per diluted share, the NASD arbitration decision accrual
of $.78 per diluted share, and $.72 per diluted share of gain from the sale of
the investment made in connection with our correspondent services business.
Without the impact of these three items, our 1999 diluted earnings per share
would have been $5.22 and our net income would have been $70.3 million.
Our 1998 net income per diluted share was $.61, an 84% decrease from the
prior year. This $.61 per diluted share includes the after-tax impact of the
Wessels, Arnold and Henderson, LLC (WAH) acquisition charge of $.97 per diluted
share and the litigation settlements of $1.16 per diluted share. Without the
impact of these items, our 1998 diluted earnings per share would have been $2.73
and our net income would have been $35.9 million.
Our 1997 net income per diluted share was $3.77. This includes the
after-tax impact of a $9.6 million integration charge for combining our
subsidiaries into a single broker-dealer. Excluding this charge, our 1997 net
income and diluted earnings per share would have been $58.9 million and $4.51.
11
<PAGE> 13
1999 BUSINESS LINE INFORMATION
Our business includes three major segments: Private Client Group, which
includes securities sales to individual investors, correspondent clearing, and
asset management for individual investors; Equity Capital Markets, which
includes corporate investment banking and underwriting, research, and
institutional equity sales and trading; and Fixed Income Capital Markets, which
includes fixed income securities trading, sales, underwriting, and advisory
services. All corporate expenses, and miscellaneous revenue and expenses, which
are not allocated to individual business lines, are included in "Corporate."
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended December 31, 1999 1998 % CHANGE
------------ ------------ ----------
<S> <C> <C> <C>
Net Revenue:
Private Client Group..................... $ 579,012 $ 526,685 10%
Equity Capital Markets................... 210,826 93,317 126
Fixed Income Capital Markets............. 104,893 105,969 (1)
Corporate:
Staff and other....................... 34,055 23,399 46
Gain on sale of investment............ 15,378 - nm
------------ ------------ ----------
$ 944,164 $ 749,370 26%
============ ============ ==========
Pretax income:
Private Client Group..................... $ 43,533 $ 51,076 (15)%
Equity Capital Markets................... 27,110 (19,468) nm
Fixed Income Capital Markets............. 7,644 12,207 (37)
Corporate:
Staff and other....................... 11,202 (31,331) nm
Gain on sale of investment............ 15,378 - nm
------------ ------------ ----------
$ 104,867 $ 12,484 740%
============ ============ ==========
Pretax margin on net revenue:
Private Client Group..................... 7.5% 9.7%
Equity Capital Markets................... 12.9 (20.9)
Fixed Income Capital Markets............. 7.3 11.5
Corporate ............................... 53.8 nm
---- --
11.1% 1.7%
</TABLE>
PRIVATE CLIENT GROUP: Private Client Group ("PCG") generates revenue
primarily from commissions earned by investment executives on individual
(retail) investor activity. PCG receives asset management fees paid from Insight
Investment Management Inc. ("Insight"), which manages the Great Hall money
market funds, and fees paid by customers for us to manage or arrange the
management of their portfolios. PCG also earns interest from customers who have
borrowed funds to purchase securities (margin accounts). Revenue generated from
correspondent (or trade) clearing is also included in PCG. Correspondent
clearing fees are paid to us by outside (introducing) brokers to act as their
representative with financial exchanges, to clear and settle their clients'
transactions, and to extend credit to their clients to purchase securities
(margin accounts).
PCG's increased commission revenue in 1999 resulted primarily from
higher sales of equity securities as trade volumes on the NASDAQ, NYSE and other
exchanges rose to record levels during the year. Annuity and other insurance
product sales were also strong for the year. Sales of mutual funds declined
slightly in 1999, reflecting an industry-wide trend. Broker productivity also
grew in 1999, contributing to higher commission revenue, as PCG earned higher
commissions with fewer brokers.
12
<PAGE> 14
Asset management fees grew 35% during 1999, as assets under management
in fee-based programs increased. Asset balances increased primarily due to
rising market valuations. However, some of the increase was due to more clients
moving to fee-based managed account programs during the year. Assets under
management totaled $68 billion at year-end 1999 versus $58 billion at year-end
1998. Correspondent clearing also contributed to PCG's higher 1999 revenue with
correspondent customer transaction volumes increasing significantly during the
year, while the number of correspondents was unchanged.
PCG's net interest income from margin loans to customers increased in
1999 as customer margin loans (represented by debit balances in customer
accounts) rose to $28.3 million by the end of 1999. The interest rate spread
also grew, contributing to higher net interest income. PCG net interest income
is dependent upon the level of customer debit and credit balances, as well as
the spread between the rate earned on those balances and the interest cost on
borrowed funds.
PCG net interest income from margin lending is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
(Dollars in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net interest income from margin loans to customers:
Average balance........................................ $1,207,800 $1,076,900 $ 934,833
Average interest rate spread........................... 2.4% 2.2% 2.3%
----------- ---------- ----------
$ 28,332 $ 23,812 $ 21,366
=========== ========== ==========
</TABLE>
PCG pretax income decreased 15% in 1999, as did its pretax margin,
primarily from the $16.6 million NASD arbitration panel decision (see Footnote I
for further discussion), and $4.4 million in expenses related to the closing or
consolidation of seven branch offices. Technology expenses also increased during
1999 as PCG invested in new technology to improve information reporting and
customer service. PCG's compensation and benefits ratio remained stable as a
percent of net revenue in 1999 at 54.0%, compared with 54.2% in 1998.
EQUITY CAPITAL MARKETS: Equity Capital Markets ("ECM") revenue comes
from several sources: trading and market-making activities of equity securities;
commissions earned from the purchase or sale of equity securities to PCG
clients; underwriting fees, private placements and initial public offerings
("IPOs"); research; and merger and acquisition ("M&A") and other advisory fees.
ECM revenue also includes fees from our syndicate activities, which involve
participating with other securities firms in underwriting securities offerings,
IPOs, and other registered securities. All of these various fees are included in
investment banking and underwriting revenue on our consolidated income
statement. ECM also makes-a-market (trades) and provides research coverage
primarily in certain over-the-counter securities. ECM trading gains and losses
are included in principal transactions on our consolidated income statement.
Most commissions earned from transactions on newly issued securities sold
through our Private Client Group are included in PCG's business line revenue.
ECM's revenue more than doubled in 1999 led by strong underwriting
activity. ECM completed 113 public equity, debt and private placement
transactions, raising $14.1 billion of capital, and 27 M&A transactions during
the year. While technology was the year's strongest sector, ECM completed equity
and M&A transactions in all of its sectors (technology, financial services,
healthcare, energy and consumer) in 1999. Institutional equity sales and
syndicate business rebounded in 1999 and, along with favorable equity markets,
resulted in trading gains for the year.
ECM's pretax income and margin improved considerably as compensation
and benefits declined as a percent of ECM's significantly higher revenue.
Compensation and benefits was 67.8% of net revenue in 1999 versus 86.9% in 1998.
Compensation and benefits expense in 1998 included the cost of transitional
agreements related to the merger of Dain Bosworth and Rauscher Pierce Refsnes
and the acquisition of WAH. Although promotional and travel expenses rose in
1999 versus 1998, this increase was directly related to the rise in investment
banking activities. Occupancy and equipment expenses also rose as ECM opened new
offices and added staff during 1999.
13
<PAGE> 15
FIXED INCOME: Fixed Income Capital Markets' ("FICM") revenue comes from
municipal fixed income underwriting fees, as well as taxable and tax-exempt
fixed income securities sales and trading. FICM underwriting fees come from
purchasing the tax-exempt fixed income securities of municipalities, counties,
cities, school districts and other community development organizations. These
securities are then resold, primarily to our individual and institutional
customers. FICM also generates revenue from acting as a financial advisor to
state and local governments and other community development organizations
reviewing financing options or preparing for bond issues. These fees are all
included in investment banking and underwriting revenue on our consolidated
income statement. FICM also trades certain fixed income securities, primarily to
offer these securities to our individual and institutional customers. This
trading income is included as part of principal transaction revenue on our
consolidated income statement. FICM earns interest from the fixed income
securities purchased or held in inventory, as well as from entering into reverse
repurchase transactions. FICM also pays interest on the short-term bank
borrowings and repurchase agreements used to finance trading inventories as well
as securities sold short to hedge inventory positions.
FICM's net revenue was down slightly from 1998, which was a record
revenue year for the group. Taxable fixed income securities sales were strong
during the year, partly due to additions to our taxable sales force in early
1999. Trading results for taxable and tax-exempt fixed income securities were
also strong, despite interest rate uncertainty, which negatively affected
trading results in the early part of the year. We also reduced our inventories
of fixed income securities in the latter part of the year, and saw improved
results from our hedging strategies. Retail sales of fixed income securities,
particularly municipal bonds, rose in 1999, mostly in the last half of the year,
perhaps reflecting volatility in U.S. equity markets. Municipal securities
advisory and underwriting revenue, however, declined in 1999, reflecting a much
softer market for new issue development in 1999 versus 1998. Institutional sales
of municipal bonds were also down in 1999.
FICM's margins declined significantly in 1999, both as a result of the
revenue decline and higher expenses. Most operating expenses rose during 1999 as
we increased our sales force, invested in new equipment and relocated certain
fixed income offices. Promotional and travel expenses declined during the year,
reflecting the softer market for new issue development. Compensation and
benefits as a percent of net revenue increased to 62.5% in 1999, versus 60.9% in
the 1998 as a result of a larger sales force and lower revenue.
CORPORATE AND OTHER: Corporate revenue consists primarily of asset
management fees generated by Insight (excluding the portion paid to PCG), gains
on equity investments (primarily venture investments made via our Equity Capital
Markets group), and net interest that is not allocated to a specific business
line. Insight manages the Great Hall money market funds and certain
institutional fixed income managed accounts. Great Hall asset management fees
increased in 1999 as assets under management at Insight rose significantly.
Revenue in 1999 includes a gain of $15.4 million representing our profit on the
sale of an equity investment. This investment was made in connection with our
correspondent clearing business, and was not an equity investment made by our
venture capital funds.
Corporate expense includes goodwill amortization, professional fees,
and any other non-allocated expenses. Corporate expense in 1999 includes the
first full year of WAH goodwill amortization. Corporate expense in 1998 included
a $15.2 million after tax charge related to the settlement of certain
litigation.
1998 RESULTS
Our 1998 net income was $8.0 million, or 61 cents per diluted share,
compared with $49.3 million, or $3.77 per diluted share, in 1997. These results
included a $12.8 million, after tax, first-quarter charge related to the
acquisition of WAH, and a $15.2 million, after tax, fourth-quarter charge
related to the settlement of certain litigation.
During 1998 we consolidated several entities into a single
broker-dealer. First, we completed the combination of our broker-dealer
subsidiaries, Dain Bosworth; Rauscher Pierce Refsnes; and our operations
subsidiary, into a new firm, Dain Rauscher Incorporated (DRI). Following this
combination, we changed our name to Dain Rauscher Corporation and our trading
symbol on the NYSE to "DRC." Next, we completed the acquisition of WAH, a
privately held investment banking, institutional equity sales and trading firm
based in Minneapolis, on March 31, 1998. We accounted for this transaction as a
purchase. The purchase price of $150 million included $120 million in cash and
$27 million in five-year, zero coupon subordinated debentures. We paid the cash
portion of the purchase price from both available cash and a subordinated
commercial bank credit facility. As a result of the transaction, we recorded
approximately $118 million of goodwill, which is being amortized over 25 years.
14
<PAGE> 16
With the acquisition of WAH, now included in the Equity Capital Markets
group, we significantly increased our equity capital markets capabilities. In
connection with this acquisition, we recorded an expense of $20 million ($12.8
million after tax) in the first quarter of 1998. This charge included $16
million for severance in the elimination of approximately 150 jobs; $2.5 million
for office space consolidation; and the remaining $1.5 million for converting
systems and other integration costs. By the end of 1998, we had spent
approximately $17 million of this restructuring charge, $16 million of which was
severance. Remaining costs were charged to the restructuring reserve during the
first quarter of 1999.
In addition to the restructuring charge and the goodwill amortization
resulting from the WAH acquisition, certain other expenses increased during 1998
due to the changes in our structure. Compensation expenses increased partly as a
result of transitional incentive compensation arrangements, which we implemented
to minimize turnover during the restructuring. We also paid higher commissions
on the higher revenue levels generated by employees as securities prices and
trading volumes rose during the year. Compensation expense also increased with a
modest rise in the number of employees, and general salary increases during the
year. Additional office space, as a result of both the WAH acquisition and the
opening of new retail and institutional offices, increased occupancy costs
during the year. In the fourth quarter of 1998, we recorded $23.8 million
(pretax) in litigation expenses to settle several lawsuits regarding our alleged
involvement in the bankruptcy of Orange County, California, and the failure of
our former subsidiary, Midwest Life Insurance Company.
LIQUIDITY AND CAPITAL RESOURCES
Our assets consist mainly of cash or assets readily convertible into
cash. We finance our assets primarily through customer credit balances
(interest- and non-interest-bearing), repurchase agreements, deposits for
securities loaned, other payables, short-term and subordinated bank borrowings,
and equity capital. Our financing requirements are directly affected by changes
in the amount of our trading and underwriting securities, customer and broker
receivables, and securities purchased under agreements to resell. Repurchase
agreements and bank lines of credit are our primary methods of financing our
trading inventories.
We have various sources of capital to fund operations and growth, in
addition to capital provided by earnings. Our broker-dealer subsidiary, DRI,
maintains uncommitted lines of credit from a number of banks to finance
transactions when internally generated capital is insufficient. Trading
securities and customers' margin securities collateralize the majority of these
uncommitted lines of credit. On December 31, 1999, approximately $495 million of
a total of $545 million in uncommitted lines of credit was unused. As a
precaution against Year 2000 liquidity concerns, we temporarily committed $100
million of our overnight lines of credit through February 29, 2000. We also
maintain a $67 million committed, unsecured revolving credit facility for
irrevocable letters of credit and general corporate purposes. This facility was
renegotiated in May 1999, replacing an existing $50 million committed, revolving
credit agreement originally dated March 1998. This new agreement expires in
March 2000, and contains two additional one-year renewal options. Loans under
this agreement are unsecured and bear interest at a floating rate of LIBOR plus
61 basis points. No amounts were outstanding under this facility at December 31,
1999, or under the previous $50 million agreement at December 31, 1998. In
November 1999 we entered into a $50 million five-year term loan agreement with
two banks. This loan is unsecured and bears an interest rate of LIBOR plus 175
basis points.
Our subsidiary, Dain Rauscher Lending Services Inc., also maintains a
$50 million uncommitted credit line to finance loans made to customers. As of
December 31, 1999, $5.8 million was outstanding under this facility at a 5.6%
interest rate. At December 31, 1998, $8.4 million was outstanding at a 6.1%
interest rate.
During 1998 we borrowed $80 million on a subordinated basis over four
years to finance a portion of the purchase price of the WAH acquisition and
refinance existing subordinated debt. During the second quarter of 1999 we
entered into an interest rate swap agreement for this subordinated debt. This
interest rate swap allows us to pay a fixed rate of 6.9%, rather than the
variable LIBOR-denominated rate of the original debt agreement.
In 1998 we also issued $27 million (current face amount, adjusted for
forfeitures) of 5-year zero coupon subordinated debentures in connection with
the acquisition of WAH. The discounted present value of the debentures at
December 31, 1999 was $21 million.
15
<PAGE> 17
DRI is subject to the Securities and Exchange Commission's Uniform Net
Capital Rule (the Rule), which dictates how we measure capitalization and
liquidity, and restricts amounts of capital that may be transferred to
affiliates. The Rule is designed to measure the general financial integrity and
liquidity of a broker-dealer and the minimum net capital deemed necessary to
meet the broker-dealer's continuing commitments to customers. The Rule provides
for two methods of computing net capital. DRI uses what is known as the
alternative method. Under this method, minimum net capital is defined as 2
percent of customer debit balances. In addition to the SEC rule, the NYSE may
also require a member organization to reduce its business if net capital is less
than 4 percent of aggregate debit items and may prohibit a member firm from
expanding its business and declaring cash dividends if its regulatory net
capital is less than 5 percent of aggregate debit items. We exclude assets that
are not readily convertible into cash and conservatively value trading
securities when computing net capital. Failure to maintain the required net
capital may subject a firm to suspension or expulsion by the NYSE, the SEC and
other regulatory bodies, and may ultimately require its liquidation. DRI has at
all times maintained its net capital above both SEC and NYSE required levels. At
December 31, 1999, DRI's regulatory net capital was $165.4 million, which was
10.21% of aggregate debit balances and $84.4 million in excess of the 5-percent
requirement.
DRI is also a dealer in corporate, tax-exempt and governmental fixed
income securities. While many of DRI's principal transactions are executed on
behalf of clients, DRI also maintains trading inventory for its own account.
This inventory typically includes U.S. government or U.S. government agency
securities and, in order to mitigate market and interest rate risk, is usually
hedged with a combination of short sales of similar securities, financial
futures contracts or option contracts. Holdings of high-yield securities are not
material.
SECURITIES LENDING AND BORROWING ACTIVITIES
We borrow securities from, and lend securities to, other brokers and
dealers to facilitate short sales and clearance and delivery of securities sold
by customers if customers fail to deliver securities prior to settlement date.
We also will arrange securities lending transactions between brokers, utilizing
available securities as collateral for short-term loans. When these stock loan
transactions occur, the lending broker provides excess customer margin
securities to the borrowing broker in return for a cash deposit, generally
equivalent to 102% of the market value of the securities loaned. Both the
lending and borrowing brokers mark the securities to market to maintain the
ratio between the market value of the securities loaned and the cash collateral
deposited. When the securities are no longer needed by the borrowing firm, they
are returned to the lending broker, which returns the cash deposit, plus
interest, to the borrowing broker. When we engage in stock lending, we collect
cash deposits from brokers, invest the cash, and profit from the spread between
the interest rate we pay to the borrowing broker on the cash deposit and the
rate we earn from our investment. We are at risk in lending transactions to the
extent that we do not maintain the ratio between the market value of the
securities we loaned and the value of the cash we hold. In borrowing
transactions, we are at risk to the extent that securities we borrow decline in
value and the lending broker fails to return our cash deposit.
OPTIONS AND FINANCIAL FUTURES
We periodically hedge our fixed income trading inventories with
financial futures or option contracts. We had no written option contracts at
either December 31, 1999, or December 31, 1998. In addition, the average fair
market value and trading revenues associated with these contracts during 1999
were not material. Option and financial futures contracts expose us to
off-balance-sheet market risk in the event that changes in interest rates do not
closely correlate with the change in the security price. We conduct all
transactions in futures contracts through regulated exchanges, which guarantee
performance of counterparties and are settled in cash on a daily basis, thereby
minimizing credit risk. Maintaining futures contracts typically requires that we
deposit cash or securities with an exchange or other financial intermediary as
security for our obligations. Fluctuations in the market value of the futures
contract may require us to deposit additional cash or securities. When we write
option contracts, we receive a premium from the purchaser in exchange for our
obligation to purchase or sell securities upon the exercise of that option. We
may be required to purchase securities at prices higher than prevailing market
prices or sell securities at prices below prevailing market prices in order to
fulfill our obligations under the contract. We do not enter into derivative
financial instruments with off-balance-sheet risk other than those described. We
utilize these types of derivatives only to manage our risk exposure. Our
exposure to credit risk is primarily related to the fair value of trading
securities we own or have sold short.
16
<PAGE> 18
SHARE REPURCHASING AND DIVIDENDS
Our Board of Directors has authorized programs to repurchase up to
1,300,000 shares of our common stock. Purchases of common stock may be made from
time to time in the open market, by block purchases or in privately negotiated
transactions. Repurchased shares are held as treasury stock and used for our
employee stock option and other benefit plans or for other corporate purposes.
We repurchased 291,500 shares during 1999. No shares were repurchased during
1998. Approximately 320,5000 shares were available for repurchase under existing
authorizations at year-end 1999.
We paid a regular quarterly cash dividend of $0.22 per share in each
quarter of 1999. Our Board of Directors, based on our financial condition,
earnings and available funds, will determine whether, and in what amount,
dividends will continue to be paid.
EFFECT OF RECENT ACCOUNTING STANDARDS
There were no significant changes in the accounting standards that
affect our industry during 1999. The effective date for SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities," has been delayed until the
end of 2000. We do not anticipate that adoption of SFAS 133 will have a material
impact on our consolidated financial statements.
INFLATION
Our assets are not significantly affected by inflation, as they are
primarily either cash or easily converted into cash and turn over frequently.
However, inflation affects many of our operating costs, and we may not be able
to readily increase our prices to offset any increases in costs.
YEAR 2000 ISSUE AND TECHNOLOGY
During the year ended December 31, 1999, we spent $1.9 million to ensure
that our internal information technology ("IT") and non-IT systems, including
critical outsourced systems supplied by vendors, were prepared for the Year 2000
problem. The total cost of our Year 2000-related planning, testing, and upgrades
or replacements of hardware and software was $3.0 million. We experienced no
significant disruptions to our internal systems upon the change in year from
1999 to 2000. We will continue monitoring our internal systems for any Year
2000-related issues.
FORWARD-LOOKING STATEMENTS
This document contains certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), which reflect our current views regarding future events and our financial
performance. The words "believe," "expect," "anticipate," "intend," "estimate,"
"will," "look for," "hope to," "goals," "should," and similar expressions are
examples of terms used to identify these "forward-looking statements". We desire
to take advantage of the "safe harbor" provisions of the Reform Act. We wish to
caution investors and potential investors that any forward-looking statements
made by us or on our behalf are subject to uncertainties and other factors that
could cause actual results to differ materially from those statements. These
factors include, among others, (a) the volatile nature of the securities
industry; (b) rapidly growing competition posed by other broker-dealers,
including discount brokerages, online trading firms and firms which, as a result
of industry consolidation or otherwise, are substantially larger, have
substantially more capital or have direct access to a greater array of products
and services; (c) dependence on and competition for experienced personnel; (d)
successful implementation and execution of our long-term strategies; (e)
dependence on highly sophisticated and expensive systems and technology,
including systems maintained and operated by third-parties over which we have no
control; (f) dependence on external sources to finance day-to-day operations;
(g) use of interest-rate sensitive derivative securities and other hedging
instruments; (h) federal and state regulatory and legislative changes, including
any changes affecting net capital requirements; and (i) adverse findings or
judgements against us in existing litigation, increases in the number of class
action or regulatory proceedings filed against us, and other litigation-related
and regulatory risks. Investors and potential investors should also review and
bear in mind the discussion regarding forward-looking statements in Exhibit 99
to this report, the terms of which are incorporated into this report by this
reference. Neither Exhibit 99, nor this section, contains an exhaustive list of
factors that could have an adverse impact on our financial performance; other
factors which are not identified here or known to us currently may prove to be
important and may adversely affect our results of operations. It is also not
possible for our management to predict or assess the impact each factor will
have on our business or the extent to which any factor, or a combination of
factors, may cause results to differ materially from those contained in any
forward-looking statement(s). You should also not place undue reliance on these
forward-looking statements, as they relate only to our views as of the date the
statements are made. We undertake no obligation to publicly update or revise any
forward-looking statements, even if new information, future events, or other
conditions occur.
17
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Dain Rauscher Corporation:
We have audited the accompanying consolidated balance sheets of Dain
Rauscher Corporation and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1999. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule listed in the table of contents on
page 40 hereof. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dain
Rauscher Corporation and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Minneapolis, Minnesota
February 2, 2000
18
<PAGE> 20
DAIN RAUSCHER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Commissions............................................. $ 331,048 $ 299,667 $ 274,847
Investment banking and underwriting..................... 208,078 125,470 111,280
Principal transactions.................................. 178,597 150,592 152,150
Interest................................................ 135,218 129,338 122,492
Asset management........................................ 75,443 61,203 46,304
Correspondent clearing.................................. 22,452 17,873 19,827
Gain on sale of investment.............................. 15,378 - -
Other................................................... 48,924 36,192 23,775
--------- -------- ---------
1,015,138 820,335 750,675
Interest expense.......................................... (70,974) (70,965) (58,573)
--------- -------- ---------
Net revenue............................................... 944,164 749,370 692,102
--------- -------- ---------
Operating expenses:
Compensation and benefits............................... 586,168 486,021 427,599
Occupancy and equipment................................. 58,052 48,927 41,512
Communications.......................................... 48,182 48,933 46,450
Travel and promotional.................................. 37,255 35,304 30,293
Floor brokerage and clearing fees....................... 12,864 13,042 12,328
Litigation and arbitration.............................. 16,550 23,787 -
Acquisition, integration and branch restructuring......... 4,400 20,000 15,000
Other................................................... 75,826 60,872 42,165
--------- -------- ---------
839,297 736,886 615,347
--------- --------- ---------
Income before income taxes................................ 104,867 12,484 76,755
Income tax expense........................................ 38,277 4,494 27,480
--------- -------- ----------
Net income................................................ $ 66,590 $ 7,990 $ 49,275
========= ======== =========
Earnings per share:
Basic................................................... $ 5.35 $ 0.64 $ 4.01
========= ======== =========
Diluted................................................. $ 4.95 $ 0.61 $ 3.77
========= ======== =========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 21
DAIN RAUSCHER CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Assets:
Cash and cash equivalents................................................ $ 39,087 $ 47,273
Receivable from customers................................................ 1,453,488 1,172,398
Receivable from brokers and dealers...................................... 321,571 288,207
Securities purchased under agreements to resell.......................... 67,357 237,662
Trading securities owned................................................. 243,740 379,901
Equipment and leasehold improvements, at cost,
less accumulated depreciation of $38,499 and $35,671................... 47,578 48,271
Other receivables........................................................ 123,805 83,957
Deferred income taxes.................................................... 58,891 48,219
Goodwill, net of amortization of $10,783 and $5,499...................... 114,485 121,580
Other assets............................................................. 29,853 39,019
------------ ------------
$ 2,499,855 $ 2,466,487
============ ============
Liabilities and Shareholders' Equity:
Short-term borrowings.................................................... $ 55,836 $ 127,415
Customer drafts payable.................................................. 76,267 109,396
Payable to customers..................................................... 690,559 585,848
Payable to brokers and dealers........................................... 677,056 690,459
Securities sold under repurchase agreements.............................. 23,213 38,354
Trading securities sold, but not yet purchased........................... 79,023 240,825
Accrued compensation..................................................... 235,858 139,703
Other liabilities and accrued expenses................................... 121,486 92,209
Subordinated and other debt.............................................. 150,807 112,505
------------ ------------
2,110,105 2,136,714
------------ ------------
Shareholders' equity:
Common stock (1999: issued 13,043,879 and outstanding 12,661,063
shares; 1998: issued 12,638,525 and outstanding 12,552,957 shares).... 1,630 1,580
Additional paid-in capital............................................... 125,320 112,142
Retained earnings........................................................ 285,966 230,421
Treasury stock, at cost (1999: 382,816 shares; 1998: 85,568 shares)...... (23,166) (14,370)
------------ ------------
389,750 329,773
------------ ------------
$ 2,499,855 $ 2,466,487
============ ============
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 22
DAIN RAUSCHER CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------
SHARES PAID-IN RETAINED TREASURY SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL EARNINGS STOCK EQUITY
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....................... 12,175 $ 1,522 $ 81,316 $ 193,048 - $ 275,886
======= ======= ========= ========== ========= ==========
Net income......................................... 49,275 49,275
Repurchase of common stock......................... (92) $ (5,195) (5,195)
Common stock issued under
stock option plans.............................. 146 18 1,761 1,779
Net restricted common stock issued and amortized... 46 6 393 399
Stock credited to deferred
compensation plan participants.................. 4,941 4,941
Cash dividends on common stock
($0.72 per share)............................... (8,904) (8,904)
Tax benefits from stock incentive plans............ 910 910
------- ------- --------- ---------- --------- -----------
Balance at December 31, 1997....................... 12,275 $ 1,546 $ 89,321 $ 233,419 $ (5,195) $ 319,091
======= ======= ========= ========== ========= ===========
Net income......................................... 7,990 7,990
Common stock issued under
stock option plans.............................. 202 25 3,250 3,275
Net restricted common stock issued and amortized... 69 9 644 653
Stock credited/issued to deferred
compensation plan participants.................. 7 8,314 415 8,729
Cash dividends on common stock
($0.88 per share)............................... (10,988) (10,988)
Shares purchased by trustee for deferred
compensation plan participants*................. 9,590 (9,590) -
Tax benefits from stock incentive plans............ 1,023 1,023
------- ------- --------- ---------- --------- -----------
Balance at December 31, 1998....................... 12,553 $ 1,580 $ 112,142 $ 230,421 $ (14,370) $ 329,773
======= ======= ========= ========== ========= ===========
Net income......................................... 66,590 66,590
Repurchase of common stock......................... (292) (9,790) (9,790)
Common stock issued under
stock option plans.............................. 126 17 1,906 1,923
Net restricted common stock issued and amortized... 244 33 1,667 1,700
Stock credited/issued to deferred
compensation plan participants.................. 30 8,755 994 9,749
Cash dividends on common stock
($0.88 per share)............................... (11,045) (11,045)
Tax benefits from stock incentive plans............ 850 850
------- ------- --------- ---------- --------- -----------
Balance at December 31, 1999....................... 12,661 $ 1,630 $ 125,320 $ 285,966 $(23,166) $ 389,750
======= ======= ========= ========== ======== ===========
</TABLE>
*Shares held by a deferred plan were transferred from Additional Paid in Capital
to Treasury Stock during 1998. This change, made in accordance with revised
accounting rules, had no effect on Total Shareholders' Equity.
See notes to consolidated financial statements.
21
<PAGE> 23
DAIN RAUSCHER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 66,590 $ 7,990 $ 49,275
Adjustments to reconcile net income to cash
provided (used) by operating activities:
Depreciation and amortization .................. 23,293 19,088 11,764
Deferred income taxes .......................... (10,672) (3,351) (5,164)
Non cash restructuring charges, net of tax ..... -- 12,800 9,600
Other non cash items ........................... 20,781 13,583 6,600
Cash and short-term investments segregated
for regulatory purposes ..................... -- -- 15,000
Net trading securities owned and trading
securities sold, but not yet purchased ...... (25,641) 281,144 (184,128)
Other receivables .............................. (39,848) (2,650) (5,182)
Drafts payable and short-term borrowings
of securities companies ..................... (104,708) 24,312 117,510
Net receivable from customers .................. (176,379) (18,339) (402,005)
Net payable to brokers and dealers ............. (46,767) 61,019 323,737
Net securities under repurchase agreements ..... 155,164 (234,437) 58,793
Other accrued liabilities ...................... 17,127 (51,844) 3,749
Accrued compensation ........................... 96,155 11,063 9,219
Other .......................................... (9,221) (8,675) (12,080)
--------- --------- ---------
Cash provided (used) by operating activities ............ (34,126) 111,703 (3,312
--------- --------- ---------
Cash flows from financing activities:
Proceeds from:
Revolving credit agreement and term loans ......... 50,000 -- 50,000
Issuance of common stock under stock option plans.. 1,923 3,275 1,779
Issuance of subordinated debt ..................... -- 80,000 --
Payments for:
Subordinated and other debt ....................... (17,400) (15,659) (11,631)
Dividends on common stock ......................... (11,045) (10,988) (8,904)
Purchase of common stock .......................... (9,790) -- (5,195)
Revolving credit agreement, net ................... -- (50,000) --
--------- --------- ---------
Cash provided by financing activities ................... 13,688 6,628 26,049
--------- --------- ---------
Cash flows from investing activities:
Payments for:
WAH acquisition, net of cash acquired ............. -- (95,588) --
Equipment, leasehold improvements and other ....... (18,564) (22,133) (22,983)
Proceeds from:
Gain from sale of investments ..................... 15,378 -- --
Investment dividends and sales of other
non-marketable securities ....................... 15,438 10,754 1,768
--------- --------- ---------
Cash provided (used) by investing activities ............ 12,252 (106,967) (21,215)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ........ (8,186) 11,364 1,522
Cash and cash equivalents:
At beginning of year ........................... 47,273 35,909 34,387
--------- --------- ---------
At end of year ................................. $ 39,087 $ 47,273 $ 35,909
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
DAIN RAUSCHER CORPORATION
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: We (Dain Rauscher Corporation and subsidiaries) are
a Minneapolis, Minnesota-based holding company. Our broker-dealer and principal
subsidiary, Dain Rauscher Incorporated ("DRI"), provides advice and services to
individual investors through offices in the western United States and investment
banking services to corporate and governmental clients nationwide. We also own
Insight Investment Management Inc., which manages the Great Hall money market
funds and institutional fixed income accounts, and Dain Rauscher Lending
Services Inc., which makes certain types of loans that are collateralized by
customers' control and restricted securities.
Basis of Presentation: Our consolidated financial statements include
DRI, Insight Investment Management Inc. and Dain Rauscher Lending Services Inc.
as of December 31, 1999. All subsidiaries are wholly owned, and all
inter-company balances and transactions have been eliminated in consolidation.
We have reclassified certain prior-year amounts in the consolidated financial
statements to be consistent with our 1999 presentation.
We have made estimates and assumptions in reporting certain assets and
liabilities and in the disclosure of contingent liabilities in preparing these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
We do not provide balance sheet information by business line, as our
assets are not allocated to a particular segment, and we do not track
performance based on this information.
Cash and Cash Equivalents: Cash and cash equivalents include cash on
hand, cash in depository accounts with other financial institutions and money
market investments with original maturities of 90 days or less.
Securities: Securities transactions which are included in principal
transaction revenue on our consolidated income statement and the related
commission revenue and expense are recorded on settlement date, which is not
materially different than if transactions were recorded on trade date.
Trading securities owned; trading securities sold, but not yet
purchased; and derivative financial instruments are stated at market value. We
mark our securities to market and include resulting unrealized gains and losses
in revenue from principal transactions. We determine market value by using
public market quotations, quoted prices from dealers or recent market
transactions, depending upon the underlying security.
From time to time we receive equity instruments as compensation for
certain underwriting transactions. We account for these equity instruments as
investments and record them at the lower of cost or market, which is generally
zero. We also have venture capital investments in securities that are currently
non-marketable. These securities, which are accounted for at cost, are included
in other assets on our consolidated balance sheet. When the restrictions expire
on these investments and they are readily marketable, we mark them to their fair
market value. At December 31, 1999, the book value of these equity instruments
and venture capital investments was $15.5 million.
Repurchase Transactions: Securities purchased under agreements to
resell (reverse repurchase agreements) and securities sold under repurchase
agreements are accounted for as financing transactions. We record these
agreements at the contract amount at which the securities will subsequently be
resold or reacquired, plus accrued interest. These agreements provide for
termination by us or our counterparties on short notice.
Investment Banking and Underwriting Revenue: Management fees and the
related selling concession are recorded when the transaction is complete and our
revenue is reasonably determinable (generally trade date). Underwriting fee
revenue is recorded when determinable, generally 90 days after the transaction
closes. Merger and acquisition and other advisory fees are recorded when earned
and determinable.
23
<PAGE> 25
Other Receivables: Included in other receivables are forgivable loans
made to investment executives and other revenue-producing employees, typically
in connection with their recruitment. These loans are forgivable based on
continued employment and are amortized over the life of the loan, which is
generally three to five years, using the straight-line method.
Receivables from and payables to customers: Amounts receivable from
customers are primarily margin balances. Other customer receivables and payables
result from cash transactions. We do not include in our consolidated balance
sheet either the securities owned by customers but held by us as collateral for
margin loans or the securities sold short by customers.
Treasury Stock: Treasury stock is recorded at cost and includes shares
we repurchase, and shares in a deferred compensation plan.
Goodwill: Goodwill is primarily related to the 1998 acquisition of
Wessels, Arnold and Henderson, LLC (WAH). We amortize this goodwill on a
straight-line basis over 25 years. We also evaluate goodwill impairment in
accordance with generally accepted accounting principles. In our opinion, no
impairment exists as of December 31, 1999.
Depreciation and Amortization: We depreciate equipment using the
straight-line method over estimated useful lives of two to eight years.
Leasehold improvements are amortized over the lesser of the estimated useful
life of the improvement or the term of the lease.
Income Taxes: We determine deferred tax liabilities and assets and any
provision for income taxes based on the differences between the financial
statement and tax bases of assets and liabilities quarterly.
Fair Values of Financial Instruments: Substantially all of our
financial assets and liabilities are carried at market value or at amounts
which, because of their short-term nature, approximate fair value. The fair
value of our borrowings, if recalculated based on current interest rates, would
not differ significantly from the amounts recorded at December 31, 1999.
During 1999 we entered into a fixed interest rate amortizing swap on
our subordinated debt payable to banks to reduce our risk of increased interest
costs should interest rates increase. The difference between the amount of
interest we pay and receive under the terms of the swap agreement is included in
interest expense. The fair value of this interest rate swap is approximately
$1.2 million (unrealized gain, not recorded in our consolidated income
statement) at December 31, 1999.
Stock-Based Compensation: We account for stock option grants under APB
Opinion No. 25 (APB 25). We grant options at fair market value, or higher, on
the date of the grant and, accordingly, do not recognize compensation expense.
Restricted stock grants we make typically vest over a three or five-year period.
We recognize compensation expense related to restricted stock grants over the
vesting period of the grant.
Earnings Per Share: Basic earnings per share is based upon the weighted
average number of common shares outstanding during the reporting period. Diluted
earnings per share takes into account the dilutive effect of potentially
dilutive securities using the treasury stock method.
24
<PAGE> 26
The components of earnings per share are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(In thousands, except per-share data) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income .................................................. $66,590 $ 7,990 $49,275
======= ======= =======
Weighted average common shares outstanding .................. 12,456 12,404 12,277
Items affecting diluted earnings per share:
Dilutive effect of stock options (net of tax benefits).. 423 463 579
Shares credited to deferred compensation
plan participants .................................. 585 304 204
------- ------- -------
13,464 13,171 13,060
======= ======= =======
Basic earnings per share .................................... $ 5.35 $ 0.64 $ 4.01
======= ======= =======
Diluted earnings per share .................................. $ 4.95 $ 0.61 $ 3.77
======= ======= =======
</TABLE>
At December 31 1999, the number of options with an exercise price greater than
the average market price excluded from the calculation of diluted earnings per
share was not material.
B. ACQUISITION
On March 31, 1998, DRI acquired WAH, a privately held investment
banking and institutional equity sales and trading firm based in Minneapolis. We
accounted for the transaction as a purchase and, accordingly, the revenues and
operating results of WAH are only included in our consolidated income statement
since April 1, 1998.
We paid $120 million of cash and issued five-year zero coupon
subordinated debentures with a December 31, 1999, discounted value of $21
million ($27 million current face amount, adjusted for forfeitures) to acquire
WAH. Goodwill of approximately $118 million was recorded and is amortized over
an estimated life of 25 years. The amortization of this goodwill is fully
deductible for tax purposes.
C. ACQUISITION, INTEGRATION AND BRANCH RESTRUCTURING
In 1999 we closed or consolidated seven Private Client Group branch
offices. We recorded $4.4 million to cover the cost of lease commitments,
leasehold improvement and fixed asset write-offs and employee-related costs,
including write-offs of notes issued in connection with investment executive
recruitment for those locations. Any amounts unused as of December 31, 1999 will
be spent in 2000.
As part of our acquisition of WAH, we recorded a charge of $20 million
($12.8 million after tax) in the first quarter of 1998. This charge included $16
million for severance in the elimination of approximately 150 jobs at DRI, $2.5
million for facilities consolidation, and the remaining $1.5 million for other
integration costs.
In connection with the adoption of a formal restructuring plan to combine
Dain Bosworth, Rauscher Pierce Refsnes and our former operations subsidiary into
a single broker-dealer during the first quarter of 1998, we recorded a pretax
charge of $15 million ($9.6 million after taxes) against third-quarter 1997
earnings.
25
<PAGE> 27
D. RECEIVABLE FROM AND PAYABLE TO BROKERS AND DEALERS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
(In thousands) 1999 1998
-------- -----------
<S> <C> <C>
Receivable from brokers and dealers:
Deposits for securities borrowed ........................ $298,588 $193,361
Securities failed to deliver ............................ 9,057 80,954
Clearing organizations, correspondent brokers and other.. 13,926 13,892
-------- --------
$321,571 $288,207
======== ========
Payable to brokers and dealers:
Deposits for securities loaned .......................... $655,440 $588,055
Securities failed to receive ............................ 6,303 90,608
Clearing organizations, correspondent brokers and other.. 15,313 11,796
-------- --------
$677,056 $690,459
======== ========
</TABLE>
Securities failed to deliver and receive represent the contract value of
securities that have not been delivered or received by us or our counterparties
subsequent to the settlement date. Securities borrowed and securities loaned are
recorded at the amount of cash collateral advanced or received in connection
with the transaction. We, or our counterparties, may terminate these
transactions on short notice. Securities borrowed transactions require us to
deposit cash or other collateral with the lender. With respect to securities
loaned, we receive cash or other collateral. The initial collateral advanced or
received has a market value equal to or greater than the market value of the
securities borrowed or loaned. We monitor the market value of the securities
borrowed and loaned on a daily basis and request additional collateral or return
excess collateral.
E. TRADING SECURITIES
The market values of trading securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(In thousands) 1999 1998
---------- -----------
<S> <C> <C>
Owned:
U. S. government and government agency securities ............ $103,969 $224,936
Municipal securities ......................................... 97,624 109,644
Corporate fixed income and other securities .................. 37,260 36,239
Equity securities ............................................ 4,887 9,082
-------- --------
$243,740 $379,901
======== ========
Sold, but not yet purchased:
U. S. government, government agency and municipal securities.. $ 65,551 $236,184
Corporate and other securities ............................... 13,472 4,641
-------- --------
$ 79,023 $240,825
======== ========
</TABLE>
Our principal transaction revenue from trading activities by type, including
derivatives, is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
(In thousands) Year ended 1999 1998
------------ ----------
<S> <C> <C>
Equity securities........................................................... $ 94,369 $ 71,732
Municipal securities........................................................ 35,539 28,686
Government securities....................................................... 15,401 24,531
Corporate fixed income securities........................................... 18,803 12,544
Mortgage-backed and other securities........................................ 14,485 13,099
--------- ---------
$ 178,597 $ 150,592
========= =========
</TABLE>
26
<PAGE> 28
F. SHORT-TERM BORROWINGS
Short-term borrowings of DRI at December 31, 1999 and 1998, were $50.0
million and $119.0 million. Generally, these short-term borrowings were in bank
loans on uncommitted lines of credit. However, at December 31, 1999, $100
million of our available uncommitted lines of credit were temporarily committed
as a precaution against Year 2000 liquidity concerns. These commitments expired
on February 29, 2000. The majority of these borrowings are collateralized by
both trading securities we own and our customers' margin securities, and have a
floating rate of interest approximately 50 basis points above the Federal Funds
rate, which was 5.3 % at December 31, 1999. The market value of our trading
securities pledged as collateral at December 31, 1999, was $63.2 million. We had
agreements in place for uncommitted credit lines totaling approximately $545
million at year-end.
On May 31, 1999, we entered into a $67 million revolving credit
agreement which replaced a $50 million revolving credit agreement originally
dated March 20, 1999. Our new $67 million credit agreement expires on March 17,
2000, and contains two further one-year renewal options. Loans under this
facility are unsecured and bear interest at a floating rate of LIBOR plus 61
basis points. No amounts were outstanding under this facility at December 31,
1999. We had no amounts outstanding under our previous credit agreement at
year-end 1998. We have satisfied the net worth and regulatory net capital
covenants required under the current agreement.
Our subsidiary, Dain Rauscher Lending Services Inc., also maintains a
$50 million uncommitted credit line to finance loans made to customers. Dain
Rauscher Lending Services Inc. holds customers' securities as collateral for
these loans. This credit line has a floating interest rate of 75 basis points
over the Federal Funds rate. As of December 31, 1999, $5.8 million was
outstanding under this facility at a 5.6% interest rate. At December 31, 1998,
$8.4 million was outstanding under this facility at a 6.1% interest rate.
G. SUBORDINATED AND OTHER DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
(In thousands) 1999 1998
------------- -----------
<S> <C> <C>
Subordinated debt payable to commercial banks............................... $ 65,000 $ 80,000
Term loan payable to commercial banks....................................... 50,000 -
WAH subordinated debentures................................................. 21,360 22,505
Litigation settlement notes (see Note I).................................... 14,447 10,000
------------- ----------
$ 150,807 $ 112,505
============= ==========
</TABLE>
On November 3, 1999, we entered into a new $50 million five-year term
loan agreement with a group of banks. This loan is unsecured and bears an
interest rate of LIBOR plus 175 basis points, and is repayable in 12 equal
quarterly installments beginning in January 2002. There are no restrictions on
our use of the loan proceeds.
On March 31, 1998, DRI entered into an $80 million subordinated term
loan agreement with a group of banks which is unsecured and bears interest at
either the current LIBOR plus 160 basis points, or the lead bank's published
Reference Rate, at our discretion. Under the agreement, DRI will make quarterly
payments of $5.0 million. These payments began on April 1, 1999, and the final
payment is due on December 31, 2002. Proceeds from the loan qualify as
regulatory capital. We must comply with provisions in the agreement regarding
both net worth and regulatory net capital. During the 1999 second quarter we
entered into an interest rate swap agreement for this subordinated debt. This
interest rate swap allows us to pay a fixed rate of 6.895% on our subordinated
loan, rather than the variable LIBOR denominated rate under the original debt
agreement.
We also issued $27 million (current face amount, adjusted for
forfeitures) in five-year zero coupon subordinated debentures in connection with
the acquisition of WAH. The face amount of the debentures has been reduced by
forfeitures from the original $30 million issued at the time of the acquisition.
The discounted present value of the debentures at year-end is $21 million. At
December 31, 1999, the weighted average interest rate on all of our subordinated
debt was 6.8 % versus 7.2 % at December 31, 1998.
27
<PAGE> 29
H. SHAREHOLDERS' EQUITY
Common Stock: Our common stock has a par value of $0.125 per share;
60,000,000 shares are authorized. At December 31, 1999, 4,630,474 shares of our
common stock were reserved for issuance under all our incentive and retirement
plans.
Our Board of Directors approved the repurchase of up to 1,300,000 shares
under three separate authorizations in 1994, 1996 and 1997. We have repurchased
979,500 shares under these authorizations, including 88,000 in 1997 and 291,500
in 1999. No shares were repurchased in 1998. Approximately 320,500 shares were
available for repurchase under existing authorizations at year-end 1999.
Stock Compensation Plans: We have two fixed stock compensation plans,
the 1986 Stock Option Plan (1986 Plan) and the 1996 Stock Incentive Plan (1996
Plan). The 1996 Plan authorizes the grant of incentive and non-qualified options
and the grant of restricted and other stock awards. The 1996 Plan requires all
option grants at not less than fair market value of the shares at the date of
grant. Options generally become exercisable three to five years after the date
of grant, and expire 10 years from the date of grant. Options granted to outside
directors in lieu of an annual retainer become exercisable upon the grant date
and expire five years after grant. Other options granted to outside directors
become exercisable six months after grant date and expire five years after
grant. At December 31, 1999, 1,000,059 shares of common stock were available for
grant under the 1996 Plan; none are available under the 1986 plan.
We apply APB 25 and its interpretations in accounting for our stock
incentive plans. Accordingly, no compensation expense has been recognized in the
consolidated financial statements for stock option grants. The following table
summarizes the pro-forma effect of recognizing compensation expense as based on
the criteria of SFAS 123:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
(In thousands, except per-share amounts) 1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Net income:
As reported............................................ $ 66,590 $ 7,990 $ 49,275
Pro forma.............................................. $ 58,642 4,596 47,914
Earnings per share:
Basic:
As reported............................................ $ 5.35 $ 0.64 $ 4.01
Pro forma.............................................. $ 4.71 0.37 3.90
Diluted:
As reported............................................ $ 4.95 0.61 3.77
Pro forma.............................................. $ 4.36 0.35 3.67
</TABLE>
The weighted average per-share fair value of options granted during
1999, 1998 and 1997 was $13.21, $20.74 and $17.55, respectively. The fair value
of each option granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1999, 1998 and 1997, respectively; dividend yields of 1.9%, 1.5% and
1.5%; expected volatility of 36.8%, 38.7 % and 36.6 %; risk-free interest rates
of 6.3 %, 4.5 % and 4.8 %; and expected lives of five years. Pro-forma amounts
may not be indicative of future results.
28
<PAGE> 30
The following table summarizes the activity related to our stock option plans
for each of the last three years:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ -------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year....................... 1,839,015 $ 38.66 1,496,800 $ 26.51 1,350,595 $ 17.14
Granted................................. 810,354 40.05 875,152 58.07 419,800 49.90
Exercised............................... (129,625) 15.92 (205,600) 16.84 (155,955) 12.90
Canceled................................ (170,787) 51.72 (327,337) 46.52 (117,640) 24.87
------------ ------- ------------ -------- ------------ --------
Options outstanding at end of year...... 2,348,957 $ 39.44 1,839,015 $ 38.66 1,496,800 $ 26.51
============ ======= ============ ======== ============ ========
Options exercisable at end of year...... 769,307 622,925 552,625
============ ============ ============
Price range of outstanding options...... $4.58-$59.44 $4.58-$59.44 $4.58-$59.44
Price range of exercised options........ $4.58-$42.75 $4.58-$42.75 $4.67-$20.83
Weighted-average fair value of
options granted during the year......... $13.21 $20.74 $17.55
Average market price.................... $ 44.62 $ 48.88 $ 46.14
======= ======== ========
</TABLE>
The following table summarizes currently outstanding and exercisable options at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/99 LIFE PRICE AT 12/31/99 PRICE
--------------- --------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 4.58-$ 5.94 37,850 .6 years $ 4.63 37,850 $ 4.63
$ 5.95-$11.89 32,600 2.1 11.67 32,600 11.67
$11.90-$17.83 301,675 4.1 14.78 301,675 14.78
$17.84-$23.78 275,350 5.0 21.48 217,600 21.24
$23.79-$29.72 289,334 9.1 29.44 - -
$29.73-$35.66 92,000 8.2 34.69 28,000 34.31
$35.67-$41.61 1,500 7.2 41.37 300 41.37
$41.62-$47.55 292,004 8.6 43.13 51,124 43.16
$47.56-$53.50 283,700 9.3 49.91 - -
$53.51-$59.44 742,944 8.1 58.14 100,158 59.03
---------- ---------- --------- ---------
2,348,957 7.4 $ 39.44 769,307 $ 24.34
========= ========== ========= =========
</TABLE>
The closing price of our stock was $46.50 on December 31, 1999.
Restricted shares awarded had weighted average per-share fair values at
grant date of $43.25, $33.61 and $58.80 in 1999, 1998 and 1997.
29
<PAGE> 31
I. COMMITMENTS AND CONTINGENT LIABILITIES
Leases: We lease office space, furniture and communications and data
processing equipment under several noncancelable operating leases. Most office
space lease agreements include rate increases and the payment of real estate
taxes, insurance and other expenses of occupancy.
Aggregate minimum rental commitments as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
OPERATING
(In thousands) LEASES
------------
<S> <C>
2000........................................................................ $ 22,549
2001........................................................................ 20,545
2002........................................................................ 19,255
2003........................................................................ 15,469
2004........................................................................ 12,988
Thereafter.................................................................. 80,426
-----------
Total minimum lease payments................................................ $ 171,232
===========
</TABLE>
Rental expense for operating leases was $35,471,000, $26,598,000 and
$27,679,000, for the years ended December 31, 1999, 1998 and 1997, respectively.
Litigation: We are defendants in various actions, suits and proceedings
before courts, arbitrators and governmental agencies. Certain of these actions,
including those described below, claim substantial damages and could have a
material adverse effect on our consolidated financial condition or results of
operations, should these matters not be resolved in our favor. While the outcome
of any litigation is uncertain, we believe, based in part upon consultation with
our legal counsel, that the resolution of all matters pending or threatened
against us will not have a material adverse effect on our consolidated financial
condition or results of operations.
Midwest Life Insurance Company Litigation: We are involved in two actions
concerning The Midwest Life Insurance Company ("MWL"). MWL, a former subsidiary
we acquired in 1980 and sold in early 1986, issued annuities that were sold
primarily through the private client sales force of Dain Bosworth Incorporated
(DBI). MWL was sold two times subsequent to its 1986 sale by us, was relocated
from Nebraska to Louisiana by its final owner, Southshore Holding Corp., and was
declared insolvent and ordered liquidated by the State of Louisiana in August
1991. Suits against us by policyholders and state guaranty associations (which
had reimbursed most policyholder losses) followed, which we settled in late 1998
and early 1999 for a total of approximately $44 million.
The first of the remaining MWL cases was brought against the Company by the
liquidator of MWL and is pending in federal court in Louisiana. The complaint
alleged violations of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), breach of fiduciary duty and conspiracy to breach fiduciary duty; the
latter two claims, however, were dismissed last year, and only the RICO claims
remain. The plaintiff is seeking to recover in excess of $59 million in
compensatory damages, plus treble damages under RICO, interest, costs,
attorneys' fees and other relief. The complaint challenges certain coinsurance
transactions between MWL and Central National Life Insurance Company (also a
defendant) in 1980 and the subsequent reporting of those transactions. A motion
to dismiss the RICO claim is pending. We believe we have strong and meritorious
defenses and, if the motion to dismiss is denied, we intend to defend the case
vigorously.
In the second case, filed by the Company in November 1999, we seek to recover
from the State of Louisiana the amounts we paid in settlement of claims against
us, on the ground that intentional and other acts of officials of the Louisiana
Insurance Department and the Louisiana Office of Financial Institutions caused
the demise of MWL and our losses. The case is pending in the Louisiana state
courts.
30
<PAGE> 32
State of Arizona /"Yield-Burning": In January 1998 the SEC filed a federal court
action against DRI (as successor to Rauscher Pierce Refsnes (RPR)) and a former
employee in connection with a $130 million refunding issue by the State of
Arizona in 1992, on which RPR served as financial advisor. The complaint alleges
violations of antifraud provisions of the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Advisors Act of 1940. RPR purchased
government securities and sold them to the escrow trustee in the transaction at
a markup of approximately 0.55 percent of our cost. The SEC alleges that we
failed to disclose that we purchased and sold the government securities as a
principal, that we expected to make a profit, and the amount of the profit. The
SEC also alleges that the markup was excessive and that we falsely represented
that the securities were sold to the trustee at fair market value. We are
attempting to resolve this action in a manner that also would involve the
resolution of allegations of "yield-burning" relating to a substantial number of
other negotiated, tax-exempt, advance refunding municipal bond transactions in
which RPR and DBI participated, generally as either financial advisor or
underwriter, between 1990 and 1994. These refunding transactions ranged in par
amount from approximately $200,000 to $180 million.
Kinnard Arbitration: In 1999, an NASDR arbitration panel handed down an award of
approximately $16.6 million against us, including $7 million in punitive
damages, in favor of John G. Kinnard and Co., Inc. ("Kinnard"). Kinnard had
alleged that we hired 18 brokers over 18 months from 4 Kinnard offices in
Minnesota and that this constituted "raiding." We took a $10.6 million (after
tax) charge against fourth quarter earnings to provide for payment of the award.
We filed a proceeding in Minnesota state court in January 2000 asking that the
award be vacated and that the case be rearbitrated. Kinnard has moved to confirm
the award.
J. OFF-BALANCE SHEET RISK
Derivative financial instruments are defined as a future, forward, swap
or option contract, or as an interest rate swap, floor or collar. Generally, a
derivative represents a future commitment to purchase or sell a financial
instrument at a specific term and date. These financial instruments may have
market or credit risk which is not reflected in the market values included on
our balance sheet.
We have risk management policies that limit the size and risk of
inventories. These policies include a risk point methodology, which assigns risk
points to fixed income inventories based on a modified duration methodology, and
adjusts all securities to a one-year maturity. We also monitor our inventories
for factors that include credit and concentration risk, contract length and
inventory age. These inventories are held primarily for distribution to our
individual and institutional clients. We do not enter into derivative financial
instruments with off-balance-sheet risk, other than those described in this
footnote. We utilize these types of derivatives only to manage our risk
exposure.
MARKET RISK: As part of our broker-dealer activities, we purchase and sell a
variety of cash and derivative financial instruments in order to reduce our
exposure to market risk. Market risk includes changes in interest rates,
currency exchange rates, indices, or value fluctuations in the underlying
financial instruments. Our hedging strategy involves the purchase and sale of
derivative financial instruments to offset market risk associated with other
transactions. We regularly sell securities not yet purchased (short sales) for
our own account, primarily to hedge our fixed income trading securities. Short
positions may expose us to market risk in the event prices increase, as we may
be obligated to acquire the securities at prevailing market prices.
We use notional (contract) amounts to measure our derivative activity.
Notional amounts are not included on our balance sheet as these contract amounts
are not actually paid or received. Notional amounts allow us to calculate the
cash flows to be exchanged and our involvement in any particular type of
financial instrument. However, these amounts are not indicative of overall
market risk.
At December 31, 1999 and 1998, we had open commitments to sell under
futures contracts with notional amounts of $19.5 million and $15.8 million. At
December 31, 1999, we also had open commitments under options on futures
contracts with notional amounts of $4.8 million. During 1999 the average
notional amounts for futures and options on futures contracts were $40.0 million
and $2.4 million. The fair market value of these contracts at December 31, 1999,
was less than $500,000.
31
<PAGE> 33
We may also pledge our customers' securities as collateral for bank
loans, securities loaned, or to satisfy margin deposit requirements of various
exchanges. In the event our counterparty is unable to return the securities
pledged, we would need to acquire the securities at prevailing market prices. In
the case of repurchase agreements, we risk holding collateral at a market value
less than that of the related pledged securities. To control these risks, we
monitor the market value of securities pledged and require adjustments of
collateral levels when necessary. At December 31, 1999, the market value of
securities pledged approximated the borrowings outstanding.
CREDIT RISK: The notional amounts of derivative instruments also do not
represent our potential risk from counterparty nonperformance. We periodically
hedge our fixed income trading securities owned or sold short by entering into
financial futures or option contracts. Transactions in futures contracts are
conducted through regulated exchanges, which guarantee performance of
counterparties and are settled in cash on a daily basis, minimizing credit risk.
We believe that our exposure to credit risk is represented by the fair value of
trading securities owned.
INTEREST RATE RISK: In April 1999 we entered into a fixed interest rate
amortizing swap on our subordinated debt payable to banks to reduce our risk of
increased interest costs should interest rates increase. Under the terms of our
swap agreement, our quarterly interest payments are made at a fixed interest
rate of 6.895%. In return, we receive variable payments based on the current
30-Day LIBOR rate. The difference between the amount of interest we pay and
receive under the terms of the swap agreement is included in interest expense.
The fair value of this interest rate swap was approximately $1.2 million
(unrealized gain, not recorded in our consolidated income statement) at December
31, 1999. The notional value of the swap at December 31, 1999, was $65 million.
This interest rate swap matures on December 31, 2002. The credit risk associated
with this swap agreement is the risk of nonperformance by DRI's counterparties.
CUSTOMER ACTIVITIES: In the normal course of business, we execute, settle and
finance customer security transactions. Our customers' securities activities are
transacted on either a cash or margin basis. As part of our customer
transactions, we trade option contracts and also sell borrowed securities on
their behalf (short sales). The risk with these transactions is that customers
may fail to satisfy their obligations, requiring us to purchase or sell various
financial instruments at prevailing market prices to fulfill customer
obligations.
We mitigate this risk by requiring our customers to maintain margin
collateral in compliance with both regulatory and internal guidelines. We
monitor necessary margin levels daily and require customers either to deposit
additional collateral or reduce margin positions. Market declines could reduce
the value of collateral to below the amount we have loaned, plus interest,
before we are able to sell the collateral, but due to daily monitoring of
valuations and the amount of collateral we require, we believe this risk to be
minimal..
K. SEGMENT INFORMATION
Our business includes three major segments: Private Client Group, which
includes securities sales to individual investors, correspondent services, and
asset management for individual investors; Equity Capital Markets, which
includes investment banking and underwriting and equity sales and trading; and
Fixed Income Capital Markets, which includes taxable and municipal fixed income
securities trading, sales, underwriting, and advisory services. All corporate
expenses, and miscellaneous revenue and expense, which are not allocated to
individual business lines, are included in Corporate.
<TABLE>
<CAPTION>
(Dollars in thousands) Year ended 1999 1998 % CHANGE 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenue:
Private Client Group ...................... $579,012 $526,685 10% $486,329
Equity Capital Markets .................... 210,826 93,317 126 97,118
Fixed Income Capital Markets .............. 104,893 105,969 (1) 86,392
Corporate:
Gain on sale of investment securities... 15,378 -- -- --
Staff and other ........................ 34,055 23,399 46 22,263
-------- -------- -------- --------
$944,164 $749,370 26% $692,102
======== ======== ======== ========
</TABLE>
32
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
Pretax income:
Private Client Group....................... $ 43,533 $ 51,076 (15)% $ 60,932
Equity Capital Markets..................... 27,110 (19,468) nm 3,830
Fixed Income Capital Markets............... 7,644 12,207 (37) 9,349
Corporate:
Gain on sale of investment securities... 15,378 - - -
Corporate .............................. 11,202 (31,331) nm 2,644
--------- ----------- --- --------
$ 104,867 $ 12,484 740% $ 76,755
========= =========== === ========
Pretax margin on net revenue:
Private Client Group....................... 7.5% 9.7% 12.5%
Equity Capital Markets..................... 12.9 (20.9) 3.9
Fixed Income Capital Markets............... 7.3 11.5 10.8
Corporate ................................. 53.8 nm 11.9
--------- ----------- --------
11.1% 1.7% 11.1%
========= =========== ========
</TABLE>
L. SUPPLEMENTARY CASH FLOW STATEMENT INFORMATION
Income tax payments totaled $40.7 million in 1999, $3.6 million in 1998,
and $32.1 million in 1997. Interest payments totaled $70.2 million, $68.4
million and $57.4 million during the respective periods.
During the years ended December 31, 1999, 1998 and 1997, we had non-cash
financing activity of $9.4 million, $8.7 million and $4.9 million, associated
with the crediting of common stock to deferred compensation plan participants.
During the year ended December 31, 1998, we also had non-cash financing activity
of $21.7 million, representing subordinated debentures issued as part of the
consideration paid for the WAH acquisition.
M. REGULATORY REQUIREMENTS
As a broker-dealer and member firm of the NYSE, DRI is subject to the
Uniform Net Capital Rule (the "Rule") of the Securities and Exchange Commission
("SEC"). The Rule is designed to measure the general financial integrity and
liquidity of a broker-dealer and the minimum net capital deemed necessary to
meet the broker-dealer's continuing commitments to customers. The Rule provides
for two methods of computing net capital. DRI currently uses what is known as
the alternative method. Under this method, minimum net capital is defined as 2
percent of aggregate debit items from customer transactions. In addition to the
SEC rule, the NYSE may also require a member organization to reduce its business
if net capital is less than 4 percent of aggregate debit items and may prohibit
a member firm from expanding its business and declaring cash dividends if its
regulatory net capital is less than 5 percent of aggregate debit items. Failure
to maintain the required net capital may subject a firm to suspension or
expulsion by the NYSE, the SEC and other regulatory bodies, and may ultimately
require its liquidation. DRI has at all times maintained its net capital above
both SEC and NYSE required levels. At December 31, 1999, DRI had net capital of
$165.4 million, or 10.2% of aggregate debit items, which was $84.4 million in
excess of 5% of aggregate debit items.
Rule 15c3-3 of the Securities Exchange Act of 1934 specifies when
broker-dealers carrying customer accounts may be required to maintain cash or
qualified securities in a special reserve account for the exclusive benefit of
customers. Based on the December 31, 1999, Rule 15c3-3 reserve calculation, we
were not required to maintain a balance in the special reserve account.
N. EMPLOYEE BENEFIT PLANS
We sponsor a retirement plan that covers substantially all full-time
employees. For the year ended December 31, 1999, participants could contribute,
on a pretax basis, up to 12% of their eligible compensation subject to certain
aggregate limitations. Once eligible, we would then match 40% of the first 5% of
eligible compensation deferred. Matching contributions were limited to $3,000
per employee annually and were invested in shares of our stock. At the end of
each year, a profit-sharing contribution was determined by the Board of
Directors. The minimum contribution was 3% of eligible compensation.
33
<PAGE> 35
Our policy is to fund plan costs currently. Earnings have been charged
for contributions to the retirement plan as follows: $18.2 million, $12.9
million and $15.8 million for 1999, 1998 and 1997.
O. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
(In thousands) 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................................ $ 42,548 $ 6,608 $ 27,561
State.................................................. 6,401 1,237 5,083
Deferred:
Federal................................................ (9,276) (2,823) (4,360)
State.................................................. (1,396) (528) (804)
--------- -------- ---------
$ 38,277 $ 4,494 $ 27,480
========= ======== =========
</TABLE>
Following is a reconciliation of ordinary federal income taxes (based on a rate
of 36%) with the actual tax expense provided on earnings:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
(Dollars in thousands) 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Ordinary federal income tax expense....................... $ 36,704 $ 4,369 $ 26,864
State income taxes, net of federal tax benefit............ 3,254 804 3,229
Tax-exempt interest, net of related interest expense...... (1,571) (1,372) (1,428)
Other..................................................... (110) 693 (1,185)
--------- -------- ---------
$ 38,277 $ 4,494 $ 27,480
========= ======== =========
Effective tax rate........................................ 36.5% 36.0% 35.8%
========= ======== =========
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
(In thousands) 1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accruals not currently deductible.......................................... $ 59,459 $ 43,308
Fixed assets............................................................... 2,234 2,617
Federal operating loss and AMT credit carryforward acquired................ 95 2,128
Other...................................................................... 1,425 3,278
--------- ----------
63,213 51,331
--------- ----------
Deferred tax liabilities:
Goodwill................................................................... (3,041) (1,913)
Other...................................................................... (1,281) (1,199)
--------- ----------
Net deferred tax asset $ 58,891 $ 48,219
========= ==========
</TABLE>
We have determined that we are not required to establish a valuation allowance
for the deferred tax asset because it is expected to be realized principally
through carryback to taxable income in prior years, future reversals of existing
taxable temporary differences and future taxable income. This assumption is
based on federal taxable income of over $122 million in the carryback period,
substantial state taxable income in the carryback period, as well as prospects
for continued earnings.
34
<PAGE> 36
DAIN RAUSCHER CORPORATION
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED, IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ------------ ------------ ------------
1999
<S> <C> <C> <C> <C>
Net revenue............................ $ 219,982 $ 232,555 $ 224,877 $ 266,750
============= ============ ============ ============
Income before income taxes............. $ 36,145 $ 27,059 $ 24,507 $ 17,155
============= ============ ============ ============
Net income ............................ $ 22,590 $ 16,912 $ 15,317 $ 11,770
============= ============ ============ ============
Per-share data:
Basic net earnings ................. $ 1.81 $ 1.37 $ 1.23 $ 0.94
============= ============ ============ ============
Diluted net earnings*............... $ 1.70 $ 1.26 $ 1.13 $ 0.86
============= ============ ============ ============
Dividends .......................... $ .22 $ .22 $ .22 $ .22
============= ============ ============ ============
1998
Net revenue............................ $ 172,447 $ 188,016 $ 180,827 $ 208,080
============= ============ ============ ============
Income (loss) before income taxes...... $ (3,163) $ 18,488 $ 5,479 $ (8,320)
============= ============ ============ ============
Net income (loss)...................... $ (2,024) $ 11,832 $ 3,507 $ (5,325)
============= ============ ============ ============
Per-share data:
Basic net earnings (loss)........... $ (.16) $ .96 $ .28 $ (.43)
============= ============ ============ ============
Diluted net earnings (loss)*........ $ (.16) $ .90 $ .27 $ (.43)
============= ============ ============ ============
Dividends .......................... $ .22 $ .22 $ .22 $ .22
============= ============ ============ ============
</TABLE>
*Excluding the impact of a nonrecurring investment gain, office closing expenses
and an arbitration award, in 1999 diluted earnings per share would be $.98 in
Q1, $1.30 in Q2, $1.23 in Q3, and $1.70 in Q4. Similarly in 1998, excluding
nonrecurring acquisition charges and litigation settlements, diluted earnings
per share would be $.82 in Q1 and $.74 in Q4. (See Management's Discussion and
Analysis for a complete description of these items.)
35
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
See Part I, Item 4 of this Annual Report for information with respect
to our executive officers. Other information required in Item 10 will be
contained in our definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the close of the fiscal year for which this Report is
filed and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION:
The information required in Item 11 will be contained in our definitive
Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this Report is filed and is incorporated
herein by reference, except that, pursuant to Item 402(a)(8) of Regulation S-K,
the information to be contained in our definitive Proxy Statement in response to
paragraphs (k) and (l) of Item 402 is not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information required in Item 12 will be contained in our definitive
Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this Report is filed and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required in Item 13 will be contained in our definitive
Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this Report is filed and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K:
(a) Documents filed as part of this Report:
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Financial statements:
Reference is made to the table of contents to financial statements and financial statement
schedule hereinafter contained........................................................................ 40
2. Financial statement schedules:
Reference is made to the table of contents to financial statements and financial statement
schedule hereinafter contained for all other financial statement schedules............................ 40
</TABLE>
36
<PAGE> 38
3. Exhibits:
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
-------- ---- ----------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated February 8, Filed as Exhibit 2.1 to the Company's Report on Form
1998 among Dain Rauscher Corporation, Dain 8-K dated March 31, 1998.
Rauscher Incorporated and Wessels, Arnold &
Henderson Group, L.L.C. and Wessels, Arnold
& Henderson, L.L.C.
3.1 Restated Certificate of Incorporation of the Incorporated by reference to Exhibit 4.1 to the
Company. Company's Registration Statement on Form S-8 dated May
13, 1997, File No. 333-26947.
3.3 Amended and Restate Bylaws of the Company. Incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q dated March
31, 1999.
4.6 Credit Agreement dated May 31, 1999. Incorporated by reference to Exhibit 4.7 to the
Company's Quarterly Report on Form 10-Q dated June 30,
1999.
4.7 Credit Agreement dated November 3, 1999. Incorporated by reference to Exhibit 4.7 to the
Company's Quarterly Report on Form 10-Q dated
September 30, 1999.
10.2 Form of Indemnity Agreement with Directors and Incorporated by reference to Exhibit 10(c) to the
Officers of the Company. Company's Annual Report on Form 10-K for the year
ended December 31, 1990.
10.3* Form of Non-Employee Director Retirement Incorporated by reference to Exhibit 10(g) to the
Compensation Agreement. Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.4* IFG Executive Deferred Compensation Plan dated Incorporated by reference to Exhibit 10(a) to the
March 31, 1993. Company's Current Report on Form 8-K dated July 15,
1993.
10.5 Trust Agreement for IFG Executive Deferred Incorporated by reference to Exhibit 10.5 to the
Compensation Plan dated February 11, 1994. Company's Annual Report on Form 10-K dated December
31, 1994.
10.7* 1996 Stock Incentive Plan. Incorporated by reference to Exhibit 10 to the
Company's Quarterly Report on Form 10-Q dated March
31, 1996.
10.10* Employment Agreements between the Company and Incorporated by reference to Exhibit 10.10 to the
Kenneth J. Wessels dated March 31, 1998. Company's Quarterly Report on Form 10-Q/A dated March
31, 1998.
10.11* Revised Employment Agreement between the Company Incorporated by reference to Exhibit 10.11 to the
and Kenneth J. Wessels dated March 4, 1999. Company's Annual Report on Form 10-K dated March 31,
1999.
10.12* Dain Rauscher 1996 Stock Incentive Plan, as Incorporated by reference to Exhibit 10.12 to the
amended through April 27, 1999. Company's Quarterly Report on Form 10-Q dated March
31, 1999.
10.13* Dain Rauscher Deferred Compensation Plan for Incorporated by reference to Exhibit 10.13 to the
Non-Employee Directors, as amended through April Company's Quarterly Report on Form 10-Q dated March
27, 1999. 31, 1999.
10.14* Revised Employment Agreement between the Company Filed herewith.
and Kenneth J. Wessels dated December 15, 1999.
10.15* Dain Rauscher Management Deferred Compensation Filed herewith.
Plan, as amended through December 1, 1999.
10.16* Dain Rauscher Wealth Accumulation Plan, as Filed herewith.
amended through December 1, 1999.
10.17* Special Stock Option Agreement between the Filed herewith.
Company and Irving Weiser dated April 5, 1999.
10.18* Stock Option Agreement between the Company and Filed herewith.
Irving Weiser, dated April 5, 1999
10.19* Change in Control Agreement between the Company Filed herewith.
and Irving Weiser dated July 10, 1999.
10.20* Cancellation of Non-Plan Stock Option Agreement Filed herewith.
between the Company and Irving Weiser dated
April 5, 1999.
10.21* Stock Option Agreement between the Company and Filed herewith.
Irving Weiser dated January 4, 2000.
</TABLE>
37
<PAGE> 39
<TABLE>
<S> <C> <C>
Filed herewith.
10.22* Revised Employment Agreement between the Company
and Kenneth J. Wessels dated February 10, 2000.
11 Computation of net earnings per share. Filed herewith.
21 List of subsidiaries. Filed herewith.
23 Independent Auditors' consent. Filed herewith.
24 Power of Attorney. Filed herewith.
27 Financial Data Schedule. Filed herewith.
99 Cautionary Statements for Purposes of the "Safe Filed herewith.
Harbor" Provision of the Private Securities
Litigation Reform act 1995.
</TABLE>
* Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of this report.
(b) Two reports on Form 8-K were filed during the fourth quarter of 1999.
(1) Item Reported
Exhibit 99 - Press release announcing registrant's promotion of David
J. Parrin to Chief Financial Officer.
Date of earliest event reported - November 18, 1999.
Financial Statements Filed - None
(2) Item Reported
Exhibit 99.1 - Press release announcing arbitration decision and
related charge.
Date of earliest event reported - December 10, 1999.
Financial Statements Filed - None
REPORT FOR EMPLOYEE STOCK PURCHASE PLAN:
The financial statements required by Form 11-K with respect to our
Retirement Plan will be filed by amendment hereto within 180 days of such plan's
fiscal year end as permitted by Rule 15d-21.
38
<PAGE> 40
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN
THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Irving Weiser Chairman of the Board, President, Chief Executive Officer
- ----------------------------- (Principal Executive Officer)
Irving Weiser and Director
John C. Appel Vice Chairman
- ------------------------------ and Director
John C. Appel
David J. Parrin Executive Vice President and Chief Financial Officer
- ------------------------------ (Principal Financial and Accounting Officer)
David J. Parrin
J. Evans Attwell Director
- ------------------------------
J. Evans Attwell
Susan S. Boren Director
- ------------------------------
Susan S. Boren
F. Gregory Fitz-Gerald Director
- ------------------------------
F. Gregory Fitz-Gerald
Walter F. Mondale Director
- ------------------------------
Walter F. Mondale
C.A. Rundell, Jr. Director
- ------------------------------
C.A. Rundell, Jr.
Robert L. Ryan Director
- ------------------------------
Robert L. Ryan
Arthur R. Schulze, Jr. Director
- ------------------------------
Arthur R. Schulze, Jr.
Kenneth J. Wessels Chairman, Dain Rauscher Wessels
- ------------------------------ and Director
Kenneth J. Wessels
</TABLE>
39
<PAGE> 41
DAIN RAUSCHER CORPORATION
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
AS OF DECEMBER 31, 1999 AND 1998 AND FOR EACH
OF THE YEARS IN THE THREE-YEAR PERIOD
ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................................ 18
Consolidated Financial Statements:
Consolidated statement of income................................................................................... 19
Consolidated balance sheet......................................................................................... 20
Consolidated statement of shareholders' equity..................................................................... 21
Consolidated statement of cash flows............................................................................... 22
Notes to consolidated financial statements......................................................................... 23
Financial Statement Schedule:
Schedule III - Condensed financial information of the registrant................................................... 41
</TABLE>
Schedules not listed above have been omitted because they are either
not applicable or the required information has been provided in the consolidated
financial statements or notes thereto.
40
<PAGE> 42
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT
DAIN RAUSCHER CORPORATION
(PARENT COMPANY)
STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- -------- ----------
<S> <C> <C> <C>
Revenue:
Gain on sale of investment securities ............... $ 23,747 $ 8,787 --
Management fees ..................................... -- -- $ 18,941
Facilities rental ................................... -- -- 964
Interest ......................................... -- -- 2,043
-------- -------- --------
23,747 8,787 21,948
-------- -------- --------
Expenses:
Compensation and benefits ........................ -- 12,475
Interest ......................................... -- 2,218
Other operating expenses ......................... 12 260 12,823
Litigation settlement expense .................... -- 23,787 --
Restructuring charge ............................. -- 15,000
-------- -------- --------
12 24,047 42,516
-------- -------- --------
Income (loss) before income taxes and equity in
subsidiaries' earnings ........................... 23,735 (15,260) (20,568)
Income tax (expense) benefit ........................ (8,901) 5,494 7,851
-------- -------- --------
Income (loss) before equity in subsidiaries'
earnings ......................................... 14,834 (9,766) (12,717)
Equity in subsidiaries' earnings .................... 51,756 17,756 61,992
-------- -------- --------
Net income .......................................... $ 66,590 $ 7,990 $ 49,275
======== ======== ========
</TABLE>
See notes to condensed financial information.
41
<PAGE> 43
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT - (CONTINUED)
DAIN RAUSCHER CORPORATION
(PARENT COMPANY)
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Cash...................................................................... $ 200 $ 1,039
Advances to subsidiaries.................................................. 55,195 17,893
Equipment, leasehold improvements and building, at cost, less
accumulated depreciation of $23,866 and $27,279, respectively........... 18,013 22,445
Investment in subsidiaries, at cost, plus equity in undistributed
earnings ............................................................... 382,094 325,298
Other assets.............................................................. 63,837 24,635
----------- ----------
$ 519,339 $ 391,310
=========== ==========
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued expenses..................................... $ 43,783 $ 29,032
Capital lease obligations and other debt.................................. 85,806 32,505
----------- ----------
129,589 61,537
----------- ----------
Shareholders' equity:
Common stock.............................................................. 1,630 1,580
Additional paid-in capital................................................ 125,320 112,142
Retained earnings......................................................... 285,966 230,421
Treasury stock............................................................ (23,166) (14,370)
----------- ----------
389,750 329,773
----------- ----------
$ 519,339 $ 391,310
=========== ==========
</TABLE>
See notes to condensed financial information.
42
<PAGE> 44
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT - (CONTINUED)
DAIN RAUSCHER CORPORATION
(PARENT COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 66,590 $ 7,990 $ 49,275
Non-cash items included in income:
Equity in net earnings of subsidiaries ........ (51,756) (17,756) (61,992)
Depreciation, amortization and other .......... -- -- 7,899
-------- -------- --------
14,834 (9,766) (4,818)
Change in operating assets and liabilities ....... (59,357) 14,761 9,917
-------- -------- --------
Cash provided (used) by operating activities ..... (44,523) 4,995 5,099
-------- -------- --------
Cash flows from financing activities:
Proceeds from:
Term loan agreement ........................ 50,000 -- --
Issuance of common stock ................... 1,923 3,275 1,779
Advances from subsidiaries, net ............ -- 52,226 --
Revolving credit agreement ................. -- -- 50,000
Payments for:
Dividends on common stock .................. (11,045) (10,988) (8,904)
Purchases of common stock .................. (9,790) -- (5,195)
Advances to subsidiaries, net .............. (5,000) -- (41,030)
Capital leases and other debt .............. (2,400) (6,639) (1,288)
Revolving credit agreement ................. -- (50,000) --
-------- -------- --------
Cash provided (used) by financing activities ..... 23,688 (12,126) (4,638)
-------- -------- --------
Cash flows from investing activities:
Gain from sale of investments .............. 23,747 8,787 --
Dividends from subsidiaries ................ -- 4,894 10,648
Investment in Lending ...................... -- -- (500)
Purchases of investments from subsidiaries.. -- (2,400) --
Purchases of fixed assets .................. (3,751) (4,085) (10,705)
-------- -------- --------
Cash provided (used) by investing activities ..... 19,996 7,196 (557)
-------- -------- --------
Increase (decrease) in cash ...................... (839) 65 (96)
Cash at beginning of year ........................ 1,039 974 1,070
-------- -------- --------
Cash at end of year .............................. $ 200 $ 1,039 $ 974
======== ======== ========
</TABLE>
See notes to condensed financial information.
43
<PAGE> 45
SCHEDULE III - CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT - (CONTINUED)
DAIN RAUSCHER CORPORATION
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed financial statements of Dain Rauscher Corporation (Parent
Company) should be read in conjunction with the consolidated financial
statements of Dain Rauscher Corporation, and the notes thereto beginning
in Item 8.
Prior to 1998, the Parent Company received management fees from its
subsidiaries in return for human resources, finance, purchasing,
communications and other services performed for the benefit of the
subsidiaries. Other holding company and corporate expenses were absorbed
by the Parent Company prior to 1998. With the merger of the Parent
Company's three broker-dealer subsidiaries into a single entity during
1998, Parent Company employees and operating expenses were transferred to
its subsidiaries, principally DRI.
Certain prior-year amounts in the Parent Company's financial statements
have been reclassified to conform to the 1999 presentation. The
reclassifications include restating prior-year amounts related to the
Parent Company's capitalization of its former operations subsidiary via
advances from Dain Bosworth and Rauscher Pierce Refsnes.
B. INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are carried at cost plus equity in
undistributed earnings. See Note M to Consolidated financial statements
for information regarding net capital requirements of the broker-dealer
subsidiary which could result in restriction on the ability of the
subsidiary to transfer funds to the parent in the form of loans, advances
or cash dividends.
C. COMMITMENTS
On November 3, 1999, the Parent Company entered into a new $50 million
five-year term loan agreement with a group of banks. This loan is
unsecured and bears an interest rate of LIBOR plus 175 basis points, and
is repayable in 12 equal quarterly installments beginning January 2002.
There are no restrictions on our use of the loan proceeds.
The Parent Company has guaranteed the repayment of any advances to Dain
Rauscher Lending Services Inc. from a $50 million uncommitted credit
facility available to finance certain loans made to customers
collateralized by securities. As of December 31, 1999, $5.8 million was
outstanding under this facility at a 5.6% interest rate. $8.4 million was
outstanding under this facility at a 6.1% interest rate at December 31,
1998. See Note F to Consolidated financial statements for further
discussion of this credit facility.
We lease office space, furniture and communications and data processing
equipment under several noncancelable operating leases. Most office space
lease agreements include rate increases and include the payment of real
estate taxes, insurance and other expenses of occupancy. All lease
payments are being made by DRI. The Parent Company is the guarantor of the
lease for our headquarters location. However, we anticipate that DRI will
continue to make the payments for this lease and this expense will not be
reflected on the Parent Company's statement of income.
D. DEFERRED TAX ASSET
During 1999 we transferred a deferred tax asset from DRI to the Parent
Company. This deferred tax asset represents the benefit associated with
the tax deduction related to future payments of deferred compensation.
We transferred this asset from DRI to the Parent Company based on our
determination that the future tax benefit should be recorded along with
the related liability that is included on the Parent Company's balance
sheet.
44
<PAGE> 1
EXHIBIT 10.14
December 15, 1999
Mr. Kenneth J. Wessels
503 Harrington Road
Wayzata, MN 55391
Re: Revised Employment Terms
Dear Ken:
As we have discussed, your employment agreement with the Company dated March 31,
1998 will expire on December 31, 1999. This letter is to summarize the terms we
have agreed to for the period beginning January 1, 2000.
BASIC TERMS
Effective January 1, 2000, you will no longer be on the Dain Rauscher Executive
Committee. Your title will become Chairman, Dain Rauscher Wessels, and you will
revert to "employment at will" status. I understand that you will likely decide
to terminate your employment at some point during the year. We agree that either
of us will give 30 days advance written notice of your intended termination
date.
SALARY
Beginning January 1, 2000, your base salary will be paid at an annualized rate
of $150,000 per year.
INCENTIVE COMPENSATION
So long as you are employed at least through March 31, 2000 and your employment
is not terminated for Cause (as defined below), you will be eligible for an
incentive bonus to be determined as follows:
- If your employment terminates between March 31 and June 30, 2000,
your bonus will be equal to a pro rata portion of the Annualized
Calculation (as defined below) less a 10% haircut.
- If your employment terminates on or after July 1, 2000, your bonus
will be equal to a pro rata portion of the Annualized Calculation.
<PAGE> 2
Mr. Kenneth J. Wessels
December 15, 1999
Page 2
If you are terminated for Cause, you will not be eligible to receive a bonus.
"Cause" is defined as engaging in willful misconduct (including dishonesty or
disloyalty to the Company) that is materially injurious to the business,
reputation, regulatory status or customer or employee relations of the Company,
Dain Rauscher Wessels or any other Company division or affiliate.
The "Annualized Calculation" will be determined based on annual DRW net revenues
for 2000, and will range from $300,000 at the threshold to $1 million at
exceeds, with a target of $600,000, according to the following schedule:
<TABLE>
<CAPTION>
THRESHOLD TARGET EXCEEDS
--------- ------ -------
<S> <C> <C> <C>
DRW Net Revenues $170 million $210 million $250 million
Annualized Calculation $300,000 $600,000 $1,000,000
</TABLE>
Your bonus for 2000 will be paid in February 2001, at the same time the Company
pays other incentive bonuses for the year.
STOCK OPTIONS AND DEFERRED COMPENSATION
Beginning January 1, 2000, you will no longer be eligible to receive stock
options or to participate in the deferred compensation plans.
BENEFITS
So long as you are employed by the Company, you will remain eligible for other
Company benefit programs, including the Retirement Plan, and the various health
and welfare programs.
PERQUISITES
So long as you are employed by the Company, you will continue to be provided
with an office, secretarial support and a Company car, and your Minneapolis Club
and any country club dues will continue to be paid. After termination of
employment, you will be required to either return or purchase the Company car.
Any unused portion of your Company-paid car allocation remaining as of your
termination date will be forfeited. Upon termination, please contact Kim
Schipper in the Corporate Services Department to work out the details with
respect to your car.
BOARD SERVICE
You agree that you will fulfill your current term as a director of Dain Rauscher
and, if nominated by the Board, will stand for re-election by the stockholders
to an additional one-year term at the Annual meeting to be held in the spring of
2000.
<PAGE> 3
Mr. Kenneth J. Wessels
December 15, 1999
Page 3
SURVIVING PROVISIONS OF MARCH 31, 1999 AGREEMENT
Notwithstanding anything contained herein or elsewhere to the contrary, and as a
significant inducement to the Company to provide you with the compensation and
benefits outlined in this letter, you agree that the provisions of Sections 5
and 6 of your employment agreement with the Company dated March 31, 1998 will
continue to apply as though that agreement had been extended. You further agree
that beginning January 1, 2000, all references in such Sections to "the term of
this Agreement", "the period of Executive's employment with the Company
hereunder" and similar phrases, shall be interpreted to extend through the
period of your employment hereunder.
Ken, I am deeply appreciative of your leadership through the acquisition and
integration of the Dain Rauscher and Wessels organizations. I have also valued
your participation on the Executive Committee and look forward to your continued
involvement with the Company as Chairman of DRW and as a director. Please let me
know if you have any questions or if there is anything we need to discuss
further. If these terms are satisfactory to you, please so indicate by signing
the enclosed copy of this agreement and returning it to me.
Sincerely,
Irving Weiser
ACCEPTED AND AGREED THIS _____ DAY OF DECEMBER, 1999:
_____________________________,
Kenneth J. Wessels
<PAGE> 1
DAIN RAUSCHER
MANAGEMENT DEFERRED STOCK PLAN
(AS AMENDED AND RESTATED AS OF
DECEMBER 1, 1999)
<PAGE> 2
DAIN RAUSCHER MANAGEMENT DEFERRED STOCK PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
SECTION 1. INTRODUCTION ...................................................................................1
1.1. Statement of the Plan
1.2. Definitions
1.2.1. Accounts
1.2.2. Approved Retirement
1.2.3. Beneficiary
1.2.4. Bond Account
1.2.5. Cash Account
1.2.6. Change in Control
1.2.7. Committee
1.2.8. Company
1.2.9. Company Match
1.2.10. Conversion Price
1.2.11. Deferrable Compensation
1.2.12. Disability
1.2.13. Dividend Additions
1.2.14. Election Form
1.2.15. Gross Cash Compensation
1.2.16 In-Service Election
1.2.17. Mandatory Deferred Compensation
1.2.18. Matching Cash Account
1.2.19. Matching Stock Account
1.2.20. NYSE
1.2.21. Participant
1.2.22. Plan
1.2.23. Plan Statement
1.2.24. Plan Year
1.2.25. Retirement
1.2.26. Subsidiary Sale
1.2.27. Stock
1.2.38. Stock Account
1.2.29. Voluntary Deferred Compensation
1.3. Rules of Interpretation
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
SECTION 2. ELIGIBILITY AND PARTICIPATION ..................................................................5
SECTION 3. MANDATORY AND VOLUNTARY ELECTION TO
DEFER COMPENSATION .............................................................................6
3.1. Mandatory Deferral of Compensation
3.2. Election to Defer Compensation
3.2.1. Deferral Elections for 2000
3.2.2. Deferral Elections for New Participants
3.3. Maximum Deferral Percentage
3.4 Deferral Alternatives
3.4.1. Investments
3.4.2. Distribution Election
SECTION 4. DEFERRED COMPENSATION ACCOUNTS .................................................................7
4.1. Establishment of Accounts
4.2. Credits to Accounts
4.2.1. Stock Account and Matching Stock Account
4.2.2. Bond Account
4.2.3. Dividend Additions to Stock Accounts
4.2.3.1. Stock Account
4.2.3.2. Matching Stock Account
4.2.4. Interest Additions to Bond Account
4.3. Charges Against Accounts
SECTION 5. VESTING .......................................................................................10
5.1. Vesting of Investments Attributable to Voluntary
Deferred Compensation
5.2. Vesting of Mandatory Deferred Compensation and Investments
in Matching Stock Account and Matching Cash Account
5.2.1. Approved Retirement
5.2.2. Vesting Upon Death or Disability
5.2.3. Full Vesting Upon Change in Control
5.2.4. Full Vesting Upon Sale of Subsidiary
5.3. Termination for Cause
5.4. Forfeitures
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
SECTION 6. DISTRIBUTIONS .................................................................................11
6.1. Distributions to Participants
6.1.1. Form of Distribution; Tax Withholding
6.1.2. Timing of Distribution
6.2. Distributions to Beneficiaries
6.3. Designation of Beneficiary
6.4. Disclaimers by Beneficiaries
SECTION 7. SPENDTHRIFT PROVISIONS ........................................................................15
SECTION 8. ADMINISTRATIVE DETERMINATIONS .................................................................15
8.1. The Committee
8.2. Claims Procedure
8.2.1. Making a Claim
8.2.2. Requesting Review of a Denied Claim
8.2.3. In General
SECTION 9. OTHER ADMINISTRATIVE MATTERS ..................................................................16
9.1. Reports to Participants
9.2. Participants Are General Creditors of the Company
9.3. Disclaimer of Employment and Compensation Rights
9.4. No Compensation Under the Dain Rauscher Retirement and
Savings Plan
SECTION 10. AMENDMENT OR TERMINATION ......................................................................17
10.1. Amendment or Termination
10.2. Merger
10.3. Applicability to Successors
</TABLE>
iii
<PAGE> 5
DAIN RAUSCHER MANAGEMENT DEFERRED STOCK PLAN
SECTION 1
INTRODUCTION
1.1. STATEMENT OF THE PLAN On March 8, 1993, the Board of Directors of Dain
Rauscher Corporation, a Delaware corporation (the Company) authorized, subject
to the approval of the stockholders of the Company, the creation of a
nonqualified, deferred compensation plan to benefit a select group of management
or highly compensated employees of the Company, which plan was made effective as
of March 31, 1993, and then amended and restated as of January 21, 1999 and
December 1, 1999. The Plan, as hereinafter amended and restated, shall only
apply to deferrals for services performed in 2000 and thereafter, and the Plan,
prior to this amendment and restatement, shall continue to apply to all prior
deferrals.
1.2. DEFINITIONS When used herein with initial capital letters, the following
words have the following meanings:
1.2.1. ACCOUNTS The separate bookkeeping accounts representing the unfunded
and unsecured general obligations of the Company established with respect to
each Participant to which is credited the amounts specified in Sections 3 and 4
and from which are subtracted payments made pursuant to Section 6. Participant
Accounts include a Participant's Stock Account, Matching Stock Account, Cash
Account and Matching Cash Account.
1.2.2. APPROVED RETIREMENT The Retirement of a Participant who (i) has been
an employee of the Company for ten (10) or more years, (ii) has entered into a
non-competition, non-solicitation and related agreement with the Company in the
form then approved by the Committee, and (iii) whose age upon Retirement is at
least fifty (50). Such agreement shall require a Participant, for a one-year
period, to refrain from participating, directly or indirectly, in any business
in which the Company or any of its subsidiaries or affiliates is engaged at the
time of such Participant's Retirement in any geographic area in which the
Company is competing at such time.
1.2.3. BENEFICIARY A person designated by the Participant (or automatically
by operation of the Plan Statement) to receive any benefit remaining at the
death of such Participant under the terms of the Plan Statement.
1.2.4. BOND ACCOUNT The Account of the Plan in which a Participant's deemed
investments are credited pursuant to Section 4.2.2, and which is to earn
interest at a rate of return determined from time to time by the Committee.
Except as provided herein, no further additions to or transfers to a Stock
Account or Cash Account from a Participant's Bond Account are permitted under
the Plan.
1
<PAGE> 6
1.2.5. CASH ACCOUNT The Account of the Plan in which all of a Participant's
deemed cash allocations (other than the cash deemed allocated to such
Participant's Matching Cash Account) are credited pursuant to this Plan.
1.2.6. CHANGE IN CONTROL
(a) the public announcement (which, for purposes of this definition),
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Securities Exchange Act of 1934, as amended
(the Exchange Act), that any person, entity or group within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act,
other than the Company or any of its subsidiaries, or the Dain
Rauscher Retirement and Savings Plan or any other employee benefit
plan of the Company or any of its subsidiaries, or any entity
holding shares of Stock organized, appointed or established for, or
pursuant to the terms of, any such plan, has become the beneficial
owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of the combined voting power of the
Company's then outstanding voting securities in a transaction or
series of transactions;
(b) the Continuing Directors cease to constitute a majority of the
Company's Board of Directors;
(c) the stockholders of the Company approve (1) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
stock would be converted into cash, securities or other property,
other than a merger if the Company in which stockholders immediately
prior to the merger have the same proportionate ownership of stock
of the surviving corporation immediately after the merger; (2) any
sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of the Company; or (3) any plan of liquidation or dissolution
of the Company; or
(d) the majority of the Continuing Directors determine, in their sole
and absolute discretion, that there has been a change in control of
the Company.
Continuing Director shall mean any person who is a member of the Board of
Directors of the Company, while such a person is a member of the Board of
Directors, who is not an Acquiring Person (as hereinafter defined) or an
Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (A) was a member of the Board of Directors on April 27, 1993, or (B)
subsequently becomes a member of
2
<PAGE> 7
the Board of Directors, if such person's initial nomination for election or
initial election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors.
For purposes of this Section, Acquired Person shall mean any person (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which,
together with all Affiliates and Associates of such person, is the ?beneficial
owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding securities, but shall
not include the Company, any subsidiary of the Company or any employee benefit
plan of the Company or of any subsidiary of the Company or any entity holding
shares of Stock organized, appointed or established for, or pursuant to the
terms of, any such plan; and Affiliate and Associate shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
1.2.7. COMMITTEE The Compensation and Organization Committee of the Board
of Directors of the Company, any successor Committee thereto established by such
Board of Directors or any other management committee to whom responsibility for
administering the Plan is delegated.
1.2.8. COMPANY Dain Rauscher Corporation, a Delaware corporation, and any
successor thereof that adopts the Plan Statement.
1.2.9. COMPANY MATCH The percentage of the Mandatory Deferred Compensation
or Voluntary Deferred Compensation that the Company shall be deemed to have
matched with a Company contribution, as set forth in Section 4.2.1. The
percentage of the Company Match shall be determined from time to time by the
Committee.
1.2.10. CONVERSION PRICE The average of the reported closing prices per
share of the Stock on the NYSE as reported for each of the last five (5)
business days of February in each Plan Year.
1.2.11 DEFERRABLE COMPENSATION ? that portion of a participant's Gross Cash
Compensation for services rendered in a Plan Year which exceeds $100,000.
1.2.12. DISABILITY The disability of a Participant as defined in the Dain
Rauscher Retirement and Savings Plan.
1.2.13. DIVIDEND ADDITIONS The amounts deemed allocated, pursuant to
Section 4.2.3, to the Stock Account or Matching Stock Account of a Participant
that are attributable to dividends declared by the Company on its outstanding
Stock.
1.2.14. ELECTION FORM The form setting forth the Voluntary Deferred
Compensation, investment and distribution elections to be made by a Participant
with respect to the Gross Cash Compensation payable in any Plan Year, as such
form may be established or modified by the Committee from time to time.
3
<PAGE> 8
1.2.15 GROSS CASH COMPENSATION Recognized Compensation as defined in the
Dain Rauscher Retirement and Savings Plan earned by a Participant for services
rendered during a Plan Year, whether or not paid in such Plan Year.
1.2.16. IN-SERVICE ELECTION The election of a Participant to cause the
distribution of the amounts credited to such Participant's Accounts to be made
upon the earlier to occur of a specified date or the date of Retirement. If an
In-Service Election is made with respect to Voluntary Deferred Compensation
prior to the date on which any matching amount provided for herein with respect
thereto has fully vested, then the unvested portions thereof shall be forfeited
on the date of any distribution. Neither the Mandatory Deferred Compensation nor
any matching amount with respect thereto shall be distributed pursuant to an
In-Service Election.
1.2.17. MANDATORY DEFERRED COMPENSATION -- that percentage of the Gross
Cash Compensation which the Committee has required to be deferred by a
Participant in accordance with the Plan
1.2.18. MATCHING CASH ACCOUNT The Account of the Plan in which a
Participant's deemed cash allocations relating to any portion of a Company Match
(and related Dividend Additions) that has been deemed not to have been invested
in Stock are credited.
1.2.19. MATCHING STOCK ACCOUNT The Account of the Plan in which a
Participant's deemed investments in Stock using the Company Match (and related
Dividend Additions) are credited pursuant to Section 4.2.1.
1.2.20. NYSE The New York Stock Exchange, Inc.
1.2.21. PARTICIPANT An employee of the Company who has become and remains a
participant in the Plan in accordance with the provisions of the Plan Statement.
1.2.22. PLAN The Dain Rauscher Management Deferred Stock Plan.
1.2.23. PLAN STATEMENT This document entitled, DAIN RAUSCHER MANAGEMENT
DEFERRED STOCK PLAN, as adopted and made effective in accordance with Section
1.1, as the same may be amended from time to time.
1.2.24. PLAN YEAR The twelve (12) consecutive month period ending on any
December 31.
1.2.25. RETIREMENT The separation of employment from the Company of a
Participant, other than due to such Participant's death, Disability or
termination for cause pursuant to Section 5.3.
4
<PAGE> 9
1.2.26. SUBSIDIARY SALE The sale by the Company of all of the issued and
outstanding capital stock of any subsidiary of the Company that employs any
Participants.
1.2.27. STOCK The Common Stock, par value $0.125 per share, of Dain
Rauscher Corporation, or any security into which such Common Stock may be
changed or converted (or with which it may be exchanged) as a result of any
merger, consolidation, reorganization, recapitalization, change in corporate
structure or other similar event.
1.2.28. STOCK ACCOUNT The Account of the Plan in which a Participant's
deemed investments in Stock using his Deferrable Compensation (and related
Dividend Additions) are credited pursuant to Section 4.2.1.
1.2.29. VOLUNTARY DEFERRED COMPENSATION That percentage of the Gross Cash
Compensation that a Participant has voluntarily elected to defer with respect to
any Plan Year.
1.3. RULES OF INTERPRETATION Whenever appropriate, words used herein in the
singular may be read in the plural, or words used herein in the plural may be
read in the singular; the masculine may include the feminine and the words
hereof, herein or hereunder or other similar compounds of the word here shall
mean and refer to this entire Plan Statement and not to any particular paragraph
or section of this Plan Statement unless the context clearly indicates to the
contrary. The titles given to the various sections of this Plan Statement are
inserted for convenience of reference only and are not part of this Plan
Statement. and they shall not be considered in determining the purpose, meaning
or intent of any provision hereof. Any reference in this Plan Statement to a
statute or regulation shall be considered also to mean and refer to any
subsequent amendment or replacement of that statute or regulation. This
instrument has been executed and delivered in the State of Minnesota and has
been drawn in conformity to the laws of that State and shall be construed and
enforced in accordance with the laws of the State of Minnesota.
SECTION 2
ELIGIBILITY AND PARTICIPATION
Members of the Company's Executive Committee and the Company's Senior Management
Group, as determined by the Committee (or, in each case, any successor Committee
thereto), are eligible for participation in the Plan. In addition, any other
select or highly compensated employees of the Company who are designated in
writing by the Committee as persons eligible to be Participants shall be
eligible for participation in the Plan.
SECTION 3
MANDATORY AND VOLUNTARY
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ELECTIONS TO DEFER COMPENSATION
3.1 MANDATORY DEFERRAL OF COMPENSATION. In connection with designating an
employee of the Company as being eligible to be a Participant under the Plan,
the Committee may also designate a percentage of such an employee's Gross Cash
Compensation which must be deferred in accordance with the further provisions of
this Plan, the Participant's Mandatory Deferred Compensation. Any such mandatory
deferral of a Participant's Gross Cash Compensation by the Committee shall be
made at any time on or prior to December 31 of any calendar year.
3.2. ELECTION TO DEFER COMPENSATION A Participant may participate further in the
Plan by electing to defer, in accordance with the further provisions of this
Plan, a percentage of the Gross Cash Compensation, other than the Mandatory
Deferred Compensation, that he would otherwise receive with respect to services
to be rendered in a Plan Year and include in his gross income when paid in the
subsequent Plan Year. For the Gross Cash Compensation to be earned for services
performed in a particular Plan Year, an election must be made no later than
December 31 of the Plan Year immediately preceding the Plan Year in which such
Gross Cash Compensation will be earned. Subject to such changes as may be
determined by the Committee, such a Voluntary Deferred Compensation election
must be made by delivering to the Company a signed and completed Election Form
which is accepted by the Company no later than such December 31.
3.2.1. DEFERRAL ELECTIONS FOR 2000 To be eligible to defer a portion of the
Gross Cash Compensation otherwise payable for services to be performed in the
Plan Year ended December 31, 2000, a Participant must sign and complete an
Election Form governing his deferral elections so that the Company receives and
accepts such Election Form no later than December 31, 1999.
3.2.2. DEFERRAL ELECTIONS FOR NEW PARTICIPANTS Except as set forth in
Section 3.1.1 hereof, each employee of the Company who becomes newly eligible to
participate in the Plan pursuant to Section 2 (New Participants) shall, in
general, have thirty (30) days from the date of such new eligibility to elect to
defer a percentage of his Gross Cash Compensation payable in the Plan Year
following the Plan Year in which such election is made.
3.3. MAXIMUM DEFERRAL PERCENTAGE The maximum percentage of the Voluntary
Deferred Compensation that may be deferred under this Plan shall be determined
from time to time by the Committee, but in no event shall such percentage exceed
ten percent (10%) of the Participant's Gross Cash Compensation for any Plan
Year.
3.4. DEFERRAL ALTERNATIVES Upon electing to participate in the Plan, subject to
such terms and conditions as the Committee may from time to time impose, a
Participant shall elect, with respect to the Voluntary Deferred Compensation for
any Plan Year, the timing of distribution of the amounts allocated to his
Accounts attributable to his deemed investment election.
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3.4.1. INVESTMENTS All amounts deferred hereunder for 1999 and thereafter,
both the Mandatory Deferred Compensation and the Voluntary Deferred
Compensation, shall be credited to a Participant's Stock Account.
3.4.2. DISTRIBUTION ELECTION. At the same time that a Participant elects to
participate in the Plan with respect to any Plan Year and makes his Voluntary
Deferred Compensation deferral, such Participant shall also elect the timing of
the distribution of the amounts credited to such Participant's Accounts with
respect to any such Voluntary Deferred Compensation by delivering a signed and
completed Election Form to the Company. Unless the following distribution
elections are subsequently amended or otherwise modified by the Committee, a
Participant may only elect one of the following alternatives with respect to
distributions attributable to any Gross Cash Compensation for any Plan Year,
other than any Mandatory Deferred Compensation and any matching amounts with
respect thereto which are not eligible for distribution pursuant to an
In-Service Election:
(a) In-Service Election distribution, or
(b) a distribution upon his Retirement (including an Approved
Retirement) in accordance with the terms set forth in Section
6.1.1(b) below.
All distribution elections for amounts deferred pursuant to elections made prior
to the date of amendment and restatement of the Plan shall remain in full force
and effect and may not be changed.
SECTION 4
DEFERRED COMPENSATION ACCOUNTS
4.1. ESTABLISHMENT OF ACCOUNTS The amount of benefits to be paid by the Company
to each Participant under this Plan shall be determined by reference to the
Accounts to be established and maintained by the Company for each Participant.
Such Accounts shall be established for bookkeeping purposes only and shall not
be considered as, or as evidence of the creation of, a trust fund or a transfer
or other segregation of assets for the benefit of the Participants or their
designated beneficiaries. Such Accounts will be composed of a Cash Account, a
Matching Cash Account, a Stock Account and a Matching Stock Account for each
Participant and such other accounts as the Committee may from time to time
authorize, and to the extent in existence on the date of the amendment and
restatement of the Plan, with a credit thereto, a Bond Account.
4.2. CREDITS TO ACCOUNTS
4.2.1. STOCK ACCOUNT AND MATCHING STOCK ACCOUNT The entire amount of any
Mandatory Deferred Compensation, and if a Participant elects to have Voluntary
Deferred Compensation the entire amount thereof, shall be allocated and credited
to a Participant's Stock Account pursuant to Section 3.4.1. In addition, such
Participant's Matching Stock Account may also
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be credited with the Company Match relating to the Mandatory Deferred
Compensation and the Voluntary Deferred Compensation. The amount of the Company
Match credited to such Participant's Matching Stock Account, if any, shall be
based on a table of possible Company Match percentages published by the
Committee with respect to each Plan Year. Such Participant's Stock Account shall
be deemed to have been allocated that number of whole shares of Stock, rounded
down to the nearest share, resulting from dividing the portion of his Mandatory
and Voluntary Deferred Compensation allocated to the Stock Account by the
Conversion Price, and his Matching Stock Account shall be deemed to have been
allocated that number of whole shares of Stock, rounded down to the nearest
share, resulting from dividing the Company Match, if any, by the Conversion
Price. The amount of Mandatory and Voluntary Deferred Compensation equal to the
fraction of a share resulting from such calculation, if any, shall be deemed to
have been allocated to such Participant's Cash Account. The amount of Company
Match equal to the fraction of a share resulting from such calculation, if any,
shall be deemed to have been allocated to such Participant's Matching Cash
Account.
4.2.2. BOND ACCOUNT If a Participant previously elected to have any portion
of his Gross Cash Compensation for any Plan Year credited to the Bond Account,
then such Participant's Bond Account shall be maintained in accordance with the
terms of the Plan as set forth herein. Except as provided in Section 4.2.4, no
further additions to or transfers to other deemed investments from a
Participant's Bond Account are permitted under the Plan.
4.2.3. DIVIDEND ADDITIONS TO STOCK ACCOUNTS
4.2.3.1. STOCK ACCOUNT At such times as dividends are declared by the
Company on the outstanding shares of Stock, a determination shall be made of the
number of shares of Stock which are credited to a Participant's Stock Account on
the dividend record date, and an amount equal to such total number of shares of
Stock multiplied by the declared dividend per share of Stock shall be credited,
on the date such dividends are paid by the Company, initially to such
Participant's Cash Account (if the dividends are declared in cash) or to such
Participant's Stock Account (if the dividends are declared in shares of Stock),
or other fund determined by the Committee. Thereafter, all funds credited to a
Participant's Cash Account under this Plan shall be deemed to have been used to
purchase shares of Stock once, at the end of each calendar quarter in which such
funds were initially credited. The number of additional shares of Stock credited
to each Participant's Stock Account after the end of each Plan Year due to
deemed purchases with the credited cash dividends (and other deemed cash
allocations made to the Cash Account under this Plan) shall be equal to the
number of whole shares, rounded down, derived by dividing the total amount of
cash credited to the Participant's Cash Account by the average of the reported
closing prices per share of Stock on the NYSE as reported for each of the five
(5) business days preceding the date of the deemed purchase of the Stock
credited to such Participant's Stock Account under this Section 4.2.3.1. Any
credited cash hereunder that would otherwise be deemed to have been used to
purchase a fractional share of Stock shall, instead, continue to be credited to
the Participant's Cash Account. The Company will provide no Company Match for
the deemed purchases of Stock credited to a Participant's Stock Account pursuant
to this Section 4.2.3.1.
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4.2.3.2. MATCHING STOCK ACCOUNT At such times as dividends are
declared by the Company on the outstanding shares of Stock, a determination
shall be made of the number of shares of Stock which are credited to a
Participant's Matching Stock Account on the dividend record date, and an amount
equal to such total number of shares of Stock multiplied by the declared
dividend per share of Stock shall be credited, on the date such dividends are
paid by the Company, initially to such Participant's Matching Cash Account (if
the dividends are declared in cash) or to such Participant's Matching Stock
Account (if the dividends are declared in shares of Stock), or other fund
determined by the Committee. Thereafter, all funds credited to a Participant's
Matching Cash Account under this Plan shall be deemed to have been used to
purchase shares of Stock once, at the end of each calendar quarter. The number
of additional shares of Stock credited to each Participant's Matching Stock
Account after the end of each Plan Year due to deemed purchases with the
credited cash dividends (and other deemed cash allocations made to the Matching
Cash Account under this Plan) shall be equal to the number of whole shares,
rounded down, derived by dividing the total amount of cash credited to the
Participant's Matching Cash Account by the average of the reported closing
prices per share of Stock on the NYSE as reported for each of the five (5)
business days preceding the date of the deemed purchase of the Stock credited to
such Participant's Matching Stock Account under this Section 4.2.3.2. Any
credited cash hereunder that would otherwise be deemed to have been used to
purchase a fractional share of Stock shall, instead, continue to be credited to
the Participant's Matching Cash Account. The Company will provide no Company
Match for the deemed purchases of Stock credited to Participant's Matching Stock
Account pursuant to this Section 4.2.3.2.
4.2.4. INTEREST ADDITIONS TO BOND ACCOUNT. On the last business day of each
calendar quarter, or on such other date as may from time to time be determined
by the Committee, based on the balance in a Participant's Bond Account as of the
first business day of such quarter, an amount equal to the product of such
balance of a Participant's Bond Account and the interest rate for such quarter,
as determined by the Committee, shall be deemed allocated to such Participant's
Bond Account. The Company will provide no Company Match for any amounts credited
to a Participant's Bond Account pursuant to this Section 4.2.4.
4.3. CHARGES AGAINST ACCOUNTS. On each date that a distribution is made by, or
on behalf of, the Company under this Plan to a Participant, the amount of such
distribution shall, as determined by the Committee, be charged against, and
shall reduce the remaining credited balance of, the appropriate Account or
Accounts of such Participant. The Company also reserves the right to charge
Participant Accounts with reasonable out-of-pocket costs incurred by the Company
in the administration and record-keeping for the Plan.
SECTION 5
VESTING
5.1. VESTING OF INVESTMENTS ATTRIBUTABLE TO VOLUNTARY DEFERRED COMPENSATION As
of any date, all amounts credited to the Stock Account or the Cash Account,
solely to the extent of and on
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account of a Voluntary Deferred Compensation of a Participant as of such date,
and the Bond Account shall be fully vested.
5.2. VESTING OF MANDATORY DEFERRED COMPENSATION AND INVESTMENTS IN MATCHING
STOCK ACCOUNT AND MATCHING CASH ACCOUNT Except as hereinafter provided in this
Section 5.2, and subject to acceleration or modification by the Committee,
deemed investments credited to the Stock Account, to the extent of and on
account of Mandatory Deferred Compensation, Matching Stock Account and Matching
Cash Account of a Participant, shall become vested on the date or dates
determined by the Committee; provided that, such Participant must be employed by
the Company on such date.
The Committee shall announce any change in the vesting schedule with respect to
the foregoing accounts (and related Dividend Additions, if any) prior to
December 31 preceding each new Plan Year, except with respect to vesting of
Mandatory Deferred Compensation, which vesting schedule may be amended at the
time of the award thereof by the Committee. Unless otherwise amended by the
Committee, all time period measurements for the vesting schedules established by
the Committee shall commence on the January 1 of the Plan Year in which Gross
Cash Compensation is paid.
5.2.1. APPROVED RETIREMENT Subject to acceleration or modification by the
Committee, all deemed investments credited to the Stock Account, to the extent
of and on account of Mandatory Deferred Compensation, Matching Stock Account and
Matching Cash Account of a Participant that would not otherwise be fully vested
in accordance with the applicable vesting schedule determined by the Committee,
will automatically vest in full for a Participant upon the one-year anniversary
of his Approved Retirement; provided that, such vesting shall be subject to
forfeiture as set forth in the Participant's non-competition, non-solicitation
and related agreement with the Company.
5.2.2. VESTING UPON DEATH OR DISABILITY The vesting in full of all
Accounts, including deemed investments, of a Participant who dies or acquires a
Disability after the effective date of the Plan will automatically accelerate to
the date of the occurrence of death or Disability of the Participant.
5.2.3. FULL VESTING UPON CHANGE IN CONTROL Notwithstanding the terms of any
vesting schedule established by the Committee pursuant to Section 5.2, all
Accounts, including all deemed investments, of a Participant who is employed by
the Company as of the date of a Change in Control of the Company shall be fully
vested immediately upon such Change in Control.
5.2.4. FULL VESTING UPON SALE OF SUBSIDIARY Notwithstanding the terms of
any vesting schedule established by the Committee pursuant to Section 5.2, all
Accounts of a Participant who is employed by any subsidiary of the Company as of
the date of a Subsidiary Sale of such subsidiary and who does not continue to be
employed by the Company or any of its other subsidiaries immediately thereafter
shall be fully vested immediately upon such Subsidiary Sale.
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5.3. TERMINATION FOR CAUSE Notwithstanding anything to the contrary in this
Section 5, if a Participant ceases to be employed by the Company at any time
prior to the distribution of any amount hereunder due to gross or willful
misconduct during the course of his employment, including theft or commission of
a gross misdemeanor or felony, (i) all deemed investments, whether or not
vested, credited to any Matching Stock Account, or Matching Cash Account, and
(ii) the vested and unvested portion of the Stock Account, to the extent of and
on account of Mandatory Deferred Compensation, of such Participant shall be
automatically forfeited by the Participant upon his employment termination;
provided, however, that no portion of the Stock Account to the extent of and on
account of Voluntary Deferred Compensation, shall be forfeited.
5.4. FORFEITURES Except as otherwise specifically set forth in this Section 5,
all amounts attributable to deemed investments credited to a Participant's Stock
Account, to the extent of and on account of Mandatory Deferred Compensation,
Matching Stock Account, or Matching Cash Account that are not vested at the
Participant's employment termination date shall be deemed forfeited and such
Participant's Accounts shall be appropriately reduced; provided, however, that,
at the discretion of the Company and in connection with a Participant's
termination of employment with the Company, if the Participant enters into a
release agreement, with such terms and conditions as the Company may, in its
sole discretion, determine, including without limitation, one or more covenants
relating to non-competition, non-solicitation and confidentiality, then the
Participant's Matching Stock Account and Matching Cash Account may be partially
or fully vested as of the date of such a termination of employment.
SECTION 6
DISTRIBUTIONS
6.1. DISTRIBUTIONS TO PARTICIPANTS
6.1.1. FORM OF DISTRIBUTION; TAX WITHHOLDING Subject to such terms and
conditions as the Committee may from time to time impose, and to the forfeiture
conditions of Section 5 with respect to a Participant's Matching Stock Account
and Matching Cash Account:
(a) distributions of all of a Participant's vested Stock or Cash
Accounts, solely to the extent of and on account of Voluntary
Deferred Compensation, pursuant to an In-Service Election shall be
made:
(i) in a single payment, if the In-Service Election is triggered by
the date certain selected by the Participant on his Election
Form, or
(ii) in two annual installments, the first of which shall be equal
to fifty percent (50%) of all amounts deemed allocated to such
Participant's Accounts on the first payment date (less amounts
required to be
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withheld, as described below) and the second of which shall be
equal to all amounts deemed allocated to such Participant's
Accounts on the second payment date (less all amounts required
to be withheld, as described below), if the In-Service
Election is triggered by the Participant's Retirement prior to
the date certain selected by the Participant on his Election
Form;
(b) distributions of all of a Participant's Accounts pursuant to a
Retirement Election or such Participant's Approved Retirement shall
be made in two annual installments, each of which shall be equal to
fifty percent (50%) of all amounts deemed allocated to such
Participant's Accounts on the first payment date (less amounts
required to be withheld, as described below); provided, however,
that a Participant shall be entitled to change, on a one-time basis
only, such Participant's Retirement Election with respect to an
Approved Retirement to extend the number of post-Approved Retirement
installment payments described in this Section 6.1.1(b) from two
equal annual installments to either three, four or five equal,
annual installments; and provided further, that any such change in
his Approved Retirement Election must be made at least twelve (12)
months prior to the effective date of such Participant's Approved
Retirement;
(c) distributions of all of a Participant's Accounts (less amounts
required to be withheld, as described below) following his death or
Disability shall be made in a single payment;
(d) distributions of all of a Participant's Accounts (less amounts
required to be withheld, as described below) upon the occurrence of
a Change of Control shall be made in a single payment;
(e) distributions of all of a Participant's Accounts (less amounts
required to be withheld, as described below) upon the occurrence of
a Subsidiary Sale shall be made in a single payment; and
(f) distributions of all of a Participant's Accounts (less amounts
required to be withheld, as described below) as set forth in any
elections made prior to the date of the amendment and restatement of
the Plan, but only on account of Gross Cash Compensation deferrals
made prior to said date.
All amounts credited to a Participant's Stock Account and Matching Stock Account
shall only be distributed in shares of Stock, less the number of shares needed
to satisfy withholding requirements with respect to all applicable federal,
state and local taxes. The value of each share of Stock credited to a
Participant's Stock Account and Matching Stock Account shall be equal to the
closing price per
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share of Stock on the NYSE as reported for the business day preceding the
distribution date set forth in Section 6.1.2. Unless otherwise determined by the
Committee, a Participant's Bond Account, Cash Account and Matching Cash Account
shall be distributed in cash, less the amount of cash needed to satisfy
withholding requirements with respect to all applicable federal, state and local
taxes. In connection with the Company's obligation, as provided herein, to
satisfy withholding requirements with respect to all applicable federal, state
and local taxes, appropriate reductions and charges against a Participant's
Accounts may be made as determined from time to time by the Committee for the
purpose of collecting and paying, as required by law, a Participant's FICA
taxes.
6.1.2. TIMING OF DISTRIBUTION Subject to such terms and conditions as the
Committee may, from time to time, impose:
(a) distributions of the Accounts of a Participant pursuant to an
In-Service Election shall be made: (i) on or as soon as
administratively feasible following the date selected by such
Participant on his Election Form if the distribution is due to an
In-Service Election triggered by the date certain selected by the
Participant on his Election Form or (ii) on or as soon as
administratively feasible following January 15 of the Plan Year
following the date of his Retirement (and the January 15 of the
second Plan Year following his Retirement date) if the distribution
is due to an In-Service Election triggered by the Participant's
Retirement prior to the date certain selected by the Participant on
his Election Form;
(b) distributions of the Accounts of a Participant due to a Retirement
Election shall be payable on January 15, or as soon as
administratively feasible following such date, of each Plan Year
following the Plan Year in which his Retirement or Approved
Retirement occurred, as described in Section 6.1.1(b) above;
(c) distributions of the Accounts of a Participant following the death
or Disability of a Participant shall be made as soon as
administratively feasible following the end of the next calendar
quarter;
(d) distributions of the Accounts of a Participant due to a Change in
Control shall be made as soon as administratively feasible, but in
no case later than sixty (60) days, after the occurrence of the
Change in Control; and
(e) distributions of the Accounts of a Participant due to a Subsidiary
Sale shall be made as soon as administratively feasible following
the end of the next calendar quarter following such sale.
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6.2. DISTRIBUTIONS TO BENEFICIARIES Distribution of the Accounts of a
Participant who dies before payment to such Participant is made shall commence
or be made to such Participant's Beneficiary as soon as administratively
feasible.
6.3. DESIGNATION OF BENEFICIARY Each Participant shall have the right to
designate in writing, in form satisfactory to the Committee, one or more
beneficiaries to receive the unpaid balance of the Participant's Account in the
event of his death prior to receiving full distribution thereof, and may change
or revoke any prior Beneficiary designation by a similar instrument in writing
prior to his death. If a Participant shall fail to designate a Beneficiary or,
having revoked a prior Beneficiary designation, shall fail to designate a new
Beneficiary, or in the event the Participant's Beneficiary designation shall
fail, in whole or in part, by reason of the prior death of a designated
Beneficiary or for any other cause, then the undistributed balance of the
Participant's Accounts, or the portion thereof as to which such designation
shall fall, as the case may be, shall be paid to the personal representative of
the Participant's estate.
6.4. DISCLAIMERS BY BENEFICIARIES A Beneficiary entitled to a distribution of
all or a portion of a deceased Participant's Accounts may disclaim his interest
therein subject to the following requirements. To be eligible to disclaim, a
Beneficiary must be a natural person, must not have received a distribution of
all or any portion of such Accounts at the time such disclaimer is executed and
delivered, and must have attained at least age twenty-one (21) years as of the
date of the Participant's death. Any disclaimer must be in writing and must be
executed personally by the Beneficiary before a notary public. A disclaimer
shall state that the Beneficiary's entire interest in the undistributed Accounts
is disclaimed or shall specify what portion thereof is disclaimed. To be
effective, duplicate original executed copies of the disclaimer must be both
executed and actually delivered to the Committee after the date of the
Participant's death but not later than one hundred eighty (180) days after the
date of the Participant's death. A disclaimer shall be irrevocable when
delivered to the Committee. A disclaimer shall be considered to be delivered to
the Committee only when actually received by the Committee. The Committee shall
be the sole judge of the content, interpretation and validity of a purported
disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be
considered not to have survived the Participant as to the interest disclaimed. A
disclaimer by a Beneficiary shall not be considered to be a transfer of an
interest in violation of the provisions of Section 8 and shall not be considered
to be an assignment or alienation of benefits in violation of any law
prohibiting the assignment or alienation of benefits under this Plan. No other
form of attempted disclaimer shall be recognized by the Committee.
SECTION 7
SPENDTHRIFT PROVISIONS
Neither any Participant nor any Beneficiary of any Participant shall have any
transferable interest in the Participant's Accounts nor any right to anticipate,
alienate, dispose of, pledge or encumber the same prior to actual receipt of
payments in accordance with Section 6, nor shall the same be subject
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to attachment, garnishment, execution following judgment or other legal process
instituted by creditors of the Participant or any such Beneficiary.
SECTION 8
ADMINISTRATIVE DETERMINATIONS
8.1. THE COMMITTEE Full power and authority to construe, interpret, and
administer this Plan Statement shall be vested solely in the Committee, The
Committee shall have the full power and authority to make each determination
provided for in this Plan Statement and, in this connection, to promulgate such
rules and regulations as the Committee considers necessary or appropriate for
the implementation and management of this Plan, including the power to designate
a management committee to assist in the operation and administration of the Plan
and to determine eligibility to participate in the Plan. All determinations made
by the Committee shall be conclusive upon the Company, each Participant and
former Participant and their designees and Beneficiaries.
8.2. CLAIMS PROCEDURE If any Participant or Beneficiary is in disagreement with
any determination that has been made for payment under this Plan, a claim may be
presented.
8.2.1. MAKING A CLAIM The claim must be written and must be delivered to
the Committee. Within 90 days after the claim is delivered, the claimant will
receive either: (a) a decision or (b) a notice describing special circumstances
requiring a specified amount of additional time (but no more than 180 days from
the day the claim was delivered) to reach a decision.
If the claim is wholly or partially denied, the claimant will receive a
written notice specifying: (a) the reasons for denial; (b) the Plan provisions
on which the denial is based; and (c) any additional information needed in
connection with the claim and the reason such information is needed. Notice of
the claimant's right to request a review (as described in Paragraph 8.2.2 below)
will also be given to the claimant.
8.2.2. REQUESTING REVIEW OF A DENIED CLAIM A claimant may request that a
denied claim be reviewed. The request for review must be written and must be
delivered to the Committee within 60 days after claimant's receipt of written
notice that the claim was denied. A request for review may (but is not required
to) include issues and comments the claimant wants considered in the review. The
claimant may examine pertinent Plan documents by asking the Committee. Within 60
days after delivery of a request for review, claimant will receive either: (i) a
decision; or (ii) a notice describing special circumstances requiring a
specified amount of additional time (but no more than 120 days from the day the
request for review was delivered) to reach a decision.
The decision will be in writing and will specify the Plan provisions on
which it is based.
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8.2.3. IN GENERAL All decisions on claims and on reviews of denied claims
will be made by the Committee. The Committee may, in its discretion, hold one or
more hearings. If a claimant does not receive a decision within the specified
time, the claimant should assume the claim was denied or re-denied on the date
the specified time expired. The claimant may, at the claimant's own expense,
have an attorney or other representative act on behalf of the claimant, but the
Committee reserves the right to require a written authorization. The Committee
also reserves the right to delegate its authority to make decisions.
SECTION 9
OTHER ADMINISTRATIVE MATTERS
9.1. REPORTS TO PARTICIPANTS As soon after each March 31 as is administratively
feasible, the Company shall prepare and deliver to each Participant a report
showing: (i) the total value of the Participant's Account as of the end of the
preceding Plan Year (ii) the amounts credited to the Participant's Accounts
since the last report from the Company; and (iii) the amounts of any
distributions made pursuant to Section 6 since the last report from the Company.
At its discretion, the Company may prepare and deliver more frequent reports to
Participants.
9.2. PARTICIPANTS ARE GENERAL CREDITORS OF THE COMPANY Benefits due under this
Plan shall be paid out of the general funds of the Company. The Participants and
Beneficiaries shall not have any preferred interest by way of trust, escrow,
lien or otherwise in any specific assets of the Company. If the Company shall,
in fact, elect to set aside monies or other assets to meet its obligations
hereunder (there being no obligation to do so), the same shall, nevertheless, be
regarded as a part of the general assets of the Company subject to the claims of
its general creditors, and neither any Participant nor any Beneficiary of any
Participant shall have a legal, beneficial, or security interest therein.
9.3. DISCLAIMER OF EMPLOYMENT AND COMPENSATION The Plan is not a contract for
employment and does not grant any employee the right to be retained in the
employment of the Company or to obtain any particular level of Gross Cash
Compensation. Upon dismissal or severance of employment, no Participant shall
have any right or interest under the Plan, other than as specifically provided
herein.
9.4. NO COMPENSATION UNDER THE DAIN RAUSCHER RETIREMENT AND SAVINGS PLAN No
amounts of Deferred Compensation and related Company Matches, if any, credited
to any Account of a Participant under the Plan shall constitute recognized
compensation for purposes of the Dain Rauscher Retirement and Savings Plan, as
such term is defined in each of those plans.
SECTION 10
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AMENDMENT OR TERMINATION
10.1. AMENDMENT OR TERMINATION This Plan may be amended or terminated at any
time by the Committee or members of the Board of Directors of the Company who
would qualify as members of the Committee, but no such amendment or termination
shall have the effect of reducing the amounts credited to the Stock Account,
Cash Account or Bond Account of any Participant or the vested portion of his
Matching Stock Account or Matching Cash Account (as determined pursuant to
Section 5) or of changing the distribution rights (as provided in Section 6) of
any Participant, without the consent of such Participant.
10.2. MERGER The Committee may cause all or part of this Plan to be merged with
all or a part of any other nonqualified deferred compensation plan maintained by
Company. If the Committee agrees to such a merger, the Committee shall specify
in writing the terms and conditions of such merger and shall obtain such
consents and agreements as it deems necessary or desirable.
10.3. APPLICABILITY TO SUCCESSORS This Plan shall be binding upon and inure to
the benefit of the Company and each Participant, the successors and assigns of
the Company, and the Beneficiaries, personal representatives and heirs of each
Participant. If the Company becomes a party to any merger, consolidation or
reorganization, this Plan shall remain in full force and effect as an obligation
of the Company or its successors in interest.
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================================================================================
DAIN RAUSCHER WEALTH ACCUMULATION PLAN
EFFECTIVE AS OF APRIL 15, 1995
(AS AMENDED AND RESTATED AS OF DECEMBER 1, 1999)
================================================================================
<PAGE> 2
DAIN RAUSCHER WEALTH ACCUMULATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1 INTRODUCTION ...............................................................................1
1.1. Statement of the Plan
1.2. Definitions
1.2.1. Accounts
1.2.2. Approved Retirement
1.2.3. Beneficiary
1.2.4. Board of Directors
1.2.5. Cash Account
1.2.6. Change in Control
1.2.7. Committee
1.2.8. Company
1.2.9. Conversion Price
1.2.10. Dain Rauscher Interest Account
1.2.11. Dain Rauscher Interest Rate
1.2.12. Deferrable Compensation
1.2.13. Deferred Compensation
1.2.14. Deferred Compensation Percentage
1.2.15. Disability
1.2.16. Dividend Additions
1.2.17. Election Form
1.2.18. Employer Match
1.2.19. Fund Additions
1.2.20. Gross Cash Compensation
1.2.21. In-Service Election
1.2.22. Mandatory Deferred Compensation
1.2.23. Mandatory Stock Account
1.2.24. Matchable Deferred Compensation
1.2.25. Matching Cash Account
1.2.26. Matching Percentage
1.2.27. Matching Stock Account
1.2.28. Matching Threshold Amount
1.2.29. Mutual Fund
1.2.30. Mutual Fund Account
1.2.31. Mutual Fund Price
1.2.32. NYSE
1.2.33. Participant
</TABLE>
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<TABLE>
<S> <C> <C> <C>
1.2.34. Participating Subsidiary
1.2.35. Plan
1.2.36. Plan Statement
1.2.37. Plan Year
1.2.38. Retirement
1.2.39. Retirement Election
1.2.40. Subsidiary Sale
1.2.41. Stock
1.2.42. Stock Account
1.2.43. Voluntary Deferred Compensation
1.3. Rules of Interpretation
SECTION 2 ELIGIBILITY AND PARTICIPATION ..............................................................7
2.1. Eligible Employees
2.2. Ineligibility of Board and Committee Members
2.3. Ineligibility of Senior Management
2.4. Limits Applicable to Other Officers
SECTION 3 ELECTION TO DEFER COMPENSATION .............................................................8
3.1. Mandatory Deferral Compensation
3.1.1. Voluntary Election to Defer Compensation
3.2. Maximum Deferred Compensation Percentage
3.3. Deferral Alternatives
3.3.1. Investment Election
3.3.2. Distribution Election
SECTION 4 DEFERRED COMPENSATION ACCOUNTS .............................................................9
4.1. Establishment of Accounts
4.2. Credits to Accounts
4.2.1. Stock Account, Matching Stock Account and
Mandatory Stock Account
4.2.2. Dain Rauscher Interest Account and Matching
Stock Account
4.2.3. Mutual Fund Account
4.2.4. Intra-Plan Transfer
4.2.5. Dividend Additions to Stock Accounts
4.2.6. Additions to Dain Rauscher Interest Account
4.2.7. Fund Additions to Mutual Fund Account
4.3. Intra-Plan Transfers
</TABLE>
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<TABLE>
<S> <C> <C>
4.3.1. Basic Transfer Rules
4.3.2. Transfers Prior to Full Vesting
4.3.3. No Matching with Respect to Amounts
Transferred Hereunder
4.4. Charges Against Accounts for Benefit Payments
SECTION 5 VESTING ...................................................................................14
5.1. Vesting of Investments Attributable to Deferred Compensation
5.2. Vesting of Investments in Matching Stock Account, Mandatory
Stock Account and Matching Cash Account
5.2.1. Approved Retirement
5.2.2. Full Vesting Upon Death or Disability
5.2.3. Full Vesting Upon Change in Control
5.2.4. Full Vesting Upon Sale of Subsidiary
5.2.5. Termination for Cause
5.2.6. Forfeitures
SECTION 6 DISTRIBUTIONS .............................................................................16
6.1. Distributions to Participants
6.1.1. Form of Distribution; Tax Withholding
6.1.2. Timing of Distribution
6.2. Distributions to Beneficiaries
6.3. Designation of Beneficiary
6.4. Disclaimers by Beneficiaries
SECTION 7 SPENDTHRIFT PROVISIONS ....................................................................20
SECTION 8 ADMINISTRATIVE DETERMINATIONS .............................................................21
8.1. The Committee
8.2. Claims Procedure
8.2.1. Making a Claim
8.2.2. Requesting Review of a Denied Claim
8.2.3. In General
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 9 OTHER ADMINISTRATIVE MATTERS ..............................................................21
9.1. Reports to Participants
9.2. Participants Are General Creditors of the Company and
Participating Subsidiaries
9.3. Disclaimer of Employment and Bonus Rights
9.4. No Compensation Under the Dain Rauscher Retirement and
Savings Plan
9.5. Administrative Expenses of the Plan
SECTION 10 AMENDMENT OR TERMINATION ..................................................................22
10.1. Amendment or Termination
10.2. Merger
10.3. Applicability to Successors
</TABLE>
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DAIN RAUSCHER WEALTH ACCUMULATION PLAN
SECTION 1
INTRODUCTION
1.1. STATEMENT OF THE PLAN On February 1, 1995 the Board of Directors of Dain
Rauscher Corporation, a Delaware corporation, authorized the creation of this
plan on behalf of the Company and its Participating Subsidiaries (as such term
is hereinafter defined) to benefit a select group of management or highly
compensated employees of the Company and its Participating Subsidiaries, which
plan was made effective as of April 15, 1995. The Board (as such term is
hereinafter defined) subsequently amended this plan effective as of December 1,
1999.
1.2. DEFINITIONS When used herein with initial capital letters, the following
words have the following meanings:
1.2.1. ACCOUNTS The separate bookkeeping accounts representing the unfunded
and unsecured general obligations of the Company or a Participating Subsidiary,
as the case may be, established with respect to each Participant to which is
credited the amounts specified in Sections 3 and 4 and from which are subtracted
payments made pursuant to Section 6. Accounts shall be maintained by the Company
or the Participating Subsidiary, as appropriate, and shall include a
Participant's Stock Account, Matching Stock Account, Mandatory Stock Account,
Dain Rauscher Interest Account, one or more Mutual Fund Accounts, Cash Account
and Matching Cash Account.
1.2.2. APPROVED RETIREMENT The Retirement of a Participant (i) who has been
an employee of the Company or a Participating Subsidiary for ten (10) or more
years at the time of separation from service, (ii) who has entered into a
non-competition, non-solicitation and related agreement with the Company or a
Participating Subsidiary in the form then approved by the Committee and (iii)
with respect to deferrals made with respect to all Plan Years commencing with
2000, whose age upon Retirement is at least fifty (50). The non-competition
agreement shall require a Participant, for a one-year period, to refrain from
participating, directly or indirectly, in any business in which the Company or
Participating Subsidiary, as appropriate, is engaged at the time of such
Participant's Retirement in any geographic area in which the Company or
Participating Subsidiary, as appropriate, is competing at such time.
1.2.3. BENEFICIARY A person designated by the Participant (or automatically
by operation of the Plan Statement) to receive any benefit remaining at the
death of such Participant under the terms of the Plan Statement.
1.2.4. BOARD OF DIRECTORS The Board of Directors of the Company.
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1.2.5. CASH ACCOUNT The Account in which all of a Participant's deemed cash
allocations (other than the cash deemed allocated to such Participant's Matching
Cash Account) are credited pursuant to this Plan. The Cash Account shall not be
credited with interest, and shall not be deemed to be invested in any
interest-bearing item.
1.2.6. CHANGE IN CONTROL
(a) The public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Securities Exchange Act of 1934, as amended
(the Exchange Act)), that any person, entity or group, within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act,
other than the Company or any of its subsidiaries, or the Dain
Rauscher Retirement and Savings Plan or any other employee benefit
plan of the Company or any of its subsidiaries, or any entity
holding shares in Stock organized, appointed or established for, or
pursuant to the terms of, any such plan, has become the beneficial
owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of the combined voting power of the
Company's then outstanding voting securities in a transaction or
series of transactions;
(b) The Continuing Directors cease to constitute a majority of the
Company's Board of Directors;
(c) The shareholders of the Company approve (1) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
stock would be converted into cash, securities or other property,
other than a merger of the Company in which shareholders immediately
prior to the merger have the same proportionate ownership of stock
of the surviving corporation immediately after the merger; (2) any
sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of the Company; or (3) any plan of liquidation or dissolution
of the Company; or
(d) The majority of the Continuing Directors determine, in their sole
and absolute discretion, that there has been a change in control of
the Company.
"Continuing Director shall mean any person who is a member of the Board of
Directors of the Company and who, while a member of its Board of Directors, is
not an Acquiring Person (as hereinafter defined) or an Affiliate or Associate
(as hereinafter defined) of an Acquiring Person, or a representative of an
Acquiring Person or of any such Affiliate or Associate, and who (A) was a member
of the Board of Directors on December 1, 1996, or (B) subsequently becomes a
member of
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the Board of Directors, if such person's initial nomination for election or
initial election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors.
For purposes of this Section, Acquiring Person shall mean any person (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which,
together with all Affiliates and Associates of such person, is the "beneficial
owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding securities, but shall
not include the Company, any subsidiary of the Company or any employee benefit
plan of the Company or of any subsidiary of the Company or any entity holding
shares of Stock organized, appointed or established for, or pursuant to the
terms of, any such plan; and Affiliate and Associate shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
1.2.7. COMMITTEE The Compensation and Organization Committee designated by
the Board of Directors of the Company or any successor committee thereto
established by such Board of Directors to administer the Plan on behalf of the
Company and all Participating Subsidiaries.
1.2.8. COMPANY Dain Rauscher Corporation, a Delaware corporation, and any
successor thereof that adopts the Plan Statement.
1.2.9. CONVERSION PRICE The average of the reported closing prices per
share of the Stock on the NYSE as reported for each of the five (5) business
days immediately preceding the end of each calendar quarter and for the last
five (5) business days of February of each year.
1.2.10. DAIN RAUSCHER INTEREST ACCOUNT The bookkeeping Account in which all
of a Participant's deemed allocations which are to earn a rate of return equal
to the Dain Rauscher Interest Rate are credited pursuant to this Plan.
1.2.11. DAIN RAUSCHER INTEREST RATE The annual percentage rate of return on
a Participant's deemed investment in his or her Dain Rauscher Interest Account
which shall be determined from time to time by the Committee.
1.2.12. DEFERRABLE COMPENSATION That portion of a Participant's Gross Cash
Compensation for services rendered in a Plan Year which exceeds $100,000.
1.2.13. DEFERRED COMPENSATION The amount of Deferrable Compensation
actually deferred by a Participant under this Plan for any Plan Year.
1.2.14. DEFERRED COMPENSATION PERCENTAGE That percentage of the Deferrable
Compensation that a Participant has elected to defer with respect to any Plan
Year.
1.2.15. DISABILITY The disability of a Participant as defined in the Dain
Rauscher Retirement and Savings Plan.
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1.2.16. DIVIDEND ADDITIONS The amounts deemed allocated, pursuant to
Section 4.2.5, to the Stock Account, Matching Stock Account or Mandatory Stock
Account of a Participant that are attributable to dividends declared by the
Company on its outstanding Stock. Dividend Additions shall only apply with
respect to Stock that has been credited to one of the foregoing accounts as of
the date of payment, and no such Dividend Additions shall apply with respect to
Stock that is first credited to an account in February of any year.
1.2.17. ELECTION FORM The form setting forth the Deferred Compensation
Percentage, investment and distribution elections to be made by a Participant
with respect to the Deferrable Compensation payable for services to be rendered
in any Plan Year, as such form may be modified from time to time by the
Committee.
1.2.18. EMPLOYER MATCH The amount of the Matchable Deferred Compensation of
a Plan Participant for any Plan Year that the Company or a Participating
Subsidiary, as the case may be, shall be deemed to have matched by crediting
such Participant's Matching Stock Account and/or Matching Cash Account, as set
forth in Section 4.2.1 or Section 4.2.2.
1.2.19. FUND ADDITIONS The amounts deemed allocated, pursuant to Section
4.2.7, to the Mutual Fund Account of a Participant that are attributable to
interest or dividends paid or other distributions made in connection with a
Participant's deemed investment in a Mutual Fund.
1.2.20. GROSS CASH COMPENSATION "Recognized Compensation" as defined in the
Dain Rauscher Retirement and Savings Plan earned by a Participant for services
rendered during a Plan Year whether or not paid in such Plan Year.
1.2.21. IN-SERVICE ELECTION The election of a Participant to cause the
distribution of the amounts credited to such Participant's Accounts with respect
to any Plan Year to be made upon the earlier to occur of a specified date, which
must be the last business day of any calendar quarter (or such other date as may
be permitted by the Committee).
1.2.22. MANDATORY DEFERRED COMPENSATION That percentage of a Participant's
Gross Cash Compensation which the Committee has required to be deferred by a
Participant in accordance with the Plan.
1.2.23. MANDATORY STOCK ACCOUNT The Account in which a Participant's deemed
investments of Mandatory Deferred Compensation in Stock (and related Dividend
Additions) are credited pursuant to Section 3.3.1.
1.2.24. MATCHABLE DEFERRED COMPENSATION The amount by which a Participant's
Deferred Compensation under this Plan during a Plan Year exceeds the Matching
Threshold Amount for such Plan Year.
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1.2.25. MATCHING CASH ACCOUNT The Account in which a Participant's deemed
cash allocations relating to any portion of an Employer Match (and related
Dividend Additions) that has been deemed not to have been invested in Stock (or
in a Mutual Fund Account or the Dain Rauscher Interest Account following an
intra-Plan transfer pursuant to Section 4.3) are credited. The Matching Cash
Account shall not be credited with interest, and shall not be deemed to be
invested in any interest-bearing item.
1.2.26. MATCHING PERCENTAGE The percentages published from time to time by
the Committee which shall, in general, vary positively with the Company's
after-tax return on equity, as determined by the Committee, which shall be used
in calculating additions to a Participant's Matching Stock Account in the manner
described in Sections 4.2.1 and 4.2.2 of this Plan Statement, respectively.
1.2.27. MATCHING STOCK ACCOUNT The Account in which a Participant's deemed
investments in Stock relating to any portion of an Employer Match (and related
Dividend Additions) are credited pursuant to Sections 4.2.1 and 4.2.2.
1.2.28. MATCHING THRESHOLD AMOUNT An amount of Deferred Compensation
determined by the Committee with respect to each Plan Year in excess of which a
Participant's Deferred Compensation which is credited to such Participant's Cash
Account or Stock Account may become eligible for an Employer Match in accordance
with standards and guidelines determined annually by the Committee.
1.2.29. MUTUAL FUND The interest in, or units of, the two (2) or more
investment vehicles from time to time selected by the Committee, in its sole and
absolute discretion, as deemed alternative investments to the deemed investment
in Stock or the Dain Rauscher Interest Account described in this Plan Statement.
1.2.30. MUTUAL FUND ACCOUNT The Account in which a Participant's deemed
investments in a Mutual Fund are credited pursuant to Section 4.2.3.
1.2.31. MUTUAL FUND PRICE The closing price on the last business day of
each calendar quarter and as of the last business day of February of each year,
as determined by the Committee, of an interest in, or units of, the Mutual
Funds.
1.2.32. NYSE The New York Stock Exchange, Inc.
1.2.33. PARTICIPANT An employee of the Company or a Participating
Subsidiary who has become and remains a participant in the Plan in accordance
with the provisions of the Plan Statement.
1.2.34. PARTICIPATING SUBSIDIARY A corporation, now or in the future,
affiliated with the Company that adopts, or has adopted, the Plan. No
corporation shall become a Participating
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Subsidiary without prior consent of the Company, and such participation is
subject to such limitations as the Company may impose.
1.2.35. PLAN The Dain Rauscher Wealth Accumulation Plan.
1.2.36. PLAN STATEMENT This document, entitled DAIN RAUSCHER WEALTH
ACCUMULATION PLAN, as adopted and made effective in accordance with Section 1.1,
as the same may be amended from time to time.
1.2.37. PLAN YEAR The twelve (12) consecutive month period ending on any
December 31.
1.2.38. RETIREMENT The separation of employment from the Company or a
Participating Subsidiary, as the case may be, of a Participant, other than due
to such Participant's death, Disability or termination for cause pursuant to
Section 5.2.5.
1.2.39. RETIREMENT ELECTION An election by a Participant to receive a
distribution or distributions from his or her Accounts upon Retirement or
Approved Retirement.
1.2.40. SUBSIDIARY SALE The sale by the Company of all of the issued and
outstanding capital stock of any subsidiary of the Company that employs any
Participants.
1.2.41. STOCK The Common Stock, par value $0.125 per share, of the Company,
or any security into which the Common Stock of the Company may be changed or
converted (or with which it may be exchanged) as a result of any merger,
consolidation, reorganization, recapitalization, change in corporate structure
or other similar event.
1.2.42. STOCK ACCOUNT The Account in which a Participant's deemed
investments in Stock using his or her Deferred Compensation (and related
Dividend Additions) are credited pursuant to Section 4.2.1.
1.2.43. VOLUNTARY DEFERRED COMPENSATION The amount of Deferrable
Compensation deferred on a voluntary basis by a Participant under this Plan for
any Plan Year.
1.3. RULES OF INTERPRETATION Whenever appropriate, words used herein in the
singular may be read in the plural, or words used herein in the plural may be
read in the singular; the masculine may include the feminine and the words
hereof, herein or hereunder or other similar compounds of the word here shall
mean and refer to this entire Plan Statement and not to any particular paragraph
or section of this Plan Statement unless the context clearly indicates to the
contrary. The titles given to the various sections of this Plan Statement are
inserted for convenience of reference only and are not part of this Plan
Statement and they shall not be considered in determining the purpose, meaning
or intent of any provision hereof. Any reference in this Plan Statement to a
statute or regulation shall be considered also to mean and refer to any
subsequent amendment or replacement of that statute or
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regulation. This instrument has been executed and delivered in the State of
Minnesota and has been drawn in conformity to the laws of that State and shall
be construed and enforced in accordance with the laws of the State of Minnesota.
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. ELIGIBLE EMPLOYEES Subject to the restrictions in Sections 2.2, 2.3 and
2.4, employees eligible to participate in this Plan during a Plan Year are any
of the select group of management or highly compensated employees of the Company
or its Participating Subsidiaries: (i) whose Gross Cash Compensation exceeds
$150,000 during such Plan Year, or (ii) whose compensation otherwise exceeds a
level deemed appropriate by the Committee to include only such select group of
management or highly compensated employees, in each case, as determined by the
Committee in its sole discretion. Employees are first eligible for participation
in the Plan on the January 1 following six calendar months of employment, or as
otherwise determined by the Board.
2.2. INELIGIBILITY OF BOARD AND COMMITTEE MEMBERS Members of the Board and the
Committee are not eligible to participate in the Plan.
2.3. INELIGIBILITY OF SENIOR MANAGEMENT. Notwithstanding anything to the
contrary in this Section 2, members of the Dain Rauscher Executive Committee and
members of the Dain Rauscher Senior Management Group (or, in each case, any
successor committee or group thereto) will not be eligible for participation in
the Plan.
2.4. LIMITS APPLICABLE TO OTHER OFFICERS Any other person who has been
designated an officer of the Company by the Board shall not be eligible to have
any of his or her Deferred Compensation or any Employer Match credited to a
Stock Account, Matching Stock Account or Mandatory Stock Account. Subject to the
terms and conditions hereof, such officers may participate in the Plan, but
shall have amounts that would otherwise be credited to a Stock Account, Matching
Stock Account or Mandatory Stock Account credited instead to the Dain Rauscher
Interest Account (or a matching sub-fund thereof).
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SECTION 3
ELECTION TO DEFER COMPENSATION
3.1 MANDATORY DEFERRAL OF COMPENSATION. In connection with designating an
employee of the Company as being eligible to be a Participant under the Plan,
the Committee may also designate a percentage of such employee's Gross Cash
Compensation which must be deferred in accordance with the further provisions of
this Plan, which shall constitute such Participant's Mandatory Deferred
Compensation. Any such mandatory deferral arrangements with respect to a
Participant's Gross Cash Compensation shall be determined by the Committee at
such time or times as it may determine in its sole and absolute discretion.
3.1.1 VOLUNTARY ELECTION TO DEFER COMPENSATION A Participant may
participate further in the Plan by electing voluntarily to defer, in accordance
with the further provisions of this Plan, a percentage of such Participant's
Deferrable Compensation that such Participant would otherwise earn with respect
to services to be rendered in the next succeeding Plan Year, which shall
constitute such Participant's Voluntary Deferred Compensation. A Voluntary
Deferred Compensation election must be made no later than December 31 of the
Plan Year immediately preceding the Plan Year in which such Deferrable
Compensation will be earned. Subject to such changes as may be determined by the
Committee, such election must be made by delivering to the Company a signed and
completed Election Form which is accepted by the Company no later than such
December 31; provided, however, that, subject to such changes as may be
determined by the Committee, any new employees of the Company who qualify as
Participants under the Plan shall have 30 days from such Participant's hiring
date to make a Voluntary Deferred Compensation election for such Plan Year.
3.2. MAXIMUM DEFERRED COMPENSATION PERCENTAGE The maximum Deferred Compensation
Percentage of a Participant shall vary with the amount of Deferrable
Compensation earned by a Participant in a Plan Year as determined from time to
time by the Committee in its sole discretion, but in no event shall such maximum
Deferred Compensation Percentage exceed the maximum percentage established from
time to time by the Committee.
3.3. DEFERRAL ALTERNATIVES Upon electing to participate in the Plan, subject to
such terms and conditions as the Committee may from time to time impose, a
Participant shall elect, with respect to his or her Deferred Compensation for
any Plan Year, both (i) the form of the deemed investment of his or her Deferred
Compensation, and (ii) the timing of distribution of the amounts allocated to
his or her Accounts attributable to his or her deemed investment election
(including any intra-Plan transfers made pursuant to Section 4.3).
3.3.1. INVESTMENT ELECTION. A Participant may elect to have his or her
Voluntary Deferred Compensation for any Plan Year credited to (a) his or her
Stock Account, (b) his or her Mutual Fund Accounts, (c) his or her Dain Rauscher
Interest Account, (d) such other Account or Accounts as the Committee may from
time to time establish or (e) to a combination of such
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Accounts, in accordance with the percentages of his or her Voluntary Deferred
Compensation (which must sum to 100%) allocated to all of such Accounts, as
reflected on his or her Election Form for such Plan Year. The entire amount of
any Mandatory Deferred Compensation shall be allocated and credited to a
Participant's Mandatory Stock Account pursuant to this Section 3.3.1. Any
election by a Participant to have his or her Voluntary Deferred Compensation
credited to his or her Stock Account, and any allocation of Mandatory Deferred
Compensation to a Participant's Mandatory Stock Account, shall be irrevocable
for all time, and, except as otherwise provided in the Plan, amounts may be
credited to a Participant's Stock Account or Mandatory Stock Account only in
connection with an original investment election or deferral. Voluntary Deferred
Compensation investment elections must be made on the Election Form, which must
be delivered to the Company at the time that a Participant elects to participate
in the Plan for any Plan Year.
3.3.2. DISTRIBUTION ELECTION At the same time that a Participant elects to
participate in the Plan with respect to any Plan Year and makes his or her
Deferred Compensation Percentage and investment Account elections, such
Participant shall also make an irrevocable election with respect to the timing
of the distribution of the amounts credited to such Participant's Accounts by
delivering a signed and completed Election Form to the Company. Unless the
following distribution elections are subsequently amended or otherwise modified
by the Committee, a Participant may only elect one of the following alternatives
with respect to distributions attributable to any Deferred Compensation for any
Plan Year:
(a) In-Service Election distribution, or
(b) A distribution upon such Participant's Retirement (including an
Approved Retirement) pursuant to a Retirement Election, in accordance
with the terms set forth in Section 6.1.1(b) below.
SECTION 4
DEFERRED COMPENSATION ACCOUNTS
4.1. ESTABLISHMENT OF ACCOUNTS. The amount of benefits to be paid by the Company
or a Participating Subsidiary, as the case may be, to each Participant under
this Plan shall be determined by reference to the Accounts to be established and
maintained by the Company for each Participant. Such Accounts shall be
established for bookkeeping purposes only and shall not be considered as, or as
evidence of the creation of, a trust fund or a transfer or other segregation of
assets for the benefit of the Participants or their Beneficiaries. Such Accounts
will be composed of a Stock Account, Matching Stock Account, Mandatory Stock
Account, Dain Rauscher Interest Account, one or more Mutual Fund Accounts, Cash
Account and Matching Cash Account for each Participant and such other accounts
as the Committee may from time to time authorize. Such Accounts shall be
established and credited with the appropriate amounts as provided for herein as
of the last day of each calendar quarter and as of the last day of February of
each year.
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4.2. CREDITS TO ACCOUNTS
4.2.1. STOCK ACCOUNT, MATCHING STOCK ACCOUNT AND MANDATORY STOCK
ACCOUNT. For any Plan Year, in connection with (i) a Participant's election to
have any portion of his or her Voluntary Deferred Compensation credited to his
or her Stock Account pursuant to Section 3.3.1., and (ii) the allocation of a
Participant's Mandatory Deferred Compensation to his or her Mandatory Stock
Account, such Participant's Stock Account and Mandatory Stock Account shall be
deemed to have been allocated that number of whole shares of Stock, rounded down
to the nearest share, resulting from dividing the portion of his or her
Voluntary Deferred Compensation allocated to the Stock Account and the entire
amount of the Mandatory Deferred Compensation by the Conversion Price. The
amount of any Voluntary Deferred Compensation or Mandatory Deferred Compensation
equal to the fraction of a share resulting from such calculation, if any, shall
be deemed to have been allocated to such Participant's Cash Account. A
Participant who elects to have a portion of his or her Matchable Deferred
Compensation credited or otherwise allocated to his or her Stock Account, and a
Participant with any Mandatory Deferred Compensation allocated to a
Participant's Mandatory Stock Account, may become entitled to an Employer Match
credited to his or her Matching Stock Account at such time or times as the
Committee, in its sole and absolute discretion, shall determine. The amount of
the Employer Match credited to such Participant's Matching Stock Account, if
any, shall be the Matching Percentage of such Participant's Matchable Deferred
Compensation, including Mandatory Deferred Compensation, credited to his or her
Stock Account or Mandatory Stock Account. The Committee shall publish a table of
possible Matching Percentages for each Plan Year. If a Participant becomes
entitled to an Employer Match hereunder, then his or her Matching Stock Account
shall be deemed to have been allocated that number of whole shares of Stock,
rounded down to the nearest share, resulting from dividing the amount of the
Employer Match by the Conversion Price. The amount of Employer Match equal to
the fraction of a share resulting from such calculation, if any, shall be deemed
to have been allocated to such Participant's Matching Cash Account.
4.2.2. DAIN RAUSCHER INTEREST ACCOUNT AND MATCHING STOCK ACCOUNT If a
Participant elects to have any portion of his or her Voluntary Deferred
Compensation for any Plan Year credited to his or her Dain Rauscher Interest
Account pursuant to Section 3.3.1, then such Participant's Dain Rauscher
Interest Account shall be increased by the amount of Deferred Compensation so
credited. A Participant who elects to have a portion of his or her Matchable
Deferred Compensation credited to such Participant's Dain Rauscher Interest
Account pursuant to Section 3.3.1 of this Plan during a Plan Year may become
entitled to an Employer Match credited to his or her Matching Stock Account at
such time or times as the Committee, in its sole and absolute discretion, shall
determine. The amount of the Employer Match credited to such Participant's
Matching Stock Account, if any, shall be the Matching Percentage of such
Participant's Matchable Deferred Compensation credited to his or her Dain
Rauscher Interest Account. If a Participant becomes entitled to an Employer
Match hereunder in accordance with the provisions of Section 4.2.1, then such
Participant's Matching Stock Account (and Matching Cash Account, if appropriate)
shall be increased by the amount of such Employer Match.
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4.2.3. MUTUAL FUND ACCOUNT If a Participant elects to have any
portion of his or her Voluntary Deferred Compensation for any Plan Year credited
to a Mutual Fund Account pursuant to Section 3.3.1, then his or her appropriate
Mutual Fund Account shall be deemed to have been allocated that number of units
(including fractional units) of the appropriate Mutual Fund equal to the portion
of his or her Deferred Compensation allocated to the Mutual Fund Account divided
by the appropriate Mutual Fund Price for the appropriate day the amount is
credited as provided for herein. A Participant who elects to have any portion of
his or her Deferred Compensation credited to a Mutual Fund Account shall not be
entitled to an Employer Match with respect thereto.
4.2.4. INTRA-PLAN TRANSFER If a Participant elects to make an
intra-Plan transfer, as of the last business day of any calendar quarter, as
permitted by Section 4.3 for any Plan Year, the following rules shall apply:
(a) If the intra-Plan transfer is from a Participant's Mutual Fund
Account to another Account or Accounts, the amount deemed
transferred to such Account or Accounts shall be equal to the
proceeds of the deemed sale of the units of the Mutual Fund so
transferred. Such deemed sale shall be treated as occurring as
of the last business day of the appropriate calendar quarter;
(b) The rules set forth in Sections 4.2.1, 4.2.2 and 4.2.3 shall
otherwise apply to intra-Plan transfers, except that no
portion of an intra-Plan transfer to a Participant's Stock
Account or Dain Rauscher Interest Account shall ever be
eligible for an Employer Match. Further, a Participant's
election to have his or her Deferred Compensation credited to
his or her Stock Account shall be irrevocable, and such
credits may not thereafter be transferred to any other
account.
4.2.5. DIVIDEND ADDITIONS TO STOCK ACCOUNTS
4.2.5.1. STOCK ACCOUNT. At such times as dividends are
declared by the Company on the outstanding shares of Stock, a determination
shall be made of the number of shares of Stock which are credited to a
Participant's Stock Account on the dividend record date, and an amount equal to
such total number of shares of Stock multiplied by the declared dividend per
share of Stock shall be credited, on the date such dividends are paid by the
Company, initially to such Participant's Cash Account (if the dividends are
declared in cash) or to such Participant's Stock Account (if the dividends are
declared in shares of Stock), or other funds determined by the Committee.
Thereafter, all funds credited to a Participant's Cash Account (i) as a result
of cash dividends pursuant to this Section 4.2.5.1, and (ii) as a result of
fractional shares of Stock pursuant to Section 4.2.1, shall be deemed to have
been used to purchase shares of Stock once each year, on a date determined by
the Committee. The number of additional shares of Stock credited to each
Participant's Stock Account after the end of each Plan Year due to the deemed
purchases described in the preceding sentence shall be equal to the number of
whole shares, rounded down, derived by dividing the total amount of cash
credited to the Participant's Cash Account under this Section
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4.2.5.1 and under Section 4.2.1 by the closing price per share of Stock reported
on the NYSE on the date of the deemed purchase of the Stock credited to such
Participant's Stock Account under this Section 4.2.5.1. Any credited cash
hereunder that would otherwise be deemed to have been used to purchase a
fractional share of Stock shall, instead, continue to be credited to the
Participant's Cash Account. Notwithstanding the foregoing, the Committee shall
be entitled, in its sole and absolute discretion, to use the last business day
of a calendar quarter and the Conversion Price applicable thereto for all
purposes of this Section 4.2.5.1. Neither the Company nor a Participating
Subsidiary will provide an Employer Match for the deemed purchases of Stock
credited to a Participant's Stock Account pursuant to this Section 4.2.5.1.
4.2.5.2. MATCHING STOCK ACCOUNT. At such times as
dividends are declared by the Company on the outstanding shares of Stock, a
determination shall be made of the number of shares of Stock which are credited
to a Participant's Matching Stock Account on the dividend record date, and an
amount equal to such total number of shares of Stock multiplied by the declared
dividend per share of Stock shall be credited, on the date such dividends are
paid by the Company, initially to such Participant's Matching Cash Account (if
the dividends are declared in cash) or to such Participant's Matching Stock
Account (if the dividends are declared in shares of Stock), or other funds
determined by the Committee. Thereafter, all funds credited to a Participant's
Matching Cash Account (i) as a result of cash dividends pursuant to this Section
4.2.5.2, and (ii) as a result of fractional shares of Stock pursuant to Sections
4.2.1 and 4.2.2, shall be deemed to have been used to purchase shares of Stock
once each year, on a date determined by the Committee. The number of additional
shares of Stock credited to each Participant's Matching Stock Account after the
end of each Plan Year due to deemed purchases described in the preceding
sentence shall be equal to the number of whole shares, rounded down, derived by
dividing the total amount of cash credited to the Participant's Matching Cash
Account under this Section 4.2.5.2 and under Sections 4.2.1 and 4.2.2 by the
closing price per share of Stock reported on the NYSE on the date of the deemed
purchase of the Stock credited to such Participant's Matching Stock Account
under this Section 4.2.5.2. Any credited cash hereunder that would otherwise be
deemed to have been used to purchase a fractional share of Stock shall, instead,
continue to be credited to the Participant's Matching Cash Account.
Notwithstanding the foregoing, the Committee shall be entitled, in its sole and
absolute discretion, to use the last business day of a calendar quarter and the
Conversion Price applicable thereto for all purposes of this Section 4.2.5.2.
Neither the Company nor a Participating Subsidiary will provide an Employer
Match for the deemed purchases of Stock credited to a Participant's Matching
Stock Account pursuant to this Section 4.2.5.2.
4.2.5.3 MANDATORY STOCK ACCOUNT. At such times as
dividends are declared by the Company on the outstanding shares of Stock, a
determination shall be made of the number of shares of Stock which are credited
to a Participant's Mandatory Stock Account on the dividend record date, and an
amount equal to such total number of shares of Stock multiplied by the declared
dividend per share of Stock shall be credited, on the date such dividends are
paid by the Company, initially to such Participant's Cash Account (if the
dividends are declared in cash) or to such Participant's Mandatory Stock Account
(if the dividends are declared in shares of Stock), or other funds determined by
the Committee. Thereafter, all funds credited to a Participant's Cash
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Account (on account of Mandatory Deferred Compensation) (i) as a result of cash
dividends pursuant to this Section 4.2.5.3, and (ii) as a result of fractional
shares of Stock pursuant to Sections 4.2.1, shall be deemed to have been used to
purchase shares of Stock once each year, on a date determined by the Committee.
The number of additional shares of Stock credited to each Participant's
Mandatory Stock Account after the end of each Plan Year due to deemed purchases
described in the preceding sentence shall be equal to the number of whole
shares, rounded down, derived by dividing the total amount of cash credited to
the Participant's Cash Account under this Section 4.2.5.3 and under Sections
4.2.1 by the closing price per share of Stock reported on the NYSE on the date
of the deemed purchase of the Stock credited to such Participant's Mandatory
Stock Account under this Section 4.2.5.3. Any credited cash hereunder that would
otherwise be deemed to have been used to purchase a fractional share of Stock
shall, instead, continue to be credited to the Participant's Cash Account.
Notwithstanding the foregoing, the Committee shall be entitled, in its sole and
absolute discretion, to use the last business day of a calendar quarter and the
Conversion Price applicable thereto for all purposes of this Section 4.2.5.3.
Neither the Company nor a Participating Subsidiary will provide an Employer
Match for the deemed purchases of Stock credited to a Participant's Mandatory
Stock Account pursuant to this Section 4.2.5.3.
4.2.6. ADDITIONS TO DAIN RAUSCHER INTEREST ACCOUNT On the last
business day of each calendar quarter, or on such other date as may from time to
time be determined by the Committee, based on the balance in a Participant's
Dain Rauscher Interest Account as of the first business day of such quarter, an
amount equal to the product of such balance of a Participant's Dain Rauscher
Interest Account and the Dain Rauscher Interest Rate for such quarter, as
determined by the Committee, shall be deemed allocated to such Participant's
Dain Rauscher Interest Account.
4.2.7. FUND ADDITIONS TO MUTUAL FUND ACCOUNT At such times as Fund
Additions are made with respect to the Mutual Fund, a determination shall be
made of the number of units (including fractional units) of the Mutual Fund
which are credited to a Participant's Mutual Fund Account on the interest or
other distribution or payment date, and an amount equal to such total number of
units of the Mutual Fund multiplied by the amount of Fund Addition per unit of
the Mutual Fund shall be deemed allocated, on the date such Fund Addition is
paid or distributed, to such Participant's Mutual Fund Account, or other fund
determined by the Committee. The number of additional units of the Mutual Fund
credited to each Participant's Mutual Fund Account due to deemed purchases with
the Fund Additions credited pursuant to this Section 4.2.6 shall be equal to the
total amount of the Fund Additions deemed credited hereunder divided by the
Mutual Fund Price on the date of such Fund Addition, including fractional units
of the Mutual Fund resulting from such calculation.
4.3. INTRA-PLAN TRANSFERS
4.3.1. BASIC TRANSFER RULES. Subject to such rules as the Committee
may, from time to time in its sole and absolute discretion, impose, a
Participant may make an election to have all or a portion of the amounts deemed
credited to any of his or her Accounts under this Plan transferred to any of his
or her other Accounts (other than the Stock Account, the Mandatory Stock
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Account and the Matching Stock Account) under this Plan; provided, however, that
a Participant's election to have his or her Voluntary Deferred Compensation
credited to his or her Stock Account, and any allocation under the Plan to a
Participant's Mandatory Stock Account or Matching Stock Account, shall be
irrevocable and such credits may not thereafter be transferred to any other
Account. For the avoidance of doubt, no transfer of any Account balance may be
made into a Participant's Stock Account, Mandatory Stock Account or Matching
Stock Account. Such an election may be made quarterly, effective only as of the
last business day of a calendar quarter and to the extent applicable by taking
into account the Conversion Price applicable thereto. Further, such an election
may only be made once during any Plan Year, but may be made in any Plan Year
following the Plan Year in which an amount is first credited to a Participant's
Account, unless the Committee otherwise determines in its sole discretion. An
intra-Plan transfer shall be initiated by submitting a request therefor in
writing to the Company, in such form as the Committee shall determine. Such
transfer shall be effected in accordance with Section 4.2.4.
4.3.2. TRANSFERS PRIOR TO FULL VESTING If a Participant makes an
intra-Plan transfer from his or her Dain Rauscher Interest Account to a Mutual
Fund Account of an amount of cash with respect to which such Participant's
rights in the appropriate shares in the Matching Stock Account have not vested
under Section 5 hereof, such amount of Stock, and all related Dividend
Additions, shall be forfeited by such Participant and shall not be credited to
any other Account of the Participant.
4.3.3. NO MATCHING WITH RESPECT TO AMOUNTS TRANSFERRED HEREUNDER No
amount of Stock or cash, as the case may be, transferred from any Account into a
Participant's Stock Account or Cash Account shall be eligible for an Employer
Match at any time.
4.4. CHARGES AGAINST ACCOUNTS FOR BENEFIT PAYMENTS On the last business day of a
calendar quarter immediately preceding or coincident with each date that a
distribution is made by, or on behalf of, the Company under this Plan to a
Participant or Beneficiary, the amount of such distribution shall be charged
against, and shall reduce the remaining credited balance of, the appropriate
Account or Accounts of such Participant. Such charges shall first be applied
against account balances attributable to a Participant's Deferred Compensation
and then vested Employer Match balances thereof. Such charges shall be allocated
pro rata among a Participant's accounts on the basis of the amounts thereof.
SECTION 5
VESTING
5.1. VESTING OF INVESTMENTS ATTRIBUTABLE TO DEFERRED COMPENSATION As of any
date, all amounts credited to the Stock Account, Dain Rauscher Interest Account,
the Mutual Fund Account and the Cash Account of a Participant shall be fully
vested.
5.2. VESTING OF INVESTMENTS IN MATCHING STOCK ACCOUNT, MANDATORY STOCK ACCOUNT
AND MATCHING CASH ACCOUNT Except as hereinafter provided in this Section 5.2,
and subject to
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acceleration or modification by the Committee, in its sole and absolute
discretion, deemed investments credited to the Matching Stock Account, Mandatory
Stock Account and Matching Cash Account of a Participant shall become vested on
the date or dates determined by the Committee; provided that, such Participant
must be employed by the Company on such date. The Committee shall announce any
change in the vesting schedule with respect to any future Employer Match and any
Mandatory Stock Account (and related Dividend Additions, if any) prior to
December 31 preceding each new Plan Year. Unless otherwise amended by the
Committee, all time period measurements for the vesting schedules established by
the Committee shall commence on January 1 of the Plan Year following the year in
which a Participant defers Matchable Deferred Compensation (including any
Mandatory Deferred Compensation) under this Plan.
5.2.1. APPROVED RETIREMENT Subject to acceleration or modification by
the Committee, all deemed investments credited to the Matching Stock Account,
Mandatory Stock Account and Matching Cash Account of a Participant that would
not otherwise be fully vested in accordance with the applicable vesting schedule
determined by the Committee will automatically vest in full for a Participant
upon the one-year anniversary of his or her Approved Retirement; provided that,
such vesting shall be subject to forfeiture as set forth in the Participant's
non-competition agreement with the Company.
5.2.2. FULL VESTING UPON DEATH OR DISABILITY All deemed investments
credited to the Matching Stock Account, Mandatory Stock Account and Matching
Cash Account of a Participant shall vest in full upon the death or Disability of
such Participant.
5.2.3. FULL VESTING UPON CHANGE IN CONTROL Notwithstanding the terms
of any vesting schedule established by the Committee pursuant to Section 5.2,
all Accounts of a Participant who is employed by the Company or a Participating
Subsidiary as of the date of a Change in Control of the Company shall be fully
vested immediately upon such Change in Control.
5.2.4. FULL VESTING UPON SALE OF SUBSIDIARY Notwithstanding the terms
of any vesting schedule established by the Committee pursuant to Section 5.2,
all Accounts of a Participant who is employed by any Participating Subsidiary of
the Company as of the date of a Subsidiary Sale of such Participating Subsidiary
and who does not continue to be employed by the Company or any of its
subsidiaries immediately thereafter shall be fully vested immediately upon such
Subsidiary Sale.
5.2.5. TERMINATION FOR CAUSE Notwithstanding anything to the contrary
in this Section 5.2, if a Participant ceases to be employed by the Company or a
Participating Subsidiary at any time prior to the distribution of the deemed
investments hereinafter described due to gross or willful misconduct during the
course of his or her employment, including theft or commission of a gross
misdemeanor or felony, all deemed investments, whether vested or not, credited
to any Matching Stock Account, Mandatory Stock Account or Matching Cash Account
of such Participant shall be automatically forfeited by the Participant upon
such Participant's employment termination.
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5.2.6. FORFEITURES. Except as otherwise specifically set forth in
Sections 5.2.1, 5.2.2, 5.2.3 and 5.2.4, all amounts attributable to deemed
investments credited to a Participant's Matching Stock Account, Mandatory Stock
Account or Matching Cash Account that are not vested at the Participant's
employment termination date shall be deemed forfeited, and such Participant's
Accounts shall be appropriately reduced.
SECTION 6
DISTRIBUTIONS
6.1. DISTRIBUTIONS TO PARTICIPANTS
6.1.1. FORM OF DISTRIBUTION; TAX WITHHOLDING Subject to such terms
and conditions as the Committee may from time to time impose, and subject to the
forfeiture conditions of Section 5 with respect to a Participant's Matching
Stock Account, Mandatory Stock Account and Matching Cash Account:
(a) distributions of all of a Participant's Accounts pursuant to
an In-Service Election shall be made:
(i) in a single payment, if the In-Service Election is
triggered by the date certain selected by the Participant
on his or her Election Form, or
(ii) in two annual installments, the first of which shall be
equal to fifty percent (50%) of all amounts deemed
allocated to such Participant's Accounts on the first
payment date (less amounts required to be withheld, as
described below) and the second of which shall be equal
to all amounts deemed allocated to such Participant's
Accounts on the second payment date (less all amounts
required to be withheld, as described below), if the
In-Service Election is triggered by the Participant's
Retirement prior to the date certain selected by the
Participant on his or her Election Form;
(b) distributions of all of a Participant's Accounts pursuant to a
Retirement Election or such Participant's Approved Retirement
shall be made in two annual installments, each of which shall
be equal to fifty percent (50%) of all amounts deemed
allocated to such Participant's Accounts on the first payment
date (less amounts required to be withheld, as described
below); provided, however, that a Participant shall be
entitled to change, on a one-time basis only, such
Participant's Retirement Election with respect to an Approved
Retirement to extend the number of post-Approved Retirement
installment payments described in this Section 6.1.1(b) from
two equal annual
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installments to either three, four or five equal, annual
installments; and provided further, that any such change in
his or her Approved Retirement Election must be made at least
twelve (12) months prior to the effective date of such
Participant's Approved Retirement;
(c) distributions of all of a Participant's Accounts (less amounts
required to be withheld, as described below) following his or
her death or Disability shall be made in a single payment;
(d) distributions of all of a Participant's Accounts (less amounts
required to be withheld, as described below) upon the
occurrence of a Change of Control shall be made in a single
payment; and
(e) distributions of all of a Participant's Accounts (less amounts
required to be withheld, as described below) upon the
occurrence of a Subsidiary Sale shall be made in a single
payment.
All amounts credited to a Participant's Stock Account, Matching Stock Account
and Mandatory Stock Account shall only be distributed in shares of Stock, less
the number of shares needed to satisfy withholding requirements with respect to
all applicable federal, state and local taxes. All shares of Stock distributed
under the Plan, if any, shall be shares of Stock that are issued, but not
outstanding, and held in the Company's treasury, or authorized, but previously
unissued shares. The value of each share of Stock credited to a Participant's
Stock Account, Matching Stock Account and Mandatory Stock Account shall be equal
to the closing price per share of Stock on the NYSE as reported for the business
day preceding the distribution date set forth in Section 6.1.2; provided,
however, that in its sole and absolute discretion, the Committee may apply the
concept of a Conversion Price in determining such closing price per share of
Stock. Unless otherwise determined by the Committee, a Participant's Mutual Fund
Account shall be distributed in cash, less the amount of cash needed to satisfy
withholding requirements with respect to all applicable federal, state and local
taxes. The value of the Participant's Mutual Fund Account shall be determined by
multiplying the total number of units of the Mutual Fund credited to that
Account by the Mutual Fund Price, in each case, measured as of the business day
preceding the distribution date set forth in Section 6.1.2. Unless otherwise
determined by the Committee, a Participant's Dain Rauscher Interest Account,
Cash Account and Matching Cash Account shall be distributed in cash, less the
amount of cash needed to satisfy withholding requirements with respect to all
applicable federal, state and local taxes. Notwithstanding the foregoing two
sentences, the Committee, in its sole and absolute discretion, may cause
distributions with respect to any Account of a Participant to be made in shares
of Stock that are either issued, but not outstanding, and held in the Company's
treasury, or authorized, but previously unissued shares; the value of all such
shares shall be equal to the closing price per share of Stock on the NYSE as
reported for the business day preceding the distribution date set forth in
Section 6.1.2. In connection with the Company's obligation, as provided herein,
to satisfy withholding requirements with respect to all applicable federal,
state and local taxes, appropriate reductions and charges against a
Participant's Accounts may be made as determined from time to time
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by the Committee for the purpose of collecting and paying, as required by law,
such taxes with respect to a Participant.
6.1.2. TIMING OF DISTRIBUTION Subject to such terms and conditions as
the Committee may, from time to time, impose:
(a) distributions of the Accounts of a Participant pursuant to an
In-Service Election shall be made on or about: (i) the date
selected by such Participant on his or her Election Form if
the distribution is due to an In-Service Election triggered by
the date certain selected by the Participant on his or her
Election Form or (ii) the January 15 of the Plan Year
following the date of his or her Retirement (and the January
15 of the second Plan Year following the date of his or her
Retirement) if the distribution is due to an In-Service
Election triggered by the Participant's Retirement prior to
the date certain selected by the Participant on his or her
Election Form;
(b) distributions of the Accounts of a Participant due to a
Retirement Election shall be payable on or about January 15 of
each Plan Year following the Plan Year in which his or her
Retirement or Approved Retirement occurred;
(c) distributions of the Accounts of a Participant following the
death or Disability of a Participant shall be made as soon as
administratively feasible thereafter;
(d) distributions of the Accounts of a Participant due to a Change
in Control shall be made as soon as administratively feasible,
but in no case later than sixty (60) days after the occurrence
of the Change in Control; and
(e) distributions of the Accounts of a Participant due to a
Subsidiary Sale shall be made as soon as administratively
feasible, but in no case later than sixty (60) days after the
occurrence of the Subsidiary Sale of a Participating
Subsidiary.
6.2. DISTRIBUTIONS TO BENEFICIARIES Distribution of the Accounts of a
Participant who dies before payment to such Participant is made shall commence
or be made to such Participant's Beneficiary as soon as administratively
feasible.
6.3. DESIGNATION OF BENEFICIARY Each Participant shall have the right to
designate in writing, in form satisfactory to the Committee, one or more
beneficiaries to receive the unpaid balance of the Participant's Account in the
event of such Participant's death prior to receiving full distribution thereof,
and may change or revoke any prior Beneficiary designation by a similar
instrument in writing prior to his or her death. If a Participant shall fail to
designate a Beneficiary or, having revoked a prior Beneficiary designation,
shall fail to designate a new Beneficiary, or in the event the Participant's
Beneficiary designation shall fail, in whole or in part, by reason of the prior
death of a designated Beneficiary or for any other cause, then the undistributed
balance of the Participant's
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Accounts, or the portion thereof as to which such designation shall fall, as the
case may be, shall be paid to the personal representative of the Participant's
estate.
6.4. DISCLAIMERS BY BENEFICIARIES A Beneficiary entitled to a distribution of
all or a portion of a deceased Participant's Accounts may disclaim his or her
interest therein subject to the following requirements. To be eligible to
disclaim, a Beneficiary must be a natural person, must not have received a
distribution of all or any portion of such Accounts at the time such disclaimer
is executed and delivered, and must have attained at least age twenty-one (21)
years as of the date of the Participant's death. Any disclaimer must be in
writing and must be executed personally by the Beneficiary before a notary
public. A disclaimer shall state that the Beneficiary's entire interest in the
undistributed Accounts is disclaimed or shall specify what portion thereof is
disclaimed. To be effective, duplicate original executed copies of the
disclaimer must be both executed and actually delivered to the Committee after
the date of the Participant's death but not later than one hundred eighty (180)
days after the date of the Participant's death. A disclaimer shall be
irrevocable when delivered to the Committee. A disclaimer shall be considered to
be delivered to the Committee only when actually received by the Committee. The
Committee shall be the sole judge of the content, interpretation and validity of
a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary
shall be considered not to have survived the Participant as to the interest
disclaimed. A disclaimer by a Beneficiary shall not be considered to be a
transfer of an interest in violation of the provisions of Section 7 and shall
not be considered to be an assignment or alienation of benefits in violation of
any law prohibiting the assignment or alienation of benefits under this Plan. No
other form of attempted disclaimer shall be recognized by the Committee.
SECTION 7
SPENDTHRIFT PROVISIONS
Neither any Participant nor any Beneficiary of any Participant shall have any
transferable interest in the Participant's Accounts or any right to anticipate,
alienate, dispose of, pledge or encumber the same prior to actual receipt of
payments in accordance with Section 6, nor shall the same be subject to
attachment, garnishment, execution following judgment or other legal process
instituted by creditors of the Participant or any such Beneficiary.
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SECTION 8
ADMINISTRATIVE DETERMINATIONS
8.1. THE COMMITTEE Full power and authority to construe, interpret, and
administer this Plan Statement shall be vested in the Committee. The Committee
shall have the full power and authority to make each determination provided for
in this Plan Statement and, in this connection, to promulgate such rules and
regulations as the Committee considers necessary or appropriate for the
implementation and management of this Plan; provided, however, that the Board
shall have the full power and authority to make any determinations provided for
in this Plan Statement which have the effect of materially increasing the cost
of this Plan to the Company or any Participating Subsidiary, including without
limitation decisions regarding the terms and conditions of any Employer Match,
Matchable Deferred Compensation, Matching Threshold Amount and the Matching
Percentage, eligibility to participate in the Plan, and the maximum Deferred
Compensation Percentage. All determinations made by the Committee or the Board,
as the case may be, shall be conclusive upon the Company, each Participating
Subsidiary, each Participant and former Participant and their designees and
Beneficiaries.
8.2. CLAIMS PROCEDURE If any Participant or Beneficiary is in disagreement with
any determination that has been made for payment under this Plan, a claim may be
presented.
8.2.1. MAKING A CLAIM The claim must be written and must be delivered
to the Committee. Within 90 days after the claim is delivered, the claimant will
receive either: (a) a decision or (b) a notice describing special circumstances
requiring a specified amount of additional time (but no more than 180 days from
the day the claim was delivered) to reach a decision.
If the claim is wholly or partially denied, the claimant will receive
a written notice specifying: (a) the reasons for denial; (b) the Plan provisions
on which the denial is based; and (c) any additional information needed in
connection with the claim and the reason such information is needed. Notice of
the claimant's right to request a review (as described in Paragraph 8.2.2 below)
will also be given to the claimant.
8.2.2. REQUESTING REVIEW OF A DENIED CLAIM A claimant may request
that a denied claim be reviewed. The request for review must be written and must
be delivered to the Committee within 60 days after claimant's receipt of written
notice that the claim was denied. A request for review may (but is not required
to) include issues and comments the claimant wants considered in the review. The
claimant may examine pertinent Plan documents by asking the Committee. Within 60
days after delivery of a request for review, claimant will receive either: (i) a
decision; or (ii) a notice describing special circumstances requiring a
specified amount of additional time (but no more than 120 days from the day the
request for review was delivered) to reach a decision.
The decision will be in writing and will specify the Plan provisions
on which it is based.
-20-
<PAGE> 26
8.2.3. IN GENERAL All decisions on claims and on reviews of denied
claims will be made by the Committee. The Committee may, in its discretion, hold
one or more hearings. If a claimant does not receive a decision within the
specified time, the claimant should assume the claim was denied or re-denied on
the date the specified time expired. The claimant may, at the claimant's own
expense, have an attorney or other representative act on behalf of the claimant,
but the Committee reserves the right to require a written authorization. The
Committee also reserves the right to delegate its authority to make decisions.
SECTION 9
OTHER ADMINISTRATIVE MATTERS
9.1. REPORTS TO PARTICIPANTS As soon as is administratively feasible after each
calendar quarter end, the Company shall prepare and deliver to each Participant
a report showing: (i) the total value of the Participant's Accounts as of the
end of the preceding Plan Year; (ii) the amounts credited to the Participant's
Accounts since the last report from the Company; and (iii) the amounts of any
distributions made since the last report from the Company. At its discretion,
the Company may prepare and deliver more frequent reports to Participants.
9.2. PARTICIPANTS ARE GENERAL CREDITORS OF THE COMPANY AND PARTICIPATING
SUBSIDIARIES Benefits due under this Plan shall be paid out of the general funds
of the Company or a Participating Subsidiary. At all times during the
continuance of this Plan, all Accounts shall be subject to the claims of general
creditors of the Company under federal and state law, and the Accounts
attributable to Participating Subsidiaries shall be subject to the claims of the
general creditors thereof under federal and state law. The Participants and
Beneficiaries shall not have any secured or preferred interest by way of trust,
escrow, lien or otherwise in any specific assets of the Company or a
Participating Subsidiary. If the Company or a Participating Subsidiary shall, in
fact, elect to set aside monies or other assets to meet its obligations
hereunder (there being no obligation to do so), the same shall, nevertheless, be
regarded as a part of the general assets of the Company or a Participating
Subsidiary subject to the claims of its general creditors, and neither any
Participant nor any Beneficiary of any Participant shall have a legal,
beneficial, or security interest therein.
9.3. DISCLAIMER OF EMPLOYMENT AND BONUS RIGHTS The Plan is not a contract for
employment and does not grant any employee the right to be retained in the
employment of the Company or to obtain any Deferrable Compensation. Upon
dismissal or severance of employment, no Participant shall have any right or
interest under the Plan, other than as specifically provided herein.
9.4. NO COMPENSATION UNDER THE DAIN RAUSCHER RETIREMENT AND SAVINGS PLAN No
amounts of Deferred Compensation and related Employer Matches, if any, credited
to any Account of a Participant under the Plan shall constitute ?recognized
compensation for purposes of the Dain Rauscher Retirement and Savings Plan, as
such terms are defined in such plan.
-21-
<PAGE> 27
9.5 ADMINISTRATIVE EXPENSES OF THE PLAN Participants will be responsible for all
administrative expenses incurred with respect to this Plan and for all
administrative expenses and other fees of this Plan (to the extent such expenses
are not paid by the Company), including the costs of outsourced recordkeeping
(which expenses will be allocated equally to each Participant's Accounts).
SECTION 10
AMENDMENT OR TERMINATION
10.1. AMENDMENT OR TERMINATION This Plan may be amended or terminated at any
time by the Committee or the Board of Directors of the Company, but no such
amendment or termination shall have the effect of reducing the amounts already
then credited to the Stock Account, Cash Account, Dain Rauscher Interest Account
or Mutual Fund Account of any Participant or the vested portion of his or her
Matching Stock Account, Mandatory Stock Account or Matching Cash Account (as
determined pursuant to Section 5) or of changing the distribution rights (as
provided in Section 6) of any Participant, without the consent of such
Participant.
10.2. MERGER The Committee may cause all or part of this Plan to be merged with
all or a part of any other nonqualified deferred compensation plan maintained by
any Company or a Participating Subsidiary. If the Committee agrees to such a
merger, the Committee shall specify in writing the terms and conditions of such
merger and shall obtain such consents and agreements as it deems necessary or
desirable.
10.3. APPLICABILITY TO SUCCESSORS This Plan shall be binding upon and inure to
the benefit of the Company, the Participating Subsidiaries and each Participant,
the successors and assigns of such parties, and the Beneficiaries, personal
representatives and heirs of each Participant. If the Company becomes a party to
any merger, consolidation or reorganization, this Plan shall remain in full
force and effect as an obligation of the Company or its successors in interest.
-22-
<PAGE> 1
EXHIBIT 10.17
DAIN RAUSCHER CORPORATION
SPECIAL EXECUTIVE NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of this 5th day of April, 1999, by and
between Dain Rauscher Corporation, a Delaware corporation ("Dain Rauscher"), and
Irving Weiser, Chairman, Chief Executive Officer and President of Dain Rauscher
("Executive").
WITNESSETH, THAT:
WHEREAS, in consideration of Executive's leadership and to provide an
incentive for Executive to continue to perform at a high level for Dain
Rauscher's benefit during the upcoming years in a challenging and consolidating
industry and to implement the new five-year Dain Rauscher strategic plan, Dain
Rauscher wishes to grant this special one-time stock option to Executive;
WHEREAS, Executive has already been granted during calendar year 1999
an aggregate of 150,000 shares pursuant to Dain Rauscher's 1996 Stock Incentive
Plan (as it may be amended from time to time, the "Plan"), the maximum amount
permitted to be granted under such Plan to any individual in a calendar year;
WHEREAS, such limitation was placed in the Plan in order to meet
certain criteria under Section 162(m) of the Internal Revenue Code; and
WHEREAS, notwithstanding such limitation, Dain Rauscher believes it to
be in the best interest of the Company to grant Executive this option at this
time and, as a result, Dain Rauscher is granting this option outside of the
Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
Subject to the provisions of Section 4 below, Dain Rauscher hereby
grants to Executive, on the date set forth above, the right and option
(hereinafter called "this option") to purchase all or any part of an aggregate
of 150,000 shares of Common Stock, par value $0.125 per share, at the price of
$50.00 per share, and on the other terms and conditions set forth herein. This
option is not intended to be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Duration and Exercisability
<PAGE> 2
(a) This option shall in all events terminate ten (10) years after the
date of grant. Subject to the other terms and conditions set forth herein, this
option may be exercised by Executive in cumulative installments as follows:
<TABLE>
<CAPTION>
Cumulative percentage
On or after each of of shares as to which
the following dates: option is exercisable:
-------------------- -----------------------
<S> <C>
April 5, 2002 33 1/3%
April 5, 2003 66 2/3%
April 5, 2004 100%
</TABLE>
(b) During the lifetime of Executive, this option shall be exercisable
only by Executive or, in the event Executive becomes disabled within the meaning
of Code section 22(e)(3), by Executive's personal representative(s) or
guardian(s). This option shall not be transferable or assignable by Executive
other than pursuant to a will or the laws of descent and distribution or to a
"Family Member" (as such term is defined in General Instruction A.5 to Form S-8
or an successor instruction or form) upon such terms and subject to such
conditions as shall be determined from time to time by the Committee of the
Board of Directors administering the Plan.
3. Effect of Termination of Employment
(a) In the event that Executive shall cease to be employed by Dain
Rauscher or its subsidiaries for any reason other than Executive's gross and
willful misconduct, Executive's death or disability or Executive's retirement
(as provided in paragraphs (b), (c) and (d) of this Section 3, respectively),
Executive shall have the right to exercise this option at any time within ninety
(90) days after such termination of employment to the extent of the full number
of shares Executive was entitled to purchase under this option on the date of
termination, subject to the condition that this option shall not be exercisable
after the expiration of its term.
(b) In the event that Executive shall cease to be employed by Dain
Rauscher or its subsidiaries by reason of Executive's gross and willful
misconduct during the course of employment, including, but not limited to, the
wrongful appropriation of funds or the commission of a gross misdemeanor or
felony, this option shall be terminated as of the date of the misconduct.
(c) If Executive shall die while in the employ of Dain Rauscher or its
subsidiaries or if Executive shall become disabled within the meaning of Code
Section 22(e)(3) while in the employ of Dain Rauscher or its subsidiaries and
Executive shall not have fully exercised this option, this option may be
exercised at any time within twelve (12) months after Executive's death or
disability by the personal representative(s), administrator(s), or, if
applicable, guardian(s) of Executive or by any person or persons to whom this
option is transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares then subject to this
option on the date of death or disability (i.e., the vesting of all shares which
have
2
<PAGE> 3
not vested pursuant to paragraph (a) of Section 2 hereof shall be accelerated to
such date) and subject to the condition that this option shall not be
exercisable after the expiration of its term.
(d) If Executive shall cease to be employed by Dain Rauscher or its
subsidiaries (i) for any reason other than Executive's gross and willful
misconduct or Executive's death or disability (as provided in paragraphs (b) and
(c) of this Section 3, respectively), (ii) at a time when Executive shall not
have fully exercised this option and (iii) at a time when Executive has been
employed by Dain Rauscher or its subsidiaries for a period of at least ten (10)
years and has attained the age of 50 or greater, this option may be exercised by
Executive at any time on or prior to the earlier of the fifth anniversary of the
date Executive ceased to be employed by Dain Rauscher or its subsidiaries or the
expiration of the term of this option (the period ending as of the earlier of
such dates being referred to hereinafter as the "post-retirement extended
exercise period") to the extent of the full number of shares Executive shall be
entitled to purchase under this option on the date Executive ceases to be
employed by Dain Rauscher; subject, however, to the conditions that, during such
post-retirement extended exercise period, Executive shall not (x) breach any of
the terms of Section 4 hereof, or (y) act in any manner determined by the
committee or subcommittee of Dain Rauscher's Board of Directors administering
the Plan to be adverse to the interests of Dain Rauscher or its subsidiaries. If
at any time during such post-retirement extended exercise period Executive shall
cease to satisfy the conditions described in the preceding proviso, Executive's
right to exercise this option pursuant to this Section 3(d) shall terminate
immediately and Executive shall thereafter only be entitled to exercise this
option in accordance with paragraph (a) of this Section 3.
4. Certain Covenants.
(a) Noncompetition. Executive agrees that, during the post-retirement
extended exercise period, Executive will not, directly or indirectly, anywhere
in the United States, in any manner, whether as an advisor, principal, agent,
partner, officer, director, stockholder (except, as a passive investment, being
a beneficial holder of up to 1% of the outstanding shares of capital stock of
any corporation listed on a national securities exchange or publicly traded in
the over-the-counter market), employee, independent contractor, consultant, or
otherwise of any registered broker-dealer, financial services institution or
other entity, perform any services for or otherwise participate, directly or
indirectly, in any business in which Dain Rauscher or any of its subsidiaries or
affiliates is or may become engaged between the date hereof and the date of
Executive's termination of employment pursuant to Section 3(d) hereof, including
without limitation, the retail or institutional securities brokerage business;
the equity or fixed income capital markets businesses; the provisions of asset
management or financial or investment advisory services; and the correspondent
clearing businesses.
(b) Nonsolicitation. Executive agrees that, during the post-retirement
extended exercise period, Executive will not, directly or indirectly, in any
manner solicit, assist or engage any person employed by Dain Rauscher or its
subsidiaries or affiliates to leave the employ of Dain Rauscher or recruit, make
an offer of employment to or hire any person employed by Dain Rauscher or its
subsidiaries or affiliates.
3
<PAGE> 4
(c) Confidentiality. Except as otherwise required by law or court
order, Executive agrees that Executive will not, at any time while employed by
Dain Rauscher or any of its subsidiaries or thereafter, divulge or otherwise
make accessible to anyone or use for any purpose any confidential or sensitive
knowledge or information concerning Dain Rauscher, its subsidiaries or
affiliates, any of its officers, directors, employees or agents or its business,
customers, strategic plans, financial condition or profitability obtained
through the performance of Executive's job responsibilities or during the course
of Executive's employment.
(d) Cooperation. Executive agrees that Executive will cooperate with
the Company with respect to any claims, actions or proceedings brought or
threatened to be brought against the Company or any of its officers, directors,
employees, agents, successors or assigns that relate to Executive's employment
or any transactions, decisions or actions in which Executive was involved while
an employee or officer of the Company. Executive agrees to be available upon
reasonable notice and at mutually agreeable times to discuss issues or to review
documents with representatives of Dain Rauscher, and to appear without subpoena
for deposition or testimony at the request of Dain Rauscher in connection with
any legal or regulatory proceeding. Dain Rauscher will pay Executive's
reasonable expenses in connection with Executive's cooperation requested under
this agreement, including reasonable out-of-pocket travel expenses or documented
lost wages Executive incurs.
(e) Reasonableness of Restrictions. Executive agrees that the foregoing
covenants and limitations on Executive's post-retirement activities are
reasonable and appropriate under the circumstances, and that forfeiture of
unvested options for violation of any of the foregoing covenants is a reasonable
and appropriate remedy.
(f) Severability. To the extent any provision of this Agreement shall
be determined to be invalid or unenforceable in any jurisdiction, such provision
shall be deemed to be deleted from this Agreement as to such jurisdiction only,
and the validity and enforceability of the remainder of such provision and of
this Agreement shall be unaffected. In furtherance of and not in limitation of
the foregoing, Executive expressly agrees that should the duration of,
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid or enforceable under applicable
law in a given jurisdiction, then such provision, as to such jurisdiction only,
shall be construed to cover only that duration, extent or activities that may
validly or enforceably be covered. Executive acknowledges that uncertainty of
the law in this respect and expressly stipulates that this Agreement shall be
construed in a manner that renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law
in each applicable jurisdiction.
5. Manner of Exercise
(a) This option can be exercised only by Executive or other proper
party by delivering within the option period written notice to Dain Rauscher at
its principal office. The
4
<PAGE> 5
notice shall state the number of shares as to which this option is being
exercised and be accompanied by payment in full of the option price for all
shares designated in the notice.
(b) Executive may pay the option price (i) by check (bank check,
certified check or personal check) or (ii) with the approval of Dain Rauscher,
by delivering to Dain Rauscher for cancellation shares of Dain Rauscher's Common
Stock having a Fair Market Value (as defined in the Plan) on the date of
exercise equal to the option price; provided, however, that Executive shall not
be entitled to tender shares of Dain Rauscher's Common Stock pursuant to
successive, substantially simultaneous exercises of this option or any other
stock option of Dain Rauscher.
6. Acceleration of Exercisability Upon Change in Control
Notwithstanding any installment or delayed exercise provision contained
in this Agreement, this option may be exercised in full immediately at or
anytime after the occurrence of a "Change in Control" (as hereinafter defined).
For purposes hereof, the following terms shall have the definitions set forth
below:
(a) "Change in Control" shall mean:
(i) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed
pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") that any person, entity or "group",
within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act, other than Dain Rauscher or any of its subsidiaries, or the
Dain Rauscher Retirement Plan or any other employee benefit plan of
Dain Rauscher or any of its subsidiaries, or any entity holding
shares of Dain Rauscher's Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan, has
become the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 35% or more of the combined
voting power of Dain Rauscher's then outstanding voting securities
in a transaction or series of transactions;
(ii) the Continuing Directors cease to constitute a majority of
Dain Rauscher's Board of Directors;
(iii) the shareholders of Dain Rauscher approve (1) any
consolidation or merger of Dain Rauscher in which Dain Rauscher is
not the continuing or surviving corporation or pursuant to which
shares of Dain Rauscher's stock would be converted into cash,
securities or other property, other than a merger of Dain Rauscher
in which shareholders immediately prior to the merger have the same
proportionate ownership of stock of the surviving corporation
immediately after the merger; (2) any sale, lease, exchange or
other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of Dain
Rauscher; or (3) any plan of liquidation or dissolution of Dain
Rauscher; or
5
<PAGE> 6
(iv) the majority of the Continuing Directors determine in their
sole and absolute discretion that there has been a change in
control of Dain Rauscher.
(b) "Continuing Director" shall mean any person who is a member of the
Board of Directors of Dain Rauscher, while such a person is a member of the
Board of Directors, who is not an Acquiring Person (as hereinafter defined) or
an Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (i) was a member of the Board of Directors on the date of this Agreement or
(ii) subsequently becomes a member of the Board of Directors, if such person's
initial nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. For purposes
of this paragraph (b), "Acquiring Person" shall mean any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together
with all Affiliates and Associates of such person, is the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Dain Rauscher representing 35% or more of the
combined voting power of Dain Rauscher's then outstanding securities, but shall
not include Dain Rauscher, any subsidiary of Dain Rauscher or any employee
benefit plan of Dain Rauscher or of any subsidiary of Dain Rauscher or any
entity holding shares of Dain Rauscher's Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
(c) If a Change in Control shall occur, then the Board of Directors or
the Committee (if authority is delegated by the Board of Directors), in its sole
discretion, and without the consent of Executive, may determine that Executive
shall receive, with respect to some or all of the shares of Common Stock subject
to this option, as of the effective date of any such Change in Control, cash in
an amount equal to the excess of the Fair Market Value of such shares
immediately prior to the effective date of such Change in Control over the
exercise price per share of this option.
7. Special Provisions
(a) Cancellation and Replacement of Option. Executive and Dain Rauscher
agree that if at any time between January 1, 2000 and April 5, 2002, the Fair
Market Value per share of Dain Rauscher Common Stock is equal to or less than
$50.00, Dain Rauscher will cancel this option and Executive will be granted an
option pursuant to the Plan to purchase 150,000 shares at an exercise price of
$50.00 per share. Such option (the "1996 Plan Replacement Option") will contain
terms identical to those contained in Sections 2 through 6 and Section 8 of this
agreement. The 1996 Plan Replacement Option will be subject to the terms of the
Plan, a copy of which is available for inspection during business hours at the
principal offices of Dain Rauscher. If this option is cancelled and the 1996
Plan Replacement Option is granted pursuant this Section, Executive and Dain
Rauscher agree that this option will thereafter be void and of no further
effect.
6
<PAGE> 7
(b) Deferral Election of Executive.
(i) Executive and Dain Rauscher hereby agree that if at the time of
exercise of this option Executive is still employed by Dain
Rauscher and is subject to the provisions of Section 162(m) of
the Internal Revenue Code, that Executive will defer, and
Executive hereby so irrevocably elects to defer, receipt of the
option shares (net of any number of shares tendered to pay the
exercise price of this option pursuant to Section 5(b) above)
until a date (the "Distribution Date") which shall be as soon as
administratively feasible after the first anniversary of the
earlier of (i) the termination of Executive's employment or (ii)
the date on which Executive ceases to be subject to the provision
of such Section 162(m). The option shares will be distributed to
Executive in a single lump installment on the Distribution Date.
In the event of a Change in Control, the deferred option shares
shall be distributed to Executive within thirty (30) days.
(ii) Executive shall not have any transferable interest in the
deferred option shares, nor any right to anticipate, alienate,
dispose of, pledge or encumber the same prior to actual receipt,
nor shall the same be subject to attachment, garnishment,
execution following judgment or other legal process instituted by
the creditors of Executive.
(iii) Executive acknowledges that he is a general unsecured creditor of
Dain Rauscher with respect to the deferred option shares and
shall not have any preferred interest by way of trust, escrow,
lien or otherwise in any specific assets of Dain Rauscher.
8. Miscellaneous
(a) This Agreement shall not confer on Executive any right with
respect to continuance of employment by Dain Rauscher or any of its
subsidiaries, nor will it interfere in any way with the right of Dain Rauscher
to terminate such employment at any time. Executive shall have none of the
rights of a shareholder with respect to shares subject to this option until such
shares shall have been issued to Executive upon exercise of this option.
(b) Executive acknowledges that the shares of Common Stock received
upon exercise of this option may not be transferred without (1) the opinion of
counsel satisfactory to Dain Rauscher that such transfer may be made lawfully
without registration or qualification under the Securities Act of 1933, as
amended, and applicable state securities laws or (2) such registration or
qualification. Executive acknowledges that, as of the date of this agreement,
the shares of Common Stock underlying this option have not been registered under
the Securities Act of 1933, as amended.
(c) If Executive exercises all or any portion of this option
subsequent to any change in the number or character of the outstanding shares of
Dain Rauscher's Common Stock (through
7
<PAGE> 8
merger, consolidation, reorganization, recapitalization, stock dividend or
otherwise), Executive shall then receive for the aggregate price paid by
Executive on such exercise of this option, the number and type of securities or
other consideration which Executive would have received if such option had been
exercised prior to the event changing the number or character of outstanding
shares.
(d) Dain Rauscher shall at all times during the term of this option
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
(e) In order to provide Dain Rauscher with the opportunity to claim the
benefit of any income tax deduction which may be available to it upon the
exercise of the option, and in order to comply with all applicable federal or
state income tax laws or regulations, Dain Rauscher may take such action as it
deems appropriate to insure that, if necessary, all applicable federal or state
payroll, withholding, income or other taxes are withheld or collected from
Employee. Employee may elect to satisfy his federal and state income tax
withholding obligations upon exercise of this option by (i) having Dain Rauscher
withhold a portion of the shares of Common Stock otherwise to be delivered upon
exercise of such option having a fair market value equal to the amount of
federal and state income tax required to be withheld upon such exercise, in
accordance with the rules of the Committee, or (ii) delivering to Dain Rauscher
shares of its Common Stock other than the shares issuable upon exercise of such
option with a fair market value equal to such taxes, in accordance with the
rules of the Committee.
(f) This option shall be governed by the internal laws of the State of
Delaware, without regard to any conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
DAIN RAUSCHER CORPORATION
By_____________________________________
Its ___________________________________
_______________________________________
IRVING WEISER
8
<PAGE> 1
EXHIBIT 10.18
DAIN RAUSCHER CORPORATION
EMPLOYEE NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of this 5th day of April, 1999, by
and between Dain Rauscher Corporation, a Delaware corporation ("Dain Rauscher"),
and Irving Weiser ("Employee").
WITNESSETH, THAT:
WHEREAS, Dain Rauscher wishes to grant this stock option to
Employee pursuant to its 1996 Stock Incentive Plan (as it may be amended from
time to time, the "Plan").
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
Dain Rauscher hereby grants to Employee, on the date set forth
above, the right and option (hereinafter called "this option") to purchase all
or any part of an aggregate of 115,000 shares of Common Stock, par value $0.125
per share, at the price of $50.00 per share on the terms and conditions set
forth herein. This option is not intended to be an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Duration and Exercisability
(a) This option shall in all events terminate ten (10)
years after the date of grant. Subject to the other terms and conditions set
forth herein, this option may be exercised by Employee in cumulative
installments as follows:
<TABLE>
<CAPTION>
Cumulative percentage
On or after each of of shares as to which
the following dates: option is exercisable:
-------------------- ----------------------
<S> <C>
April 5, 2002 33 1/3%
April 5, 2003 66 2/3%
April 5, 2004 100%
</TABLE>
(b) During the lifetime of Employee, this option shall be
exercisable only by Employee, or, in the event Employee is disabled within the
meaning of Code Section 22(e)(3), the personal respresentative(s) or guardian(s)
of Employee. This option shall not be assignable or transferable by Employee,
other than by will or the laws of descent and distribution.
<PAGE> 2
3. Effect of Termination of Employment
(a) In the event that Employee shall cease to be employed
by Dain Rauscher or its subsidiaries for any reason other than Employee's gross
and willful misconduct, Employee's death or disability, or Employee's retirement
(as provided in paragraphs (b), (c) and (d) of this Section 3, respectively),
Employee shall have the right to exercise this option at any time within ninety
(90) days after such termination of employment to the extent of the full number
of shares Employee was entitled to purchase under this option on the date of
termination, subject to the condition that this option shall not be exercisable
after the expiration of its term.
(b) In the event that Employee shall cease to be employed
by Dain Rauscher or its subsidiaries by reason of Employee's gross and willful
misconduct during the course of employment, including, but not limited to, the
wrongful appropriation of funds or the commission of a gross misdemeanor or
felony, this option shall be terminated as of the date of the misconduct.
(c) If Employee shall die while in the employ of Dain
Rauscher or its subsidiaries or if Employee shall become disabled within the
meaning of Code Section 22(e)(3) while in the employ of Dain Rauscher or its
subsidiaries and Employee shall not have fully exercised this option, this
option may be exercised at any time within twelve (12) months after Employee's
death or disability by the personal representative(s), administrator(s), or, if
applicable, guardian(s) of Employee or by any person or persons to whom this
option is transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares then subject to this
option on the date of death or disability (i.e., the vesting of all shares which
have not vested pursuant to paragraph (a) of Section 2 hereof shall be
accelerated to such date) and subject to the condition that this option shall
not be exercisable after the expiration of its term.
(d) If Employee shall cease to be employed by Dain
Rauscher or its subsidiaries (i) for any reason other than Employee's gross and
willful misconduct or Employee's death or disability (as provided in paragraphs
(b) and (c) of this Section 3, respectively), (ii) at a time when Employee shall
not have fully exercised this option and (iii) at a time when Employee has been
employed by Dain Rauscher or its subsidiaries for a period of at least ten (10)
years and has attained the age of 50 or greater, this option may be exercised by
Employee at any time on or prior to the earlier of the fifth anniversary of the
date Employee ceased to be employed by Dain Rauscher or its subsidiaries or the
expiration of the term of this option (the period ending as of the earlier of
such dates being referred to hereinafter as the "post-retirement extended
exercise period") to the extent of the full number of shares Employee shall be
entitled to purchase under this option on the date Employee ceases to be
employed by Dain Rauscher; subject, however, to the conditions that, during such
post-retirement extended exercise period, Employee shall not (x) breach any of
the terms of Section 4 hereof, or (y) act in any manner determined by the
committee or subcommittee of Dain Rauscher's Board of Directors administering
the Plan to be adverse to the interests of Dain Rauscher or its subsidiaries. If
at any time during such post-retirement extended exercise period Employee shall
cease to satisfy the conditions described in the preceding proviso, Employee's
right to exercise this option pursuant to this Section 3(d) shall
2
<PAGE> 3
terminate immediately and Employee shall thereafter only be entitled to exercise
this option in accordance with paragraph (a) of this Section 3.
4. Certain Covenants.
(a) Noncompetition. Employee agrees that, during the
post-retirement extended exercise period, Employee will not, directly or
indirectly, anywhere in the United States, in any manner, whether as an advisor,
principal, agent, partner, officer, director, stockholder (except, as a passive
investment, being a beneficial holder of up to 1% of the outstanding shares of
capital stock of any corporation listed on a national securities exchange or
publicly traded in the over-the-counter market), employee, independent
contractor, consultant, or otherwise of any registered broker-dealer, financial
services institution or other entity, perform any services for or otherwise
participate, directly or indirectly, in any business in which Dain Rauscher or
any of its subsidiaries or affiliates is or may become engaged between the date
hereof and the date of Employee's termination of employment pursuant to Section
3(d) hereof, including without limitation, the retail or institutional
securities brokerage business; the equity or fixed income capital markets
businesses; the provisions of asset management or financial or investment
advisory services; and the correspondent clearing businesses.
(b) Nonsolicitation. Employee agrees that, during the
post-retirement extended exercise period, Employee will not, directly or
indirectly, in any manner solicit, assist or engage any person employed by Dain
Rauscher to leave the employ of Dain Rauscher or recruit, make an offer of
employment to or hire any person employed by Dain Rauscher.
(c) Confidentiality. Except as otherwise required by law
or court order, Employee agrees that Employee will not, at any time while
employed by Dain Rauscher or any of its subsidiaries or thereafter, divulge or
otherwise make accessible to anyone or use for any purpose any confidential or
sensitive knowledge or information concerning Dain Rauscher, any of its
officers, directors, employees or agents or its business, customers, strategic
plans, financial condition or profitability obtained through the performance of
Employee's job responsibilities or during the course of Employee's employment.
Employee further agrees that, except as otherwise
required under law or court order, Employee will not at any time divulge or
otherwise make accessible to anyone (other than Employee's immediate family and
any tax, financial and/or other professional advisors Employee consults
regarding Employee's personal financial affairs) the terms of this Agreement,
except that Employee may disclose the terms of the noncompetition,
nonsolicitation, and cooperation covenants contained herein to future or
potential employers or others with a need to know such information.
(d) Cooperation. Employee agrees that Employee will
cooperate with Dain Rauscher with respect to any claims, actions or proceedings
brought or threatened to be brought against Dain Rauscher or any of its
officers, directors, employees, agents, successors or assigns that relate to
Employee's employment or any transactions, decisions or actions in which
Employee was involved while an employee or officer of Dain Rauscher. Employee
agrees to be available
3
<PAGE> 4
upon reasonable notice and at mutually agreeable times to discuss issues or to
review documents with representatives of Dain Rauscher, and to appear without
subpoena for deposition or testimony at the request of Dain Rauscher in
connection with any legal or regulatory proceeding. Dain Rauscher will pay
Employee's reasonable expenses in connection with Employee's cooperation
requested under this agreement, including reasonable out-of-pocket travel
expenses or documented lost wages Employee incurs.
(e) Reasonableness of Restrictions. Employee agrees that
the foregoing covenants and limitations on Employee's post-retirement activities
are reasonable and appropriate under the circumstances, and that forfeiture of
unvested options for violation of any of the foregoing covenants is a reasonable
and appropriate remedy.
(f) Severability. To the extent any provision of this
Agreement shall be determined to be invalid or unenforceable in any
jurisdiction, such provision shall be deemed to be deleted from this Agreement
as to such jurisdiction only, and the validity and enforceability of the
remainder of such provision and of this Agreement shall be unaffected. In
furtherance of and not in limitation of the foregoing, Employee expressly agrees
that should the duration of, geographical extent of, or business activities
covered by, any provision of this Agreement be in excess of that which is valid
or enforceable under applicable law in a given jurisdiction, then such
provision, as to such jurisdiction only, shall be construed to cover only that
duration, extent or activities that may validly or enforceably be covered.
Employee acknowledges that uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be construed in a manner that renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law in each applicable jurisdiction.
5. Manner of Exercise
(a) This option can be exercised only by Employee or
other proper party by delivering within the option period written notice to Dain
Rauscher at its principal office. The notice shall state the number of shares as
to which this option is being exercised and be accompanied by payment in full of
the option price for all shares designated in the notice.
(b) Employee may pay the option price (i) by check (bank
check, certified check or personal check) or (ii) with the approval of Dain
Rauscher, by delivering to Dain Rauscher for cancellation shares of Dain
Rauscher's Common Stock having a Fair Market Value (as defined in the Plan) on
the date of exercise equal to the option price; provided, however, that Employee
shall not be entitled to tender shares of Dain Rauscher's Common Stock pursuant
to successive, substantially simultaneous exercises of this option or any other
stock option of Dain Rauscher.
4
<PAGE> 5
6. Acceleration of Exercisability Upon Change in Control
Notwithstanding any installment or delayed exercise provision
contained in this Agreement, this option may be exercised in full immediately at
or anytime after the occurrence of a "Change in Control" (as hereinafter
defined). For purposes hereof, the following terms shall have the definitions
set forth below:
(a) "Change in Control" shall mean:
(i) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report
filed pursuant to Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
that any person, entity or "group", within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act,
other than Dain Rauscher or any of its subsidiaries, or
the Dain Rauscher Retirement Plan or any other employee
benefit plan of Dain Rauscher or any of its
subsidiaries, or any entity holding shares of Dain
Rauscher's Common Stock organized, appointed or
established for, or pursuant to the terms of, any such
plan, has become the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange
Act) of 35% or more of the combined voting power of Dain
Rauscher's then outstanding voting securities in a
transaction or series of transactions;
(ii) the Continuing Directors cease to constitute a
majority of Dain Rauscher's Board of Directors;
(iii) the shareholders of Dain Rauscher approve (1) any
consolidation or merger of Dain Rauscher in which Dain
Rauscher is not the continuing or surviving corporation
or pursuant to which shares of Dain Rauscher's stock
would be converted into cash, securities or other
property, other than a merger of Dain Rauscher in which
shareholders immediately prior to the merger have the
same proportionate ownership of stock of the surviving
corporation immediately after the merger; (2) any sale,
lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or
substantially all of the assets of Dain Rauscher; or (3)
any plan of liquidation or dissolution of Dain Rauscher;
or
(iv) the majority of the Continuing Directors determine
in their sole and absolute discretion that there has
been a change in control of Dain Rauscher.
(b) "Continuing Director" shall mean any person who is a
member of the Board of Directors of Dain Rauscher, while such a person is a
member of the Board of Directors, who is not an Acquiring Person (as hereinafter
defined) or an Affiliate or Associate (as hereinafter defined) of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, and who (i) was a member of the Board of Directors on the date of
this Agreement or (ii) subsequently becomes a member of the Board of Directors,
if such person's
5
<PAGE> 6
initial nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. For purposes
of this paragraph (b), "Acquiring Person" shall mean any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together
with all Affiliates and Associates of such person, is the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Dain Rauscher representing 35% or more of the
combined voting power of Dain Rauscher's then outstanding securities, but shall
not include Dain Rauscher, any subsidiary of Dain Rauscher or any employee
benefit plan of Dain Rauscher or of any subsidiary of Dain Rauscher or any
entity holding shares of Dain Rauscher's Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
(c) If a Change in Control shall occur, then the Board of
Directors or the Committee (if authority is delegated by the Board of
Directors), in its sole discretion, and without the consent of Employee, may
determine that Employee shall receive, with respect to some or all of the shares
of Common Stock subject to this option, as of the effective date of any such
Change in Control, cash in an amount equal to the excess of the Fair Market
Value of such shares immediately prior to the effective date of such Change in
Control over the exercise price per share of this option.
7. Miscellaneous
(a) This option is issued pursuant to the Plan, and is
subject to its terms. The terms of the Plan are available for inspection during
business hours at the principal offices of Dain Rauscher.
(b) This Agreement shall not confer on Employee any right
with respect to continuance of employment by Dain Rauscher or any of its
subsidiaries, nor will it interfere in any way with the right of Dain Rauscher
to terminate such employment at any time. Employee shall have none of the rights
of a shareholder with respect to shares subject to this option until such shares
shall have been issued to Employee upon exercise of this option.
(c) The exercise of all or any part of this option shall
only be effective at such time as the sale of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
(d) If Employee exercises all or any portion of this
option subsequent to any change in the number or character of the outstanding
shares of Dain Rauscher's Common Stock (through merger, consolidation,
reorganization, recapitalization, stock dividend or otherwise), Employee shall
then receive for the aggregate price paid by Employee on such exercise of this
option, the number and type of securities or other consideration which Employee
would have received if such option had been exercised prior to the event
changing the number or character of outstanding shares.
6
<PAGE> 7
(e) Dain Rauscher shall at all times during the term of
this option reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
(f) In order to provide Dain Rauscher with the
opportunity to claim the benefit of any income tax deduction which may be
available to it upon the exercise of the option, and in order to comply with all
applicable federal or state income tax laws or regulations, the Company may take
such action as it deems appropriate to insure that, if necessary, all applicable
federal or state payroll, withholding, income or other taxes are withheld or
collected from Employee. Employee may elect to satisfy his federal and state
income tax withholding obligations upon exercise of this option by (i) having
the Company withhold a portion of the shares of Common Stock otherwise to be
delivered upon exercise of such option having a fair market value equal to the
amount of federal and state income tax required to be withheld upon such
exercise, in accordance with the rules of the Committee, or (ii) delivering to
the Company shares of its Common Stock other than the shares issuable upon
exercise of such option with a fair market value equal to such taxes, in
accordance with the rules of the Committee.
(g) This option shall be governed by the internal laws of
the State of Delaware, without regard to any conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
DAIN RAUSCHER CORPORATION
By____________________________________
_____________________________________
Irving Weiser
7
<PAGE> 1
EXHIBIT 10.19
DAIN RAUSCHER CORPORATION
SECTION 280G CHANGE IN CONTROL
GROSS-UP AGREEMENT
THIS AGREEMENT is made as of this day of July, 1999, by and
between Dain Rauscher Corporation, a Delaware corporation ("Dain Rauscher"), and
Irving Weiser ("Executive").
WITNESSETH, THAT:
WHEREAS, Executive has, for many years, acted as Dain
Rauscher's Chairman, Chief Executive Officer and President;
WHEREAS, in consideration of his leadership and to provide an
incentive for Executive to continue to perform at a high level for Dain
Rauscher's benefit during the upcoming years in a challenging and consolidating
industry, Dain Rauscher has made a special grant to Executive of nonqualified
stock options which will have value only if Dain Rauscher achieves aggressive
growth goals (the "Option");
WHEREAS, in the event of a Change-in-Control (as hereinafter
defined), the acceleration of the vesting of the Option and other payments then
due to the Executive may cause Executive to become subject to the special excise
tax provided for pursuant to Sections 280G and 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, in order to achieve the benefits to Dain Rauscher of
the Option grant, Dain Rauscher believes it is in its best interests and the
best interests of its stockholders to provide Executive with rights to receive a
special payment to cover any such special excise taxes that may become due from
Executive in such circumstances.
NOW, THEREFORE, in consideration of the premises set forth
herein, Dain Rauscher and Executive hereby agree as follows:
1. Change in Control
For purposes of this Agreement, Change in Control shall mean:
(a) the public announcement (which, for purposes of this
definition), shall include, without limitation, a report filed pursuant to
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") that any person, entity or "group," within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act, other than Dain Rauscher or any of its
subsidiaries, or the Dain Rauscher Retirement Plan or any other employee benefit
plan of Dain Rauscher or any of its subsidiaries, or any entity holding shares
of Stock organized, appointed or established for, or pursuant to the terms of,
any such plan, has become the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of
<PAGE> 2
35% or more of the combined voting power of Dain Rauscher's then outstanding
voting securities in a transaction or series of transactions;
(b) the Continuing Directors cease to constitute a majority of
Dain Rauscher's Board of Directors;
(c) the stockholders of Dain Rauscher approve (1) any
consolidation or merger which Dain Rauscher is not the continuing or surviving
corporation or pursuant to which shares of Dain Rauscher's stock would be
converted into cash, securities or other property, other than a merger in which
Dain Rauscher stockholders immediately prior to the merger have the same
proportionate ownership of the stock of the surviving corporation immediately
after the merger; (2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of Dain Rauscher; or (3) any plan of liquidation or dissolution of
Dain Rauscher; or
(d) the majority of the Continuing Directors determine, in
their sole and absolute discretion, that there has been a change in control of
Dain Rauscher.
For purposes of this Agreement, "Continuing Director" shall
mean any person who is a member of the Board of Directors of Dain Rauscher,
while such a person is a member of the Board of Directors, who is not an
Acquiring Person (as hereinafter defined) or an Affiliate or Associate (as
hereinafter defined) of an Acquiring Person, or a representative of an Acquiring
Person or of any such Affiliate or Associate, and who (A) was a member of the
Board of Directors on April 27, 1999, or (B) subsequently becomes a member of
the Board of Directors, if such person's initial nomination for election or
initial election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors.
For purposes of this Agreement, "Acquired Person" shall mean
any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) who or which, together with all Affiliates and Associates of such person,
is the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of Dain Rauscher
representing 35% or more of the combined voting power of Dain Rauscher's then
outstanding securities, but shall not include Dain Rauscher, any subsidiary of
Dain Rauscher or any employee benefit plan of Dain Rauscher or of any subsidiary
of Dain Rauscher or any entity holding shares of stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
The foregoing definition of Change in Control shall be
interpreted and applied so that it applies in every case when any stock options
granted to Executive by Dain Rauscher become fully exercisable as a result of
such a Change in Control or similar transaction or event.
<PAGE> 3
2. Gross-Up Payment.
In the event any stock option granted to Executive by Dain
Rauscher becomes fully vested or exercisable as a result of a Change in Control,
as defined herein, or in the event that Executive otherwise becomes entitled to
any payments from Dain Rauscher which are "parachute payments" within the
meaning of Section 280G of the Code, Dain Rauscher shall cause its independent
auditors promptly to review, at Dain Rauscher's sole expense, the applicability
of Section 4999 of the Code to such stock options and such payments. If such
auditors shall determine that any payment or distribution of any type by Dain
Rauscher to Executive or for Executive's benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then Executive shall be entitled
to receive an additional cash payment (a "Gross-Up Payment") within 30 days of
such determination equal to an amount such that after payment by Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Executive
would retain an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Total Payments. For purposes of the foregoing determination,
Executive's tax rate shall be deemed to be the highest statutory marginal state
and Federal tax rate (on a combined basis) (including Executive's share of
F.I.C.A. and Medicare taxes) then in effect. If no determination by the Dain
Rauscher auditors is made prior to the time a tax return reflecting the Total
Payments is required to be filed by Executive, Executive will be entitled to
receive a Gross-Up Payment calculated on the basis of the Total Payments
reported by Executive in such tax return, within 30 days of the filing of such
tax return. In all events, if any tax authority determines that a greater Excise
Tax should be imposed upon the Total Payments than is determined by Dain
Rauscher's independent auditors or reflected in Executive's tax return pursuant
to this Agreement, Executive shall be entitled to receive the full Gross-Up
Payment calculated on the basis of the amount of Excise Tax determined to be
payable by such tax authority from Dain Rauscher within 30 days of such
determination.
3. Miscellaneous
(a) This Agreement shall not confer on Executive any right
with respect to continuance of employment by Dain Rauscher or any of its
subsidiaries, nor will it interfere in any way with the right of Dain Rauscher
to terminate such employment at any time.
(b) This Agreement shall be governed by the internal laws of
the State of Delaware, without regard to any conflict of laws principles.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
DAIN RAUSCHER CORPORATION
BY
----------------------------
ITS
----------------------------
--------------------------------
IRVING WEISER
<PAGE> 1
EXHIBIT 10.20
[DRC letterhead]
January 4, 2000
Mr. Irving Weiser
641 S. Westwood Drive
Golden Valley, MN 55416
Dear Mr. Weiser:
This letter will confirm the cancellation, by its terms, of that
certain Dain Rauscher Corporation Special Executive Non-Qualified Stock Option
Agreement, dated as of April 5, 1999 (the "Special Agreement"), by and between
Dain Rauscher Corporation ("Dain Rauscher") and you, pursuant to which Dain
Rauscher granted to you the right and option (the "Special Option") to purchase
all or any part of an aggregate of 150,000 shares of Common Stock outside of
Dain Rauscher's 1996 Stock Incentive Plan (the "Plan"). Concurrently with the
cancellation of the Special Agreement, and in accordance with its terms, Dain
Rauscher granted to you an option pursuant to the Plan to purchase 150,000
shares at an exercise price of $50.00 per share (the "Plan Replacement Option").
As a result of the granting of the Plan Replacement Option, the Special
Agreement is hereby terminated and the Special Option granted pursuant thereto
is hereby cancelled and is hereafter void and of no further effect.
Please acknowledge the foregoing by signing and returning to Dain
Rauscher one copy of this letter where indicated below.
DAIN RAUSCHER CORPORATION
By:
-----------------------------------
Carla J. Smith
Senior Vice President and
General Counsel
Acknowledged and agreed as of this
4th day of January, 2000:
- --------------------------
Irving Weiser
<PAGE> 1
EXHIBIT 10.21
DAIN RAUSCHER CORPORATION
EMPLOYEE NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of this 4th day of January, 2000, by and
between Dain Rauscher Corporation, a Delaware corporation ("Dain Rauscher"), and
Irving Weiser, Chairman, Chief Executive Officer and President of Dain Rauscher
("Employee ").
WITNESSETH, THAT:
WHEREAS, pursuant to that certain Dain Rauscher Corporation Special
Executive Non-Qualified Stock Option Agreement, dated as of April 5, 1999 (the
"Special Agreement"), by and between Dain Rauscher and Employee, Dain Rauscher
granted to Employee the right and option (the "Special Option") to purchase all
or any part of an aggregate of 150,000 shares of Common Stock;
WHEREAS, the Special Option was granted outside of Dain Rauscher's 1996
Stock Incentive Plan (as it may be amended from time to time, the "Plan");
WHEREAS, pursuant to Section 7(a) of the Special Agreement, Employee
and Dain Rauscher agreed that if, at any time between January 1, 2000 and April
5, 2002, the Fair Market Value per share of Dain Rauscher Common Stock were
equal to or less than $50.00, Dain Rauscher would cancel the Special Option and
Employee would be granted an option pursuant to the Plan to purchase 150,000
shares at an exercise price of $50.00 per share (the "1996 Plan Replacement
Option");
WHEREAS, at the close of business on January 3, 2000, the Fair Market
Value per share of Dain Rauscher Common Stock was $46.025 per share;
WHEREAS, pursuant to a letter agreement of even date herewith by and
between the parties hereto (the "Cancellation Agreement"), the Special Agreement
was terminated and the Special Option was cancelled in consideration of the
granting of this option; and
WHEREAS, Dain Rauscher wishes to grant the 1996 Plan Replacement Option
to Employee pursuant to the Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
<PAGE> 2
1. Grant of Option
Subject to the provisions of Section 4 below, Dain Rauscher hereby
grants to Employee, on the date set forth above, the right and option
(hereinafter called "this option") to purchase all or any part of an aggregate
of 150,000 shares of Common Stock, par value $0.125 per share, at the price of
$50.00 per share on the terms and conditions set forth herein. This option is
not intended to be an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. Duration and Exercisability
(a) This option shall in all events terminate on April 5, 2009. Subject
to the other terms and conditions set forth herein, this option may be exercised
by Employee in cumulative installments as follows:
<TABLE>
<CAPTION>
Cumulative percentage
On or after each of of shares as to which
the following dates: option is exercisable:
-------------------- -----------------------
<S> <C>
April 5, 2002 33 1/3%
April 5, 2003 66 2/3%
April 5, 2004 100%
</TABLE>
(b) During the lifetime of Employee, this option shall be exercisable
only by Employee or, in the event Employee becomes disabled within the meaning
of Code section 22(e)(3), by Employee's personal representative(s) or
guardian(s). This option shall not be transferable or assignable by Employee
other than pursuant to a will or the laws of descent and distribution or to a
"Family Member" (as such term is defined in General Instruction A.5 to Form S-8
or an successor instruction or form) upon such terms and subject to such
conditions as shall be determined from time to time by the Committee of the
Board of Directors administering the Plan.
3. Effect of Termination of Employment
(a) In the event that Employee shall cease to be employed by Dain
Rauscher or its subsidiaries for any reason other than Employee's gross and
willful misconduct, Employee's death or disability or Employee's retirement (as
provided in paragraphs (b), (c) and (d) of this Section 3, respectively),
Employee shall have the right to exercise this option at any time within ninety
(90) days after such termination of employment to the extent of the full number
of shares Employee was entitled to purchase under this option on the date of
termination, subject to the condition that this option shall not be exercisable
after the expiration of its term.
(b) In the event that Employee shall cease to be employed by Dain
Rauscher or its subsidiaries by reason of Employee's gross and willful
misconduct during the course of employment, including, but not limited to, the
wrongful appropriation of funds or the
2
<PAGE> 3
commission of a gross misdemeanor or felony, this option shall be terminated as
of the date of the misconduct.
(c) If Employee shall die while in the employ of Dain Rauscher or its
subsidiaries or if Employee shall become disabled within the meaning of Code
Section 22(e)(3) while in the employ of Dain Rauscher or its subsidiaries and
Employee shall not have fully exercised this option, this option may be
exercised at any time within twelve (12) months after Employee's death or
disability by the personal representative(s), administrator(s), or, if
applicable, guardian(s) of Employee or by any person or persons to whom this
option is transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares then subject to this
option on the date of death or disability (i.e., the vesting of all shares which
have not vested pursuant to paragraph (a) of Section 2 hereof shall be
accelerated to such date) and subject to the condition that this option shall
not be exercisable after the expiration of its term.
(d) If Employee shall cease to be employed by Dain Rauscher or its
subsidiaries (i) for any reason other than Employee's gross and willful
misconduct or Employee's death or disability (as provided in paragraphs (b) and
(c) of this Section 3, respectively), (ii) at a time when Employee shall not
have fully exercised this option and (iii) at a time when Employee has been
employed by Dain Rauscher or its subsidiaries for a period of at least ten (10)
years and has attained the age of 50 or greater, this option may be exercised by
Employee at any time on or prior to the earlier of the fifth anniversary of the
date Employee ceased to be employed by Dain Rauscher or its subsidiaries or the
expiration of the term of this option (the period ending as of the earlier of
such dates being referred to hereinafter as the "post-retirement extended
exercise period") to the extent of the full number of shares Employee shall be
entitled to purchase under this option on the date Employee ceases to be
employed by Dain Rauscher; subject, however, to the conditions that, during such
post-retirement extended exercise period, Employee shall not (x) breach any of
the terms of Section 4 hereof, or (y) act in any manner determined by the
committee or subcommittee of Dain Rauscher's Board of Directors administering
the Plan to be adverse to the interests of Dain Rauscher or its subsidiaries. If
at any time during such post-retirement extended exercise period Employee shall
cease to satisfy the conditions described in the preceding proviso, Employee's
right to exercise this option pursuant to this Section 3(d) shall terminate
immediately and Employee shall thereafter only be entitled to exercise this
option in accordance with paragraph (a) of this Section 3.
4. Certain Covenants.
(a) Noncompetition. Employee agrees that, during the post-retirement
extended exercise period, Employee will not, directly or indirectly, anywhere in
the United States, in any manner, whether as an advisor, principal, agent,
partner, officer, director, stockholder (except, as a passive investment, being
a beneficial holder of up to 1% of the outstanding shares of capital stock of
any corporation listed on a national securities exchange or publicly traded in
the over-the-counter market), employee, independent contractor, consultant, or
otherwise of any registered broker-dealer, financial services institution or
other entity, perform any services for or otherwise participate, directly or
indirectly, in any business in which Dain Rauscher or any of its
3
<PAGE> 4
subsidiaries or affiliates is or may become engaged between the date hereof and
the date of Employee's termination of employment pursuant to Section 3(d)
hereof, including without limitation, the retail or institutional securities
brokerage business; the equity or fixed income capital markets businesses; the
provisions of asset management or financial or investment advisory services; and
the correspondent clearing businesses.
(b) Nonsolicitation. Employee agrees that, during the post-retirement
extended exercise period, Employee will not, directly or indirectly, in any
manner solicit, assist or engage any person employed by Dain Rauscher or its
subsidiaries or affiliates to leave the employ of Dain Rauscher or recruit, make
an offer of employment to or hire any person employed by Dain Rauscher or its
subsidiaries or affiliates.
(c) Confidentiality. Except as otherwise required by law or court
order, Employee agrees that Employee will not, at any time while employed by
Dain Rauscher or any of its subsidiaries or thereafter, divulge or otherwise
make accessible to anyone or use for any purpose any confidential or sensitive
knowledge or information concerning Dain Rauscher, its subsidiaries or
affiliates, any of its officers, directors, employees or agents or its business,
customers, strategic plans, financial condition or profitability obtained
through the performance of Employee's job responsibilities or during the course
of Employee's employment.
(d) Cooperation. Employee agrees that Employee will cooperate with the
Company with respect to any claims, actions or proceedings brought or threatened
to be brought against the Company or any of its officers, directors, employees,
agents, successors or assigns that relate to Employee's employment or any
transactions, decisions or actions in which Employee was involved while an
employee or officer of the Company. Employee agrees to be available upon
reasonable notice and at mutually agreeable times to discuss issues or to review
documents with representatives of Dain Rauscher, and to appear without subpoena
for deposition or testimony at the request of Dain Rauscher in connection with
any legal or regulatory proceeding. Dain Rauscher will pay Employee's reasonable
expenses in connection with Employee's cooperation requested under this
agreement, including reasonable out-of-pocket travel expenses or documented lost
wages Employee incurs.
(e) Reasonableness of Restrictions. Employee agrees that the foregoing
covenants and limitations on Employee's post-retirement activities are
reasonable and appropriate under the circumstances, and that forfeiture of
unvested options for violation of any of the foregoing covenants is a reasonable
and appropriate remedy.
(f) Severability. To the extent any provision of this Agreement shall
be determined to be invalid or unenforceable in any jurisdiction, such provision
shall be deemed to be deleted from this Agreement as to such jurisdiction only,
and the validity and enforceability of the remainder of such provision and of
this Agreement shall be unaffected. In furtherance of and not in limitation of
the foregoing, Employee expressly agrees that should the duration of,
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid or enforceable under applicable
law in a given jurisdiction, then such provision, as to such jurisdiction only,
shall be construed to cover only that duration, extent
4
<PAGE> 5
or activities that may validly or enforceably be covered. Employee acknowledges
that uncertainty of the law in this respect and expressly stipulates that this
Agreement shall be construed in a manner that renders its provisions valid and
enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law in each applicable jurisdiction.
5. Manner of Exercise
(a) This option can be exercised only by Employee or other proper party
by delivering within the option period written notice to Dain Rauscher at its
principal office. The notice shall state the number of shares as to which this
option is being exercised and be accompanied by payment in full of the option
price for all shares designated in the notice.
(b) Employee may pay the option price (i) by check (bank check,
certified check or personal check) or (ii) with the approval of Dain Rauscher,
by delivering to Dain Rauscher for cancellation shares of Dain Rauscher's Common
Stock having a Fair Market Value (as defined in the Plan) on the date of
exercise equal to the option price; provided, however, that Employee shall not
be entitled to tender shares of Dain Rauscher's Common Stock pursuant to
successive, substantially simultaneous exercises of this option or any other
stock option of Dain Rauscher.
6. Acceleration of Exercisability Upon Change in Control
Notwithstanding any installment or delayed exercise provision contained
in this Agreement, this option may be exercised in full immediately at or
anytime after the occurrence of a "Change in Control" (as hereinafter defined).
For purposes hereof, the following terms shall have the definitions set forth
below:
(a) "Change in Control" shall mean:
(i) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed
pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") that any person, entity or "group",
within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act, other than Dain Rauscher or any of its subsidiaries, or the
Dain Rauscher Retirement Plan or any other employee benefit plan of
Dain Rauscher or any of its subsidiaries, or any entity holding
shares of Dain Rauscher's Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan, has
become the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 35% or more of the combined
voting power of Dain Rauscher's then outstanding voting securities
in a transaction or series of transactions;
(ii) the Continuing Directors cease to constitute a majority of
Dain Rauscher's Board of Directors;
5
<PAGE> 6
(iii) the shareholders of Dain Rauscher approve (1) any
consolidation or merger of Dain Rauscher in which Dain Rauscher is
not the continuing or surviving corporation or pursuant to which
shares of Dain Rauscher's stock would be converted into cash,
securities or other property, other than a merger of Dain Rauscher
in which shareholders immediately prior to the merger have the same
proportionate ownership of stock of the surviving corporation
immediately after the merger; (2) any sale, lease, exchange or
other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of Dain
Rauscher; or (3) any plan of liquidation or dissolution of Dain
Rauscher; or
(iv) the majority of the Continuing Directors determine in their
sole and absolute discretion that there has been a change in
control of Dain Rauscher.
(b) "Continuing Director" shall mean any person who is a member of the
Board of Directors of Dain Rauscher, while such a person is a member of the
Board of Directors, who is not an Acquiring Person (as hereinafter defined) or
an Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (i) was a member of the Board of Directors on the date of this Agreement or
(ii) subsequently becomes a member of the Board of Directors, if such person's
initial nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. For purposes
of this paragraph (b), "Acquiring Person" shall mean any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together
with all Affiliates and Associates of such person, is the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Dain Rauscher representing 35% or more of the
combined voting power of Dain Rauscher's then outstanding securities, but shall
not include Dain Rauscher, any subsidiary of Dain Rauscher or any employee
benefit plan of Dain Rauscher or of any subsidiary of Dain Rauscher or any
entity holding shares of Dain Rauscher's Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
(c) If a Change in Control shall occur, then the Board of Directors or
the Committee (if authority is delegated by the Board of Directors), in its sole
discretion, and without the consent of Employee, may determine that Employee
shall receive, with respect to some or all of the shares of Common Stock subject
to this option, as of the effective date of any such Change in Control, cash in
an amount equal to the excess of the Fair Market Value of such shares
immediately prior to the effective date of such Change in Control over the
exercise price per share of this option.
6
<PAGE> 7
7. Miscellaneous
(a) This option is issued pursuant to the Plan, and is subject to its
terms. The terms of the Plan are available for inspection during business hours
at the principal offices of Dain Rauscher.
(b) This Agreement shall not confer on Employee any right with respect
to continuance of employment by Dain Rauscher or any of its subsidiaries, nor
will it interfere in any way with the right of Dain Rauscher to terminate such
employment at any time. Employee shall have none of the rights of a shareholder
with respect to shares subject to this option until such shares shall have been
issued to Employee upon exercise of this option.
(c) The exercise of all or any part of this option shall only be
effective at such time as the sale of Common Stock pursuant to such exercise
will not violate any state or federal securities or other laws.
(d) If Employee exercises all or any portion of this option subsequent
to any change in the number or character of the outstanding shares of Dain
Rauscher's Common Stock (through merger, consolidation, reorganization,
recapitalization, stock dividend or otherwise), Employee shall then receive for
the aggregate price paid by Employee on such exercise of this option, the number
and type of securities or other consideration which Employee would have received
if such option had been exercised prior to the event changing the number or
character of outstanding shares.
(e) Dain Rauscher shall at all times during the term of this option
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
(f) In order to provide Dain Rauscher with the opportunity to claim the
benefit of any income tax deduction which may be available to it upon the
exercise of the option, and in order to comply with all applicable federal or
state income tax laws or regulations, Dain Rauscher may take such action as it
deems appropriate to insure that, if necessary, all applicable federal or state
payroll, withholding, income or other taxes are withheld or collected from
Employee. Employee may elect to satisfy his federal and state income tax
withholding obligations upon exercise of this option by (i) having Dain Rauscher
withhold a portion of the shares of Common Stock otherwise to be delivered upon
exercise of such option having a fair market value equal to the amount of
federal and state income tax required to be withheld upon such exercise, in
accordance with the rules of the Committee, or (ii) delivering to Dain Rauscher
shares of its Common Stock other than the shares issuable upon exercise of such
option with a fair market value equal to such taxes, in accordance with the
rules of the Committee.
(g) This option shall be governed by the internal laws of the State of
Delaware, without regard to any conflict of laws principles.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
DAIN RAUSCHER CORPORATION
By________________________________
Its ______________________________
__________________________________
IRVING WEISER
8
<PAGE> 1
EXHIBIT 10.22
February 10, 2000
Mr. Kenneth J. Wessels
503 Harrington Road
Wayzata, MN 55391
Re: Supplement to Revised Employment Terms for 2000
Dear Ken:
As we have discussed, in addition to the amounts determined as set forth in the
letter agreement between us dated December 15, 1999, the Company will pay you a
lump sum of $500,000 for additional consulting and other services to be rendered
by you to the Company during the year. This amount will be paid to you on or by
not later than February 15, 2000.
If these terms are satisfactory to you, please indicate your acceptance by
signing and returning to me the enclosed copy of this letter.
Sincerely,
Irving Weiser
Accepted and agreed this ___ day of February, 2000.
- --------------------------
Kenneth J. Wessels
<PAGE> 1
EXHIBIT 11
DAIN RAUSCHER CORPORATION
COMPUTATION OF NET EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income ........................................................ $66,590 $ 7,990 $49,275
======= ======= =======
Weighted average common shares outstanding ........................ 12,456 12,404 12,277
======= ======= =======
Basic earnings per share ............................................. $ 5.35 $ 0.64 $ 4.01
======= ======= =======
EARNINGS PER SHARE ASSUMING DILUTION:
Net income ........................................................ $66,590 $ 7,990 $49,275
======= ======= =======
Weighted average number of common and dilutive potential common shares
outstanding:
Weighted average common shares outstanding ..................... 12,456 12,404 12,277
Dilutive effect of stock options (net of tax benefits) ......... 423 463
579
Shares credited to deferred compensation
plan participants ........................................... 585 304 204
------- ------- -------
Weighted average number of common and
dilutive potential common shares outstanding ................... 13,464 13,171 13,060
======= ======= =======
Diluted earnings per share ........................................... $ 4.95 $ 0.61 $ 3.77
======= ======= =======
</TABLE>
45
<PAGE> 1
EXHIBIT 21
DAIN RAUSCHER CORPORATION
LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1999
PERCENTAGE
OF VOTING
STATE IN WHICH SECURITIES
NAME INCORPORATED OWNED
---- ------------ -----
Consolidated subsidiaries of Registrant:
Dain Rauscher Incorporated.............................Minnesota 100%
Insight Investment Management Inc......................Minnesota 100
Dain Rauscher Lending Services Inc.....................Minnesota 100
46
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Dain Rauscher Corporation:
We consent to the incorporation by reference in Registration Statement No.
333-03113, Registration Statement No. 333-20487, Registration Statement No.
33-58069, Registration Statement No. 33-54223, Registration Statement No.
33-54907, Registration Statement No. 33-59426, Registration Statement No.
33-39182, Registration Statement No. 33-25979, post-effective amendment No. 1 to
Registration Statement No. 33-13068, post-effective amendment No. 2 to
Registration Statement No. 33-10243, post-effective amendment No. 2 to
Registration Statement No. 33-10242, post-effective amendment No. 4 to
Registration Statement No. 2-90634, post-effective amendment No. 8 to
Registration Statement No. 2-61514, post-effective amendment No. 11 to
Registration Statement No. 2-57759, post-effective amendment No. 15 to
Registration Statement No. 2-53289, post-effective amendment No. 16 to
Registration Statement No. 2-51150 and Registration Statement No. 1-08186 of
Dain Rauscher Corporation, and subsidiaries of our report dated February 2,
2000, relating to the consolidated balance sheets of Dain Rauscher Corporation
and subsidiaries as of December 31, 1999 and 1998 and the consolidated statement
of income, shareholders' equity and cash flows and the related financial
statement schedule for each of the years in the three-year period ended December
31, 1999, which report appears in the December 31, 1999 Annual Report on Form
10-K of Dain Rauscher Corporation.
KPMG LLP
Minneapolis, Minnesota
March 17, 2000
47
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
THE UNDERSIGNED HEREBY CONSTITUTE AND APPOINT IRVING WEISER, JOHN C.
APPEL, AND DAVID J. PARRIN, AND EACH OF THEM, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWERS OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN THE ANNUAL REPORT ON FORM 10-K OF DAIN RAUSCHER CORPORATION
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999 AND ALL AMENDMENTS TO SUCH ANNUAL
REPORT ON FORM 10-K, 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, EACH ACTING ALONE, FULL POWER
AND AUTHORITY TO DO AND PERFORM TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD
DO IN PERSON, HEREBY RATIFYING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, EACH
ACTING ALONE, OR HIS SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
THEREOF.
SIGNATURE DATE
--------- ----
- ----------------------------- ----------------------------
JOHN C. APPEL
- ----------------------------- ----------------------------
J. EVANS ATTWELL
- ------------------------------ ----------------------------
SUSAN S. BOREN
- ------------------------------ ----------------------------
F. GREGORY FITZGERALD
- ------------------------------ ----------------------------
WALTER F. MONDALE
- ------------------------------- ----------------------------
C. A. RUNDELL, JR.
- ------------------------------- ----------------------------
ROBERT L. RYAN
- ------------------------------- ----------------------------
ARTHUR R. SCHULZE, JR.
- ------------------------------- ----------------------------
IRVING WEISER
- ------------------------------- ----------------------------
KENNETH J. WESSELS
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 39,087
<SECURITIES> 311,097
<RECEIVABLES> 1,898,864
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,249,048
<PP&E> 86,077
<DEPRECIATION> 38,499
<TOTAL-ASSETS> 2,499,855
<CURRENT-LIABILITIES> 1,837,812
<BONDS> 0
0
0
<COMMON> 1,630
<OTHER-SE> 388,120
<TOTAL-LIABILITY-AND-EQUITY> 2,499,855
<SALES> 944,164
<TOTAL-REVENUES> 1,015,138
<CGS> 0
<TOTAL-COSTS> 742,521
<OTHER-EXPENSES> 96,776
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,974
<INCOME-PRETAX> 104,867
<INCOME-TAX> 38,277
<INCOME-CONTINUING> 66,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,590
<EPS-BASIC> 5.35
<EPS-DILUTED> 4.95
</TABLE>
<PAGE> 1
EXHIBIT 99
DAIN RAUSCHER CORPORATION
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
We desire to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and are filing this cautionary
statement in connection with that safe harbor legislation. This filing, our
Annual Report to Shareholders, any Form 10-K, Form 10-Q or Form 8-K of ours, or
any other written or oral statements made by or on behalf of us may include
forward-looking statements which reflect our current views with respect to
future events and financial performance. The words "believe," "expect,"
"anticipate," "intend," "estimate," "will," "look for," "hope to," "goals,"
"should" and similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995.
We wish to caution investors that any forward-looking statements made
by us are subject to uncertainties and other factors that could cause actual
results to differ materially from those statements. These uncertainties and
other factors include, but are not limited to, the "Risk Factors" listed below.
Although we have attempted to list comprehensively these important factors, we
wish to caution investors that other factors may in the future prove to be
important in affecting our operating results. New factors that materially affect
our business emerge from time to time, and it is not possible for management to
predict all these factors, nor can it assess the impact of each such factor on
the business or the extent to which any factor, or a combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
Investors are further cautioned not to place undue reliance on any
forward-looking statements as they speak only to our views as of the date the
statement is made. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
VOLATILE NATURE OF THE SECURITIES BUSINESS
Our principal business activities, securities broker-dealer and
investment banking operations, as well as our investment advisory, clearing and
other services, are highly competitive and subject to various risks, including,
among others, volatile or illiquid trading markets; fluctuations in the volume
of market activity; counterparty or customer failure to meet commitments and
losses; and expenses resulting from litigation and regulatory proceedings. The
securities business is directly affected by a variety of factors beyond our
control. These factors include, among others, market conditions and investor
psychology; the availability and cost of short-term or long-term funding and
capital; our credit capacity or perceived creditworthiness in the securities
industry and in the marketplace; the level and volatility of interest rates;
inflation, deflation, and other macroeconomic or microeconomic conditions;
political events; broad trends in business and finance; and legislation and
regulation affecting the national and international business and financial
communities, and the securities markets. These and other factors can result in
significant fluctuations in our revenues and operating results from quarter to
quarter and from year to year.
Since approximately 1990, the securities markets have enjoyed a
sustained bull market that is virtually unprecedented. This, in turn, has fueled
tremendous growth in revenues and income for securities firms generally,
including Dain Rauscher. Particularly in comparison to these favorable
conditions, volatile or illiquid trading markets could expose us to the risk of
trading losses and losses resulting from the ownership or underwriting of
securities. Reductions in the volume of market activity or in securities prices
generally can result in reduced commission and principal transaction revenues,
in addition to reduced investment banking and asset management fees, as fewer
transactions are effected and the value of the securities being sold, and assets
under management, declines. In periods of low transaction volume, results of
operations can be further adversely affected because certain expenses remain
relatively fixed. Sudden sharp declines in market values of securities can
result in illiquid markets, which, in turn, may result in us having difficulty
selling securities; hedging our securities' positions; and investing funds under
management, and can increase the frequency and size of credit extensions as well
as the risk that customers and counterparties will fail to meet their payment
commitments. These and other unfavorable market conditions may further reduce
demand for our investment banking and other services.
48
<PAGE> 2
COMPETITION
All aspects of our business are highly competitive. We compete directly
and indirectly for customers with national and regional full-service
broker-dealers, discount broker-dealers, investment banking firms, investment
advisors, commercial banks, insurance companies, mutual fund companies, money
managers, financial planners and others.
We also compete with others in the financial services industry with
respect to the recruiting and retention of revenue producing employees. The
financial services industry has become more concentrated recently as numerous
securities firms have either ceased operations, eliminated certain business
lines or have merged with or been acquired by other firms. International
financial services firms have also moved aggressively into the U.S. securities,
banking and other financial sectors. Industry consolidation has increased
competition from firms having significantly greater equity capital, financial
and other resources than us. We expect competition from domestic and
international commercial banks to continue to increase in light of the recent
passage of the Gramm-Leach-Bliley legislation by the U.S. Congress, which is
anticipated to bring about increased consolidation of firms in the securities
industry and permit commercial banks and their affiliates to offer additional
services which have traditionally been provided only by securities and money
management firms.
DEPENDENCE ON PERSONNEL
Most aspects of our business are highly dependent on the services of
skilled professional employees. We devote considerable resources to recruiting,
training, retaining and compensating these individuals. The level of competition
for experienced revenue-producing personnel is extremely intense and levels of
compensation for skilled employees have risen accordingly. The loss of key
personnel or the inability to recruit and retain key personnel in the future
could materially and adversely affect our operating results. In addition, a key
component of our growth strategy is to increase penetration of existing markets,
enter into new markets and expand the kinds of products or services they
provide. Our ability to succeed in pursuit of this strategy is highly dependent
on our ability to recruit and retain experienced revenue-producing and other
personnel.
IMPLEMENTATION OF OUR STRATEGIES
In order to remain competitive, we must grow our revenues through
further penetration of existing markets, entry into new markets, and expansion
of the products and services we provide, including possible expansion into
related or unrelated business lines. There can be no assurance that we will be
able to identify and capitalize on service, product or market opportunities that
will further our strategy and enhance our business, results of operations, or
financial condition. While we have grown successfully through strategic
acquisitions in the past, there can be no assurance that, in the future, we will
be able to successfully identify, compete for, acquire on favorable terms, or
integrate the business and operations of any acquired business or entity with
our existing operations.
DEPENDENCE ON SYSTEMS
Our business is highly dependent on communications, trading,
information and data processing systems. As with other areas, our technology
demands have grown considerably in recent years and are anticipated to continue
to grow dramatically in the years ahead. Investor interest and competitive
forces in areas such as electronic order entry and access to customer statements
(including through the Internet) could strain our technology resources or force
us to incur substantial expenses in expanding these resources. New regulations
imposing additional audit trail and other data capture and retention
requirements will cause us to incur further significant expenses. We have
outsourced certain communications, quotations and trading systems services and
currently maintain our own back-office processing system. Although we and our
vendors have in place tested disaster recovery systems, any failure or
interruption of our or a vendor's systems could cause delays in our securities
trading and processing activities and an inability to execute client
transactions, any of which could have a material adverse effect on our operating
results. It is possible that we or our vendors will suffer one or more of these
systems failures or interruptions, and that we or our vendor's backup procedures
and disaster recovery capabilities will not be adequate. As technology develops
and industry practices and regulations change, we must update or replace various
of our key systems, including, in particular, our back-office data processing
system, in order to remain competitive. We have, in fact, committed to upgrade
our current back-office processing system via an internal development process
between 1998 and 2002 at an expected cost of approximately $17 million. It is
also possible that, during the process of upgrading our current back-office
processing system, we will encounter technological difficulties, cost overruns,
problems obtaining the necessary quantity and quality of development personnel,
or other difficulties in purchasing necessary components of such a system
49
<PAGE> 3
from outside vendors. Further, there can be no assurance that the back-office
processing system, upon completion, will be state-of-the-art and that the system
upgrade or implementation process will not result in interruption of our
business or delivery of our products and services to customers.
DEPENDENCE ON SOURCES OF FINANCING
Dain Rauscher, like others in the securities industry, relies on
external sources to finance a significant portion of our day-to-day operations,
principally customer margin account balances, securities inventory and
underwriting positions, and certain other transactions. The principal sources of
our cash and liquidity are retained earnings, cash balances held on behalf of
customers pending investment, collateralized repurchase agreements,
collateralized bank loans, and securities lending activities. We also have
unsecured committed and uncommitted bank credit lines. Finally, because a
substantial portion of our capital resources could be used for acquisitions, we
may require additional debt or equity financing for operations, which financing
may not be available on terms favorable to us, if at all. Availability of
financing to us can vary depending on market conditions, the volume of certain
trading activities, credit ratings, credit capacity, and the overall
availability of credit to the financial services industry. These points are also
discussed in the section above entitled, "Liquidity and Capital Resources."
USE OF DERIVATIVE FINANCIAL INSTRUMENTS
We enter into certain financial futures and option contracts in the
ordinary course of our business to hedge or modify exposures to interest rate
fluctuations related to interest-rate-sensitive securities in our trading
inventories. While the use of these derivatives is intended to allow us to
better manage certain risks, it is possible that, over time, mismatches may
arise with respect to the derivatives and the cash market instruments they are
intended to hedge. Discrepancies can also arise between the derivative and cash
markets. Derivatives also have risks that are similar in type to the risks of
the cash market instruments on which their values are based. For example, in
times of market stress, sharp price movements or reductions in liquidity in the
cash markets may be related to comparable or even greater price movements and
reductions in liquidity than in the derivative markets. Further, the risks
associated with derivatives are potentially greater than those associated with
the related cash market instruments because of the additional complexity and
potential for leverage. In addition, derivatives may create credit risk (the
risk that a counterparty to a derivative transaction with Dain Rauscher will not
fulfill its contractual obligations), as well as legal, operational and other
risks beyond those associated with the underlying cash market instruments on
which their values are based.
FEDERAL AND STATE REGULATION; NET CAPITAL REQUIREMENTS
Our business is, and the securities and commodities industries are,
subject to extensive regulation in the United States, at both the federal and
state level, as well as by industry self-regulatory organizations. As a matter
of public policy, regulatory bodies are charged with safeguarding the integrity
of the securities and other financial markets and with protecting the interests
of customers participating in those markets. These agencies are not charged with
protecting the interests of our stockholders or creditors. In addition,
self-regulatory organizations and other regulatory bodies in the United States,
such as the Securities and Exchange Commission (the "SEC"), the New York Stock
Exchange, Inc. (the "NYSE"), the National Association of Securities Dealers,
Inc., and the Municipal Securities Rulemaking Board, require strict compliance
with their rules and regulations. Failure to comply with any of these laws,
rules or regulations, many of which are quite complex and subject to
interpretation, could result in a variety of adverse consequences, including,
for example, censure, fines, suspension, or the revocation or reduction of the
right to do business of key persons associated with us or Dain Rauscher itself,
as well as private rights of action for damages, any of which could have a
material adverse effect upon our consolidated financial condition or results of
operations.
The laws and regulations, as well as governmental policies and
accounting principles, governing the financial services and banking industries
have changed significantly over recent years and are expected to continue to do
so. During the last several years the U.S. Congress has considered numerous
proposals that would significantly alter the structure and regulation of these
industries. These changes, if adopted, could materially and adversely affect our
business and operations. Our businesses may also be materially affected by
regulations of general application, such as existing and proposed tax
legislation, antitrust policy and other governmental regulations and policies
(including the interest rate and other monetary policies of the Federal Reserve
Board).
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The SEC, the NYSE, and various other exchanges and regulatory bodies in
the United States have rules with respect to net capital requirements which
affect us. These rules have the effect of requiring that at least a substantial
portion of a broker-dealer's assets be kept in cash or highly liquid
investments. DRI's compliance with these net capital requirements could limit
operations that require extensive use of capital, such as underwriting or
trading activities, and constrain the ability of us to grow our business, either
through internal expansion or by acquisitions. A significant operating loss or
any unusually large charge against net capital could also have a material
adverse effect on our ability to conduct business. The net capital rules could
also restrict our ability to withdraw capital from DRI, even in circumstances in
which it has more than the minimum amount of required capital. Such
restrictions, in turn, could limit the our ability to pay dividends, implement
strategies, pay interest on and repay the principal of our debt, and redeem or
repurchase shares of outstanding capital stock.
LITIGATION
Many aspects of the securities brokerage and investment banking
businesses involve substantial risks of liability. In recent years, there has
been an increasing incidence of litigation and regulatory enforcement
proceedings involving the securities industry. These actions include class
action suits that generally seek substantial damages, other suits seeking
punitive and/or treble damages, and administrative and court proceedings brought
by regulatory agencies seeking fines, injunctions, suspensions, and bars from
future participation in the business against securities firms and, in some
cases, their employees and officers. In addition, underwriters are subject to
substantial potential liability for material misstatements and omissions in
prospectuses and other communications with respect to underwritten offerings of
securities. Like other securities brokerage firms, Dain Rauscher, and certain
Dain Rauscher personnel, have been named or threatened to be named as defendants
in legal and regulatory proceedings which cause us to expend substantial
financial and managerial resources in conducting our legal defense. The outcome
of any legal or regulatory proceeding is uncertain. The settlement of any of
these proceedings under adverse circumstances, or an adverse judgment in
connection with any of these proceedings, may have a material adverse effect on
our consolidated financial condition or operating results.
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