<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8529
LEGG MASON, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-1200960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 South Calvert Street - Baltimore, MD 21203-1476
(Address of principal executive offices) (Zip code)
(410) 539-0000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
18,218,326 shares of Common Stock as of the close of business on
February 3, 1997.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands of dollars)
December 31, 1996 March 31, 1996
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents.............. $ 236,512 $ 89,378
Cash and securities segregated for
regulatory purposes................... 404,600 168,859
Resale agreements...................... 196,311 108,413
Receivable from customers.............. 502,667 398,375
Securities borrowed.................... 206,355 196,569
Securities owned, at market value...... 67,174 84,219
Investment securities, at market value. 63,202 83,497
Office equipment,leasehold improvements
and property.......................... 28,909 33,339
Intangible assets...................... 62,693 67,370
Other.................................. 99,013 84,481
---------- ----------
$1,867,436 $1,314,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to customers................... $ 958,683 $ 564,698
Payable to brokers and dealers......... 6,283 3,854
Securities loaned...................... 191,581 170,829
Short-term borrowings.................. 68,747 6,800
Securities sold, but not yet purchased,
at market value....................... 17,888 10,693
Accrued compensation................... 59,328 41,168
Other.................................. 59,780 50,018
Senior notes........................... 99,569 99,534
---------- ----------
1,461,859 947,594
---------- ----------
Subordinated liabilities................ - 68,000
---------- ----------
Stockholders' equity:
Common stock........................... 1,820 1,538
Additional paid-in capital............. 191,600 120,960
Retained earnings...................... 211,628 176,098
Net unrealized appreciation on
investment securities................. 529 310
---------- ----------
405,577 298,906
---------- ----------
$1,867,436 $1,314,500
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Commissions........................ $ 49,071 $ 41,476 $138,375 $120,597
Principal transactions.............. 17,869 15,238 52,823 47,934
Investment advisory and related fees 46,690 37,222 132,054 105,052
Investment banking.................. 21,807 10,129 54,698 29,279
Interest............................ 22,490 14,487 59,392 40,597
Other............................... 9,340 8,997 26,056 24,796
-------- -------- -------- --------
167,267 127,549 463,398 368,255
-------- -------- -------- --------
Expenses:
Compensation and benefits........... 93,564 75,715 260,776 214,417
Occupancy and equipment rental...... 11,681 9,095 31,877 26,802
Communications...................... 7,570 6,878 21,437 20,330
Floor brokerage and clearing fees... 1,447 1,143 4,251 4,039
Interest............................ 11,798 6,230 29,794 18,156
Other............................... 15,707 14,505 44,602 41,644
-------- -------- -------- --------
141,767 113,566 392,737 325,388
-------- -------- -------- --------
Earnings Before Income Taxes......... 25,500 13,983 70,661 42,867
Income taxes........................ 10,200 5,666 28,565 17,493
-------- -------- -------- --------
Net Earnings.........................$ 15,300 $ 8,317 $ 42,096 $ 25,374
======== ======== ======== ========
Earnings per common share:
Primary.............................$ .81 $ .52 $ 2.39 $ 1.69
Fully diluted.......................$ .80 $ .47 $ 2.22 $ 1.46
Average number of common shares
outstanding:
Primary............................. 18,975 15,933 17,634 15,051
Fully diluted....................... 19,084 18,569 18,999 18,485
Dividends declared per common share..$ .13 $ .12 $ .38 $ .35
Book value per common share..........$ 22.29 $ 18.75 $ 22.29 $ 18.75
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(Unaudited)
Nine Months
Ended December 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................... $ 42,096 $ 25,374
Noncash items included in earnings:
Depreciation and amortization................. 12,352 10,664
-------- --------
54,448 36,038
(Increase) decrease in assets:
Cash and securities segregated for regulatory
purposes..................................... (235,741) (69,495)
Receivable from customers...................... (104,292) (64,935)
Securities borrowed............................ (9,786) (25,333)
Securities owned............................... 17,045 (26,377)
Other.......................................... (15,405) (14,984)
Increase(decrease) in liabilities:
Payable to customers........................... 393,985 204,862
Payable to brokers and dealers................. 2,429 15,666
Securities loaned.............................. 20,752 13,581
Securities sold, but not yet purchased......... 7,195 420
Accrued compensation........................... 18,160 22,658
Other.......................................... 9,152 5,892
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES............ 157,942 97,993
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Property and equipment......................... (8,924) (9,821)
Intangible assets.............................. (367) (445)
Sale of property................................ 6,154 -
Net increase in resale agreements............... (87,898) (43,308)
Purchases of investment securities.............. (125,992) -
Proceeds from sales of investment securities.... 146,596 4,972
-------- --------
CASH USED FOR INVESTING ACTIVITIES............... (70,431) (48,602)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings........... 61,947 69,406
Repayment of subordinated liabilities........... (29) (69)
Issuance of common stock........................ 3,752 2,420
Dividends paid.................................. (6,047) (4,377)
-------- --------
CASH PROVIDED BY FINANCING ACTIVITIES............ 59,623 67,380
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 147,134 116,771
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 89,378 60,097
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $ 236,512 $176,868
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
LEGG MASON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
December 31, 1996
(Unaudited)
1. Interim Basis of Reporting:
The accompanying unaudited condensed consolidated financial
statements of Legg Mason, Inc. and its wholly-owned subsidiaries
(the "Company")have been prepared in accordance with the
instructions for Form 10-Q and, therefore, do not include all
information and notes required by generally accepted accounting
principles for complete financial statements. The interim
financial statements have been prepared utilizing the interim
basis of reporting and, as such, reflect all adjustments
(consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of
the results for the periods presented. The nature of the
Company's business is such that the results of any interim period
are not necessarily indicative of results for a full year.
2. Net Capital Requirements:
The Company's broker-dealer subsidiaries are subject to the
Securities and Exchange Commission's Uniform Net Capital Rule.
The Rule provides that equity capital may not be withdrawn or
cash dividends paid if resulting net capital would fall below
specified levels. As of December 31, 1996, the broker-dealer
subsidiaries had aggregate net capital, as defined, of $132,368
which exceeded required net capital by $120,953.
3. Legal Proceedings:
The Company and its subsidiaries have been named as
defendants in various legal actions arising primarily from
securities and investment banking activities, including certain
class actions which primarily allege violations of securities
laws and seek unspecified damages which could be substantial.
While the ultimate resolution of these actions cannot be
currently determined, in the opinion of management, after
consultation with legal counsel, the actions will be resolved
with no material adverse effect on the consolidated financial
statements of the Company.
4. Supplemental Cash Flow Information:
Interest payments were $29,198 in 1996 and $18,956 in 1995.
Income tax payments were $33,926 in 1996 and $17,551 in 1995.
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<PAGE> 6
5. Convertible Subordinated Debenture Redemption:
On July 2, 1996, the Company called for redemption on
August 1, 1996 the $68.0 million aggregate principal amount
outstanding of its 5.25% Convertible Subordinated Debentures due
May 1, 2003 (the "Debentures"). Substantially all holders
converted their Debentures into 38.76 shares of Common Stock of
the Company for each $1 thousand principal amount of Debentures
(based on the conversion price of $25.80 per share of Common
Stock) for a total issuance of 2,634,515 new common shares. Cash
was paid in lieu of fractional shares.
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<PAGE> 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
During the quarter and nine months ended December 31, 1996, Legg
Mason, Inc. and its subsidiaries (the "Company") benefited from
continued favorable market conditions. Rising equity markets,
higher securities transaction volume, increased underwriting
activity and stable interest rates contributed to the Company's
strong revenues and earnings in both periods.
Quarter Ended December 31, 1996 Compared to Quarter Ended
December 31, 1995
In the third fiscal quarter ended December 31, 1996, the
Company's net earnings increased 84% to $15.3 million from $8.3
million in the prior year's quarter. Revenues rose 31% to $167.3
million from $127.5 million in the corresponding quarter of the
prior year. Fully diluted earnings per share increased 70% to
$.80 from $.47.
Commission revenues were $49.1 million, up 18% from $41.5 million
in the prior year, reflecting increased sales of listed
securities, annuities and non-affiliated mutual funds, offset in
part by a decline in sales of over-the-counter securities.
Revenues from principal transactions rose 17% to $17.9 million,
as a result of higher sales of fixed income and equity
proprietary positions, partially offset by losses on energy-
related equity securities positions.
Investment advisory and related fees increased for the 27th
consecutive quarter and were 25% higher than in the corresponding
quarter of the prior year as a result of growth in assets under
management in Company-sponsored mutual funds, the Company's
fixed-income investment advisory subsidiary and fee-based
brokerage accounts. Company subsidiaries now serve as investment
advisors to individual and institutional accounts and mutual
funds with assets of $41.3 billion, up from $30.9 billion at
December 31, 1995.
Investment banking revenues were $21.8 million, 115% higher than
in the corresponding quarter of the prior year, reflecting an
increase in corporate finance activities, primarily public
offerings of energy-related securities and real estate investment
trusts.
Other revenues increased 4% to $9.3 million as a result of higher
fees from increased investor activity, partially offset by a
decline in loan originations at the Company's mortgage banking
subsidiaries.
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<PAGE> 8
Compensation and benefits increased 24% to $93.6 million, as a
result of higher sales and profitability-based compensation and
personnel additions related to expansion of securities brokerage
and investment advisory activities.
Occupancy and equipment rental increased 28% to $11.7 million as
a result of an accelerated write-off of retired computer
equipment, increased depreciation expense, higher transaction
volume processed by the data processing service bureau used by
the Company, and an increase in rent expense because of new
brokerage office locations.
Communication expense rose 10% to $7.6 million because of higher
quote and printing expenses and the addition of expenses of
Western Asset Global Management, acquired in February 1996.
Floor brokerage and clearing fees increased 27% to $1.4 million
as a result of increased transaction volume.
Other expense increased 8% to $15.7 million attributable to
higher promotional expenses.
Interest revenue increased 55% to $22.5 million because of larger
firm investment, customer margin account and conduit stock loan
balances.
Interest expense increased 89% to $11.8 million as a result of
larger interest-bearing customer credit balances and larger
conduit stock loan balances.
Income taxes rose 80% to $10.2 million because of an increase in
pre-tax earnings. The effective tax rate was 40.0% compared with
40.5% in the prior year's quarter.
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<PAGE> 9
Nine Months Ended December 31, 1996 Compared to Nine Months Ended
December 31, 1995
The Company's net earnings in the nine months ended December 31,
1996 increased 66% to $42.1 million from $25.4 million in the
prior year's corresponding period. Revenues rose 26% to $463.4
million from $368.3 million. Fully diluted earnings per share
increased 52% to $2.22 from $1.46.
Commission revenues rose 15% to $138.4 million because of
increases in sales of listed securities, non-affiliated mutual
funds and annuities, partially offset by a decline in sales of
over-the-counter securities.
Revenues from principal transactions increased 10% to $52.8
million, as a result of higher sales of fixed income and equity
proprietary positions, partially offset by losses on energy-
related equity securities positions.
Investment advisory and related fees increased 26% to $132.1
million, principally as a result of growth in assets under
management in Company-sponsored mutual funds, the Company's
fixed-income investment advisory subsidiary and fee-based
brokerage accounts.
Investment banking revenues rose 87% to $54.7 million as a result
of increased corporate finance activity, principally energy and
real estate related public offerings of securities, and financial
advisory services.
Other revenues increased 5% to $26.1 million as a result of
higher fees from increased investor activity, partially offset by
a decline in loan originations at the Company's mortgage banking
subsidiaries.
Compensation and benefits increased 22% to $260.8 million because
of higher sales and profitability-based compensation and
personnel additions in new and existing brokerage offices and
product areas. In addition, the current year period includes the
expenses of Western Asset Global Management.
Occupancy and equipment rental increased 19% to $31.9 million
because of increased depreciation expense, higher transaction
volume processed by the data processing service bureau used by
the Company, the accelerated write-off of retired computer
equipment and the addition of expenses of Western Asset Global
Management.
Communications expense rose 5% to $21.4 million because of the
addition of expenses of Western Asset Global Management and
higher printing and office supply expenses.
Floor brokerage and clearing fees increased 5% to $4.3 million as
a result of increased transaction volume.
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<PAGE> 10
Other expense increased 7% to $44.6 million, attributable to
increased promotional and consulting expenses and the addition of
expenses of Western Asset Global, offset in part by lower
litigation-related expenses.
Interest revenue increased 46% to $59.4 million because of larger
firm investment, customer margin account and conduit stock loan
balances.
Interest expense increased 64% to $29.8 million because of larger
interest-bearing customer credit balances, larger conduit stock
loan balances and the issuance of $100 million in Senior Notes in
February 1996.
Income taxes rose 63% to $28.6 million because of an increase in
pre-tax earnings. The effective tax rate was 40.4% and 40.8% in
the current and prior year periods, respectively.
Liquidity and Capital Resources
On July 2, 1996, the Company called for redemption on August 1,
1996, the $68.0 million aggregate principal amount outstanding of
its 5.25% Convertible Subordinated Debentures due May 1, 2003
(the "Debentures"). Substantially all holders converted their
Debentures into 38.76 shares of Common Stock for each $1 thousand
principal amount of Debentures (based on the conversion price of
$25.80 per share of Common Stock), with cash paid in lieu of
fractional shares.
Except for the Debenture redemption, there has been no material
change in the Company's financial position since March 31, 1996.
A substantial portion of the Company's assets is liquid,
consisting mainly of cash and assets readily convertible into
cash. These assets are financed primarily by free credit
balances, equity capital, senior notes, bank lines of credit and
other payables.
During the nine months ended December 31, 1996, cash and cash
equivalents increased $147.1 million. Cash flows from operating
activities provided the Company with $157.9 million of cash,
principally from higher net customer payables and net earnings,
adjusted for depreciation and amortization, partially offset by
increased regulatory cash and securities funding requirements.
Cash flows from financing activities contributed $59.6 million,
attributable to higher short-term borrowings by the Company's
mortgage banking affiliates. Cash flows from investing activities
used $70.4 million for increased investment in resale agreements.
On January 5, 1995, the Company acquired the assets of
Batterymarch Financial Management ("Batterymarch"). The Company
paid $54.1 million in cash at closing. An additional payment,
due in early 1998 and based on Batterymarch's achievement of
specified revenue levels for calendar 1997, could increase the
total consideration up to $120.0 million. If the amount of any
1998 payment exceeds $40.0 million, the Company may pay all or
any portion of the excess in the form of shares of the Company's
common stock.
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<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1. Executive Convertible Debenture
Purchase and Loan Agreement
between Legg Mason, Inc. and an
Executive Officer of Legg Mason,
Inc., dated as of August 29,
1996*
10.2. Legg Mason, Inc. Executive
Convertible Subordinated
Debenture Due August 29, 2000
issued to an Executive Officer
of Legg Mason, Inc.*
10.3. Promissory Note of Executive
Officer of Legg Mason, Inc. to
Legg Mason, Inc., dated as of
August 29, 1996*
10.4. Pledge Agreement by and between
an Executive Officer of Legg
Mason, Inc. as Pledgor, and Legg
Mason, Inc. as Pledgee, dated as
of August 29, 1996*
11. Statements re: computation of
per share earnings
27. Statements re: financial data
schedules
(b) No reports on Form 8-K were filed during the quarter
ended December 31, 1996.
*These exhibits are management contracts or compensatory plans or
arrangements.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LEGG MASON, INC.
(Registrant)
DATE: February 14, 1997 /s/ John F. Curley, Jr.
John F. Curley, Jr.
Vice Chairman of the Board
DATE: February 14, 1997 /s/ F. Barry Bilson
F. Barry Bilson
Vice President - Finance
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<PAGE> 13
INDEX TO EXHIBITS
PAGE
10.1 Executive Convertible Debenture 14-36
Purchase and Loan Agreement between
Legg Mason, Inc. and an Executive
Officer of Legg Mason, Inc., dated
as of August 29, 1996*
10.2 Legg Mason, Inc. Executive 37-46
Convertible Subordinated Debenture
August 29, 2000 issued to an
Executive Officer of Legg Mason,
Inc.*
10.3 Promissory Note of Executive 47-49
Officer of Legg Mason, Inc. to Legg
Mason, Inc., dated as of August 29,
1996*
10.4 Pledge Agreement by and between an 50-55
Executive Officer of Legg Mason,
Inc. as Pledgor, and Legg Mason,
Inc. as Pledgee, dated as of August
29, 1996*
11. Statement re: computation of per 56-57
share earnings
27. Statement re: financial data 58
schedules
*These exhibits are management contracts or compensatory plans or
arrangements.
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<PAGE> 14
EXECUTIVE CONVERTIBLE DEBENTURE
PURCHASE AND LOAN AGREEMENT
THIS AGREEMENT, made as of the 29th day of August, 1996
(the "Agreement"), by and between the individual signatory at the
end of this Agreement (the "Employee") and Legg Mason, Inc., a
Maryland corporation (the "Company").
RECITALS
The Employee is a key employee of the Company or one of
its subsidiaries. In recognition of the service and value of the
Employee and pursuant to the Legg Mason, Inc. 1996 Equity
Incentive Plan (the "Plan"), the Company wishes to sell to the
Employee on the terms and conditions set forth herein an
Executive Convertible Subordinated Debenture. The Employee
wishes to purchase the Debenture and to borrow certain funds from
the Company in order to purchase the Debenture. The committee
responsible for administration of the Plan (the "Committee") has
determined that it would be in the best interest of the Company
to retain the services of the Employee and that the advance of
the funds so requested for the purpose of purchasing the
Debenture will provide an important incentive to, and assist in
the retention of, the Employee. Accordingly, the Committee has
authorized the making of such loan on the terms and conditions
set forth herein.
Now, therefore, in consideration of the mutual
covenants and agreements herein contained, and other good and
valuable consideration, it is agreed as follows:
1. The Company does hereby sell to the Employee, and the
Employee hereby purchases from the Company, at a price of 100% of
the principal amount thereof, an Executive Convertible
Subordinated Debenture, in the form attached hereto as Exhibit A
(the "Debenture") in the principal amount specified at the end of
this Agreement.
2. The Company hereby agrees to lend to the Employee, and
the Employee hereby agrees to borrow from the Company the amount
specified at the end of this Agreement (the "Loan"). The Loan
shall be evidenced by a Note in the form attached hereto as
Exhibit B. The Note shall be secured by a Pledge Agreement in
the form attached hereto as Exhibit C.
<PAGE> 15
3. The Company represents and warrants to the Employee
that this Agreement and the Debenture have been duly authorized
by its Board of Directors and the Committee pursuant to the Plan
and constitute the legal, valid and enforceable obligations of
the Company.
4. The Employee represents and warrants to the Company
that the Debenture is being purchased for the Employee's own
account for the purpose of investment and with no view to the
redistribution thereof. The Company and the Employee understand
that neither the Debenture purchased and sold pursuant to the
terms of this Agreement, nor the Common Stock into which the
Debenture is convertible, has been registered under the
Securities Act of 1933, as amended (the "Act") and has been
offered and sold by the Company to the Employee in an exempt
transaction pursuant to Section 4(2) of the Act. In this
connection, it is understood and agreed that the Debenture to be
delivered to the Employee shall bear the following legend:
"This Debenture and the Common Stock into
which it is convertible have not been
registered under the Securities Act of 1933,
as amended (the "Act") and may not be sold or
otherwise transferred without registration
under the Act or the favorable prior opinion
of counsel for the Company that such
registration is not required. This Debenture
has been issued pursuant to a certain
Executive Convertible Debenture Purchase and
Loan Agreement by and between the registered
holder hereof and the Company dated as of
August 29, 1996, to which reference is made."
5. The Employee represents and warrants to the Company
that he or she is a person (1) whose individual net worth, or
joint net worth with his or her spouse, at the time of purchase
of the Debenture exceeds $1,000,000, or (2) who had individual
income in excess of $200,000 in each of the two most recent years
or joint income with his or her spouse in excess of $300,000 in
each of those years and has a reasonable expectation of reaching
the same income level in the current year.
<PAGE> 16
6. The Company shall forgive twenty-five percent (25%) of
the initial principal amount of the Loan at the end of each of
the first four anniversaries of the Employee's employment by the
Company or a subsidiary of the Company.
7. It shall constitute a default under this Agreement and
the Note issued pursuant hereto if the principal or any interest
on the Note is not paid when due and payable or if the Employee
shall, FOR ANY REASON, cease to be employed by the Company or one
of its subsidiaries or affiliates. In the event of such a
default, the Company may declare all unpaid and previously
unforgiven principal of and interest on the Note to be
immediately due and payable and, in such event the Company shall
be entitled, in addition to exercising its rights under the
Pledge Agreement, to all other remedies available at law.
Notwithstanding the foregoing, if the Employee shall cease to be
so employed by reason of death, disability (as defined in the
Company's then applicable long-term disability plan) or
retirement in accordance with the Company's then applicable
retirement plan, the Company may not declare the unpaid principal
and interest on the Note to be due and payable prior to the last
day of the seventh month following such death, disability or
retirement.
8. Any dispute or disagreement which shall arise under, or
as a result of, or pursuant to, this Agreement shall be
determined by the Committee in its absolute and sole discretion,
and any such determination or any other determination by the
Committee under or pursuant to this Agreement and any
interpretation by the Committee of the terms of this Agreement,
shall be final, binding and conclusive on all persons affected
thereby.
9. Nothing in this Agreement shall be construed to
constitute or to be evidence of an agreement or understanding,
express or implied, on the part of the Company to employ or
retain the Employee for any specific period of time.
10. The invalidity of any provision of this Agreement shall
not affect the validity of any other provision of this Agreement.
11. This Agreement shall be governed by the laws of the
State of Maryland, other than the conflicts of laws provisions
thereof, and shall be binding upon and inure to the benefit of
the Company and its successors and assigns and the Employee and
his or her heirs, personal representatives and assigns. This
<PAGE> 17
Agreement may not be amended except in writing.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first herein
written.
Legg Mason, Inc.
By: /s/ Theodore S. Kaplan
Theodore S. Kaplan
Senior Vice President
Robert A. Frank
/s/ Robert A. Frank
Aggregate principal amount of Debenture: $535,000
Aggregate principal amount of Note: $535,000
<PAGE> 18
Exhibit A
This Debenture and the Common Stock into which
it is convertible have not been registered
under the Securities Act of 1933, as amended
(the "Act") and may not be sold or otherwise
transferred without registration under the Act
or the favorable prior opinion of counsel for
the Company that registration is not required.
This Debenture has been issued pursuant to a
certain Executive Convertible Debenture
Purchase and Loan Agreement by and between the
registered holder hereof and the Company dated
as of August 29, 1996, to which reference is
made.
LEGG MASON, INC.
Executive Convertible Subordinated Debenture Due 2000
No. 96,001 Baltimore, Maryland
$535,000 August 29, 1996
Legg Mason, Inc., a Maryland corporation, (the "Company")
for value received, hereby promises to pay to Robert A. Frank
(the "Employee") the principal amount of $535,000 on August 29,
2000, with interest on the unpaid balance of such principal
amount at the rate of seven percent (7%) per annum from the date
hereof, payable annually on each anniversary of the date hereof,
at conversion (but only on the principal amount of the Debenture
being converted) and at maturity, until such unpaid balance shall
become due and payable (whether at maturity or at a date fixed
for prepayment or by declaration or otherwise). Payments of
principal and interest on this Debenture shall be made in lawful
money of the United States of America at the principal office of
the Company in the City of Baltimore and State of Maryland, or at
such other office or agency as the Company shall have designated
by written notice to the holder of this Debenture.
Conversion. On and subject to the terms and conditions set
forth below, all or any part of the unpaid principal amount of
this Debenture may be converted into Common Stock of the Company
at the price of $30.25 per share or, in case an adjustment of
<PAGE> 19
such price has taken place, then at the price as last adjusted
and in effect at the date of the conversion (such price or such
price as last adjusted, as the case may be, being referred to
herein as the "Conversion Price"). No part of this Debenture may
be converted prior to August 29, 1997. Thereafter, at the
election of the holder, fifty percent (50%) of the original
principal amount shall be convertible into shares of Common Stock of the
Company on and after August 29, 1997; and one hundred
percent (100%) of the principal amount shall be convertible into
shares of Common Stock of the Company on and after August 29,
1998. If prior to August 29, 1998, the Employee shall cease to
be a full-time employee of the Company or any subsidiary of the
Company by reason of (i) the Company's termination of the
Employee's employment without Cause, as defined below, or (ii)
his or her death, disability (as defined in the Company's then
applicable long-term disability plan) or retirement in accordance
with the terms of the Company's then applicable retirement plan,
the Employee or his or her estate or the person to whom this
Debenture passes by will or by the laws of descent and
distribution shall be entitled to convert 100% of the principal
amount at any time within seven months after the later of (i)
such termination of employment or (ii) the date which is 30 days
after the 1997 annual meeting of the stockholders of the Company,
provided this Debenture has not been prepaid by the Company prior
to such date. Upon any conversion, the holder hereof shall
deliver to the Company a conversion notice which states that, to
the extent this Debenture is pledged to secure any indebtedness
of the Employee, a percentage of such indebtedness, equal to the
percentage of this Debenture being converted, has been paid in
full and discharged.
Promptly after a conversion of any portion of this
Debenture, the Company shall issue and deliver to the holder
effecting such conversion, registered in the name of such holder,
a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion and this Debenture (or
the specified portion hereof) shall immediately be cancelled. No
fractional shares shall be issued and no payment or adjustment
shall be made upon any conversion on account of any accrued
interest on the Debenture or any cash dividends on the Common
Stock issued upon such conversion. If any fractional interest in
a share of Common Stock would be deliverable upon such
conversion, the Company shall, in lieu of delivering the
<PAGE> 20
fractional share therefor, pay to the holder an amount in cash
equal to the then current Market Price of such fractional
interest.
If and whenever after the date hereof, the Company shall
issue or sell any shares of Common Stock (except upon conversion
of any securities outstanding at such date or pursuant to any
employee benefit plan approved by the stockholders of the
Company, its Board of Directors or any committee thereof before
or after such date) without consideration or for a consideration
per share less than an amount equal to 95% of the Market Price at
the time of such issue or sale, the Conversion Price shall be
reduced to a price (calculated to the nearest cent) determined by
multiplying the Conversion Price in effect immediately prior to
the time of such issue or sale by a fraction, (i) the numerator
of which shall be the sum of the aggregate number of shares of Common Stock
outstanding immediately prior to such issue or sale
multiplied by the Market Price immediately prior to such issue or
sale, plus the aggregate consideration, if any, received by the
Company upon such issue or sale, and (ii) the denominator of
which shall be the product of the aggregate number of shares of
Common Stock outstanding immediately after such issue or sale,
multiplied by the Market Price immediately prior to such issue or
sale.
As used in this Debenture, Market Price shall mean the
average of the daily closing prices for 10 consecutive business
days prior to the day as of which Market Price is being
determined. The closing price for each day shall be the last
reported sale price on the New York Stock Exchange, or in case no
such reported sale takes place on such day, the average of the
reported closing bid and asked quotations in such system, or, if
the Common Stock ceases to be listed on the New York Stock
Exchange, the last reported sale price regular way in the over
the counter market, or if no such quotations are available, the
fair market price as determined by the Board of Directors of the
Company (whose determination shall be conclusive).
No adjustment of the Conversion Price, however, shall be
made in an amount less than $.25 per share (such amount to be
appropriately adjusted in the event of a stock dividend on the
outstanding shares of Common Stock or a subdivision combination),
but any such lesser adjustment shall be carried forward and shall
<PAGE> 21
be made at the time of and together with the next subsequent
adjustment which together with any adjustments so carried forward
shall amount to $.25 (as adjusted) per share or more.
In case at any time the Company shall declare a dividend or
make any other distribution upon any class or series of its stock
payable in shares of Common Stock or securities convertible into
Common Stock, any shares of Common Stock or securities
convertible into Common Stock, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
In case at any time the Company shall be a party to any
transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the Company's
assets, liquidation or recapitalization of the Common Stock) in
which the previously outstanding Common Stock shall be changed
into or exchanged for different securities of the Company (other
than by subdivision or combination of its outstanding shares of
Common Stock by reason of which an adjustment is made under the
preceding paragraph) or common stock or other securities of
another corporation or interests in a noncorporate entity or
other property (including cash) or includes or involves any
extraordinary dividend or spin-off of assets, the Board of
Directors shall by resolution prescribe such adjustment of the
Conversion Price as it believes to be equitable and fair to the
holder hereof. Such determination shall be final and binding on
the holder.
Each certificate representing shares of Common Stock issued
upon the conversion of this Debenture or in substitution or upon
transfer thereof may, as determined appropriate by the Company,
be stamped or otherwise imprinted with a legend in substantially
the following form:
<PAGE> 22
"The shares represented by this certificate
have not been registered under the Securities
Act of 1933 and may not be transferred in the
absence of such registration or an exemption
therefrom under such Act."
Prepayment. This Debenture shall be prepaid by the Company
to the extent not previously converted, at the unpaid principal
amount hereof plus accrued and unpaid interest to the prepayment
date, 30 days after the Employee has ceased, for any reason, to
be a full-time employee of the Company or a subsidiary or
affiliate thereof, except that if such reason shall be the
Company's termination of the Employee's employment without Cause,
as defined below, or the death, disability (as defined in the
Company's then applicable long-term disability plan) or
retirement in accordance with terms of the Company's then
applicable retirement plan, such prepayment shall be on the last
day of the seventh month following the later of (i) such
termination of employment or, (ii) the date which is 30 days
after the 1997 annual meeting of the stockholders of the Company.
In the event of the bankruptcy or insolvency of the holder
hereof, the Company covenants that it will, upon request of the
holder (or any pledgee) hereof, purchase this Debenture at the
principal amount hereof plus any interest accrued and unpaid to
the date of such purchase.
Subordination. The indebtedness represented by this
Debenture and the payment of the principal hereof and interest
hereon is expressly subordinated in right of payment to the prior
payment in full of all Senior Debt (hereinafter defined).
Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization or
receivership proceedings or upon an assignment for the benefit of
creditors or any other marshaling of the assets and liabilities
of the Company or otherwise,
(a) the holders of all Senior Debt shall be first
entitled to receive payment in full of the principal
thereof (and premium, if any) and interest due thereon,
or provision shall be made for such payment in money or
<PAGE> 23
money's worth, before the holders of this Debenture
shall be entitled to receive any payment on account of
the principal of or interest on the indebtedness
evidenced by this Debenture;
(b) any payment by, or distribution of assets of, the
Company of any kind or character, whether in cash,
property or securities, to which the holders of this
Debenture would be entitled except for the provisions
hereof shall be paid or delivered by the person making
such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the holders of Senior Debt or
their representative or representatives or to the
trustee or trustees under any indenture under which any
instruments evidencing any of such Senior Debt may have
been issued, ratably accordingly to the aggregate
amounts remaining unpaid on account of the Senior Debt
held or represented by each, to the extent necessary to
make payment in full of all Senior Debt remaining
unpaid after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of
such Senior Debt; and
(c) in the event that, notwithstanding the foregoing,
any payment by, or distribution of assets of, the
Company of any kind or character, whether in cash,
property or securities shall be received by the holder
of this Debenture before all Senior Debt is paid in
full, such payment or distribution shall be held in
trust for the benefit of, and shall be paid over to the
holders of such Senior Debt or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of
such Senior Debt may have been issued, ratably as
aforesaid, for application to the payment of all Senior
Debt remaining unpaid until all such Senior Debt shall
have been paid in full, after giving effect to any
concurrent payment or distribution (or provision
therefor) to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the
holder of this Debenture shall be subrogated to the rights of the
<PAGE> 24
holders of Senior Debt to receive payments or distributions of
cash, property or securities of the Company applicable to the
Senior Debt until all amounts owing on this Debenture shall be
paid in full, and, as between the Company, its creditors (other
than holders of Senior Debt) and the holders of this Debenture,
no such payment or distribution made to the holders of Senior
Debt by virtue of the provisions hereof which otherwise would
have been made to the holder of this Debenture shall be deemed to
be a payment by the Company on account of the Senior Debt, it
being understood that the provisions hereof are and are intended
solely for the purpose of defining the relative rights of the
holder of this Debenture, on the one hand, and the holders of the
Senior Debt, on the other hand.
Events of Default; Acceleration. If any of the following
conditions or events ("Events of Default") shall occur for any
reason whatsoever (and whether such occurrence shall be voluntary
or involuntary or come about or be effected by operation of law
or otherwise) and be continuing:
(a) there shall be any default in the payment of the
principal of this Debenture, when the same becomes due
and payable, whether at the stated maturity or at a
date fixed for prepayment or by declaration or
otherwise; or
(b) there shall be any default in the payment of any
interest on this Debenture, for more than ten days
after the same becomes due and payable; or
(c) there shall be any default in the performance of
or compliance with any covenant contained herein and
such default shall not have been remedied within 30
days after written notice thereof shall have been
received by the Company from the holder of this
Debenture; or
(d) the Company or Legg Mason Wood Walker,
Incorporated (i) shall make an assignment for the
benefit of creditors, or (ii) shall be generally not
paying its debts as they become due, or (iii) shall
commence a case under the Federal bankruptcy laws, or
(iv) shall file any petition or answer seeking for
itself any reorganization, arrangement, composition,
<PAGE> 25
readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or
regulation, or (v) shall file any answer admitting or
not contesting the material allegations of a petition
filed against such corporation in any such proceeding,
or (vi) shall seek or consent to or acquiesce in the
appointment of any trustee, custodian, receiver or
liquidator of such corporation or of all or any part of
the properties of such corporation, or (vii) shall take
any action for the purpose of any of the foregoing; or
(e) without the consent or acquiescence of the Company
or Legg Mason Wood Walker, Incorporated, an order shall
be entered constituting an order for relief or
approving a petition for relief or reorganization or
any other petition seeking any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or other similar relief under any present
or future statute, law or regulation, or if any such
petition shall be filed against any such corporation
and such petition shall not be dismissed within 30
days, or if, without the consent or acquiescence of any
such corporation, an order shall be entered appointing
a trustee, custodian, receiver or liquidator of such
corporation or of all or any part of the properties of
such corporation and such order shall remain unstayed
and in effect for more than 30 days;
then, and in any such event, the holder hereof (which term shall
include any pledgee hereof) may at any time thereafter (unless
all defaults shall theretofore have been remedied) at his or her
option, by written notice or notices to the Company, declare this
Debenture to be due and payable, whereupon the same shall
forthwith mature and become due and payable, together with
interest accrued thereon, without presentment, demand, protest or
further notice, all of which are hereby waived.
Any accounting terms used herein and not otherwise defined
shall have the meaning assigned to them by generally accepted
accounting principles. For purposes of this Debenture, "Senior
Debt" means the principal of, premiums (if any) and interest on
any and all indebtedness of the Company for borrowed money (other
than indebtedness represented by debentures substantially
identical to this Debenture now or hereafter issued to employees
<PAGE> 26
of the Company or any of its affiliates) outstanding on the
original issue date of this Debenture, or thereafter incurred,
unless by the terms of the instrument evidencing or securing such
debt or by valid agreement it is so provided that such debt is
not senior in right of payment to this Debenture.
The term "Cause" as used herein shall mean (i) failure by
the Employee to perform the Employee's duties or follow the
reasonable directions of the Board of Directors of the Company;
(ii) fraud, embezzlement, misappropriation; or any gross or
wilful misconduct of the Employee in connection with his
employment by the Company; (iii) the Employee being adjudicated a
bankrupt, making an assignment for the benefit of creditors,
being declared insolvent or otherwise availing Employee (except
as a creditor) of any bankruptcy or insolvency law, whether now
or hereafter enacted; (iv) any violation of any statutory or
common law fiduciary duty or duty of loyalty to the Company or
any of the Company's clients; (v) any finding or adjudication by
a court, government agency or regulatory authority (including,
without limitation, the United States Securities and Exchange
Commission, the National Association of Securities Dealers, Inc.,
and any state securities commission) that the Employee has
violated any law, rule or regulation relating to the regulation
of investment advisers or securities, which finding or
adjudication, in the reasonable judgment of the Board, could have
a significant adverse effect on the reputation or business of the
Company or any of its affiliates; (vi) any order, judgment or
decree (whether entered by consent or after trial or
adjudication) of any court, government agency or regulatory
authority which censures or imposes any sanctions on the Employee
in connection with investment broker, investment advisory or
securities related activities or which enjoins, bars, suspends or
otherwise limits the Employee from acting as a securities
analyst, securities broker, investment adviser, an advisory
affiliate or associated person of a securities broker-dealer or
of an investment adviser, or from engaging in any activity in
connection with the purchase or sale of securities; (vii) the
reasonable determination by the Board that the Employee has
committed an act which, in the Board's reasonable opinion, after
investigation, is reasonably likely to lead to any such order,
judgment or decree; (viii) substance abuse; or (ix) conviction of
a criminal offense punishable by imprisonment (whether or not the
Employee is, in fact, imprisoned) or the entry of a guilty plea
in any such proceeding.
<PAGE> 27
Except as specifically permitted by the Company in its sole
discretion, this Debenture is not transferable by the holder
otherwise than by will or the laws of descent and distribution.
No assignment or transfer of this Debenture, or of the rights
represented, whether voluntary or involuntary, by operation of
law or otherwise, except with the specific consent of the Company
or by will or the laws of descent and distribution, shall vest in
the assignee or transferee any interest or right herein
whatsoever.
This Debenture is made and delivered in the City of
Baltimore, State of Maryland, and shall be governed by the laws
of the State of Maryland, other than the conflict of laws
provisions thereof.
Legg Mason, Inc.
By:
<PAGE> 28
Exhibit B
NOTE
$535,000 Baltimore, Maryland
August 29, 1996
FOR VALUE RECEIVED, the undersigned (the "Borrower"), an
employee of a subsidiary of Legg Mason, Inc. (the "Company"),
promises to pay to the order of the Company, at the offices of
the Company in Baltimore, Maryland, the principal sum of FIVE
HUNDRED THIRTY FIVE THOUSAND DOLLARS ($535,000), with interest on
the unpaid balance hereof from the date hereof until paid in full
at the rate of seven percent (7%) per annum.
This Note has been issued pursuant to the Legg Mason, Inc.
1996 Equity Incentive Plan (the "Plan") and an Executive
Convertible Debenture Purchase and Loan Agreement of even date
herewith, by and between the Borrower and the Company, to which
reference is made for further description of the rights and
obligations specified herein and of certain other rights and
obligations of the Borrower and the Company which affect the
terms and provisions of this Note.
Interest on the unpaid balance hereof shall be paid on the
first anniversary of the date hereof, and, thereafter, on each
succeeding anniversary of the date hereof and at maturity, until
the principal of this Note shall be paid in full.
The principal sum outstanding hereunder and all accrued and
unpaid interest thereon shall be due and payable on August 29,
2000. Twenty-five percent (25%) of the initial principal amount
due hereunder, together with accrued interest thereon, shall be
forgiven at the end of each of the first four anniversaries of
the Employee's employment by the Company or a subsidiary of the
Company.
Prepayment of principal may be made in the sole discretion
of the Borrower in whole or in part, at any time or from time to
time, without penalty.
<PAGE> 29
It shall constitute a default under this Note if the
principal or any interest thereon is not paid when due and
payable or if the Borrower shall, FOR ANY REASON, cease to be
employed by the Company or one of its subsidiaries or affiliates.
Upon any default by the Borrower hereunder that shall remain
uncured after ten (10) days written notice from the Company to
the Borrower, the Company may declare the unpaid and previously
unforgiven principal sum of this Note, together with all accrued
and unpaid interest to be due and immediately payable.
Notwithstanding the foregoing, if the Borrower shall cease to be
so employed by reason of the Company's termination of the
Employee's employment without Cause, as defined below, or the
death, disability (as defined in the Company's then applicable
long-term disability plan) or retirement in accordance with the
Company's then applicable retirement plan, the Company may not
declare the unpaid principal sum of this Note, together with all
accrued and unpaid interest, to be due and payable prior to the
last day of the seventh month following the later of (i) such
termination of employment or (ii) the date which is 30 days after
the 1997 annual meeting of the stockholders of the Company.
The term "Cause" as used herein shall mean (i) failure by
the Employee to perform the Employee's duties or follow the
reasonable directions of the Board of Directors of the Company;
(ii) fraud, embezzlement, misappropriation; or any gross or
wilful misconduct of the Employee in connection with his
employment by the Company; (iii)the Employee being adjudicated a
bankrupt, making an assignment for the benefit of creditors,
being declared insolvent or otherwise availing Employee (except
as a creditor) of any bankruptcy or insolvency law, whether now
or hereafter enacted; (iv) any violation of any statutory or
common law fiduciary duty or duty of loyalty to the Company or
any of the Company's clients; (v) any finding or adjudication by
a court, government agency or regulatory authority (including,
without limitation, the United States Securities and Exchange
Commission, the National Association of Securities Dealers, Inc.,
and any state securities commission) that the Employee has
violated any law, rule or regulation relating to the regulation
of investment advisers or securities, which finding or
adjudication, in the reasonable judgment of the Board, could have
a significant adverse effect on the reputation or business of the
Company or any of its affiliates; (vi) any order, judgment or
decree (whether entered by consent or after trial or
adjudication) of any court, government agency or regulatory
<PAGE> 30
authority which censures or imposes any sanctions on the Employee
in connection with investment broker, investment advisory or
securities related activities or which enjoins, bars, suspends or
otherwise limits the Employee from acting as a securities
analyst, securities broker, investment adviser, an advisory
affiliate or associated person of a securities broker-dealer or
of an investment adviser, or from engaging in any activity in
connection with the purchase or sale of securities; (vii) the
reasonable determination by the Board that the Employee has
committed an act which, in the Board's reasonable opinion, after
investigation, is reasonably likely to lead to any such order,
judgment or decree; (viii) substance abuse; or (ix) conviction of
a criminal offense punishable by imprisonment (whether or not the
Employee is, in fact, imprisoned) or the entry of a guilty plea
in any such proceeding.
The obligation represented by this Note is secured by a
certain Pledge Agreement of even date herewith by and between the
Borrower and the Company.
The Borrower waives all exemptions to the extent permitted
by law, diligence in collection, demand, presentment for payment,
protest, and notice of protest and non-payment.
This Note shall be a sealed instrument and construed under
the laws of the State of Maryland, other than the conflicts of
laws provisions thereof.
Robert A. Frank
(SEAL)
<PAGE> 31
Exhibit C
PLEDGE AGREEMENT
This PLEDGE AGREEMENT dated as of August 29, 1996 (the
"Agreement"), by and between the individual signatory at the
end of this Agreement (the "Pledgor") and Legg Mason, Inc. (the
"Pledgee");
PRELIMINARY STATEMENT:
The Pledgor and Pledgee propose to enter into an Executive
Convertible Debenture Purchase and Loan Agreement dated as of the
date hereof (the "Purchase and Loan Agreement"), pursuant to
which, among other things, the Pledgor will borrow the amount
specified at the end of this Agreement from the Pledgee, which
loan will be evidenced by a note as described in the Purchase and
Loan Agreement (the "Note"). The Pledgor is contemporaneously
purchasing an Executive Convertible Subordinated Debenture in the
aggregate principal amount specified at the end of this Agreement
(the Debenture and the Common Stock into which it is convertible
are hereinafter referred to as the "Securities"). To secure the
Obligations (hereinafter defined) under the Purchase and Loan
Agreement and the Note, the Pledgor desires to pledge the
Securities to the Pledgee.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and to induce the Pledgee to execute
and deliver the Purchase and Loan Agreement, it is agreed as
follows:
1. The Pledgor hereby pledges and grants to the Pledgee a
security interest in the Securities and the certificates
representing the Securities, and all dividends, cash, instruments
and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all
of the Securities (the "Pledged Collateral") to secure the
payment of all obligations of the Pledgor to the Pledgee now or
hereafter existing under the Purchase and Loan Agreement and the
Note (such obligations being hereinafter referred to as the
"Obligations").
<PAGE> 32
2. All certificates or instruments representing or
evidencing the Pledged Collateral shall be delivered to and held
by or on behalf of the Pledgee pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied
by duly executed but undated stock powers or other instruments of
transfer or assignment, in blank, all in form and substance
reasonably satisfactory to the Pledgee. After an Event of
Default (as defined in paragraph 8 hereof) shall have occurred
and be continuing, the Pledgee shall have the right, at any time
in its discretion and without notice to the Pledgor, to transfer
to or to register in the name of the Pledgee or any of its
nominees any or all of the Pledged Collateral, subject only to
the rights specified in paragraph 4(a).
3. The Pledgor agrees that at any time and from time to
time, the Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action (other
than the payment of money), that may be reasonably necessary or
desirable, or that the Pledgee may reasonably request, in order
to perfect and protect any security interest granted hereby or to
enable the Pledgee to exercise and enforce its rights and
remedies hereunder with respect to any Pledged Collateral.
4. (a) So long as no Event of Default shall have occurred
and be continuing and except as may be otherwise provided in the
Purchase and Loan Agreement:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights and shall be entitled to all
other incidents of ownership pertaining to the Pledged Collateral
or any part thereof for any purpose not inconsistent with the
terms of this Agreement, the Purchase and Loan Agreement and the
Note.
(ii) The Pledgor shall be entitled to receive and retain any
and all interest or cash dividends, as the case may be, paid in
respect of the Pledged Collateral, provided, however, that any
and all
(A) interest or dividends paid or payable
other than in cash in respect of, and
instruments and other property received,
receivable or otherwise distributed in
<PAGE> 33
respect of, or in exchange for, any Pledged
Collateral,
(B) interest or dividends and other
distributions paid or payable in cash in
respect of any Pledged Collateral, and
(C) cash paid, payable or otherwise
distributed in respect of the principal
of, or in redemption of, or in exchange for,
any Pledged Collateral, shall, to the extent
of such cash, be paid to the Pledgee to pay
interest then or thereafter payable under or
pursuant to the Note, and otherwise shall be,
and shall forthwith be delivered to the
Pledgee to hold as Pledged Collateral and
shall, if received by the Pledgor, be
received in trust for the benefit of the
Pledgee, be segregated from the other
property or funds of the Pledgor, and be
forthwith delivered to the Pledgee as Pledged
Collateral in the same form as so received
(with any necessary endorsement).
(b) Upon the occurrence and during the continuance of
an Event of Default, all rights of the Pledgor to exercise the
voting and other consensual rights which it would otherwise be
entitled to exercise pursuant to Section 4(a)(i) shall cease, and
all such rights shall thereupon become vested in the Pledgee who
shall thereupon have the sole right to exercise such voting and
other consensual rights.
5. The Pledgor agrees not to (i) sell, transfer, or
otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral, or (ii) create or permit to exist any
lien, security interest, or other charge or encumbrance upon or
with respect to any of the Pledged Collateral, in each such case
except for the security interest under this Agreement.
6. The Pledgor hereby appoints the Pledgee, and any
officer or agent of Pledgee, with full power of substitution, the
Pledgor's attorney-in-fact, with full authority in the place and
stead of the Pledgor and in the name of the Pledgor, upon the
occurrence and during the continuance of an Event of Default to
<PAGE> 34
ask for, demand, collect, receive and give acquittance for any
and all moneys due or to become due under and by virtue of any
Pledged Collateral, to endorse checks, drafts, orders and other
instruments for the payment of money payable to the Pledgor
representing any interest or dividend, or other distribution
payable in respect of the Pledged Collateral or any part thereof
or on account thereof and to give full discharge for the same, to
settle, compromise, prosecute or defend any action, claim or
proceedings with respect thereto, to sell, assign, endorse,
pledge, transfer and make any agreement respecting, or otherwise
deal with, the same and to take any other action and to execute
any instrument which the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement. The appointment
hereby is irrevocable and coupled with an interest.
7. This Agreement shall create a continuing security
interest in the Pledged Collateral and shall (a) remain in full
force and effect until payment in full of the Obligations, and (b)
be binding upon the Pledgor and his or her respective
personal representatives, successors and assigns. Upon the
payment in full of the Obligations, the Pledgor shall be entitled
to the return of such of the Pledged Collateral as shall not have
been sold or otherwise applied pursuant to the terms hereof.
8. In the event of a default as defined in the Note (an
"Event of Default"), the Pledgee may sell (subject to any
applicable securities laws) the Pledged Collateral, or any part thereof,
at public or private sale for cash, upon credit or for
future delivery as the Pledgee shall deem appropriate.
At any sale made pursuant to this Section, Pledgee may bid
for or purchase, free (to the extent permitted by law) from any
right of redemption, stay or appraisal on the part of the Pledgor
(all said rights being also hereby waived and released to the
extent permitted by law), the Pledged Collateral or any part
thereof offered for sale and may make payment on account thereof
by using any claim then due and payable to Pledgee from the
Pledgor as a credit against the purchase price, and Pledgee may,
upon compliance with the terms of sale, hold, retain and dispose
of such property without further accountability to the Pledgor
therefor. Notwithstanding the foregoing, in the event the
Pledgee is the purchaser of the Pledged Collateral, the Pledgee
shall purchase the Debenture at a price equal to the outstanding
<PAGE> 35
aggregate principal amount of the Debenture, plus any accrued but
unpaid interest thereon.
9. No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Pledgor herefrom,
shall in any event be effective unless the same shall be in
writing and signed by the Pledgee, and then such waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given.
10. All notices and other communications provided for
hereunder shall be in writing (including telegraphic
communication) and, if to the Pledgor, mailed or telegraphed or
delivered to him or her, at the address last given, to Pledgee by
Pledgor in writing, and if to the Pledgee, mailed or delivered to
it, addressed Legg Mason, Inc., Attn: General Counsel, 111 South
Calvert Street, Baltimore, Maryland 21202; or as to each party at
such other address as shall be designated by such party in a
written notice to each other party complying as to delivery with
the terms of this Section. All such notices and other
communications shall, when mailed or telegraphed, respectively,
be effective when received.
11. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland, other than
the conflicts of laws provisions thereof. Unless otherwise
defined herein or in the Note, terms defined in Article 9 of the
Uniform Commercial Code in the State of Maryland, other than the
conflicts of laws provisions thereof are used herein as therein
defined.
12. If any provision hereof is or shall at any time be
invalid and unenforceable in any jurisdiction then, to the
fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Pledgee in order to
<PAGE> 36
carry out the intentions of the parties hereto as nearly as may
be possible; and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the
validity or enforceability of such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the Pledgor and Pledgee have caused this
Agreement to be duly executed, under seal, and delivered as of
the date first above written.
WITNESS: Robert A. Frank, Pledgor
ATTEST: Legg Mason, Inc., Pledgee
By:
Aggregate Principal Amount of Note: $535,000
Aggregate Principal Amount of Debenture: $535,000
<PAGE> 37
This Debenture and the Common Stock into which
it is convertible have not been registered
under the Securities Act of 1933, as amended
(the "Act") and may not be sold or otherwise
transferred without registration under the Act
or the favorable prior opinion of counsel for
the Company that registration is not required.
This Debenture has been issued pursuant to a
certain Executive Convertible Debenture
Purchase and Loan Agreement by and between the
registered holder hereof and the Company dated
as of August 29, 1996, to which reference is
made.
LEGG MASON, INC.
Executive Convertible Subordinated Debenture Due 2000
No. 96,001 Baltimore, Maryland
$535,000 August 29, 1996
Legg Mason, Inc., a Maryland corporation, (the "Company")
for value received, hereby promises to pay to Robert A. Frank
(the "Employee") the principal amount of $535,000 on August 29,
2000, with interest on the unpaid balance of such principal
amount at the rate of seven percent (7%) per annum from the date
hereof, payable annually on each anniversary of the date hereof,
at conversion (but only on the principal amount of the Debenture
being converted) and at maturity, until such unpaid balance shall
become due and payable (whether at maturity or at a date fixed
for prepayment or by declaration or otherwise). Payments of
principal and interest on this Debenture shall be made in lawful
money of the United States of America at the principal office of
the Company in the City of Baltimore and State of Maryland, or at
such other office or agency as the Company shall have designated
by written notice to the holder of this Debenture.
<PAGE> 38
Conversion. On and subject to the terms and conditions set
forth below, all or any part of the unpaid principal amount of
this Debenture may be converted into Common Stock of the Company
at the price of $30.25 per share or, in case an adjustment of
such price has taken place, then at the price as last adjusted
and in effect at the date of the conversion (such price or such
price as last adjusted, as the case may be, being referred to
herein as the "Conversion Price"). No part of this Debenture may
be converted prior to August 29, 1997. Thereafter, at the
election of the holder, fifty percent (50%) of the original
principal amount shall be convertible into shares of Common Stock
of the Company on and after August 29, 1997; and one hundred
percent (100%) of the principal amount shall be convertible into
shares of Common Stock of the Company on and after August 29,
1998. If prior to August 29, 1998, the Employee shall cease to
be a full-time employee of the Company or any subsidiary of the
Company by reason of (i) the Company's termination of the
Employee's employment without Cause, as defined below, or (ii)
his or her death, disability (as defined in the Company's then
applicable long-term disability plan) or retirement in accordance
with the terms of the Company's then applicable retirement plan,
the Employee or his or her estate or the person to whom this
Debenture passes by will or by the laws of descent and
distribution shall be entitled to convert 100% of the principal
amount at any time within seven months after the later of (i)
such termination of employment or (ii) the date which is 30 days
after the 1997 annual meeting of the stockholders of the Company,
provided this Debenture has not been prepaid by the Company prior
to such date. Upon any conversion, the holder hereof shall
deliver to the Company a conversion notice which states that, to
the extent this Debenture is pledged to secure any indebtedness
of the Employee, a percentage of such indebtedness, equal to the
percentage of this Debenture being converted, has been paid in
full and discharged.
Promptly after a conversion of any portion of this
Debenture, the Company shall issue and deliver to the holder
effecting such conversion, registered in the name of such holder,
a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion and this Debenture (or
the specified portion hereof) shall immediately be cancelled. No
fractional shares shall be issued and no payment or adjustment
shall be made upon any conversion on account of any accrued
<PAGE> 39
interest on the Debenture or any cash dividends on the Common
Stock issued upon such conversion. If any fractional interest in
a share of Common Stock would be deliverable upon such
conversion, the Company shall, in lieu of delivering the
fractional share therefor, pay to the holder an amount in cash
equal to the then current Market Price of such fractional
interest.
If and whenever after the date hereof, the Company shall
issue or sell any shares of Common Stock (except upon conversion
of any securities outstanding at such date or pursuant to any
employee benefit plan approved by the stockholders of the
Company, its Board of Directors or any committee thereof before
or after such date) without consideration or for a consideration
per share less than an amount equal to 95% of the Market Price at
the time of such issue or sale, the Conversion Price shall be
reduced to a price (calculated to the nearest cent) determined by
multiplying the Conversion Price in effect immediately prior to
the time of such issue or sale by a fraction, (i) the numerator
of which shall be the sum of the aggregate number of shares of
Common Stock outstanding immediately prior to such issue or sale
multiplied by the Market Price immediately prior to such issue or
sale, plus the aggregate consideration, if any, received by the
Company upon such issue or sale, and (ii) the denominator of
which shall be the product of the aggregate number of shares of
Common Stock outstanding immediately after such issue or sale,
multiplied by the Market Price immediately prior to such issue or
sale.
As used in this Debenture, Market Price shall mean the
average of the daily closing prices for 10 consecutive business
days prior to the day as of which Market Price is being
determined. The closing price for each day shall be the last
reported sale price on the New York Stock Exchange, or in case no
such reported sale takes place on such day, the average of the
reported closing bid and asked quotations in such system, or, if
the Common Stock ceases to be listed on the New York Stock
Exchange, the last reported sale price regular way in the over
the counter market, or if no such quotations are available, the
fair market price as determined by the Board of Directors of the
Company (whose determination shall be conclusive).
<PAGE> 40
No adjustment of the Conversion Price, however, shall be
made in an amount less than $.25 per share (such amount to be
appropriately adjusted in the event of a stock dividend on the
outstanding shares of Common Stock or a subdivision combination),
but any such lesser adjustment shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which together with any adjustments so carried forward
shall amount to $.25 (as adjusted) per share or more.
In case at any time the Company shall declare a dividend or
make any other distribution upon any class or series of its stock
payable in shares of Common Stock or securities convertible into
Common Stock, any shares of Common Stock or securities
convertible into Common Stock, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
In case at any time the Company shall be a party to any
transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the Company's
assets, liquidation or recapitalization of the Common Stock) in
which the previously outstanding Common Stock shall be changed
into or exchanged for different securities of the Company (other
than by subdivision or combination of its outstanding shares of
Common Stock by reason of which an adjustment is made under the
preceding paragraph) or common stock or other securities of
another corporation or interests in a noncorporate entity or
other property (including cash) or includes or involves any
extraordinary dividend or spin-off of assets, the Board of
Directors shall by resolution prescribe such adjustment of the
Conversion Price as it believes to be equitable and fair to the
holder hereof. Such determination shall be final and binding on
the holder.
<PAGE> 41
Each certificate representing shares of Common Stock issued
upon the conversion of this Debenture or in substitution or upon
transfer thereof may, as determined appropriate by the Company,
be stamped or otherwise imprinted with a legend in substantially
the following form:
"The shares represented by this certificate
have not been registered under the Securities
Act of 1933 and may not be transferred in the
absence of such registration or an exemption
therefrom under such Act."
Prepayment. This Debenture shall be prepaid by the Company
to the extent not previously converted, at the unpaid principal
amount hereof plus accrued and unpaid interest to the prepayment
date, 30 days after the Employee has ceased, for any reason, to
be a full-time employee of the Company or a subsidiary or
affiliate thereof, except that if such reason shall be the
Company's termination of the Employee's employment without Cause,
as defined below, or the death, disability (as defined in the
Company's then applicable long-term disability plan) or
retirement in accordance with terms of the Company's then
applicable retirement plan, such prepayment shall be on the last
day of the seventh month following the later of (i) such
termination of employment or, (ii) the date which is 30 days
after the 1997 annual meeting of the stockholders of the Company.
In the event of the bankruptcy or insolvency of the holder
hereof, the Company covenants that it will, upon request of the
holder (or any pledgee) hereof, purchase this Debenture at the
principal amount hereof plus any interest accrued and unpaid to
the date of such purchase.
Subordination. The indebtedness represented by this
Debenture and the payment of the principal hereof and interest
hereon is expressly subordinated in right of payment to the prior
payment in full of all Senior Debt (hereinafter defined).
Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the
Company, whether in bankruptcy, insolvency, reorganization or
receivership proceedings or upon an assignment for the benefit of
<PAGE> 42
creditors or any other marshaling of the assets and liabilities
of the Company or otherwise,
(a) the holders of all Senior Debt shall be first
entitled to receive payment in full of the principal
thereof (and premium, if any) and interest due thereon,
or provision shall be made for such payment in money or
money's worth, before the holders of this Debenture
shall be entitled to receive any payment on account of
the principal of or interest on the indebtedness
evidenced by this Debenture;
(b) any payment by, or distribution of assets of,
the Company of any kind or character, whether in cash,
property or securities, to which the holders of this
Debenture would be entitled except for the provisions
hereof shall be paid or delivered by the person making
such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the holders of Senior Debt or
their representative or representatives or to the
trustee or trustees under any indenture under which any
instruments evidencing any of such Senior Debt may have
been issued, ratably accordingly to the aggregate
amounts remaining unpaid on account of the Senior Debt
held or represented by each, to the extent necessary to
make payment in full of all Senior Debt remaining
unpaid after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of
such Senior Debt; and
(c) in the event that, notwithstanding the
foregoing, any payment by, or distribution of assets
of, the Company of any kind or character, whether in
cash, property or securities shall be received by the
holder of this Debenture before all Senior Debt is paid
in full, such payment or distribution shall be held in
trust for the benefit of, and shall be paid over to the
holders of such Senior Debt or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of
such Senior Debt may have been issued, ratably as
aforesaid, for application to the payment of all Senior
<PAGE> 43
Debt remaining unpaid until all such Senior Debt shall
have been paid in full, after giving effect to any
concurrent payment or distribution (or provision
therefor) to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the
holder of this Debenture shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of
cash, property or securities of the Company applicable to the
Senior Debt until all amounts owing on this Debenture shall be
paid in full, and, as between the Company, its creditors (other
than holders of Senior Debt) and the holders of this Debenture,
no such payment or distribution made to the holders of Senior
Debt by virtue of the provisions hereof which otherwise would
have been made to the holder of this Debenture shall be deemed to
be a payment by the Company on account of the Senior Debt, it
being understood that the provisions hereof are and are intended
solely for the purpose of defining the relative rights of the
holder of this Debenture, on the one hand, and the holders of the
Senior Debt, on the other hand.
Events of Default; Acceleration. If any of the following
conditions or events ("Events of Default") shall occur for any
reason whatsoever (and whether such occurrence shall be voluntary
or involuntary or come about or be effected by operation of law
or otherwise) and be continuing:
(a) there shall be any default in the payment of
the principal of this Debenture, when the same becomes
due and payable, whether at the stated maturity or at a
date fixed for prepayment or by declaration or
otherwise; or
(b) there shall be any default in the payment of
any interest on this Debenture, for more than ten days
after the same becomes due and payable; or
(c) there shall be any default in the performance
of or compliance with any covenant contained herein and
such default shall not have been remedied within 30
days after written notice thereof shall have been
received by the Company from the holder of this
Debenture; or
<PAGE> 44
(d) the Company or Legg Mason Wood Walker,
Incorporated (i) shall make an assignment for the
benefit of creditors, or (ii) shall be generally not
paying its debts as they become due, or (iii) shall
commence a case under the Federal bankruptcy laws, or
(iv) shall file any petition or answer seeking for
itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or
regulation, or (v) shall file any answer admitting or
not contesting the material allegations of a petition
filed against such corporation in any such proceeding,
or (vi) shall seek or consent to or acquiesce in the
appointment of any trustee, custodian, receiver or
liquidator of such corporation or of all or any part of
the properties of such corporation, or (vii) shall take
any action for the purpose of any of the foregoing; or
(e) without the consent or acquiescence of the
Company or Legg Mason Wood Walker, Incorporated, an
order shall be entered constituting an order for relief
or approving a petition for relief or reorganization or
any other petition seeking any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or other similar relief under any present
or future statute, law or regulation, or if any such
petition shall be filed against any such corporation
and such petition shall not be dismissed within 30
days, or if, without the consent or acquiescence of any
such corporation, an order shall be entered appointing
a trustee, custodian, receiver or liquidator of such
corporation or of all or any part of the properties of
such corporation and such order shall remain unstayed
and in effect for more than 30 days;
then, and in any such event, the holder hereof (which term shall
include any pledgee hereof) may at any time thereafter (unless
all defaults shall theretofore have been remedied) at his or her
option, by written notice or notices to the Company, declare this
Debenture to be due and payable, whereupon the same shall
forthwith mature and become due and payable, together with
interest accrued thereon, without presentment, demand, protest or
further notice, all of which are hereby waived.
<PAGE> 45
Any accounting terms used herein and not otherwise defined
shall have the meaning assigned to them by generally accepted
accounting principles. For purposes of this Debenture, "Senior
Debt" means the principal of, premiums (if any) and interest on
any and all indebtedness of the Company for borrowed money (other
than indebtedness represented by debentures substantially
identical to this Debenture now or hereafter issued to employees
of the Company or any of its affiliates) outstanding on the
original issue date of this Debenture, or thereafter incurred,
unless by the terms of the instrument evidencing or securing such
debt or by valid agreement it is so provided that such debt is
not senior in right of payment to this Debenture.
The term "Cause" as used herein shall mean (i) failure by
the Employee to perform the Employee's duties or follow the
reasonable directions of the Board of Directors of the Company;
(ii) fraud, embezzlement, misappropriation; or any gross or
wilful misconduct of the Employee in connection with his
employment by the Company; (iii)the Employee being adjudicated a
bankrupt, making an assignment for the benefit of creditors,
being declared insolvent or otherwise availing Employee (except
as a creditor) of any bankruptcy or insolvency law, whether now
or hereafter enacted; (iv) any violation of any statutory or
common law fiduciary duty or duty of loyalty to the Company or
any of the Company's clients; (v) any finding or adjudication by
a court, government agency or regulatory authority (including,
without limitation, the United States Securities and Exchange
Commission, the National Association of Securities Dealers, Inc.,
and any state securities commission) that the Employee has
violated any law, rule or regulation relating to the regulation
of investment advisers or securities, which finding or
adjudication, in the reasonable judgment of the Board, could have
a significant adverse effect on the reputation or business of the
Company or any of its affiliates; (vi) any order, judgment or
decree (whether entered by consent or after trial or
adjudication) of any court, government agency or regulatory
authority which censures or imposes any sanctions on the Employee
in connection with investment broker, investment advisory or
securities related activities or which enjoins, bars, suspends or
otherwise limits the Employee from acting as a securities
analyst, securities broker, investment adviser, an advisory
affiliate or associated person of a securities broker-dealer or
of an investment adviser, or from engaging in any activity in
connection with the purchase or sale of securities; (vii) the
reasonable determination by the Board that the Employee has
<PAGE> 46
committed an act which, in the Board's reasonable opinion, after
investigation, is reasonably likely to lead to any such order,
judgment or decree; (viii) substance abuse; or (ix) conviction of
a criminal offense punishable by imprisonment (whether or not the
Employee is, in fact, imprisoned) or the entry of a guilty plea
in any such proceeding.
Except as specifically permitted by the Company in its sole
discretion, this Debenture is not transferable by the holder
otherwise than by will or the laws of descent and distribution.
No assignment or transfer of this Debenture, or of the rights
represented, whether voluntary or involuntary, by operation of
law or otherwise, except with the specific consent of the Company
or by will or the laws of descent and distribution, shall vest in
the assignee or transferee any interest or right herein
whatsoever.
This Debenture is made and delivered in the City of
Baltimore, State of Maryland, and shall be governed by the laws
of the State of Maryland, other than the conflict of laws
provisions thereof.
Legg Mason, Inc.
By: /s/ Theodore S. Kaplan
Theodore S. Kaplan
Senior Vice President
<PAGE> 47
NOTE
$535,000 Baltimore, Maryland
August 29, 1996
FOR VALUE RECEIVED, the undersigned (the "Borrower"), an
employee of a subsidiary of Legg Mason, Inc. (the "Company"),
promises to pay to the order of the Company, at the offices of
the Company in Baltimore, Maryland, the principal sum of FIVE
HUNDRED THIRTY FIVE THOUSAND DOLLARS ($535,000), with interest on
the unpaid balance hereof from the date hereof until paid in full
at the rate of seven percent (7%) per annum.
This Note has been issued pursuant to the Legg Mason, Inc.
1996 Equity Incentive Plan (the "Plan") and an Executive
Convertible Debenture Purchase and Loan Agreement of even date
herewith, by and between the Borrower and the Company, to which
reference is made for further description of the rights and
obligations specified herein and of certain other rights and
obligations of the Borrower and the Company which affect the
terms and provisions of this Note.
Interest on the unpaid balance hereof shall be paid on the
first anniversary of the date hereof, and, thereafter, on each
succeeding anniversary of the date hereof and at maturity, until
the principal of this Note shall be paid in full.
The principal sum outstanding hereunder and all accrued and
unpaid interest thereon shall be due and payable on August 29,
2000. Twenty-five percent (25%) of the initial principal amount
due hereunder, together with accrued interest thereon, shall be
forgiven at the end of each of the first four anniversaries of
the Employee's employment by the Company or a subsidiary of the
Company.
Prepayment of principal may be made in the sole discretion
of the Borrower in whole or in part, at any time or from time to
time, without penalty.
It shall constitute a default under this Note if the
principal or any interest thereon is not paid when due and
<PAGE> 48
payable or if the Borrower shall, FOR ANY REASON, cease to be
employed by the Company or one of its subsidiaries or affiliates.
Upon any default by the Borrower hereunder that shall remain
uncured after ten (10) days written notice from the Company to
the Borrower, the Company may declare the unpaid and previously
unforgiven principal sum of this Note, together with all accrued
and unpaid interest to be due and immediately payable.
Notwithstanding the foregoing, if the Borrower shall cease to be
so employed by reason of the Company's termination of the Employee's
employment without Cause, as defined below, or the
death, disability (as defined in the Company's then applicable
long-term disability plan) or retirement in accordance with the
Company's then applicable retirement plan, the Company may not
declare the unpaid principal sum of this Note, together with all
accrued and unpaid interest, to be due and payable prior to the
last day of the seventh month following the later of (i) such
termination of employment or (ii) the date which is 30 days after
the 1997 annual meeting of the stockholders of the Company.
The term "Cause" as used herein shall mean (i) failure by
the Employee to perform the Employee's duties or follow the
reasonable directions of the Board of Directors of the Company;
(ii) fraud, embezzlement, misappropriation; or any gross or
wilful misconduct of the Employee in connection with his
employment by the Company; (iii)the Employee being adjudicated a
bankrupt, making an assignment for the benefit of creditors,
being declared insolvent or otherwise availing Employee (except
as a creditor) of any bankruptcy or insolvency law, whether now
or hereafter enacted; (iv) any violation of any statutory or
common law fiduciary duty or duty of loyalty to the Company or
any of the Company's clients; (v) any finding or adjudication by
a court, government agency or regulatory authority (including,
without limitation, the United States Securities and Exchange
Commission, the National Association of Securities Dealers, Inc.,
and any state securities commission) that the Employee has
violated any law, rule or regulation relating to the regulation
of investment advisers or securities, which finding or
adjudication, in the reasonable judgment of the Board, could have
a significant adverse effect on the reputation or business of the
Company or any of its affiliates; (vi) any order, judgment or
decree (whether entered by consent or after trial or
adjudication) of any court, government agency or regulatory
authority which censures or imposes any sanctions on the Employee
<PAGE> 49
in connection with investment broker, investment advisory or
securities related activities or which enjoins, bars, suspends or
otherwise limits the Employee from acting as a securities
analyst, securities broker, investment adviser, an advisory
affiliate or associated person of a securities broker-dealer or
of an investment adviser, or from engaging in any activity in
connection with the purchase or sale of securities; (vii) the
reasonable determination by the Board that the Employee has
committed an act which, in the Board's reasonable opinion, after
investigation, is reasonably likely to lead to any such order,
judgment or decree; (viii) substance abuse; or (ix) conviction of
a criminal offense punishable by imprisonment (whether or not the
Employee is, in fact, imprisoned) or the entry of a guilty plea
in any such proceeding.
The obligation represented by this Note is secured by a
certain Pledge Agreement of even date herewith by and between the
Borrower and the Company.
The Borrower waives all exemptions to the extent permitted
by law, diligence in collection, demand, presentment for payment,
protest, and notice of protest and non-payment.
This Note shall be a sealed instrument and construed under
the laws of the State of Maryland, other than the conflicts of
laws provisions thereof.
Robert A. Frank
/s/ Robert A. Frank (SEAL)
<PAGE> 50
PLEDGE AGREEMENT
This PLEDGE AGREEMENT dated as of August 29, 1996 (the
"Agreement"), by and between the individual signatory at the
end of this Agreement (the "Pledgor") and Legg Mason, Inc. (the
"Pledgee");
PRELIMINARY STATEMENT:
The Pledgor and Pledgee propose to enter into an Executive
Convertible Debenture Purchase and Loan Agreement dated as of the
date hereof (the "Purchase and Loan Agreement"), pursuant to
which, among other things, the Pledgor will borrow the amount
specified at the end of this Agreement from the Pledgee, which
loan will be evidenced by a note as described in the Purchase and
Loan Agreement (the "Note"). The Pledgor is contemporaneously
purchasing an Executive Convertible Subordinated Debenture in the
aggregate principal amount specified at the end of this Agreement
(the Debenture and the Common Stock into which it is convertible
are hereinafter referred to as the "Securities"). To secure the
Obligations (hereinafter defined) under the Purchase and Loan
Agreement and the Note, the Pledgor desires to pledge the
Securities to the Pledgee.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and to induce the Pledgee to execute
and deliver the Purchase and Loan Agreement, it is agreed as
follows:
1. The Pledgor hereby pledges and grants to the Pledgee a
security interest in the Securities and the certificates
representing the Securities, and all dividends, cash, instruments
and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all
of the Securities (the "Pledged Collateral") to secure the
payment of all obligations of the Pledgor to the Pledgee now or
hereafter existing under the Purchase and Loan Agreement and the
Note (such obligations being hereinafter referred to as the
"Obligations").
<PAGE> 51
2. All certificates or instruments representing or
evidencing the Pledged Collateral shall be delivered to and held
by or on behalf of the Pledgee pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied
by duly executed but undated stock powers or other instruments of
transfer or assignment, in blank, all in form and substance
reasonably satisfactory to the Pledgee. After an Event of
Default (as defined in paragraph 8 hereof) shall have occurred
and be continuing, the Pledgee shall have the right, at any time
in its discretion and without notice to the Pledgor, to transfer
to or to register in the name of the Pledgee or any of its
nominees any or all of the Pledged Collateral, subject only to
the rights specified in paragraph 4(a).
3. The Pledgor agrees that at any time and from time to
time, the Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action (other
than the payment of money), that may be reasonably necessary or
desirable, or that the Pledgee may reasonably request, in order
to perfect and protect any security interest granted hereby or to
enable the Pledgee to exercise and enforce its rights and
remedies hereunder with respect to any Pledged Collateral.
4. (a) So long as no Event of Default shall have occurred
and be continuing and except as may be otherwise provided in the
Purchase and Loan Agreement:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights and shall be entitled to all
other incidents of ownership pertaining to the Pledged Collateral
or any part thereof for any purpose not inconsistent with the
terms of this Agreement, the Purchase and Loan Agreement and the
Note.
(ii) The Pledgor shall be entitled to receive and retain any
and all interest or cash dividends, as the case may be, paid in
respect of the Pledged Collateral, provided, however, that any
and all
(A) interest or dividends paid or payable
other than in cash in respect of, and
instruments and other property received,
receivable or otherwise distributed in
<PAGE> 52
respect of, or in exchange for, any Pledged
Collateral,
(B) interest or dividends and other
distributions paid or payable in cash in
respect of any Pledged Collateral, and
(C) cash paid, payable or otherwise
distributed in respect of the principal
of, or in redemption of, or in exchange for,
any Pledged Collateral, shall, to the extent
of such cash, be paid to the Pledgee to pay
interest then or thereafter payable under or
pursuant to the Note, and otherwise shall be,
and shall forthwith be delivered to the
Pledgee to hold as Pledged Collateral and
shall, if received by the Pledgor, be
received in trust for the benefit of the
Pledgee, be segregated from the other
property or funds of the Pledgor, and be
forthwith delivered to the Pledgee as Pledged
Collateral in the same form as so received
(with any necessary endorsement).
(b) Upon the occurrence and during the continuance of
an Event of Default, all rights of the Pledgor to exercise the
voting and other consensual rights which it would otherwise be
entitled to exercise pursuant to Section 4(a)(i) shall cease, and
all such rights shall thereupon become vested in the Pledgee who
shall thereupon have the sole right to exercise such voting and
other consensual rights.
5. The Pledgor agrees not to (i) sell, transfer, or
otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral, or (ii) create or permit to exist any
lien, security interest, or other charge or encumbrance upon or
with respect to any of the Pledged Collateral, in each such case
except for the security interest under this Agreement.
6. The Pledgor hereby appoints the Pledgee, and any
officer or agent of Pledgee, with full power of substitution, the
Pledgor's attorney-in-fact, with full authority in the place and
stead of the Pledgor and in the name of the Pledgor, upon the
<PAGE> 53
occurrence and during the continuance of an Event of Default to
ask for, demand, collect, receive and give acquittance for any
and all moneys due or to become due under and by virtue of any
Pledged Collateral, to endorse checks, drafts, orders and other
instruments for the payment of money payable to the Pledgor
representing any interest or dividend, or other distribution
payable in respect of the Pledged Collateral or any part thereof
or on account thereof and to give full discharge for the same, to
settle, compromise, prosecute or defend any action, claim or
proceedings with respect thereto, to sell, assign, endorse,
pledge, transfer and make any agreement respecting, or otherwise
deal with, the same and to take any other action and to execute
any instrument which the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement. The appointment
hereby is irrevocable and coupled with an interest.
7. This Agreement shall create a continuing security
interest in the Pledged Collateral and shall (a) remain in full
force and effect until payment in full of the Obligations, and(b)
be binding upon the Pledgor and his or her respective
personal representatives, successors and assigns. Upon the
payment in full of the Obligations, the Pledgor shall be entitled
to the return of such of the Pledged Collateral as shall not have
been sold or otherwise applied pursuant to the terms hereof.
8. In the event of a default as defined in the Note (an
"Event of Default"), the Pledgee may sell (subject to any
applicable securities laws) the Pledged Collateral, or any part
thereof, at public or private sale for cash, upon credit or for
future delivery as the Pledgee shall deem appropriate.
At any sale made pursuant to this Section, Pledgee may bid
for or purchase, free (to the extent permitted by law) from any
right of redemption, stay or appraisal on the part of the Pledgor
(all said rights being also hereby waived and released to the
extent permitted by law), the Pledged Collateral or any part
thereof offered for sale and may make payment on account thereof
by using any claim then due and payable to Pledgee from the
Pledgor as a credit against the purchase price, and Pledgee may,
upon compliance with the terms of sale, hold, retain and dispose
of such property without further accountability to the Pledgor
therefor. Notwithstanding the foregoing, in the event the
Pledgee is the purchaser of the Pledged Collateral, the Pledgee
<PAGE> 54
shall purchase the Debenture at a price equal to the outstanding
aggregate principal amount of the Debenture, plus any accrued but
unpaid interest thereon.
9. No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Pledgor herefrom,
shall in any event be effective unless the same shall be in
writing and signed by the Pledgee, and then such waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given.
10. All notices and other communications provided for
hereunder shall be in writing (including telegraphic
communication) and, if to the Pledgor, mailed or telegraphed or
delivered to him or her, at the address last given, to Pledgee by
Pledgor in writing, and if to the Pledgee, mailed or delivered to
it, addressed Legg Mason, Inc., Attn: General Counsel, 111 South
Calvert Street, Baltimore, Maryland 21202; or as to each party at
such other address as shall be designated by such party in a
written notice to each other party complying as to delivery with
the terms of this Section. All such notices and other
communications shall, when mailed or telegraphed, respectively,
be effective when received.
11. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland, other than
the conflicts of laws provisions thereof. Unless otherwise
defined herein or in the Note, terms defined in Article 9 of the
Uniform Commercial Code in the State of Maryland, other than the
conflicts of laws provisions thereof are used herein as therein
defined.
12. If any provision hereof is or shall at any time be
invalid and unenforceable in any jurisdiction then, to the
fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Pledgee in order to
carry out the intentions of the parties hereto as nearly as may
be possible; and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the
validity or enforceability of such provision in any other
jurisdiction.
<PAGE> 55
IN WITNESS WHEREOF, the Pledgor and Pledgee have caused this
Agreement to be duly executed, under seal, and delivered as of
the date first above written.
WITNESS: Robert A. Frank, Pledgor
/s/ MaryBeth Metz /s/ Robert A. Frank
ATTEST: Legg Mason, Inc., Pledgee
/s/ F. James Tennies By: /s/ Theodore S. Kaplan
F. James Tennies Theodore S. Kaplan
Assistant Secretary Senior Vice President
Aggregate Principal Amount of Note: $535,000
Aggregate Principal Amount of Debenture: $535,000
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
For The Three Months Ended December 31,
1996 1995
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common stock 18,140 18,140 15,312 15,312
Shares available under
options 835 926 621 621
Issuable upon conversion
of debentures - 18 - 2,636
------- ------- ------- -------
Weighted average common
and common equivalent
shares outstanding 18,975 19,084 15,933 18,569
======= ======= ======= =======
Net earnings $15,300 $15,300 $ 8,317 $ 8,317
Interest expense, net,
on debentures - 5 - 428
------- ------- ------- -------
Net earnings applicable
to common stock $15,300 $15,305 $ 8,317 $ 8,745
======= ======= ======= =======
Per share $ .81 $ .80 $ .52 $ .47
======= ======= ======= =======
</TABLE>
-56-
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
For The Nine Months Ended December 31,
1996 1995
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Weighted average shares
outstanding:
Common stock 16,921 16,921 14,461 14,461
Shares available under
options 713 910 590 593
Issuable upon conversion
of debentures - 1,168 - 3,431
------- ------- ------- -------
Weighted average common
and common equivalent
shares outstanding 17,634 18,999 15,051 18,485
======= ======= ======= =======
Net earnings $42,096 $42,096 $25,374 $25,374
Interest expense, net,
on debentures - 149 - 1,527
------- ------- ------- -------
Net earnings applicable
to common stock $42,096 $42,245 $25,374 $26,901
======= ======= ======= =======
Per share $ 2.39 $ 2.22 $ 1.69 $ 1.46
======= ======= ======= =======
</TABLE>
-57-
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000704051
<NAME> LEGG MASON, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> $236,512,000
<RECEIVABLES> $502,667,000
<SECURITIES-RESALE> $196,311,000
<SECURITIES-BORROWED> $206,355,000
<INSTRUMENTS-OWNED> $67,174,000
<PP&E> $28,909,000
<TOTAL-ASSETS> $1,867,436,000
<SHORT-TERM> $68,747,000
<PAYABLES> $964,966,000
<REPOS-SOLD> $0
<SECURITIES-LOANED> $191,581,000
<INSTRUMENTS-SOLD> $17,888,000
<LONG-TERM> $99,569,000
$0
$0
<COMMON> $1,820,000
<OTHER-SE> $403,757,000
<TOTAL-LIABILITY-AND-EQUITY> $1,867,436,000
<TRADING-REVENUE> $52,823,000
<INTEREST-DIVIDENDS> $59,392,000
<COMMISSIONS> $138,375,000
<INVESTMENT-BANKING-REVENUES> $54,698,000
<FEE-REVENUE> $132,054,000
<INTEREST-EXPENSE> $29,794,000
<COMPENSATION> $260,776,000
<INCOME-PRETAX> $70,661,000
<INCOME-PRE-EXTRAORDINARY> $70,661,000
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $42,096,000
<EPS-PRIMARY> $2.39
<EPS-DILUTED> $2.22
</TABLE>
