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, 1998
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.)
100 Light Street - Baltimore, MD 21202
(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.
56,237,949 shares of common stock as of the close of business on
February 2, 1999.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands of dollars)
December 31, March 31,
1998 1998
(Unaudited)
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ASSETS:
Cash and cash equivalents..................$ 263,564 $ 206,245
Cash and securities segregated for
regulatory purposes....................... 1,259,438 921,606
Resale agreements.......................... 230,884 175,623
Receivable from customers.................. 858,314 713,391
Securities borrowed........................ 169,106 448,453
Securities inventory, at market value...... 126,904 81,457
Investment securities, at market value..... 27,590 30,853
Equipment and leasehold improvements, net.. 54,201 51,991
Intangible assets, net..................... 57,508 61,304
Other...................................... 173,192 141,406
$3,220,701 $2,832,329
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to customers.......................$2,111,772 $1,562,997
Payable to brokers and dealers............. 8,022 5,284
Securities loaned.......................... 172,070 453,030
Short-term borrowings...................... 55,581 13,880
Securities sold, but not yet purchased,
at market value........................... 6,646 14,132
Accrued compensation....................... 107,808 97,912
Other...................................... 93,264 85,371
Senior notes............................... 99,664 99,628
$2,654,827 $2,332,234
Stockholders' equity:
Common stock............................... 5,617 2,753
Additional paid-in capital................. 213,900 203,133
Employee stock transactions................ (5,631) --
Retained earnings.......................... 351,875 293,263
Accumulated other comprehensive income, net 113 946
565,874 500,095
$3,220,701 $2,832,329
See notes to condensed consolidated financial statements.
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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,
1998 1997 1998 1997
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Revenues:
Investment advisory and related fees $ 95,389 $ 76,704 $279,110 $210,643
Commissions......................... 70,212 60,847 201,129 176,326
Principal transactions.............. 23,169 19,989 67,623 62,879
Investment banking.................. 20,061 33,313 57,240 73,466
Interest............................ 39,243 33,776 119,387 91,153
Other............................... 12,440 10,583 32,371 28,248
260,514 235,212 756,860 642,715
Expenses:
Compensation and benefits........... 146,967 142,231 422,252 374,948
Occupancy and equipment rental...... 16,498 14,401 47,338 40,682
Communications...................... 10,868 10,369 35,461 30,534
Floor brokerage and clearing fees... 1,652 1,346 4,914 4,031
Interest............................ 23,324 19,348 70,929 51,953
Other............................... 22,759 18,907 59,908 51,351
222,068 206,602 640,802 553,499
Earnings Before Income Taxes ........ 38,446 28,610 116,058 89,216
Income taxes........................ 15,622 11,574 47,170 36,616
Net Earnings ........................ $ 22,824 $ 17,036 $ 68,888 $ 52,600
Earnings per common share:
Basic............................... $ .41 $ .31 $ 1.24 $ .97
Diluted............................. $ .39 $ .29 $ 1.17 $ .91
Average number of common shares
outstanding:
Basic.............................. 55,841 54,596 55,494 54,269
Diluted............................ 58,863 58,402 58,874 57,747
Dividends declared per common share.. $ .065 $ .055 $ .185 $ .159
Book value per common share.......... $ 10.07 $ 8.72 $ 10.07 $ 8.72
See notes to condensed consolidated financial statements.
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LEGG MASON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(Unaudited)
Nine Months Ended
December 31,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................... $ 68,888 $ 52,600
Noncash items included in earnings:
Depreciation and amortization................. 15,653 14,846
Adjustment for pooled entity.................. -- (1,058)
Adjustment to conform fiscal year of pooled
entity......................................... -- 920
(Increase) decrease in assets:
Cash and securities segregated for regulatory
purposes....................................... (337,832) (170,876)
Receivable from customers....................... (144,923) (229,743)
Securities borrowed............................. 279,347 (134,829)
Securities owned................................ (45,447) (38,024)
Other........................................... (31,786) 13,687
Increase (decrease) in liabilities:
Payable to customers............................ 548,775 459,191
Payable to brokers and dealers.................. 2,738 5,156
Securities loaned............................... (280,960) 107,353
Securities sold, but not yet purchased.......... (7,486) 3,663
Accrued compensation............................ 9,896 33,209
Other........................................... 5,532 11,463
CASH PROVIDED BY OPERATING ACTIVITIES............ 82,395 127,558
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Equipment and leasehold improvements........... (13,385) (23,644)
Intangible assets.............................. (566) (2,646)
Net increase in resale agreements................ (55,261) (79,168)
Purchases of investment securities............... (37,510) (135,741)
Proceeds from maturities and sales of
investment securities.......................... 41,645 134,455
CASH USED FOR INVESTING ACTIVITIES............... (65,077) (106,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings............ 41,701 67,519
Issuance of common stock......................... 7,984 7,897
Dividends paid................................... (9,684) (7,472)
CASH PROVIDED BY FINANCING ACTIVITIES............ 40,001 67,944
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 57,319 88,758
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 206,245 151,188
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $263,564 $239,946
See notes to condensed consolidated financial statements
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LEGG MASON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
December 31, 1998
(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. Comprehensive Income:
In April 1998, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires reporting of comprehensive income for
all gains and losses that result from transactions not included in net
earnings. The components of comprehensive income are as follows:
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Three Months Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
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Net earnings........................ $22,824 $17,036 $68,888 $52,600
Other comprehensive income:
Net unrealized holding gains(losses)
arising during the period........ 413 2 (1,316) 320
Deferred income taxes............... (188) (3) 483 (129)
Total other comprehensive income. 225 (1) (833) 191
Comprehensive income................ $23,049 $17,035 $68,055 $52,791
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3. 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, 1998, the
broker-dealer subsidiaries had aggregate net capital, as defined, of
$223,859 which exceeded required net capital by $205,618.
4. 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.
5. Employee Stock Transactions:
In December 1998, the Company granted a restricted stock award to a
key employee; the award is subject to vesting in equal installments over a
four-year period and will be expensed over the vesting period. In
addition, in December 1998 the Company granted a $3.4 million loan to a key
employee to purchase shares of the Company's common stock. Both amounts
are shown as reductions to stockholders' equity until the restricted stock
is vested and the loan is no longer outstanding.
6. Recent Accounting Development:
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" effective for all fiscal periods beginning after June 15, 1999.
Statement No. 133 establishes standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial condition and
measure those instruments at fair value. The impact of adoption of
Statement No. 133 will not have a material effect on the Company's
financial statements.
7. Common Stock Split:
On July 23, 1998 the Company declared a two-for-one stock split, paid
September 25, 1998 to shareholders of record on September 9, 1998.
Accordingly, all share and per share information has been retroactively
restated to reflect the stock split.
<Page 7>
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
RESULTS OF OPERATIONS
During its third fiscal quarter and the nine months ended December 31,
1998, Legg Mason, Inc. and its subsidiaries (the "Company") showed
increased revenues, net earnings, and earnings per share. The Company's
growth was fueled by increased assets under management and higher
transaction volume, in volatile market conditions.
The Company's profitability may vary significantly from period to period as
a result of a variety of factors, including the volume of trading in
securities, the volatility and general level of market prices, and the
demand for investment banking and mortgage banking services. Accordingly,
sustained periods of unfavorable market conditions may adversely affect
profitability.
Quarter Ended December 31, 1998 Compared to Quarter Ended December 31, 1997
In the third fiscal quarter ended December 31, 1998, the Company's net
earnings increased 34% to $22.8 million from $17.0 million in the
corresponding quarter of the prior year. Revenues rose 11% to $260.5
million from $235.2 million. Basic earnings per share increased 32% to
$.41 from $.31. Diluted earnings per share increased 34%, to $.39 from
$.29.
Revenues from investment advisory and related fees increased to a record
$95.4 million, up 24% from $76.7 million in the prior year. The increase
is primarily a result of growth in assets under management in Company-
sponsored mutual funds and fixed-income investment advisory accounts. At
December 31, 1998, Legg Mason subsidiaries served as investment advisors to
individuals, institutions and mutual funds with assets of $82 billion, up
from $55 billion at December 31, 1997. Commission revenues were $70.2
million, up 15% from $60.8 million in the prior year's quarter, reflecting
an increase in securities transaction volume. Revenues from principal
transactions were $23.2 million, up 16% from $20.0 million in the prior
year's quarter, primarily as a result of higher fixed-income revenues.
Interest revenue increased 16% to $39.2 million as a result of increased
Firm investment (predominately funds segregated for regulatory purposes)
and margin loan balances, partially offset by lower interest rates.
Investment banking revenues were $20.0 million, a decline of 40% from $33.3
million in the corresponding period of last year. The decrease is
primarily attributable to a decline in revenues from public offerings,
particularly offerings of real estate investment trusts. Other revenues
were $12.4 million, an 18% increase from the prior year's quarter, as a
result of gains on Firm investment securities.
<Page 8>
The Company's compensation and benefits totaled $147.0 million, up 3% from
$142.2 in the corresponding quarter of the prior year. This rate of
increase reflects the inclusion of approximately $6.3 million of additional
compensation expense in the third quarter of the prior year, reflecting
costs of the Company's Brandywine Asset Management subsidiary in connection
with its acquisition by the Company in January 1998. Without these
expenses, the Company's compensation expense would have increased 8% over
the prior year as a result of an increase in the number of full-time
employees and higher commission expense attributable to increased
transaction volume. Occupancy and equipment rental expense totaled $16.5
million, up 15% from $14.4 million in the prior year's quarter as a result
of increased investments in technology and higher rent at new and existing
branch office locations. Communications expense rose 5% to $10.9 million,
principally as a result of increased business activity. Interest expense
increased 21% to $23.3 million as a result of increased interest-bearing
customer account balances, which were partially offset by lower interest
rates. Floor brokerage and clearing fees increased 23% to $1.7 million,
reflecting an increase in securities transaction volume. Other expenses
increased 20% to $22.8 million, primarily reflecting higher business
volume. Income taxes rose 35% to $15.6 million in line with the increase
in pre-tax earnings.
Nine Months Ended December 31, 1998 Compared to Nine Months Ended December
31, 1997
The Company's revenues were $756.9 million, an 18% increase from $642.7
million in the corresponding period of the prior year. Net earnings rose
31% to $68.9 million from $52.6 million. Basic earnings per share
increased 28% to $1.24 from $.97. Diluted earnings per share increased 29%
to $1.17 from $.91.
Revenues from investment advisory and related fees increased to $279.1
million, up 33% from $210.6 million in the corresponding period of the
prior year. The increase is primarily a result of growth in assets under
management in Company-sponsored mutual funds and fixed-income investment
advisory accounts. Commission revenues were $201.1 million, up 14% from
$176.3 million in the prior year's period, reflecting an increase in
securities transaction volume. Revenues from principal transactions were
$67.6 million, up 8% from the prior year, primarily as a result of higher
fixed-income revenues. Interest revenue increased 31% to $119.4 million as
a result of increased Firm investment (predominantly funds segregated for
regulatory purposes) and margin loan balances, partially offset by lower
interest rates. Investment banking revenues were $57.2 million, a decline
of 22% from $73.5 million. The decrease is primarily attributable to a
decline in revenues from public offerings of equity securities,
particularly offerings of real estate investment trusts. Other revenues
were $32.4 million, a 15% increase from $28.2 million due to an increase in
loan originations by the Company's mortgage banking subsidiaries and gains
on Firm investment securities.
<Page 9>
Compensation and benefits totaled $422.3 million, up 13% from $374.9
million in the corresponding period of the prior year. This rate of
increase reflects the inclusion of approximately $6.3 million of additional
compensation expense in the third quarter of the prior year, reflecting
costs of the Company's Brandywine Asset Management subsidiary in connection
with its acquisition by the Company in January 1998. Without these
expenses, the Company's compensation expense would have increased 15% over
the prior year's period as a result of an increase in the number of full-
time employees and increased commission expense attributable to increased
transaction volume. Occupancy and equipment rental expense totaled $47.3
million, up 16% from $40.7 million as a result of the relocation of the
Company's corporate headquarters to a larger facility, increased
investments in technology and higher rent at branch office locations.
Communications expense rose 16% to $35.5 million, principally as a result
of increased business activity. Interest expense increased 37% to $70.9
million as a result of increased interest-bearing customer account
balances, which were partially offset by lower interest rates. Floor
brokerage and clearing fees increased 22% to $4.9 million, reflecting an
increase in securities transaction volume. Other expenses increased 17% to
$59.9 million, primarily reflecting higher business volume. Income taxes
rose 29% to $47.2 million in line with the increase in pre-tax earnings.
Liquidity and Capital Resources
There has been no material change in the Company's financial position since
March 31, 1998. A substantial portion of the Company's assets is liquid,
consisting mainly of cash and assets readily convertible into cash. These
assets are financed principally by free credit balances, equity capital,
senior notes, bank lines of credit and other payables.
During the nine months ended December 31, 1998, cash and cash equivalents
increased $57.3 million. Cash flows from operating activities provided
$82.4 million, attributable to net earnings, adjusted for depreciation and
amortization. Cash flows from financing activities provided $40.0 million
as a result of increased levels of short-term borrowings by the Company's
mortgage banking affiliates. Investing activities used $65.1 million,
principally as a result of an increase in fundings of resale agreements and
purchases of equipment and leasehold improvements.
Year 2000
The Year 2000 issue affects the ability of computer systems to correctly
process dates after December 31, 1999. The Company has substantially
completed the inventory and assessment phases of its Year 2000 project plan
through an evaluation of its internal and third party software, as well as
its service providers' computer systems, to determine their ability to
accurately process in the next millennium. The Company has also assessed
the Year 2000 status of its non-information technology systems and
equipment which may contain embedded hardware or software.
<Page 10>
Having substantially identified and assessed those computer systems,
processes and equipment that require modification, the Company is currently
in the remediation and testing phases of its project plan and is utilizing
both internal and external resources to make the necessary modifications.
The Company has completed the remediation of its key internal applications
systems. In addition to internal testing, the Company is actively
participating in systems testing among securities brokerage firms,
securities exchanges, clearing organizations, and other vendors. These
industry-wide tests will continue throughout 1999, as necessary.
In November 1997, the Company converted its securities brokerage processing
system to a vendor that is the principal service provider of this type to
the securities brokerage industry. The vendor has confirmed to the Company
that it has substantially completed the necessary coding modifications and
that its testing plan is on schedule with expected completion during the
second quarter of 1999. The Company has received similar confirmation for
its proprietary mutual funds from the vendors to the Company that are the
principal service providers to the mutual fund industry.
The Company is also continuing to communicate with its remaining vendors
and other third parties, including its landlords and utility suppliers, to
determine the likely extent to which the Company may be affected by third
parties' Year 2000 plans and target dates. The Company expects its
critical third party vendors to demonstrate or provide assurances of their
Year 2000 compliance by the end of the second quarter of 1999.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. While the Company does not have a current expectation of any
material loss as a result of the Year 2000 issue, there can be no assurance
that the Company's internal systems or the systems of external parties on
which the Company relies will be remediated on a timely basis, or that a
failure to remediate by another party, or a remediation or conversion that
is incompatible with the Company's systems, would not have a material
adverse effect on the Company. The Company is currently developing
contingency plans in the event that external parties fail to achieve their
Year 2000 plans and target dates and expects to finalize its contingency
plans by the end of the first quarter of 1999. There can be no assurance
that any such contingency plans will fully mitigate the effects of any such
failure.
Based on information currently available, including information provided by
third party vendors, the Company expects its aggregate expenditures for its
Year 2000 project plan to be approximately $2.0 million, of which an
estimated $.9 million has been incurred as of December 31, 1998. A
significant portion of these costs will not be incremental costs to the
Company, but rather will represent the redeployment of existing information
technology and operations resources, primarily to test the remediation
efforts of the Company's third party vendors. The Company expects to fund
all Year 2000 related costs through operating cash flows and a reallocation
of the Company's overall information technology developmental spending. In
accordance with generally accepted accounting principles, Year 2000
expenditures will be expensed as incurred. The costs of the Company's Year
2000 project and the date on which the Company plans to complete the Year
<Page 11>
2000 modifications are based on management's best current estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party compliance plans
and other factors. However, there can be no assurance that these estimates
will prove correct and actual results could differ materially from those
plans.
Forward-Looking Statements
The Company has made in this report, and from time to time may otherwise
make in its public filings, press releases and statements by Company
management, "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 concerning the Company's
operations, economic performance and financial condition. The words or
phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project" and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are
subject to various known and unknown risks and uncertainties and the
Company cautions readers that any forward-looking information provided by
or on behalf of the Company is not a guarantee of future performance.
Actual results could differ materially from those anticipated in such
forward-looking statements due to a number of factors, some of which are
beyond the Company's control, in addition to those discussed elsewhere
herein and in the Company's other public filings, press releases and
statements by Company management, including (i) the volatile and
competitive nature of the securities business, (ii) changes in domestic and
foreign economic and market conditions, (iii) the effect of federal, state
and foreign regulation on the Company's business, (iv) market, credit and
liquidity risks associated with the Company's underwriting, securities
trading, market-making and investment management activities, (v) failure of
the Company, its vendors or other third parties to achieve Year 2000
compliance or Euro conversion, (vi) impairment of acquired client
contracts, (vii) potential restrictions on the business of, and withdrawal
of capital from, certain subsidiaries of the Company due to net capital
requirements, (viii) potential liability under federal and state securities
laws and (ix) the effect of any future acquisitions. Due to such risks,
uncertainties and other factors, the Company cautions each person receiving
such forward-looking information not to place undue reliance on such
statements. All such forward-looking statements are current only as of the
date on which such statements were made. The Company does not undertake
any obligation to publicly update any forward-looking statement to reflect
events or circumstances after the date on which any such statement is made
or to reflect the occurrence of unanticipated events.
<Page 12>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1998, the United States District Court for
the Southern District of New York approved a settlement in the
litigation captioned In re: Nasdaq Market-Makers Antitrust
Litigation in which Legg Mason Wood Walker, Incorporated, the
Company's principal broker-dealer subsidiary ("Legg Mason Wood
Walker"), together with other defendants in the litigation have
agreed to pay an aggregate $1.027 billion to the plaintiffs in
such litigation. Legg Mason Wood Walker's share of the total
settlement amount was approximately $2.8 million.
In January 1999, the Securities and Exchange Commission
("SEC") issued an order accepting Legg Mason Wood Walker's offer
of settlement to certain related public administrative
proceedings, which imposed sanctions on Legg Mason Wood Walker,
including a $425,000 civil penalty, in connection with Legg Mason
Wood Walker's activities as a market-maker in certain securities
quoted on The Nasdaq Stock Market.
These two settlements terminated Legg Mason Wood
Walker's involvement in and liability for the In re: Nasdaq
Market-Makers Antitrust Litigation and related SEC investigation.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation of the
Company, as amended (incorporated by
reference to Form 10-Q for the
quarter ended September 30, 1996)
3.2 By-laws of the Company as
amended and restated April 25, 1988
(incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1988)
10.1 Executive Stock Purchase and Loan
Agreement between Legg Mason,
Inc. and an Executive Officer of
Legg Mason, Inc., dated as of
December 8, 1998
<Page 13>
10.2 Restricted Stock Agreement
between Legg Mason, Inc. and an
Executive Officer of Legg Mason,
Inc., dated as of December
8,1998
10.3 Promissory Note of Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998
10.4 Pledge Agreement by and between
Legg Mason, Inc. and an Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998
11. Statement re: computation of
earnings per share
27. Statement re: financial data
schedule
(b) No reports on Form 8-K were filed
during the quarter ended December 31,
1998.
<Page 14>
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: 2/12/99 /s/Timothy C. Scheve
Timothy C. Scheve
Executive Vice President
DATE: 2/12/99 /s/Beverly L. Wright
Beverly L. Wright
Principal Accounting Officer
<Page 15>
INDEX TO EXHIBITS
3.1 Articles of Incorporation of the
Company, as amended (incorporated by
reference to Form 10-Q for the
quarter ended September 30, 1996)
3.2 By-laws of the Company as
amended and restated April 25, 1988
(incorporated by reference to the
Company's Annual Report on Form 10-K for
the year ended March 31, 1988)
10.1 Executive Stock Purchase and Loan
Agreement between Legg Mason,
Inc. and an Executive Officer of
Legg Mason, Inc., dated as of
December 8, 1998
10.2 Restricted Stock Agreement
between Legg Mason, Inc. and an
Executive Officer of Legg Mason,
Inc., dated as of December
8,1998
10.3 Promissory Note of Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998
10.4 Pledge Agreement by and between
Legg Mason, Inc. and an Executive
Officer of Legg Mason, Inc.,
dated as of December 8, 1998
11. Statement re: computation of
earnings per share
27. Statement re: financial data
schedule
EXECUTIVE STOCK PURCHASE AND LOAN AGREEMENT
THIS AGREEMENT, made as of the 8th day of December, 1998
(the "Agreement"), by and between Raymond A. Mason ("Mr. Mason") and Legg
Mason, Inc., a Maryland corporation (the "Company").
RECITALS
Mr. Mason is the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company. In recognition of his
service and value to the Company and pursuant to the Legg Mason, Inc. 1996
Equity Incentive Plan (the "Plan"), the Company wishes to sell to Mr. Mason
on the terms and conditions set forth herein 120,000 shares (the "Shares")
of Common Stock, par value $.10 per share, of the Company (the "Common
Stock'). Mr. Mason wishes to purchase the Shares and to borrow certain
funds from the Company in order to purchase the Shares. 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 Mr. Mason and that the advance of the funds so requested for the purpose
of purchasing the Shares will provide an important incentive to, and assist
in the retention of, Mr. Mason. 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 Mr. Mason, and Mr. Mason
hereby purchases from the Company, at an aggregate price of $3,378,750, one
hundred twenty thousand (120,000) shares of Common Stock at $28.15625 per
share.
2. The Company hereby agrees to lend to Mr. Mason, and Mr.
Mason hereby agrees to borrow from the Company $3,378,750 (the "Loan"). The
Loan shall be evidenced by a Note in the form attached hereto as Exhibit A.
The Note shall be secured by a Pledge Agreement in the form attached hereto
as Exhibit B.
3. The Company represents and warrants to Mr. Mason that (i)
this Agreement has been duly authorized by the Committee pursuant to the
Plan and constitutes the legal, valid and enforceable obligation of the
Company and (ii) the Shares have been duly and validly authorized and, when
issued and delivered against payment therefore as provided herein, will be
duly and validly issued and fully paid and non-assessable.
4. Mr. Mason represents and warrants to the Company that the
Shares are being purchased for his own account for the purpose of investment
and with no view to the redistribution thereof. Mr. Mason further represents
and covenants that if in the future he decides to offer or dispose of any
Shares or interest therein, he will do so only in compliance with the
Securities Act of 1933, as amended, and all applicable state securities laws.
<Page 2>
5. The Committee will, following each fiscal year of the Company,
commencing with the fiscal year ending March 31, 2000, for which a cash
bonus has been authorized for payment to Mr. Mason pursuant to the Legg
Mason, Inc. Executive Incentive Compensation Plan, authorize the payment to
Mr. Mason under that plan of an additional bonus amount equal to 25% of the
original principal amount of the Loan (which additional bonus amount shall
be reduced to the extent that it, together with all other bonus amounts
awarded to Mr. Mason for the fiscal year under that plan, exceeds the
maximum bonus amount which the Committee has been authorized to award Mr.
Mason under that plan), provided that the payment of such additional bonus
amount shall be conditioned on Mr. Mason's application of such additional
bonus toward prepayment of the Loan and in no event will the Committee be
required to authorize the payment of any additional bonus amount that
exceeds the outstanding principal amount of the Loan.
6. All principal amounts of the Loan outstanding, together
with accrued interest thereon, shall be forgiven on the date on which (i) a
Change of Control (as defined below) occurs, or (ii) Mr. Mason's employment
with the Company is terminated (1) by the Company without Cause (as defined
below), (2) by reason of his death or (3) by reason of his permanent
disability (as defined in the Company's then applicable long-term disability
plan).
For purposes of this Agreement, a "Change of Control" shall
be deemed to have occurred at such time as (i) any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "1934 Act")) other than an affiliate of the Company on the
date hereof, becomes the beneficial owner (as defined in Rule 13d-3 of the
1934 Act), directly or indirectly, of securities of the Company or a
successor representing 50% or more of the combined voting power of the
Company's then outstanding securities having the ordinary right to elect
directors of the Company or (ii) the Company's stockholders shall have
approved any agreement providing for a merger in which the Company will not
remain an independent publicly owned company or a consolidation or sale or
other disposition of all or substantially all of the assets of the Company.
For purposes of this Agreement, the term "Cause" shall mean
Mr. Mason's intentional gross misconduct that is damaging to the Company in
a material way.
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 Mr. Mason shall, FOR ANY REASON, cease
to be employed by the Company or one of its subsidiaries or affiliates,
other than following the occurrence of any event specified in paragraph 5
above that results in the principal of the Loan being forgiven. In the
event of such a default that shall remain uncured after ten (10) days
written notice from the Company to Mr. Mason, the Company may declare all
unpaid 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.
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.
<Page 3>
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 Mr. Mason 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 Mr. Mason and his heirs, personal representatives and assigns.
This 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/ Robert F. Price
Name: Robert F. Price
Title: Senior Vice President
and General Counsel
Raymond A. Mason
/s/ Raymond A. Mason
LEGG MASON, INC.
1996 Equity Incentive Plan
RESTRICTED STOCK AGREEMENT
FOR
RAYMOND A. MASON
To: Raymond A. Mason
We are pleased to advise you that Legg Mason, Inc. (the "Company")
hereby grants to you (the "Participant"), subject to your acceptance, which
shall be indicated by your execution of this Agreement below, pursuant to
the Legg Mason, Inc. 1996 Equity Incentive Plan (the "Plan"), a restricted
stock award (the "Award") of 80,000 shares of the Company's Common Stock,
$.10 par value per share (the "Shares"), upon and subject to the
restrictions, terms and conditions set forth below. The date of grant of
the Award provided hereby (the "Grant Date") shall for all purposes be
December 8, 1998.
This Award is subject in all respects to the applicable provisions
of the Plan, a complete copy of which has been furnished to you and receipt
of which you acknowledge by acceptance of this Award. Such provisions are
incorporated herein by reference and made a part hereof. Capitalized terms
not defined herein that are defined in the Plan shall have the meanings
specified in the Plan.
In addition to the terms, conditions and restrictions set forth in
the Plan, all terms, conditions and restrictions set forth in this Agreement
are applicable to the Award granted hereby.
1. AWARD SUBJECT TO ACCEPTANCE OF AGREEMENT.
This Agreement shall be deemed withdrawn and become null and
void unless the Participant shall (a) accept this Agreement by executing it
in the space provided below and returning it to the Company and (b) execute
and return one or more irrevocable stock powers to facilitate the transfer
to the Company (or its assignee or nominee) of any Shares subject to this
Award, if such Shares are forfeited pursuant to Section 4 hereof or if
required under applicable laws or regulations. Promptly after the
Participant has executed this Agreement and such stock power or powers and
returned the same to the Company, the Company shall cause to be issued in
the Participant's name a stock certificate or certificates representing the
number of Shares subject to this Award.
2. RIGHTS AS A STOCKHOLDER.
Commencing on the Grant Date, the Participant shall have the right
to vote the Shares subject to this Award and to receive dividends and other
distributions thereon unless
<Page 2>
and until such shares are forfeited pursuant to
Section 4 hereof; provided, however, that a dividend or other distribution
(including, without limitation, a stock dividend or stock split), other than
a cash dividend or distribution, shall be delivered to the Company (and, if
applicable, the Participant shall execute and return one or more irrevocable
stock powers related thereto) and shall be subject to the same vesting
schedule and other restrictions as the Shares with respect to which such
dividend or other distribution was made. In connection with the payment of
such dividends or other distributions, the Company may deduct any taxes or
other amounts required by any governmental authority to be withheld and paid
over to such authority for the account of Participant. The Participant
shall be entitled to retain cash dividends and distributions received
regardless of whether the Shares with respect to which such dividends or
distributions were made are subsequently forfeited pursuant to Section 4
hereof. Notwithstanding anything to the contrary, prior to the date on
which the Shares subject to this Award vest pursuant to Section 4 hereof,
such Shares shall be subject to the restrictions on transferability
contained in Section 6.1 hereof.
3. CUSTODY AND DELIVERY OF SHARES.
The Company shall hold the certificate or certificates
representing the Shares subject to this Award (and any related property
received under Section 2 hereof) until such Shares have vested pursuant to
Section 4 hereof, and the Company shall promptly thereafter deliver the
certificate or certificates representing vested Shares (together with any
related property received under Section 2 hereof) to the Participant (or his
legal representative, beneficiary or heir); provided that the Company shall
have no obligation to deliver share certificates to the Participant until
the Participant has paid or caused to be paid all taxes required to be
withheld pursuant to Section 6.5 hereof or the Plan. Share certificates
representing vested Shares will not contain the legend provided for in
Section 6.1 hereof. The Company will pay all original issue or transfer
taxes and all fees and expenses incident to the delivery of any certificates
hereunder. Upon the vesting of all Shares subject to this Award pursuant to
Section 4 hereof, the Company will destroy the stock power or powers
referred to in Section 1 hereof.
4. VESTING AND FORFEITURE.
(a) Except as otherwise provided in the Plan or this
Agreement, the Shares subject to this Award shall vest, shall become
transferable and shall cease to be subject to forfeiture (to "vest") in
accordance with the following schedule: twenty-five percent (25%) of the
Shares subject to this Award (20,000 shares) shall vest on each of December
8, 1999, December 8, 2000, December 8, 2001 and December 8, 2002.
(b) All restrictions upon all Shares subject to this
Award shall lapse, and all such Shares shall immediately vest upon the
earliest to occur of any of the following events:
(1) a Change of Control (as defined below);
(2) the termination of Participant's employment
without Cause (as defined below) by the Company; or
<Page 3>
(3) the termination of Participant's employment
with the Company by reason of (i) his death or (ii)
his permanent disability (as defined in the Company's
then applicable long-term disability plan).
(c) In the event the Participant shall cease being
employed by the Company, for any reason, prior to the date on which all
Shares subject to this Award have vested pursuant to any of the preceding
paragraphs of this Section 4, this Award shall immediately terminate, on the
date on which Participant's employment terminates, with respect to all such
Shares that have not vested and all the Shares subject to this Award that
have not vested as of such date (together with any related property held by
the Company pursuant to Section 2 hereof) shall be forfeited to
the Company.
(d) For purposes of this Agreement:
(1) "Cause" shall mean Participant's intentional
gross misconduct that is damaging to the Company
in a material way.
(2) a "Change of Control" shall be deemed to
have occurred at such time as (i) any "person" (as
such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended
(the "1934 Act")) other than an affiliate of the
Company on the date hereof, becomes the beneficial
owner (as defined in Rule 13d-3 of the 1934 Act),
directly or indirectly, of securities of the Company
or a successor representing 50% or more of the
combined voting power of the Company's then
outstanding securities having the ordinary right to
elect directors of the Company or (ii) the Company's
stockholders shall have approved any agreement
providing for a merger in which the Company will not
remain an independent publicly owned company or a
consolidation or sale or other disposition of all or
substantially all of the assets of the Company.
5. TERMINATION OF AWARD.
In the event that the Participant shall forfeit any Shares
subject to this Award, the Participant shall, within ten (10) days of the
date of the Company's written request, return this Agreement to the Company
for cancellation.
6. ADDITIONAL TERMS AND CONDITIONS OF AWARD.
6.1. NONTRANSFERABILITY OF SHARES.
Prior to the date on which Shares subject to this Award vest
pursuant to Section 4 hereof, such Shares may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether
by operation of law or otherwise) or be subject to execution, attachment or
similar process. Any such attempted sale, transfer, assignment, pledge,
hypothecation or encumbrance, or other disposition of such Shares shall be
null and void. Each certificate issued in respect of Shares subject to this
Award shall bear the following legend, or any similar legend as may be
required by the Committee, until such Shares vest:
<Page 4>
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR
OTHERWISE DISPOSED OF (WHETHER BY OPERATION OF LAW OR OTHERWISE)
EXCEPT AS PERMITTED BY THE LEGG MASON, INC. 1996 EQUITY INCENTIVE PLAN
OR THE COMMITTEE WHICH ADMINISTERS THAT PLAN."
6.2. SECURITIES LAWS.
Participant hereby represents and covenants that if in the
future the Participant decides to offer or dispose of any Shares subject to
this Award or interest therein, the Participant will do so only in
compliance with this Agreement, the Securities Act of 1933, as amended, and
all applicable state securities laws. As a condition precedent to the
delivery to Participant of any Shares subject to this Award, Participant
shall comply with all regulations and requirements of any regulatory
authority having control of or supervision over the issuance of the Shares
and, in connection therewith, shall execute any documents and make any
representation and warranty to the Company which the Committee shall in its
sole discretion deem necessary or advisable.
6.3. ADJUSTMENT.
In the event that there occurs (a) any change in the number
of outstanding shares of Common Stock of the Company through the declaration
of dividends, stock splits or the like or through any change in the capital
account of the Company or any other transaction referred to in Section 424(a)
of the Code or (b) any other change in the capital structure or in the Common
Stock of the Company, then, if applicable, the number and class of shares
subject to this Award shall be adjusted as provided in the Plan. Any
decision of the Committee regarding the amount and timing of any adjustment
will be final and conclusive.
6.4. COMPLIANCE WITH APPLICABLE LAW.
This Award is subject to the condition that if the listing,
registration or qualification of the Shares subject to this Award upon any
securities exchange or under any law, or the consent or approval of any
governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery
of shares hereunder, the Shares subject to this Award may not be delivered,
in whole or in part, unless such listing, registration, qualification,
consent or approval shall have been effected or obtained. The Company agrees
to make every reasonable effort to effect or obtain any such listing,
registration, qualification, consent or approval.
6.5. WITHHOLDING; TAX MATTERS
(a) Participant will remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax
requirements, prior to the delivery of Shares pursuant to Section 3 hereof.
Participant may satisfy the withholding requirements in whole or in part by
electing to have the Company withhold from delivery vested Shares subject to
this Award having a value equal to the amount required to be withheld.
The value of the Shares to be withheld will be the fair market value, as
determined by the Committee, of the Shares on the date that the
<Page 5>
amount of
tax to be withheld is determined (the "Tax Date"). Such election, if made,
must be made prior to the Tax Date, must comply with all applicable
securities law and other legal requirements, as interpreted by the Committee,
and may not be made unless approved in advance by the Committee in its
discretion.
(b) If Participant makes the election provided under
Section 83(b) of the Code to be taxed currently on the value of any Shares
subject to this Award notwithstanding the restrictions placed upon such
Shares (the "Section 83(b) Election"), Participant will promptly notify the
Company, will complete, sign and return to the Company the Section 83(b)
Election Form which was distributed herewith and will remit to the Company
with such form in cash an amount sufficient to satisfy any federal, state or
local withholding tax requirements. Notwithstanding the foregoing, it is a
condition of this Award that the Participant not make a Section 83(b)
Election with respect to more than fifty percent (50%) of the Shares subject
to this Award (40,000 Shares).
(c) The Company reserves the right to make whatever
further arrangements it deems appropriate for the withholding of taxes in
connection with any transaction contemplated by this Agreement or the Plan,
including, without limitation, providing for payments of withholding taxes
by deducting amounts required to be withheld, plus interest thereon, from
payments of any kind by the Company or any of its subsidiaries to which
Participant would otherwise be entitled.
6.6. AWARD CONFERS NO RIGHTS TO CONTINUED EMPLOYMENT.
Nothing in the Plan or in this Agreement shall confer upon
the Participant any right to continue in the employ of the Company or any
subsidiary of the Company for a specified period of time or interfere with
the right of the Company and its subsidiaries to terminate such employment
at any time.
6.7. DECISIONS OF COMMITTEE.
The Committee shall have the right to resolve all questions
which may arise in connection with this Award. Any interpretation,
determination or other action made or taken by the Board of Directors of the
Company or the Committee regarding the Plan or this Agreement shall be final,
binding and conclusive.
7. MISCELLANEOUS PROVISIONS.
7.1. SUCCESSORS; ASSIGNMENTS AND TRANSFERS.
This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company and any person or
persons who shall, upon the death of the Participant, acquire any rights
hereunder. The rights and interests of Participant under this Agreement may
not be sold, assigned, encumbered or otherwise transferred except in the
event of death of Participant, by will or by the laws of descent and
distribution. This Agreement may be assigned by the Company without the
Participant's consent.
<Page 6>
7.2. NOTICES.
All notices, requests or other communications provided for
in this Agreement shall be made in writing either (a) by actual delivery to
the party entitled thereto, or (b) by mailing in the United States mails to
the address of the party entitled thereto as set forth below, via certified
or registered mail, return receipt requested. The notice shall be deemed to
be received in case of delivery, on the date of its actual receipt by the
party entitled thereto, and in case of mailing, five days following the date
of such mailing. Any notice mailed to the Company shall be addressed to the
General Counsel of the Company at 100 Light Street, Baltimore,
Maryland 21202. Any notice mailed to Participant shall be addressed to
Participant at Participant's address as reflected in the personnel records
of the Company. Either party hereto may designate a different address for
notices than the one provided herein by notice to the other.
7.3. GOVERNING LAW.
This Agreement shall be governed by, and interpreted in
accordance with, the internal laws of the State of Maryland (without regard
to conflicts of laws rules thereof).
7.4. COUNTERPARTS.
This Agreement may be executed in two counterparts each of
which shall be deemed an original and both of which together shall
constitute one and the same instrument.
LEGG MASON, INC.
By: /s/ Robert F. Price
Name: Robert F. Price
Title: Senior Vice President
and General Counsel
<Page 7>
In order to indicated your acceptance of the shares of restricted
stock granted by this Agreement subject to the restrictions and upon the
terms and conditions set forth above and in the Plan, please execute and
immediately return to the General Counsel of the Company the enclosed
duplicate original of this Agreement. The grant shall be deemed to have
been withdrawn if your acceptance has not been received at the office of the
General Counsel of the Company by 5:00 p.m. on February 8, 1999.
Agreed and Accepted this 13 day of
January, 1999.
/s/ Raymond A. Mason
Raymond A. Mason
NOTE
$3,378,750 Baltimore, Maryland
December 8, 1998
FOR VALUE RECEIVED, the undersigned Raymond A. Mason
(the "Borrower") promises to pay to the order of Legg Mason, Inc.
(the "Company"), at the offices of the Company in Baltimore, Maryland,
the principal sum of THREE MILLION, THREE HUNDRED SEVENTY-EIGHT THOUSAND,
SEVEN HUNDRED FIFTY DOLLARS ($3,378,750), with interest on the unpaid
balance hereof and, to the extent permitted by applicable law, on accrued
and unpaid interest, from the date hereof until paid in full at the rate
of Four and Forty-Seven Hundredths percent (4.47%) per annum, compounded
semi-annually on June 8 and December 8 of each year.
This Note has been issued pursuant to the Legg Mason, Inc. 1996
Equity Incentive Plan (the "Plan") and an Executive Stock Purchase and Loan
Agreement (the "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 June 8, 1999
and, thereafter, on each succeeding anniversary of that date 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 June 8, 2006. All principal
amounts outstanding hereunder, together with accrued interest thereon, shall
be forgiven on the date on which (i) a Change of Control (as
defined below) occurs, or (ii) the Borrower's employment with the Company is
terminated (1) by the Company without Cause (as defined below), (2) by
reason of the Borrower's death or (3) by reason of the Borrower's permanent
disability (as defined in the Company's then applicable long-term disability
plan).
Prepayments 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.
For purposes of this Note, a "Change of Control" shall be deemed to
have occurred at such time as (i) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")) other than an affiliate of the Company on the date
hereof, becomes the beneficial owner (as defined in Rule 13d-3 of the 1934
Act), directly or indirectly, of securities of the Company or a successor
representing 50% or more of the combined voting power of the Company's then
outstanding securities having the ordinary right to elect directors of the
Company or (ii) the Company's stockholders shall have approved any agreement
providing for a merger in which the Company will not remain an independent
<Page 2>
publicly owned company or a consolidation or sale or other disposition of
all or substantially all of the assets of the Company.
For purposes of this Note, the term "Cause" shall mean the Borrower's
intentional gross misconduct that is damaging to the Company in a material
way.
It shall constitute a default under this Note (a "default") 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, other than following the occurrence of
any event specified in the fourth paragraph of this Note that results in the
principal hereof being forgiven. 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 principal sum
of this Note, together with all accrued and unpaid interest to be due and
immediately payable.
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.
RAYMOND A. MASON
/s/ Mary Beth Metz /s/ Raymond A. Mason (SEAL)
PLEDGE AGREEMENT
This PLEDGE AGREEMENT dated as of December 8, 1998 (the "Agreement"), by
and between Raymond A. Mason (the "Pledgor") and Legg Mason, Inc. (the
"Pledgee");
PRELIMINARY STATEMENT:
The Pledgor and Pledgee propose to enter into an Executive Stock 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 sum of $3,378,750 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 from the Pledgee 120,000 shares of
Common Stock, par value $.10 per share, of the Pledgee (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").
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.
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:
<Page 2>
(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 cash dividends paid in respect of the Pledged Collateral,
provided, however, that any and all
(A) dividends paid or payable other than in cash
in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Pledged Collateral,
(B) dividends and other distributions paid or
payable in cash in respect of any Pledged Collateral, after the
occurrence and during the continuation of an Event of Default, and
(C) cash paid, payable or otherwise distributed
in redemption of, or in exchange for, any Pledged Collateral, shall
be paid to the Pledgee to pay interest then payable under or
pursuant to the Note and, after all accrued interest is paid, to repay
principal outstanding under 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 he 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 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
<Page 3>
endorse checks, drafts, orders and other instruments for the
payment of money payable to the Pledgor representing any 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 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.
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, 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, 100 Light 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
<Page 4>
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.
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: Raymond A. Mason, Pledgor
/s/ Carol Gay /s/ Raymond A. Mason
ATTEST: Legg Mason, Inc., Pledgee
/s/ Suzanne E. Peluso By: /s/ Robert F. Price
Name: Robert F. Price
Title: Senior Vice
President and
General Counsel
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
For The Three Months Ended December 31,
1998 1997
Basic Diluted Basic Diluted
Weighted average shares
outstanding:
Common stock 55,841 55,841 54,596 54,596
Shares available under
options - 2,975 - 3,759
Issuable upon conversion
of debentures - 47 - 47
Weighted average common
and common equivalent
shares outstanding 55,841 58,863 54,596 58,402
Net earnings $22,824 $22,824 $17,036 $17,036
Interest expense, net,
on debentures - 4 - 4
Net earnings applicable
to common stock $22,824 $22,828 $17,036 $17,040
Per share $ .41 $ .39 $ .31 $ .29
On July 23, 1998 the Company declared a two-for-one stock split, paid
September 25, 1998 to shareholders of record on September 9, 1998.
Accordingly, all share and per share information has been retroactively
restated to reflect the stock split.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
For The Nine Months Ended December 31,
1998 1997
Basic Diluted Basic Diluted
Weighted average shares
outstanding:
Common stock 55,494 55,494 54,269 54,269
Shares available under
options - 3,333 - 3,431
Issuable upon conversion
of debentures - 47 - 47
Weighted average common
and common equivalent
shares outstanding 55,494 58,874 54,269 57,747
Net earnings $68,888 $68,888 $52,600 $52,600
Interest expense, net,
on debentures - 13 - 13
Net earnings applicable
to common stock $68,888 $68,901 $52,600 $52,613
Per share $ 1.24 $ 1.17 $ .97 $ .91
On July 23, 1998 the Company declared a two-for-one stock split, paid
September 25, 1998 to shareholders of record on September 9, 1998.
Accordingly, all share and per share information has been retroactively
restated to reflect the stock split.
<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>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> $263,564,000
<RECEIVABLES> $858,314,000
<SECURITIES-RESALE> $230,884,000
<SECURITIES-BORROWED> $169,106,000
<INSTRUMENTS-OWNED> $126,904,000
<PP&E> $54,201,000
<TOTAL-ASSETS> $3,220,701,000
<SHORT-TERM> $55,581,000
<PAYABLES> $2,119,794,000
<REPOS-SOLD> $0
<SECURITIES-LOANED> $172,070,000
<INSTRUMENTS-SOLD> $6,646,000
<LONG-TERM> $99,664,000
$0
$0
<COMMON> $5,617,000
<OTHER-SE> $560,257,000
<TOTAL-LIABILITY-AND-EQUITY> $3,220,701,000
<TRADING-REVENUE> $67,623,000
<INTEREST-DIVIDENDS> $119,387,000
<COMMISSIONS> $201,129,000
<INVESTMENT-BANKING-REVENUES> $57,240,000
<FEE-REVENUE> $279,110,000
<INTEREST-EXPENSE> $70,929,000
<COMPENSATION> $422,252,000
<INCOME-PRETAX> $116,058,000
<INCOME-PRE-EXTRAORDINARY> $116,058,000
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $68,888,000
<EPS-PRIMARY> $1.24
<EPS-DILUTED> $1.17
</TABLE>
