-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OHgmercj6avfbzZ+nFdsg0ubPKbqqsEE3ApnDRZDChNraUoY9pd7JxM5J+FuTf6/ fTlX38Tt98IJkLEcRYtG8g== 0000704051-96-000026.txt : 19961118 0000704051-96-000026.hdr.sgml : 19961118 ACCESSION NUMBER: 0000704051-96-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEGG MASON INC CENTRAL INDEX KEY: 0000704051 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 521200960 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08529 FILM NUMBER: 96663998 BUSINESS ADDRESS: STREET 1: 111 S CALVERT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105390000 MAIL ADDRESS: STREET 1: 111 SOUTH CALVERT STREET CITY: BALTIMORE STATE: MD ZIP: 21202 10-Q 1 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 September 30, 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. 18,106,502 shares of Common Stock as of the close of business on November 1, 1996. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands of dollars) September 30,1996 March 31,1996 (Unaudited) ASSETS: Cash and cash equivalents.............. $ 157,186 $ 89,378 Cash and securities segregated for regulatory purposes................... 175,501 168,859 Resale agreements...................... 139,077 108,413 Receivable from customers.............. 480,018 398,375 Securities borrowed.................... 220,560 196,569 Securities owned, at market value...... 94,372 84,219 Investment securities, at market value. 54,687 83,497 Property and equipment, net............ 34,162 33,339 Intangible assets...................... 63,950 67,370 Other.................................. 92,456 84,481 ---------- ---------- $1,511,969 $1,314,500 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Payable to customers................... $ 666,439 $ 564,698 Payable to brokers and dealers......... 7,850 3,854 Securities loaned...................... 190,993 170,829 Short-term borrowings.................. 38,558 6,800 Securities sold, but not yet purchased, at market value....................... 25,249 10,693 Accrued compensation................... 40,741 41,168 Other.................................. 52,166 50,018 Senior notes........................... 99,557 99,534 ---------- ---------- 1,121,553 947,594 ---------- ---------- Subordinated liabilities................ - 68,000 ---------- ---------- Stockholders' equity: Common stock........................... 1,809 1,538 Additional paid-in capital............. 189,501 120,960 Retained earnings...................... 198,694 176,098 Net unrealized appreciation on investment securities................. 412 310 ---------- ---------- 390,416 298,906 ---------- ---------- $1,511,969 $1,314,500 ========== ==========
See notes to condensed consolidated financial statements. 3
LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts) (Unaudited) Three Months Six Months Ended September 30, Ended September 30, 1996 1995 1996 1995 Revenues: Commissions.........................$ 41,718 $ 41,629 $ 89,304 $ 79,121 Principal transactions.............. 16,610 15,765 34,954 32,696 Investment advisory and related fees 42,881 35,343 85,364 67,830 Investment banking.................. 18,750 9,996 32,891 19,150 Interest............................ 18,944 13,836 36,902 26,110 Other............................... 8,391 8,140 16,716 15,799 -------- -------- -------- -------- 147,294 124,709 296,131 240,706 -------- -------- -------- -------- Expenses: Compensation and benefits........... 82,765 72,242 167,212 138,702 Occupancy and equipment rental...... 10,071 8,851 20,196 17,707 Communications...................... 6,736 6,460 13,867 13,452 Floor brokerage and clearing fees... 1,271 1,443 2,804 2,896 Interest............................ 8,534 6,036 17,996 11,926 Other............................... 14,742 14,051 28,895 27,139 -------- -------- -------- -------- 124,119 109,083 250,970 211,822 -------- -------- -------- -------- Earnings Before Income Taxes......... 23,175 15,626 45,161 28,884 Income taxes........................ 9,279 6,395 18,365 11,827 -------- -------- -------- -------- Net Earnings.........................$ 13,896 $ 9,231 $ 26,796 $ 17,057 ======== ======== ======== ======== Earnings per common share: Primary.............................$ .78 $ .61 $ 1.58 $ 1.17 Fully diluted.......................$ .74 $ .52 $ 1.44 $ .98 Average number of common shares outstanding: Primary............................. 17,861 15,065 16,961 14,613 Fully diluted....................... 18,766 18,540 18,743 18,524 Dividends declared per common share..$ .13 $ .12 $ .25 $ .23 Book value per common share..........$ 21.58 $ 18.32 $ 21.58 $ 18.32
See notes to condensed consolidated financial statements. 4
LEGG MASON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended September 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.................................... $ 26,796 $ 17,057 Noncash items included in earnings: Depreciation and amortization................. 7,621 7,052 -------- -------- 34,417 24,109 (Increase)decrease in assets: Cash and securities segregated for regulatory purposes..................................... (6,642) (27,232) Receivable from customers...................... (81,643) (37,829) Securities borrowed............................ (23,991) (50,132) Securities owned............................... (10,153) (78,298) Other.......................................... (8,822) (18,237) Increase(decrease)in liabilities: Payable to customers........................... 101,741 46,254 Payable to brokers and dealers................. 3,996 10,692 Securities loaned.............................. 20,164 8,416 Securities sold, but not yet purchased......... 14,556 15,416 Accrued compensation........................... (427) 12,802 Other.......................................... 1,574 156 -------- -------- CASH PROVIDED BY(USED FOR)OPERATING ACTIVITIES... 44,770 (93,883) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for: Property and equipment......................... (4,936) (6,983) Intangible assets.............................. (32) (298) Net(increase)decrease in resale agreements...... (30,664) 50,006 Purchases of investment securities.............. (82,837) - Proceeds from sales of investment securities.... 111,817 4,431 -------- -------- CASH PROVIDED BY(USED FOR)INVESTING ACTIVITIES... (6,652) 47,156 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in short-term borrowings........... 31,758 101,002 Repayment of subordinated liabilities........... (29) (69) Issuance of common stock........................ 1,656 1,819 Dividends paid.................................. (3,695) (2,701) -------- -------- CASH PROVIDED BY FINANCING ACTIVITIES............ 29,690 100,051 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS........ 67,808 53,324 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 89,378 60,097 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $157,186 $113,421 ======== ========
See notes to condensed consolidated financial statements. 5 LEGG MASON, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands of dollars) September 30, 1996 (Unaudited) 1. Interim Basis of Reporting: The accompanying unaudited condensed consolidated financial statements 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 September 30, 1996, the broker-dealer subsidiaries had aggregate net capital, as defined, of $119,017 which exceeded required net capital by $107,865. 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 $19,225 1996 and $12,043 in 1995. Income tax payments were $23,824 in 1996 and $12,344 in 1995. 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. 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS During the quarter and six months ended September 30, 1996, the Company benefited from continued favorable market conditions, despite a brief decline in equity prices in July 1996. Stable interest rates, higher securities transaction volume, increased underwriting activity and rising equity markets contributed to the Company's strong revenues and earnings in both periods. Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995 In the second fiscal quarter ended September 30, 1996, the Company's net earnings increased 51% to $13.9 million from $9.2 million in the prior year's quarter. Revenues rose 18% to $147.3 million from $124.7 million in the corresponding quarter of the prior year. Fully diluted earnings per share increased 42% to $.74 from $.52. Commission revenues were $41.7 million, up slightly from $41.6 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 5% to $16.6 million, as higher sales of U.S. government, agency and over-the-counter securities were partially offset by losses on energy-related equity securities positions. Investment advisory and related fees increased for the 26th consecutive quarter and were 21% 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. In addition, the current year's quarter includes fees earned by Western Asset Global Management ("Western Asset Global"), a manager of global fixed-income and currency investments, acquired in February 1996. Company subsidiaries now serve as investment advisors to individual and institutional accounts and mutual funds with assets of $38.1 billion, up from $29.2 billion at September 30, 1995. Investment banking revenues were $18.8 million, 88% higher than in the corresponding quarter of the prior year, reflecting an increase in public offerings of securities and financial advisory services. Other revenues rose 3% to $8.4 million because of an increase in fee income from increased investor activity. Compensation and benefits increased 15% to $82.8 million, reflecting higher sales and profitability-based compensation and personnel additions in new and existing brokerage offices and product areas. 8 Occupancy and equipment rental increased 14% to $10.1 million as a result of increased rent and depreciation expense and higher transaction volume processed by the Company's data processing service bureau. Communications expense rose 4% to $6.7 million because of new brokerage office locations and the addition of expenses of Western Asset Global. Despite increased transaction volume, floor brokerage and clearing fees decreased 12% to $1.3 million as a result of the installation of a new order processing system in November 1995. Other expense increased 5% to $14.7 million, attributable to increased promotional, marketing and professional fee expenses, offset in part by lower litigation-related expenses. In addition, the current quarter includes expenses of Western Asset Global. Interest revenue increased 37% to $18.9 million because of larger firm investment and customer margin account balances. Interest expense increased 41% to $8.5 million as a result of higher interest paid on larger customer credit balances. Income taxes rose 45% to $9.3 million because of an increase in pre-tax earnings. The effective tax rate was 40.0% compared with 40.9% in the prior year's quarter. 9 Six Months Ended September 30, 1996 Compared to Six Months Ended September 30, 1995 The Company's net earnings in the six months ended September 30, 1996 increased 57% to $26.8 million from $17.1 million in the prior year's corresponding period. Revenues rose 23% to $296.1 million from $240.7 million. Fully diluted earnings per share increased 47% to $1.44 from $.98. Commission revenues rose 13% to $89.3 million because of increases in sales of non-affiliated mutual funds, listed securities and annuities, partially offset by a decline in sales of over-the- counter securities. Revenues from principal transactions increased 7% to $35.0 million, as higher sales of over-the-counter stocks and U.S. government and agency securities were partially offset by losses on energy-related equity positions. Investment advisory and related fees increased 26% to $85.4 million, principally as a result of growth in assets under management in Company-sponsored mutual funds, the Company's fixed-income investment advisory subsidiary, fee-based brokerage accounts and the addition of fees earned by Western Asset Global. Investment banking revenues rose 72% to $32.9 million as a result of increased corporate finance activity related to public offerings of securities and financial advisory services. Other revenues rose 6% to $16.7 million as a result of an increase in fee income from increased investor activity, partially offset by a decline in loan originations at the Company's mortgage banking subsidiaries. Compensation and benefits increased 21% to $167.2 million because of higher sales and profitability-based compensation and personnel additions in new and existing brokerage offices and product areas. Occupancy and equipment rental increased 14% to $20.2 million because of increased depreciation and rent expense, higher transaction volume processed by the Company's data processing service bureau and the addition of expenses of Western Asset Global. Communications expense increased 3% to $13.9 million, primarily because of brokerage office expansion and the addition of expenses of Western Asset Global. Despite increased transaction volume, floor brokerage and clearing fees decreased 3% to $2.8 million as a result of the installation of a new order processing system. 10 Other expense increased 6% to $28.9 million, attributable to increased consulting and promotional expenses and the addition of expenses of Western Asset Global, offset in part by lower litigation-related expenses. Interest revenue increased 41% to $36.9 million because of larger firm investment and customer margin account balances. Interest expense increased 51% to $18.0 million because of higher interest paid on larger customer credit and conduit stock loan balances and the issuance of $100 million in Senior Notes in February 1996. Income taxes rose 55% to $18.4 million because of an increase in pre-tax earnings. The effective tax rate was 40.7% and 40.9% 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, bank lines of credit, senior notes and other payables. During the six months ended September 30, 1996, cash and cash equivalents increased $67.8 million. Cash flows from operating activities provided the Company with $44.8 million of cash, principally from net earnings, adjusted for depreciation and amortization, and higher net customer payables. Cash flows from financing activities contributed $29.7 million, attributable to higher short-term borrowings by the Company's mortgage banking affiliates. Cash flows from investing activities used $6.7 million, principally for computer equipment purchases. 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 if Batterymarch achieves 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. 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings Nasdaq Market-Makers Antitrust Litigation Reference is made to the discussion under the caption "Nasdaq Market-Makers Antitrust Litigation" in Item 3 of Registrant's 10-K Report for the fiscal year ended March 31, 1996. In July 1996, the Antitrust Division of the Department of Justice concluded its investigation and entered into a Stipulation and Order with certain of the broker dealer firms from whom it had sought information. At that time, the Antitrust Division advised Legg Mason Wood Walker, Incorporated that it would not be named as a defendant and need not enter into any Stipulation and Order. The private class litigation in which Legg Mason Wood Walker is one of the defendants remains pending. Item 4. Submission of Matters to a Vote of Security Holders. Registrant's annual meeting of stockholders was held July 24, 1996. In the election of directors, the six director nominees were elected with the following votes: Votes Cast For Withhold Raymond A. Mason 13,575,341 13,575,341 79,024 James W. Brinkley 13,574,818 13,574,818 79,547 Nicholas J. St. George 13,582,667 13,582,667 71,698 Richard J. Himelfarb 13,555,431 13,555,431 98,934 Roger W. Schipke 13,582,667 13,582,667 71,698 Edward I. O'Brien 13,583,010 13,583,010 71,355
The stockholders voted in favor of the approval of the Legg Mason, Inc. 1996 Equity Incentive Plan, the amendment of the Legg Mason, Inc. Articles of Incorporation and the ratification of the appointment of Coopers & Lybrand L.L.P. as independent auditors of the Registrant as follows: Votes Cast For Against Abstain Non-Vote Approval of Legg Mason, Inc. 1996 Equity Incentive Plan 11,899,551 9,181,090 2,718,461 123,933 1,630,881 Amendment of the Legg Mason, Inc. Articles of Incorporation 11,832,570 9,686,312 2,718,461 123,933 1,535,258 Ratification of Appointment of Auditors 13,632,361 13,619,892 12,469 22,005 ---
12 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.1 Articles of Incorporation and Articles of Amendment of Legg Mason, Inc. through July 24, 1996 10.1 Form of Non-Qualified Stock Option Agreement under Legg Mason, Inc. 1996 Equity Incentive Plan* 11. Statement re: computation of per share earnings 27. Statement re: financial data schedules (b) No reports on Form 8-K were filed during the quarter ended September 30, 1996. *These exhibits are management contracts or compensatory plans or arrangements. 13 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: November 14, 1996 /s/ John F. Curley, Jr. John F. Curley, Jr. Vice Chairman of the Board DATE: November 14, 1996 /s/ F. Barry Bilson F. Barry Bilson Vice President - Finance 14 INDEX TO EXHIBITS PAGE 3.1 Articles of Incorporation and Articles of Amendment of Legg Mason, Inc. through July 24, 1996 10.1 Form of Non-Qualified Stock Option Agreement under Legg Mason, Inc. 1996 Equity Incentive Plan* 11. Statement re: computation of per share earnings 27. Statement re: financial data schedules *These exhibits are management contracts or compensatory plans or arrangements. EX-3 2 1 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF LEGG MASON, INC. THIS IS TO CERTIFY THAT: FIRST: The undersigned, Charles A. Bacigalupo, whose post office address is 7 East Redwood Street, Baltimore, Maryland 21203, being over eighteen (18) years of age, acting as incorporator, does hereby form a corporation, under and by virtue of the Maryland General Corporation Law. SECOND: The name of the corporation (which is hereinafter called the "Corporation") is: LEGG MASON, INC. THIRD: The purposes for which the Corporation is formed are to engage in any part of the world in any capacity in any lawful act or activity for which corporations may be organized under the Maryland General Corporation Law and to enjoy all powers, rights and privileges which a corporation organized under the Maryland General Corporation Law may have under the laws of the State of Maryland as in force from time to time, including without limitation all powers, rights and privileges necessary or convenient in carrying out all those acts and activities in which it may lawfully engage. FOURTH: The address of the principal office of the Corporation in this State is 7 East Redwood Street, Baltimore, Maryland 21203. The name and address of the resident agent of the Corporation in this State is Charles A. Bacigalupo, 7 East Redwood Street, Baltimore, Maryland 21203, an individual residing in Maryland. FIFTH: The aggregate par value of all shares which the Corporation is authorized to issue is $10,300,000 represented by 1,000,000 shares of Preferred Stock of the value of $10 per share; and 3,000,000 shares of Common Stock of the par value of $.10 per share. A statement of the preferences, privileges and restrictions granted to or imposed upon the shares of the stock of the Corporation or the holders thereof is as follows: 1. Common Stock. The powers, rights, qualifications, limitations or restrictions thereof of the Common Stock shall be as follows: 2 (a) Dividends on Common Stock. The holders of the outstanding Common Stock shall be entitled as a class, share for share, to receive, when and as declared by the Board of Directors, dividends payable in cash, in property or in shares of Preferred or Common Stock of the Corporation. (b) Liquidation. In the event of any dissolution, liquidation or winding up of the Corporation, the holders of the Common Stock shall be entitled as a class, share for share, after due payment or provision for payment of the debts and other liabilities of the Corporation and the payment of the full preferential amounts to which the holders of its Preferred Stock are entitled, to share ratably in the remaining net assets of the Corporation. A consolidation or merger of the Corporation shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Article. (c) Redemption of Common Stock by the Corporation. The Common Stock may be redeemed in whole or in part at the option of the Board of Directors, at any time or from time to time, at a price equal to its consolidated book value determined as of the last day of the month in which the Corporation gives notice of such redemption ("Valuation Date"), determined in accordance with generally accepted accounting principles in the following manner (the "Book Value"): (i) No allowance of any kind shall be made for the Corporation's good will or any similar intangible asset. (ii) All accounts payable shall be taken at the face amount less discounts deductible therefrom and all accounts receivable shall be taken at the face amount thereof less a reasonable reserve for bad debts. (iii) All unpaid and accrued taxes shall be deducted as liabilities. (iv) Every membership on a national securities exchange held for the benefit of the Corporation or a subsidiary of the Corporation shall be taken at its fair value, which shall be the price contracted for at the last sale of a comparable membership on the Valuation Date, or if there is no sale contracted for on that date, the value shall be the mean between the bid and asked prices on that date. If there is no quotation on the Valuation Date, then the value shall be determined by the quotation (either of a sale or on a bid and asked basis) which occurred before and closest in point of time to the Valuation Date. (v) All securities owned by the Corporation shall be taken at their fair market value. The word "securities" 3 as used in this Article FIFTH includes any instrument defined as a "security" by the Securities Act of 1933. (vi) All other assets and liabilities shall be taken as shown on the Corporation's books. (vii) The excess of the proceeds over the cash surrender value of any policy of insurance on the life of an employee or stockholder, or former employee or stockholder, received by the Corporation or a subsidiary because of the death of the insured within six (6) months of the Valuation Date shall be excluded. Not less than thirty (30) nor more than fifty (50) days prior to the date fixed for redemption, the Corporation shall give notice by mail, postage prepaid, to any holders of record of Common Stock to be redeemed, such notice to be addressed to each such stockholder at his post office address as shown on the stock transfer books of the Corporation. The amount of the Common Stock to be redeemed at the option of the Board of Directors must be approved by a two-thirds (2/3) vote of the entire Board of Directors but need not be ratable or proportionate among the holders of the Common Stock. On or after the date fixed for redemption as stated in such notice, each holder of Common Stock called for redemption shall surrender his certificate evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the redemption price in cash. In case less than all of the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on the date fixed for redemption funds necessary for the redemption shall be available therefor, then notwithstanding that the certificate evidencing any shares of Common Stock so called for redemption shall not have been surrendered, all rights with respect to such shares shall forthwith after such date cease and terminate, except only the right of the holders, subject to applicable law, to receive the redemption price without interest upon surrender of the certificate therefor. (d) Voting. The holders of Common Stock shall be entitled to notice of all meetings of stockholders, shall have one vote per share and shall have exclusive voting rights on all questions requiring a vote of stockholders, except as may be provided in articles supplementary or as required by law. (e) Reservation of Rights to Common Stock. Except for and subject to those rights expressly granted to the holders of the Preferred Stock, or except as may be provided by 4 law, the holders of Common Stock shall have all other rights of stockholders, including, but not by way of limitation: (1) voting power for all purposes and the right to all notices of meetings or of other corporate actions, (2) the right to receive dividends when and as declared by the Board of Directors out of assets legally available therefor, and (3) in the event of any dissolution of, or distribution of assets of, the Corporation, the right to receive all of the assets of the Corporation remaining after payment to the holders of Preferred Stock of the specific amounts, if any, which they are entitled to receive. 2. Preferred Stock. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of the Preferred Stock shall be as follows: (a) Issuance in Series. The Board of Directors is expressly authorized at any time, and from time to time, in addition to and not in derogation of the rights granted to the Board of Directors in paragraph 3 of Article SEVENTH, to provide for the issuance of shares of Preferred Stock in one or more series, with such voting powers, full or limited, or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors and set forth in articles supplementary filed for record with the State Department of Assessments and Taxation, and as are not contrary to those stated and expressed in these articles of incorporation, or any amendment thereto, including (but without limiting the generality of the foregoing) the following: (i) The designation of and number of shares constituting such series; (ii) The dividend rate of such series, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes or of any other series of capital stock, and whether such dividends shall be cumulative or noncumulative; (iii) Whether the shares of such series shall be subject to redemption by the Corporation, and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption; (iv) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series; 5 (v) Whether or not the shares of such series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (vi) The extent, if any, to which the holders of the shares of such series shall be entitled to vote as a class or otherwise with respect to the election of the directors or otherwise; (vii) The restrictions, if any, on the issue or reissue of any additional Preferred Stock; and (viii) The rights of the holders of the shares of such series upon the dissolution of, or upon the distribution of assets of, the Corporation. (b) Voting Rights. Except as otherwise required by law and except for such voting powers with respect to the election of directors or other matters as may be stated in the resolutions of the Board of Directors creating any series of Preferred Stock, the holders of any such series shall have no voting power whatsoever. 3. No Pre-emptive Rights. No holder of shares of Stock of the Corporation of any class shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock, or securities convertible into stock, of any class whatsoever, whether now or hereafter authorized, and whether issued for cash, property, services or otherwise. SIXTH: The number of directors of the Corporation shall be twelve which number may be increased or decreased pursuant to the bylaws of the Corporation, but shall never be less than six. The names of the directors who shall serve until the first annual meeting of Stockholders and until their successors are duly elected and qualify are: Raymond A. Mason James W. Brinkley Edmund J. Cashman, Jr. Charles A. Bacigalupo Philip O. Rogers William C. Cicatelli Calvert H. Crary Harry M. Ford, Jr. Kenneth S. Battye Allan H. McAlpin, Jr. Joseph W. Sener, Jr. Charles T. Williams, Jr. 6 SEVENTH: In carrying on its business or for the purpose of attaining or furthering any of its objects the Corporation shall nave all of the rights, powers and privileges granted to corporations by the laws of the State of Maryland and the power to do any and all acts and things which a natural person or partnership could do and which may now or hereafter be authorized by law, either alone or in partnership or conjunction with others. In furtherance and not in limitation of the powers conferred by law, the powers of the Corporation and of the Directors and Stockholders shall including the following: 1. Consideration for Shares. The Board of Directors of the Corporation is hereby empowered to authorize the issuance of the shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares of its stock of any class or classes, whether now or hereafter authorized, for such consideration as said Board of Directors may deem advisable, irrespective of the value or amount of such consideration, subject to such restrictions or limitations, if any, as may be set forth in the bylaws and these articles of incorporation, or any amendment thereto or articles supplementary, of the Corporation. 2. Reserved Right of Amendment. The Corporation reserves the right from time to time to make any amendments of its Charter, now or hereafter authorized by law, including any amendment which alters the contract rights, as expressly set forth in its Charter, of any outstanding stock but no such amendment may change the terms of any class or series of any class of the outstanding stock unless such change of terms shall have been authorized by the holders of not less than two-thirds of all shares of such class or series of such class at the time outstanding. 3. Classification and Reclassification of Unissued Shares. The Board of Directors may without shareholders' authorization, from time to time, classify or reclassify any unissued shares of stock by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitation as to dividends, qualifications, or terms or conditions of redemption provided that before issuing shares of such stock the Corporation shall file articles supplementary for record with the State Department of Assessments and Taxation. 7 4. Indemnification. (a) Proceeding not by or on behalf of Corporation. The Corporation shall indemnify any individual who is a present or former director or officer, and solely in the discretion of the Board of Directors may indemnify any agent or employee of the Corporation or any individual who serves or has served another corporation, partnership, joint venture, trust or any other enterprise in one of these capacities at the request of the Corporation ("Corporate Representative") and who by his position was, is or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative ("Proceeding") not brought by or on behalf of the Corporation to the full extent permitted under the Maryland General Corporation Law, as amended from time to time. (b) Proceeding by or on behalf of Corporation. The Corporation shall indemnify any present or former director or officer of the Corporation and solely in the discretion of the Board of Directors may indemnify any other Corporate Representative who by reason of his position was, is or is threatened to be made a party to any Proceeding brought by or on behalf of the Corporation to the full extent permitted under the Maryland General Corporation Law, as amended from time to time. EIGHTH: The headings of various paragraphs in these Articles are intended for convenience of reference and are not to be construed as part of the text. IN WITNESS WHEREOF, I have signed these Articles of Incorporation on this 13th day of January, 1981. /s/ Charles A. Bacigalupo Charles A. Bacigalupo EX-3 3 1 LEGG MASON, INC. ARTICLES OF AMENDMENT THIS IS TO CERTIFY THAT: FIRST: The Articles of Incorporation of Legg Mason, Inc., a Maryland corporation (the "Corporation"), are hereby revised by amending Articles FIFTH, SIXTH and SEVENTH as follows: 1. The first paragraph of Article FIFTH is amended to read as follows: "FIFTH: The aggregate par value of all shares which the Corporation is authorized to issue is $41,200,000, represented by 4,000,000 shares of Preferred Stock of the par value of $10 per share and 12,000,000 shares of Common Stock of the par value of $.10 per share." 2. The first sentence of Article SIXTH is amended to read as follows: "SIXTH: The number of directors of the Corporation shall be not less than six nor more than twenty, the exact number to be fixed from time to time pursuant to the bylaws of the Corporation." 3. The following paragraph is added to Article SIXTH: "The following additional provisions shall be applicable to the Board of Directors: 1. Classification of Directors. Beginning with the Board of Directors to be elected at the annual meeting of stockholders held in 1983, directors shall be classified with respect to the time for which they shall severally hold office by dividing them into three classes, as nearly equal in number as possible. At such meeting, separate elections shall be held for the directors of each class, those of the first class to be elected for a term of one year, those of the second class to be elected for a term of two years, and those of the third class to be elected for a term of three years. At each succeeding annual meeting of stockholders, the successors to the class of directors whose terms shall expire that year shall be elected to hold office for a term of three years, so that the term of office of one class of directors shall expire in each year. 2. Removal of Directors. Any director, any class of directors, or the entire Board of Directors, may be removed from office by stockholder vote at any time, with or without assigning any cause, but only if stockholders entitled to cast at least seventy percent (70%) of the votes which all 2 stockholders would be entitled to cast at an annual election of directors of such class or classes of directors shall vote in favor of such removal." 4. Paragraph 4 of Article SEVENTH is amended to read as follows: "4. Limit on Indemnification. Notwithstanding any contrary provision of law, unless the bylaws otherwise provide, no indemnification shall be provided for any officer, director, employee or agent of any predecessor of the Corporation." SECOND: The amendments to the Articles of Incorporation of the Corporation as hereinabove set forth have been duly advised by the Board of Directors and approved by the Stockholders of the Corporation as required by law. THIRD: The total number of shares of all classes of stock which the Corporation had authority to issue immediately prior to this amendment was 4,000,000 shares consisting of 3,000,000 shares of Common Stock, $.10 par value, and 1,000,000 shares of Preferred Stock, $10 par value. The aggregate par value of all shares of all classes having a par value was Ten Million, Three Hundred Thousand Dollars ($10,300,000). FOURTH: The total number of shares of all classes of stock which the Corporation has authority to issue, pursuant to the Articles of Incorporation as hereby amended, is 16,000,000 shares consisting of 12,000,000 shares of Common Stock, $.10 par value, and 4,000,000 shares of Preferred Stock, $10 par value. The aggregate par value of all shares of all classes having a par value is Forty-One Million, Two Hundred Thousand Dollars ($41,200,000). FIFTH: The description of each class of stock of the Corporation, as set forth in the original Articles of Incorporation, and as amended from time to time, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, has not been changed by this amendment. SIXTH: The undersigned President acknowledges these Articles of Amendment to be the corporate act of said Corporation and with respect to all matters and facts otherwise required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, such matters and facts are true in all material respects and such statement is made under the penalties of perjury. 3 IN WITNESS WHEREOF, the Corporation has caused these presents to be signed in its name and on its behalf by its President and attested to by its Assistant Secretary on this 15th day of July, 1983. ATTEST: LEGG MASON, INC. /s/ Suzanne E. Peluso By: /s/ Raymond A. Mason Suzanne E. Peluso, Raymond A. Mason, President Assistant Secretary EX-3 4 1 LEGG MASON, INC. ARTICLES OF AMENDMENT THIS IS TO CERTIFY THAT: FIRST: The Articles of Incorporation of Legg Mason, Inc., a Maryland corporation (the "Corporation"), are hereby amended as follows: 1. Article FIFTH is amended by deleting existing subparagraph 1(c) in its entirety and relettering subparagraphs 1(d) and 1(e) as 1(c) and 1(d), respectively. 2. A new Article EIGHTH is added to read as follows: "EIGHTH: 1. Special Voting Requirements for Certain Business Combinations. Except as otherwise provided by this Article, in addition to any vote otherwise required by law or these Articles or Articles Supplementary, a Business Combination (as hereinafter defined) with a Related Person (as hereinafter defined) shall be recommended by the Board of Directors and approved by the affirmative vote of at least (1) seventy percent (70%) of the votes entitled to be cast by outstanding shares of voting stock of the Corporation, voting together as a single voting group, and (2) fifty-five percent (55%) of the votes entitled to be cast by holders of voting stock other than voting stock held by the Related Person, voting together as a single voting group; provided, however, that the 70% voting requirement of Clause (1) shall not be applicable and the Business Combination shall require approval only by the 55% vote of stockholders other than the Related Person as provided by Clause (2), in addition to any vote otherwise required by law or these Articles or Articles Supplementary, if both of the following conditions are satisfied with respect to the particular Business Combination: (a) the aggregate amount of the cash and the fair market value of the "consideration other than cash" (as hereinafter defined) to be received per share by the holders of the Common Stock of the Corporation in the Business Combination is (with appropriate adjustments for recapitalizations and for stock splits, stock dividends and like distributions) at least equal to the greater of (1) the highest price per share (including any brokerage commissions, transfer taxes and soliciting dealer's fees) paid or agreed to be paid by the Related Person to acquire beneficial ownership of any share of such Common Stock during the twenty-four month period immediately prior to the taking of 2 such vote, (2) the highest price per share (including any brokerage commissions, transfer taxes and soliciting dealer's fees) paid by any person to acquire beneficial ownership of any share of such Common Stock on the open market at any time during the twenty-four month period immediately prior to the taking of such vote, or (3) the per share book value of such Common Stock at the end of the calendar quarter immediately preceding the taking of such vote; and (b) the consideration to be received by holders of Common Stock in the Business Combination shall be in the same form and of the same kind as the most favorable form and kind of consideration paid by the Related Person in acquiring beneficial ownership of any of the shares of Common Stock already held, directly or indirectly, by it. Notwithstanding the foregoing provisions, the special stockholder voting requirements of Section 1 of Article EIGHTH shall not be applicable to a Business Combination which has been recommended to the stockholders by the Board of Directors by a vote which includes the affirmative vote of a majority (but not less than two) of the Disinterested Directors (as hereinafter defined), in which event the Business Combination shall be subject to such stockholder vote, if any, as may be required by law or other provisions of these Articles or Articles Supplementary. A determination by a majority of the Disinterested Directors of the Corporation, made in good faith and based upon information known to them after reasonable inquiry, shall be conclusive as to all facts necessary for compliance with this Article, including without limitation (i) whether any person, partnership, corporation or firm is a Related Person or affiliate or associate as defined herein, and (ii) the most favorable form and kind of consideration paid by the Related Person in acquiring beneficial ownership of shares of Common Stock. 2. Definitions. For the purposes of these Articles: (a) The term "Business Combination" shall mean (1) any merger, consolidation or share exchange of the Corporation with or into a Related Person, (2) any sale, lease, exchange, transfer or other disposition, including, without limitation, a mortgage or any other security device, of all or any "substantial part" of the assets of the Corporation (including, without limitation, any voting securities of a subsidiary) or of the assets of a subsidiary which constitute a substantial part of the total consolidated assets of the Corporation, to a Related Person, (3) any merger, consolidation 3 or share exchange of a Related Person with or into the Corporation or a subsidiary of the Corporation, (4) any sale, lease, exchange, transfer or other disposition of all or any substantial part of the assets of a Related Person to the Corporation or a subsidiary of the Corporation, (5) the reclassification of the shares of stock of the Corporation generally possessing voting rights in elections for directors, the purchase by the Corporation of such shares, or the issuance by the Corporation of such shares or any securities convertible thereto or exchangeable therefor which in any such case has the effect, directly or indirectly, of increasing by more than five percent (5%) the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation which are directly or indirectly owned by any Related Person, or (6) any agreement, contract or other arrangement providing for any of the transactions described in this definition of business combination. (b) The term "Related Person" shall mean and include any individual, corporation, partnership or other person or entity which, together with its "affiliates" and "associates," "beneficially" owns (as those terms are presently defined in the Securities Exchange Act of 1934 and in the rules thereunder) voting stock of the Corporation which, in the aggregate, represents fifteen percent (15%) or more of the votes entitled to be cast for the election of directors, and any "affiliate" or "associate" of any such individual, corporation, partnership or other person or entity; provided that shares held or over which such person or entity has the power to vote or otherwise control as a trustee, plan administrator, officer of the Corporation or in a similar capacity under an employee benefit plan of the Corporation or of an employee benefit plan of an affiliate of the Corporation shall not be deemed to be beneficially owned for purposes of this definition. (c) The term "substantial part" shall mean assets of the Corporation or the Related Person, as the case may be, which have a fair market value greater than ten percent (10%) of the total consolidated assets of the Corporation as shown on its audited balance sheet as of the end of its most recent fiscal year ending prior to the time the determination is made. (d) Without limitation, any shares of voting stock of the Corporation which any person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise shall be deemed beneficially owned by such person. (e) The term "consideration other than cash" shall include, without limitation, outstanding Common Stock of the Corporation retained by its then existing stockholders in the 4 event of a Business Combination with a Related Person in which the Corporation is the surviving corporation. (f) The term "Disinterested Director" means any member of the Board of Directors of the Corporation who is neither the Related Person nor an affiliate or associate of the Related Person and who was a member of the Board prior to the time that the Related Person became a Related Person, and any successor of a Disinterested Director who is neither the Related Person nor an affiliate or associate of the Related Person and who is recommended to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board of Directors. 3. Provisions Not Exclusive. Nothing contained in this Article EIGHTH shall restrict the right of the Corporation to elect to be covered by the provisions of any laws of the State of Maryland which may impose special voting requirements on transactions involving interested stockholders." 3. Article EIGHTH is renumbered to be Article TENTH. 4. A new Article NINTH is added to read as follows: "NINTH: Except as provided by Articles SIXTH and EIGHTH and elsewhere in this Article NINTH, notwithstanding any provision of law permitting or requiring any action to be taken or authorized by the affirmative vote of the holders of a greater number of votes, such action shall be effective and valid if taken or authorized by the affirmative vote of stockholders holding a majority of all the votes entitled to be cast thereon, subject to such other or greater vote as may be provided for the holders of any class (or series of a class) of stock of the Corporation pursuant to Articles Supplementary relating to such class or series. However, no amendment of these Articles shall be effective to amend, alter, repeal or change the effect of any of the provisions of Articles SIXTH, EIGHTH or NINTH unless such amendment shall receive the affirmative vote of at least seventy percent (70%) of the votes entitled to be cast thereon, which shall include at least fifty-five percent (55%) of the votes entitled to be cast by holders of voting stock other than voting stock held by a Related Person; provided, however, that these voting requirements shall not be applicable to the approval of such an amendment, and the amendment shall require only such affirmative vote as would otherwise be required pursuant to this Article NINTH, if such amendment shall have been proposed by the Board of Directors by a vote which includes the affirmative vote of a majority (but not less than two) of the Disinterested Directors." SECOND: The amendments to the Articles of Incorporation of the Corporation as hereinabove set forth have 5 been duly advised by the Board of Directors and approved by the Stockholders of the Corporation as required by law. THIRD: The undersigned President acknowledges these Articles of Amendment to be the corporate act of said Corporation and with respect to all matters and facts otherwise required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, such matters and facts are true in all material respects and such statement is made under the penalties of perjury. IN WITNESS WHEREOF, the Corporation has caused these presents to be signed in its name and on its behalf by its President and attested to by its Secretary on this 15th day of July, 1983. ATTEST: LEGG MASON, INC. /s/ Suzanne E. Peluso By: /s/ Raymond A. Mason Suzanne E. Peluso, Raymond A. Mason, Assistant Secretary President EX-3 5 1 LEGG MASON, INC. ARTICLES OF AMENDMENT THIS IS TO CERTIFY THAT: FIRST: The Articles of Incorporation of Legg Mason, Inc., a Maryland corporation (the "Corporation"), are hereby amended by deleting the first paragraph of Article Fifth and inserting in place thereof a new paragraph to read as follows: "FIFTH: The aggregate par value of all shares which the Corporation is authorized to issue is $42,000,000, represented by 4,000,000 shares of Preferred Stock of the par value of $10 per share and 20,000,000 shares of Common Stock of the par value of $.10 per share." SECOND: The amendment to the Articles of Incorporation of the Corporation as hereinabove set forth has been duly advised by the Board of Directors and approved by the Stockholders of the Corporation as required by law. THIRD: The total number of shares of all classes of stock which the Corporation had authority to issue immediately prior to this amendment was 16,000,000 shares consisting of 12,000,000 shares of Common Stock, $.10 par value, and 4,000,000 shares of Preferred Stock, $10 par value. The aggregate par value of all shares of all classes having a par value was Forty-One Million, Two Hundred Thousand Dollars ($41,200,000). FOURTH: The total number of shares of all classes of stock which the Corporation has authority to issue, pursuant to the Articles of Incorporation as hereby amended, is 24,000,000 shares consisting of 20,000,000 shares of Common Stock, $.10 par value, and 4,000,000 shares of Preferred Stock, $10 par value. The aggregate par value of all shares of all classes having a par value is Forty-Two Million Dollars ($42,000,000). FIFTH: The description of each class of stock of the Corporation, as set forth in the original Articles of Incorporation, and as amended from time to time, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, has not been changed by this amendment. SIXTH: The undersigned President acknowledges these Articles of Amendment to be the corporate act of said corporation and with respect to all matters and facts otherwise required to be verified under oath, the undersigned President acknowledges 2 that to the best of his knowledge, information and belief, such matters and facts are true in all material respects and such statement is made under the penalties of perjury. IN WITNESS WHEREOF, the Corporation has caused these presents to be signed in its name and on its behalf by its President and attested to by its Secretary on this 26th day of February, 1987. ATTEST: LEGG MASON, INC. /s/ Charles A. Bacigalupo By: /s/ Raymond A. Mason Charles A. Bacigalupo, Raymond A. Mason, Secretary President EX-3 6 1 LEGG MASON, INC. ARTICLES OF AMENDMENT THIS IS TO CERTIFY THAT: FIRST: The charter of Legg Mason, Inc., a Maryland corporation (the "Corporation"), is hereby amended by adding a new Article to the Articles of Incorporation to read as follows: TENTH: To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the charter or bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. SECOND: The amendment to the Articles of Incorporation of the Corporation as hereinabove set forth has been duly advised by the Board of Directors and approved by the Stockholders of the Corporation as required by law. THIRD: The undersigned President acknowledges these Articles of Amendment to be the corporate act of said Corporation and as to all matters or facts required to be verified under oath, the undersigned President acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, the Corporation has caused these presents to be signed in its name and on its behalf by its President and attested to by its Secretary on this 28th day of July, 1988. ATTEST: LEGG MASON, INC. /s/ Charles A. Bacigalupo By: /s/ Raymond A. Mason Charles A. Bacigalupo, Raymond A. Mason, Secretary President EX-3 7 1 LEGG MASON, INC. ARTICLES OF AMENDMENT THIS IS TO CERTIFY THAT: FIRST: The Articles of Incorporation of Legg Mason, Inc., a Maryland corporation (the "Corporation"), are hereby amended by deleting the first paragraph of Article Fifth and inserting in place thereof a new paragraph to read as follows: "FIFTH: The aggregate par value of all shares which the Corporation is authorized to issue is $50,000,000, represented by 4,000,000 shares of Preferred Stock of the par value of $10 per share and 100,000,000 shares of Common Stock of the par value of $.10 per share." SECOND: The amendment to the Articles of Incorporation of the Corporation as hereinabove set forth has been duly advised by the Board of Directors and approved by the Stockholders of the Corporation as required by law. THIRD: The total number of shares of all classes of stock which the Corporation had authority to issue immediately prior to this amendment was 24,000,000 shares consisting of 20,000,000 shares of Common Stock, $.10 par value, and 4,000,000 shares of Preferred Stock, $10 par value. The aggregate par value of all shares of all classes having a par value was Forty-Two Million Dollars ($42,000,000). FOURTH: The total number of shares of all classes of stock which the Corporation has authority to issue, pursuant to the Articles of Incorporation as hereby amended, is 104,000,000 shares consisting of 100,000,000 shares of Common Stock, $.10 par value, and 4,000,000 shares of Preferred Stock, $10 par value. The aggregate par value of all shares of all classes having a par value is Fifty Million Dollars ($50,000,000). FIFTH: The description of each class of stock of the Corporation, as set forth in the original Articles of Incorporation, and as amended from time to time, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, has not been changed by this amendment. SIXTH: The undersigned President acknowledges these Articles of Amendment to be the corporate act of the Corporation and with respect to all matters and facts otherwise required to be 2 verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, the Corporation has caused these Articles to be signed in its name and on its behalf by its President and attested to by its Assistant Secretary on this 24th day of July, 1996. ATTEST: LEGG MASON, INC. /s/ F. James Tennies By: /s/ Raymond A. Mason (SEAL) F. James Tennies Raymond A. Mason Assistant Secretary President EX-10 8 1 EXHIBIT 10.1 LEGG MASON, INC. 1996 Equity Incentive Plan NON-QUALIFIED STOCK OPTION AGREEMENT FOR ____________________________ To: _________________________ We are pleased to advise you that Legg Mason, Inc. (the "Company") hereby grants to you, subject to your acceptance which shall be indicated by your execution of this Agreement below, an option to purchase, pursuant to the 1996 Equity Incentive Plan (the "Plan"), _________ shares of the Company's Common Stock, $.10 par value each (the "Shares"), at $_____ per share. The date of grant of the option provided hereby shall for all purposes be ________ __, 199_. This option is intended to be a non-qualified stock option for purposes of the Internal Revenue Code. This option 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 option. Such provisions are incorporated herein by reference and made a part hereof. In addition to the terms, conditions and restrictions set forth in the Plan, all terms, conditions and restrictions set forth in this Agreement, including the following, are applicable to the option granted as evidenced hereby: (1) The Company may postpone the issuance and delivery of any Shares until the completion or amendment of any registration or qualification of the Shares, under any federal or state law, rule or regulation which the Company may determine to be necessary or advisable. (2) Subject to the provisions of Section (1), in the event that, at the time of issuance of the Shares to you pursuant to exercise of the option provided by this Agreement, there shall not be in effect a current registration statement under the Securities Act of 1933 (the "Act") with respect to such issuance, you shall, prior to issuance of the Shares to you, (a) represent to the Company, in form satisfactory to counsel for the Company, that you are acquiring the Shares for your own account and not with a view to the resale or distribution thereof, and (b) agree that none of the Shares issued to you pursuant to exercise of the option provided hereby may be sold, transferred or otherwise disposed of unless: (i) a registration statement under the Act shall be effective at the time of disposition with respect to the Shares sold, transferred or otherwise disposed of; (ii) the Company shall 2 have received an opinion of counsel or other information and representations, satisfactory to it to the effect that registration under the Act is not required by reason of Rule 144 under the Act or otherwise; or (iii) a "no-action" letter shall have been received from the staff of the Securities and Exchange Commission to the effect that such sale, transfer or other disposition may be made without registration. (3) This option may not be exercised prior to ________ __, 199_. Thereafter, the option shall be exercisable only as follows: (i) During the period of 12 months beginning _________ __, 199_, the option may be exercised to the extent of 25% of the aggregate number of Shares originally covered by the option. (ii) During each of the next two successive 12 month periods, the first such period beginning ________ __, 199_, and the second such period beginning _______ __, 199_, the option may be exercised to the extent of an additional 25 percent of the aggregate number of Shares originally covered by the option, and to the extent the right to exercise the option theretofore has accrued and has not been exercised. (iii) At any time on and after ________ __, 200_, the option shall be exercisable in full except to the extent it theretofore shall have been exercised. (iv) To the extent not exercised, installments shall accumulate and be exercisable by you, in whole or in part, in any subsequent period but not after the expiration of five years from the date of grant of the option. The option will expire at the close of business on ________ __, 200_. (v) The Committee may, in its sole discretion, accelerate, to a date not earlier than _________ __, 199_, the time at which any of the deferred installments referred to in this Section (3) may be exercised in whole or in part. (vi) Notwithstanding any other provision contained in this Agreement, the option shall become immediately exercisable in full upon the happening of either of the following events: (1) the approval by shareholders of the Company of an agreement to merge or consolidate the Company with or into another corporation (with the Company not surviving) or to sell or otherwise dispose of all or substantially all of its assets and the satisfaction or waiver of all conditions precedent to the closing thereunder; or (2) a determination by the Board of Directors of the Company that in connection with any proposed tender or exchange offer for voting securities of the Company, any person has become the direct or indirect beneficial owner of securities representing 40% or more of the combined voting power of the Company's then outstanding securities; provided, however, that this Section (3)(vi) shall not 3 apply in the event that any such proposed merger, consolidation, sale of assets or tender or exchange offer is approved by the affirmative vote of 75% or more of the directors who are members of the Company's Board of Directors prior to the proposal of such merger, consolidation, sale of assets or tender or exchange offer. (4) The following provisions shall apply in the event of termination of your employment with the Company or a subsidiary of the Company: (i) Except as expressly provided hereinafter in this Section (4), this option may be exercised only if, at all times during the period beginning with the date of grant of the option and ending on the date of such exercise, you were an employee of the Company or a subsidiary of the Company. For purposes of this Section (4), your employment shall not be considered terminated by reason of sick leave or other bona fide leave of absence for a period of 90 days or less. Further, your employment shall not be considered terminated by reason of sick leave or other bona fide of absence for a period longer than 90 days if, and for so long as, your right to continued employment with the Company or any subsidiary is guaranteed by any applicable statute or by contract. (ii) Upon the termination of your employment for cause, as determined in the sole discretion of the Committee, your option rights shall expire immediately upon the delivery to you of the notice of your termination. (iii) Upon a termination of your employment by reason of permanent and total disability within the meaning of Section 105(d)(4) of the Internal Revenue Code of 1986, as amended, or your retirement under a retirement program of the Company or a subsidiary, your option rights shall be limited to the option shares which were immediately purchasable by you on the date of your termination, and such option rights shall expire unless exercised prior to the first to occur of (A) in the case of total and permanent disability, the expiration of a period of twelve months beginning on the date of your termination, or (B) in the case of retirement, the expiration of a period of three months beginning on the date of your termination, or (C) the option expiration date established in Section (3)(iv) of this Agreement. In the event of your death during the period provided for the exercise of your option rights pursuant to this Subsection (iii), your option rights shall be exercisable for the period provided by Subsection (iv) hereof. (iv) Upon the termination of your employment by reason of death, your option rights shall be limited to the option shares which were immediately purchasable by you on the date of your death, and such option rights shall expire unless exercised (by the executor or administrator of your estate or by a person who acquired the right to exercise such option by bequest or 4 inheritance or by reason of your death) prior to the first to occur of (A) the expiration of a period of twelve months beginning on the date of your death, or (B) the option expiration date established in Section (3)(iv) of this Agreement. (5) Nothing contained in this Agreement shall restrict the right of the Company or any of its subsidiaries to terminate your employment at any time, with or without cause. (6) During your lifetime, this option shall be exercisable only by you and shall not be transferable except as provided in Subsection (4)(iv) hereof. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, this option, contrary to the provisions of this Agreement and the Plan, shall be void and of no effect; shall give no right to the purported transferee; and shall result in forfeiture of the option involved in such attempt. (7) This option is exercisable solely by written notice to the Company. Each such notice shall: (a) state the election to exercise the option and the number of shares in respect of which it is being exercised; (b) be signed by you or, in the event of your death or disability, by the party entitled to exercise the option; (c) be accompanied by (i) cash, check, bank draft or money order in the amount of the option price payable to the order of the Company or (ii) certificates for Shares (together with duly executed stock powers) with an aggregate value equal to the option price of the Shares being acquired and/or the amount of federal and/or state income tax withholding if you are electing to deliver shares in satisfaction of the option price and/or your withholding obligation or (iii) a combination of the foregoing; and (d) state, if the employee so elects, that the Company shall pay federal and/or state income tax withholding due as a result of the exercise by retaining Shares with an aggregate value equal to the amount of such withholding. The value of any shares of the Corporation's Common Stock delivered in full or partial payment of the option price and/or federal and/or state income tax withholding, or retained by the Company to satisfy the federal and/or state income tax withholding obligation shall, unless otherwise determined by the Committee subsequent to the date of this Agreement, be determined on the basis of the mean between the high and low prices per share on the New York Stock Exchange on the date preceding the date of delivery or retention, as the case may be, of the shares. 5 For the purposes of the Plan the date of exercise shall be the date on which notice and any required payment shall have been delivered to the Company. You shall not have any of the rights of a stockholder with respect to any of the shares subject to this option until the shares have been issued to you upon the exercise of the option. (8) Any notice to be given to the Company (including notice of exercise of all or part of this option) shall be in writing and either hand delivered or mailed to the office of the Secretary of the Company. If mailed, it shall be addressed to the Secretary of the Company at 111 South Calvert Street, Baltimore, Maryland 21202. Any notice given to you shall be addressed to you at your address as reflected on the personnel records of the Company. Either party hereto may hereafter designate a different address by notice to the other. Notice shall be deemed to have been duly delivered when hand delivered or, if mailed, on the day such notice is postmarked. LEGG MASON, INC. By:___________________________ Charles A. Bacigalupo Senior Vice President and Secretary In order to indicate your agreement to such cancellation and your acceptance of the stock option 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 Secretary 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 Secretary of the Company by 5:00 p.m. on _____________ __, 199_. ACCEPTED AND AGREED TO: _________________________ Employee's Signature _________________________ Date EX-11 9
EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts) For The Three Months Ended September 30, 1996 1995 Fully Fully Primary Diluted Primary Diluted Weighted average shares outstanding: Common stock 17,209 17,209 14,450 14,450 Shares available under options 652 699 615 641 Issuable upon conversion of debentures - 858 - 3,449 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 17,861 18,766 15,065 18,540 ======= ======= ======= ======= Net earnings $13,896 $13,896 $ 9,231 $ 9,231 Interest expense, net, on debentures - - - 429 ------- ------- ------- ------- Net earnings applicable to common stock $13,896 $13,896 $ 9,231 $ 9,660 ======= ======= ======= ======= Per share $ .78 $ .74 $ .61 $ .52 ======= ======= ======= ======= 2
EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts) For The Six Months Ended September 30, 1996 1995 Fully Fully Primary Diluted Primary Diluted Weighted average shares outstanding: Common stock 16,309 16,309 14,032 14,032 Shares available under options 652 692 581 660 Issuable upon conversion of debentures - 1,742 - 3,832 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 16,961 18,743 14,613 18,524 ======= ======= ======= ======= Net earnings $26,796 $26,796 $17,057 $17,057 Interest expense, net, on debentures - 143 - 1,099 ------- ------- ------- ------- Net earnings applicable to common stock $26,796 $26,939 $17,057 $18,156 ======= ======= ======= ======= Per share $ 1.58 $ 1.44 $ 1.17 $ .98 ======= ======= ======= =======
EX-27 10
BD 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. 0000704051 LEGG MASON, INC. 1 U.S. DOLLARS 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 1 $157,186,000 $480,018,000 $139,077,000 $220,560,000 $94,372,000 $34,162,000 $1,511,969,000 $38,558,000 $674,289,000 $0 $190,993,000 $25,249,000 $99,557,000 $0 $0 $1,809,000 $388,607,000 $1,511,969,000 $34,954,000 $36,902,000 $89,304,000 $32,891,000 $85,364,000 $17,996,000 $167,212,000 $45,161,000 $45,161,000 $0 $0 $26,796,000 $1.58 $1.44
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