UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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LEGG MASON, INC.
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(Name of Registrant as Specified In Its Charter)
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Notes:
[LOGO]
LEGG
MASON
100 Light Street
Baltimore, Maryland 21202
June 20, 2002
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
which will be held at The Center Club, 100 Light Street, 16th Floor, Baltimore,
Maryland at 10:00 a.m. on Tuesday, July 23, 2002. On the following pages you
will find the Notice of Annual Meeting and Proxy Statement.
Whether or not you plan to attend the meeting, it is important that your
shares be represented and voted at the meeting. Accordingly, please date, sign
and return the enclosed proxy card promptly.
I hope that you will attend the meeting, and I look forward to seeing you
there.
Sincerely,
/s/ Raymond A. Mason
RAYMOND A. MASON
Chairman of the Board, President and
Chief Executive Officer
LEGG MASON, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, July 23, 2002
-----------------
To the Stockholders of
LEGG MASON, INC.:
The Annual Meeting of Stockholders of Legg Mason, Inc., a Maryland
corporation, will be held at The Center Club, 100 Light Street, 16th Floor,
Baltimore, Maryland, on Tuesday, July 23, 2002 at 10:00 a.m. to consider and
vote upon:
(1) The election of four directors for the three-year term ending in
2005 and the election of one director for the two-year term ending
in 2004; and
(2) Any other matter that may properly come before the meeting or any
adjournment thereof.
The Board of Directors has fixed the close of business on May 24, 2002 as
the date for determining stockholders of record entitled to notice of and to
vote at the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement and 2002
Annual Report to Stockholders.
By order of the Board of Directors
/s/ Robert F. Price
ROBERT F. PRICE
Secretary
June 20, 2002
LEGG MASON, INC.
100 Light Street
Baltimore, Maryland 21202
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
Tuesday, July 23, 2002
-----------------
The enclosed proxy is solicited by the Board of Directors of Legg Mason,
Inc. ("Legg Mason") and may be revoked by the stockholder at any time before it
is exercised. The cost of soliciting proxies will be borne by Legg Mason.
Proxies will be solicited by mail and may be solicited by Legg Mason's
officers, directors and employees personally, by telephone or by any other
means of communication. Legg Mason may reimburse brokers, banks, custodians,
nominees and other fiduciaries for their reasonable out-of-pocket expenses in
forwarding proxy materials to their principals. Legg Mason is sending this
proxy material to stockholders on or about June 20, 2002.
Stockholders of record at the close of business on May 24, 2002 are
entitled to notice of and to vote at the meeting. As of the close of business
on that date, there were outstanding and entitled to vote (i) 64,861,185 shares
of Common Stock, $.10 par value ("Common Stock"), of Legg Mason, each of which
is entitled to one vote and (ii) 2,431,094 Exchangeable Shares, no par value
("Exchangeable Shares"), of a Canadian subsidiary of Legg Mason, each of which
is exchangeable into, and has voting rights identical to, one share of Common
Stock.
Directors are elected by a plurality of the votes cast by the holders of
shares of Common Stock and Exchangeable Shares present in person or represented
by proxy at the meeting, with a quorum present. Abstentions and broker
non-votes do not affect the plurality vote for the election of directors.
ELECTION OF DIRECTORS
Legg Mason's Board of Directors is divided into three classes. Each year
one class is elected to serve for a term of three years. The stockholders will
vote at this Annual Meeting for
. the election of four directors for the three-year term expiring at the
Annual Meeting of Stockholders in 2005; and
. the election of one director for the two-year term expiring at the
Annual Meeting of Stockholders in 2004.
All nominees presently serve as directors. Kurt L. Schmoke was elected as a
Director by the Board of Directors in January 2002 to fill a vacancy on the
Board. To balance the classes, he was assigned to the class whose term expires
in 2004. Under Maryland law, Mr. Schmoke must be elected by stockholders at
this Annual Meeting.
The persons named in the enclosed proxy will vote for the election of the
nominees named below unless authority to vote is withheld. In the event any
nominee is unable to serve, the persons named in the proxy may vote for a
substitute nominee that they, in their discretion, shall determine. The Board
of Directors has no reason to believe that any nominee will be unable to serve.
Nominees for Director for the Term Expiring in 2005
Nicholas J. St. George, age 63, has been a director of Legg Mason since
July 1983. He is engaged in private investment activities. He was the Chief
Executive Officer of Oakwood Homes Corporation, a manufacturer and retailer of
manufactured homes, from 1979 to 1999.
Richard J. Himelfarb, age 60, has served as a director of Legg Mason since
November 1983. He has been a Senior Executive Vice President of Legg Mason and
Legg Mason Wood Walker, Incorporated ("LMWW"), Legg Mason's principal
securities brokerage subsidiary, since July 1995. He is responsible for
supervising the corporate and real estate finance activities of Legg Mason.
Roger W. Schipke, age 65, has been a director of Legg Mason since January
1991. He is engaged in private investment activities. Mr. Schipke is a director
of Brunswick Corporation and the Rouse Company.
Edward I. O'Brien, age 73, has been a director of Legg Mason since February
1993. He is engaged in private investment activities. He has served in an
advisory capacity to certain entities in the securities business. Mr. O'Brien
served as a consultant to the Securities Industry Association from December
1992 to November 1993, and as its President from 1974 to December 1992. Mr.
O'Brien is a director of a number of mutual funds in the Neuberger & Berman
mutual fund complex.
Nominee for Director for the Term Expiring in 2004
Kurt L. Schmoke, age 52, has been a director of Legg Mason since January
2002. He has been a partner in the law firm Wilmer, Cutler & Pickering since
December 1999. From December 1987 through December 1999, he was Mayor of the
City of Baltimore.
2
Directors Continuing in Office
Directors whose terms will expire in 2003
Harry M. Ford, Jr., age 69, has been a director of Legg Mason since its
formation in 1981 and has served as a Senior Vice President of Legg Mason since
May 1982. Mr. Ford's principal occupation is as a Financial Advisor with LMWW.
James E. Ukrop, age 64, has been a director of Legg Mason since January
1985. He has been the Chairman of the Board of Ukrop Super Markets, Inc., which
operates a chain of supermarkets in Virginia, since 1997, and was President and
Chief Executive Officer of that company from 1975 to 1997. Mr. Ukrop is a
director of Owens & Minor, Inc. and Chairman of First Market Bank.
John E. Koerner, III, age 59, has been a director of Legg Mason since
October 1990. He has been the President of Koerner Capital Corporation, a
private investment corporation, since August 1995.
Peter F. O'Malley, age 63, has been a director of Legg Mason since April
1992. He has been Of Counsel to the law firm of O'Malley, Miles, Nylen &
Gilmore, P.A. and its predecessor, O'Malley & Miles, since 1989. Mr. O'Malley
currently serves as the President of Aberdeen Creek Corp., a privately-held
company engaged in investment, business consulting and development activities,
and is a director of Potomac Electric Power Company, Legg Mason Trust, fsb and
FTI Consulting.
Directors whose terms will expire in 2004
Raymond A. Mason, age 65, has served as Chairman of the Board, President
and Chief Executive Officer of Legg Mason since its formation in 1981. He has
served as Chairman and Chief Executive Officer of LMWW since 1975. Mr. Mason is
a director of the Legg Mason Value Trust, Inc. and the Legg Mason Special
Investment Trust, Inc.
James W. Brinkley, age 65, has been a director of Legg Mason since its
formation in 1981 and has served as a Senior Executive Vice President of Legg
Mason since December 1983. In November 1985, he became President of LMWW and in
February 1998, he also became the Chief Operating Officer of LMWW.
Harold L. Adams, age 63, has been a director of Legg Mason since January
1988. He has been the Chairman and Chief Executive Officer of RTKL Associates,
Inc., an international architecture, engineering and planning firm, since 1987
and was the President of that firm from 1969 through 2000.
Committees of the Board--Board Meetings
The Board of Directors has an Audit Committee and a Compensation Committee.
It does not have a nominating committee.
3
The Audit Committee consists of Messrs. St. George (Chairman), O'Brien and
Schipke, and is primarily concerned with the effectiveness of the audits of
Legg Mason by Legg Mason's independent accountants. Its duties include:
. recommending the selection of independent accountants;
. reviewing the scope and results of the audits conducted by them;
. reviewing the activities of Legg Mason's internal auditors;
. reviewing the organization and scope of Legg Mason's internal system of
accounting and financial controls; and
. monitoring and reviewing Legg Mason's financial reporting process.
The Compensation Committee consists of Messrs. Koerner (Chairman) and
Ukrop, and is responsible for approving the compensation of the senior
executive officers of Legg Mason. The Compensation Committee also serves as the
administrative committee of certain of Legg Mason's employee benefit plans.
During the fiscal year ended March 31, 2002, the Board of Directors met
five times, the Audit Committee met six times and the Compensation Committee
met four times. Each director attended 75% or more of the aggregate number of
meetings of the Board and all committees of the Board on which the director
served that were held during the period for which he was a director.
Compensation of Directors
Directors who are not employees of Legg Mason receive:
. an annual retainer of $20,000;
. a fee of $4,000 for each Board meeting attended; and
. reimbursement of expenses for attendance at meetings.
In addition, committee members receive a fee of $2,500 for each committee
meeting attended, and the chairman of each committee receives an additional
annual retainer of $5,000.
Under the terms of the Legg Mason, Inc. Stock Option Plan for Non-Employee
Directors, Legg Mason grants each non-employee director options to purchase
6,000 shares of Common Stock
. on the date he or she is first elected as a director; and
. on the date of each subsequent Annual Meeting of Stockholders.
All options have an exercise price equal to the fair market value of the Common
Stock on the grant date. The options are exercisable immediately upon the grant
date and have a ten-year term, subject to earlier termination in the event the
recipient ceases to be a director of Legg Mason. During the fiscal year ended
March 31, 2002, each of the non-employee directors received an option to
purchase 6,000 shares of Common Stock. This stock option plan covers an
aggregate of 1,100,000 shares of Common Stock.
4
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the ownership of
Common Stock of Legg Mason as of May 24, 2002 by each director, each executive
officer named in the Summary Compensation Table, all executive officers and
directors as a group, and each person who, to the best of Legg Mason's
knowledge, beneficially owned more than five percent of Legg Mason's
outstanding Common Stock.
COMMON PERCENT OF
STOCK OUTSTANDING
BENEFICIALLY COMMON
NAME OF OWNER OWNED(1)(2) STOCK(2)(3)
------------- ------------ -----------
Wellington Management Company, LLP.......................... 5,130,412(4) 7.91
American Express Financial Corporation...................... 3,761,667(5) 5.80
Raymond A. Mason............................................ 2,053,090(6) 3.14
James W. Brinkley........................................... 755,164(7) 1.16
Richard J. Himelfarb........................................ 282,478(8) *
Harry M. Ford, Jr........................................... 142,322 *
James E. Ukrop.............................................. 131,584 *
Timothy C. Scheve........................................... 116,333(9) *
Thomas P. Mulroy............................................ 104,273(10) *
John E. Koerner, III........................................ 81,390(11) *
Peter F. O'Malley........................................... 75,324 *
Harold L. Adams............................................. 73,666 *
Edward I. O'Brien........................................... 60,260 *
Nicholas J. St. George...................................... 58,664 *
Roger W. Schipke............................................ 54,328(12) *
Kurt L. Schmoke............................................. 6,000 *
All executive officers and directors as a group (23 persons) 4,646,877 7.02
--------
* Less than 1%.
(1) Except as otherwise indicated and except for shares held by members of an
individual's family or in trust, all shares are held with sole dispositive
and voting power.
(2) Includes the following number of shares subject to options exercisable
within 60 days from May 24, 2002: Mr. Mason--515,951; Mr. Brinkley--88,206;
Mr. Himelfarb--53,676; Mr. Ford--31,264; Mr. Ukrop--55,326; Mr.
Scheve--63,928; Mr. Mulroy--47,598; Mr. Koerner--55,326; Mr.
O'Malley--51,994; Mr. Adams--55,326; Mr. O'Brien--58,660; Mr. St.
George--29,332; Mr. Schipke--44,396; Mr. Schmoke--6,000; and all executive
officers and directors as a group--1,350,774. For purposes of determining
the percentage of outstanding Common Stock for any person on the table,
these options held by that person are assumed to have been exercised. Does
not include shares represented by vested beneficial interests in the Legg
Mason Profit Sharing and 401(k) Plan and Trust.
(3) For purposes of determining percentages of outstanding Common Stock,
Exchangeable Shares are not included because none are beneficially owned by
any director or executive officer.
(4) Represents shares held by Wellington Management Company, LLP ("WMC"), 75
State Street, Boston, Massachusetts 02109, in its capacity as investment
advisor. All of the 5,130,412 shares are held with shared dispositive power
and 4,726,712 shares are held with shared voting power. The number of
shares in the preceding information is based upon a Schedule 13G report
filed by WMC reporting ownership as of December 31, 2001. The percentages
are based on Legg Mason's outstanding shares as of May 24, 2002.
5
(5) Represents shares held by American Express Financial Corporation ("American
Express"), 200 AXP Financial Center, Minneapolis, Minnesota 55474 and its
subsidiaries and advised accounts. All of the 3,761,667 shares are held
with shared dispositive power and 3,149,646 shares are held with shared
voting power. The number of shares in the preceding information is based
upon a Schedule 13G report filed by American Express reporting ownership as
of December 31, 2001. The percentages are based upon Legg Mason's
outstanding shares as of May 24, 2002.
(6) Does not include 12,600 shares owned by Mr. Mason's wife, as to which Mr.
Mason disclaims beneficial ownership. Does not include 300 shares that are
held in trusts for Mr. Mason's children, as to which Mr. Mason disclaims
beneficial ownership. Includes 20,000 shares of restricted stock as to
which Mr. Mason has voting power, but which are subject to transfer
restrictions.
(7) Excludes 7,332 shares owned by a charitable foundation of which Mr.
Brinkley is co-trustee.
(8) Includes 4,789 shares of restricted stock as to which Mr. Himelfarb has
voting power, but which are subject to transfer restrictions.
(9) Includes 5,267 shares of restricted stock as to which Mr. Scheve has voting
power, but which are subject to transfer restrictions.
(10) Includes 5,271 shares of restricted stock as to which Mr. Mulroy has
voting power, but which are subject to transfer restrictions.
(11) Includes 2,400 shares owned by Mr. Koerner's children.
(12) Includes 1,000 shares held in trust of which Mr. Schipke is trustee.
6
EXECUTIVE COMPENSATION
The following table provides information concerning compensation for the
past three fiscal years of Legg Mason's Chief Executive Officer and each of the
four other most highly compensated executive officers.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------- ---------------------
Restricted
Other Annual Stock Options All Other
Name and Principal Position Year Salary Bonus(1) Compensation Awards(2) Granted(#) Compensation(3)
--------------------------- ---- -------- ---------- ------------ ---------- ---------- ---------------
Raymond A. Mason............... 2002 $330,000 $7,344,688(4) $3,148 -- 350,000 $ 22,905
Chairman of the Board, 2001 327,500 6,650,000 1,993 -- 100,000 28,428
President and Chief Executive 2000 300,000 6,800,000 1,899 -- -- 40,211
Officer
James W. Brinkley.............. 2002 $275,004 $2,500,000 $2,203 -- 20,000 $129,804
Senior Executive Vice 2001 272,920 2,950,000 2,085 -- 27,000 145,394
President 2000 249,996 3,100,000 1,968 -- -- 127,459
Richard J. Himelfarb........... 2002 $245,004 $1,350,000 $2,249 $163,300 10,000 $ 21,657
Senior Executive Vice 2001 243,754 1,170,000 2,125 130,000 12,000 26,386
President 2000 230,004 1,700,000 2,002 -- 12,000 22,797
Thomas P. Mulroy(5)............ 2002 $240,000 $1,440,000 $1,931 $174,200 20,000 $ 9,150
Senior Vice President 2001 238,333 1,350,000 1,843 150,000 18,000 12,731
Timothy C. Scheve.............. 2002 $240,000 $1,372,500 -- $166,000 20,000 $ 9,150
Senior Executive Vice 2001 238,750 1,440,000 -- 160,000 18,000 12,731
President 2000 223,750 1,625,000 -- -- 20,000 11,600
--------
(1) Each fiscal year Legg Mason sets aside an executive bonus pool in an amount
up to 10% of Legg Mason's pre-tax income for the fiscal year (before
deducting the bonuses). The selection of the participants in the pool, the
total amount received for bonuses, and the allocation of incentive bonuses
among the executive officers of Legg Mason is approved by the Compensation
Committee as described in the Compensation Committee Report on Executive
Compensation. In addition, when circumstances warrant, the Compensation
Committee may grant an executive officer a bonus in addition to that
awarded under the bonus pool.
(2) Awards have been valued for this table using the closing price of Legg
Mason Common Stock on the New York Stock Exchange on the grant date of the
award. In May 2002, Messrs. Himelfarb, Mulroy and Scheve were granted
2,931, 3,127 and 2,980 shares, respectively, of restricted stock in lieu of
receiving a portion of their annual cash bonuses for fiscal 2002. These
shares vest in 33% annual increments, commencing May 15, 2003. In May 2001,
Messrs. Himelfarb, Mulroy and Scheve were granted 2,787, 3,216 and 3,431
shares, respectively, of restricted stock in lieu of receiving a portion of
their annual cash bonuses for fiscal 2001. These shares vest in 33% annual
increments, commencing May 15, 2002. As of March 31, 2002, the number and
value of shares of restricted stock held by Messrs. Mason, Himelfarb,
Mulroy and Scheve were 20,000, 2,787, 3,216 and 3,431 and $1,061,600,
$147,934, $170,705 and $182,117, respectively. All officers receive the
dividends paid on the restricted stock.
(3) Amounts for fiscal 2002 include $9,150 for each individual contributed
under the Legg Mason Profit Sharing and 401(k) Plan and Trust, and include
for Messrs. Mason, Brinkley and Himelfarb, respectively, $13,755, $120,654
and $12,507 of commissions earned from securities brokerage activities.
(4) Includes $844,688 awarded to Mr. Mason as bonuses conditioned upon the
proceeds being used to repay a portion of the outstanding principal on a
loan made to Mr. Mason in December 1998.
(5) Mr. Mulroy became an executive officer of Legg Mason during fiscal 2001.
7
STOCK OPTIONS
The following table summarizes option grants made by Legg Mason during the
fiscal year ended March 31, 2002 to the executive officers named in the Summary
Compensation Table.
Option Grants in Fiscal 2002
Individual Grants(1)
-----------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise Grant Date
Options Employees Price Expiration Present
Name Granted in Fiscal Year ($/Share) Date Value(2)
---- ---------- -------------- --------- ---------- ----------
Raymond A. Mason.... 200,000 8.57% $46.64 7/22/2007 $4,021,600
150,000 6.42 49.03 7/22/2007 3,187,425
James W. Brinkley... 20,000 0.86 49.03 7/22/2009 464,448
Richard J. Himelfarb 10,000 0.43 49.03 7/22/2009 232,224
Thomas P. Mulroy.... 20,000 0.86 49.03 7/22/2009 464,448
Timothy C. Scheve... 20,000 0.86 49.03 7/22/2009 464,448
--------
(1) Option grants made pursuant to the Legg Mason, Inc. 1996 Equity Incentive
Plan. The exercise price of each option granted under the Plan is not less
than the fair market value of the Common Stock on the grant date. Options
generally are not exercisable during the first year after the date of
grant, and thereafter generally become exercisable in cumulative
installments of 20% on each anniversary of the date of grant, so that the
options are fully exercisable on and after 5 years from the date of grant.
The options granted to Mr. Mason in fiscal 2002 become exercisable in
cumulative installments of 33% during each successive year after the grant
date, so that the options become fully exercisable during and after the
third year from the date of grant, except that 2,140 of these options
become exercisable during the fifth year after the date of grant and expire
on July 22, 2009. In all cases, vesting of options may be accelerated in
certain circumstances. Option holders may use previously owned shares to
pay all or part of the exercise price.
(2) The stock options were valued using the Black-Scholes Option Pricing Model.
The following assumptions were made for purposes of calculating the Grant
Date Present Value: an expected option term of 6 or 8 years to exercise,
based on the option expiration date; a dividend yield of .81%; stock price
volatility of 40.01% or 37.53%, based upon the daily Common Stock market
price for the 6 or 8 years, respectively, prior to the grant date; and
risk-free interest rate of 4.82% for 6 year options and 5.02% for 8 year
options. The actual value realized, if any, on stock option exercises will
be dependent on overall market conditions and the future performance of
Legg Mason and its Common Stock. Legg Mason cannot be certain that the
actual value realized will approximate the amount calculated under the
valuation model.
The following table summarizes option exercises during the fiscal year
ended March 31, 2002 by the executive officers named in the Summary
Compensation Table and the value of their unexercised options at March 31, 2002.
Aggregate Option Exercises During Fiscal 2002
and Value of Options Held at March 31, 2002
Number of Securities Value of Unexercised
Number Underlying Unexercised In-the-Money Options at
of Shares Options at March 31, 2002 March 31, 2002(1)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
Raymond A. Mason.... 73,336 $2,793,155 277,332 544,666 $9,142,820 $5,799,070
James W. Brinkley... 35,332 1,346,722 73,806 56,190 2,589,818 467,126
Richard J. Himelfarb 35,664 1,459,019 45,276 39,390 1,333,615 499,594
Thomas P. Mulroy.... -- -- 35,998 64,002 849,572 742,468
Timothy C. Scheve... 14,666 551,442 52,328 64,002 1,672,867 742,468
--------
(1) Value realized and value of unexercised options are calculated by
determining the difference between the fair market value of the shares
underlying the options and the exercise price of the options at exercise or
March 31, 2002, respectively.
8
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Legg Mason's executive compensation program is designed to attract,
motivate and retain the management talent needed to strengthen Legg Mason's
position in the financial services industry and to achieve its business
objectives.
Salaries of senior executive officers are set at levels which the
Compensation Committee (the "Committee") of the Board of Directors believes are
competitive with salaries of executives in similar positions at comparable
financial services companies. In addition, in determining senior executive
compensation, the Committee places substantial emphasis on incentive
compensation directly related to short and long-term corporate performance
through annual cash bonuses and stock option grants. The members of the
Committee are non-employee directors.
As is common in the financial services industry, a significant portion of
total cash compensation of Legg Mason's executive officers is paid in the form
of bonuses. For example, in fiscal 2002, approximately 96% of the annual cash
compensation of Raymond A. Mason, Legg Mason's Chief Executive Officer ("CEO"),
was paid as bonuses. This is intended to maximize the portion of an
individual's compensation that is subject to fluctuation each year based upon
corporate and individual performance.
The compensation program is structured to recognize each executive's level
of responsibility and to reward exceptional individual and corporate
performance. The program takes into account both annual operating results and
the desirability of providing incentives for future improvement. This includes
the ability to implement Legg Mason's business plans as well as to react to
unanticipated external factors which can have a significant impact on corporate
performance. Compensation decisions for all executives, including the CEO, are
based on the same general criteria.
There are three major components of Legg Mason's executive compensation
program: base salary, short-term awards, and long-term incentive awards.
Base Salary
A competitive base salary is important in fostering a career orientation
among executives consistent with the long-term nature of Legg Mason's business
objectives. The Committee determines the salary of the CEO and Legg Mason's
other senior executive officers based on its consideration of the CEO's
recommendations.
Salaries and salary adjustments are based on the responsibilities,
performance and experience of each executive, regular reviews of competitive
positioning (comparing Legg Mason's salary structure with that of similar
companies) and business performance. While there is no specific weighting of
these factors, the responsibilities, performance and experience of each
executive and reviews of competitive positioning are the most important
considerations.
Raymond A. Mason, Legg Mason's CEO, has more than 35 years of service with
Legg Mason. The Committee established his fiscal 2002 salary of $330,000 based
upon competitive positioning and Legg Mason's overall compensation approach of
limiting base salary levels and emphasizing incentive compensation.
9
Short-Term Awards
Short-term awards to executives are based on Legg Mason's fiscal year
operating results and the performance and responsibilities of the individual
executives. Short-term awards also reflect each executive officer's
contributions to the business during the fiscal year.
Legg Mason's Executive Incentive Compensation Plan provides for an
executive bonus pool in an amount up to 10% of Legg Mason's pre-tax income
(calculated before deduction of the bonuses) for annual awards to the CEO and
other key executive officers selected by the Committee. Because the pool amount
is based on pre-tax income, the total size of the pool varies with Legg Mason's
performance. During the first quarter of the fiscal year the Committee
established maximum percentage allocations of the total pool for certain key
executive officers. Mr. Mason's maximum percentage allocation for fiscal 2002
was established at 40%. After the end of each fiscal year, the Committee
approves specific bonuses from the pool for each participating executive
officer, which may not exceed the maximum percentage previously allocated. The
pre-established maximum percentage allocation and the specific bonus the CEO
and each of the other selected executives receives within the amount determined
pursuant to the pre-established percentage allocation is dependent on the
executive's level of responsibility, individual performance, corporate
performance, initiative, business judgment and management skills.
In addition, when circumstances warrant, the Committee may award an
executive officer a bonus that is in addition to the bonus awarded under the
bonus pool. These bonuses are awarded based on the same factors used in
allocating the bonus pool, and generally are used to reward outstanding
performance that the Committee feels warrants a bonus in excess of the maximum
percentage allocated to that executive officer from the bonus pool.
In fiscal 2002, the Committee granted Mr. Mason quarterly supplemental
bonuses totaling $844,688 conditioned upon the proceeds being applied to repay
a portion of the outstanding principal on a loan from Legg Mason. This was done
pursuant to the Committee's decision, when it granted the loan in 1998 as part
of a compensation arrangement, to award supplemental bonuses that Mr. Mason
would use to repay the loan.
Total bonuses (including restricted stock awards) to the CEO and the four
other named executive officers with respect to fiscal 2002 aggregated 5.4% of
pre-tax income (before deduction of the bonuses), with 51% of the total bonuses
(2.7% of Legg Mason's pre-tax income before deduction of the bonuses) being
awarded to Mr. Mason. As discussed below, for certain executive officers, not
including Mr. Mason, the Committee approved the issuance of restricted shares
of Common Stock in May 2002 in lieu of paying a portion of their cash bonuses
for fiscal 2002. The total bonuses awarded to Mr. Mason for fiscal 2002 reflect
his significant personal contributions to Legg Mason and its business, and were
based on the Committee's general evaluation of Mr. Mason's overall contribution
to Legg Mason's business. Although market conditions made fiscal 2002 a
difficult year for companies in the financial services industry, the Committee
feels that Mr. Mason did an excellent job in guiding Legg Mason through the
year. The Committee believes that Mr. Mason's salary and cash bonuses were
appropriate in relation to compensation of CEOs of comparable companies, taking
into account the size and business results of Legg Mason and those companies.
Section 162(m) of the Internal Revenue Code limits deductions for certain
annual compensation in excess of $1,000,000 paid to individuals required to be
named in the summary compensation table in proxy statements of public
companies. The Committee believes it is important to balance the effectiveness
of executive compensation plans with the materiality of potentially reduced tax
10
deductions. Accordingly, the Committee may authorize payments that may not be
fully deductible if the Committee believes it is in the interest of Legg Mason
to do so.
Long-Term Incentive Awards
Long-term incentive awards are designed to reinforce the importance of
building long-term value for Legg Mason's stockholders. All long-term incentive
awards made in fiscal 2002 were made under the stockholder-approved Legg Mason,
Inc. 1996 Equity Incentive Plan.
Stock options and restricted shares of Common Stock were the only long-term
incentives granted to executive officers for fiscal 2002. The Committee
believes that stock option grants focus management's attention on long-term
growth in stockholder value and stock price appreciation. Generally, options
have a term of up to 8 years, are granted at the fair market value of Legg
Mason Common Stock on the date of grant, and an initial portion of the options
becomes exercisable one year from date of grant, with the balance becoming
exercisable in increments over the ensuing four years. Generally, recipients
must remain employed by Legg Mason to exercise their options.
The number of options that the Committee grants to executive officers is
based on individual performance and level of responsibility, and is approved by
the Committee after considering the recommendations of the CEO. Award levels
must be sufficient in size so that executives develop strong incentives to
achieve long-term corporate goals.
In order to increase stock ownership of executive officers and further
align the incentives of management and stockholders, the Committee granted
restricted shares of Common Stock to several executive officers in lieu of
paying a portion of their cash bonuses for fiscal 2002 under Legg Mason's
Executive Incentive Compensation Plan. In May 2002 each recipient was granted
shares that had a fair market value, on the date the Committee approved the
grant, equal to the amount of cash bonus that was withheld. One-third of the
shares of restricted stock granted vest on each of the first three
anniversaries of the grant date. Prior to vesting, the shares may not be
transferred and are generally subject to forfeiture in certain circumstances.
In April 2002, the Committee adopted a new long-term incentive program
under the Legg Mason, Inc. 1996 Equity Incentive Plan for fiscal 2003 pursuant
to which certain executive officers, including Mr. Mason, will be granted in
May 2003 supplemental bonuses, paid in shares of Common Stock, if Legg Mason's
diluted earnings per share in fiscal 2003, including the cost of the grants,
are at least 12% higher than its diluted earnings per share in fiscal 2002.
These bonuses will not exceed $5 million, in aggregate.
COMPENSATION COMMITTEE
John E. Koerner, III, Chairman
James E. Ukrop
11
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended March 31, 2002, John E. Koerner, III, Margaret
DeB. Tutwiler and James E. Ukrop served on the Compensation Committee. Ms.
Tutwiler resigned from the Board of Directors and Compensation Committee on
July 10, 2001. None of these individuals has ever been an officer or employee
of Legg Mason or any of its subsidiaries and no "compensation committee
interlocks" existed during fiscal 2002 since no Legg Mason executive officers
served on the boards of other publicly traded companies.
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors assists the Board of
Directors in its oversight of the financial reporting of Legg Mason and its
subsidiaries by recommending the independent accountants, reviewing the scope
and results of the independent accountants' audits, reviewing the activities of
Legg Mason's internal auditors and reviewing the organization and scope of Legg
Mason's internal system of accounting and financial controls. The Audit
Committee is composed of three non-employee directors and operates under a
written charter adopted by the Board of Directors. A copy of that charter was
included in Legg Mason's 2001 Proxy Statement. Each Audit Committee member is
independent as required by the listing standards of the New York Stock Exchange.
Legg Mason's management is responsible for the financial reporting process,
including the system of internal controls, and for the preparation,
presentation and integrity of consolidated financial statements in accordance
with generally accepted accounting principles. Legg Mason's independent
accountants are responsible for auditing those financial statements in
accordance with generally accepted auditing standards. The Audit Committee
monitors and reviews these processes. However, the members of the Audit
Committee are not professionally engaged in the practice of accounting or
auditing and are not experts in the fields of accounting or auditing, including
with respect to accountant independence. The members of the Audit Committee
rely, without independent verification, on the information provided to them and
on the representations made by management and the independent accountants.
Accordingly, the Audit Committee's oversight does not provide an independent
basis to determine that management has maintained appropriate accounting and
financial reporting principles or appropriate internal controls and procedures
designed to assure compliance with accounting standards and applicable laws and
regulations. Furthermore, the Audit Committee's considerations and discussions
referred to below do not assure that the audit of Legg Mason's financial
statements has been carried out in accordance with generally accepted auditing
standards, that the financial statements are presented in accordance with
generally accepted accounting principles or that Legg Mason's independent
accountants are in fact independent.
In this context, the Audit Committee has reviewed and discussed the audited
consolidated financial statements of Legg Mason as of and for the fiscal year
ended March 31, 2002 with management and Legg Mason's independent accountants.
The Audit Committee has also discussed with the independent accountants the
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees." Furthermore, the Audit Committee has
received the written disclosures and the letter from the independent
accountants required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and has discussed with the
independent accountants their independence from Legg Mason and its management.
When considering the independent accountants' independence, the Audit Committee
considered whether their provision of services to Legg Mason beyond those
rendered in connection with their audit and review of Legg Mason's consolidated
financial statements was compatible with maintaining their independence. The
Audit Committee also reviewed, among other things, the amount of fees paid to
the independent accountants for audit and non-audit services.
Based on the reports and discussions described in this Report, and subject
to the limitations on the Audit Committee's role and responsibilities referred
to above, the Audit Committee has recommended to the Board of Directors that
Legg Mason's audited consolidated financial statements as of and for the fiscal
year ended March 31, 2002 be included in Legg Mason's Annual Report on Form
10-K.
AUDIT COMMITTEE
Nicholas J. St. George, Chairman
Edward I. O'Brien
Roger W. Schipke
13
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on Legg
Mason's Common Stock for the last five fiscal years with the cumulative total
return of the S&P 500 Stock Index and the SNL Securities and Investments Index
(the "SNL Securities Index") over the same period (assuming the investment of
$100 in each on March 31, 1997, and the reinvestment of all dividends). The SNL
Securities Index consists of 81 publicly held broker dealer and investment
adviser firms.
[CHART]
Fiscal Year Ended March 31,
1997 1998 1999 2000 2001 2002
------------------------------------------------------------------
Legg Mason 100 189 217 280 275 349
------------------------------------------------------------------
S&P 500 Stock Index 100 148 175 207 162 162
------------------------------------------------------------------
SNL Securities Index 100 203 270 377 289 306
------------------------------------------------------------------
Source: SNL Financial
14
CERTAIN TRANSACTIONS
During fiscal 2002, Legg Mason engaged RTKL Associates, Inc. ("RTKL") to
perform architectural and engineering services for Legg Mason. Approximately
$64,000 was paid by Legg Mason for these services during the fiscal year ended
March 31, 2002. Harold L. Adams, a director of Legg Mason, is the Chairman and
Chief Executive Officer of RTKL.
On December 8, 1998, Legg Mason loaned to Raymond A. Mason, Legg Mason's
Chairman of the Board, President and Chief Executive Officer, $3,378,750 to
finance the purchase of 120,000 shares of Legg Mason Common Stock from Legg
Mason. The loan is full recourse, is secured by a pledge of the shares, and
accrues interest at a rate of 4.47% per annum, compounded semi-annually. The
principal amount is due in full at maturity on June 8, 2006 and interest
payments are due on June 8 of each year. As of May 31, 2002, the amount of
indebtedness outstanding under this loan was $2,534,062, plus accrued interest.
The largest amount of indebtedness outstanding under this loan at any time
during fiscal 2002 was $3,378,750, plus accrued interest.
During fiscal 2002, Legg Mason paid approximately $735,000 to Wilmer,
Cutler & Pickering, a law firm, for legal services and related expenses. Kurt
L. Schmoke, a partner in that law firm, became a director of Legg Mason on
January 22, 2002.
In the ordinary course of its business, Legg Mason has extended credit to
certain of its directors and executive officers in connection with their
purchases of securities in margin accounts. These extensions of credit have
been made on terms comparable to loans to unaffiliated customers and did not
involve more than the normal risk of collectability or present other
unfavorable features. No such extension has resulted in a loss to Legg Mason.
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP to be the
independent accountants of Legg Mason for the fiscal year ending March 31,
2003. Representatives of PricewaterhouseCoopers LLP will be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
Audit Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services rendered for the audit of Legg Mason's and affiliates' annual
financial statements for the fiscal year ended March 31, 2002 and for the
reviews of the financial statements included in Legg Mason's Quarterly Reports
on Form 10-Q for that fiscal year were $1,160,000.
Financial Information Systems Design and Implementation Fees
No fees were billed by PricewaterhouseCoopers LLP for the fiscal year ended
March 31, 2002 for professional services rendered for information technology
services relating to financial information systems design and implementation.
15
All Other Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for services
rendered to Legg Mason, other than the services described above under "Audit
Fees" and "Financial Information Systems Design and Implementation Fees" and
excluding services rendered to Legg Mason-sponsored mutual funds, for the
fiscal year ended March 31, 2002 were approximately $1,475,000. Of this amount,
approximately $800,000 was paid for tax-related services and approximately
$350,000 was paid for acquisition-related tax and accounting services.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Legg Mason must receive in writing any stockholder proposal intended for
inclusion in the proxy material for the 2003 Annual Meeting on or before
February 20, 2003. The inclusion of any proposal will be subject to applicable
rules of the Securities and Exchange Commission. The persons named as proxies
for the 2003 Annual Meeting will generally have discretionary authority to vote
on any matter presented by a stockholder for action at the meeting. In the
event Legg Mason receives notice of any stockholder proposal by May 6, 2003,
then, if Legg Mason includes in its proxy statement advice on the nature of the
matter and how the named proxies intend to vote the shares for which they have
received discretionary authority, those proxies may exercise discretionary
authority with respect to such matter, except to the extent limited by the
Securities and Exchange Commission's rules governing stockholder proposals.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the
rules thereunder, Legg Mason's executive officers and directors are required to
file with the Securities and Exchange Commission and the New York Stock
Exchange reports of their ownership of Common Stock. Based solely on a review
of copies of such reports furnished to Legg Mason, or written representations
that no reports were required, Legg Mason believes that during the fiscal year
ended March 31, 2002 its executive officers and directors complied with the
Section 16(a) requirements except that Mark R. Fetting failed to disclose in
his Form 3 report his ownership of 123.8 units in a trust that holds only Legg
Mason common stock and cash under the Legg Mason Profit Sharing and 401(k) Plan
and Trust, which was reported in a subsequent amendment to that report.
OTHER MATTERS
The Board of Directors of Legg Mason is not aware of any other matters to
come before the meeting. If any other matters should come before the meeting,
the persons named in the enclosed proxy will act thereon according to their
best judgment.
By order of the Board of Directors
/s/ Robert F. Price
ROBERT F. PRICE
Secretary
16
LEGG MASON, INC.
Proxy for Annual Meeting of Stockholders, July 23, 2002
The undersigned hereby appoints Raymond A. Mason, Robert F. Price and Timothy
C. Scheve, and each of them, as proxy, with full power of substitution, to vote
all shares which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Legg Mason, Inc., on July 23, 2002, at 10:00 a.m., and at any
adjournment thereof.
The Board of Directors recommends a vote FOR the item below.
1. FOR |_| WITHHOLD |_| The election of all Nominees for the Board of Directors
listed (except as marked to the contrary):
Nominees for the term expiring at the 2005 annual meeting
Nicholas J. St. George Richard J. Himelfarb
Roger W. Schipke Edward I. O'Brien
Nominee for the term expiring at the 2004 annual meeting
Kurt L. Schmoke
(To withhold authority to vote for any individual nominee
strike a line through the nominee's name)
2. To act upon any other matter which may properly come before the meeting or
any adjournment thereof.
This proxy will be voted on the foregoing item as specified by the person
signing it, but if no specification is made the proxy will be voted FOR the
election of Directors.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
IT MAY BE REVOKED PRIOR TO ITS EXERCISE.
Receipt of notice of the meeting, proxy statement and 2002 annual report is
hereby acknowledged, and the terms of the notice and statement are hereby
incorporated by reference into this proxy. The undersigned hereby revokes all
proxies heretofore given for said meeting or any adjournment or adjournments
thereof.
Dated . . . . . . . . . . . . . . 2002
. . . . . . . . . . . . . . . . . . . .
(SEAL)
. . . . . . . . . . . . . . . . . . . .
(SEAL)
Please date and then sign exactly as
name appears to the left. If signing
for a trust, estate, corporation or
other legal entity, capacity or title
should be stated. If shares are jointly
owned, both owners should sign.
PLEASE DATE AND SIGN THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.