"Action" means the above-captioned consolidated action, In re

Transcription

1 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 2 of 46 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK In re AMERICAN EXPRESS FINANCIAL ADVISORS SECURITIES LITIGATION Master File No. 04 Civ (DAB) FILED ELECTRONICALLY STIPULATION OF SETTLEMENT This Stipulation Of Settlement ("Stipulation "), dated January 18, 2007, is entered into between Plaintiffs, on behalf of themselves and the Class, and Defendants and Nominal Defendants to settle the Action and settle, resolve, and discharge the Released Claims, as these terms are defined below. NOW THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among Plaintiffs, Defendants, and Nominal Defendants, through their respective attorneys, subject to judicial approval pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, that the Action and all Released Claims as against the Released Persons and all Settled Defendants' Claims, as these terms are defined below, shall be compromised, settled, released, and dismissed with prejudice, upon and subject to the following terms and conditions: 1. DEFINITIONS In the body of this Stipulation and in the definitions themselves, the presence of capitalized terms usually indicates defined terms. When used in this Stipulation, the following terms shall have the following meanings: (a) "Action" means the above-captioned consolidated action, In re American Express Financial Advisors Securities Litigation, Master File

2 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 3 of 46 No. 04 Civ (DAB), currently pending in the United States District Court for the Southern District of New York before the Honorable Deborah A. Batts. (b) "AEFA" means Defendant American Express Financial Advisors Inc., and its successor, Ameriprise Financial Services, Inc. (c) "AXP Funds" means mutual funds sold under the American Express or AXP brand (or its successor RiverSource). The AXP Funds are identified in Exhibit A hereto. (d) "Claims Administrator" means a third-party entity designated by Plaintiffs' Co-Lead Counsel, subject to the consent of Defense Counsel, such consent not to be unreasonably withheld, and subject to Court approval, to arrange for the printing and mailing of the Settlement Notice and publication of the Publication Notice and administer the Settlement, including, but not limited to, receiving and processing claims, assisting Class Members with the claims process, and issuing and mailing payments from the Net Settlement Fund to Class Members entitled thereto in accordance with the Plan of Allocation. (e) "Class" means all Persons who, at any time during the Class Period: (i) Paid a fee for financial advice, financial planning, or Financial Advisory Services ( as defined); (ii) Purchased any of the Preferred Funds through AEFA or for which AEFA was listed as the broker; (iii) Purchased any of the AXP Funds through AEFA or for which AEFA was listed as the broker; and/or (iv) Paid a fee for financial advice, financial planning, or other financial advisory services rendered in connection with an SPS, WMS and/or SMA account. 2

3 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 4 of 46 (iv) "Class" excludes the Defendants, Nominal Defendants, members of Defendant James M. Cracchiolo's immediate family, any entity in which any Defendant or Nominal Defendant has or had a controlling interest, and the employees, agents, legal affiliates, or representatives who had been employees, agents, legal affiliates or representatives during the Class Period, heirs, controlling persons, successors, and predecessors in interest or assigns of any such excluded party, and all persons and entities who timely and validly request exclusion from the Class pursuant to the Mailed Notice or Publication Notice disseminated in accordance with the Notice Order. (f) "Class Distribution Order" means that certain order of the Court approving the Claims Administrator's administrative determinations concerning the acceptance and rejection of the claims submitted herein, and, if the Effective Date has occurred, directing distribution ofthe Net Settlement Fund in accordance with the Plan of Allocation. (g). "Class Member" means a Person who falls within the definition of the Class. (h) "Class Period" means the period from and including March 10, 1999 through and including April 1, (i) "Complaint" means the Second Consolidated Amended Complaint filed in this Action on or about September 29, (j) "Court" means the United States District Court for the Southern District of New York. 3

4 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 5 of 46 (k) "Defendants" means American Express Company, American Express Financial Corporation (now known as RiverSource Investments LLC), AEFA (now known as Ameriprise Financial Services, Inc.), and James M. Cracchiolo. (1) "Defendants' Counsel" means Wilmer Cutler Pickering Hale and Dorr LLP, counsel for Defendants American Express Company, American Express Financial Corporation (now known as RiverSource Investments LLC), AEFA (now known as Ameriprise Financial Services, Inc.), and James M. Cracchiolo. (m) "Effective Date" means the first business day after which those certain events and conditions described in paragraph 48 have occurred or been met. (n) "Fee and Expense Award" means the amount of any attorneys' fees, expenses or costs, including consultants ' fees, ordered by the Court to be paid to Plaintiffs' Counsel from the Settlement Fund pursuant to paragraph 30 below, plus interest thereon from the date the Court approves the Fee and Expense Award. (o) "Final Fairness Hearing" means the hearing in the Court to determine whether the Settlement should be finally approved, whether the Judgment should issue, and whether and in what amount the application of Plaintiffs' Co-Lead Counsel for a Fee and Expense Award should be granted. (p) "Financial Advisory Services" means financial advice, financial planning, and investment advisory services described in Defendants ' Financial Advisory Service Brochure (ADV) and in the Financial Advisory Service Agreement. (q) "Judgment" means that certain appealable order, in substantially the form of Exhibit F attached hereto, entered by the Court at or after the Final Fairness Hearing, finally approving the terms and conditions of this Stipulation and Settlement. 4

5 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 6 of 46 (r) "Mailed Notice" means the notice to be mailed to members of the Class in accordance with the Notice Order, substantially in the form attached as Exhibit 1 to Exhibit E hereto. (s) "Memorandum of Understanding" means that certain Memorandum of Understanding and MOU Exhibit A thereto (titled "Remedial Measures To Be Part Of In Re AEFA Settlement") executed by Defendants' Counsel, Plaintiffs' Co-Lead Counsel, and counsel to the Nominal Defendants, on October 21, (t) "Net Settlement Fund" means the Settlement Fund and interest earned thereon from the date of payment as set forth in paragraph 24, minus (a) taxes due (including any estimated taxes, interest or penalties) and expenses, fees and costs incurred in connection with the taxation of the Settlement Fund (including, without limitation, expenses, fees and costs of tax attorneys and accountants); (b) an appropriate reserve for further such taxes and tax-related expenses, fees and costs; (c) expenses, fees or costs owed by the Settlement Fund or Settlement Account to a financial institution or other entities in connection with the maintenance, administration or management of the Settlement Account; and (d) the Fee and Expense Award and any incentive awards authorized by the Court to be paid from the Fee Award. (u) "Nominal Defendants" means the AXP Funds (now known as RiverSource Funds). (v) "Nominal Defendants' Counsel" means counsel to the AXP Funds. (w) "Preferred Funds" means mutual funds included in Defendants' Preferred Provider Program, Select Group Program, or any similar program where revenue

6 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 7 of 46 sharing and/or directed brokerage was paid to any Defendant. The Preferred Funds are identified on Exhibit B hereto. (x) "Notice and Administrative Costs" means all reasonable costs and expenses of disseminating the Settlement Notice and publishing the Publication Notice in accordance with the Notice Order and all reasonable costs and expenses of administering the Settlement, including, but not limited to, the Claims Administrator's reasonable fees, costs, and expenses in connection with the Settlement, and excluding taxes. (y) "Notice Order" means the proposed order to be entered granting preliminary approval of the Settlement and directing that the Class be given notice. thereof, substantially in the form attached hereto as Exhibit E. (z) "Opt-Outs" means any and all Class Members who submit valid and timely Requests for Exclusion in accordance with the Notice Order. (aa) "Parties" and "Party," respectively, mean the Representative Plaintiffs and Defendants collectively, and each of them individually. (bb) "Person" means any natural person, corporation, partnership, limited liability partnership, limited liability corporation, association, joint stock company, estate, legal representative, trust or trustee, beneficiary of a trust, bankruptcy estate or trustee, unincorporated association, and any other business or legal entity. (cc) "Plaintiffs" means the lead plaintiffs in the Action, appointed by order of the Court, dated June 25, 2004; namely, Leonard D. Caldwell, Carol M. Anderson, Donald G. Dobbs, Kathie Kerr, Susan M. Rangeley, and Patrick J. Wollmering. 6

7 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 8 of 46 (dd) "Plaintiffs' Co-Lead Counsel" means the law firms of Girard Gibbs LLP, Milberg Weiss & Bershad LLP, and Stull Stull & Brody, which firms were appointed as Co-Lead Counsel by order of the Court, dated June 25, (ee) "Plan of Allocation" means a plan for allocation of the Net Settlement Fund among Class Members proposed by Plaintiffs' Co-Lead Counsel, substantially in the form attached hereto as Exhibit C, or such other plan for the distribution of the Net Settlement Fund among Class Members as the Court may approve. (ff) "Proof of Claim" means the claim form and verification, substantially in the form of Exhibit 2 to Exhibit E hereto, that Class Members must submit in order to receive a distribution from the Net Settlement Fund under the Settlement. (gg) "Publication Notice" means the summary notice of the Settlement and Fairness Hearing, for publication, substantially in the form of Exhibit 3 to Exhibit E hereto. (hh) "Released Claims" means any and all claims, debts, demands, rights or causes of action or liabilities whatsoever (including, but not limited to, any claims for damages, interest, attorneys' fees, expert or consulting fees, specific performance, injunction, and any other fees, costs, expenses, liabilities, and/or remedies whatsoever), whether based on federal, state, local, statutory or common law or any other law, rule or regulation, whether fixed or contingent, accrued or un-accrued, liquidated or un-liquidated, at law or in equity, matured or un-matured, whether class, individual or derivative in nature, whether or not asserted, threatened, alleged, or litigated, at law, equity or otherwise, including both known claims and Unknown Claims ( as defined, below), that (i) have been asserted in this Action by the Plaintiffs or their attorneys or any of them against any of the Released Persons; or (ii) could have been asserted in any forum by the Plaintiffs or Class Members or their 7

8 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 9 of 46 attorneys or any of them or the successors and. assigns of any of them against any of the Released Persons; including claims that arise out of or are based upon (a) the allegations, transactions, facts, matters or occurrences, representations or omissions alleged, involved, set forth, or referred to in the Consolidated Amended Class Action Complaint filed in this Action on or about September 24, 2004, and the Complaint (as defined), (b) the offer and sale of financial advice, financial planning, and/or financial advisory services pursuant to a Financial Advisory Service Agreement, or the SPS, WMS or SMA programs, (c) fees paid for financial advice, financial planning, and/or financial advisory services provided pursuant to a Financial Advisory Service Agreement, or the SPS, WMS or SMA programs, (d) the rendering of financial advice, financial planning, and/or financial advisory services for a fee in connection with the purchase or sale of AXP Funds (as defined) or other proprietary investment products, (e) the rendering of financial advice, financial planning, and/or financial advisory services for a fee in connection with the purchase or sale of Preferred Funds (as defined), (f) the purchase or sale of AXP Funds and/or Preferred Funds through AEFA by Class Members, or (g) the receipt or payment of revenue sharing and/or directed brokerage in connection with the purchase or sale of AXP Funds or Preferred Funds. "Released Claims" shall not include suitability claims unless such claims are alleged to arise out of the common course of conduct that was alleged, or could have been alleged, in the Action, as more fully described herein. "Released Claims" shall not include derivative claims by shareholders of the AXP Funds, on behalf of those funds, against the Defendants, including the action styled, Gallus v. American Express Financial Corporation and AEFA, Case No (DWF/JSM) (D. Minn.). (ii) "Released Persons" means Defendants, Nominal Defendants, and all of their parent companies, affiliates, subsidiaries, divisions, successors-in-interest, successors, 8

9 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 10 of 46 predecessors-in-interest, predecessors, and assigns, as well as all agents, employees, financial advisors, affiliated independent contractors, managers, officers, directors, attorneys, and other persons representing them or acting on their behalf during the Class Period. (jj) "Settled Defendants' Claims" means any and all claims or causes of action that have been or could have been asserted in the Action or any forum by Defendants,. Nominal Defendants, or any of them, or the successors or assigns of any of them against any of Plaintiffs, Class Members, or their attorneys, that arise out of or relate to the institution, prosecution, or settlement of the Action, except for claims to enforce the terms and conditions of this Stipulation. (kk) "Settlement" means the settlement terms and conditions set forth in this Stipulation and in the exhibits attached hereto. (11) "Settlement Account" means an account or accounts to be opened at a financial institution agreed upon by Plaintiffs' Co-Lead Counsel and Defendants' Counsel, into which the Settlement Payment shall be deposited and managed in accordance with the terms of paragraph 24. (mm) "Settlement Fund" means the Settlement Payment as deposited in the Settlement Account, plus all accrued interest thereon from the date of payment as set forth in paragraph 24. (nn) "Settlement Payment" means the cash payment by any or all of the Defendants of One Hundred Million Dollars ($100,000,000.00) as described in paragraphs 21 and 24. (oo) (pp) "SMA" means Defendants' Separately Managed Account program. "SPS" means Defendants' Strategic Portfolio Service program. 9

10 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 11 of 46 (qq) (rr) "Stipulation" means this Stipulation of Settlement. "Supplemental Agreement" means the agreement referenced herein at Paragraph 47, setting forth the conditions under which this Stipulation may be terminated by any Defendant in the event potential Class Members above a certain threshold amount exclude themselves from the Class as Opt-Outs. (ss) "Termination Notice" means a notice, given in accordance with the provisions of and subject to the time limits set forth in Paragraph 49 and/or the Supplemental Agreement, by any Defendant exercising a right to terminate the Settlement. (tt) "Unknown Claims" means any Released Claims that any Class Member does not know or suspect to exist in his, her, or its favor at the time of the release of the Released Claims pursuant to the Settlement, and any Settled Defendants' Claims that any Defendant, Nominal Defendant, or successor or assign thereof does not know or suspect to exist in his, her, or its favor at the time of the release of the Settled Defendants' Claims pursuant to the Settlement, and which, if known by him, her, or it, might have affected his, her, or its decision to enter into the Settlement. (uu) "WMS" means Defendants' Wealth Management Service program. II. THE LITIGATION, COUNSEL'S RESEARCH AND INVESTIGATION, AND THE BENEFITS OF SETTLEMENT 2. From March 4, 2004, to May 4, 2004, various plaintiffs brought lawsuits against all or some of Defendants, as follows: (a) Naresh Chand et al.. v. American. Express Company, American Express Financial Corp. and American Express Financial Advisors Inc., 04-CV-1773 (DAB) (S.D.N.Y.) (the "Chand action"), filed on March 4, 2004, in which Plaintiff Chand et al. alleged that American Express Company ("AMEX"), American Express Financial 10

11 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 12 of 46 Corporation ("AMEX Financial") and AEFA ( 1) marketed AEFA financial advisors as individuals who dispense unbiased financial advice, when, in fact, they provided biased advice and steered their clients into AXP Funds and certain non-proprietary mutual funds that have revenue sharing arrangements with AEFA; (2) failed to disclose their own financial incentives, including revenue sharing arrangements, management fees, and commissions; and (3) viewed AEFA' s clients primarily as a vehicle for generating investment management fees and revenue sharing payments so that AMEX, AMEX Financial, and AEFA could achieve their financial goals and increase their profitability. Plaintiff Chand alleged that clients would not have purchased proprietary and preferred funds had they been aware of the undisclosed revenue sharing and incentive arrangements. Based on these allegations, Plaintiff Chand claimed violations of Sections 10(b), and 20(a) of the Securities Exchange Act of 1934 ("the Exchange Act"), and related Rule I Ob-5, violations of Sections 215 and 206 of the Investment Advisors Act of 1940 ("IAA"), and breach of fiduciary duty under common law. Plaintiff Chand sought compensatory and punitive. damages, the rescission of putative Class Members' contracts, and the restitution of all fees; (b) Elizabeth Renner et al. v. American Express Company et al., 04-CV (DAB) (S.D.N.Y.), filed on March 9, 2004, in which Flenner et al. alleged that AMEX, AMEX Financial, and AEFA (1) used AEFA financial advisors to steer clients into proprietary mutual funds and certain preferred non-proprietary mutual fiends that paid revenue sharing, regardless whether such investments were in the clients' best interests; (2) had an undisclosed incentive to tailor their financial advice to encourage investment that would generate the most revenue in the form of management fees and revenue sharing payments for AMEX, AMEX Financial, and AEFA; and (3) misled clients to believe that they would 11

12 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 13 of 46 receive objective financial advice, while failing to disclose conflicts of interest and the "true motivation " behind AEFA financial advisors' recommendations. Based on these allegations, Plaintiff Flenner claimed violations of Sections 10(b), and 20(a) of the Exchange Act, and related Rule I Ob-5, violations of Sections 215 and 206 of the IAA, and a breach of fiduciary duty under common law. Plaintiff Flenner sought compensatory damages, punitive damages against AEFA for breach of fiduciary duty, rescission of putative Class Member's contracts with AEFA, and the recovery of all fees paid in connection with such contracts; (c) John B. Perkins et al. v. American Express Company et al., 04-CV (DAB) (S.D.N.Y.), filed on March 12, 2004, in which Plaintiff Perkins alleged facts and asserted claims much like those in the Chand action, against the same defendants as those in the Chand action; (d) Kathie Kerr et al. v.. American Express Company et al., 04-CV (DAB) (S.D.N.Y.), filed on April 19, 2004, in which Plaintiff Kerr alleged facts and asserted claims much like those in the Chand action, against the same defendants as those in the Chand action; and (e) Leonard D. Caldwell et al. v. American Express Company et al., 04- CV-3099 (DAB) (S.D.N.Y.), filed on May 4, 2004, in which Plaintiff Caldwell alleged facts and asserted claims much like those in the Chand action, against the same defendants as those in the Chand action. 3. By order dated June 25, 2004, the Court consolidated the five aforementioned actions into the above-captioned Action. 4. On September 29, 2004, Plaintiffs (as defined) filed their Consolidated Amended Class Action Complaint in the Action, alleging that they were promised, and paid for, objective 12

13 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 14 of 46 and unbiased financial advice from AEFA; notwithstanding that AEFA financial advisors allegedly provided financial plans and advice consisting of "pre-determined" investment recommendations designed to generate undisclosed "kickbacks" from Preferred Funds that made revenue sharing payments or directed brokerage to Defendants. Id Plaintiffs contend that they were "steered" into Preferred Funds and AXP Funds that provided diminished returns, id. 3, while Defendants (a) "reaped millions of dollars in fees for its bogus Financial Plans and investment advice; (b) received undisclosed kickbacks from the [Preferred Funds and AXP Funds]... and (c) collected fees for managing and advising certain of the [AXP Funds] under [their] control," id. 4. Based on these allegations, Plaintiffs made claims under the Securities Act, the Exchange Act, the Minnesota Deceptive Trade Practices Act, the Minnesota Consumer Fraud Act, the Minnesota False Advertisement Act, the Minnesota Unlawful Trade Practices Act, and common law. Plaintiffs sought compensatory and punitive damages, the rescission of Class Members' contracts, and the restitution of all unlawfully obtained fees. In addition, under Minnesota law, Plaintiffs requested injunctive relief, attorneys' fees, and costs. 5. On February 4, 2005, Defendants filed a motion to dismiss the Action on a variety of grounds, including (1) failure to state a claim; (2) lack of a duty to disclose; (3) the sufficiency of Defendants' disclosure; (4) lack of transaction causation; (5) lack of loss causation; (6) failure to plead with sufficient particularity; (7) failure to plead scienter; (8) lack of standing; (9) statute of limitations; and (10) various other state and federal law defenses. On April 12, 2005, Plaintiffs filed their opposition to the motion. On May 31, 2005, Defendants filed a reply to Plaintiffs' opposition. 6. On September 29, 2005, Plaintiffs filed their Complaint (as defined) in the Action, alleging that Defendants, while representing that they provided personalized and 13

14 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 15 of 46 objective financial planning and advice to their clients, actually dispensed standardized financial advice in the form of financial plans marketed as "American Express Financial Plans," "Financial Management Proposals," and "Financial Advisory Proposals." Plaintiffs alleged that these financial plans, rather than being tailored to clients' individual needs, were designed to steer clients into certain AXP Funds and Preferred Funds. Plaintiffs also alleged that Defendants profited from the management fees they charged investors in the AXP Funds, which allegedly underperformed other comparable funds. Plaintiffs further alleged that Defendants profited from the sale of the Preferred Funds through directed brokerage, in which the Preferred Funds directed securities trading business to Defendants, and revenue sharing, in which the Preferred Funds paid Defendants a portion of the fees that the Preferred Funds charged their investors in exchange for promoting those funds. It was further alleged that Defendants' disclosures were insufficient. 7. Beginning in April 2005, Plaintiffs' Co-Lead Counsel and Defendants' Counsel engaged in a series of mediated settlement discussions and negotiations under the supervision of retired United States Magistrate Judge Edward Infante of Judicial Arbitration and Mediation Services. On October 21, 2005, Plaintiffs' Co-Lead Counsel, Defendants' Counsel, and Nominal Defendants' Counsel signed the Memorandum of Understanding setting forth basic terms and conditions of settlement, committing the Parties to engage in confirmatory discovery, and agreeing to negotiate the terms and conditions of this Stipulation. Beginning in December 2005, counsel for the Parties began negotiating a Stipulation of Settlement. Based upon extensive, hard fought, arm's-length negotiations, Plaintiffs and Defendants agreed upon the terms and conditions of this Stipulation, as set forth herein. 14

15 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 16 of Plaintiffs have contended and continue to contend that all allegations contained and claims asserted in the Consolidated Amended Class Action Complaint and the Complaint (as defined) are meritorious. Plaintiffs' Co-Lead Counsel have conducted an investigation relating. to the claims and the underlying events and transactions alleged in the Action, and have researched the applicable law with respect to the claims of Plaintiffs and other members of the Class against Defendants and Nominal Defendants and the potential defenses thereto. Among other things, Plaintiffs' Co-Lead Counsel reviewed and analyzed documents and other information obtained from Defendants and others, deposed numerous individuals with relevant factual information, consulted with experts, including industry and damages experts, and researched numerous critical legal issues, including issues relating to revenue sharing, directed. brokerage, and financial advisory services. 10. Plaintiffs' Co-Lead Counsel have conducted discussions and arm's-length negotiations with Defendants' Counsel in writing, during numerous in-person mediation sessions, in telephone conferences, and through exchanges of information. During this period, the Parties identified, researched, and discussed legal and factual issues in dispute, and negotiated extensively regarding the terms and conditions of a possible class-wide resolution. As a result of these negotiations, the Parties, with the substantial assistance of Judge Infante, agreed upon the terms and conditions of Settlement, as set forth herein. 11. The Parties have conducted extensive discovery in connection with the litigation and settlement of this matter. Specifically, the Defendants have produced documents, as requested by Plaintiffs' Co-Lead Counsel. Moreover, Plaintiffs' Co-Lead Counsel have deposed certain of Defendants' senior managers, financial advisors, directors, and other witnesses. Defendants' Counsel have interviewed or deposed a number of witnesses, including several of 15

16 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 17 of 46 the Plaintiffs in this litigation and potential Class Members who were named plaintiffs in related litigation. 12. Based upon their discovery, investigation, consultations with experts, evaluation of the facts and law, and analysis as set forth above, Plaintiffs' Co-Lead Counsel have concluded that the terms and conditions of this Stipulation are fair, reasonable, and adequate for Plaintiffs and the Class and in the best interests of Plaintiffs and the Class, and Plaintiffs have agreed to settle this Action pursuant to the terms and conditions of this Stipulation, after considering (i) the substantial benefits that members of the Class will receive under the terms of this Stipulation, which are fair, reasonable and adequate, in the best interests of the Class, and. fairly resolve the claims at issue, (ii) the attendant risks, burdens, expenses, and uncertainties of continued litigation, and (iii) the desirability of permitting the Settlement to be consummated as provided. by the terms of this Stipulation. 13. Defendants and Nominal Defendants have denied and continue to expressly deny any wrongdoing alleged in this Action or any act or omission giving rise to any liability and/or violation of law, and do not admit or concede any of the facts or claims that have been or could have been alleged against them in this Action. Nominal Defendants deny any allegation of wrongdoing asserted by Plaintiffs that could be read to include Nominal Defendants. 14. Without conceding any liability, wrongdoing or fault, and without admitting that any damages are recoverable or the amount of any damages that may have been incurred, Defendants and Nominal Defendants consider it desirable for the Actions to be settled and dismissed because this Settlement will: (i) minimize the substantial burdens, expenses, risks and uncertainties of continued litigation, especially in complex actions such as this; (ii) result in the dismissal of the Released Claims; and (iii) confer substantial benefits on Defendants - including, 16

17 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 18 of 46 without limitation, the newly formed Ameriprise Financial, Inc. and A,meriprise Financial Services, Inc. - in the form of certainty, finality, and legal peace with regard to the Released Claims. III. CLASS CERTIFICATION FOR SETTLEMENT PURPOSES 15. For purposes of the Settlement only, the Parties hereby stipulate to the certification of the Class defined in paragraph 1(e) above pursuant to Rule 23 of the Federal Rules of Civil Procedure. The Parties stipulate to certification, for settlement purposes only, of the Class pursuant to Fed. R. Civ. P. 23(a) and 23(b)(3). Defendants and Nominal Defendants do not agree to certification of the Class for any purpose other than to effectuate this Settlement. Defendants and Nominal Defendants expressly reserve their right to contest certification in the event this Settlement is terminated or otherwise not approved by the Court. 16. The Parties agree that, at the Final Fairness Hearing on this Settlement, the Court may make findings respecting class certification which, absent the existence of the Settlement and the terms and conditions of this Stipulation, would be contested. The Parties agree that the agreement in this Stipulation for certification of the Class is fully dependent upon the terms and conditions of this Stipulation. Accordingly, while the agreements provided for by this Stipulation should give rise to a finding that a class may be certified in accordance with,the requirements of Fed. R. Civ. P. 23, any such finding is for settlement purposes only and may not be used in this or any other proceeding for any other purpose. 17. The certification of the Class shall be effective and binding only with respect to settlement of this Action in accordance with the terms and conditions of this Stipulation. If, for any reason, this Stipulation is not approved by the Court or if this Settlement is terminated or canceled under the terms of this Stipulation or for any other reason, (a) this Stipulation, and the 17

18 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 19 of 46 certification of the Class provided for herein will be vacated and the Action shall proceed as though the Class had never been certified, without prejudice to any Party 's position on the issue of class certification and as to any other substantive or procedural issues; (b) the Parties will be returned to the status quo ante with respect to every issue of fact and law as they stood prior to the commencement of mediation and the execution of this Stipulation, as if the mediation and this Stipulation had not been entered into; (c) any order entered pursuant to this Stipulation (including the Notice Order and the Judgment) shall be vacated and of no further force or effect; (d) any and all monies in the Settlement Account, and any and all monies paid to Plaintiffs' Co- Lead Counsel from such Settlement Account, plus interest accrued thereon, shall immediately be repaid to Defendants; (e) this Stipulation, the Memorandum of Understanding, and any order entered on or pursuant to this Stipulation shall not be used or relied on in this Action or any other proceeding for any purpose; and (f) all negotiations, proceedings and statements made in connection with the mediation, this Stipulation, and/or the Memorandum of Understanding shall be without prejudice to any Person or Party and shall not be deemed an admission or concession by any Person or Party of any act, matter, fact or proposition and may not be used in this or any proceeding for any purpose other than to effectuate the terms and conditions of Settlement. IV. SCOPE AND EFFECT OF SETTLEMENT AND RELEASES 18. The obligations incurred pursuant to this Stipulation shall be in full and final disposition of (a) the Action as against Defendants and as it relates to Nominal Defendants; (b) any and all Released Claims as against all Released Persons ; and (iii) and any and all Settled Defendants' Claims. 19. Upon the Effective Date of this Settlement, Plaintiffs and all Class Members, on behalf of themselves and their heirs, executors, administrators, successors, and assigns, shall 18

19 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 20 of 46 (a) dismiss the Complaint in the Action and all claims therein with prejudice against all Defendants and Nominal Defendants, (b) release and forever discharge the Released Claims against any of the Released Persons, and (c) forever be enjoined from prosecuting, either directly or in any other capacity, any Released Claims against any of the Released Persons. 20. Upon the Effective Date of this Settlement, Defendants and Nominal Defendants, on behalf of themselves and all other Released Parties, shall release and forever discharge the Settled Defendants' Claims, and shall forever be enjoined from prosecuting the Settled, Defendants' Claims. V. SETTLEMENT CONSIDERATION 21. As consideration for the release of the Released Claims and other valuable consideration Defendants and Nominal Defendants will receive in the Settlement, any or all of the Defendants shall make a Settlement Payment in the. amount of One Hundred Million Dollars ($100,000,000.00) in cash. Each of the Defendants is jointly and severally liable for the entire amount of the Settlement Payment. 22. In addition, Defendants shall adopt and implement the remedial measures set forth in Exhibit D hereto. 23. Defendants shall pay all reasonable Notice and Administrative Costs, excluding taxes, separately from and without reducing the Settlement Payment, and no amount for Notice and Administration Costs will be deducted from the Settlement Payment or Settlement Fund. The Claims Administrator shall submit invoices for its reasonable fees, costs, and expenses in connection with the Settlement to Defendants, and Defendants shall pay such amounts directly to the Claims Administrator, except that Defendants may object to, and, if necessary, not pay for 19

20 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 21 of 46 fees, costs, or expenses they deem unreasonable in light of their contract with the Claims Administrator. 24. No later than ten (10) days after the Court enters the Notice Order, the entire amount of the Settlement Payment shall be deposited into the Settlement Account. Effective Date, the Settlement Account shall be under the joint control of Plaintiffs' Prior to the Co-Lead Counsel and Defendants' Counsel. Prior to the Effective Date, all funds in the Settlement Account shall be invested and reinvested in short-term United States Agency or Treasury Securities of a duration to maturity of twelve months or less from the date of purchase. Upon the Effective Date, Plaintiffs' Co-Lead Counsel and Defendants' Counsel shall take all steps necessary to transfer control of the Settlement Account to Plaintiffs' Co-Lead Counsel, who shall hold the Settlement Fund in trust for the Class. 25. The Parties agree that the Settlement Fund is intended to be a Qualified Settlement Fund within the meaning of Treasury Regulation 1.468B-1 and elect to have such Qualified Settlement Fund treatment apply as of the earliest possible date. Plaintiffs' Co-Lead Counsel, as administrator of the Settlement Fund within the meaning of Treasury Regulation 1.468B-2(k)(3), shall be responsible for filing tax returns for the Settlement Fund and paying from the Settlement Fund any taxes owed with respect to the Settlement Fund. Defendants agree to provide promptly to Plaintiffs' Co-Lead Counsel the statement described in Treasury Regulation 1.468B-3(e). 26. All (i) taxes on the income of the Settlement Fund and (ii) expenses and costs incurred in connection with the taxation of the Settlement Fund (including, without limitation, expenses of tax attorneys and accountants ) shall be paid out of the Settlement Fund, and shall be 20

21 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 22 of 46 timely paid by Plaintiffs' Co-Lead Counsel from the Settlement Fund without further order of the Court. VI. ADMINISTRATION AND NOTICE AND ADMINISTRATIVE COSTS 27. Plaintiffs' Co-Lead Counsel shall designate the Claims Administrator, subject to. the consent of Defendants' Counsel, such consent not to be unreasonably withheld. Acting as an independent contractor, the Claims Administrator shall, subject to the jurisdiction of the Court, arrange for the printing and mailing of the Mailed Notice and publication of the Publication Notice and administer the Settlement, including, but not limited to, receiving and processing claims, assisting Class Members with the claims process, and issuing and mailing payments from the Net Settlement Fund to Class Members entitled thereto in accordance with the Plan of Allocation. 28. Defendants and Nominal Defendants shall cooperate in the administration of the " Settlement to the extent reasonably necessary to effectuate its terms. Defendant AEFA shall provide or cause to be provided to the Claims Administrator lists of the last known names and addresses of all Persons falling within the Class definition for whom such information is reasonably ascertainable from AEFA' s records. In addition, Defendants will provide such information as may reasonably be requested by Plaintiffs to implement the Plan of Allocation. 29. Under no circumstances, including termination of the Settlement or failure of the Effective Date to be reached or dispute between Defendants and the Claims Administrator over the reasonableness of amounts billed by the Claims Administrator as Notice and Administrative Costs, will any Plaintiffs, Class Members, or their attorneys have any financial responsibility or liability for any Notice and Administrative Costs or Taxes or any other fees, costs, or expenses 21

22 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 23 of 46 incurred by any Defendants, Nominal Defendants, other Released Parties, or their attorneys in connection with the Action or the Settlement. VII. ATTORNEYS' FEES AND EXPENSES 30. Plaintiffs' Co-Lead Counsel will submit an application for an award of attorneys' fees and for reimbursement of expenses incurred in connection with the prosecution of this litigation from the settlement fund, in an amount not to exceed twenty seven percent (27%) of the Settlement Fund, reimbursement of expenses not to exceed $1 million, and interest on such amounts from the date of deposit of the Settlement Fund as set forth in paragraph 24 at the same net rate earned by the Settlement Fund. Plaintiffs' Co-Lead Counsel will apply for authorization to pay, from the amount awarded by the Court for attorneys' fees, incentive awards of $5,000 each to the six class representatives in this action and each of the five plaintiffs in a related case known as Haritos v. American Express Financial Advisors, Inc., Case No PHX-PGR, pending in the United States District Court for the District of Arizona ("Haritos") 31. The Fee and Expense Award shall be paid from the Settlement Fund to Plaintiffs' Co-Lead Counsel immediately upon award, notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement or any part thereof, subject to Plaintiffs' Co-Lead Counsel's obligation to make appropriate refunds or repayments to the Settlement Fund, plus accrued interest at the same net rate earned by the Settlement Fund, if and when, as a result of any appeal and/or further proceedings on remand or successful collateral attack, the Fee and Expense Award is reduced or reversed. If Defendants believe that any of the firms among Plaintiffs' Co-Lead Counsel is subject to significant pending claims, such that the firm' s portion of the Fee and Expense Award may not be recoverable in the event that the Judgment or Alternative Judgment is reversed, Defendants may, at their discretion, 22

23 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 24 of 46 insist upon adequate security for the full repayment of that firm's portion of the Fee and Expense Award. VIII. PLAN OF ALLOCATION, AND DISTRIBUTION TO CLASS MEMBERS 32. The Net Settlement Fund shall be allocated and distributed among the Class in accordance with the Plan of Allocation. 33. As of the Effective Date of the Settlement, neither Defendants nor Nominal Defendants shall be entitled to any return, recovery, or reversion of any amounts contributed to the Settlement Payment, Settlement Fund, or Net Settlement Fund. 34. To recover under the Settlement, Class Members will need to file a Proof of Claim. The Claims Administrator shall process the Proof of Claim forms and, after entry of the Class Distribution Order, allocate and distribute the Net Settlement Fund in accordance with the. Plan of Allocation. Plaintiffs' Co-Lead Counsel shall have the right, but not the obligation, to direct the Claims Administrator to waive what they deem to be formal or technical defects in any Proof of Claim forms submitted, in the interests of achieving substantial justice. 35. Regardless of whatever plan of allocation is approved, to be eligible for a distribution from the Net Settlement Fund, a Class Member must comply with the following requirements: (a) The Class Member must complete and submit a Proof of Claim, substantially in the form attached as Exhibit 2 to Exhibit E hereto. (b) The Class Member must submit the Proof of Claim by the date specified in the Mailed Notice and Publication Notice unless such period is extended by order of the Court. Any Class Member who fails to submit a Proof of Claim by such date shall be forever barred from receiving any payment pursuant to this Stipulation and Settlement (unless, by order 23

24 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 25 of 46 of the Court, a later submitted Proof of Claim by such Class Member is approved), but shall in all other respects be bound by all of the terms of this Stipulation and the Settlement, including the terms of the Judgment to be entered in the Action and the Release provided for herein, and will be barred from bringing any action against the Released Persons concerning the Released Claims. Provided that it is received before the motion for the Class Distribution Order is filed, a Proof of Claim submitted by United States mail shall be deemed to have been submitted when posted, if received with a postmark indicated on the envelope and if mailed by first-class mail. In all other cases, the Proof of Claim shall be deemed to have been submitted when actually received by the Claims Administrator. (c) The Class Member must submit the Proof of Claim to the Claims Administrator, who shall review the Proof of Claim and determine, in accordance with this Stipulation and the Plan of Allocation, the extent to which the Class Member's claim shall be allowed, subject to review by the Court pursuant to subparagraph (e) below. (d) Proofs of Claim that do not meet the foregoing submission requirements may be rejected. Prior to rejection of a Proof of Claim, the Claims Administrator shall communicate with the submitting Class Member in order to remedy the curable deficiencies in the Proof of Claim. The Claims Administrator shall notify, in a timely fashion and in writing, all Class Members whose Proof of Claim forms the Claims Administrator proposes to reject in whole or in part, setting forth the reasons why, and shall indicate in such notice that the Class Member whose claim is to be rejected has the right to a review by the Court if the Class Member so desires and complies with the requirements of subparagraph (e) below. (e) If any Class Member whose claim has been rejected in whole or in part desires to contest such rejection, the Class Member must, within twenty (20) days after the date of 24

25 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 26 of 46 mailing of the notice required in subparagraph (d) above, serve upon the Claims Administrator a notice and statement of reasons indicating the Class Member's grounds for contesting the rejection along with any supporting documentation, and requesting a review thereof by the Court. If a dispute concerning a claim cannot be otherwise resolved, Plaintiffs' Co-Lead Counsel shall thereafter present the request for review to the Court. (f) The administrative determinations of the Claims Administrator accepting and rejecting claims shall be presented to the Court, on notice to Plaintiffs' Co-Lead Counsel, Defendants' Counsel and Nominal Defendants' Counsel, for approval by the Court in the Class Distribution Order. 36. Regardless of whatever plan of allocation is approved, any Class Member who does not submit a timely and valid Proof of Claim will not be entitled to receive any of the proceeds from the Net Settlement Fund, but will otherwise be bound by all of the terms of this Stipulation and the Settlement, including the terms of the Judgment to be entered in the Action and the releases provided for herein, and will be barred from bringing any action against the Released Persons concerning the Released Claims. 37. Each Person who submits a Proof of Claim shall be deemed to have submitted to the jurisdiction of the Court with respect to the claim, and the claim will be subject to investigation and discovery under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall be limited to that person's status as a Class Member and the validity and amount of the claim. No discovery shall be allowed on the merits of the Action or Settlement in connection with processing of the Proofs of Claim. 38. Distribution of the Net Settlement Fund in accordance with this Stipulation and the Plan of Allocation shall be deemed final and conclusive against all Class Members. All 25

26 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 27 of 46 Class Members whose claims are not approved by the Court shall be barred from participating in distributions from the Net Settlement Fund, but otherwise shall be bound by all of the terms of this Stipulation and the Settlement, including the terms of the Judgment to be entered in the Action and the Release provided for herein, and will be barred from bringing any action against the Released Persons concerning the Released Claims. 39. All proceedings with respect to the administration, processing, and determination of claims described by paragraph 37 above and the determination of all controversies relating thereto, including disputed questions of law and fact with respect to the validity of claims, shall be subject to the jurisdiction of the Court. 40. The Net Settlement Fund shall be distributed in accordance with the Plan of Allocation only after the Effective Date and after (i) all timely Proofs of Claim have been processed, and all Class Members whose claims have been rejected or disallowed, in whole or in part, have been notified and provided with the opportunity to be heard concerning such rejection or disallowance; (ii) all timely objections with respect to all rejected or disallowed claims have been resolved by the Court or otherwise, and all appeals therefrom have been resolved or the time therefor has expired; and (iii) all matters with respect to the Fee and Expense Award have been resolved by the Court and all appeals therefrom have been resolved or the time therefor has expired. 41. Plaintiffs' Co-Lead Counsel will apply to the Court, on notice to Defendants' Counsel and Nominal Defendants' Counsel, for a Class Distribution Order that approves the Claims Administrator's administrative determinations concerning the acceptance and rejection of the claims submitted herein, and directs distribution, once the Effective Date has occurred, of the Net Settlement Fund in accordance with the Plan of Allocation. 26

27 Case 1 :04-cv DAB Document Filed 01/18/2007 Page 28 of No person shall have any claim against any Plaintiffs, Class Members, the Claims Administrator, Defendants, Nominal Defendants, or Released Persons, or any of their respective attorneys based on investments or distributions made substantially in accordance with this Stipulation and the Settlement contained herein, the Plan of Allocation, or further orders of the Court. 43. It is understood and agreed by the Parties that the Plan of Allocation is not part of the Stipulation and is to be considered by the Court separately from the. Court's consideration of the fairness, reasonableness, and adequacy of the Settlement set forth in this Stipulation, and any order or proceeding relating to the Plan of Allocation shall not operate to terminate or cancel the Stipulation or affect the finality of the Judgment of the Court approving the Stipulation and the Settlement set forth herein, or any other orders entered pursuant to the Stipulation. 44. Defendants, Nominal Defendants, Released Persons, and their respective counsel shall have no responsibility for, interest in, or liability whatsoever with respect to: (a) any act, omission, or determination of the Plaintiffs' Co-Lead Counsel, the Claims Administrator, or any designees or agents of the Plaintiffs' Co-Lead Counsel or Claims Administrator; (b) any act, omission, or determination of Plaintiffs' Co-Lead Counsel, Claims Administrator, or any designees or agents of the Plaintiffs' Co-Lead Counsel or Claims Administrator in connection with the administration of the Settlement; (c) the management, investment, or distribution of the Settlement Fund; and/or (d) the receipt, determination, administration, calculation, or payment of any claims concerning the Settlement Fund. 27