<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-13459
AFFILIATED MANAGERS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3218510
-------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
TWO INTERNATIONAL PLACE, BOSTON, MASSACHUSETTS 02110
----------------------------------------------------
(Address of principal executive offices)
(617) 747-3300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of the Registrant's Common Stock outstanding at August
13, 1999: 23,282,747 including 1,492,079 shares of Class B Non-Voting Common
Stock. Unless otherwise specified, the term Common Stock includes both Common
Stock and Class B Non-Voting Common Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 23,735 $ 32,149
Investment advisory fees receivable ....................... 66,939 42,476
Other current assets ...................................... 5,137 5,789
--------- ---------
Total current assets ................................ 95,811 80,414
Fixed assets, net ............................................ 8,001 12,068
Equity investment in Affiliate ............................... 1,340 1,312
Acquired client relationships, net of accumulated amortization
of $13,870 and $18,487 .................................... 169,065 192,246
Goodwill, net of accumulated amortization of $23,191
and $29,425 ............................................... 321,409 391,105
Notes receivable from related parties ........................ 2,800 5,128
Other assets ................................................. 6,908 8,121
--------- ---------
Total assets ......................................... $ 605,334 $ 690,394
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities ..................... $ 42,617 $ 42,967
Notes payable to related parties ............................. 22,000 --
--------- ---------
Total current liabilities ............................ 64,617 42,967
Senior bank debt ............................................. 190,500 174,000
Deferred taxes ............................................... 10,410 14,797
Other long-term liabilities .................................. 1,204 1,297
Subordinated debt ............................................ 800 800
--------- ---------
Total liabilities .................................... 267,531 233,861
Minority interest ............................................ 24,148 24,286
Stockholders' equity:
Convertible stock ............................................ 30,992 --
Common stock ................................................. 177 235
Additional paid-in capital on common stock ................... 273,413 405,995
Accumulated other comprehensive income ....................... 16 (99)
Accumulated earnings ......................................... 11,669 28,728
--------- ---------
316,267 434,859
Less treasury shares ......................................... (2,612) (2,612)
Total stockholders' equity .............................. 313,655 432,247
--------- ---------
Total liabilities and stockholders' equity .............. $ 605,334 $ 690,394
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ............................... $ 56,586 $ 78,577 $ 102,309 $ 146,704
Operating expenses:
Compensation and related expenses ... 19,463 26,292 36,078 50,714
Amortization of intangible assets ... 4,518 5,596 8,347 10,851
Depreciation and other amortization . 600 1,144 1,113 1,891
Selling, general and administrative . 7,857 13,312 14,640 23,169
Other operating expenses ............ 1,915 1,995 3,205 3,994
------------ ------------ ------------ ------------
34,353 48,339 63,383 90,619
------------ ------------ ------------ ------------
Operating income ............. 22,233 30,238 38,926 56,085
Non-operating (income) and expenses:
Investment and other income ......... (530) (746) (841) (1,658)
Interest expense .................... 3,929 2,811 7,003 6,256
------------ ------------ ------------ ------------
3,399 2,065 6,162 4,598
------------ ------------ ------------ ------------
Income before minority interest and
income taxes ........................ 18,834 28,173 32,764 51,487
Minority interest ...................... (8,976) (12,046) (15,469) (22,574)
------------ ------------ ------------ ------------
Income before income taxes ............. 9,858 16,127 17,295 28,913
Income taxes ........................... 3,943 6,612 6,918 11,854
------------ ------------ ------------ ------------
Net income ............................. $ 5,915 $ 9,515 $ 10,377 $ 17,059
============ ============ ============ ============
Net income per share - basic ........... $ 0.34 $ 0.41 $ 0.59 $ 0.81
Net income per share - diluted ......... $ 0.30 $ 0.41 $ 0.55 $ 0.77
Average shares outstanding - basic ..... 17,621,371 23,278,438 17,605,896 21,162,488
Average shares outstanding - diluted ... 19,716,449 23,427,243 18,935,919 22,068,094
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income ................. $ 5,915 $ 9,515 $ 10,377 $ 17,059
Foreign currency translation
adjustment, net of taxes 2 (50) 38 (115)
-------- -------- -------- --------
Comprehensive income ....... $ 5,917 $ 9,465 $ 10,415 $ 16,944
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income .................................................................... $ 10,377 $ 17,059
Adjustments to reconcile net income to net cash flow from operating activities:
Amortization of intangible assets ............................................. 8,347 10,851
Depreciation and other amortization ........................................... 1,113 1,891
Deferred income tax provision ................................................. -- 4,387
Changes in assets and liabilities:
(Increase) decrease in investment advisory fees receivable .................... (7,357) 33,644
Increase in other current assets .............................................. (245) (342)
Increase (decrease) in accounts payable, accrued expenses and other liabilities 9,412 (10,863)
Minority interest ............................................................. 3,693 138
--------- ---------
Cash flow from operating activities .................................... 25,340 56,765
--------- ---------
Cash flow used in investing activities:
Purchase of fixed assets ...................................................... (1,860) (3,906)
Costs of investments, net of cash acquired .................................... (64,000) (104,068)
Distribution received from Affiliate equity investment ........................ 263 366
Increase in other assets ...................................................... (689) (1,269)
Loans to related parties ...................................................... -- (2,328)
--------- ---------
Cash flow used in investing activities .................................. (66,286) (111,205)
--------- ---------
Cash flow from financing activities:
Borrowings of senior bank debt ................................................ 72,300 130,300
Repayments of senior bank debt ................................................ (17,500) (146,800)
Repayments of notes payable ................................................... -- (22,000)
Issuance (repurchase) of equity securities .................................... (5) 101,649
Debt issuance costs ........................................................... (76) (180)
--------- ---------
Cash flow from financing activities ..................................... 54,719 62,969
Effect of foreign exchange rate changes on cash flow ............................. 38 (115)
Net increase in cash and cash equivalents ........................................ 13,811 8,414
Cash and cash equivalents at beginning of period ................................. 22,766 23,735
--------- ---------
Cash and cash equivalents at end of period ....................................... $ 36,577 $ 32,149
========= =========
Supplemental disclosure of non-cash financing activities:
Stock issued in acquisitions .................................................. $ 30,992 $ --
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
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1. BASIS OF PRESENTATION
The consolidated financial statements of Affiliated Managers Group,
Inc. (the "Company" or "AMG") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The year end condensed
balance sheet data was derived from audited financial statements, but does not
include all of the disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain prior year amounts have been reclassified to conform to the
current year presentation. Operating results for interim periods are not
necessarily indicative of the results that may be expected for the full year.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 includes additional information about AMG, its operations, and its
financial position, and should be read in conjunction with this quarterly report
on Form 10-Q.
2. ACQUISITIONS
On April 1, 1999, the Company completed an investment in substantially
all of the ownership interests in The Managers Funds LLC, which serves as the
adviser to a family of nine equity and fixed income no-load mutual funds. This
transaction was accounted for under the purchase method of accounting.
3. INCOME TAXES
A summary of the provision for income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1999
----------- --------
<S> <C> <C> <C>
Federal: Current............................. $ -- $ 3,814
Deferred............................ 3,371 1,725
State: Current............................. 91 701
Deferred............................ 481 372
----------- --------
Provision for income taxes......................... $ 3,943 $ 6,612
=========== ========
</TABLE>
4. EARNINGS PER SHARE
The calculation for the basic earnings per share is based on the
weighted average of common shares outstanding during the period. The calculation
for the diluted earnings per share is based on the weighted average of common
and common equivalent shares outstanding during the period. The following is a
reconciliation of the numerators and denominators of the basic and diluted EPS
computations.
5
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Numerator:
Net income ................................ $ 5,915,000 $ 9,515,000
Denominator:
Average shares outstanding - basic ........ 17,621,371 23,278,438
Convertible stock ......................... 1,750,942 --
Stock options and unvested restricted stock 344,136 148,805
----------- -----------
Average shares outstanding - diluted ...... 19,716,449 23,427,243
=========== ===========
Net income per share:
Basic ..................................... $ 0.34 $ 0.41
Diluted ................................... $ 0.30 $ 0.41
</TABLE>
In March 1998, the Company issued 1,750,942 shares of Series C
Convertible Stock in completing its investment in Essex Investment Management
Company, LLC. Each share converted into one share of Common Stock on March 20,
1999. The shares of Common Stock converted on that date have been included in
the calculation of basic shares outstanding for the three months ended June 30,
1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
WHEN USED IN THIS FORM 10-Q AND IN OUR FUTURE FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, IN OUR PRESS RELEASES AND IN ORAL STATEMENTS
MADE WITH THE APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER, THE WORDS OR PHRASES
"WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL CONTINUE", "IS ANTICIPATED",
"BELIEVES", "ESTIMATE", "PROJECT" OR SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED UNDER THE CAPTION
"BUSINESS-CAUTIONARY STATEMENTS" IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. WE WISH
TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE. WE WISH TO ADVISE READERS THAT
THE FACTORS UNDER THE ABOVE DESCRIBED CAPTION "BUSINESS - CAUTIONARY STATEMENTS"
COULD AFFECT OUR FINANCIAL PERFORMANCE AND COULD CAUSE OUR ACTUAL RESULTS FOR
FUTURE PERIODS TO DIFFER MATERIALLY FROM ANY OPINIONS OR STATEMENTS EXPRESSED
WITH RESPECT TO FUTURE PERIODS IN ANY CURRENT STATEMENTS.
IN ADDITION, THE DISCUSSION AND ANALYSIS WITH RESPECT TO THE YEAR 2000
(AS DESCRIBED MORE FULLY BELOW), INCLUDING (I) OUR EXPECTATIONS OF WHEN ALL
RELEVANT INTERNAL AND EXTERNAL SYSTEMS WILL BE ABLE TO HANDLE DATES BEYOND 1999
(GENERALLY DESCRIBED AS "YEAR 2000 COMPLIANCE"), (II) OUR ESTIMATES OF THE COSTS
INVOLVED IN ACHIEVING YEAR 2000 COMPLIANCE AND (III) OUR BELIEF THAT THE COSTS
WILL NOT BE MATERIAL TO OPERATING RESULTS, ARE BASED ON OUR ESTIMATES WHICH, IN
TURN, ARE BASED UPON A NUMBER OF ASSUMPTIONS REGARDING FUTURE EVENTS, INCLUDING
THIRD PARTY MODIFICATION PLANS AND THE AVAILABILITY OF CERTAIN RESOURCES. THERE
CAN BE NO GUARANTEE THAT THESE ESTIMATES WILL BE ACHIEVED, AND ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM OUR ESTIMATES. SPECIFIC FACTORS WHICH MIGHT CAUSE
SUCH MATERIAL DIFFERENCES WITH RESPECT TO THE YEAR 2000 INCLUDE, BUT ARE NOT
LIMITED TO, THE FAILURE OF THIRD PARTY PROVIDERS TO ACHIEVE REPRESENTED OR
STATED LEVELS OF YEAR 2000 COMPLIANCE, AVAILABILITY AND COST OF PERSONNEL
TRAINED IN THIS AREA, THE ABILITY TO LOCATE AND CORRECT ALL RELEVANT COMPUTER
CODES, AND SIMILAR UNCERTAINTIES.
WE WILL NOT UNDERTAKE AND WE SPECIFICALLY DISCLAIM ANY OBLIGATION TO
RELEASE PUBLICLY THE RESULT OF ANY REVISIONS WHICH MAY BE MADE TO ANY
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
SUCH STATEMENTS OR TO REFLECT THE OCCURRENCE OF EVENTS, WHETHER OR NOT
ANTICIPATED.
6
<PAGE>
OVERVIEW
We buy and hold equity interests in mid-sized investment management
firms (our "Affiliates") and currently derive all of our revenues from those
firms. We hold investments in 14 Affiliates that in aggregate managed $70.9
billion in assets at June 30, 1999. Our most recent investments were in Davis
Hamilton Jackson & Associates, L.P. ("DHJA") in December 1998, Rorer Asset
Management, LLC ("Rorer") in January 1999 and The Managers Funds LLC
("Managers") in April 1999.
We have a revenue sharing arrangement with each of our Affiliates
(other than Managers) which allocates a specified percentage of revenues
(typically 50-70%) for use by management of that Affiliate in paying operating
expenses, including salaries and bonuses (the "Operating Allocation"). The
remaining portion of revenues of each such Affiliate, typically 30-50% (the
"Owners' Allocation"), is allocated to the owners of that Affiliate (including
AMG), generally in proportion to their ownership of the Affiliate. One of the
purposes of our revenue sharing arrangements is to provide ongoing incentives
for the managers of these Affiliates by allowing them:
- - to participate in their firm's growth through their compensation from the
Operating Allocation,
- - to receive a portion of the Owners' Allocation based on their ownership
interest in the Affiliate, and
- - to control operating expenses, thereby increasing the portion of the
Operating Allocation which is available for growth initiatives and bonuses
for management of such Affiliate.
Under the revenue sharing arrangements, the managers of our Affiliates
have an incentive to both increase revenues of the Affiliate (thereby increasing
the Operating Allocation and their Owners' Allocation) and to control expenses
of the Affiliate (thereby increasing the excess Operating Allocation).
The revenue sharing arrangements allow us to participate in the revenue
growth of our Affiliates because we receive a portion of the additional revenue
as our share of the Owners' Allocation. However, we participate in that growth
to a lesser extent than the managers of our Affiliates, because we do not share
in the growth of the Operating Allocation.
Under the organizational documents of the Affiliates (other than
Managers), the allocations and distributions of cash to us generally take
priority over the allocations and distributions to the other owners of the
Affiliates. This further protects us if there are any expenses in excess of the
Operating Allocation of an Affiliate. Thus, if an Affiliate's expenses exceed
its Operating Allocation, the excess expenses first reduce the portion of the
Owners' Allocation allocated to the Affiliate's management owners, until that
portion is eliminated, and then reduce the portion allocated to us. Unlike all
other Affiliates, Managers is not subject to a revenue sharing arrangement. As a
result, we participate fully in any increase or decrease in the revenues or
expenses of Managers.
The portion of our Affiliates' revenues which is included in their
Operating Allocation and retained by them to pay salaries, bonuses and other
operating expenses, as well as the portion of our Affiliates' revenues which are
included in their Owners' Allocation and distributed to us and the other owners
of the Affiliates, are included as "revenues" on our Consolidated Statements of
Operations. The expenses of our Affiliates which are paid out of the Operating
Allocation, as well as our holding company expenses which we pay out of the
amounts of the Owners' Allocation which we receive from the Affiliates, are both
included in "operating expenses" on our Consolidated Statements of Operations.
Since Managers is not subject to a revenue sharing arrangement, all revenues and
expenses of Managers are consolidated into the revenues and operating expenses
in our Consolidated Statements of Operations. The portion of our Affiliates'
revenues which is allocated to owners of the Affiliates other than us is
included in "minority interest" on our Consolidated Statements of Operations.
The EBITDA Contribution of an Affiliate represents the Owners'
Allocation of that Affiliate allocated to AMG (or, in the case of Managers, the
income allocated to AMG) before interest, taxes, depreciation and amortization
of that Affiliate. EBITDA Contribution does not include our holding company
expenses.
Our revenues are generally derived from the provision of investment
management services for fees by our Affiliates. Investment management fees are
usually determined as a percentage fee charged on periodic values of a client's
assets under management. Certain of the Affiliates bill advisory fees for all or
a portion of their clients based
7
<PAGE>
upon assets under management valued at the beginning of a billing period ("in
advance"). Other Affiliates bill advisory fees for all or a portion of their
clients based upon assets under management valued at the end of the billing
period ("in arrears"), while mutual fund clients are billed based upon daily
assets. Advisory fees billed in advance will not reflect subsequent changes in
the market value of assets under management for that period. Conversely,
advisory fees billed in arrears will reflect changes in the market value of
assets under management for that period. In addition, several of the Affiliates
charge performance-based fees to certain of their clients; these
performance-based fees result in payments to the applicable Affiliate if
specified levels of investment performance are achieved. All references to
"assets under management" include assets directly managed as well as assets
underlying overlay strategies which employ futures, options or other derivative
securities to achieve a particular investment objective.
Our level of profitability will depend on a variety of factors
including principally: (i) the level of Affiliate revenues, which is dependent
on the ability of our existing and future Affiliates to maintain or increase
assets under management by maintaining their existing investment advisory
relationships and fee structures, marketing their services successfully to new
clients, and obtaining favorable investment results; (ii) a variety of factors
affecting the securities markets generally, which could potentially result in
considerable increases or decreases in the assets under management at our
Affiliates; (iii) the receipt of Owners' Allocation, which is dependent on the
ability of our existing and future Affiliates to maintain certain levels of
operating profit margins; (iv) the availability and cost of the capital with
which we finance our existing and new investments; (v) our success in attracting
new investments and the terms upon which such transactions are completed; (vi)
the level of intangible assets and the associated amortization expense resulting
from our investments; (vii) the level of expenses incurred for holding company
operations, including compensation for its employees; and (viii) the level of
taxation to which we are subject. Each of the foregoing are, to some extent,
dependent on factors (including general securities market conditions, as
noted above) which are not in our control.
Assets under management were $70.9 billion at June 30, 1999 versus
$64.2 billion at March 31, 1999 and $57.7 billion at December 31, 1998. The
increase in assets under management during the quarter was partially related to
the closing of our investment in Managers ($1.7 billion) in April 1999. During
the quarter net client cash flows for directly managed assets contributed $997.4
million of the increase while overlay assets (which generally carry lower fees
than directly managed assets) declined $404.0 million. Positive investment
performance accounted for the remaining $4.4 billion increase in assets under
management during the quarter. Year to date growth was driven by our investments
in Rorer ($4.4 billion) and Managers and $1.4 billion of net client cash flows
from directly managed assets (offset by $1.5 billion in declines in overlay
assets). Positive investment performance of $7.2 billion increased assets under
management year to date.
Our investments have been accounted for under the purchase method of
accounting under which goodwill is recorded for the excess of the purchase price
for the acquisition of interests in Affiliates over the fair value of the net
assets acquired, including acquired client relationships.
As a result of our investments, intangible assets, consisting of
acquired client relationships and goodwill, constitute a substantial percentage
of our consolidated assets. As of June 30, 1999, our total assets were
approximately $690.4 million, of which approximately $192.2 million consisted of
acquired client relationships and $391.1 million consisted of goodwill.
The amortization period for intangible assets for each investment is
assessed individually, with amortization periods for our investments to date
ranging from eight to 28 years in the case of acquired client relationships and
15 to 35 years in the case of goodwill. In determining the amortization period
for intangible assets acquired, we consider a number of factors including: the
firm's historical and potential future operating performance and rate of
attrition among clients; the stability and longevity of existing client
relationships; the firm's recent, as well as long-term, investment performance;
the characteristics of the firm's products and investment styles; the stability
and depth of the firm's management team and the firm's history and perceived
franchise or brand value. We perform a quarterly evaluation of intangible assets
on an investment-by-investment basis to determine whether there has been any
impairment in their carrying value or their useful lives. If impairment is
indicated, then the carrying amount of intangible assets, including goodwill,
will be reduced to their fair values.
While amortization of intangible assets has been charged to the results
of operations and is expected to be a continuing material component of our
operating expenses, management believes it is important to distinguish this
8
<PAGE>
expense from other operating expenses since such amortization does not require
the use of cash. Because of this, and because our distributions from our
Affiliates are based on their Owners' Allocation, we have provided additional
supplemental information in this report for "cash" related earnings, as an
addition to, but not as a substitute for, measures related to net income. Such
measures are (i) EBITDA, which we believe is useful to investors as an indicator
of our ability to service debt, to make new investments and meet working capital
requirements, and (ii) EBITDA as adjusted, which we believe is useful to
investors as another indicator of funds available which may be used to make new
investments, to repay debt obligations, to repurchase shares of our Common Stock
or pay dividends on our Common Stock (although the Company has no current plans
to pay dividends).
THE THREE MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1998
The Company had net income of $9.5 million for the quarter ended June
30, 1999 compared to net income of $5.9 million for the quarter ended June 30,
1998. The increase in net income resulted primarily from the growth in EBITDA
contribution from existing Affiliates and also from investments in new
Affiliates. The Company invested in DHJA, Rorer and Managers on December 31,
1998, January 6, 1999, and April 1, 1999, respectively.
Total revenues for the quarter ended June 30, 1999 were $78.6 million,
an increase of $22.0 million over the quarter ended June 30, 1998, primarily as
a result of the investments in new Affiliates and also from the growth in
revenues from existing Affiliates.
Total operating expenses increased by $13.9 million to $48.3 million
for the quarter ended June 30, 1999 from $34.4 million for the quarter ended
June 30, 1998. Compensation and related expenses increased by $6.8 million,
selling, general and administrative expenses increased by $5.5 million, and
amortization of intangible assets increased by $1.1 million. The increases in
operating expenses were primarily due to the investments in the new Affiliates
and also from the growth in the Operating Allocation related to the growth in
revenues from existing Affiliates.
Interest expense decreased by $1.1 million to $2.8 million for the
quarter ended June 30, 1999 from $3.9 million for the quarter ended June 30,
1998. The reduction in interest expense was partially from repayments of
senior bank debt generated from the net proceeds from our public offering of
Common Stock in March 1999 (as described below) and cash flow from ongoing
operations, offset by borrowings related to new investments. In addition,
interest expense decreased due to a favorable interest rate environment.
Minority interest increased by $3.0 million to $12.0 million for the
quarter ended June 30, 1999 from $9.0 million for the quarter ended June 30,
1998. This increase was primarily a result of the addition of new Affiliates and
also from the growth in revenues from existing Affiliates as described above.
Income tax expense was $6.6 million for the quarter ended June 30, 1999
compared to $3.9 million for the quarter ended June 30, 1998. The change in tax
expense was primarily related to an increase in income before taxes.
EBITDA increased by $6.8 million to $25.7 million for the quarter ended
June 30, 1999 from $18.9 million for the quarter ended June 30, 1998, primarily
as a result of the investments in new Affiliates and also from the growth in
revenues from existing Affiliates as described above.
EBITDA as adjusted increased by $5.3 million to $16.3 million for the
quarter ended June 30, 1999 from $11.0 million for the quarter ended June 30,
1998 as a result of the factors affecting net income as described above.
THE SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998
The Company had net income of $17.1 million for the six months ended
June 30, 1999 compared to net income of $10.4 million for the six months ended
June 30, 1998. The increase in net income resulted mostly from EBITDA
contribution from new investments made during and subsequent to the first six
months of 1998. The Company invested in Essex, DHJA, Rorer and Managers on March
20, 1998, December 31, 1998, January 6, 1999 and April 1, 1999, respectively.
9
<PAGE>
Total revenues for the six months ended June 30, 1999 were $146.7
million, an increase of $44.4 million over the six months ended June 30, 1998,
primarily as a result of the investments in new Affiliates.
Total operating expenses increased by $27.2 million to $90.6 million
for the six months ended June 30, 1999 from $63.4 million for the six months
ended June 30, 1998. Compensation and related expenses increased by $14.6
million, selling, general and administrative expenses increased by $8.6 million,
amortization of intangible assets increased by $2.6 million, and other operating
expenses increased by $789,000. The increases in operating expenses are
primarily due to the investments in the new Affiliates as described above.
Interest expense decreased by $747,000 to $6.3 million for the six
months ended June 30, 1999 from $7.0 million for the six months ended June
30, 1998. The reduction in interest expense was partially from repayments of
senior bank debt generated from the net proceeds from our public offering of
Common Stock in March 1999 (as described below) and cash flow from ongoing
operations, offset by borrowings related to new investments. In addition,
interest expense decreased due to a favorable interest rate environment.
Minority interest increased by $7.1 million to $22.6 million for the
six months ended June 30, 1999 from $15.5 million for the six months ended June
30, 1998. This increase is primarily a result of the addition of new Affiliates
as described above.
Income tax expense was $11.9 million for the six months ended June 30,
1999 compared to $6.9 million for the six months ended June 30, 1998. The change
in tax expense was primarily related to an increase in income before taxes.
EBITDA increased by $14.2 million to $47.9 million for the six months
ended June 30, 1999 from $33.8 million for the six months ended June 30, 1998,
primarily as a result of the investments in new Affiliates as described above.
EBITDA as adjusted increased by $10.0 million to $29.8 million for the
six months ended June 30, 1999 from $19.8 million for the six months ended June
30, 1998 as a result of the factors affecting net income as described above.
LIQUIDITY AND CAPITAL RESOURCES
We have met our cash requirements primarily through cash generated
by operating activities, bank borrowings, and the issuance of equity and debt
securities in public and private placement transactions (such as the public
offering described below). We anticipate that we will use cash flow from our
operating activities to repay debt and to finance our working capital needs
and will use bank borrowings and issue equity and debt securities to finance
future investments. Our principal uses of cash have been to make investments
(such as the acquisition of The Managers Funds LLC), to retire indebtedness,
repurchase shares and to support our and our Affiliates' operating
activities. We expect that our principal use of funds for the foreseeable
future will be for additional investments, repayments of debt, including
interest payments on outstanding debt, distributions to owners of Affiliates
other than us, additional investments in existing Affiliates, including upon
management owners' sales of their retained equity to us, and for working
capital purposes. We do not expect to make commitments for material capital
expenditures.
On March 3, 1999, the Company completed a public offering of Common
Stock. In the offering 5,529,954 shares of Common Stock were sold, of which
4,000,000 shares were sold by the Company and 1,529,954 shares were sold by
selling stockholders. AMG used the net proceeds from the offering to reduce
indebtedness under our credit facility (as described below) and did not
receive any proceeds from the sale of Common Stock by the selling
stockholders.
On April 1, 1999, we financed our acquisition of The Managers Funds
LLC with a borrowing under our credit facility. At June 30, 1999, we had
outstanding borrowings of senior debt under that credit facility of $174
million and the ability to borrow an additional $156 million. We have the
option, with the consent of our lenders, to increase the facility by another
$70 million to a total of $400 million. Our credit facility bears interest at
either LIBOR plus a margin ranging from .50% to 2.25% or the Prime Rate plus
a margin ranging up to 1.25% and matures during December 2002. We pay a
commitment fee of up to 1/2 of 1% on the daily unused portion of the
facility. In order to partially offset our exposure to changing interest
rates we have entered into interest rate hedging contracts.
Our borrowings under the credit facility are collateralized by pledges
of all of our interests in Affiliates (including all interests which are
directly held by us, as well as all interests which are indirectly held by us
through wholly-owned subsidiaries), which interests represent substantially all
of our assets. Our credit facility contains a
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number of negative covenants, including those which generally prevent us and our
Affiliates from: (i) incurring additional indebtedness (other than subordinated
indebtedness) (ii) creating any liens or encumbrances on material assets (with
certain enumerated exceptions), (iii) selling assets outside the ordinary course
of business or making certain fundamental changes with respect to our
businesses, including a restriction on our ability to transfer interests in any
majority owned Affiliate if, as a result of such transfer, we would own less
than 51% of such firm, and (iv) declaring or paying dividends on our Common
Stock.
In order to provide the funds necessary for us to continue to acquire
interests in investment management firms, including our existing Affiliates upon
the management owners' sales of their retained equity to us, it will be
necessary for us to incur, from time to time, additional long-term bank debt
and/or issue equity or debt securities, depending on market and other
conditions. There can be no assurance that such additional financing will be
available or become available on terms acceptable to us.
YEAR 2000
The "Year 2000" poses a concern to our business as a result of the fact
that computer applications have historically used the last two digits, rather
than all four digits, to store year data. If left unmodified, these applications
would misinterpret the Year 2000 for the Year 1900 and would in many cases be
unable to function properly in the Year 2000 and beyond.
We have based our evaluation of our ability to prepare for the Year
2000 upon a number of assumptions regarding future events, including third party
modification plans and the availability of needed resources. We cannot guarantee
that these estimates will be achieved, and actual results may differ materially
from our estimates. Specific factors which might cause such material differences
with respect to the Year 2000 include, but are not limited to, the failure of
our Affiliates to achieve represented or stated levels of Year 2000 Compliance,
the availability and cost of personnel trained in this area and the ability to
locate and correct all relevant computer codes and similar uncertainties.
AMG'S HOLDING COMPANY READINESS
In anticipation of this problem, we have identified all of the
significant computers, software applications and related equipment used at the
holding company that need to be modified, upgraded or replaced to minimize the
possibility of a material disruption to our business based on the advent of the
Year 2000. We anticipate completing our Year 2000 preparations at the holding
company by the end of the third quarter of 1999. We estimate our total cost will
be $500,000 for the four year period ending on December 31, 1999. We cannot be
certain that we will not encounter unforeseen delays or costs in completing our
preparations.
AMG'S AFFILIATES' READINESS
We have also established a time line with each of our Affiliates to
complete their Year 2000 preparations and have received estimates from each of
them of the costs required to complete their preparations. As part of our
general preparedness program, each of our Affiliates has assigned responsibility
for preparing for the Year 2000 to a member of its senior management in order to
ensure that both proprietary and third party vendor systems will be ready for
the Year 2000. Each of our Affiliates has completed its assessment and plans are
in place for the renovation or replacement of all non-compatible systems. We
anticipate that most of the Affiliates will complete the
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renovation or replacement of all non-compatible systems and the subsequent
testing of all systems by the end of the third quarter of 1999 with the
remainder completing those activities during the fourth quarter of 1999. Most of
our Affiliates pay for the costs of their Year 2000 preparations out of their
Operating Allocation, which is the portion of their revenues that is allocated
to pay their operating expenses. As a result, these costs will only reduce an
Affiliate's distributions to us based on our ownership interest in the Affiliate
if the Affiliate's operating expenses exceed its Operating Allocation and the
portion of revenues allocated to the management owners.
OUTSIDE SERVICE PROVIDERS
Outside service providers perform several processes which are critical
to our Affiliates' business operations, including transfer agency and custody
functions. Our Affiliates have surveyed these parties and are monitoring their
progress. However, our Affiliates have limited control, if any, over the actions
of these outside parties and in some instances have no alternative vendors. If
outside service providers fail to resolve their Year 2000 issues, we anticipate
that our Affiliates' operations will experience material disruptions caused by
the inability to process trades and access client and investment research data
files and, accordingly, our and our Affiliates' businesses would be adversely
affected.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use interest-rate swaps to manage market exposures associated with
our variable rate debt by creating offsetting market exposures. These
instruments are not held for trading purposes. In the normal course of
operations, we also face risks that are either nonfinancial or nonquantifiable.
Such risks principally include country risk, credit risk, and legal risk, and
are not represented in the analysis that follows.
This analysis presents the hypothetical loss in earnings of the
derivative instruments we held at June 30, 1999 that are sensitive to changes in
interest rates. Interest rate swaps allow us to achieve a level of variable-rate
and fixed-rate debt that is acceptable to us, and to reduce interest rate
exposure. In each of our interest rate swaps, we have agreed with another party
to exchange the difference between fixed-rate and floating rate interest amounts
calculated by reference to an agreed notional principal amount. Under each of
our interest rate swaps, interest rates on the notional amounts are capped at
rates ranging between 6.67% and 6.78% upon quarterly reset dates. In addition,
if LIBOR falls below 5% at a quarterly reset date, we are required to make a
payment to our counterparty equal to the difference between the interest rate on
our floating rate LIBOR debt on an annualized rate of between 6.67% and 6.78%,
multiplied by the notional principal amount. At June 30, 1999, a total of $185
million was subject to interest rate swaps (the "Original Swaps"), and our
exposure was to changes in three-month LIBOR rates. Beginning in January 1999,
we also became a party to additional contracts with a $75 million notional
amount (the "Subsequent Swaps"). These contracts are designed to limit interest
rate increases to 5.99% on this notional amount if three-month LIBOR rates fall
below 5%.
The hypothetical loss in earnings on all derivative instruments that
would have resulted from a hypothetical change of 10 percent in three-month
LIBOR rates, sustained for three months, is estimated to be $291,000. Because
our net-earnings exposure under the combined debt and interest-rate swap was to
three-month LIBOR rates, the hypothetical loss was calculated as follows:
multiplying the notional amount of the swap by the effect of a 10% reduction in
LIBOR under the Original Swaps, partially offset by the Subsequent Swaps and
interest savings on the underlying debt.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company and its Affiliates may be parties to
various claims, suits and complaints. Currently, there are no such claims, suits
or complaints that, in the opinion of management, would have a material adverse
effect on the Company's financial position, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Annual Meeting of Stockholders of Affiliated Managers Group, Inc.
was held in Boston, Massachusetts on May 25, 1999. At that meeting, the
stockholders considered and acted upon the following proposals:
A. THE ELECTION OF DIRECTORS. The stockholders elected the following
individuals to serve as directors until the 2000 Annual Meeting of
Stockholders and until their respective successors are duly
elected and qualified:
<TABLE>
<CAPTION>
DIRECTOR SHARES VOTED FOR SHARES WITHHELD
-------- ---------------- ---------------
<S> <C> <C>
William J. Nutt 17,339,814 194,085
Richard E. Floor 17,323,841 210,058
P. Andrews McLane 17,327,013 206,886
John M.B. O'Connor 17,258,314 275,585
W.W. Walker, Jr. 17,339,299 194,600
William F. Weld 17,403,127 130,772
</TABLE>
B. THE APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1997
STOCK OPTION AND INCENTIVE PLAN. The stockholders voted to approve
an amendment and restatement of the Company's 1997 Stock Option
and Incentive Plan (the "Plan"). Among other things, the amendment
and restatement increased the number of shares of Common Stock
reserved for issuance under the Plan from 1,750,000 to 3,250,000.
13,706,900 shares voted for the proposal, 1,010,362 voted against
the proposal, and 533,076 shares abstained from voting on the
proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.11 Affiliated Managers Group, Inc. Amended and Restated 1997
Stock Option and Incentive Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
There have been no reports on Form 8-K filed by the Company during the
quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFFILIATED MANAGERS GROUP, INC.
-------------------------------
(Registrant)
/s/ Darrell W. Crate on behalf of the Registrant as Senior Vice President,
- -------------------- Chief Financial Officer and Treasurer
(Darrell W. Crate) (and also as Principal Financial and
Principal Accounting Officer)
August 16, 1999
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EXHIBIT 10.11
AFFILIATED MANAGERS GROUP, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
AS AMENDED AND RESTATED
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Affiliated Managers Group, Inc. 1997 Stock
Option and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage
and enable the officers, employees, Independent Directors and other key persons
(including consultants) of Affiliated Managers Group, Inc. (the "Company") and
its Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"ADMINISTRATOR" is defined in Section 2(a).
"AWARD" or "AWARDS," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock
Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend
Equivalent Rights.
"BOARD" means the Board of Directors of the Company.
"CHANGE OF CONTROL" is defined in Section 17.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" means the Committee of the Board referred to in Section 2.
"COVERED EMPLOYEE" means an employee who is a "Covered Employee" within
the meaning of Section 162(m) of the Code.
"DEFERRED STOCK AWARD" means Awards granted pursuant to Section 8.
"DIVIDEND EQUIVALENT RIGHT" means Awards granted pursuant to Section
11.
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"EFFECTIVE DATE" means the date on which the Plan is approved by
stockholders as set forth in Section 19.
"FAIR MARKET VALUE" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Administrator;
provided, however, that (i) if the Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the Fair Market Value on any given date shall not be less than the
average of the highest bid and lowest asked prices of the Stock reported for
such date or, if no bid and asked prices were reported for such date, for the
last day preceding such date for which such prices were reported, or (ii) if the
Stock is admitted to trading on a national securities exchange or the NASDAQ
National Market System, the Fair Market Value on any date shall not be less than
the closing price reported for the Stock on such exchange or system for such
date or, if no sales were reported for such date, for the last date preceding
the date for such a sale was reported. Notwithstanding the foregoing, the Fair
Market Value on the first day of the Company's initial public offering of Stock
shall be the initial public price as set forth in the final prospectus for the
Company's initial public offering.
"INCENTIVE STOCK OPTION" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"INDEPENDENT DIRECTOR" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
"OPTION" or "STOCK OPTION" means any option to purchase shares of Stock
granted pursuant to Section 5.
"PERFORMANCE CYCLE" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or more performance criteria will be measured for the
purpose of determining a participant's right to and the payment of a Performance
Share Award, Restricted Stock Award or Deferred Stock Award.
"PERFORMANCE SHARE AWARD" means Awards granted pursuant to Section 10.
"RESTRICTED STOCK AWARD" means Awards granted pursuant to Section 7.
"STOCK" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.
"STOCK APPRECIATION RIGHT" means any Award granted pursuant to Section
6.
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"SUBSIDIARY" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"UNRESTRICTED STOCK AWARD" means any Award granted pursuant to Section
9.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) COMMITTEE. The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator"). Each member of the Committee shall be an "outside director"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder and a "non-employee director" within the meaning of Rule
16b-3(b)(3)(i) promulgated under the Act, or any successor definition under said
rule.
(b) POWERS OF ADMINISTRATOR. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to
time be granted;
(ii) to determine the time or times of grant, and the extent,
if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Deferred Stock Awards,
Unrestricted Stock Awards, Performance Share Awards and Dividend
Equivalent Rights, or any combination of the foregoing, granted to any
one or more participants;
(iii) to determine the number of shares of Stock to be covered
by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and participants, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend
at any time the period in which Stock Options may be exercised;
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(vii) to determine at any time whether, to what extent, and
under what circumstances distribution or the receipt of Stock and other
amounts payable with respect to an Award shall be deferred either
automatically or at the election of the participant and whether and to
what extent the Company shall pay or credit amounts constituting
interest (at rates determined by the Administrator) or dividends or
deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Company and Plan participants.
(c) DELEGATION OF AUTHORITY TO GRANT AWARDS. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Act or Covered Employees. Any such
delegation by the Administrator shall include a limitation as to the amount of
Awards that may be granted during the period of the delegation and shall contain
guidelines as to the determination of the exercise price of any Option, the
conversion ratio or price of other Awards and the vesting criteria. The
Administrator may revoke or amend the terms of a delegation at any time but such
action shall not invalidate any prior actions of the Administrator's delegate or
delegates that were consistent with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 3,250,000. For purposes of this
limitation, the shares of Stock underlying any Awards which are forfeited,
cancelled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. Subject to such overall
limitation, shares of Stock may be issued up to such maximum number pursuant to
any type or types of Award; provided, however, that Stock Options or Stock
Appreciation Rights with respect to no more than 700,000 shares of Stock may be
granted to any one individual participant during any one calendar year period.
The shares available for issuance under the Plan may be authorized but unissued
shares of Stock or shares of Stock reacquired by the Company and held in its
treasury.
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(b) CHANGES IN STOCK. If, as a result of any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Company's capital stock, the outstanding
shares of Stock are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company, or additional
shares or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Stock or other
securities, the Administrator shall make an appropriate or proportionate
adjustment in (i) the maximum number of shares reserved for issuance under the
Plan, (ii) the number of Stock Options or Stock Appreciation Rights that can be
granted to any one individual participant, (iii) the number and kind of shares
or other securities subject to any then outstanding Awards under the Plan, and
(iv) the price for each share subject to any then outstanding Stock Options and
Stock Appreciation Rights under the Plan, without changing the aggregate
exercise price (i.e., the exercise price multiplied by the number of Stock
Options and Stock Appreciation Rights) as to which such Stock Options and Stock
Appreciation Rights remain exercisable. The adjustment by the Administrator
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan resulting from any such adjustment, but the Administrator
in its discretion may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the participant, if it would constitute a modification, extension
or renewal of the Option within the meaning of Section 424(h) of the Code.
(c) MERGERS. In contemplation of and subject to the consummation of a
consolidation or merger or sale of all or substantially all of the assets of the
Company in which outstanding shares of Stock are exchanged for securities, cash
or other property of an unrelated corporation or business entity or in the event
of a liquidation of the Company (in each case, a "Transaction"), the Board, or
the board of directors of any corporation assuming the obligations of the
Company, may, in its discretion, take any one or more of the following actions,
as to outstanding Awards: (i) provide that such Awards shall be assumed or
equivalent awards shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), and/or (ii) upon written notice to the
participants, provide that all Awards will terminate immediately prior to the
consummation of the Transaction. In the event that, pursuant to clause (ii)
above, Awards will terminate immediately prior to the consummation of the
Transaction, all vested Awards, other than Stock Options and Stock Appreciation
Rights, shall be fully settled in cash or in kind at such appropriate
consideration as determined by the Administrator in its sole discretion after
taking into account the consideration payable per share of Stock pursuant to the
business combination (the "Merger Price") and all vested Stock Options and
vested Stock Appreciation Rights shall be fully settled, in cash or in kind, in
an amount equal to the difference between (A) the Merger Price times the number
of shares of
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Stock subject to such outstanding Stock Options and Stock Appreciation Rights
(to the extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such outstanding Stock Options and Stock
Appreciation Rights; provided, however, that each participant shall be
permitted, within a specified period determined by the Administrator prior to
the consummation of the Transaction, to exercise all outstanding Stock Options
and Stock Appreciation Rights, including those that are not then exercisable,
subject to the consummation of the Transaction.
(d) SUBSTITUTE AWARDS. The Administrator may grant Awards under the
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Administrator may direct
that the substitute awards be granted on such terms and conditions as the
Administrator considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and
other employees, Independent Directors and key persons of the Company and its
Subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its Subsidiaries as are selected from time to
time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after April
14, 2009.
(a) GRANT OF STOCK OPTIONS. The Administrator in its discretion may
grant Stock Options to employees, Independent Directors and key persons of the
Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a)
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Administrator shall deem desirable.
(i) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by
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the Administrator at the time of grant but, except as provided in the
last sentence of this Section 5(a)(i), shall not be less than 100
percent of the Fair Market Value on the date of grant in the case of
Incentive Stock Options, or 85 percent of the Fair Market Value on the
date of grant, in the case of Non-Qualified Stock Options. If an
employee owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10 percent of the combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation and an Incentive Stock Option is granted to such
employee, the option price of such Incentive Stock Option shall be not
less than 110 percent of the Fair Market Value on the grant date. If
the Administrator so determines, Stock Options may be granted in lieu
of cash compensation at the participant's election, subject to such
terms and conditions as the Administrator may establish. Stock Options
granted in lieu of cash compensation may have an exercise price less
than 85 percent of the Fair Market Value on the date of grant.
(ii) OPTION TERM. The term of each Stock Option shall be fixed
by the Administrator, but no Stock Option shall be exercisable more
than ten years after the date the option is granted. If an employee
owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10 percent of the combined voting power
of all classes of stock of the Company or any parent or subsidiary
corporation and an Incentive Stock Option is granted to such employee,
the term of such option shall be no more than five years from the date
of grant.
(iii) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options
shall become exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after
the grant date; provided, however, that Stock Options granted in lieu
of compensation shall be exercisable in full as of the grant date. The
Administrator may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
(iv) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods to
the extent provided in the Option Award agreement:
(A) In cash, by certified or bank check or other
instrument acceptable to the Administrator;
(B) Through the delivery (or attestation to the
ownership) of shares of Stock that are not then subject to
restrictions under any Company plan and that have been
purchased by the optionee on the open market or have been
beneficially owned by the optionee for at least six months, if
permitted by the Administrator in its discretion. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date;
7
<PAGE>
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company for the
purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a
promissory note if the Board, upon the advice of counsel, has
expressly authorized the loan of funds to the optionee for the
purpose of enabling or assisting the optionee to effect the
exercise of his Stock Option; provided that at least so much
of the exercise price as represents the par value of the Stock
shall be paid other than with a promissory note.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be contingent
upon receipt from the optionee (or a purchaser acting in his stead in
accordance with the provisions of the Stock Option) by the Company of
the full purchase price for such shares and the fulfillment of any
other requirements contained in the Stock Option or applicable
provisions of laws. In the event an optionee chooses to pay the
purchase price by delivery of previously-owned shares of Stock through
the attestation method, the number of shares of Stock transferred to
the optionee upon the exercise of the Stock Option shall be net of the
number of shares attested to.
(v) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Company or
its parent and subsidiary corporations become exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000.
To the extent that any Stock Option exceeds this limit, it shall
constitute a Non-Qualified Stock Option.
(b) RELOAD OPTIONS. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the number delivered to exercise the original Option with an Option term
equal to the remainder of the original Option term unless the Administrator
otherwise determines in the Award agreement for the original Option grant.
8
<PAGE>
(c) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Administrator, in its sole discretion, may provide in the Award agreement
regarding a given Option that the optionee may transfer, without consideration
for the transfer, his Non-Qualified Stock Options to members of his immediate
family, to trusts for the benefit of such family members, or to partnerships in
which such family members are the only partners, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of this Plan and the applicable Option.
(d) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement, or subject to Section 15 below, in
writing after the Award agreement is issued, an optionee's rights in all Stock
Options shall automatically terminate upon the participant's termination of
employment (or cessation of business relationship) with the Company and its
Subsidiaries for any reason.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is
an Award entitling the recipient to receive an amount in cash or shares of Stock
or a combination thereof having a value equal to the excess of the Fair Market
Value of the Stock on the date of exercise over the exercise price of the Stock
Appreciation Right, which price shall not be less than 85 percent of the Fair
Market Value of the Stock on the date of grant (or more than the option exercise
price per share, if the Stock Appreciation Right was granted in tandem with a
Stock Option) multiplied by the number of shares of Stock with respect to which
the Stock Appreciation Right shall have been exercised, with the Administrator
having the right to determine the form of payment.
(b) GRANT AND EXERCISE OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights may be granted by the Administrator in tandem with, or independently of,
any Stock Option granted pursuant to Section 5 of the Plan. In the case of a
Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option,
such Stock Appreciation Right may be granted either at or after the time of the
grant of such Option. In the case of a Stock Appreciation Right granted in
tandem with an Incentive Stock Option, such Stock Appreciation Right may be
granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in
tandem with a Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option.
(c) TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Administrator, subject to the following:
9
<PAGE>
(i) Stock Appreciation Rights granted in tandem with Options
shall be exercisable at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the
applicable portion of any related Option shall be surrendered.
(iii) All Stock Appreciation Rights shall be exercisable
during the participant's lifetime only by the participant or the
participant's legal representative.
(d) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement, or subject to Section 15 below, in
writing after the Award agreement is issued, an optionee's rights in all Stock
Appreciation Rights shall automatically terminate upon the participant's
termination of employment (or cessation of business relationship) with the
Company and its Subsidiaries for any reason.
SECTION 7. RESTRICTED STOCK AWARDS
(a) NATURE OF RESTRICTED STOCK AWARDS. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other higher
purchase price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing employment (or
other business relationship) and/or achievement of pre-established performance
goals and objectives, including, but not limited to, increase in cash net income
or increase in stock price. The grant of a Restricted Stock Award is contingent
on the participant executing the Restricted Stock Award agreement. The terms and
conditions of each such agreement shall be determined by the Administrator, and
such terms and conditions may differ among individual Awards and participants.
(b) RIGHTS AS A STOCKHOLDER. Upon execution of a written instrument
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 7(d) below, and the participant shall be
required, as a condition of the grant, to deliver to the Company a stock power
endorsed in blank.
(c) RESTRICTIONS. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Stock Award agreement. If a
participant's employment (or other business relationship) with the Company and
its Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the participant or the participant's legal
representative.
10
<PAGE>
(d) VESTING OF RESTRICTED STOCK. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Except as may otherwise be
provided by the Administrator either in the Award agreement or, subject to
Section 15 below, in writing after the Award agreement is issued, a
participant's rights in any shares of Restricted Stock that have not vested
shall automatically terminate upon the participant's termination of employment
(or other business relationship) with the Company and its Subsidiaries and such
shares shall be subject to the Company's right of repurchase as provided in
Section 7(c) above.
(e) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The Restricted
Stock Award agreement may require or permit the immediate payment, waiver,
deferral or investment of dividends paid on the Restricted Stock.
SECTION 8. DEFERRED STOCK AWARDS
(a) NATURE OF DEFERRED STOCK AWARDS. A Deferred Stock Award is an Award
of phantom stock units to a participant, subject to restrictions and conditions
as the Administrator may determine at the time of grant. Conditions may be based
on continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives, including, but not limited to,
increase in cash net income and increase in stock price. The grant of a Deferred
Stock Award is contingent on the participant executing the Deferred Stock Award
agreement. The terms and conditions of each such agreement shall be determined
by the Administrator, and such terms and conditions may differ among individual
Awards and participants. At the end of the deferral period, the Deferred Stock
Award, to the extent vested, shall be paid to the participant in the form of
shares of Stock.
(b) ELECTION TO RECEIVE DEFERRED STOCK AWARDS IN LIEU OF COMPENSATION.
The Administrator may, in its sole discretion, permit a participant to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such participant in the form of a Deferred Stock Award. Any such election
shall be made in writing and shall be delivered to the Company no later than the
date specified by the Administrator and in accordance with rules and procedures
established by the Administrator. The Administrator shall have the sole right to
determine whether and under what circumstances to permit such elections and to
impose such limitations and other terms and conditions thereon as the
Administrator deems appropriate.
(c) RIGHTS AS A STOCKHOLDER. During the deferral period, a participant
shall have no rights as a stockholder; provided, however, that the participant
may be credited with Dividend Equivalent Rights with respect to the phantom
stock units underlying his Deferred Stock Award, subject to such terms and
conditions as the Administrator may determine.
11
<PAGE>
(d) RESTRICTIONS. A Deferred Stock Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's right in all
Deferred Stock Awards that have not vested shall automatically terminate upon
the participant's termination of employment (or cessation of business
relationship) with the Company and its Subsidiaries for any reason.
SECTION 9. UNRESTRICTED STOCK AWARDS
GRANT OR SALE OF UNRESTRICTED STOCK. The Administrator may, in its sole
discretion, grant (or sell at par value or such higher purchase price determined
by the Administrator) an Unrestricted Stock Award to any participant pursuant to
which such participant may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of cash compensation due to such
participant.
SECTION 10. PERFORMANCE SHARE AWARDS
(a) NATURE OF PERFORMANCE SHARE AWARDS. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals, including, but not limited to, increase in cash net
income or increase in stock price. The Administrator may make Performance Share
Awards independent of or in connection with the granting of any other Award
under the Plan. The Administrator in its sole discretion shall determine whether
and to whom Performance Share Awards shall be made, the performance goals, the
periods during which performance is to be measured, and all other limitations
and conditions.
(b) RIGHTS AS A STOCKHOLDER. A participant receiving a Performance
Share Award shall have the rights of a stockholder only as to shares actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A participant
shall be entitled to receive a stock certificate evidencing the acquisition of
shares of Stock under a Performance Share Award only upon satisfaction of all
conditions specified in the Performance Share Award agreement (or in a
performance plan adopted by the Administrator).
(c) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of employment (or cessation of business relationship) with the
Company and its Subsidiaries for any reason.
12
<PAGE>
(d) ACCELERATION, WAIVER, ETC. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 15, amend any or all of the goals, restrictions or
conditions applicable to a Performance Share Award.
SECTION 11. DIVIDEND EQUIVALENT RIGHTS
(a) DIVIDEND EQUIVALENT RIGHTS. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would
have been paid on the shares of Stock specified in the Dividend Equivalent Right
(or other award to which it relates) if such shares had been issued to and held
by the recipient. A Dividend Equivalent Right may be granted hereunder to any
participant as a component of another Award or as a freestanding award. The
terms and conditions of Dividend Equivalent Rights shall be specified in the
grant. Dividend equivalents credited to the holder of a Dividend Equivalent
Right may be paid currently or may be deemed to be reinvested in additional
shares of Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment or such
other price as may then apply under a dividend reinvestment plan sponsored by
the Company, if any. Dividend Equivalent Rights may be settled in cash or shares
of Stock or a combination thereof, in a single installment or installments. A
Dividend Equivalent Right granted as a component of another Award may provide
that such Dividend Equivalent Right shall be settled upon exercise, settlement,
or payment of, or lapse of restrictions on, such other award, and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the
same conditions as such other award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms and conditions different from
such other award.
(b) INTEREST EQUIVALENTS. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
(c) TERMINATION. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's rights in all
Dividend Equivalent Rights or interest equivalents shall automatically terminate
upon the participant's termination of employment (or cessation of business
relationship) with the Company and its Subsidiaries for any reason.
SECTION 12. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award, Deferred Stock Award or Performance Share Award granted
to a Covered Employee is intended to qualify as "Performance-based Compensation"
under Section 162(m) of the Code and the regulations promulgated thereunder (a
"Performance-based Award"), such Award shall comply with the provisions set
forth below:
13
<PAGE>
(a) PERFORMANCE CRITERIA. The performance criteria used in performance
goals governing Performance-based Awards granted to Covered Employees may
include any or all of the following: (i) the Company's earnings before interest
expense, income taxes, depreciation, amortization and extraordinary items, (ii)
the Company's earnings after interest expense and income taxes but before
depreciation and amortization and extraordinary items; (iii) the Company's
return on equity, assets, capital or investment; (iv) pre-tax or after-tax
profit levels of the Company or any Subsidiary, a division, an operating unit or
a business segment of the Company, or any combination of the foregoing; (v)
assets under management; (vi) total shareholder return; (vii) changes in the
market price of the Stock; or (viii) earnings per share.
(b) GRANT OF PERFORMANCE-BASED AWARDS. With respect to each
Performance-based Award granted to a Covered Employee, the Administrator shall
select, within the first 90 days of a Performance Cycle (or, if shorter, within
the maximum period allowed under Section 162(m) of the Code) the performance
criteria for such grant, and the achievement targets with respect to each
performance criterion (including a threshold level of performance below which no
amount will become payable with respect to such Award). Each Performance-based
Award will specify the amount payable, or the formula for determining the amount
payable, upon achievement of the various applicable performance targets. The
performance criteria established by the Administrator may be (but need not be)
different for each Performance Cycle and different goals may be applicable to
Performance-based Awards to different Covered Employees.
(c) PAYMENT OF PERFORMANCE-BASED AWARDS. Following the completion of a
Performance Cycle, the Administrator shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for the Performance Cycle. The
Administrator shall then determine the actual size of each Covered Employee's
Performance-based Award, and, in doing so, may reduce or eliminate the amount of
the Performance-based Award for a Covered Employee if, in its sole judgment,
such reduction or elimination is appropriate.
(d) MAXIMUM AWARD PAYABLE. The maximum Performance-based Award payable
to any one Covered Employee under the Plan for a Performance Cycle is 300,000
Shares (subject to adjustment as provided in Section 3(b) hereof).
SECTION 13. TAX WITHHOLDING
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
14
<PAGE>
The Company's obligation to deliver stock certificates to any participant is
subject to and conditioned on tax obligations being satisfied by the
participant.
(b) PAYMENT IN STOCK. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 15. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code or to ensure that compensation
earned under Stock Options and Stock Appreciation Rights qualifies as
performance-based compensation under Section 162(m) of the Code, if and to the
extent intended to so qualify, Plan amendments shall be subject to approval by
the Company stockholders entitled to vote at a meeting of stockholders. Except
as provided in Section 3(b) or 3(c), any action by the Board or the
Administrator to reduce the exercise price of any outstanding Stock Option or
Stock Appreciation Right shall be subject to approval by the Company's
stockholders entitled to vote at a meeting of stockholders. Nothing in this
Section 15 shall limit the Board's authority to take any action permitted
pursuant to Section 3(c).
15
<PAGE>
SECTION 16. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 17. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
17:
(a) Except as otherwise provided in the applicable Award agreement,
each outstanding Stock Option and Stock Appreciation Right shall automatically
become fully exercisable.
(b) Each outstanding Restricted Stock Award and Performance Share Award
shall be subject to such terms, if any, with respect to a Change of Control as
have been provided by the Administrator in the Award agreement, or subject to
Section 15 above, in writing after the Award agreement is issued.
(c) "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:
(i) any "PERSON," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, or
any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25 percent or more of the combined voting power of the
Company's then outstanding securities having the right to vote in an
election of the Company's Board of Directors ("Voting Securities") (in
such case other than as a result of an acquisition of securities
directly from the Company); or
(ii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate 50 percent or more of
the voting shares
16
<PAGE>
of the corporation issuing cash or securities in the consolidation or
merger (or of its ultimate parent corporation, if any), (B) any sale,
lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of
all or substantially all of the assets of the Company or (C) any plan
or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Voting Securities outstanding, increases the proportionate
number of shares of Voting Securities beneficially owned by any person to 25
percent or more of the combined voting power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company), then a "CHANGE OF CONTROL" shall be deemed to have occurred for
purposes of the foregoing clause (i).
SECTION 18. GENERAL PROVISIONS
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Stock certificates to participants
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the participant, at the participant's last
known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) TRADING POLICY RESTRICTIONS. Option exercises and other Awards
under the Plan shall be subject to such Company's insider-trading-policy-related
restrictions, terms and
17
<PAGE>
conditions as may be established by the Administrator, or in accordance with
policies set by the Administrator, from time to time.
(e) LOANS. The Board may, in its sole discretion, authorize the grant
of loans to selected key employees to be used solely for the purchase of shares
of Stock or payment of taxes in connection with Awards under the Plan. The terms
of such loans shall be determined at the sole discretion of the Board. Such
loans shall be secured by the shares of Stock, and may be made with or without
recourse against the employee.
SECTION 19. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the votes cast at a meeting of stockholders at which a quorum is
present. Subject to such approval by the stockholders and to the requirement
that no Stock may be issued hereunder prior to such approval, Stock Options and
other Awards may be granted hereunder on and after adoption of this amended and
restated Plan by the Board.
SECTION 20. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed
by, and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 32,149
<SECURITIES> 0
<RECEIVABLES> 42,476
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 80,414
<PP&E> 12,068
<DEPRECIATION> 0
<TOTAL-ASSETS> 690,394
<CURRENT-LIABILITIES> 42,967
<BONDS> 174,000
0
0
<COMMON> 406,230
<OTHER-SE> 25,987
<TOTAL-LIABILITY-AND-EQUITY> 690,394
<SALES> 0
<TOTAL-REVENUES> 146,704
<CGS> 0
<TOTAL-COSTS> 90,619
<OTHER-EXPENSES> 22,574<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,256
<INCOME-PRETAX> 28,913
<INCOME-TAX> 11,854
<INCOME-CONTINUING> 17,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,059
<EPS-BASIC> 0.81
<EPS-DILUTED> 0.77
<FN>
<F1>MINORITY INTEREST
</FN>
</TABLE>
