<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998.
REGISTRATION NO. 333-43687
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WADDELL & REED FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6211 51-0261715
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
6300 LAMAR AVENUE
OVERLAND PARK, KANSAS 66202
(913) 236-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEITH A. TUCKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WADDELL & REED FINANCIAL, INC.
6300 LAMAR AVENUE
OVERLAND PARK, KANSAS 66202
(913) 236-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
ALAN J. BOGDANOW MATTHEW J. MALLOW
HUGHES & LUCE, L.L.P. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1717 MAIN STREET, SUITE 2800 919 THIRD AVENUE
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10022
(214) 939-5500 (212) 735-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to 462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $.01 par value....... $586,500,000 $177,728
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457. In accordance with Rule 457(o) under the
Securities Act of 1933, as amended, the number of shares being registered
and the proposed maximum offering price per share are not included in this
table.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the estimated expenses to be incurred in
connection with the Offering, all of which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee............................................... $177,728
NASD fee........................................................... *
NYSE listing fee................................................... *
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
Printing and engraving............................................. *
Transfer Agent's fees.............................................. *
Blue Sky fees and expenses (including counsel fees)................ *
Miscellaneous expenses............................................. *
--------
Total............................................................ $ *
========
</TABLE>
- --------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or any of its stockholders
for monetary damages arising from the director's breach of fiduciary duty as a
director, with certain limited expectations. See "Description of Capital
Stock--Certificate of Incorporation and Bylaw Provisions--Liability of
Directors; Indemnification" in the Prospectus.
Pursuant to the provisions of (S) 145 of the Delaware General Corporation
Law, every Delaware corporation has the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit, or proceeding (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee, or agent of any corporation, partnership, joint
venture, trust, or other enterprise, against any and all expenses, judgments,
fines, and amounts paid in settlement and reasonably incurred in connection
with such action, suit, or proceeding. The power to indemnify applies only if
such person acted in good faith and in a manner such person reasonably
believed to be in the best interest, or not opposed to the best interest, of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself,
and with the further limitation that in such actions no indemnification will
be made in the event of any adjudication of negligence or misconduct unless
the court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of such actions, such person
is entitled, pursuant to Section 145, to indemnification as described above.
The Company's Certificate of Incorporation and Bylaws provide for
indemnification to officers and directors of the Company to the fullest extent
permitted by the Delaware General Corporation Law. See "Description of Capital
Stock--Certificate of Incorporation and Bylaw Provisions--Liability of
Directors; Indemnification" in the Prospectus.
II-1
<PAGE>
The form of Underwriting Agreement to be filed as Exhibit 1.1 will contain
agreements of indemnity between the Company and the Underwriters and
controlling persons against certain civil liabilities, including liabilities
under the Securities Act, or will contribute to payments which the
Underwriters or any such controlling persons may be required to make in
respect thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEMS 16. EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1.1** --Form of Underwriting Agreement
3.1** --Certificate of Incorporation of the Company
3.2** --Bylaws of the Company
4.1* --Specimen of Common Stock Certificate
4.2** --Promissory Note of United Investors Management Company, payable to Torchmark Corporation,
dated November 25, 1997
4.3** --Promissory Note of United Investors Management Company, payable to Liberty National Life
Insurance Company, dated November 25, 1997
5.1* --Form of Opinion of Hughes & Luce, L.L.P. regarding legality of securities being registered
10.1** --Form of Public Offering and Separation Agreement between Torchmark Corporation and Waddell
& Reed Financial, Inc.
10.2** --Form of Tax Disaffiliation Agreement between Torchmark Corporation and Waddell & Reed
Financial, Inc.
10.3* --Form of Subadvisory Investment Management Agreement between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company.
10.4* --General Agent Contract, dated January 1, 1985, between United Investors Life Insurance Company
and W&R Insurance Agency, Inc.
10.5* --Form of Amendment Extending General Agent Contract between United Investors Life Insurance
Company and W & R Insurance Agency, Inc.
10.6* --Independent Agent Contract, dated June 25, 1997, between United American Insurance Company,
W & R Insurance Agency, Inc., and affiliates identified therein.
10.7* --Form of Amendment Extending Independent Agent Contract between United American Insurance
Company, W & R Insurance Agency, Inc., and affiliates identified therein.
10.8* --Form of The 1998 Stock Incentive Plan.
10.9* --Form of The 1998 Non-Employee Stock Director Plan.
10.10* --Form of The 1998 Executive Deferred Compensation Stock Plan.
10.11* --Form of Waddell & Reed Financial, Inc. Savings and Investment Plan.
10.12* --Form of Waddell & Reed Financial, Inc. Retirement Income Plan.
10.13* --Form of Waddell & Reed, Inc. Career Field Retirement Plan.
10.14* --Form of Maintenance Agreement between the Company and TMK Income Properties, L.P.
21.1+ --Subsidiaries of the Registrant
23.1* --Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2** --Consent of KPMG Peat Marwick LLP
24.1+ --Powers of Attorney (appearing on Signature Page of Registration Statement on Form S-1 filed
January 2, 1998, Registration No. 333-43687).
27.1+ --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Filed herewith.
+Previously filed.
II-2
<PAGE>
(b) Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable
or because the information is included in the Financial Statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the underwriting agreements, the
Company's Certificate of Incorporation, Bylaws, Delaware law or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OVERLAND PARK, STATE OF
KANSAS, ON JANUARY 30, 1998.
Waddell & Reed Financial, Inc.
By: /s/ Ronald K. Richey
----------------------------------
RONALD K. RICHEY, CHAIRMAN OF THE
BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
* Board January 30, 1998
- ------------------------------------
RONALD K. RICHEY
/s/ Keith A. Tucker
President, Chief
*By: Executive Officer, January 30, 1998
--------------------------------- and Director
KEITH A. TUCKER (Principal
Financial Officer)
ATTORNEY-IN-FACT
Vice-President,
* Secretary, and January 30, 1998
- ------------------------------------ Director
FRANCIS B. JACOBS, II
Principal
* Accounting Officer January 30, 1998
- ------------------------------------
MICHAEL D. STROHM
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1** --Form of Underwriting Agreement
3.1** --Certificate of Incorporation of the Company
3.2** --Bylaws of the Company
4.1* --Specimen of Common Stock Certificate
4.2** --Promissory Note of United Investors Management Company, payable to
Torchmark Corporation, dated November 25, 1997
4.3** --Promissory Note of United Investors Management Company, payable to
Liberty National Life Insurance Company, dated November 25, 1997
--Form of Opinion of Hughes & Luce, L.L.P. regarding legality of
5.1* securities being registered
10.1** --Form of Public Offering and Separation Agreement between Torchmark
Corporation and Waddell & Reed Financial, Inc.
10.2** --Form of Tax Disaffiliation Agreement between Torchmark Corporation
and Waddell & Reed Financial, Inc.
10.3* --Form of Subadvisory Investment Management Agreement between Waddell
& Reed Investment Management Company and Waddell & Reed Asset
Management Company.
10.4* --General Agent Contract, dated January 1, 1985, between United
Investors Life Insurance Company and W&R Insurance Agency, Inc.
10.5* --Form of Amendment Extending General Agent Contract between United
Investors Life Insurance Company and W & R Insurance Agency, Inc.
10.6* --Independent Agent Contract, dated June 25, 1997, between United
American Insurance Company, W & R Insurance Agency, Inc., and
affiliates identified therein.
10.7* --Form of Amendment Extending Independent Agent Contract between
United American Insurance Company, W & R Insurance Agency, Inc., and
affiliates identified therein.
10.8* --Form of The 1998 Stock Incentive Plan.
10.9* --Form of The 1998 Non-Employee Stock Director Plan.
10.10* --Form of The 1998 Executive Deferred Compensation Stock Plan.
10.11* --Form of Waddell & Reed Financial, Inc. Savings and Investment Plan.
10.12* --Form of Waddell & Reed Financial, Inc. Retirement Income Plan.
10.13* --Form of Waddell & Reed, Inc. Career Field Retirement Plan.
10.14* --Form of Maintenance Agreement between the Company and TMK Income
Properties, L.P.
21.1+ --Subsidiaries of the Registrant
23.1* --Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2** --Consent of KPMG Peat Marwick LLP
24.1+ --Powers of Attorney (appearing on Signature Page of Registration
Statement on Form S-1 filed January 2, 1998, Registration No. 333-
43687).
27.1+ --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Filed herewith.
+Previously filed.
<PAGE>
EXHIBIT 1.1
_______________ SHARES
WADDELL & REED FINANCIAL, INC.
SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE
UNDERWRITING AGREEMENT
February , 1998
<PAGE>
January , 1998
Morgan Stanley & Co. Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Waddell & Reed Financial, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters (as defined below)
________________ shares of its Class A Common Stock, $.01 par value per share
(the "FIRM SHARES").
It is understood that, subject to the conditions hereinafter stated,
____________ Firm Shares (the "U.S. FIRM SHARES") will be sold to the several
U.S. Underwriters named in Schedule I hereto (the "U.S. UNDERWRITERS") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and __________ Firm Shares (the "INTERNATIONAL SHARES") will be
sold to the several International Underwriters named in Schedule II hereto (the
"INTERNATIONAL UNDERWRITERS") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co. and Merrill Lynch & Co. shall act as representatives (the "U.S.
REPRESENTATIVES") of the several U.S. Underwriters, and Morgan Stanley & Co.
International Limited shall act as representative (the "INTERNATIONAL
REPRESENTATIVE") of the several International Underwriters. The U.S.
Underwriters and the International Underwriters are hereinafter collectively
referred to as the UNDERWRITERS.
<PAGE>
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional __________ shares of its Class A Common
Stock, $.01 par value (the "ADDITIONAL SHARES") if and to the extent that the
U.S. Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of Class A Common Stock granted
to the U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "SHARES". The shares of
Class A Common Stock, $.01 par value of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "CLASS A COMMON STOCK".
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S. prospectus and the
international prospectus (as described in Rule 434(a)(1) under the Securities
Act) in the respective forms first used to confirm sales of Shares are
hereinafter collectively referred to as the "DISTRIBUTED PROSPECTUS"; the U.S.
prospectus and the international prospectus included in the Registration
Statement at the time of its effectiveness (including the information, if any,
deemed to be a part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act) are hereinafter collectively
referred to as the "FILED PROSPECTUS"; and the Distributed Prospectus and the
Filed Prospectus are hereinafter referred to collectively as the "PROSPECTUS".
As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated and certain of its affiliates (collectively, "MORGAN STANLEY")
has agreed to reserve out of the Shares set forth opposite its name on Schedule
II to this Agreement, up to ___________ shares, for sale to the Company's
employees, officers and directors and other parties associated with the Company
(collectively, "PARTICIPANTS"), as set forth in the Prospectus under the heading
"UNDERWRITERS" (the "DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan
Stanley pursuant TO THE DIRECTED SHARE PROGRAM (THE "DIRECTED SHARES") will be
sold by Morgan Stanley pursuant to this Agreement at the public offering price.
Any Directed Shares not orally confirmed for purchase by any Participants by the
end of the business day on which this Agreement is executed will be offered to
the public by Morgan Stanley as set forth in the Prospectus.
<PAGE>
1. Representations and Warranties. Each of Torchmark Corporation, a
Delaware corporation ("TORCHMARK") and the Company represents and warrants
to and agrees with each of the Underwriters that:
(a) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the
Company and its subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company
has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock,
short-term debt or long-term debt of the Company and its subsidiaries,
except in each case as described in the Prospectus.
(b) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(c) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse affect on
the Company and its subsidiaries, taken as a whole.
(d) No material labor dispute with the employees of the Company
or any of its subsidiaries exists, except as described in the
Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any
<PAGE>
existing, threatened or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors that
could have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(e) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in
which they are engaged; neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole, except as described in the Prospectus.
(f) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
business, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the Company
and its subsidiaries, taken as a whole, except as described the
Prospectus.
(g) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (3) access to assets is permitted only
in accordance with management's general or specific authorization; and
(4) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(h) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(i) (A) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) the Registration Statement and
the Prospectus comply and, as amended or
supplemented, if applicable,
<PAGE>
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (C)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set
forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein.
(j) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(k) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole; all of
the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims.
(l) This Agreement has been duly authorized, executed and
delivered by the Company.
(m) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(n) The shares of Class A Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable.
(o) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights.
<PAGE>
(p) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(q) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(r) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(s) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(t) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended
(the "INVESTMENT COMPANY ACT").
(u) Each of Waddell & Reed, Inc. ("WRI") and Waddell & Reed
Investment Management Company ("WRIMCO") is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended (the "ADVISERS ACT") and neither WRI or WRIMCO is prohibited
by any provision of the Advisers Act or the Investment Company Act, or
the respective rules and
<PAGE>
regulations thereunder, from acting as an investment adviser. WRI and
WRIMCO are the only direct or indirect subsidiaries of the Company
required to be registered as investment advisers under the Advisers
Act.
(v) WRI is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
under the securities laws of each state where the conduct of its
business requires such registration and is in compliance with all
United States federal and state laws requiring such registration or is
subject to no material liability or disability by reason of the
failure to be so registered in any such jurisdiction or to be in such
compliance in all material respects. WRI is a member in good standing
of the National Association of Securities Dealers (the "NASD"). None
of the Company's other direct or indirect subsidiaries is required to
be registered, licensed or qualified as a broker-dealer under the laws
requiring any such registration, licensing or qualification in any
state in which it conducts business or is subject to any material
liability or disability by reason of the failure to be so registered,
licensed or qualified.
(w) Waddell & Reed Service Company, Inc. ("WRSCO") is duly
registered as a transfer agent under the Exchange Act and under the
securities laws of each state where the conduct of its business
requires such registration and is in compliance in all material
respects with all United States federal and state laws requiring such
registration or is subject to no material liability or disability by
reason of the failure to be so registered in any such jurisdiction or
to be in such compliance. None of the Company's other direct or
indirect subsidiaries is required to be registered, licensed or
qualified as a transfer agent under the laws requiring any such
registration, licensing or qualification in any state in which it
conducts business or is subject to any material liability or
disability by reason of the failure to be so registered, licensed or
qualified.
(x) Each of WRI and WRIMCO is duly registered, licensed or
qualified as an investment adviser in each United States jurisdiction
where the conduct of its business requires such registration and is in
compliance in all material respects with all United States federal and
state laws requiring any such registration, licensing or qualification
or is subject to no material liability or disability by reason of the
failure to be so registered, licensed or qualified or to be in such
compliance. None of the Company's other direct or indirect
subsidiaries is required to be registered, licensed or qualified as an
investment adviser under the laws requiring any such registration,
licensing or qualification in any state in which it or its
subsidiaries conduct business or is not subject to material liability
or disability by reason of the failure to be so registered, licensed
or qualified.
(y) Each of WRI and WRIMCO is and has been in compliance with,
and each such entity has or will have had, as the case may be,
received no notice of any violation of, (A) all laws, regulations,
ordinances and rules (including those of any non-governmental
self-regulatory agencies) applicable to it or its
<PAGE>
operations relating to investment advisory or broker-dealer activities
and (B) all other such laws, regulations, ordinances and rules
applicable to it and its operations, except, in either case, where any
failure by the Company, WRI or WRIMCO to comply with any such law,
regulation, ordinance or rule would not have, individually or in the
aggregate, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole.
(z) Each entity for which WRI or WRIMCO acts as investment
adviser and which is required to be registered with the Commission as
an investment company under the Investment Company Act and which is
listed on Appendix 1 of the Prospectus (a "FUND") is, and upon
consummation of the transactions contemplated herein will be, duly
registered with the Commission as an investment company under the
Investment Company Act and to the best knowledge of the Company, each
Fund has been operated in compliance in all material respects with the
Investment Company Act and the rules and regulations thereunder and to
the best knowledge of the Company, there are no facts with respect to
any such Fund that are likely to have a material adverse effect on the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company or its subsidiaries taken as a
whole.
(aa) To the best knowledge of the Company, each Fund's
registration statement complies in all material respects with the
provisions of the Securities Act, the Investment Company Act and the
rules and regulations thereunder and does not contain any untrue
statement of material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(bb) Each agreement between the Company, WRI, WRIMCO or any other
subsidiary of the Company on the one hand and any Fund or private
client on the other hand is a legal and valid obligation of the
parties thereto, and none of the Company, WRI, WRIMCO or any other
subsidiary of the Company is in breach or violation of or in default
under any such agreement which would individually or in the aggregate
have a material adverse effect on, or cause a prospective material
adverse change in, the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries taken as a whole.
(cc) The offering contemplated by this Agreement (the "OFFERING")
will not, and the special dividend to the shareholders of Torchmark of
all of the Class A Common Stock and Class B Common Stock owned by
Torchmark after the Offering should not, constitute an "assignment" as
defined in the Investment Company Act and the Advisers Act of any of
the investment advisory contracts to which WRI or WRIMCO is a party.
(dd) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating
<PAGE>
to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance
with all terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(ee) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(ff) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Securities Act
with respect to any securities of the Company or to require the
Company to include such securities with the Shares registered pursuant
to the Registration Statement except as disclosed in the Prospectus.
(gg) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(hh) The Company does not anticipate incurring significant
operating expenses or costs to ensure that all Company software that
contains or calls on a calendar function that is indexed to a computer
processing unit clock, provides specific dates or calculates spans of
dates, is able to record, store, process and provide true and accurate
dates and calculations for dates and spans of dates including and
following January 1, 2000.
(ii) Furthermore, the Company represents and warrants to Morgan
Stanley that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or
supplements thereto will comply, with any applicable laws or
regulations of foreign jurisdictions in which the Prospectus or any
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that
(ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is
necessary under
<PAGE>
the securities laws and regulations of foreign jurisdictions in which
the Directed Shares are offered outside the United States.
(jj) The Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or
type of business with the Company, or (ii) a trade journalist or
publication to write or publish favorable information about the
Company or its products.
(kk) The Company represents and warrants that any loans made to
officers or employees of the Company enabling such officers or
employees to participate in the Directed Share Program will violate
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedules I and II
hereto opposite its names at U.S.$_____ a share ("PURCHASE PRICE").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to __________
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elects to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.
Each of Torchmark (for itself and on behalf of its subsidiaries) and the
Company hereby agrees that, without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any
<PAGE>
option, right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Class A Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Class A Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Shares to be
sold hereunder or (B) the issuance by the Company of shares of Class A Common
Stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing or options on shares of Class A Common Stock issued in connection with
employee benefit plans as described in the Prospectus.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____ a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected
by you at a price that represents a concession not in excess of U.S.$____ a
share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of U.S.$____ a share, to
any Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be madeto the
Company in Federal or other funds immediately available in New York City against
delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ________, 1998, or at such
other time on the same or such other date, not later than _________, 1998, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE".
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 2 or at such other time on the same or on such other date, in any event
not later than _______, 1998, as shall be designated in writing by the U.S.
Representatives. The time and date of such payment are hereinafter referred to
as the "OPTION CLOSING DATE".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any
<PAGE>
transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act;
and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon the best
of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Hughes & Luce, L.L.P., special counsel for the Company, dated
the Closing Date, to the effect that:
<PAGE>
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(ii) each subsidiary of the Company listed in Exhibit 21.1
to the Registration Statement (a "COMPANY SUBSIDIARY") has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Class A Common Stock outstanding prior to
the issuance of the Shares have been duly authorized and are
validly issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
Company Subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly
by the Company, free and clear of all liens, encumbrances,
equities or claims;
(vi) the Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or
similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this
Agreement will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Company or, to
the best of such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its
<PAGE>
subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares by the U.S. Underwriters;
(ix) the statements (A) in the Prospectus under the captions
"Description of Capital Stock" and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar
as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters
referred to therein;
(x) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which
the Company or any of its subsidiaries is a party or to which any
of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as such term is defined in the Investment
Company Act;
(xii) WRI and WRIMCO are each duly registered as investment
advisers under the Advisers Act. No other subsidiary of the
Company is an "investment adviser" within the meaning of the
Advisers Act and the rules and regulations of the Commission
promulgated thereunder. WRI is duly registered, licensed or
qualified as a broker-dealer in each United States jurisdiction
where the conduct of its business requires such registration and
is in compliance in all material respects with all United States
federal and state laws requiring any such registration, licensing
or qualification. None of the Company's other direct or indirect
subsidiaries is required to be registered, licensed or qualified
as a broker-dealer under the laws requiring any such
registration, licensing or qualification in any state in which it
or its subsidiaries conduct business. To the best knowledge of
counsel, each of the Company, WRI and WRIMCO is in compliance
with all laws, regulations, ordinances and rules (including those
of any non-governmental self-regulatory agencies) applicable to
it or its operations relating to
<PAGE>
investment advisory activities except where any failure by the
Company or any subsidiary to comply with any such law,
regulation, ordinance or rule would not have, individually, or in
the aggregate, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results
of operations of the Company or its subsidiaries taken as a
whole;
(xiii) each of WRI and WRIMCO is duly registered, licensed
or qualified as an investment adviser in each United States
jurisdiction where the conduct of its business requires such
registration and is in compliance in all material respects with
all laws requiring such registration, licensing or qualification
in all states in which such registration, licensing or
qualification is required. None of the Company or its direct or
indirect subsidiaries other than WRI and WRIMCO is required to be
registered, licensed or qualified as an investment adviser under
the laws of any state in which it or its subsidiaries conduct
business or is subject to any material liability or disability by
reason of the failure to be so registered, licensed or qualified;
(xiv) The dividends to the shareholders of the Company of
(A) all of the capital stock of Waddell & Reed Asset Management
Company ("WRAMCO"), (B) the Company's $480 million principal
amount unsecured promissory notes due November 25, 2002 and (C)
all of the capital stock of United Investors Life Insurance
Company ("UILIC"), were declared and paid by the Company out of
the Company's surplus or profits, as the case may be, in
compliance with Section 170 of the Delaware General Corporation
Law.
(xv) based upon all the facts and circumstances existing as
of the date of each distribution of WRAMCO described in this
paragraph and also as of the Closing Date, including
representations contained in officer certificates made as of the
Closing Date, (A) pursuant to Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"), no gain or loss was
recognized to (and no amount was included in the income of WRSCO
or Waddell & Reed, Inc. ("WRI") upon the distribution of 100% of
the issued and outstanding stock of WRAMCO (the "WRAMCO STOCK")
by WRSCO, (B) pursuant to Section 355 of the Code, no gain or
loss was recognized to (and no amount was included in the income
of) the Company or WRSCO upon the distribution of the WRAMCO
Stock by WRSCO to the Company, (C) pursuant to Section 355 of the
Code, no gain or loss was recognized to (and no amount included
in the income of) the Company, Liberty National Life Insurance
Company ("LIBERTY") or Torchmark upon the distribution of the
WRAMCO Stock by the Company to Liberty and Torchmark, and (D)
pursuant to Section 355 of the Code, no gain or loss was
recognized to (and no amount was included in the income of)
Liberty or Torchmark upon the distribution of the WRAMCO Stock by
Liberty to
<PAGE>
Torchmark; provided, however, that Liberty increased its taxable
income by the amount of the distribution considered to be made
from Liberty's policy holders surplus account pursuant to Section
815 of the Code.
(xvi) based upon all the facts and circumstances existing as
of the date of the distribution of UILIC described in this
paragraph and also as of the Closing Date, including
representations contained in the officer certificates made as of
the Closing Date, pursuant to Section 355 of the Code, no gain or
loss will be recognized to (and no amount will be included in the
income of) the Company, Liberty or Torchmark upon the
distribution of 100% of the issued and outstanding stock of UILIC
by the Company to Liberty and Torchmark.
(xvii) any loans made to officers or employees of the
Company enabling such officers or employees to participate in the
Directed Share Program will violate Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System.
(xviii) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial and statistical data
included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder, (B) has no reason to believe that (except
for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (C) has no reason
to believe that (except for financial statements and schedules
and other financial and statistical data as to which such counsel
need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading
and (D) is of the opinion that the Distributed Prospectus is not
materially different from the Filed Prospectus.
(d) The Underwriters shall have received on the Closing Date an
opinion of Dechert Price & Rhoads, special outside counsel for the Company,
dated the Closing Date, to the effect that:
(i) The Offering will not constitute an "assignment" as defined
in the Investment Company Act and the Advisers Act of any of the
investment advisory contracts to which WRI or WRIMCO is a party.
<PAGE>
(e) The Underwriters shall have received on the Closing Date an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to in
Sections 5(c)(vi), 5(c)(vii), 5(c)(ix) (but only as to the statements in
the Prospectus under "Description of Capital Stock" and "UNDERWRITERS") and
5(c)(xviii) above.
With respect to Section 5(c)(xviii) above, Hughes & Luce, L.L.P., and
Skadden, Arps, Slate, Meagher & Flom LLP may state that their opinion and belief
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and review
and discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinions of Hughes & Luce, L.L.P. and Dechert Price & Rhoads described
respectively in Sections 5(c) and 5(d) above shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from KPMG Peat Marwick LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter deliVered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and each shareholder of the Company relating
to sales and certain other dispositions of shares of Class A Common Stock
or certain other securities, delivered to you on or before the date hereof,
shall be in full force and effect on the Closing Date.
(h) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the
due authorization and issuance of the Additional Shares and other matters
related to the issuance of the Additional Shares.
6. Covenants of the Company and Torchmark. In further consideration of the
agreements of the Underwriters herein contained, the Company and, with respect
to paragraph (f) below, Torchmark, covenants with each Underwriter as follows:
(a) To furnish to you, without charge, _____ signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without
<PAGE>
exhibits thereto) and to furnish to you in New York City, without charge,
prior to 10:00 a.m. New York City time on the business day next succeeding
the date of this Agreement and during the period mentioned in Section 6(c)
below, as many copies of the Distributed Prospectus and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the
twelve-month period ending March 31, 1999 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any
<PAGE>
preliminary prospectus, the Prospectus and amendments and supplements to
any of the foregoing, including all printing costs associated therewith,
and the mailing and delivering of copies thereof to the Underwriters and
dealers, in the quantities hereinabove specified, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii)
the cost of printing or producing any Blue Sky memorandum in connection
with the offer and sale of the Shares under state securities laws and all
expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel
for the Underwriters in connection with such qualification and in
connection with the Blue Sky memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred
in connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc., (v) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Class A Common Stock and
all costs and expenses incident to listing the Shares on the New York Stock
Exchange, (vi) the cost of printing certificates represen ting the Shares,
(vii) the costs and charges of any transfer agent, registrar or depositary,
(viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without limitation,
expenses associated with the production of road show slides and graphics,
fees and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any
such consultants, and the cost of any aircraft chartered in connection with
the road show, (ix) all expenses in connection with any offer and sale of
the Shares outside of the United States, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with offers and sales outside of the United States, and (x) all
other costs and expenses incident to the performance of the obligations of
the Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution", and the last
paragraph of Section 9 below, the Underwriters will pay all of their costs
and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
(g) That in connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of
the effectiveness of the Registration Statement. Morgan Stanley will notify
the Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer restrictions
upon such securities for such period of time.
<PAGE>
(h) To pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
7. Indemnity and Contribution. (a) Torchmark and the Company, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(b) The Company agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls Morgan Stanley within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("MORGAN STANLEY ENTITIES"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating
any such action or claim) (i) caused by any untrue statement or alleged
untrue statement of a material fact contained in the prospectus wrapper
material prepared by or with the consent of the Company for distribution in
foreign jurisdictions in connection with the Directed Share Program
attached to the Prospectus or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant
to pay for and accept delivery of the shares which, immediately following
the effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (iii) for any losses,
claim, damages or liabilities (or
<PAGE>
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Morgan Stanley Entities.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless Torchmark and the Company, their directors, their
officers who sign the Registration Statement and each person, if any, who
controls the Company or Torchmark within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from Torchmark and the Company to such
Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through
you expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to Section 7(a) or 7(b), such person (the "INDEMNIFIED
PARTY") shall promptly notify the person against whom such indemnity may be
sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall
not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all such indemnified parties
and that all such fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated, in the case of parties indemnified pursuant to Section 7(a),
and by Torchmark and the Company, in the case of parties indemnified
pursuant to Section 7(b). The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been
a party and indemnity could have been sought hereunder by such indemnified
party, unless such
<PAGE>
settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
Notwithstanding anything contained herein to the contrary, if indemnity may
be sought pursuant to Section 7(b) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for Morgan
Stanley for the defense of any losses, claims, damages and liabilities arising
out of the Directed Share Program, and all persons, if any, who control Morgan
Stanley within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act.
(e) To the extent the indemnification provided for in Section 7(a),
7(b) or 7(c) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party under such paragraph, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by Torchmark and the Company on the one hand
and the Underwriters on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause 7(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause 7(e)(i) above but also the
relative fault of Torchmark and the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by Torchmark and the Company on the one hand and the Underwriters
on the other hand in connection with the offering of the Shares shall be
deemed to be in the same respective proportions as the net proceeds from
the offering of the Shares (before deducting expenses) received by the
Company and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover of
the Prospectus, bear to the aggregate Public Offering Price of the Shares.
The relative fault of Torchmark and the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by Torchmark or the Company or by the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this Section
7 are several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(f) Each of Torchmark, the Company and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not
<PAGE>
take account of the equitable considerations referred to in Section 7(e).
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of
Torchmark and the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of
this Agreement, (ii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter or by or on behalf of
the Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Shares.
8. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
<PAGE>
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I or Schedule II bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 9 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you and
the Company for the purchase of such Firm Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company or Torchmark to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company or Torchmark shall be unable to perform its
obligations under this Agreement, the Company will reimburse the Underwriters or
such Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Underwriters in
connection with this Agreement or the offering contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
<PAGE>
11. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
12. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
<PAGE>
Very truly yours,
TORCHMARK CORPORATION
By:
-----------------------
Name:
Title:
WADDELL & REED FINANCIAL, INC.
By:
-----------------------
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
Acting severally on behalf of themselves
and the several U.S. Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
---------------------------
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
Acting severally on behalf of itself
and the several International Underwriters
named in Schedule II hereto.
By: Morgan Stanley & Co. International Limited
By:
---------------------------
Name:
Title:
<PAGE>
SCHEDULE I
U.S. UNDERWRITERS
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch & Co.
[NAMES OF OTHER U.S. UNDERWRITERS]
-----------------
Total U.S. Firm Shares ..............
=================
<PAGE>
SCHEDULE II
INTERNATIONAL UNDERWRITERS
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
Morgan Stanley & Co. International Limited
[NAMES OF OTHER INTERNATIONAL CO-MANAGERS]
-----------------
Total International Firm Shares ......
=================
<PAGE>
EXHIBIT A
FORM OF LOCK-UP LETTER
____________, 1998
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch & Co.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY") and Morgan Stanley & Co. International Limited ("MSIL") propose to
enter into an Underwriting Agreement (the "UNDERWRITING AGREEMENT") with Waddell
& Reed Financial, Inc., a Delaware corporation (the "COMPANY") providing for the
public offering (the "PUBLIC OFFERING") by the several Underwriters, including
Morgan Stanley and MSIL (the "UNDERWRITERS"), of ___ shares (the "SHARES") of
the Class A common stock, $.01 par value per share of the Company (the "CLASS A
COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of
<PAGE>
Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock, or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Class A Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Class A Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (a) the sale of any Shares to the
Underwriters pursuant to the Underwriting Agreement or (b) transactions relating
to shares of Class A Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any shares
of Class A Common Stock or any security convertible into or exercisable or
exchangeable for Class A Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
-------------------------
(Name)
-------------------------
(Address)
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
of
WADDELL & REED FINANCIAL, INC.
Waddell & Reed Financial, Inc., a corporation incorporated by the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware on ________, desiring to amend and restate its
Certificate of Incorporation, does hereby certify as follows:
1. Said Certificate of Incorporation is hereby amended and restated
so as to read as follows:
FIRST: NAME.
----
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
-----------
WADDELL & REED FINANCIAL, INC.
SECOND: REGISTERED OFFICE AND AGENT.
---------------------------
The address of the Corporation's registered office in the State of
Delaware is __________, in the City of Wilmington, in the County of New Castle.
The name of the Corporation's registered agent at such address is Corporation
Trust Company.
THIRD: PURPOSE.
-------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: CAPITAL STOCK.
-------------
4.1 Authorized Shares. The total number of shares of all classes of
-----------------
stock which the Corporation shall have authority to issue shall be _________
million (_________), of which _____ million (_________) shares are to be Class A
Common Stock, having a par value of one cent ($0.01) each; _________ million
(_________) shares are to be Class B Common Stock, having a par value of one
cent ($0.01) each; and _________ million (__________) shares are to be Preferred
Stock, having a par value of one dollar ($1.00) each.
4.2 Common Stock.
------------
4.2.1 The Common Stock shall be divided into two classes as
follows:
A Class of __________ million (_____) shares of Common
Stock, having a par value of one cent ($.01) each, designated as
"Class A Common Stock".
1
<PAGE>
A Class of _______ million (____) shares of Common Stock,
having a par value of one cent ($.01) each, designated as "Class B
Common Stock".
4.2.2 As used herein, the term "Common Stock" used without
------------
reference to the Class A Common Stock or the Class B Common Stock
means the Class A Common Stock and Class B Common Stock, share-for-
share alike and without distinction, except as otherwise set forth
herein or as the context otherwise requires.
4.2.3 The holder of each outstanding share of Class A Common
Stock shall be entitled to one vote in person or proxy for each share
on all matters upon which the stockholders of the Corporation are
entitled to vote. The holder of each outstanding share of Class B
Common Stock shall be entitled to _____ votes in person or proxy for
each share on all matters upon which stockholders of the Corporation
are entitled to vote. Except as may be otherwise required by law or
this Certificate of Incorporation, the holders of Class A Common Stock
and Class B Common Stock shall vote together as a single class on all
matters submitted to a vote of stockholders of the Corporation.
Reference to a majority or other proportion of shares of Common Stock,
Class A Common Stock or Class B Common Stock shall refer to such
majority or other proportion of the votes to which such shares of
Common Stock, Class A Common Stock or Class B Common Stock are
entitled.
4.2.4 Authority is hereby expressly granted to the Board of
Directors or any duly authorized committee thereof from time to time
to issue any authorized but unissued shares of Common Stock for such
consideration and on such terms as it may determine.
4.2.5 At any meeting of stockholders, the presence in person or
by proxy of the holders of shares entitled to cast a majority of all
the votes which could be cast at such meeting by the holders of all of
the outstanding shares of stock of the Corporation entitled to vote on
every matter that is to be voted on at such meeting shall constitute a
quorum.
4.2.6 At every meeting of stockholders, the holders of Class A
Common Stock, the holders of Class B Common Stock and the holders of
Preferred Stock, if any, shall vote together as a class, and their
votes shall be counted and totaled together; and at any meeting of
stockholders duly called and held at which a quorum (determined in
accordance with the provisions of Section 4.2.5) is present, (i) in
all matters other than the election of directors, a majority of the
votes which could be cast at such meeting upon a given question and
(ii) in the case of the election of directors, a plurality of the
votes which could be cast at such meeting upon such election, by such
holders who are present in person or by proxy, shall be necessary, in
addition to any vote or other action that may be expressly required by
the provisions of this Certificate of Incorporation or by the law of
the State of Delaware, to decide such question or election, and shall
decide such question or election if no such additional vote or other
action is so required.
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4.2.7 Effective as of the Trigger Date, and subject to the
rights of any holders of Preferred Stock to elect directors under
specified circumstances, stockholder action can be taken only at an
annual or special meeting of stockholders and stockholder action may
not be taken by written consent in lieu of a meeting.
4.2.8 As used herein, the term "Trigger Date" means the date
------------
Torchmark Corporation owns a beneficial interest of less than a
majority of the outstanding voting power of the outstanding shares of
Common Stock.
4.2.9 For purposes of this Certificate of Incorporation, the
terms "Corporation" and "Torchmark Corporation" include their
----------- ---------------------
subsidiaries and other entities in which they respectively
beneficially own, directly or indirectly, 50% or more of the
outstanding voting securities or interests (except that "Torchmark
---------
Corporation" does not include the Corporation and its subsidiaries and
-----------
such other entities) and, in the case of Torchmark Corporation, all
successors to Torchmark Corporation by way of merger, consolidation,
or sale of all or substantially all its assets.
4.3 Preferred Stock.
---------------
4.3.1 Authority is hereby expressly granted to the Board of
Directors from time to time to issue Preferred Stock, for such
consideration and on such terms as it may determine, as Preferred
Stock of one or more series and in connection with the creation of any
such series to fix by the resolution or resolutions providing for the
issue of shares thereof the designation, powers and relative
participating, optional, or other special rights of such series, and
the qualifications, limitations, or restrictions thereof. Such
authority of the Board of Directors with respect to each such series
shall include, but not be limited to, the determination of the
following:
(a) the distinctive designation of, and the number of shares
comprising, such series, which number may be (except where
otherwise provided by the Board of Directors in creating
such series) increased or decreased (but not below the
number of shares thereof then outstanding) from time to
time by like action of the Board of Directors;
(b) the dividend rate or amount for such series, the
conditions and dates upon which such dividends shall be
payable, the relation which such dividends bear to the
dividends payable on any other class or classes or any
other series of any class or classes of stock, and whether
such dividends shall be cumulative, and if so, from which
date or dates for such series;
(c) whether or not the shares of such series shall be subject
to redemption by the Corporation and the times, prices,
and other terms and conditions of such redemption;
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(d) whether or not the shares of such series shall be subject
to the operation of a sinking fund or purchase fund to be
applied to the redemption or purchase of such shares and
if such a fund be established, the amount thereof and the
terms and provisions relative to the application thereof;
(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other
class or classes, or of any other series of any class or
classes, of stock of the Corporation and if provision be
made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such
conversion or exchange;
(f) whether or not the shares of such series shall have voting
rights, in addition to the voting rights provided by law,
and if they are to have such additional voting rights, the
extent thereof;
(g) the rights of the shares of such series in the event of
any liquidation, dissolution, or winding up of the
Corporation or upon any distribution of its assets; and
(h) any other powers, preferences, and relative,
participating, optional, or other special rights of the
shares of such series, and the qualifications,
limitations, or restrictions thereof, to the full extent
now or hereafter permitted by law and not inconsistent
with the provisions hereof.
4.3.2 All shares of any one series of Preferred Stock shall be
identical in all respects except as to the dates from which dividends
thereon may be cumulative. All series of the Preferred Stock shall
rank equally and be identical in all respects except as otherwise
provided in the resolution or resolutions providing for the issue of
any series of Preferred Stock.
4.3.3 Except as otherwise required by law or provided by a
resolution or resolutions of the Board of Directors creating any
series of Preferred Stock, the holders of Common Stock shall have the
exclusive power to vote; and the holders of Preferred Stock shall have
no voting power whatsoever. Except as otherwise provided in such a
resolution or resolutions, the number of authorized shares of the
Preferred Stock may be increased or decreased by the affirmative vote
of the holders of a majority of the voting power of the outstanding
shares of capital stock of the Corporation entitled to vote.
4.4 Dividends. Whenever dividends upon the Preferred Stock are at
---------
the time outstanding and the extent of the preference to which such stock is
entitled, shall have been paid in full or declared and set apart for payment for
all past dividend periods, and after the provisions for any sinking or purchase
fund or funds for any series of Preferred Stock shall have been complied with,
the Board of Directors may declare and pay dividends on the Common Stock,
payable in cash, stock or otherwise; and the holders of shares of Preferred
Stock shall not be entitled to share therein, subject to the provisions of the
resolution or resolutions creating any
4
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series of Preferred Stock. In the case of dividends or other distributions
payable in Common Stock only shares of Class A Common Stock shall be paid or
distributed with respect to Class A Common Stock and only shares of Class B
Common Stock shall be paid or distributed with respect to Class B Common Stock.
The number of shares of Class A Common Stock and Class B Common Stock so
distributed shall be distributed proportionally with respect to each outstanding
share of Class A Common Stock and Class B Common Stock. Neither the shares of
Class A Common Stock nor the shares of Class B Common Stock may be reclassified,
subdivided or combined unless such reclassification, subdivision or combination
occurs simultaneously and in the same proportion for each class.
4.5 Liquidation. In the event of any liquidation, dissolution, or
-----------
winding up of the Corporation or upon the distribution of the assets of the
Corporation remaining, after the payment to the holders of the Preferred Stock
of the full preferential amounts to which they shall be entitled as provided in
the resolution or resolutions creating any series thereof, the remaining assets
of the Corporation shall be divided and distributed among the holders of the
Common Stock ratably, except as may otherwise be provided in any such resolution
or resolutions. Neither the merger or consolidation of the Corporation with
another corporation nor the sale or lease of all or substantially all the assets
of the Corporation shall be deemed to be a liquidation, dissolution, or winding
up of the Corporation or a distribution of its assets.
4.6 Amendment of Certificate of Incorporation. Except as otherwise
-----------------------------------------
provided by law, and subject to any rights of the holders of Preferred Stock,
the provision of this Certificate of Incorporation shall not be modified,
revised, altered or amended, repealed or rescinded in whole or in part, without
the approval of a majority of the voting power of the shares of the Class A
Common Stock and the Class B Common Stock entitled to vote, voting together as a
single class; provided, however, that with respect to any proposed amendment of
this Certificate of Incorporation which would alter or change the powers,
preferences or special rights of the shares of Class A Common Stock or Class B
Common Stock so as to affect them adversely, the approval of a majority of the
votes entitled to be cast by the holders of the shares affected by the proposed
amendment, voting separately as a class, shall be obtained in addition to the
approval of a majority of the voting power of the shares of the Class A Common
Stock and the Class B Common Stock entitled to vote, voting together as a single
class, as herein provided. Notwithstanding the foregoing, any increase in the
authorized number of shares of any class or classes of stock of the Corporation
shall be deemed not to affect adversely the powers, preferences or special
rights of the shares of Class A Common Stock or Class B Common Stock.
FIFTH: DIRECTORS.
---------
5.1 Staggered Board. The Board of Directors shall be divided into
---------------
three classes, designated as Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The initial Board of
Directors elected following the filing of this Certificate of Incorporation
shall consist of four Class I directors, four Class II directors and two Class
III directors. Class I directors shall be elected initially for a one-year term,
Class II directors initially for a two-year term and Class III directors
initially for a three-year term. At each succeeding annual meeting of
5
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stockholders beginning in 1999, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office, provided that a quorum is
present, and any other vacancy occurring in the Board of Directors may be filled
by a majority of the Board of Directors then in office, even if less than a
quorum or a sole remaining director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his or her predecessor. Notwithstanding the foregoing,
whenever the holders of any one or more classes or series of Preferred Stock
issued by the Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article Fifth unless expressly provided by
such terms.
5.2 Election. No holder of Common Stock shall have the right to
--------
exercise cumulative voting rights. Unless and except to the extent that the
Bylaws of the Corporation shall so require, the election of directors of the
Corporation need not be by written ballot.
5.3 Removal. Subject to the rights of holders of Preferred Stock to
-------
elect directors under specified circumstances, effective as of the Trigger Date,
directors may be removed only for cause and only upon the affirmative vote of
holders of at least 80% of the voting power of all the then outstanding shares
of stock entitled to vote generally in the election of directors, voting
together as a single class; provided, however, that prior to the Trigger Date,
directors may be removed, without cause, with the affirmative vote of the
holders of at least a majority of the voting power of the then outstanding
shares of stock entitled to vote generally in the election of directors, voting
together as a single class.
SIXTH: BYLAWS.
------
The Board of Directors is expressly authorized and empowered to make,
alter and repeal the Bylaws of the Corporation, subject to the power of the
stockholders of the Corporation to alter or repeal any Bylaws made by the Board
of Directors.
SEVENTH: PREEMPTION RIGHTS.
-----------------
No holder of Preferred Stock or Common Stock of the Corporation shall
have any preemptive right as such holder (other than such right, if any, as the
Board of Directors in its
6
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discretion may be resolution determine pursuant to this Article Seventh) to
purchase, subscribe for or otherwise acquire any shares of stock of the
Corporation of any class now or hereafter authorized, or any securities
convertible into or exchangeable for any such shares, or any warrants or any
instruments evidencing rights or options to subscribe for, purchase or otherwise
acquire any such shares, whether such shares, securities, warrants or other
instruments are now, or shall hereafter be, authorized, unissued or issued and
thereafter acquired by the Corporation.
EIGHTH:
8.1 Elimination of Certain Liability of Directors.
---------------------------------------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) for paying a dividend or approving a stock repurchase in
violation of Section 174 of the Delaware General Corporation Law, or (d) for any
transaction from which the director derived an improper personal benefit.
8.2 Indemnification and Insurance.
-----------------------------
8.2.1 Right to Indemnification. Each person who was or is made
------------------------
a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that
----------
he or she, or a person of whom he or she is the legal representative,
is or was a director or officer, of the Corporation or is or was
serving at the request of the Corporation as a director or officer of
another company, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while
serving as a director or officer shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes
or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except
as provided in Section 8.2.2 hereof, the Corporation shall indemnify
any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its
7
<PAGE>
final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the
final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation may, by
action of its Board of Directors, provide indemnification to employees
and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
8.2.2 Right of Claimant to Bring Suit. If a claim under Section
-------------------------------
8.2.1 is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
8.2.3 Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in
advance of its final disposition conferred in this Section shall not
be exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of this Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
8.2.4 Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or
agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability
or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
8
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NINTH:
9.1 Conduct of Certain Affairs of the Corporation.
---------------------------------------------
9.1.1 In anticipation that the Corporation will cease to be an
indirect, wholly-owned subsidiary of Torchmark Corporation, but that
Torchmark Corporation will remain a substantial stockholder of the
Corporation, and in anticipation that the Corporation and Torchmark
Corporation may engage in the same areas of corporate opportunities,
and in recognition of the benefits to be derived by the Corporation
through its continued contractual, corporate and business relations
with Torchmark Corporation (including possible service of officers and
directors of Torchmark Corporation as officers and directors of the
Corporation), the provisions of this Article Ninth are set forth to
regulate and define the conduct of certain affairs of the Corporation
as they may involve Torchmark Corporation and its officers and
directors, and the powers, rights, duties and liabilities of the
Corporation and its officers, directors and stockholders in connection
therewith.
9.1.2 Torchmark Corporation shall have no duty to refrain from
(a) engaging in the same or similar activities or lines of business as
the Corporation, (b) doing business with any potential or actual
client, customer or supplier of the Corporation, or (c) employing or
engaging any officer or employee of the Corporation, and neither
Torchmark Corporation nor any officers or directors thereof (except as
provided in 9.1.3 below) shall be liable to the Corporation or its
stockholders for breach of any fiduciary duty by reason of any such
activities of Torchmark Corporation. In the event that Torchmark
Corporation acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for both Torchmark Corporation
and the Corporation, Torchmark Corporation shall have no duty to
communicate or offer such corporate opportunity to the Corporation and
shall not be liable to the Corporation or its stockholders for breach
of any fiduciary duty as a stockholder of the Corporation by reason of
the fact that Torchmark Corporation pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another
person, or does not communicate information regarding such corporate
opportunity to the Corporation.
9.1.3 In the event that a director or officer of the Corporation
who is also a director or officer of Torchmark Corporation acquires
knowledge of a potential transaction or matter which may be a
corporate opportunity for both the Corporation and Torchmark
Corporation, such director or officer of the Corporation shall have
fully satisfied and fulfilled the fiduciary duty of such director or
officer to the Corporation and its stockholders with respect to such
corporate opportunity, if such director or officer acts in good faith
in accordance with the following policy:
(a) a corporate opportunity offered to any person who is a
director but not an officer of the Corporation and who is
also an officer (whether or not a director) of Torchmark
Corporation will belong to Torchmark Corporation
9
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unless the opportunity is expressly offered to that person
primarily in his or her capacity as a director of the
Corporation, in which case the opportunity will belong to
the Corporation.
(b) a corporate opportunity offered to any person who is an
officer (whether or not a director) of the Corporation and
who is also a director but not an officer of Torchmark
Corporation will belong to the Corporation, unless the
opportunity is expressly offered to that person primarily
in his or her capacity as a director of Torchmark
Corporation, in which case the opportunity will belong to
Torchmark Corporation.
(c) a corporate opportunity offered to any other person who is
either an officer of both the Corporation and Torchmark
Corporation or a director of both the Corporation and
Torchmark Corporation will belong to Torchmark Corporation
or to the Corporation, as the case may be, if the
opportunity is expressly offered to the person primarily
in his or her capacity as an officer of director of
Torchmark Corporation or the Corporation, respectively.
Otherwise, the opportunity will belong to Torchmark
Corporation.
(d) any corporate opportunity that belongs to Torchmark
Corporation or to the Corporation, pursuant to the
foregoing policy will not be pursued by the other (or
directed by the other to another person or entity) unless
and until Torchmark Corporation or the Corporation, as the
case may be, determines not to pursue the opportunity. If
the party to whom the corporate opportunity belongs does
not, however, within a reasonable period of time, begin to
pursue, or thereafter continue to pursue, such opportunity
diligently and in good faith, the other party may pursue
each opportunity (or direct it to another person or
entity).
(e) a director or officer of the Corporation who acts in
accordance with the foregoing policy (i) will be deemed
fully to have satisfied his or her fiduciary duties to the
Corporation and its stockholders with respect to such
corporate opportunity; (ii) will not be liable to the
Corporation or its stockholders for any breach of
fiduciary duty by reason of the fact that Torchmark
Corporation pursues or acquires such opportunity for
itself or directs such corporate opportunity to another
person or entity or does not communicate information
regarding such opportunity to the Corporation; (iii) will
be deemed to have acted in good faith and in a manner he
or she reasonably believes to be in the best interests of
the Corporation; and (iv) will be deemed not to have
breached his or her duty of loyalty to the Corporation or
its stockholders and not to have derived an improper
benefit therefrom.
9.1.4 As used herein, the term "Corporate Opportunities"
-----------------------
means business opportunities potentially allocable to the
Corporation that (i) the Corporation is
10
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financially able to undertake; (ii) are, from their nature, in
the Corporation's line or lines of business and are of practical
advantage to the Corporation, and (iii) are ones in which the
Corporation has an interest or reasonable expectancy.
"Corporate Opportunities" shall not include transactions in which
------------------------
the Corporation or Torchmark Corporation is permitted to
participate pursuant to any agreement between the Corporation and
Torchmark Corporation that is in effect as of the time any equity
security of the Corporation is held of record by any person other
than Torchmark Corporation or subsequently entered into with the
approval of the disinterested directors.
9.1.5 For purposes of Article Ninth, a director of the
Corporation who is chairman of the Board of Directors (or a
committee thereof) or chief executive officer will not be deemed
to be an officer of the Corporation by reason of holding such
position, unless such person is a full-time employee of the
Corporation.
9.2 Conflict of Interests Policy.
----------------------------
9.2.1 No contract, agreement, arrangement, or transaction
between the Corporation and Torchmark Corporation or any customer
or supplier or any entity in which a director of the Corporation
has a financial interest (a "Related Entity"), or between the
--------------
Corporation and one or more of the directors or officers of the
Corporation, Torchmark Corporation or any Related Entity; any
amendment, modification, or termination thereof; or any waiver of
any right thereunder will be voidable solely because Torchmark
Corporation or such customer or supplier, any Related Entity, or
any one or more of the officers or directors of the Corporation,
Torchmark Corporation, or any Related Entity are parties thereto,
or solely because any such directors or officers are present at
or participate in the meeting of the Board of Directors or
committee thereof which authorizes the contract, agreement,
arrangement, transaction, amendment, modification, termination,
or waiver (each, a "Transaction") or solely because their votes
-----------
are counted for such purpose, if any of the following four
requirements are met:
(a) the material facts as to the relationship or interest and
as to the Transaction are disclosed or known to the Board
of Directors or the committee thereof that authorizes the
Transaction, and the Board of Directors or such committee
in good faith approves the Transaction by the affirmative
vote of a majority of the disinterested directors on the
Board of Directors or such committee, even if the
disinterested directors are less than a quorum;
(b) the material facts as to the relationship or interest and
as to the Transaction are disclosed or known to the
holders of voting stock entitled to vote thereon, and the
Transaction is specifically approved by vote of the
holders of a majority of the voting power of the
outstanding voting stock not owned by Torchmark
Corporation or such Related Entity, voting together as a
single class;
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(c) the Transaction is effected pursuant to guidelines that
are in good faith approved by a majority of the
disinterested directors on the Board of directors or the
applicable committee thereof or by vote of the holders of
a majority of the voting power of the then outstanding
voting stock not owned by Torchmark Corporation or such
Related Entity, voting together as a single class; or
(d) the Transaction is fair to the Corporation as of the time
it is approved by the Board of Directors, a committee
thereof or the stockholders of the Corporation.
9.2.2 If the requirements of (a), (b), (c) or (d) of Section
9.2.1 are met, Torchmark Corporation, the Related Entity, and the
directors and officers of the Corporation, Torchmark Corporation, or
the Related Entity (as applicable) will be deemed to have acted
reasonably and in good faith (to the extent such standard is
applicable to such person's conduct) and fully to have satisfied any
duties of loyalty and fiduciary duties they may have to the
Corporation and its stockholders with respect to such transaction.
9.2.3 Any Transaction authorized, approved, or effected, and
each of such guidelines authorized or approved, as described in (a),
(b) or (c) of Section 9.2.1, will be deemed to be entirely fair to the
Corporation and its stockholders, except that, if such authorization
or approval shall not be obtained, or such Transaction shall not be so
effected, no presumption will arise that such Transaction or guideline
is not fair to the Corporation and its stockholders. Torchmark
Corporation will not be liable to the Corporation or its stockholders
for breach of any fiduciary duty that Torchmark Corporation may have
by reason of the fact that Torchmark Corporation takes any action in
connection with any transaction between Torchmark Corporation and the
Corporation.
9.3 Any person purchasing or otherwise acquiring any interest in any
shares of capital stock of the Corporation shall be deemed to have notice of and
to have consented to this Article Ninth.
9.4 Before the Trigger Date, the affirmative vote of the holders of
more than 80% of the outstanding voting stock, voting together as a single
class, will be required to alter, amend, or repeal the corporate opportunity
provisions contained in Section 9.1 or the conflict of interest policies
contained in Section 9.2 in a manner adverse to the interests of Torchmark
Corporation. After the Trigger Date this Article Ninth will terminate.
2. This Amended and Restated Certificate of Incorporation has been
duly adopted by the Board of Directors of the Corporation in accordance with the
provisions of Section 242, of the General Corporation Law of the State of
Delaware and has been duly adopted in accordance with the provisions of the
Certificate of Incorporation of the Corporation heretofore amended.
12
<PAGE>
3. This Amended and Restated Certificate of Incorporation shall
become effective at the time it is filed in the office of the Secretary of State
of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this instrument to be signed in its name by its Chairman
and attested by its Secretary.
WADDELL & REED FINANCIAL, INC.
By:_______________________________
Name:
Title:
13
<PAGE>
EXHIBIT 3.2
BYLAWS
of
WADDELL & REED FINANCIAL, INC.
___________________
ARTICLE I. OFFICES
Section 1. Registered Office:
-----------------
The registered office shall be established and maintained at the
office of the Corporation Trust Company, in the City of Wilmington, in the
County of New Castle, in the State of Delaware, and said corporation shall be
the registered agent of this corporation in charge thereof.
Section 2. Other Offices:
-------------
The Corporation may have other offices, either within or without the
State of Delaware, at such place or places as the Board of Directors may from
time to time appoint or the business of the Corporation may require. The
principal place of business of the Corporation shall be in Overland Park,
Kansas.
ARTICLE II. MEETINGS OF STOCKHOLDERS
Section 1. Stockholder Action:
------------------
Effective as of the Trigger Date (defined below) and subject to the
rights of any holders of Preferred Stock, any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the corporation and may not be
effected by any consent in writing by such stockholders. Subject to rights of
holders of Preferred Stock to elect additional directors under specified
circumstances, special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution approved by a majority
of the entire Board of Directors or the Chairman
<PAGE>
of the Board, upon not less than ten nor more than sixty days' written notice,
provided that prior to the Trigger Date, special meetings can also be called at
the request of the holders of a majority of the voting power of the then
outstanding shares of stock. For purposes of these Bylaws, "Trigger Date" shall
------------
mean the date Torchmark Corporation owns a beneficial interest of less than a
majority of the outstanding voting power of the outstanding shares of stock.
Section 2. Annual Meetings:
---------------
Annual meetings of stockholders for the election of directors and for
such other business as may be stated in the notice of the meeting given by the
Corporation, shall be held at such place, either within or without the State of
Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the principal executive
offices of the Corporation in Kansas on the last Wednesday of April.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect members of a class of the
Board of Directors, and they may transact such other corporate business as may
properly come before the meeting.
Section 3. Voting and Proxies:
------------------
In accordance with the terms of the Certificate of Incorporation and
in accordance with the provisions of these Bylaws each holder of Class A Common
Stock shall be entitled to one vote, in person or by proxy, per share and each
holder of Class B Common Stock shall be entitled to _____ votes, in person or by
proxy, per share. No proxy shall be voted after eleven (11)
2
<PAGE>
months from its date unless such proxy provides for a longer period. Such proxy
shall be filed with the Secretary of the Corporation before or at the time of
the meeting. Upon the demand of any stockholder, the vote for directors and the
vote upon any question before the meeting shall be by ballot. All elections for
directors shall be decided by a plurality vote; all other questions shall be
decided by a majority vote except as otherwise provided by these Bylaws, the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 4. Quorum:
------
A majority of the voting power of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at meetings of stockholders. In determining whether a quorum
is present treasury shares shall not be counted. If less than a majority of the
voting power of the outstanding shares are represented, a majority of the voting
power of the shares so represented may adjourn the meeting from time to time
without further notice, but until a quorum is secured no other business may be
transacted. The stockholders present at a duly organized meeting may continue to
transact business until an adjournment
3
<PAGE>
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. At any duly organized meeting, except as otherwise provided by these
Bylaws or in the Certificate of Incorporation, a vote of a majority of the
voting power of the stock represented thereat shall decide any question brought
before the meeting.
Section 5. Notice of Meetings:
------------------
Written notice, stating the place, date and time of the meeting, and
the general nature of the business to be considered, shall be given to each
stockholder entitled to vote thereat at such stockholder's address as it appears
on the records of the Corporation, not less than ten nor more than sixty days
before the date of the meeting. No business other than that stated in the
notice shall be transacted at any special meeting or any annual meeting;
provided, business not stated in the notice of an annual meeting may be
transacted at such annual meeting with the unanimous consent of all the
stockholders entitled to vote thereat.
Section 6. Order of Business:
-----------------
The order of business at the annual meeting and, as far as
practicable, at all other meetings of the stockholders shall be as follows:
1. Calling of roll.
2. Proof of due notice of meeting.
3. Reading and disposal of any unapproved minutes.
4. Reports of officers and committees.
5. Election of directors.
6. Unfinished business.
7. New business.
4
<PAGE>
8. Adjournment.
ARTICLE III. DIRECTORS
Section 1. Number, Election and Terms:
--------------------------
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than seven
nor more than 15 persons. Subject to any rights of holders of Preferred Stock
to elect directors under specified circumstances, the exact number of directors
within the minimum and maximum limitations specified in the preceding sentence
shall be fixed from time to time by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of Directors. The Board of
Directors shall be divided into three classes, designated as Class I, Class II
and Class III. Each class shall consist, as nearly as may be possible, of one-
third of the total number of directors constituting the entire Board of
Directors. The initial Board of Directors elected following the filing of this
Certificate of Incorporation shall consist of four Class I directors, four Class
II directors and two Class III directors. Class I directors shall be elected
initially for a one-year term, Class II directors initially for a two-year term
and Class III directors initially for a three-year term. At each succeeding
annual meeting of stockholders beginning in 1999, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, and any additional director of any
class elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of that
class, but in no case shall a decrease in the
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<PAGE>
number of directors shorten the term of any incumbent director. Directors need
not be stockholders.
Section 2. Resignations:
------------
Any director, member of a committee or other officer may resign at any
time. Such resignation shall be made in writing, and shall take effect at the
time of its receipt by the Chief Executive Officer or Secretary or at such other
time as may be specified therein. The acceptance of a resignation shall not be
necessary to make it effective.
Section 3. Newly Created Directorships and Vacancies:
-----------------------------------------
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall, unless the Board of Directors otherwise determine,
be filled by a majority vote of the directors then in office even if less than a
quorum remain on the Board of Directors, or if all of the directors shall have
been removed, by stockholders with a majority of the voting power of the
outstanding shares of stock, and directors so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of the
class to which they have been elected expires. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
If the office of any member of a committee or other officer becomes
vacant, the directors in office, by a majority vote, may appoint any qualified
person to fill such vacancy, who shall hold office for the unexpired term and
until his successor shall be duly chosen.
6
<PAGE>
Subject to the rights of holders of Preferred Stock to elect directors
under specified circumstances, effective as of the Trigger Date directors may be
removed only for cause and only upon the affirmative vote of holders of at least
80% of the voting power of all the then outstanding shares of stock entitled to
vote generally in the election of directors, voting together as a single class;
provided, however, that prior to such date, directors may be removed, without
cause, with the affirmative vote of the holders of at least a majority of the
voting power of the then outstanding shares of stock entitled to vote generally
in the election of directors, voting together as a single class.
If the holders of any series of Preferred Stock then outstanding are
entitled to elect one or more directors, these provisions shall not apply, in
respect to the removal of a director or directors so elected, to the vote of the
holders of the outstanding shares of that series and the rights of the holders
of such shares shall be as set out in the Certificate of Designations,
Preferences and Rights for such shares.
Section 4. Powers:
------
The Board of Directors shall exercise all the powers of the
Corporation except such as are by law, or by the Certificate of Incorporation of
the Corporation or by these Bylaws conferred upon or reserved to the
stockholders.
Section 5. Election of Committee Members:
-----------------------------
At each regular annual meeting of the Board of Directors, the
directors may, by resolution or resolutions passed by a majority of the whole
Board, designate directors to serve as members of the executive committee, the
compensation committee, the finance committee, the nominating committee, and the
audit committee until the next regular meeting of the Board of Directors and
7
<PAGE>
until their successors are duly designated. At any regular or special meeting
of the Board of Directors, the directors may elect additional advisors for these
committees. Such advisors may or may not be members of the Board of Directors
and shall serve until the next annual meeting of the Board of Directors or for
the period of time designated by the Board. The Board of Directors may from
time to time provide for such other committees as may be deemed necessary and
assign to such committees such authority and duties as are appropriate and
allowed by Delaware law.
Section 6. Meetings:
--------
The directors may hold their annual meeting for the purpose of
organization and the transaction of business, if a quorum be present,
immediately after the annual meeting of the stockholders; or the time and place
of such meeting may be fixed by resolution of the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the Board of Directors may be called by the Chief
Executive Officer at any time or by the Secretary on the written request of any
two directors upon at least twelve hours personal notice to each director. For
purposes of this paragraph, personal notice shall be deemed given if telephonic
notice is given to the business office of a director during normal business
hours (8:00 a.m. to 5:00 p.m. in the respective time zone in which the
director's office is located). Such special meetings shall be held at such place
or places as may be determined by the Chief Executive Officer or the directors
calling the meeting, and shall be stated in the notice of the call of the
meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may
8
<PAGE>
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 7. Quorum:
------
A majority of the directors shall constitute a quorum for the
transaction of business. If at any meeting of the Board of Directors there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.
Section 8. Compensation:
------------
Directors shall not receive any stated salary for their services as
directors or as members of committees, except that by resolution of the Board of
Directors, retainer fees, meeting fees, expenses of attendance at meetings and
other benefits and payments may be authorized. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
Section 9. Action Without Meeting:
----------------------
Any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof, may be taken without a meeting,
if prior to such action a written consent thereto is signed by all members of
the Board of Directors, or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the Board of
Directors or committee.
9
<PAGE>
Section 10. Amendment, Repeal and Adoption:
------------------------------
Notwithstanding anything contained in these Bylaws to the contrary the
shareholders may only amend or repeal, or adopt any provision inconsistent with
this Article III, with the affirmative vote of the holders of at least 80% of
the voting power of all of the shares of the Corporation entitled to vote
generally in the election of directors.
ARTICLE IV. STANDING COMMITTEES
Section 1. Executive Committee:
-------------------
The executive committee of the Board of Directors shall consist of the
chairman of the board, the president, and not less than three nor more than
eight members elected by the directors from their own number. The chairman of
this committee shall be selected by the Board of Directors. The executive
committee in the interim between meetings of the Board of Directors shall
exercise all of the powers of the Board of Directors.
Section 2. Compensation Committee:
----------------------
The compensation committee shall consist of not less than three nor
more than eight members whose chairman shall also be named by the directors.
The compensation committee shall prescribe the compensation of all officers
having an annual compensation of one hundred fifty thousand dollars ($150,000)
or more. The compensation of all other officers shall be determined by the Chief
Executive Officer.
Section 3. Audit Committee:
---------------
The audit committee shall consist of not less than three nor more than
eight members elected by the directors from among their own number; provided,
however, that a majority of the members of the committee shall be outside
directors. The chairman of the committee shall also be
10
<PAGE>
selected by the Board of Directors. The audit committee shall recommend to the
Board the firm to be employed by the Corporation as its external auditor; shall
consult with the persons chosen to be the external auditors with regard to the
plan of audit; shall review the fees of the external auditors for audit and non-
audit services; shall review, in consultation with the external auditors, their
report of audit, or proposed report of audit, and the accompanying management
letter, if any; shall review with management and the external auditor before
publication or issuance, the annual financial statement, and any annual reports
to be filed with the Securities and Exchange Commission; shall consult with the
external auditors (periodically, as appropriate, out of the presence of
management) with regard to the adequacy of the internal auditing and general
accounting functions of the Corporation; shall consult with the internal
auditors (periodically, as appropriate, out of the presence of management) with
regard to cooperation of corporate divisions with the internal auditing and
accounting departments and the adequacy of corporate systems of accounting and
controls; shall serve as a communications liaison between the Board of
Directors, the external auditors, and the internal auditors; and shall perform
such other duties not inconsistent with the spirit and purpose of the committee
as are delegated to it by the Board of Directors.
Section 4. Finance Committee:
-----------------
The Board of Directors may elect from its membership a finance
committee of not less than three nor more than eight members elected by the
directors from among their own number. The Chairman of the committee shall also
be selected by the Board of Directors. The finance committee shall have special
charge and control of all financial affairs of the Company. The principal
functions and responsibilities of the finance committee are to: review and
approve
11
<PAGE>
investment and loan policies; review and approve asset-liability management
policies; monitor corporate financial results; recommend corporate financial
actions, including dividends and capital financing. The finance committee shall
make recommendations to the Board of Directors with respect to the terms and
provisions of any issue of securities of the Company, including equity and debt
securities, and shall serve as the pricing committee in connection with any such
financing and shall authorize the execution of such underwriting agreements as
may be necessary or desirable to effectuate such issue.
Section 5. Nominating Committee:
--------------------
The nominating committee shall consist of all non-employee (outside)
directors of the Company, with its chairman to be named by the Board of
Directors. The nominating committee shall meet periodically to review the
qualifications of potential Board candidates from whatever source received;
shall report its findings to the Board and propose nominations for Board
membership for approval by the Board and for submission to stockholders for
approval; and shall review and make recommendations to the Board, where
appropriate, concerning the size of the Board and the frequency of meetings.
The nominating committee shall have and exercise all such power as it shall deem
necessary for the performance of its duties.
Section 6. Meetings:
--------
Meetings of the executive committee, the finance committee, the
nominating committee, the compensation committee, and the audit committee shall
be held on call of the chairman of the board or any committee member. Meetings
may be held informally, by telephone, or by mail, and it is not necessary that
members of the committee be physically present together in order for a meeting
to be held. Two or more members of a committee shall constitute a quorum.
12
<PAGE>
ARTICLE V. OFFICERS
Section 1. Officers:
--------
The officers of the Corporation shall be a President, such Vice-
Presidents as shall from time to time be deemed necessary, a Secretary, a
Treasurer, and such other officers as may be deemed appropriate. A Chairman of
the Board and a Vice Chairman of the Board may also be elected. All such
officers shall be elected by the Board of Directors and shall hold office until
their successors are elected and qualified. None of the officers of the
Corporation need be directors. More than one office may be held by the same
person.
Section 2. Chairman of the Board:
---------------------
In the event that there is a Chairman of the Board, he shall preside
at all meetings of the Board of Directors and stockholders. He shall have and
perform such duties as usually devolve upon his office and such other duties as
are prescribed by the Bylaws and by the Board of Directors.
Section 3. Vice Chairman of the Board:
--------------------------
The Vice Chairman of the Board shall in the absence or inability to
act of the Chairman of the Board preside at all meetings of the Board of
Directors and stockholders, and exercise and discharge the responsibilities and
duties of the Chairman of the Board. He shall have and perform such other duties
as may be prescribed or assigned by the Board of Directors or the Chairman of
the Board.
Section 4. President:
---------
The President shall be the chief operating officer of the Corporation
and shall perform such duties as usually devolve upon his office and such other
duties as are prescribed by these
13
<PAGE>
Bylaws, by the Board of Directors, and by the Chairman. In the absence or
inability to act of the Chairman of the Board and the Vice Chairman of the Board
or if the offices of Chairman of the Board and Vice Chairman of the Board shall
be vacant, the President shall have and exercise all the powers and duties of
such office. If the Chairman of the Board, Vice Chairman of the Board or the
President is absent from any meeting of the Board of Directors or stockholders
where either was to have presided, the other directors shall elect one of their
number to preside at the meeting.
Section 5. Vice Presidents:
---------------
The Vice Presidents shall perform such duties as may be assigned to
them from time to time by these Bylaws, the Board of Directors, the Chairman of
the Board, or the President.
Section 6. Treasurer:
---------
The Treasurer shall have custody of all funds of the Corporation. The
Treasurer shall have and perform such duties as are incident to the office of
Treasurer and such other duties as may from time to time be assigned to him by
the Board of Directors, the Chairman, or the President.
Section 7. Secretary:
---------
The Secretary shall keep minutes of all meetings of the stockholders
and the Board of Directors unless otherwise directed by those bodies. The
Secretary shall have custody of the corporate seal, and the Secretary or any
Assistant Secretary shall affix the same to all instruments or papers requiring
the seal of the Corporation. The Secretary, or in his absence, any Assistant
Secretary, shall attend to the giving and serving of all notices of the
Corporation. The Secretary shall perform all the duties incident to the office
of Secretary, subject to the control of the Board
14
<PAGE>
of Directors, and shall do and perform such other duties as may from time to
time be assigned by the Board of Directors, the Chairman, or the President.
Section 8. Other Officers and Agents:
-------------------------
The Board of Directors may appoint such other officers and agents as
it may deem advisable, who shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 9. Chief Executive Officer:
-----------------------
The Chairman of the Board shall serve as the chief executive officer
of the Corporation. Subject to the control of the Board of Directors, the
Chairman of the Board shall be vested with authority to act for the Corporation,
and shall have general and active management of the business of the Corporation
and such other general powers and duties of supervision and management as
usually devolve upon such office and as may be prescribed from time to time by
the Board of Directors.
Section 10. Election and Term:
-----------------
The officers of the Corporation shall be elected annually by the Board
of Directors at the first meeting held after each annual meeting of
stockholders. Each officer shall hold office at the pleasure of the Board of
Directors until his death, resignation, retirement, or removal. Any officer may
be elected by the Board of Directors at other than annual meetings to serve
until the first meeting of the Board of Directors held after the annual meeting
of stockholders next following his election.
15
<PAGE>
ARTICLE VI. MISCELLANEOUS
Section 1. Certificates of Stock:
---------------------
A certificate of stock or certificates of stock, signed by the
Chairman or Vice Chairman of the Board, the President or Vice-President, the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
shall be adopted by the Board of Directors and shall be issued to each
stockholder certifying the number of shares owned by such stockholder in the
Corporation. Any or all of the signatures may be facsimiles.
Section 2. Lost Certificates:
-----------------
The Board of Directors may order a new certificate or certificates of
stock to be issued in the place of any certificate or certificates of the
Corporation alleged to have been lost or destroyed, but in every such case the
owner of the lost certificate or certificates shall first cause to be given to
the Corporation or its authorized agent a bond in such sum as said Board may
direct, as indemnity against any loss that the Corporation may incur by reason
of such replacement of the lost certificate or certificates; but the Board of
Directors may, at their discretion refuse to replace any lost certificate of
stock save upon the order of some court having jurisdiction in such matter and
may cause such legend to be inscribed on the new certificate or certificates as
in the Board's discretion may be necessary to prevent loss to the Corporation.
Section 3. Transfer of Shares:
------------------
The shares of stock of the Corporation shall be transferable only upon
its books by the holders thereof in person or by their duly authorized attorneys
or legal representatives, and upon such transfer the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock and transfer books, and ledgers, or to the authorized agent of
16
<PAGE>
the Corporation, by whom they shall be canceled, and new certificates shall
thereupon be issued. A record shall be made of each transfer and whenever a
transfer shall be made for collateral security, and not absolutely, it shall be
so expressed in the entry of the stock and transfer books.
The Corporation may decline to register on its stock books transfers
of stock standing in the name of infants, unless (a) the law of the state of
which the infant is a resident relieves the Corporation of all liability
therefor in case the infant or anyone acting for him thereafter elects to
rescind such transfer, or (b) a court having jurisdiction of the infant and the
subject matter enters a valid decree authorizing such transfer.
Section 4. Fractional Shares:
-----------------
No fractional part of a share of stock shall ever be issued by this
Corporation.
Section 5. Stockholders Record Date:
------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to adjournment of the meeting; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
17
<PAGE>
Section 6. Dividends:
---------
Subject to the provisions of the Certificate of Incorporation, the
Board of Directors may, out of funds legally available therefore at any regular
or special meeting, declare dividends upon the capital stock of the Corporation
as and when they deem expedient. Before declaring any dividend there may be set
apart out of any fund of the Corporation available for dividends, such sum or
sums as the directors from time to time in their discretion deem proper for
working capital or to serve as a fund to meet contingencies or for equalizing
dividends or for such other purposes as the directors shall deem conducive to
the interests of the Corporation. The Corporation may decline to pay cash
dividends to infant stockholders except where full and valid release may be
granted by the infant or under a decree of court of competent jurisdiction.
Section 7. Seal:
----
The corporate seal shall consist of two concentric circles between
which shall be "WADDELL & REED FINANCIAL, INC." with a representation of the
Corporate Logogram in the center.
Section 8. Fiscal Year:
-----------
The fiscal year of the corporation shall be the calendar year or such
other period as shall be determined by resolution of the Board of Directors.
Section 9. Checks:
------
All checks, drafts or other orders for the payment off money, notes or
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation, and in
such manner as shall be determined from time to time by resolution of the Board
of Directors.
18
<PAGE>
Section 10. Notice and Waiver of Notice:
---------------------------
Whenever any notice is required by these Bylaws to be given, personal
notice is not meant unless expressly so stated, and any notice so required shall
be deemed to be sufficient if given by depositing the same in the United States
mail, postage prepaid, addressed to the person entitled thereto at such person's
address as it appears on the records of the Corporation, and such notice shall
be deemed to have been given on the date of such mailing. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the Corporation or these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII. AMENDMENTS
Except as otherwise provided in Article III of these Bylaws, these
Bylaws may be altered or repealed and Bylaws may be adopted at any annual
meeting of the stockholders, or at any special meeting thereof if notice of the
proposed alteration or repeal or Bylaw or Bylaws to be adopted is contained in
the notice of such special meeting, by the affirmative vote of a majority of the
voting power of the stock issued and outstanding and entitled to vote thereat,
or without any stockholder action by the affirmative vote of a majority of the
Board of Directors, at any regular meeting of the Board of Directors, or at a
special meeting of the Board of Directors, if notice of the proposed alteration
or repeal, or Bylaw or Bylaws to be adopted, is contained in the notice of such
special meeting.
19
<PAGE>
EXHIBIT 4.2
PROMISSORY NOTE
Birmingham, Alabama
November 25, 1997 $90,334,560
For value received, United Investors Management Company, a Delaware
corporation ("Maker"), hereby promises to pay on or before November 25, 2002 to
Torchmark Corporation, a Delaware Corporation, (the "Payee"), or registered
assigns, at its executive offices in Birmingham, Alabama, or such other place as
the Payee may designate in writing, the principal sum of Ninety Million, Three
Hundred Thirty-Four Thousand, Five Hundred Sixty Dollars ($90,334,560) together
with interest at the rate of eight percent (8%) per annum from the date hereof
until maturity on the unpaid principal balance, such interest being calculated
on a 30-360 day basis and being payable semi-annually in arrears on May 1 and
November 1, commencing May 1, 1998, together with repayments of Nine Million,
Thirty-Three Thousand, Four Hundred Fifty-Six Dollars ($9,033,456) in reduction
of the original principal amount of this note.
Maker shall have the right to prepay, without penalty or premium, all or a
portion of the principal in increments of $1,000,000 at any time after the date
hereof and prior to maturity, upon twenty-four (24) hours notice delivered to
the Payee at its designated address, by the payment of the amount fixed for
prepayment. This note shall be mandatorily prepayable by Maker from any net
proceeds of any capital raised by Maker from a public or private sale or
offering of debt or equity securities.
Maker and each surety, endorser, guarantor and other party ever liable for
payment or any sum of money payable on this note, jointly and severally, waive
presentment, demand, protest and shall not be affected by any renewal or
extension in the time of payment hereof, or by any indulgences, or by any reason
of change in any security for the payment of this note, and hereby consent to
any and all renewals, extensions, indulgences, releases or changes regardless of
the number of such renewals, extensions, indulgences, releases or changes.
This note and the provisions thereof are to be construed according to and
are to be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, United Investors Management Company
has caused this note to be duly executed under its hand and seal as of the day
and year first above written.
UNITED INVESTORS MANAGEMENT COMPANY
/s/ MICHAEL J. KLYCE
----------------------------------------
Michael J. Klyce
Its: Vice President & Treasurer
<PAGE>
EXHIBIT 4.3
PROMISSORY NOTE
Birmingham, Alabama
November 25, 1997 $389,665,440
For value received, United Investors Management Company, a Delaware
corporation ("Maker"), hereby promises to pay on or before November 25, 2002 to
Liberty National Life Insurance Company, an Alabama Corporation, (the "Payee"),
or registered assigns, at its executive offices in Birmingham, Alabama, or such
other place as the Payee may designate in writing, the principal sum of Three
Hundred Eighty-Nine Million, Six Hundred Sixty-Five Thousand, Four Hundred
Forty Dollars ($389,665,440) together with interest at the rate of eight percent
(8%) per annum from the date hereof until maturity on the unpaid principal
balance, such interest being calculated on a 30-360 day basis and being payable
semi-annually in arrears on May 1 and November 1, commencing May 1, 1998,
together with repayments of Thirty-Eight Million, Nine Hundred Sixty-Six
Thousand, Five Hundred Forty-Four Dollars ($38,966,544) in reduction of the
original principal amount of this note.
Maker shall have the right to prepay, without penalty or premium, all or a
portion of the principal in increments of $1,000,000 at any time after the date
hereof and prior to maturity, upon twenty-four (24) hours notice delivered to
the Payee at its designated address, by the payment of the amount fixed for
prepayment. This note shall be mandatorily prepayable by Maker from any net
proceeds of any capital raised by Maker from a public or private sale or
offering of debt or equity securities.
Maker and each surety, endorser, guarantor and other party ever liable for
payment or any sum of money payable on this note, jointly and severally, waive
presentment, demand, protest and shall not be affected by any renewal or
extension in the time of payment hereof, or by any indulgences, or by any reason
of change in any security for the payment of this note, and hereby consent to
any and all renewals, extensions, indulgences, releases or changes regardless of
the number of such renewals, extensions, indulgences, releases or changes.
This note and the provisions thereof are to be construed according to and
are to be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, United Investors Management Company
has caused this note to be duly executed under its hand and seal as of the day
and year first above written.
UNITED INVESTORS MANAGEMENT COMPANY
/s/ MICHAEL J. KLYCE
----------------------------------------
Michael J. Klyce
Its: Vice President & Treasurer
<PAGE>
Exhibit 10.1
------------
PUBLIC OFFERING AND SEPARATION AGREEMENT
THIS AGREEMENT is made and entered into this __ day of February, 1998,
between Torchmark Corporation, a Delaware corporation ("Torchmark"), and Waddell
---------
& Reed Financial, Inc., a Delaware corporation which as of the date hereof is an
indirect wholly owned subsidiary of Torchmark (the "Company").
-------
WHEREAS, Torchmark and the Company have determined that it is
desirable, on the terms and conditions described in this Agreement, to cause the
Company to make an initial public offering of certain newly issued shares of
common stock of the Company;
WHEREAS, Torchmark directly or indirectly owns 100% of the common
stock of the Company;
WHEREAS, the Company is planning an initial public offering and
Torchmark has determined, subject to satisfaction of certain conditions, to
separate the ownership of the Company and the other members of the Company Group
(as defined herein) from Torchmark and the other members of the Torchmark Group
(as defined herein), by means of a distribution of the common stock of the
Company held by Torchmark and the other members of the Torchmark Group to
Torchmark stockholders as described in this Agreement; and
WHEREAS, this Agreement is made to set forth the principal corporate
actions required to effect the Public Offering (as defined herein) and the Spin-
Off (as defined herein) and to set forth other agreements that will govern
certain other matters following the Public Offering and the Spin-Off;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following words, terms and phrases
herein written with an initial capital letter shall have the meanings assigned
to them below:
"Action" shall mean any suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"Agent" shall mean the distribution agent to be appointed by Torchmark
-----
to distribute to the stockholders of Torchmark, pursuant to the Distribution,
the shares of Class A Common Stock and Class B Common Stock held by Torchmark.
1
<PAGE>
"Ancillary Agreement" shall have the meaning set forth in Section 8.1.
-------------------
"Class A Common Stock" shall mean shares of Class A Common Stock,
--------------------
par value $.01 per share, of the Company.
"Class B Common Stock" shall mean shares of Class B Common Stock,
--------------------
par value of $.01 per share, of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Company Affiliate" shall mean a Person that directly, or indirectly
-----------------
through one or more intermediaries, Controls or is Controlled by the Company,
provided, however, that for purposes of this Agreement none of the following
Persons shall be considered Company Affiliates: (i) Torchmark or any Torchmark
Affiliate, (ii) any corporation less than 50.1% of whose voting stock is
directly or indirectly owned by any member of the Company Group, any partnership
less than 50.1% of whose interests in profits and losses is directly or
indirectly owned by any member of the Company Group, and any corporation
(regardless of the percentage of its ownership) where the ownership by any
member of the Company Group was made as a venture capital or a portfolio (as
opposed to operational) investment or where the equity ownership resulted from a
default on a loan to such corporation, (iii) UILIC, and (iv) any former
Torchmark Affiliate previously Controlled by the Company.
"Company's Business" shall mean all of the investment management
------------------
business and the business of acting as underwriter, administrator or distributor
of Registered Investment Companies and any related or ancillary business
conducted by any member of the Company Group in the past, at the date hereof, or
in the future.
"Company Group" shall mean collectively, the Company and the Company
-------------
Affiliates, or any one or more of such companies.
"Company Registration Statement" shall have the meaning set forth in
------------------------------
Section 5.3(f).
"Control" shall mean the possession, directly or indirectly of the
-------
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise, provided that no person shall be deemed to control a Registered
Investment Company solely by reason of serving as an investment advisor,
administrator, principal underwriter or distributor for such Registered
Investment Company.
"Demand Registration Statement" shall have the meaning set forth in
-----------------------------
Section 5.1.
"Distribution" shall mean the distribution by Torchmark on a pro rata
------------
basis to holders of Torchmark common stock of all of the outstanding shares of
Class A Common Stock and Class B Common Stock owned by Torchmark on the
Distribution Date as provided in Article IV.
2
<PAGE>
"Distribution Date" shall mean the date determined by Torchmark in
-----------------
accordance with Section 4.3 on which the Spin-Off will occur.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, together with the rules and regulations promulgated thereunder.
"Firm Shares" shall mean the number of newly issued shares of Class A
-----------
Common Stock specified as "Firm Shares" in the Underwriting Agreement included
in the Public Offering.
"Group" shall mean the Company Group or the Torchmark Group.
-----
"Indemnifying Party" shall mean a party to this Agreement which is
------------------
obligated to provide indemnification under this Agreement.
"Indemnitee" shall mean a Person who is entitled to indemnification
----------
under this Agreement.
"Information" shall have the meaning set forth in Section 7.1.
-----------
"Insurance Proceeds" shall mean those moneys (i) received by an
------------------
insured from an insurance carrier or (ii) paid by an insurance carrier on behalf
of the insured, in either case net of any applicable premium adjustments,
retrospectively rated premium adjustments, deductibles, retentions or costs paid
by such insured.
"Internal Distribution" shall mean the distribution by Liberty to its
---------------------
sole stockholder, Torchmark, of all of the outstanding shares of Class B Common
Stock owned by it on the Distribution Date as provided in Article IV.
"Investment Company Act" shall mean the Investment Company Act of
----------------------
1940, as amended, together with the rules and regulations promulgated
thereunder.
"Liabilities" shall mean all debts, liabilities and obligations,
-----------
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown, whenever arising, and whether or not the same
would properly be reflected on a balance sheet, including all costs and expenses
related thereto.
"Liberty" shall mean Liberty National Life Insurance Company, an
-------
Alabama corporation and a wholly owned subsidiary of Torchmark.
"Losses" shall mean any and all losses, Liabilities, claims, damages,
------
obligations, payments, costs and expenses, matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown
(including, without limitation, the costs and expenses of any and all Actions,
threatened Actions, demands, assessments, judgments, settlements and compromises
relating thereto and attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions).
3
<PAGE>
"Offering Expenses" shall mean the costs and expenses of any
-----------------
registration by the Company which is made hereunder, including specifically the
fees and expenses of counsel and accountants; all out-of-pocket costs and
expenses incidental to the preparation, printing and filing of any registration
statement and all amendments and supplements thereto; the costs of furnishing
copies of preliminary prospectuses, each final prospectus and each amendment or
supplement thereto to the underwriter, dealers and other purchasers of shares so
registered; the reimbursable expenses of the underwriter; the costs and expenses
incurred in connection with the qualification of such shares under the "blue
sky" laws of various jurisdictions; the fees and expenses of the Company's
transfer agent; stock exchange listing fees; fees paid to the National
Association of Securities Dealers, Inc.; and similar expenses incurred in
complying with the registration provisions of this Agreement, but excluding the
underwriter's discounts and commissions.
"Overallotment Shares" shall have the meaning set forth in Section
--------------------
3.1(a)(i).
"Person" shall mean an individual, corporation, partnership,
------
association, joint venture, unincorporated organization, trust, or other entity,
including, without limitation, employee pension, profit sharing or other benefit
plan or trust.
"Public Offering" shall mean the registered offering for sale to the
---------------
public of the newly issued Shares as contemplated by Section 3.1 hereof.
"Public Offering Date" shall mean the date of the closing of the sale
--------------------
of the Firm Shares in the Public Offering.
"Record Date" shall mean the close of business on the date to be
-----------
determined by the Torchmark Board of Directors as the record date for
determining stockholders of Torchmark entitled to receive shares of Class A
Common Stock and Class B Common Stock.
"Registered Investment Company" shall mean an investment company
-----------------------------
registered as such under the Investment Company Act.
"Registration Statement" shall mean the registration statement to be
----------------------
filed by the Company with the SEC in connection with the Public Offering as
contemplated by Section 3.1(a)(1) hereof.
"Representatives" shall mean the authorized accountants, counsel and
---------------
other designated representatives of any Person.
"Ruling Request" shall have the meaning set forth in Section
--------------
4.1(a)(1).
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
together with the rules and regulations promulgated thereunder.
4
<PAGE>
"Shares" shall mean the Firm Shares and the Overallotment Shares, if
------
any, included in the Public Offering, in the aggregate constituting no more than
____ of the outstanding shares of common stock of the Company on a fully diluted
basis.
"Spin-Off" shall mean the Internal Distribution and the Distribution.
--------
"Torchmark Affiliate" shall mean a Person that directly, or indirectly
-------------------
through one or more intermediaries Controls or is Controlled by Torchmark;
provided, however, that for purposes of this Agreement none of the following
Persons shall be considered Torchmark Affiliates: (i) the Company or any
Company Affiliate and (ii) any corporation less than 50.1% of whose voting stock
is directly or indirectly owned by any member of the Torchmark Group, any
partnership less than 50.1% of whose interests in profits and losses is directly
or indirectly owned by any member of the Torchmark Group, and any corporation
(regardless of the percentage of its ownership) where the ownership by any
member of the Torchmark Group was made as a venture capital or a portfolio (as
opposed to operational) investment or where the equity ownership resulted from a
default on a loan to such corporation.
"Torchmark's Business" shall mean any business other than the
--------------------
Company's Business conducted by any member of the Torchmark Group in the past,
at the date hereof, or in the future, including without limitation, Vesta
Insurance Group, Inc.
"Torchmark Group" shall mean collectively, Torchmark and the Torchmark
---------------
Affiliates, or any one or more of such companies.
"UILIC" shall mean United Investors Life Insurance Company, a Missouri
-----
corporation and as of the date of this Agreement, a wholly owned subsidiary of
the Company.
"Underwriters" shall mean Morgan Stanley & Co. Incorporated and Morgan
------------
Stanley & Co. International Limited, the managing underwriters for the Public
Offering, and Goldman, Sachs & Co, Goldman Sachs International, Goldman Sachs
(Asia), L.L.C., Merrill Lynch & Co., and Merrill Lynch International.
"Underwriting Agreement" shall mean the underwriting agreement to be
----------------------
entered into between the Company and the Underwriters with respect to the Public
Offering.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE PUBLIC OFFERING
SECTION 2.1 Actions by the Company. At the request of Torchmark, the
----------------------
Company shall, prior to the Public Offering, take or cause to be taken, the
following actions in the order set forth below:
(a) The Company shall cancel $1.5 million of a $200 million
promissory note payable to the Company by Torchmark (the "$200 Million Note") in
-----------------
payment for a $1.5 million promissory note payable to Torchmark by the Company;
5
<PAGE>
(b) The Company shall cancel the balance of the $200 Million Note in
exchange for $198.5 million of preferred stock of Torchmark;
(c) Waddell & Reed Financial Services, Inc. ("WRFS") shall distribute
----
to the Company $127 million of preferred stock of Torchmark held by WRFS, and
simultaneously the Company shall assume WRFS's obligation to pay a $127 million
promissory note payable to Liberty (the "$127 Million Note");
-----------------
(d) The Company shall transfer $37 million of preferred stock of
Torchmark held by the Company to Liberty as partial payment for the $127 Million
Note;
(e) The Company shall transfer $90 million of preferred stock of
Torchmark held by the Company to Liberty as partial payment for a $390 million
promissory note payable to Liberty;
(f) The Company shall contribute to UILIC $198.5 million of preferred
stock of Torchmark held by the Company;
(g) The Company shall distribute a dividend of all of the stock of
UILIC owned by the Company to the Company's stockholders on a pro rata basis
(the UILIC Dividend");
---------------
(h) The Company shall distribute a dividend of all of the stock of
Torch Royalty Company, a Delaware corporation, owned by the Company to Torchmark
as a non-pro rata dividend;
(i) The Company shall distribute a dividend of all of its interest in
Century Capital Partners, Ltd., a _______ limited partnership to Liberty as a
non-pro rata dividend; and
(j) The Company shall distribute a dividend of that certain account
receivable payable by Waddell Ranch to Torchmark as a non-pro rata dividend.
SECTION 2.2 Condition Precedent. Torchmark shall request that the
-------------------
Company distribute the UILIC Dividend only following receipt by Torchmark of an
opinion of Hughes & Luce, L.L.P. or other counsel satisfactory to Torchmark to
the effect that the UILIC Dividend will qualify as a tax-free distribution for
federal income tax purposes under Section 355 of the Code, which opinion shall
be in form and substance satisfactory to Torchmark in its sole discretion.
SECTION 2.3 Certificate of Incorporation and Bylaws. The Company and
---------------------------------------
Torchmark shall take all actions necessary to adopt and make effective prior to
the Public Offering Date the amendments to the Certificate of Incorporation and
Bylaws of the Company in substantially the forms attached as Exhibits A and B
----------- -
hereto.
6
<PAGE>
ARTICLE III
PUBLIC OFFERING
SECTION 3.1 Public Offering. Subject to the conditions specified in
---------------
Section 3.2, the Company and Torchmark shall use all reasonable efforts to
consummate the Public Offering and shall take all actions necessary in
connection therewith, including, without limitation, the following actions:
(a) Actions by each Party.
---------------------
(1) The Company has filed a Registration Statement on Form S-1 to
register under the Securities Act for sale or distribution to the public newly
issued Shares for the account of the Company. The Company shall hereafter file
such amendment or amendments to the Registration Statement as shall be necessary
to cause it to become effective. The Registration Statement shall provide for an
overallotment option to the Underwriters to purchase from the Company shares of
Class A Common Stock in an amount of up to fifteen percent (15%) of the Firm
Shares (the "Overallotment Shares").
--------------------
(2) The Company and Torchmark shall use all reasonable efforts to
obtain any and all approvals and authorizations necessary to consummate the
Public Offering and the other transactions and agreements contained herein.
(3) The Company and Torchmark shall use all reasonable efforts to
cause the Shares, upon their issuance pursuant to the Public Offering, to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.
(4) Except for the individuals to be directors of the Company in
accordance with Section 3.1(c)(4) and for such other individuals as to whom
Torchmark and the Company may agree, Torchmark shall cause all directors and
employees of the Torchmark Group to resign, effective as of the Public Offering
Date, from all boards of directors or similar governing bodies of all members of
the Company Group on which they serve, and from all positions as officers of all
members of the Company Group in which they serve, it being understood that,
without limitation, this provision does not apply to any directorships of any
Registered Investment Company.
(5) Except for such individuals as to whom Torchmark and the
Company may agree, the Company shall cause all directors and employees of the
Company Group to resign, effective as of the Public Offering Date, from all
boards of directors or similar governing bodies of all members of the Torchmark
Group on which they serve, and from all positions as officers of all members of
the Torchmark Group in which they serve.
(6) Prior to the Public Offering Date:
(a) Torchmark shall advise the Company as to all outstanding
guarantees, letter of credit obligations, performance or surety bonds, comfort
letters and other similar obligations of Torchmark and the Torchmark Affiliates
relating to the Company's
7
<PAGE>
Business. Except as otherwise provided in Section 8.4, the Company shall use its
best efforts from and after the Public Offering Date to obtain the release of
Torchmark and the Torchmark Affiliates from all such obligations or liabilities.
(b) The Company shall advise Torchmark as to all outstanding
guarantees, letter of credit obligations, performance or surety bonds, comfort
letters and other similar obligations of the Company and the Company Affiliates
relating to Torchmark's Business. Except as otherwise provided in Section 8.4,
Torchmark shall use its best efforts from and after the Public Offering Date to
obtain the release of the Company and the Company Affiliates from all such
obligations or liabilities.
(b) Actions by the Company.
----------------------
(1) The Company shall use all reasonable efforts to have the
Registration Statement declared effective as promptly as reasonably practicable
and will promptly notify Torchmark and confirm such advice in writing, (i) when
the Registration Statement has become effective, (ii) when any post-effective
amendment to the Registration Statement becomes effective, (iii) of any SEC
comment letters, and (iv) of any request by the SEC for any amendment or
supplement to the Registration Statement or any prospectus relating thereto or
for additional information.
(2) The Company shall promptly deliver to Torchmark copies of the
Registration Statement and amendments thereto as filed with the SEC. The
Company shall furnish to the Underwriters such number of copies of any
prospectus (including any preliminary prospectus) as such Underwriters may
reasonably request in order to effect the offering and sale of any Shares being
offered and sold pursuant to such Registration Statement.
(3) The Company shall use its reasonable efforts to qualify not
later than the effective date of the Registration Statement the Shares
registered thereunder under the "blue sky" laws of such states as the
Underwriters may reasonably request; provided, however, that the Company shall
not be required to qualify as a foreign corporation or execute a general consent
to service of process in any jurisdiction.
(4) The Company shall enter into customary agreements (including
the Underwriting Agreement) and take all other customary and appropriate actions
in order to expedite or facilitate the disposition of Shares subject to the
Registration Statement.
(5) The Company shall represent and warrant to Torchmark that the
Registration Statement, in the form declared effective by the SEC, and any
amendment and supplement thereto and any prospectus included therein, will
comply in all material respects with the applicable provisions of the Securities
Act, and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that the Company shall not represent and warrant
as to the information provided in writing by or on behalf of Torchmark which
either (i) related to Torchmark, Torchmark's
8
<PAGE>
Business, its operations or its relationship with the Company, or (ii) was
furnished specifically for use in the Registration Statement or any amendment or
supplement thereto or any prospectus included therein.
(6) On the Public Offering Date, the Company shall issue to the
Underwriters such number of Shares as provided in the Underwriting Agreement.
(c) Actions by Torchmark.
--------------------
(1) Torchmark shall furnish the Company such information
regarding Torchmark as is reasonably required by the Company in connection with
any registration, qualification or compliance referred to in this Article III.
(2) Torchmark shall not, and shall cause Liberty to not, sell any
Class A Common Stock or Class B Common Stock for a period ending 180 days after
the date the Registration Statement is declared effective, without the consent
of the Underwriters.
(3) Torchmark shall represent and warrant to the Company that
information furnished in writing to the Company by or on behalf of Torchmark
which either (i) related to Torchmark, Torchmark's Business, its operations or
its relationship with the Company, or (ii) was furnished specifically for use in
the Registration Statement or any amendment or supplement thereto or any
prospectus included therein, did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(4) Torchmark shall, and shall cause Liberty to, take all action
necessary to cause the persons identified on Exhibit C to be elected to the
---------
Board of Directors of the Company promptly after the date hereof.
SECTION 3.2 Conditions Precedent to Consummation of the Public
--------------------------------------------------
Offering. The obligations of the parties to consummate the Public Offering
- --------
shall be conditioned on the satisfaction of the following conditions:
(a) The Registration Statement shall have been filed and declared
effective by the SEC, and there shall be no stop-order in effect with respect
thereto;
(b) The actions and filings with regard to state securities and blue
sky laws of the United States, if any are required, shall have been taken and,
where applicable, have become effective or been accepted;
(c) The Company shall have entered into the Underwriting Agreement
and all conditions to the obligations of the Underwriters shall have been
satisfied or waived;
(d) As of the Public Offering Date, Liberty shall control (within the
meaning of Sections 355 and 368(c) of the Code) the Company, and all other
conditions to permit the
9
<PAGE>
Internal Distribution to qualify as a tax-free distribution to Torchmark and the
Distribution to qualify as a tax-free distribution to Torchmark shareholders
shall, to the extent applicable as of the time of the Public Offering, be
satisfied, and there shall be no event or condition that is likely to cause any
of the foregoing not to be satisfied as of the time of the Distribution Date or
thereafter;
(e) The Shares shall have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance;
(f) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Public Offering or any of the other transactions
contemplated by this Agreement or any other agreement or document contemplated
by this Agreement shall be in effect;
(g) Torchmark and the Company shall have received any necessary
governmental or regulatory approval or authorization;
(h) This Agreement shall not have been terminated;
(i) The Board of Directors of Torchmark or a duly authorized
committee of Torchmark directors shall have determined that the terms of the
Public Offering are acceptable to Torchmark;
(j) The actions required pursuant to Section 2.1 shall have been
taken; and
(k) Such other actions as the parties may, based upon the advice of
counsel, reasonably request to be taken prior to the Public Offering in order to
assure the successful completion of the Public Offering, the Spin-Off and the
other transactions contemplated by this Agreement or any other agreement or
document contemplated by this Agreement shall have been taken.
SECTION 3.3 Participation. The participation of any party or its
-------------
counsel or other representatives in the preparation of the Registration
Statement or any amendment or supplement thereto or any prospectus included
therein, or its approval of all or any of such documents to be filed, shall not
alter the rights to indemnification or to contribution pursuant to Article VI.
SECTION 3.4 Use of Proceeds. The Company shall apply the proceeds of
---------------
the Public Offering, after deducting underwriting commissions and discounts, as
follows:
(a) First, to reimburse Torchmark for all Offering Expenses paid or
advanced by Torchmark to the Company;
(b) Second, to prepay all amounts due under the Company's promissory
notes outstanding as of the Public Offering Date to Torchmark and Liberty to the
extent the proceeds of the Public Offering are sufficient to pay such amounts;
and
10
<PAGE>
(c) Third, any remaining amount of proceeds shall be used as set
forth in the Registration Statement.
ARTICLE IV
DISTRIBUTION
SECTION 4.1 Actions Prior to the Spin-Off.
-----------------------------
(a) Actions by Torchmark.
--------------------
(1) Torchmark shall, as soon as reasonably practicable after the
execution of this Agreement, file a private letter ruling request with the
Internal Revenue Service to the effect that, among other things, the Spin-Off
will qualify as a tax-free distribution for federal income tax purposes under
Section 355 of the Code (the "Ruling Request"). The Company shall provide all
--------------
information necessary for Torchmark to make such filing as requested by
Torchmark.
(2) Subject to Section 4.3, on or prior to the Distribution Date,
Torchmark shall, subject to any necessary governmental approvals and consents,
cause Liberty to distribute a dividend of all of the Class B Common Stock held
by Liberty to Torchmark, its sole stockholder.
(3) On or prior to the Distribution Date, Torchmark shall,
subject to any necessary governmental approvals and consents, transfer all of
the stock of American Income Life Insurance Company to Globe Life and Accident
Insurance Company as a contribution to capital.
(b) Actions by each Party.
----------------------
(1) Subject to Section 4.3, prior to the Distribution Date, the
Company and Torchmark shall prepare and mail to the holders of Torchmark common
stock, such information concerning the Company, its business, operations and
management, the Spin-Off and such other matters as Torchmark and the Company
shall reasonably determine and as may be required by law. Torchmark and the
Company, as may be appropriate, will prepare and, to the extent required under
applicable law, will file with the SEC any such documentation which Torchmark
determines is necessary or desirable to effectuate the Spin-Off and Torchmark
and the Company shall each use its reasonable efforts to obtain all necessary
approvals from the SEC with respect thereto.
(2) In addition to their respective obligations under Section
4.1(b)(1) above, Torchmark and the Company shall take all other actions as may
be necessary or appropriate under the securities or blue sky laws of the United
States in connection with the Spin-Off.
(3) Torchmark and the Company shall use their reasonable efforts
to cause the conditions set forth in Section 4.3 to be satisfied and to effect
the Spin-Off on the Distribution Date.
11
<PAGE>
(c) Actions by the Company.
----------------------
(1) The Company shall prepare and file, and shall use its
reasonable efforts to have approved, an application for the listing of the Class
A Common Stock and Class B Common Stock to be distributed in the Spin-Off on the
New York Stock Exchange.
(2) Between the Public Offering Date and the Distribution Date,
the Company shall not issue any shares of stock or enter into any binding
obligation to do so if the effect thereof would be that Liberty would not
control the Company within the meaning of Sections 355 and 368(c) of the Code,
or, subsequent to the Internal Distribution, that Torchmark would not control
the Company within the meaning of Sections 355 and 368(c) of the Code.
SECTION 4.2 The Spin-Off.
------------
(a) Subject to Section 4.3, on or prior to the Distribution Date,
Torchmark shall deliver to the Agent for the benefit of holders of record of
Torchmark common stock on the Record Date, a single stock certificate endorsed
by Torchmark in blank, representing all of the outstanding shares of Class A
Common Stock then owned by Torchmark or any other member of the Torchmark Group
and a single stock certificate endorsed by Torchmark in blank, representing all
of the outstanding shares of Class B Common Stock then owned by Torchmark or any
other member of the Torchmark Group, and shall cause the transfer agent for the
shares of Torchmark common stock to instruct the Agent to distribute on the
Distribution Date the appropriate number of such shares of Class A Common Stock
and Class B Common Stock (except for fractional shares which will be sold for
cash pursuant to Section 4.4 to be distributed in lieu thereof) to each such
holder or designated transferee or transferees of such holder.
(b) Subject to Section 4.4, each holder of Torchmark common stock on
the Record Date (or such holder's designated transferee or transferees) shall be
entitled to receive, in the Spin-Off, the following:
(1) A number of shares of Class A Common Stock equal to the
number of shares of Class A Common Stock owned by Torchmark and any other member
of the Torchmark Group on the Record Date multiplied by a fraction, the
numerator of which is the number of shares of Torchmark common stock held by
such holder on the Record Date, and the denominator of which is the number of
shares of Torchmark common stock outstanding on the Record Date, which number
shall be rounded down to the nearest whole number of shares; and
(2) A number of shares of Class B Common Stock equal to the
number of shares of Class B Common Stock owned by Torchmark or any other member
of the Torchmark Group on the Record Date multiplied by a fraction, the
numerator of which is the number of shares of Torchmark common stock held by
such holder on the Record Date, and the denominator of which is the number of
shares of Torchmark common stock outstanding on the Record Date, which number
shall be rounded down to the nearest whole number of shares.
12
<PAGE>
(c) Torchmark and the Company, as the case may be, will provide to
the Agent all share certificates and any information required in order to
complete the Spin-Off on the basis specified above.
SECTION 4.3 Conditions to Spin-Off. Torchmark shall effect the Spin-
----------------------
Off as promptly as practicable after October 1, 1998 as determined by Torchmark,
following the satisfaction or waiver by Torchmark, in its sole discretion, of
the conditions set forth below:
(a) A private letter ruling from the Internal Revenue Service shall
have been obtained, and shall continue in effect, providing that, among other
things, the Spin-Off will qualify as a tax-free distribution for federal income
tax purposes under Section 355 of the Code, such ruling shall be in form and
substance satisfactory to Torchmark in its sole discretion and Torchmark and the
Company shall have complied with all conditions set forth in such ruling;
(b) Any material governmental approvals and consents necessary to
consummate the Spin-Off shall have been obtained and shall be in full force and
effect;
(c) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-Off shall be in effect and no other event outside the
control of Torchmark shall have occurred or failed to occur that prevents the
consummation of the Spin-Off;
(d) The transactions contemplated hereby shall be in compliance with
applicable federal and state securities and insurance laws;
(e) Each of the Company and Torchmark shall have received such
material consents, and shall have received executed copies of such agreements or
amendments of agreements, as they shall deem material in connection with the
completion of the transactions contemplated by this Agreement or any other
agreement or document contemplated by this Agreement or otherwise;
(f) All action and other documents and instruments deemed necessary
or advisable in connection with the transactions contemplated hereby shall have
been taken or executed, as the case may be, in form and substance satisfactory
to Torchmark;
(g) Since December 31, 1997, no material adverse change shall have
occurred with respect to the business or financial condition of Torchmark and no
other event or development shall have occurred which the Board of Directors of
Torchmark determines, in its sole discretion, make the Spin-Off not in the best
interests of Torchmark and its stockholders.
The foregoing conditions are for the sole benefit of Torchmark and shall not
give rise to or create any duty on the part of Torchmark to waive or not waive
any such condition.
SECTION 4.4 Fractional Shares. As soon as practicable after the
-----------------
Distribution Date, Torchmark shall direct the Agent to determine the number of
whole shares and fractional shares
13
<PAGE>
of the Class A Common Stock and the Class B Common Stock allocable to each
holder of record of Torchmark common stock as of the Record Date, to aggregate
all such fractional shares and sell the whole shares obtained thereby in open-
market transactions in the Agent's sole discretion as to when, how, through
which broker-dealer and at what price to make such sales, and to cause to be
distributed to each such holder or for the benefit of each such holder, in lieu
of any fractional share, such holder's ratable share of the proceeds of such
sale, after making appropriate deductions of the amount required to be withheld
for federal income tax purposes and after deducting an amount equal to all
brokerage charges, commissions and transfer taxes attributed to such sale.
Torchmark and the Agent shall use their reasonable efforts to aggregate the
shares of Torchmark common stock that may be held by any holder of record
thereof through more than one account in determining the fractional shares
allocable to such holder.
ARTICLE V
REGISTRATION RIGHTS
SECTION 5.1 Registration of Shares In the event that the Spin-Off
----------------------
has not occurred by March 31, 1999, upon the request of Torchmark made at any
time after such date but prior to March 31, 2002, the Company shall file with
the SEC, as promptly as practicable, a demand registration statement (the
"Demand Registration Statement") including the shares of Class A Common Stock
-----------------------------
and/or Class B Common Stock then held by Torchmark or any other member of the
Torchmark Group Torchmark requests to be included. Torchmark shall have the
right to request up to three Demand Registration Statements, provided that the
Company shall have no obligation to file any such Demand Registration Statement
on or prior to a ninety (90) day period following the filing of any other
registration statement by the Company (other than registration statements on
Form S-4 or Form S-8 or another form available for registration of securities
other than for sale to the public for cash). The Company shall use its best
efforts to cause each Demand Registration Statement to be declared effective by
the SEC as promptly as practicable. If a Demand Registration Statement shall be
withdrawn by the Company before effectiveness, it shall not be counted against
Torchmark's right to request three registrations. Torchmark will pay all
reasonable costs incurred to obtain shareholder approval for any mutual fund
which is a party to an investment advisory contract with any member of the
Company Group in the event a sale by Torchmark pursuant to a Demand Registration
Statement or a Company Registration Statement would constitute an "assignment"
as defined in the Investment Company Act and the Advisors Act of such investment
advisory contract.
SECTION 5.2 Limitations of Registration Rights.
----------------------------------
(a) The Company may, by written notice to Torchmark, for a period of
up to forty-five (45) days from the date of written notice, delay the filing or
effectiveness of any of the Demand Registration Statements in the event that (1)
the Company is engaged in any activity or transaction that the Company desires
to keep confidential for business reasons, (2) the Company's Board of Directors
determines in good faith that the disclosure of such information would be
detrimental to the Company, and (3) the Company's Board of Directors determines
in good faith that the public disclosure requirements imposed on the Company
under the Securities Act in
14
<PAGE>
connection with any such Demand Registration Statement would require disclosure
of such activity or transaction.
(b) If the Company delays a Demand Registration Statement, the
Company shall, as promptly as practicable following the termination of the
circumstances which entitled the Company to do so, provide notice to Torchmark
of the termination of such circumstances and take such actions as may be
necessary to file or reinstate the effectiveness of a Demand Registration
Statement. If as a result thereof the prospectus included in a Demand
Registration Statement has been amended to comply with the requirements of the
Securities Act, the Company shall enclose such revised prospectus with the
notice to Torchmark given pursuant to this paragraph (b), and Torchmark shall
make no offers or sales of shares pursuant to a Demand Registration Statement
other than by means of such revised prospectus.
SECTION 5.3 Registration Procedures.
-----------------------
(a) In connection with the filing by the Company of a Demand
Registration Statement, the Company shall furnish to Torchmark as many copies of
the prospectus, including each preliminary prospectus, in conformity with the
requirements of the Securities Act as Torchmark shall reasonably request for the
purpose of effecting the plan of distribution set forth therein.
(b) The Company shall use its best efforts to register or qualify the
shares of Class A Common Stock and/or Class B Common Stock covered by a Demand
Registration Statement under the securities laws of such states as Torchmark
shall reasonably request; provided, however, that the Company shall not be
required in connection with this paragraph (b) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
(c) If the Company has delivered preliminary or final prospectuses to
Torchmark and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify Torchmark
and, if requested by the Company, Torchmark shall immediately return all
prospectuses to the Company. The Company shall promptly provide Torchmark with
revised prospectuses.
(d) At the request of Torchmark, the Company shall sign an
underwriting agreement in customary form with managing underwriter selected by
Torchmark and reasonably satisfactory to the Company, and shall cooperate with
such managing underwriter in all reasonable respects to facilitate the
distribution contemplated by Torchmark, including without limitation making
available the books, records and personnel of the Company for the purpose of the
underwriter's "due diligence" and providing customary legal opinions and
auditors' comfort letters.
(e) The Offering Expenses incurred in complying with this Section 5.3
shall be paid as follows:
(i) Offering Expenses in connection with a Demand Registration
Statement shall be paid by Torchmark; provided, that in the event any shares of
the Company's stock are included in a Demand Registration Statement in addition
to the shares of Class A Common Stock
15
<PAGE>
and/or Class B Common Stock held by Torchmark or any other member of the
Torchmark Group, the Company shall pay its prorata portion of the Offering
Expenses equal to the Offering Expenses multiplied by a fraction, the numerator
of which is the number of any shares included in the Demand Registration
Statement other than the shares held by Torchmark or any other member of the
Torchmark Group and the denominator of which is the total number of shares
included in the Demand Registration Statement; and
(ii) Offering Expenses in connection with a Company
Registration Statement (as defined below) shall be paid by the Company;
provided, that in the event Class A Common Stock and/or Class B Common Stock
held by Torchmark or any other member of the Torchmark Group is included in the
Company Registration Statement, Torchmark shall pay its prorata portion of the
Offering Expenses equal to the Offering Expenses multiplied by a fraction, the
numerator of which is the number of such Class A Common Stock and/or Class B
Common Stock held by Torchmark or any other member of the Torchmark Group and
included in the Company Registration Statement and the denominator of which is
the total number of shares included in the Company Registration Statement.
(f) Prior to March 31, 2002, each time the Company proposes to
register any of its securities (except with respect to registration statements
on Form S-4 or Form S-8 or another form available for registration of securities
other than for sale to the public for cash), whether or not for sale for its own
account, which is in whole or in part, an underwritten public offering (a
"Company Registration Statement"), it will give prompt written notice to
------------------------------
Torchmark of its intention to do so and of Torchmark's rights under this Section
5.3(f). Torchmark may request within thirty (30) days after receipt of any such
notice to include in the Company Registration Statement some or any portion of
the shares of Class A Common Stock or Class B Common Stock then held by
Torchmark or any other member of the Torchmark Group. The Company shall use its
best efforts to cause the Company Registration Statement to include all shares
of Class A Common Stock and/or Class B Common Stock that Torchmark requested to
be included; provided, however, the number of shares of Class A Common Stock
and/or Class B Common Stock Torchmark requested be included in the Company
Registration Statement may be reduced (pro rata among Torchmark and any other
stockholder with similar registration rights based on the number of shares so
requested to be registered) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold. Torchmark's exercise of its right under this
Section 5.3(f) to include shares in any Company Registration Statement shall not
be counted against Torchmark's right to request three registrations.
SECTION 5.4 Requirements of Torchmark. The Company shall not be
-------------------------
required to include any Class A Common Stock and/or Class B Common Stock owned
by Torchmark or any other member of the Torchmark Group in a Demand Registration
Statement or a Company Registration Statement unless:
(a) Torchmark furnishes to the Company in writing such information
regarding Torchmark as the Company may reasonably request in writing in
connection with the Demand
16
<PAGE>
Registration Statement or the Company Registration Statement, as the case may
be, or as shall be required in connection therewith by the SEC or any state
securities law authorities; and
(b) Torchmark shall have provided to the Company its written
agreement to report to the Company sales made pursuant to the Demand
Registration Statement or the Company Registration Statement, as the case may
be.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Indemnification by the Company. Subject to Section 6.5,
------------------------------
the Company hereby agrees to indemnify and hold harmless Torchmark and the
Torchmark Affiliates and their respective directors, officers, employees, and
agents, and each Person, if any, who controls Torchmark within the meaning of
the Securities Act (the "Torchmark Indemnitees"), against:
---------------------
(a) All Liabilities of the Company Group under this Agreement, any
Ancillary Agreement or the Underwriting Agreement;
(b) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Demand Registration Statement, or any Company
Registration Statement, any prospectus (including a preliminary prospectus)
contained therein, or any amendment or supplement to any such Registration
Statement, Demand Registration Statement, Company Registration Statement or
prospectus, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided that the Company shall not be so liable insofar as such
Losses arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, Demand Registration Statement, Company Registration Statement,
prospectus, supplement or amendment in conformity with or based upon information
furnished in writing to the Company by or on behalf of Torchmark which either
(i) related to Torchmark, Torchmark's Business, its operations, or its
relationship with the Company, or (ii) was furnished specifically for use
therein;
(c) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in any
Exchange Act report by Torchmark or the omission or alleged omission to state
therein a material fact required to be stated in any such report or necessary to
make the statements therein not misleading, but only insofar as such Losses
arise out of or are based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made in such report in conformity with
or based upon information furnished in writing to Torchmark by or on behalf of
the Company which either (i) related to the Company, the Company's Business, its
operations, or its relationship with Torchmark, or (ii) was furnished
specifically for use therein;
(d) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in any
Exchange Act report by the Company or the
17
<PAGE>
omission or alleged omission to state therein a material fact required to be
stated in any such report or necessary to make the statements therein not
misleading; provided that the Company shall not be liable insofar as such Losses
arise out of or are based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made in such report in conformity with
or based upon information furnished in writing to the Company by or on behalf of
Torchmark which either (i) related to Torchmark, Torchmark's Business, its
operations or its relationship with the Company or (ii) was furnished
specifically for use therein;
(e) All Losses relating to, or arising out of or due to, directly or
indirectly, (i) the Company's Business, (ii) any individual employed by any
member of the Company Group on the Public Offering Date or any individual
employed by any member of the Company Group prior to the Public Offering Date,
except to the extent such person was acting solely as an officer, director or
employee of any member of the Torchmark Group, or (iii) any Representative of
any member in the Company Group, in each case, whether relating to or arising
out of occurrences prior to, on or after the Public Offering Date; and
(f) All Losses to which Torchmark and the Torchmark Affiliates may be
subject as a result of the Spin-Off not qualifying as a tax-free transaction
under Section 355 of the Code, to the extent that any Losses would not have
resulted but for (x) the actions described in Section 4.1(c)(2) or (y) any
untrue statement or alleged untrue statement of a material fact contained in the
Ruling Request or the Registration Statement or the omission or alleged omission
to state in the Ruling Request or the Registration Statement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only insofar as any such statement or omission was made in
reliance upon, and in conformity with information furnished in writing by or on
behalf of the Company which either (i) related to the Company, the Company's
Business, its operations, or its relationship with the Company, or (ii) was
furnished specifically for use therein.
SECTION 6.2 Indemnification by Torchmark. Subject to Section 6.5,
----------------------------
Torchmark hereby agrees to indemnify and hold harmless the Company and the
Company Affiliates and their respective directors, officers, employees, and
agents, and each Person, if any, who controls the Company within the meaning of
the Securities Act (the "Company Indemnitees"), against:
-------------------
(a) All Liabilities of the Torchmark Group under this Agreement, any
Ancillary Agreement, or the Underwriting Agreement;
(b) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact in the Registration
Statement, any Demand Registration Statement, or any Company Registration
Statement, any prospectus (including a preliminary prospectus) contained
therein, or any amendment or supplement to such Registration Statement, Demand
Registration Statement, Company Registration Statement, or prospectus, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only insofar as such Losses arise out of or are based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement, Demand Registration Statement, Company Registration
18
<PAGE>
Statement, prospectus, supplement or amendment that was based upon or in
conformity with information furnished in writing to the Company by or on behalf
of Torchmark which either (i) related to Torchmark, Torchmark's Business, its
operations or its relationship with the Company or (ii) was furnished
specifically for use therein;
(c) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in any
Exchange Act report by Torchmark or the omission or alleged omission to state
therein a material fact required to be stated in any such report or necessary to
make the statements therein not misleading; provided that Torchmark shall not be
liable insofar as such Losses arise out of or are based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
such report in conformity with or based upon information furnished in writing
to Torchmark by or on behalf of the Company which either (i) related to the
Company, Company's Business, its operations or its relationship with Torchmark
or (ii) was furnished specifically for use therein;
(d) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in any
Exchange Act report by the Company or the omission or alleged omission to state
therein a material fact required to be stated in any such report or necessary to
make the statements therein not misleading, but only insofar as such Losses
arise out of or are based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made in such report in conformity with
or based upon information furnished in writing to the Company by or on behalf of
Torchmark which either (i) related to Torchmark, Torchmark's Business, its
operations, or its relationship with the Company, or (ii) was furnished
specifically for use therein;
(e) All Losses relating to, or arising out of or due to, directly or
indirectly, (i) Torchmark's Business, (ii) any individual employed by any member
of the Torchmark Group on the Public Offering Date or any individual employed by
any member of the Torchmark Group prior to the Public Offering Date, except to
the extent such person was acting solely as an officer, director or employee of
any member of the Company Group, (iii) or any Representative of any member of
the Torchmark Group, in each case, whether relating to or arising out of
occurrences prior to, on or after the Public Offering Date; and
(f) All Losses to which the Company and the Company Affiliates may be
subject as a result of the Spin-Off not qualifying as a tax-free transaction
under Section 355 of the Code, provided that Torchmark shall not be liable in
any such case to the extent that any Losses would not have resulted but for (x)
the actions described in Section 4.1(c)(2) or (y) any untrue statement or
alleged untrue statement of a material fact contained in the Ruling Request or
the Registration Statement or the omission or alleged omission to state in the
Ruling Request or the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only insofar as any such statement or omission was made in reliance upon, and in
conformity with information furnished in writing by or on behalf of the Company
which either (i) related to the Company, the Company's Business, its operations
or its relationship with the Torchmark or (ii) was furnished specifically for
use therein.
19
<PAGE>
SECTION 6.3 Indemnification Procedure. Promptly after receipt by an
-------------------------
Indemnitee of notice of the commencement of any action or proceeding in respect
of which indemnity may be sought by such Indemnitee pursuant to Section 6.1 or
6.2, such Indemnitee will, if a claim in respect thereof is to be made against
an Indemnifying Party under Section 6.1 or 6.2, notify the Indemnifying
Party of the commencement thereof, but the omission so to notify the Indemnified
Party will not relieve the Indemnifying Party from any liability which it may
have to any Indemnitee under Section 6.1 or 6.2 or otherwise, except to the
extent the Indemnifying Party is prejudiced by such omission. In case any such
action or proceeding is brought against any Indemnitee and it notifies an
Indemnitee of the commencement thereof, the Indemnifying Party will be entitled
to participate therein and, to the extent that it may wish to assume the defense
thereof, and if it assumes such defense, it shall retain counsel reasonably
satisfactory to such Indemnitee to represent the Indemnitee and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnitee shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee
unless in the reasonable judgment of the Indemnitee separate and conflicting
defenses are available to such Indemnitee, in which event the Indemnitee may
select one firm of separate counsel reasonably satisfactory to the Indemnifying
Party for purposes of defending such action, whose fees and expenses shall be
borne by the Indemnifying Party, provided that the Indemnifying Party shall not
be responsible for the fees and expenses of more than one counsel for all such
Indemnified Parties. After notice from the Indemnifying Party to such
Indemnitee of its election so to assume the defense thereof, the Indemnifying
Party will not (except as otherwise provided herein) be liable to such
Indemnitee under Sections 6.1 or 6.2 for any legal or other expenses
subsequently incurred by such Indemnitee in connection with the defense thereof
other than reasonable costs of investigation. If the Indemnifying Party elects
not to assume the defense of a claim or action, it will not be obligated to pay
the fees and expenses of more than one counsel for the Indemnitee with respect
to such claim or action. No Indemnifying Party shall consent to entry of any
judgment or enter into any settlement without the consent of any Indemnitee
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnitee of a release from all liability in
respect to such action or proceeding. No Indemnifying Party shall be subject to
any liability for any settlement made without its consent, which consent shall
not be unreasonably withheld.
SECTION 6.4 Indemnification Payments.
------------------------
(a) The amount which any Indemnifying Party is or may be required to
pay to an Indemnitee pursuant to Section 6.1 or Section 6.2 shall be reduced,
including, without limitation, retroactively, by any Insurance Proceeds or other
amounts actually recovered by or on behalf of such Indemnitee, in reduction of
the related Loss. If an Indemnitee shall have received the payment required by
this Agreement from an Indemnifying Party in respect of any Loss and shall
subsequently actually receive Insurance Proceeds or other amounts in respect of
such Loss, then such Indemnitee shall pay to such Indemnifying Party a sum equal
to the amount of such Insurance Proceeds or other amounts actually received (up
to but not in excess of the amount of any indemnity payment made hereunder). An
insurer who would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto, or, solely by virtue of the
20
<PAGE>
indemnification provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
third party shall be entitled to a "windfall" (i.e., a benefit they would not be
----
entitled to receive in the absence of the indemnification provisions) by virtue
of the indemnification provisions hereof.
(b) Any payment required to be made pursuant to this Article VI shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or losses, damages or
liabilities are incurred.
(c) If the indemnification provided for in this Article VI is held by
a court of competent jurisdiction to be unavailable to an Indemnitee with
respect to any Loss, then the Indemnifying Party, in lieu of indemnifying such
Indemnitee hereunder, shall contribute the amount that would have been due
hereunder to the amount paid or payable by such Indemnitee as a result of such
Loss.
SECTION 6.5 Tax Liabilities. This Article VI shall not be applicable
---------------
to Losses related to Taxes (as defined in the Tax Disaffiliation Agreement)
which shall be governed by the Tax Disaffiliation Agreement, attached hereto as
Exhibit D, except as otherwise provided in Sections 6.1(e) and 6.2(e). To the
- ---------
extent this Agreement and the Tax Disaffiliation Agreement are inconsistent, the
provisions of the Tax Disaffiliation Agreement shall control.
ARTICLE VII
ACCESS TO, AND TREATMENT OF, INFORMATION
SECTION 7.1 Access to Information. From and after the Public
---------------------
Offering Date Torchmark shall afford to the Company and its Representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to all records, books, contracts, instruments, computer data and other
data and information (collectively, "Information") within Torchmark's possession
-----------
relating to the businesses of the Company, insofar as such access is reasonably
required by the Company. The Company shall afford to Torchmark and its
Representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing Information) and duplicating rights during
normal business hours to Information within the Company's possession relating to
the business of the Company, insofar as such access is reasonably required by
Torchmark. Information may be requested under this Article VII for, without
limitation, audit, accounting, claims, litigation and tax purposes, as well as
for purposes of fulfilling disclosure and reporting obligations and for
performing the transactions contemplated in this Agreement or any other
agreement or document contemplated by this Agreement or otherwise.
SECTION 7.2 Securities Filings. For a period of three (3) years
------------------
following the Effective Date, each of the Company and Torchmark shall provide to
the other, (a) promptly following such time at which such documents shall be
filed with the SEC, copies of all documents which shall be filed by either the
Company or Torchmark, as the case may be, with the SEC pursuant to the periodic
and interim reporting requirements of the Exchange Act and the rules and
regulations of
21
<PAGE>
the SEC promulgated thereunder, and (b) promptly following receipt thereof, any
comment letter of the SEC related to any documents described in paragraph (a) of
this Section 7.2.
SECTION 7.3 Reimbursement. Except to the extent otherwise
-------------
contemplated by any Ancillary Agreement, a party providing information to the
other party under this Article VII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses,
as may be reasonably incurred in providing such information.
SECTION 7.4 Production of Witnesses. After the Public Offering Date,
-----------------------
each of Torchmark and the Company and the other members of their respective
Group shall use reasonable efforts to make available to the other party and the
other members of their Group, upon written request, its directors, officers,
employees and agents as witnesses to the extent that any such Person may
reasonably be required (giving consideration to business demands of such
Representatives) in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved
(other than proceedings between the parties or the other members of their
Group).
SECTION 7.5 Confidentiality. Each of Torchmark and the other members
---------------
of the Torchmark Group on the one hand, and the Company and the other members of
the Company Group on the other hand, shall hold, and shall cause its
Representatives to hold, in strict confidence, all Information concerning the
other in its possession or furnished by the other or the other's Representatives
pursuant to this Agreement (except to the extent that such Information is (a)
publicly available or (b) known or becomes known to such party on a non-
confidential basis from a source not bound by a confidentiality agreement to the
other party), and each party shall not release or disclose such Information to
any other Person, except its auditors, attorneys, financial advisors, bankers
and other consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as advised by its counsel, by other requirements of
law or the applicable rules of any securities exchange.
SECTION 7.6 Retention of Records. For a period of six (6) years
--------------------
following the Public Offering Date, each of Torchmark and the Company shall
retain all Information relating to the other as of the Public Offering Date,
except as otherwise required by law or set forth in an Ancillary Agreement or
except to the extent that such Information is in the public domain or in the
possession of the other party.
ARTICLE VIII
RELATIONSHIP FOLLOWING PUBLIC OFFERING
SECTION 8.1 Ancillary Agreements. Torchmark and the Company agree
--------------------
to, as soon as practicable following the execution of this Agreement, execute
and deliver the following agreements which agreements will become effective as
of the Public Offering Date (the "Ancillary Agreements"):
--------------------
(a) Tax Disaffiliation Agreement, attached hereto as Exhibit D;
---------
22
<PAGE>
(b) Subadvisory Investment Management Agreement, attached hereto as
Exhibit E;
---------
(c) Amendment No. 1 to the General Agent Contract, attached hereto as
Exhibit F;
---------
(d) Amendment No. 1 to Independent Agent Contract, attached hereto as
Exhibit G;
---------
(e) Amendment to Distribution Contract, attached hereto as Exhibit H;
---------
(f) Amendment to Principal Underwriting Agreement, attached hereto as
Exhibit I;
---------
(g) Services Agreement, attached hereto as Exhibit J;
---------
(h) Administrative Services Agreement, attached hereto as Exhibit K;
----------
and
(i) Services Management, attached hereto as Exhibit L.
---------
SECTION 8.2 Cancellation of Agreements. Torchmark and the Company
--------------------------
agree, on their own behalf and on behalf of the other members of their
respective Group, that each and every agreement, arrangement, commitment or
understanding, whether or not in writing, by or among any such parties except
this Agreement, the agreements specifically identified in this Article VIII, and
the agreements set forth on Exhibit M, shall be canceled and of no further
---------
effect as of the Public Offering Date. Each party shall, at the reasonable
request of the other party, take, or cause to be taken, such other actions as
may be necessary to effect the foregoing. Notwithstanding the foregoing,
neither party shall be relieved from any obligations or liabilities accruing
prior to the Public Officering Date by any member of the Company Group or any
member of the Torchmark Group, as the case may be, which obligations or
liabilities shall be paid or satisfied consistent with past practices.
SECTION 8.3 Use of Name.
-----------
(a) As soon as practicable following the Public Offering Date,
Torchmark shall take all action necessary to change the name of Waddell & Reed
Asset Management Company to a name bearing no similarity to "Waddell & Reed.."
(b) The Company shall take all necessary action to ensure that the
members of the Company Group, and Torchmark shall take all necessary action to
ensure that the members of the Torchmark Group, shall take all reasonable
diligent action to discontinue the use of any existing printed material or any
signage implicitly or explicitly showing any current affiliation or connection
between Torchmark and the Company or any member of their respective Groups as
promptly after the Distribution Date as practicable. After the Distribution
Date, neither party shall permit any member of its respective Group, to
represent to third parties that it has a present business affiliation with the
other party or its affiliates other than for ongoing contractual relationships.
SECTION 8.4 Insurance.
---------
(a) All insurance coverage provided by Torchmark or any other member
of the Torchmark Group to any member of the Company Group insuring the
properties, employees, assets or operations of any member of the Company Group
and all insurance coverage provided by the Company or any other member of the
Company Group to any member of the Torchmark Group, insuring the properties,
employees, assets or operations of any member of the Torchmark
23
<PAGE>
Group, in each case, as identified on Exhibit N, shall continue in full force
---------
and effect until the earlier of the renewal date of the respective policy as set
forth on Exhibit N, or the Distribution Date (the "Coverage Expiration Date").
--------- ------------------------
The Company shall or shall cause the other members of the Company Group (as the
case may be) to, reimburse Torchmark or other members of the Torchmark Group (as
the case may be), and Torchmark shall or shall cause the other members of the
Torchmark Group (as the case may be) to, reimburse the Company or other members
of the Company Group (as the case may be), the portion of the premiums for such
coverage in accordance with the past practices established by Torchmark and the
Company related to the period of such coverage through the Coverage Expiration
Date. The Company shall be responsible for obtaining insurance coverage for
itself and the other members of the Company Group, at the Company's expense, and
Torchmark shall be responsible for obtaining insurance coverage for itself and
the other members of the Torchmark Group, at Torchmark's expense, from and after
the Coverage Expiration Date of the respective policy.
(b) Torchmark and the Company agree that each party (the "Insured
-------
Party") shall have the right to present claims to the other party (the "Insuring
- ----- --------
Party") or the other party's insurers under all policies of insurance identified
- -----
on Exhibit N for insured incidents occurring prior to the Coverage Expiration
---------
Date of the relevant policy. The parties acknowledge that any such policies
written on a "claims made" rather than an "occurrence" basis will not provide
coverage for incidents occurring prior to the Coverage Expiration Date of the
relevant policy but which are first reported after the Coverage Expiration Date
of the relevant policy. With respect to any insured Losses prior to the
Coverage Expiration Date of the relevant policy (i) the Insuring Party shall pay
promptly over to the Insured Party, any Insurance Proceeds it receives on
account of such Losses; and (ii) the Insured Party shall promptly reimburse the
Insuring Party for all costs, expenses or payments made by the Insuring Party in
good faith and consistent with past practice on or after the Coverage Expiration
Date of the relevant policy on account of such Losses (including any self-
insured retention), with such costs, expenses or payments allocated on a basis
consistent with that utilized by the parties as of the date hereof.
SECTION 8.5 Employee Benefits. RESERVED
-----------------
SECTION 8.6 Unclaimed Stock. The Company agrees to provide to
---------------
Torchmark any claim or notice of claim for payment for shares of non-voting
stock of the Company converted into cash as a result of the merger of the
Company and a wholly owned subsidiary of Torchmark on October 1, 1993 and
Torchmark agrees to pay any amounts legally owing to such claimants prior to the
date their claim escheats to any state.
ARTICLE IX
DISPUTE RESOLUTION
SECTION 9.1 Negotiation. Any dispute, controversy or claim arising
-----------
out of or relating to this Agreement or the Tax Disaffiliation Agreement,
attached hereto as Exhibit D, or the breach, termination or invalidity hereof or
----------
thereof (a "Dispute") shall be settled by the procedures provided in this
-------
Article IX. Either party may send the other party written notice identifying
the matter in Dispute and invoking the procedures in this Article IX. Within
ten (10)
24
<PAGE>
days of such written notice, the parties shall meet to negotiate in good faith a
resolution of the Dispute.
SECTION 9.2 Arbitration. Any Dispute which cannot be resolved
-----------
pursuant to Section 9.1 within fifteen (15) days of the written request provided
pursuant to Section 9.1, will be settled by binding arbitration in accordance
with Title 9 of the United States Code (the Federal Arbitration Act) and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). A
---
party may initiate arbitration by sending written notice of its intention to
arbitrate to the other party and to the AAA office located in Dallas, Texas.
Such written notice will contain a description of the Dispute and remedy sought.
Each party shall select one arbitrator, and such arbitrators, jointly, shall
select another arbitrator. If either party fails to appoint an arbitrator or
the two arbitrators fail to agree on the third arbitrator, either party may
request that the AAA appoint such arbitrator. The place of the arbitration will
be Dallas, Texas. The law of the State of Delaware shall govern the
arbitration. The award rendered by the arbitrators shall be conclusive and
binding upon the parties and judgment on the award may be entered in any court
of competent jurisdiction. The parties intend that this agreement to arbitrate
by irrevocable.
SECTION 9.3 Injunctive Relief. Notwithstanding anything in this
-----------------
Article IX, in advance of the institution of any arbitration proceeding, but in
aid thereof, an application may be filed for order or orders to be entered by
any court of competent jurisdiction (i) invoking the jurisdiction of the court
over the controversy in rem, by attachment, garnishment, sequestration, or (ii)
seeking to restrain or enjoin the destruction of the subject matter of the
controversy or any essential part thereof, or the destruction or alteration of
books, records, documents, or evidence needed for the arbitration proceeding.
No such judicial proceeding by a party shall be deemed a waiver of the party's
right to arbitrate.
SECTION 9.4 Consolidation of Disputes. The arbitrators, in their
-------------------------
discretion, may consolidate two or more arbitrations or Disputes between the
parties into one arbitration, or terminate any such consolidation and/or
establish other arbitration proceedings for different Disputes that may arise in
any one arbitration. Notwithstanding the foregoing, the arbitrators shall
consolidate arbitrations and/or Disputes, if they determine that it would be
more efficient to consolidate such arbitrations and/or Disputes than to continue
them separately and (i) there are matters of fact or law that are common to the
arbitrations and/or Disputes to be consolidated, (ii) there are related payment
and performance obligations considered in the arbitrations and/or Disputes to be
consolidated, or (iii) there is a danger of inconsistent awards.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Survival. All representations, covenants and
--------
agreements contained or provided for herein shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
party benefiting from any such covenant or agreement and shall survive the
Public Offering Date and the Distribution Date.
25
<PAGE>
SECTION 10.2 Notices. All notices, requests, demands, and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand, or when sent by telex or telecopier (without
receipt confirmed), provided a copy is also sent by certified mail, postage
prepaid and return receipt requested, addressed as follows (or to such other
address as a party may designate by notice to the other):
If to the Company:
Waddell & Reed Financial, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: General Counsel
If to Torchmark:
Torchmark Corporation
2001 Third Avenue South
Birmingham, Alabama 35203
Attn: General Counsel
SECTION 10.3 Governing Law. This Agreement shall be governed by,
-------------
construed and interpreted in accordance with the laws of the State of Delaware,
without regard to the conflicts of law principles thereof.
SECTION 10.4 Headings. The Article and Section headings contained
--------
in this Agreement are for reference purposes only and shall not in any way
affect the meaning of interpretation of this Agreement.
SECTION 10.5 Entire Agreement. This Agreement constitutes the
----------------
entire understanding and agreement of the parties hereto and supersedes all
prior agreements and understandings, written or oral, between the parties.
SECTION 10.6 Amendment and Modification. The parties may, by
--------------------------
written agreement, (i) extend the time for the performance of any of the
obligations or other acts of the parties hereto, (ii) waive any inaccuracies in
any document delivered pursuant to this Agreement, and (iii) waive compliance
with or modify, amend or supplement any of the agreements contained in this
Agreement or waive or modify performance of any of the obligations of any of the
parties hereto. This Agreement may not be amended or modified except by an
instrument in writing duly signed on behalf of the parties hereto.
SECTION 10.7 Assignment. This Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by any party hereto without the prior
written consent of the other parties. No purchaser (or transferee or assignee)
of Shares from Torchmark shall have any rights or obligations under this
Agreement.
26
<PAGE>
SECTION 10.8 Severability. To the extent any provision of this
------------
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remaining provisions of this Agreement shall be unaffected and
shall continue in full force and effect.
SECTION 10.9 Waiver. No failure by any party to take any action or
------
assert any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise to such
right, unless expressly waived in writing as contemplated by the terms of
Section 10.6 hereof.
SECTION 10.10 Termination. Notwithstanding any provision hereof,
-----------
this Agreement may be terminated and the Public Offering and/or the Spin-Off
abandoned at any time prior to the Public Offering Date by Torchmark in its sole
discretion without the approval of the Company. This Agreement may be terminated
by either party if the Spin-Off does not occur on or before March 31, 1999. In
the event this Agreement is terminated on or after the Public Offering Date,
only the provisions of Article IV will terminate and the other provisions of
this Agreement or any agreement or document contemplated by this Agreement or
otherwise shall remain in full force and effect.
SECTION 10.11 Limitation of Liability. Neither Torchmark nor the
-----------------------
Company shall be liable to the other for any special, indirect, incidental or
consequential damages of the other arising in connection with this Agreement.
SECTION 10.12 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
TORCHMARK CORPORATION
By:____________________________________
Title:_________________________________
WADDELL & REED FINANCIAL, INC.
By:____________________________________
Title:_________________________________
28
<PAGE>
EXHIBIT 10.2
TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of February ___, 1998 by and between
Torchmark corporation, a Delaware corporation ("Torchmark") and Waddell & Reed
Financial, Inc., a Delaware corporation ("WRFI").
RECITALS
A. Torchmark is the common parent of an affiliated group of corporations
(the "Torchmark Group") within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Torchmark Group includes
WRFI and its direct and indirect subsidiaries. The members of the Torchmark
Group have heretofore joined in filing consolidated Federal income tax returns.
B. WRFI expects, pursuant to the Public Offering and Separation Agreement
dated as of February ___, 1998 (the "Separation Agreement") by and between
Torchmark and WRFI, to (i) make and receive payments to and from Torchmark and
its Subsidiaries with respect to, and to transfer, intercompany debt (the
"Intercompany Debt Settlement"), (ii) contribute certain Torchmark preferred
stock to United Investors Life Insurance Company, a Missouri corporation and
wholly owned subsidiary of WRFI ("UILIC") as a contribution to capital (the
"UILIC Capital Contribution"), (iii) distribute all of the stock of UILIC to
WRFI's shareholders as a pro rata dividend (the "UILIC Spinoff"), (iv)
distribute all of the stock of Torch Royalty Company, a Delaware corporation and
wholly owned subsidiary of WRFI ("Torch Royalty") to Torchmark as a non-pro rata
dividend (the "Torch Royalty Distribution"), (v) distribute its interest in
Century Capital Partners, Ltd., a ___________ limited partnership ("Century
Capital") to Liberty National Life Insurance Company, an Alabama corporation and
a wholly owned subsidiary of Torchmark ("Liberty") as a non-pro rata dividend
(the "Century Capital Distribution"); (vi) distribute that certain account
receivable payable by Waddell Ranch (the "Waddell Ranch Receivable") to
Torchmark as a non-pro rata dividend (the "Waddell Ranch Receivable
Distribution") and (vii) make an initial public offering of certain newly issued
shares of common stock of WRFI (the "Offering").
C. Torchmark expects, after the Offering, to (i) cause Liberty to
distribute all of the WRFI stock it owns to Torchmark as a dividend (the
Liberty/WRFI Spinoff"), (ii) contribute the stock of American Income Life
Insurance Company, an Indiana corporation and a wholly owned subsidiary of
Torchmark, to Globe Life and Accident Insurance Company, a Delaware corporation
and a wholly owned subsidiary of Torchmark ("Globe") as a capital contribution
(the "Globe Capital Contribution"), and (iii) distribute all of the stock of
WRFI it owns to the Torchmark shareholders as a pro rata dividend (the
"Torchmark/WRFI Spinoff").
D. Torchmark and WRFI expect, as a result of the Offering, that (i) WRFI
and its direct and indirect subsidiaries will no longer be eligible members of
the Torchmark Group, and (ii) after the Offering WRFI will be the common parent
of an affiliated group of corporations (the
1
<PAGE>
"WRFI Group") within the meaning of Section 1504(a) of the Code which will file
consolidated Federal income tax returns.
E. Torchmark and WRFI intend (the "Intended Tax Results") (i) the
Intercompany Debt Settlement to be tax free (other than with respect to any
taxable interest designated as interest under the terms of the relevant debt
instrument) to all parties, (ii) the UILIC Capital Contribution and the Globe
Capital Contribution to be tax free to each transferor and transferee pursuant
to Sections 351 and 1032 of the Code, (iii) the UILIC Spinoff and the
Torchmark/WRFI Spinoff to be tax-free to each distributing corporation and to
each transferee shareholder pursuant to Section 355 of the Code, (iv) the
Liberty/WRFI Spinoff to cause Liberty to recognize taxable income pursuant to
Section 815 of the Code and otherwise to be tax-free to Liberty and Torchmark
pursuant to section 355 of the Code, (v) each of the Torch Royalty Distribution,
the Century Capital Distribution, and the Waddell Ranch Receivable Distribution
to be taxable distributions pursuant to Sections 301 and 311 of the Code,
subject to the deferred intercompany transaction provisions of Section 1.1502-13
of the Treasury Regulations until the closing of the Torchmark/WRFI Spinoff, and
(vi) the receipt of the Offering proceeds by WRFI to be tax free pursuant to
Section 1032 of the Code. The "Intended Tax Results" include all tax
consequences that are consistent with and follow from the tax treatment
described in the immediately preceding sentence (e.g., it is an Intended Tax
Result for a transferee shareholder's adjusted tax basis in a transaction under
Section 355 of the Code to be allocated pursuant to Section 358 of the Code).
Notwithstanding anything to the contrary in this paragraph, (i) if any of the
Intended Transactions is addressed in a private letter ruling issued by the
Internal Revenue Service in a manner requested by Torchmark, the "Intended Tax
Results" of that Intended Transaction shall be the tax results requested by
Torchmark and set forth in such private letter ruling, and (ii) the "Intended
Tax Results" include the recognition of income from previously deferred
intercompany transactions caused by any Intended Transaction.
F. Torchmark and WRFI desire on behalf of themselves, their direct and
indirect subsidiaries, and their successors to set forth their rights and
obligations with respect to Taxes (as hereinafter defined) due for periods
before and after the Offering.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "American Income" shall have the meaning set forth on page 1 of this
Agreement.
1.2 "Century Capital" shall have the meaning set forth on page 1 of this
Agreement.
2
<PAGE>
1.3 "Century Capital Distribution" shall have the meaning set forth on
page 1 of this Agreement.
1.4 "Code" shall have the meaning set forth on page 1 of this Agreement.
1.5 "Existing Tax Allocation Agreement" means that certain Consolidated
Tax Allocation Agreement dated August 29, 1990, effective as of January 1, 1989,
by and among Torchmark and each of the corporations listed on Exhibit A thereto
(which includes WRFI and its Subsidiaries).
1.6 "Final Determination" shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (3) the completion
of the highest level of administrative proceedings if a judicial contest is not
or is no longer available.
1.7 "Globe" shall have the meaning set forth on page 1 of this Agreement.
1.8 "Globe Capital Contribution" shall have the meaning set forth on page
1 of this Agreement.
1.9 "Intended Tax Results" shall have the meaning set forth on page 2 of
this Agreement.
1.10 "Intended Transactions" shall mean the Intercompany Debt Settlement,
the UILIC Capital Contribution, the UILIC Spinoff, the Torch Royalty
Distribution, the Century Capital Distribution, the Waddell Ranch Receivable
Distribution, the Offering, the Globe Capital Contribution, the Liberty/WRFI
Spinoff, and the Torchmark/WRFI Spinoff.
1.11 "Intercompany Debt Settlement" shall have the meaning set forth on
page 1 of this Agreement.
1.12 "Liability Issue" shall have the meaning set forth in Section 4.2.
1.13 "Liberty" shall have the meaning set forth on page 1 of this
Agreement.
1.14 "Liberty/WRFI Spinoff" shall have the meaning set forth on page 1 of
this Agreement.
1.15 "Offering" shall have the meaning set forth on page 1 of this
Agreement.
1.16 "Offering Date" shall mean the last day on which, due to the issuance
of shares of WRFI stock in the Offering, WRFI could be considered a member of
the Torchmark Group.
3
<PAGE>
1.17 "Payor" shall have the meaning set forth in Section 2.5.
1.18 "Payee" shall have the meaning set forth in Section 2.5.
1.19 "Period After Offering" shall mean any taxable year or other taxable
period beginning after the Offering Date and, in the case of any taxable year or
other taxable period that begins before and ends after the Offering Date, that
part of the taxable year or other taxable period that begins after the close of
the Offering Date.
1.20 "Period Before Offering" shall mean any taxable year or other taxable
period that ends on or before the Offering Date and, in the case of any taxable
year or other taxable period that begins before and ends after the Offering
Date, that part of the taxable year or other taxable period through the close of
the Offering Date.
1.21 "Retained Group" shall mean, for any period, Torchmark and its
Subsidiaries (including UILIC, Century Capital, Torch Royalty, and Torch Energy)
other than WRFI and its Subsidiaries (excluding UILIC, Century Capital, Torch
Royalty, and Torch Energy).
1.22 "Separation Agreement" shall have the meaning set forth on page 1 of
this Agreement.
1.23 "Subsidiary" of an entity (the "first entity") shall mean a current
or former corporation, partnership, joint venture or other business entity (the
"second entity") where 50% or more of the outstanding equity or voting power of
such second entity is owned directly or indirectly by the first entity. In
determining whether a Subsidiary is a Subsidiary of WRFI or Torchmark for any
period, WRFI shall not be considered a Subsidiary of Torchmark, and any
Subsidiary of WRFI shall be considered a Subsidiary of WRFI, not Torchmark
(except UILIC, WRAMCO, Century Capital, Torch Royalty, and Torch Energy, each of
which shall be considered a subsidiary of Torchmark), for such period.
1.24 "Tax or Taxes" means all taxes, charges, fees, levies, imposts,
duties or other assessments, including, without limitation, income, gross
receipts, estimated taxes, excise, personal property, real property, sales, ad
valorem, value-added, leasing, withholding, social security, workers'
compensation, unemployment insurance, occupation, use, service, service use,
license, stamp, payroll, employment, windfall profit, environmental, alternative
or add-on minimum tax, franchise, transfer and recording taxes, fees and
charges, imposed by the United States or any state, local, or foreign
governmental authority whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, fines,
penalties or additional amounts attributable or imposed on or with respect to
any such taxes, charges, fees, levies, imposts, duties or other assessments.
1.25 "Tax Controversy" shall have the meaning set forth in Section 4.3.
4
<PAGE>
1.26 "Tax Refund" shall mean a refund of Taxes (including a reduction in
Taxes as a result of any credit or any offset against Taxes) reduced (but not
below zero) by any net increase in Taxes by the recipient (or its affiliate)
thereof as a result of the receipt thereof.
1.27 "Tax Returns" shall mean all returns, reports or other documents or
information to be filed or that may be filed for any period with any Taxing
authority (whether domestic or foreign) in connection with any Tax or Taxes
(whether domestic or foreign).
1.28 "Torch Energy" shall mean Torch Energy Advisors, Incorporated, a
Delaware corporation, and formerly a wholly owned subsidiary of WRFI, and the
former subsidiaries of Torch Energy.
1.29 "Torch Royalty" shall have the meaning set forth on page 1 of this
Agreement.
1.30 "Torch Royalty Distribution" shall have the meaning set forth on page
1 of this Agreement.
1.31 "Torchmark" shall have the meaning set forth on page 1 of this
Agreement.
1.32 "Torchmark Group" shall have the meaning set forth on page 1 of this
Agreement.
1.33 "Torchmark Item" shall have the meaning set forth in Section 4.3.
1.34 "Torchmark/WRFI Spinoff" shall have the meaning set forth on page 1
of this Agreement.
1.35 "UILIC" shall have the meaning set forth on page 1 of this Agreement.
1.36 "UILIC Capital Contribution" shall have the meaning set forth on page
1 of this Agreement.
1.37 "UILIC Spinoff" shall have the meaning set forth on page 1 of this
Agreement.
1.38 "Underpayment Rate" shall mean the rate specified under Section
6621(a)(2) of
the Code.
1.39 "Waddell Ranch Receivable" shall have the meaning set forth on page 1
of this Agreement.
1.40 "Waddell Ranch Receivable Distribution" shall have the meaning set
forth on page 1 of this Agreement.
1.41 "WRAMCO" shall mean Waddell & Reed Asset Management Company, a
Missouri corporation.
5
<PAGE>
1.42 "WRAMCO Ruling" shall mean the private letter ruling dated July 8,
1997 issued by the Internal Revenue Service with respect to the WRAMCO Spinoff.
1.43 "WRAMCO Spinoff" shall mean the 1997 distributions of the stock of
WRAMCO from Waddell & Reed, Inc. to Waddell & Reed Financial Services, Inc.,
from Waddell & Reed Financial Services, Inc., to United Investors Management
Company, from United Investors Management Company to Liberty and Torchmark, and
from Liberty to Torchmark, and related transactions, as more fully described in
the WRAMCO Ruling.
1.44 "WRFI" shall have the meaning set forth on page 1 of this Agreement.
1.45 "WRFI Group" shall have the meaning set forth on page 2 of this
Agreement.
1.46 "WRFI Item" shall have the meaning set forth in Section 4.3.
ARTICLE II
TAX RETURNS, TAX PAYMENTS AND EVENT OF LOSS
2.1 Obligation to File Tax Returns.
(a) Torchmark shall timely prepare and file (or cause to be prepared and
filed) all Tax Returns that (i) are filed on a consolidated, combined or unitary
basis, (ii) include Torchmark or any of its Subsidiaries, and (iii) are required
to be filed (A) for any Period Before Offering or (B) for any taxable year or
period of Torchmark or any such Subsidiary that begins before and ends after the
Offering Date, provided, however, that if WRFI or any of its Subsidiaries are
included in any such Tax Return, WRFI shall prepare or cause to be prepared in
accordance with the Existing Tax Allocation Agreement and past practice of WRFI
and its predecessors and deliver to Torchmark (or cause to be prepared and
delivered to Torchmark) 30 days prior to the due date for filing of such Tax
Return by Torchmark (7 days in the case of estimated Tax Returns), all
information Torchmark needs regarding WRFI and its Subsidiaries in order to
prepare and file such Tax Return, in the form required by section 2 of the
Existing Tax Allocation Agreement.
(b) Torchmark shall timely file (or cause to be filed) any other Tax Return
with respect to the Retained Group and its members, and WRFI shall timely file
(or cause to be filed) any other Tax Return with respect to the WRFI Group and
its members.
(c) Torchmark shall have sole discretion to take or not take a position in
and with respect to any Tax Return which Torchmark is required to file or cause
to be filed hereunder, and WRFI shall have sole discretion to take or not take a
position in and with respect to any Tax Return which WRFI is required to file or
cause to be filed hereunder, provided, however, that all such Tax Returns shall
be consistent with the Intended Tax Results and the WRAMCO Ruling,
6
<PAGE>
and each party agrees not to, and not to allow any of its respective
Subsidiaries to, take or fail to take any action which is inconsistent with the
Intended Tax Results or the WRAMCO Ruling.
2.2 Obligation to Remit Taxes. Torchmark and WRFI shall each remit or
cause to be remitted any Taxes due in respect of any Tax for which it is
required to file a Tax Return and shall be entitled to reimbursement for such
payments only to the extent provided in Article II hereof.
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Except as provided in Section 2.3(b)(ii) hereof, Torchmark shall be
liable for and shall hold each member of the WRFI Group harmless on an after tax
basis against (i) any liability attributable to any member of the Retained Group
for Taxes, regardless of whether attributable to a Period Before Offering or a
Period After Offering, including any such Tax liability asserted against any
member of the WRFI Group under the provisions of Treas. Reg. 1.1502-6(a) that
impose several liability on members of an affiliated group of corporations that
files consolidated returns, or similar provisions of any foreign, state or local
law, (ii) any liability attributable to any member of the Retained Group or the
WRFI Group for Taxes with respect to the WRAMCO Spinoff or with respect to any
of the Intended Transactions (including all Intended Tax Results). Torchmark
shall be entitled to any Tax Refund which is attributable to both an entity and
a taxable year or taxable period for which Torchmark has liability hereunder.
(b) WRFI shall be liable for and shall hold each member of the Retained
Group harmless on an after tax basis against (i) except as provided in Sections
2.3(a)(ii) and 2.8 hereof, any liability attributable to any member of the WRFI
Group for Taxes, regardless of whether attributable to a Period Before Offering
or a Period After Offering, and (ii) any liability attributable to any member of
the Retained Group or the WRFI Group for Taxes with respect to any of the
Intended Transactions or the WRAMCO Spinoff caused by or resulting directly or
indirectly from the breach (including inconsistent actions or positions, other
than actions or positions referred to by the registration statement prepared in
connection with the Offering), subsequent to the date of this Agreement, by any
member of the WRFI Group of any of the agreements set forth in section 2.3(c)
hereof, or of any of the representations, warranties or agreements of any member
of the Torchmark Group set forth in the private letter ruling requests and
supplemental submissions filed or to be filed with the Internal Revenue Service
with respect to any of the Intended Transactions, but only to the extent the
Retained Group in the aggregate is liable for more Taxes with respect to the
Intended Transactions and the WRAMCO Spinoff than they would have been had such
breach not occurred. WRFI shall be entitled to any Tax Refund which is
attributable to both an entity and a taxable year or taxable period for which
WRFI has liability hereunder.
(c) Each party agrees to report and treat, and to cause its Subsidiaries to
report and treat, (i) the Intercompany Debt Settlement, the UILIC Capital
Contribution, the UILIC Spinoff, the Offering, the American Life Distribution,
the American Life Capital Contribution, the Liberty/WRFI Spinoff, and the
Torchmark/WRFI Spinoff in accordance with the Intended Tax Results, and take no
position inconsistent therewith in any document, filing or forum whether
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Tax related or not, and (ii) the WRAMCO Spinoff in accordance with the WRAMCO
Ruling, and take no position inconsistent therewith in any document, filing or
forum whether Tax related or not. Torchmark and WRFI shall not, and shall not
permit any of their respective Subsidiaries to, take or cause or permit to be
taken, any action that would cause (y) any Tax results to occur with respect to
the Intended Transactions other than the Intended Tax Results, or (z) any Tax
results to occur with respect to the WRAMCO Spinoff other than the Tax results
contemplated by the WRAMCO Ruling.
(d) (i) Torchmark and WRFI and its Subsidiaries are parties to the
Existing Tax Allocation Agreement. The parties acknowledge that the obligations
of WRFI and its Subsidiaries under the Existing Tax Allocation Agreement will
terminate as of the Offering Date, but that pursuant to section 10 of the
Existing Tax Allocation Agreement it will remain in effect for each of WRFI and
its Subsidiaries with respect to any period during which WRFI or such Subsidiary
must be included in the Torchmark Group. Notwithstanding such continuing effect
of the Existing Tax Allocation Agreement, the parties agree that to the extent
the provisions of this Tax Disaffiliation Agreement and the provisions of the
Existing Tax Allocation Agreement differ or conflict, the provisions of this Tax
Disaffiliation Agreement shall be controlling, and the Existing Tax Allocation
Agreement is hereby amended to such extent.
(ii) In consideration of the mutual indemnities and other obligations of
this Agreement, any and all existing tax sharing agreements and prior practices
regarding Taxes and their payment, allocation, or sharing between any member of
the Retained Group and any member of the WRFI Group (other than the Existing Tax
Allocation Agreement) shall be terminated with respect to each member of the
WRFI Group as of the Offering Date, provided, however, that such agreements and
practices shall remain in effect for each of WRFI and its Subsidiaries with
respect to any period during which WRFI or such Subsidiary must be included in
the Torchmark Group. Notwithstanding such continuing effect of such agreements
and practices, the parties agree that to the extent the provisions of this Tax
Disaffiliation Agreement and the provisions of such agreements or practices
differ or conflict, the provisions of this Tax Disaffiliation Agreement shall be
controlling, and such agreements and practices are hereby amended to such
extent.
2.4 Period that includes the Offering Date. If it is necessary for
purposes of this Agreement to determine the income tax liability of any member
of the WRFI Group or of the Retained Group for a taxable year that begins on or
before and ends after the Offering Date and is not treated under Section 2.3(a)
as closing at the close of the Offering Date, the determination shall be made by
assuming that such member of the WRFI Group or of the Retained Group had a
taxable year that ended at the close of the Offering Date, except that
exemptions, allowances or deductions that are calculated on an annual basis
shall be apportioned on a per diem basis.
2.5 Payments. To the extent that a party owes money (the "Payor") to
another party (the "Payee") pursuant to this Article II, the Payor shall pay the
Payee the amount for which the Payor is required to pay or indemnify the Payee
under this Article II on the dates and in the manner specified in the Existing
Tax Allocation Agreement. The payee shall submit the Payee's calculations of
the amount required to be paid pursuant to this Article II, showing such
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calculations in sufficient detail so as to permit the Payor to understand the
calculations. The Payor shall have the right to disagree with such calculations.
Any dispute regarding such calculations shall be resolved in accordance with
Article VII of this Agreement.
2.6 Interest. Any payment required by this Agreement which is not made on
or before the date provided hereunder shall bear interest after such date at the
Underpayment Rate.
2.7 Tax Refund Claims. WRFI shall be permitted to file at WRFI's sole
expense, and Torchmark and its Subsidiaries shall reasonably cooperate
(including signing any Torchmark Tax Return that WRFI prepares and executing and
delivering powers of attorney in favor of persons designated by WRFI) with WRFI
in connection with, any claims for a Tax Refund to which WRFI is entitled
pursuant to this Article II or any other provision of this Agreement. WRFI
shall reimburse Torchmark for any reasonable out-of-pocket costs and expenses
incurred by any member of the Torchmark Group in connection with such
cooperation. Torchmark shall be permitted to file at Torchmark's sole expense,
and WRFI and its Subsidiaries shall reasonably cooperate (including signing any
WRFI Tax Return that Torchmark prepares and executing and delivering powers of
attorney in favor of persons designated by Torchmark) with Torchmark in
connection with, any claims for a Tax Refund to which Torchmark is entitled
pursuant to this Article II or any other provision of this Agreement. Torchmark
shall reimburse WRFI for any reasonable out-of-pocket costs and expenses
incurred by any member of the WRFI Group in connection with such cooperation.
2.8 Kansas (and Other) State Income Tax.
(a) The parties acknowledge that state income tax returns have been filed
in Kansas on a unitary basis with respect to the WRFI Group for years through
1996, that amended returns claiming refunds have been or will be filed for 1993,
1994, and 1995 on a unitary basis with respect to the combined WRFI Group and
Torchmark, that the return for 1996 has been filed on a unitary basis with
respect to the combined WRFI Group and Torchmark, and that the returns for 1997
and the relevant portion of 1998 shall be filed on a unitary basis with respect
to the combined WRFI Group and Torchmark. Notwithstanding anything to the
contrary herein, in determining Torchmark's and WRFI's respective shares of the
Kansas state income tax liability and refunds (and related interest, if any),
the amount of the aggregate Kansas state income tax liability allocable to WRFI
shall be the amount the WRFI Group would have paid had the taxes been determined
on a unitary basis with respect to the WRFI Group only, and any remaining
liability shall be allocable to Torchmark. Accordingly, Torchmark shall be
entitled to all refunds and amounts attributable to reductions in taxes for a
particular year until the aggregate liability for that year is less than the
amount allocated to WRFI.
(b) The parties acknowledge that state income tax returns have been or will
be filed in other states (in addition to Kansas) on a unitary basis with respect
to the WRFI Group in periods prior to the Offering Date which may be amended or
filed on a unitary basis with respect to the combined WRFI Group and Torchmark.
Notwithstanding anything to the contrary herein, in determining Torchmark's and
WRFI's respective shares of the state income tax liability and
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refunds (and related interest, if any) in each of such states, the parties shall
employ the method outlined in Section 2.8(a).
(c) The federal tax consequences resulting from the allocation of state
taxes set forth herein shall be allocated among the parties in accordance with
this Agreement (and the Existing Tax Allocation Agreement to the extent
applicable under this Agreement).
ARTICLE III
CARRYBACKS
3.1 Retained Group Carrybacks. In its sole discretion Torchmark may file
any Tax Return which carries back any net operating loss, credit, or other Tax
attribute attributable to a member of the Retained Group from a Period After
Offering to a Period Before Offering, provided, however, that without the
written consent of WRFI, Torchmark may not carryback any item to the extent it
would result in a material detriment to any member of the WRFI Group.
3.2 WRFI Group Carrybacks. No member of the WRFI Group shall file any Tax
Return which carries back any net operating loss from a Period After Offering to
a Period Before Offering. Members of the WRFI Group may file, and at WRFI's
request Torchmark shall file or cause to be filed at WRFI's expense, a Tax
Return which carries back any credit or other Tax attribute (other than net
operating losses) attributable to a member of the WRFI Group from a Period After
Offering to a Period Before Offering, and receive a payment related to the
associated tax benefit in accordance with the Existing Tax Allocation Agreement,
unless such carryback would result in a material detriment to any member of the
Torchmark Group (excluding any member of the WRFI Group).
ARTICLE IV
TAX CONTROVERSIES
4.1 General. Except as provided in Section 4.2, each of WRFI and
Torchmark shall have sole responsibility for all audits or other proceedings
with respect to Tax Returns that it is required to file under Section 2.1.
4.2 Notice. Torchmark and WRFI shall use reasonable efforts to keep each
other advised as to the status of Tax audits and other proceedings involving any
issue which relates to any Tax of the other or its Subsidiaries or could give
rise to a Tax liability or a Tax Refund of the other or its Subsidiaries under
this Agreement (a "Liability Issue"). Torchmark and WRFI shall promptly furnish
each other copies of any inquiries, audits or other proceedings, requests for
information, notices, proposed adjustments, proposed deficiencies and reports
from any Taxing Authority or any other administrative, judicial or other
governmental authority concerning or that could concern a Liability Issue of the
other.
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4.3 Contest Provisions. Subject to the cooperation provisions in Section
4.2 and Article V hereof and to this Section 4.3, Torchmark shall have full
responsibility and discretion in the handling of any Tax controversy with
respect to any Tax Return which Torchmark is required to file or cause to be
filed hereunder, including, without limitation, an audit, a protest to the
Appeals Division of the IRS, other administrative appeals, and litigation in Tax
Court or any other court of competent jurisdiction (a "Tax Controversy"). In
the event a Tax Controversy involves items that could give rise to a payment of
Tax for which WRFI would be liable or a refund of Tax for which WRFI would be
entitled hereunder (a "WRFI Item") and also involves items that could give rise
to a payment of Tax for which Torchmark would be liable or a refund of Tax for
which Torchmark would be entitled hereunder (a "Torchmark Item"), then Torchmark
shall advise and consult with WRFI with respect to such Tax Controversy and any
proposed settlement thereof which affects the WRFI Items, and shall not settle
any WRFI Item without WRFI's consent (which may not be unreasonably withheld).
WRFI and its representatives, at WRFI's expense, shall be entitled to
participate in all conferences, meetings, or proceedings with any Tax Authority,
the subject matter of which includes or affects any WRFI Item, and shall be
entitled to participate in all appearances before any court, the subject matter
of which includes or affects any WRFI Item. The right to participate shall
include, without limitation, discretion to control the content of documentation,
protests, memoranda of fact and law and briefs, the conduct of oral arguments or
presentations, the selection of witnesses, and the negotiation of stipulations
of fact with respect to the WRFI Items. In the event a Tax Controversy involves
only WRFI Items, and has no affect on Torchmark Items, then upon request by
WRFI, WRFI shall have full responsibility and discretion in the handling, at
WRFI's expense, of such Tax Controversy with Torchmark's cooperation as set
forth in Section 4.2 and Article V hereof.
4.4 Payment of Audit Assessments. The obligation for payment or
entitlement to refund resulting from a Tax Controversy shall be limited to the
net increase or net decrease in Tax liability resulting (for all past and future
periods) from a change in Tax treatment required by a Final Determination. The
obligation or entitlement shall be determined for each taxable year or period
affected by the Final Determination and paid by or to a party at the same time
the additional Tax or Tax refund with respect to that year is due or received.
If Torchmark and WRFI agree, instead of making or receiving annual payments to
settle the payments due from a Final Determination, a one-time settlement
payment could be made at the time of the Final Determination, adjusted to
reflect the present value of the increase and/or decrease in future tax
liabilities resulting from the change in Tax treatment using, with respect to
tax periods prior to the date of such Final Determination, the highest marginal
tax rate of the applicable taxing jurisdiction known to be applicable to the
entities, tax periods and items involved, and with respect to tax periods
thereafter, using the highest marginal tax rate of the applicable taxing
jurisdiction in effect as of the date of such Final Determination with respect
to the entities and items involved, and using a discount rate equal to the
Underpayment Rate in effect as of the date of such Final Determination.
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ARTICLE V
COOPERATION
Torchmark and WRFI shall (and shall cause the members of the Retained Group
and the WRFI Group, as the case may be to) cooperate with each other in the
filing of any Tax Returns and the conduct of any audit or other proceeding and
each shall execute and deliver such powers of attorney and make available such
other documents and employees as are necessary to carry out the intent of this
Agreement. Each party agrees to notify the other party of any audit adjustments
which do not result in Tax liability but can be reasonably expected to affect
Tax Returns of the other party, or any of its Subsidiaries, for a Period After
Offering.
ARTICLE VI
RETENTION OF RECORDS; ACCESS
The Retained Group and the WRFI Group shall (a) until the expiration of the
relevant statute of limitations, retain records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns in respect of Taxes of the Retained Group or the WRFI
Group or for the audit of such Tax Returns; and (b) give to the other party
reasonable access to such records, documents, accounting data and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for the purpose of the review or audit of such
returns to the extent relevant to an obligation or liability of a party under
this Agreement. Within thirty days following the filing of each of Torchmark's
final consolidated, combined or unitary Tax Returns for Periods Before
Distribution, Torchmark shall furnish WRFI with (i) copies of the relevant
portion of such Tax Returns that relate to the WRFI Group and (ii) to the extent
in Torchmark's possession, information concerning (a) the tax basis of the
assets of the WRFI Group as of the Offering Date, (b) the earnings and profits
of each member of the WRFI Group as of the Offering Date, (c) WRFI's and its
Subsidiaries' tax basis in their respective Subsidiaries as of the Offering
Date, (d) the net operating loss carryover, investment tax credit carryover,
alternative minimum tax carryover and capital loss carryover, if any, available
to the WRFI Group as of the Offering Date and (e) all elections with respect to
Taxes in effect for the WRFI Group. Prior to destroying any records, documents,
data or other information in accordance with this Article, the party wishing to
destroy such items will give the other party a reasonable opportunity to obtain
such items (at such other party's expense).
ARTICLE VII
DISPUTES
7.1 Calculation Disputes. If the parties disagree as to the calculation
of any Tax or the amount of (but not liability for) any payment to be made under
this Agreement, the parties shall cooperate in good faith to resolve any such
dispute, and any agreed-upon amount shall be paid to the appropriate party. If
the parties are unable to resolve any such dispute within 15 days thereafter,
such dispute shall be resolved by a nationally recognized accounting firm
acceptable to both Torchmark and WRFI. The decision of such firm shall be final
and binding. The fees and expenses incurred in connection with such decision
shall be borne equally by Torchmark and WRFI. Following the decision of such
accounting firm, the parties shall each take (or cause to be
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taken) any action that is necessary or appropriate to implement such decision,
including, without limitation, the prompt payment of underpayments or
overpayments, with interest calculated on such overpayments and underpayments at
the Underpayment Rate from the date such payment was due (the due date of
payments governed by Section 2.5 of this Agreement shall be the date a payment
is due thereunder assuming the party does not dispute the amount owed) through
the date such underpayment or overpayment is paid or refunded.
7.2 Other Disputes. All disputes not covered by the provisions of Section
7.1 hereof will be resolved through the provisions of Section ___ of the
Separation Agreement.
ARTICLE VIII
TERMINATION OF LIABILITIES
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall not terminate any earlier than the
expiration of the applicable statute of limitation for such liability. All other
representations, warranties and covenants under this Agreement shall survive
indefinitely.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Notices and Governing Law. All notices required or permitted to be
given pursuant to this Agreement shall be given, and the applicable law
governing the interpretation of this Agreement shall be determined, by the
applicable provisions of the Separation Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any payments
made pursuant to the terms of this Agreement as a capital transaction for all
tax purposes, except to the extent such payments represent interest paid
pursuant to Section 2.6.
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns. Torchmark and WRFI hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Retained Group and the WRFI
Group, respectively. Torchmark and WRFI shall, upon the written request of the
other, cause any of their respective Subsidiaries to execute this Agreement.
Torchmark or WRFI shall not assign any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the other
party. No person (including, without limitation, any employee of a party or any
stockholder of a party) shall be, or shall be deemed to be, a third party
beneficiary of this Agreement.
9.4 Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes all
prior agreements, whether
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or not written, concerning such subject matter. This Agreement may not be
amended except by an agreement in writing, signed by the parties.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
9.6 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to perform its agreements and covenants hereunder will
cause irreparable injury to the other parties for which damages, even if
available, will not be an adequate remedy. Accordingly, to compel performance
of each party's obligations hereunder, the parties shall be entitled to the
issuance of injunctive relief and the granting of specific performance, in
addition to any other remedy at law or equity.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
TORCHMARK CORPORATION
By:
------------------------------------
Name:
Title:
WADDELL & REED FINANCIAL, INC.
By:
------------------------------------
Name:
Title:
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Waddell & Reed Financial, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Kansas City, Missouri
January 29, 1998
