<PAGE>
_____________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________
Commission file number 000-23124
WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0261715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6300 Lamar Avenue
Overland Park, Kansas
66202
(Address of principal executive offices)
(Zip Code)
(913) 236-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------
Shares outstanding of each of the registrant's classes of common stock as of
March 31, 1998:
<TABLE>
<CAPTION>
Class Outstanding as of March 31, 1998
----- --------------------------------
<S> <C>
Class A Common stock, $.01 par value 32,142,174
Class B Common stock, $.01 par value 34,325,000
</TABLE>
<PAGE>
Waddell & Reed Financial, Inc.
Form 10-Q
Quarter Ended March 31, 1998
Index
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
December 31, 1997 and March 31, 1998 3
Consolidated Statements of
Operations for the three months ended
March 31, 1997 and 1998 4
Consolidated Statements of Cash
Flows for the three months ended
March 31, 1997 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 11
Signatures 13
<PAGE>
Item 1. Financial Statements
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Unaudited
(Dollars In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, March 31,
Assets 1997 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 73,820 120,551
Investment securities, available-for-sale 18,977 46,607
Receivables:
United funds and W&R funds 4,031 5,926
Customers and other 11,840 12,726
Due from affiliates 17,232 1,571
Deferred income taxes 1,241 1,326
Prepaid expenses and other current assets 2,991 3,114
- ----------------------------------------------------------------------------------------------------
Total current assets 130,132 191,821
Due from affiliates 175,450 1,390
Property and equipment, net 12,058 12,358
Investment in real estate partnership 17,544 17,675
Deferred sales commissions, net 12,316 12,752
Goodwill (net of accumulated amortization of $17,479 and $18,205) 98,831 98,105
Other assets 633 633
- ----------------------------------------------------------------------------------------------------
Total assets $ 446,964 334,734
====================================================================================================
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------------------------------
Liabilities:
Current liabilities:
Accounts payable $ 22,929 35,813
Due to affiliates 102,459 4,210
Accrued sales force compensation 8,666 7,538
Income taxes payable 3,314 17,820
Other current liabilities 18,525 16,521
- ----------------------------------------------------------------------------------------------------
Total current liabilities 155,893 81,902
Due to affiliates 509,186 0
Deferred income taxes 2,246 2,441
Accrued pensions and post-retirement costs 9,530 9,820
- ----------------------------------------------------------------------------------------------------
Total liabilities 676,855 94,163
- ----------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock ($.01 par value; 42,300,000 shares authorized, issued and
outstanding - 1997; 32,142,174 Class A shares and 34,325,000 Class B
shares authorized, issued and outstanding - 1998) 423 665
Additional paid-in capital 0 246,270
Retained earnings 0 6,724
Dividends in excess of retained earnings and additional paid-in capital (230,658) 0
Deferred compensation 0 (13,589)
Accumulated other comprehensive income 344 501
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity (229,891) 240,571
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 446,964 334,734
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Unaudited
(In Thousands, except for per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three months ended March 31,
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Investment management fees $26,878 32,426
Underwriting and distribution fees:
United Funds and W&R Funds 14,046 15,850
Affiliates and others 7,040 7,611
Shareholder service fees 7,513 7,773
Investment and other revenue 933 1,439
- --------------------------------------------------------------------------------
Total revenue 56,410 65,099
- --------------------------------------------------------------------------------
Expenses:
Underwriting and distribution 18,396 20,283
Compensation and related costs 6,142 7,420
General and administrative 1,650 1,783
Depreciation 319 429
Amortization of goodwill 726 726
- --------------------------------------------------------------------------------
Total expenses 27,233 30,641
- --------------------------------------------------------------------------------
Income before interest and income taxes 29,177 34,458
Interest:
Income 2,830 1,950
Expense (1,862) (8,604)
- --------------------------------------------------------------------------------
Income before income taxes 30,145 27,804
Income taxes 11,707 11,057
- --------------------------------------------------------------------------------
Net income $18,438 16,747
================================================================================
Net income per share - basic and diluted $ 0.28 0.25
================================================================================
Weighted average number of shares outstanding 66,467 66,467
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Unaudited
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three months ended March 31,
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $18,438 16,747
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,045 1,155
Interest expense 0 6,633
Recognition of deferred compensation 0 55
Loss on sale and retirement of fixed assets 0 4
Capital gains and dividends reinvested (15) (19)
Deferred income taxes 369 14
Changes in assets and liabilities:
Receivables from funds 198 (1,895)
Other receivables (216) (9,267)
Due to/from affiliates - operating (2,483) 2,286
Other assets 877 (559)
Accounts payable 3,895 12,884
Other liabilities 3,675 11,535
- --------------------------------------------------------------------------------
Net cash provided by operating activities 25,783 39,573
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to investments 0 (27,965)
Proceeds from maturity of investments 259 607
Purchase of property and equipment (416) (712)
Other 171 (23)
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 14 (28,093)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 0 516,014
Cash dividends to parent (9,288) 0
Change in due to/from affiliates - nonoperating 1,110 (480,763)
Cash contributions from parent 13,306 0
- --------------------------------------------------------------------------------
Net cash used in financing activities 5,128 35,251
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 30,925 46,731
Cash and cash equivalents at beginning of period 59,003 73,820
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $89,928 120,551
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Waddell & Reed Financial, Inc. and Subsidiaries and Basis of Presentation:
Waddell & Reed Financial, Inc. and Subsidiaries
Waddell & Reed Financial, Inc. and subsidiaries ("Company") derive their
revenue primarily from investment management, administration, distribution and
related services provided to the United mutual funds and Waddell & Reed mutual
funds and institutional accounts in the United States. Prior to December 1997,
the Company was known as United Investors Management Company. In the first
quarter of 1998, the insurance operations of the Company, United Investors Life
Insurance Company, were distributed to Torchmark Corporation and a subsidiary of
Torchmark (together, "Torchmark"). Until March 1998, the Company was wholly
owned by Torchmark. In March 1998, the Company completed the initial public
offering ("Offering") of its Class A common stock, with the Company realizing
net proceeds of approximately $516 million. Approximately $481 million of the
proceeds were used to prepay notes payable to Torchmark. After giving effect to
the initial public offering and as of March 31, 1998, Torchmark controls in
excess of 60% of the outstanding Class A common stock and Class B common stock
and in excess of 80% of the voting power of the outstanding Class A common stock
and Class B common stock of the Company. Torchmark has advised the Company
that, subject to certain conditions, it currently intends to divest its
ownership interest in the Company by means of a special dividend to the
stockholders of Torchmark of all shares of common stock of the Company currently
held by Torchmark. The spin-off is conditioned upon regulatory approvals, the
receipt of a ruling by the Internal Revenue Service to the effect that the spin-
off will qualify as a tax free distribution and other conditions.
Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
results of its
6
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operations and its cash flows for the three-month periods ended March 31, 1997
and 1998 and its financial position at March 31, 1998. These financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1997, from which the accompanying
balance sheet as of December 31, 1997 was derived. The operating results and
cash flows for the three months ended March 31, 1998 are not necessarily
indicative of the results that will be achieved in future periods.
Deferred Compensation and Employee Stock Options Plan
Deferred compensation at March 31, 1998 includes $5.2 million related to
restricted stock that was awarded upon consummation of the Offering pursuant to
the Company's Stock Incentive Plan. The restricted stock awards generally vest
in equal one-third increments on the second, third and fourth anniversaries of
the date awarded.
In conjunction with the Offering and pursuant to a Directed Share Program, the
Company loaned $8.4 million to key financial advisors and sales force management
personnel to encourage ownership of the Company. The loans bear interest at an
annual rate of 5.6% and are due and payable five years from the date issued.
Subject to certain conditions, including continued affiliation with the Company,
the notes may be forgiven on the maturity date.
The Company also issued options to purchase 2.4 million shares of Class A
common stock to employees upon consummation of the Offering pursuant to the
Stock Incentive Plan. The options are exercisable at the initial public offering
price and generally vest in equal one-third increments on the second, third and
fourth anniversaries of the consummation of the Offering.
Earnings per Share
Earnings per share for the 1997 period are based on the number of shares
outstanding as of the close of the Offering.
Summary of Significant Accounting Policies
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, on January 1, 1998. This statement requires the
reporting of comprehensive income and its components. Comprehensive income is
defined as the change in equity from transactions and other events and
circumstances from non-owner sources, and excludes investments by and
distributions to owners. Comprehensive income includes net income and other
items of comprehensive income meeting the above criteria. The Company's only
component of other comprehensive is the unrealized holding gains and losses on
available-for-sale securities.
7
<PAGE>
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
1997 1998
------- -------
<S> <C> <C>
Net earnings $18,438 $16,747
Change in unrealized gain (loss), net (164) 157
------- -------
Comprehensive income $18,274 $16,904
</TABLE>
Subsequent Event
On April 14, 1998, the Company declared a dividend payable on May 1, 1998 in
the amount of $.1325 per share to shareholders of record as of April 21. The
total dividend paid was $8.8 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company derives its revenues primarily from providing investment
management, distribution and administrative services to the United, Waddell &
Reed ("W&R") and TMK/United funds and institutional accounts. Investment
management fees, the Company's most substantial source of revenue, are based on
the amount of assets under management and are affected by sales levels,
financial market conditions, redemptions and the composition of assets.
Underwriting and distribution revenues consist of sales charges and commissions
derived from the sale of investment and insurance products and distribution fees
earned from the W&R funds for distributing their shares. The products sold have
various sales charge structures and the revenues received from the sale of
products vary based on the type and amount sold. Rule 12b-1 distribution and
service fees earned for distributing shares of the W&R funds are based upon a
percentage of assets and fluctuate based on sales, redemptions, and financial
market conditions. Service fees include transfer agency fees, custodian fees for
retirement plan accounts and portfolio accounting fees.
Results of Operations - Three Months Ended March 31, 1998 as Compared to Three
Months Ended March 31,1997
Total revenues for the first quarter of 1998 were $65.1 million, up $8.7
million or 15% from the same period in 1997.
Investment management fees, which comprised 50% of total revenue for the first
quarter of 1998, increased $5.5 million or 21% to $32.4 million for the
comparable 1997 period. Assets under management were up due to increased sales,
investment performance and strong financial markets. Total assets under
management were $25.9 billion at March 31, 1998 compared to $23.4 billion at
December 31, 1997 and $19.0
8
<PAGE>
billion at March 31, 1997. Average assets under management were up $4.8 billion
or 25% from that of the three months ended March 31, 1997 to $24.5 billion for
the three months ended March 31, 1998. The rate of increase in average assets
was greater than the growth rate in management fees due, partly, to the group
fee rate on the United funds. Under various management agreements, the annual
management fee rates generally decline as the average net assets of the
portfolios exceed certain thresholds. Average institutional assets for the first
quarter of 1998 were $2.9 billion, an increase of $1.0 billion when compared
with the first quarter of 1997. The rate of increase in average institutional
assets exceeded the growth rate of management fees because most of the asset
growth was due to the addition of fixed income managed accounts in the latter
half of 1997. Fixed income accounts typically have lower management fee rates
than equity accounts. In addition, institutional accounts generally have a lower
management fee rate than mutual funds.
Underwriting revenue, which accounted for 36% of total operating revenue for
the first quarter of 1998, rose to $23.5 million for the period, an increase of
$2.4 million or 11% compared to the same period last year due to higher sales
volume of investment products, primarily of the United funds. Total investment
product sales increased 12% to $404.8 million for the first quarter of 1998
compared with $363.0 million for the same period last year.
Service fees for the first quarter were $7.8 million, up $300,000 from the
first quarter of 1997 due primarily to growth in the number of mutual fund
accounts.
Investment and other revenue for the first three months of 1998 was $1.4
million, an increase of $500,000 or 54%. The increase is attributable to the
growth in invested balances related to $35 million of net proceeds from the
Offering that were retained and the retention of earnings in the first quarter
of 1998. In previous periods, substantially all of the Company's earnings were
paid to Torchmark as a dividend.
Underwriting and distribution expenses were $20.3 million for the first three
months of 1998, up $1.9 million or 10% from that of the same period last year,
primarily due to costs related to growth in investment product sales.
Compensation and related costs were $7.4 million for the first quarter of 1998,
an increase of $1.3 million or 21% over the same period last year. The increase
is related to normal salary and fringe benefit changes, staff additions and the
impact of adjustments made to make total compensation more competitive within
the market. General and administrative expenses were $1.8 million for the
quarter compared to $1.7 million for the first three months of 1997, an increase
of 8% due primarily to growth in business activity.
Net interest income (expense) was ($6.7) million and $1.0 million for the
first three months of 1998 and 1997, respectively. The net interest expense in
the first quarter of 1998 is due to interest costs related to a $480.0 million
dividend that was evidenced by two 8% promissory notes to Torchmark. During the
first quarter of 1998, the notes were prepaid from the proceeds of the Offering.
9
<PAGE>
Income tax expense was $11.1 million and $11.7 million for the first quarter
of 1998 and 1997, respectively, representing effective tax rates of 39.8 % and
38.8%. The effective tax rate varies based upon the amount of federally tax-
exempt interest and the tax rates that apply to income taxable within various
states.
The Company has considered the effect of year 2000 on its computer systems and
application software programs and has developed a plan to become year 2000
compliant. The Company estimates that its compliance activities will be
completed no later than the first quarter of 1999. The Company estimates the
total costs of this effort to be $4.1 million for the four year period ending
December 31, 1999.
Liquidity and Capital Resources
Cash, cash equivalents and short term investments were $120.6 million at March
31, 1998, an increase of $46.8 million from December 31, 1997. Cash and cash
equivalents at March 31, 1998 and December 31, 1997 includes reserves of $24.4
million and $14.9 million, respectively, for the benefit of customers in
compliance with securities regulations.
Cash flow provided from operations was $39.6 million and $25.8 million for the
first quarter of 1998 and 1997, respectively. Other than net income and related
adjustments, the most significant sources of cash from operations resulted from
the timing of payments. The timing of tax payments and mutual fund trade
settlements provided $14.5 million and $12.5 million, respectively, of cash
during the first quarter. Approximately $8.4 million of cash was used for
interest bearing loans related to the Offering.
Investing activities used $28.1 million of cash during the quarter, due
primarily to additional investments in longer-term securities. Although the
Company has not entered into formal commitments, it is considering an expansion
of its home office building. The capitalized cost of this proposed expansion is
now estimated to be $12.0 million. Except for this possible expansion the
Company has no material commitments for capital expenditures.
The net cash provided by financing activities in the first quarter of 1998 was
$36.8 million. The increase is related to the Company's initial public offering
that closed on March 10, 1998. Net proceeds from the sale of 23.9 million shares
were $516 million, of which the Company retained for working capital purposes
approximately $35 million. The remainder of the proceeds were used to prepay
notes payable to Torchmark.
On April 14, 1998, the Company's Board of Directors declared a quarterly cash
dividend on the Common Stock of approximately $8.8 million to be paid May 1,
1998 to shareholders of record on April 21. Management believes its available
cash, cash equivalents, investment securities available-for-sale and expected
continuing cash flow from operations will be sufficient to fund dividend
payments, operations and other reasonably foreseeable cash needs.
10
<PAGE>
Forward Looking Information
Certain statements contained in this Quarterly Report on Form 10-Q constitute
forward-looking statements, which involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, levels of
activity, performance, or achievements of the Company, or industry results, to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Forward-looking statements include all statements relating to
future events and all statements of belief and opinion with respect to matters
that are not historical facts. The risks, uncertainties, and other factors to
which forward-looking statements are subject include, among others, those set
forth under the caption "Risk Factors" in the prospectus of the Company dated
March 4, 1998, which is available form the Securities and Exchange Commission at
prescribed rates and at the Securities and Exchange Commission's website,
www.sec.gov. As a result of the foregoing and other factors, no assurance can
be given as to future results, levels of activity, or achievements, and neither
the Company nor any other person will be responsible for the accuracy or
completeness of any such forward-looking statements.
Part II. Other Information
(a) Exhibits.
Exhibit Number Description of Exhibit
- -------------- ----------------------
3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the
Company's Registration Statement No. 333-43687 and incorporated herein by
reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's Registration
Statement No. 333-43687 and incorporated herein by reference).
10.1* Public Offering and Separation Agreement, dated as of March 3, 1998,
between Torchmark Corporation and Waddell & Reed Financial, Inc.
10.2* Tax Disaffiliation Agreement, dated as of March 3, 1998, between
Torchmark Corporation and Waddell & Reed Financial, Inc.
10.3* Investment Services Agreement, dated as of March 3, 1998, 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. (filed as Exhibit 10.4 to
the Company's Registration Statement No. 333-43687 and incorporated herein by
reference).
10.5* Amendment Extending General Agent Contract, dated as of March 3, 1998,
between United Investors Life Insurance Company and W & R Insurance Agency, Inc.
10.6 Independent Agent Contract, dated June 25, 1997, between United American
11
<PAGE>
Insurance Company, W & R Insurance Agency, Inc., and affiliates identified
therein (filed as Exhibit 10.6 to the Company's Registration Statement No. 333-
43687 and incorporated herein by reference).
10.7* Amendment Extending Independent Agent Contract, dated as of March 3,
1998, between United American Insurance Company, W & R Insurance Agency, Inc.,
and affiliates identified therein.
10.8* The 1998 Stock Incentive Plan.
10.9* The 1998 Non-Employee Director Stock Option Plan.
10.10* The 1998 Executive Deferred Compensation Stock Option Plan.
10.11* Waddell & Reed Financial, Inc. Savings and Investment Plan.
10.12* Waddell & Reed Financial, Inc. Retirement Income Plan.
10.13* Waddell & Reed, Inc. Career Field Retirement Plan.
10.14 Form of Administration Contract between United Investors Park Owners'
Association and Waddell & Reed Property Management Division.
10.15* Agreement Amending Distribution Contract, dated as of March 3, 1998,
between United Investors Life Insurance Company and TMK/United Funds, Inc.
10.16 Distribution Contract, dated April 4, 1997, between United Investors
Life Insurance Company and TMK/United Funds, Inc. (filed as Exhibit 10.16 to the
Company's Registration Statement No. 333-43687 and incorporated herein by
reference).
10.17* Agreement Amending Principal Underwriting Agreement, dated as of March
3, 1998, between United Investors Life Insurance Company and Waddell & Reed,
Inc.
10.18 Principal Underwriting Agreement, dated May 1, 1990, between United
Investors Life Insurance Company and Waddell & Reed, Inc. (filed as Exhibit
10.18 to the Company's Registration Statement No. 333-43687 and incorporated
herein by reference).
10.19* Services Agreement, dated as of March 3, 1998, between Waddell & Reed
Investment Management Company and Waddell & Reed Asset Management Company.
10.20* Reciprocity Agreement, dated as of March 3, 1998, between Torchmark
Corporation and Waddell & Reed Financial, Inc.
10.21* Administrative Services Agreement, dated as of March 3, 1998, between
Torchmark Corporation and Waddell & Reed Financial, Inc.
27.1* Financial Data Schedule.
___________________
* Filed herewith
All other items are omitted as not applicable.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the period
subject to this Quarterly Report on Form 10-Q.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
WADDELL & REED FINANCIAL, INC.
(Registrant)
By: /s/ Keith A. Tucker
------------------------
Keith A. Tucker
Chairman of the Board and
Chief Executive Officer
Date: May 15, 1998
/s/ Michael D. Strohm
------------------------
Michael D. Strohm
Principal Accounting Officer
13
<PAGE>
Exhibit 10.1
------------
PUBLIC OFFERING AND SEPARATION AGREEMENT
THIS AGREEMENT is made and entered into this 3rd day of March, 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.
-------------------
"Balancing Cash" shall have the meaning set forth in Section 2.1(m).
--------------
"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
3
<PAGE>
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened Actions).
"Net Offering Proceeds" shall mean the proceeds of the Public Offering
---------------------
including the proceeds attributable to the Overallotment Shares, after deducting
underwriting commissions and discounts, after deducting Offering Expenses paid
or advanced by the Company, Company Affiliates, Torchmark, or Torchmark
Affiliates which the Company reimburses pursuant to Section 3.4(a) hereof, and
after deducting any amount retained by the Company pursuant to Section 3.5(a)
hereof.
"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 and any overtime expenses charged by
R.R. Donnelley.
"Overallotment Shares" shall have the meaning set forth in
--------------------
Section 3.1(a)(1).
"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.
4
<PAGE>
"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.
"Shares" shall mean the Firm Shares and the Overallotment Shares, if
------
any, included in the Public Offering, in the aggregate constituting no more than
thirty six percent (36%) 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 and
shall include Century Capital Partners, L.P., a Delaware limited partnership
("Century") although not 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 (other than Century)
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 a wholly owned subsidiary of Torchmark, formerly 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, Merrill Lynch &
Co., and Merrill Lynch International.
5
<PAGE>
"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 the balance of all remaining promissory
notes payable to the Company by Torchmark, which notes were in the aggregate
original principal amount of approximately $194 million, in exchange for
preferred stock of Torchmark in an amount equal to the remaining unpaid
principal and interest on such notes (the "$200 Million Preferred");
----------------------
(b) Waddell & Reed Financial Services, Inc. ("WRFS") shall cancel the
----
balance of a promissory note payable to WRFS by Torchmark, which note was in the
original principal amount of approximately $124 million, in exchange for
preferred stock of Torchmark in an amount equal to the remaining unpaid
principal and interest on such note (the "$124 Million Preferred");
----------------------
(c) WRFS shall distribute the $124 Million Preferred to the Company,
and simultaneously the Company shall assume WRFS's obligation to pay principal
and interest on a promissory note payable by WRFS to Liberty in the original
principal amount of approximately $124 million (the "$124 Million Note");
-----------------
(d) [THIS SECTION INTENTIONALLY OMITTED];
(e) The Company shall transfer part of the $124 Million Preferred and
the $200 Million Preferred to UILIC as a contribution to capital, in an amount
equal to the excess of (i) the aggregate face amount of the $124 Million
Preferred plus the $200 Million Preferred over (ii) the remainder (but not less
than zero) obtained by subtracting (A) the greater of the Net Offering Proceeds
and $428 million, from (B) the aggregate remaining outstanding amounts of
principal and interest due under the $124 Million Note, the promissory note
payable by the Company to Liberty in the original principal amount of
approximately $390 million (the "$390 Million Note"), and the promissory note
-----------------
payable by the Company to Torchmark in the original principal amount of
approximately $90 million (the "$90 Million Note");
----------------
(f) The Company shall transfer the portion of the $124 Million
Preferred and the $200 Million Preferred not transferred to UILIC pursuant to
Section 2.1(e) hereof (i) first, to Liberty in an amount not to exceed the
original face amount of the $124 Million Preferred, as partial prepayment of the
$124 Million Note and the $390 Million Note, such aggregate prepayment to be
applied in proportion to the respective outstanding amounts of unpaid principal
and interest on such notes, and to be applied to interest first, then principal,
and (ii) second, if any, to Torchmark as partial prepayment of the $90 Million
Note, such prepayment to be applied to interest first, then principal;
6
<PAGE>
(g) The Company shall distribute all of the capital stock of UILIC to
the Company's shareholders pro rata in a distribution pursuant to Section 355 of
the Code;
(h) The Company shall distribute a dividend of all of the stock of
Torch Royalty Company, a Delaware corporation, owned by the Company to Liberty
as a non-pro rata dividend;
(i) The Company shall distribute a dividend of all of its interest in
Century Capital Partners, L.P., a Delaware limited partnership, to Liberty as a
non-pro rata dividend;
(j) The Company shall distribute a dividend of that certain account
receivable, payable by Torch Energy Advisors Incorporated in the amount of
approximately $1,938,000 and received in connection with the disposition of
Torch Energy Advisors Incorporated, to Torchmark as a non-pro rata dividend;
(k) The Company shall distribute a dividend of all of its interest in
Associates Oil & Gas Company, L.P., a Texas limited partnership, to Liberty as a
non-pro rata dividend;
(l) The Company shall distribute all its interest in that certain
prepaid expense in the amount of approximately $122,538 that was created in
connection with the sale of stock of Nuevo Energy Company, a Delaware
corporation, to Torchmark as a non-pro rata dividend;
(m) The Company shall distribute cash to Torchmark as a non-pro rata
dividend in the amount necessary for the aggregate dividends paid by the Company
pursuant to Sections 2.1(h) through (m) hereof to be paid to Torchmark and
Liberty in proportion to their stock holdings in the Company (approximately
$251,298) (the "Balancing Cash"); and
--------------
(n) The Company shall sell all its interest in Velasco Gas Company
Ltd., a Texas limited partnership, to Torchmark Development Corporation.
SECTION 2.2 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.
- -
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:
7
<PAGE>
(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 ten percent (10%) 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 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
8
<PAGE>
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) On the Public Offering Date, the Company shall hereby 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 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.
9
<PAGE>
(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) On the Public Offering Date, Torchmark shall hereby 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.
(3) 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 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
10
<PAGE>
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 other than the proceeds attributable to the Overallotment
Shares, after deducting underwriting commissions and discounts, as follows:
(a) First, to reimburse the Company, Company Affiliates, Torchmark, and
Torchmark Affiliates for all Offering Expenses paid or advanced by such party;
(b) Second, to prepay the amounts due under the Company's promissory notes
outstanding as of the Public Offering Date to Torchmark and Liberty to the
extent of such remaining proceeds; and
(c) Third, any remaining amount of such net proceeds shall be paid to
Torchmark and Liberty as a pro rata dividend.
All such amounts shall be paid immediately upon the Company's receipt of such
proceeds (or as soon thereafter as is possible). To the extent the exact amount
of any such payment cannot be immediately determined, a good faith estimate
shall be made by the parties as the basis for an immediate initial payment, and
the parties shall settle with an exact amount as soon as is practicable.
11
<PAGE>
SECTION 3.5 Use of Overallotment Proceeds. The Company shall apply the
-----------------------------
proceeds of the Public Offering attributable to the Overallotment Shares, after
deducting underwriting commissions and discounts, as follows:
(a) First, the Company shall retain $35,000,000 plus an amount equal to the
Balancing Cash;
(b) Second, any remaining amount of such net proceeds to prepay the
amounts due under the Company's promissory notes outstanding as of the Public
Offering Date to Torchmark and Liberty to the extent of such remaining proceeds
(to the extent not prepaid pursuant to Section 3.4(b) above); and
(c) Third, any remaining amount of such net proceeds shall be paid to
Torchmark and Liberty as a pro rata dividend.
All such amounts shall be paid immediately upon the Company's receipt of such
proceeds (or as soon thereafter as is possible). To the extent the exact amount
of any such payment cannot be immediately determined, a good faith estimate
shall be made by the parties as the basis for an immediate initial payment, and
the parties shall settle with an exact amount as soon as is practicable.
SECTION 3.6 Overtime Charges. The Company agrees to pay overtime expenses
----------------
charged by R.R. Donnelley as approved by the Company from time to time in
connection with the Public Offering.
SECTION 3.7 Intercompany Debt.
-----------------
(a) In the event the Company's transfer to Torchmark and Liberty of the
cash amounts to be paid pursuant to Section 3.4(b) are sufficient to constitute
the final payment of the remaining outstanding principal plus accrued interest
under the $90 Million Note, the $390 Million Note and the $124 Million Note,
Torchmark shall cancel the $90 Million Note and Liberty shall cancel the $390
Million Note and the $124 Million Note.
(b) In the event the Company's transfer to Torchmark and Liberty of the
cash amounts to be paid pursuant to Section 3.4(b) are not sufficient to
constitute the final payment of the remaining outstanding principal plus accrued
interest under the $90 Million Note, the $390 Million Note and the $124 Million
Note, the cash shall be applied first to the $90 Million Note and the $390
Million Note in the proportions directed by Torchmark, and then to the $124
Million Note, and the unpaid portion of any such Notes shall remain outstanding
as an obligation of the Company. If such payment completely prepays all amounts
due under any such Note, then Torchmark or Liberty, as applicable, shall cancel
such Note.
12
<PAGE>
ARTICLE IV
DISTRIBUTION
SECTION 4.1 Actions Prior to the Spin-Off.
-----------------------------
(a) Actions by Torchmark.
--------------------
(1) Torchmark shall continue to seek to obtain a private letter ruling
from 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 requested by Torchmark as necessary for Torchmark to obtain such
ruling.
(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 A Common Stock and
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.
13
<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.
14
<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
15
<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; provided, however, that the
-------- -------
number of shares of Class A Common Stock and/or Class B Common Stock Torchmark
requests be included must represent not less than the lesser of (i) twenty
percent (20%) of the Class A Common Stock and the Class B Common Stock then held
by Torchmark and any other member of the Torchmark Group and (ii) all of the
shares of Class A Common Stock and Class B Common Stock the held by Torchmark
and the other members of the Torchmark Group. 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
16
<PAGE>
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 connection with
any 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:
17
<PAGE>
(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 and/or Class B Common Stock held by
Torchmark or any other member of the Torchmark Group, the Company shall pay its
pro rata 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 pro rata 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:
18
<PAGE>
(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 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.
SECTION 5.5 Sales without Registration. Torchmark and any other
--------------------------
member of the Torchmark Group may sell shares of Class A Common Stock and/or
Class B Common Stock without a registration in the event Torchmark provides to
the Company an opinion of counsel, satisfactory in form and substance to the
Company, to the effect that such Class A Common Stock and/or Class B Common
Stock is eligible for sale without limitation or restriction of any sort under
Rule 144 under the Securities Act.
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
19
<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, 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 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;
20
<PAGE>
(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 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,
21
<PAGE>
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.
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 Indemnifying
Party 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
Indemnitees. 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.
22
<PAGE>
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
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
23
<PAGE>
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 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
24
<PAGE>
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;
---------
(b) Investment Services 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;
---------
(i) Reciprocity Agreement, attached hereto as Exhibit L; and
---------
(j) Administration Contract, attached hereto as Exhibit M.
---------
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 N, 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 Offering 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
25
<PAGE>
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 Group, in each case, as
identified on Exhibit O, shall continue in full force and effect until the
---------
earlier of the renewal date of the respective policy as set forth on Exhibit O,
---------
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 O 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.
26
<PAGE>
SECTION 8.5 Employee Benefits.
-----------------
(a) Torchmark and the Company agree to establish stock option
conversion programs as described in this Section 8.5(a) to become effective on
the date the Spin-Off occurs. Outstanding options to purchase shares of common
stock of Torchmark (the "Torchmark Options") granted by Torchmark to officers,
-----------------
directors, and employees of Torchmark and its affiliates, including the Company,
under various Torchmark stock compensation plans (the "Torchmark Plans") will be
---------------
adjusted (the "Adjusted Torchmark Options") and the Company will provide for the
--------------------------
issuance of options (the "Conversion Options") to purchase Class A Common Stock
------------------
to the holders of outstanding Torchmark Options (except for options granted
December 24, 1997). The Company and Torchmark agree to then provide (i) holders
of Torchmark Options that are employees of the Company an election to receive
either solely Conversion Options or a combination of Conversion Options and
Adjusted Torchmark Options in a ratio that is reflective of the pro rata
distribution of Class A Common Stock to Torchmark stockholders in the Spin-Off
and (ii) holders of Torchmark Options who are employees of Torchmark an election
to receive either solely Adjusted Torchmark Options or a combination of
Conversion Options and Adjusted Torchmark Options in a ratio that is reflective
of the pro rata distribution of Class A Common Stock to Torchmark stockholders
in the Spin-Off. The number of options that the option holder will be entitled
to receive and respective exercise prices will be determined so that (i) the
ratio of the exercise price of each of the Conversion Options and the Adjusted
Torchmark Options to the market value of their respective underlying common
stock will not be less than the ratio of the exercise price of Torchmark Options
to the underlying market value of the Torchmark common stock immediately prior
to the Spin-Off and (ii) the aggregate intrinsic value of the Conversion Options
and Adjusted Torchmark Options (the difference between the aggregate exercise
price and aggregate market value of the underlying stock) will not exceed the
aggregate intrinsic value inherent in Torchmark Options immediately prior to the
Spin-Off. All other terms and conditions of the options issued in the
conversions described above will be the same as the original options.
Notwithstanding the foregoing, if either Torchmark or the Company determines
that because of legal, accounting, tax, and/or regulatory rules or requirements
applicable to options, stock appreciation rights or restricted stock in any
jurisdiction, compliance with any of its obligations under this Section 8.5(a)
with respect to options, stock appreciation rights or restricted stock held by
or to be issued to any individual would be impossible, illegal, impracticable or
unreasonably expensive, it shall so notify the other party, and Torchmark and
the Company shall use their best efforts to agree to appropriate alternative
arrangements.
(b) Until the date the Spin-Off occurs, Torchmark agrees to cause
Liberty to continue to provide insurance to the employees of members of the
Company Group at a discount and the Company agrees to continue to provide
certain net asset value accounts without certain charges to employees of members
of Torchmark Group, in each case, consistent with past practice.
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.
27
<PAGE>
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, other than those disputes governed by Section 7.1
---------
of the Tax Disaffiliation Agreement, 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) 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 Chicago, Illinois.
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 Chicago, Illinois. 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.
28
<PAGE>
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.
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
29
<PAGE>
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 party. No purchaser (or transferee or assignee) of
Shares from Torchmark shall have any rights or obligations under this Agreement.
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.
30
<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: /s/ Carol A. McCoy
-------------------
Carol A. McCoy
Associate Counsel and Secretary
WADDELL & REED FINANCIAL, INC.
By: /s/ Keith A. Tucker
--------------------
Keith A. Tucker
Chief Executive Officer
31
<PAGE>
EXHIBIT C
---------
BOARD OF DIRECTORS
David L. Boren
Joseph M. Farley
Louis T. Hagopian
Robert L. Hechler
Henry J. Herrmann
Joseph L. Lanier, Jr.
Harold T. McCormick
Sharon K. Pappas
George J. Records
R.K. Richey
Keith A. Tucker
EXHIBIT C - Page 1
<PAGE>
EXHIBIT N
---------
CONTINUING AGREEMENTS
1. Tax Sharing 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, to the extent provided in the Tax Disaffiliation Agreement, between
Torchmark and the Company.
2. Wholesale Agreement, dated May 19, 1997, by and among, LifeUSA, United
Investors Life Insurance Company and Waddell & Reed, Inc.
EXHIBIT N - Page 1
<PAGE>
EXHIBIT O
Torchmark Insurance (1)
<TABLE>
<CAPTION>
COVERAGE CARRIER LIMITS POLICY NO.
- -------------------------------------- --------------------------- ------------------------- ---------------
<S> <C> <C> <C>
General Liability WAUSAU $1 million/2 million agg. 1428-04-107468
Automobile Liability (TX) WAUSAU $1 million CSL 1428-05-107468
Automobile Physical Damage (limited) WAUSAU $45,000 - Hired Car 1428-05-107468
General Liability Exercise Facilities Scottsdale Ins. Co. $1 million/2 million agg. CLS0469764
Foreign Liability Chubb $1 million - GL 7316-98-88
$1 million - AL
$1 million - EL
Umbrella Liability National Union Fire Ins. Co. $10 million agg. BE 932-91-15
Excess Umbrella Liability CIGNA $40 million excess of XLXG18887538
$10 million
Property & Boiler & Machinery Kemper $130,350,895 3ZG007513-00
Workers Compensation Stop Gap WAUSAU $1 million - EL 14177-00-107468
Fidelity Bond Hartford $5 million/10 million agg. ICBKZ4012
Fiduciary Liability Legion $10 million agg. LF10625130
Aircraft Liability USAIG $100 million 360AC-265657
Workers Compensation Hartford WC - Statutory 21WBEU0745
EL - $1 million
Mail Loss Seaboard Surety $10 million 882803
Misc. Bonds Aetna C&S $10,000 76S100890620
Misc. Bonds Aetna C&S $10,000 76S100890621
<CAPTION>
COVERAGE EFFECTIVE DATES
- -------------------------------------- ------------------
<S> <C>
General Liability 6/1/97 - 98
Automobile Liability (TX) 6/1/97 - 98
Automobile Physical Damage (limited) 6/1/97 - 98
General Liability Exercise Facilities 6/1/97 - 98
Foreign Liability 6/1/97 - 98
Umbrella Liability 6/1/97 - 98
Excess Umbrella Liability 6/1/97 - 98
Property & Boiler & Machinery 6/1/97 - 98
Workers Compensation Stop Gap 6/1/97 - 98
Fidelity Bond 7/1/97 - 98
Fiduciary Liability 1/1/98 - 99
Aircraft Liability 11/1/95 - 98
Workers Compensation 1/1/98 - 99
Mail Loss 9/1/93 - 98
Misc. Bonds 6/23/97 - 98 (2)
Misc. Bonds 7/12/97 - 98 (2)
</TABLE>
(1) Waddell & Reed is either a specific named insured on each of these policies
or is covered by virtue of them being a subsidiary of Torchmark Corporation.
(2) License Bonds for Waddell & Reed agents.
EXHIBIT O - PAGE 1
<PAGE>
Exhibit 10.2
------------
TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of March 3rd, 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 March 3rd, 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 preferred stock of Torchmark to
United Investors Life Insurance Company, a Missouri corporation ("UILIC") as a
contribution to capital (the "UILIC Capital Contribution") and distribute all of
the stock of UILIC to WRFI's shareholders pro rata (the "UILIC Spinoff"); (iii)
distribute all of the stock of Torch Royalty Company, a Delaware corporation and
wholly owned subsidiary of WRFI ("Torch Royalty") to Liberty National Life
Insurance Company, an Alabama corporation and a wholly owned subsidiary of
Torchmark ("Liberty") as a non-pro rata dividend (the "Torch Royalty
Distribution"), (iv) distribute its interest in Century Capital Partners, L.P.,
a Delaware limited partnership ("Century Capital") to Liberty as a non-pro rata
dividend (the "Century Capital Distribution"); (v) sell its interest in Velasco
Gas Company Ltd., a Texas limited partnership ("Velasco"), to Torchmark
Development Corporation, a wholly-owned subsidiary of Torchmark, in a taxable
sale (the "Velasco Sale"); (vi) distribute its interest in Associates Oil & Gas
Company, L.P., a Texas limited partnership ("Associates"), to Liberty as a non-
pro rata dividend (the "Associates Distribution"); (vii) distribute all of its
interest in that certain prepaid expense in the amount of $122,538 that was
created in connection with the sale of stock of Nuevo Energy Company, a Delaware
corporation ("Nuevo Expense"), to Torchmark as a non-pro rata dividend (the
"Nuevo Expense Distribution"); and (viii) distribute that certain account
receivable, payable by Torch Energy Advisors Incorporated in the amount of
approximately $1,938,000 and received in connection with the disposition of
Torch Energy Advisors Incorporated, plus the Balancing Cash (as defined in the
Separation Agreement) (together, the "Waddell Ranch Receivable") to Torchmark as
a non-pro rata dividend (the "Waddell Ranch Receivable Distribution") and (ix)
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
1
<PAGE>
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 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, the Associates Distribution, the Nuevo Expense
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, (vi) the
receipt of the proceeds of the Velasco Sale by WRFI to be taxable, and (vii) 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:
2
<PAGE>
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "Associates" shall have the meaning set forth on page 1 of this
Agreement.
1.2 "Associates Distribution" shall have the meaning set forth on page 1
of this Agreement.
1.3 "Century Capital" shall have the meaning set forth on page 1 of this
Agreement.
1.4 "Century Capital Distribution" shall have the meaning set forth on
page 1 of this Agreement.
1.5 "Code" shall have the meaning set forth on page 1 of this Agreement.
1.6 "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).
1.7 "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.
1.8 "Former WRFI Subsidiaries" means Century Capital and any entity that
is, or ever has been, a Subsidiary of WRFI, but which is not currently, or will
not continue to be as a result of the Intended Transactions, a Subsidiary of
WRFI, including but not limited to WRAMCO, UILIC, Torch Royalty, Torch Energy,
Associates, and Velasco.
1.9 "Globe" shall have the meaning set forth on page 2 of this Agreement.
1.10 "Globe Capital Contribution" shall have the meaning set forth on page
2 of this Agreement.
1.11 "Intended Tax Results" shall have the meaning set forth on page 2 of
this Agreement.
3
<PAGE>
1.12 "Intended Transactions" shall mean the UILIC Capital Contribution,
the UILIC Spinoff, the Intercompany Debt Settlement, the Torch Royalty
Distribution, the Century Capital Distribution, the Associates Distribution, the
Velasco Sale, the Nuevo Expense Distribution, the Waddell Ranch Receivable
Distribution, the Offering, the Globe Capital Contribution, the Liberty/WRFI
Spinoff, and the Torchmark/WRFI Spinoff.
1.13 "Intercompany Debt Settlement" shall have the meaning set forth on
page 1 of this Agreement.
1.14 "Liability Issue" shall have the meaning set forth in Section 4.2.
1.15 "Liberty" shall have the meaning set forth on page 1 of this
Agreement.
1.16 "Liberty/WRFI Spinoff" shall have the meaning set forth on page 1 of
this Agreement.
1.17 "Nuevo Expense" shall have the meaning set forth on page 1 of this
Agreement.
1.18 "Nuevo Expense Distribution" shall have the meaning set forth on page
1 of this Agreement.
1.19 "Offering" shall have the meaning set forth on page 1 of this
Agreement.
1.20 "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.
1.21 "Payor" shall have the meaning set forth in Section 2.5.
1.22 "Payee" shall have the meaning set forth in Section 2.5.
1.23 "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.
1.24 "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.
1.25 "Retained Group" shall mean, for any period, Torchmark and its
Subsidiaries (which, as defined in "Subsidiary" below, includes the Former WRFI
Subsidiaries and excludes WRFI and its Subsidiaries).
4
<PAGE>
1.26 "Separation Agreement" shall have the meaning set forth on page 1 of
this Agreement.
1.27 "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, for
such period except the Former WRFI Subsidiaries, each of which shall be
considered a subsidiary of Torchmark for all periods.
1.28 "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.
1.29 "Tax Controversy" shall have the meaning set forth in Section 4.3.
1.30 "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.
1.31 "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).
1.32 "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.
1.33 "Torch Royalty" shall have the meaning set forth on page 1 of this
Agreement.
1.34 "Torch Royalty Distribution" shall have the meaning set forth on page
1 of this Agreement.
1.35 "Torchmark" shall have the meaning set forth on page 1 of this
Agreement.
1.36 "Torchmark Group" shall have the meaning set forth on page 1 of this
Agreement.
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1.37 "Torchmark Item" shall have the meaning set forth in Section 4.3.
1.38 "Torchmark/WRFI Spinoff" shall have the meaning set forth on page 2
of this Agreement.
1.39 "UILIC" shall have the meaning set forth on page 1 of this Agreement.
1.40 "UILIC Capital Contribution" shall have the meaning set forth on page
1 of this Agreement.
1.41 "UILIC Spinoff" shall have the meaning set forth on page 1 of this
Agreement.
1.42 "Underpayment Rate" shall mean the rate specified under Section
6621(a)(2) of
the Code.
1.43 "Velasco" shall have the meaning set forth on page 1 of this
Agreement.
1.44 "Velasco Sale" shall have the meaning set forth on page 1 of this
Agreement.
1.45 "Waddell Ranch Receivable" shall have the meaning set forth on page 1
of this Agreement.
1.46 "Waddell Ranch Receivable Distribution" shall have the meaning set
forth on page 1 of this Agreement.
1.47 "WRAMCO" shall mean Waddell & Reed Asset Management Company, a
Missouri corporation.
1.48 "WRAMCO Ruling" shall mean the private letter ruling dated July 8,
1997 issued by the Internal Revenue Service with respect to the WRAMCO Spinoff.
1.49 "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.
1.50 "WRFI" shall have the meaning set forth on page 1 of this Agreement.
1.51 "WRFI Group" shall mean, for any period, WRFI and its Subsidiaries
(which, as defined in "Subsidiary" above, excludes the Former WRFI
Subsidiaries).
1.52 "WRFI Item" shall have the meaning set forth in Section 4.3.
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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, any of its Subsidiaries, or any
of the WRFI Former 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, its
Subsidiaries and any of the WRFI Former 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, 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
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returns, or similar provisions of any foreign, state or local law, and (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 Intended Transactions in accordance with the Intended
Tax Results, and take no position inconsistent therewith in any document, filing
or forum whether 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.
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(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
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
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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 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 without the written consent of Torchmark. Members of
the WRFI Group may file, and
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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.
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 hereunder or otherwise or a refund of Tax for
which WRFI would be entitled hereunder or otherwise (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 or otherwise (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 consent 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 of WRFI 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
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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.
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
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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 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 Article IX 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
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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 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.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
TORCHMARK CORPORATION
By: /s/ Michael K. Fagin
--------------------
Michael K. Fagin
Vice President
WADDELL & REED FINANCIAL, INC.
By: /s/ Keith A. Tucker
-------------------
Keith A. Tucker
Chief Executive Officer
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Exhibit 10.3
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INVESTMENT SERVICES AGREEMENT
This Agreement made this 3rd day of March, 1998 (the "Effective Date")
between Waddell & Reed Asset Management Company ("WRAMCO") and Waddell & Reed
Investment Management Company ("WRIMCO").
WHEREAS, WRAMCO has entered into, and will enter into, investment
management agreements with its clients to provide to each client certain
investment management services;
WHEREAS, WRIMCO is an investment adviser registered under the Investment
Advisers Act of 1940; and has been providing WRAMCO with various investment
advisory services with respect to certain of its clients;
WHEREAS, although WRIMCO and WRAMCO have been direct or indirect wholly
owned subsidiaries of Torchmark Corporation, because of the anticipated stock
offering by Waddell & Reed Financial, Inc. and planned divestiture by Torchmark
Corporation of its ownership interest in Waddell & Reed Financial, Inc., the
intermediate indirect owner of WRIMCO's stock, it is anticipated that WRIMCO and
WRAMCO will no longer ultimately have common ownership;
WHEREAS, WRAMCO desires to engage WRIMCO to continue to provide WRAMCO with
various investment advisory services with respect to certain of its clients,
WRIMCO is willing to continue to render such services, and the parties desire to
reduce to writing the applicable terms and conditions.
NOW, THEREFORE, as of the Effective Date, the Parties agree as follows:
1. Accounts. This Agreement is applicable to those accounts of WRAMCO as
--------
agreed by the parties from time to time (the "Accounts").
2. Appointment. WRAMCO hereby appoints WRIMCO to provide WRAMCO with
-----------
various investment advisory services with respect to the Accounts, and WRIMCO
agrees to provide such services.
Subject to the instructions and supervision of WRAMCO, WRIMCO shall
provide investment advisory services necessary to meet the investment
objectives, limitations and such other requirements of clients of WRAMCO for
which WRAMCO and WRIMCO determine WRIMCO will provide investment advisory
services ("Clients"). In performing its duties under this Agreement, WRIMCO
will comply with the requirements
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of applicable law and the reasonable written instructions of WRAMCO. Subject to
such limitations, WRIMCO shall have the authority to determine transactions and
other actions for Accounts, and to place orders with or through such persons,
brokers, dealers or futures commission merchants as WRIMCO shall select. While
WRIMCO will give primary consideration to securing the most favorable price and
efficient execution of transactions, WRIMCO may consider the financial
responsibility, research and investment information and other services provided
by brokers, dealers or futures commission merchants who may effect or be party
to any such transaction or other transactions to which WRIMCO's other clients
may be a party.
It is also understood that it is desirable for WRIMCO to have access to
supplemental investment and market research and security and economic analysis
provided by brokers or futures commission merchants who may execute brokerage
transactions at a higher cost to Clients than may result when allocating
brokerage to other brokers on the basis of seeking the lowest commission cost.
It is understood that the services provided by such brokers or futures
commission merchants may be useful to WRIMCO in connection with its services to
other clients.
On occasions when WRIMCO deems the purchase or sale of a security or
futures contract or other property to be in the best interest of a Client, as
well as other clients, WRIMCO may, but shall be under no obligation to,
aggregate the securities or futures contracts to be sold or purchased in order
to obtain a more favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities or futures contracts so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by WRIMCO in the manner WRIMCO considers to be equitable and consistent
with its fiduciary obligations.
Clients of WRAMCO may direct that transactions for each such Client be
effected by a particular broker-dealer specified by that Client. WRIMCO shall
effect transactions in accordance with Client directions, subject to the
limitations of applicable law and subject to any conditions imposed by a Client
with respect to such transactions, notice of which has been given in writing to
WRIMCO by WRAMCO. WRAMCO acknowledges that when WRIMCO follows a Client's
direction with respect to the selection of a broker-dealer, WRIMCO may not be
able to aggregate such Client's transactions with others and may not have any
responsibility for the quality or cost of such broker-dealer's services,
depending upon the Client's precise directions and conditions with respect to
such transactions.
3. Books and Records. WRIMCO shall maintain all such books and records,
-----------------
as are required by the Investment Advisers Act of 1940 or any other applicable
laws, relating to the investment advisory services provided under this
Agreement.
4. Reports. WRIMCO shall provide WRAMCO with such periodic reports as the
-------
Parties may from time to time agree upon.
2
<PAGE>
5. WRAMCO Responsibility. WRAMCO shall provide WRIMCO with all
---------------------
information required by WRIMCO in order to provide the investment advisory
services requested by WRAMCO pursuant to this Agreement, including, without
limitation, investment objectives and guidelines and all amendments thereto.
WRAMCO shall have full responsibility for all services to be provided by it
pursuant to its investment advisory agreements with its clients. WRAMCO agrees
to indemnify and to hold harmless WRIMCO, its affiliates which are directly or
indirectly subsidiaries of Waddell & Reed Financial, Inc. and Waddell & Reed
Financial, Inc. and their respective officers, directors, employees and agents
from all claims and liabilities (including counsel fees) incurred or assessed
against them in connection with the performance of this Agreement, except such
as may arise from a breach by WRIMCO of the relevant standard of conduct set
forth herein.
6. Representations. Each party represents to the other that (i) it is an
---------------
investment adviser properly registered under the Investment Advisers Act of
1940, (ii) it has the power and authority to execute, deliver and to carry out
the terms of this Agreement, and (iii) this Agreement constitutes a legal, valid
and binding obligation of it.
Each party represents that it shall notify the other if it no longer has
the necessary registration under applicable securities, investment advisory or
similar laws to carry out all of its duties hereunder.
Each party represents that there are no outstanding or anticipated legal
actions or claims against it which could have a material adverse effect on it
and which have not been disclosed to the other party and each party represents
that it will give notice of any such actions or claims which may arise following
the date hereof.
WRAMCO represents that it has full power and authority to manage the assets
of each Client for which it will engage the services of WRIMCO, pursuant to this
Agreement, and that WRIMCO shall be authorized to act on any instructions given
to it by or on behalf of WRAMCO by any officer or employee of WRAMCO.
WRAMCO represents that it has or will provide a copy of Part II of Form ADV
of WRIMCO and WRAMCO to Clients as required by laws, rules and regulations.
7. Standard of Care. WRIMCO shall act with the care, skill, prudence and
----------------
diligence under the circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. Notwithstanding anything
contained herein to the contrary, WRIMCO does not guarantee investment results
and no past performance should be relied upon or considered an indicator of
present or future performance. It is hereby understood and agreed that WRIMCO
shall not be liable or responsible for any loss incurred in connection with
recommendations or investments made by WRIMCO or other actions taken by WRIMCO
with respect to the Accounts, provided such actions were taken by WRIMCO in
accordance with this Agreement. WRAMCO understands that financial
3
<PAGE>
investments carry substantial risk and WRIMCO cannot predict or guarantee any
particular results. WRIMCO shall not be responsible or liable for any loss
incurred in connection with any act or omission of WRAMCO, any Client or any
broker-dealer or third party.
8. Compensation. For its services provided pursuant to this Agreement,
------------
WRAMCO shall pay WRIMCO the fees set forth on Appendix A to this Agreement, such
fees to be adjusted quarterly, if at all, upon agreement of the parties. In the
event this Agreement is terminated at any time during a quarter, the fees will
be equitably pro rated.
9. Proxies. WRIMCO is specifically precluded from taking any action or
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rendering any advice with respect to the voting of proxies solicited by or with
respect to the issuers of securities held in a Client account except to the
extent WRAMCO is specifically required by the Client to do so and WRAMCO
specifically requires WRIMCO to do so in writing with respect to any such Client
account. Absent such specific direction, WRIMCO's obligation with respect to
any such solicitation shall be limited exclusively to the forwarding of proxy
materials or other information with respect to such solicitation received from
the issuer or third parties and acting upon the express instructions of the
Client with respect to the granting or withholding of any such Proxy. In no
event shall WRIMCO be responsible for voting any proxies which have a record
date which is prior to the to the date of this Agreement or on or after the date
of any termination of this Agreement.
10. Notice. All notices, instructions and reports contemplated by this
------
Agreement shall be deemed duly given when in writing and either delivered to the
addresses below or sent by first-class mail, facsimile, or courier addressed as
follows:
(a) To WRAMCO: Waddell & Reed Asset Management
Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: Michael J. Klyce
(b) To WRIMCO: Waddell & Reed Investment Management Company
6300 Lamar Avenue
Overland Park, KS 66202
Attn: Lawrence J. Cipolla
11. Custodians. WRAMCO shall inform WRIMCO of the custodian for each
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Client account and take such actions as necessary to assure that WRIMCO may give
instructions to each such custodian and to assure that each custodian may
fulfill its obligations.
12. Termination. This Agreement may be terminated by the Parties hereto
-----------
upon 30 days' notice.
4
<PAGE>
13. Assignment. Neither this Agreement nor the rights and duties
----------
hereunder may be assigned by either party without the prior written consent of
the other party.
14. Entire Agreement; Waiver; Amendment. This Agreement constitutes the
------------------------------------
entire and complete agreement between the parties hereto relating to the subject
matter hereof, and supersedes all prior agreements between the parties, whether
oral or written. Notwithstanding the foregoing, this Agreement shall be read in
connection with the Services Agreement, dated March 3rd, 1998, between WRIMCO
and WRAMCO. This Agreement may be amended only by the written consent of WRIMCO
and WRAMCO. Any notice required by this Agreement may be waived in writing by
the person entitled thereto. Such waiver shall not be deemed a continuing
waiver. This Agreement shall inure to and be binding upon the respective
successors and assigns (as permitted herein) of the parties hereto.
15. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Kansas.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
and delivered by their respective duly authorized officers as of the date first
above written.
Waddell & Reed Investment Management Company
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
Waddell & Reed Asset Management Company
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
5
<PAGE>
Appendix A
Compensation
WRAMCO shall compensate WRIMCO for its services hereunder at the annual rate of
21.5 basis points on average assets under management under this Agreement as
specified further in the Agreement.
6
<PAGE>
Exhibit 10.5
------------
AMENDMENT EXTENDING GENERAL AGENT CONTRACT
This is an amendment ("Amendment") extending the General Agent Contract
("General Agent Contract") effective January 1, 1985 between UNITED INVESTORS
LIFE INSURANCE COMPANY ("United") or ("Company"), and W&R INSURANCE AGENCY, INC.
("General Agent"), as follows:
1. Subparagraph A of Paragraph 13 of the General Agent Contract is amended
to read as follows:
A. This Contract is effective from its Effective Date and, unless further
extended by the parties, will terminate on the earlier of (i) December
31, 1998, or (ii) the date it may be terminated under Subparagraph B
or C of this Paragraph 13.
2. In all other respects, the General Agent Contract is unchanged. The
parties ratify and confirm the General Agent Contract as amended by this
Amendment.
Executed this the 3rd day of March, 1998.
UNITED INVESTORS LIFE
INSURANCE COMPANY
By: /s/ Larry M. Hutchison
----------------------
Larry M. Hutchison
W&R INSURANCE AGENCY, INC.
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
<PAGE>
Exhibit 10.7
------------
AMENDMENT EXTENDING INDEPENDENT AGENT CONTRACT
This is an amendment ("Amendment") extending the Independent Agent Contract
("Independent Agent Contract") effective June 25, 1997 between UNITED AMERICAN
INSURANCE COMPANY ("United") or ("Company"), and W&R INSURANCE AGENCY, INC.
("Independent Agent"), as follows:
1. The termination paragraph of the Independent Agent Contract is amended
to read as follows:
A. This Contract is effective from its Effective Date and, unless further
extended by the parties, will terminate on December 31, 1998.
2. In all other respects, the Independent Agent Contract is unchanged.
The parties ratify and confirm the Independent Agent Contract as amended by this
Amendment.
Executed this the 3rd day of March, 1998.
UNITED AMERICAN
INSURANCE COMPANY
By: /s/ Larry M. Hutchison
----------------------
Larry M. Hutchison
W&R INSURANCE AGENCY, INC.
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
<PAGE>
Exhibit 10.8
------------
WADDELL & REED FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Waddell & Reed Financial, Inc. 1998 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable Waddell &
Reed Financial, Inc. (the "Company") and its Subsidiaries to attract and retain
employees, directors and consultants who contribute to the Company's success by
their ability, ingenuity and industry, and to enable such employees and
directors to participate in the long-term success and growth of the Company
through an equity interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Affiliate" means (i) any corporation (other than a Subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a 10 percent beneficial ownership interest, and
(ii) the Company's parent company or former parent company.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a participant's willful misconduct or dishonesty,
any of which is directly and materially harmful to the business or reputation of
the Company or any Subsidiary or Affiliate.
d. "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
e. "Committee" means the Compensation Committee of the Board. If at
any time no Committee shall be in office, then the functions of the Committee
specified in the Plan shall be exercised by the Board.
f. "Commission" means the Securities and Exchange Commission.
g. "Company" means Waddell & Reed Financial, Inc., a corporation
organized under the laws of the State of Delaware (or any successor
corporation).
h. "Deferred Stock" means an award made pursuant to Section 9 below
of the right to receive Stock at the end of a specified deferral period.
i. "Director Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 6.
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<PAGE>
j. "Disability" means total and permanent disability as determined
under the Company's long term disability program. With respect to Director Stock
Options, "Disability" shall be determined as if the Director was covered under
the Company's long term disability program.
k. "Early Retirement" means retirement from active employment with
the Company, any Subsidiary, and any Affiliate pursuant to the early retirement
provisions of the applicable tax-qualified Company pension plan.
l. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor thereto.
m. "Fair Market Value" means[, as of the date of the initial public
offering, the initial public offering price for the stock, and thereafter] the
closing price of the Stock on the New York Stock Exchange Composite Tape on the
date in question.
n. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
o. "Immediate Family" means the children, grandchildren or spouse of
any optionee.
p. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
q. "Normal Retirement" means retirement from active employment with
the Company, any Subsidiary, and any Affiliate on or after the normal retirement
date specified in the applicable tax-qualified Company pension plan.
r. "Plan" means this 1998 Stock Incentive Plan.
s. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 8.
t. "Retirement" means Normal or Early Retirement.
u. "Stock" means the Class A Common Stock of the Company, par value
$.01.
v. "Stock Appreciation Right" means a right granted under Section 7
below to surrender to the Company all or a portion of a Stock Option in exchange
for an amount equal to the difference between (i) the Fair Market Value, as of
the date such Stock Option or such portion thereof is surrendered, of the shares
of Stock covered by such Stock Option or such portion thereof, and (ii) the
aggregate exercise price of such Stock Option or such portion thereof.
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<PAGE>
w. "Stock Option" means any option to purchase shares of Stock
granted to employees pursuant to Section 5.
x. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee which shall at all
times comply with any applicable requirements of Rule 16b-3 of the Exchange Act.
All members of the Committee shall also be "outside directors" within the
meaning of Section 162(m) of the Code.
The Committee shall have the power and authority to grant to eligible
employees, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock or (iv) Deferred Stock.
In particular, the Committee shall have the authority:
(i) to select the consultants, officers and other key employees
of the Company, its Subsidiaries, and its Affiliates to whom Stock Options,
Stock Appreciation Rights, Restricted Stock or Deferred Stock awards or a
combination of the foregoing from time to time will be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares of Stock to be covered by
each such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (other than Director
Stock Options), including, but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating thereto based on
performance and/or such other factors as the Committee may determine, in its
sole discretion, and any vesting acceleration features based on performance
and/or such other factors as the Committee may determine, in its sole
discretion;
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of a
participant, including providing for and determining the amount (if any) of
deemed earnings on any deferred amount during any deferral period.
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<PAGE>
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 13,000,000.
If any shares of Stock that have been optioned cease to be subject to
option, or if any shares subject to any Restricted Stock or Deferred Stock award
granted hereunder are forfeited or such award otherwise terminates, such shares
shall again be available for distribution in connection with future awards under
the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, an equitable substitution or adjustment shall be made in
(i) the aggregate number of shares reserved for issuance under the Plan, (ii)
the number and option price of shares subject to outstanding Stock Options and
Director Stock Options granted under the Plan, (iii) the number of shares
subject to Restricted Stock or Deferred Stock awards granted under the Plan,
(iv) the aggregate number of shares available for issuance to any employee
pursuant to Section 4(a), and (v) the number of Director Stock Options to be
granted each year pursuant to Section 6, as may be determined to be appropriate
by the Committee, in its sole discretion, provided that the number of shares
subject to any award shall always be a whole number. Such adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
(a) Consultants, officers and other key employees of the Company, its
Subsidiaries or its Affiliates (but excluding members of the Committee and any
person who serves only as a director, except as provided in Section 6 below) who
are responsible for or contribute to the management, growth and/or profitability
of the business of the Company, its Subsidiaries, or its Affiliates are eligible
to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock awards. Only employees of the Company and its Subsidiaries are
eligible to be granted Incentive Stock Options.
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<PAGE>
Except as provided in Section 6, the optionees and participants under
the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award or grant; provided,
however, that no employee shall be granted Stock Options on more than 200,000
shares in any calendar year.
(b) Directors of the Company (other than directors who are also
officers or employees of the Company, its Subsidiaries or its Affiliates) are
eligible to receive Director Stock Options pursuant to Section 6 of the Plan.
SECTION 5. STOCK OPTIONS FOR EMPLOYEES.
Stock Options may be granted either alone or in addition to other
awards granted under the Plan. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve, and the provisions
of Stock Option awards need not be the same with respect to each optionee.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights) except that Incentive Stock
Options shall not be granted to employees of an Affiliate. To the extent that
any Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Except as provided in Section 5(1), no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to
disqualify either the Plan or any Incentive Stock Option under Section 422 of
the Code. Notwithstanding the foregoing, in the event an optionee voluntarily
disqualifies an option as an Incentive Stock Option within the meaning of
Section 422 of the Code, the Committee may, but shall not be obligated to, make
such additional grants, awards or bonuses as the Committee shall deem
appropriate, to reflect the tax savings to the Company which results from such
disqualification.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant
but shall be not less than 100% of the Fair Market Value of the Stock on the
date of the grant of the Stock Option.
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<PAGE>
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date such Incentive Stock Option is granted.
(c) Exercisability. Subject to paragraph (l) of this Section 5 with
respect to Incentive Stock Options, Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee, provided, however, that, except as provided in Section 5(f),
5(g), 5(h) or 13, no Stock Option shall be exercisable prior to six months from
the date of the granting of the option. Notwithstanding the limitations set
forth in the preceding sentence, the Committee may accelerate the exercisability
of any Stock Option, at any time in whole or in part, based on performance
and/or such other factors as the Committee may determine in its sole discretion.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period, by giving written notice of exercise
to the Company specifying the number of shares to be purchased, accompanied by
payment in full of the purchase price, in cash, by check or such other
instrument as may be acceptable to the Committee (including instruments
providing for "cashless exercise"). As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may also be made in
the form of unrestricted Stock already owned by the optionee or, in the case of
the exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock
subject to an award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the option is exercised, as determined by the Committee).
If payment of the option exercise price of a Non-Qualified Stock Option is made
in whole or in part in the form of Restricted Stock or Deferred Stock, the
shares received upon the exercise of such Stock Option shall be restricted or
deferred, as the case may be, in accordance with the original term of the
Restricted Stock award or Deferred Stock award in question, except that the
Committee may direct that such restrictions or deferral provisions shall apply
to only the number of such shares equal to the number of shares of Restricted
Stock or Deferred Stock surrendered upon the exercise of such option. No shares
of unrestricted Stock shall be issued until full payment therefor has been made.
An optionee shall have the rights to dividends or other rights of a stockholder
with respect to shares subject to the option when the optionee has given written
notice of exercise and has paid in full for such shares.
(e) Transferability of Options. A Stock Option agreement may permit
an optionee to transfer the Stock Option to members of his or her Immediate
Family, to one or more trusts for the benefit of such Immediate Family members,
or to one or more partnerships where such Immediate Family members are the only
partners if (i) the agreement setting forth such Stock Option expressly provides
that the Stock Option may be transferred only with the express written consent
of the Committee, and (ii) the optionee does not receive any consideration in
any form whatsoever for said transfer. Any Stock Option so transferred shall
continue to be subject to the same terms and conditions in the hands of the
transferee as were applicable to said Stock Option immediately prior to the
transfer thereof.
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<PAGE>
Any Stock Option not (i) granted pursuant to any agreement expressly
allowing the transfer of said Stock Option or (ii) amended expressly to permit
its transfer shall not be transferable by the optionee otherwise than by will or
by the laws of descent and distribution and such Stock Option thus shall be
exercisable during the optionee's lifetime only by the optionee.
(f) Termination by Death. Unless otherwise determined by the
Committee, if an optionee's employment with the Company, any Subsidiary, and any
Affiliate terminates by reason of death (or if an optionee dies following
termination of employment by reason of disability or Normal Retirement), any
Stock Option shall become immediately exercisable and may thereafter be
exercised by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, during the period ending on the
expiration of the stated term of such Stock Option or the first anniversary of
the optionee's death, whichever is later.
(g) Termination by Reason of Disability. Unless otherwise
determined by the Committee, if an optionee's employment with the Company, any
Subsidiary and any Affiliate terminates by reason of Disability, any Stock
Option held by such optionee shall be immediately exercisable and may thereafter
be exercised during the period ending on the expiration of the stated term of
such Stock Option. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. Unless otherwise
determined by the Committee, if an optionee's employment with the Company, any
Subsidiary and any Affiliate terminates by reason of Normal Retirement, any
Stock Option held by such optionee shall become immediately exercisable. A
Stock Option held by an optionee whose employment has terminated by reason of
Normal Retirement shall expire at the end of the stated term of such Stock
Option, unless otherwise determined by the Committee.
If an optionee's employment with the Company, any Subsidiary and any
Affiliate terminates by reason of Early Retirement, any Stock Option shall
terminate three years from the date of such Early Retirement or upon the
expiration of the stated term of the Stock Option, whichever is shorter, unless
otherwise determined by the Committee. In the event of Early Retirement, there
shall be no acceleration of vesting of the Stock Option unless otherwise
determined by the Committee at or after grant, and said Stock Option may only be
exercised to the extent it is or has become exercisable prior to termination of
the Stock Option.
In the event of termination of employment by reason of Retirement, if
an Incentive Stock Option is exercised after the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(i) Termination for Cause. If the optionee's employment with the
Company, any Subsidiary and any Affiliate is terminated for Cause, the Stock
Option shall immediately be forfeited to the Company upon the giving of notice
of termination of employment.
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<PAGE>
(j) Other Termination. If the optionee's employment with the Company,
any Subsidiary and any Affiliate is involuntarily terminated by the optionee's
employer without Cause, the Stock Option shall terminate three months from the
date of termination of employment or upon the expiration of the stated term of
the Stock Option, whichever is shorter, unless otherwise determined by the
Committee. If an optionee's employment with the Company, any Subsidiary and any
Affiliate is voluntarily terminated for any reason, the Stock Option shall
terminate one month from the date of termination of employment or upon the
expiration of the stated term of the Stock Option, whichever is shorter. In the
event of involuntary termination without Cause or voluntary termination for any
reason, there shall be no acceleration of vesting of the Stock Option unless
otherwise determined by the Committee and said Stock Option may only be
exercised to the extent it is or has become exercisable prior to termination of
the Stock Option.
(k) Termination upon Change of Control. Notwithstanding the
provisions of Section 5(j) or the stated term of the Stock Option, if the
optionee's employment with the Company, any Subsidiary and any Affiliate is
involuntarily terminated by the optionee's employer without Cause by reason of
or within three months after a merger or other business combination resulting in
a "Change of Control" as defined in Section 13 of this Plan, the Stock Option
shall terminate upon the later of six months and one day after such merger or
business combination or ten business days following the expiration of the period
during which publication of financial results covering at least thirty days of
post-merger combined operations has occurred.
(l) Limit on Value of Incentive Stock Option First Exercisable
Annually. The aggregate Fair Market Value (determined at the time of grant) of
the Stock for which "incentive stock options" within the meaning of Section 422
of the Code are exercisable for the first time by an optionee during any
calendar year under the Plan (and/or any other stock option plans of the
Company, any Subsidiary and any Affiliate) shall not exceed $100,000.
Notwithstanding the preceding sentence, the exercisability of such Stock Options
may be accelerated by the Committee and shall be accelerated as provided in
Sections 5(f), 5(g), 5(h), and 13, in which case Stock Options which exceed such
$100,000 limit shall be treated as Non-Qualified Stock Options. For this
purpose, options granted earliest shall be applied first to the $100,000 limit.
In the event that only a portion of the options granted at the same time can be
applied to the $100,000 limit, the Company shall issue separate share
certificates for such number of shares as does not exceed the $100,000 limit,
and shall designate such shares as ISO stock in its share transfer records.
SECTION 6. DIRECTOR STOCK OPTIONS.
Director Stock Options granted under the Plan shall be Non-Qualified
Stock Options. Such Director Stock Options may be granted pursuant to a pre-
established formula contained in the Plan or may, in the sole discretion of the
entire Board of Directors, be granted as to such number of shares and upon such
terms and conditions as shall be determined by said Board of Directors.
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Director Stock Options granted under the Plan shall be evidenced by a
written agreement in such form as the Committee shall from time to time approve,
which agreements shall comply with and be subject to the following terms and
conditions:
(a) Formula-based Director Stock Options. For 1998, 6,000 Director
Stock Options shall be granted automatically to each member of the Board who is
not an employee of the Company, its Subsidiaries or Affiliates ("Outside
Director"). For each calendar year thereafter, 3,000 Director Stock Options
shall be granted automatically on the first day of each calendar year on which
Stock is publicly traded on the New York Stock Exchange to each Outside
Director.
The option price per share of Stock purchasable under such Director
Stock Option shall be 100% of the Fair Market Value of the Stock on the date of
the grant of the Director Stock Option. Except as provided in Section 13, said
Director Stock Options shall become exercisable in full six months from the date
of the grant of the option and shall remain exercisable for a term of ten years
and two days from the date such Director Stock Option is granted.
(b) Non-Formula Based Director Stock Options. Within its sole
discretion, the entire Board may award Director Stock Options on a non-formula
basis to all or such individual Outside Directors as it shall select. Such
Director Stock Options may be awarded at such times and for such number of
shares as the Board in its discretion determines. The price of such Director
Stock Options may be fixed by the Board at a discount not to exceed 25% of the
fair market value of the Stock on the date of grant or may be the fair market
value of the Stock on the grant date. Such Director Stock Options shall become
first exercisable and have an option term as determined by the Board in its
discretion, provided however, that except as described in Section 13 and in
paragraph (e) of this section, no such Director Stock Option shall be first
exercisable until six months from the date of grant. All other terms and
conditions of such Director Stock Options shall be as established by the Board
in its sole discretion.
(c) Method of Exercise. Any Director Stock Option granted pursuant to
the Plan may be exercised in whole or in part at any time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to the
Committee (including instruments providing for "cashless exercise"). Payment in
full or in part may also be made in the form of unrestricted Stock already owned
by the optionee (based on the Fair Market Value of the Stock on the date the
option is exercised). No shares of unrestricted Stock shall be issued until
full payment therefor has been made. An optionee shall have the rights to
dividends or other rights of a stockholder with respect to shares subject to the
option when the optionee has given written notice of exercise and has paid in
full for such shares.
(d) Transferability of Options. No Director Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Director Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated taxation,
and (ii) is otherwise
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appropriate and desirable, taking into account any state or federal securities
laws applicable to transferable options.
(e) Termination of Service. Upon an optionee's termination of status
as an Outside Director with the Company for any reason, any Director Stock
Options held by such optionee shall become immediately exercisable and may
thereafter be exercised during the period ending on the expiration of the stated
term of such Director Stock Options or the first anniversary of the optionee's
death, whichever is later. Notwithstanding the foregoing sentence, if the
optionee's status as an Outside Director terminates by reason of or within three
months after a merger or other business combination resulting in a "Change of
Control" as defined in Section 13 of this Plan, the Director Stock Option shall
terminate upon the latest of (i) six months and one day after the merger or
business combination, (ii) ten business days following the expiration of the
period during which publication of financial results covering at least thirty
days of post-merger combined operations has occurred, and (iii) the expiration
of the stated term of such Director Stock Option.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Non-Qualified Stock Option. In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Incentive Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise provided by the Committee at the time of grant, a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 7, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 7. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and this
Section 7 of the Plan; provided, however, that any Stock
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<PAGE>
Appreciation Right granted subsequent to the grant of the related Stock Option
shall not be exercisable during the first six months of the term of the Stock
Appreciation Right, except that this additional limitation shall not apply in
the event of death or Disability of the optionee prior to the expiration of the
six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash or
shares of Stock equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the related Stock
Option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be transferable under
paragraph (e) of Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related shall
be deemed to have been exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Stock to be issued under the
Plan.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of such
Stock Option.
(vi) In its sole discretion, the Committee may provide, at the time
of grant of a Stock Appreciation Right under this Section 7, that such Stock
Appreciation Right can be exercised only in the event of a "Change of Control"
and/or a "Potential Change of Control" (as defined in Section 13 below).
(vii) The Committee, in its sole discretion, may also provide that in
the event of a "Change of Control" and/or a "Potential Change of Control" (as
defined in Section 13 below) the amount to be paid upon the exercise of a Stock
Appreciation Right shall be based on the "Change of Control Price" (as defined
in Section 13 below).
SECTION 8. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee
shall determine the officers and key employees of the Company and its
Subsidiaries and Affiliates to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of shares to be awarded, the price, if
any, to be paid by the recipient of Restricted Stock (subject to Section 8(b)
hereof), the time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards. The Committee may also
condition the grant and/or vesting of Restricted Stock upon the attainment of
specified performance goals, or such other criteria as the Committee may
determine,
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<PAGE>
in its sole discretion. The provisions of Restricted Stock awards need not be
the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
(a "Restricted Stock Award Agreement"), has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the then applicable
terms and conditions. Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the Committee may specify) after
the award date by executing a Restricted Stock Award Agreement and paying the
price specified in the Restricted Stock Award Agreement. Each participant who
is awarded Restricted Stock shall be issued a stock certificate registered in
the name of the participant in respect of such shares of Restricted Stock. The
Committee shall specify that the certificate shall bear a legend, as provided in
clause (i) below, and/or be held in custody by the Company, as provided in
clause (ii) below.
(i) The certificate shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such award,
substantially in the following form:
"The transferability of this certificate and the shares
of stock represented hereby are subject to the terms
and conditions (including forfeiture) of the Waddell &
Reed Financial, Inc. 1998 Stock Incentive Plan and a
Restricted Stock Award Agreement entered into between
the registered owner and Waddell & Reed Financial, Inc.
Copies of such Plan and Agreement are on file in the
offices of Waddell & Reed Financial, Inc., 6300 Lamar
Avenue, Overland Park, Kansas 66202."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to this Section 8 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of this Plan and the Restricted
Stock Award Agreements, during such period as may be set by the Committee
commencing on the grant date (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of Restricted Stock
awarded under the Plan. The Committee may, in its sole discretion, provide for
the lapse of such restrictions in installments and may accelerate or waive such
restrictions in whole or in part, before or after the participant's termination
of employment, based on performance and/or such other factors as the Committee
may determine, in its sole discretion.
(ii) Except as provided in paragraph (c)(i) of this Section 8,
the participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a stockholder of the
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Company, including the right to receive any dividends. Dividends paid in stock
of the Company or stock received in connection with a stock split with respect
to Restricted Stock shall be subject to the same restrictions as on such
Restricted Stock. Certificates for shares of unrestricted Stock shall be
delivered to the participant promptly after, and only after, the period of
forfeiture shall expire without forfeiture in respect of such shares of
Restricted Stock.
(iii) Subject to the provisions of the Restricted Stock Award
Agreement and this Section 8, upon termination of employment for any reason
other than Normal Retirement or death during the Restriction Period, all shares
still subject to restriction shall be forfeited by the participant, and the
participant shall only receive the amount, if any, paid by the participant for
such forfeited Restricted Stock.
SECTION 9. DEFERRED STOCK AWARDS.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company, its Subsidiaries and Affiliates
to whom, and the time or times at which, Deferred Stock shall be awarded, the
number of shares of Deferred Stock to be awarded to any participant, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions
of the award in addition to those set forth in paragraph (b) of this Section 9.
The Committee may also condition the grant and/or vesting of Deferred Stock upon
the attainment of specified performance goals, or such other criteria as the
Committee shall determine, in its sole discretion. The provisions of Deferred
Stock awards need not be the same with respect to each recipient.
(b) Terms and Conditions. The shares of Deferred Stock awarded
pursuant to this Section 9 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned, transferred, pledged
or otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, (as defined below) where
applicable), share certificates shall be delivered to the participant, or his
legal representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) At the time of the award, the Committee may, in its sole
discretion, determine that amounts equal to any dividends declared during the
Deferral Period (or Elective Deferral Period) with respect to the number of
shares covered by a Deferred Stock award will be: (a) paid to the participant
currently; (b) deferred and deemed to be reinvested; or (c) that such
participant has no rights with respect thereto.
(iii) Subject to the provisions of the award agreement and this
Section 9, upon termination of employment for any reason during the Deferral
Period for a given award, the Deferred Stock in question shall be forfeited by
the participant.
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(iv) Based on performance and/or such other criteria as the Committee
may determine, the Committee may, at or after grant (including after the
participant's termination of employment), accelerate the vesting of all or any
part of any Deferred Stock award and/or waive the deferral limitations for all
or any part of such award.
(v) A participant may elect to defer further receipt of the award for
a specified period or until a specified event (the "Elective Deferral Period"),
subject in each case to the Committee's approval and to such terms as are
determined by the Committee, all in its sole discretion. Subject to any
exceptions adopted by the Committee, such election must generally be made at
least six months prior to completion of the Deferral Period for a Deferred Stock
award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock award agreement executed by the Company and the participant.
SECTION 10. LOAN PROVISIONS.
With the consent of the Committee, the Company may make, or arrange
for, a loan or loans to an employee with respect to the exercise of any Stock
Option granted under the Plan and/or with respect to the payment of the purchase
price, if any, of any Restricted Stock awarded hereunder. The Committee shall
have full authority to decide whether to make a loan or loans hereunder and to
determine the amount, term and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and the conditions, if any, under which
the loan or loans may be forgiven.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the right of an
optionee or participant under a Stock Option, Director Stock Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock award theretofore
granted, without the optionee's or participant's consent.
Amendments may be made without stockholder approval except as required
to satisfy Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, stock
exchange listing requirements, or other regulatory requirements.
The Committee may amend the terms of any award or option (other than
Director Stock Options) theretofore granted, prospectively or retroactively, but
no such amendment shall impair the rights of any holder without his consent.
The Committee may also substitute new Stock Options for previously granted Stock
Options including options granted under other plans applicable to the
participant and previously granted Stock Options having higher option prices.
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SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing set forth herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 13. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control" or "Potential Change of Control," as defined in
this Section 13, that occurs more than twelve months after the date of the
Company's initial public offering:
(a) In the event of a "Change of Control" as defined in paragraph (b)
of this Section 13, [unless otherwise determined by the Committee in writing at
or after grant, but prior to the occurrence of such Change of Control, or,] if
and to the extent so determined by the Committee in writing at or after grant
(subject to any right of approval expressly reserved by the Committee at the
time of such determination) in the event of a "Potential Change of Control," as
defined in paragraph (c) of this Section 13:
(i) any Stock Appreciation Rights and any Stock Options awarded
under the Plan not previously exercisable and vested shall become fully
exercisable and vested;
(ii) the restrictions and deferral limitations applicable to any
Restricted Stock and Deferred Stock awards under the Plan shall lapse and such
shares and awards shall be deemed fully vested; and
(iii) the value of all outstanding Stock Options, Director Stock
Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock Awards,
shall, to the extent determined by the Committee at or after grant, be settled
on the basis of the "Change of Control Price" (as defined in paragraph (d) of
this Section 13) as of the date the Change of Control occurs or Potential Change
of Control is determined to have occurred, or such other date as the Committee
may determine prior to the Change of Control or Potential Change of Control. In
the sole discretion of the Committee, such settlements may be made in cash or in
stock, as shall be necessary to effect the desired accounting treatment for the
transaction resulting in the Change of Control. In addition, any Stock Option,
Director Stock Option, and Stock Appreciation Right which has been outstanding
for less than six months shall be settled solely in stock.
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(b) For purposes of paragraph (a) of this Section 13, a "Change of
Control" means the happening of any of the following:
(i) when any "person", as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company or a Subsidiary or any
Company employee benefit plan), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of
the Company representing 20 percent or more of the combined voting power of the
Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the
Company required to be described pursuant to the requirements of 6(e) of
Schedule 14A of Regulation 14A of the Commission under the Exchange Act;
(iii) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board cease, for any reason other than death, to constitute at
least a majority thereof, unless each director who was not a director at the
beginning of such period was elected by, or on the recommendation of, at least
two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company
or a Subsidiary through purchase of assets, or by merger, or otherwise.
(c) For purposes of paragraph (a) of this Section 13, a "Potential
Change of Control" means the happening of any of the following:
(i) the entering into an agreement by the Company, the
consummation of which would result in a Change of Control of the Company as
defined in paragraph (b) of this Section 13; or
(ii) the acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company or a
Subsidiary or any Company employee benefit plan) of securities of the Company
representing 5 percent or more of the combined voting power of the Company's
outstanding securities and the adoption by the Board of Directors of a
resolution to the effect that a Potential Change of Control of the Company has
occurred for purposes of this Plan.
(d) For purposes of this Section 13, "Change of Control Price" means
the highest price per share paid in any transaction reported on the New York
Stock Exchange Composite Tape, or paid or offered in any transaction related to
a potential or actual Change of Control of the Company at any time during the
preceding sixty day period as determined by the Committee, except that (i) in
the case of Incentive Stock Options and Stock Appreciation Rights relating to
Incentive Stock Options, such price shall be based only on transactions reported
for the date on which the Committee decides to cashout such options, and (ii) in
the case of Director Stock Options, the sixty day period shall be the period
immediately prior to the Change of Control.
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SECTION 14. LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 13 above or any other provision of this
Plan or any other agreement, arrangement or plan, in no event shall the
Company pay or be obligated to pay any Plan participant an amount which
would be an Excess Parachute Payment except as provided in Section 14(f)
below and except as the Committee specifically provides otherwise in the
participant's grant agreement. For purposes of this Agreement, the term
"Excess Parachute Payment" shall mean any payment or any portion thereof
which would be an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code, and would result in the imposition of an excise tax
under Section 4999 of the Code, in the opinion of tax counsel selected by
the Company, ("Tax Counsel"). In the event it is determined that an Excess
Parachute Payment would result if the full acceleration of vesting and
exercisability provided in Section 13 above were made (when added to any
other payments or benefits contingent on a change of control under any
other agreement, arrangement or plan), the payments due under Section 13(a)
shall be reduced to the minimum extent necessary to prevent an Excess
Parachute Payment; then, if necessary to prevent an Excess Parachute
Payment, benefits or payments under any other plan, agreement or
arrangement shall be reduced. If it is established pursuant to a final
determination of a court or an Internal Revenue Service administrative
appeals proceeding that, notwithstanding the good faith of the participant
and the Company in applying the terms of this Section 14(a), a payment (or
portion thereof) made is an Excess Parachute Payment, then, the Company
shall pay to the participant an additional amount in cash (a "Gross-Up
Payment") equal to the amount necessary to cause the amount of the
aggregate after-tax compensation and benefits received by the participant
hereunder (after payment of the excise tax under Section 4999 of the Code
with respect to any Excess Parachute Payment, and any state and federal
income taxes with respect to the Gross-Up Payment) to be equal to the
aggregate after-tax compensation and benefits he would have received as if
Sections 280G and 4999 of the Code had not been enacted.
(b) Subject to the provisions of Section 14(c), the amount of any
Gross-Up Payment and the assumptions to be utilized in arriving at such
amount, shall be determined by a nationally recognized certified public
accounting firm designated by the Company (the "Accounting Firm"). All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to Section 14(a),
shall be paid by the Company to the participant within five (5) days after
the receipt of the Accounting Firm's determination. Any determination by
the Accounting Firm shall be binding upon the Company and participant.
(c) Participant shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by Company of a Gross-Up Payment. Such notification shall be given no
later than ten (10) business days after participant is informed in writing
of such claim and shall apprise the Company of the nature of the claim and
the date of requested payment. Participant shall not pay the claim prior
to the expiration of the thirty (30) day period following the date on which
it gives
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notice to the Company. If the Company notifies participant in writing prior
to the expiration of the period that it desires to contest such claim,
participant shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to participant;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim.
Without limitation on the foregoing provisions of this Section 14(c), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct
participant to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and participant agrees to prosecute such
contest to a determination before any administration tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that the Company shall bear and pay
-------- -------
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold participant harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of the contest; provided, further, that if the Company directs
-------- -------
participant to pay any claim and sue for a refund, the Company shall
advance the amount of the payment to participant, on an interest-free
basis, and shall indemnify and hold participant harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to the advance or with respect
to any imputed income with respect to the advance.
(d) In the event that the Company exhausts its remedies pursuant to
Section 14(c) and participant thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Gross-Up Payment required and such payment shall be promptly paid by the
Company to or for the benefit of participant.
(e) If, after the receipt of participant of an amount advanced by the
Company pursuant to Section 14(c), participant becomes entitled to receive
any refund with respect to such claim, participant shall promptly after
receiving such refund pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by participant of an amount advanced by
the
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Company pursuant to Section 14(c), a determination is made that participant
shall not be entitled to any refund with respect to such claim and the
Company does not notify participant in writing of its intent to contest
such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in Section
14(a) shall not apply to a participant if in the opinion of Tax Counsel or
the Accounting Firm (i) the total amounts payable to the participant
hereunder and under any other agreement, arrangement or plan as a result of
a change of control (calculated without regard to the limitation of Section
14(a)), reduced by the amount of excise tax imposed on the participant
under Code Section 4999 with respect to all such amounts and reduced by the
state and federal income taxes on amounts paid in excess of the limitation
set forth in Section 14(a), would exceed (ii) such total amounts payable
after application of the limitation of Section 14(a). No Gross-Up Payment
shall be made in such case.
SECTION 15. GENERAL PROVISIONS.
(a) All certificates for shares of Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(b) Nothing set forth in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan shall
not confer upon any employee or director of the Company, any Subsidiary or any
Affiliate, any right to continued employment (or, in the case of a director,
continued retention as a director) with the Company, a Subsidiary or an
Affiliate, as the case may be, nor shall it interfere in any way with the right
of the Company, a Subsidiary or an Affiliate to terminate the employment of any
of its employees at any time.
(c) Each participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee, in its sole discretion, regarding payment of, any
Federal, FICA, state, or local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements.
The Committee may permit or require, in its sole discretion, participants
to elect to satisfy their Federal, and where applicable, FICA, state and local
tax withholding obligations with respect to all awards other than Stock Options
which have related Stock Appreciation Rights by the
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reduction, in an amount necessary to pay all said withholding tax obligations,
of the number of shares of Stock or amount of cash otherwise issuable or payable
to said participants in respect of an award. The Company and, where applicable,
its Subsidiaries and Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes owed hereunder by a participant from any payment
of any kind otherwise due to said participant.
(d) At the time of grant or purchase, the Committee may provide in
connection with any grant or purchase made under this Plan that the shares of
Stock received as a result of such grant or purchase shall be subject to a right
of first refusal, pursuant to which the participant shall be required to offer
to the Company any shares that the participant wishes to sell, with the price
being the then Fair Market Value of the Stock, subject to the provisions of
Section 13 hereof and to such other terms and conditions as the Committee may
specify at the time of grant.
(e) No member of the Board or the Committee, nor any officer or employee of
the Company acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and all members of the Board or the Committee
and each and any officer or employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by the
Company in respect of any such action, determination or interpretation.
SECTION 16. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is approved by a majority vote
of the Company's stockholders.
SECTION 17. TERM OF PLAN.
No Stock Option, Director Stock Option, Stock Appreciation Right,
Restricted Stock award or Deferred Stock award shall be granted pursuant to the
Plan on or after March 3, 2008, but awards theretofore granted may extend beyond
that date.
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Exhibit 10.9
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WADDELL & REED FINANCIAL, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE 1
PURPOSE OF THE PLAN
Section 1.1. Purpose. The purpose of the 1998 Non-Employee Director Stock
Option Plan is to attract and retain highly qualified and capable Non-Employee
Directors and to promote the long-term growth of Waddell & Reed Financial, Inc.
by providing a vehicle for Non-Employee Directors to increase their proprietary
interest in Waddell & Reed Financial, Inc. The Plan will be effective for
Annual Compensation payable in 1998 or thereafter.
ARTICLE 2
DEFINITIONS
Section 2.1. Unless the context clearly indicates otherwise, the following
terms shall have the following meanings:
"Acquisition" has the meaning assigned such term in Section 9.3 hereof.
"Acquisition Consideration" has the meaning assigned such term in Section
9.3 hereof.
"Annual Compensation" means the annual cash retainer and meeting fees
payable by the Company to a Non-Employee Director for services as a director
(and, if applicable, as the member or chairman of a committee of the Board) of
the Company, as such amount may be changed from time to time. For purposes of
an election to receive Options under the Plan in lieu of Annual Compensation,
meeting fees will be deemed to be earned at the beginning of the year for all
scheduled meetings during the year, whether or not the Optionee later attends
such meetings.
"Beneficiary" means any person or persons designated by a Participant, in
accordance with procedures established by the Committee or Plan Administrator,
to receive benefits hereunder in the event of the Participant's death. If any
Participant shall fail to designate a Beneficiary or shall designate a
Beneficiary who shall fail to survive the Participant, the Beneficiary shall be
the Participant's surviving spouse, or, if none, the Participant's surviving
descendants (who shall take per stirpes) and if there are no surviving
descendants, the Beneficiary shall be the Participant's estate.
"Board" means the Board of Directors of the Company.
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"Business Day" means a day on which the New York Stock Exchange or any
national securities exchange or over-the-counter market on which the Shares are
traded is open for business.
"Change in Control" means any of the following that occurs more than twelve
months after the Company's initial public offering:
(i) when any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company or a subsidiary thereof or any
Company employee benefit plan), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the
Company that is required to be described pursuant to the requirements of Item
6(e) of Schedule 14A of Regulation 14A of the Securities and Exchange Commission
under the Exchange Act;
(iii) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board, cease for any reason other than death to constitute at
least a majority thereof, unless each director who was not a director at the
beginning of such period was elected by, or on the recommendation of, at least
two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company or a
subsidiary thereof through the purchase of assets, by merger, or otherwise.
"Committee" means the Compensation Committee of the Board.
"Company" means Waddell & Reed Financial, Inc., a Delaware corporation.
"Disability" means total and permanent disability as determined under the
Company's long term disability program, whether or not the Optionee is covered
under such program. If no such program is in effect, the Disability of a
Participant shall be determined in good faith by the Board (excluding the
Participant).
"Election Date" means the date established by the Plan as the date by which
a Participant must submit a valid Primary Election Form to the Plan
Administrator in order to participate in the Plan for a calendar year. For each
calendar year, the Election Date is December 31 of the preceding calendar year;
provided, however, that the Election Date for a newly eligible Participant shall
be the 30th day following the date on which such individual becomes a Non-
Employee Director.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any given date, the closing price of the
Stock on such date on the New York Stock Exchange Composite Tape.
"Interest Account" means the account established by the Company for each
Participant for Annual Compensation deferred pursuant to the Plan and which
shall be credited with interest on the last day of each calendar quarter (or
such other day as determined by the Plan Administrator). The maintenance of
individual Interest Accounts is for bookkeeping purposes only.
"Non-Employee Director" means a director of the Company who is not an
employee of the Company or of any subsidiary (as determined by the Committee).
"Option" means an option to purchase Shares awarded under Article 6.
"Option Grant Date" means the date upon which an Option is granted to a
Non-Employee Director pursuant to Article 6.
"Optionee" means a Non-Employee Director of the Company to whom an Option
has been granted or, in the event of such Non-Employee Director's death prior to
the expiration of an Option, such Non-Employee Director's Beneficiary.
"Participant" means any Non-Employee Director who is participating in the
Plan.
"Plan" means the Waddell & Reed Financial, Inc. 1998 Non-Employee Director
Stock Option Plan.
"Plan Administrator" means the Committee or its delegee of administrative
duties under the Plan pursuant to Section 3.2.
"Primary Election Form" means a form, substantially in the form attached
hereto as Exhibit A, pursuant to which a Non-Employee Director elects to defer
Annual Compensation under the Plan.
"Secondary Election Form" means a form, substantially in the form attached
hereto as Exhibit B, pursuant to which a Non-Employee Director elects to convert
previously deferred compensation to Options pursuant to Section 6.1 of the Plan.
"Shares" means shares of the Class A common stock of the Company, par value
$.01.
"Stock Option Award Notice" means a written award notice to a Non-Employee
Director from the Company evidencing an Option.
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ARTICLE 3
ADMINISTRATION OF THE PLAN
Section 3.1. Administrator of the Plan. The Plan shall be administered by
the Committee.
Section 3.2. Authority of Committee. The Committee shall have full power
and authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and administer
the Plan, and (ii) designate persons other than members of the Committee or the
Board to carry out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe, such determinations to be made
in accordance with the Committee's best business judgment as to the best
interests of the Company and its stockholders and in accordance with the
purposes of the Plan. The Committee may delegate administrative duties under
the Plan to one or more agents as it shall deem necessary or advisable.
Section 3.3. Effect of Committee Determinations. No member of the
Committee or the Board or the Plan Administrator shall be personally liable for
any action or determination made in good faith with respect to the Plan or any
Option or to any settlement of any dispute between a Non-Employee Director and
the Company. Any decision or action taken by the Committee or the Board with
respect to an Option or the administration or interpretation of the Plan shall
be conclusive and binding upon all persons.
ARTICLE 4
PARTICIPATION
Section 4.1. Election to Participate. Each Non-Employee Director is
automatically eligible to participate in the Plan. A Non-Employee Director may
participate in the Plan for a calendar year by delivering a properly completed
and signed Primary Election Form to the Plan Administrator on or before the
Election Date. The Non-Employee Director's participation in the Plan will be
effective as of the first day of the calendar year beginning after the Plan
Administrator receives the Non-Employee Director's Primary Election Form, or, in
the case of a newly eligible Participant, on the first day of the calendar month
beginning after the Plan Administrator receives such Non-Employee Director's
Primary Election Form. A Participant shall not be entitled to any benefit
hereunder unless such Participant has properly completed a Primary Election Form
and deferred the receipt of his or her Annual Compensation pursuant to the Plan.
Section 4.2. Irrevocable Election. A Participant may not revoke or change
his or her Primary Election Form for a calendar year; provided, however, that a
Participant may, by filing a Secondary Election Form with the Plan Administrator
within the period provided in the Plan, subsequently elect to convert the
balance in his or her Interest Account to Options in accordance with Article 6.
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Section 4.3. Prior Participation in Torchmark Plan. A Non-Employee
Director who participated in the Torchmark Corporation 1996 Stock Option Plan
("Torchmark Plan"), had elected to defer Annual Compensation under the Torchmark
Plan, and was eligible to convert such deferred amounts into options under the
Torchmark Plan, but had not done so as of the date of the Company's initial
public offering, may elect to transfer his 1997 Interest Account, from the
Torchmark Plan to this Plan. Thereafter, such Non-Employee Director may elect
to convert such account(s) into Options pursuant to Article 6 below, no later
than December 31, 1998.
Section 4.4. No Right to Continue as a Director. Nothing contained in the
Plan shall be deemed to give any Non-Employee Director the right to be retained
as a director of the Company.
ARTICLE 5
PLAN BENEFITS
Section 5.1. Deferred Annual Compensation. A Non-Employee Director may
elect to defer up to 100% of his or her Annual Compensation (in 10% increments
but not less than 50%) to his or her Interest Account and/or by conversion to
Options in accordance with the terms of the Plan. For bookkeeping purposes, the
amount of the Annual Compensation which a Non-Employee Director elects to defer
pursuant to the Plan shall be transferred to and held in individual Interest
Accounts (in annual designations) pending distribution in cash or the conversion
to Options, if applicable, pursuant to Article 6.
Section 5.2. Time of Election of Deferral. A Non-Employee Director who
wishes to defer Annual Compensation for a calendar year must irrevocably elect
to do so on or prior to the Election Date for such calendar year, by delivering
a valid Primary Election Form to the Plan Administrator. The Primary Election
Form shall indicate: (1) the percentage of Annual Compensation to be deferred,
and (2) the form and timing of payout of deferred amounts.
Section 5.3. Interest Accounts. Amounts in a Participant's Interest
Account will be credited with interest as of the last day of each calendar
quarter (or such other day as determined by the Plan Administrator, which, in
the case of amounts converted to Options under the Plan, shall be the date of
such conversion) at the rate set from time to time by the Committee to be
applicable to the Interest Accounts of all Participants under the Plan. To the
extent required for bookkeeping purposes, a Participant's Interest Accounts will
be segregated to reflect deferred Annual Compensation on a year-by-year basis.
For example, a 1997 Interest Account, a 1998 Interest Account, and so on.
Within a reasonable time after the end of each calendar year, the Plan
Administrator shall report in writing to each Participant the amount held in his
or her Interest Accounts at the end of the year.
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Section 5.4. Responsibility for Investment Choices. Each Participant is
solely responsible for any decision to defer Annual Compensation into his or her
Interest Account or convert Annual Compensation to Options under the Plan and
accepts all investment risks entailed by such decision, including the risk of
loss and a decrease in the value of the amounts he or she elects to defer.
Section 5.5. Form of Payment.
(a) Payment Commencement Date. Payment of the balances in a
Participant's Interest Accounts shall commence on the earliest to occur of (a)
December 31 of the fifth year after the year with respect to which the deferral
was made, (b) the first Business Day of the fourth month after the Participant's
death, or (c) the Participant's termination as a Non-Employee Director other
than by reason of death.
(b) Optional Forms of Payment. Distributions from a Participant's
Interest Accounts may be paid to the Participant either in a lump sum or in a
number of approximately equal monthly installments designated by the Participant
on his or her Primary Election Form. Such monthly installments may be for any
number of months up to 120 months; provided, however, that in the event of the
Participant's death during the payout period, the remaining balance shall be
payable to the Participant's Beneficiary in a lump sum on the first Business Day
of the fourth month after the Participant's death. If a Participant elects to
receive a distribution of his or her Interest Accounts in installments, the Plan
Administrator may purchase an annuity from an insurance company which annuity
will pay the Participant the desired annual installments. If the Plan
Administrator purchases an annuity contract, the Eligible Executive will have no
further rights to receive payments from the Company or the Plan with respect to
the amounts subject to the annuity. If the Plan Administrator does not purchase
an annuity contract, the value of the Interest Accounts remaining unpaid shall
continue to receive allocations of return as provided in Section 5.3. If the
Participant fails to designate a payment method in the Participant's Primary
Election Form, the Participant's Account shall be distributed in a lump sum.
(c) Irrevocable Elections. A Participant may elect a different
payment form for each year's Annual Compensation deferred under the Plan. The
payment form elected or deemed elected on the Participant's Primary Election
Form shall be irrevocable.
(d) Acceleration of Payment. If a Participant elects an installment
distribution and the value of such installment payment elected by the
Participant would result in a distribution of less than $3,000 per year, the
Plan Administrator may accelerate payment of the Participant's benefits over a
lesser number of whole years so that the annual amount distributed is at least
$3,000. If payment of the Participant's benefits over a five year period will
not provide annual distributions of at least $3,000, the Participant's Account
shall be paid in a lump sum.
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(e) Effect of Competition. Notwithstanding the Primary Election Form
or any provision set forth herein, the entire balance of a Participant's
Interest Accounts shall be paid immediately to the Participant a lump sum in the
event the Participant ceases to be a Non-Employee Director and becomes a
proprietor, officer, partner, employee or otherwise becomes affiliated with any
business that is in competition with the Company or an affiliated company, or
becomes employed by any governmental agency having jurisdiction over the
activities of the Company or an affiliated company.
(f) Effect of Adverse Determination. Notwithstanding the Primary
Election Form or any provision set forth herein, if the Internal Revenue Service
determines, for any reason, that all or any portion of the amounts credited
under this Plan is currently includable in the taxable income of any
Participant, then the amounts so determined to be includable in income shall be
distributed in a lump sum to such Participant as soon as practicable.
(g) Payment to Beneficiary. Upon the Participant's death, all unpaid
amounts held in the Participant's Account shall be paid to the Participant's
Beneficiary in a lump sum on the first Business Day of the fourth month
following the Participant's death.
Section 5.6. Financial Hardship. The Plan Administrator may, in its sole
discretion, accelerate the making of payment to a Participant of an amount
reasonably necessary to handle a severe financial hardship of a sudden and
unexpected nature due to causes not within the control of the Participant. All
financial hardship distributions shall be made in cash in a lump sum. Such
payments will be made on a first-in, first-out basis so that the oldest Annual
Compensation deferred under the Plan shall be deemed distributed first in a
financial hardship.
Section 5.7. Payment to Minors and Incapacitated Persons. In the event
that any amount is payable to a minor or to any person who, in the judgment of
the Plan Administrator, is incapable of making proper disposition thereof, such
payment shall be made for the benefit of such minor or such person in any of the
following ways as the Plan Administrator, in its sole discretion, shall
determine:
(a) By payment to the legal representative of such minor or such
person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the benefit of
such minor or such person. The Plan Administrator shall make such payments
without the necessary intervention of any guardian or like fiduciary, and
without any obligation to require bond or to see to the further application of
such payment. Any payment so made shall be in complete discharge of the Plan's
obligation to the Participant and his or her Beneficiaries.
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Section 5.8. Application for Benefits. The Plan Administrator may require
a Participant or Beneficiary to complete and file certain forms as a condition
precedent to receiving the payment of benefits. The Plan Administrator may rely
upon all such information given to it, including the Participant's current
mailing address. It is the responsibility of all persons interested in receiving
a distribution pursuant to the Plan to keep the Plan Administrator informed of
their current mailing addresses.
Section 5.9. Designation of Beneficiary. Each Participant from time to
time may designate any person or persons (who may be designated contingently or
successively and who may be an entity other than a natural person) as his or her
Beneficiary or Beneficiaries to whom the Participant's Account is to be paid if
the Participant dies before receipt of all such benefits. Each Beneficiary
designation shall be on the form prescribed by the Plan Administrator and will
be effective only when filed with the Plan Administrator during the
Participant's lifetime. Each Beneficiary designation filed with the Plan
Administrator will cancel all Beneficiary designations previously filed with the
Plan Administrator. The revocation of a Beneficiary designation, no matter how
effected, shall not require the consent of any designated Beneficiary.
ARTICLE 6
ELECTIVE OPTIONS
Each Non-Employee Director shall be granted Options subject to the
following terms and conditions:
Section 6.1. Election to Receive Options. At any time, but only one time,
during the calendar year immediately following the filing of a Primary Election
Form under Article 5, a Participant shall have the right to convert into Options
pursuant to this Article 6 the then-current balance (as of the date of such
election to receive Options) in his or her Interest Account for the calendar
year to which the Primary Election Form relates. For example, if a Primary
Election Form is filed in December 1998 to defer Annual Compensation to be
earned in 1999, the director may elect at any time in 1999 to convert such
deferred amount to Options. To make such election, the Participant must file
with the Plan Administrator a written irrevocable Secondary Election Form to
receive Options as of the date of the election (the "Option Grant Date"). The
exercise price per Share under each Option granted pursuant to this Article 6
shall, at the election of the Optionee as indicated on the Secondary Election
Form, be either 100% of the Fair Market Value per Share on the Option Grant Date
or a lesser percentage (but not less than 75%) of the Fair Market Value per
Share on the Option Grant Date, such lesser percentage to be determined by the
Committee from time to time. Such Secondary Election Form shall indicate the
percentage of such Options to be granted at each Exercise Price, which choice
may affect the number of Options to be received pursuant to Section 6.2.
Section 6.2. Number and Terms of Options. The number of Shares subject to
an Option granted pursuant to this Article 6 shall be the number of whole Shares
equal to A divided by B, where:
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A = the dollar amount which the Non-Employee Director has elected
pursuant to Section 6.1 to convert to Options; and
B = the per share value of an Option on the Option Grant Date, as
determined by the Committee using an option valuation model selected by the
Committee in its discretion (such value to be expressed as a percentage of the
Fair Market Value per Share on the Option Grant Date).
In determining the number of Shares subject to an Option, (i) the Committee
may designate the assumptions to be used in the selected option valuation model,
and (ii) any fraction of a Share will be rounded up to the next whole number of
Shares.
Section 6.3. Exercise of Options. All Options shall be fully
nonforfeitable, but shall be exercisable only at the time provided in this
Section 6.3 and Section 6.4 below. Each Option shall be first exercisable,
cumulatively, as to 10% commencing on the each of the first through tenth
anniversaries of the Option Grant Date. An Optionee's death, Disability,
retirement or other termination of directorship or failure to be reelected as a
director shall not shorten the term of any outstanding Option. In no event
shall the period of time over which the Option may be exercised exceed eleven
years from the Option Grant Date. An Option, or portion thereof, may be
exercised in whole or in part only with respect to whole Shares. Shares shall
be issued to the Optionee pursuant to the exercise of an Option only upon
receipt by the Company from the Optionee of payment in full in cash of the
aggregate purchase price for the Shares subject to the Option or portion thereof
being exercised.
Section 6.4. Accelerated Exercisability. Notwithstanding the normal
exercisability schedule set forth in Section 6.3 hereof, any and all outstanding
Options shall become immediately exercisable upon the first to occur of (i) the
death of the Optionee, (ii) the Disability of the Optionee, (iii) the occurrence
of a Change in Control, or (iv) the unanimous determination by the Committee
that a particular Option or Options shall become fully exercisable. Upon
acceleration, an Option will remain exercisable for the remainder of its
original term.
Section 6.5. Stock Option Award Notice. Each Option granted under the
Plan shall be evidenced by a Stock Option Award Notice which shall be executed
by an authorized officer of the Company. Such Award Notice shall contain
provisions regarding (a) the number of Shares that may be issued upon exercise
of the Option, (b) the exercise price per Share of the Option and the means of
payment therefor, (c) the term of the Option, and (d) such other terms and
conditions not inconsistent with the Plan as may be determined from time to time
by the Committee.
Section 6.6. Transferability of Options. No Option shall be assignable or
transferable by the Optionee other than by will or the laws of descent and
distribution; provided, however, that the Committee may (but need not) permit
other transfers where
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the Committee concludes that such transferability (i) does not result in
accelerated taxation, and (ii) is otherwise appropriate and desirable, taking
into account any state or federal securities laws applicable to transferable
Options.
ARTICLE 7
SHARES SUBJECT TO THE PLAN
Section 7.1. Shares Subject to the Plan. Subject to adjustment as
provided in Article 9, the aggregate number of Shares which may be acquired upon
the exercise of Options shall not exceed 800,000 Shares. Shares acquired upon
exercise of Options may be newly issued Shares or previously issued and
reacquired Shares, and there are hereby reserved for issuance under the Plan
800,000 Shares. To the extent that Shares subject to an outstanding Option are
not issued or delivered by reason of the expiration, termination, cancellation
or forfeiture of such Option or by reason of the delivery of Shares to pay all
or a portion of the exercise price of such Option, then such Shares shall again
be available under the Plan.
ARTICLE 8
AMENDMENT AND TERMINATION
Section 8.1. Amendment, Suspension or Early Termination. The Board may
amend, suspend or terminate the Plan or any Stock Option Award Notice at any
time; provided, however, that the Board may condition any amendment or
modification on the approval of stockholders of the Company if such approval is
necessary or deemed advisable with respect to tax, securities or other
applicable laws, policies or regulations, and no such amendment, modification or
termination shall adversely affect any outstanding Options or Interest Accounts
without the consent of the Participant.
ARTICLE 9
ADJUSTMENT PROVISIONS
Section 9.1. Change in Corporate Structure Affecting Shares. If the
Company shall at any time change the number of issued Shares without new
consideration to the Company (such as by stock dividend, stock split,
recapitalization, reorganization, exchange of shares, liquidation, combination
or other change in corporate structure affecting the Shares) or make a
distribution of cash or property which has a substantial impact on the value of
issued Shares, the total number of Shares reserved for issuance under the Plan
shall be appropriately adjusted and the number of Shares covered by each
outstanding Option and the exercise price per Share under each outstanding
Option and the number of shares underlying Options shall be adjusted so that the
aggregate consideration payable to the Company and the value of each such Option
shall not be changed.
Section 9.2. Certain Reorganizations. Notwithstanding any other provision
of the Plan, and without affecting the number of Shares reserved or available
hereunder, the
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Committee shall authorize the issuance, continuation or assumption of
outstanding Options or provide for other equitable adjustments after changes in
the Shares resulting from any merger, consolidation, sale of assets, acquisition
of property or stock, recapitalization, reorganization or similar occurrence in
which the Company is the continuing or surviving corporation, upon such terms
and conditions as it may deem necessary to preserve Optionees' rights under the
Plan.
Section 9.3. Acquisitions. In the case of any sale of assets, merger,
consolidation or combination of the Company with or into another corporation
other than a transaction in which the Company is the continuing or surviving
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), any Optionee who holds an outstanding
Option shall have the right (subject to the provisions of the Plan and any
limitation applicable to the Option) thereafter and during the term of the
Option, to receive upon exercise thereof the Acquisition Consideration (as
defined below) receivable upon the Acquisition by a holder of the number of
Shares which would have been obtained upon exercise of the Option or portion
thereof, as the case may be, immediately prior to the Acquisition. The term
"Acquisition Consideration" shall mean the kind and amount of shares of the
surviving or new corporation, cash, securities, evidence of indebtedness, other
property or any combination thereof receivable in respect of one Share of the
Company upon consummation of an Acquisition.
ARTICLE 10
MISCELLANEOUS
Section 10.1. Withholding. If any Option granted under the Plan is or
becomes subject to any withholding requirement, the Committee may require the
Optionee to remit such withholding as a condition to exercising the Option or
any portion thereof.
Section 10.2. Compliance with SEC Regulations. All grants and exercises
of Options under the Plan shall be executed in accordance with any applicable
requirements of Section 16 of the Exchange Act, as amended and any regulations
promulgated thereunder, to the extent applicable. To the extent that any of the
provisions contained herein do not conform with Rule 16b-3 of the Exchange Act
or any amendments thereto or any successor regulation, then the Committee may
make such modifications so as to conform the Plan and any Options granted
thereunder to the Rule's requirements.
Section 10.3. Validity. In the event that any provision of the Plan or
any related Stock Option Award Notice is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Plan or any related Stock Option Award
Notice.
Section 10.4. Inurement of Rights and Obligations. The rights and
obligations under the Plan and any related agreements shall inure to the benefit
of, and shall be binding
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upon the Company, its successors and assigns, and the Non-Employee Directors and
their beneficiaries.
Section 10.5. Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan.
Section 10.6. Governing Law. The Plan shall be construed, governed and
enforced in accordance with the law of Delaware, except as such laws are
preempted by applicable federal law.
ARTICLE 11
LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 6.4 above or any other provision of this
Plan or any other agreement, arrangement or plan, in no event shall the
Company pay or be obligated to pay any Plan Participant an amount which
would be an Excess Parachute Payment except as provided in Section 11(f)
below and except as the Committee specifically provides otherwise in the
Participant's grant agreement. For purposes of this Agreement, the term
"Excess Parachute Payment" shall mean any payment or any portion thereof
which would be an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code, and would result in the imposition of an excise tax
under Section 4999 of the Code, in the opinion of tax counsel selected by
the Company, ("Tax Counsel"). In the event it is determined that an Excess
Parachute Payment would result if the full acceleration of exercisability
provided in Section 6.4 above were made (when added to any other payments
or benefits contingent on a change of control under any other agreement,
arrangement or plan), the payments due under Section 6.4 shall be reduced
to the minimum extent necessary to prevent an Excess Parachute Payment;
then, if necessary to prevent an Excess Parachute Payment, benefits or
payments under any other plan, agreement or arrangement shall be reduced.
If it is established pursuant to a final determination of a court or an
Internal Revenue Service administrative appeals proceeding that,
notwithstanding the good faith of the Participant and the Company in
applying the terms of this Article 11, a payment (or portion thereof) made
is an Excess Parachute Payment, then, the Company shall pay to the
Participant an additional amount in cash (a "Gross-Up Payment") equal to
the amount necessary to cause the amount of the aggregate after-tax
compensation and benefits received by the Participant hereunder (after
payment of the excise tax under Section 4999 of the Code with respect to
any Excess Parachute Payment, and any state and federal income taxes with
respect to the Gross-Up Payment) to be equal to the aggregate after-tax
compensation and benefits he would have received as if Sections 280G and
4999 of the Code had not been enacted.
(b) Subject to the provisions of Section 11(c), the amount of any
Gross-Up Payment and the assumptions to be utilized in arriving at such
amount,
12
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shall be determined by a nationally recognized certified public accounting
firm designated by the Company (the "Accounting Firm"). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to Section 11(a), shall be paid by
the Company to the Participant within five (5) days after the receipt of
the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon the Company and Participant.
(c) Participant shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by Company of a Gross-Up Payment. Such notification shall be given no
later than ten (10) business days after Participant is informed in writing
of such claim and shall apprise the Company of the nature of the claim and
the date of requested payment. Participant shall not pay the claim prior
to the expiration of the thirty (30) day period following the date on which
it gives notice to the Company. If the Company notifies Participant in
writing prior to the expiration of the period that it desires to contest
such claim, Participant shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to participant;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim.
Without limitation on the foregoing provisions of this Section 11(c), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct
participant to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and participant agrees to prosecute such
contest to a determination before any administration tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that the Company shall bear and pay
-------- -------
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and
hold participant harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and
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penalties with respect thereto) imposed as a result of the contest;
provided, further, that if the Company directs participant to pay any claim
-------- -------
and sue for a refund, the Company shall advance the amount of the payment
to Participant, on an interest-free basis, and shall indemnify and hold
Participant harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to the advance or with respect to any imputed income with respect
to the advance.
(d) In the event that the Company exhausts its remedies pursuant to
Section 11(c) and Participant thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Gross-Up Payment required and such payment shall be promptly paid by the
Company to or for the benefit of Participant.
(e) If, after the receipt by Participant of an amount advanced by the
Company pursuant to Section 11(c), Participant becomes entitled to receive
any refund with respect to such claim, Participant shall promptly after
receiving such refund pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Participant of an amount advanced by
the Company pursuant to Section 11(c), a determination is made that
participant shall not be entitled to any refund with respect to such claim
and the Company does not notify participant in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in Section
11(a) shall not apply to a Participant if, in the opinion of Tax Counsel or
the Accounting Firm, (i) the total amounts payable to the Participant
hereunder and under any other agreement, arrangement or plan as a result of
a change of control (calculated without regard to the limitation of Section
11(a)), reduced by the amount of excise tax imposed on the participant
under Code Section 4999 with respect to all such amounts and reduced by the
state and federal income taxes on amounts paid in excess of the limitation
set forth in Section 11(a), would exceed (ii) such total amounts payable
after application of the limitation of Section 11(a). No Gross-Up Payment
shall be made in such case.
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EXHIBIT A
PRIMARY ELECTION FORM
[FOR CALENDAR YEAR 1999]
ELECTION TO DEFER DIRECTOR COMPENSATION PURSUANT TO THE
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The following constitutes the irrevocable election of the undersigned under
the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Option Plan
(the "Plan") with respect to the undersigned's annual cash retainer and meeting
fees payable to the undersigned by Waddell & Reed Financial, Inc. (the
"Company") for services as a director (and, if applicable, as a member or
chairman of a committee of the Board of Directors) of the Company during the
calendar year identified above ("Next Year's Annual Compensation"). Capitalized
terms used herein and not otherwise defined have the meanings assigned such
terms in the Plan.
I hereby irrevocably elect to defer into my Interest Account under the Plan
__% [indicate any percentage from 50% to 100%, in 10% increments] of my Next
Year's Annual Compensation until the earliest of (a) December 31 of the fifth
year after the year identified above, (b) the first Business Day of the fourth
month after my death, or (c) my termination as a director of the Company for any
reason other than my death (the "Payment Date"); subject to, however, my ability
under the Plan to make a one-time election at any time during the calendar year
identified above, to be effective on the date such subsequent election is
received by the Plan administrator, to convert the balance on such date in my
Interest Account for such year to Options to purchase common stock of the
Company in accordance with the terms and provisions of the Plan. Any amount
remaining in my Interest Account on the Payment Date will be paid to me or my
Beneficiary [please check ONE box] [_] in cash in a lump sum on the Payment
Date, or [_] in approximately equal installments over ____ months [up to 120
months] beginning on the Payment Date; provided, however, that in the event of
my death during such payout period, the remaining balance shall be payable to my
Beneficiary in a lump sum on the first Business Day of the fourth month after my
death.
Executed this ____ day of December, 1998.
______________________________________
(Name)
<PAGE>
EXHIBIT B
SECONDARY ELECTION FORM
[FOR CALENDAR YEAR 199__]
ELECTION TO RECEIVE STOCK OPTIONS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The following constitutes the irrevocable election of the undersigned under
the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Option Plan
(the "Plan") with respect to the conversion to Options of the balance in the
undersigned's Interest Account under the Plan for the year identified above.
Capitalized terms used herein and not otherwise defined have the meanings
assigned such terms in the Plan.
I hereby irrevocably elect to convert, as of the date hereof, the balance
in my Interest Account under the Plan for the year identified above to Options
to purchase common stock of the Company in accordance with the terms and
provisions of the Plan.
I further elect that [please fill in the following blanks]:
__% of such Options will be granted at an exercise price of __% of the Fair
Market Value of the Company's common stock on the date of grant, and
__% of such Options will be granted at an exercise price of 100% of the
Fair Market Value of the Company's common stock on the date of grant.
Executed this ____ day of _________, 199__.
___________________________________________
(Name)
2
<PAGE>
Exhibit 10.10
-------------
WADDELL & REED FINANCIAL, INC.
1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN
ARTICLE 1. PURPOSE OF THE PLAN.
Section 1.1. Purpose. The purpose of the Waddell & Reed Financial, Inc.
1998 Executive Deferred Compensation Stock Option Plan is to promote the long-
term growth of Waddell & Reed Financial, Inc. by providing a vehicle for
Eligible Executives to increase their proprietary interest in Waddell & Reed
Financial, Inc. and to attract and retain highly qualified and capable Eligible
Executives.
ARTICLE 2. DEFINITIONS.
Section 2.1. Unless the context clearly indicates otherwise, the following
terms shall have the following meanings:
"Acquisition" has the meaning assigned such term in Section 9.3 hereof.
"Acquisition Consideration" has the meaning assigned such term in Section
9.3 hereof.
"Annual Bonus" means the annual cash bonus payable by the Company to an
Eligible Executive for services to the Company or any of its affiliates, as such
amount may be determined from year to year.
"Beneficiary" means any person or persons designated by a Participant, in
accordance with procedures established by the Committee or Plan Administrator,
to receive benefits hereunder in the event of the Participant's death. If any
Participant shall fail to designate a Beneficiary or shall designate a
Beneficiary who shall fail to survive the Participant, the Beneficiary shall be
the Participant's surviving spouse, or, if none, the Participant's surviving
descendants (who shall take per stirpes) and if there are no surviving
descendants, the Beneficiary shall be the Participant's estate.
"Board" means the Board of Directors of the Company.
"Bonus Deferral Election Date" means the date established by the Plan as
the date by which a Participant must submit a valid Primary Election Form for
Bonus to the Plan Administrator in order to defer Annual Bonus under the Plan
for a calendar year. For each calendar year, the Bonus Deferral Election Date
is December 31 of the calendar year for which the Bonus is to be earned.
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"Business Day" shall mean a day on which the New York Stock Exchange or any
national securities exchange or over-the-counter market on which the Shares are
traded is open for business.
"Change in Control" means any of the following that occurs more than twelve
months after the date of the Company's initial public offering:
(i) when any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company or a subsidiary thereof or any
Company employee benefit plan), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the
Company that is required to be described pursuant to the requirements of Item
6(e) of Schedule 14A of Regulation 14A of the Securities and Exchange Commission
under the Exchange Act;
(iii) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board, cease for any reason other than death to constitute at
least a majority thereof, unless each director who was not a director at the
beginning of such period was elected by, or on the recommendation of, at least
two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company or a
subsidiary thereof through the purchase of assets, by merger, or otherwise.
"Committee" means the Compensation Committee of the Board.
"Company" means Waddell & Reed Financial, Inc., a Delaware corporation.
"Covered Employee" means an individual defined in Section 162(m)(3) of the
Internal Revenue Code of 1986, as amended, with respect to the Company.
"Disability" means total and permanent disability as determined under the
Company's long term disability program, whether or not the Optionee is covered
under such program. If no such program is in effect, the Disability of a
Participant shall be determined in good faith by the Board (excluding the
Participant).
"Eligible Executive" means an executive officer of the Company or any of
its affiliates, as such officers may be selected by the Chairman of the Board of
Directors or the Committee or its designee from year to year.
2
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any given date, the closing price of the
Stock on such date on the New York Stock Exchange Composite Tape.
"Interest Account" means the Interest Account for Bonus and/or the Interest
Account for Salary, as the context requires. The maintenance of individual
Interest Accounts is for bookkeeping purposes only.
"Interest Account for Bonus" means the account established by the Company
for each Participant for Annual Bonus deferred pursuant to the Plan and which
shall be credited with interest on the last day of each calendar quarter (or
such other day as determined by the Plan Administrator).
"Interest Account for Salary" means the account established by the Company
for each Participant for Salary deferred pursuant to the Plan and which shall be
credited with interest on the last day of each calendar quarter (or such other
day as determined by the Plan Administrator).
"Option" means an option to purchase Shares awarded under Article 6.
Options granted under the Plan are not incentive stock options within the
meaning of Section 422 of the Internal Revenue Code.
"Option Grant Date" means the date upon which an Option is granted to an
Eligible Executive pursuant to Article 6.
"Optionee" means an Eligible Executive of the Company to whom an Option has
been granted or, in the event of such Eligible Executive's death prior to the
expiration of an Option, such Eligible Executive's Beneficiary.
"Participant" means any Eligible Executive who is participating in the
Plan.
"Plan" means the Waddell & Reed Financial, Inc. 1998 Executive Deferred
Compensation Stock Option Plan.
"Plan Administrator" means the Committee or its delegee of administrative
duties under the Plan pursuant to Section 3.2.
"Primary Election Form" means a Primary Election Form for Salary and/or a
Primary Election Form for Bonus, as the context requires.
"Primary Election Form for Bonus" means a form, substantially in the form
attached hereto as Exhibit B, pursuant to which an Eligible Executive elects to
defer Bonus under the Plan.
3
<PAGE>
"Primary Election Form for Salary" means a form, substantially in the form
attached hereto as Exhibit A, pursuant to which an Eligible Executive elects to
defer Salary under the Plan.
"Salary" means the salary payable by the Company to an Eligible Executive
for services to the Company or any of its affiliates, as such amount may be
changed from time to time.
"Salary Deferral Election Date" means the date established by the Plan as
the date by which a Participant must submit a valid Primary Election Form for
Salary to the Plan Administrator in order to defer Salary under the Plan for a
calendar quarter. For each calendar quarter, the Salary Deferral Election Date
is the last day of the preceding calendar quarter.
"Secondary Election Form" means a Secondary Election Form for Salary and/or
a Secondary Election Form for Bonus, as the context requires.
"Secondary Election Form for Bonus" means a form, substantially in the form
attached hereto as Exhibit D, pursuant to which an Eligible Executive elects to
convert previously deferred Annual Bonus to Options pursuant to Section 6.1 of
the Plan.
"Secondary Election Form for Salary" means a form, substantially in the
form attached hereto as Exhibit C, pursuant to which an Eligible Executive
elects to convert previously deferred Salary to Options pursuant to Section 6.1
of the Plan.
"Shares" means shares of the Class A common stock of the Company, par value
$.01.
"Stock Option Award Notice" means a written award notice to an Eligible
Executive from the Company evidencing an Option.
ARTICLE 3. ADMINISTRATION OF THE PLAN.
Section 3.1. Administrator of the Plan. The Plan shall be administered by
the Committee.
Section 3.2. Authority of Committee. The Committee shall have full power
and authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and administer
the Plan, and (ii) designate persons other than members of the Committee or the
Board to carry out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe, such determinations to be made
in accordance with the Committee's best business judgment as to the best
interests of the Company and its stockholders and in accordance with the
purposes of the Plan. The Committee may delegate administrative duties under
the Plan to one or more agents as it shall deem necessary or advisable.
4
<PAGE>
Section 3.3. Effect of Committee Determinations. No member of the
Committee or the Board or the Plan Administrator shall be personally liable for
any action or determination made in good faith with respect to the Plan or any
Option or to any settlement of any dispute between an Eligible Executive and the
Company. Any decision or action taken by the Committee or the Board with
respect to an Option or the administration or interpretation of the Plan shall
be conclusive and binding upon all persons.
ARTICLE 4. PARTICIPATION.
Section 4.1. Election to Participate. The Chairman of the Board or the
Committee or its designee shall designate each year those executives who shall
be Eligible Executives for the coming year. An Eligible Executive may
participate in the Plan by delivering to the Plan Administrator a properly
completed and signed (i) Primary Election Form for Salary on or before the
Salary Deferral Election Date, and/or (ii) Primary Election Form for Bonus on or
before the Bonus Deferral Election Date. An Eligible Executive's participation
in the Plan will be effective (i) as of the first day of the calendar quarter
beginning after the Plan Administrator receives the Eligible Executive's Primary
Election Form for Salary, or (ii) as of the first day of the year for which an
Annual Bonus is earned, in the case of an Eligible Executive's Primary Election
Form for Bonus. A Participant shall not be entitled to any benefit hereunder
unless such Participant has properly completed a Primary Election Form and
deferred the receipt of his or her Annual Bonus and/or Salary pursuant to the
Plan.
Section 4.2. Irrevocable Election. A Participant may not revoke or change
his or her Primary Election Form; provided, however, that a Participant may, by
filing a Secondary Election Form with the Plan Administrator within the period
provided in the Plan, subsequently elect to convert the balance in his or her
Interest Account to Options in accordance with Article 6.
Section 4.3. Prior Participation in Torchmark Plan. An Eligible Executive
who participated in the Torchmark Corporation 1996 Executive Deferred
Compensation Stock Option Plan ("Torchmark Plan"), had elected to defer Salary
or Bonus under the Torchmark Plan, and was eligible to convert such deferred
amounts into options under the Torchmark Plan, but had not done so as of the
date of the Company's initial public offering, may elect to transfer this 1997
Interest Account for Salary, and/or 1997 Interest Account for Bonus, from the
Torchmark Plan to this Plan. Thereafter, such Eligible Executive may elect to
convert such account(s) into Options pursuant to Article 6 below, no later than
December 31, 1998.
Section 4.4. No Right to Continue as an Employee. Nothing contained in
the Plan shall be deemed to give any Eligible Executive the right to be retained
as an employee of the Company or any of its affiliates.
5
<PAGE>
ARTICLE 5. PLAN BENEFITS.
Section 5.1. Deferred Annual Bonus or Salary. An Eligible Executive may
elect to defer up to 100% (in increments of 10% or $10,000) of his or her Annual
Bonus and/or Salary to his or her Interest Account, and/or by conversion to
Options in accordance with the terms of the Plan. For bookkeeping purposes, the
amount of the Annual Bonus and/or Salary which an Eligible Executive elects to
defer pursuant to the Plan shall be transferred to and held in individual
Interest Accounts (in annual designations) pending distribution in cash or the
conversion to Options, if applicable, pursuant to Article 6.
Section 5.2. Time of Election of Deferral. An Eligible Executive who
wishes to defer Salary for a calendar quarter must irrevocably elect to do so on
or prior to the Salary Deferral Election Date for such calendar quarter, by
delivering a valid Primary Election Form for Salary to the Plan Administrator.
The Primary Election Form for Salary shall indicate: (1) the percentage of
Salary to be deferred, and (2) the form and timing of payout of deferred
amounts; provided, however, that if a Participant elects to defer Salary for
more than one quarter during a particular calendar year, the form and timing of
payout for each quarter's deferral shall be identical. An Eligible Executive
who wishes to defer Annual Bonus for a calendar year must irrevocably elect to
do so on or prior to the Bonus Deferral Election Date for such calendar year, by
delivering a valid Primary Election Form for Bonus to the Plan Administrator.
The Primary Election Form for Bonus shall indicate: (1) the percentage of Annual
Bonus to be deferred, and (2) the form and timing of payout of deferred amounts;
provided, however, that if a Participant elects to defer both Salary and Annual
Bonus for a particular calendar year, the form and timing of payout for each
shall be identical.
Section 5.3. Interest Accounts. Amounts in a Participant's Interest
Account will be credited with interest as of the last day of each calendar
quarter (or such other day as determined by the Plan Administrator, which, in
the case of amounts converted to Options under the Plan, shall be the date of
such conversion) at the rate set from time to time by the Committee to be
applicable to the Interest Accounts of all Participants under the Plan. To the
extent required for bookkeeping purposes, a Participant's Interest Accounts will
be segregated to reflect deferred compensation on a year-by-year basis and on
the basis of the type of compensation deferred. For example, a 1998 Interest
Account for Bonus, a 1998 Interest Account for Salary, a 1999 Interest Account
for Bonus, a 1999 Interest Account for Salary, and so on. Within a reasonable
time after the end of each calendar year, the Plan Administrator shall report in
writing to each Participant the amount held in his or her Interest Accounts at
the end of the year.
Section 5.4. Responsibility for Investment Choices. Each Participant is
solely responsible for any decision to defer Annual Bonus and/or Salary into his
or her Interest Account or convert Annual Bonus and/or Salary to Options under
the Plan and accepts all investment risks entailed by such decision, including
the risk of loss and a decrease in the value of the amounts he or she elects to
defer.
6
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Section 5.5. Form of Payment.
(a) Payment Commencement Date. Payment of the balances in a
Participant's Interest Accounts shall commence on the earliest to occur of (a)
December 31 of the fifth year after the year with respect to which the deferral
was made, (b) the first Business Day of the fourth month after the Participant's
death, or (c) the Participant's termination as an employee of the Company or any
of its subsidiaries or affiliates, other than by reason of death.
(b) Optional Forms of Payment. Distributions from a Participant's
Interest Accounts may be paid to the Participant either in a lump sum or in a
number of approximately equal monthly installments designated by the Participant
on his or her Primary Election Form. Such monthly installments may be for any
number of months up to 120 months; provided, however, that in the event of the
Participant's death during the payout period, the remaining balance shall be
payable to the Participant's Beneficiary in a lump sum on the first Business Day
of the fourth month after the Participant's death. If a Participant elects to
receive a distribution of his or her Interest Accounts in installments, the Plan
Administrator may purchase an annuity from an insurance company which annuity
will pay the Participant the desired annual installments. If the Plan
Administrator purchases an annuity contract, the Eligible Executive will have no
further rights to receive payments from the Company or the Plan with respect to
the amounts subject to the annuity. If the Plan Administrator does not purchase
an annuity contract, the value of the Interest Accounts remaining unpaid shall
continue to receive allocations of return as provided in Section 5.3. If the
Participant fails to designate a payment method in the Participant's Primary
Election Form, the Participant's Account shall be distributed in a lump sum.
(c) Irrevocable Elections. A Participant may elect a different
payment form for each year's compensation deferred under the Plan; provided,
however, that if a Participant elects to defer Salary for more than one quarter
during a particular calendar year, or if a Participant elects to defer Salary
and Annual Bonus for a particular calendar year, the form and timing of payout
for each such deferral shall be identical. The payment form elected or deemed
elected on the Participant's Primary Election Form shall be irrevocable.
(d) Acceleration of Payment. If a Participant elects an installment
distribution and the value of such installment payment elected by the
Participant would result in a distribution of less than $3,000 per year, the
Plan Administrator may accelerate payment of the Participant's benefits over a
lesser number of whole years so that the annual amount distributed is at least
$3,000. If payment of the Participant's benefits over a five year period will
not provide annual distributions of at least $3,000, the Participant's Account
shall be paid in a lump sum.
(e) Effect of Competition. Notwithstanding the Primary Election Form
or any provision set forth herein, the entire balance of a Participant's
Interest Accounts
7
<PAGE>
shall be paid immediately to the Participant a lump sum in the event the
Participant ceases to be an employee of the Company or any of its subsidiaries
or affiliates and becomes a proprietor, officer, partner, employee or otherwise
becomes affiliated with any business that is in competition with the Company or
an affiliated company, or becomes employed by any governmental agency having
jurisdiction over the activities of the Company or an affiliated company.
(f) Effect of Adverse Determination. Notwithstanding the Primary
Election Form or any provision set forth herein, if the Internal Revenue Service
determines, for any reason, that all or any portion of the amounts credited
under this Plan is currently includable in the taxable income of any
Participant, then the amounts so determined to be includable in income shall be
distributed in a lump sum to such Participant as soon as practicable.
(g) Payment to Beneficiary. Upon the Participant's death, all unpaid
amounts held in the Participant's Account shall be paid to the Participant's
Beneficiary in a lump sum on the first Business Day of the fourth month
following the Participant's death.
Section 5.6. Financial Hardship. The Plan Administrator may, in its sole
discretion, accelerate the making of payment to a Participant of an amount
reasonably necessary to handle a severe financial hardship of a sudden and
unexpected nature due to causes not within the control of the Participant. All
financial hardship distributions shall be made in cash in a lump sum. Such
payments will be made on a first-in, first-out basis so that the oldest
compensation deferred under the Plan shall be deemed distributed first in a
financial hardship.
Section 5.7. Payment to Minors and Incapacitated Persons. In the event
that any amount is payable to a minor or to any person who, in the judgment of
the Plan Administrator, is incapable of making proper disposition thereof, such
payment shall be made for the benefit of such minor or such person in any of the
following ways as the Plan Administrator, in its sole discretion, shall
determine:
(a) By payment to the legal representative of such minor or such
person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the benefit of
such minor or such person. The Plan Administrator shall make such payments
without the necessary intervention of any guardian or like fiduciary, and
without any obligation to require bond or to see to the further application of
such payment. Any payment so made shall be in complete discharge of the Plan's
obligation to the Participant and his or her Beneficiaries.
8
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Section 5.8. Application for Benefits. The Plan Administrator may require
a Participant or Beneficiary to complete and file certain forms as a condition
precedent to receiving the payment of benefits. The Plan Administrator may rely
upon all such information given to it, including the Participant's current
mailing address. It is the responsibility of all persons interested in receiving
a distribution pursuant to the Plan to keep the Plan Administrator informed of
their current mailing addresses.
Section 5.9. Designation of Beneficiary. Each Participant from time to
time may designate any person or persons (who may be designated contingently or
successively and who may be an entity other than a natural person) as his or her
Beneficiary or Beneficiaries to whom the Participant's Account is to be paid if
the Participant dies before receipt of all such benefits. Each Beneficiary
designation shall be on the form prescribed by the Plan Administrator and will
be effective only when filed with the Plan Administrator during the
Participant's lifetime. Each Beneficiary designation filed with the Plan
Administrator will cancel all Beneficiary designations previously filed with the
Plan Administrator. The revocation of a Beneficiary designation, no matter how
effected, shall not require the consent of any designated Beneficiary.
ARTICLE 6. ELECTIVE OPTIONS.
Each Eligible Executive shall be granted Options subject to the following
terms and conditions:
Section 6.1. Election to Receive Options.
(a) Options Converted from Deferred Salary. At any time, but only one
time, during the twelve-month period following the end of a calendar year with
respect to which a Participant deferred Salary into the Plan, the Participant
shall have the right to convert some or all of his or her Interest Account for
Salary for such previous year into Options pursuant to this Article 6. To make
such election, the Participant must file with the Plan Administrator a written
irrevocable Secondary Election Form for Salary to receive Options as of the date
of the filing of such Secondary Election Form (the "Option Grant Date").
(b) Options Converted from Deferred Bonus. At any time, but only one
time, during the twelve-month period following the end of a calendar year with
respect to which a Participant deferred Annual Bonus into the Plan, the
Participant shall have the right to convert some or all of his or her Interest
Account for Bonus for such previous year into Options pursuant to this Article
6. To make such election, the Participant must file with the Plan Administrator
a written irrevocable Secondary Election Form for Bonus to receive Options as of
the date of the filing of such Secondary Election Form (the "Option Grant
Date").
(c) Exercise Price of Options. The exercise price per Share under
each Option granted pursuant to this Article 6 shall, at the election of the
Optionee as indicated
9
<PAGE>
on the Secondary Election Form, be either 100% of the Fair Market Value per
Share on the Option Grant Date, or a lesser percentage (but not less than 75%)
of the Fair Market Value per Share on the Option Grant Date, such lesser
percentage to be determined by the Committee from time to time. Such Secondary
Election Form shall indicate the percentage of such Options to be granted at
each Exercise Price, which choice may affect the number of Options to be
received pursuant to Section 6.2.
Section 6.2. Number and Terms of Options. The number of Shares subject to
an Option granted pursuant to this Article 6 shall be the number of whole Shares
equal to A divided by B, where:
A = the dollar amount which the Eligible Executive has elected
pursuant to Section 6.1 to convert to Options; and
B = the per share value of an Option on the Option Grant Date, as
determined by the Committee using an option valuation model selected by the
Committee in its discretion (such value to be expressed as a percentage of the
Fair Market Value per Share on the Option Grant Date).
In determining the number of Shares subject to an Option, (i) the Committee
may designate the assumptions to be used in the selected option valuation model,
and (ii) any fraction of a Share will be rounded up to the next whole number of
Shares.
Section 6.3. Exercise of Options. Each Option shall be first exercisable,
cumulatively, as to 10% commencing on the each of the first through tenth
anniversaries of the Option Grant Date; provided, however, that any Option held
by a Covered Employee shall not be exercisable before the first day of the
calendar year immediately following the year in which the Optionee ceased to be
a Covered Employee. An Optionee's death, Disability, retirement or other
termination of employment shall not shorten the term of any outstanding Option.
In no event shall the period of time over which the Option may be exercised
exceed the longer of (i) eleven years from the Option Grant Date, or (ii) the
thirtieth (30th) day of the calendar year immediately following the year in
which an Optionee ceased to be a Covered Employee. An Option, or portion
thereof, may be exercised in whole or in part only with respect to whole Shares.
Shares shall be issued to the Optionee pursuant to the exercise of an Option
only upon receipt by the Company from the Optionee of payment in full in cash of
the aggregate purchase price for the Shares subject to the Option or portion
thereof being exercised.
Section 6.4. Accelerated Vesting. Notwithstanding the normal vesting
schedule set forth in Section 6.3 hereof, any and all outstanding Options shall
become immediately exercisable upon the first to occur of (i) the death of the
Optionee, (ii) the Disability of the Optionee, (iii) the occurrence of a Change
in Control, or (iv) the unanimous determination by the Committee that a
particular Option or Options shall become fully exercisable. Upon acceleration,
an Option will remain exercisable for the remainder of its original term.
10
<PAGE>
Section 6.5. Stock Option Award Notice. Each Option granted under the
Plan shall be evidenced by a Stock Option Award Notice which shall be executed
by an authorized officer of the Company. Such Award Notice shall contain
provisions regarding (a) the number of Shares that may be issued upon exercise
of the Option, (b) the exercise price per Share of the Option and the means of
payment therefor, (c) the term of the Option, and (d) such other terms and
conditions not inconsistent with the Plan as may be determined from time to time
by the Committee.
Section 6.6. Transferability of Options. No Option shall be assignable or
transferable by the Optionee other than by will or the laws of descent and
distribution; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i) does
not result in accelerated taxation, and (ii) is otherwise appropriate and
desirable, taking into account any state or federal securities laws applicable
to transferable Options.
ARTICLE 7. SHARES SUBJECT TO THE PLAN.
Section 7.1. Shares Subject to the Plan. Subject to adjustment as
provided in Article 9, the aggregate number of Shares which may be acquired upon
the exercise of Options shall not exceed 2,500,000 Shares. Shares acquired upon
exercise of Options may be newly issued Shares or previously issued and
reacquired Shares, and there are hereby reserved for issuance under the Plan
2,500,000 Shares. To the extent that Shares subject to an outstanding Option
are not issued or delivered by reason of the expiration, termination,
cancellation or forfeiture of such Option or by reason of the delivery of Shares
to pay all or a portion of the exercise price of such Option, then such Shares
shall again be available under the Plan.
ARTICLE 8. AMENDMENT AND TERMINATION.
Section 8.1. Amendment, Suspension or Early Termination. The Board may
amend, suspend or terminate the Plan or any Stock Option Award Notice at any
time; provided, however, that the Board may condition any amendment or
modification on the approval of stockholders of the Company if such approval is
necessary or deemed advisable with respect to tax, securities or other
applicable laws, policies or regulations, and no such amendment, modification or
termination shall adversely affect any outstanding Options or Interest Accounts
without the consent of the Participant.
ARTICLE 9. ADJUSTMENT PROVISIONS.
Section 9.1. Change in Corporate Structure Affecting Shares. If the
Company shall at any time change the number of issued Shares without new
consideration to the Company (such as by stock dividend, stock split,
recapitalization, reorganization, exchange of shares, liquidation, combination
or other change in corporate structure affecting the Shares) or make a
distribution of cash or property which has a substantial impact on the value of
issued Shares, the total number of Shares reserved for issuance
11
<PAGE>
under the Plan shall be appropriately adjusted and the number of Shares covered
by each outstanding Option and the exercise price per Share under each
outstanding Option and the number of shares underlying Options shall be adjusted
so that the aggregate consideration payable to the Company and the value of each
such Option shall not be changed.
Section 9.2. Certain Reorganizations. Notwithstanding any other provision
of the Plan, and without affecting the number of Shares reserved or available
hereunder, the Committee shall authorize the issuance, continuation or
assumption of outstanding Options or provide for other equitable adjustments
after changes in the Shares resulting from any merger, consolidation, sale of
assets, acquisition of property or stock, recapitalization, reorganization or
similar occurrence in which the Company is the continuing or surviving
corporation, upon such terms and conditions as it may deem necessary to preserve
Optionees' rights under the Plan.
Section 9.3. Acquisitions. In the case of any sale of assets, merger,
consolidation or combination of the Company with or into another corporation
other than a transaction in which the Company is the continuing or surviving
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), any Optionee who holds an outstanding
Option shall have the right (subject to the provisions of the Plan and any
limitation applicable to the Option) thereafter and during the term of the
Option, to receive upon exercise thereof the Acquisition Consideration (as
defined below) receivable upon the Acquisition by a holder of the number of
Shares which would have been obtained upon exercise of the Option or portion
thereof, as the case may be, immediately prior to the Acquisition. The term
"Acquisition Consideration" shall mean the kind and amount of shares of the
surviving or new corporation, cash, securities, evidence of indebtedness, other
property or any combination thereof receivable in respect of one Share of the
Company upon consummation of an Acquisition.
ARTICLE 10. MISCELLANEOUS.
Section 10.1. Withholding. If any Option granted under the Plan is or
becomes subject to any withholding requirement, the Committee may require the
Optionee to remit such withholding as a condition to exercising the Option or
any portion thereof.
Section 10.2. Compliance with SEC Regulations. All grants and exercises
of Options under the Plan shall be executed in accordance with any applicable
requirements of Section 16 of the Exchange Act, as amended and any regulations
promulgated thereunder, to the extent applicable. To the extent that any of the
provisions contained herein do not conform with Rule 16b-3 of the Exchange Act
or any amendments thereto or any successor regulation, then the Committee may
make such modifications so as to conform the Plan and any Options granted
thereunder to the Rule's requirements.
12
<PAGE>
Section 10.3. Validity. In the event that any provision of the Plan or
any related Stock Option Award Notice is held to be invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of the Plan or any related Stock Option Award
Notice.
Section 10.4. Inurement of Rights and Obligations. The rights and
obligations under the Plan and any related agreements shall inure to the benefit
of, and shall be binding upon the Company, its successors and assigns, and the
Eligible Executives and their beneficiaries.
Section 10.5. Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan.
Section 10.6. Governing Law. The Plan shall be construed, governed and
enforced in accordance with the law of Delaware, except as such laws are
preempted by applicable federal law.
ARTICLE 11. LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 6.4 above or any other provision of this
Plan or any other agreement, arrangement or plan, in no event shall the
Company pay or be obligated to pay any Plan Participant an amount which
would be an Excess Parachute Payment except as provided in Section 11(f)
below and except as the Committee specifically provides otherwise in the
Participant's grant agreement. For purposes of this Agreement, the term
"Excess Parachute Payment" shall mean any payment or any portion thereof
which would be an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code, and would result in the imposition of an excise tax
under Section 4999 of the Code, in the opinion of tax counsel selected by
the Company, ("Tax Counsel"). In the event it is determined that an Excess
Parachute Payment would result if the full acceleration of exercisability
provided in Section 6.4 above were made (when added to any other payments
or benefits contingent on a change of control under any other agreement,
arrangement or plan), the payments due under Section 6.4 shall be reduced
to the minimum extent necessary to prevent an Excess Parachute Payment;
then, if necessary to prevent an Excess Parachute Payment, benefits or
payments under any other plan, agreement or arrangement shall be reduced.
If it is established pursuant to a final determination of a court or an
Internal Revenue Service administrative appeals proceeding that,
notwithstanding the good faith of the Participant and the Company in
applying the terms of this Article 11, a payment (or portion thereof) made
is an Excess Parachute Payment, then, the Company shall pay to the
Participant an additional amount in cash (a "Gross-Up Payment") equal to
the amount necessary to cause the amount of the aggregate after-tax
compensation and benefits received by the Participant hereunder (after
payment of the excise tax under Section 4999 of the Code with respect to
any Excess Parachute Payment, and any state and federal income taxes with
respect to
13
<PAGE>
the Gross-Up Payment) to be equal to the aggregate after-tax compensation
and benefits he would have received as if Sections 280G and 4999 of the
Code had not been enacted.
(b) Subject to the provisions of Section 11(c), the amount of any
Gross-Up Payment and the assumptions to be utilized in arriving at such
amount, shall be determined by a nationally recognized certified public
accounting firm designated by the Company (the "Accounting Firm"). All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to Section 11(a),
shall be paid by the Company to the Participant within five (5) days after
the receipt of the Accounting Firm's determination. Any determination by
the Accounting Firm shall be binding upon the Company and Participant.
(c) Participant shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by Company of a Gross-Up Payment. Such notification shall be given no
later than ten (10) business days after participant is informed in writing
of such claim and shall apprise the Company of the nature of the claim and
the date of requested payment. Participant shall not pay the claim prior
to the expiration of the thirty (30) day period following the date on which
it gives notice to the Company. If the Company notifies Participant in
writing prior to the expiration of the period that it desires to contest
such claim, Participant shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to Participant;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim.
Without limitation on the foregoing provisions of this Section 11(c), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct
Participant to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Participant agrees to
14
<PAGE>
prosecute such contest to a determination before any administration
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that the Company
-------- -------
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold Participant harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of the contest; provided, further, that if the
-------- -------
Company directs Participant to pay any claim and sue for a refund, the
Company shall advance the amount of the payment to Participant, on an
interest-free basis, and shall indemnify and hold Participant harmless, on
an after-tax basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to the advance or
with respect to any imputed income with respect to the advance.
(d) In the event that the Company exhausts its remedies pursuant to
Section 11(c) and Participant thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Gross-Up Payment required and such payment shall be promptly paid by the
Company to or for the benefit of Participant.
(e) If, after the receipt by Participant of an amount advanced by the
Company pursuant to Section 11(c), Participant becomes entitled to receive
any refund with respect to such claim, Participant shall promptly after
receiving such refund pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Participant of an amount advanced by
the Company pursuant to Section 11(c), a determination is made that
Participant shall not be entitled to any refund with respect to such claim
and the Company does not notify Participant in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in Section
11(a) shall not apply to a Participant if, in the opinion of Tax Counsel or
the Accounting Firm, (i) the total amounts payable to the Participant
hereunder and under any other agreement, arrangement or plan as a result of
a change of control (calculated without regard to the limitation of Section
11(a)), reduced by the amount of excise tax imposed on the participant
under Code Section 4999 with respect to all such amounts and reduced by the
state and federal income taxes on amounts paid in excess of the limitation
set forth in Section 11(a), would exceed (ii) such total amounts payable
after application of the limitation of Section 11(a). No Gross-Up Payment
shall be made in such case.
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<PAGE>
PRIMARY ELECTION FORM FOR SALARY
FOR THE ___________ QUARTER OF 1998
ELECTION TO DEFER SALARY PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION
PLAN
The following constitutes the irrevocable election of the undersigned under
the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock
Option Plan (the "Plan") with respect to the undersigned's salary as an
executive officer of Waddell & Reed Financial, Inc. (the "Company") or its
subsidiaries and affiliates to be earned by the undersigned during the calendar
quarter identified above ("Next Quarter's Salary"). Capitalized terms used
herein and not otherwise defined have the meanings assigned such terms in the
Plan.
I hereby irrevocably elect to defer into my Interest Account for Salary
under the Plan for the year identified above, __% [indicate any percentage up to
100%, in 10% increments] or $________ [indicate any dollar amount in increments
of $10,000] of my Next Quarter's Salary until the earliest of (a) December 31 of
the fifth year after the year identified above, (b) the first Business Day of
the fourth month after my death, or (b) my termination as an employee of the
Company or any of its subsidiaries or affiliates for any reason other than my
death (the "Payment Date"); subject to, however, my ability under the Plan to
make a one-time election at any time during the twelve-month period following
the end of the year identified above, to be effective on the date such
subsequent election is received by the Plan Administrator, to convert some or
all of the balance in my Interest Account for Salary for such year to Options to
purchase common stock of the Company in accordance with the terms and provisions
of the Plan. Any amount remaining in my Interest Account for Salary on the
Payment Date will be paid to me or my Beneficiary as follows:
if I have previously filed a Primary Election Form for Bonus or a Primary
Election Form for Salary for the year identified above, then in the same manner
as indicated on such form, or
if I have not previously filed a Primary Election Form for Bonus or a
Primary Election Form for Salary for such year, then [please check ONE box] [_]
in cash in a lump sum on the Payment Date, or [_] in approximately equal
installments over ____ months [up to 120 months] beginning on the Payment Date;
provided, however, that in the event of my death during such payout period, the
remaining balance shall be payable to my Beneficiary in a lump sum on the first
Business Day of the fourth month after my death.
Executed this ____ day of ________, 199__.
______________________________________________
(Name)
16
<PAGE>
EXHIBIT B
PRIMARY ELECTION FORM FOR BONUS
FOR [CALENDAR YEAR 1998]
ELECTION TO DEFER BONUS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION
PLAN
The following constitutes the irrevocable election of the undersigned under
the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock
Option Plan (the "Plan") with respect to the undersigned's bonus as an executive
officer of Waddell & Reed Financial, Inc. (the "Company") or its subsidiaries
and affiliates to be earned by the undersigned during the calendar year
identified above ("Current Year Bonus"). Capitalized terms used herein and not
otherwise defined have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to defer into my Interest Account for Bonus
under the Plan for the year identified above, __% [indicate any percentage up to
100%, in 10% increments] or $_________ [indicate any dollar amount in increments
of $10,000] of my Current Year Bonus, if any, until the earliest of (a) December
31 of the fifth year after the year identified above, (b) the first Business Day
of the fourth month after my death, or (c) my termination as an employee of the
Company or any of its subsidiaries or affiliates for any reason other than my
death (the "Payment Date"); subject to, however, my ability under the Plan to
make a one-time election at any time during the twelve-month period following
the end of the year identified above, to be effective on the date such
subsequent election is received by the Plan Administrator, to convert some or
all of the balance in my Interest Account for Bonus for such year to Options to
purchase common stock of the Company in accordance with the terms and provisions
of the Plan. Any amount remaining in my Interest Account for Bonus on the
Payment Date will be paid to me or my Beneficiary as follows:
if I have filed a Primary Election Form for Salary for the year identified
above, then in the same manner as indicated on such form, or
if I have not filed a Primary Election Form for Salary for such year, then
[please check ONE box] [_] in cash in a lump sum on the Payment Date, or [_] in
approximately equal installments over ____ months [up to 120 months] beginning
on the Payment Date; provided, however, that in the event of my death during
such payout period, the remaining balance shall be payable to my Beneficiary in
a lump sum on the first Business Day of the fourth month after my death.
Executed this ____ day of ________, 199__.
______________________________________________
(Name)
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<PAGE>
SECONDARY ELECTION FORM FOR BONUS
[FOR CALENDAR YEAR 1998_]
ELECTION TO RECEIVE STOCK OPTIONS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION
PLAN
The following constitutes the irrevocable election of the undersigned under
the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock
Option Plan (the "Plan") with respect to the conversion to Options of the
balance in the undersigned's Interest Account for Salary under the Plan for the
year identified above. Capitalized terms used herein and not otherwise defined
have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to convert, as of the date hereof, __% [indicate
any percentage up to 100%, in 10% increments] of the balance in my Interest
Account for Salary under the Plan for the year identified above to Options to
purchase common stock of the Company in accordance with the terms and provisions
of the Plan.
I further elect that [please fill in the following blanks]:
__% of such Options will be granted at an exercise price of __% of the
Fair Market Value of the Company's common stock on the date of grant, and
__% of such Options will be granted at an exercise price of 100% of the
Fair Market Value of the Company's common stock on the date of grant.
Executed this ____ day of ________, 199__.
______________________________________________
(Name)
<PAGE>
EXHIBIT D
SECONDARY ELECTION FORM FOR BONUS
[FOR CALENDAR YEAR 199__]
ELECTION TO RECEIVE STOCK OPTIONS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION
PLAN
The following constitutes the irrevocable election of the undersigned under
the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock
Option Plan (the "Plan") with respect to the conversion to Options of the
balance in the undersigned's Interest Account for Bonus under the Plan for the
year identified above. Capitalized terms used herein and not otherwise defined
have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to convert, as of the date hereof, __% [indicate
any percentage up to 100%, in 10% increments] of the balance in my Interest
Account for Bonus under the Plan for the year identified above to Options to
purchase common stock of the Company in accordance with the terms and provisions
of the Plan.
I further elect that [please fill in the following blanks]:
__% of such Options will be granted at an exercise price of __% of the Fair
Market Value of the Company's common stock on the date of grant, and
__% of such Options will be granted at an exercise price of 100% of the
Fair Market Value of the Company's common stock on the date of grant.
Executed this ____ day of ________, 199__.
______________________________________________
(Name)
<PAGE>
EXHIBIT 10.11
THE
WADDELL & REED FINANCIAL, INC.
SAVINGS AND INVESTMENT PLAN
(AMENDED AND RESTATED AS OF MARCH 1, 1998)
<PAGE>
BACKGROUND
----------
Effective as of January 1, 1980, Torchmark Financial Services, Inc.,
which was a predecessor of United Investors Management Company, established a
defined contribution profit sharing plan (the "Plan"), which is intended to be
qualified pursuant to the provisions of the Internal Revenue Code of 1986, as
amended. The Plan is intended to provide eligible employees of the Company, and
those of any affiliate which adopts the Plan, with a supplemental source of
retirement income.
Effective as of January 1, 1989, the Plan was amended and restated to
comply with the Tax Reform Act of 1986. The Plan was further amended effective
January 1, 1993.
Effective as of March 1, 1998, WADDELL & REED FINANCIAL, INC. (the
"Company") and its affiliates assumed sole sponsorship of the Plan and made
certain amendments to the Plan as set forth herein.
The benefit under the Plan of any participant who terminates
employment shall be determined in accordance with the provisions of the Plan as
in effect on the date of such termination of employment.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
BACKGROUND.............................................. i
TABLE OF CONTENTS....................................... ii
ARTICLE I - DEFINITIONS................................. I-1
Account..................................... I-1
Account Balance............................. I-1
ACP Compensation............................ I-1
Adjustment Factor........................... I-1
Administrative Committee.................... I-1
Administrator............................... I-2
Affiliate................................... I-2
Annual Addition............................. I-2
Annuity Contract............................ I-2
Average Contribution Percentage............. I-2
Basic Participant Contributions............. I-3
Beneficiary................................. I-3
Benefit Commencement Date................... I-3
Board of Directors.......................... I-3
Code........................................ I-3
Company..................................... I-3
Company Shares or Company Stock............. I-3
Company Stock Account....................... I-3
Compensation................................ I-4
Contribution Percentage..................... I-4
Defined Benefit Plan........................ I-4
</TABLE>
ii
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<TABLE>
<S> <C>
Defined Contribution Plan.................... I-5
Disability................................... I-5
Effective Date............................... I-5
Eligible Employee............................ I-5
Eligible Participant......................... I-5
Employee..................................... I-5
Employer..................................... I-5
Employer Contributions....................... I-6
Employer Contributions Subaccount............ I-6
Employment................................... I-6
Entry Date................................... I-6
ERISA........................................ I-6
Excess Aggregate Contributions............... I-6
Five-percent Owner........................... I-6
401(m) Contributions......................... I-6
Fully Vested Separation...................... I-6
HCE Compensation............................. I-7
Highly Compensated Employee.................. I-7
Hour of Service.............................. I-7
Investment................................... I-9
Investment Company........................... I-9
Investment Company Shares.................... I-9
Limitation Year.............................. I-9
Net Profits.................................. I-9
Non-Highly Compensated Employee.............. I-9
Non-Vested Separation........................ I-10
Normal Retirement Age........................ I-10
One Year Break in Service.................... I-10
Partially Vested Separation.................. I-10
Participant.................................. I-10
Participant Contributions.................... I-10
</TABLE>
iii
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<TABLE>
<S> <C>
Participant Contributions Subaccount.......... I-10
Participating Affiliate....................... I-11
Plan.......................................... I-11
Plan Year..................................... I-11
Qualified Joint and Survivor Annuity.......... I-11
Qualified Plan................................ I-11
Rollover Contribution......................... I-11
Spousal Consent............................... I-11
Spouse........................................ I-12
Supplementary Participant Contributions....... I-12
Surviving Spouse.............................. I-12
Torchmark Shares or Torchmark Stock........... I-12
Torchmark Stock Account....................... I-12
Trust or Trust Fund........................... I-12
Trust Agreement............................... I-12
Trustee....................................... I-12
Valuation Date................................ I-13
Valuation Period.............................. I-13
Vesting Service............................... I-13
Years of Service.............................. I-13
ARTICLE II - PARTICIPATION.............................. II-1
2.1 Admission as a Participant.............. II-1
2.2 Crediting of Service for Eligibility
Purposes................................ II-2
2.3 Termination of Participation............ II-2
2.4 Rollover Membership..................... II-2
ARTICLE III - CONTRIBUTIONS AND ACCOUNT ALLOCATIONS..... III-1
3.1 Employer Contributions.................. III-1
3.2 Participant Contributions............... III-1
3.3 Limits on 401(m) Contributions-ACP Test. III-2
</TABLE>
iv
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<TABLE>
<S> <C>
3.4 Distribution of Excess Aggregate Contributions......... III-4
3.5 Rollover Contributions and Trust to Trust Transfers.... III-5
3.6 Establishing of Accounts............................... III-6
3.7 Allocation of Contributions and Forfeitures............ III-6
3.8 Limitation on Allocations.............................. III-7
3.9 Return of Employer Contributions under Special
Circumstances.......................................... III-7
ARTICLE IV - VESTING................................................... IV-1
4.1 Determination of Vesting............................... IV-1
4.2 Rules for Crediting Vesting Service.................... IV-1
4.3 Account Forfeitures.................................... IV-2
ARTICLE V - AMOUNT AND PAYMENT OF BENEFITS TO PARTICIPANTS............. V-1
5.1 Fully Vested Separation................................ V-1
5.2 Partially Vested Separation............................ V-1
5.3 Non-Vested Separation.................................. V-1
5.4 Participants Who Have Received Prior Distributions..... V-1
5.5 Benefit Commencement Date.............................. V-2
5.6 Participant Account Withdrawals........................ V-3
ARTICLE VI - FORMS OF PAYMENT OF ACCOUNTS.............................. VI-1
6.1 Methods of Distribution................................ VI-1
6.2 Election of Optional Forms............................. VI-3
6.3 Change in Form or Timing of Benefit Payments........... VI-4
6.4 Direct Rollovers....................................... VI-4
ARTICLE VII - DEATH BENEFITS........................................... VII-1
7.1 Payment of Account Balances............................ VII-1
7.2 Beneficiaries.......................................... VII-2
</TABLE>
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<TABLE>
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ARTICLE VIII - FIDUCIARIES............................................. VIII-1
8.1 Named Fiduciaries...................................... VIII-1
8.2 Employment of Advisers................................. VIII-1
8.3 Multiple Fiduciary Capacities.......................... VIII-1
8.4 Reliance............................................... VIII-2
8.5 Scope of Authority and Responsibility.................. VIII-2
ARTICLE IX - TRUSTEE................................................... IX-1
9.1 Trust Agreement........................................ IX-1
9.2 Assets in Trust........................................ IX-1
ARTICLE X - ADMINISTRATIVE COMMITTEE................................... X-1
10.1 Appointment and Removal of Administrative Committee.... X-1
10.2 Officers of Administrative Committee................... X-1
10.3 Action by Administrative Committee..................... X-1
10.4 Rules and Regulations.................................. X-1
10.5 Powers................................................. X-2
10.6 Information from Participants.......................... X-2
10.7 Reports................................................ X-3
10.8 Authority to Act....................................... X-3
10.9 Liability for Acts..................................... X-3
10.10 Compensation and Expenses.............................. X-3
10.11 Indemnity.............................................. X-3
10.12 Denied Claims.......................................... X-4
ARTICLE XI - INVESTMENT OF CONTRIBUTIONS; MANAGEMENT OF ACCOUNTS....... XI-1
11.1 Initial Investment Election............................ XI-1
11.2 Change in Investment Election for Contributions........ XI-2
11.3 Transfer of Investment Accounts........................ XI-2
11.4 Reinvestment........................................... XI-3
</TABLE>
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<TABLE>
<S> <C>
11.5 Voting of Shares of Investments.................... XI-4
11.6 Valuation of Accounts.............................. XI-4
11.7 Distributions or Withdrawals....................... XI-5
ARTICLE XII - PLAN AMENDMENT OR TERMINATION........................ XII-1
12.1 Plan Amendment or Termination...................... XII-1
12.2 Limitations on Plan Amendment...................... XII-1
12.3 Right of Company to Terminate Plan or Discontinue
Contributions...................................... XII-2
12.4 Effect of Partial or Complete Termination or
Complete Discontinuance of Contributions........... XII-2
ARTICLE XIII - MISCELLANEOUS PROVISIONS............................ XIII-1
13.1 Exclusive Benefit of Participants.................. XIII-1
13.2 Plan Not a Contract of Employment.................. XIII-1
13.3 Source of Benefits................................. XIII-1
13.4 Benefits Not Assignable............................ XIII-1
13.5 Domestic Relations Orders.......................... XIII-2
13.6 Benefits Payable to Minors, Incompetents and Others XIII-2
13.7 Merger or Transfer of Assets....................... XIII-2
13.8 Participation in the Plan by an Affiliate.......... XIII-3
13.9 Action by Employer................................. XIII-3
13.10 Provision of Information........................... XIII-3
13.11 Controlling Law.................................... XIII-3
13.12 Conditional Restatement............................ XIII-4
13.13 Rules of Construction.............................. XIII-4
APPENDIX A - TOP-HEAVY PROVISIONS..................................Appendix-1
</TABLE>
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ARTICLE I - DEFINITIONS
Each of the following terms shall have the meaning set forth in this
Article I for purposes of this Plan and any amendments thereto:
ACCOUNT: A separate account for each Participant consisting of an
Employer Contributions Subaccount and a Participant Contributions Subaccount, as
the case may be.
ACCOUNT BALANCE: The value of an Account or Subaccount determined as
of the applicable Valuation Date.
ACP COMPENSATION: All remuneration paid by an Employer to an Eligible
Participant during the Plan Year, which is required to be reported as wages on
such Eligible Participant's Form W-2, including amounts which were previously
deferred pursuant to an unfunded non-qualified plan and which are currently
includable in the Employee's gross income; or such other compensation as
determined by the Administrator in accordance with applicable law. For each
Plan Year the Administrator shall determine whether or not ACP Compensation
shall include amounts which are not currently includable in the Eligible
Participant's gross income by reason of the application of Code (S) 125, 401(k),
402(h)(1)(B), or 403(b). Notwithstanding any other provision of this
definition, the ACP Compensation of an Eligible Participant for any Plan Year
beginning after December 31, 1988 shall not exceed $200,000 multiplied by the
Adjustment Factor in effect for the Plan Year pursuant to Code (S) 401(a)(17),
or such other limit as may be established from time to time pursuant to the
provisions of Code (S) 401(a)(17).
ADJUSTMENT FACTOR: The cost of living adjustment factor prescribed by
the Secretary of the Treasury under Code (S) 415(d) for years beginning after
December 31, 1987, as applied to such items and in such manner as the Secretary
shall provide.
ADMINISTRATIVE COMMITTEE: The committee appointed by the Board
pursuant to, and having the responsibilities specified in, Article X of the
Plan.
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ADMINISTRATOR: The Company or committee appointed by the Board of
Directors pursuant to, and having the responsibilities specified in, Article X
of the Plan.
AFFILIATE: Any corporation or unincorporated trade or business (other
than the Company) while it is:
(a) a member of a "controlled group of corporations" (within the
meaning of Code (S) 414(b)) of which the Company is a member;
(b) a trade or business under "common control" (within the meaning of
Code (S) 414(c)) with the Company;
(c) a member of an "affiliated service group" (within the meaning of
Code (S) 414(m)) which includes the Company; or
(d) any other entity required to be aggregated with the Company under
Code (S) 414(o).
ANNUAL ADDITION: For each Participant, the sum of the following
amounts credited to the Participant's Account for the Limitation Year:
(i) Company or Affiliate contributions;
(ii) Employee contributions;
(iii) forfeitures; and
(iv) amounts described in Code (S) 415(l)(1) and 419A(d)(2).
Notwithstanding the foregoing, Annual Addition shall not include amounts
attributable to Rollover Contributions or trust to trust transfers.
ANNUITY CONTRACT: An individual or group annuity contract, issued by
an insurance company, providing periodic benefits, whether fixed, variable or
both, the benefits or value of which a Participant or Beneficiary cannot
transfer, sell, assign, discount, or pledge as collateral for a loan or as
security for the performance of an obligation, or for any other purpose to any
person other than the issuer thereof.
AVERAGE CONTRIBUTION PERCENTAGE: The average (expressed as a
percentage) of the Contribution Percentages of the Eligible Participants in a
group, including those Eligible
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Participants whose Contribution Percentage is zero.
BASIC PARTICIPANT CONTRIBUTIONS: The contributions made to the Plan
by a Participant pursuant to Section 3.2.1.
BENEFICIARY: A person other than a Participant entitled to receive
any payment of benefits pursuant to Article VII.
BENEFIT COMMENCEMENT DATE: The date, determined under Section 5.5, as
of which a Participant or a Beneficiary receives or begins to receive, as the
case may be, payment of his benefits under the Plan.
BOARD OF DIRECTORS: The Board of Directors of the Company.
CODE: The Internal Revenue Code of 1986, as now in effect or as
amended from time to time. A reference to a specific provision of the Code
shall include such provision and any applicable regulation pertaining thereto.
COMPANY: Waddell & Reed Financial, Inc., or any successor thereto by
consolidation, merger, transfer of assets or otherwise.
COMPANY SHARES OR COMPANY STOCK: Effective as of the date of
conclusion of the initial public offering for shares of Class A common stock of
Waddell & Reed Financial, Inc., the phrases "Company Shares" or "Company Stock"
shall mean the common stock of Waddell & Reed Financial, Inc. Prior to this
date, the phrases "Company Shares" or "Company Stock" shall mean shares of
common stock of Torchmark Corporation.
COMPANY STOCK ACCOUNT: An account maintained by the Trustee with
respect to a part of the Trust Fund consisting of amounts which Participants
have elected to be invested in Company Stock.
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COMPENSATION: The total compensation to be reported on Form W-2 and
paid with respect to a Participant by his Employer during a calendar year,
including salary, wages, overtime payments, holiday and shift differential,
bonuses and commission payments, and any amounts not paid directly and currently
in cash to a Participant but paid for the benefit of a Participant through a
"salary reduction" agreement in conjunction with one or more welfare plans of a
participating company, the total amount deferred pursuant to a Participant's
election under a "cash or deferred arrangement" in conjunction with one or more
qualified retirement plans of a participating company, but excluding the
following items:
(a) Annual service awards and other non-cash prizes and awards;
(b) Deferred compensation accrued under any deferred compensation
agreement or contract or any amendment or replacement thereof;
(c) Director's fees;
(d) Employer contributions to the Plan or any other public or private
employee benefit plan or deferred compensation arrangement;
(e) Any reimbursement of or allowances for expenses; and
(f) Payments, contributions, or benefits under such other plans,
programs or forms of compensation as the Board of Directors may exclude
under this definition.
Notwithstanding any other provision of this definition, the Annual
Compensation of a Participant (or, with respect to a Participant who is a
Primary Family member of the Participant, his or her Spouse, and his or her
lineal descendants under age 19) for any Plan Year beginning after December 31,
1993 shall not exceed $150,000 (or such adjusted amount as may be prescribed for
such Plan Year pursuant to Code (S) 401(a)(17)).
The determination of Compensation will be in accordance with records
maintained by the Employer and shall be conclusive.
CONTRIBUTION PERCENTAGE: The ratio (expressed as a percentage) of the
401(m) Contributions (including 401(m) Contributions distributed or forfeited)
on behalf of an Eligible Participant for the Plan Year to such Eligible
Participant's ACP Compensation for the Plan Year.
DEFINED BENEFIT PLAN: A plan of the type defined in Code (S) 414(j)
maintained by the Company or an Affiliate, as applicable.
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DEFINED CONTRIBUTION PLAN: A plan of the type defined in Code (S)
414(i) maintained by the Company or an Affiliate, as applicable.
DISABILITY: Total and permanent disability for a period of at least
six months as defined by the group disability benefit plan maintained by the
Participant's Employer.
EFFECTIVE DATE: The effective date of this amended and restated Plan
which shall be March 1, 1998. The original effective date of the Plan was
January 1, 1980.
ELIGIBLE EMPLOYEE: All Employees of an Employer other than:
(a) Employees included in a unit of employees covered by a collective
bargaining agreement between the Employer and the employee representatives
in the negotiation of which retirement benefits were the subject of good
faith bargaining, unless such bargaining agreement provides for
participation in the Plan; and
(b) leased employees within the meaning of Code (S) 414(n)(2).
ELIGIBLE PARTICIPANT: Any Eligible Employee who has met the service
requirements of Section 2.1.
EMPLOYEE: Any individual who is classified by the Company as an
employee of the Company or an Affiliate (regardless of whether such individual
is classified as an employee according to the usual common law or employment tax
rules applicable in determining the employer-employee relationship). The term
"Employee" shall also include leased employees within the meaning of Code (S)
414(n)(2). Notwithstanding the foregoing, if such leased employees do not
constitute more than twenty percent of the Employer's non-highly compensated
work force within the meaning of Code (S) 414(n)(5)(C)(ii), the term "Employee"
shall not include those leased employees covered by a plan described in Code (S)
414(n)(5), unless otherwise provided by the terms of this Plan.
EMPLOYER: The Company and each Affiliate participating in the Plan
pursuant to Section 13.8.
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EMPLOYER CONTRIBUTIONS: The contributions made to the Plan by the
Company or Participating Affiliate pursuant to Section 3.1.
EMPLOYER CONTRIBUTIONS SUBACCOUNT: The subaccount established for a
Participant pursuant to Section 3.6.1.
EMPLOYMENT: An Employee's employment with the Company or an Affiliate
or, to the extent determined by the Administrator, any predecessor of any of
them.
ENTRY DATE: The first day of the payroll period coinciding with or
next following the date the Eligible Employee has satisfied the requirements of
Section 2.1.1
ERISA: The Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to a specific provision of ERISA shall
include such provision and any applicable regulation pertaining thereto.
EXCESS AGGREGATE CONTRIBUTIONS: With respect to any Plan Year, the
aggregate amount of 401(m) Contributions actually paid over to the Trustee for
the Plan Year on behalf of Highly Compensated Employees over the maximum amount
of such contributions permitted under the ACP test set forth in Section 3.3.
FIVE-PERCENT OWNER: Any person who owns (or is considered as owning
within the meaning of Code (S) 318) more than 5% of the outstanding stock of the
Employer, or stock possessing more than 5% of the total voting power of the
Employer.
401(M) CONTRIBUTIONS: With respect to any Participant for any Plan
Year, the Participant Contributions and any Employer Contributions made on
behalf of such Participant.
FULLY VESTED SEPARATION: Termination of Employment of a Participant
whose vested percentage in his Account is 100%.
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HCE COMPENSATION: An Employee's compensation, from an Employer,
within the meaning of Code (S) 415(c)(3), but including amounts which were
previously deferred pursuant to an unfunded non-qualified plan and which are
currently includable in the Employee's gross income.
HIGHLY COMPENSATED EMPLOYEE:
An Employee who:
(1) during the preceding Plan Year:
(i) was at any time a Five-percent Owner; or
(ii) received HCE Compensation in excess of $80,000 (multiplied by the
applicable Adjustment Factor) and, if the Employer so elects, was
in the group consisting of the top 20% of all Employees when
ranked by HCE Compensation; or who
(2) during the current Plan Year:
(i) was at any time a Five-percent Owner.
Notwithstanding the forgoing, the Employer may elect, without further
need of amending this section of the Plan, to use any simplified or alternative
definition of Highly Compensated Employee permitted by the Internal Revenue
Service. By way of illustration, and not limitation, the Plan permits the
Employer to make any or all of the elections permitted under Internal Revenue
Service Notice 97-45.
HOUR OF SERVICE:
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for an Employer (or an Affiliate in the case
of an Employee who has transferred his Employment to the Employer from such
Affiliate) during the applicable computation period.
(b) Each hour for which an Employee is paid, or entitled to payment,
by an Employer (or an Affiliate in the case of an Employee who has
transferred his Employment to the Employer from such Affiliate) on account
of a period of time during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including Disability), lay-off, jury
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duty, military duty or leave of absence. An hour for which an Employee is
directly or indirectly paid or entitled to payment on account of a period
during which no duties are performed is not credited to the Employee if
such payment is made or due under a plan maintained solely for the purpose
of providing severance benefits or complying with the applicable
unemployment compensation laws. Hours of Service are not credited for a
payment which solely reimburses an Employee for medical or medically
related expenses incurred by the Employee.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Employer (or an Affiliate in
the case of an Employee who has transferred his Employment to the Employer
from such Affiliate). The same Hours of Service shall not be credited both
under paragraph (a) or paragraph (b), as the case may be, and under this
paragraph (c).
(d) If, in accordance with standard personnel policies applied in a
non-discriminatory manner to all Employees similarly situated, an Employer
determines in writing that an Employee's approved, unpaid leave of absence
furthers the interest of the Employer, each hour for which the Employee on
the approved unpaid leave of absence would normally have received credit
under this Plan if he had been working in his regular employment for the
Employer (or an Affiliate in the case of an Employee who has transferred
his Employment to the Employer from such Affiliate).
(e) An Employee of the Employer (or an Affiliate in the case of an
Employee who has transferred his Employment to the Employer from such
Affiliate) who is regularly employed by such Employer (or Affiliate) for at
least 37 1/2 hours a week shall be credited with forty-five Hours of
Service if under this Plan he would be credited with at least one Hour of
Service during the week.
(f) An Employee of the Employer (or an Affiliate in the case of an
Employee who has transferred his Employment to the Employer from such
Affiliate) who is not regularly employed by such Employer (or Affiliate)
for at least 37 1/2 hours a week shall be credited with forty-five Hours of
Service if under the Plan he will be credited with at least one Hour of
Service during the week.
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(g) Hours of Service shall be calculated and credited pursuant to
section 2530-200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference.
(h) In the case of an Employee who is paid on a commission basis, he
will be deemed to perform his first Hour of Service on the date on which he
is first designated an Employee by the Employer.
INVESTMENT: Investment Company Shares or, if designated by the
Company for investment of contributions under the Plan, an interest in the
Company Stock Account or the Torchmark Stock Account.
INVESTMENT COMPANY: An investment company or companies for which the
Company is the principal underwriter or investment advisor and designated by the
Company for investment of contributions under the Plan. In the case of an
Investment Company which has more than one class of shares, each class of shares
will be considered a separate Investment Company for the purposes of this Plan.
INVESTMENT COMPANY SHARES: Shares issued by an Investment Company.
LIMITATION YEAR: Each twelve consecutive month period ending on the
same last day as the Plan Year.
NET PROFITS: The profits of the Company or a Participating Affiliate,
as the case may be, for any Plan Year after all expenses or charges other than
(i) the contributions to the Plan, and (ii) federal and state taxes based on or
measured by income as shown on the books of the Company or Participating
Affiliate and computed in accordance with generally accepted accounting
practice. When the amount of Net Profits for any Plan Year has been determined
by the Company or Participating Affiliate, such amount will be final for
purposes of the Plan and will not be subject to change by reason of any
adjustments in income required by the Internal Revenue Service or otherwise.
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NON-HIGHLY COMPENSATED EMPLOYEE: An Employee of the Employer who is
not a Highly Compensated Employee.
NON-VESTED SEPARATION: Termination of Employment of a Participant
whose vested percentage in his Employer Contributions Subaccount is zero
percent.
NORMAL RETIREMENT AGE: Age 65.
ONE YEAR BREAK IN SERVICE: Any period of twelve consecutive months,
beginning with the date of an Employee's Employment or any anniversary of the
date of such Employment, during which the Employee has not completed more than
500 Hours of Service; except that a Participant who is absent from work due to
such Participant's pregnancy, the birth of the Participant's child or by reason
of the adoption of a minor child by the Participant for the purpose of caring
for such child immediately following its birth or adoption and who provides
timely information establishing to the satisfaction of the Administrator the
reasons for the absence and the number of days of such absence will be treated
as performing a normal schedule (or eight hours per day) up to a maximum of 501
Hours of Service in either the year in which the absence begins or the year
immediately following the year in which the absence begins as necessary to
prevent such Participant from incurring a One Year Break in Service in either
(but not both) the year in which the absence begins or the year immediately
following the year in which the absence begins.
PARTIALLY VESTED SEPARATION: Termination of Employment of a
Participant whose vested percentage in his Employer Contributions Subaccount is
less than 100% but greater than zero percent.
PARTICIPANT: An Employee who has commenced, but not terminated,
participation in the Plan as provided in Article II.
PARTICIPANT CONTRIBUTIONS: The Participant's Basic Participant
Contributions and Supplementary Participant Contributions.
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PARTICIPANT CONTRIBUTIONS SUBACCOUNT: The subaccount established for
a Participant pursuant to Section 3.6.2.
PARTICIPATING AFFILIATE: Any Affiliate which in accordance with
Section 13.8, by duly authorized action has adopted the Plan and not withdrawn
therefrom.
PLAN: The Waddell & Reed Financial, Inc. Savings and Investment Plan.
The Plan is an eligible individual account plan within the meaning of ERISA
Section 407(d)(3).
PLAN YEAR: Each twelve consecutive month period ending on December
31, during any part of which the Plan is in effect.
QUALIFIED JOINT AND SURVIVOR ANNUITY: An annuity for the life of the
Participant with a survivor annuity continuing after the Participant's death to
the Participant's Surviving Spouse for the Surviving Spouse's life in an amount
equal to fifty percent of the amount payable during the joint lives of the
Participant and such Surviving Spouse.
QUALIFIED PLAN: A Defined Contribution Plan or a Defined Benefit Plan
which is qualified under Code (S) 401(a).
ROLLOVER CONTRIBUTION: A contribution attributable to:
(a) a "qualified total distribution" (as defined in Code (S)
402(a)(5)), made to an Eligible Employee from a Qualified Plan or made to
the Eligible Employee under Code (S) 403(a)(4) from an "employee annuity"
as referred to in that section, or
(b) a payout or distribution to an Eligible Employee referred to in
Code (S) 408(d)(3) from an "individual retirement account" or an
"individual retirement annuity" described, respectively, in Code (S) 408(a)
or (S) 408(b) consisting exclusively of amounts attributable to "qualifying
rollover distributions" (as defined in Code (S) 402(a)(5)) from a Qualified
Plan. Notwithstanding the foregoing, a Rollover Contribution shall in no
event include amounts attributable to a distribution from a Qualified Plan
under which the Eligible Employee was at any time a self-employed
individual deemed to be an
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"employee" under Code (S) 401(c)(1).
SPOUSAL CONSENT: Written consent by a Participant's Spouse waiving
the benefit otherwise payable to the Spouse, where such waiver is witnessed by a
Plan representative or a notary public and includes acknowledgment by the Spouse
of the effect of such waiver.
SPOUSE: The person lawfully married to a Participant.
SUPPLEMENTARY PARTICIPANT CONTRIBUTIONS: The contributions made to
the Plan by a Participant pursuant to Section 3.2.2.
SURVIVING SPOUSE: The Spouse of a Participant on the earlier of:
(a) the date of the Participant's death; or
(b) the Participant's Benefit Commencement Date.
TORCHMARK SHARES OR TORCHMARK STOCK: Effective as of the date of
conclusion of the initial public offering for shares of Class A common stock of
Waddell & Reed Financial, Inc., the phrases "Torchmark Shares" and "Torchmark
Stock" shall mean the common stock of Torchmark Corporation. Prior to this
date, shares of common stock of Torchmark Corporation were considered Company
Shares or Company Stock under the Plan.
TORCHMARK STOCK ACCOUNT: An account maintained by the Trustee with
respect to a part of the Trust Fund consisting of amounts which Participants
have elected to be invested in Torchmark Stock. This definition will take
effect as of the date of conclusion of the initial public offering of the Class
A common stock of Waddell & Reed Financial, Inc.
TRUST OR TRUST FUND: The trust established under the Plan in which
Plan assets are held.
TRUST AGREEMENT: The agreement between the Company and the Trustee
with respect to the Trust.
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TRUSTEE: The person appointed as trustee pursuant to Article IX, and
any successor trustee.
VALUATION DATE: The semi-monthly date as of which all Plan Accounts
are valued. Such dates shall be determined each month by the Administrator.
The first Valuation Date in any month shall be within the first 10 business days
of the month and the second Valuation Date shall be within the first 10 business
days following the fifteenth day of the month.
VALUATION PERIOD: The twenty-four semi-monthly periods commencing on
the first day and ending on the fifteenth day of each month and commencing on
the sixteenth day and ending on the last day of each month; provided that if a
commencement date for any Valuation Period falls on a Saturday, Sunday or
holiday, the commencement date for that Valuation Period shall be the
immediately following business day and the immediately preceding Valuation
Period shall end on the day before such day.
VESTING SERVICE: The Years of Service credited to a Participant under
Section 4.2 for purposes of determining the Participant's vested percentage in
the Account Balance of the Employer Contributions Subaccount established for the
Participant.
YEARS OF SERVICE: For purposes of determining eligibility to
participate under Article II and for purposes of determining Vesting Service, a
period of twelve consecutive months beginning with the date of Employment or
return to Employment during which an Employee has not less than 1000 Hours of
Service for an Employer (or an Affiliate in the case of an Employee who has
transferred his Employment to the Employer from such Affiliate).
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ARTICLE II - PARTICIPATION
2.1 ADMISSION AS A PARTICIPANT
2.1.1 An Eligible Employee shall become a Participant on the Entry Date
coincident with or next following the date on which he completes one Year of
Service and timely files an application form with the Administrator. Anything
in this Section 2.1.1 to the contrary notwithstanding, any Eligible Employee who
was a Participant on the Effective Date shall remain a Participant as of that
date.
2.1.2 At least 30 days prior to the date on which an Eligible Employee is
first eligible to become a Participant under Section 2.1.1, the Administrator
will notify each Eligible Employee of his eligibility to participate.
2.1.3 To become a Participant, an Eligible Employee who is eligible to
participate under Section 2.1.1 or who is eligible to resume participation under
Section 2.1.4 must execute and file with the Administrator, on a form prescribed
or approved by the Administrator, a written application for participation prior
to the first day of the payroll period in which he wishes to become a
Participant. On such application form, the Participant:
(a) Shall elect a rate of Basic Participant Contributions as
provided in Section 3.2.1;
(b) Shall authorize the Employer to make deductions from his pay
of his Basic Participant Contributions;
(c) Shall make investment elections as provided in Section 11.1;
(d) Shall designate a Beneficiary as provided in Section 7.2.1;
and
(e) If eligible in accordance with Section 3.2.2, may elect a
rate of Supplementary Participant Contributions.
2.1.4 An individual who has ceased to be a Participant, or met the
requirements of Section 2.1.1 but did not become a Participant, and who again
becomes an Eligible Employee with credit for at least one Year of Service shall
become a Participant as of the first date on which he again becomes an Eligible
Employee and timely files an application form with the Administrator.
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2.2 CREDITING OF SERVICE FOR ELIGIBILITY PURPOSES
2.2.1 An Employee who terminates Employment without any vested rights to a
benefit under the Plan derived from contributions by the Employer shall lose
credit for his Years of Service prior to such termination of Employment if: (a)
for years prior to January 1, 1985, the total of his consecutive One Year Breaks
in Service immediately preceding his reemployment equals or exceeds his Years of
Service prior to such termination (whether or not consecutive but excluding any
Years of Service previously disregarded under this rule); or (b) for years on or
after January 1, 1985, the total of his consecutive One Year Breaks in Service
immediately preceding his reemployment equals or exceeds the greater of five
years or his Years of Service prior to such termination (whether or not
consecutive but excluding any Years of Service previously disregarded under this
rule).
2.2.2 A former Employee who was not a Participant and who again becomes an
Employee with no Years of Service to his credit shall be treated as a new
Employee.
2.3 TERMINATION OF PARTICIPATION
A Participant shall cease to be such:
(a) upon the payment to him of all nonforfeitable benefits due to
him under the Plan at a time when he is no longer eligible for any future
contributions;
(b) upon his Non-Vested Separation;
(c) upon his death; or
(d) upon the transfer of his Accounts to another Qualified Plan.
2.4 ROLLOVER MEMBERSHIP
An Eligible Employee who makes a Rollover Contribution shall become a
Participant as of the date of such contribution even if he has not previously
become a Participant. Such an Eligible Employee shall be a Participant only
with respect to his Rollover Contributions.
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ARTICLE III - CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
3.1 EMPLOYER CONTRIBUTIONS
Subject to the provisions set forth in this Article III, for each Plan Year
the Employer will contribute semi-monthly to the Trust Fund on behalf of each
Participant who makes Participant Contributions, an amount of its Net Profits
for such Plan Year, or its accumulated earnings and profits, equal to 50% (or
such other percentage as the Board of Directors may from time to time designate)
of the Basic Participant Contributions made by each such Participant for that
semi-monthly period.
If for any Plan Year the contributions required to be made by an Employer
are reduced or omitted because of insufficient Net Profits or accumulated
earnings and profits, the other Employers who file a consolidated return with
such Employer will increase their total payments by an equivalent amount.
Notwithstanding anything contained herein to the contrary, the aggregate
Employer contributions to the Plan and any other profit sharing or stock bonus
plans maintained by an Employer with respect to a taxable year of the Employer
shall not exceed fifteen percent (15%) of the compensation (as defined in Code
(S) 404(a)(3)) paid or accrued to all participants of such plans who are
Employees of any Employer in respect of said taxable year plus allowable credit
and contribution carryovers, as provided in Code (S) 404(a)(3)(A).
3.2 PARTICIPANT CONTRIBUTIONS
3.2.1 Basic Participant Contributions. Subject to the provisions set
-------------------------------
forth in this Article III, each Participant may elect to make Basic
Contributions hereunder while he is an Eligible Employee through regular payroll
deductions authorized by him in a whole percentage of not less than 1% and not
more than 6% of his Compensation.
3.2.2 Supplementary Participant Contributions. Subject to the provisions
---------------------------------------
set forth in this Article III, for each Plan Year, each Participant who has
elected to make Basic Participant Contributions at the maximum permissible rate
under Section 3.2.1 may elect to make Supplementary Participant Contributions
while he is an Eligible Employee in an amount which does not cause the total
amount of his Supplementary Participant Contributions made during the then
current Plan Year and all prior years under this Plan and all other Qualified
Plans maintained
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by the Employer or an Affiliate to exceed 10% of the Participant's aggregate
Compensation for such Plan Year and prior years during which he has either been
a Participant or participating in any such other Qualified Plan. Supplementary
Participant Contributions shall be made in accordance with rules and procedures
adopted by the Administrator either through regular payroll deductions
authorized by the Participant or through lump sum payments by the Participant.
Only one lump sum payment may be made by a Participant in any calendar quarter.
3.2.3 Change in Rate of Participant Contributions. A Participant may
-------------------------------------------
elect to change his rate of Participant Contributions while he is an Eligible
Employee as of the first day of any payroll period but not more frequently than
eight times in any Plan Year (or such other limit as established by the Company
from time to time). The change will be limited to the rates described in 3.2.1
or 3.2.2, as the case may be. A Participant who is making Supplementary
Participant Contributions under 3.2.2, however, may not elect to decrease his
rate of Basic Participant Contributions unless he simultaneously revokes his
election to make Supplementary Participant Contributions. The Participant's
election to change his rate of Participant Contributions must be made in writing
to the Administrator prior to the first day of the payroll period in which the
Participant wishes the change to be made effective.
3.2.4 Suspension of Participant Contributions. A Participant may elect to
---------------------------------------
suspend all his Participant Contributions by means of written notice to the
Administrator made prior to the first day of the payroll period in which the
Participant wishes the suspension to be made effective. The Participant may
elect to resume Participant Contributions as of the first day of any payroll
period which succeeds the date of the suspension by at least one pay period.
Such election to resume Participant Contributions must be made in writing to the
Administrator prior to the first day of the payroll period in which the
Participant wishes the resumption to be made effective. The Administrator may
establish such rules and procedures with respect to the making, changing and
resumption of Participant Contributions (including suspension of contributions)
as it shall determine.
3.3 LIMITS ON 401(M) CONTRIBUTIONS-ACP TEST
(a) Average Contribution Percentage Test. The 401(m)
------------------------------------
Contributions for each Plan Year must satisfy one of the following tests:
(i) The Average Contribution Percentage for Eligible
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Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the prior Plan Year's Average Contribution Percentage
for Eligible Participants who as of such prior Plan Year were Non-
Highly Compensated Employees multiplied by 1.25; or
(ii) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the prior Plan Year's Average Contribution Percentage
for Eligible Participants who as of such prior Plan Year were Non-
Highly Compensated Employees multiplied by 2.0, provided that the
Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees does not exceed the prior Plan Year's
Average Contribution Percentage for Eligible Participants who as of
such prior Plan Year were Non-Highly Compensated Employees by more
than two (2) percentage points.
Nothing in this Section 3.3 shall preclude the Employer from
making any and all elections permitted by the Internal Revenue Service with
respect to substitution of the current Plan Year's data for the prior Plan
Year's data, as permitted -- for example -- in Internal Revenue Service
Notice 97-2.
(b) For purposes of determining the Contribution Percentage of
an Eligible Participant for a Plan Year, the Eligible Participant's
Employer Contributions shall be taken into account only if such Employer
Contributions (i) are based on the Eligible Participant's Participant
Contribution for such Plan Year, (ii) are attributed to the Eligible
Participant's Account as of a date within such Plan Year, and (iii) are
paid to the Trust by the end of the twelfth month following the close of
such Plan Year. Any Employer Contribution that fails to satisfy the
foregoing requirements shall be treated as a contribution which is not
subject to Code (S) 401(m).
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(c) Aggregation of Employer Contributions.
-------------------------------------
(i) For purposes of this Section 3.3, the Contribution
Percentage for any Eligible Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to receive Employer
contributions or to make Employee after-tax contributions under one or
more other plans described in Code (S) 401(a) that are maintained by
the Company or an Affiliate shall be determined as if all such
contributions were made under a single plan.
(ii) If two or more plans are aggregated for purposes of
Code (S) 410(b) or 401(a)(4), such plans shall be aggregated for
purposes of the Average Contribution Percentage test.
3.4 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(a) In General. Notwithstanding any other provision of the
----------
Plan, Excess Aggregate Contributions plus any income or minus any loss
allocable thereto shall be distributed to the extent vested, or forfeited
to the extent not vested, from the Employer Contributions Subaccounts no
later than the last day of each Plan Year, to Participants on whose behalf
such Excess Aggregate Contributions were made for the preceding Plan Year.
The Excess Aggregate Contributions with respect to a Highly Compensated
Employee shall be determined by reducing 401(m) Contributions made on
behalf of such Highly Compensated Employees in order of the amount of
401(m) Contributions, as provided for in Internal Revenue Service Notice
97-2 or such other guidance published by the Internal Revenue Service
dealing with distributions of Excess Aggregate Contributions after the
effective date of the Small Business Job Protection Act of 1996.
(b) Determination of Income. The Excess Aggregate
-----------------------
Contributions distributed to a Participant for a Plan Year shall be
adjusted for income or loss, including income or loss for the period
between the end of the Plan Year and the date of distribution of the Excess
Aggregate Contributions, as follows. The income attributable to a
Participant's Excess Aggregate Contributions for the Plan Year shall be
determined by multiplying the income attributable to the Participant's
Account for the Plan Year by a fraction, (i) whose numerator is the
Participant's Excess Aggregate Contributions for the
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Plan Year, and (ii) whose denominator is the Account Balance of the
Participant's Account as of the end of the Plan Year, reduced by the gain
attributable to such Account Balance for the Plan Year or increased by the
loss attributable to such Account Balance for the Plan Year. The income
attributable to a Participant's Excess Aggregate Contributions for the
period from the end of the Plan Year to the date of distribution shall be
determined by multiplying 10% of the income attributable to the
Participant's Account for the Plan Year by the number of calendar months,
if any, which have elapsed since the end of the Plan Year.
3.5 ROLLOVER CONTRIBUTIONS AND TRUST TO TRUST TRANSFERS
3.5.1 With the approval of the Administrator, any Eligible Employee who is
a Participant, or who would be a Participant but for a failure to satisfy the
eligibility requirements of Article II, may make a Rollover Contribution to the
Plan. A Rollover Contribution shall be in cash or in other property acceptable
to the Trustee. The Administrator may condition acceptance of a contribution
intended to be a Rollover Contribution, including receipt of (i) such documents
as it may require to demonstrate that it is a Rollover Contribution and (ii)
assurance and certification that such contribution does not derive from a top
heavy plan under which the Eligible Employee was a key employee, within the
meaning of Code (S) 416, and will not thereby or otherwise affect adversely the
qualification of the Plan under Code (S) 401(a). In the event that an Eligible
Employee makes a contribution pursuant to this Section 3.5.1 intended to be a
Rollover Contribution but which the Administrator later concludes did not
qualify as a Rollover Contribution, the Trustee shall distribute to the Eligible
Employee as soon as practicable after that conclusion is reached the amount of
such contribution together with any earnings thereon.
3.5.2 The Administrator may cause to be transferred to the Plan directly
by the trustees of any qualified plan maintained by an Employer or Affiliate
cash and/or other assets acceptable to the Trustee and allocable to the Employee
under such plan, provided that any such transfer shall not reduce the vested
percentage or the rate of vesting of such transferred assets. Subject to the
approval of the Administrator, an Employee may cause to be transferred directly
by the trustees of any other pension or profit-sharing plan qualified under Code
(S) 401(a) in which such Employee participates to the Trustee of the Plan the
vested interest of the Employee in such other plan in cash and/or other assets
acceptable to the Trustee. The Administrator may establish rules
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and procedures governing the transfer of qualified plan assets. Funds directly
transferred to the Plan from any other pension or profit-sharing plan qualified
under Code (S) 401(a) shall not be considered either a voluntary contribution or
Employer contribution for purposes of calculating the Annual Additions of such
Employee under Section 3.8.
3.6 ESTABLISHING OF ACCOUNTS
3.6.1 An Employer Contributions Subaccount shall be established for each
Participant for whom Employer Contributions are made, and the Administrator
shall credit, or cause to be credited to such account, all amounts allocable to
each such Participant pursuant to such contributions, plus gains or losses
thereon.
3.6.2 A Participant Contributions Subaccount shall be established for each
Participant who contributes to the Plan pursuant to Section 3.2, or who makes a
Rollover Contribution to the Plan, or on whose behalf a trust to trust transfer
is made, pursuant to Section 3.5, to which the Administrator shall credit, or
cause to be credited, such contributions made by the Participant pursuant to
Section 3.2, or amounts attributable to such Rollover Contribution or trust to
trust transfer, as the case may be, plus gains or losses thereon.
3.7 ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
3.7.1 Allocation of Contributions. Subject to the limitation imposed by
---------------------------
Code (S) 415, the contributions made by each Participant pursuant to Section 3.2
will be invested and credited to his Participant Contributions Subaccount in
accordance with the provisions of Section 11.1. Employer Contributions will be
credited on the same date to the Employer Contributions Subaccounts of those
Participants for whose benefit such contributions are made as provided in
Section 3.1.
3.7.2 Allocation of Forfeitures. Except as otherwise provided in Section
-------------------------
12.4.2, forfeitures in Employer Contributions Subaccounts for a Plan Year shall
be applied to reduce the amount of the Employer Contributions to Employer
Contributions Subaccounts for that Plan Year, with the entire amount of such
contributions and forfeitures allocated in accordance with the preceding Section
3.7.1.
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3.8 LIMITATION ON ALLOCATIONS
Notwithstanding any other provisions of the Plan, a Participant's Annual
Addition shall not exceed the limitations of Code (S) 415 which are hereby
incorporated by reference. In the event that the limitations of Code (S) 415(e)
would otherwise be violated, a Participant's benefits and/or annual additions
under plans of the Company or an Affiliate will be reduced as necessary in the
following order: (i) the accrued benefit under any defined benefit plan (pro
rata with respect to two or more such plans); (ii) unmatched employee
contributions under any defined contribution plan; (iii) matched employee
contributions under any defined contribution plan; and (iv) matching Employer
contributions under any defined contribution plan. If after the application of
(i)-(iv) above an excess amount still exists and the Participant is covered by
the Plan at the end of the Limitation Year, the excess amount in the
Participant's account will be used to reduce Employer Contributions including
any allocation of forfeitures for such Participant in the next Limitation Year
and each succeeding Limitation Year, if necessary. If after the application of
(i)-(iv) above an excess still exists and the Participant is not covered by the
Plan at the end of the Limitation Year, the excess amount will be held
unallocated in a suspense account and the suspense account will be applied to
reduce future Employer Contributions including allocations of any forfeitures
for all remaining Participants in the next Limitation Year and each succeeding
Limitation Year, if necessary. If a suspense account is in existence at any
time during the Limitation Year pursuant to this section, it will not
participate in the allocation of the trust's investment gains and losses.
3.9 RETURN OF EMPLOYER CONTRIBUTIONS UNDER SPECIAL CIRCUMSTANCES
Notwithstanding any provision of this Plan to the contrary, upon timely
written demand by the Employer to the Trustee:
(a) Any contribution by an Employer to the Plan under a mistake
of fact shall be returned to such Employer by the Trustee within one year
after the payment of the contribution;
(b) Any contribution made by an Employer to the Plan conditioned
on the determination by the Commissioner of Internal Revenue that the Plan
is initially a Qualified Plan shall be returned to such Employer by the
Trustee within one year after notification from the Internal Revenue
Service that the Plan is not initially a Qualified
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<PAGE>
Plan; and
(c) Any contribution made by an Employer to the Plan conditioned
upon the deductibility of the contribution under Code (S) 404 shall be
returned to such Employer within one year after a deduction for the
contribution under Code (S) 404 is disallowed by the Internal Revenue
Service, but only to the extent disallowed. Each contribution by an
Employer shall be conditioned upon the deductibility of the contribution
under Code (S) 404 unless the Employer elects otherwise.
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ARTICLE IV - VESTING
4.1 DETERMINATION OF VESTING
4.1.1 A Participant shall at all times have a vested percentage of 100% in
the Account Balance of his Participant Contributions Subaccount.
4.1.2 A Participant whose Employment terminates either because of his
death or Disability or upon or after attaining Normal Retirement Age shall have
a vested percentage of 100% in the Account Balance of his Employer Contributions
Subaccount.
4.1.3 The vested percentage of a Participant in the Account Balance of his
Employer Contributions Subaccount not vested pursuant to Section 4.1.2 shall be
determined in accordance with the following schedule:
Completed Years of Vested
Vesting Service Percentage
--------------------- ----------
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
4.2 RULES FOR CREDITING VESTING SERVICE
4.2.1 A Participant's Vesting Service shall mean the sum of (i) a
Participant's years of Vesting Service prior to the Effective Date under the
terms of the Plan as in effect on December 31, 1988; plus (ii) subject to
Sections 4.2.2 through 4.2.5 below, a Participant's Years of Service after the
Effective Date.
4.2.2 If an Employee is on an authorized unpaid leave of absence granted
by his Employer in accordance with standard personnel policies of such Employer
applied in a non-discriminatory manner to all Employees similarly situated, his
period of absence shall not be considered a Break in Service and shall be
counted as Vesting Service upon his return to active
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<PAGE>
Employment.
4.2.3 If an Employee is on an authorized military leave while his
reemployment rights are protected by law and provided that he directly entered
military service from his Employer's service and shall not have voluntarily
reenlisted after the date of first entering active military service, his period
of absence shall not be considered a Break in Service and shall be counted as
Vesting Service upon his return to active Employment.
4.2.4 An Employee who terminates Employment with no vested percentage in
the Account Balance of his Employer Contributions Subaccount shall, if he
returns to Employment, have no credit for Vesting Service prior to such
termination of Employment if the total of his consecutive One Year Breaks in
Service immediately preceding his reemployment exceeds the greater of 5 years or
his aggregate years of Vesting Service prior to such termination (whether or not
consecutive, but excluding Vesting Service previously disregarded under this
rule). A Participant who had a Partially Vested Separation and returns to
Employment will retain credit for his prior years of Vesting Service.
4.2.5 Vesting Service of an Employee reemployed following 5 or more One
Year Breaks in Service (or one or more One Year Breaks in Service for years
prior to January 1, 1985) shall not be counted for the purpose of computing his
vested percentage in his Employer Contributions Subaccount derived from
contributions accrued prior to his termination of Employment. Separate records
shall be maintained reflecting the Participant's vested percentage in such
Subaccount attributable to service prior to terminating Employment and
reflecting the Participant's vested percentage in that Subaccount attributable
to service after reemployment.
4.3 ACCOUNT FORFEITURES
4.3.1 Upon the Non-Vested Separation or Partially Vested Separation of a
Participant the non-vested portion of his Employer Contributions Subaccount will
be treated as a forfeiture as of the earlier of: (i) the date on which the
Participant completes 5 One Year Breaks in Service, (ii) the date of the
Participant's death, or (iii) the date of distribution of the vested portion of
the Participant's Employer Contributions Subaccount. Such forfeitures shall be
applied toward the reduction of the Employer Contributions in accordance with
Section 3.7.2. A Participant who is zero percent vested in his Employer
Contributions Subaccount shall be treated as having received a distribution of
the vested portion of his Employer Contributions Subaccount as of his
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date of termination of employment.
4.3.2 Amounts forfeited pursuant to Section 4.3.1 (unadjusted by any
subsequent gains or losses) shall be restored for a Participant who had a Non-
Vested or Partially Vested Separation, forfeited any portion of his Employer
Contributions Subaccount and then resumes Employment and repays to the Plan the
full amount of his distribution before incurring 5 consecutive One Year Breaks
in Service. The restored amount shall be derived from amounts forfeited and, if
such forfeitures are not sufficient, from a contribution by the Employer, as
appropriate, made as of that date.
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ARTICLE V - AMOUNT AND PAYMENT OF BENEFITS TO PARTICIPANTS
5.1 FULLY VESTED SEPARATION
A Participant's benefits upon his Fully Vested Separation shall be the
Account Balance of his Account determined on the fourth Valuation Date following
the Participant's termination of Employment (or such other Valuation Date as may
apply pursuant to Section 11.7).
5.2 PARTIALLY VESTED SEPARATION
A Participant's benefits upon his Partially Vested Separation shall be (a)
the Account Balance of his Employer Contributions Subaccount determined on the
fourth Valuation Date following the date the Participant terminates Employment
(or such other Valuation Date as may apply pursuant to Section 11.7), multiplied
by his vested percentage, determined pursuant to Section 4.1.3, plus (b) the
Account Balance of his Participant Contributions Subaccount as of the Valuation
Date applicable for purposes of clause (a) of this Section 5.2.
5.3 NON-VESTED SEPARATION
A Participant's benefits upon his Non-Vested Separation shall be the
Account Balance of his Participant Contributions Subaccount determined on the
fourth Valuation Date following the date he terminates Employment (or such other
Valuation Date as may apply pursuant to Section 11.7).
5.4 PARTICIPANTS WHO HAVE RECEIVED PRIOR DISTRIBUTIONS
If a distribution of a Participant's Employer Contributions Subaccount has
been made under Section 5.2 to a Participant at a time when he has a
nonforfeitable right to less than 100 percent of his Employer Contributions
Subaccount, his nonforfeitable interest in his Employer Contributions Subaccount
at any time thereafter will be equal to P (AB + D) - D, where P is the
nonforfeitable percentage at the relevant time determined under Section 4.1.3;
AB is the balance of his Employer Contributions Subaccount at the relevant time;
and D is the amount of the distribution. However, if any part of his Employer
Contributions Subaccount is forfeited under Section 4.3, the Participant's
interest in the remaining balance, if any, of his Employer Contributions
Subaccount will thereafter be fully vested and nonforfeitable (subject to
adjustments
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in the value of his account). If, after such a forfeiture under Section 4.3,
the Participant resumes participation in the Plan, a separate, new Employer
Contributions Subaccount will be established for him under Section 3.6.1 and all
subsequent contributions will be credited to such new Subaccount. The vesting
schedule in Section 4.1.3. will thereafter apply only to such new Subaccount;
his interest in the original Subaccount will remain fully vested and
nonforfeitable.
5.5 BENEFIT COMMENCEMENT DATE
5.5.1 Except as provided in or by operation of this Article V, a
Participant's Benefit Commencement Date shall be as soon as practicable after
the first to occur of:
(a) the date the Participant properly requests such distribution
to commence after termination of the Participant's Employment with the
Employer and all Affiliates provided, however, any such request by a
Participant shall not be valid unless the Participant is furnished with a
written explanation of his right to defer the commencement of the benefit
payment; or
(b) the date the Participant properly requests such distribution
to commence following the incurrence of a Disability; or
(c) the 60th day after the close of the Plan Year in which the
Participant attains Normal Retirement Age or, if later, when he terminates
Employment with the Employer and all Affiliates, unless the Participant has
requested to defer the distribution to a later date; or
(d) the April 1 following the calendar year in which the
Participant attains age 70-1/2; provided, however, that:
(i) In the case of a Participant who was born prior to July
1, 1917 and at no time during a Plan Year ending in or after the
calendar year in which he attains age 66-1/2 was a Five-percent Owner
of the Employer within the meaning of Code (S) 416(i)(1), such date
shall be the April 1 following the later of (i) the calendar year
during which he attains age 70-1/2, or (ii) the calendar year in which
the Participant retires; and
(ii) In the case of a Participant who was born prior to July
1, 1917 and at any time during a Plan Year ending in or after the
calendar year in which he attains age 66-1/2, was a Five-percent Owner
of the Employer within the
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meaning of Code (S) 416, such date shall be the April 1 following the
later of (i) the calendar year during which he attained age 70-1/2, or
(ii) the earlier of (1) the calendar year ending in the Plan Year
during which he first became a Five-percent Owner, or (2) the calendar
year in which the Participant retires; and
(iii) In the case of a Participant who is not a Five-
percent Owner with respect to the Plan Year ending in the calendar
year in which the Participant attains age 70-1/2, such date shall be
April 1 following the later of (i) the calendar year during which the
Participant attained age 70-1/2, or (ii), the calendar year in which
the Participant retired.
5.5.2 If the value of a Participant's Account exceeds $5,000 at the time
of any distribution, the Participant (and, if applicable, his Spouse) must
consent in a written election filed with the Administrator, to any distribution
before the Participant's attainment of Normal Retirement Age. Notwithstanding
anything in this Article to the contrary, the Administrator may direct the
Trustee to distribute to the Participant the distributable balance of the
Participant's Account as soon as practicable without such Participant's written
consent if, at the time of distribution, the value of the Participant's Account
does not exceed $5,000.
5.5.3 In no event shall the amount distributable in any year be less than
the amount determined in accordance with the minimum distribution incidental
benefit requirements of Treasury Regulation Section 1.401(a)(9)-2.
5.6 PARTICIPANT ACCOUNT WITHDRAWALS
5.6.1 Participant Contributions Subaccount Withdrawals. In accordance
------------------------------------------------
with such rules and procedures as the Administrator may prescribe, a Participant
may withdraw his Participant Contributions, in the order set forth in paragraphs
(a), (b) and (c) below by giving written notice to the Administrator of
intention to so withdraw on a form prescribed or approved by the Administrator.
All such withdrawals will be made in accordance with Section 11.7.
Notwithstanding the foregoing, a Married Participant shall not withdraw any
amount of Participant Contributions without obtaining the Spousal Consent of his
Spouse within the 90 day period ending on the date the withdrawal is made.
(a) Withdrawal of Pre-1987 Participant Contributions. A
------------------------------------------------
Participant may withdraw from his Participant Contributions Subaccount
under this paragraph (a) an
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amount up to the total amount of his Supplementary Participant
Contributions and Basic Participant Contributions made prior to January 1,
1987 less any previous withdrawals; provided, however, the amount of such
withdrawal under this paragraph (a) cannot be less than $200 (or, if less,
the amount of his pre-1987 Supplementary Participant Contributions and
Basic Participant Contributions);
(b) Withdrawal of Post-1986 Supplementary Participant
-------------------------------------------------
Contributions. A Participant who is withdrawing the maximum amount
-------------
permitted under (a) above may also withdraw from his Participant
Contributions Subaccount under this paragraph (b) an amount up to the total
amount of his post-1986 Supplementary Participant Contributions plus
earnings on his Supplementary Participant Contributions less any previous
withdrawals; provided, however, the amount of such withdrawal under this
paragraph (b) cannot be less than $200 (or, if less, the amount of his
post-1986 Supplementary Participant Contributions and earnings on his
Supplementary Participant Contributions);
(c) Withdrawal of Post-1986 Basic Participant Contributions. A
-------------------------------------------------------
Participant who is withdrawing the maximum amount permitted under (b) above
may also withdraw from his Participant Contributions Subaccount an amount
up to the total amount of his post-1986 Basic Participant Contributions
plus earnings on his Basic Participant Contributions less any previous
withdrawals; provided, however, the amount of such withdrawal under this
paragraph (c) cannot be less than $200 (or, if less, the amount of his
post-1986 Basic Participant Contributions and earnings on his Basic
Participant Contributions). A Participant may not make more than two
withdrawals under paragraphs (a), (b) and (c) in any one calendar year. If
at any time a Participant withdraws on a cumulative basis more than 80
percent of the total amount of his Basic Participant Contributions, his
right to make further Participant Contributions under the Plan will be
suspended for a period of six months from the date of his last withdrawal.
5.6.2 Employer Contributions Subaccount Withdrawal. A Participant who (i)
--------------------------------------------
is 100% vested in his Employer Contributions Subaccount and (ii) is withdrawing
the entire balance of his Participant Contributions Subaccount in accordance
with Section 5.6.1 may, at the same time as the withdrawal under Section 5.6.1,
withdraw an amount which is no greater than 50% of the value of his Employer
Contributions Subaccount by giving prior written notice to the Administrator of
intention to so withdraw on a form prescribed or approved by the Administrator.
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Such written notice will specify the particular portions of the withdrawal which
are to be withdrawn from each investment in which the Participant's Account is
invested. The remaining portion of the Employer Contributions will not be
available for withdrawal until retirement or termination. The right of a
Participant withdrawing Employer Contributions under this Section 5.6.2 to make
further Participant Contributions under the Plan will be suspended for a period
of twelve months from the date of his last withdrawal. All such withdrawals
will be made in accordance with Section 11.7. Notwithstanding the foregoing, a
Married Participant shall not withdraw any amount of Employer Contributions
without obtaining the written, notarized consent of his Spouse within the 90 day
period ending on the date the withdrawal is made.
5.6.3 Resumption of Participation after a Withdrawal. A Participant who
----------------------------------------------
makes a withdrawal in accordance with Sections 5.6.1(c) or 5.6.2 may elect to
resume making Participant Contributions as of the first day of the payroll
period following the last day of the applicable suspension period. Such
election must be made in writing and filed with the Administrator prior to the
first day of the payroll period in which the Participant wishes the resumption
to be made effective. Amounts withdrawn by a Participant may not be returned to
the Plan.
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ARTICLE VI - FORMS OF PAYMENT OF ACCOUNTS
6.1 METHODS OF DISTRIBUTION
6.1.1 A Participant's benefits shall be payable in the normal form of a
Qualified Joint and Survivor Annuity (under an Annuity Contract purchased with
the aggregate Account Balance of the Participant's Account at the Benefit
Commencement Date) if the Participant is married on his Benefit Commencement
Date and in the normal form of a life annuity with payments guaranteed for 120
months (under an Annuity Contract purchased with the aggregate Account Balance
of the Participant's Account at the Benefit Commencement Date) if the
Participant is not married on that date, provided that a Participant may at any
time prior to the Benefit Commencement Date elect, in accordance with Section
6.2, any of the following optional forms of benefit payment instead of the
normal form:
(i) A lump sum in cash or in kind; or
(ii) An annuity (under an Annuity Contract purchased with the
aggregate Account Balance of the Participant's Account at the Benefit
Commencement Date) of the type described in Section 6.1.2.
Anything in this Section 6.1.1 to the contrary notwithstanding, if the
nonforfeitable Account Balance of a terminated Participant shall be equal to or
less than $5,000 when the amount thereof is first determined, the entire amount
shall be distributed in a lump sum as promptly as possible.
6.1.2 For purposes of Section 6.1.1(ii), the optional annuity form may be
any one of the following:
(i) A single life annuity, under which equal or substantially
equal monthly installments are paid to the Participant during his lifetime,
with no further payments to anyone after his death.
(ii) An annuity under which equal or substantially equal
monthly installments are paid to the Participant during his lifetime, with
payment of monthly installments guaranteed for a period selected by the
Participant which may be either 60, 120, 180, 240 or 300 months.
(iii) An annuity under which equal or substantially equal
annual, semi-annual, quarterly or monthly installments are paid in an
amount specified in the election until the net sum payable with interest
thereon at the rate of 3% per annum and such
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additional interest, if any, as may be declared under the Annuity Contract
is exhausted. Any balance remaining at the end of twenty-five years shall
be paid in a lump sum.
(iv) An annuity under which equal or substantially equal
annual, semi-annual, quarterly or monthly installments, except for any
excess interest, are paid for a fixed period not exceeding twenty-five
years. Such amounts shall include interest on the unpaid balance at a rate
(not less than 3% per annum) declared annually under the Annuity Contract.
(v) An annuity under which equal or substantially equal
monthly installments are paid to the Participant during his lifetime with
such payments continuing during the lifetime of a contingent annuitant if
the contingent annuitant survives the Participant.
(vi) An annuity under which equal or substantially equal
monthly installments are paid for the longer of the lifetime of the
Participant, the lifetime of a contingent annuitant or a guaranteed period
selected by the Participant. The period may be either 60, 120, 180, 240 or
300 months.
(vii) An annuity under which equal or substantially equal
monthly installments are paid for the Participant so long as both the
Participant and a contingent annuitant shall live. Upon the death of the
first of them to die the amount of each installment shall be reduced to
two-thirds of the amount previously paid, and such reduced installments
shall be paid to the survivor for his lifetime.
(viii) An annuity under which equal or substantially equal
monthly installments are paid for the longer of the period during which
both the Participant and a contingent annuitant shall live or a guaranteed
period selected by the Participant. The guaranteed period may be either 60,
120, 180, 240 or 300 months. Upon the later of (A) the death of the first
to die of the Participant or the contingent annuitant or (B) the expiration
of the guaranteed period, if one of them is then living the amount of each
installment shall be reduced to two-thirds of the amount previously paid
and such reduced installments shall be paid to the survivor for his
lifetime.
6.1.3 Notwithstanding Section 6.1.1, the normal form of benefits of a
Participant shall be a lump sum and Sections 6.2.2 and 6.2.4 shall not apply
unless the Participant (a) is credited with at least one Hour of Service on or
after August 23, 1984, or (b) his interest under this Plan,
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or under a plan of which this Plan is a continuation, had not been distributed,
or distribution thereof had not commenced, prior to August 23, 1984.
6.2 ELECTION OF OPTIONAL FORMS
6.2.1 By notice to the Administrator within the 90-day period prior to a
Participant's Benefit Commencement Date, the Participant may elect, in writing,
not to receive the normal form of benefit payment otherwise applicable and to
receive instead an optional form of benefit payment provided for in Section
6.1.1.
6.2.2 Within a reasonable period, but in no event later than a married
Participant's Benefit Commencement Date, the Administrator shall provide to each
married Participant a written explanation of:
(a) the terms and conditions of the Participant's normal form of
benefit payment;
(b) the Participant's right to make, and the effect of, an
election to waive the normal form of benefit payment;
(c) the rights of the Participant's Spouse under Section 6.2.4;
and
(d) the right to make, and the effect of, a revocation of a
previous election to waive the normal form of benefit payment.
The Administrator may, on a uniform and nondiscriminatory basis, provide for
such other notices, information or election periods or take such other action as
the Administrator considers necessary or appropriate so that this Section 6.2 is
implemented in such a manner as to comply with Code (S)(S) 401(a)(11) and 417.
6.2.3 A Participant may revoke his election to take an optional form of
benefit, and elect a different form of benefit, at any time prior to the
Participant's Benefit Commencement Date.
6.2.4 The election of an optional benefit by a married Participant must
also be a waiver of a Qualified Joint and Survivor Annuity by the Participant.
A waiver of a Qualified Joint and Survivor Annuity shall not be effective
unless: (i) the Participant's Spouse consents in writing; (ii) the Spouse's
consent to the waiver is witnessed by a plan representative or notary public;
and (iii) the Spouse's consent acknowledges the effect of the election.
Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity
will not be effective unless the election designates a form of benefit payment
which, if the Participant is married, may not be changed
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without spousal consent. Notwithstanding this consent requirement, if the
Participant establishes to the satisfaction of a Plan representative that such
written consent may not be obtained because there is no Spouse or the Spouse
cannot be located, the election will be deemed effective. Any consent necessary
under this provision will not be valid with respect to any other Spouse.
6.2.5 The election of an optional form of benefit which contemplates the
payment of an annuity shall not be given effect if any person who would receive
benefits under the annuity dies before the annuity starting date.
6.3 CHANGE IN FORM OR TIMING OF BENEFIT PAYMENTS
Subject to the Administrator's consent, any former Employee whose payments
are being deferred or who is receiving installment payments may request
acceleration or other modification of the form of benefit distribution, provided
that any necessary consent to such change required pursuant to Section 6.2.4 is
obtained from the former Employee's Spouse.
6.4 DIRECT ROLLOVERS
6.4.1 Effective with respect to distributions made on or after January 1,
1993, a Participant or Spouse may elect to have all or a portion of any amount
payable to him or her from the Plan which is an "eligible rollover distribution"
(as defined in Section 6.4.2 below) transferred directly to an "eligible
retirement plan" (as defined in Section 6.4.2 below). Any such election shall
be made in accordance with such uniform rules and procedures as the
Administrative Committee may prescribe from time to time as to the timing and
manner of the election in accordance with Code (S) 401(a)(31).
6.4.2 For purposes of this Section and Section 7.1.4:
(a) "Eligible rollover distribution" shall mean any distribution
of all or any portion of the balance to the credit of the distributee other
than: (1) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary; (2) any distribution for a specified period of ten (10) years
or more; (3) any distribution to the extent such distribution is required
under Code (S) 401(a)(9); or (4) the portion of any distribution that is
not includable in gross income.
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(b) "Eligible retirement plan" shall mean, with respect to a
Participant, an individual retirement account or annuity described in Code
(S) 408(a) or 408(b) ("IRA"); an annuity plan described in Code (S) 403(a);
or a qualified plan described in Code (S) 401(a), that accepts the
distributee's eligible rollover distribution and, with respect to a Spouse,
shall mean an IRA.
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ARTICLE VII - DEATH BENEFITS
7.1 PAYMENT OF ACCOUNT BALANCES
7.1.1 If a Participant dies before distribution of his interest in the
Plan, if any, has commenced, the Participant's non-forfeitable Account Balance
shall, subject to Section 7.1.2 be distributed to the Participant's Beneficiary
in the form, at the time and from among the methods specified in Section 6.1.1
as elected by the Beneficiary within 60 days following the Participant's death.
If an election is not received by the Administrator, the distribution shall be
made, if to a Surviving Spouse, in accordance with Section 7.1.2(a), and, if to
some other Beneficiary, to the Beneficiary in a lump sum. Notwithstanding the
foregoing, if the total amount distributable to the Beneficiary is $5,000 or
less, the distribution shall be made in a lump sum.
7.1.2. Notwithstanding any other provision of the Plan to the contrary:
(a) If the Participant dies leaving a Surviving Spouse before
distribution of his interest in the Plan has commenced, and unless the
Participant's Surviving Spouse has elected, by written notice to the
Administrator within sixty days after the Participant's death, any other
form of benefit payment specified in Section 6.1.1, or the Participant's
Surviving Spouse has already consented in a manner described in Section
6.2.4 to a distribution to some other Beneficiary designated by the
Participant, the Participant's Account Balance shall be distributed to the
Participant's Surviving Spouse in the form of an annuity for the life of
the Surviving Spouse (under an Annuity Contract purchased with the
aggregate Account Balance of the Participant's Account) or in lump sum
form if the total amount distributable is $5,000 or less.
(b) If the Participant dies before distribution of his or her
interest in the Plan has commenced, the Participant's entire interest must
be distributed within five years after the Participant's death; provided,
however, that if any portion of the Participant's interest is payable to
his Beneficiary, distributions may be made in substantially equal
installments over the life or life expectancy of the Beneficiary,
commencing (i) in the case of a Beneficiary other than a Surviving Spouse,
no later than one year after the Participant's death; and (ii) in the case
of a Surviving Spouse, no later than the later of one year after the
Participant's death or the date on which the Participant would have
attained age 70 1/2. If the Surviving Spouse dies before payments to such
Spouse begin,
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subsequent distributions shall be made as if the Surviving Spouse had been
the Participant.
7.1.3 The Valuation Date for purposes of determining the benefits
payable to the Beneficiary of a Participant shall be as of the fourth Valuation
Date following the Participant's death (or such other Valuation Date as may
apply pursuant to Section 11.7).
7.1.4 Any lump sum payment payable to a Spouse pursuant to this Section
7.1 shall be eligible for a direct rollover in accordance with Section 6.4.
7.2 BENEFICIARIES
7.2.1 Subject to the spousal consent requirements of Section 7.1.2(a), a
Participant may designate a Beneficiary for his Account.
7.2.2 If a Participant who is unmarried as of the date of his death has
designated a Beneficiary and such Beneficiary predeceases the Participant, or if
no Beneficiary has been designated by such Participant, the Participant's
interest remaining in the Plan shall be paid to the estate of the Participant.
If a Participant who is married as of the date of his death designates a
Beneficiary pursuant to Section 7.1.2(a) and such Beneficiary predeceases the
Participant, the Participant's interest remaining in the Plan shall be paid to
the Participant's Surviving Spouse, or to the Participant's estate if such
Spouse is no longer living. If two or more Beneficiaries are named, the interest
of any Beneficiary, who does not survive the Participant, shall pass to the
surviving Beneficiary or Beneficiaries in accordance with their respective
interests unless otherwise agreed in writing between the Administrator and the
Participant.
7.2.3 Subject to the consent requirements applicable with respect to a
Spouse, any designation of a Beneficiary to whom amounts due after the
Participant's death shall be paid must be filed with the Administrator, in a
time and manner designated by the Administrator, in order to be effective. Any
such designation of a Beneficiary may be revoked by filing a later designation
or an instrument of revocation with the Administrator, in a time and manner
designated by the Administrator. If a Beneficiary fails to survive a Participant
for at least 30 days, it shall be presumed that the Participant survived the
Beneficiary.
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ARTICLE VIII - FIDUCIARIES
8.1 NAMED FIDUCIARIES
The Named Fiduciaries, who shall have authority to control and manage the
operation and administration of the Plan, are as follows:
(a) the Company, which shall have the sole right to (i) appoint
and remove from office the members of the Administrative Committee, the
Trustee and any investment manager; (ii) designate the Investment
Companies for investment of contributions under the Plan; and (iii) amend
or terminate the Plan;
(b) the Administrative Committee, which shall have the authority
and duties specified in Article X hereof;
(c) the Trustee, which shall have the authority and duties
specified in Article IX hereof and the Trust Agreement; and, in addition,
the authority and duties of the Administrative Committee in the event that
no such Committee shall be appointed or constituted by the Company; and
(d) any investment manager or managers selected by the Company,
who renders investment advice with respect to Plan assets.
8.2 EMPLOYMENT OF ADVISERS
A "named fiduciary" with respect to the Plan (as defined in ERISA (S)
402(a)(2)) and any "fiduciary" (as defined in ERISA (S) 3(21)) appointed by such
a "named fiduciary", may employ one or more persons to render advice with regard
to any responsibility of such "named fiduciary" or "fiduciary" under the Plan.
8.3 MULTIPLE FIDUCIARY CAPACITIES
Any "named fiduciary" with respect to the Plan (as defined in ERISA (S)
402(a)(2)) and any other "fiduciary" (as defined in ERISA (S) 3(21)) with
respect to the Plan may serve in more than one fiduciary capacity.
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8.4 RELIANCE
Any fiduciary with respect to the Plan may rely upon any direction,
information or action of any other fiduciary, acting within the scope of its
responsibilities under the Plan, as being proper under the Plan.
8.5 SCOPE OF AUTHORITY AND RESPONSIBILITY
The responsibilities of the Administrative Committee and the Trustee for
the operation and administration of the Plan are allocated between them in
accordance with the provisions of the Plan and the Trust Agreement wherein their
respective duties are specified. Each fiduciary shall have only the authority
and duties as are specifically given to it under this Plan, shall be responsible
for the proper exercise of its own authorities and duties, and shall not be
responsible for any act or failure to act of any other fiduciary.
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ARTICLE IX - TRUSTEE
9.1 TRUST AGREEMENT
The Company shall enter into one or more Trust Agreements with the Trustee
or Trustees selected by it in its sole discretion, and the Trustee shall receive
the contributions to the Trust Fund made by the Employer pursuant to the Plan
and shall hold, invest, reinvest, and distribute such fund, as applicable, in
accordance with the terms and provisions of the Trust Agreement. The Company
will determine the form and terms of such Trust Agreement and may modify such
Trust Agreement from time to time to accomplish the purposes of this Plan and
may, in its sole discretion, remove any Trustee and select any successor
Trustee.
9.2 ASSETS IN TRUST
Except as otherwise permitted under the Plan, all assets of the Plan shall
be held in trust by the Trustee who upon acceptance of such office shall have
such authority as is set forth in the Trust Agreement.
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ARTICLE X - ADMINISTRATIVE COMMITTEE
10.1 APPOINTMENT AND REMOVAL OF ADMINISTRATIVE COMMITTEE
The administration of the Plan shall be vested in an Administrative
Committee of at least three (3) persons who shall be appointed by the Board, and
may include persons who are not Participants in the Plan. A person appointed a
member of the Committee shall signify his acceptance in writing. The Board may
remove or replace any member of the Committee at any time in its sole
discretion, and any Committee member may resign by delivering his written
resignation to the Board, which resignation shall become effective upon its
delivery or at any later date specified therein. If at any time there shall be a
vacancy in the membership of the Committee, the remaining member or members of
the Committee shall continue to act until such vacancy is filled by action of
the Board.
10.2 OFFICERS OF ADMINISTRATIVE COMMITTEE
The Committee shall appoint from among its members a chairman, and shall
appoint as secretary a person who may be, but need not be, a member of the
Committee or a Participant in the Plan.
10.3 ACTION BY ADMINISTRATIVE COMMITTEE
The Committee shall hold meetings upon such notice, at such place or
places, and at such times as its members may from time to time determine. A
majority of its members at the time in office shall constitute a quorum for the
transaction of business. All action taken by the Committee at any meeting shall
be by vote of the majority of its members present at such meeting, except that
the Committee also may act without a meeting by a consent signed by a majority
of its members. Any member of the Committee who is a Participant in the Plan
shall not vote on any question relating exclusively to himself.
10.4 RULES AND REGULATIONS
Subject to the terms of the Plan, the Committee may from time to time
adopt such rules and regulations as it shall deem appropriate for the
administration of the Plan and for the conduct and transaction of its business
and affairs.
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10.5 POWERS
The Committee shall have such powers as may be necessary to discharge its
duties under the Plan, including the power:
(a) to interpret and construe the Plan in its discretion, to
determine all questions with regard to employment, eligibility, Years of
Service, Compensation, benefits, and such factual matters as date of birth
and marital status, and similarly related matters for the purpose of the
Plan. The Committee's determination of all questions arising under the
Plan shall be conclusive upon all Participants, the Board, the Company,
Employers, the Trustee, and other interested parties;
(b) to prescribe procedures to be followed by Participants and
Beneficiaries filing application for benefits;
(c) to prepare and distribute to Participants information
explaining the Plan;
(d) to appoint or employ individuals to assist in the
administration of the Plan and any other agents it deems advisable,
including legal, accounting and actuarial counsel;
(e) to instruct the Trustee to make benefit payments pursuant to
the Plan;
(f) to appoint an enrolled actuary and to receive and review the
periodic valuation of the Plan made by such actuary;
(g) to receive and review reports of disbursements from the Trust
Fund made by the Trustees; and
(h) to receive and review the periodic audit of the Plan made by
a certified public accountant appointed by the Company.
10.6 INFORMATION FROM PARTICIPANTS
Each Participant shall be required to furnish to the Committee, in the
form prescribed by it, such personal data, affidavits, authorizations to obtain
information, and other information as the Committee may deem appropriate for the
proper administration of the Plan.
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10.7 REPORTS
The Committee shall prepare, or cause to be prepared, such periodic
reports to the U.S. Labor Department, the Internal Revenue Service and the
Pension Benefit Guaranty Corporation as may be required pursuant to the Code or
ERISA.
10.8 AUTHORITY TO ACT
The Committee may authorize one or more of its members, officers, or
agents to sign on its behalf any of its instructions, directions, notifications,
or communications to the Trustee, and the Trustee may conclusively rely thereon
and on the information contained therein.
10.9 LIABILITY FOR ACTS
The members of the Committee shall be entitled to rely upon all
valuations, certificates and reports furnished by the Plan actuary or accountant
and upon all opinions given by any legal counsel selected by the Committee, and
the members of the Committee shall be fully protected with respect to any action
taken or suffered by their having relied in good faith upon such actuary,
accountant or counsel and all action so taken or suffered shall be conclusive
upon each of them and upon all Participants and their Beneficiaries. No member
of the Committee shall incur any liability for anything done or omitted by him
except only liability for his own gross negligence or willful misconduct.
10.10 COMPENSATION AND EXPENSES
Unless authorized by the Board, a member or officer of the Committee shall
not be compensated for his service in such capacity, but shall be reimbursed for
reasonable expenses incident to the performance of such duty.
10.11 INDEMNITY
The Company shall indemnify the members of the Committee and any of their
agents acting in behalf of the Plan against any and all liabilities or expenses,
including all legal fees related thereto, to which they may be subjected as
members of the Committee by reason of any act or failure to act which
constitutes a breach or an alleged breach of fiduciary responsibility under
ERISA or otherwise, except that due to a person's own willful misconduct.
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10.12 DENIED CLAIMS
If any application for payment of a benefit under the Plan shall be
denied, the Committee shall with the denial write the claimant setting forth the
specific reasons for the denial and explaining the Plan's claim review
procedure. If a claimant whose claim has been denied wishes further
consideration of his claim, he may request the Committee to review his claim in
a written statement of the claimant's position filed with the Committee no later
than 60 days after the claimant receives such denial. The Committee shall make a
full review of the claim and the denial, giving the claimant written notice of
its decision within the next 60 days. Due to special circumstances, if no
decision has been made within the first 60 days and notice of the need for
additional time has been furnished within such period, the decision may be made
within the following 60 days. A claimant shall be required to exhaust the
administrative remedies provided by this Section 10.12 prior to seeking any
other form of relief.
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ARTICLE XI - INVESTMENT OF CONTRIBUTIONS; MANAGEMENT OF ACCOUNTS
11.1 INITIAL INVESTMENT ELECTION
Prior to the date an Eligible Employee is first eligible to become a
Participant under Section 2.1.1, the Administrator will inform him of the
Investments available under the Plan for investment of Accounts and will make
available to him a prospectus for each Investment. At least ten days prior to
the date an Eligible Employee becomes a Participant hereunder, he must make an
initial investment election which will apply to the investment of his
Participant Contributions and Employer Contributions made with respect to him.
Separate investment elections with respect to his Participant Contributions and
Employer Contributions may not be made. A Participant's initial investment
election will be made in accordance with Section 2.1.3 and will be limited to
the following:
(a) Option One:
(1) 100% in a single Investment,
(2) 75% in one Investment and 25% in another, or
(3) 50% in each of two Investments.
Within Option One, all Participant and Employer Contributions
will be directed in the percentage(s) chosen.
(b) Option Two: 100% of Basic Participant Contributions and Employer
Contributions in one Investment, and 100% of Supplementary Participant
Contributions in another Investment.
The election of Investments is the sole responsibility of each Participant and
no Employer or representative of the Employer including the Administrator is
authorized to make any recommendation to the Participant with respect thereto.
Contributions to be invested in Investment Company Shares will be so
invested and credited to the Accounts of a Participant on the Valuation Date
that falls within the next Valuation Period commencing after the date on which
the contributions are made, at the closing price for such Shares determined in
accordance with the current prospectus of the Investment Company. Contributions
to be invested in Company Stock or Torchmark Stock will be so invested during
the next Valuation Period commencing after the date on which the contributions
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are made, and credited to the accounts of a Participant on the Valuation Date
that falls within the Valuation Period following the Valuation Period during
which purchases are made, at the average price per share paid or received by the
Trustee for shares purchased or sold during such Valuation Period, including the
cost of brokerage commissions, transfer taxes and any other transaction costs.
11.2 CHANGE IN INVESTMENT ELECTION FOR CONTRIBUTIONS
A Participant may elect to change his investment election with respect to
investment of Participant Contributions and Employer Contributions to be made
during any Valuation Period and thereafter by giving notice in writing to the
Administrator before the first day of the Valuation Period for which the
Participant wishes such change to be made. Only one such change may be made in a
single Valuation Period; such change may not be made more frequently than eight
times in a calendar year (or such other limits as may be established from time
to time by the Company), except as otherwise provided in this section. Such
change will be limited to the investment choices described in Section 11.1. In
addition, the total number of Investments selected by a Participant under the
Plan at any time cannot exceed four, or such other number as determined from
time to time by the Administrator and communicated to Participants. Separate
changes of investment elections with respect to Participant Contributions and
Employer Contributions may not be made. Such change will become effective for
the Valuation Period commencing on or after the date of receipt of the election.
11.3 TRANSFER OF INVESTMENT ACCOUNTS
A Participant may, not more than eight times in a calendar year (or such
other limits as may be established from time to time by the Company), elect to
transfer any whole percentage of the value of an investment in his Participant
Contributions Subaccount and Employer Contributions Subaccount from one
Investment to one other Investment. Only one such change may be made in any
Valuation Period. Separate elections to transfer amounts in the Participant
Contributions Subaccount and Employer Contributions Subaccount may not be made.
In addition, the total number of Investments selected by the Participant under
the Plan at any time cannot exceed four (or such other limits as may be
established from time to time by the Company). The Participant's election to
transfer must be made in writing to the Administrator.
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If the Administrator receives an election to transfer an Investment out of
Investment Company Shares, or from Shares of one Investment Company to shares of
another Investment Company, the transfer will be effected by redeeming, or
redeeming and purchasing, the requested amount from the Investment Company on
the Valuation Date that falls within the next Valuation Period commencing after
the date of receipt of the election.
If the Administrator receives an election to transfer an Investment out of
or into the Company Stock Account or out of the Torchmark Stock Account the
transfer will be effected by selling or purchasing the required number of shares
of Company Stock or Torchmark Stock (or netting sales or purchases against other
required purchases or sales) during the first Valuation Period commencing after
the date of receipt of the election. All transfers out of or into the Company
Stock Account or out of the Torchmark Stock Account will be settled on the
Valuation Date that falls within the Valuation Period following the Valuation
Period during which the shares are sold, purchased, or netted, using the average
price paid or received by the Trustee in purchases or sales of Company Stock or
Torchmark Stock during the Valuation Period in which the shares are sold,
purchased, or netted.
11.4 REINVESTMENT
11.4.1 All dividends and capital gains or other distributions received
on the Investment Company Shares held for each Participant's Account will
(unless received in additional Investment Company Shares) be reinvested in full
and fractional Shares of the same Investment Company at a price determined in
accordance with the then current prospectus of the Investment Company.
11.4.2 All dividends, interest and other distributions received on
assets of the Company Stock Account held for each Participant's Account will
(unless received in additional Company Shares or in the shares of an Affiliate)
be reinvested in full and fractional shares of the same investment in the
Company Stock Account.
The shares so received or purchased upon such reinvestment will be credited
to such Account. If any dividends or capital gain or other distributions may be
received at the election of the shareholder in additional shares or in cash or
other property, the Trustee will elect to receive such dividends or
distributions in additional shares.
11.4.3 All dividends, interest and other distributions received on
assets of the Torchmark
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Stock Account held for each Participant's Account will (unless received in
additional Torchmark Shares or in the shares of an Affiliate) be reinvested in
full and fractional Investment Company Shares according to the Participant's
current investment election.
Effective as of the date of conclusion of the initial public offering for
the Class A common stock of Waddell & Reed Financial, Inc., a Participant may
not elect to further invest any portion of his Account in the Torchmark Stock
Account and may not elect to have further Participant Contributions or Employer
Contributions invested in the Torchmark Stock Account. Effective as of the date
of conclusion of the initial public offering of Waddell & Reed Financial, Inc.
Class A common stock, a Participant may elect to transfer funds out of the
Torchmark Stock Account according to the procedures set forth in Section 11.2,
but may not elect to transfer funds into that account.
11.5 VOTING OF SHARES OF INVESTMENTS
Subject to any requirements of applicable law, the Administrator will
deliver to each Participant copies of any notices of shareholders' meetings,
proxies and proxy-soliciting materials, prospectuses and the annual and other
reports to shareholders which have been received with respect to Investments
held by the Trustee for the account of the Participant.
Each Participant may direct the Administrator to direct the Trustee to vote
the Investment Company Shares (including fractional shares) held by the Trustee
under the Plan for his Account and the Company Shares or Torchmark Shares held
by the Trustee under the Plan for his Account with respect to matters to be
voted upon by the shareholders of such Investment. The Participant's directions
must be in writing, on a form approved by the Administrator, and delivered to
the Administrator within the time prescribed by it. With respect to Shares of
Investments for which the Administrator receives no written directions from the
Participants, the Administrator will direct the Trustee to vote such Shares in
the same proportion as the shares instructed by the Participants.
11.6 VALUATION OF ACCOUNTS
A Participant's Accounts shall be revalued at fair market value on the last
business day of each Plan Year and at such other times as the Administrator
determines. On such date, the Administrator will determine the current value of
the Investments held for each Participant's
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<PAGE>
Employer Contributions Subaccount and Participant Contributions Subaccount and
report the same in writing to the Participant.
11.7 DISTRIBUTIONS OR WITHDRAWALS
If the Administrator receives a request for withdrawal or distribution of
an Investment out of Investment Company Shares, the withdrawal or distribution
will be effected by redeeming the requested amount, or transferring the required
number of Investment Company Shares if a distribution in kind is requested, from
the Investment Company on the Valuation Date that falls within the next
Valuation Period commencing after the date of receipt of the request.
If the Administrator receives a request for withdrawal or distribution of
an Investment out of the Company Stock Account, the withdrawal or distribution
will be effected by selling, or transferring if a withdrawal or distribution in
kind is requested, the required number of shares of Company Stock (or netting
sales against other required purchases) during the next Valuation Period
commencing after the date of receipt of the request. All withdrawals or
distributions out of the Company Stock Account will be settled on the Valuation
Date that falls within the Valuation Period following the Valuation Period
during which the shares are sold, netted or transferred, using the average price
paid or received by the Trustee in purchases or sales or Company Stock during
the Valuation Period in which the shares are sold, netted, or transferred.
XI-5
<PAGE>
ARTICLE XII - PLAN AMENDMENT OR TERMINATION
12.1 PLAN AMENDMENT OR TERMINATION
The Company shall have the right at any time to amend the Plan, which
amendment shall be evidenced by an instrument in writing signed by an authorized
officer of the Company, effective retroactively or otherwise. No such amendment
shall have any of the effects specified in Section 12.2.
12.2 LIMITATIONS ON PLAN AMENDMENT
No Plan amendment shall:
(a) authorize any part of the Trust Fund to be used for, or
diverted to, purposes other than for the exclusive benefit of Participants
or their Beneficiaries;
(b) decrease the accrued benefits of any Participant or his
Beneficiary under the Plan (except to the extent permitted under Code (S)
412(c)(8)); or
(c) change the vesting schedule, either directly or indirectly,
unless each Participant having not less than three years of Vesting Service
is permitted to elect, within a reasonable period specified by the
Administrator after the adoption of such amendment, to have his vested
percentage computed without regard to such amendment.
The period during which the election may be made shall commence with the date
the amendment is adopted and shall end as the later of:
(i) sixty days after the amendment is adopted;
(ii) sixty days after the amendment becomes effective; or
(iii) sixty days after the Participant is issued written notice
by the Administrator.
XII-1
<PAGE>
12.3 RIGHT OF COMPANY TO TERMINATE PLAN OR DISCONTINUE CONTRIBUTIONS
The Company intends and expects that from year to year it will be able to
and will deem it advisable to continue this Plan in effect and to make
contributions as herein provided. The Company reserves the right, however, to
terminate the Plan at any time or to completely discontinue its contributions
thereto at any time, which termination or discontinuance shall be evidenced by
an instrument in writing signed by an authorized officer of the Company
delivered to the Administrator and the Trustee.
12.4 EFFECT OF PARTIAL OR COMPLETE TERMINATION OR COMPLETE DISCONTINUANCE OF
CONTRIBUTIONS
12.4.1 As of the date of a "partial termination" of the Plan:
(a) if not then fully vested, each affected Participant who is
then an Employee shall become 100% vested in his or her Employer
Contributions Subaccount; and
(b) no further contributions or allocations of forfeitures shall
be made after such date with respect to each affected Participant.
12.4.2 As of the date of the "complete termination" of the Plan, or the
"complete discontinuance of contributions" under the Plan:
(a) if not then fully vested, each affected Participant who is
then an Employee shall become 100% vested in his Employer Contributions
Subaccount;
(b) any forfeitures which may have occurred in accordance with
Section 4.3 prior to the termination of the Plan but which have not been
applied to reduce Employer Contributions under Section 3.7.2 shall be
allocated pro-rata to those Participants who were Eligible Employees on the
effective date of the termination of the Plan;
(c) no further contributions shall be made after such date; and
(d) no Eligible Employee shall become a Participant after such
date. 12.4.3 All other provisions of the Plan shall remain in effect unless
otherwise amended.
XII-2
<PAGE>
ARTICLE XIII - MISCELLANEOUS PROVISIONS
13.1 EXCLUSIVE BENEFIT OF PARTICIPANTS
The Trust Fund shall be held for the benefit of all persons who shall be
entitled to receive payments under the Plan. It shall be prohibited at any time
for any part of the Trust Fund (other than such part as is required to pay
expenses) to be used for, or diverted to, purposes other than for the exclusive
benefit of Participants or their Beneficiaries.
13.2 PLAN NOT A CONTRACT OF EMPLOYMENT
The Plan is not a contract of Employment, and the terms of Employment of
any Employee shall not be affected in any way by the Plan or related instruments
except as specifically provided therein.
13.3 SOURCE OF BENEFITS
Benefits under the Plan shall be paid or provided for solely from the
Trust, and neither the Company, an Employer, the Administrator, Trustee or
Investment Manager shall assume any liability therefor.
13.4 BENEFITS NOT ASSIGNABLE
Benefits provided under the Plan may not be assigned or alienated, either
voluntarily or involuntarily. The preceding sentence shall also apply to the
creation, assignment or recognition of a right to any benefit payable with
respect to a Participant pursuant to a "domestic relations order" (as defined in
Code (S) 414(p)) unless such order is determined by the Administrator to be a
"qualified domestic relations order" (as defined in Code (S) 414(p)) or, in the
case of a "domestic relations order" entered before January 1, 1985, if either
payment of benefits pursuant to the order has commenced as of that date or the
Administrator decides to treat such order as a "qualified domestic relations
order" within the meaning of Code (S) 414(p) even if it does not otherwise
qualify as such.
XIII-1
<PAGE>
13.5 DOMESTIC RELATIONS ORDERS
Any other provision of the Plan to the contrary notwithstanding, the
Administrator shall have all powers necessary with respect to the Plan for the
proper operation of Code (S) 414(p) with respect to "qualified domestic
relations orders" (or "domestic relations orders" treated as such) referred to
in Section 13.4, including, but not limited to, the power to establish all
necessary or appropriate procedures, to authorize the establishment of new
accounts with such assets and subject to such restrictions as the Administrator
may deem appropriate, and the Administrator may decide upon and direct
appropriate distributions therefrom.
13.6 BENEFITS PAYABLE TO MINORS, INCOMPETENTS AND OTHERS
In the event any benefit is payable to a minor or an incompetent or to a
person otherwise under a legal disability, or who, in the sole discretion of the
Administrator, is by reason of advanced age, illness or other physical or mental
incapacity incapable of handling and disposing of his property, or otherwise is
in such position or condition that the Administrator believes that he could not
utilize the benefit for his support or welfare, the Administrator shall have
discretion to apply the whole or any part of such benefit directly to the care,
comfort, maintenance, support, education or use of such person, or pay the whole
or any part of such benefit to the parent of such person, the guardian,
committee, conservator or other legal representative, wherever appointed, of
such person, the person with whom such person is residing, or to any other
person having the care and control of such person. The receipt by any such
person to whom any such payment on behalf of any Participant or Beneficiary is
made shall be a sufficient discharge therefor.
13.7 MERGER OR TRANSFER OF ASSETS
13.7.1 The merger or consolidation of the Company with any other person,
or the transfer of the assets of the Company to any other person, shall not
constitute a termination of the Plan, if provision is made for the continuation
of the Plan.
13.7.2 The Plan may not merge or consolidate with, or transfer any assets
or liabilities to, any other plan, unless each Participant would (if the Plan
then terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation or
XIII-2
<PAGE>
transfer (if the Plan had then terminated).
13.8 PARTICIPATION IN THE PLAN BY AN AFFILIATE
13.8.1 By duly authorized action, an Affiliate may adopt the Plan. Such
Affiliate by duly authorized action also may determine the classes of its
Employees who shall be Eligible Employees. Such Affiliate shall make such
contributions to the Plan on behalf of such Employees as is determined by the
Company. If no such action is taken, the Eligible Employees and the amount of
contribution shall be determined in accordance with the Plan provisions
applicable to an Employer.
13.8.2 By duly authorized action, any other Employer may terminate its
participation in the Plan or withdraw from the Plan and the Trust.
13.8.3 An Employer other than the Company shall have no power with
respect to the Plan except as specifically provided by this Section 13.8.
13.9 ACTION BY EMPLOYER
Any action required to be taken by an Employer pursuant to the terms of
the Plan shall be taken by the board of directors of the Employer or any person
or persons duly empowered to exercise the powers of the Employer with respect to
the Plan.
13.10 PROVISION OF INFORMATION
For purposes of the Plan, each Employee shall execute such forms as may be
reasonably required by the Administrator and the Employee shall make available
to the Administrator and the Trustee any information they may reasonably request
in this regard.
13.11 CONTROLLING LAW
The Plan is intended to qualify under Code (S) 401(a) and to comply with
ERISA, and its terms shall be interpreted accordingly. Otherwise, to the extent
not preempted by ERISA, the laws of the State of Kansas shall control the
interpretation and performance of the terms of the Plan.
XIII-3
<PAGE>
13.12 CONDITIONAL RESTATEMENT
Anything in the foregoing to the contrary notwithstanding, the Plan has
been restated on the express condition that it will be considered by the
Internal Revenue Service as qualifying under the provisions of Code (S) 401(a)
and the Trust qualifying for exemption from taxation under Code (S) 501(a). If
the Internal Revenue Service determines that the Plan or Trust does not so
qualify, the Plan shall be amended or terminated as decided by the Company.
13.13 RULES OF CONSTRUCTION
Masculine pronouns used herein shall refer to men or women or both and
nouns and pronouns when stated in the singular shall include the plural and when
stated in the plural shall include the singular, unless qualified by the
context. Titles of Articles and Sections of the Plan are for convenience of
reference only and are to be disregarded in applying the provisions of the Plan.
Any reference in this Plan to an Article or Section is to the Article or Section
so specified of the Plan.
IN WITNESS WHEREOF, Waddell & Reed Financial, Inc. has caused this Plan to
be restated, effective as of March 1, 1998.
WADDELL & REED FINANCIAL, INC.
By: /s/ William D. Howey, Jr.
--------------------------------------
ATTEST:
/s/ Sharon Pappas
- ----------------------------
XIII-4
<PAGE>
APPENDIX A - TOP-HEAVY PROVISIONS
A. As used in this Appendix A, each of the following terms shall have the
meanings for that term set forth below:
(a) Defined Benefit Plan means, a plan of the type defined in Code
--------------------
(S) 414(j) maintained by the Company or an Affiliate, as applicable.
(b) Defined Contribution Plan means, a plan of the type defined in
-------------------------
Code (S) 414(i) maintained by the Company or an Affiliate, as applicable.
(c) Determination Date means, for any Plan Year subsequent to the
------------------
first Plan Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, Determination Date means the last day of that year.
(d) Determination Period means the Plan Year containing the
--------------------
Determination Date and the four preceding Plan Years.
(e) Key Employee means any Employee or former Employee (and the
------------
Beneficiaries of such Employee) who at any time during the Determination Period
was:
(i) an officer of an Employer having Limitation Compensation
greater than 50% of the dollar limitation under Code (S) 415(b)(1)(A) for
any Plan Year within the Determination Period,
(ii) an owner (or individual considered an owner under Code (S)
318) of one of the ten largest interests in an Employer if such
individual's Limitation Compensation exceeds 100% of the dollar limitation
in effect under Code (S) 415(c)(1)(A),
(iii) a "5-percent owner" (as defined in Code (S) 416(i)) of an
Employer, or
(iv) a "1-percent owner" (as defined in Code (S) 416(i)) of an
Employer who has Limitation Compensation of more than $150,000.
(f) Limitation Compensation means, for an Employee, the Employee's
-----------------------
earned income, wages, salaries, fees for professional services and other amounts
received for personal services actually rendered in the course of Employment
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses); amounts described in Code (S)(S) 104(a)(3), 105(a)
and 105(h) to the extent includable in the Employee's gross income; amounts
described
Appendix-1
<PAGE>
in Code (S) 105(d) whether or not excludable from the Employee's gross income;
reimbursed non-deductible moving expenses; the value of nonqualified stock
options to the extent includable in the Employee's gross income in the year of
grant; the amount includable in the Employee's gross income pursuant to an
election under Code (S) 83(b); distributions from an unfunded, non-qualified
plan of deferred compensation; and excluding the following:
(i) contributions to a plan of deferred compensation which are
not includible in the Employee's gross income for the taxable year in which
contributed, or contributions under a "simplified employee pension" (within
the meaning of Code (S) 408(k)) to the extent such contributions are
deductible by the Employee, or any distributions from a plan of deferred
compensation (other than an unfunded non-qualified plan);
(ii) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or other property) held by the Employee
either becomes freely "transferable" or is no longer subject to a
"substantial risk of forfeiture" (both quoted terms within the meaning of
Code (S) 83(a));
(iii) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(iv) other amounts which received special tax benefits, or
contributions made (whether or not under a salary reduction agreement)
towards the purchase of an annuity described in Code (S) 403(b) (whether or
not the amounts are actually excludable from the gross income of the
Employee).
(g) Non-Key Employee means any Employee who is not a Key Employee.
----------------
(h) Permissive Aggregation Group means the Required Aggregation Group
----------------------------
of plans plus any other plan or plans of the Company or an Affiliate which, when
considered as a group with the Required Aggregation Group, would continue to
satisfy the requirements of Code (S)(S) 401(a)(4) and 410.
(i) Required Aggregation Group means (i) each Qualified Plan of an
--------------------------
Employer in which at least one Key Employee participates, and (ii) any other
Qualified Plan of an Employer which enables a plan described in (i) to meet the
requirements of Code (S)(S) 401(a)(4) and 410.
(j) Super Top-Heavy Plan means, for any Plan Year beginning after
--------------------
December
Appendix-2
<PAGE>
31, 1983, the Plan if any Top-Heavy Ratio as determined under the definition of
Top-Heavy Plan exceeds 90%.
(k) Top-Heavy Plan means, for any Plan Year beginning after December
--------------
31, 1983, the Plan if any of the following conditions exists:
(i) If the Top-Heavy Ratio for the Plan exceeds sixty percent
and the Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of plans.
(ii) If the Plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the Top-Heavy
Ratio for the Required Aggregation Group of plans exceeds sixty percent.
(iii) If the Plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for
the Permissive Aggregation Group exceeds sixty percent.
(l) Top-Heavy Ratio means,
---------------
(i) If the Company or an Affiliate maintains one or more Defined
Benefit Plans and the Company or an Affiliate has never maintained any
Defined Contribution Plan (including any "simplified employee pension"
within the meaning of Code (S) 408(k)) which during the five-year period
ending on the Determination Date has or has had account balances, the Top-
Heavy Ratio for the Plan alone or for the Required or Permissive
Aggregation Group, as appropriate, is a fraction, the numerator of which is
the sum of the present values of accrued benefits under the aggregated
Defined Benefit Plans of all Key Employees as of the respective
Determination Date for each plan (including any part of any accrued benefit
distributed in the five-year period ending on the Determination Date), and
the denominator of which is the sum of the present values of all accrued
benefits under the aggregated Defined Benefit Plans as of the respective
Determination Date for each plan (including any part of any accrued benefit
distributed in the five-year period ending on the Determination Date)
determined in accordance with Code (S) 416.
(ii) If the Company or an Affiliate maintains one or more Defined
Benefit Plans and the Company or an Affiliate maintains or has maintained
one or more Defined Contribution Plans (including any "simplified employee
pension" within the
Appendix-3
<PAGE>
meaning of Code (S) 408(k)) which during the five-year period ending on the
Determination Date has or has had any account balances, the Top-Heavy Ratio
for any Required or Permissive Aggregation Group, as appropriate, is a
fraction, the numerator of which is the sum of the present value of accrued
benefits under the aggregated Defined Benefit Plans for all Key Employees,
determined in accordance with (i) above, plus the sum of account balances
under the aggregated Defined Contribution Plans for all Key Employees as of
the respective Determination Date for each plan, and the denominator of
which is the sum of the present value of all accrued benefits under the
aggregated Defined Benefit Plans, determined in accordance with (i) above,
plus the sum of all account balances under the aggregated Defined
Contribution Plans for all Participants as of the respective Determination
Date for each plan, all determined in accordance with Code (S) 416. The
account balances under a Defined Contribution Plan in both the numerator
and denominator of the Top-Heavy Ratio are adjusted for any distribution of
any account balance made in the five-year period ending on the
Determination Date.
(iii) For purposes of (i) and (ii) above, the value of account
balances and the present value of accrued benefits will be determined as of
the most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Code (S) 416
for the first and second plan year of a Defined Benefit Plan. The account
balances and accrued benefits of a Participant (A) who is a Non-Key
Employee but who was a Key Employee in a prior year, or (B) who has not
been credited with at least one Hour of Service with any Employer at any
time during the five-year period ending on the Determination Date will be
disregarded. The calculation of the Top-Heavy Ratio, and the extent to
which distributions, rollovers, and transfers are taken into account will
be made in accordance with Code (S) 416. Deductible employee contributions
will not be taken into account for purposes of computing the Top-Heavy
Ratio. When aggregating plans, the value of account balances and accrued
benefits will be calculated with reference to the respective Determination
Dates for the aggregated plans that fall within the same calendar year.
(iv) Solely for the purpose of determining if the Plan, or any
other plan included in a Required Aggregation Group of which this Plan is a
part, is Top-Heavy (within the meaning of Code (S) 416(g)) such
determination shall be made under (A) the
Appendix-4
<PAGE>
method, if any, that uniformly applies for accrual purposes under all plans
maintained by the Employer, or (B) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted
under the fractional accrual rate of Code (S) 411(b)(l)(C).
(m) Valuation Date means, the date as of which account balances, or
--------------
accrued benefits are valued for purposes of calculating the Top-Heavy Ratio.
B. If the Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy
Plan as of any Determination Date, then it shall be subject to the rules set
forth in this Appendix A, beginning with the first Plan Year commencing after
such Determination Date.
C. For each Plan Year beginning before January 1, 1989 in which the Plan
is a Top-Heavy Plan or Super Top-Heavy Plan, Compensation for the purpose of
this Plan shall be limited to the first $200,000 (or such larger amount as may
be prescribed for the Plan Year involved pursuant to Code (S) 416(d)(2)) of the
amount that would otherwise have been Compensation.
D. (a) Except as provided in subparagraph (b) below and except if any
other Defined Contribution Plan or Defined Benefit Plan provides such minimum
benefit to the Participant, for any Plan Year in which the Plan is a Top-Heavy
Plan, contributions and forfeitures allocated to the Employer Contributions
Account of any Participant who is not a Key Employee, whether or not such
Participant has completed 1,000 Hours of Service in that Plan Year and whether
or not such Participant has elected to participate in the Plan, in respect of
that Plan Year shall not be less than the smaller of:
(i) three percent of such Participant's Limitation Compensation
as defined in this Appendix A or,
(ii) the largest percentage of contributions and forfeitures, as
a percentage of the Key Employee's compensation, allocated in the aggregate
to the Employer Contributions Account of any Key Employee for that year.
(b) The provision in (a) above shall not apply to any Participant who
was not employed by the Employer or an Affiliate on the last day of the Plan
Year.
E. If the Plan is a Top-Heavy Plan for any Plan Year, then the maximum
benefit which can be provided under Code (S) 415 shall be determined by
substituting "1.00" for "1.25" in Code (S) 415(e)(2)(B) and (3)(B), unless the
Plan meets the requirements of Code (S) 416(h)(2)(B) and the Administrator
increases the minimum rate of benefit accrual provided in
Appendix-5
<PAGE>
Section D by one percent.
F. Beginning with the Plan Year in which this Plan is Top-Heavy, the
following vesting schedule will apply:
Completed Years of Vested
Vesting Service Percentage
------------------ ----------
2 20%
3 40%
4 60%
5 100%
G. In the event that any provision of this Appendix A is no longer
required to qualify the Plan under the Code, then such provision shall thereupon
be void without the necessity of further amendment of the Plan.
Appendix-6
<PAGE>
Appendix-7
<PAGE>
EXHIBIT 10.12
THE
WADDELL & REED FINANCIAL, INC.
RETIREMENT INCOME PLAN
(AMENDED AND RESTATED AS OF MARCH 1, 1998)
<PAGE>
BACKGROUND
----------
Effective as of January 1, 1973, Continental Investment Corporation, a
predecessor of United Investors Management Company, established a defined
benefit pension plan ("Plan") which is intended to be qualified pursuant to the
provisions of the Internal Revenue Code of 1986, as amended. Subsequently, the
Plan has been known as the Liberty Financial Services, Inc. Retirement Income
Plan, the Torchmark Financial Services, Inc. Retirement Income Plan and the
TMK/United, Inc. Retirement Income Plan. Effective January 1, 1989, the Plan
was renamed the United Investors Management Company Retirement Income Plan. The
Plan is intended to provide eligible employees of the Company, and those of any
affiliate which adopts the Plan, with a supplemental source of retirement
income.
Effective as of January 1, l989, the Plan was amended and restated to
comply with the Tax Reform Act of l986. The Plan was further amended effective
January 1, 1993.
Effective as of March 1, 1998, WADDELL & REED FINANCIAL, INC. (the
"Company") and its affiliates assumed sole sponsorship of the Plan and made
certain amendments to the Plan as set forth herein.
The benefit under the Plan of any participant who terminates
employment or becomes disabled shall be determined in accordance with the
provisions of the Plan as in effect on the date of such termination of
employment or disability.
i
<PAGE>
TABLE OF CONTENTS
Page
BACKGROUND ............................................................. i
TABLE OF CONTENTS ...................................................... ii
ARTICLE 1 - DEFINITIONS ................................................ 1-1
"Accrued Retirement Benefit" ............................... 1-1
"Actuarial Equivalent" ..................................... 1-1
"Administrative Committee" ................................. 1-1
"Administrator" ............................................ 1-1
"Affiliate" ................................................ 1-1
"Beneficiary" .............................................. 1-2
"Benefit Commencement Date" ................................ 1-2
"Board of Directors or Board" .............................. 1-2
"Code" ..................................................... 1-2
"Company" .................................................. 1-2
"Comparable Plan" .......................................... 1-2
"Compensation" ............................................. 1-2
"Covered Compensation" ..................................... 1-3
"Credited Service" ......................................... 1-4
"Deferred Retirement" ...................................... 1-4
"Defined Benefit Plan" ..................................... 1-4
"Defined Contribution Plan" ................................ 1-4
"Disability" ............................................... 1-4
"Early Retirement" ......................................... 1-4
"Effective Date" ........................................... 1-4
"Eligible Employee" ........................................ 1-4
"Employee" ................................................. 1-5
"Employer" ................................................. 1-5
"Employment" ............................................... 1-5
"Entry Date" ............................................... 1-5
"ERISA" .................................................... 1-5
"Final Average Compensation" ............................... 1-5
"Hour of Service" .......................................... 1-6
"Investment Manager" ....................................... 1-7
"Non-Vested Separation" .................................... 1-7
"Normal Retirement" ........................................ 1-7
"Normal Retirement Age" .................................... 1-7
"Normal Retirement Date" ................................... 1-7
"One Year Break in Service" ................................ 1-8
"Participant" .............................................. 1-8
"Participating Affiliates" ................................. 1-8
"Plan" ..................................................... 1-8
"Plan Year" ................................................ 1-8
"Profit Sharing and Retirement Plan Annuity" ............... 1-8
"Qualified Joint and Survivor Annuity" ..................... 1-9
"Qualified Plan" ........................................... 1-9
"Qualified Pre-Retirement Survivor Annuity" ................ 1-9
"Retirement Benefit" ....................................... 1-9
"Social Security Offset Percentage" ....................... 1-10
"Social Security Retirement Age" .......................... 1-10
"Special Average Earnings" ................................ 1-11
"Spouse" .................................................. 1-11
"Surviving Spouse" ........................................ 1-11
"Trust or Trust Fund" ..................................... 1-11
"Trust Agreement" ......................................... 1-11
"Trustee" ................................................. 1-12
"Vested Separation" ....................................... 1-12
"Vesting Service" ......................................... 1-12
"Year of Service" ......................................... 1-12
ii
<PAGE>
ARTICLE 2 - PARTICIPATION .............................................. 2-1
2.1 Admission as a Participan .................................. 2-1
2.2 Re-employment .............................................. 2-1
2.3 Termination of Participatio ................................ 2-1
ARTICLE 3 - RETIREMENT BENEFIT ......................................... 3-1
3.1 Retirement Benefit Formula ................................. 3-1
3.2 Rules for Determining Years of Credited Servic ............. 3-3
3.3 Limitation on Benefits ..................................... 3-5
3.4 Special Retirement Benefit Rules for Certain Former
Torchmark Employees ........................................ 3-5
ARTICLE 4 - VESTING PROVISIONS ......................................... 4-1
4.1 Determination of Vesting ................................... 4-1
4.2 Rules for Crediting Vesting Service ........................ 4-1
4.3 Retirement Benefit Forfeitures ............................. 4-2
ARTICLE 5 - AMOUNT AND COMMENCEMENT OF RETIREMENT
BENEFITS ................................................... 5-1
5.1 Determination of Amount of Retirement Benefits ............. 5-1
5.2 Suspension of Payments on Resumption of Employment ......... 5-3
5.3 Limitation on Commencement of Benefits ..................... 5-4
ARTICLE 6 - FORMS OF PAYMENT OF RETIREMENT BENEFIT ..................... 6-1
6.1 Methods of Distribution .................................... 6-1
6.2 Election of Optional Forms ................................. 6-2
6.3 Direct Rollovers ........................................... 6-3
ARTICLE 7 - DEATH BENEFITS.............................................. 7-1
7.1 Eligibility for Pre-Retirement Death Benefit ............... 7-1
7.2 Form of Pre-Retirement Death Benefit ....................... 7-2
7.3 Election to Waive .......................................... 7-3
iii
<PAGE>
7.4 Beneficiaries............................................... 7-3
7.5 After-Death Distribution Rules.............................. 7-4
ARTICLE 8 - CONTRIBUTIONS AND FORFEITURES............................... 8-1
8.1 Contribution by the Company................................. 8-1
8.2 Contributions by Employees.................................. 8-1
8.3 Forfeitures................................................. 8-1
8.4 Return of Employer Contributions under Special
Circumstances............................................... 8-1
ARTICLE 9 - FIDUCIARIES................................................. 9-1
9.1 Named Fiduciaries........................................... 9-1
9.2 Employment of Advisers...................................... 9-1
9.3 Multiple Fiduciary Capacities............................... 9-1
9.4 Reliance.................................................... 9-2
9.5 Scope of Authority and Responsibility....................... 9-2
ARTICLE 10 - TRUSTEE................................................... 10-1
10.1 Trust Agreement............................................ 10-1
10.2 Assets in Trust............................................ 10-1
ARTICLE 11 - ADMINISTRATIVE COMMITTEE.................................. 11-1
11.1 Appointment and Removal of Administrative Committee........ 11-1
11.2 Officers of Administrative Committee....................... 11-1
11.3 Action by Administrative Committee......................... 11-1
11.4 Rules and Regulations...................................... 11-2
11.5 Powers..................................................... 11-2
11.6 Information from Participants.............................. 11-3
11.7 Reports.................................................... 11-3
11.8 Authority to Act........................................... 11-3
11.9 Liability for Acts......................................... 11-3
11.10 Compensation and Expenses.................................. 11-3
11.11 Indemnity.................................................. 11-4
iv
<PAGE>
11.12 Denied Claims.............................................. 11-4
ARTICLE 12 - PLAN AMENDMENT OR TERMINATION............................. 12-1
12.1 Plan Amendment............................................. 12-1
12.2 Limitations on Plan Amendment.............................. 12-1
12.3 Right of the Company to Terminate Plan..................... 12-2
12.4 Effect of Partial or Complete Termination.................. 12-2
12.5 Allocation of Assets....................................... 12-3
12.6 Residual Assets............................................ 12-3
12.7 Limitations Applicable to Certain Highly Paid
Participants............................................... 12-3
ARTICLE 13 - MISCELLANEOUS PROVISIONS.................................. 13-1
13.1 Exclusive Benefit of Participants.......................... 13-1
13.2 Plan Not a Contract of Employment.......................... 13-1
13.3 Source of Benefits......................................... 13-1
13.4 Benefits Not Assignable.................................... 13-1
13.5 Domestic Relations Orders.................................. 13-2
13.6 Benefits Payable to Minors, Incompetents and Others........ 13-2
13.7 Merger or Transfer of Assets............................... 13-2
13.8 Participation in the Plan by an Affiliate.................. 13-3
13.9 Action by Employer......................................... 13-3
13.10 Provision of Information................................... 13-3
13.11 Controlling Law............................................ 13-4
13.12 Conditional Restatement.................................... 13-4
13.13 Rules of Construction...................................... 13-4
APPENDIX A - TOP-HEAVY PROVISIONS...................................Appendix-1
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ARTICLE 1 - DEFINITIONS
Each of the following terms shall have the meaning set forth in this
Article 1 for purposes of this Plan:
"Accrued Retirement Benefit" - As of any date, the Retirement Benefit
of a Participant calculated pursuant to the provisions of Article 3 as if the
Participant's Employment terminated on such date, but in no event less than the
Accrued Retirement Benefit to which the Participant would have been entitled had
he terminated employment on December 31, 1988 under the provisions of the Plan
as then in effect.
"Actuarial Equivalent" - An amount or a benefit of equivalent current
value to the Retirement Benefit which would otherwise be provided a Participant,
determined on the basis of the following actuarial assumptions:
(a) Mortality - for both sexes, the male 1971 Individual Annuity
Mortality Table, with an age set back of one year.
(b) Interest - (i) the applicable interest rate utilized by the
Pension Benefit Guaranty Corporation to value immediate and deferred
annuities, whichever is applicable, at the time the payment of such benefit
commences or such amount is distributed, or (ii) such other rate as
otherwise required by law.
"Administrative Committee": The committee appointed by the Board
pursuant to, and having the responsibilities specified in, Article 11 of the
Plan.
"Administrator" - The Company or Committee appointed by the Board of
Directors pursuant to, and having the responsibilities specified in, Article 11
of the Plan.
"Affiliate" - Any corporation or unincorporated trade or business
(other than the Company) while it is:
(a) a member of a "controlled group of corporations" (within the
meaning of
1-1
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Code (S) 414(b)) of which the Company is a member;
(b) a trade or business under "common control" (within the meaning of
Code (S) 414(c)) with the Company;
(c) a member of an "affiliated service group" (within the meaning of
Code (S) 414(m)) which includes the Company; or
(d) any other entity required to be aggregated with the Company under
Code (S) 4l4(o).
"Beneficiary" - A person other than a Participant entitled to receive
any payment of benefits pursuant to the terms of this Plan.
"Benefit Commencement Date" - The date, determined under Article 5, as
of which a Participant or a Beneficiary receives or begins to receive, as the
case may be, payment of his benefits under the Plan.
"Board of Directors or Board" - The Board of Directors of the Company.
"Code" - The Internal Revenue Code of 1986, as now in effect or as
amended from time to time. A reference to a specific provision of the Code
shall include such provision and any applicable regulation pertaining thereto.
"Company" - Waddell & Reed Financial, Inc., or any successor thereto
by consolidation, merger, transfer of assets or otherwise.
"Comparable Plan" - A plan of the same type as described in Treasury
Regulation (S) 1.381(c)(11)-1(d)(4).
"Compensation" - The total cash compensation paid to an Employee
during a calendar year by his Employer, including salary, wages, any amounts not
paid directly and currently in cash to an Employee but paid for the benefit of
an Employee through a "salary
1-2
<PAGE>
reduction" agreement in conjunction with one or more welfare plans of the
Employer and the total amount deferred pursuant to an Employee's election under
a "cash or deferred arrangement" in conjunction with one or more qualified
retirement plans of the Employer, but excluding:
1) any reimbursement of or allowances for expenses and travel;
2) payments made to any Employee after such Employee's separation
from service, in the form of severance benefits;
3) Employer contributions to the Plan or any other public or private
employee benefit plan or deferred compensation arrangement;
4) payments, contributions, or benefits under such other plans,
programs or forms of compensation as the Board of Directors may exclude under
this definition;
5) annual or periodic performance bonus payments and commissions for
all Employees other than Regional Vice Presidents, Division Managers and
District Managers to the extent such exclusion from earnings does not reduce the
Accrued Retirement Benefit of any such Employee under the Plan as of December
27, 1984;
6) effective July 1, 1987, compensation derived from commissions
paid on the sales of personal production of Regional Vice Presidents, Division
Managers and District Managers to the extent such exclusion from earnings does
not reduce the Accrued Retirement Benefit of any such Employee under the Plan as
of July 1, 1987;
7) director's fees;
8) annual service awards and other non-cash prizes and awards; and
9) deferred compensation accrued under any deferred compensation
agreement or contract or any amendment or replacement thereof.
The determination of Compensation will be in accordance with records
maintained by the Employer and shall be conclusive. Anything in this definition
to the contrary notwithstanding, the Compensation taken into account for a
Participant for Plan purposes for any Plan Year beginning after December 31,
1993 shall not exceed $150,000 (or such adjusted amount as may be prescribed for
such Plan Year pursuant to Code (S) 401(a)(17)).
"Covered Compensation" - The average of the annual contribution and
benefits base under Section 230 of the Social Security Act for each year for the
thirty-five year period
1-3
<PAGE>
ending in the year the Participant reaches Social Security Retirement Age
(SSRA), except for a Participant who separates before attainment of SSRA the
base for the year of separation will be assumed to be the base for all future
years to SSRA without increases or adjustments.
"Credited Service" - The Years of Service for computation of the
amount of a Participant's Retirement Benefit as defined in Article 3.
"Deferred Retirement" - Termination of Employment of a Participant
after his Normal Retirement Date.
"Defined Benefit Plan" - A plan of the type defined in Code (S) 414(j)
maintained by the Company or an Affiliate, as applicable.
"Defined Contribution Plan" - A plan of the type defined in Code (S)
414(i) maintained by the Company or an Affiliate, as applicable.
"Disability" - Total and permanent disability for a period of at least
six months as defined by the group disability benefit plan maintained by the
Participant's Employer.
"Early Retirement" - Termination of Employment, other than by reason
of Disability or death, of a Participant prior to Normal Retirement Age who has
completed at least 10 full years of Vesting Service and has attained the age of
55.
"Effective Date" - The Effective Date of this Amended and Restated
Plan shall be March 1, 1998. The original effective date of the Plan was
January 1, 1973.
"Eligible Employee" - An Employee of an Employer other than (a) an
Employee included in a unit of employees covered by a collective bargaining
agreement between the Employer and the employee representatives in the
negotiation of which retirement benefits were the subject of good faith
bargaining, unless such bargaining agreement provides for participation
1-4
<PAGE>
in the Plan; and (b) a leased employee within the meaning of Code (S) 414(n)(2).
"Employee" - Any individual who is classified by the Company as an
employee of the Company or an Affiliate (regardless of whether such individual
is classified as an employee according to the usual common law or employment tax
rules applicable in determining the employer-employee relationship). The term
"Employee" does not include leased employees within the meaning of Code (S)
414(n)(2). In addition, no person shall be considered an "Employee" hereunder
by reason of being a sales representative for the Company or an Affiliate.
"Employer" - The Company and each Affiliate participating in the Plan
pursuant to Section 13.8.
"Employment" - An Employee's employment with the Company or an
Affiliate or, to the extent determined by the Administrator, any predecessor of
any of them.
"Entry Date" - The first day of the payroll period following the date
the Eligible Employee has satisfied the requirements of Section 2.1.1.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to a specific provision of ERISA shall
include such provision and any applicable regulation pertaining thereto.
"Final Average Compensation" - The highest average of the
Participant's annual Compensation for any five consecutive full calendar years
of Employment during the 10 consecutive calendar years of Employment immediately
preceding the Participant's termination of Employment, provided that any service
credited for a period of Disability shall be disregarded in determining such 10
consecutive years. In the event the Participant does not have at least five
full calendar years of Employment, Final Average Compensation shall mean the
average annual Compensation for the Participant's total number of full years of
Employment. A Participant's annual Compensation, without annualization, during
the part of the calendar year immediately
1-5
<PAGE>
preceding his termination of Employment will be treated as his annual
Compensation for a full calendar year for the purpose of this Section if that
produces a higher average. If a Participant is rehired and is entitled to the
reinstatement of prior Credited Service and Vesting Service and does not have at
least five full consecutive years of annual Compensation after he is rehired,
then his Final Average Compensation shall mean the average of the annual
Compensation for the Participant's last five complete calendar years of
Employment.
"Hour of Service":
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for an Employer (or an Affiliate in the case of an
Employee who has transferred his Employment to the Employer from such Affiliate)
during the applicable computation period.
(b) Each hour for which an Employee is paid, or entitled to payment,
by an Employer (or an Affiliate in the case of an Employee who has transferred
his Employment to the Employer from such Affiliate) on account of a period of
time during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including Disability), lay-off, jury duty, military duty or leave of
absence. An hour for which an Employee is directly or indirectly paid or
entitled to payment on account of a period during which no duties are performed
is not credited to the Employee if such payment is made or due under a plan
maintained solely for the purpose of providing severance benefits or complying
with the applicable unemployment compensation laws. Hours of Service are not
credited for a payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Employer (or an Affiliate in the
case of an Employee who has transferred his Employment to the Employer from such
Affiliate). The same Hours of Service shall not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under this paragraph
(c).
(d) If, in accordance with standard personnel policies applied in a
non-discriminatory manner to all Employees similarly situated, an Employer
determines in writing
1-6
<PAGE>
that an Employee's approved, unpaid leave of absence furthers the interest of
the Employer, each hour for which the Employee on the approved unpaid leave of
absence would normally have received credit under this Plan if he had been
working in his regular employment for the Employer (or an Affiliate in the case
of an Employee who has transferred his Employment to the Employer from such
Affiliate).
(e) An Employee of the Employer (or an Affiliate in the case of an
Employee who has transferred his Employment to the Employer from such Affiliate)
who is regularly employed by such Employer (or Affiliate) for at least 37 1/2
hours a week shall be credited with forty-five Hours of Service if under this
Plan he would be credited with at least one Hour of Service during the week.
(f) An Employee of the Employer (or an Affiliate in the case of an
Employee who has transferred his Employment to the Employer from such Affiliate)
who is not regularly employed by such Employer (or Affiliate) for at least 37
1/2 hours a week shall be credited with forty-five Hours of Service if under
this Plan he would be credited with at least one Hour of Service during the
week.
(g) Hours of Service shall be calculated and credited pursuant to
section 2530-200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference.
"Investment Manager" - Any person appointed pursuant to Section 9.1
having the power to direct the investment of assets in accordance with that
Section.
"Non-Vested Separation" - Termination of Employment of a Participant
whose vested percentage in his Retirement Benefit is zero percent.
"Normal Retirement" - Termination of Employment of a Participant at
Normal Retirement Age.
"Normal Retirement Age" - Age sixty-five.
"Normal Retirement Date" - The last day of the payroll period of the
Employer
1-7
<PAGE>
coinciding with or next following the date on which the Participant attains age
65.
"One Year Break in Service" - Any period of twelve consecutive months,
beginning with the date of an Employee's Employment or any anniversary of the
date of such Employment, during which the Employee has not completed more than
500 Hours of Service; except a Participant who is absent from work due to such
Participant's pregnancy, the birth of the Participant's child or by reason of
the adoption of a minor child by the Participant for the purpose of caring for
such child immediately following its birth or adoption and who provides timely
information establishing to the satisfaction of the Administrator the reasons
for the absence and the number of days of such absence will be treated as
performing a normal schedule (or eight hours per day) up to a maximum of 501
Hours of Service in either the year in which the absence begins or the year
immediately following the year in which the absence begins as necessary to
prevent such Participant from incurring a One Year Break in Service in either
(but not both) the year in which the absence begins or the year immediately
following the year in which the absence begins.
"Participant" - An Employee who has commenced, but not terminated,
participation in the Plan as provided in Article 2.
"Participating Affiliates" - Any Affiliate which in accordance with
Section 13.8 by duly authorized action has adopted the Plan and not withdrawn
therefrom.
"Plan" - The Waddell & Reed Financial, Inc. Retirement Income Plan.
"Plan Year" - Each twelve consecutive month period ending on December
31, during any part of which the Plan is in effect.
"Profit Sharing and Retirement Plan Annuity" - The annual single life
annuity, without death benefit, which can be provided by that portion of the
Participant's account, if any, under the Liberty National Life Insurance Company
Profit Sharing and Retirement Plan
1-8
<PAGE>
attributable to employer contributions and earnings thereon. In determining the
amount attributable to employer contributions and earnings thereon for this
purpose no deduction shall be made for the amount of any loans outstanding.
There shall be added to the amount attributable to employer contributions and
earnings thereon:
(1) the amount of any withdrawal(s) by, and prior distribution(s) to,
the Participant to the extent such withdrawals and prior distributions
exceed the amount of the Participant's contributions and earnings thereon
and
(2) the amount of the earnings of the Plan which would have been
allocated to the amount(s) described in the preceding paragraph from the
date of such withdrawals or distributions.
A Participant's Profit Sharing and Retirement Plan Annuity shall be calculated
as of his termination of Employment, based upon the Participant's attained age
and the employer's rate basis for annuities purchasable under the Profit Sharing
and Retirement Plan on such date. A Participant's Profit Sharing and Retirement
Plan Annuity may be calculated on either an immediate or deferred basis as
indicated in the context of this Plan, but, in any case, one shall be the
Actuarial Equivalent of the other.
"Qualified Joint and Survivor Annuity" - An annuity for the life of
the Participant with a survivor annuity continuing after the Participant's death
to the Participant's Surviving Spouse for the Surviving Spouse's life in an
amount which is equal to fifty percent of the amount payable during the joint
lives of the Participant and such Surviving Spouse and which is the Actuarial
Equivalent of the Participant's Retirement Benefit.
"Qualified Plan" - A Defined Contribution Plan or a Defined Benefit
Plan which is qualified under Code (S) 401(a).
"Qualified Pre-Retirement Survivor Annuity" - The pre-retirement death
benefit provided for in Section 7.1.1(2).
"Retirement Benefit" - The retirement benefit of a Participant
calculated under
1-9
<PAGE>
Article 3 in the form of a single life annuity payable monthly commencing on
Normal Retirement Date for the life of the Participant.
"Social Security Offset Percentage" - The percentage factor utilized
in determining the social security offset for a Participant. This offset
percentage is based on the Participant's Social Security Retirement Age and the
age at which the Participant's benefits commence. The appropriate offset
percentages are as follows:
Benefit Social Security Retirement Age
Commencement ------------------------------
Age Age 65 Age 66 Age 67
-------------- ------ ------ ------
(Interpolate for months)
55 0.750% 0.688% 0.632%
56 0.750% 0.703% 0.645%
57 0.750% 0.706% 0.662%
58 0.750% 0.708% 0.667%
59 0.750% 0.711% 0.671%
60 0.750% 0.712% 0.675%
61 0.750% 0.682% 0.648%
62 0.750% 0.688% 0.625%
63 0.750% 0.692% 0.635%
64 0.750% 0.696% 0.643%
65 0.750% 0.700% 0.650%
66 0.750% 0.750% 0.700%
67 0.750% 0.750% 0.750%
"Social Security Retirement Age" - The earliest age at which a
Participant is entitled to receive his full benefit under the Social Security
Act. The appropriate Social Security Retirement Ages are as follows:
1-10
<PAGE>
Calendar Year Age of Social Security
of Birth Retirement Age
--------------- ----------------------
1937 and Before Age 65
1938 to 1954 Age 66
1955 and after Age 67
"Special Average Earnings" - The average of the Participant's annual
Compensation for the three completed consecutive calendar year periods during
his last five complete consecutive calendar years of Employment which yields the
highest average, or if employed less than three complete consecutive calendar
years the amount obtained by converting his compensation for the most recent
periods of Employment to an annual rate, where compensation considered for any
year cannot exceed the Social Security contribution and benefits base under
Section 230 of the Social Security Act for that year. Notwithstanding the
above, Special Average Earnings will not exceed the Participant's Covered
Compensation.
"Spouse" - The person lawfully married to a Participant.
"Surviving Spouse" - The Spouse of a Participant on the earlier of:
(a) the date of the Participant's death; or
(b) the Participant's Benefit Commencement Date.
"Trust or Trust Fund" - The trust established under the Plan in which
Plan assets are held.
"Trust Agreement" - The agreement between the Company and the Trustee
with respect to the Trust fund.
1-11
<PAGE>
"Trustee" - The trustee appointed pursuant to Article 10, and any
successor trustee.
"Vested Separation" - Termination of Employment of a Participant for
any reason other than Disability before he is eligible for Early Retirement,
with a vested percentage in his Retirement Benefit.
"Vesting Service" - The Years of Service credited to a Participant
under Section 4.2 for purposes of determining the Participant's vested
percentage in his Retirement Benefit.
"Year of Service":
(a) For purposes of determining eligibility to participate under
Article 2 and for purposes of determining Vesting Service, for Employment,
or return to Employment after a One Year Break in Service, a period of
twelve consecutive months beginning with the date of Employment or return
to Employment during which an Employee has not less than 1000 Hours of
Service for an Employer (or an Affiliate in the case of an Employee who has
transferred his Employment to the Employer from such Affiliate).
(b) For purposes of determining Credited Service, for Employment, or
return to Employment after a One Year Break in Service, a period of twelve
consecutive months beginning with the date of Employment or return to
Employment during which an Employee has not less than 2000 Hours of Service
for an Employer in Employment covered by the Plan (or for an Affiliate in
employment covered by such Affiliate's Comparable Plan in the case of an
Employee who has transferred his Employment to the Employer from such
Affiliate). An Employee who completes at least 1,000 Hours of Service but
less than 2,000 Hours of Service in a computation period shall be credited
with a fraction of a Year of Service for such period, determined by
dividing his Hours of Service in such period by 2,000.
1-12
<PAGE>
ARTICLE 2 - PARTICIPATION
2.1 ADMISSION AS A PARTICIPANT
2.1.1 An Eligible Employee shall become a Participant on the first day of
the payroll period next following the later of his completion of one Year of
Service or his attainment of age 21. Anything in this Section 2.1.1 to the
contrary notwithstanding, any Eligible Employee who was a Participant on the
Effective Date shall remain a Participant as of that date.
2.1.2 An Employee who did not become a Participant on the Entry Date next
following the date on which he met the eligibility requirements of Section 2.1.1
because he was not then an Eligible Employee shall become a Participant as of
the first day on which he becomes an Eligible Employee.
2.1.3 If an Employee has not completed 1,000 Hours of Service for the
Employer by the anniversary of his Employment, the next twelve-month period for
determining a Year of Service shall begin on the January 1 next following his
date of Employment and thereafter any subsequent twelve-month period shall begin
on the anniversary of his Employment.
2.2 RE-EMPLOYMENT
An individual who has ceased to be a Participant and who again becomes an
Eligible Employee shall become a Participant as of the first date on which he
again becomes an Eligible Employee, unless he has had a One Year Break in
Service. If an individual again becomes an Eligible Employee after a One Year
Break in Service, he shall become a Participant upon completion of one Year of
Service retroactive to a date which is not later than the date he again became
an Eligible Employee.
2.3 TERMINATION OF PARTICIPATION
A Participant shall cease to be such:
(a) upon the payment to him of all nonforfeitable benefits due to him
under the Plan at a time when he is no longer eligible for any future benefit
accrual;
(b) upon his Non-Vested Separation;
(c) upon his death; or
(d) upon the transfer of his Accrued Benefit to another Qualified
Plan.
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<PAGE>
ARTICLE 3 - RETIREMENT BENEFIT
3.1 RETIREMENT BENEFIT FORMULA
3.1.1 A Participant's monthly Retirement Benefit shall be an amount equal
to 1/12 of the excess of (a) over the sum of (b), (c) and (d) below, where:
(a) is 2% of the Participant's Final Average Compensation for each
year of Credited Service up to 30 years plus 1% of the Participant's Final
Average Compensation for each year of Credited Service in excess of 30 years
(not exceeding 10%);
(b) is the social security offset which is equal to the smaller of:
(1) 50% of the basic benefit calculated above in Section
3.1.1(a), but substituting Special Average Earnings for Final Average
Compensation in the formula;
or
(2) the Social Security Offset Percentage times the
Participant's Special Average Earnings times each year of Credited Service
not to exceed 35 years;
(c) is the Participant's Profit Sharing and Retirement Plan Annuity,
if any; and
(d) is the Participant's annual retirement income (expressed in the
form of a single life annuity commencing at Normal Retirement Date) under (i)
the Comparable Plan or Plans of the Company or any affiliate of the Company or
any other corporation merged into the Company, or whose assets were acquired by
the Company, or (ii) the Comparable Plan or Plans of Torchmark Corporation or
any affiliate of the Torchmark Corporation or any other corporation merged into
the Torchmark Corporation or whose assets were acquired by Torchmark
Corporation.
3.1.2 In no case shall the monthly Retirement Benefit for any Participant
who was a Participant in the Plan prior to December 27, 1984 be less than the
monthly normal retirement income which had accrued under the Plan to such
Participant on December 27, 1984.
3.1.3 Notwithstanding Section 3.1.1, for Participants who were
participating in the Liberty National Life Insurance Company Pension Plan on
April 5, 1982, the monthly Retirement Benefit of any such Participant retiring
after April 5, 1982, shall not be less than 1/12 of (a) or (b) below, whichever
is greater, where:
(a) is (i) plus (ii) less (iii), where:
3-1
<PAGE>
(i) applies only to Participants with less than 30 years of
Credited Service on the anniversary of employment preceding April 5, 1982,
and is 1/12 of 2% times the Final Average Compensation times the number of
complete months of service for benefit accrual purposes from March 6, 1982,
through the earlier of the 30th year of Credited Service or the date of
termination of Employment; and,
(ii) is 1/12 of 1% times the Final Average Compensation times
the number of complete months of service for benefit accrual purposes from
March 6, 1982, or from the 30th year of Credited Service, if later, through
the earlier of the date of termination of Employment or the 40th year of
Credited Service for benefit accrual purposes; and
(iii) applies only to Participants with less than 35 years of
Credited Service on the anniversary of employment immediately preceding
April 5, 1982, and is the lesser of (x) 1/12 of the Social Security Offset
Percentage times the Participant's Special Average Earnings times the
number of complete months of service for benefit accrual purposes from
March 6, 1982, through the earlier of the 35th year of Credited Service for
benefit accrual purposes, or the date of termination of Employment or (y)
50% of the sum of the amounts in (a)(i) plus (a)(ii) but substituting
Special Average Earnings for Final Average Compensation in those formulas.
(b) is (i) plus (ii) less (iii), where:
(i) is 1/12 of 2% times the Final Average Compensation times
the number of complete months of service for benefit accrual purposes from
April 5, 1982, through the earlier of April 4, 1987 or the date of
termination of Employment; and
(ii) is 1/12 of 1.5% times the Final Average Compensation times
the number of complete months of service for benefit accrual purposes from
April 5, 1987, through the earlier of April 4, 1992 or the date of
termination of Employment; and
(iii) is the amount calculated in Section 3.1.3(a)(iii), above.
Any benefit provided under this Section shall be based solely on Credited
Service for benefit accrual purposes for an Employer participating in this Plan.
3.1.4 The amount of Retirement Benefit calculated under this section shall
be subject to actuarial adjustment if it is payable in any other form of payment
authorized by this Plan.
3-2
<PAGE>
3.1.5 The Retirement Benefit of a Participant who terminated Employment or
incurred a Disability prior to the Effective Date shall be determined in
accordance with the provisions of the Plan as in effect on the date of
termination of Employment or Disability.
3.1.6 The Retirement Benefit of a Participant who had a Vested Termination
and received a distribution of his Accrued Retirement Benefit at the time of
termination shall be reduced by the Actuarial Equivalent of such prior
distribution.
3.2 RULES FOR DETERMINING YEARS OF CREDITED SERVICE
3.2.1 Credited Service shall mean the sum of (i) a Participant's years of
Accrual Service prior to the Effective Date under the terms of the Plan as in
effect on December 31, 1988, expressed in full years and fractions thereof; plus
(ii) subject to Sections 3.2.2 through 3.2.7 below, a Participant's Years of
Service after the Effective Date, expressed in full years and fractions thereof,
except for the following:
(a) Any period of Employment prior to the Participant's attainment
of age 21; and
(b) Any period of Employment in a classification in which the
Participant does not qualify as an Eligible Employee.
3.2.2 If an Employee is on an authorized unpaid leave of absence granted
by his Employer, his period of absence shall be counted as Credited Service upon
his return to active Employment only if his Employer determines in writing, in
accordance with standard personnel policies applied in a non-discriminatory
manner to all Employees similarly situated, that such absence furthers the
interest of the Employer.
3.2.3 If an Employee is on an authorized military leave while his
reemployment rights are protected by law and provided that he directly entered
military service from his Employer's service and shall not have voluntarily
reenlisted after the date of first entering active military service, his period
of absence shall be counted as Credited Service upon his return to active
Employment.
3.2.4 If an Employee is on an authorized leave of absence on account of
Disability, he shall continue to receive Credited Service from the date of
Disability until the earlier of: (i) his Early Retirement Date; (ii) his Normal
Retirement Date; or (iii) his recovery from Disability.
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3.2.5 An Employee who terminates Employment with no vested percentage in
his Retirement Benefit shall, if he returns to Employment, have no credit for
Credited Service prior to such termination of Employment if the total of his
consecutive One Year Breaks in Service immediately preceding his reemployment
exceed the greater of five years or his aggregate years of Vesting Service
(whether or not consecutive, but excluding Vesting Service previously
disregarded under Section 4.2.4) prior to the termination. A Participant who
had a Vested Termination and returns to Employment will retain credit for his
prior years of Credited Service; provided, however, that if such Participant
received a distribution of his Accrued Retirement Benefit at the time of such
Vested Termination, any subsequent Retirement Benefit paid to the Participant
shall be reduced or offset by the Actuarial Equivalent of the Accrued Retirement
Benefit paid to such Participant at the time of his earlier Vested Termination.
3.2.6 No Participant shall receive Credited Service during a period when
such Participant is accruing, or has accrued, benefits under another defined
benefit plan of (i) the Employer or an Affiliate, or (ii), Torchmark Corporation
or an affiliate of Torchmark Corporation unless the Retirement Benefit under
this Plan is reduced or offset by the full amount of benefits accrued by such
Participant under such other defined benefit plan.
3.2.7 By appropriate corporate action exercised in a uniform and
nondiscriminatory manner and, where applicable consented to by the Company, each
Employer may grant Credited Service for any Employment with such Employer prior
to the time it became an Employer.
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<PAGE>
3.3 LIMITATION ON BENEFITS
Notwithstanding any other provisions of the Plan, a Participant's Accrued
Retirement Benefit shall not exceed the limitations of Code (S) 415 which are
hereby incorporated by reference. In the event that the limitations of Code (S)
415(e) would otherwise be violated, a Participant's benefits and/or annual
additions under plans of the Company or an Affiliate will be reduced as
necessary in the following order: (i) the accrued benefit under any defined
benefit plan (pro rata with respect to two or more such plans); (ii) unmatched
employee contributions under any defined contribution plan; (iii) matched
employee contributions under any defined contribution plan; (iv) matching
Employer contributions under any defined contribution plan; and (v) Employer
contributions to the Profit-Sharing and Retirement Plan of Liberty National Life
Insurance Company.
3.4 SPECIAL RETIREMENT BENEFIT RULES FOR CERTAIN FORMER TORCHMARK EMPLOYEES
3.4.1 Notwithstanding any other provision of the Plan to the contrary,
with respect to any Participant described in Section 3.4.2, the amount of such
Participant's monthly Retirement Benefit shall be equal to 1/12 of the sum of
(a) plus (b) below, where
(a) is the monthly accrued benefit the Participant had earned under
the Torchmark Corporation Pension Plan as of the date such Participant ceased to
be an employee of Torchmark and became an Employee of the Company, and
(b) is the monthly Accrued Benefit that the Participant has earned
under this Plan, excluding from Credited Service any period of service counted
as credited service under the Torchmark Corporation Pension Plan.
3.4.2 A Participant is described in this Section 3.4.2 if the assets and
liabilities with respect to such Participant have been transferred to the Plan
from the Torchmark Corporation Pension Plan.
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ARTICLE 4 - VESTING PROVISIONS
4.1 DETERMINATION OF VESTING
In the case of a Participant who performs at least one Hour of Service on
or after January 1, 1989, he shall have a vested percentage of 100% in his
Retirement Benefit upon: (i) termination of Employment due to death or
Disability or upon or after attaining Normal Retirement Age; or (ii) completion
of five years of Vesting Service.
4.2 RULES FOR CREDITING VESTING SERVICE
4.2.1 A Participant's Vesting Service shall mean the sum of (i) a
Participant's years of Vesting Service prior to the Effective Date under the
terms of the Plan as in effect on December 31, 1988; plus (ii) subject to
Sections 4.2.2 through 4.2.4 below, a Participant's Years of Service after the
Effective Date, except for Years of Service before the Participant attained age
18.
4.2.2 If an Employee is on an authorized unpaid leave of absence granted
by his Employer in accordance with standard personnel policies of such Employer
applied in a non-discriminatory manner to all Employees similarly situated, his
period of absence shall not be considered a Break in Service and shall be
counted as Vesting Service upon his return to active Employment.
4.2.3 If an Employee is on an authorized military leave while his
reemployment rights are protected by law and provided that he directly entered
military service from his Employer's service and shall not have voluntarily
reenlisted after the date of first entering active military service, his period
of absence shall not be considered a Break in Service and shall be counted as
Vesting Service upon his return to active Employment.
4.2.4 An Employee who terminates Employment with no vested percentage in
his Retirement Benefit shall, if he returns to Employment, have no credit for
Vesting Service prior to such termination of Employment if the total of his
consecutive One Year Breaks in Service immediately preceding his reemployment
exceed the greater of five years or his aggregate years of Vesting Service
(whether or not consecutive, but excluding Vesting Service previously
disregarded under this rule) prior to the termination. A Participant who had a
Vested Separation and returns to Employment will retain credit for his prior
years of Vesting Service.
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4.3 RETIREMENT BENEFIT FORFEITURES
The unvested portion of the Retirement Benefit of a Participant who has
terminated Employment shall be forfeited as of the earliest date on which such
Participant's Vesting Service may be disregarded pursuant to Section 4.2.4. Any
forfeitures shall be applied to reduce the Employer actuarial liability under
the Plan.
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ARTICLE 5 - AMOUNT AND COMMENCEMENT OF RETIREMENT BENEFITS
5.1 DETERMINATION OF AMOUNT OF RETIREMENT BENEFITS
5.1.1 Normal Retirement Benefits. A Participant's benefits upon Normal
--------------------------
Retirement shall be equal to his Retirement Benefit as of his Normal Retirement
Date. The Participant's Benefit Commencement Date shall be the last day of the
payroll period coincident with or next following his termination of Employment.
The Participant shall not be entitled to any benefits under this Paragraph
unless he shall survive until his Benefit Commencement Date.
5.1.2 Deferred Retirement Benefits. A Participant's benefits upon
----------------------------
Deferred Retirement shall be equal to his Retirement Benefit determined as of
his Deferred Retirement Date (without actuarial increase for deferred
commencement). The Participant's Benefit Commencement Date shall be the last
day of the payroll period coincident with or next following his termination of
Employment. The Participant shall not be entitled to any benefits under this
Paragraph unless he shall survive until his Benefit Commencement Date.
5.1.3 Early Retirement Benefits. A Participant's benefits upon Early
-------------------------
Retirement shall be equal to his Retirement Benefit calculated as of the date of
Early Retirement. The A Participant's benefits Participant's Benefit
Commencement Date shall be his Normal Retirement Date; however if he so elects,
the Benefit Commencement Date shall be the last day of the payroll period
coincident with or next following his Early Retirement, or the last day of any
payroll period thereafter which is prior to his Normal Retirement Date. If the
Participant elects a Benefit Commencement Date preceding his Normal Retirement
Date, his benefit shall equal the excess of (i) over (ii) below, where:
(i) is his Retirement Benefit, without reduction for his Profit
Sharing and Retirement Plan Annuity, if any, multiplied by the early retirement
factor shown below:
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Years by Which the
Date of the Participant's Early Retirement
First Benefit Payment Factor to Be Applied
Precedes His Normal to Accrued Retirement
Retirement Date Benefit
---------------------------- ---------------------
(Interpolate for Months)
10 .500
9 .533
8 .567
7 .600
6 .633
5 .667
4 .733
3 .800
2 .867
1 .933
0 1.000
and
(ii) is his Profit Sharing and Retirement Plan Annuity, if any.
A Participant shall not be entitled to any benefits under this Paragraph unless
he shall survive until his Benefit Commencement Date.
5.1.4 Vested Separation Benefits. A Participant's benefits upon Vested
--------------------------
Separation shall be equal to his Retirement Benefit calculated as of the date of
Vested Separation multiplied by his vesting percentage. The Participant's
Benefit Commencement Date shall be his Normal Retirement Date; provided,
however, that, such a Participant may elect to commence receiving his benefits
on or after the earliest date that he could have been eligible for Early
Retirement. If the Participant elects a Benefit Commencement Date preceding his
Normal Retirement Date, his benefit shall be equal to (a) times (b) minus (c),
where:
(a) is the Retirement Benefit which would have been payable to him
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commencing on his Normal Retirement Date determined without reduction for his
Profit Sharing and Retirement Plan Annuity, if any;
(b) is the appropriate early retirement factor shown in section
5.1.3; and
(c) is his Profit Sharing and Retirement Plan Annuity, if any.
A Participant shall not be entitled to any benefits under this Paragraph unless
he shall survive until his Benefit Commencement Date.
5.1.5 Non-Vested Separation. A Participant shall not be entitled to any
---------------------
Retirement Benefit upon his Non-Vested Separation. In addition, if a
Participant who is zero percent vested in his Accrued Retirement Benefit
terminates Employment, he shall be deemed to have received a distribution of his
Accrued Retirement Benefit.
5.2 SUSPENSION OF PAYMENTS ON RESUMPTION OF EMPLOYMENT
5.2.1 If an Employee continues in Employment after his Normal Retirement
Date or if a former Employee is receiving monthly payment of his Retirement
Benefit, payment of his Retirement Benefit shall be suspended for each calendar
month during which such Employee or former Employee continues in (or resumes)
Employment and performs more than 40 Hours of Service per calendar month
considered as service under ERISA (S) 203(a)(3)(B).
5.2.2 No payment shall be withheld by the Plan pursuant to this Section
unless the Plan notifies the Employee by personal delivery or first class mail
during the first calendar month or payroll period in which the Plan withholds
payments that his benefits are suspended. Such notifications shall contain a
description of the specific reasons why benefit payments are being suspended, a
description of the Plan provision relating to the suspension of payments, a copy
of such provisions, and a statement to the effect that applicable Department of
Labor regulations may be found in Title 29 of the Code of Federal Regulations
(S) 2530.203-3. In addition, the notice shall inform the Employee of the Plan's
procedures for affording a review of the suspension of benefits. Requests for
such reviews shall be considered in accordance with the claims procedure adopted
by the Administrator.
5.2.3 If benefit payments have been suspended, payments shall resume no
later than the first day of the third calendar month after the calendar month in
which the Employee ceases to be employed in ERISA (S) 203(a)(3)(B) service. The
initial payment upon resumption shall
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include the payment scheduled to occur in the calendar month when payments
resume and any amounts withheld during the period between the cessation of ERISA
(S) 203(a)(3)(B) service and the resumption of payments.
5.2.4 The Retirement Benefit payable upon resumption of benefit payment
shall be equal to the Participant's Retirement Benefit as of the date of his
subsequent termination of Employment reduced by the Actuarial Equivalent of
payments previously made to him; provided, however, that such Retirement Benefit
may not be less than the Retirement Benefit previously payable.
5.3 LIMITATION ON COMMENCEMENT OF BENEFITS
5.3.1 Unless otherwise elected by a Participant, the Participant's Benefit
Commencement Date shall in no event be later than the 60th day after the close
of the Plan Year in which the latest of the following events occurs:
(a) the attainment by the Participant of his Normal Retirement Age;
(b) the tenth anniversary of the year in which the Participant
commenced participation in the Plan; or
(c) the Participant's termination of Employment.
5.3.2 If the amount of benefits payable cannot be determined within such
60-day period, or if it is not possible to pay such benefits within such period
because the Administrator has been unable to locate the Participant after making
reasonable efforts to do so, then a payment, retroactive to such 60th day, shall
be made no later than 60 days after the earliest date on which the amount of
such benefits can be determined or the Participant can be located, as the case
may be.
5.3.3 Any other provision of this Article 5 to the contrary
notwithstanding, the Benefit Commencement Date of a Participant must be no later
than the first day of April following the calendar year in which the Participant
attains age 70-1/2 even if he continues in Employment after that date.
Notwithstanding the foregoing, if a Participant who is not a "5 percent owner"
(as defined in Code (S) 401(a)(9)) attained age 70-1/2 before January 1, 1988,
the Benefit Commencement Date must be no later than the first day of April
following the calendar year in which the Participant terminates Employment.
Effective as of January 1, 1997, in the case of a
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Participant who is not a 5 percent owner (as defined above) with respect to the
Plan Year ending in the calendar year in which the Participant attains age 70-
1/2, the Benefit Commencement Date must be no later than the later of (i) the
calendar year during which the Participant attained age 70-1/2, or (ii) the
calendar year in which the Participant retired.
5.3.4 If the Actuarial Equivalent value of a Participant's Retirement
Benefit exceeds $3,500 (or, for distributions after January 1, 1998, $5,000),
the Participant (and, if applicable, his Spouse) must consent, in writing filed
with the Administrator, to any distribution from the Plan before the
Participant's attainment of Normal Retirement Age.
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<PAGE>
ARTICLE 6 - FORMS OF PAYMENT OF RETIREMENT BENEFIT
6.1 METHODS OF DISTRIBUTION
6.1.1 A Participant's benefits shall be payable in the normal form of a
Qualified Joint and Survivor Annuity if the Participant is married on his
Benefit Commencement Date and in the normal form of an annuity for the life of
the Participant with Actuarially Equivalent payments guaranteed for 120 months
if the Participant is not married on that date, provided that, and subject to
Sections 6.1.2, 6.1.3 and 6.1.4, a Participant may within the 90-day period
prior to the Benefit Commencement Date elect, in accordance with Section 6.2,
any of the following optional forms of benefit payment instead of the normal
form:
(a) A Single Life Annuity, under which monthly payments calculated
---------------------
in accordance with Section 3.1.1 are made to the Participant during his lifetime
with no further payments from the Plan on his behalf after his death.
(b) A Joint and 50%, 66-2/3%, or 100% Survivor Annuity, under which
--------------------------------------------------
Actuarially Equivalent monthly payments are made to the Participant for the
joint lives of the Participant and his Beneficiary with payments continuing for
the life of the survivor in an amount equal to 50%, 66-2/3% or 100% of the joint
life payments (whichever is elected by the Participant). A Participant may
elect to add a period certain of 10 years in which event no reduction in
payments will be made for the longer of the 10 year period or the period during
which both the Participant and Beneficiary remain alive.
(c) A 120 Months Certain and Life Income Annuity, an optional form
--------------------------------------------
of payment for a married Participant, under which reduced Actuarially Equivalent
payments are made to the Participant during the Participant's lifetime, with the
provision that if the Participant's death occurs before he had received 120
monthly payments the value of the remaining number of such payments shall be
paid to his Beneficiary.
(d) Lump Sum, under which the Actuarially Equivalent value of the
--------
Participant's Retirement Benefit is paid in one sum.
6.1.2 Anything in Section 6.1.1 to the contrary notwithstanding, if the
Actuarial Equivalent value of a Participant's Retirement Benefit is $3,500 or
less ($5,000 for distributions on or after January 1, 1998), his benefit shall
be paid in the form of a lump sum distribution and
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<PAGE>
no optional form of benefit payment shall be available.
6.1.3 Payment in any form may only be made over one of the following
periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of the
Participant, or
(d) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated Beneficiary.
6.1.4 If the Participant's Spouse is not his designated Beneficiary, the
method of distribution must assure that at least fifty percent of the present
value of the Participant's Retirement Benefit is paid within the life expectancy
of the Participant.
6.2 ELECTION OF OPTIONAL FORMS
6.2.1 By notice to the Administrator within the 90-day period prior to a
Participant's Benefit Commencement Date, the Participant may elect, in writing
and subject to the spousal consent rules as set forth in Section 6.2.4, not to
receive the normal form of benefit payment otherwise applicable and to receive
instead an optional form of benefit payment provided for in Section 6.1.1.
6.2.2 Within a reasonable period, but in no event later than 30 days
before nor earlier than 90 days before a Participant's Benefit Commencement
Date, the Administrator shall provide to each Participant a written explanation
of:
(a) the terms and conditions of the Participant's normal form of
benefit payment;
(b) the Participant's right to make, and the effect of, an election
to waive the normal form of benefit payment;
(c) the rights of the Participant's Spouse under Section 6.2.4; and
(d) the right to make, and the effect of, a revocation of a previous
election to waive the normal form of benefit payment.
The Administrator may, on a uniform and nondiscriminatory basis, provide for
such other notices,
6-2
<PAGE>
information or election periods or take such other action as the Administrator
considers necessary or appropriate in order to comply with Code (S)(S)
401(a)(11) and 417.
6.2.3 A Participant may revoke his election to take an optional form of
benefit at any time prior to the Participant's Benefit Commencement Date,
without the consent of his Spouse.
6.2.4 The election of an optional form of benefit by a married Participant
must be in the form of a waiver of a Qualified Joint and Survivor Annuity. The
election must be in writing and consented to by the Participant's Spouse. The
Spouse's consent to the waiver must specify the form of benefit being elected
and the non-Spouse Beneficiary, if any, and must be witnessed by a Plan
representative or a notary public. Notwithstanding this consent requirement, if
the Participant establishes to the satisfaction of the Administrator that such
written consent may not be obtained because there is no Spouse or the Spouse
cannot be located, the Participant's election will be deemed effective. Any
consent necessary under this provision will be valid only with respect to the
Spouse who signs the consent, or in the event of a deemed effective election,
the designated Spouse.
6.2.5 The election of an optional form of benefit which contemplates the
payment of an annuity shall not be given effect if any person who would receive
benefits under the annuity dies before the Benefit Commencement Date.
6.3 DIRECT ROLLOVERS
6.3.1 Effective with respect to distributions made on or after January 1,
1993, a Participant or Spouse may elect to have all or a portion of any amount
payable to him or her from the Plan which is an "eligible rollover distribution"
(as defined in Section 6.3.2 below) transferred directly to an "eligible
retirement plan" (as defined in Section 6.3.2 below). Any such election shall
be made in accordance with such uniform rules and procedures as the
Administrative Committee may prescribe from time to time as to the timing and
manner of the election in accordance with Code (S) 401(a)(31).
6.3.2 For purposes of this Section and Section 7.2.4:
(a) "Eligible rollover distribution" shall mean any distribution of
all or any portion of the balance to the credit of the distributee other than:
(1) any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for
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<PAGE>
the life (or life expectancy) of the distributee or the joint lives (or joint
life expectancies) of the distributee and the distributee's designated
beneficiary; (2) any distribution for a specified period of ten (10) years or
more; (3) any distribution to the extent such distribution is required under
Code (S) 401(a)(9); or (4) the portion of any distribution that is not
includable in gross income.
(b) "Eligible retirement plan" shall mean, with respect to a
Participant, an individual retirement account or annuity described in Code (S)
408(a) or 408(b) ("IRA"); an annuity plan described in Code (S) 403(a); or a
qualified plan described in Code (S) 401(a), that accepts the distributee's
eligible rollover distribution and, with respect to a Spouse, shall mean an IRA.
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<PAGE>
ARTICLE 7 - DEATH BENEFITS
7.1 ELIGIBILITY FOR PRE-RETIREMENT DEATH BENEFIT
7.1.1 A pre-retirement death benefit shall be payable under the Plan in
the event of the death of a Participant prior to his Benefit Commencement Date
who, on the date of death, was either:
(a) actively employed by the Employer;
(b) Disabled; or
(c) terminated but eligible for Early Retirement.
The death benefit payable under this Section 7.1.1 shall be the larger of:
(1) the lump sum Actuarial Equivalent, as of the day before the
death of the Participant, of the Accrued Retirement Benefit that would have been
payable upon Normal Retirement of the Participant; or
(2) the lump sum Actuarial Equivalent, as of the day before the
Participant's death, of the monthly benefit which would have been payable to the
Participant's Spouse in the form of an immediate Qualified Joint and Survivor
Annuity under the Plan if (i) in the case of a Participant who dies after having
attained the earliest retirement age under the Plan, the Participant had retired
on the day before his death, and (ii) in the case of a Participant who dies
before having attained the earliest retirement age under the Plan, the
Participant had separated from service as of his date of death, survived until
his earliest retirement age under the Plan, retired on the day after attainment
of his earliest retirement age under the Plan, and died immediately thereafter.
7.1.2 A pre-retirement death benefit shall also be payable under the Plan
in the event of the death of a married Participant prior to his or her Benefit
Commencement Date who had a Vested Separation prior to eligibility for Early
Retirement. The death benefit payable under this Section 7.1.2 shall be equal
to the benefit calculated under paragraph (2) of Section 7.1.1.
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7.2 FORM OF PRE-RETIREMENT DEATH BENEFIT
7.2.1 The pre-retirement death benefit payable under Section 7.1.1 shall
be payable to the Surviving Spouse of such Participant in the form of an
Actuarially Equivalent single life annuity commencing on the date of death
unless the Participant has no Surviving Spouse or the Participant has made an
election under Section 7.3, with the Spouse's consent, not to have the benefit
paid in such form. If the Participant has no Surviving Spouse or has made an
effective election under Section 7.3, such benefit shall be paid to the
Participant's Beneficiary in the Actuarially Equivalent form elected by the
Participant commencing on the date elected, or if there is no designated
Beneficiary, to the Participant's estate in a single lump sum. The Surviving
Spouse or other Beneficiary may elect any other Actuarially Equivalent form of
payment permitted under Section 6.1.1, by an instrument in writing filed with
the Administrator within 60 days after the Participant's death.
7.2.2 The pre-retirement death benefit payable under Section 7.1.2 shall
be payable to the Surviving Spouse of such Participant in the form of an
Actuarially Equivalent single life annuity commencing on the date the
Participant would have attained earliest retirement age, unless the Surviving
Spouse shall elect another Actuarially Equivalent form of payment permitted by
Section 6.1.1, by an instrument in writing filed with the Administrator within
60 days after the Participant's death. No benefit shall be payable under
Section 7.1.2 unless the Spouse is alive on such Benefit Commencement Date.
7.2.3 Notwithstanding the provisions of Sections 7.2.1 and 7.2.2, if the
present value of the pre-retirement death benefit payable under Section 7.1.1 or
7.1.2 is $3,500 or less ($5,000 or less for distributions on or after January 1,
1998), such benefit shall be distributed in a single lump sum as soon as
practicable following the death of the Participant.
7.2.4 Any lump sum payment payable to a Spouse pursuant to this Section
7.2 shall be eligible for a direct rollover in accordance with Section 6.3.
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<PAGE>
7.3 ELECTION TO WAIVE
7.3.1 An election by a married Participant under Section 7.2.1 must be in
the form of an election to waive the Qualified Pre-Retirement Survivor Annuity.
In order for any waiver pursuant to this Section 7.3.1 to be effective, the
Participant's Spouse must consent in writing to such election, and such consent
must acknowledge the effect of the election and must be witnessed by a Plan
representative or a notary public. Such spousal consent shall be effective only
with respect to the Spouse giving this consent and, once given, such consent
shall be irrevocable. The Participant shall have the right to revoke his waiver
at any time prior to the earlier of the Participant's Benefit Commencement Date
or death.
7.4 BENEFICIARIES
7.4.1 With respect to any death benefit payable pursuant to Section 7.1.1,
a Participant's Beneficiary shall be his Surviving Spouse or, subject to the
Spousal consent rules in Section 7.3, other Beneficiary or Beneficiaries
designated by the Participant in accordance with rules established by the
Administrator. With respect to any death benefit payable pursuant to Section
7.1.2, a Participant's Beneficiary shall be his Surviving Spouse.
7.4.2 With respect to any form of payment of a Retirement Benefit pursuant
to Article 6 providing for payments after the death of the Participant, a
Participant shall designate, in accordance with the election procedure under
Article 6, one or more Beneficiaries to whom amounts due after his death shall
be paid, and the rights of such Beneficiary shall be governed by the terms of
the form of payment so elected.
7.4.3 No Spouse or other Beneficiary shall have any right to benefits
under the Plan unless he shall survive the Participant. If a Beneficiary fails
to survive a Participant for at least 30 days, it shall be presumed that the
Participant survived the Beneficiary.
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<PAGE>
7.5 AFTER-DEATH DISTRIBUTION RULES
7.5.1 Notwithstanding any Plan provision to the contrary, if a Participant
dies after distribution of his benefits has commenced, the remaining portion of
such benefits will continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
7.5.2 Notwithstanding any Plan provision to the contrary, if a Participant
dies before distribution of his benefits has commenced, the Participant's entire
interest will be distributed no later than 5 years after the Participant's
death; provided, however, that if any portion of the Participant's interest is
payable to his Beneficiary, distributions may be made in substantially equal
installments over the life or life expectancy of the Beneficiary, commencing (i)
in the case of a Beneficiary other than a Surviving Spouse, no later than one
year after the Participant's death; and (ii) in the case of a Surviving Spouse,
no later than the later of one year after the Participant's death or the date on
which the Participant would have attained age 70 1/2. If the Spouse dies before
payments to such Spouse begin, subsequent distributions shall be made as if the
Spouse had been the Participant.
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ARTICLE 8 - CONTRIBUTIONS AND FORFEITURES
8.1 CONTRIBUTION BY THE COMPANY
The Company and each Participating Affiliate will make contributions to the
Trust at such times and in such amounts as the Company may determine.
8.2 CONTRIBUTIONS BY EMPLOYEES
Employees are not required or permitted to make contributions under the
Plan.
8.3 FORFEITURES
Forfeitures under the Plan will be applied to reduce the Company's
contributions and will not be applied to increase the benefits of any person
hereunder prior to the termination of the Plan or complete discontinuance of
contributions by the Company.
8.4 RETURN OF EMPLOYER CONTRIBUTIONS UNDER SPECIAL CIRCUMSTANCES
Notwithstanding any provision of this Plan to the contrary, upon timely
written demand by an Employer to the Trustee:
(a) Any contribution made by the Employer to the Plan under a mistake
of fact shall be returned to the Employer by the Trustee within one year after
the payment of the contribution;
(b) Any contribution made by the Employer incident to the
determination by the Commissioner of Internal Revenue that the Plan is initially
a Qualified Plan shall be returned to the Employer by the Trustee within one
year after notification from the Internal Revenue Service that the Plan is not
initially a Qualified Plan; and
(c) Any contribution made by the Employer conditioned upon the
deductibility of the contribution under Code (S) 404 shall be returned to the
Employer within one year after a deduction for the contribution under Code (S)
404 is disallowed by the Internal Revenue Service, but only to the extent
disallowed. Each contribution by an Employer shall be conditioned upon the
deductibility of the contribution under Code (S) 404 unless the Employer elects
otherwise.
8-1
<PAGE>
ARTICLE 9 - FIDUCIARIES
9.1 NAMED FIDUCIARIES
The Named Fiduciaries, who shall have authority to control and manage the
operation and administration of the Plan, are as follows:
(a) the Company, which shall have the sole right to (i) appoint and
remove from office the members of the Administrative Committee, the Trustee and
any investment manager; (ii) establish a funding policy relating to, and the
method for achieving the objectives of, the Plan; and (iii) amend or terminate
the Plan;
(b) the Administrative Committee, which shall have the authority and
duties specified in Article 11 hereof;
(c) the Trustee, which shall have the authority and duties specified
in Article 10 hereof and the Trust Agreement; and, in addition, the authority
and duties of the Administrative Committee in the event that no such Committee
shall be appointed or constituted by the Company; and
(d) any investment manager or managers selected by the Company who
renders investment advice with respect to Plan assets.
9.2 EMPLOYMENT OF ADVISERS
A "named fiduciary" with respect to the Plan (as defined in ERISA (S)
402(a)(2)) and any "fiduciary" (as defined in ERISA (S) 3(21)) appointed by such
a "named fiduciary", may employ one or more persons to render advice with regard
to any responsibility of such "named fiduciary" or "fiduciary" under the Plan.
9.3 MULTIPLE FIDUCIARY CAPACITIES
Any "named fiduciary" with respect to the Plan (as defined in ERISA (S)
402(a)(2)) and any other "fiduciary" (as defined in ERISA (S) 3(21)) with
respect to the Plan may serve in more than one fiduciary capacity.
9-1
<PAGE>
9.4 RELIANCE
Any fiduciary with respect to the Plan may rely upon any direction,
information or action of any other fiduciary, acting within the scope of its
responsibilities under the Plan, as being proper under the Plan.
9.5 SCOPE OF AUTHORITY AND RESPONSIBILITY
The responsibilities of the Administrative Committee and the Trustee for
the operation and administration of the Plan are allocated between them in
accordance with the provisions of the Plan and the Trust Agreement wherein their
respective duties are specified. Each fiduciary shall have only the authority
and duties as are specifically given to it under this Plan, shall be responsible
for the proper exercise of its own authorities and duties, and shall not be
responsible for any act or failure to act of any other fiduciary.
9-2
<PAGE>
ARTICLE 10 - TRUSTEE
10.1 TRUST AGREEMENT
The Company shall enter into one or more Trust Agreements with the Trustee
or Trustees selected by it in its sole discretion, and the Trustee shall receive
the contributions to the Trust Fund made by the Employer pursuant to the Plan
and shall hold, invest, reinvest, and distribute such fund, as applicable, in
accordance with the terms and provisions of the Trust Agreement. The Company
will determine the form and terms of such Trust Agreement and may modify such
Trust Agreement from time to time to accomplish the purposes of this Plan and
may, in its sole discretion, remove any Trustee and select any successor
Trustee.
10.2 ASSETS IN TRUST
Except as otherwise permitted under the Plan, all assets of the Plan shall
be held in trust by the Trustee who upon acceptance of such office shall have
such authority as is set forth in the Trust Agreement.
10-1
<PAGE>
ARTICLE 11 - ADMINISTRATIVE COMMITTEE
11.1 APPOINTMENT AND REMOVAL OF ADMINISTRATIVE COMMITTEE
The administration of the Plan shall be vested in an Administrative
Committee of at least three (3) persons who shall be appointed by the Board, and
may include persons who are not Participants in the Plan. A person appointed a
member of the Committee shall signify his acceptance in writing. The Board may
remove or replace any member of the Committee at any time in its sole
discretion, and any Committee member may resign by delivering his written
resignation to the Board, which resignation shall become effective upon its
delivery or at any later date specified therein. If at any time there shall be
a vacancy in the membership of the Committee, the remaining member or members of
the Committee shall continue to act until such vacancy is filled by action of
the Board.
11.2 OFFICERS OF ADMINISTRATIVE COMMITTEE
The Committee shall appoint from among its members a chairman, and shall
appoint as secretary a person who may be, but need not be, a member of the
Committee or a Participant in the Plan.
11.3 ACTION BY ADMINISTRATIVE COMMITTEE
The Committee shall hold meetings upon such notice, at such place or
places, and at such times as its members may from time to time determine. A
majority of its members at the time in office shall constitute a quorum for the
transaction of business. All action taken by the Committee at any meeting shall
be by vote of the majority of its members present at such meeting, except that
the Committee also may act without a meeting by a consent signed by a majority
of its members. Any member of the Committee who is a Participant in the Plan
shall not vote on any question relating exclusively to himself.
11-1
<PAGE>
11.4 RULES AND REGULATIONS
Subject to the terms of the Plan, the Committee may from time to time
adopt such rules and regulations as it shall deem appropriate for the
administration of the Plan and for the conduct and transaction of its business
and affairs.
11.5 POWERS
The Committee shall have such powers as may be necessary to discharge its
duties under the Plan, including the power:
(a) to interpret and construe the Plan in its discretion, to determine
all questions with regard to employment, eligibility, Credited Service,
Compensation, Retirement Benefits, and such factual matters as date of birth and
marital status, and similarly related matters for the purpose of the Plan. The
Committee's determination of all questions arising under the Plan shall be
conclusive upon all Participants, the Board, the Company, Employers, the
Trustee, and other interested parties;
(b) to prescribe procedures to be followed by Participants and
Beneficiaries filing application for benefits;
(c) to prepare and distribute to Participants information explaining
the Plan;
(d) to appoint or employ individuals to assist in the administration
of the Plan and any other agents it deems advisable, including legal, accounting
and actuarial counsel;
(e) to instruct the Trustee to make benefit payments pursuant to the
Plan;
(f) to appoint an enrolled actuary and to receive and review the
periodic valuation of the Plan made by such actuary;
(g) to receive and review reports of disbursements from the Trust
Fund made by the Trustees; and
(h) to receive and review the periodic audit of the Plan made by a
certified public accountant appointed by the Company.
11-2
<PAGE>
11.6 INFORMATION FROM PARTICIPANTS
Each Participant shall be required to furnish to the Committee, in the
form prescribed by it, such personal data, affidavits, authorizations to obtain
information, and other information as the Committee may deem appropriate for the
proper administration of the Plan.
11.7 REPORTS
The Committee shall prepare, or cause to be prepared, such periodic
reports to the U.S. Labor Department, the Internal Revenue Service and the
Pension Benefit Guaranty Corporation as may be required pursuant to the Code or
ERISA.
11.8 AUTHORITY TO ACT
The Committee may authorize one or more of its members, officers, or
agents to sign on its behalf any of its instructions, directions, notifications,
or communications to the Trustee, and the Trustee may conclusively rely thereon
and on the information contained therein.
11.9 LIABILITY FOR ACTS
The members of the Committee shall be entitled to rely upon all
valuations, certificates and reports furnished by the Plan actuary or accountant
and upon all opinions given by any legal counsel selected by the Committee, and
the members of the Committee shall be fully protected with respect to any action
taken or suffered by their having relied in good faith upon such actuary,
accountant or counsel and all action so taken or suffered shall be conclusive
upon each of them and upon all Participants and their Beneficiaries. No member
of the Committee shall incur any liability for anything done or omitted by him
except only liability for his own willful misconduct.
11.10 COMPENSATION AND EXPENSES
Unless authorized by the Board, a member or officer of the Committee
shall not be compensated for his service in such capacity, but shall be
reimbursed for reasonable expenses incident to the performance of such duty.
11-3
<PAGE>
11.11 INDEMNITY
The Company shall indemnify the members of the Committee and any of their
agents acting in behalf of the Plan against any and all liabilities or expenses,
including all legal fees related thereto, to which they may be subjected as
members of the Committee by reason of any act or failure to act which
constitutes a breach or an alleged breach of fiduciary responsibility under
ERISA or otherwise, except that due to a person's own willful misconduct.
11.12 DENIED CLAIMS
If any application for payment of a benefit under the Plan shall be
denied, the Committee shall with the denial write the claimant setting forth the
specific reasons for the denial and explaining the Plan's claim review
procedure. If a claimant whose claim has been denied wishes further
consideration of his claim, he may request the Committee to review his claim in
a written statement of the claimant's position filed with the Committee no later
than 60 days after the claimant receives such denial. The Committee shall make
a full review of the claim and the denial, giving the claimant written notice of
its decision within the next 60 days. Due to special circumstances, if no
decision has been made within the first 60 days and notice of the need for
additional time has been furnished within such period, the decision may be made
within the following 60 days. A claimant shall be required to exhaust the
administrative remedies provided by this Section 11.12 prior to seeking any
other form of relief.
11-4
<PAGE>
ARTICLE 12 - PLAN AMENDMENT OR TERMINATION
12.1 PLAN AMENDMENT
The Company shall have the right at any time to amend the Plan, which
amendment shall be evidenced by an instrument in writing signed by an authorized
officer of the Company, effective retroactively or otherwise. No such amendment
shall have any of the effects specified in Section 12.2.
12.2 LIMITATIONS ON PLAN AMENDMENT
No Plan amendment shall:
(a) authorize any part of the Trust to be used for, or diverted to,
purposes other than for the exclusive benefit of Participants or their
Beneficiaries;
(b) decrease the accrued benefits of any Participant or his
Beneficiary under the Plan (except to the extent permitted under Code (S)
412(c)(8)); or
(c) change the vesting schedule, either directly or indirectly, unless
each Participant having not less than three years of Vesting Service is
permitted to elect, within a reasonable period specified by the Administrator
after the adoption of such amendment, to have his vested percentage computed
without regard to such amendment. The period during which the election may be
made shall commence with the date the amendment is adopted and shall end as the
later of:
(i) sixty days after the amendment is adopted;
(ii) sixty days after the amendment becomes effective; or
(iii) sixty days after the Participant is issued written notice
by the Administrator.
12-1
<PAGE>
12.3 RIGHT OF THE COMPANY TO TERMINATE PLAN
The Company intends and expects that from year to year it will be able to
and will deem it advisable to continue this Plan in effect and to make
contributions as herein provided. The Company reserves the right, however, to
terminate the Plan at any time which termination shall be evidenced by an
instrument in writing signed by an authorized officer of the Company delivered
to the Administrator and the Trustee.
12.4 EFFECT OF PARTIAL OR COMPLETE TERMINATION
12.4.1 Determination of Date of Complete or Partial Termination. The
--------------------------------------------------------
date of complete or partial termination shall be established by the
Administrator in accordance with the directions of the Company in accordance
with applicable law.
12.4.2 Effect of Termination.
---------------------
(a) As of the date of a partial termination of the Plan:
(i) the accrued benefit of each affected Participant who is
then an Employee, to the extent funded, shall become nonforfeitable;
(ii) no affected Participant shall be granted Credited
Service based on Years of Service after such date; and
(iii) Compensation paid to affected Participants after such
date shall not be taken into account.
(b) As of the date of the complete termination of the Plan:
(i) the accrued benefit of each Participant who is then an
Employee, to the extent funded, shall become non-forfeitable;
(ii) no Participant shall be granted Credited Service based
on Years of Service after such date;
(iii) Compensation paid after such date shall not be taken
into account;
(iv) no Eligible Employee shall become a Participant after
such date; and
(v) except as may otherwise be required by applicable law,
all Employer obligations to fund the Plan shall terminate.
12-2
<PAGE>
12.5 ALLOCATION OF ASSETS
At any time as the Company determines to distribute the Trust, the Trust
shall be applied to the payment of or provision for benefits in accordance with
the priority classes established by ERISA (S) 4044. The respective amounts
allocated to such priority classes shall be distributed to or set aside for the
benefit of the persons entitled thereto in such manner as is determined by the
Administrator.
12.6 RESIDUAL ASSETS
Any amounts remaining in the Trust after the satisfaction of all
liabilities of the Trust with respect to all Participants and their
Beneficiaries shall revert to the Employer.
12.7 LIMITATIONS APPLICABLE TO CERTAIN HIGHLY PAID PARTICIPANTS
Notwithstanding any provision in the Plan to the contrary, in any Plan
Year the annual payments to a Participant who is among the 25 "highly
compensated employees" (as defined in Code Section 414(q)) with the greatest
Compensation for the Plan Year shall not exceed the amount which would be
payable to such Participant in the form of a single life annuity which is the
actuarial equivalent of the sum of the Participant's Accrued Benefit and other
Plan benefits, unless:
(a) after payment of all Plan benefits to such Participant, the value of
the Plan's assets equals or exceeds 110 percent of the value of the
Plan's "current liabilities" (as defined in Code Section 412(l)(7)),
or
(b) the value of such Participant's Plan benefits is less than 1 percent
of the value of the Plan's current liabilities.
12-3
<PAGE>
ARTICLE 13 - MISCELLANEOUS PROVISIONS
13.1 EXCLUSIVE BENEFIT OF PARTICIPANTS
The Trust shall be held for the benefit of all persons who shall be
entitled to receive payments under the Plan. It shall be prohibited at any time
for any part of the Trust (other than such part as is required to pay expenses)
to be used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
13.2 PLAN NOT A CONTRACT OF EMPLOYMENT
The Plan is not a contract of Employment, and the terms of Employment of
any Employee shall not be affected in any way by the Plan or related instruments
except as specifically provided therein.
13.3 SOURCE OF BENEFITS
Benefits under the Plan shall be paid or provided for solely from the
Trust, and neither the Company, an Employer, the Administrator, Trustee or
Investment Manager shall assume any liability therefor.
13.4 BENEFITS NOT ASSIGNABLE
Benefits provided under the Plan may not be assigned or alienated, either
voluntarily or involuntarily. The preceding sentence shall also apply to the
creation, assignment or recognition of a right to any benefit payable with
respect to a Participant pursuant to a "domestic relations order" (as defined in
Code (S) 414(p)) unless such order is determined by the Administrator to be a
"qualified domestic relations order" (as defined in Code (S) 414(p)) or, in the
case of a "domestic relations order" entered before January 1, 1985, if either
payment of benefits pursuant to the order has commenced as of that date or the
Administrator decides to treat such order as a "qualified domestic relations
order" within the meaning of Code (S) 414(p) even if it does not otherwise
qualify as such.
13-1
<PAGE>
13.5 DOMESTIC RELATIONS ORDERS
Any other provision of the Plan to the contrary notwithstanding, the
Administrator shall have all powers necessary with respect to the Plan for the
proper operation of Code (S) 414(p) with respect to "qualified domestic
relations orders" (or "domestic relations orders" treated as such) referred to
in Section 13.4, including, but not limited to, the power to establish all
necessary or appropriate procedures, to authorize the establishment of new
accounts with such assets and subject to such restrictions as the Administrator
may deem appropriate, and the Administrator may decide upon and direct
appropriate distributions therefrom.
13.6 BENEFITS PAYABLE TO MINORS, INCOMPETENTS AND OTHERS
In the event any benefit is payable to a minor or an incompetent or to a
person otherwise under a legal disability, or who, in the sole discretion of the
Administrator, is by reason of advanced age, illness or other physical or mental
incapacity incapable of handling and disposing of his property, or otherwise is
in such position or condition that the Administrator believes that he could not
utilize the benefit for his support or welfare, the Administrator shall have
discretion to apply the whole or any part of such benefit directly to the care,
comfort, maintenance, support, education or use of such person, or pay the whole
or any part of such benefit to the parent of such person, the guardian,
committee, conservator or other legal representative, wherever appointed, of
such person, the person with whom such person is residing, or to any other
person having the care and control of such person. The receipt by any such
person to whom any such payment on behalf of any Participant or Beneficiary is
made shall be a sufficient discharge therefor.
13.7 MERGER OR TRANSFER OF ASSETS
13.7.1 The merger or consolidation of the Company with any other person,
or the transfer of the assets of the Company to any other person, shall not
constitute a termination of the Plan, if provision is made for the continuation
of the Plan.
13.7.2 The Plan may not merge or consolidate with, or transfer any assets
or liabilities to, any other plan, unless each Participant would (if the Plan
then terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the
13-2
<PAGE>
benefit he would have been entitled to receive immediately before the merger,
consolidation or transfer (if the Plan had then terminated).
13.8 PARTICIPATION IN THE PLAN BY AN AFFILIATE
13.8.1 By duly authorized action, an Affiliate may adopt the Plan. Such
Affiliate by duly authorized action, also may determine the classes of its
Employees who shall be Eligible Employees. Such Affiliate shall make such
contributions to the Plan on behalf of such Employees as is determined by the
Company. If no such action is taken, the Eligible Employees and the amount of
Retirement Benefit shall be determined in accordance with the Plan provisions
applicable to an Employer.
13.8.2 By duly authorized action, any other Employer may terminate its
participation in the Plan or withdraw from the Plan and the Trust.
13.8.3 An Employer other than the Company shall have no power with
respect to the Plan except as specifically provided by this Section 13.8.
13.9 ACTION BY EMPLOYER
Any action required to be taken by an Employer pursuant to the terms of
the Plan shall be taken by the board of directors of the Employer or any person
or persons duly empowered to exercise the powers of the Employer with respect to
the Plan.
13.10 PROVISION OF INFORMATION
For purposes of the Plan, each Employee shall execute such forms as may be
reasonably required by the Administrator and the Employee shall make available
to the Administrator and the Trustee any information they may reasonably request
in this regard.
13-3
<PAGE>
13.11 CONTROLLING LAW
The Plan is intended to qualify under Code (S) 401(a) and to comply with
ERISA, and its terms shall be interpreted accordingly. Otherwise, to the extent
not preempted by ERISA, the laws of the State of Kansas shall control the
interpretation and performance of the terms of the Plan.
13.12 CONDITIONAL RESTATEMENT
Anything in the foregoing to the contrary notwithstanding, the Plan has
been restated on the express condition that it will be considered by the
Internal Revenue Service as qualifying under the provisions of Code (S) 401(a)
and the Trust qualifying for exemption from taxation under Code (S) 501(a). If
the Internal Revenue Service determines that the Plan or Trust does not so
qualify, the Plan shall be amended or terminated as decided by the Company.
13.13 RULES OF CONSTRUCTION
Masculine pronouns used herein shall refer to men or women or both and
nouns and pronouns when stated in the singular shall include the plural and when
stated in the plural shall include the singular, unless qualified by the
context. Titles of Articles and Sections of the Plan are for convenience of
reference only and are to be disregarded in applying the provisions of the Plan.
Any reference in this Plan to an Article or Section is to the Article or Section
so specified of the Plan.
IN WITNESS WHEREOF, WADDELL & REED FINANCIAL, INC has caused this Plan to
be restated, effective as of March 1, 1998.
WADDELL & REED FINANCIAL , INC.
By: /s/ William Howey
---------------------------------
Its: Vice President
---------------------------------
13-4
<PAGE>
APPENDIX A - TOP-HEAVY PROVISIONS
A. As used in this Appendix A, each of the following terms shall have the
meanings for that term set forth below:
(a) Defined Benefit Plan means, a plan of the type defined in Code (S)
--------------------
414(j) maintained by the Company or an Affiliate, as applicable.
(b) Defined Contribution Plan means, a plan of the type defined in
-------------------------
Code (S) 414(i) maintained by the Company or an Affiliate, as applicable.
(c) Determination Date means, for any Plan Year subsequent to the
------------------
first Plan Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, Determination Date means the last day of that year.
(d) Determination Period means the Plan Year containing the
--------------------
Determination Date and the four preceding Plan Years.
(e) Key Employee means any Employee or former Employee (and the
------------
Beneficiaries of such Employee) who at any time during the Determination Period
was:
(i) an officer of an Employer having Limitation Compensation
greater than 50% of the dollar limitation under Code (S) 415(b)(1)(A) for
any Plan Year within the Determination Period,
(ii) an owner (or individual considered an owner under Code (S)
318) of one of the ten largest interests in an Employer if such
individual's Limitation Compensation exceeds 100% of the dollar limitation
in effect under Code (S) 415(c)(1)(A),
(iii) a "5-percent owner" (as defined in Code (S) 416(i)) of an
Employer, or
(iv) a "1-percent owner" (as defined in Code (S) 416(i)) of an
Employer who has Limitation Compensation of more than $150,000.
(f) Limitation Compensation means, for an Employee, the Employee's
-----------------------
earned income, wages, salaries, fees for professional services and other amounts
received for personal services actually rendered in the course of Employment
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses); amounts described in Code (S)(S) 104(a)(3),
Appendix-1
<PAGE>
105(a) and 105(h) to the extent includable in the Employee's gross income;
amounts described in Code (S) 105(d) whether or not excludable from the
Employee's gross income; reimbursed non-deductible moving expenses; the value of
nonqualified stock options to the extent includable in the Employee's gross
income in the year of grant; the amount includable in the Employee's gross
income pursuant to an election under Code (S) 83(b); distributions from an
unfunded, non-qualified plan of deferred compensation; and excluding the
following:
(i) contributions to a plan of deferred compensation which are
not includible in the Employee's gross income for the taxable year in which
contributed, or contributions under a "simplified employee pension" (within
the meaning of Code (S) 408(k)) to the extent such contributions are
deductible by the Employee, or any distributions from a plan of deferred
compensation (other than an unfunded non-qualified plan);
(ii) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or other property) held by the Employee
either becomes freely "transferable" or is no longer subject to a
"substantial risk of forfeiture" (both quoted terms within the meaning of
Code (S) 83(a));
(iii) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(iv) other amounts which received special tax benefits, or
contributions made (whether or not under a salary reduction agreement)
towards the purchase of an annuity described in Code (S) 403(b) (whether or
not the amounts are actually excludable from the gross income of the
Employee).
(g) Non-Key Employee means any Employee who is not a Key Employee.
----------------
(h) Permissive Aggregation Group means the Required Aggregation Group
----------------------------
of plans plus any other plan or plans of the Company or an Affiliate which, when
considered as a group with the Required Aggregation Group, would continue to
satisfy the requirements of Code (S)(S) 401(a)(4) and 410.
(i) Required Aggregation Group means (i) each Qualified Plan of an
--------------------------
Employer in which at least one Key Employee participates, and (ii) any other
Qualified Plan of an Employer which enables a plan described in (i) to meet the
requirements of Code (S)(S) 401(a)(4)
Appendix-2
<PAGE>
and 410.
(j) Super Top-Heavy Plan means, for any Plan Year beginning after
--------------------
December 31, 1983, the Plan if any Top-Heavy Ratio as determined under the
definition of Top-Heavy Plan exceeds 90%.
(k) Top-Heavy Plan means, for any Plan Year beginning after December
--------------
31, 1983, the Plan if any of the following conditions exists:
(i) If the Top-Heavy Ratio for the Plan exceeds sixty percent and
the Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of plans.
(ii) If the Plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the Top-Heavy
Ratio for the Required Aggregation Group of plans exceeds sixty percent.
(iii) If the Plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for
the Permissive Aggregation Group exceeds sixty percent.
(l) Top-Heavy Ratio means,
---------------
(i) If the Company or an Affiliate maintains one or more Defined
Benefit Plans and the Company or an Affiliate has never maintained any
Defined Contribution Plan (including any "simplified employee pension"
within the meaning of Code (S) 408(k)) which during the 5-year period
ending on the Determination Date has or has had account balances, the Top-
Heavy Ratio for the Plan alone or for the Required or Permissive
Aggregation Group, as appropriate, is a fraction, the numerator of which is
the sum of the present values of accrued benefits under the aggregated
Defined Benefit Plans of all Key Employees as of the respective
Determination Date for each plan (including any part of any accrued benefit
distributed in the 5-year period ending on the Determination Date), and the
denominator of which is the sum of the present values of all accrued
benefits under the aggregated Defined Benefit Plans as of the respective
Determination Date for each plan (including any part of any accrued benefit
distributed in the 5-year period ending on the Determination Date)
determined in accordance with Code (S) 416.
Appendix-3
<PAGE>
(ii) If the Company or an Affiliate maintains one or more Defined
Benefit Plans and the Company or an Affiliate maintains or has maintained
one or more Defined Contribution Plans (including any "simplified employee
pension" within the meaning of Code (S) 408(k)) which during the 5-year
period ending on the Determination Date has or has had any account
balances, the Top-Heavy Ratio for any Required or Permissive Aggregation
Group, as appropriate, is a fraction, the numerator of which is the sum of
the present value of accrued benefits under the aggregated Defined Benefit
Plans for all Key Employees, determined in accordance with (i) above, plus
the sum of account balances under the aggregated Defined Contribution Plans
for all Key Employees as of the respective Determination Date for each
plan, and the denominator of which is the sum of the present value of all
accrued benefits under the aggregated Defined Benefit Plans, determined in
accordance with (i) above, plus the sum of all account balances under the
aggregated Defined Contribution Plans for all Participants as of the
respective Determination Date for each plan, all determined in accordance
with Code (S) 416. The account balances under a Defined Contribution Plan
in both the numerator and denominator of the Top-Heavy Ratio are adjusted
for any distribution of any account balance made in the 5-year period
ending on the Determination Date.
(iii) For purposes of (i) and (ii) above, the value of account
balances and the present value of accrued benefits will be determined as of
the most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Code (S) 416
for the first and second plan year of a Defined Benefit Plan. The account
balances and accrued benefits of a Participant (A) who is a Non-Key
Employee but who was a Key Employee in a prior year, or (B) who has not
been credited with at least one Hour of Service with any Employer at any
time during the 5-year period ending on the Determination Date will be
disregarded. The calculation of the Top-Heavy Ratio, and the extent to
which distributions, rollovers, and transfers are taken into account will
be made in accordance with Code (S) 416. Deductible employee contributions
will not be taken into account for purposes of computing the Top-Heavy
Ratio. When aggregating plans, the value of account balances and accrued
benefits will be calculated with reference to the respective Determination
Appendix-4
<PAGE>
Dates for the aggregated plans that fall within the same calendar year.
(iv) Solely for the purpose of determining if the Plan, or any
other plan included in a Required Aggregation Group of which this Plan is a
part, is Top-Heavy (within the meaning of Code (S) 416(g)) such
determination shall be made under (A) the method, if any, that uniformly
applies for accrual purposes under all plans maintained by the Employer, or
(B) if there is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional accrual rate
of Code (S) 4ll(b)(l)(C).
(m) Valuation Date means, the date as of which account balances, or
--------------
accrued benefits are valued for purposes of calculating the Top-Heavy Ratio.
B. If the Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy
Plan as of any Determination Date, then it shall be subject to the rules set
forth in this Appendix A, beginning with the first Plan Year commencing after
such Determination Date. Even if, as of a subsequent Determination Date, the
Plan is determined to no longer be a Top-Heavy Plan or a Super Top-Heavy Plan,
the rules set forth in these Sections will continue to apply.
C. For each Plan Year beginning before January 1, 1989 in which the Plan
is a Top-Heavy Plan or Super Top-Heavy Plan, Compensation for the purpose of
this Plan shall be limited to the first $200,000 (or such larger amount as may
be prescribed for the Plan Year involved pursuant to Code (S) 416(d)(2)) of the
amount that would otherwise have been Compensation.
D. (a) Except as provided in subparagraphs (b) and (c) below, for any
Plan Year in or after which the Plan is a Top-Heavy Plan, each Participant who
is a Non-Key Employee and has completed one Year of Service will accrue a
Retirement Benefit (to be provided solely by Employer contributions) and
expressed as a single life annuity commencing at normal retirement age (within
the meaning of Code (S) 411(a)(8)) of not less than 2% of his or her average
Limitation Compensation for the 5 consecutive years for which the Participant
had the highest Limitation Compensation. The aggregate Limitation Compensation
for the years during such five-year period in which the Participant was credited
with one Year of Service will be divided by the number of such years in order to
determine average Limitation Compensation. The minimum accrual is determined
without regard to any Social Security contribution. The minimum accrual applies
even though under other Plan provisions the Participant would not
Appendix-5
<PAGE>
otherwise be entitled to receive an accrual, or would have received a lesser
accrual for the Plan Year. The suspension of benefits provisions of this Plan
shall not apply to the minimum benefits hereunder.
(b) No additional benefit accruals shall be provided pursuant to (a)
above to the extent that the total accruals on behalf of the Participant
attributable to Employer contributions will provide a Retirement Benefit
expressed as a single life annuity commencing at normal retirement age (within
the meaning of Code (S) 411(a)(8)) that equals or exceeds 20% of the
Participant's highest average Limitation Compensation for the 5 consecutive
years for which the Participant had the highest Limitation Compensation. All
accruals of Employer derived benefits, whether or not attributable to years for
which the Plan is a Top-Heavy Plan, may be used in computing whether the minimum
accrual requirement of the preceding sentence is satisfied.
(c) The provision in (a) above shall not apply to any Participant to
the extent that the Participant is covered under any other plan or plans of an
Employer and the Employer has provided in that plan that the minimum allocation
or benefit requirement applicable to this Top-Heavy Plan will be met in the
other plan or plans.
E. If the Plan is a Top-Heavy Plan for any Plan Year, then the maximum
benefit which can be provided under Code (S) 415 shall be determined by
substituting "1.00" for "1.25" in Code (S) 415(e)(2)(B) and (3)(B), unless the
Plan meets the requirements of Code (S) 416(h)(2)(B) and the Administrator
increases the minimum rate of benefit accrual provided in Section D by one
percent.
F. Beginning with the Plan Year in which this Plan is Top-Heavy, the
following vesting schedule will apply:
Appendix-6
<PAGE>
Completed Years of Vested
Vesting Service Percentage
------------------ ----------
2 20%
3 40%
4 60%
5 100%
G. In the event that any provision of this Appendix A is no longer
required to qualify the Plan under the Code, then such provision shall thereupon
be void without the necessity of further amendment of the Plan.
Appendix-7
<PAGE>
EXHIBIT 10.13
WADDELL & REED, INC.
CAREER FIELD RETIREMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE
AS OF JANUARY 1, 1989)
<PAGE>
Waddell & Reed, Inc.
Career Field Retirement Plan
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
- ------- ----
I INTRODUCTION
------------
1.01. Amendment of Prior Plan 1-1
1.02. Plan and Trust intended to qualify 1-1
1.03. Return of contribution 1-1
II DEFINITIONS
-----------
2.01. "Absence from Service" 2-1
2.02. "Administrator" 2-1
2.03. "Affiliated Company" 2-1
2.04. "Annual Addition" 2-1
2.05. "Basic Earnings" 2-1 - 2-2
2.06. "Beneficiary" 2-2
2.07. "Board of Directors" 2-2
2.08. "Code" 2-2
2.09. "Company" 2-2
2.10. "Effective Date" 2-2
2.11. "Eligible Employee" 2-2
2.12. "Employee" 2-3
2.13. "Employee Credits" 2-3
2.14. "Employer" 2-3
2.15. "Employment Commencement Date" 2-3
2.16. "ERISA" 2-3
2.17. "Hour of Service" 2-3
2.18. "Installment Account" 2-3
2.19. "Leave of Absence" 2-3
2.20. "Limitation Year" 2-3
2.21. "Net Profits" 2-3 - 2-4
2.22. "One Year Period of Severance" 2-4
2.23. "Participant" 2-4
2.24. "Participating Employer" 2-4
2.25. "Participating Employer Credits" 2-4
2.26. "Period of Service" 2-4
2.27. "Period of Severance" 2-4
2.28. "Plan" 2-4
2.29. "Plan Year" 2-5
2.30. "Prior Plan" 2-5
2.31. "Reemployment Commencement Date" 2-5
2.32. "Severance from Service Date" 2-5
2.33. "Share of the Trust Fund" 2-5
2.34. "Substantial Period of Severance" 2-5
2.35. "Trust" 2-5
-i-
<PAGE>
ARTICLE PAGE
- ------- ----
II DEFINITIONS (Cont'd.)
---------------------
2.36. "Trust Fund" 2-5
2.37. "Trustee" 2-6
2.38. "Valuation Date" 2-6
2.39. "Vesting Service" 2-6
2.40. "Qualified Joint and Survivor Annuity" 2-6
2.41. "Spouse" 2-6
2.42. Qualified Domestic Relations Order 2-6 - 2-7
2.43. Qualified Pre-retirement Survivor Annuity 2-7 - 2-8
III ADMINISTRATION
--------------
3.01. Administrator 3-1
3.02. Powers of Administrator 3-1 - 3-2
3.03. Examination of records 3-2
3.04. Nondiscriminatory exercise of authority 3-2
3.05. Reliance on tables, etc. 3-2
3.06. Named fiduciary 3-2
3.07. Claims and review procedure 3-2 - 3-3
3.08. Notice to interested parties 3-3
3.09. Indemnification of Administrator 3-4
IV PARTICIPATION
-------------
4.01. Date of participation 4-1
4.02. Cessation of participation 4-1
4.03. Reemployment of a Participant 4-1
V PARTICIPATING EMPLOYER CONTRIBUTIONS
------------------------------------
5.01. Amount of Participating Employer
contributions 5-1
5.02. Eligible Employees sharing in
Participating Employer contributions 5-1
5.03. Time of making Participating
Employer contributions 5-1
5.04. Advice to Trustee if contributions
not to be made 5-2
VI CONTRIBUTIONS BY PARTICIPANTS
-----------------------------
6.01. Amount of Participant Contributions 6-1
6.02. Method of Making participant
contributions 6-1
6.03. Withdrawal of participant contributions 6-1 - 6-2
VII PARTICIPANTS ACCOUNTS
---------------------
7.01. Individual accounts 7-1
7.02. Order of adjustments to accounts 7-1
-ii-
<PAGE>
ARTICLE PAGE
- ------- ----
VII PARTICIPANTS' ACCOUNTS (Cont'd.)
--------------------------------
7.03. Adjustment for income, expenses
gain or loss 7-1 - 7-2
7.04. Crediting of Participating Employer
contributions 7-2
7.05. Crediting of Participant contributions 7-2
7.06. Limitations 7-2
7.07. Report to Participants 7-2
VIII RIGHTS TO BENEFITS
------------------
8.01. Normal retirement 8-1
8.02. Disability retirement 8-1 - 8-2
8.03. Death 8-2 - 8-3 - 8-4 - 8-5
8.04. Other termination of employment 8-5 - 8-6 - 8-7 - 8-8
8.05. Forfeitures 8-8
8.06. Separate account 8-8
8.07. Treatment of certain participants 8-9
IX DISTRIBUTION OF BENEFITS
------------------------
9.01. Methods of making distributions 9-1 - 9-2 - 9-3
9.02. Notice to Trustee 9-3 - 9-4
9.03. Distributions in installments 9-4
9.04. Direct rollovers 9-4 - 9-5
X FUNDING OF THE PLAN
-------------------
10.01. Maintenance of the Trust Fund 10-1
10.02. Investment of Trust Fund 10-1
XI AMENDMENT AND TERMINATION
-------------------------
11.01. Amendment 11-1
11.02. Termination 11-1
11.03. Distributions upon termination of the Plan 11-2
11.04. Merger of consolidation of Plan;
transfer of Plan assets 11-2
XII MISCELLANEOUS
-------------
12.01. Limitation of rights 12-1
12.02. Nonalienability of benefits 12-1
12.03. Governing law 12-1
-iii-
<PAGE>
Article 1. Introduction.
------------
1.01. Amendment of Prior Plan. Pursuant to the provisions of Article IX
-----------------------
of the Waddell & Reed, Inc. Profit-Sharing Plan, Waddell & Reed, Inc. amended,
restated and continued said Plan, effective January 1, 1978, by striking out the
provisions thereof and by substituting therefor the provisions of the Waddell &
Reed, Inc. Career Field Retirement Plan. Effective January 1, 1989, Waddell &
Reed, Inc. hereby amends and restates the Waddell & Reed, Inc. Career Field
Retirement Plan as hereinafter set forth.
1.02. Plan and Trust intended to qualify. This Plan and the Trust forming
----------------------------------
a part hereof are intended to qualify under section 401 (a) of the Code.
1.03. Return of contribution. If a contribution by a Participating
----------------------
Employer to the Trust is (i) made by reason of a good faith mistake of fact, or
(ii) believed by the Participating Employer in good faith to be deductible under
section 404 of the Code, but the deduction is disallowed, the Trustee will, upon
request by the Participating Employer making such contribution, return to such
Participating Employer the excess of the amount contributed over the amount, if
any, that would have been contributed had there not occurred a mistake of fact
or a mistake in determining the deduction. Such excess will be reduced by
amounts attributable thereto which have been credited to the accounts of
Participants who have since received distributions from the Trust, except to the
extent such amounts continue to be credited to such Participants' accounts at
the time the excess is returned to the Participating Employer. Such excess will
also be reduced by the losses of the Trust attributable thereto, if and to the
extent such losses exceed the gains and income attributable thereto. In no
event will the return of a contribution hereunder cause the balance of the
individual account of any participant to be reduced to less than the balance
which would have been credited to the account had the mistaken or nondeductible
amount not been contributed. No return of a contribution hereunder may be made
more than one year after the mistaken payment of the contribution, or
disallowance of the deduction, as the case may be.
1-1
<PAGE>
Article II. Definitions.
-----------
Wherever used herein, the following terms have the following meanings
unless a different meaning is clearly required by context:
2.01. "Absence from Service" means, in the case of each Employee, a period
of absence from service with the Employer for any reason other than a quit,
discharge, retirement or death, such as vacation, holiday, layoff, disability or
leave of absence.
2.02. "Administrator" means the Company or other person (including a
committee) appointed to administer the Plan in accordance with Article III.
2.03. "Affiliated Company" means which is a member of a controlled group
of corporations (as defined in section 414(b) of the (i) any corporation (other
Code) with the Company; (ii) any trade or business (other than the Company),
whether or not than the Company) incorporated, which is under common control (as
defined in section 414(c) of the Code) with the Company, (iii) a member of an
"affiliated service group" (as defined in section 414(m) of the Code) which
includes the Company; or (iv) any other entity required to be aggregated with
the Company under section 414(o) of the Code.
2.04. "Annual Addition" means, following amounts allocated to the account
of the Participant for the Limitation Year: (a) in the case of any Company or
Affiliated Company contributions; (b) Participant contributions; (c)
forfeitures; and Participant, the sum of the (d) amounts described in section
415(l)(1) and 419A(d)(2) of the Code. Notwithstanding the foregoing, Annual
Addition shall not include amounts attributable to rollover contributions or
trust to trust transfers.
2.05. "Basic Earnings" means the commissions (including guaranteed
commissions) and bonuses received by an Eligible Employee from a Participating
Employer during the Plan Year of reference, for services rendered while a
Participant, but only to the extent that such commissions and bonuses are in
excess of the minimum Basic Earnings and not in excess of the maximum Basic
Earnings, as set forth in the following schedule:
2-1
<PAGE>
Calendar Year Minimum Basic Earnings Maximum Basic Earnings
------------- ---------------------- ----------------------
1978 6,000 52,000
1979 7,000 54,000
1980 8,000 56,000
1981 9,000 58,000
1982 and thereafter 10,000 60,000
Notwithstanding any Plan provision to the contrary, the Basic Earnings taken
into account for Plan purposes for any Plan Year beginning after December 31,
1993 shall not exceed $150,000 (or such adjusted amount as may be prescribed for
such Plan Year pursuant to Code Section 401(a)(17)).
2.06. "Beneficiary" means the person or persons entitled under Section
8.04 to receive benefits under the Plan upon the death of the Participant.
2.07. "Board of Directors" means the Board of Directors of the Company.
The Board of Directors may designate a person or persons (including a committee)
to carry out any fiduciary responsibilities of the Company or the Board under
the Plan, any such designation to be made in accordance with Section 405 of
ERISA.
2.08. "Code" means the Internal Revenue Code of 1986, as amended from time
to time. Reference to any section or subsection of the Code includes reference
to any comparable or succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.
2.09. "Company" means Waddell & Reed, Inc., a Massachusetts corporation,
and any successor to all or a major portion of its assets or business which
assumes the obligations of the Company.
2.10. "Effective Date" means August 31, 1951.
2.11. "Eligible Employee" means any Employee employed by a Participating
Employer as a division sales manager or an associate division sales manager
other than a leased employee within the meaning of section 414(n)(2) of the
Code.
2-2
<PAGE>
2.12. "Employee" means any individual employed by an Employer, including
employees within the meaning of section 414(n)(2) of the Code.
2.13. "Employee Credits" means that portion of a Participant's Share of
the Trust Fund which is attributable to his own contributions and earnings
thereon.
2.14. "Employer" means the Company and all Affiliated Companies.
2.15. "Employment Commencement Date" means, in the case of each Employee,
the date on which he first performs an Hour of Service, or, in the case of an
Employee who has a Substantial Period of Severance, the date on which he first
performs an Hour of Service after such Period of Severance.
2.16. "ERISA" means the Employee Retirement Income Security Act of 1974,
as from time to time amended, and any successor statute or statutes of similar
import.
2.17. "Hour of Service" means an hour for which an Employee is paid, or
entitled to payment, for the performance of duties for the Employer, such hour
to be credited for the period in which the duties were performed. Hours of
Service under this Section shall be calculated and credited pursuant to section
2530-200b-2 of the Department of Labor Regulations which are incorporated herein
by this reference.
2.18. "Installment Account" means the account provided for in Section 9.03
in which are held certain amounts distributable in installments to a Participant
or his Beneficiary.
2.19. "Leave of Absence" means, in the case of any Employee or
Participant, a period of absence on leave from active employment with an
Employer granted by the Employer for illness, accident, pregnancy or other
reason (including service in the armed forces of the United States). Any leave
of absence will be granted under uniform rules administered in a
nondiscriminatory manner so that Employees who are similarly situated will be
similarly treated.
2.20. "Limitation Year' means the Plan Year.
2.21. "Net Profits" means the profits of a Participating Employer for any
Plan Year after all expenses and charges other than (i) the contributions to the
Trust and (ii) federal and
2-3
<PAGE>
state taxes based on or measured by income, as shown on the books of the
Participating Employer and computed in accordance with regularly accepted
accounting practice. When the amount of Net Profits for any Plan Year has been
determined by the Participating Employer, such amount will be final for purposes
of the Plan and will not be subject to change by reason of any adjustments in
income required by the Internal Revenue Service or otherwise.
2.22. "One Year Period of Severance" means, in the case of any Employee, a
Period of Severance of 12 consecutive months beginning on his Severance from
Service Date.
2.23. "Participant" means each person who participates in the Plan in
accordance with Article IV hereof.
2.24. "Participating Employer" means (i) the Company and (ii) any
Affiliated Company which has adopted the Plan with the approval of the Company.
2.25. "Participating Employer Credits" means that portion of a
Participant's Share of the Trust Fund which is attributable to contributions by
any Participating Employer and earnings thereon.
2.26. "Period of Service" means, in the case of each Employee, (a) the
period of time, expressed in days, commencing on his Employment Commencement
Date or Reemployment Commencement Date, whichever is applicable, and ending on
his Severance from Service Date and (b) any Period of Severance which ends
within 12 months after (1) in the case in which the Period of Severance began
prior to an Absence from Service, the Severance from Service Date and (2) in the
case in which the Period of Severance began during or following an Absence from
Service, the date on which such Absence began.
2.27. "Period of Severance" means, in the case of each Employee, a 12
consecutive month period commencing on his Severance from Service Date and
during which the Employee does not perform an Hour of Service for the Employer.
2.28. "Plan" means the Waddell & Reed, Inc. Career Field Retirement Plan
as set forth herein, together with any and all amendments and supplements
hereto.
2-4
<PAGE>
2.29. "Plan Year" means the Company's taxable year for federal income tax
purposes.
2.30. "Prior Plan" means the Waddell & Reed, Inc. Profit-Sharing Plan, as
from time to time in effect prior to the Effective Date.
2.31. "Reemployment Commencement Date" means, in the case of each
Employee, the date on which he first performs an Hour of Service following any
Period of Severance which is not included in a Period of Service.
2.32. "Severance from Service Date" means, in the case of each Employee,
the earlier of:
(i) the date on which he quits, retires, is discharged, or dies, or
(ii) the date, determined by the Administrator in accordance with
uniformly applied rules established by the Employer, which is at least 12 months
after the date on which an Absence from Service began.
2.33. "Share of the Trust Fund" means, in the case of each Participant,
that portion of the Trust's assets which is allocated to the account of the
Participant in accordance with Article VII of the Plan.
2.34. "Substantial Period of Severance" means, in the case of any Employee
or Participant who has no vested right in any portion of his Participating
Employer Credits, a Period of Severance of at least 12 consecutive months which
equals or exceeds his Vesting Service prior to such Substantial Period of
Severance. Such Vesting Service prior to such Substantial Period of Severance
will be deemed not to include any such Service disregarded under the preceding
sentence by reason of any prior Substantial Period of Severance.
2.35. "Trust" means the trust or trusts forming part of the Plan and
established under an agreement or agreements between the Company and such bank
or banks as shall be selected by the Company from time to time.
2.36. "Trust Fund" means the property held in trust by the Trustee for the
accounts of Participants and their beneficiaries.
2-5
<PAGE>
2.37. "Trustee" means the period or persons named as Trustee in the Trust,
any successor trustee or trustees, and any additional trustee or trustees.
2.38. "Valuation Date" means the last business day of each calendar month.
2.39. "Vesting Service" means, with respect to any Employee, the sum of
his Periods of Service, excluding from such sum:
(a) any Periods of Service which would have been disregarded under
the rules of the Prior Plan relating to breaks in service, as such rules were in
effect from time to time prior to January 1, 1976;
(b) any Periods of Service prior to a Substantial Period of
Severance; and
(c) in the case of a Participant who has a One Year Period of
Severance and who later returns to the employ of an Employer, for purposes of
determining the nonforfeitable percentage of his Participating Employer Credits
as of his Severance from Service Date relating to such period of Severance, any
Periods of Service after such One Year Period of Severance.
A pronoun in the masculine gender includes the feminine gender unless the
context clearly indicates otherwise.
2.40. "Qualified Joint and Survivor Annuity" shall mean an annuity for the
life of the Participant with a survivor annuity for the life of the spouse of
the Participant which is one-half of the amount of the annuity payable during
the life of the Participant.
2.41. "Spouse" shall mean the person married to the Participant on the
date on which the Participant retires, dies before retiring, or begins to
receive retirement benefits after becoming permanently disabled as defined in
section 8.02 of this Plan.
2.42. "Qualified Domestic Relations Order" shall mean any judgment, decree
or order relating to the provision of child support, alimony payments or marital
property rights to a former spouse, child or other dependent of a Participant
and is made pursuant to a state domestic relations law and which the Plan
Administrator determines creates or recognizes the existence of an alternate
payee's right to, or assigns to an alternate payee the right to receive
2-6
<PAGE>
all or a portion of the benefits payable with respect to a Participant under the
Plan. Such Qualified Domestic Relations Order also must clearly specify the name
and current or last known mailing address of the Participant and each alternate
payee covered by the Order, the amount or percentage of the Participant's
benefits to be paid by the Plan to each such alternate payee, or the manner in
which such amount is to be determined, the number of payments or period to which
such order applies and any other information which may be required by law or the
Plan Administrator. An order shall not be determined by the Plan Administrator
to be a Qualified Domestic Relations Order if it required a plan to provide any
type or form of benefit, or any option, not otherwise provided under the Plan
(other than an order which requires that payment of benefits be made to an
alternate payee on or after the date the Participant would have attained the
earliest retirement age under the Plan as if the Participant had retired on the
date such payment is to begin under the order and in any form in which such
benefits may be paid under the Plan to the Participant), requires the Plan to
increase benefits and requires the payment of benefits to an alternate payee
which is required to be paid to another alternate payee under another order
previously determined by the Plan Administrator to be a Qualified Domestic
Relations Order.
2.43. "Qualified Pre-retirement Survivor Annuity" shall mean a survivor
annuity for the life of the surviving spouse of the Participant if the payments
to the surviving spouse under such annuity are no less than the actuarial
equivalent of the amounts which would be payable as a survivor annuity under the
qualified joint and 50% survivor annuity provided under the Plan, if:
(a) In the case of a Participant who dies after the date on which he
would have attained the earliest retirement age, such Participant had retired
with an immediate qualified joint and 50% survivor annuity on the day before his
date of death, or
(b) In the case of a Participant who dies on or before the date on
which he would have attained the earliest retirement age under the Plan, such
Participant had
2-7
<PAGE>
(i) separated from service on the date of death,
(ii) survived to the earliest retirement age,
(iii) retired with an immediate qualified joint and survivor annuity
at the earliest retirement age and
(iv) died on the day after the day on which such Participant would
have attained the earliest retirement age under the Plan.
2-8
<PAGE>
Article III. Administration.
--------------
3.01. Administrator. The Plan will be administered by the Company or by
-------------
any person, including a committee consisting of at least three individuals, but
not more than five, appointed from time to time by the Board of Directors to
serve at its pleasure. Participants may be appointed to serve as Administrator
in the discretion of the Board of Directors. Except as may be directed by the
Company, no person serving as Administrator will receive any compensation for
his services as Administrator.
If a committee is appointed to serve as Administrator, it will act by
majority vote. If at any time a majority of the individuals serving on such
committee and eligible to vote are unable to agree, or it there is only one such
individual, any action required of the committee will be taken by the Board of
Directors and its decision will be final. An individual serving on such
committee who is a Participant will not vote or act on any matter relating
solely to himself.
3.02. Powers of Administration. The Administrator will have full power to
------------------------
administer the Plan in all of its details, subject, however, to the requirements
of ERISA. For this purpose the Administrator's power will include, but will not
be limited to, the following authority:
(a) to make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the Plan;
(b) to interpret the Plan, in its discretion, its interpretation
thereof in good faith to be final and conclusive on all Employees, former
Employees, Participants, former Participants and Beneficiaries;
(c) to decide all questions concerning the Plan and the eligibility
of any person to participate in the Plan;
(d) to compute the amount of benefits which will be payable to any
Participant, former Participant, or Beneficiary in accordance with the
provisions of the Plan, and to determine the person or persons to whom such
benefits will be paid;
(e) to authorize the payment of benefits;
3-1
<PAGE>
(f) to appoint such agents, counsel, accountants, and consultants as
may be required to assist in administering the Plan: and
(g) by written instrument, to allocate and delegate its fiduciary
responsibilities in accordance with Section 405 of ERISA.
3.03. Examination of records. The Administrator will make available to
----------------------
each Participant such of its records as pertain to him, for examination at
reasonable times during normal business hours.
3.04. Nondiscriminatory exercise of authority. Whenever, in the
---------------------------------------
administration of the Plan, any discretionary action by the Administrator is
required, the Administrator shall exercise his authority in a nondiscriminatory
manner so that all persons similarly situated will receive substantially the
same treatment.
3.05. Reliance on tables, etc. In administering the Plan, the
-----------------------
Administrator will be entitled, to the extent permitted by law, to rely
conclusively on all tables, valuations, certificates, opinions and reports which
are furnished by any accountant, trustee, counsel or other expert who is
employed or engaged by the Administrator.
3.06. Named fiduciary. The Administrator will be a "named fiduciary" for
---------------
purposes of Section 402(a)(1) of ERISA with authority to control and manage the
operation and administration of the Plan, and will be responsible for complying
with all of the reporting and disclosure requirements of Part 1 of Subtitle B of
Title I of ERISA.
3.07. Claims and review procedures.
----------------------------
(a) Claims procedures. If any person believes he is being denied
-----------------
any rights or benefits under the Plan, such person may file a claim in writing
with the Administrator. If any such claim is wholly or partially denied, the
Administrator will notify such person of its decision in writing. Such
notification will contain (i) specific reasons for the denial, (ii) specific
reference to pertinent plan provisions, (iii) a description of any additional
material or information necessary for such person to perfect such claim and an
explanation of why such material or
3-2
<PAGE>
information is necessary and (iv) information as to the steps to be taken if the
person wishes to submit a request for review. Such notification will be given
within 90 days after the claim is received by the Administrator (or within 180
days, if special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is given to
such person within the initial 90 day period). If such notification is not given
within such period, the claim will be considered denied as of the last day of
such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a person
----------------
receives a written notice of a denied claim (or if applicable, within 60 days
after the date on which such denial is considered to have occurred) such person
(or his duly authorized representative) may (i) file a written request with the
Administrator for a review of his denied claim and of pertinent documents and
(ii) submit written issues and comments to the Administrator. The Administrator
will notify such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will contain
specific reasons for the decision as well as specific references to pertinent
plan provisions. The decision on review will be made 60 days after the request
for review is received by the Administrator (or within 120 days, if special
circumstances require an extension of time for processing the request, such as
an election by the Administrator to hold a hearing, and if written notice of
such extension and circumstances is given to such person within the initial 60
day period). If the decision on review is not made within such period, the claim
will be considered denied.
3.08. Notice to interested parties. If a request is made for a
----------------------------
determination by the Internal Revenue Service that the Plan or Trust qualifies
under Section 401 or 501 of the Code, the Administrator will give notice of such
request. at the time and in the manner required by Treasury Regulations, to each
Employee who qualifies under such regulations as an interested Party with
respect to such request.
3-3
<PAGE>
3.09. Indemnification of Administrator. The Company agrees to indemnify
--------------------------------
and defend to the fullest extent of the law any Employee or former Employee who
in good faith serves or has served in the capacity of Administrator against any
liabilities, damages, costs and expenses occasioned by his having occupied a
fiduciary position in connection with the Plan.
3-4
<PAGE>
Article IV. Participation.
-------------
4.01. Date of participation. Any Employee who was a participant in the
---------------------
Prior Plan on the Effective Date and who had a Share of the Trust Fund on the
Effective Date subject to Section 4.02, continued to be a Participant. Any
other individual became a Participant on the later of (i) the Effective Date and
(ii) the date on which he became an Eligible Employee. Notwithstanding the
foregoing provisions of this Section 4.01, no individual became or may become a
Participant after December 31, 1979.
4.02. Cessation of participation. A participant will cease to be a
--------------------------
participant as of the later of (i) the date on which he ceases to be an Eligible
Employee and (ii) the date on which he ceases to have a Share of the Trust Fund.
4.03. Reemployment of a Participant. If a Participant has a Severance from
-----------------------------
Service Date and he thereafter returns to the employ of a Participating Employer
as an Eligible Employee, no distributions will be made to him while he continues
to be an Employee. Prior to December 31, 1979, such Participant again became a
Participant on his Reemployment Commencement Date.
4-1
<PAGE>
Article V. Participating Employer Contribution.
-----------------------------------
5.01. Amount of Participating Employer contributions. Prior to December
----------------------------------------------
31, 1979, each Participating Employer contributed to the Trust for each Plan
Year that amount of its Net Profits for such Plan Year, or its accumulated
earnings and profits, as designated by its board of directors; provided,
however, in no event did a Participating Employer's contribution for any Plan
Year exceed 7 percent of the aggregate Basic Earnings for such Year of the
Eligible Employees employed by it who were entitled to share in such
contribution pursuant to Section 5.02. Furthermore, a Participating Employer
contribution could not be in an amount which would cause the Annual Addition for
any Participant to exceed the amount permitted under Section 7.06.
Notwithstanding the foregoing provisions of this Section 5.01, no Participating
Employer contributions, other than amounts which are treated as Participating
Employer contributions under Section 8.05, will be made to the Trust for any
Plan Year beginning after December 31, 1979.
5.02. Eligible Employees sharing in Participating Employer contributions.
------------------------------------------------------------------
Prior to December 31, 1979, an Eligible Employee was entitled to share in the
contribution of his Participating Employer for a Plan Year if (a) he was a
Participant and an Eligible Employee on the last business day of such Plan Year
and (b) he had Basic Earnings for such Year; provided, however, no such
contribution was allocated to any Participant for a Plan Year if he had attained
age 65 prior to the last day of the Plan Year.
5.03. Time of making Participating Employer contributions. Each
---------------------------------------------------
Participating Employer was to pay its contribution for each Plan Year directly
to the Trustee not later than the time prescribed by law (including extensions
thereof) for filing its federal income tax return for its taxable year ending
with such Plan Year. The amount of each Participating Employer's contribution
was to be based on the best information available at the time the contribution
was made and any contribution so made was to be final, except as hereinafter
provided.
5-1
<PAGE>
5.04. Advice to Trustee if contribution not to made. Each Participating
---------------------------------------------
Employer was to promptly advise the Trustee if no contribution was to be made
for any Plan Year. The Trustee was to have no authority or responsibility to
inquire into the correctness of the amounts contributed and paid over to the
Trustee, or to determine whether any contribution was payable under this Article
V.
5-2
<PAGE>
Article VI. Contributions by Participants.
-----------------------------
6.01. Amount of Participant contributions. No contributions were or are
-----------------------------------
required of Participants. However, prior to December 31, 1979, any Participant
who was an Eligible Employee and who had not attained age 65, and whose account
had been credited with at least one Participating Employer contribution could,
at his option, subject to the provisions of Section 7.06, make cash
contributions to the Trust in any Plan Year. However, the amount of such cash
contributions in any Plan Year could not exceed the excess of (a) ten percent of
his total remuneration from Participating Employers for all Plan Years since he
became a Participant over (b) the aggregate amount of contributions made by the
Participant in prior Plan Years. A Participant's interest in his Employee
Credits was and is fully vested and nonforfeitable. Notwithstanding the
foregoing provisions of this Section 6.01, no Participant is permitted to make
contributions under the Plan after December 31, 1979.
6.02. Method of making Participant contributions. Contributions by
------------------------------------------
Participants described in Section 6.01 were to be made at any time and in any
manner authorized by the Administrator. Such contributions were to be paid
promptly to the Trustee by the Company. The Administrator was to give the
Trustee written instructions at the time of each payment to the Trustee (whether
the payment was of Participating Employer contributions or Participant
contributions or both), specifying the Participants to whose accounts such
payment were to be credited and the amounts contributed by the Participating
Employer and by each Participant.
6.03. Withdrawal of Participant contributions. Any Participant will be
---------------------------------------
entitled to withdraw from his Share of the Trust Fund at any time and from time
to time a sum not in excess of the aggregate amount of his contributions under
Section 6.01 (reduced by the amount of prior withdrawals) or the value of his
Employee Credits (so reduced) at the date of withdrawal, whichever is less, by
giving written notice to the Administrator of his intention so to withdraw. The
Administrator will deliver such notice to the Trustee, and upon receipt thereof,
the Trustee will, as soon as reasonably practicable, convert to cash such
property held
6-1
<PAGE>
for the benefit of the Participant as he deems necessary in order
to effect the withdrawal requested (but only to the extent such withdrawal is
permitted under this Section 6.03) and will distribute the appropriate amount to
the Participant. Notwithstanding the foregoing, effective August 19, 1985, no
Married Participant shall withdraw any amount from his Share of the Trust Fund
without the written, notarized consent of his Spouse.
6-2
<PAGE>
Article VII. Participants' Accounts.
----------------------
7.01. Individual accounts.
-------------------
(a) Establishing accounts. The Administrator will establish and
---------------------
maintain or cause the Trustee to establish and maintain an account for each
Participant which will reflect (a) the Participant's own contributions, (b) his
share of the Participating Employer contributions and (c) his share of the
income, expenses, and gain or loss (realized or unrealized) of the Trust Fund.
Such account will show separately the Participant's (i) Employee Credits, (ii)
Participating Employer Credits and (iii) the number of his units of
participation in the Trust Fund as determined under paragraph (b) below. The
Administrator and the Trustee may establish and maintain such other accounts and
records as they decide, in their discretion, to be reasonably required in order
to discharge their duties under the Plan.
(b) Units of participation. Each Participant's Share of the Trust
----------------------
Fund will be represented for accounting purposes by units of participation.
Each such unit will be given an initial value by the Administrator.
Subsequently, as of each Valuation Date, the Administrator will redetermine the
value of a unit by dividing the fair market value of the Trust Fund by the total
number of units credited to all Participants' accounts as of such date.
7.02. Order of adjustments to accounts. As of each Valuation Date the
--------------------------------
Administrator will:
(a) first, credit individual accounts of Participants with any
Participant contributions which are to be credited as of that date in accordance
with Section 7.05.
(b) second, adjust the balances in the individual accounts of
Participants to reflect the current value of the assets of the Trust Fund as
provided in Section 7.03; and
(c) third, credit Participating Employer contributions which are to
be credited as of such Valuation Date in accordance with Section 7.04.
7.03. Adjustment for income, expenses, gain or loss. In adjusting the
---------------------------------------------
individual accounts (other than an account whose balance is held in the
Installment Account) under
7-1
<PAGE>
Section 7.02(b) to reflect the current value of the assets of the Trust Fund,
the Administrator will allocate to such accounts, in proportion to the balances
therein immediately prior to such adjustment, an amount equal to the income and
expenses of the Trust and of the gain and loss (realized and unrealized) on the
assets credited to all such accounts, valued at their fair market value. The
balance in each individual account for which amounts are held in the Installment
Account will be similarly adjusted to reflect its proper share of the income
realized on the assets held in the Installment Account and its proper share of
any expenses of the Trust.
7.04. Crediting of Participating Employer contributions. As of the last
-------------------------------------------------
business day of each Plan Year, each Participating Employer contribution for
such Year will be allocated among and credited to the accounts of the Eligible
Employees entitled to share in the Participating Employer contribution (as
provided in Section 5.02) in proportion to their respective amounts of Basic
Earnings for such Plan Year.
7.05. Crediting of Participant contributions. Contributions by
--------------------------------------
Participants will be credited to their accounts as of the date on which such
contributions were made.
7.06. Limitations. Notwithstanding any other provisions of the Plan, a
-----------
Participant's Annual Addition shall not exceed the limitations of section 415 of
the Code which are hereby incorporated by reference. In the event that the
limitations of section 415(e) of the Code would otherwise be violated, a
Participant's benefits and/or annual additions under plans of the Company
or an Affiliated Company will be reduced as necessary in the following order:
(i) the accrued benefit under any defined benefit plan (pro rata with respect to
two or more such plans); (ii) unmatched employee contributions under any defined
contribution plan: and (iii) matched employee contributions under any defined
contribution plan.
7.07. Report to Participants. The Administrator, at least annually, will
----------------------
determine each Participant's Share of the Trust Fund, and will furnish a copy of
such report to the Participant concerned.
7-2
<PAGE>
Article VIII. Rights to Benefits.
------------------
8.01 Normal retirement. Upon attainment of the normal retirement age
-----------------
(65), each Participant will have a fully vested and nonforfeitable interest in
his Share of the Trust Fund. Such Participant's Share of the Trust Fund,
determined as of the Valuation Date immediately preceding his 65th birthday,
plus any amounts thereafter credited to his account attributable to
contributions for the Plan Year in which he attains age 65 will be distributed
to him as soon as reasonably practicable following his 65th birthday (and in no
event later than such Participant's attainment of age 70 1/2 whether or not such
Participant retires from the service of his Participating Employer, in
accordance with subsections (a) and (b) and Article IX below.
(a) Normal Form of Payment. The entire amount credited to a
----------------------
Participant's account shall be paid in one of the normal forms as follows, with
the benefit in (i) being the actuarial equivalent of the benefit described in
(ii): (i) If a Participant has a Spouse on the date on which the Participant
retires, the normal form of payment shall be a Qualified Joint and Survivor
Annuity as defined in section 2.41 with the Participant's Surviving Spouse
entitled to receive a monthly payment of 50% of the monthly payment received by
the Participant; (ii) if a Participant does not have a Spouse on the date on
which the Participant retires, the normal form of payment for distributions made
on or after January 1, 1985 shall be a life annuity with payments guaranteed for
120 months.
(b) Election of Optional Form of Payment. A Participant shall be
------------------------------------
entitled to elect irrevocably an optional form of payment to the amount credited
to his account in accordance with Article IX. The Participant's election must
be filed in writing with the Administrator within the 90-day period prior to the
benefit commencement date.
8.02. Disability retirement. A Participant may, with the consent of his
---------------------
Participating Employer, retire prior to the attainment of age 65 if, because of
a medically determinable physical or mental impairment likely to result in death
or to be of long-continued and indefinite duration, he cannot engage in any
substantially gainful activity and terminates his employment
8-1
<PAGE>
with his Participating Employer. Such retirement is referred to as a disability
retirement. In the event of a disability retirement, the Participant will have a
fully vested and nonforfeitable interest in, and will be entitled to receive,
his Share of the Trust Fund determined as of the Valuation Date immediately
preceding the date of such retirement, plus any amounts thereafter credited to
his account attributable to contributions for the Plan Year in which he retires.
Distribution will be made to him in accordance with Article IX below. Whether or
not a Participant is disabled will be determined by the Administrator on the
basis of medical evidence satisfactory to the Administrator.
8.03. Death Benefit. In the event of the death of a Participant who either
-------------
is actively employed by a Participating Employer, is disabled or has terminated
his employment with a vested interest under the Plan but has not received all of
his account to which he is entitled and who is not receiving retirement benefits
under the Plan, a benefit shall be paid under this Plan. Such benefit shall be
the amount or remaining amount of the Participant's Share of the Trust Fund
(determined as of the Valuation Date immediately preceding the date of the
Participant's death), plus any amount thereafter credited to his account
attributable to contributions for the Plan Year in which his death occurs.
(a) For Participants dying on or after August 23, 1984, the pre-
retirement death benefit described under Section 2.43 and payable under the Plan
on account of the death of a married Participant shall be payable to the
surviving spouse of such Participant in the form of a single life annuity unless
the Participant has made an election not to have the preretirement death
benefits paid in such form. Further, if such Participant elects to have such
pre-retirement death benefits paid in a form other than a survivor annuity for
the life of his surviving spouse which is the actuarial equivalent of the
Qualified Pre-retirement Survivor Annuity (as defined in Section 2.43 above) and
such Participant's surviving spouse has consented in writing to such
Participant's election, such consent acknowledges the effect of such election
and is witnessed by a notary public, such benefit shall be paid to the
beneficiary
8-2
<PAGE>
and in the form elected by the Participant unless such designated beneficiary
elects another form of payment by an instrument in writing filed with the
Administrator within 60 days after the Participant's death. A spouse's consent
to a Member's waiver of the Qualified Preretirement Survivor Annuity (or the
actuarial equivalent thereof) once given, shall be irrevocable.
(b) If such Participant has not elected to waive the Qualified Pre-
retirement Survivor Annuity as defined in Section 2.43 above, the surviving
spouse may elect another form of payment, approved by the Administrator, by an
instrument in writing filed with the Administrator within 60 days after the
Participant's death.
Participants who: (1) had at least one Hour of Service on or after
January 1, 1976, but not after August 22, 1984; (2) as of their date of
separation (from the service of the Employer) had at least 10 years of credited
service under the Plan, and (3) as of August 23, 1984, were alive and whose
annuity starting date had not occurred as of August 23, 1984 may elect to be
subject to the requirements of the Qualified Pre-retirement Survivor Annuity as
set forth above.
Notwithstanding the foregoing, if the present value of the
Qualified Preretirement Survivor Annuity, determined as of the date of
distribution, is $3,500 or less, such pre-retirement death benefit may be
distributed in a lump sum without the consent of the Participant's surviving
spouse.
Effective August 23, 1984 and beginning on the January 1
coinciding with or preceding the earlier of the Participant's age 35 or
separation from service date (for vested amounts allocated to the Participant's
account prior to such separation date), married Participants may elect to waive
the Qualified Pre-retirement Survivor Annuity until the earlier of the
Participant's annuity starting date or death if such Participant's spouse
consents in writing to such election, such consent acknowledges the effect of
such election and is witnessed by a notary public. Such Spousal consent, once
given, shall be irrevocable.
8-3
<PAGE>
(c) For Participants dying prior to August 23, 1984 and for
Participants who do not have a surviving Spouse, the entire amount credited to
such Participant's account shall be paid in a lump sum to the Participant's
designated Beneficiary unless the Participant or the Beneficiary elects another
form of payment pursuant to subsection (d) below.
(d) A Participant may elect another form of payment of the pre-
retirement death benefit payable under subsection (c) by a notice in writing
filed with the Administrator. Within 30 days after the Participant's death the
Beneficiary may, however, elect a different form of payment from that payable
under subsection (a), (b) or (c), by a notice in writing filed with the
Administrator.
(e) Effective January 1, 1985 any election of a form of benefit
payable by reason of the death of a Participant before such Participant's
interest had begun to be distributed to him must result in the distribution of
the Participant's entire interest within five years of such Participant's death
unless:
(i) the distribution is made to the Participant's designated
beneficiary for such designated beneficiary's life or life expectancy and such
distribution to such designated beneficiary begins within one year of the
Participant's death;
(ii) the distribution is made to the Participant's surviving
spouse for the surviving spouse's life or life expectancy and such distribution
begins on the later of the date the Participant would have attained age 70 1/2
or the date which is one year following the Participant's death; or
(iii) in the event the Participant's surviving spouse dies before
the distribution to such surviving spouse (of the Participant's interest) had
begun, the distribution is made to such surviving spouse's designated
beneficiary for the life or life expectancy of such designated beneficiary and
such distribution begins within one year of the death of the Participant's
surviving spouse.
8-4
<PAGE>
Notwithstanding the foregoing, if the Participant
dies after the distribution (of his interest under the Plan) had begun but
before the entire interest was distributed, such distribution (to any
beneficiary) must continue to be made at least as rapidly as it was made during
the Participant's life.
(f) Each Participant shall designate his Beneficiary with his
application for Participation in the Plan. The designation may be changed from
time to time by filing a new designation on a form provided by the
Administrator. If two or more beneficiaries are named, the interest of any
beneficiary, who does not survive the Participant, shall pass to the surviving
beneficiary or beneficiaries in accordance with their respective interests
unless otherwise agreed in writing between the Administrator and the
Participant. If no designated beneficiary survives the Participant, or if no
beneficiary is designated, the interest of the Participant in the Plan shall
pass to the estate of the Participant unless otherwise agreed in writing between
the Administrator and the Participant.
(g) Any lump sum payment payable to a Spouse pursuant to this
Section 8.03 shall be eligible for a direct rollover in accordance with Section
9.04.
8.04. Other termination of employment.
-------------------------------
(a) Participants with 5 or more years of Vesting Service on June 16,
----------------------------------------------------------------
1978 and Participant's who ceased to he Eligible Employees on January 1, 1974.
- -----------------------------------------------------------------------------
A Participant who either (i) completed 5 or more years of Vesting Service on
June 16, 1978 or (ii) ceased to be an Eligible Employee but not an Employee on
January 1, 1974, and who has a Severance from Service Date for any reason other
than death or normal or disability retirement, will be entitled under this
Section 8.04 to a termination benefit equal to the sum of
(1) the value of his Employee Credits determined as of the
Valuation Date immediately preceding his Severance from Service Date, and
8-5
<PAGE>
(2) a percentage, determined in accordance with the following
vesting schedule, of the value of his Participating Employer Credits, which
value will be determined as of the Valuation Date immediately preceding his
Severance from Service Date:
Vesting Schedule
----------------
Years of Vesting Service completed
after the end of first Plan Year
in which he became a Participant Applicable Nonforfeitable Percentage
---------------------------------- ------------------------------------
less than 2 0
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
provided, however, the applicable nonforfeitable percentage in
the case of a Participant who ceased to be an Eligible Employee but not an
Employee on January 1, 1974, is 100 percent.
The distribution described under this paragraph (a) will be made in accordance
with Article IX as soon as reasonably practicable following the Participant's
Severance from Service Date.
(b) Other Participants. A participant other than a Participant
------------------
described in paragraph (a) above who has a Severance from Service Date for any
reason other than death or normal or disability retirement, will be entitled
under this Section 8.04 to a termination benefit equal to the sum of:
(1) the value of his Employee Credits determined as of the
Valuation Date immediately preceding his distribution date, and
(2) a percentage, determined in accordance with the following
vesting schedule, of the value of his Participating Employer Credits, which
value will be determined as of the Valuation Date immediately preceding his
distribution date:
8-6
<PAGE>
Vesting Schedule
----------------
Years of Vesting Service Applicable Nonforfeitable Percentage
------------------------ ------------------------------------
less than 4 0
4 but less than 5 40%
5 but less than 6 50%
6 but less than 7 60%
7 but less than 8 70%
8 but less than 9 80%
9 but less than 10 90%
10 or more 100%
provided, however, in no event will a Participant's nonforfeited
percentage under this paragraph (b) be less than the nonforfeitable percentage
determined as of June 16, 1978 in accordance with the vesting schedule set forth
in paragraph (a) above.
For purposes of this paragraph (b), a Participant's distribution date
is the later of (i) his Severance from Service Date or (ii) the date on which he
attains age 62, provided, however, that if the value of a Participant's
Participating Employer Credits, determined as of the Valuation Date immediately
preceding his Severance from Service Date, is less than $1,000, such
Participant's distribution date is his Severance from Service Date. The
distribution described under this paragraph (b) will be made in accordance with
Article IX as soon as reasonably practicable following the Participant's
distribution date.
Notwithstanding the foregoing provisions of this Section 8.04, the
applicable nonforfeitable percentage in the case of a Participant who has a
Severance from Service Date for any reason on or after December 31, 1979 is 100
percent, regardless of his years of Vesting Service. In addition, and
notwithstanding the foregoing provisions of this Section 8.04, any Employee or
former Employee who is a Participant on December 31, 1979 and who is entitled
to a termination benefit under this Section 8.04, will receive a distribution of
such benefit in accordance with the provisions of Article IX as soon as
reasonably practicable following the later of (i) December 31, 1979 or (ii) his
Severance from Service Date.
8-7
<PAGE>
(c) If the value of a Participant's account exceeds $3,500 at the
time of any distribution, the Participant (and, if applicable, his Spouse) must
consent in a written election filed with the Administrator, to any distribution
before the Participant's attainment of normal retirement age (65).
8.05. Forfeitures. If a Participant described in Section 8.04 has a
-----------
Severance from Service Date, any portion of his Participating Employer Credits
not payable to him under Section 8.04 will remain credited to his account until
such time as he has a One Year Period of Severance, and such portion will then
be forfeited by him. Such forfeitures after adjustment pursuant to Section
7.02(b) will be applied to and treated as part of the contribution of his
Participating Employer for the Plan Year in which such forfeiture occurs.
8.06. Separate account. If a distribution has been made to a Participant
----------------
at a time when he has a nonforfeitable right to less than 100 percent of his
Participating Employer Credits, the vesting schedule in Section 8.04(a) or (b),
whichever is applicable, will thereafter apply only to his Participating
Employer Credits attributable to Participating Employer contributions and
forfeitures allocated after such distribution. The Participating Employer
Credits in his account immediately after such distribution will be transferred
to a separate account which will be maintained for the purpose of determining
his interest therein at any later time. At any relevant time his nonforfeitable
interest in the portion of his Participating Employer Credits held in such
separate account will be equal to P(AB+D)-D, where P is the nonforfeitable
percentage at the relevant time determined under Section 8.04(a) or (b),
whichever is applicable; AB is the account balance of the separate account at
the relevant time; and D is the amount of the distribution. However, if any
portion of such separate account is forfeited under Section 8.05, the
Participant's interest in the remaining balance in such separate account will
thereafter be fully vested and nonforfeitable.
8-8
<PAGE>
8.07. Treatment of certain Participants. Notwithstanding any provision
---------------------------------
contained herein to the contrary, any Employee or former Employee described in
this Section who is a Participant on December 15, 1979 will be treated as
follows:
(a) he will cease to be a Participant as of such date;
(b) he will be entitled to share in the contribution of his
Participating Employer for the 1979 Plan Year based on the amount of his Basic
Earnings for 1979 earned on or before December 15, 1979 and received by December
31, 1979, if he satisfies the requirements of Section 5.02 other than the
requirement that he be a Participant and an Eligible Employee on the last
business day of such Plan Year;
(c) if he is an Employee on December 15, 1979, his interest in his
Share of the Trust Fund will become fully vested and nonforfeitable as of such
date, regardless of his years of Vesting Service; and
(d) distribution of his Share of the Trust Fund, determined as of
December 31, 1979, will be made in accordance with Article IX as soon as
reasonably practicable following such date. An Employee or former Employee is
described in this Section if he is, or at the time he ceased to be an Employee
he was, employed by a Participating Employer in any capacity other than as a
division sales manager, an associate division sales manager or home office
personnel.
8-9
<PAGE>
Article IX. Distribution of Benefits.
------------------------
9.01. Methods of making distributions. Whenever any payment is to be made
-------------------------------
from the Fund to a Participant or to his beneficiary or estate, all or part of
the amount payable may be paid in kind or in cash in any one or more of ways
listed below as the Administrator may direct the Trustee in writing. The
Administrator in his sole discretion shall determine the manner in which payment
is to be made, but he shall make such determination in accordance with the
following provisions:
(a) Within a reasonable period, but in no event later than 30 days
before nor earlier than 90 days before a married Participant's benefit
commencement date, the Administrator shall provide to each married Participant a
written explanation of: (i) the terms and conditions of the Participant's normal
form of benefit payment; (ii) the Participant's right to make, and the effect
of, an election to waive the normal form of benefit payment; (iii) the rights of
the Participant's Spouse under Section 9.01 (d); and (iv) the right to make, and
the effect of, a revocation of a previous election to waive the normal form of
benefit payment.
(b) A Participant may revoke an election, or change it by written
notice to the Administrator at any time until benefits are paid under this Plan
by reason of the Participant's retirement, termination, disability or death.
(c) Subject to Section 9.01(d), a Participant may within the 90-day
period prior to the benefit commencement date, elect any of the following
optional forms of benefit payment instead of the usual form:
(i) As a single life annuity, under which equal or
substantially equal monthly installments are paid to the Participate during his
lifetime, with no further payments to anyone after his death.
(ii) As an annuity under which equal or substantially equal
monthly installments are paid to the Participant during his lifetime, with
payment of monthly
9-1
<PAGE>
installments guaranteed for a period selected by the Participant. Subject to the
limitation in subsection (d), the period may be either 60, 120, 180, 240 or 300
months.
(iii) As an annuity under which, subject to the limitations in
subsection (d), equal or substantially equal monthly installments are paid to
the Participant during his lifetime with such payments continuing during the
lifetime of a contingent annuitant if the contingent annuitant survives the
Participant.
(iv) As an annuity under which, subject to the limitations in
subsection (d), equal or substantially equal monthly installments are paid for
the longer of the lifetime of the Participant, the lifetime of a contingent
annuitant or a guaranteed period selected by the Participant. The period may be
either 60, 120, 180, 240 or 300 months.
(v) As an annuity under which, subject to the limitations in
subsection (d), equal or substantially equal monthly installments are paid to
the Participant so long as both the Participant and a contingent annuitant shall
live. Upon the death of the first of them to die the amount of each installment
shall be reduced to two-thirds of the amount previously paid, and such reduced
installments shall be paid to the survivor for his or her lifetime.
(vi) As an annuity under which, subject to the limitations in
subsection (d), equal or substantially equal monthly installments are paid for
the longer of the period during which both the Participant and a contingent
annuitant shall live or a guaranteed period selected by the Participant. The
guaranteed period may be either 60, 120, 180, 240 or 300 months. Upon the later
of (A) the death of the first to die of the Participant or the contingent
annuitant or (B) the expiration of the guaranteed period, if one of them is then
living the amount of each installment shall be reduced to two-thirds of the
amount previously paid and such reduced installments shall be paid to the
survivor for his or her lifetime.
(vii) In a lump sum.
9-2
<PAGE>
(d) Effective January 1, 1 985, a married Participant may not elect
to waive his normal form of payment described in Section 2.40 if the
Participant's annuity starting date had not occurred and the vested portion of
the Participant's interest under the Plan is greater than $3,500, unless the
Spouse of the Participant desiring to make such election is named as survivor
annuitant under another joint and survivor payment form allowed under the Plan
which is the actuarial equivalent of the joint and 50% survivor annuity provided
under the Plan or consents in writing to such election (on forms satisfactory to
the Administrator) and such consent acknowledges the effect of such election and
is witnessed by a notary public. Such Spousal consent, once given, shall be
irrevocable. Concurrently with such waiver such Participant must elect an
optional form of payment from those provided for in (c) above.
(e) Notwithstanding the consent requirement, if the Participant
established to the satisfaction of the Administrator that such written consent
may not be obtained because there is no Spouse or the Spouse cannot be located,
the election will be deemed effective. Any consent necessary under this
provision will not be valid with respect to any other Spouse.
Effective January 1, 1985, any form of payment elected under the
Plan must result in the commencement of the Participant's benefit beginning no
later than the April 1 of the year following the year in which the Participant
attains age 70 1/2, and extending over a period not extending beyond either the
life of such Participant or the lives of such Participant and his designated
beneficiary, or the life expectancy of such Participant or the life expectancies
of such Participant and his designated beneficiary.
9.02. Notice to Trustee. The Administrator will notify the Trustee
-----------------
whenever any Participant or Beneficiary is. entitled to receive benefits under
Article VIII. In giving such notice, the Administrator will indicate the form
of the benefits and the name of any designated Beneficiary when appropriate.
Upon receipt of a written notice from the Administrator certifying that an
amount is payable to a Participant or other person from the Trust, the Trustee
9-3
<PAGE>
will, as soon as reasonably practicable, distribute such amount (or commence
distribution thereof if distribution is to be made in installments) in
accordance with the instructions of the Administrator. In no case, however,
will the payment of benefits to any Participant commence later than the 60th day
after the latest of the following:
(a) the close of the Plan Year in which occurs the date on which the
Participant attains the normal retirement age (65);
(b) the close of the Plan Year in which occurs the 10th anniversary
of the year in which the Participant commenced participation in the Plan (but no
later than the close of the Plan Year in which a Participant attains age 70 1/2;
or
(c) the close of the Plan Year in which the Participant ceases to be
an Employee.
9.03. Distributions in installments. If a distribution is to be made in
-----------------------------
installments, the Administrator may direct the Trustee to segregate such
benefits in the Installment Account and to make payments from such Account in
accordance with the instructions of the Administrator. The Trustee will invest
the Installment Account in savings accounts in one or more savings banks or
other financial institutions (including the Trustee). The Trustee may keep a
reasonable portion of the assets held in the Installment Account uninvested for
the purpose of meeting current installment payments.
9.04. Direct rollovers. Effective with respect to distributions made on
----------------
or after January 1, 1993, a Participant or Spouse may elect to have all or a
portion of any amount payable to him or her from the Plan which is an "eligible
rollover distribution" (as defined below) transferred directly to an "eligible
retirement plan" (as defined below). Any such election shall be made in
accordance with such uniform rules and procedures as the Administrative
Committee may prescribe from time to time as to the timing and manner of the
election in accordance with Code section 401(a)(31). For purposes of this
Section and Section 14(c), "eligible rollover distribution" shall mean any
distribution of all or any portion of the balance to
9-4
<PAGE>
the credit of the distributes other than: (1) any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributes or the joint
lives (or joint life expectancies) of the distributes and the distributee's
designated beneficiary; (2) any distribution for a specified period of ten (10)
years or more; (3) any distribution to the extent such distribution is required
under Code section 401(a)(9); or (4) the portion of any distribution that is not
includable in gross income. "Eligible retirement plan" shall mean, with respect
to a Participant, an individual retirement account or annuity described in Code
section 408(a) or 408(b) ("IRA'); an annuity plan described in Code section
403(a); or a qualified plan described in Code section 401(a), that accepts the
distributee's eligible rollover distribution and, with respect to a Spouse,
shall mean an IRA.
9-5
<PAGE>
Article X. Funding of the Plan.
-------------------
10.01. Maintenance of the Trust Fund. The Trust Fund will be established
-----------------------------
and maintained by the Company for the exclusive benefit of all persons entitled
to benefits under the Plan, and will be used to pay benefits to such persons,
and to pay expenses of administration of the Plan and the Fund to the extent not
paid by a Participating Employer. Except as otherwise provided in Sections 1.02
and 7.06, no part of the corpus or income of the Trust will be used for or
diverted to purposes other than for the exclusive benefit of each Participant
and his Beneficiary.
10.02. Investment of Trust Fund. The Trustee will accept and hold in the
------------------------
Trust Fund contributions made under the Plan by or on behalf of Participants.
The Trust Fund will be invested by the Trustee in accordance with the provisions
of the agreement or agreements creating the Trust and with the provisions of the
Plan.
10-1
<PAGE>
Article XI. Amendment and Termination.
-------------------------
11.01. Amendment. The Company reserves the right to amend the Plan in
---------
any respect and at any time and from time to time by a written instrument signed
by any officer of the Company authorized to sign by vote of the Board of
Directors providing for such amendment (any such amendment to take effect
retroactively if the Company so provides); provided, however, that the Company
will not have power:
(a) to amend the Plan in such manner as would cause or permit any
part of the assets of the Trust to be diverted to purposes other than for the
exclusive benefit of each Participant and his Beneficiary; or
(b) to amend the Plan retroactively in such a manner as would
deprive any Participant of any benefit to which he was entitled under the Plan
by reason of contributions made by a Participating Employer or the Participant
prior to the amendment, unless such amendment is necessary to conform the Plan
or Trust to, or satisfy the conditions of, any law, governmental regulation or
ruling, or to permit the Plan and the Trust to meet the requirements of sections
401(a) and 501(a) of the Code;
11.02. Termination. The Company has established the Plan and the Trust
-----------
with the bona fide intention and expectation that contributions will be
continued indefinitely, but the Company will have no obligation or liability
whatsoever to maintain the Plan for any given length of time and may discontinue
contributions under the Plan or terminate the Plan as to Participants employed
by a Participating Employer at any time by written notice delivered to the
Trustee without any liability whatsoever for any such discontinuance or
termination. The Plan will be deemed terminated (a) if and when the Company is
judicially declared bankrupt, (b) if and when the Company is a party to a merger
in which it is not the surviving corporation or sells all or substantially all
of its assets, unless the surviving corporation or the purchaser adopts the Plan
by an instrument in writing delivered to the Trustee within 60 days after the
merger or sale, or (c) upon dissolution of the Company.
11-1
<PAGE>
11.03. Distributions upon termination of the Plan. Upon termination or
------------------------------------------
partial termination of the Plan or complete discontinuance of contributions
thereunder as to Participants employed by any Participating Employer, each
affected Participant will have a fully vested and nonforfeitable interest in his
Share of the Trust Fund. In the event of the termination of the Plan, the
Trustee will make distributions to such Participants or other persons entitled
to distributions in accordance with the instructions of the Administrator or, in
the absence of such instructions, as the Trustee in its discretion deems
advisable. Such distributions will be made in such manner as the Administrator
directs pursuant to Article IX or, in the absence of such instructions, as the
Trustee in its discretion deems advisable.
11.04. Merger or consolidation of Plan: transfer of Plan assets. In case of
--------------------------------------------------------
any merger or consolidation of the Plan with. or transfer of assets and
liabilities of the Plan to, any other plan, provision must be made so that each
Participant would, if the Plan then terminated, receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit he would have been entitled to receive immediately before the
merger, consolidation or transfer if the Plan had then terminated.
11-2
<PAGE>
Article XII. Miscellaneous.
-------------
12.01. Limitation of rights. Neither the establishment of the Plan and
--------------------
the Trust, nor any amendment thereof, nor the creation of any fund or account,
nor the payment of any benefits, will be construed as giving to any Participant
or other person any legal or equitable right against any Participating Employer,
the Administrator or the Trustee, except as provided herein, and in no event
will the terms of employment or service of any Participant be modified or in any
way be affected hereby. It is a condition of the Plan, and each Participant
expressly agrees by his participation herein, that each Participant will look
solely to the assets held in the Trust for the payment of any benefit to which
he is entitled under the Plan.
12.02. Nonalienability of benefits. The benefits provided hereunder
---------------------------
will not be subject to alienation, assignment, garnishment, attachment,
execution or levy of any kind, and any attempt to cause such benefits to be so
subjected will not be recognized, except to such extent as may be required by a
-
Qualified Domestic Relations Order as defined in Section 2.42.
- -------------------------------------------------------------
12.03. Governing law. The Plan will be construed, administered and
-------------
enforced according to the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, said Company has caused this Plan to be executed in
its behalf by its officers thereunto duly authorized as of January 1, 1989.
WADDELL & REED, INC.
By /s/ WILLIAM HOWEY
-----------------------------------
12-1
<PAGE>
APPENDIX A
TOP-HEAVY PROVISIONS
--------------------
A. As used in this Appendix A, each of the following terms shall have the
meanings for that term set forth below:
(a) Defined Benefit Plan means a plan of the type defined in Code (S)
--------------------
414(i) maintained by the Company or an Affiliate, as applicable.
(b) Defined Contribution Plan means a plan of the type defined in Code
-------------------------
(S) 414(i) maintained by the Company or an Affiliate, as applicable.
(c) Determination Date means, for any Plan Year subsequent to the first
------------------
Plan Year, the last day of the preceding Plan Year. For the first Plan Year of
the Plan, Determination Date means the last day of that year.
(d) Determination Period means the Plan Year containing the
--------------------
Determination Date and the four preceding Plan Years.
(e) Key Employee means any Employee or former Employee (and the
------------
Beneficiaries of such Employee) who at any time during the Determination Period
was:
(i) an officer of an Employer having Limitation Compensation
greater than 50% of the dollar limitation under Code (S) 415(b)(1)(A) for
any Plan Year within the Determination Period,
(ii) an owner (or individual considered an owner under Code (S)
318) of one of the ton largest interests in an Employer if such individual's
Limitation Compensation exceeds 100% of the dollar limitation in effect
under Code (S) 415(c)(1)(A),
(iii) a "5-percent owner" (as defined in Code (S) 416(i)) of an
Employer, or
A-1
<PAGE>
(iv) a "1-percent owner" (as defined in Code (S) 416(i)) of an
Employer who has Limitation Compensation of more than $150,000.
(f) Limitation Compensation means, for an Employee, the Employee's
-----------------------
earned income, wages, salaries, fees for professional services and other amounts
received for personal services actually rendered in the course of Employment
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses); amounts described in Code (S)(S) 104(a)(3), 105(a)
and 105(h) to the extent includable in the Employee's gross income; amounts
described in Code (S) 105(d) whether or not excludable from the Employee's gross
income; reimbursed non-deductible moving expenses; the value of nonqualified
stock options to the extent includable in the Employee's gross income in the
year of grant; the amount includable in the Employee's gross income pursuant to
an election under Code (S) 83(b); distributions from an unfunded, non-qualified
plan of deferred compensation; and excluding the following:
(i) contributions to a plan of deferred compensation which are
not includable in the Employee's gross income for the taxable year in which
contributed. or contributions under a "simplified employee pension" (within
the meaning of Code (S) 408(k)) to the extent such contributions are
deductible by the Employee, or any distributions from a plan of deferred
compensation (other than an unfunded nonqualified plan);
(ii) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or other property) held by the Employee
either becomes freely "transferable" or is no longer subject to a
"substantial risk of forfeiture" (both quoted terms within the meaning of
Code (S) 83(a));
(iii) amounts realized from the sale. exchange or other
disposition of stock acquired under a qualified stock option; and
A-2
<PAGE>
(iv) other amounts which received special tax benefits, or
contributions made (whether or not under a salary reduction agreement)
towards the purchase of an annuity described in Code (S) 403(b) (whether or
not the amounts are actually excludable from the gross income of the
Employee).
(g) Non-Key Employee means any Employee who is not a Key Employee.
----------------
(h) Permissive Aggregation Group means the Required Aggregation Group
----------------------------
of plans plus any other plan or plans of the Company or an Affiliate which, when
considered as a group with the Required Aggregation Group, would continue to
satisfy the requirements of Code (S)(S) 401(a)(4) and 410.
(i) Required Aggregation Group means (i) each Qualified Plan of an
--------------------------
Employer in which at least one Key Employee participates, and (ii) any other
Qualified Plan of an Employer which enables a plan described in (i) to meet the
requirements of Code (S)(S) 401(a)(4) and 410.
(j) Super Top-Heavy Plan means, for any Plan Year beginning after
--------------------
December 31, 1983, the Plan if any Top-Heavy Ratio as determined under the
definition of Top-Heavy Plan exceeds 90%.
(k) Top-Heavy Plan means, for any Plan Year beginning after December
--------------
31, 1983, the Plan if any of the following conditions exists:
(i) If the Top-Heavy Ratio for the Plan exceeds sixty percent
and the Plan is not part of, any Required Aggregation Group or Permissive
Aggregation Group of plans.
(ii) If the Plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group, and the Top-Heavy
Ratio for the Required Aggregation Group of plans exceeds sixty percent.
A-3
<PAGE>
(iii) If the Plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for
the Permissive Aggregation Group exceeds sixty percent.
(l) Top-Heavy Ratio means,
---------------
(i) If the Company or an Affiliate maintains one or more Defined
Benefit Plans and the Company or an Affiliate has never maintained any
Defined Contribution Plan (including any "simplified employee pension"
within the meaning of Code (S) 408(k)) which during the five-year period
ending on the Determination Date has or has had account balances, the Top-
Heavy Ratio for the Plan alone or for the Required or Permissive Aggregation
Group, as appropriate, is a fraction, the numerator of which is the sum of
the present values of accrued benefits under the aggregated Defined Benefit
Plans of all Key Employees as of the respective Determination Date for each
plan (including any part of any accrued benefit distributed in the five-year
period ending on the Determination Date), and the denominator of which is
the sum of the present values of all accrued benefits under the aggregated
Defined Benefit Plans as of the respective Determination Date for each plan
(including any part of any accrued benefit distributed in the five-year
period ending on the Determination Date) determined in accordance with Code
(S) 416.
(ii) If the Company or an Affiliate maintains one or more Defined
Benefit Plans and the Company or an Affiliate maintains or has maintained
one or more Defined Contribution Plans (including any "simplified employee
pension" within the meaning of Code (S) 408(k)) which during the five-year
period ending on the Determination Date has or has had any account balances,
the Top-Heavy Ratio for any Required or Permissive Aggregation Group, as
appropriate, is a fraction, the numerator of which is the sum of the present
value of accrued benefits under the aggregated Defined Benefit Plans for all
Key Employees, determined in accordance with (i) above,
A-4
<PAGE>
plus the sum of account balances under the aggregated Defined Contribution
Plans for all Key Employees as of the respective Determination Date for each
plan, and the denominator of which is the sum of the present value of all
accrued benefits under the aggregated Defined Benefit Plans, determined in
accordance with (i) above, plus the sum of all account balances under the
aggregated Defined Contribution Plans for all Members as of the respective
Determination Date for each plan, all determined in accordance with Code (S)
416. The account balances under a Defined Contribution Plan in both the
numerator and denominator of the Top-Heavy Ratio are adjusted for any
distribution of any account balance made in the five-year period ending on
the Determination Date.
(iii) For purposes of (i) and (ii) above, the value of account
balances and the present value of accrued benefits will be determined as of
the most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Code (S) 416
for the first and second plan year of a Defined Benefit Plan. The account
balances and accrued benefits of a Member (A) who is a Non-Key Employee but
who was a Key Employee in a prior year, or (B) who has not been credited
with at least one Hour of Service with any Employer at any time during the
five-year period ending on the Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in accordance
with Code (S) 416. Deductible employee contributions will not be taken into
account for purposes of computing the Top-Heavy Ratio. When aggregating
plans, the value of account balances and accrued benefits will be calculated
with reference to the respective Determination Dates for the aggregated
plans that fall within the same calendar year.
(iv) Solely for the purpose of determining if the Plan, or any
other plan included in a Required Aggregation Group of which this Plan is a
part, is Top-Heavy
A-5
<PAGE>
(within the meaning of Code (S) 416(g)) such determination shall be made
under (A) the method, if any, that uniformly applies for accrual purposes
under all plans maintained by the Employer, or (B) if there is no such
method, as if such benefit accrued not more rapidly than the slowest accrual
rate permitted under the fractional accrual rate of Code (S) 411(b)(1)(C).
(m) Valuation Date means, the date as of which account balances, or
--------------
accrued benefits are valued for purposes of calculating the Top-Heavy Ratio.
B. If the Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy
Plan as of any Determination Date, then it shall be subject to the rules set
forth in this Appendix A, beginning with the first Plan Year commencing after
such Determination Date.
C. For each Plan Year beginning before January 1, 1989 in which the Plan
is a Top-Heavy Plan or Super Top-Heavy Plan, Compensation for the purpose of
this Plan shall be limited to the first $200,000 (or such larger amount as may
be prescribed for the Plan Year involved pursuant to Code (S) 416(d)(2)) of the
amount that would otherwise have been Compensation.
D. (a) Except as provided in subparagraph (b) below and except if any
other Defined Contribution Plan or Defined Benefit Plan provides such minimum
benefit to the Member, for any Plan Year in which the Plan is a Top-Heavy Plan,
Employer contributions and forfeitures allocated to the account of any Member
who is not a Key Employee, whether or not such Member has completed 1,000 Hours
of Service in that Plan Year and whether or not such Member has elected to
participate in the Plan, in respect of that Plan Year shall not be less than the
smaller of:
(i) three percent of such Member's Limitation Compensation, or
(ii) the largest percentage of Employer contributions and
forfeitures, as a percentage of the Key Employee's Limitation Compensation,
allocated in the aggregate to the account of any Key Employee for that
year.
A-6
<PAGE>
(b) The provision in (a) above shall not apply to any Member who was
not employed by the Employer or an Affiliate on the fast day of the Plan Year.
E. If the Plan is a Top-Heavy Plan for any Plan Year, then the maximum
benefit which can be provided under Code (S) 415 shall be determined by
substituting "1.00" for "1.25" in Code (S) 415(e)(2)(B) and (3)(8), unless the
Plan meets the requirements of Code (S) 416(h)(2)(B) and the Administrator
increases the minimum rate of benefit accrual provided in Section D by one
percent.
F. Beginning with the Plan Year in which this Plan is Top-Heavy, the
following vesting schedule will apply:
Completed Years of Vested
Vesting Service Percentage
----------------- ----------
2 20%
3 40%
4 60%
5 100%
G. In the event that any provision of this Appendix A is no longer
required to qualify the Plan under the Code, then such provision shall thereupon
be void without the necessity of further amendment of the Plan.
A-7
<PAGE>
Exhibit 10.15
-------------
AGREEMENT AMENDING DISTRIBUTION CONTRACT
This Agreement, dated the 3rd day of March, 1998, by and between TMK/United
Funds, Inc.(the "Fund") and United Investors Life Insurance Company ("UILIC");
WHEREAS, the Fund and UILIC have executed a Distribution Contract, accepted by
UILIC as of April 4, 1997 (the "Distribution Contract") in the form attached
hereto as Exhibit A; and
---------
WHEREAS, the Fund and UILIC desire to amend the Distribution Contract to provide
for termination thereof as of December 31, 1998, unless the Fund and UILIC
determine in writing signed by both the Fund and UILIC to extend it for an
additional period of time;
NOW, THEREFORE, the Fund and UILIC agree as follows:
1. The Distribution Contract be, and it hereby is, amended to provided that it
terminates as of the close of business on December 31, 1998, unless extended to
a later date in writing by the Fund and UILIC.
2. Section 1 of the Distribution Contract terminates on the termination date.
All other provisions of the Distribution Contract will survive termination only
for purposes of the shares sold or issued under the Distribution Agreement on or
prior to the termination date, except that Section 7 will survive termination of
the Distribution Contract for all purposes.
3. All notices, instructions, reports and other documents contemplated by this
Agreement or the Distribution Agreement will be deemed duly given when in
writing and either delivered to the addresses below or sent by first class mail,
facsimile or courier addressed as follows:
To: United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: James L. Sedgwick
To: TMK/United Funds, Inc.
6300 Lamar Avenue
Overland Park, KS 66202
Attn: General Counsel
4. This Agreement may be executed in counterparts, each of which shall be
deemed an original.
<PAGE>
5. This Agreement will be governed by the laws of the State of Kansas.
IN WITNESS WHEREOF, the Fund and UILIC have caused this Agreement to be executed
and delivered by their respective duly authorized officers as of the date first
above written.
TMK/United Funds, Inc.
By: /s/ Keith A. Tucker
-------------------
Keith A. Tucker
Chief Executive Officer
United Investors Life Insurance
Company
By: /s/ Larry M. Hutchison
----------------------
Larry M. Hutchison
<PAGE>
Exhibit 10.17
-------------
AGREEMENT AMENDING PRINCIPAL UNDERWRITING AGREEMENT
This Agreement, dated the 3rd day of March, 1998, by and between United
Investors Life Insurance Company ("UILIC") and Waddell & Reed, Inc. ("W&R");
WHEREAS, UILIC and W&R have executed a Principal Underwriting Agreement, dated
May 1, 1990 by and between UILIC and W&R (the "Underwriting Agreement") in the
form attached hereto as Exhibit A; and
---------
WHEREAS, the UILIC and W&R desire to amend the Underwriting Agreement to provide
for termination thereof as of December 31, 1998, unless UILIC and W&R determine
to extend it for an additional period of time;
NOW, THEREFORE, UILIC and W&R agree as follows:
1. The Underwriting Agreement be, and it hereby is, amended to provide that it
terminates as of the close of business on December 31, 1998, unless extended to
a later date in writing by UILIC and W&R.
2. The provisions of the Underwriting Agreement will survive termination as
described therein.
3. All notices, instructions, reports and other documents contemplated by this
Agreement or the Underwriting Agreement will be deemed duly given when in
writing and either delivered to the addresses below or sent by first class mail,
facsimile or courier addressed as follows:
To: United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: James L. Sedgwick
To: Waddell & Reed, Inc.
6300 Lamar Avenue
Overland Park, KS 66202
Attn: General Counsel
4. This Agreement may be executed in counterparts, each of which shall be
deemed an original.
5. This Agreement will be governed by the laws of the State of Kansas.
<PAGE>
IN WITNESS WHEREOF, W&R and UILIC have caused this Agreement to be executed and
delivered by their respective duly authorized officers as of the date first
written above.
UNITED INVESTORS LIFE INSURANCE COMPANY
By: /s/ Larry M. Hutchison
----------------------
Larry M. Hutchison
WADDELL & REED, INC.
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
<PAGE>
Exhibit 10.19
-------------
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is made effective as of the 3rd day of
March, 1998 (the "Effective Date"), by and between WADDELL & REED INVESTMENT
MANAGEMENT COMPANY ("WRIMCO") and WADDELL & REED ASSET MANAGEMENT COMPANY
("WRAMCO").
WHEREAS, WRIMCO is involved in operations and services involving certain
institutional accounts and has specific expertise in this area; and
WHEREAS, WRAMCO is the investment adviser to institutional accounts and certain
other accredited investors and WRIMCO is the subadviser with respect to certain
of those accounts (the portion of those accounts for which WRIMCO serves as
subadviser pursuant to the Investment Services Agreement, dated March 3, 1998,
as amended from time to time ("Investment Services Agreement") are hereinafter
referred to as the "Accounts");
WHEREAS, WRAMCO desires that WRIMCO assist with certain of WRAMCO's duties
primarily with respect to client servicing and accounting for the Accounts, and
with respect to certain recordkeeping and regulatory filing requirements;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, WRIMCO and WRAMCO agree as follows:
1. Nature of Relationship. WRIMCO agrees, at WRAMCO's request, to assist it by
-----------------------
performing the duties set forth in this Agreement. Nothing contained herein
shall constitute an agency or joint venture relationship between WRIMCO and
WRAMCO.
2. Duties of WRIMCO. With respect to the Accounts, WRIMCO shall perform the
------------------
following duties during the term of this Agreement:
a. WRIMCO shall assist WRAMCO with the taking and processing of transactions in
securities, including without limitation, purchase and sale of securities and
other products; purchase, sale and exercise of subscription, conversion and
other rights, warrants and options; and taking or abstaining from taking any
action with respect to any corporate action such as reorganizations,
consolidations, mergers, dissolutions, recapitalizations, refinancing and any
other plan or change affecting any property relating to the Accounts;
b. WRIMCO shall assist WRAMCO in establishing, preparing and maintaining books
and records relating to the Accounts and WRAMCO's business, including, but not
limited to, Account balance, performance and transaction information as deemed
necessary and appropriate by WRIMCO, as reasonably requested by WRAMCO, and as
required by applicable laws, rules and regulations;
<PAGE>
c. WRIMCO shall assist WRAMCO in computing and causing to be prepared and
delivered clients and other appropriate entities such as regulatory entities
standard and reasonable supplemental documentation regarding Accounts and
WRAMCO's business, including, without limitation, any quarterly and annual
reports, sales material, regulatory filings and such information as is otherwise
required by applicable laws, rules and regulations;
d. WRIMCO shall assist WRAMCO in reconciling Account balances;
e. WRIMCO shall assist WRAMCO in processing and responding to correspondence
and other contact from or on behalf of clients; and
f. WRIMCO shall prepare and deliver invoices or other appropriate documentation
of amounts owing to WRAMCO by clients and/or Accounts.
3. Compensation of WRIMCO. As compensation for the performance by WRIMCO of
-----------------------
its duties and obligations set forth in this Agreement, WRAMCO shall pay WRIMCO
all out of pocket expenses incurred by it under this Agreement, including,
without limitation, federal and state registration or filing fees, and printing
and mailing costs relating to information delivered to clients. All expenses
shall be paid within sixty days following the end of each calendar quarter
during the term of this Agreement, or within sixty days following a termination
of this Agreement occurring at a time other than the end of a calendar quarter.
Expenses shall be equitably prorated for any period of less than one quarter, as
appropriate.
4. Liability. Except as otherwise provided in this Agreement, WRIMCO, its
----------
affiliates which are directly or indirectly subsidiaries of Waddell & Reed
Financial, Inc. and their respective employees, agents, officers and directors
shall not have any liability, obligation or responsibility for any act, or
failure to act pursuant to this Agreement. WRAMCO shall be responsible for
reviewing and approving all governmental filings and other documents.
5. Notice. All notices, instructions and reports contemplated by this
-------
Agreement shall be deemed duly given when in writing and either delivered to the
addresses below or sent by first-class mail, facsimile or courier addressed as
follows:
To WRAMCO: Waddell & Reed Asset Management Company
<PAGE>
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: Michael J. Klyce
To WRIMCO: Waddell & Reed Investment Management Company
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Lawrence J. Cipolla
6. Term. This Agreement shall become effective as of the Effective Date and
-----
shall continue in full force and effect until the earlier of (i) termination of
the Agreement by either WRIMCO or WRAMCO pursuant to thirty days' prior written
notice to the other party; (ii) termination of WRIMCO as a subadviser of all
Accounts, or (iii) termination of the Investment Services Agreement.
7. Counterparts. This Agreement may be executed in one or more counterparts,
-------------
each of which shall be deemed an original upon execution by WRIMCO and WRAMCO.
8. Construction. The headings used in this Agreement are for reference
-------------
purposes only and shall not be deemed to constitute a part hereof.
9. Governing Law. This Agreement shall be construed in accordance with the
--------------
laws of the State of Kansas.
10. Entire Agreement; Waiver; Assignment. This Agreement constitutes the
-------------------------------------
entire and complete agreement between the parties hereto relating to the
subject matter hereof, and supersedes all prior agreements between the parties,
whether oral or written. Notwithstanding the foregoing, this Agreement shall be
read in connection with the Investment Services Agreement. This Agreement may
be amended only by the written consent of WRIMCO and WRAMCO. Any notice
required by this Agreement may be waived in writing by the person entitled
thereto. Such waiver shall not be deemed a continuing waiver. This Agreement
may not be assigned or otherwise transferred without the prior written consent
of the other party hereto. This Agreement shall inure to and be binding upon
the respective successors and assigns (as permitted herein) of the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement to become effective
as of the Effective Date.
WADDELL & REED INVESTMENT MANAGEMENT COMPANY
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
Executive Vice President
Attest:
By: /s/ Sharon K. Pappas
--------------------
Sharon K. Pappas, Secretary
<PAGE>
WADDELL & REED ASSET MANAGEMENT COMPANY
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
Treasurer
Attest:
By: /s/ Sharon K. Pappas
--------------------
Sharon K. Pappas, Secretary
<PAGE>
Exhibit 10.20
-------------
RECIPROCITY AGREEMENT BY AND BETWEEN
TORCHMARK CORPORATION AND
WADDELL & REED FINANCIAL, INC.,
ON BEHALF OF THE
TORCHMARK CORPORATION PENSION PLAN,
THE WADDELL & REED FINANCIAL, INC. RETIREMENT INCOME PLAN,
THE TORCHMARK CORPORATION SAVINGS AND INVESTMENT PLAN, AND
THE WADDELL & REED FINANCIAL, INC. SAVINGS AND INVESTMENT PLAN
Recitals:
Waddell & Reed Financial, Inc. and its affiliates (collectively, "W&R
Financial") employ individuals who were formerly employed by Torchmark
Corporation and its affiliates (collectively, "Torchmark") and who accrued
benefits under the Torchmark Corporation Pension Plan (the "Torchmark
Pension Plan") and the Torchmark Corporation Savings and Investment Plan
(the "Torchmark Thrift Plan").
Torchmark employs individuals who were formerly employed by Waddell &
Reed Financial or its predecessor, Waddell & Reed, Inc. and its affiliates
(collectively, "W&R") and who accrued benefits under the Waddell & Reed
Financial, Inc. Retirement Income Plan (the "W&R Financial Pension Plan")
and the Waddell & Reed Financial, Inc. Savings and Investment Plan (the
"W&R Financial Thrift Plan").
In connection with the initial public offering of Class A common stock
of W&R Financial, the parties hereto desire for the plans identified herein
to transfer certain assets and liabilities among and between said plans.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The W&R Financial Thrift Plan shall transfer to the Torchmark Thrift Plan
assets and liabilities related to the following classes of employees:
(a) Existing and former employees of United Investors Life Insurance
Company;
(b) Existing sales persons of Waddell & Reed Asset Management Company;
and,
(c) Former employees of W&R or W&R Financial who are current employees of
Torchmark.
1
<PAGE>
2. The Torchmark Thrift Plan shall transfer to the W&R Financial Thrift Plan
assets and liabilities related to the following classes of employees:
(a) Former employees of Torchmark who are current employees of W&R
Financial.
3. The W&R Financial Pension Plan shall transfer to the Torchmark Pension
Plan assets and liabilities related to the following classes of employees:
(a) Existing sales persons of Waddell & Reed Asset Management Company;
and,
(b) Former employees of United Investors Real Estate Company.
4. The Torchmark Pension Plan shall transfer to the W&R Financial Pension
Plan assets and liabilities related to the following classes of employees:
(a) Former employees of Torchmark who are current employees of W&R
Financial; and,
(b) Former employees of Torch Energy Advisors Incorporated.
5. The transfers of assets and liabilities provided for herein shall take
place no sooner than the filing of appropriate Forms 5310-A with the Internal
Revenue Service, the Department of Labor, and the Pension Benefit Guaranty
Corporation unless a regulatory exemption for the filing of such forms exists.
6. The parties hereto may amend this agreement at any time pursuant to a
writing signed by both parties.
DONE as of this the 3rd day of March, 1998.
Torchmark Corporation, as sponsor and plan
administrator of the Torchmark Corporation Pension
Plan and the Torchmark Corporation Savings and
Investment Plan
By: /s/ Michael K. Fagin
--------------------
Michael K. Fagin
Vice President and Treasurer
ATTEST:
/s/ Carol A. McCoy
- ------------------
2
<PAGE>
Waddell & Reed Financial, Inc., as sponsor and plan administrator of the
Waddell & Reed Financial, Inc. Retirement Income Plan and the Waddell & Reed
By: /s/ Keith A. Tucker
-------------------
Keith A. Tucker
ATTEST:
/s/ Sharon K. Pappas
- --------------------
3
<PAGE>
Exhibit 10.21
-------------
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made, executed and entered into this 3rd day of March, 1998,
by and between Torchmark Corporation, a Delaware corporation having its
principal offices in Birmingham, Alabama ("Torchmark") and Waddell & Reed
Financial, Inc., a Delaware corporation having its principal offices in Overland
Park, Kansas ("W&R"), for the purpose of rendering administrative and investment
services for the Torchmark Corporation Savings and Investment Plan and the
Liberty National Life Insurance Company 401(k) Plan (collectively, the "Plans").
1. Services to be Provided
-----------------------
W&R or one of its affiliates shall perform applicable recordkeeping and
investment services, in accordance with all applicable federal, state and local
laws and regulations and the provisions of the latest executed Plan document, as
specified below:
(a) allocate earnings, including dividends, if any, and losses for (1)
various mutual funds in the United Group of mutual funds (the "Funds")
offered as investments under the Plan, (2) Torchmark Common Stock, and
(3) W&R Class A Common Stock;
(b) issue buy and sell orders, as appropriate, to the purchasing agent for
W&R Class A Common Stock according to the participants' direction and
dividend allocation;
(c) issue buy and sell orders, as appropriate, to the purchasing agent for
Torchmark Common Stock according to the participants' directions and
dividend allocation,
(d) purchase shares of the Funds for participants' accounts according to
the participants' direction;
(e) determine asset values for the Funds held by the Plan;
(f) calculate participant account balances on a periodic basis;
(g) transfer plan assets among the various Funds as directed by Plan
participants;
(h) perform periodic valuations no less frequently than semi-monthly;
(i) invest and credit participant and employer contributions to the
appropriate investment fund, including Torchmark Common Stock, under
the Plan.
(j) provide investment numbers to the trustees of the Plans and to
Torchmark for wiring of contributions;
1
<PAGE>
(k) balance the recordkeeping system used in the administration of the
Plans, as needed, to the shareholder recordkeeping system after each
investment;
(l) prepare a monthly mutual fund confirmation for the trustees of the
Plans;
(m) prepare letters for the trustees of the Plans to use, as needed and as
requested, regarding mutual fund redemptions, stock redemptions,
forfeitures, and stock buys and sells;
(n) prepare spreadsheets for stock pricing calculation each investment for
input of net asset values based on information provided by Torchmark
related to the current periods stock transactions;
(o) calculate and input dividend rates on Torchmark stock and W&R stock,
as necessary; and,
(p) check all test results when changes are made to the Plans' systems.
2. Information to be Provided
--------------------------
(a) W&R shall provide the services described in paragraph 1 above based on
information furnished by Torchmark.
(b) Torchmark shall provide W&R with all information relative to employee
data which is necessary for performance of the services agreed upon
herein.
3. Compensation
------------
In consideration of the performance of services described herein, Torchmark
shall pay a quarterly fee, payable within 30 days after the end of each calendar
quarter, in the amount of two dollars and fifty cents ($2.50) per participant
per quarter (which is the equivalent of ten dollars ($10.00) per participant per
year) to W&R for the services described herein. Any additional services which
are requested by Torchmark and agreed to by W&R shall be provided for a
separately agreed upon fee. The foregoing shall not preclude W&R from
receiving, in addition to the compensation specified herein, management fees and
other expense fees listed in the prospectuses for the Funds.
4. Board of Directors
------------------
The Torchmark Board of Directors may include officers and directors of W&R.
W&R may, nevertheless, deal freely with Torchmark, and no contract or
transaction shall be invalidated or in any way affected by reason of those
2
<PAGE>
facts, even though the vote of the directors(s) or the action of the officer(s)
who are officers or directors of W&R shall have been necessary to obligate
Torchmark in such contract or transaction. Neither W&R nor any officer or
director thereof shall be liable to Torchmark or to any shareholder or creditor
thereof or to any other person by reason of such contract or transaction or for
any loss resulting therefrom or for any profit derived therefrom, provided that
it was reasonable to believe that such contract or transaction was, at the time
at which it was entered into, a reasonable one to have been entered into and on
terms that, at such time, were fair. Nothing contained in this paragraph 5,
however, shall validate, authorize or apply to any act prohibited by applicable
law or shall protect any director or officer of Torchmark or any director or
officer of W&R against any liability to Torchmark or its shareholders to which
he would otherwise be subject by reason of bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office or under
this Agreement.
5. General
-------
(a) Either W&R or Torchmark may elect to terminate this Agreement on 30
days' written notice. Unless terminated by such notice, this
Agreement shall continue from month to month and year to year.
(b) Each provision of this Agreement is severable from all other
provisions of this Agreement and, if one or more of the provisions of
this Agreement shall be declared invalid, the remaining provisions of
this, Agreement, nevertheless, remain in full force and effect.
(c) All written notices provided for in this Agreement shall be deemed
given when mailed postage prepaid to the address of the respective
party as listed above, unless otherwise provided in an Amendment to
this Agreement.
(d) This Agreement will be governed by and construed in accordance with
the laws of the State of Kansas.
(e) Torchmark shall not assign or otherwise transfer this Agreement or any
rights hereunder without the prior written permission of W&R.
(f) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter. This Agreement may be executed in
one or more counterparts, each of which shall constitute but a single
document. No modification or waiver of or to any provision of this
Agreement shall be valid unless in writing and signed by all the
parties hereto.
(g) This Agreement will become effective as of the Effective Date when
signed by duly authorized representatives of both parties and will
continue in effect until terminated.
IN WITNESS WHEREOF, the parties hereto, each acting under due and proper
authority, have caused this Agreement to be executed by their respective
signatures.
<PAGE>
TORCHMARK CORPORATION
By: /s/ Michael K. Fagin
--------------------
Michael K. Fagin
Vice President and Treasurer
ATTEST:
/s/ Carol McCoy
- ---------------
WADDELL & REED FINANCIAL, INC.
By: /s/ Keith A. Tucker
-------------------
Keith A. Tucker
Chief Executive Officer
ATTEST:
/s/ Sharon K. Pappas
- --------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AS REPORTED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 120,551
<SECURITIES> 46,607
<RECEIVABLES> 20,223
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191,821
<PP&E> 12,358
<DEPRECIATION> 10,032
<TOTAL-ASSETS> 334,734
<CURRENT-LIABILITIES> 81,902
<BONDS> 0
0
0
<COMMON> 665
<OTHER-SE> 239,906
<TOTAL-LIABILITY-AND-EQUITY> 334,734
<SALES> 63,660
<TOTAL-REVENUES> 67,049
<CGS> 0
<TOTAL-COSTS> 29,915
<OTHER-EXPENSES> 726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,604
<INCOME-PRETAX> 27,804
<INCOME-TAX> 11,057
<INCOME-CONTINUING> 16,747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,747
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
