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UNITED STATES
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 June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________
Commission file number 001-13913
WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0261715
(State or other jurisdiction (I.R.S. Employer
of 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)
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 June 30, 1999:
Class Outstanding as of June 30, 1999
----------------------------------------- -------------------------------
Class A Common stock, $.01 par value 29,418,459
Class B Common stock, $.01 par value 30,131,673
<PAGE>
WADDELL & REED FINANCIAL, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
INDEX
Page No.
Part I. Financial Information
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 3
Consolidated Statements of
Operations for the three months and six months
ended June 30, 1999 and June 30, 1998 4
Consolidated Statements of Comprehensive
Income for the three months and six months
ended June 30, 1999 and June 30, 1998 5
Consolidated Statements of Cash
Flows for the six months ended
June 30, 1999 and June 30, 1998 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------ ---------------------- ----------------------
June 30, December 31,
ASSETS 1999 1998
(Unaudited)
- ------------------------------------------------------------------------ ---------------------- ----------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 51,634 30,180
Investment securities, available-for-sale 96,304 103,153
Receivables:
United funds and W&R funds 7,861 5,740
Customers and other 23,565 28,865
Deferred income taxes 1,253 1,309
Prepaid expenses and other current assets 5,147 3,222
- ------------------------------------------------------------------------ ---------------------- ----------------------
Total current assets 185,764 172,469
Property and equipment, net 20,735 17,685
Investment in real estate 23,911 24,718
Deferred sales commissions, net 18,074 15,710
Goodwill (net of accumulated amortization of $21,834 and $20,382) 94,476 95,928
Other assets 791 669
- ------------------------------------------------------------------------ ---------------------- ----------------------
Total assets $ 343,751 327,179
- ------------------------------------------------------------------------ ---------------------- ----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------ ---------------------- ----------------------
Liabilities:
Current liabilities:
Accounts payable $ 34,623 28,304
Accrued sales force compensation 10,149 11,916
Short term notes payable 90,091 40,076
Income taxes payable 16,440 13,464
Other current liabilities 13,442 16,034
- ------------------------------------------------------------------------ ---------------------- ----------------------
Total current liabilities 164,745 109,794
Deferred income taxes 1,409 208
Accrued pensions and post-retirement costs 11,361 10,041
- ------------------------------------------------------------------------ ---------------------- ----------------------
Total liabilities 177,515 120,043
- ------------------------------------------------------------------------ ---------------------- ----------------------
Stockholders' equity:
Common stock ($.01 par value; 150,000,000 Class A shares 665 665
authorized, 32,142,174 issued and 29,418,459 outstanding
and 100,000,000 Class B shares authorized, 34,325,000
issued and 30,131,673 outstanding June 30, 1999;
150,000,000 Class A shares authorized, 32,142,174
issued and 30,906,445 outstanding; 100,000,000 Class B
shares authorized, 34,325,000 shares issued and 31,911,956
outstanding December 31, 1998)
Additional paid-in capital 246,271 246,271
Retained earnings 75,356 47,325
Deferred compensation (11,804) (12,494)
Treasury stock (2,723,715 Class A shares and 4,193,327 Class (143,270) (74,833)
B shares at June 30, 1999; 1,235,729 Class A shares and
2,413,044 Class B shares at December 31, 1998)
Accumulated other comprehensive income/(loss) (982) 202
- ------------------------------------------------------------------------ ---------------------- ----------------------
Total stockholders' equity 166,236 207,136
- ------------------------------------------------------------------------ ---------------------- ----------------------
Total liabilities and stockholders' equity $ 343,751 327,179
- ------------------------------------------------------------------------ ---------------------- ----------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Unaudited
(in thousands, except for per share and dividend data)
<TABLE>
<CAPTION>
- ----------------------------------------------------- -------------------------------- -------------------------------
For the three months ended For the six months ended
June 30, June 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Investment management fees $ 39,707 35,215 $ 77,023 67,641
Underwriting and distribution fees 33,058 28,541 63,590 52,002
Shareholder service fees 10,392 8,257 20,094 16,030
Investment and other revenue 2,548 2,725 5,471 4,164
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Total revenue 85,705 74,738 166,178 139,837
Expenses:
Underwriting and distribution 32,432 24,272 62,244 44,555
Compensation and related costs 9,606 9,144 18,743 16,564
General and administrative 4,494 1,867 8,545 3,650
Depreciation 529 430 1,062 859
Interest expense 1,143 - 2,006 -
Amortization of goodwill 726 726 1,452 1,452
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Total expenses 48,930 36,439 94,052 67,080
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Income before affiliated items and provision for 36,775 38,299 72,126 72,757
income taxes
Affiliated items:
Interest income - - - 1,950
Interest expense - - - (8,604)
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Income before provision for income taxes 36,775 38,299 72,126 66,103
Provision for income taxes 13,986 14,489 27,354 25,546
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Net income $ 22,789 23,810 $ 44,772 40,557
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Net income per share:
Basic $ 0.38 0.36 $ 0.73 0.61
Diluted 0.37 0.36 0.71 0.61
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Weighted average shares outstanding:
Basic 60,399 66,467 61,182 66,467
Diluted 62,211 66,582 62,710 66,626
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Dividends declared per common share $ 0.1325 0.1325 $ 0.265 0.265
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------- -------------------------------- -------------------------------
For the three months ended For the six months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 22,789 23,810 $ 44,772 40,557
Other comprehensive income:
Net unrealized appreciation (depreciation) of
investments during the period, net of income
taxes of $(366), $(210), $(913), and $(114) (587) (343) (1,512) (186)
Reclassification adjustment for amounts
included in net income, net of income taxes of
$26, $0, $182, and $0 39 0 328 0
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Comprehensive income $ 22,241 23,467 $ 43,588 40,371
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------ ---------------------------------------------
For the six months ended June 30,
---------------------------------
1999 1998
- ------------------------------------------------------------------------ ---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 44,772 40,557
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,514 2,311
Recognition of deferred compensation 679 452
Loss on sale of investments 65 -
Loss on sale and retirement of fixed assets 17 27
Capital gains and dividends reinvested (61) (48)
Deferred income taxes 1,988 (75)
Changes in assets and liabilities:
Receivables from funds (2,121) (305)
Other receivables 5,566 (12,267)
Due to/from affiliates - operating - 4,880
Other assets (4,411) (1,159)
Accounts payable 6,319 6,942
Other liabilities (47) 7,804
- ------------------------------------------------------------------------ ---------------------- ----------------------
Net cash provided by operating activities 55,280 49,119
- ------------------------------------------------------------------------ ---------------------- ----------------------
Cash flows from investing activities:
Additions to investments (2,676) (78,132)
Sale of investments 7,278 -
Proceeds from maturity of investments 328 1,073
Purchase of property and equipment (4,130) (1,652)
Investment in real estate 552 -
Other - (24)
- ------------------------------------------------------------------------ ---------------------- ----------------------
Net cash provided/(used) by investing activities 1,352 (78,735)
- ------------------------------------------------------------------------ ---------------------- ----------------------
Cash flows from financing activities:
Proceeds from IPO - 516,014
Notes payable 50,000 -
Cash dividends (16,411) (8,808)
Change in due to/from affiliates - nonoperating - (480,791)
Purchase of treasury stock (69,119) -
Exercise of stock options 352 -
- ------------------------------------------------------------------------ ---------------------- ----------------------
Net cash (used)/provided by financing activities (35,178) 26,415
- ------------------------------------------------------------------------ ---------------------- ----------------------
Net increase/(decrease) in cash and cash equivalents 21,454 (3,201)
Cash and cash equivalents at beginning of period 30,180 73,820
- ------------------------------------------------------------------------ ---------------------- ----------------------
Cash and cash equivalents at end of period $ 51,634 70,619
- ------------------------------------------------------------------------ ---------------------- ----------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
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WADDELL & REED FINANCIAL, INC.
NOTES TO UNAUDITED 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
revenues primarily from investment management, administration, distribution
and related services provided to the United mutual funds ("United"), Waddell
& Reed mutual funds ("W&R"), Target/United mutual funds ("Target") and
institutional accounts in the United States. Until March 1998, the Company
was wholly-owned by Torchmark Corporation ("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. On November 6, 1998 Torchmark distributed its remaining
ownership interest in the Company by means of a tax-free spin-off to the
stockholders of Torchmark of all shares of common stock of the Company held
by Torchmark.
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 operations and its cash flows for the periods ended June 30,
1999 and 1998 and its financial position at June 30, 1999. These financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1998, from which the accompanying
balance sheet as of December 31, 1998 was derived. The operating results and
cash flows for the periods ended June 30, 1999 are not necessarily indicative
of the results that will be achieved in future periods.
LIQUIDITY AND CAPITAL
On April 28, 1999, the Company declared a dividend payable on July 30,
1999 in the amount of $.1325 per share to shareholders of record as of July
9, 1999. The total dividend paid was $7.9 million.
During the third quarter of 1998, the Company announced that it would
commence a stock repurchase program whereby shares of the Company's common
stock would be purchased on the open market from time to time under
conditions deemed attractive by management. These shares will be held in
treasury and used for issuance upon the exercise of outstanding stock
options. For the three month period ended June 30, 1999, the Company
purchased 1,504,583 Class A and Class B common shares at an average price of
$24.32 per share.
During the third quarter of 1998, the Company entered into a $200
million revolving credit facility, expandable to $300 million. The credit
facility is a 364-Day revolving facility at an interest rate of LIBOR plus
.35%. As of June 30, 1999, the outstanding balance on this facility was $90.0
million. The primary use of the borrowed funds was to repurchase stock under
the stock repurchase program.
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EARNINGS PER SHARE
Basic earnings per share for the 1999 and 1998 periods are based on the
average number of shares outstanding for the periods ended June 30, 1999 and
1998, respectively. Diluted earnings per share for these periods also
includes the dilutive impact of stock options.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS OR STRATEGIES REGARDING
THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT INCLUDED
IN THIS FORM 10-Q REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS
STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE OPERATIONS, ARE
FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
FORM 10-Q ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE
HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS AND
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT
OR THAT THE COMPANY WILL TAKE ANY ACTIONS THAT MAY PRESENTLY BE PLANNED AND
NEITHER THE COMPANY NOR ANY OTHER PERSON WILL BE RESPONSIBLE FOR THE ACCURACY
OR COMPLETENESS OF ANY SUCH FORWARD-LOOKING STATEMENTS. CERTAIN IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ARE DISCLOSED IN THE "RISK FACTORS" SECTION OF THE
COMPANY'S FORM 10-K ANNUAL REPORT, WHICH INCLUDE, WITHOUT LIMITATION, THE
ADVERSE EFFECT FROM A DECLINE IN SECURITIES MARKETS OR A DECLINE IN THE
COMPANY'S PRODUCTS' PERFORMANCE, FAILURE TO RENEW INVESTMENT MANAGEMENT
AGREEMENTS, COMPETITION, CHANGES IN GOVERNMENT REGULATION, AVAILABILITY AND
TERMS OF CAPITAL AND YEAR 2000 UNCERTAINTIES. ALL SUBSEQUENT WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS. UPDATED
INFORMATION WILL BE PERIODICALLY PROVIDED BY THE COMPANY AS REQUIRED BY THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OVERVIEW
The Company derives its revenues primarily from providing investment
management, distribution, administrative and related services to the United,
W&R and Target 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 variable 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
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,
8
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custodian fees for retirement plan accounts and portfolio accounting fees.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THREE
MONTHS ENDED JUNE 30, 1998
Second quarter net income was $22.8 million, or $.37 per share on a
diluted basis, compared with net income of $23.8 million, or $.36 per share,
for the prior year's second quarter. For the three months ended June 30,
1999, net income per share increased 2.4% when compared to net income per
share for the same period of 1998.
Revenues excluding interest for the second quarter of 1999 were
$83.2 million, an $11.1 million or 15.5% increase over last year's second
quarter. Investment and other income for the second quarter decreased $.2
million to $2.5 million from the second quarter of 1998. Total revenues for
the second quarter of 1999 increased $10.9 million or 14.7% from last year's
second quarter.
Mutual fund assets were up 11.6% from June 30, 1998 and 4.9% from
the previous quarter. Mutual fund sales exceeded redemptions by $78.7 million
for the second quarter of 1999 compared with net redemptions of $103.7
million for the second quarter of 1998. The 1998 period includes a redemption
of $35 million from the W&R and Target Funds by Torchmark Corporation, which
were redeposited into institutional accounts. Excluding the 1998 Torchmark
redemption, the blended mutual funds' redemption rates were 8.9% and 9.1% for
the second quarters ended 1999 and 1998, respectively.
Management fee revenue was $39.7 million for the three months ended June
30, 1999, an increase of 12.8% over the 1998 second quarter. Management fee
revenue increased at a higher rate than the rate of average asset growth due
to a change in asset composition. W&R Funds (back-end load) and Target Funds
(variable insurance products) grew at a faster rate than the United Funds
(front-end load). The W&R Funds and the Target Funds generally have a higher
management fee rate than the United Funds. Total assets under management were
$29.6 billion at June 30, 1999, composed of $26.4 billion in mutual funds and
$3.2 billion in institutional accounts. At June 30, 1998, total assets under
management were $26.7 billion composed of $23.7 billion in mutual funds and
$3.0 billion in institutional accounts.
Underwriting and distribution revenues from product sales were $33.1
million for the second quarter of 1999, a 15.8% increase from the prior
year's second quarter. An increase in investment product sales, especially
variable insurance product sales, drove the growth in distribution revenues.
Variable insurance product sales generate higher commissions which resulted
in revenue growth exceeding sales growth in the second quarter. The W&R Funds
do not have an initial sales charge and therefore generate no commission
revenue at point of sale. Distribution revenues from the W&R Funds come
primarily from 12b-1 fees based on net asset value and also contributed to
growth in underwriting and distribution revenues.
Shareholder service fees include transfer agency fees, retirement plan
custodian fees, and portfolio accounting fees. These fees for the second
quarter of 1999 increased $2.1 million or 25.9% from the second quarter of
last year. Transfer agency and retirement plan custodian fees typically
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increase in proportion to the number of client accounts, which increased by
166,200 or 11.4% from June 30, 1998 to June 30, 1999. A transfer agency fee
increase coinciding with the conversion to a third party data processing
system became effective during the fourth quarter of 1998. This fee increase
generates approximately $1.3 million per quarter and is offset by higher
third party processing costs recorded in general and administrative expenses.
Underwriting and distribution expenses consist of direct costs (notably,
commissions paid to financial advisors, incentive payments, manager overrides
and sales program costs) and other costs such as advertising, training, field
office expenses and marketing support. Underwriting and distribution expenses
were $32.4 million for the second quarter of 1999, an increase of $8.2
million over last year's second quarter. More than 40% of the increase was
attributable to increased volume. In addition, the increase includes $2.1
million for advertising, $1.0 million for training, marketing support and
field offices, and approximately $1.7 million for sales force compensation
enhancements introduced in the third quarter of 1998 to facilitate asset
retention and to improve sales force growth.
Compensation and related expense for the second quarter of 1999 was $.5
million or 5.1% higher than last year's second quarter. The second quarter of
1998 included an additional $1.3 million for bonus accruals, reflecting
favorable investment management performance during the first six months of
last year. Excluding the impact of this additional bonus accrual, the
increase in compensation expense was 22%, related primarily to staff
additions to improve investment management, shareholder services and back
office operations.
General and administrative expense for the second quarter ended 1999 was
$4.5 million, increasing $2.6 million from the prior year's second quarter.
As previously mentioned, approximately $1.3 million was attributable to
increased costs of outsourcing transfer agency data processing. These
increased costs were offset by increased shareholder service fee revenue.
Various miscellaneous items, including costs associated with being a public
company and general costs relating to growth in back-office support,
accounted for the remaining increase.
Interest expense for the second quarter of 1999 was $1.1 million
relating to interest expense incurred on the outstanding balance on the
credit facility entered into in the third quarter of 1998.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO SIX
MONTHS ENDED JUNE 30, 1998
For the six months ended June 30, 1999, net income was $44.8
million, or $.71 per diluted share, compared with an adjusted $44.9 million,
or $.67 per share, for the prior year's six month period. The prior year's
adjusted net income excludes the net interest expense related to notes with
Torchmark Corporation, which existed prior to the initial public offering and
were prepaid at the time of the offering. For the six months ended June 30,
1999, net income per share increased 5.8%, when compared to adjusted net
income per share for the same period of 1998.
Revenues excluding interest for the six months ended June 30, 1999
increased by $25.0 million or 18.5% to $160.7 million and investment income
increased by $1.3 million to $5.4 million from the same period last year.
Total revenues increased $26.3 million or 18.8% to $166.2 million for the six
months ended June 30, 1999.
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Mutual fund assets were up 11.6% from June 30, 1998. For the six
month period ended June 30, 1999, mutual fund net sales were $23.3 million
compared with net redemptions of $115.0 million for the same period last
year. During the first quarter of 1999, the closing of a pension plan account
resulted in a $76 million mutual fund redemption. The 1998 period includes a
second quarter redemption of $35 million from the W&R and Target Funds by
Torchmark Corporation which were redeposited into institutional accounts.
Excluding the 1999 pension account closing and the 1998 Torchmark redemption,
the blended mutual funds' redemption rates were 8.9% and 8.6% for the six
months ended 1999 and 1998, respectively.
For the six months ended 1999, management fee revenue was $77.0 million,
an increase of 13.9%. Management fee revenue increased at a higher rate than
the rate of average asset growth due to a change in asset composition. W&R
Funds (back-end load) and Target Funds (variable insurance products) grew at
a faster rate than the United Funds (front-end load). The W&R Funds and the
Target Funds generally have a higher management fee rate than the United
Funds. Total assets under management were $29.6 billion at June 30, 1999,
composed of $26.4 billion in mutual funds and $3.2 billion in institutional
accounts. At June 30, 1998, total assets under management were $26.7 billion
composed of $23.7 billion in mutual funds and $3.0 billion in institutional
accounts.
For the six months ended 1999, underwriting and distribution revenues
were $63.6 million, an increase of 22.3% from the same period of 1998. An
increase in investment product sales, especially variable insurance product
sales, drove the growth in distribution revenues. Variable insurance product
sales generate higher commissions which resulted in revenue growth exceeding
sales growth in the second quarter. The W&R Funds do not have an initial
sales charge and therefore generate no commission revenue at point of sale.
Distribution revenues from the W&R Funds come primarily from 12b-1 fees based
on net asset value and also contributed to growth in underwriting and
distribution revenues.
Shareholder service fees include transfer agency fees, retirement plan
custodian fees, and portfolio accounting fees. Transfer agency and retirement
plan custodian fees typically increase in proportion to the number of client
accounts, which increased by 166,200 or 11.4% from June 30, 1998 to June 30,
1999. A transfer agency fee increase coinciding with the conversion to a
third party data processing system became effective during the fourth quarter
of 1998. This fee increase generates approximately $1.3 million per quarter
and is offset by higher third party processing costs recorded in general and
administrative expenses.
Underwriting and distribution expenses consist of direct costs (notably,
commissions paid to financial advisors, incentive payments, manager overrides
and sales program costs) and other costs such as advertising, training, field
office expenses and marketing support. For this six-month period of 1999,
underwriting and distribution expenses were $17.7 million higher than those of
the same period a year ago. More than 48% of the increase was attributable to
increased volume. In addition, the increase includes $5.0 million from
investments in advertising, marketing support, training and field offices and
approximately $3.4 million for sales force compensation enhancements.
Compensation and related expense for the first six months of 1999 was
$2.2 million or 13.2% higher than last year's six month period. The 1998
period included an additional $1.3 million for
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bonus accruals, reflecting favorable investment management performance during
the first six months of last year. Excluding the impact of this additional
bonus accrual, the increase in compensation expense was 23%, related
primarily to staff additions to improve investment management, shareholder
services and back office operations.
General and administrative expense for the 1999 period was $8.5 million,
increasing $4.9 million from the prior year's period. As previously
mentioned, approximately $1.3 million per quarter, or $2.6 million was
attributable to increased costs of outsourcing transfer agency data
processing. These increased costs were offset by increased shareholder
service fee revenue. Various miscellaneous items, including costs associated
with being a public company and general costs relating to growth in back
office support, accounted for the remaining increase.
Interest expense for the 1999 period was $2.0 million relating to interest
expense incurred on the outstanding balance on the credit facility. Net
interest expense for the first half of 1998 was $6.7 million. However, this
amount represented interest expense incurred relating to notes with Torchmark
that were prepaid at the time of the initial public offering.
SALES FORCE GROWTH AND SALES FORCE PRODUCTIVITY
Two key strategies for accelerating growth are increasing the number of
financial advisors and improving sales productivity per advisor. On June 30,
1999, the number of financial advisors stood at 2,400, up 268 or 12.6% from
2,132 at June 30, 1998. Productivity as measured by sales per advisor was
$240 thousand for the second quarter of 1999 up from $225 thousand for the
first quarter of 1999 but down from $244 thousand for the second quarter of
1998. The average number of advisors increased 13.7% from the second quarter
of 1998, while total investment product sales increased by 11.5% causing the
decline in the productivity measurement. Sales in the second quarter of 1998
were particularly strong (up 40% over second quarter of 1997). On a six month
comparison, sales per advisor increased from $437 thousand for the six months
ended 1998 to $464 thousand for the same period of 1999.
INVESTMENTS TO ACCELERATE GROWTH
As discussed in last quarter's Form 10-Q, management implemented
strategies to accelerate growth during 1998 and 1999, including investments
in new sales offices, sales force compensation, advertising and training as
well as additional investment management, shareholder service and back-office
personnel. While these investments generally impact operating costs
immediately, their benefits in the form of sales force growth, improved
productivity, increased sales and assets under management are not fully
realized until future periods.
It is anticipated that the Company's operating and distribution margins
will strengthen as revenues accelerate and the rate of growth in expenses
moderates. Revenues will be directly enhanced by recent increases in both
investment management fees and investment product sales commissions as
discussed below.
APPROVAL OF CHANGE IN MANAGEMENT FEE RATE STRUCTURE
The Company's proposal to restructure the management fee arrangements of
the Funds was approved by the Funds' shareholders on June 22, 1999. This
restructuring replaced the "group" fee structure and "specific fund" add-on
fee with a specific fee schedule for each Fund. These schedules more closely
conform with others in the mutual fund industry and will have a favorable
12
<PAGE>
impact on the Company's overall management fee rate of approximately .07% of
mutual fund assets under management.
ENHANCED COMMISSION ARRANGEMENT FOR VARIABLE PRODUCT SALES
The Company recently entered into an agreement with United Investors
Life Insurance Company whereby, commencing January 1, 2000, the Company will
receive additional commissions from United Investors for selling variable
products for which it is the underwriter. It is estimated that this
arrangement will provide additional underwriting and distribution revenues of
approximately $6.0 million in 2000.
ACQUISITION OF INVESTMENT MANAGEMENT FIRM
On June 29, 1999, the Company announced that it had agreed to acquire
Austin, Calvert & Flavin, Inc. ("ACF"), a privately held investment
management firm based in San Antonio, Texas. ACF manages investments of
approximately $1.5 billion for trusts, high net worth families and
individuals and pension plans of corporations, hospitals, schools, labor
unions, endowments and foundations. The transaction was completed on August
9, 1999 and was financed by invested cash and amounts borrowed against the
credit facility. It is expected that the transaction will be slightly
accretive to earnings per share.
STOCK REPURCHASE PROGRAM
The Company continued acquiring shares of its common stock by purchasing
1.2 million Class A shares and .3 million Class B shares at an aggregate cost
of $36.7 million during the quarter. These repurchases were funded by cash
from operations and an additional $10 million borrowing against the credit
facility. The outstanding balance on this facility was $90 million at June
30, 1999.
The total number of shares outstanding at June 30, 1999 was 59.5
million, comprised of 29.4 million Class A shares and 30.1 million Class B
shares.
From July 1, 1999 through July 15, 1999, the Company repurchased an
additional .1 million Class A shares and .8 million Class B shares at an
aggregate cost of $24.4 million, $10 million of which was funded by the
credit facility. The outstanding balance on this facility was $100 million at
July 15, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and liquid marketable securities were $147.9
million at June 30, 1999, an increase of $14.6 million from December 31,
1998. Cash and cash equivalents at June 30, 1999 and December 31, 1998
include reserves of $17.6 million and $10.8 million, respectively, for the
benefit of customers in compliance with securities regulations. The increase
is primarily related to cash flow from operations.
Cash flow provided by operations was $55.3 million and $49.1 million for
the first six months
13
<PAGE>
of 1999 and 1998, respectively. Investing activities provided $1.4 million of
cash during the six months ended June 30, 1999, due primarily to net proceeds
from investment securities sales of $4.9 million, partially offset by net
investments made in property and equipment of $3.5 million. The Company
repurchased $69.1 million of its common stock through the stock repurchase
program during the first half of 1999, funded primarily by the credit
facility.
The Company is considering selling its investment in real estate and its
home office properties during the fourth quarter of 1999 to an unrelated
party. Proceeds from this sale are expected to approximately equal the book
and tax basis in these properties ($31 million - $34 million for the existing
buildings and all of the land). The Company also has plans to expand its
existing home office facilities commencing in 1999 at an estimated cost of
$14.6 million. The proceeds from the sale of all of these properties,
including the expansion, would be available for share repurchases, debt
repayment or other corporate purposes. The Company will enter into a lease
agreement to lease back sufficient space to accommodate its home office
operations simultaneously with the sale of these properties. Other than the
expansion of the home office facilities, the Company has no material
commitments for capital expenditures.
Management believes its available cash, marketable securities and
expected cash flow from operations will be sufficient to fund dividends,
obligations and operations as well as advance sales commissions and meet any
other reasonably foreseeable cash needs. The $200-million credit facility,
which is expandable to $300 million, is also available for the Company's use.
The outstanding balance on the facility at June 30, 1999 was $90.0 million.
INFORMATION SYSTEMS AND YEAR 2000 READINESS
Some computers, software, and other equipment include computer code in
which the calendar year data is abbreviated to only two digits. As a result,
some of these systems will not operate correctly after 1999 because they may
interpret "00" to mean 1900, rather than 2000. These problems are widely
expected to increase in frequency and severity as the year 2000 approaches,
and are commonly referred to as the "Year 2000 Problem". The information
provided in this Form 10-Q about our Year 2000 progress is provided as of
August 1, 1999.
The Company believes that it has identified all significant data,
computer hardware, software applications and related equipment, as well as
office and facilities equipment such as telephone switches and security
systems used in connection with its internal operations, that must be
modified, upgraded or replaced to minimize the possibility of a material
disruption to its business. The Company has completed the process of
modifying, upgrading and replacing systems that have been assessed as
adversely affected, to prevent the occurrence of any material disruption of
its business. However, there can be no assurances in this regard.
Internal and external resources were used to make the required
modifications and test Year 2000 compliance. The Company has completed
compliance activities on all of its systems. Additional verification will
continue through 1999 to ensure that no new date related problems are
introduced into previously tested or newly developed systems. Newly purchased
software and systems are required to be Year 2000 compliant and are subject
to the same verification standards as existing systems. The Company estimates
that the total costs of this effort will be $4.4 million for
14
<PAGE>
the five year period ending June 30, 2000. Total costs incurred to date are
approximately $3.9 million.
The Company is dependent on several mission critical systems, including
those maintained by third-party service providers, to perform its core
business activities. Mission critical investment management systems have been
remediated and tested. The mutual fund transfer agency system is maintained
by a third-party service provider and interfaces with other Company systems.
As of December 31, 1998 this service provider has represented that their
transfer agency systems have been updated for Year 2000 compliance.
Integrated testing of these systems was completed and included transaction
processing in a Year 2000 environment. Additional verification testing will
continue through the end of the year to ensure that no new date related
problems are introduced into previously tested systems.
The following chart summarizes the Company's current state of completion
for the systems it uses.
<TABLE>
<CAPTION>
Stages % Complete
------ ----------
<S> <C>
Awareness 100%
Inventory 100%
Risk Assessment 100%
Compliance Assessment 100%
Remediation 100%
Validation 100%
Contingency Planning 100%
</TABLE>
The Year 2000 Problem also affects some of the Company's vendors and
suppliers of data, computers, software and other equipment. The Company has
contacted all significant vendors and suppliers to inquire about their Year
2000 readiness. However, the Company has limited or no control over the
actions of these vendors and suppliers. Accordingly, the Company cannot
guarantee that these vendors and suppliers will resolve any or all Year 2000
Problems. If the Company's vendors and suppliers fail to resolve Year 2000
Problems, the Company's business could be materially disrupted.
The Company believes it has identified and resolved all Year 2000
Problems that could materially and adversely affect its business operations.
However, due to the number of interactions with internal and external
systems, equipment and data, management believes that it is not possible to
determine with complete certainty that all Year 2000 Problems affecting the
Company or its clients have been identified or corrected. In addition, no one
can accurately predict how many Year 2000 Problem-related failures will occur
or the severity, duration or financial consequences of these potential
failures. As a result, management expects that the Company could suffer a
small number of operational inconveniences and inefficiencies affecting the
Company and its clients that will divert some of management's time and
attention and financial and human resources from its ordinary business
activities.
In order to minimize the risk of the Company's products and services
being affected by Year 2000 issues, the Company intends to suspend the
implementation or modification of hardware and
15
<PAGE>
software between October 1, 1999 and December 31, 1999, unless such
implementation or modification is critical to its business operations or
relates to Year 2000 maintenance concerns. This precautionary measure should
allow the Company to preserve the compliant status of remediated systems and
to further assess the stability of its internal systems environment prior to
year end.
The Company has developed contingency plans to minimize the impact of
potential Year 2000 Problems on its mission critical and non-mission critical
systems for which it is practical to develop contingency plans. The Company
will refine and test its contingency plans throughout the remainder of 1999.
However, in an operation as complex as providing investment advisory
services, there are limited alternatives to certain mission critical systems
and third-party providers, including electrical power and communications
services. If these services or mission critical systems such as the mutual
fund transfer agency system fail for an extended period of time, there would
likely be a material adverse affect on the Company's business, results of
operations and financial condition. Although the Company is investigating
alternative solutions, it is unlikely that any adequate contingency plan can
be developed for any prolonged failure of these mission critical services and
systems. Additionally, the investment portfolios from which the Company
derives the majority of its revenue could be subject to increased credit,
market and liquidity risk arising from the impact of Year 2000 issues on
individual securities. Additionally, governments and financial markets around
the world could be affected by Year 2000 issues. To the extent that the
market prices of securities are negatively affected by these or other Year
2000 issues, the Company's investment advisory revenues, results of
operations and financial condition could be materially adversely affected.
The discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance constitutes forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely affected by, among
other things, vendor ability to modify proprietary software and unanticipated
problems identified in the ongoing compliance review.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Stockholders held April 28, 1999
(b) Directors re-elected to additional three year terms at the
Annual Meeting:
Louis T. Hagopian, George J. Records, Sr., R.K. Richey and
Keith A. Tucker
Other Directors whose terms of office continued after the
Annual Meeting:
David L. Boren, Joseph M. Farley, Robert L. Hechler, Harold
T. McCormick, Henry J. Herrmann, Joseph L. Lanier, Jr.,
William L. Rogers, and James M. Raines
(c) ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
For Withheld
----------- --------
<S> <C> <C>
Louis T. Hagopian 146,806,388 521,058
George J. Records, Sr. 146,964,446 363,000
R.K. Richey 146,622,139 705,307
Keith A. Tucker 146,976,923 350,523
</TABLE>
APPROVAL OF 1999 MANAGEMENT INCENTIVE PLAN - A new plan to
reward and motivate management for profit improvement by
setting goals related to profitability. The plan was
submitted to the stockholders for approval to comply with
Section 162(m) of the Internal Revenue Code relating to
deductibility of compensation.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
143,159,190 3,744,442 423,814
</TABLE>
No broker non-votes on this proposal.
Ratify Appointment of KPMG LLP as independent auditors for 1999
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
146,641,407 536,797 149,242
</TABLE>
No broker non-votes on this proposal.
17
<PAGE>
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). The
1995 Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide information without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected. Although the
Company does not anticipate that it will make forward-looking statements as a
general policy, the Company will make forward-looking statements as required
by law or regulation, and from time to time may make such statements with
respect to management's estimation of the future operating results and
business of the Company.
The Company hereby incorporates into this report by reference to its
Form 10-K for the year ended December 31, 1998, the cautionary statements
found on pages 16-18 of such Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4 Rights Agreement, dated as of April 28, 1999, by and
between Waddell & Reed Financial, Inc. and First Chicago
Trust Company of New York, which includes the Certificate
of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Company, as filed on
May 13, 1999 with the Secretary of State of Delaware, as
Exhibit A and the form of Rights Certificate as Exhibit B.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
A Form 8-K dated May 5, 1999 was filed to report the adoption of
a Stockholder Rights Plan on April 28, 1999 by the Board of
Directors and to announce the distribution of related Rights to
stockholders of record on May 12, 1999. No financial statements
were required to be filed.
A Form 8-K dated June 29, 1999 was filed to announce the proposed
acquisition of Austin, Calvert and Flavin, Inc., a San Antonio
based private investment advisory firm. No financial statements
were required to be filed.
18
<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, this 13th day of August, 1999.
WADDELL & REED FINANCIAL, INC.
By: /s/ John E. Sundeen, Jr.
------------------------------------------
John E. Sundeen, Jr., Senior Vice President
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By: /s/ D. Tyler Towery
------------------------------------------
D. Tyler Towery, Vice President
(Principal Accounting Officer)
19
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of April 28, 1999 (the "Agreement"),
between WADDELL & REED FINANCIAL, INC., a Delaware corporation (the "Company"),
and FIRST CHICAGO TRUST COMPANY OF NEW YORK, a New York corporation (the "Rights
Agent").
W I T N E S S E T H
WHEREAS, on April 28, 1999 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of Common
Stock (as defined herein) of the Company outstanding at the close of business on
May 12, 1999 (the "Record Date"), and has authorized the issuance of one Right
(as such number may hereinafter be adjusted pursuant to the provisions of
Section 11(p) hereof) for each share of Common Stock of the Company issued
between the Record Date (whether originally issued or delivered from the
Company's treasury) and the Distribution Date (as hereinafter defined) each
Right initially representing the right to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock of the Company (the "Preferred
Stock") having the rights, powers and preferences set forth in the form of
Certificate of Designation, Preferences and Rights attached hereto as Exhibit A,
upon the terms and subject to the conditions hereinafter set forth (the
"Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the Voting Power as represented by the shares
of Common Stock then outstanding, but shall not include (i) the Company, (ii)
any Subsidiary of the Company, (iii) any employee benefit plan of the Company,
<PAGE>
or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan, or (iv) any Person who becomes the Beneficial Owner of fifteen percent
(15%) or more of the Voting Power as represented by the shares of Common Stock
then outstanding as a result of a reduction in the number of shares of Common
Stock outstanding due to the repurchase of shares of Common Stock by the Company
unless and until such Person, after becoming aware that such Person has become
the Beneficial Owner of fifteen percent (15%) or more of the Voting Power as
represented by the then outstanding shares of Common Stock, acquires beneficial
ownership of additional shares of Common Stock representing one percent (1%) or
more of the shares of Common Stock then outstanding, or (v) any such Person who
has reported or is required to report such ownership (but less than 20%) on
Schedule 13G under the Securities and Exchange Act of 1934, as amended and in
effect on the date of the Agreement (the "Exchange Act") (or any comparable or
successor report) or on Schedule 13D under the Exchange Act (or any comparable
or successor report) which Schedule 13D does not state any intention to or
reserve the right to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of such schedule
(other than the disposition of the Common Stock) and, within 10 Business Days of
being requested by the Company to advise it regarding the same, certifies to the
Company that such Person acquired Voting Power as represented by the shares of
Common Stock in excess of 14.9% inadertently or without knowledge of the terms
of the Rights and who, together with all Affiliates and Associates, thereafter
does not acquire additional shares of Common Stock while the Beneficial Owner of
15% or more of the Voting Power as represented by the shares of Common Stock
then outstanding; PROVIDED, HOWEVER, that if the Person requested to so certify
fails to do so within 10 Business Days, then such Person shall become an
Acquiring Person immediately after such 10-Business-Day period.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the
<PAGE>
Exchange Act.
(d) A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of
such Person's Affiliates or Associates, directly or indirectly,
has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; PROVIDED,
HOWEVER, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own," (A) securities tendered pursuant to
a tender or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange, (B) securities issuable
upon exercise of Rights at any time prior to the occurrence of a
Triggering Event (as hereinafter defined), or (C) securities
issuable upon exercise of Rights from and after the occurrence of
a Triggering Event which Rights were acquired by such Person or
any of such Person's Affiliates or Associates prior to the
Distribution Date (as hereinafter defined) or pursuant to Section
3(a) or Section 22 hereof (the "Original Rights") or pursuant to
Section 11(i) hereof in connection with an adjustment made with
respect to any Original Rights;
(ii) which such Person or any of
such Person's Affiliates or Associates, directly or indirectly,
has the right to vote or dispose of or has "beneficial ownership"
of (as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in
writing; PROVIDED, HOWEVER, that a Person shall not be deemed the
<PAGE>
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from a
revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under
the Exchange Act, and (B) is not reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned,
directly or indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy
as described in the proviso to subparagraph (ii) of this paragraph
(d)) or disposing of any voting securities of the Company;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall cause
a Person engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own," any
securities acquired through such Person's participation in good
faith in a firm commitment underwriting until the expiration of
forty days after the date of such acquisition, and then only if
such securities continue to be owned by such Person at such
expiration of forty days.
(e) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.
(f) "Class A Common Stock" shall mean the Class A Common
Stock, $.01 par value, of the Company.
<PAGE>
(g) "Class B Common Stock" shall mean the Class B Common
Stock, $.01 par value, of the Company.
(h) "Close of business" on any given date shall mean
5:00 P.M., New York City time, on such date; PROVIDED, HOWEVER, that if such
date is not a Business Day, it shall mean 5:00 P.M., New York City time, on the
next succeeding Business Day.
(i) "Common Stock" shall mean collectively the Class A
Common Stock and the Class B Common Stock, except that "Common Stock" when used
with reference to any Person other than the Company shall mean the capital stock
of such Person with the greatest voting power, or the equity securities or other
equity interest having power to control or direct the management, of such
Person.
(j) "Common Stock Equivalents" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(k) "Current Market Price" shall have the meaning set
forth in Section 11(d)(i) hereof.
(l) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(m) "Distribution Date" shall have the meaning set forth
in Section 3(a) hereof.
(n) "Equivalent Preferred Stock" shall have the meaning
set forth in Section 11(b) hereof.
(o) "Exchange Act" shall mean the Securities and
Exchange Act of 1934.
(p) "Exchange Ratio" shall have the meaning set forth in
Section 24 hereof.
(q) "Expiration Date" shall have the meaning set forth
in Section 7(a) hereof.
(r) "Final Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(s) "Person" shall mean any individual,
<PAGE>
firm, corporation, partnership or other entity.
(t) "Preferred Stock" shall mean shares of Series A
Junior Participating Preferred Stock, par value $1.00 per share, of the Company,
and, to the extent that there are not a sufficient number of shares of Series A
Junior Participating Preferred Stock authorized to permit the full exercise of
the Rights, any other series of preferred stock of the Company designated for
such purpose containing terms substantially similar to the terms of the Series A
Junior Participating Preferred Stock.
(u) "Principal Party" shall have the meaning set forth
in Section 13(b) hereof.
(v) "Purchase Price" shall have the meaning set forth in
Section 4(a)(ii) hereof.
(w) "Qualified Offer" shall have the meaning set forth
in Section 11(a)(ii) hereof.
(x) "Record Date" shall have the meaning set forth in
the WHEREAS clause at the beginning of this Agreement.
(y) "Rights" shall have the meaning set forth in the
WHEREAS clause at the beginning of this Agreement.
(z) "Rights Agent" shall have the meaning set forth in
the parties clause at the beginning of this Agreement.
(aa) "Rights Certificate" shall have the meaning set
forth in Section 3(a) hereof.
(bb) "Rights Dividend Declaration Date" shall have the
meaning set forth in the WHEREAS clause at the beginning of this Agreement.
(cc) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii) hereof.
(dd) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section
<PAGE>
13(a) hereof.
(ee) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
(ff) "Stock Acquisition Date" shall mean the first date
of public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed or amended pursuant to Section 13(d) under
the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person
has become such other than pursuant to a Qualified Offer.
(gg) "Subsidiary" shall mean, with reference to any
Person, any corporation of which an amount of voting securities sufficient to
elect at least a majority of the directors of such corporation is beneficially
owned, directly or indirectly, by such Person, or otherwise controlled by such
Person.
(hh) "Substitution Period" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(ii) "Summary of Rights" shall have the meaning set forth
in Section 3(b) hereof.
(jj) "Trading Day" shall have the meaning set forth in
Section 11(d)(i) hereof.
(kk) "Triggering Event" shall mean any Section 11(a)(ii)
Event or any Section 13 Event.
(ll) "Voting Power" shall mean the total number of votes
entitled to be cast in the general election of directors of the Company.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-rights agents as
it may deem necessary or desirable.
<PAGE>
Section 3. ISSUANCE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the close of business on
the tenth Business Day after the Stock Acquisition Date (or, if the tenth
Business Day after the Stock Acquisition Date occurs before the Record Date, the
close of business on the Record Date), or (ii) the close of business on the
tenth Business Day (or such later date as the Board shall determine) after the
date that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if upon consummation
thereof, such Person would become an Acquiring Person, in either instance other
than pursuant to a Qualified Offer (the earlier of (i) and (ii) being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates, and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will send by
first-class, insured, postage-prepaid mail, to each record holder of the Common
Stock as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, one or more right certificates,
in substantially the form of Exhibit B hereto (the "Rights Certificates"),
evidencing one Right for each share of Common Stock so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rigts per share of Common Stock has been made pursuant to Section 11(p) hereof,
at the time of distribution of the Rights Certificates, the Company shall make
the necessary and appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only whole numbers
<PAGE>
of Rights are distributed and cash is paid in lieu of any fractional Rights.
As of and after the Distribution Date, the Rights will be evidenced solely by
such Rights Certificates.
(b) The Company will make available, as promptly as
practicable following the Record Date, a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
to any holder of Rights who may so request from time to time prior to the
Expiration Date. With respect to certificates for the Common Stock outstanding
as of the Record Date, until the Distribution Date, the Rights will be evidenced
by such certificates for the Common Stock and the registered holders of the
Common Stock shall also be the registered holders of the associated Rights.
Until the earlier of the Distribution Date or the Expiration Date (as such term
is defined in Section 7(a) hereof), the transfer of any certificates
representing shares of Common Stock in respect of which Rights have been issued
shall also constitute the transfer of the Rights associated with such shares of
Common Stock.
(c) Rights shall be issued in respect of all shares of
Common Stock which are issued (whether originally issued or from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date. Certificates representing such shares of Common
Stock shall also be deemed to be certificates for Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in the Rights Agreement
between Waddell & Reed Financial, Inc. (the "Company") and the
Rights Agent thereunder (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of
which is on file at the principal offices of the Company. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Company will mail to
the holder of this certificate a copy of the Rights Agreement, as
in effect on the date of mailing,
<PAGE>
without charge, promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement,
Rights issued to, or held by, any Person who is, was or becomes
an Acquiring Person or any Affiliate or Associate thereof (as such
terms are defined in the Rights Agreement), whether currently held by
or on behalf of such Person or by any subsequent holder, may become
null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election
to purchase and of assignment to be printed on the reverse thereof) shall each
be substantially in the form set forth in Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one one-hundredths
of a share of Preferred Stock as shall be set forth therein at the price set
forth therein (such exercise price per one one-hundredth of a share, the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
<PAGE>
(b) Any Rights Certificate issued pursuant to Section
3(a), Section 11(i) or Section 22 hereof that represents Rights beneficially
owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect avoidance of Section 7(e) hereof, and
any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and void in the circumstances specified in Section
7(e) of the Rights Agreement.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf
of the Company by its Chairman of the Board, its President or any Vice
President, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Rights Certificates shall be
<PAGE>
countersigned by the Rights Agent, either manually or by facsimile signature,
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights
Certificates, nevertheless, may be countersigned by the Rights Agent and
issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such
officer of the Company; and any Rights Certificates may be signed on behalf
of the Company by any person who, at the actual date of the execution of such
Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep, or cause to be kept, at its principal office or offices designated as
the appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF
RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section
7(e) and Section 14 hereof, at any time after the close of business on the
Distribution Date, and at or prior to the close of business on the Expiration
Date, any Rights Certificate or Certificates (other than Rights Certificates
representing Rights that may have been exchanged pursuant to Section 24 hereof)
may be transferred, split up, combined or exchanged for another Rights
Certificate or Certificates, entitling the registered holder to purchase a like
number of one one-hundredths of a share of Preferred Stock (or, following a
Triggering Event, Class A Common Stock, other
<PAGE>
securities, cash or other assets, sa the case may be) as the Rights
Certificate or Certificates surrendered then entitles such holder (or former
holder in the case of a transfer) to purchase. Any registered holder desiring
to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the principal office or
offices of the Rights Agent designated for such purpose. Neither the Rights
Agent nor the Company shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Rights Certificate until the
registered holder shall have completed and signed the certificate contained
in the form of assignment on the reverse side of such Rights Certificate and
shall have provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request. Thereupon the Rights Agent
shall, subject to Section 4(b), Section 7(e), Section 14 hereof and Section
24 hereof, countersign and deliver to the Person entitled thereto a Rights
Certificate or Rights Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or
governental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE
OF RIGHTS.
<PAGE>
(a) Subject to Section 7(e) hereof, at any time after
the Distribution Date the registered holder of any Rights Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein
including, without limitation, the restrictions on exercisability set forth in
Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part
upon surrender of the Rights Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share (or other securities, cash or
other assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) 5:00 P.M., New York City time, on
April 28, 2009, or such later date as may be established by the Board of
Directors prior to the expiration of the Rights (such date, as it may be
extended by the Board, the ("Final Expiration Date"), or (ii) the time at which
the Rights are redeemed or exchanged as provided in Section 23 and Section 24
hereof (the earlier of (i) and (ii) being herein referred to as the "Expiration
Date").
(b) The Purchase Price for each one one-hundredth of a
share of Preferred Stock pursuant to the exercise of a Right shall initially be
$85.00, and shall be subject to adjustment from time to time as provided in
Section 11 and Section 13(a) hereof and shall be payable in accordance with
paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-hundredth of a share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable transfer tax,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i)
(A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of one one-hundredths of a share of Preferred
Stock to be purchased and the Company hereby irrevocably authorizes
<PAGE>
its transfer agent to comply with all such requests, or (B) if the Company
shall have elected to deposit the total number of shares of Preferred Stock
issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent depositary receipts representing such
number of one one-hundredths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company will direct the depositary agent to
comply with such request, (ii) requisition from the Company the amount of
cash, if any, to be paid in lieu of fractional shares in accordance with
Section 14 hereof, (iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or, upon the order of the
registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, and (iv) after receipt thereof,
deliver such cash, if any, to or upon the order of the registered holder of
such Rights Certificate. The payment of the Purchase Price (as such amount
may be reduced pursuant to Section 11(a)(iii hereof) shall be made in cash or
by certified bank check or bank draft payable to the order of the Company.
In the event that the Company is obligated to issue other securities
(including Class A Common Stock) of the Company, pay cash and/or distribute
other property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate. The Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number
of Rights be exercised so that only whole shares of Preferred Stock would be
issued.
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to, or upon the
order of, the registered holder of such Rights Certificate, registered in such
name or names as may be designated by such holder, subject to the provisions of
Section 14 hereof.
<PAGE>
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event,
any Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which the Board of Directors of the Company has determined is part
of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Company shall use all reasonable efforts to
insure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of Rights
Certificates or any other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence
of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate
contained in the form of election to purchase set forth on the reverse side
of the Rights Certificate surrendered for such exercise, and (ii) provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
<PAGE>
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS
CERTIFICATES. All Rights Certificates surrendered for the purpose of
exercise, transfer, split-up, combination or exchange shall, if surrendered
to the Company or any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent,
shall be cancelled by it, and no Rights Certificates shall be issued in lieu
thereof except as expressly permitted by any of the provisions of this
Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other
Rights Certificate purchased or acquired by the Company otherwise than upon
the exercise thereof. The Rights Agent shall deliver all cancelled Rights
Certificates to the Company, or shall, at the written request of the Company,
destroy such cancelled Rights Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will
cause to be reserved and kept available out of its authorized and unissued
shares of Preferred Stock (and, following the occurrence of a Triggering
Event, out of its authorized and unissued shares of Class A Common Stock
and/or other securities or out of its authorized and issued shares held in
its treasury), the number of shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Class A Common Stock and/or other
securities) that, as provided in this Agreement including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Preferred Stock (and,
following the occurrence of a Triggering Event, Class A Common Stock and/or
other securities) issuable and deliverable upon the exercise of the Rights
may be listed on any national securities exchange, the Company shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
<PAGE>
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the earliest date after the first
occurrence of a Section 11(a)(ii) Event on which the consideration to be
delivered by the Company upon exercise of the Rights has been determined in
accordance with Section 11(a)(iii) hereof, a registration statement under the
Act, with respect to the securities purchasable upon exercise of the Rights
on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities, and (B) the
date of the expiration of the Rights. The Company will also take such action
as may be appropriate under, or to ensure compliance with, the securities or
"blue sky" laws of the various states in connection with the exercisability
of the Rights. The Company may temporarily suspend, for a period of time not
to exceed ninety (90) days after the date set forth in clause (i) of the
first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension has been rescinded. In addition, if the Company shall determine
that a registration statement is required following the Distribution Date,
the Company may temporarily suspend the exercisability of the Rights until
such time as a registration statement has been declared effective.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification
in such jurisdiction shall not have been obtained, the execise thereof shall
not be permitted under applicable law, or a registration statement shall not
have been declared effective.
(d) The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all one
one-hundredths of a share of Preferred Stock (and, following the occurrence
of a
<PAGE>
Triggering Event, Class A Common Stock and/or other securities) delivered
upon exercise of Rights shall, at the time of delivery of the certificates
for such shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it
will pay when due and payable any and all federal and state transfer taxes
and charges which may be payable in respect of the issuance or delivery of
the Rights Certificates and of any certificates for a number of one
one-hundredths of a share of Preferred Stock (or Class A Common Stock and/or
other securities, as the case may be) upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
Person other than, or the issuance or delivery of a number of one
one-hundredths of a share of Preferred Stock (or Class A Common Stock and/or
other securities, as the case may be) in respect of a name other than that of
the registered holder of the Rights Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number
of one one-hundredths of a share of Preferred Stock (or Class A Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have
been paid (any such tax being payable by the holder of such Rights
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE. Each person in
whose name any certificate for a number of one one-hundredths of a share of
Preferred Stock (or Class A Common Stock and/or other securities, as the case
may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of such fractional shares of
Preferred Stock (or Class A Common Stock and/or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
and payment of the Purchase Price (and all applicable transfer taxes) was
made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a
date upon which the Preferred
<PAGE>
Stock (or Class A Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and
such certificate shall be dated, the next succeeding Business Day on which
the Preferred Stock (or Class A Common Stock and/or other securities, as the
case may be) transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Rights Certificate shall not
be entitled to any rights of a stockholder of the Company with respect to
shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF
SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of
shares covered by each Right and the number of Rights outstanding are subject
to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on the
Preferred Stock payable in shares of Preferred Stock, (B)
subdivide the outstanding Preferred Stock, (C) combine the
outstanding Preferred Stock into a smaller number of shares, or
(D) issue any shares of its capital stock in a reclassification of
the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is
the continuing or surviving corporation), except as otherwise
provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of
Preferred Stock or capital stock, as the case may be, issuable on
such date, shall be proportionately adjusted so that the holder of
any Right exercised after
<PAGE>
such time shall be entitled to receive, upon payment of the Purchase
Price then in effect, the aggregate number and kind of shares of
Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such date and at a time
when the Preferred Stock transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall be
in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person shall,
at any time after the Rights Dividend Declaration Date, become an
Acquiring Person, unless the event causing such Person to become
an Acquiring Person is a transaction set forth in Section 13(a)
hereof, or is an acquisition of shares of Common Stock pursuant to
a tender offer or an exchange offer for all outstanding shares of
Common Stock at a price and on terms determined by at least a
majority of the members of the Board of Directors who are not
officers of the Company and who are not representatives, nominees,
Affiliates or Associates of an Acquiring Person, after receiving
advice from one or more investment banking firms, to be (a) at a
price which is fair to stockholders and not inadequate (taking
into account all factors which such members of the Board deem
relevant, including, without limitation, prices which could
reasonably be achieved if the Company or its assets were sold on
an orderly basis designed to realize maximum value) and (b)
otherwise in the best interests of the Company and its
stockholders (a "Qualified Offer") then, promptly following the
occurrence of such event, proper provision shall be made so that
each holder of a Right (except as provided below and in Section
7(e) hereof) shall thereafter have the right to
<PAGE>
receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of a number of
one one-hundredths of a share of Preferred Stock, such number of
shares of Class A Common Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-hundredths of a share of Preferred Stock
for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event, and (y) dividing that product
(which, following such first occurrence, shall thereafter be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the Current Market Price (determined pursuant to
Section 11(d) hereof) per share of Class A Common Stock on the date of
such first occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of
shares of Class A Common Stock which are authorized by the
Company's Amended and Restated Certificate of Incorporation, but
which are not outstanding or reserved for issuance for purposes
other than upon exercise of the Rights, are not sufficient to
permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii) of this Section 11(a), the Company
shall (A) determine the value of the Adjustment Shares issuable
upon the exercise of a Right (the "Current Value"), and (B) with
respect to each Right (subject to Section 7(e) hereof), make
adequate provision to substitute for the Adjustment Shares, upon
the exercise of a Right and payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3) Class
A Common Stock or other equity securities of the Company
(including, without limitation, shares, or units of shares, of
preferred stock, such as the Preferred Stock, which the Board has
deemed to have essentially the same value or economic rights as
shares of Class A Common Stock (such shares of preferred stock
being referred to as "Common Stock
<PAGE>
Equivalents")), (4) debt securities of the Company, (5) other assets,
or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value (less the amount of any reduction in the
Purchase Price), where such aggregate value has been determined by the
Board based upon the advice of a nationally recognized investment
banking firm selected by the Board; PROVIDED, HOWEVER, that if the
Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Section 11(a)(ii) Event and (y)
the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to
herein as the "Section 11(a)(ii) Trigger Date"), then the Company
shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of
Class A Common Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the
Spread. For purposes of the preceding sentence, the term "Spread"
shall mean the excess of (i) the Current Value over (ii) the Purchase
Price. If the Board determines in good faith that it is likely that
sufficient additional shares of Class A Common Stock could be
authorized for issuance upon exercise in full of the Rights, the
thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek shareholder
approval for the authorization of such additional shares (such thirty
(30) day period, as it may be extended, is herein called the
"Substitution Period"). To the extent that action is to be taken
pursuant to the first and/or third sentences of this Section
11(a)(iii), the Company (1) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding
Rights, and (2) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order
<PAGE>
to seek such shareholder approval for such authorization of additional
shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value
thereof. In the event of any such suspension, the Company shall issue
a public announcement stating that the exrcisability of the Rights has
been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of each Adjustment Share shall be the
Current Market Price per share of the Class A Common Stock on the
Section 11(a)(ii) Trigger Date and the per share or per unit value of
any Common Stock Equivalent shall be deemed to equal the Current
Market Price per share of the Class A Common Stock on such date.
(b) In case the Company shall fix a record date for
the issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or
shares having the same rights, privileges and preferences as the shares of
Preferred Stock ("Equivalent Preferred Stock")) or securities convertible
into Preferred Stock or Equivalent Preferred Stock at a price per share of
Preferred Stock or per share of Equivalent Preferred Stock (or having a
conversion price per share, if a security convertible into Preferred Stock or
Equivalent Preferred Stock) less than the Current Market Price (as determined
pursuant to Section 11(d) hereof) per share of Preferred Stock on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
shares of Preferred Stock outstanding on such record date, plus the number of
shares of Preferred Stock which the aggregate offering price of the total
number of shares of Preferred Stock and/or Equivalent Preferred Stock so to
be offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such Current Market Price, and
the denominator of which shall be the number of shares of Preferred Stock
outstanding on such record
<PAGE>
date, plus the number of additional shares of Preferred Stock and/or
Equivalent Preferred Stock to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially
convertible). In case such subscription price may be paid by delivery of
consideration, part or all of which may be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board
of Directors of the Company, whose determination shall be described in a
statement filed with he Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Shares of Preferred Stock owned by or held
for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness, cash
(other than a regular quarterly cash dividend out of the earnings or retained
earnings of the Company), assets (other than a dividend payable in Preferred
Stock, but including any dividend payable in stock other than Preferred
Stock) or evidences of indebtedness, or of subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the Current Market Price (as determined
pursuant to Section 11(d) hereof) per share of Preferred Stock on such record
date, less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights
or warrants applicable to a share of Preferred Stock, and the denominator of
which shall be such Current Market Price (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock. Such adjustments shall be made
<PAGE>
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation
hereunder, other than computations made pursuant to Section
11(a)(iii) hereof, the Current Market Price per share of Class A
Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of such Class A Common Stock for
the thirty (30) consecutive Trading Days immediately prior to such
date, and for purposes of computations made pursuant to Section
11(a)(iii) hereof, the Current Market Price per share of Class A
Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of such Class A Common Stock for
the ten (10) consecutive Trading Days immediately following such
date; PROVIDED, HOWEVER, that in the event that the Current Market
Price per share of the Class A Common Stock is determined during a
period following the announcement by the issuer of such Class A
Common Stock of (A) a dividend or distribution on such Class A
Common Stock payable in shares of such Class A Common Stock or
securities convertible into shares of such Class A Common Stock
(other than the Rights), or (B) any subdivision, combination or
reclassification of such Class A Common Stock, and the ex-dividend
date for such dividend or distribution, or the record date for
such subdivision, combination or reclassification shall not have
occurred prior to the commencement of the requisite thirty (30)
Trading Day or ten (10) Trading Day period, as set forth above,
then, and in each such case, the Current Market Price shall be
properly adjusted to take into account ex-dividend trading. The
closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices,
<PAGE>
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the shares
of Class A Common Stock are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Class A
Common Stock are listed or admitted to trading or, if the shares of
Class A Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or such other
system then in use, or, if on any such date the shares of Class A
Common Stock are not quoted by any such organizaton, the average of
the closing bid and asked prices as furnished by a professional market
maker making a market in the Class A Common Stock selected by the
Board. If on any such date no market maker is making a market in the
Class A Common Stock, the fair value of such shares on such date as
determined in good faith by the Board shall be used. The term
"Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Class A Common Stock are
listed or admitted to trading is open for the transaction of business
or, if the shares of Class A Common Stock are not listed or admitted
to trading on any national securities exchange, a Business Day. If
the Class A Common Stock is not publicly held or not so listed or
traded, Current Market Price per share shall mean the fair value per
share as determined in good faith by the Board, whose determination
shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(ii) For the purpose of any
<PAGE>
computation hereunder, the Current Market Price per share of
Preferred Stock shall be determined in the same manner as set
forth above for the Class A Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the
Current Market Price per share of Preferred Stock cannot be
determined in the manner provided above or if the Preferred Stock
is not publicly held or listed or traded in a manner described in
clause (i) of this Section 11(d), the Current Market Price per
share of Preferred Stock shall be conclusively deemed to be an
amount equal to 100 (as such number may be appropriately adjusted
for such events as stock splits, stock dividends and
recapitalizations with respect to the Class A Common Stock
occurring after the date of this Agreement) multiplied by the
Current Market Price per share of the Class A Common Stock. If
neither the Class A Common Stock nor the Preferred Stock is
publicly held or so listed or traded, Current Market Price per
share of the Preferred Stock shall mean the fair value per share
as determined in good faith by the Board, whose determination
shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes. For all purposes of this
Agreement, the Current Market Price of a Unit shall be equal to
the Current Market Price of one share of Preferred Stock divided
by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share of
Class A Common Stock or other share or one-millionth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
<PAGE>
the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock other
than Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall evidence
the right to purchase, at the adjusted Purchase Price, the number of one
one-hundredths of a share of Preferred Stock purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths
of a share covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price, and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust
<PAGE>
the number of Rights, in lieu of any adjustment in the number of one
one-hundredths of a share of Preferred Stock purchasable upon the exercise of
a Right. Each of the Rights outstanding after the adjustment in the number
of Rights shall be exercisable for the number of one one-hundredths of a
share of Preferred Stock for which a Right was exercisable immediately prior
to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest one-ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price
in effect immediately after adjustment of the Purchase Price. The Company
shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the
date on which the Purchase Price is adjusted or any day thereafter, but, if
the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed
to such holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustmen. Rights Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may bear,
at the option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Rights Certificates on
the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a share of Preferred Stock
issuable
<PAGE>
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one
one-hundredth of a share and the number of one one-hundredths of a share
which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated value, if any,
of the number of one one-hundredths of a share of Preferred Stock issuable
upon exercise of the Rights, the Company shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable such
number of one one-hundredths of a share of Preferred Stock at such adjusted
Purchase Price.
(l) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right exercised
after such record date the number of one one-hundredths of a share of
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the number of one one-hundredths
of a share of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares (fractional
or otherwise) or securities upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board
of Directors of the Company shall determine to be advisable in order that any
(i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly
for cash of any shares of Preferred Stock at less than the Current Market
Price, (iii) issuance
<PAGE>
wholly for cash of shares of Preferred Stock or securities which by their
terms are convertible into or exchangeable for shares of Preferred Stock,
(iv) stock dividends or (v) issuance of rights, options or warrants referred
to in this Section 11, hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall
not, at any time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), (ii) merge with or into any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to
sell or transfer), in one transaction, or a series of related transactions,
assets, cash flow or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), if (x) at the time of or immediately after such consolidation,
merger or sale there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would substantially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights or (y) prior to, simultaneously with or immediately after such
consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of
Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company
<PAGE>
shall at any time after the Rights Dividend Declaration Date and prior to the
Distribution Date (i) declare a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, or (iii) combine the outstanding shares of Common
Stock into a smaller number of shares, the number of Rights associated with
each share of Common Stock then outstanding, or issued or delivered
thereafter but prior to the Distribution Date, shall be proportionately
adjusted so that the number of Rights thereafter associated with each share
of Common Stock following any such event shall equal the result obtained by
multiplying the number of Rights associated with each share of Common Stock
immediately prior to such event by a fraction the numerator which shall be
the total number of shares of Common Stock outstanding immediately prior to
the occurrence of the event and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately following the
occurrence of such event.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER
OF SHARES. Whenever an adjustment is made as provided in Section 11 and
Section 13 hereof, the Company shall (a) promptly prepare a certificate
setting forth such adjustment and a brief statement of the facts accounting
for such adjustment, (b) promptly file with the Rights Agent, and with each
transfer agent for the Preferred Stock and the Common Stock, a copy of such
certificate and (c) if a Distribution Date has occurred, mail a brief summary
thereof to each holder of a Rights Certificate in accordance with Section 27
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS,
CASH FLOW OR EARNING POWER.
(a) In the event that, following the Stock Acquisition
Date, directly or indirectly, (x) the Company shall consolidate with, or merge
with and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any Person (other than a Subsidiary of the Company in a
<PAGE>
transaction which complies with Section 11(o) hereof) shall consolidate with,
or merge with or into, the Company, and the Company shall be the continuing
or surviving corporation of such consolidation or merger and, in connection
with such consolidation or merger, all or part of the outstanding shares of
Common Stock shall be changed into or exchanged for stock or other securities
of any other Person or cash or any other property, or (z) the Company shall
sell or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one transaction or a series of related transactions,
assets, cash flow or earning power aggregating more than 50% of the assets,
cash flow or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof), then, and in each such case (except as may be contemplated by
Section 13(d) hereof), proper provision shall be made so that: (i) each
holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid, non-assessable and
freely tradeable shares of Common Stock of the Principal Party (as such term
is hereinafter defined), not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then curret Purchase Price by the number of
one one-hundredths of a share of Preferred Stock for which a Right is
exercisable immediately prior to the first occurrence of a Section 13 Event
(or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence
of a Section 13 Event, multiplying the number of such one one-hundredths of a
share for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and dividing that product
(which, following the first occurrence of a Section 13 Event, shall be
referred to as the "Purchase Price" for each Right and for all purposes of
this Agreement) by (2) 50% of the Current Market Price (determined pursuant
to Section 11(d)(i) hereof) per share of the Common Stock of such Principal
Party on the date of consummation of such Section 13 Event; (ii) such
<PAGE>
Principal Party shall thereafter be liable for, and shall assume, by virtue
of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation
of a sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction
described in clause (x) or (y) of the first sentence of Section
13(a), the Person that is the issuer of any securities into which
shares of Common Stock of the Company are converted in such merger
or consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation; and
(ii) in the case of any transaction
described in clause (z) of the first sentence of Section 13(a),
the Person that is the party receiving the greatest portion of the
assets, cash flow or earning power transferred pursuant to such
transaction or transactions;
PROVIDED, HOWEVER, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such
<PAGE>
other Person; and (2) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Stocks of two or more of
which are and have been so registered, "Principal Party" shall refer to
whichever of such Persons is the issuer of the Common Stock having the
greatest aggregate market value.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock which have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and further providing that, as soon as practicable after
the date of any consolidation, merger or sale of assets mentioned in paragraph
(a) of this Section 13, the Principal Party will
(i) prepare and file a registration
statement under the Act, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an
appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until
the Expiration Date; and
(ii) take all such other action as
may be necessary to enable the Principal Party to issue the
securities purchasable upon exercise of the Rights, including but
not limited to the registration or qualification of such
securities under all requisite securities laws of jurisdictions of
the various states and the listing of such securities on such
exchanges and trading markets as may be necessary or appropriate;
and
(iii) will deliver to holders of the
Rights historical financial
<PAGE>
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock which is a Qualified Offer as such term is defined in Section
11(a)(ii) hereof (or a wholly owned subsidiary of any such Person or Persons),
(ii) the price per share of Common Stock offered in such transaction is not less
than the price per share of Common Stock paid to all holders of shares of Common
Stock whose shares were purchased pursuant to such tender offer or exchange
offer and (iii) the form of consideration being offered to the remaining holders
of shares of Common Stock pursuant to such transaction is the same as the form
of consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this Section 13(d), all
Rights hereunder shall expire.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions
of Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, the Company shall pay to the registered
holders of the Rights Certificates with regard to which such fractional Rights
would otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of
<PAGE>
a whole Right. For purposes of this Section 14(a), the current market value
of a whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price of the Rights for any day shall be the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading
on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in
use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the Rights, selected by the
Board of Directors of the Company. If on any such date no such market maker
is making a market in the Rights, the fair value of the Rights on such date
as determined in ood faith by the Board of Directors of the Company shall be
used.
(b) The Company shall not be required to issue fractions
of shares of Preferred Stock (other than fractions which are integral multiples
of one one-hundredth of a share of Preferred Stock) upon exercise of the Rights
or to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one one-hundredth of
a share of Preferred Stock). In lieu of fractional shares of Preferred Stock
that are not integral multiples of one one-hundredth of a share of Preferred
Stock, the Company may pay to the registered holders of Rights Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value
<PAGE>
of one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Class A Common
Stock upon exercise of the Rights or to distribute certificates which evidence
fractional shares of Class A Common Stock. In lieu of fractional shares of
Class A Common Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one (1) share
of Class A Common Stock. For purposes of this Section 14(c), the current market
value of one share of Class A Common Stock shall be the closing price of one
share of Class A Common Stock (as determined pursuant to Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the
Rights expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
Section 15. RIGHTS OF ACTION. All rights of action in respect
of this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights
<PAGE>
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a
Right by accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates
are transferable only on the registry books of the Rights Agent if surrendered
at the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory
<PAGE>
or administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation;
PROVIDED, HOWEVER, the Company must use its best efforts to have any such
order, decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one
one-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
<PAGE>
(b) The Rights Agent shall be protected and shall incur
no liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust, stock transfer or other shareholder services
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
but only if such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time
such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of a
predecessor Rights Agent and deliver such Rights Certificates so countersigned;
and in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Rights Certificates shall have been
countersigned but not
<PAGE>
delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior
name or in its changed name; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of Current Market Price) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for
its own negligence, bad faith or willful misconduct.
<PAGE>
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in this Agreement
or in the Rights Certificates or be required to verify the same (except as to
its countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11, Section 13 or Section 24 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Rights Certificates
after actual notice of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock or Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any shares
of Common Stock or Preferred Stock will, when so issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed
to accept instructions with respect to the performance of its duties hereunder
from the Chairman of the Board, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of
the Company, and to apply to such
<PAGE>
officers for advice or instructions in connection with its duties, and it
shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; PROVIDED, HOWEVER, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise or transfer without first consulting
with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The
<PAGE>
Rights Agent or any successor Rights Agent may resign and be discharged from
its duties under this Agreement upon thirty (30) days' notice in writing
mailed to the Company, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and, if such resignation
occurs after the Distribution Date, to the registered holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or
any successor Rights Agent upon thirty (30) days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and, if such removal occurs after the Distribution Date, to
the holders of the Rights Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of thirty (30)
days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit his Rights Certificate for inspection by the Company), then
any registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a legal business entity organized and doing business under the
laws of the United States or of the State of New York or of any other state
of the United States, in good standing, having an office in the State of New
York, which is authorized under such laws to exercise corporate trust or
stock transfer or shareholder services powers and which has at the time of
its appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an affiliate of a legal business entity described in clause
(a) of this sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary
<PAGE>
for the purpose. Not later than the effective date of any such appointment,
the Company shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock and the Preferred Stock,
and, if such appointment occurs after the Distribution Date, mail a notice
thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights
Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
PROVIDED, HOWEVER, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
<PAGE>
Section 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) the close of business on the
tenth Business Day following the Stock Acquisition Date (or, if the Stock
Acquisition Date shall have occurred prior to the Record Date, the close of
business on the tenth Business Day following the Record Date), or (ii) the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights
at a redemption price of $.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"). Notwithstanding anything contained in
this Agreement to the contrary, the Rights shall not be exercisable after the
first occurrence of a Section 11(a)(ii) Event until such time as the Company's
right of redemption hereunder has expired. The Company may, at its option, pay
the Redemption Price in cash, shares of Class A Common Stock (based on the
Current Market Price, as defined in Section 11(d)(i) hereof, of the Class A
Common Stock at the time of redemption) or any other form of consideration
deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights, evidence of
which shall have been filed with the Rights Agent and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the action of the Board
of Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at each holder's
last address as it appears upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of
<PAGE>
the Redemption Price will be made.
Section 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
for Class A Common Stock at an exchange ratio of one share of Class A Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors of the Company shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Stock for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Voting Power as represented
by the Common Stock then outstanding.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
subsection (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Class A Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; PROVIDED, HOWEVER, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange
<PAGE>
of the Class A Common Stock for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of
Section 7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the
Company, at its option, may substitute Preferred Stock (or Equivalent Preferred
Stock, as such term is defined in paragraph (b) of Section 11 hereof) for Class
A Common Stock exchangeable for Rights, at the initial rate of one one-hundredth
of a share of Preferred Stock (or Equivalent Preferred Stock) for each share of
Class A Common Stock, as appropriately adjusted to reflect stock splits, stock
dividends and other similar transactions after the date hereof.
(d) In the event that there shall not be sufficient
shares of Class A Common Stock issued but not outstanding or authorized but
unissued to permit any exchange of Rights as contemplated in accordance with
this Section 24, the Company shall take all such action as may be necessary to
authorize additional shares of Class A Common Stock for issuance upon exchange
of the Rights.
(e) The Company shall not be required to issue fractions
of shares of Class A Common Stock or to distribute certificates which evidence
fractional shares of Class A Common Stock. In lieu of such fractional shares of
Class A Common Stock, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional shares of Class A
Common Stock would otherwise be issuable, an amount in cash equal to the same
fraction of the current market value of a whole share of Class A Common Stock.
For the purposes of this subsection (e), the current market value of a whole
share of Class A Common Stock shall be the closing price of a share of Class A
Common Stock (as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of exchange pursuant
to this Section 24.
Section 25. NOTICE OF CERTAIN EVENTS.
<PAGE>
(a) In case the Company shall propose, at any time after
the Distribution Date, (i) to pay any dividend payable in stock of any class to
the holders of Preferred Stock or to make any other distribution to the holders
of Preferred Stock (other than a regular quarterly cash dividend out of earnings
or retained earnings of the Company), or (ii) to offer to the holders of
Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, or (iii) to effect any reclassification of
its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock), or (iv) to effect any
consolidation or merger into or with any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or to
effect any sale or other transfer (or to permit one or more of its Subsidiaries
to effect any sale or other transfer), in one transaction or a series of related
transactions, of more than 50% of the assets, cash flow or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), or (v) to effect
the liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any actin covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock whichever
shall be the earlier.
<PAGE>
(b) In case any of the events set forth in Section
11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as
soon as practicable thereafter give to each holder of a Rights Certificate, to
the extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 26. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Rights Agent) as follows:
Waddell & Reed Financial, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing by the Rights Agent with the Company) as follows:
First Chicago Trust Company of New York
525 Washington Blvd.
Suite 4650
Jersey City, New Jersey 07310
Attention: Corporate Actions Administration
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any Rights Certificate
(or, if prior to the Distribution Date, to the holder of certificates
representing shares of Common Stock) shall be
<PAGE>
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. Prior to the
Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing shares of Common Stock.
From and after the Distribution Date, the Company and the Rights Agent shall, if
the Company so directs, supplement or amend this Agreement without the approval
of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii)
to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, (iii) to shorten or lengthen
any time period hereunder, or (iv) to change or supplement the provisions
hereunder in any manner which the Company may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Rights
Certificates (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); PROVIDED, this Agreement may not be supplemented or amended
to lengthen any time period hereunder, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of
a certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock. Notwithstanding
anything herein to the contrary, this Agreement may not be amended at a time
when the Rights are not redeemable.
Section 28. SUCCESSORS. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
<PAGE>
hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF
DIRECTORS, ETC. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board, or any of the
directors on the Board to any liability to the holders of the Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is
<PAGE>
held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated; PROVIDED, HOWEVER, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated and shall not expire until the close of business on the tenth
Business Day following the date of such determination by the Board of
Directors. Without limiting the foregoing, if any provision requiring a
specific group of Directors of the Company to act is held to by any court of
competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board of
Directors of the Company in accordance with applicable law and the Company's
Amended and Restated Certificate of Incorporation and By-laws.
Section 32. GOVERNING LAW. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the
several sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Attest: WADDELL & REED FINANCIAL,
INC.
By /s/ Helge K. Lee By /s/ Keith A. Tucker
Name: Helge K. Lee Name: Keith A. Tucker
Title: General Counsel Title: Chairman & Chief Executive Officer
Attest: FIRST CHICAGO TRUST COMPANY OF NEW YORK
By /s/ Mary E. Garcia By /s/ Joanne Gorostiola
Name: Mary E. Garcia Name: Joanne Gorostiola
Title: Customer Service Officer Title: Assistant Vice President
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
WADDELL & REED FINANCIAL, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Keith A. Tucker, Chairman of the Board, and Helge K. Lee,
Secretary, of Waddell & Reed Financial, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Amended and Restated Certificate of Incorporation of the said
Corporation, the said Board of Directors on April 28, 1999, adopted the
following resolution creating a series of 750,000 shares of Preferred Stock
designated as Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Amended
and Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 750,000.
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of February, May, August and November in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock (as defined below) or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the Class
A Common Stock, $.01 par value, of the Corporation (the "Class A Common Stock"
and, together with the Class B Common Stock, $.01 par value, of the Corporation,
the "Common Stock") since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall at any time
after April 28, 1999 (the "Rights Declaration Date") (i) declare any dividend on
Common Stock payable in shares of Class A Common Stock, (ii) subdivide the
outstanding Class A Common Stock, or (iii) combine the outstanding Class A
Common Stock into a smaller number of shares, the in each such case the amount
to which holders of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares
<PAGE>
of Class A Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in Paragraph (A)
above immediately after it declares a dividend or distribution on the Class A
Common Stock (other than a dividend payable in shares of Class A Common Stock);
provided that, in the event no dividend or distribution shall have been declared
on the Class A Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $1.00 per share on the Series A Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the
<PAGE>
payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Class A Common
Stock payable in shares of Class A Common Stock, (ii) subdivide the outstanding
Class A Common Stock, or (iii) combine the outstanding Class A Common Stock into
a smaller number of shares, then in each such case the number of votes per share
to which holders of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Class A
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Class A Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default period")
which shall extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current quarterly
dividend period on all shares of Series A Junior Participating Preferred
Stock then outstanding shall have been declared and
<PAGE>
paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two (2)
directors.
(ii) During any default period, such voting right
of the holders of Series A Junior Participating Preferred Stock
may be exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting
of stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right nor the
right of the holders of any other series of Preferred Stock, if
any, to increase, in certain cases, the authorized number of
directors shall be exercised unless the holders of ten percent
(10%) in number of shares of Preferred Stock outstanding shall be
present in person or by proxy. The absence of a quorum of the
holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. At any meeting
at which the holders of Preferred Stock shall exercise such voting
right initially during an existing default period, they shall have
the right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then exist up
to two (2) directors or, if such right is exercised at an annual
meeting, to elect two (2) directors. If the number which may be
so elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the right to
make such increase in the number of directors as shall be
necessary to permit the election by them of the required number.
After the holders of the Preferred Stock shall have exercised
their right to elect directors in any default period and during
the continuance of such period, the number of directors shall not
be increased or decreased except by vote of the holders of
Preferred
<PAGE>
Stock as herein provided or pursuant to the rights of
any equity securities ranking senior to or PARI PASSU with the
Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling of a
special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice-President or
the Secretary of the Corporation. Notice of such meeting and of
any annual meeting at which holders of Preferred Stock are
entitled to vote pursuant to this Paragraph (C)(iii) shall be
given to each holder of record of Preferred Stock by mailing a
copy of such notice to him at his last address as the same appears
on the books of the Corporation. Such meeting shall be called for
a time not earlier than 20 days and not later than 60 days after
such order or request or in default of the calling of such meeting
within 60 days after such order or request, such meeting may be
called on similar notice by any stockholder or stockholders owning
in the aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding. Notwithstanding
the provisions of this Paragraph (C)(iii), no such special meeting
shall be called during the period within 60 days immediately
preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if
applicable, shall continue to be entitled to elect the whole
number of directors until the holders of Preferred Stock shall
have exercised their
<PAGE>
right to elect two (2) directors voting as a class, after the exercise
of which right (x) the directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of Directors may
(except as provided in Paragraph (C)(ii) of this Section 3) be filled
by vote of a majority of the remaining directors theretofore elected
by the holders of the class of stock which elected the director whose
office shall have become vacant. References in this Paragraph (C) to
directors elected by the holders of a particular class of stock shall
include directors elected by such directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class
to elect directors shall cease, (y) the term of any directors
elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of directors shall be such number as
may be provided for in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the provisions of
Paragraph (C)(ii) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law or in
the certificate of incorporation or by-laws). Any vacancies in
the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of
the remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. CERTAIN RESTRICTIONS.
<PAGE>
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Junior Participating Preferred
Stock, except dividends paid ratably on the Series A Junior
Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Junior Participating Preferred
Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Junior Participating Preferred Stock;
or
(iv) purchase or otherwise acquire for
consideration any shares of Series
<PAGE>
A Junior Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders
of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to $100 per share of Series A Junior
Participating Preferred Stock, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the
<PAGE>
payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Junior
Participating Preferred Stock and Common Stock, respectively, holders of
Series A Junior Participating Preferred Stock and holders of shares of Common
Stock shall receive their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment Number to 1 with
respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares
<PAGE>
of Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Class A Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case the
shares of Series A Junior Participating Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Class A Common Stock
is changed or exchanged. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Class A Common Stock
payable in shares of Class A Common Stock, (ii) subdivide the outstanding Class
A Common Stock, or (iii) combine the outstanding Class A Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Junior Participating Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Class A
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Class A Common Stock that were outstanding
immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. RANKING. The Series A Junior Participating Preferred
Stock shall rank junior to all other series of the Corporation's Preferred Stock
as to the payment of dividends and the distribution of assets, unless the terms
of any such series shall provide otherwise.
Section 10. AMENDMENT. At any time when any shares of Series A
Junior Participating Preferred Stock
<PAGE>
are outstanding, neither the Amended and Restated Certificate of
Incorporation of the Corporation nor this Certificate of Designation shall be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior Participating Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares of Series A Junior
Participating Preferred Stock, voting separately as a class.
Section 11. FRACTIONAL SHARES. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 7th day of May, 1999.
/s/ Keith A. Tucker
---------------------------------------
Keith A. Tucker
Chairman of the Board and Chief
Executive Officer
Attest:
/s/ Helge K. Lee
- -----------------------------
Helge K. Lee
Secretary
<PAGE>
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER APRIL 28, 2009 UNLESS EXTENDED PRIOR THERETO BY THE BOARD
OF DIRECTORS OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT)
AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]
Rights Certificate
WADDELL & REED FINANCIAL, INC.
This certifies that , or registered assigns,
is the registered owner of the number
- ------------------------
* The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE>
of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the
Rights Agreement, dated as of April 28, 1999 (the "Rights
Agreement"), between Waddell & Reed Financial, Inc., a Delaware
corporation (the "Company"), and First Chicago Trust Company of
New York, a New York corporation (the "Rights Agent"), to
purchase from the Company at any time prior to 5:00 P.M. (New
York City time) on April 28, 2009 (unless such date is extended
prior thereto by the Board of Directors) at the office or
offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one one-hundredth of a fully paid,
non-assessable share of Series A Junior Participating Preferred
Stock (the "Preferred Stock") of the Company, at a purchase
price of $85.00 per one one-hundredth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by
this Rights Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the
Purchase Price per share set forth above, are the number and
Purchase Price as of April 28, 1999, based on the Preferred
Stock as constituted at such date. The Company reserves the
right to require prior to the occurrence of a Triggering Event
(as such term is defined in the Rights Agreement) that a number
of Rights be exercised so that only whole shares of Preferred
Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement), (ii) a transferee of any such Acquiring
Person, Associate or Affiliate, or (iii) under certain circumstances
specified in the Rights Agreement, a transferee of a person who, after such
transfer, became an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, such Rights shall become null and void and no holder
hereof shall have any right with respect to such Rights from and after the
occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of
<PAGE>
Preferred Stock or other securities, which may be purchased upon
the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain
events, including Triggering Events.
This Rights Certificate is subject to all of the
terms, provisions and conditions of the Rights Agreement, which
terms, provisions and conditions are hereby incorporated herein
by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the
holders of the Rights Certificates, which limitations of rights
include the temporary suspension of the exercisability of such
Rights under the specific circumstances set forth in the Rights
Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also
available upon written request to the Company.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices
of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates
of like tenor and date evidencing Rights entitling the holder
to purchase a like aggregate number of one one-hundredths of a
share of Preferred Stock as the Rights evidenced by the Rights
Certificate or Rights Certificates surrendered shall have
entitled such holder to purchase. If this Rights Certificate
shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or
Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the
Rights evidenced by this Certificate may be redeemed by the
Company at its option at a redemption price of $.01 per Right
at any time prior to the earlier of the close of business on
(i) the tenth Business Day following the Stock Acquisition Date
(as such time period may be extended pursuant to the Rights
Agreement), and (ii) the Final Expiration Date. In addition,
under certain circumstances following the Stock Acquisition
Date, the Rights may be exchanged, in whole or in part,
<PAGE>
for shares of the Class A Common Stock, or shares of preferred
stock of the Company having essentially the same value or
economic rights as such shares. Immediately upon the action of
the Board of Directors of the Company authorizing any such
exchange, and without any further action or any notice, the
Rights (other than Rights which are not subject to such
exchange) will terminate and the Rights will only enable
holders to receive the shares issuable upon such exchange.
No fractional shares of Preferred Stock will be issued
upon the exercise of any Right or Rights evidenced hereby
(other than fractions which are integral multiples of one
one-hundredth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts),
but in lieu thereof a cash payment will be made, as provided in
the Rights Agreement. The Company, at its election, may
require that a number of Rights be exercised so that only whole
shares of Preferred Stock would be issued.
No holder of this Rights Certificate shall be entitled
to vote or receive dividends or be deemed for any purpose the
holder of shares of Preferred Stock or of any other securities
of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting
thereof, or to give consent to or withhold consent from any
corporate action, or, to receive notice of meetings or other
actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by
this Rights Certificate shall have been exercised as provided
in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of _________ __, ____
ATTEST: WADDELL & REED FINANCIAL,
INC.
By
Secretary Title:
Countersigned:
FIRST CHICAGO TRUST
COMPANY OF NEW YORK
By
Authorized Signature
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________ Attorney,
to transfer the within Rights Certificate on the books of the within named
Company, with full power of substitution.
Dated: __________________, _____
Signature
Signature Guaranteed:
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the
<PAGE>
Rights evidenced by this Rights Certificate from any Person who is, was or
subsequently became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person.
Dated: _______________, _____
Signature
Signature Guaranteed:
<PAGE>
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Rights
Certificate.)
To: WADDELL & REED FINANCIAL, INC.:
The undersigned hereby irrevocably elects to exercise __________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated: _______________, _____
<PAGE>
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ______________, _____
Signature
Signature Guaranteed:
<PAGE>
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On April 28, 1999, the Board of Directors of Waddell & Reed
Financial, Inc. (the "Company") declared a dividend distribution of one Right
for each outstanding share of Class A Common Stock and Class B Common Stock of
the Company (collectively, the "Common Stock") to stockholders of record at the
close of business on May 12, 1999 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, par value $1.00 per share (the "Series A Preferred Stock") at a Purchase
Price of $85.00 per Unit, subject to adjustment. The description and terms of
the Rights are set forth in a Rights Agreement (the "Rights Agreement") between
the Company and First Chicago Trust Company of New York, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. Subject to certain exceptions specified in
the Rights Agreement, the Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 business days following
a public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 15% or more of the
Voting Power as represented by the outstanding shares of Common Stock (the
"Stock Acquisition Date"), other than as a result of repurchases of stock by the
Company or certain inadvertent actions by institutional or certain other
stockholders or (ii) 10 business days (or such later date as the Board shall
determine) following the commencement of a tender offer or exchange offer that
would result in a person or group becoming an Acquiring Person. Voting Power is
defined as the total number of votes entitled to be cast in the general election
of directors of the
<PAGE>
Company. Until the Distribution Date, (i) the Rights will be evidenced by
the Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) new Common Stock certificates issued after
the Record Date will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate. Pursuant to the
Rights Agreement, the Company reserves the right to require prior to the
occurrence of a Triggering Event (as defined below) that, upon any exercise
of Rights, a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and
will expire at 5:00 P.M. (New York City time) on April 28, 2009, unless such
date is extended or the Rights are earlier redeemed or exchanged by the Company
as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that a Person becomes an Acquiring Person, except
pursuant to an offer for all outstanding shares of Common Stock which the
independent directors determine to be fair and not inadequate to and to
otherwise be in the best interests of the Company and its stockholders, after
receiving advice from one or more investment banking firms (a "Qualified
Offer"), each holder of a Right will thereafter have the right to receive, upon
exercise, Class A Common Stock (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two times the exercise
price of the Right. Notwithstanding any of the foregoing, following the
occurrence of the event set forth in this paragraph, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person will be
<PAGE>
null and void. However, Rights are not exercisable following the occurrence
of the event set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $85.00 per Right, each Right
not owned by an Acquiring Person (or by certain related parties) following an
event set forth in the preceding paragraph would entitle its holder to purchase
$170.00 worth of Class A Common Stock (or other consideration, as noted above)
for $85.00. Assuming that the Class A Common Stock had a per share value of
$17.00 at such time, the holder of each valid Right would be entitled to
purchase 10 shares of Class A Common Stock for $85.00.
In the event that, at any time following the Stock Acquisition
Date, (i) the Company engages in a merger or other business combination
transaction in which the Company is not the surviving corporation (other than
with an entity which acquired the shares pursuant to a Qualified Offer), (ii)
the Company engages in a merger or other business combination transaction in
which the Company is the surviving corporation and the Common Stock of the
Company is changed or exchanged, or (iii) 50% or more of the Company's assets,
cash flow or earning power is sold or transferred, each holder of a Right
(except Rights which have previously been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right. The events set forth in this paragraph and in the second preceding
paragraph are referred to as the "Triggering Events."
At any time after a person becomes an Acquiring Person and prior
to the acquisition by such person or group of fifty percent (50%) or more of the
Voting Power as represented by the outstanding Common Stock, the Board may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one share of Class A
Common Stock, or one one-hundredth of a share of Preferred Stock (or of a share
of a class or series of the Company's preferred stock having equivalent rights,
preferences and privileges), per Right (subject to adjustment).
<PAGE>
At any time until ten business days following the Stock
Acquisition Date, the Company may redeem the Rights in whole, but not in part,
at a price of $.01 per Right (payable in cash, Class A Common Stock or other
consideration deemed appropriate by the Board of Directors). Immediately upon
the action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
Rights become exercisable for Class A Common Stock (or other consideration) of
the Company or for common stock of the acquiring company or in the event of the
redemption of the Rights as set forth above.
Any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights, or to shorten or lengthen any time
period under the Rights Agreement. The foregoing notwithstanding, no amendment
may be made at such time as the Rights are not redeemable.
A copy of the Rights Agreement is being filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A
dated May 5, 1999. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by reference.
<PAGE>
TABLE OF CONTENTS
Section Page
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent 7
Section 3. Issuance of Rights Certificates 7
Section 4. Form of Rights Certificates 10
Section 5. Countersignature and Registration 11
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen
Rights Certificates 12
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights 13
Section 8. Cancellation and Destruction of Rights Certificates 16
Section 9. Reservation and Availability of Capital Stock 17
Section 10. Preferred Stock Record Date 19
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights 20
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares 33
Section 13. Consolidation, Merger or Sale or Transfer of Assets,
Cash Flow or Earning Power 33
Section 14. Fractional Rights and Fractional Shares 37
Section 15. Rights of Action 39
<PAGE>
Section 16. Agreement of Rights Holders 39
Section 17. Rights Certificate Holder Not Deemed a Stockholder 40
Section 18. Concerning the Rights Agent 41
Section 19. Merger or Consolidation or Change of Name of
Rights Agent 41
Section 20. Duties of Rights Agent 42
Section 21. Change of Rights Agent 45
Section 22. Issuance of New Rights Certificates 46
Section 23. Redemption and Termination 47
Section 24. Exchange 48
Section 25. Notice of Certain Events 50
Section 26. Notices 51
Section 27. Supplements and Amendments 52
Section 28. Successors 53
Section 29. Determinations and Actions by the Board of
Directors, etc. 53
Section 30. Benefits of this Agreement 54
Section 31. Severability 54
Section 32. Governing Law 54
Section 33. Counterparts 55
Section 34. Descriptive Headings 55
EXHIBITS
Exhibit A -- Certificate of Designation,
<PAGE>
Preferences and Rights
Exhibit B -- Form of Rights Certificates
Exhibit C -- Form of Summary of Rights
WADDELL & REED FINANCIAL, INC.
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Rights Agent
Rights Agreement
Dated as of April 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF WADDELL & REED FINANCIAL, INC.
INCLUDED IN PART I, ITEM 1 OF THE ACCOMPANYING FORM 10-Q QUARTERLY REPORT FOR
THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 51,634
<SECURITIES> 96,304
<RECEIVABLES> 31,426
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 185,764
<PP&E> 32,979
<DEPRECIATION> 12,244
<TOTAL-ASSETS> 343,751
<CURRENT-LIABILITIES> 164,745
<BONDS> 0
0
0
<COMMON> 665
<OTHER-SE> 165,571
<TOTAL-LIABILITY-AND-EQUITY> 343,751
<SALES> 0
<TOTAL-REVENUES> 166,178
<CGS> 0
<TOTAL-COSTS> 90,594
<OTHER-EXPENSES> 1,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,006
<INCOME-PRETAX> 72,126
<INCOME-TAX> 27,354
<INCOME-CONTINUING> 44,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,772
<EPS-BASIC> .73
<EPS-DILUTED> .71
</TABLE>
