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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
Commission file number 001-13913
WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware 51-0261715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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6300 Lamar Avenue
Overland Park, Kansas 66202
913-236-2000
(Address, including zip code, and telephone number of Registrant's principal
executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Class A Common Stock, $.01 par value New York Stock Exchange
Class B Common Stock, $.01 par value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(Title of class)
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 ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. (__)
The aggregate market value of the voting stock held by non-affiliates of the
registrant (excludes officers, directors and stockholders holding 5% or greater
of the registrant's common stock): $782,134,743 at February 26, 1999.
Shares outstanding of each of the registrant's classes of common stock as of
February 26, 1999:
Class A Common Stock, $.01 par value: 30,694,445
Class B Common Stock, $.01 par value: 30,797,556
DOCUMENTS INCORPORATED BY REFERENCE
In Part III of this Form 10-K, the definitive proxy statement for the 1999
annual meeting of stockholders to be held April 28, 1999
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Index of Exhibits (Pages B-1 through B-3)
Total Number of Pages Included Are 52
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WADDELL & REED FINANCIAL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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PART I PAGE
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Item 1. Business................................................................... 3
Item 2. Properties................................................................. 15
Item 3. Legal Proceedings.......................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........................ 15
Risk Factors............................................................... 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 19
Item 6. Selected Financial Data.................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation................................................................ 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 27
Item 8. Financial Statements and Supplementary Data................................ 27
Item 9. Changes in Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 27
Item 11. Executive Compensation..................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 27
Item 13. Certain Relationships and Related Transactions............................. 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 27
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SIGNATURES................................................................................................. 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. A-1
INDEX TO EXHIBITS.......................................................................................... B-1
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS FORM 10-K INCLUDES STATEMENTS THAT ARE "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 FACTS INCLUDED IN THIS FORM 10-K 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-K 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. CERTAIN
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ARE DISCLOSED IN THE "RISK FACTORS" SECTION OF THIS FORM
10-K ANNUAL REPORT, WHICH INCLUDE, WITHOUT LIMITATION, THE ADVERSE EFFECT FROM A
DECLINE IN SECURITIES MARKETS OR IF THE COMPANY'S PRODUCTS' PERFORMANCE
DECLINES, 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.
ITEM 1. BUSINESS
BACKGROUND
From 1981 until its initial public offering of Class A Common Stock on March
4, 1998 (the "Offering"), Waddell & Reed Financial, Inc. (the "Company") had
been a wholly-owned subsidiary of Torchmark Corporation ("Torchmark"), and was
known as United Investors Management Company until it effected a name change in
December 1997. The Company is a holding company that conducts its business
through its subsidiaries. One subsidiary, Waddell & Reed, Inc. ("W&R"), is a
registered broker-dealer and registered investment advisor that acts primarily
as the nationwide distributor and underwriter for the shares of mutual funds and
distributor of insurance products issued primarily by United Investors Life
Insurance Company ("UILIC"), a subsidiary of Torchmark. Another subsidiary,
Waddell & Reed Investment Management Company ("WRIMCO"), is a registered
investment advisor that provides investment management and advisory services to
the Company's mutual funds (the "Funds") and to institutions and other private
clients through a subcontract with another subsidiary of Torchmark. Finally,
Waddell & Reed Services Company ("WRSCO") provides transfer agency and
accounting services to the Funds and their shareholders. Waddell & Reed
Financial, Inc., W&R, WRIMCO, and WRSCO are hereafter collectively referred to
as the "Company," unless the context requires otherwise.
After the consummation of the Offering, the Company continued to be
controlled by Torchmark, which owned more than 80% of the combined voting power
of the Class A Common Stock and the Class B Common Stock of the Company. The
holders of Class A Common Stock and Class B Common Stock have identical rights
except that holders of Class A Common Stock are entitled to one vote per share
while holders of Class B Common Stock are entitled to five votes per share on
all matters to be voted on by stockholders.
On November 6, 1998 Torchmark divested its ownership interest in the Company
by means of a special dividend to the stockholders of Torchmark of all of the
Class A Common Stock and Class B Common Stock owned by Torchmark after the
Offering (the "Spin-Off").
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OVERVIEW
The Company, founded in 1937, is one of the oldest mutual fund complexes in
the United States, having introduced the United family of funds in 1940. The
Company sells its investment products primarily to middle income Americans
through a virtually exclusive sales force. As of December 31, 1998, the Company
had $27.7 billion of assets under management, of which $24.5 billion were mutual
fund assets and $3.2 billion were managed institutional accounts. The Company
has over 582,000 mutual fund customers having an average investment of $38,000
and 47,000 variable account customers having an average investment of $52,000.
The Company is the exclusive underwriter and distributor of 36 mutual fund
portfolios (the "Funds"), including 17 comprising the United Funds (the "United
Funds"), eight comprising the Waddell & Reed Funds (the "W&R Funds"), and 11
comprising the Target/United Funds (the "Target Funds"). The Company also
distributes Torchmark underwritten variable annuities and life insurance
products to its customers as part of its financial planning services. The
Company sells mutual fund products with a front-end load (sales charges are paid
upon purchase of fund shares) and contingent deferred sales charge (sales
charges are paid upon redemption within specified periods).
The traditional market for the Company has generally been professionals and
working families with annual incomes between $40,000 and $100,000 who are saving
for retirement. The Company believes that demographic trends and shifts in
attitudes toward retirement savings will continue to support increased consumer
demand for its products. According to U.S. Census Bureau projections, the number
of Americans between the ages of 45 and 64 will grow from 53.7 million in 1996
to 71.1 million in 2005, making this "preretirement" age group the fastest
growing segment of the U.S. population.
The Company distributes the Funds and other financial products through a
financial advisor sales force that represents the Company on a virtually
exclusive basis. On December 31, 1998, the Company's sales force consisted of
2,370 financial advisors and 129 division managers operating from 184 sales
offices located throughout the United States. For the year ended December 31,
1998, the Company's financial advisor sales force sold over $1.8 billion of
mutual fund and variable products. The Company believes, based on industry data,
that its financial advisor sales force is currently one of the largest sales
forces in the United States selling primarily mutual funds. As of December 31,
1998, 38% of the Company's financial advisors have been with the Company for
more than 5 years and 26% for more than 10 years.
The financial advisor industry is fragmented, consisting primarily of
relatively small companies generally employing fewer than 100 investment
professionals. The Company's sales force competes primarily with small
broker/dealers and independent financial advisors. The Company's marketing
efforts are currently focused on customers residing in smaller metropolitan
areas and rural communities. The Company conducts investment seminars throughout
the United States to reach a large number of potential clients. The Company also
provides financial plans for clients offering one-on-one consultations
emphasizing long-term relationships through continuing service, rather than a
one-time sale. The Company believes that it is well-positioned to benefit from a
developing industry trend toward "assisted sales"--sales of mutual fund products
through a sales person--driven by the array of options now available to
investors and the need for financial planning advice that has resulted from the
recent increase in the average household's financial assets.
The Company's investment philosophy and financial planning approach
emphasize long-term investments. The Company's portfolio managers seek
consistent long-term performance and downside protection in turbulent markets.
As a result, the Company has developed a loyal customer base with clients
maintaining their accounts for approximately 11 years on average as compared to
five years for the mutual fund industry, according to the Investment Company
Institute. This loyalty is evidenced by a relatively low fund redemption rate
for the five years ended December 31, 1998 of 7.8% for the Funds (other than
money market funds), which is less than one-half of the industry average of
18.6% and a relatively high dividend reinvestment rate of 87.2% for the Funds
for the same period versus 71.3% for the mutual fund
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industry. Approximately 47% of the Company's assets under management are in
retirement accounts as of December 31, 1998. The historically low redemption and
high reinvestment rates have provided a stable source of asset and revenue
growth at relatively low cost.
The Company has a seasoned team of portfolio managers and an internal equity
and fixed income investment research staff that have substantial resources
available to them including hundreds of meetings annually with company
management both on and off site. In addition, the Company utilizes research
provided by brokerage firms and independent outside consultants. Portfolio
managers usually were investment research analysts for a substantial length of
time prior to acquiring money management assignments. The predominant style of
the Company's investments is growth equity. As of December 31, 1998
approximately 81% of the Company's mutual fund assets under management were
invested in equity funds and the remainder in fixed income and money market
funds. This investment strategy emphasizes investment at attractive valuations
in companies that the portfolio managers believe can produce above average
growth in earnings.
OPERATIONS
Revenues from operations for the last three years ended were:
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<CAPTION>
FOR YEARS ENDED DECEMBER 31,
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1998 1997 1996
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Revenues from:
Investment management......................................................... $ 137,823 117,784 101,466
Underwriting and distribution................................................. 106,615 89,427 85,837
Shareholder service........................................................... 33,808 30,763 28,378
---------- --------- ---------
Revenue excluding investment income........................................... 278,246 237,974 215,681
Investment income............................................................. 9,043 3,798 5,295
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Total revenue................................................................. $ 287,289 241,772 220,976
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MARKETING
The Company markets its mutual funds through a sales force that represents
the Company on a virtually exclusive basis. As of December 31, 1998, the sales
force comprised 2,370 financial advisors. The Company's financial advisors are
located primarily in smaller metropolitan areas and rural communities. The sales
force is organized into divisions that are supervised, as of December 31, 1998,
by 129 division managers who, in turn, report to eight regional vice presidents.
The Company has taken several steps to increase the productivity of its
sales force. Since 1992, the Company has been developing a more fully-committed
sales force through recruiting and retention initiatives. These initiatives have
resulted in an increase of financial advisors having annual or annualized
production of more than $900,000 of investment product sales from 20% of the
sales force at December 31, 1993 to 34% at December 31, 1998. Prior to 1993,
division managers were engaged in personal sales production as well as sales
management. In order to emphasize the importance of recruiting and developing a
sales force, the Company implemented a compensation system that ties
compensation of division managers to the development of new financial advisors
and to division sales rather than personal sales.
The Company provides training and motivational programs for its sales force.
Sales training specialists provide a regular program of training for new
recruits as well as advanced training for experienced financial advisors.
Programs for new recruits focus on prospecting techniques, product knowledge,
and sales skills. Field office classes provide guidance in identifying target
markets, practical exercises to learn interview skills and data collection,
instruction in basic financial planning software, and guidance in
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matching products with various investment objectives. Sales presentation skills
are taught and practiced in the classroom environment as well as on joint sales
calls with field sales management. The programs for experienced advisors focus
on skills related to dealing with larger investment sums (such as IRA rollovers)
and include training in the use of asset allocation and estate planning
software. In addition, the Company offers all new financial advisors the
opportunity to participate in a week long training program at the home office
covering such subjects as product features, financial planning, and the use of
illustrative software packages.
In 1998, the Company launched its first advertising campaign in selected
markets throughout the country which focused on the important aspects of the
Company's business and was intended to increase name recognition of the Company
in those markets. These efforts are expected to continue in 1999.
FUNDS AND ASSET MANAGEMENT
The Company serves as underwriter for, and investment advisor to, the United
Funds, the W&R Funds, and the Target Funds and distributes variable insurance
products related to the Target Funds.
The Company offers the Funds' shareholders a broad range of investment
products designed to attract and retain clients with varying investment
objectives. The predominant style of the Company's investments is growth equity.
This investment strategy emphasizes investment at attractive valuations in
companies that the portfolio managers believe can produce above average growth
in earnings. According to an annual Barron's/Lipper fund-family survey which
ranks investment performance of mutual fund complexes, the Company ranked second
out of 89 mutual fund complexes for 1998 and fifth out of 55 complexes for the
five year period ended December 31, 1998. As of December 31, 1998, 81% of the
assets under management in the Funds were invested in equity funds, 16% were
invested in fixed income funds, and 3% were invested in money market funds.
Lipper, Inc. also ranked 57% of the Company's equity assets in the top quartile
and 50% in the top 10% of their respective categories. The Company periodically
introduces new mutual funds designed to complement and expand its investment
product offerings, respond to competitive developments in the financial
marketplace, and meet the changing needs of clients. The Company's base of
assets under management consists of a broad range of domestic and international
stock, bond, and money market mutual funds that meet the varied needs and
objectives of its individual and institutional investors.
In addition to performing investment management services for the Funds, the
Company acts as an investment advisor and portfolio manager for institutional
and other private investors. The Company receives a fee that is generally based
on a percentage of assets under management for its services as an investment
advisor or portfolio manager. Assets under management for institutional and
private accounts totaled approximately $3.2 billion at December 31, 1998.
Investment management fees from institutional accounts were approximately $6.3
million, or approximately 5%, of total investment management fees, for the year
ended December 31, 1998.
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Ending and average assets under management for the last three years were:
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1998 1997 1996
-------------------- -------------------- --------------------
ENDING AVERAGE ENDING AVERAGE ENDING AVERAGE
--------- --------- --------- --------- --------- ---------
(IN MILLIONS)
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United Funds
Equity.............................................. $ 16,713 15,320 13,687 12,761 11,200 10,463
Fixed-income........................................ 3,637 3,652 3,632 3,499 3,431 3,408
Money market........................................ 644 572 529 498 499 445
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20,994 19,544 17,848 16,758 15,130 14,316
W&R Funds
Equity.............................................. 1,050 906 779 684 586 496
Fixed-income........................................ 85 74 66 58 57 55
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1,135 980 845 742 643 551
Target Funds
Equity.............................................. 2,127 1,859 1,627 1,452 1,204 1,038
Fixed-income........................................ 245 235 223 204 193 182
Money market........................................ 54 45 43 38 38 36
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2,426 2,139 1,893 1,694 1,435 1,256
Total Mutual Funds
Equity.............................................. 19,890 18,085 16,093 14,897 12,990 11,997
Fixed-income........................................ 3,967 3,961 3,921 3,761 3,681 3,645
Money market........................................ 698 617 572 536 537 481
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24,555 22,663 20,586 19,194 17,208 16,123
Institutional Accounts.............................. 3,189 2,947 2,831 2,103 1,862 2,846
--------- --------- --------- --------- --------- ---------
Total Assets Under Management....................... $ 27,744 25,610 23,417 21,297 19,070 18,969
--------- --------- --------- --------- --------- ---------
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INVESTMENT MANAGEMENT AGREEMENTS
The Company provides investment advisory and management services pursuant to
an investment management agreement with each Fund. While the specific terms of
the investment management agreements vary, the basic terms of the investment
management agreements are similar. The investment management agreements provide
that the Company renders overall management services to each of the Funds,
subject to the oversight of each Fund's board of directors and in accordance
with each Fund's fundamental investment objectives and policies. The investment
management agreements permit the Company to enter into separate agreements for
shareholder services or accounting services with the respective Funds.
Each Fund's board of directors, including a majority of the directors who
are not "interested persons," of the Fund or the Company within the meaning of
the Investment Company Act of 1940, as amended, and its shareholders must have
approved the investment management agreement between the respective Fund and the
Company. These agreements may continue in effect from year to year if
specifically approved at least annually by (i) the Fund's board of directors,
including a majority vote of the directors who are not parties to the agreements
or "interested persons" of any such party, or (ii) the vote of the holders of a
majority of the outstanding voting securities of the Fund and the vote of a
majority of the Fund's directors who are not parties to the agreement or
"interested persons" of any such party, each vote being cast in person at a
meeting called for such purpose. Each agreement automatically terminates in the
event of its "assignment" as defined in the Investment Company Act or the
Investment Advisers Act and may be terminated without penalty by the Fund by
giving the Company 60 days' written notice, if the termination
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has been approved by a majority of the Fund's directors or shareholders. The
Company may terminate an investment management agreement without penalty on 120
days' written notice.
SERVICE AGREEMENTS
The Company provides various services to the Funds and their shareholders
pursuant to a shareholder servicing agreement with each Fund (except the Target
Funds) and an accounting service agreement with each Fund. Pursuant to the
shareholder servicing agreements, the Company performs shareholder servicing
functions, including the maintenance of shareholder accounts, the issuance,
transfer, and redemption of shares, distribution of dividends and payment of
redemptions, furnishing information related to the Fund, and handling
shareholder inquiries. The Funds pay a monthly fee to the Company for such
services. Pursuant to the accounting service agreements, the Company provides
the Funds with bookkeeping and accounting services and assistance, including
maintenance of the Fund's records, pricing of the Fund's shares, and preparation
of the prospectuses for existing shareholders, proxy statements, and certain
reports. The Funds pay the Company a monthly fee for such services. A Fund's
shareholder servicing agreement or accounting services agreement may be adopted
or amended with the approval of the Fund's directors. Each of the shareholder
servicing agreements and accounting services agreements have annually renewable
terms of one year expiring on October 1 of each year.
UNDERWRITING AND DISTRIBUTION
The Company distributes the Funds pursuant to an underwriting agreement with
each Fund (except the Target Funds). The Company distributes products relating
to the Target Funds under an underwriting agreement between the Company and
UILIC. General agency commissions paid to the Company by UILIC for distribution
of these products comprised 12%, 12% and 14% of the Company's total revenue for
each of the years ended 1998, 1997 and 1996, respectively. Under each
underwriting agreement with a Fund, the Company offers and sells the Fund's
shares on a continual basis and pays the costs of sales literature and printing
of prospectuses furnished to it by the Fund. The Company receives underwriting
commissions for such services, a major portion of which is paid to financial
advisors and sales managers of the Company. The Company charges a sales charge
to clients upon purchase of shares in the United Funds, which are front-end load
funds, which ranges from zero to 5.75% of the amount invested. The sales charge
for the United Funds typically declines as the net asset value of the account
increases. In addition, investors may combine their purchases of these Funds'
shares within the respective group of Funds to qualify for the reduced sales
charge. Investors in the W&R Funds generally pay contingent deferred sales
charges upon redemption of shares in W&R Funds of up to 3% of the net asset
value of the redeemed shares declining to zero for shares held for more than
four years.
The underwriting agreements are subject to approval annually by the
directors of the respective Funds, including a majority of the directors who are
not "interested persons" of the Funds or the Company within the meaning of the
Investment Company Act of 1940, as amended, or "interested persons" of any such
party and who have no direct or indirect financial interest in the operation of
the distribution and service plan (as described below), as applicable, of the
Funds or any agreements relating thereto ("independent directors"), cast in
person at a meeting called for the purpose of voting on such approval. Each
agreement automatically terminates in the event of its assignment, as defined in
the Investment Company Act, and either party may terminate the agreement without
penalty upon 60 days' written notice.
Under a distribution and service plan for Class A shares of the United Funds
(except the money market fund) and under a distribution and service plan for the
Class B shares of the money market fund and the W&R Funds, each of which plans
are adopted under Rule 12b-1 of the Investment Company Act, the Funds may pay
the Company a fee for its costs and expenses in connection with providing
personal service to shareholders of the Fund, maintaining shareholder accounts
and distributing shares of the funds.
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Each distribution and service plan is subject to approval annually by the
directors, including the independent directors, cast in person at a meeting
called for the purpose of voting on such approval. The Fund may terminate the
Plan at any time without penalty.
The Company's investment product sales are summarized as follows:
INVESTMENT PRODUCT SALES
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1998 1997 1996
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(IN MILLIONS)
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United Funds...................................................................... $ 1,266.8 1,092.7 1,024.8
Waddell & Reed Funds.............................................................. 252.3 175.7 227.4
Variable Products (Target/United)................................................. 308.4 249.8 252.9
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$ 1,827.5 1,518.2 1,505.1
--------- --------- ---------
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</TABLE>
FUNDS SUMMARY
The following table sets forth, for each fund within the Fund group, the
year that shares in such Fund were first offered to the public, the net assets
of such Fund or portfolio as of December 31, 1998 and a description of its
investment objective.
<TABLE>
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NET ASSETS
AT DECEMBER 31,
1998
FIRST (DOLLARS IN
FUND NAME OFFERED MILLIONS) INVESTMENT OBJECTIVE
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UNITED FUNDS
Accumulative Fund........................ 1940 $ 1,868.0 Seeks capital growth, with a secondary
objective of current income.
Asset Strategy Fund...................... 1995 $ 36.2 Seeks high total return over the long term
by allocating its assets among stocks,
bonds and short-term instruments.
Bond Fund................................ 1964 $ 557.1 Seeks to achieve a reasonable return with
more emphasis on preservation of capital.
Cash Management.......................... 1979 $ 644.3 Seeks to maximize current income to the
extent consistent with stability of
principal by investing in money market
instruments.
Continental Income Fund.................. 1970 $ 602.7 Seeks to provide current income to the
extent that market and economic conditions
permit with a secondary objective of
seeking long-term appreciation of capital.
</TABLE>
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<TABLE>
<CAPTION>
NET ASSETS
AT DECEMBER 31,
1998
FIRST (DOLLARS IN
FUND NAME OFFERED MILLIONS) INVESTMENT OBJECTIVE
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UNITED FUNDS
<S> <C> <C> <C>
Gold & Government Fund................... 1985 $ 12.8 Seeks high total return through investing
in precious metals, mineral-related
securities and gold, silver and platinum
during periods of actual or expected
inflation or when the environment for
investments in precious metals appears to
be favorable, and U.S. Government
securities during periods of actual or
expected disinflation or low inflation.
Government Securities Fund............... 1982 $ 140.7 Seeks high current income consistent with
safety of principal by investing primarily
in securities issued or guaranteed by the
U.S. Government or its agencies or
instrumentalities.
High Income Fund......................... 1979 $ 1,018.5 Seeks a high level of current income, with
a secondary objective of seeking capital
growth when consistent with its primary
objective.
High Income Fund II...................... 1986 $ 416.2 Seeks a high level of current income, with
a secondary objective of seeking capital
growth when consistent with its primary
objective.
Income Fund.............................. 1940 $ 7,767.3 Seeks maintenance of current income,
subject to market conditions with a
secondary goal of capital growth.
International Growth Fund................ 1970 $ 1,224.1 Seeks long-term capital appreciation, with
a secondary objective of realization of
income, by investing in securities issued
by companies or governments of any nation.
</TABLE>
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<TABLE>
<CAPTION>
NET ASSETS
AT DECEMBER 31,
1998
FIRST (DOLLARS IN
FUND NAME OFFERED MILLIONS) INVESTMENT OBJECTIVE
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UNITED FUNDS
Municipal Bond Fund...................... 1976 $ 977.0 Seeks income that is not subject to
Federal income taxation by investing
principally in tax-exempt municipal bonds.
Municipal High Income Fund............... 1986 $ 526.8 Seeks a high level of income that is not
subject to Federal income taxation by
investing principally in medium and lower
quality tax-exempt municipal bonds.
New Concepts Fund........................ 1983 $ 956.3 Seeks capital growth by investing in
securities issued by relatively new or
unseasoned companies, companies in the
early stages of development or smaller
companies in new and emerging industries
with above average opportunity for growth.
Retirement Shares Fund................... 1972 $ 822.2 Seeks the highest long-term total return
consistent with reasonable safety of
capital.
Science and Technology Fund.............. 1950 $ 1,674.5 Seeks long-term capital growth through a
portfolio emphasizing science and
technology securities.
Vanguard Fund............................ 1969 $ 1,749.3 Seeks capital appreciation through
diversified holdings of securities issued
primarily by companies that have
appreciation possibilities.
WADDELL & REED FUNDS
Asset Strategy Fund...................... 1995 $ 28.3 Seeks high total return over the long term
by allocating assets among stocks, bonds
and short-term instruments.
Growth Fund.............................. 1992 $ 399.5 Seeks capital appreciation by investing
primarily in securities issued by
companies that offer above-average growth
potential, including relatively new or
unseasoned companies.
High Income Fund......................... 1997 $ 22.6 Seeks a high level of current income, with
a secondary objective of seeking capital
growth when consistent with its primary
objective.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS
AT DECEMBER 31,
1998
FIRST (DOLLARS IN
FUND NAME OFFERED MILLIONS) INVESTMENT OBJECTIVE
- - ------------------------------------------- ----------- --------------- ------------------------------------------
<S> <C> <C> <C>
WADDELL & REED FUNDS
International Growth Fund................ 1992 $ 91.1 Seeks long-term appreciation, with a
secondary goal of realization of income,
by investing in securities issued by
companies or governments of any nation.
Limited-Term Bond Fund................... 1992 $ 20.9 Seeks a high level of current income
consistent with preservation of capital by
investing primarily in debt securities of
investment grade, including U.S.
government securities, and maintaining a
dollar-weighted average maturity of the
portfolio of two to five years.
Municipal Bond Fund...................... 1992 $ 41.8 Seeks income that is not subject to
Federal income taxation by investing
primarily in municipal bonds.
Science and Technology Fund.............. 1997 $ 26.0 Seeks long term capital growth through a
portfolio emphasizing science and
technology securities.
Total Return Fund........................ 1992 $ 504.5 Seeks current income and capital growth by
investing primarily in securities issued
by companies that have a record of paying
regular dividends on common stock or have
the potential for capital appreciation.
TARGET/UNITED FUNDS
Asset Strategy fund...................... 1995 $ 14.1 Seeks high total return over the long term
by allocating its assets among stocks,
bonds and short-term instruments.
Balanced fund............................ 1994 $ 92.2 Seeks current income with a secondary
objective of long-term appreciation of
capital.
Bond fund................................ 1987 $ 114.3 Seeks current income with an emphasis on
preservation of capital.
Growth fund.............................. 1987 $ 825.1 Seeks capital growth with current income
as a secondary objective.
High Income fund......................... 1987 $ 126.4 Seeks high current income, with a
secondary objective of capital growth.
Income fund.............................. 1991 $ 811.3 Seeks maintenance of current income,
subject to market conditions with a
secondary objective of capital growth.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS
AT DECEMBER 31,
1998
FIRST (DOLLARS IN
FUND NAME OFFERED MILLIONS) INVESTMENT OBJECTIVE
- - ------------------------------------------- ----------- --------------- ------------------------------------------
<S> <C> <C> <C>
TARGET/UNITED FUNDS
International fund....................... 1994 $ 169.0 Seeks long-term appreciation of capital,
with current income as a secondary
objective by investing principally in
securities issued by companies or
governments of any nation.
Limited-Term Bond fund................... 1994 $ 4.5 Seeks a high level of current income
consistent with preservation of capital by
investing primarily in debt securities of
investment grade and maintaining a dollar
weighted average maturity of the portfolio
of two to five years.
Money Market fund........................ 1987 $ 54.0 Seeks maximum current income consistent
with stability of principal by investing
in money market securities.
Science and Technology fund.............. 1997 $ 34.6 Seeks long-term capital growth by
investing primarily in science and
technology securities.
Small Cap fund........................... 1994 $ 180.6 Seeks capital growth by investing
primarily in securities issued by
relatively new or unseasoned companies,
companies in their early stages of
development or smaller companies
positioned in new and emerging industries
with above average opportunity for rapid
growth.
</TABLE>
REGULATION
Virtually all aspects of the Company's businesses are subject to various
Federal and state laws and regulations. These laws and regulations are primarily
intended to protect investment advisory clients and shareholders of registered
investment companies. Under such laws and regulations, agencies that regulate
investment advisors and broker-dealers such as the Company have broad
administrative powers, including the power to limit, restrict, or prohibit such
an advisor or broker-dealer from carrying on its business in the event that it
fails to comply with such laws and regulations. In such event, the possible
sanctions that may be imposed include the suspension of individual employees,
limitations on engaging in certain lines of business for specified periods of
time, revocation of investment advisor and other registrations, censures, and
fines.
The business of the Company is subject to regulation at both the Federal and
state level by the Securities and Exchange Commission (the "Commission") and
other regulatory bodies. Certain subsidiaries of the Company are registered with
the Commission under the Investment Advisers Act of 1940, as amended, (the
"Advisers Act") and the Funds are registered with the Commission under the
Investment Company Act of 1940, as amended, (the "ICA") and with various states
under applicable state laws. A
13
<PAGE>
subsidiary of the Company is also registered as a broker-dealer with the
Commission and is subject to regulation by the National Association of
Securities Dealers, Inc. (the "NASD") and various states.
Certain subsidiaries of the Company are registered with the Commission under
the Advisers Act and, as such, are regulated by and subject to examination by
the Commission. The Advisers Act imposes numerous obligations on registered
investment advisors including fiduciary duties, recordkeeping requirements,
operational requirements, and disclosure obligations. The Commission is
authorized to institute proceedings and impose sanctions for violations of the
Advisers Act, ranging from censure to termination of an investment advisor's
registration. The failure of a registered subsidiary of the Company to comply
with the requirements of the Commission could have a material adverse effect on
the Company.
The Company derives a large portion of its revenues from investment
management agreements. Under the Advisers Act, the Company's investment
management agreements terminate automatically if assigned without the client's
consent. Under the ICA, advisory agreements with registered investment companies
such as the Funds terminate automatically upon assignment. The term "assignment"
is broadly defined and includes direct assignments as well as assignments that
may be deemed to occur, under certain circumstances, upon the transfer, directly
or indirectly, of a controlling interest in the Company.
A subsidiary of the Company is also a member of the Securities Investor
Protection Corporation. In its capacity as a broker-dealer, the Company is
required to maintain certain minimum net capital and cash reserves for the
benefit of its customers, which may limit its ability to pay dividends. The
Company's net capital, as defined, has consistently met or exceeded all minimum
requirements. Various regulations cover certain investment strategies that may
be used by the Funds for hedging purposes. To the extent that the Funds purchase
futures contracts, the Funds are subject to the commodities and futures
regulations of the Commodity Futures Trading Commission. Under the rules and
regulations of the Commission promulgated pursuant to the Federal securities
laws, the Company is subject to periodic examination by the Commission. The
Company is also subject to periodic examination by the NASD. A subsidiary of the
Company is registered under the Exchange Act as a transfer agent. The most
recent examination of the Company by the Commission was in February 1999. The
most recent examination of the Company by the NASD was in February 1996.
COMPETITION
The Company is subject to substantial competition in all aspects of its
business. The Company competes with hundreds of other mutual fund management,
distribution and service companies that distribute their fund shares through a
variety of methods including affiliated and unaffiliated sales forces,
broker-dealers, and direct sales to the public of shares offered at a low or no
sales charge. Many larger mutual fund complexes have developed relationships
with brokerage houses with large distribution networks, which may enable these
fund complexes to reach broader client bases. The Company competes with firms
offering similar services and products to those of the Company, such as American
Express Financial Advisors Inc. and Edward D. Jones & Co. In addition, the
Company competes with brokerage and investment banking firms, insurance
companies, banks, and other financial institutions and businesses
offering other financial products in all aspects of its business. Although no
one company or group of companies dominates the mutual fund management and
services industry, many are larger than the Company and have greater resources
and offer a wider array of financial services and products. Competition is based
on the methods of distribution of fund shares, the ability to develop investment
products for certain segments of the market, the ability to meet the changing
needs of investors, the ability to achieve superior investment management
performance, the type and quality of shareholder services, and the success of
sales promotion efforts. The Company believes that competition in the mutual
fund industry will increase as a result of increased flexibility afforded to
banks and other financial institutions to sponsor mutual funds and distribute
mutual fund shares, and as a result of consolidation and acquisition activity
within the industry. In addition, barriers to entry to the investment management
business are relatively few, and the Company thus anticipates that it will face
a growing number of competitors. Many of the
14
<PAGE>
Company's competitors in the mutual fund industry are larger, better known, have
penetrated more markets than the Company, and have more resources than those of
the Company.
The distribution of mutual fund products has undergone significant
developments in recent years, which has increased the competitive environment in
which the Company operates. These developments include growth in the number of
mutual funds, introduction of service fees payable to broker-dealers that
provide continual service to clients in connection with their mutual fund
investments, and development of complex distribution systems with multiple
classes of shares.
The Company's financial advisors compete primarily with small broker/dealers
and independent financial advisors. The market for financial advice and planning
is extremely fragmented, consisting primarily of relatively small companies with
fewer than 100 investment professionals. Competition is based on sales
techniques, personal relationships and skills, the quality of financial planning
products and services, the quality of the financial and insurance products
offered, and the quality of service. Competition in this area is intense and
some of the competitors of the Company's financial advisors are larger, better
known, and have more resources.
EMPLOYEES
At December 31, 1998, the Company had 530 full-time employees. Its 2,370
financial advisors are independent contractors.
ITEM 2. PROPERTIES
The Company, through its subsidiary, W&R, owns or leases buildings that are
used in the normal course of business. W&R owns and occupies a 116,000 square
foot office building utilized as its corporate headquarters in United Investors
Park, an approximately thirty-three acre commercial development at 6300 Lamar
Avenue, Overland Park, Kansas. Additional leased space is occupied in the
immediate area for headquarters operations. W&R also leases division and
district office space for its agency sales personnel in various cities and towns
in the United States.
During 1998, land and four income-producing office buildings adjacent to the
Company's headquarters were acquired from Torchmark Income Properties, L.P.
("TIP") in transactions which ended W&R's financial interests in TIP. These
properties had previously been contributed by the Company to TIP in exchange for
a limited partnership interest. The four office buildings total 180,000 square
feet and are 99% leased. As a result of this acquisition, W&R owns 100% of
United Investors Park. The Company began to develop architectural plans for an
additional 110,000 square foot office building for United Investors Park in
1998. This new building, when completed, will be used primarily for owner
occupancy.
ITEM 3. LEGAL PROCEEDINGS
Certain of the Company's subsidiaries are involved from time to time in
various legal proceedings and claims incident to the normal conduct of their
businesses. On the basis of information presently available and advice received
from counsel, it is the opinion of management that such legal proceedings and
claims, individually and in the aggregate, are not likely to have a material
adverse effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
RISK FACTORS
POTENTIAL ADVERSE EFFECT ON CLASS A COMMON STOCK SHARE VALUE FROM DISPARATE
VOTING RIGHTS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK. The holders of
Class A Common Stock and Class B Common Stock have identical rights except that
(i) holders of Class A Common Stock are entitled to one vote per share while
holders of Class B Common Stock are entitled to five votes per share on all
matters to be voted on by stockholders and (ii) holders of Class A Common Stock
are not eligible to vote on any alteration of the powers, preferences, or
special rights of the Class B Common Stock that would not adversely affect the
Class A Common Stock and vice versa. For example, holders of Class A Common
Stock would not be entitled to vote on proposals to decrease the voting power of
the Class B Common Stock, to decrease the right of Class B Common Stock to
receive dividends, or to diminish the rights of the Class B Common Stock in
liquidation, and vice versa. The differential in the voting rights could,
however, adversely affect the value of the Class A Common Stock to the extent
that investors or any potential future purchaser of the Company views the
superior voting rights of the Class B Common Stock to have value. The existence
of two separate classes of Common Stock could result in less liquidity for
either class of Common Stock than if there was only one class of Common Stock.
POTENTIAL ADVERSE EFFECTS ON THE COMPANY'S BUSINESS AND PROSPECTS FROM A
DECLINE IN SECURITIES MARKETS. The Company's results of operations are affected
by certain economic factors, including the level of the securities markets.
Favorable performance by the United States securities markets in recent years
has attracted a substantial increase in the investments in these markets and has
benefited the Funds and the Company. A decline in the securities markets,
failure of the securities markets to sustain their recent levels of growth, or
short-term volatility in the securities markets could result in investors
withdrawing from the markets or decreasing their rate of investment, either of
which could adversely affect the Company. Because the revenues of the Company
are, to a large extent, based on the value of assets under management, a decline
in the value of these assets would adversely affect revenues of the Company. The
Company's growth is dependent to a significant degree upon the ability of the
Funds to attract and retain mutual fund assets and in an adverse economic
environment, this may prove difficult. The Company's growth rate has varied from
year to year and there can be no assurance that the average growth rates
sustained in the recent past will continue.
POTENTIAL ADVERSE EFFECTS ON THE COMPANY'S BUSINESS AND PROSPECTS IF THE
FUNDS' PERFORMANCE DECLINES. Success in the investment management and mutual
fund businesses is dependent on the investment performance of client accounts.
Good performance stimulates sales of the Funds' shares and tends to keep
redemptions low. Sales of the Funds' shares generate higher management fees and
distribution revenues (which are based on assets of the Funds). Good performance
also attracts private institutional accounts to the Company. Conversely,
relatively poor performance tends to result in decreased sales, increased
redemptions of the Funds' shares, and the loss of private institutional
accounts, with corresponding decreases in revenues to the Company. Failure of
the Funds to perform well could, therefore, have a material adverse effect on
the Company.
ADVERSE EFFECT OF TERMINATION OR FAILURE TO RENEW AGREEMENTS. A substantial
majority of the Company's revenues are derived from investment management
agreements with the Funds that, as required by law, are terminable on 60 days'
notice. In addition, each such investment management agreement must be approved
and renewed annually by the disinterested members of each Fund's board or its
shareholders, as required by law. Any failure to renew or termination of a
significant number of these agreements would have a material adverse effect on
the Company.
POTENTIAL ADVERSE EFFECT IF KEY PERSONNEL AND SALES FORCE CANNOT BE
RECRUITED AND RETAINED. The future success of the Company depends to a
substantial degree on its ability to attract and retain qualified personnel to
conduct its fund management and investment advisory business. The market for
qualified fund managers, investment analysts, and financial advisors is
extremely competitive and has grown more so
16
<PAGE>
in recent periods as the industry has experienced growth. There can be no
assurance that the Company will be successful in its efforts to recruit and
retain the required personnel.
The Company is currently dependent on its sales force to sell its mutual
fund and other investment products. The Company's future growth prospects will
be directly affected by the quality and quantity of financial advisors it is
able to successfully recruit and retain.
COMPETITORS WITH GREATER RESOURCES. The mutual fund distribution and
service and investment management industries are intensely competitive and are
undergoing substantial consolidations. Many organizations in these industries
are attempting to market to and service the same clients as the Company, not
only with mutual fund investments and services but with a wide range of other
financial products and services. Many of the Company's competitors have more
products and product lines, services, and may also have substantially greater
assets under management and financial resources. Many larger mutual fund
complexes have developed relationships with brokerage houses with large
distribution networks, which may enable these fund complexes to reach broader
client bases.
POTENTIAL MISUSE OF FUNDS AND INFORMATION IN POSSESSION OF ADVISORS. The
Company's financial advisors handle a significant amount of funds and financial
and personal information for investors in the Funds and purchasers of other
investment and insurance products. Although the Company has implemented a system
of controls to minimize the risk of fraudulent taking or misuse of such funds
and information, there can be no assurance that such controls will be adequate
or that such taking or misuse can be prevented. The Company could have liability
in the event of such taking or misuse and could also be subject to regulatory
sanctions. Although the Company believes that it is adequately insured against
such risks, there can be no assurance that such insurance will be maintained or
that it will be adequate to meet any future liability.
NO ASSURANCE OF DIVIDENDS; HOLDING COMPANY STRUCTURE MAY LIMIT AVAILABLE
CASH FOR DISTRIBUTION. The Company's Board of Directors currently intends to
declare quarterly dividends on both the Class A Common Stock and the Class B
Common Stock. The declaration and payment of dividends by the Company are
subject to the discretion of its Board of Directors. Any determination as to the
payment of dividends, as well as the level of such dividends, will depend on,
among other things, general economic and business conditions, the strategic
plans of the Company, the Company's financial results and condition,
contractual, legal, and regulatory restrictions on the payment of dividends by
the Company or its subsidiaries, and such other factors as the Board of
Directors of the Company may consider to be relevant. The Company is a holding
company and, as such, its ability to pay dividends is subject to the ability of
the subsidiaries of the Company to provide cash to the Company. There can be no
assurance that the current quarterly dividend level will be maintained or that
any dividends will be paid by the Company in any future period.
POTENTIAL COSTS AND ADVERSE EFFECTS ON THE COMPANY'S BUSINESS RESULTING FROM
YEAR 2000 RISKS. As the year 2000 approaches, an issue has emerged regarding
how existing application software programs and operating systems can accommodate
this date value. The Company is in the process of modifying its systems and
working with its software vendors to prepare the Company for the year 2000. In
addition, the Company and the Funds have relationships with third parties that
have computer systems that may not be year 2000 compliant. The Company estimates
that its compliance activities will be completed no later than the third quarter
of 1999. To the extent the Company's or such third parties' systems are not
fully year 2000 compliant, there can be no assurance that potential systems
interruptions or the cost necessary to update software would not have a material
adverse effect on the Company's business, financial condition, results of
operations, or business prospects.
CHANGES IN REGULATION COULD ADVERSELY AFFECT THE COMPANY. The Company's
investment management business is subject to extensive regulation in the United
States, primarily at the Federal level,
17
<PAGE>
including regulation by the Commission. Changes in laws or regulations or in
governmental policies could materially and adversely affect the business and
operations of the Company.
CHARTER AND BYLAW PROVISIONS COULD DETER TAKEOVER ATTEMPTS. Under the
Company's Certificate of Incorporation, the Board of Directors has the
authority, without action by the Company's stockholders, to fix certain terms
and issue shares of Preferred Stock, par value $1.00 per share (the "Preferred
Stock"). Actions of the Board of Directors pursuant to this authority may have
the effect of delaying, deterring, or preventing a change in control of the
Company. Other provisions in the Certificate of Incorporation and in the Bylaws
of the Company (the "Bylaws") impose procedural and other requirements that
could make it more difficult to effect certain corporate actions, including
replacing incumbent directors. In addition, the Board of Directors of the
Company is divided into three classes, each of which is to serve for a staggered
three-year term after the initial classification and election and, incumbent
directors may not be removed without cause, all of which may make it more
difficult for a third party to gain control of the Board of Directors. With
certain exceptions, Section 203 of the Delaware General Corporation Law (the
"DGCL") imposes certain restrictions on mergers and other business combinations
between the Company and any holder of 15% or more of the voting stock of the
Company.
POTENTIAL ISSUANCE OF PREFERRED STOCK COULD DETER TAKEOVER ATTEMPTS. The
Board of Directors could issue a series of preferred stock that could have
powers, rights, or preferences superior to that of the Class A or Class B Common
Stock or that could impede the completion of a merger, tender offer, or other
takeover attempt. Such issuance of preferred stock could be effected without a
vote of the holders of the Class A or Class B Common Stock even though some or a
majority of the Company's stockholders might believe that such merger, tender
offer or takeover is in their best interests and even if such transactions could
result in stockholders receiving a premium for their stock over the then current
market price of such stock.
TERMS OF CREDIT FACILITY; AVAILABILITY OF CAPITAL. The Company has entered
into a loan agreement with revolving line of credit and term loan facilities,
which has an aggregate commitment of $200 million which may be increased to $300
million (the "Credit Facility") with The Chase Manhattan Bank (the "Bank") and
various other lenders. The terms and conditions of the Credit Facility impose
restrictions that affect, among other things, the ability of the Company to
incur debt, make capital expenditures, merge, sell assets, make distributions,
or create or incur liens. Availability of the Credit Facility is also subject to
certain financial covenants. The ability of the Company to comply with such
covenants can be affected by events beyond the control of the Company and there
can be no assurance that the Company will achieve operating results that comply
with such provisions. A breach of any of these covenants could result in a
default under the Credit Facility. In the event of a default, the Bank could
elect to declare the outstanding principal amount of the Credit Facility, all
interest thereon and all other amounts payable under the Credit Facility to be
immediately due and payable.
The Company's ability to satisfy its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic,
financial and business conditions and other factors, some of which are beyond
the control of the Company. The Company anticipates that borrowings from the
Credit Facility or the refinancing of such Credit Facility, and cash provided by
operating activities, will provide sufficient funds to finance anticipated
development plans, meet its operating expenses and service its debt requirements
as they become due. However, in the event that the Company requires additional
capital, there can be no assurance that it will be able to raise such capital
when needed or on satisfactory terms, if at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources".
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Class A and Class B Common Stock are traded on the New York
Stock Exchange under the symbols "WDR" and "WDR.B", respectively. For the period
commencing on March 4, 1998 (the date of the Company's Offering), through
February 26, 1999, high and low closing sale prices for the Common Stock as
reported by the New York Stock Exchange were $27.125 and $16.625, respectively.
The table sets forth, for the periods indicated, the reported high and low
close sale prices of the Company's Class A and Class B Common Stock, as reported
on the New York Stock Exchange, as well as the cash dividends paid for these
time periods:
1998 CLASS A
MARKET PRICE
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER HIGH LOW PER SHARE
- - ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
1.................. $27.1250 $25.3750 $--
2.................. 26.5000 21.8125 .1325
3.................. 24.5000 16.6250 .1325
4.................. 24.3750 17.0625 .1325
</TABLE>
Year-end closing price . . . . . . . . . . $23.6875
1998 CLASS B
MARKET PRICE
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER HIGH LOW PER SHARE
- - ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
4.................. $24.0000 $19.7500 $.1325
</TABLE>
Year-end closing price . . . . . . . . . . $23.2500
STOCKHOLDERS
According to the records of the Company's transfer agent, the Company had
5,403 holders of record of the Class A Common Stock as of March 8, 1999 and
5,853 holders of record of the Class B Common Stock as of March 8, 1999. The
Company believes that a substantially larger number of beneficial owners hold
such shares in depository or nominee form.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company at the dates and for the periods indicated. Selected financial data
should be read in conjunction with, and is qualified in its entirety by,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the Consolidated Financial Statements of the Company and the
Notes thereto appearing herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AND FINANCIAL ADVISORS DATA)
<S> <C> <C> <C> <C> <C>
Revenues from:
Investment management.................... $ 137,823 $ 117,784 $ 101,466 $ 85,289 $ 70,711
Underwriting and distribution............ 106,615 89,427 85,837 70,393 72,150
Shareholder service...................... 33,808 30,763 28,378 23,527 22,297
Revenue excluding investment income...... 278,246 237,974 215,681 179,209 165,158
Total revenue............................ 287,289 241,772 220,976 183,504 169,036
Net income................................. 83,735 70,292 66,700 53,501 47,626
per common share......................... 1.27 1.06 1.00 .80 .72
Net income excluding
nonrecurring items (1)................... 88,060 74,696 64,174 50,975 46,381
per common share (1)(2).................. 1.33 1.12 0.97 0.77 0.70
Dividends per common share (3)............. $ 0.40 -- -- -- --
Investment product sales................... $ 1,827,526 $ 1,518,257 $ 1,505,100 $ 1,187,609 $ 1,188,530
Financial advisors (end of period)......... 2,370 2,160 2,010 2,335 2,257
Financial advisors (average)............... 2,175 2,072 2,072 2,251 2,408
Investment product sales per advisor....... $ 840 $ 733 $ 726 $ 528 $ 494
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Assets under management $ 27,744 $ 23,417 $ 19,070 $ 18,489 $ 14,498
Balance sheet data:
Goodwill................................. 95.9 98.8 101.7 104.6 107.5
Total assets (4)......................... 327.2 254.3 244.8 226.1 206.8
Short term debt.......................... 40.1 -- -- -- --
Total liabilities (5).................... 120.0 65.3 70.1 51.5 39.2
</TABLE>
- - ------------------------
(1) Excludes impact of nonrecurring interest relating to notes with Torchmark
Corporation which were prepaid with proceeds from the Offering and
nonrecurring 1997 charges related to information systems outsourcing.
(2) The number of shares used to compute earnings per share for 1997 and
previous years was the number of shares outstanding at the Offering.
(3) Three quarterly dividends were declared in 1998 ($0.1325 per quarter).
(4) Excludes amounts due from Torchmark of $0, $192.7, $184.5, $57.2 and $96.3
million for 1998, 1997, 1996, 1995 and 1994, respectively.
(5) Excludes amounts due to Torchmark of $0, $611.6, $126.6, $13.6 and $41.7
million for 1998, 1997, 1996, 1995 and 1994, respectively.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
THIS ITEM INCLUDES STATEMENTS THAT ARE "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 FACTS
INCLUDED IN THIS FORM 10-K 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-K 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. CERTAIN IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE
DISCLOSED IN THE "RISK FACTORS" SECTION OF THIS FORM 10-K ANNUAL REPORT, WHICH
INCLUDE, WITHOUT LIMITATION, THE ADVERSE EFFECT FROM A DECLINE IN SECURITIES
MARKETS OR IF THE COMPANY'S PRODUCTS' PERFORMANCE DECLINES, 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.
The following should be read in conjunction with the Selected Financial Data
and the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this report.
RESULTS OF OPERATIONS
OVERVIEW
The Company derives its revenues primarily from providing investment
management, distribution and administrative 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 sales of
investment and insurance products and distribution fees. The products sold have
various sales charge structures and the revenues received from sales of products
vary based on the type and amount sold. Rule 12b-1 distribution fees earned for
distributing shares of certain mutual funds are based upon a percentage of
assets and fluctuate based on sales, redemptions, and financial market
conditions. Service fees include transfer agency fees, custodian fees for
retirement plan accounts and portfolio accounting fees.
21
<PAGE>
SUMMARY OF OPERATING RESULTS
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
% OF % OF % OF
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
---------- --------- ---------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Investment management fees.................... $ 137,823 48.0% 117,784 48.7 101,466 45.9
Underwriting and distribution fees............ 106,615 37.1 89,427 37.0 85,837 38.9
Shareholder service fees...................... 33,808 11.8 30,763 12.7 28,378 12.8
---------- --------- ---------- --------- ---------- ---------
Total operating revenues...................... 278,246 96.9 237,974 98.4 215,681 97.6
Investment and other income................... 9,043 3.1 3,798 1.6 5,295 2.4
---------- --------- ---------- --------- ---------- ---------
Total revenue................................. 287,289 100.0 241,772 100.0 220,976 100.0
OPERATING EXPENSES:
Underwriting and distribution................. 99,575 34.6 79,995 33.1 78,915 35.7
Compensation and related costs................ 31,512 11.0 26,618 11.0 21,913 9.9
General and administrative.................... 8,551 3.0 15,826 6.5 10,180 4.6
Depreciation.................................. 1,892 0.7 1,307 0.6 1,758 0.8
---------- --------- ---------- --------- ---------- ---------
Total operating expense....................... 141,530 49.3 123,746 51.2 112,766 51.0
OTHER ITEMS:
Interest expense.............................. 704 0.2 0 0.0 0 0.0
Amortization of goodwill...................... 2,903 1.0 2,903 1.2 2,903 1.3
---------- --------- ---------- --------- ---------- ---------
Total expense................................. 145,137 50.5 126,649 52.4 115,669 52.3
---------- --------- ---------- --------- ---------- ---------
Income before affiliated items and income
taxes....................................... $ 142,152 49.5% 115,123 47.6 105,307 47.7
---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------
</TABLE>
Total operating revenues increased $40.3 million or 17% to $278.2 million in
1998 compared to 1997. This growth follows a $22.3 million or 10% increase from
1996 to 1997. Total revenues, which include investment and other income, were
$287.3 million in 1998, a 19% increase from 1997. Total revenues in 1997 were 9%
higher than in 1996. Income before affiliated items and income taxes increased
23% to $142.2 million in 1998 following a 9% increase from 1996 to 1997. Income
before affiliated items and income taxes as a percentage of revenue was 49.5%,
47.6% and 47.7% in 1998, 1997, and 1996, respectively. In 1997, nonrecurring
charges, as explained in "general and administrative expense" herein, reduced
net income by $4.4 million.
INVESTMENT MANAGEMENT FEES
Investment management fees are earned for providing investment advisory
services to the Funds and institutional accounts. Investment management fees in
1998 were $137.8 million, a 17% increase over 1997. The increase in management
fees was due to growth in assets related to market performance. Average assets
under management were $25.6 million for 1998, an increase of 20% compared with
1997. The asset growth rate exceeded the rate of increase in management fees due
primarily to two factors. First, certain mutual funds have breakpoints in their
fee schedules which provide for reduced fee rates as assets grow resulting in a
slower rate of growth in revenues than growth in assets. Secondly, institutional
assets, which generally have a lower management fee rate than mutual funds,
constituted a higher percentage of total assets for 1998. Management fee
revenues in 1997 were 16% higher than in 1996, while average assets were up 12%.
The percentage of institutional assets to total assets was lower in 1997 than in
1996 resulting in revenue growth exceeding asset growth in 1997.
22
<PAGE>
UNDERWRITING AND DISTRIBUTION FEES
Underwriting and distribution fees are comprised of commissions charged on
sales of front-load mutual funds, variable products and insurance products and
Rule 12b-1 distribution fees and contingent deferred sales charges from back-end
load funds. Underwriting and distribution fees in 1998 increased 19% to $106.6
million. The higher fees are primarily due to increases in sales of front-load
investment products and Rule 12b-1 distribution fees. Sales of front-load
investment products were up 17% from 1997 to $1.6 billion. Distribution revenue,
which consists primarily of Rule 12b-1 distribution fees from the W&R Funds,
increased 36% from $6.5 million in 1997 to $8.8 million in 1998 due to growth in
assets of these funds. Underwriting and distribution fee revenue was $89.4
million for 1997, up $3.6 million or 4% compared with that of 1996. Commission
revenues from front-load investment products increased $1.4 million from $67.0
million in 1996 to $68.4 million in 1997 primarily as a result of higher sales
volumes. Distribution revenue, which consists primarily of Rule 12b-1
distribution fees from the W&R Funds, increased from $4.7 million in 1996 to
$6.5 million in 1997 due to growth in assets of these funds.
SHAREHOLDER SERVICE FEES
Shareholder service fees include transfer agency fees, custodian fees from
retirement plan accounts and portfolio accounting fees. The transfer agency fees
and custodian fees, which comprised 94% of the service fee revenues in 1998, are
primarily based on annual charges per account and fluctuate based on the number
of accounts. In 1998, shareholder service fees increased 10% to $33.8 million
due primarily to an 8% increase in the average number of accounts. A fee
increase in the fourth quarter of 1998, coinciding with the outsourcing of the
data processing component of transfer agency activities, caused the increase in
revenues to exceed the increase in number of accounts serviced. In 1997,
shareholder service fees increased 8% from 1996 to $30.8 million. The average
number of accounts serviced increased 6% during this period. The growth in
revenues exceeded the growth in the number of accounts due to the impact of a
full twelve months of a fee increase implemented in the second quarter of 1996.
UNDERWRITING AND DISTRIBUTION EXPENSE
Underwriting and distribution expense includes costs associated with the
marketing, promotion, and distribution of the Company's products. The primary
costs are compensation paid to financial advisors, sales management and other
marketing personnel plus expenses relating to field offices, sales programs and
advertising. Underwriting and distribution expense for 1998 was $99.6 million,
an increase of $19.6 million or 24% compared with 1997. These costs were higher
than 1997 due primarily to growth in sales volume, an additional $1.5 million of
costs related to an advertising campaign that was implemented during the fourth
quarter of 1998, and an increase of approximately $2.0 million related to
enhancements to field compensation that were effective July 1, 1998. In 1997,
underwriting and distribution expenses increased to $80.0 million, a 1% increase
from 1996. Most of the increase in underwriting and distribution costs was
attributable to selling commissions and other costs associated with higher sales
levels.
COMPENSATION AND RELATED COSTS
Compensation and related costs were up 18% to $31.5 million in 1998 due to
normal increases in compensation and staff additions, primarily in investment
management and shareholder services operations. Management plans to hire
additional staff in 1999, particularly in the investment management and
shareholder services operations, as part of a continuing effort to enhance
investment performance and improve shareholder services. Compensation and
related costs in 1997 of $26.6 million were up $4.7 million or 21% compared with
those of 1996. The increase was attributable to additional expenses of $1.5
million related to staff additions and normal salary and fringe benefit changes,
$1.3 million for incentive compensation and adjustments of $1.9 million to make
total compensation more competitive with the industry generally.
23
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense, which reflects operating costs other
than compensation and marketing was down 46% to $8.6 million for 1998 due
primarily to non-recurring charges of $6.8 million in 1997 related to the
outsourcing of the data processing component of transfer agency activities and
the discontinuation of internally developed systems. General and administrative
expense was $15.8 million in 1997, a $5.6 million or 55% increase from that of
1996 due to the $6.8 million non-recurring charges. This increase was partially
offset by lower expenses of $2.2 million in 1997 for year 2000 compliance as
compared to 1996.
INVESTMENT AND OTHER INCOME
Investment and other income increased $5.2 million to $9.0 million in 1998
due to the investment of operating cash flows. Average invested cash and
marketable securities were $144.8 million in 1998 and $82.4 million in 1997.
Investment and other income declined in 1997 from 1996 by $1.5 million due to
the timing of dividend and note payments to Torchmark.
DEPRECIATION
Depreciation of property and equipment increased by $.6 million from 1997
due to additions totaling $7.6 million in late 1998. Depreciation expense
declined $.5 million in 1997 from 1996 due to certain fixed assets becoming
fully depreciated during the year.
INTEREST EXPENSE
Until the third quarter of 1998, the Company had not used debt financing as
a source of capital, and therefore did not incur interest expense. In the third
quarter of 1998, the Company obtained a $200 million credit facility, expandable
to $300 million. During the fourth quarter, $40 million was borrowed against the
facility to fund share repurchases. Interest expense associated with these
borrowings was $.3 million. Costs to establish the facility of $.4 million were
incurred in the third quarter of 1998.
AFFILIATED INTEREST INCOME AND EXPENSE
Prior to the Offering, the Company had various notes payable and notes
receivable with Torchmark and certain subsidiaries of Torchmark. The affiliated
interest income and expense as reported in the consolidated statement of
operations pertain to these notes and were prepaid with proceeds from the
Offering.
INCOME TAXES
The Company's effective income tax rate was 38.2%, 39.0%, and 38.9% in 1998,
1997, and 1996, respectively. The rate declined in 1998 due primarily to
investments in tax-exempt municipal securities.
FINANCIAL CONDITION
At December 31, 1998, the Company's total assets were $327.2 million, down
$119.8 million from December 31, 1997. The decrease in total assets was
primarily related to the prepayment of notes receivable from Torchmark
Corporation that coincided with the closing of the Company's Offering in March
1998. Net proceeds from the sale of 23.9 million shares were $516 million of
which the Company retained approximately $35 million. The remainder of the
proceeds were used to prepay notes to Torchmark. During the third and fourth
quarters, the Company repurchased 3.6 million shares of its common stock at a
total cost of $74.8 million. A $200 million credit facility, expandable to $300
million, was utilized to fund $40.0 million of the repurchases. At December 31,
1998, the Company's outstanding debt, including principal and accrued interest
was $40.1 million. The average interest rate on the amount
24
<PAGE>
outstanding at December 31, 1998 was 5.94%. Interest and related costs related
to the facility were $.7 million during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased $16.4 million to $78.7
million for 1998. Net cash used for investments in 1998 was $97.7 million. Prior
to 1998, cash from operations was paid to Torchmark as dividends. At December
31, 1998, the Company had $133.3 million in cash and marketable investment
securities, of which $10.8 million was restricted for the benefit of customers
in compliance with securities industry regulations. Cash and marketable
securities at December 31, 1997 were $92.8 million, of which $14.9 million was
restricted. A $200 million revolving credit facility, expandable to $300
million, was available to the Company at December 31, 1998, with an amount
borrowed and outstanding of $40.0 million. During 1998, the Company repurchased
1.2 million shares of Class A and 2.4 million shares of Class B Common Stock,
the combined cost of which was $74.8 million.
The Company has decided on a plan to expand existing home office facilities
at an estimated cost of $12 million. This expansion is expected to commence in
1999 and be completed in late 2000. The costs of this expansion will be financed
by invested cash, operating cash flow and/or the use of the Credit Facility.
Management believes its available cash, marketable securities, and expected
cash flow from operations will be sufficient to fund dividends, operations,
advance sales commissions, obligations, and other reasonably foreseeable cash
needs. The Company may also continue to repurchase shares of its common stock
from time to time as management deems appropriate. The share repurchases could
be financed by the Company's available cash and investments and/or the use of
the Credit Facility.
SUBSEQUENT EVENTS
From January 1, 1999 to March 8, 1999, the Company repurchased an additional
.3 million shares of Class A Common Stock and 1.2 million shares of Class B
Common Stock under its stock repurchase program. The average price per share was
$19.82. The total cost of these repurchases was $28.9 million. The repurchases
were partially funded by borrowing $20 million against the Credit Facility.
During 1999, the Company intends to submit a proposal to restructure the
management fee arrangements of the Funds to the shareholders of the United, W&R
and Target Funds. This proposal, if approved by the Funds' shareholders, will
replace the "group" fee structure and "specific fund" add-on fee with a specific
fee schedule for each Fund. The Funds' fee schedules under the proposal would
include breakpoints at which fee rates will decline as assets increase. If
approved by the Funds' shareholders, the Funds' fee schedules generally would
more closely conform with others in the mutual fund industry. Under the
proposal, the overall management fee rates for some Funds would increase, some
would decrease and some would be waived until the net assets in a Fund reached
certain levels. The overall impact to the Company would be an increase in
management fee rates of approximately .06%. There can be no assurance that the
Funds' shareholders will approve the restructuring of the management fee
arrangements with respect to any one or more of the Funds.
RECENT ACCOUNTING DEVELOPMENTS
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and unrealized
gains (losses) on available-for-sale securities and is presented in a separate
statement of comprehensive income. SFAS No. 130 requires only additional
disclosures in the financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial statements
have been presented to conform to the requirements of SFAS No. 130.
25
<PAGE>
The Company adopted SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND
OTHER POSTRETIREMENT BENEFITS, on January 1, 1998. SFAS No. 132 requires only
additional disclosures in the footnotes to the financial statements regarding
pension and other postretirement benefits. It does not affect the Company's
financial position or results of operations. Prior year disclosures have been
presented to conform to the requirements of SFAS No. 132.
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 Company believes that is 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 is currently in the process of modifying, upgrading and replacing
major systems that have been assessed as adversely affected, and expects to
complete this process before the occurrence of any material disruption of its
business. However, there can be no assurance in this regard.
Internal and external resources are being used to make the required
modifications and test Year 2000 compliance. The Company estimates that its
compliance activities will be completed no later than the first quarter of 1999
for all mission critical items and no later than the third quarter of 1999 for
all medium and low risk items and estimates that the total costs of this effort
will be $4.4 million for the five year period ending June 30, 2000. Total costs
incurred through year end are approximately $3.4 million.
The Year 2000 Problem also affects some of the Company's vendors and
suppliers of data, computers, software and other equipment. The Company has been
actively contacting all 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 expects to identify and resolve all Year 2000 Problems that
could materially 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 for 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.
The Company is developing contingency plans to minimize the impact of
potential Year 2000 Problems on its mission critical systems. The Company
expects to complete its contingency plans by the end of third quarter 1999.
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 impacted by, among other things,
the availability and cost of programming and testing resources, vendor ability
to modify proprietary software and unanticipated problems identified in the
ongoing compliance review.
26
<PAGE>
SEASONABILITY AND INFLATION
The Company does not believe its operations are subject to significant
seasonal fluctuations. The Company does not believe that inflation has had a
significant impact on operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Company for this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements referred to in
the Index on page A-1 setting forth the consolidated financial statements of the
Company, together with the report of KPMG LLP dated March 1, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any matter of accounting principles or
practices or financial statement disclosure have been reported on a Form 8-K
within the twenty-four months prior to the date of the most recent financial
statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 appears in the definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders and is
incorporated by reference in this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. Reference is made to the Index to Consolidated
Financial Statements on page A-1 for a list of all financial statements
filed as part of this Report.
(a)(2) Financial Statement Schedules. None.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the fourth quarter of 1998.
(c) Exhibits. Reference is made to the Index to Exhibits on page B-1 for a
list of all exhibits filed as part of this Report.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Overland Park, State of Kansas, on March 19, 1999.
<TABLE>
<S> <C> <C>
WADDELL & REED FINANCIAL, INC.
By: /s/ KEITH A. TUCKER
-----------------------------------------
Keith A. Tucker
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- - ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ KEITH A. TUCKER Chief Executive Officer
- - ------------------------------ and Director (Principal March 19, 1999
Keith A. Tucker Executive and Financial
Officer)
/s/ HENRY J. HERRMANN President, Chief
- - ------------------------------ Investment Officer, March 19, 1999
Henry J. Herrmann Treasurer and Director
/s/ ROBERT L. HECHLER Chief Operating Officer,
- - ------------------------------ Executive Vice President March 19, 1999
Robert L. Hechler and Director
/s/ MICHAEL D. STROHM Senior Vice President
- - ------------------------------ (Principal Accounting March 19, 1999
Michael D. Strohm Officer)
/s/ HAROLD T. MCCORMICK*
- - ------------------------------ Director March 19, 1999
Harold T. McCormick
/s/ LOUIS T. HAGOPIAN*
- - ------------------------------ Director March 19, 1999
Louis T. Hagopian
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- - ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ R.K. RICHEY*
- - ------------------------------ Director March 19, 1999
R.K. Richey
/s/ JOSEPH L. LANIER, JR.*
- - ------------------------------ Director March 19, 1999
Joseph L. Lanier, Jr.
/s/ WILLIAM L. ROGERS*
- - ------------------------------ Director March 19, 1999
William L. Rogers
/s/ JAMES M. RAINES*
- - ------------------------------ Director March 19, 1999
James M. Raines
/s/ GEORGE J. RECORDS, SR.*
- - ------------------------------ Director March 19, 1999
George J. Records, Sr.
/s/ DAVID L. BOREN*
- - ------------------------------ Director March 19, 1999
David L. Boren
/s/ JOSEPH M. FARLEY*
- - ------------------------------ Director March 19, 1999
Joseph M. Farley
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DANIEL C. SCHULTE
-------------------------
Daniel C. Schulte March 19, 1999
ATTORNEY-IN-FACT
</TABLE>
29
<PAGE>
WADDELL & REED FINANCIAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Waddell & Reed Financial, Inc.:
Independent Auditors' Report............................................................................. A-2
Consolidated Balance Sheets at December 31, 1998 and December 31, 1997................................... A-3
Consolidated Statements of Operations for each of the years in the three-year period ended December 31,
1998................................................................................................... A-5
Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period
ended December 31, 1998................................................................................ A-6
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended
December 31, 1998...................................................................................... A-7
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,
1998................................................................................................... A-8
Notes to Consolidated Financial Statements............................................................... A-9
</TABLE>
A-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Waddell & Reed Financial, Inc.:
We have audited the accompanying consolidated balance sheets of Waddell &
Reed Financial, Inc. and subsidiaries, as of December 31, 1998 and 1997 and the
related statements of operations, changes in stockholders' equity, comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Waddell &
Reed Financial, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Kansas City, Missouri
March 1, 1999
A-2
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents............................................................... $ 30,180 73,820
Investment securities, available-for-sale............................................... 103,153 18,977
Receivables:
United Funds and W&R Funds............................................................ 5,740 4,031
Customers and other................................................................... 28,865 11,840
Due from affiliates..................................................................... -- 17,232
Deferred income taxes................................................................... 1,309 1,241
Prepaid expenses and other current assets............................................... 3,222 2,991
---------- ----------
Total current assets.................................................................. 172,469 130,132
Due from affiliates..................................................................... -- 175,450
Property and equipment, net............................................................. 17,685 12,058
Investment in real estate............................................................... 24,718 17,544
Deferred sales commissions, net......................................................... 15,710 12,316
Goodwill (net of accumulated amortization of $20,382 and $17,479)....................... 95,928 98,831
Other assets............................................................................ 669 633
---------- ----------
Total assets.......................................................................... $ 327,179 446,964
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Current liabilities:
Accounts payable........................................................................ $ 28,304 22,929
Due to affiliates....................................................................... -- 102,459
Accrued salesforce compensation......................................................... 11,916 8,666
Short term notes payable................................................................ 40,076 --
Income taxes payable.................................................................... 13,464 3,314
Other current liabilities............................................................... 16,034 18,525
---------- ----------
Total current liabilities............................................................. 109,794 155,893
---------- ----------
Due to affiliates....................................................................... -- 509,186
Deferred income taxes................................................................... 208 2,246
Accrued pensions and post-retirement costs.............................................. 10,041 9,530
---------- ----------
Total liabilities..................................................................... 120,043 676,855
---------- ----------
Stockholders' equity:
Common stock ($.01 par value; 150,000,000 class A shares authorized, 32,142,174 issued
and 30,906,445 outstanding and 100,000,000 class B shares authorized, 34,325,000
issued and 31,911,956 outstanding December 31, 1998; 7,975,000 class A shares
authorized, issued and outstanding 34,325,000 class B shares authorized, issued and
outstanding December 31, 1997)........................................................ 665 423
Additional paid-in capital.............................................................. 246,271 --
Retained earnings....................................................................... 47,325 --
Dividends in excess of retained earnings and additional paid-in capital................. -- (230,658)
Deferred compensation................................................................... (12,494) --
Treasury stock (1,235,729 class A shares and 2,413,044 class B shares).................. (74,833) --
Accumulated other comprehensive income, net of
deferred taxes of $122 and $212....................................................... 202 344
---------- ----------
Total stockholders' equity............................................................ 207,136 (229,891)
---------- ----------
Commitments, contingencies and subsequent events
Total liabilities and stockholders' equity................................................ $ 327,179 446,964
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER
SHARE DATA)
<S> <C> <C> <C>
Revenue:
Investment management fees............................................... $ 137,823 117,784 101,466
Underwriting and distribution fees....................................... 106,615 89,427 85,837
Shareholder service fees................................................. 33,808 30,763 28,378
Investment and other revenue............................................. 9,043 3,798 5,295
---------- --------- ---------
Total revenue.......................................................... 287,289 241,772 220,976
---------- --------- ---------
Expenses:
Underwriting and distribution............................................ 99,575 79,995 78,915
Compensation and related costs........................................... 31,512 26,618 21,913
General and administrative............................................... 8,551 15,826 10,180
Depreciation............................................................. 1,892 1,307 1,758
Amortization of goodwill................................................. 2,903 2,903 2,903
Interest expense......................................................... 704 -- --
---------- --------- ---------
Total expenses......................................................... 145,137 126,649 115,669
---------- --------- ---------
Income before affiliated items and provision for income taxes.......... 142,152 115,123 105,307
Affiliated items:
Interest income.......................................................... 1,950 11,323 4,072
Interest expense......................................................... (8,604) (11,299) (186)
---------- --------- ---------
Income before provision for income taxes............................... 135,498 115,147 109,193
Provision for income taxes................................................. 51,763 44,855 42,493
---------- --------- ---------
Net income............................................................. 83,735 70,292 66,700
---------- --------- ---------
---------- --------- ---------
Net income per share:
Basic and diluted........................................................ $ 1.27 $ 1.06 $ 1.00
---------- --------- ---------
---------- --------- ---------
Weighted average shares outstanding--basic and diluted..................... 66,179 66,467 66,467
Dividends declared per common share........................................ $ 0.40 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
A-5
<PAGE>
WADDELL & REED FINANCIAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
DIVIDENDS
IN EXCESS
OF RETAINED
EARNINGS
AND
COMMON STOCK ADDITIONAL ADDITIONAL
---------------------- PAID-IN RETAINED PAID-IN DEFERRED TREASURY
SHARES AMOUNT CAPITAL EARNINGS CAPITAL COMPENSATION STOCK
--------- ----------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... 42,300 $ 423 203,958 13,561 -- -- --
Net income........................... -- -- -- 66,700 -- -- --
Contributions from parent............ -- -- 121,358 -- -- -- --
Other distributions.................. -- -- (93,348) (70,261) -- -- --
Cash dividends to parent............. -- -- -- (10,000) -- -- --
Unrealized loss on investment
securities......................... -- -- -- -- -- -- --
--------- ----- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1996......... 42,300 423 231,968 -- -- -- --
Net income........................... -- -- -- 70,292 -- -- --
Contributions from parent............ -- -- 47,980 -- -- -- --
Other distributions.................. -- -- (279,948) (18,627) (230,658) -- --
Cash dividends to parent............. -- -- -- (51,665) -- -- --
Unrealized gain on investment
securities......................... -- -- -- -- -- -- --
--------- ----- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1997......... 42,300 423 -- -- (230,658) -- --
Net income........................... -- -- -- 73,712 10,023 -- --
Issuance of restricted shares........ 297 3 5,260 -- -- (12,494) --
IPO proceeds......................... 23,870 239 295,140 -- 220,635 -- --
Dividends paid....................... -- -- -- (26,387) -- -- --
Other distributions.................. -- -- (54,129) -- -- -- --
Treasury stock repurchases........... (3,649) -- -- -- -- -- (74,833)
Unrealized loss on investment
securities......................... -- -- -- -- -- -- --
--------- ----- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1998 62,818 $ 665 246,271 47,325 -- (12,494) (74,833)
--------- ----- ----------- ----------- ----------- ------------- -----------
--------- ----- ----------- ----------- ----------- ------------- -----------
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCKHOLDER'S
COMPREHENSIVE EQUITY
INCOME (DEFICIT)
--------------- ------------
<S> <C> <C>
Balance at December 31, 1995......... 264 218,206
Net income........................... -- 66,700
Contributions from parent............ -- 121,358
Other distributions.................. -- (163,609)
Cash dividends to parent............. -- (10,000)
Unrealized loss on investment
securities......................... (100) (100)
----- ------------
Balance at December 31, 1996......... 164 232,555
Net income........................... -- 70,292
Contributions from parent............ -- 47,980
Other distributions.................. -- (529,233)
Cash dividends to parent............. -- (51,665)
Unrealized gain on investment
securities......................... 180 180
----- ------------
Balance at December 31, 1997......... 344 (229,891)
Net income........................... -- 83,735
Issuance of restricted shares........ -- (7,231)
IPO proceeds......................... -- 516,014
Dividends paid....................... -- (26,387)
Other distributions.................. -- (54,129)
Treasury stock repurchases........... -- (74,833)
Unrealized loss on investment
securities......................... (142) (142)
----- ------------
Balance at December 31, 1998 202 207,136
----- ------------
----- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-6
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income.......................................................................... $ 83,735 70,292 66,700
Other comprehensive income:
Net unrealized appreciation (depreciation) of investments during the period, net
of income taxes of $(150), $110 and $(35)....................................... (249) 180 (100)
Reclassification adjustment for amounts included in net income, net of income
taxes of $64, $0 and $0......................................................... 107 -- --
--------- --------- ---------
Comprehensive income.............................................................. $ 83,593 70,472 66,600
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
A-7
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 83,735 70,292 66,700
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 4,795 4,210 4,661
Recognition of deferred compensation...................................... 1,333 -- --
Loss on sale of investments............................................... 171 -- --
Loss on sale and retirement of fixed assets............................... 75 65 311
Capital gains and dividends reinvested.................................... (399) (78) (60)
Deferred income taxes..................................................... (1,988) 27 827
Changes in assets and liabilities:
Receivables from funds.................................................. (1,709) (452) 1,172
Other receivables....................................................... (23,818) (1,195) 2,725
Due to/from affiliates--operating....................................... 4,509 (4,217) 1,703
Other assets............................................................ (3,661) (5,383) (9,913)
Accounts payable........................................................ 5,375 (1,883) (252)
Other liabilities....................................................... 10,237 898 18,369
----------- --------- ----------
Net cash provided by operating activities..................................... 78,655 62,284 86,243
----------- --------- ----------
Cash flows from investing activities:
Additions to investment securities.......................................... (110,652) (40) (116)
Proceeds from sales of investment securities................................ 24,020 1 --
Proceeds from maturity of investment securities............................. 2,424 1,260 1,355
Purchase of property and equipment.......................................... (7,602) (3,218) (1,689)
Investment in real estate................................................... (5,913) -- (298)
Other....................................................................... 7 50 18
----------- --------- ----------
Net cash used in investing activities......................................... (97,716) (1,947) (730)
----------- --------- ----------
Cash flows from financing activities:
Cash dividends to parent.................................................... -- (51,665) (10,000)
Proceeds from IPO........................................................... 516,014 --
Notes payable............................................................... 40,000 -- --
Cash dividends.............................................................. (26,387) -- --
Change in due to/from affiliates--nonoperating.............................. (479,373) (37,888) (170,016)
Purchase of treasury stock.................................................. (74,833) -- --
Cash contributions from parent.............................................. -- 44,033 111,718
----------- --------- ----------
Net cash used in financing activities......................................... (24,579) (45,520) (68,298)
----------- --------- ----------
Net increase (decrease) in cash and cash equivalents.......................... (43,640) 14,817 17,215
Cash and cash equivalents at beginning of year................................ 73,820 59,003 41,788
----------- --------- ----------
Cash and cash equivalents at end of year...................................... $ 30,180 73,820 59,003
----------- --------- ----------
----------- --------- ----------
Cash paid for:
Income taxes................................................................ $ 48,830 65,754 43,667
Interest.................................................................... 628 -- --
</TABLE>
See accompanying notes to consolidated financial statements
A-8
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION
BUSINESS
Waddell & Reed Financial, Inc. and subsidiaries (the "Company") derive their
revenues primarily from investment management, investment product distribution,
and shareholder services administration provided to the United mutual funds,
Waddell & Reed mutual funds, Target/United mutual funds collectively ("the
Funds") and managed institutional accounts. The Funds and institutional accounts
operate under various rules and regulations set forth by the Securities and
Exchange Commission (the "Commission"). Services to the Funds are provided under
contracts that set forth the fees to be charged for these services. The majority
of these contracts are subject to annual review and approval by each Fund's
Board of Directors and shareholders. Company revenues are largely dependent on
the total value and composition of assets under management, which include
domestic and international equity and debt securities, accordingly, fluctuations
in financial markets and composition of assets under management impact revenues
and results of operations. For 1998, management fees from the United Income fund
were $39.8 million or 14% of total revenues. The United Income Fund had a market
value of $7.8 billion at December 31, 1998.
Prior to December 1997, the Company was known as United Investors Management
Company. In the first quarter of 1998, the insurance operations of the Company,
United Investors Life Insurance Company, were distributed to Torchmark
Corporation and a subsidiary of Torchmark (together, "Torchmark"). The Company
was wholly owned by Torchmark until March 4, 1998, when the Company completed
the initial public offering ("Offering") of its Class A common stock, with the
Company realizing net proceeds of approximately $516 million. Approximately $481
million of the proceeds were used to prepay notes payable to Torchmark. After
giving effect to the Offering and prior to November 6, 1998, Torchmark
controlled in excess of 60% of the outstanding Class A and Class B common stock,
and in excess of 80% of the voting power of the outstanding Class A and Class B
common stock of the Company. 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 common stock of the Company held by
Torchmark.
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company
and its subsidiaries for all periods presented. All significant intercompany
accounts and transactions are eliminated in consolidation. Amounts in the
accompanying financial statements and notes are rounded to the nearest thousand.
Certain amounts in the prior year financial statements have been reclassified to
conform to the 1998 presentation.
USE OF ESTIMATES
The management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
A-9
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION
(CONTINUED)
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Given the nature of the Company's assets and liabilities, the Company
believes the amounts in the financial statements approximate fair value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term investments.
The Company considers all highly liquid debt instruments with original
maturities of ninety days or less to be cash equivalents.
INVESTMENT SECURITIES AND INVESTMENT IN AFFILIATED MUTUAL FUNDS
All investments in debt securities and mutual funds are classified as
available-for-sale. As a result, these investments are recorded at fair value.
Unrealized holding gains and losses, net of related tax effects, are excluded
from earnings until realized and are reported as a separate component of
comprehensive income. Realized gains and losses are computed using the specific
identification method for investment securities other than mutual funds. For
mutual funds, realized gains and losses are computed using the average cost
method.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATIONS OF CREDIT RISK, consist primarily of investments in U.S.
government and agency securities, municipal securities, corporate securities,
and affiliated money market and fixed income mutual funds and accounts
receivable. Credit risk is believed to be minimal in that the U.S. government
and agency securities are backed by the full faith and credit of the U.S.
government, municipal securities are backed by the full taxing power of the
issuing municipality or revenues from a specific project, corporate bonds are
backed by the assets of the corporations, and the affiliated mutual funds have
substantial net assets.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and unrealized
gains (losses) on available-for-sale securities and is presented in a separate
statement of comprehensive income. SFAS No. 130 requires only additional
disclosures in the financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial statements
have been presented to conform to the requirements of SFAS No. 130.
PROPERTY AND EQUIPMENT AND INVESTMENT IN REAL ESTATE
Property and equipment and investment real estate are carried at cost.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets.
A-10
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION
(CONTINUED)
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, arose in connection with the acquisition of the Company by
Torchmark. Amortization is on a straight-line basis over forty years. The
Company assesses the recoverability of goodwill by determining whether the
unamortized balance can be recovered through undiscounted future operating cash
flows over its remaining life. Impairment, if any, is measured by the excess of
the unamortized balance over discounted future operating cash flows.
DEFERRED SALES COMMISSIONS
The Company defers certain costs, principally selling commissions, which are
paid to financial advisors in connection with the sale of the Class B shares of
the Waddell & Reed funds, which do not charge a commission at the time of the
sale. These costs are amortized on a straight-line basis over the estimated life
of shareholder investments not to exceed ten years. The Company recovers such
costs through 12b-1 distribution fees, which are paid by the Waddell & Reed
funds and a contingent deferred sales charge paid by shareholders who redeem
their shares prior to completion of the required holding periods.
RETIREMENT PLAN AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company adopted SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND
OTHER POSTRETIREMENT BENEFITS, on January 1, 1998. SFAS No. 132 requires only
additional disclosures in the footnotes to the financial statements regarding
pension and other postretirement benefits. It does not affect the Company's
financial position or results of operations. Prior year disclosures have been
presented to conform to the requirements of SFAS No. 132.
REVENUE RECOGNITION
Investment advisory and administrative service fees are recognized when
earned. Commission revenues and expenses (and related receivables and payables)
resulting from securities transactions are recorded on the date on which the
order to buy or sell securities is executed.
ADVERTISING
Advertising costs are expensed as incurred. Amounts incurred were
$2,845,000, $1,046,000 and $841,000 for 1998, 1997 and 1996, respectively.
EARNINGS PER SHARE
Earnings per share are calculated in accordance with SFAS No. 128 "Earnings
Per Share", which requires that both basic and diluted earnings per share be
presented. Diluted amounts are computed to reflect the potential impact of stock
options and restricted stock awards. The weighted average number of shares
outstanding was 65,787,000, 66,467,000 and 66,467,000 for 1998, 1997 and 1996
respectively. The weighted average number of shares used in computing diluted
earnings per share was 66,179,000, 66,467,000 and 66,467,000 for 1998, 1997 and
1996, respectively. The average number of shares used for 1997 and 1996 is the
actual shares outstanding at the Offering.
A-11
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1998 and 1997 include reserves of
$10,810,000 and $14,943,000, respectively, for the benefit of customers in
compliance with securities industry regulations. Substantially all such reserves
are in excess of federal deposit insurance limits.
3. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE
Investments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1998 COST GAINS LOSSES VALUE
- - ---------------------------------------------- ---------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States government-backed mortgage
securities.................................. $ 2,944 50 -- 2,994
Municipal bonds............................... 47,030 1,300 (56) 48,274
Corporate bonds............................... 41,012 120 (1,125) 40,007
Preferred stock............................... 8,292 119 -- 8,411
Affiliated mutual funds....................... 3,547 25 (105) 3,467
---------- ----- ----------- ---------
$ 102,825 1,614 (1,286) 103,153
---------- ----- ----------- ---------
---------- ----- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- - ---------------------------------------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
United States government-backed mortgage
securities.................................. $ 4,749 86 -- 4,835
Municipal bonds............................... 12,723 422 (2) 13,143
Affiliated mutual funds....................... 949 50 -- 999
---------- ----- ----------- ---------
$ 18,421 558 (2) 18,977
---------- ----- ----------- ---------
---------- ----- ----------- ---------
</TABLE>
An investment maturity schedule for municipal and corporate bonds held as of
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Within one year.......................................................... $ -- $ --
One to five years........................................................ 17,276 17,581
After five years but within ten years.................................... 36,382 36,378
After ten years.......................................................... 34,384 34,322
----------- ---------
$ 88,042 88,281
----------- ---------
----------- ---------
</TABLE>
In 1998, investment securities with fair value of $6,983,000 were sold, which
resulted in realized losses of $171,000. There were no sales of securities in
1997 or 1996.
A-12
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT IN REAL ESTATE
A summary of investment in real estate at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1998 1997 LIVES
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land...................................................... $ 3,809 -- --
Buildings................................................. 20,909 -- 40 years
--------- ---------
Investment in real estate, at cost........................ 24,718 --
Less accumulated depreciation............................. -- --
--------- ---------
Investment real estate, net............................... $ 24,718 --
--------- ---------
--------- ---------
Investment in real estate limited partnership............. $ -- 17,544
--------- ---------
--------- ---------
</TABLE>
Effective January 1, 1997, the Company contributed its investment in real
estate, which consisted of commercial properties located adjacent to its offices
in Overland Park, Kansas to TMK Income Properties, LP ("TIP") in exchange for a
limited partnership interest in TIP. TIP is a limited partnership with Torchmark
affiliates that was formed for the purpose of acquiring, developing, and
managing real estate property. The property was transferred at its net book
value. Effective July 1, 1997, the Company contributed additional land and
improvements with a net book value of $5,113,000 for an additional 5% interest
in TIP. In late 1998, the Company ceased its participation in TIP. In exchange
for its partnership interest, the Company received the property which it had
originally contributed. Additionally, the Company paid TIP $5,913,000 for
improvements made to that property while it was in the partnership.
Real estate partnership income of $465,000 and $199,000 for the years ended
December 31, 1998 and 1997 and rental income of $1,682,000 for the year ended
December 31, 1996 is included in investment and other revenue. Depreciation
expense for the years ended December 31, 1998, 1997 and 1996 was $0, $18,000 and
$383,000, respectively.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1998 1997 LIVES
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land...................................................... $ 1,717 1,717 --
Building.................................................. 6,257 6,257 40 years
Furniture and fixtures.................................... 6,992 5,862 3-10 years
Equipment and machinery................................... 13,903 7,859 3-10 years
--------- ---------
Property and equipment, at cost........................... 28,869 21,695
Less accumulated depreciation............................. 11,184 9,637
--------- ---------
Property and equipment, net............................... $ 17,685 12,058
--------- ---------
--------- ---------
</TABLE>
A-13
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. REVOLVING CREDIT AGREEMENT
The Company entered into a $200 million revolving credit facility,
expandable to $300 million, on October 15, 1998 with a syndicate of nine banks.
The credit facility is a 364-day revolving facility at an interest rate of LIBOR
plus .35%. The facility is in place to provide an additional source of capital
to finance share repurchases, acquisitions and other general corporate needs. As
of December 31, 1998, the Company had borrowed $40 million on this facility,
which was used to repurchase the Company's stock that is held in treasury. The
credit agreement stipulates two financial condition covenants. The consolidated
leverage ratio cannot exceed 3.0 to 1.0 for four consecutive quarters. The
consolidated leverage ratio is defined as consolidated total debt to
consolidated earnings before interest costs, income taxes, depreciation and
amortization ("EBITDA"). The consolidated interest coverage ratio cannot be less
than 4.0 to 1.0 for four consecutive quarters. Consolidated interest coverage
ratio is defined as consolidated EBITDA to consolidated interest expense. The
Company was in compliance with the covenant provisions for 1998.
7. TRANSACTIONS WITH RELATED PARTIES
The Company serves as investment advisor to Torchmark and its affiliates and
receives advisory fees for this service. Advisory fees, which are based on
assets under management, amounted to $2,401,000, $1,241,000 and $1,037,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. These
commissions were earned under contracts, which have been renewed for 1999 with
substantially the same terms.
The Company earns commissions from Torchmark for marketing life and health
insurance products and variable annuities. For the years ended December 31,
1998, 1997 and 1996, the commissions amounted to $36,724,000, $30,612,000 and
$30,778,000, respectively. These commissions were earned under contracts, which
have been renewed for 1999 with substantially the same terms.
Prior to the Offering, Torchmark performed certain administrative services
for the Company. Charges for such services, which were allocated based on a
defined formula that allocated Torchmark's total costs for services provided
based on each affiliate's assets and compensation expense as a percentage of the
total affiliates assets and compensation expense. These charges were $2,008,000
and $2,189,000 for the years ended December 31, 1997 and 1996, respectively.
During 1998 no charges were made pertaining to these administrative services and
no future charges are expected since the Company is no longer an affiliate of
Torchmark.
Effective September 1997, Waddell & Reed Asset Management Company
("WRAMCO"), a subsidiary of the Company, was distributed to Torchmark at its net
book value of $2,977,000. WRAMCO provides investment management services to
institutional investors and privately managed accounts. Subsequent to the
distribution date, the Company provides investment advisory services to WRAMCO
and receives a fee based on assets under management.
At December 31, 1998, there were no amounts due from Torchmark other than
normal non-interest bearing amounts for current operating expenses and
commissions due from the sale of Torchmark products. At December 31, 1997,
current amounts due from affiliates included $11,672,000 of 5.5% demand notes
plus accrued interest. At December 31, 1997 the noncurrent amounts due from
affiliates included a $123,947,000 note receivable with an interest rate of 6%
from Torchmark, plus $1,239,000 of accrued interest. Also included in the
noncurrent portion at December 31, 1997 is a $40,000,000 note receivable with an
interest rate of 8.1% from Torchmark. During 1998, the proceeds from the
offering were used to prepay these notes. In 1997, amounts due from Torchmark
aggregating $38,124,000 were forgiven and charged against stockholders' equity.
The current amounts due to affiliates at December 31, 1997 include amounts
due for administrative services. Included in the 1997 noncurrent amounts due to
affiliates was a $123,947,000 note payable to
A-14
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Torchmark, plus $1,239,000 of accrued interest. This 6% note was prepaid with
the proceeds from the Offering.
On November 25, 1997, the Company declared a $480,000,000 dividend evidenced
by two 8% promissory notes to Torchmark and a subsidiary of Torchmark. Notes
aggregating $96,000,000 were due in 1998 and, accordingly, were classified in
the current portion of due to affiliates. The remaining $384,000,000 of these
notes were included in the long-term portion of due to affiliates. These notes
were prepaid with the proceeds from the Offering.
8. INCOME TAXES
The components of total income tax expense are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal.................................................... $ 46,845 38,939 36,197
State...................................................... 6,934 5,889 5,469
--------- --------- ---------
53,779 44,828 41,666
Deferred taxes............................................... (2,016) 27 827
--------- --------- ---------
Income tax expense from operations........................... $ 51,763 44,855 42,493
--------- --------- ---------
Stockholders' equity--unrealized gain (loss) on investment
securities available-for-sale............................... (86) 110 (36)
--------- --------- ---------
Total income taxes........................................... $ 51,677 44,965 42,457
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs............................................ $ (5,732) (4,680)
Fixed assets.......................................................... -- (824)
Other................................................................. (648) (500)
--------- ---------
Total gross deferred liabilities........................................ (6,380) (6,004)
--------- ---------
Deferred tax assets:
Benefit plans......................................................... 3,824 3,557
Accrued expenses...................................................... 2,674 1,442
Fixed assets.......................................................... 983 --
--------- ---------
Total gross deferred assets............................................. 7,481 4,999
--------- ---------
Net deferred tax asset (liability)...................................... $ 1,101 (1,005)
--------- ---------
--------- ---------
</TABLE>
A-15
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
A valuation allowance for deferred tax assets was not necessary at December
31, 1998 and 1997. The following table reconciles the statutory federal income
tax rate to the Company's effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate....................................... 35.0% 35.0 35.0
State income taxes, net of federal tax benefits......................... 3.3 3.3 3.1
Other items............................................................. (0.1) 0.7 0.8
--- --- ---
Effective income tax rate............................................... 38.2% 39.0 38.9
--- --- ---
--- --- ---
</TABLE>
9. RETIREMENT PLAN
The Company participates in a noncontributory retirement plan which covers
substantially all employees of the Company and certain vested former employees
of Torchmark. Benefits payable under the plan are based on employees' years of
service and compensation during the final ten years of employment.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year............................... $ 28,979 24,786
Service cost.......................................................... 1,612 1,511
Interest cost......................................................... 2,294 2,148
Actuarial loss........................................................ 2,733 2,431
Benefits paid......................................................... (4,364) (1,897)
--------- ---------
Benefit obligation at end of year..................................... $ 31,254 28,979
--------- ---------
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year........................ $ 25,689 23,483
Actual return on plan assets.......................................... 5,249 4,103
Company contribution.................................................. 1,492 --
Benefits paid......................................................... (4,364) (1,897)
--------- ---------
Fair value of plan assets at end of year.............................. $ 28,066 25,689
--------- ---------
--------- ---------
Funded status of plan................................................... $ (3,188) (3,290)
Unrecognized actuarial gain............................................. (3,097) (2,989)
Unrecognized prior service cost......................................... 673 717
Unrecognized net transition obligation.................................. 103 108
--------- ---------
Net amount recognized................................................... $ (5,509) (5,454)
--------- ---------
--------- ---------
</TABLE>
A-16
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RETIREMENT PLAN (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Weighted average assumptions as of December 31:
Discount rate......................................................... 6.75% 7.50%
Expected return on plan assets........................................ 9.25% 9.25%
Rate of compensation increase......................................... 3.75% 4.50%
Components of net periodic benefit cost:
Service cost.......................................................... $ 1,612 1,511
Interest cost......................................................... 2,294 2,148
Expected return on assets............................................. (2,407) (2,164)
Prior service cost amortization....................................... 44 44
Transition obligation amortization.................................... 5 5
--------- ---------
Net periodic benefit cost....................................... $ 1,548 1,544
--------- ---------
--------- ---------
</TABLE>
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors an unfunded defined benefit postretirement medical plan
that covers substantially all employees. The plan is contributory with retiree
contributions adjusted annually.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year............................... $ 1,142 872
Service cost.......................................................... 64 48
Interest cost......................................................... 92 68
Actuarial (gain) loss................................................. (85) 314
Retiree contributions................................................. 75 56
Benefits and expenses paid............................................ (137) (216)
--------- ---------
Benefit obligation at end of year..................................... $ 1,151 1,142
--------- ---------
--------- ---------
Change in plan assets:
Fair values of plan assets at beginning of year....................... -- --
Company contribution.................................................. 77 160
Retiree contributions................................................. 75 56
Benefits and expenses paid............................................ (152) (216)
--------- ---------
Fair value of plan assets at end of year.............................. $ -- --
--------- ---------
--------- ---------
Funded status........................................................... $ (1,151) (1,142)
Unrecognized loss....................................................... 62 102
Unrecognized prior service cost......................................... (175) (191)
--------- ---------
Accrued benefit cost at December 31................................... $ (1,264) (1,231)
--------- ---------
--------- ---------
</TABLE>
A-17
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
<TABLE>
<S> <C> <C>
Weighted average assumptions as of December 31:
Discount rate......................................................... 7.50% 7.50%
Components of net periodic benefit cost:
Service cost.......................................................... 64 48
Interest cost......................................................... 92 67
Unrecognized amortization of prior service cost....................... (15) (16)
Unrecognized net actuarial gain....................................... -- (2)
--------- ---------
Net periodic benefit cost............................................. $ 141 97
--------- ---------
--------- ---------
</TABLE>
For measurement purposes, the health care cost trend rate was 8% and 9% in 1998
and 1997, respectively. The effect of a 1% annual increase in assumed cost trend
rates would increase the December 31, 1998 accumulated postretirement benefit
obligation by approximately $1,375,000, and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 1998 by approximately $210,000. The effect of a 1%
annual decrease in assumed cost trend rates would decrease the December 31, 1998
accumulated postretirement benefit obligation by approximately $956,000, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1998 by
approximately $130,000.
11. SAVINGS AND INVESTMENT PLANS
The company has a savings and investment plan covering substantially all
employees. The plan provides for a matching corporate contribution of 50% of the
employee's investment in mutual fund shares and/or stock, not to exceed 3% of
the employee's salary.
The Company's contribution to the savings and investment plan for the years
ended December 31, 1998, 1997 and 1996 was $858,000, $716,000 and $641,000,
respectively.
12. EMPLOYEE STOCK OPTIONS
The Company has a fixed employee stock-based compensation plan ("Option
plan"), whereby the Company may grant options on its common stock. The exercise
price of each option is equal to the market price of the stock on the date of
grant. The maximum term of the options is ten years and generally vests
one-third in each of the three years starting one year after grant date. In
October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), which was effective for the Company beginning
January 1, 1996. SFAS No. 123 defines the "fair value method" of accounting for
employee stock options. It also allows accounting for such options under the
"intrinsic value method" in accordance with Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB No. 25) and related
interpretations. If a company elects to use the intrinsic value method, pro
forma disclosures of earnings and earnings per share are required as if the fair
value method of accounting was applied.
A-18
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE STOCK OPTIONS (CONTINUED)
Pursuant to SFAS No 123, the fair value of each option has been estimated
using a Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Dividend yield...................................................... 2.34%
Risk-free interest rate............................................. 5.20
Expected volatility................................................. 29.70
Expected life (in years)............................................ 4.70
</TABLE>
After the spin off from Torchmark, holders of Torchmark stock options
granted prior to 1998 were given a choice to retain their Torchmark options or
convert their options into options of the Company ("Conversion Options").
Employees and directors of the Company who held Torchmark options could elect to
convert all of their Torchmark options into Conversion Options. In total
3,694,100 Conversion Options were converted from Torchmark options. The
Conversion Options retained the same terms as the previous Torchmark options
except that the exercise price and the number of shares were adjusted so that
the aggregate intrinsic value of the options remained the same.
Prior to 1998, there were no Company stock options outstanding. A summary of
stock option activity and related information for the year ended December 31,
1998 follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding, beginning of year................................. -- --
Granted........................................................ 4,389,088 $ 22.63
Converted...................................................... 3,694,100 13.96
Exercised...................................................... -- --
Expired........................................................ -- --
---------- ------
Outstanding, end of year....................................... 8,083,188 $ 18.67
---------- ------
Exercisable, end of year....................................... 2,957,826 $ 14.42
---------- ------
---------- ------
</TABLE>
The range of fair values of options granted during the year was $4.78 to
$7.43, with a weighted average fair value of $5.75.
Had compensation cost for the options granted in 1998 been determined on the
basis of fair value pursuant to SFAS No. 123, net income and earnings per share
would have been reduced as follows:
<TABLE>
<S> <C>
Net income
As reported...................................................... $ 83,735
Pro forma........................................................ $ 79,744
Basic and diluted earnings per share...............................
As reported...................................................... $ 1.27
Pro forma........................................................ $ 1.21
</TABLE>
A-19
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. UNIFORM CAPITAL RULE REQUIREMENTS
Waddell & Reed, Inc. ("W&R") a subsidiary of the Company, is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. and is therefore subject to a requirement of the Commission's Uniform Net
Capital Rule, requiring the maintenance of certain minimal capital levels. At
December 31, 1998, W&R had net capital, as defined by the Uniform Capital Rule,
of $11,582,000 which is $8,247,000 in excess of the required net capital.
14. COMMITMENTS AND CONTINGENCIES
RENTAL EXPENSE AND LEASE COMMITMENTS
The Company rents certain sales and other office space under long-term
operating leases. Rent expense was $4,937,000, $4,397,000 and $3,824,000 for the
years ended, December 31, 1998, 1997 and 1996, respectively. Future minimum
rental commitments under noncancelable operating leases are as follows:
Minimum remaining rental commitment years ended December 31 in thousands:
<TABLE>
<S> <C>
1999................................................................ $ 3,564
2000................................................................ 1,603
2001................................................................ 805
2002................................................................ 427
2003................................................................ 186
Thereafter.......................................................... --
---------
$ 6,585
---------
---------
</TABLE>
New leases are expected to be executed as existing leases expire. Thus,
future minimum lease commitments are not expected to be less than those in 1999.
CONTINGENCIES
From time to time, the Company is a party to various claims arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, it is unlikely that any adverse determination in one or more
pending claims would have a material adverse effect on the Company's financial
position or results of operations.
15. SUBSEQUENT EVENTS
As of January 1, 1999, the Company enacted a 401(k) plan for employees. This
plan provides for a matching of 100% corporate contribution on the first 3% of
income and 50% on the next 2% of income, not to exceed 5% of the employee's
salary.
From January 1, 1999 through February 28, 1999 the Company repurchased an
additional .2 million shares of its class A common stock and 1.1 million shares
of its class B common stock at an average price of $19.91. Total costs of $26.5
million for the repurchase was funded partially by an additional borrowing of
$20.0 million on the credit facility.
A-20
<PAGE>
WADDELL & REED FINANCIAL, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- - ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company. Filed as Exhibit 3.1 to the Company's
Form S-1 Registration Statement Number 333-43687 (the "Registration Statement") and incorporated herein
by reference.
3.2 Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2 to the Company's Registration Statement
and incorporated herein by reference.
4.1 Specimen of Class A Common Stock Certificate. Filed as Exhibit 4.1 to the Company's Registration
Statement and incorporated herein by reference.
4.2 Specimen of Class B Common Stock Certificate. Filed as Exhibit 4.1 to the Company's Form 8-A Registration
Statement, Accession Number 0000930661-98-002062, dated October 1, 1998 and incorporated herein by
reference.
10.1 Public Offering and Separation Agreement, dated as of March 3, 1998, by and between the Company and
Torchmark Corporation. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by reference.
10.2 Tax Disaffiliation Agreement, dated as of March 3, 1998, by and between the Company and Torchmark
Corporation. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference.
10.3 Investment Services Agreement, dated as of March 3, 1998, by and between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company. Filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.
10.4 General Agent Contract, dated January 1, 1985, by and between United Investors Life Insurance Company and
W & R Insurance Agency, Inc. Filed as Exhibit 10.4 to the Company's Registration Statement and
incorporated herein by reference.
10.5 Amendment Extending General Agent Contract, dated as of March 31, 1998, by and between United Investors
Life Insurance Company and W & R Insurance Agency, Inc. Filed as Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.
10.6 Second Amendment of General Agent Contract, dated as of December 21, 1998, by and between United
Investors Life Insurance Company and W & R Insurance Agency, Inc.
10.7 Independent Agent Contract, dated June 25, 1997, by and among United American Insurance Company, W & R
Insurance Agency, Inc., and affiliates identified therein. Filed as Exhibit 10.6 to the Company's
Registration Statement and incorporated herein by reference.
10.8 Amendment Extending Independent Agent Contract, dated as of March 3, 1998 by and among United American
Insurance Company, W & R Insurance Agency, Inc., and affiliates identified therein. Filed as Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference.
</TABLE>
B-1
<PAGE>
WADDELL & REED FINANCIAL, INC.
INDEX TO EXHIBITS
<TABLE>
<S> <C>
10.9 Second Amendment of Independent Agent Contract, dated as of December 31, 1998, by and among United
American Insurance Company, W & R Insurance Agency, Inc. and affiliates identified herein.
10.10 Distribution Contract, dated April 4, 1997, by and between United Investors Life Insurance Company and
Target/United Funds, Inc. Filed as Exhibit 10.16 to the Company's Registration Statement and
incorporated herein by reference.
10.11 Agreement Amending Distribution Contract, dated as of March 3, 1998, by and between United Investors Life
Insurance Company and Target/United Funds, Inc. Filed as Exhibit 10.15 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.
10.12 Second Amendment of Distribution Contract, dated as of December 31, 1998, by and between United Investors
Life Insurance Company and Target/United Funds, Inc.
10.13 Principal Underwriting Agreement, dated May 1, 1990, by and between United Investors Life Insurance
Company and Waddell & Reed, Inc. Filed as Exhibit 10.18 to the Company's Registration Statement and
incorporated herein by reference.
10.14 Agreement Amending Principal Underwriting Agreement, dated as of March 3, 1998, by and between United
Investors Life Insurance Company and Waddell & Reed, Inc. Filed as Exhibit 10.17 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.
10.15 Second Amendment of Principal Underwriting Agreement, dated as of December 31, 1998, by and between
United Investors Life Insurance Company and Waddell & Reed, Inc.
10.16 Services Agreement, dated as of March 3, 1998, by and between Waddell & Reed Investment Management
Company and Waddell & Reed Asset Management Company. Filed as Exhibit 10.19 to the Company's Quarterly
Report on a Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.
10.17 Addendum to Services Agreement, dated as of December 31, 1998, by and between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company.
10.18 Reciprocity Agreement, dated as of March 3, 1998, by and between the Company and Torchmark Corporation.
Filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and incorporated herein by reference.
10.19 Administrative Services Agreement, dated as of March 3, 1998, by and between the Company and Torchmark
Corporation. Filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference.
10.20 The Company 1998 Stock Incentive Plan.
10.21 The Company 1998 Non-Employee Director Stock Option Plan. Filed as Exhibit 10.9 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.
10.22 The Company 1998 Executive Deferred Compensation Stock Option Plan. Filed as Exhibit 10.10 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by
reference.
10.23 First Amendment to 1998 Executive Deferred Compensation Stock Option Plan.
</TABLE>
B-2
<PAGE>
WADDELL & REED FINANCIAL, INC.
INDEX TO EXHIBITS
<TABLE>
<S> <C>
10.24 The Company 401(k) and Thrift Plan. Filed as Exhibit 4(a) to the Company's Form S-8 Registration
Statement Number 333-69897 and incorporated herein by reference.
10.25 The Company Retirement Income Plan. Filed as Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 and incorporated herein by reference.
10.26 Waddell & Reed, Inc. Career Field Retirement Plan. Filed as Exhibit 10.13 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference.
10.27 Credit Agreement dated October 15, 1998, by and among the Company, Lenders and The Chase Manhattan Bank.
10.28 The Company Supplemental Executive Retirement Plan.
10.29 The Company Management Incentive Plan of 1999.
10.30 Form of Accounting Services Agreement by and between each of the Funds and Waddell & Reed Services
Company.
10.31 Form of Investment Management Agreement by and between each of the United Funds and Waddell & Reed, Inc.
10.32 Form of Investment Management Agreement by and between the Waddell & Reed Funds and Waddell & Reed
Investment Management Company.
10.33 Form of Investment Management Agreement by and between the Target/United Funds and Waddell & Reed, Inc.
10.34 Form of Shareholder Servicing Agreement by and between the Funds and Waddell & Reed Services Company.
10.35 Form of Underwriting Agreement by and between each of the United Funds and Waddell & Reed, Inc.
10.36 Form of Underwriting Agreement by and between each of the Waddell & Reed Funds and Waddell & Reed, Inc.
10.37 Form of Amended and Restated Custodian Agreement by and between each of the Funds and UMB Bank, n.a.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
B-3
<PAGE>
EXHIBIT 10.6
SECOND AMENDMENT OF GENERAL AGENT CONTRACT
This is an amendment ("Second Amendment") to the General Agent Contract
effective January 1, 1985 ("General Agent Contract") between UNITED INVESTORS
LIFE INSURANCE COMPANY ("United" or "Company") and W & R INSURANCE AGENCY, INC.
et al., ("General Agent") (a copy of which is attached hereto as Exhibit "A"),
as amended by the AMENDMENT EXTENDING GENERAL AGENT CONTRACT ("First
Amendment"), executed on the 3rd day of March, 1998, (a copy of which is
attached hereto as Exhibit "B".)
1. The parties hereunto agree as follows:
Subparagraph A of Paragraph 13 of the General Agent contract, as
amended by the First Amendment thereto, is amended to read as follows:
A. Except as provided in subparagraph B or C of this Paragraph
13, this contract shall be effective from its Effective Date
for a term of one year, and shall be automatically renewed
each year for successive one-year terms, unless and until
either party gives written notice of termination to the other
party not less than 180 days prior to the expiration date of
the initial term or any renewal term.
2. In all other respects, the General Agent Contract is unchanged, and
the parties ratify and confirm the General Agent Contract, as amended by this
Second Amendment.
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
their duly authorized representatives on this 21st day of December, 1998.
United Investors Life Insurance
Company ("Company")
By: /s/ Anthony L. McWhorter
------------------------
Its: President
---------
W&R Insurance Agency, Inc.,
Waddell & Reed Inc., et al.,
("General Agent")
By: /s/ Robert L. Hechler
---------------------
Its: President
---------
<PAGE>
EXHIBIT 10.9
SECOND AMENDMENT OF
INDEPENDENT AGENT CONTRACT
This amendment ("Second Amendment") to the Independent Agent Contract,
dated June 25, 1997 ("Independent Agent Contract"), by and between United
American Insurance Company ("United") and W & R Insurance Agency, Inc.
("Independent Agent")(a copy of which is attached hereto as Exhibit "A"), as
amended by the Amendment Extending Independent Agent Contract ("First
Amendment"), dated the March 3, 1998 (a copy of which is attached hereto as
Exhibit "B") is made effective as of the 31st day of December, 1998, except as
otherwise provided herein.
1. The parties hereby agree to rescind the provision for termination of
the Independent Agent Contract contained in the First Amendment and extend the
Independent Agent Contract for the term provided in the "TERMINATION" section
thereof.
2. In all other respects, the Independent Agent Contract is unchanged,
and the parties ratify and confirm the Independent Agent Contract, as amended by
this Second Amendment.
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
their duly authorized representatives to become effective as provided herein.
UNITED AMERICAN INSURANCE COMPANY
By: /s/ Larry M. Hutchinson
Its: Vice President and Secretary
W & R INSURANCE AGENCY, INC.
By: /s/ Robert L. Hechler
Its: Vice President
<PAGE>
EXHIBIT 10.12
SECOND AMENDMENT OF
DISTRIBUTION CONTRACT
This amendment ("Second Amendment") to the Distribution Contract, dated
April 4, 1997 ("Distribution Contract"), by and between United Investors Life
Insurance Company ("UILIC") and Target/United Funds, Inc. f/k/a TMK/United
Funds, Inc. (the "Fund")(a copy of which is attached hereto as Exhibit "A"), as
amended by the Agreement Amending Distribution Contract ("First Amendment"),
dated the March 3, 1998 (a copy of which is attached hereto as Exhibit "B") is
made effective as of the 31st day of December, 1998, except as otherwise
provided herein.
1. The parties hereby agree as follows:
a. To rescind the provision for termination of the
Distribution Contract contained in the First Amendment and extend the
Distribution Contract for the term provided in Section 8 thereof.
b. The second full paragraph of the Distribution Contract
shall be amended, retroactively to April 18, 1997, by deleting the word "two" in
the first sentence and replacing it with the word "three" and by inserting ",
United Investors Universal Life Variable Account" after the phrase "United
Investors Life Variable Account" in the first sentence.
c. Section 1 of the Distribution Contract shall be amended,
retroactively to April 18, 1997, by deleting the word "two" and replacing it
with the word "three" in the third line.
2. In all other respects, the Distribution Contract is unchanged, and
the parties ratify and confirm the Distribution Contract, as amended by this
Second Amendment.
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
their duly authorized representatives to become effective as provided herein.
UNITED INVESTORS LIFE INSURANCE COMPANY
By: /s/ Anthony L. McWhorter
Its: President
TARGET/UNITED FUNDS, INC.
By: /s/ Robert L. Hechler
Its: President
<PAGE>
EXHIBIT 10.15
SECOND AMENDMENT OF
PRINCIPAL UNDERWRITING AGREEMENT
This amendment ("Second Amendment") to the Principal Underwriting
Agreement, dated May 1, 1990 ("Principal Underwriting Agreement") by and between
United Investors Life Insurance Company ("United Investors"), on its own behalf
and on behalf of United Investors Life Variable Account ("Variable Account"),
and Waddell & Reed, Inc. ("W&R")(a copy of which is attached hereto as Exhibit
"A"), as amended by the Agreement Amending Principal Underwriting Agreement
("First Amendment"), dated the March 3, 1998 (a copy of which is attached hereto
as Exhibit "B") is made effective as of the 31st day of December, 1998, except
as otherwise provided herein.
1. The parties hereunto agree as follows:
a. To rescind the provision for termination of the
Principal Underwriting Agreement contained in the First Amendment
and extend the Principal Underwriting Agreement for the term
provided in Section 16 thereof.
b. The preamble of the Principal Underwriting Agreement
shall be amended by inserting ", United Investors Annuity Variable
Account and United Investors Universal Life Variable Account" after
the phrase "United Investors Life Variable Account" in line four.
c. The preamble of the Principal Underwriting Agreement
shall be further amended by inserting "collectively referred to
herein as the" before the phrase "Variable Account" in line four.
d. The first recital shall be amended by inserting ",
deferred variable annuity policies and flexible premium variable
life insurance policies" after the phrase "flexible premium
variable life insurance policies" in line four.
2. The amendments to the Principal Underwriting Agreement adding
"United Investors Annuity Variable Account" and ", deferred variable annuity
policies" shall be effective retroactively to May 1, 1990. The amendments to the
Principal Underwriting Agreement adding "United Investors Universal Life
Variable Account" and "and flexible premium variable life insurance policies"
shall be effective retroactively to April 18, 1997.
3. In all other respects, the Principal Underwriting Agreement is
unchanged, and the parties ratify and confirm the Principal Underwriting
Agreement, as amended by this Second Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
their duly authorized representatives to become effective as provided herein.
UNITED INVESTORS LIFE INSURANCE
COMPANY
By: /s/ Anthony L. McWhorter
Its: President
WADDELL & REED, INC.
By: /s/ Robert L. Hechler
Its: President
<PAGE>
EXHIBIT 10.17
ADDENDUM TO
SERVICES AGREEMENT
THIS ADDENDUM to that certain Services Agreement (the "Agreement"),
dated March 3, 1998, by and between WADDELL & REED INVESTMENT MANAGEMENT COMPANY
("WRIMCO") and WADDELL & REED ASSET MANAGEMENT COMPANY ("WRAMCO"), is made
effective as provided herein.
WHEREAS, WRIMCO and WRAMCO desire to supplement the terms and
conditions of the Agreement as herein provided; and
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency is hereby acknowledged, WRIMCO and WRAMCO hereby agree to amend,
modify and supplement the Agreement as follows:
1. ADDENDUM TO SECTION 2. Section 2. of the Agreement is hereby amended
by adding the following to the end of such subsection b.:
Pursuant to 42 U.S.C. 1395x(v)(1)(I), WRIMCO agrees that, until the
expiration of four years after the furnishing of services by WRAMCO to
any client subject to such provision, WRIMCO shall make available, upon
written request, to the Secretary of the United States Department of
Health and Human Services or to the Comptroller General of the United
States, or any of their duly authorized representatives, any books,
documents and records of WRIMCO that are necessary to certify the
nature and extent of the cost of services provided to any such client.
2. REMAINING PROVISIONS. Any provision of the Agreement not amended,
modified and/or supplemented by this Addendum shall remain in full force and
effect. In the event of any inconsistency between the Agreement and this
Addendum, this Addendum shall control.
3. MISCELLANEOUS. The Agreement and this Addendum, together with all
exhibits attached to the Agreement and this Addendum, if any, contain the full
and complete agreement and understanding between Buyer and Seller.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their duly authorized representatives to be effective as of the 31st
day of December, 1998.
WADDELL & REED INVESTMENT WADDELL & REED ASSET
MANAGEMENT COMPANY MANAGEMENT COMPANY
By: /s/ Henry J. Herrmann By: /s/ Michael Klyce
Title: President and Chief Title: Vice President and Treasurer
Investment Officer
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EXHIBIT 10.20
WADDELL & REED FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Waddell & Reed Financial, Inc. 1998 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable Waddell & Reed
Financial, Inc. (the "Company") and its Subsidiaries to attract and retain
employees, directors and consultants who contribute to the Company's success by
their ability, ingenuity and industry, and to enable such employees and
directors to participate in the long-term success and growth of the Company
through an equity interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Affiliate" means (i) any corporation (other than a Subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a 10 percent beneficial ownership interest, and
(ii) the Company's parent company or former parent company.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a participant's willful misconduct or dishonesty, any
of which is directly and materially harmful to the business or reputation of the
Company or any Subsidiary or Affiliate.
d. "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
e. "Committee" means the Compensation Committee of the Board. If at any
time no Committee shall be in office, then the functions of the Committee
specified in the Plan shall be exercised by the Board.
f. "Commission" means the Securities and Exchange Commission.
g. "Company" means Waddell & Reed Financial, Inc., a corporation
organized under the laws of the State of Delaware (or any successor
corporation).
h. "Deferred Stock" means an award made pursuant to Section 9
below of the right to receive Stock at the end of a specified deferral period.
i. "Director Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 6.
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j. "Disability" means total and permanent disability as determined
under the Company's long term disability program. With respect to Director Stock
Options, "Disability" shall be determined as if the Director was covered under
the Company's long term disability program.
k. "Early Retirement" means retirement from active employment with the
Company, any Subsidiary, and any Affiliate pursuant to the early retirement
provisions of the applicable tax-qualified Company pension plan.
l. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor thereto.
m. "Fair Market Value" means, as of the date of the initial public
offering, the initial public offering price for the stock, and thereafter the
closing price of the Stock on the New York Stock Exchange Composite Tape on the
date in question.
n. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
o. "Immediate Family" means the children, grandchildren or spouse of
any optionee.
p. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
q. "Normal Retirement" means retirement from active employment with the
Company, any Subsidiary, and any Affiliate on or after the normal retirement
date specified in the applicable tax-qualified Company pension plan.
r. "Plan" means this 1998 Stock Incentive Plan.
s. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 8.
t. "Retirement" means Normal or Early Retirement.
u. "Stock" means the Class A Common Stock of the Company, par value
$.01.
v. "Stock Appreciation Right" means a right granted under Section 7
below to surrender to the Company all or a portion of a Stock Option in exchange
for an amount equal to the difference between (i) the Fair Market Value, as of
the date such Stock Option or such portion thereof is surrendered, of the shares
of Stock covered by such Stock Option or such portion thereof, and (ii) the
aggregate exercise price of such Stock Option or such portion thereof.
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w. "Stock Option" means any option to purchase shares of Stock granted
to employees pursuant to Section 5.
x. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee which shall at all
times comply with any applicable requirements of Rule 16b-3 of the Exchange Act.
All members of the Committee shall also be "outside directors" within the
meaning of Section 162(m) of the Code.
The Committee shall have the power and authority to grant to eligible
employees, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock or (iv) Deferred Stock.
In particular, the Committee shall have the authority:
(i) to select the consultants, officers and other key
employees of the Company, its Subsidiaries, and its Affiliates to whom Stock
Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards or
a combination of the foregoing from time to time will be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares of Stock to be covered
by each such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (other than Director
Stock Options), including, but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating thereto based on
performance and/or such other factors as the Committee may determine, in its
sole discretion, and any vesting acceleration features based on performance
and/or such other factors as the Committee may determine, in its sole
discretion;
(v) to determine whether, to what extent and under what
circumstances Stock
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and other amounts payable with respect to an award under this Plan shall be
deferred either automatically or at the election of a participant, including
providing for and determining the amount (if any) of deemed earnings on any
deferred amount during any deferral period.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 13,000,000.
If any shares of Stock that have been optioned cease to be subject to
option, or if any shares subject to any Restricted Stock or Deferred Stock award
granted hereunder are forfeited or such award otherwise terminates, such shares
shall again be available for distribution in connection with future awards under
the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, an equitable substitution or adjustment shall be made in
(i) the aggregate number of shares reserved for issuance under the Plan, (ii)
the number and option price of shares subject to outstanding Stock Options and
Director Stock Options granted under the Plan, (iii) the number of shares
subject to Restricted Stock or Deferred Stock awards granted under the Plan,
(iv) the aggregate number of shares available for issuance to any employee
pursuant to Section 4(a), and (v) the number of Director Stock Options to be
granted each year pursuant to Section 6, as may be determined to be appropriate
by the Committee, in its sole discretion, provided that the number of shares
subject to any award shall always be a whole number. Such adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
(a) Consultants, officers and other key employees of the Company, its
Subsidiaries or its Affiliates (but excluding members of the Committee and any
person who serves only as a director, except as provided in Section 6 below) who
are responsible for or contribute to the management, growth and/or profitability
of the business of the Company, its Subsidiaries, or its Affiliates are eligible
to be granted Stock Options, Stock
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Appreciation Rights, Restricted Stock or Deferred Stock awards. Only
employees of the Company and its Subsidiaries are eligible to be granted
Incentive Stock Options.
Except as provided in Section 6, the optionees and participants under
the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award or grant; provided,
however, that no employee shall be granted Stock Options on more than 2,500,000
shares in any calendar year.
(b) Directors of the Company (other than directors who are also
officers or employees of the Company, its Subsidiaries or its Affiliates) are
eligible to receive Director Stock Options pursuant to Section 6 of the Plan.
SECTION 5. STOCK OPTIONS FOR EMPLOYEES.
Stock Options may be granted either alone or in addition to other
awards granted under the Plan. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve, and the provisions
of Stock Option awards need not be the same with respect to each optionee.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights) except that Incentive Stock
Options shall not be granted to employees of an Affiliate. To the extent that
any Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Except as provided in Section 5(1), no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to
disqualify either the Plan or any Incentive Stock Option under Section 422 of
the Code. Notwithstanding the foregoing, in the event an optionee voluntarily
disqualifies an option as an Incentive Stock Option within the meaning of
Section 422 of the Code, the Committee may, but shall not be obligated to, make
such additional grants, awards or bonuses as the Committee shall deem
appropriate, to reflect the tax savings to the Company which results from such
disqualification.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Stock purchasable under
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a Stock Option shall be determined by the Committee at the time of grant but
shall be not less than 100% of the Fair Market Value of the Stock on the date of
the grant of the Stock Option.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date such Incentive Stock Option is granted.
(c) EXERCISABILITY. Subject to paragraph (l) of this Section 5 with
respect to Incentive Stock Options, Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee, provided, however, that, except as provided in Section 5(f),
5(g), 5(h) or 13, no Stock Option shall be exercisable prior to six months from
the date of the granting of the option. Notwithstanding the limitations set
forth in the preceding sentence, the Committee may accelerate the exercisability
of any Stock Option, at any time in whole or in part, based on performance
and/or such other factors as the Committee may determine in its sole discretion.
(d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part at any time during the option period, by giving written notice of exercise
to the Company specifying the number of shares to be purchased, accompanied by
payment in full of the purchase price, in cash, by check or such other
instrument as may be acceptable to the Committee (including instruments
providing for "cashless exercise"). As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may also be made in
the form of unrestricted Stock already owned by the optionee or, in the case of
the exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock
subject to an award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the option is exercised, as determined by the Committee).
If payment of the option exercise price of a Non-Qualified Stock Option is made
in whole or in part in the form of Restricted Stock or Deferred Stock, the
shares received upon the exercise of such Stock Option shall be restricted or
deferred, as the case may be, in accordance with the original term of the
Restricted Stock award or Deferred Stock award in question, except that the
Committee may direct that such restrictions or deferral provisions shall apply
to only the number of such shares equal to the number of shares of Restricted
Stock or Deferred Stock surrendered upon the exercise of such option. No shares
of unrestricted Stock shall be issued until full payment therefor has been made.
An optionee shall have the rights to dividends or other rights of a stockholder
with respect to shares subject to the option when the optionee has given written
notice of exercise and has paid in full for such shares.
(e) TRANSFERABILITY OF OPTIONS. A Stock Option agreement may permit an
optionee to transfer the Stock Option to members of his or her Immediate Family,
to one or more trusts for the benefit of such Immediate Family members, or to
one or more partnerships where such Immediate Family members are the only
partners if (i) the agreement setting forth such Stock Option expressly provides
that the Stock Option may
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be transferred only with the express written consent of the Committee, and
(ii) the optionee does not receive any consideration in any form whatsoever
for said transfer. Any Stock Option so transferred shall continue to be
subject to the same terms and conditions in the hands of the transferee as
were applicable to said Stock Option immediately prior to the transfer
thereof.
Any Stock Option not (i) granted pursuant to any agreement expressly
allowing the transfer of said Stock Option or (ii) amended expressly to permit
its transfer shall not be transferable by the optionee otherwise than by will or
by the laws of descent and distribution and such Stock Option thus shall be
exercisable during the optionee's lifetime only by the optionee.
(f) TERMINATION BY DEATH. Unless otherwise determined by the Committee,
if an optionee's employment with the Company, any Subsidiary, and any Affiliate
terminates by reason of death (or if an optionee dies following termination of
employment by reason of disability or Normal Retirement), any Stock Option shall
become immediately exercisable and may thereafter be exercised by the legal
representative of the estate or by the legatee of the optionee under the will of
the optionee, during the period ending on the expiration of the stated term of
such Stock Option or the first anniversary of the optionee's death, whichever is
later.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise determined by
the Committee, if an optionee's employment with the Company, any Subsidiary and
any Affiliate terminates by reason of Disability, any Stock Option held by such
optionee shall be immediately exercisable and may thereafter be exercised during
the period ending on the expiration of the stated term of such Stock Option. In
the event of termination of employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined by
the Committee, if an optionee's employment with the Company, any Subsidiary and
any Affiliate terminates by reason of Normal Retirement, any Stock Option held
by such optionee shall become immediately exercisable. A Stock Option held by an
optionee whose employment has terminated by reason of Normal Retirement shall
expire at the end of the stated term of such Stock Option, unless otherwise
determined by the Committee.
If an optionee's employment with the Company, any Subsidiary and any
Affiliate terminates by reason of Early Retirement, any Stock Option shall
terminate three years from the date of such Early Retirement or upon the
expiration of the stated term of the Stock Option, whichever is shorter, unless
otherwise determined by the Committee. In the event of Early Retirement, there
shall be no acceleration of vesting of the Stock Option unless otherwise
determined by the Committee at or after grant, and said Stock Option may only be
exercised to the extent it is or has become exercisable prior to
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termination of the Stock Option.
In the event of termination of employment by reason of Retirement, if
an Incentive Stock Option is exercised after the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(i) TERMINATION FOR CAUSE. If the optionee's employment with the
Company, any Subsidiary and any Affiliate is terminated for Cause, the Stock
Option shall immediately be forfeited to the Company upon the giving of notice
of termination of employment.
(j) OTHER TERMINATION. If the optionee's employment with the Company,
any Subsidiary and any Affiliate is involuntarily terminated by the optionee's
employer without Cause, the Stock Option shall terminate three months from the
date of termination of employment or upon the expiration of the stated term of
the Stock Option, whichever is shorter, unless otherwise determined by the
Committee. If an optionee's employment with the Company, any Subsidiary and any
Affiliate is voluntarily terminated for any reason, the Stock Option shall
terminate one month from the date of termination of employment or upon the
expiration of the stated term of the Stock Option, whichever is shorter. In the
event of involuntary termination without Cause or voluntary termination for any
reason, there shall be no acceleration of vesting of the Stock Option unless
otherwise determined by the Committee and said Stock Option may only be
exercised to the extent it is or has become exercisable prior to termination of
the Stock Option.
(k) TERMINATION UPON CHANGE OF CONTROL. Notwithstanding the provisions
of Section 5(j) or the stated term of the Stock Option, if the optionee's
employment with the Company, any Subsidiary and any Affiliate is involuntarily
terminated by the optionee's employer without Cause by reason of or within three
months after a merger or other business combination resulting in a "Change of
Control" as defined in Section 13 of this Plan, the Stock Option shall terminate
upon the later of six months and one day after such merger or business
combination or ten business days following the expiration of the period during
which publication of financial results covering at least thirty days of
post-merger combined operations has occurred.
(l) LIMIT ON VALUE OF INCENTIVE STOCK OPTION FIRST EXERCISABLE
ANNUALLY. The aggregate Fair Market Value (determined at the time of grant) of
the Stock for which "incentive stock options" within the meaning of Section 422
of the Code are exercisable for the first time by an optionee during any
calendar year under the Plan (and/or any other stock option plans of the
Company, any Subsidiary and any Affiliate) shall not exceed $100,000.
Notwithstanding the preceding sentence, the exercisability of such Stock Options
may be accelerated by the Committee and shall be accelerated as provided in
Sections 5(f), 5(g), 5(h), and 13, in which case Stock Options which exceed such
$100,000 limit shall be treated as Non-Qualified Stock Options. For this
purpose, options
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granted earliest shall be applied first to the $100,000 limit. In the event
that only a portion of the options granted at the same time can be applied to
the $100,000 limit, the Company shall issue separate share certificates for
such number of shares as does not exceed the $100,000 limit, and shall
designate such shares as ISO stock in its share transfer records.
SECTION 6. DIRECTOR STOCK OPTIONS.
Director Stock Options granted under the Plan shall be Non-Qualified
Stock Options. Such Director Stock Options may be granted pursuant to a
pre-established formula contained in the Plan or may, in the sole discretion of
the entire Board of Directors, be granted as to such number of shares and upon
such terms and conditions as shall be determined by said Board of Directors.
Director Stock Options granted under the Plan shall be evidenced by a
written agreement in such form as the Committee shall from time to time approve,
which agreements shall comply with and be subject to the following terms and
conditions:
(a) FORMULA-BASED DIRECTOR STOCK OPTIONS. For 1998, 6,000 Director
Stock Options shall be granted automatically to each member of the Board who is
not an employee of the Company, its Subsidiaries or Affiliates ("Outside
Director"). For each calendar year thereafter, 3,000 Director Stock Options
shall be granted automatically on the first day of each calendar year on which
Stock is publicly traded on the New York Stock Exchange to each Outside
Director.
The option price per share of Stock purchasable under such Director
Stock Option shall be 100% of the Fair Market Value of the Stock on the date of
the grant of the Director Stock Option. Except as provided in Section 13, said
Director Stock Options shall become exercisable in full six months from the date
of the grant of the option and shall remain exercisable for a term of ten years
and two days from the date such Director Stock Option is granted.
(b) NON-FORMULA BASED DIRECTOR STOCK OPTIONS. Within its sole
discretion, the entire Board may award Director Stock Options on a non-formula
basis to all or such individual Outside Directors as it shall select. Such
Director Stock Options may be awarded at such times and for such number of
shares as the Board in its discretion determines. The price of such Director
Stock Options may be fixed by the Board at a discount not to exceed 25% of the
fair market value of the Stock on the date of grant or may be the fair market
value of the Stock on the grant date. Such Director Stock Options shall become
first exercisable and have an option term as determined by the Board in its
discretion, provided however, that except as described in Section 13 and in
paragraph (e) of this section, no such Director Stock Option shall be first
exercisable until six months from the date of grant. All other terms and
conditions of such Director Stock Options shall be as established by the Board
in its sole discretion.
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(c) METHOD OF EXERCISE. Any Director Stock Option granted pursuant to
the Plan may be exercised in whole or in part at any time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to the
Committee (including instruments providing for "cashless exercise"). Payment in
full or in part may also be made in the form of unrestricted Stock already owned
by the optionee (based on the Fair Market Value of the Stock on the date the
option is exercised). No shares of unrestricted Stock shall be issued until full
payment therefor has been made. An optionee shall have the rights to dividends
or other rights of a stockholder with respect to shares subject to the option
when the optionee has given written notice of exercise and has paid in full for
such shares.
(d) TRANSFERABILITY OF OPTIONS. No Director Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Director Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated taxation,
and (ii) is otherwise appropriate and desirable, taking into account any state
or federal securities laws applicable to transferable options.
(e) TERMINATION OF SERVICE. Upon an optionee's termination of status as
an Outside Director with the Company for any reason, any Director Stock Options
held by such optionee shall become immediately exercisable and may thereafter be
exercised during the period ending on the expiration of the stated term of such
Director Stock Options or the first anniversary of the optionee's death,
whichever is later. Notwithstanding the foregoing sentence, if the optionee's
status as an Outside Director terminates by reason of or within three months
after a merger or other business combination resulting in a "Change of Control"
as defined in Section 13 of this Plan, the Director Stock Option shall terminate
upon the latest of (i) six months and one day after the merger or business
combination, (ii) ten business days following the expiration of the period
during which publication of financial results covering at least thirty days of
post-merger combined operations has occurred, and (iii) the expiration of the
stated term of such Director Stock Option.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Non-Qualified Stock Option. In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Incentive Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or
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exercise of the related Stock Option, except that, unless otherwise provided
by the Committee at the time of grant, a Stock Appreciation Right granted
with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 7, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 7. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and this
Section 7 of the Plan; provided, however, that any Stock Appreciation Right
granted subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of the term of the Stock Appreciation
Right, except that this additional limitation shall not apply in the event of
death or Disability of the optionee prior to the expiration of the six-month
period.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount in
cash or shares of Stock equal in value to the excess of the Fair Market Value of
one share of Stock over the option price per share specified in the related
Stock Option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be transferable
under paragraph (e) of Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation set
forth in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of such
Stock Option.
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(vi) In its sole discretion, the Committee may provide, at the
time of grant of a Stock Appreciation Right under this Section 7, that such
Stock Appreciation Right can be exercised only in the event of a "Change of
Control" and/or a "Potential Change of Control" (as defined in Section 13
below).
(vii) The Committee, in its sole discretion, may also provide
that in the event of a "Change of Control" and/or a "Potential Change of
Control" (as defined in Section 13 below) the amount to be paid upon the
exercise of a Stock Appreciation Right shall be based on the "Change of Control
Price" (as defined in Section 13 below).
SECTION 8. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and its Subsidiaries and
Affiliates to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price, if any, to be paid
by the recipient of Restricted Stock (subject to Section 8(b) hereof), the time
or times within which such awards may be subject to forfeiture, and all other
conditions of the awards. The Committee may also condition the grant and/or
vesting of Restricted Stock upon the attainment of specified performance goals,
or such other criteria as the Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with respect to
each recipient.
(b) AWARDS AND CERTIFICATES. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
(a "Restricted Stock Award Agreement"), has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the then applicable
terms and conditions. Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the Committee may specify) after
the award date by executing a Restricted Stock Award Agreement and paying the
price specified in the Restricted Stock Award Agreement. Each participant who is
awarded Restricted Stock shall be issued a stock certificate registered in the
name of the participant in respect of such shares of Restricted Stock. The
Committee shall specify that the certificate shall bear a legend, as provided in
clause (i) below, and/or be held in custody by the Company, as provided in
clause (ii) below.
(i) The certificate shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such award,
substantially in the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Waddell & Reed
Financial, Inc. 1998
12
<PAGE>
Stock Incentive Plan and a Restricted Stock Award
Agreement entered into between the registered owner
and Waddell & Reed Financial, Inc. Copies of such Plan
and Agreement are on file in the offices of Waddell & Reed
Financial, Inc., 6300 Lamar Avenue, Overland Park, Kansas
66202."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to this Section 8 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the Restricted
Stock Award Agreements, during such period as may be set by the Committee
commencing on the grant date (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of Restricted Stock
awarded under the Plan. The Committee may, in its sole discretion, provide for
the lapse of such restrictions in installments and may accelerate or waive such
restrictions in whole or in part, before or after the participant's termination
of employment, based on performance and/or such other factors as the Committee
may determine, in its sole discretion.
(ii) Except as provided in paragraph (c)(i) of this Section 8,
the participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a stockholder of the Company, including the right to receive
any dividends. Dividends paid in stock of the Company or stock received in
connection with a stock split with respect to Restricted Stock shall be subject
to the same restrictions as on such Restricted Stock. Certificates for shares of
unrestricted Stock shall be delivered to the participant promptly after, and
only after, the period of forfeiture shall expire without forfeiture in respect
of such shares of Restricted Stock.
(iii) Subject to the provisions of the Restricted Stock Award
Agreement and this Section 8, upon termination of employment for any reason
other than Normal Retirement or death during the Restriction Period, all shares
still subject to restriction shall be forfeited by the participant, and the
participant shall only receive the amount, if any, paid by the participant for
such forfeited Restricted Stock.
SECTION 9. DEFERRED STOCK AWARDS.
(a) ADMINISTRATION. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company, its Subsidiaries and Affiliates
to whom, and
13
<PAGE>
the time or times at which, Deferred Stock shall be awarded, the number of
shares of Deferred Stock to be awarded to any participant, the duration of
the period (the "Deferral Period") during which, and the conditions under
which, receipt of the Stock will be deferred, and the terms and conditions of
the award in addition to those set forth in paragraph (b) of this Section 9.
The Committee may also condition the grant and/or vesting of Deferred Stock
upon the attainment of specified performance goals, or such other criteria as
the Committee shall determine, in its sole discretion. The provisions of
Deferred Stock awards need not be the same with respect to each recipient.
(b) TERMS AND CONDITIONS. The shares of Deferred Stock awarded pursuant
to this Section 9 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned, transferred, pledged
or otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, (as defined below) where
applicable), share certificates shall be delivered to the participant, or his
legal representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) At the time of the award, the Committee may, in its sole
discretion, determine that amounts equal to any dividends declared during the
Deferral Period (or Elective Deferral Period) with respect to the number of
shares covered by a Deferred Stock award will be: (a) paid to the participant
currently; (b) deferred and deemed to be reinvested; or (c) that such
participant has no rights with respect thereto.
(iii) Subject to the provisions of the award agreement and
this Section 9, upon termination of employment for any reason during the
Deferral Period for a given award, the Deferred Stock in question shall be
forfeited by the participant.
(iv) Based on performance and/or such other criteria as the
Committee may determine, the Committee may, at or after grant (including after
the participant's termination of employment), accelerate the vesting of all or
any part of any Deferred Stock award and/or waive the deferral limitations for
all or any part of such award.
(v) A participant may elect to defer further receipt of the
award for a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such terms as
are determined by the Committee, all in its sole discretion. Subject to any
exceptions adopted by the Committee, such election must generally be made at
least six months prior to completion of the Deferral Period for a Deferred Stock
award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock award agreement executed by the Company and the
participant.
SECTION 10. LOAN PROVISIONS.
14
<PAGE>
With the consent of the Committee, the Company may make, or arrange
for, a loan or loans to an employee with respect to the exercise of any Stock
Option granted under the Plan and/or with respect to the payment of the purchase
price, if any, of any Restricted Stock awarded hereunder. The Committee shall
have full authority to decide whether to make a loan or loans hereunder and to
determine the amount, term and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and the conditions, if any, under which
the loan or loans may be forgiven.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the right of an
optionee or participant under a Stock Option, Director Stock Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock award theretofore
granted, without the optionee's or participant's consent.
Amendments may be made without stockholder approval except as required
to satisfy Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, stock
exchange listing requirements, or other regulatory requirements.
The Committee may amend the terms of any award or option (other than
Director Stock Options) theretofore granted, prospectively or retroactively, but
no such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted Stock
Options including options granted under other plans applicable to the
participant and previously granted Stock Options having higher option prices.
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing set forth herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 13. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control" or "Potential Change of Control," as defined in
this Section 13, that
15
<PAGE>
occurs more than twelve months after the date of the Company's initial public
offering:
(a) In the event of a "Change of Control" as defined in paragraph (b)
of this Section 13, unless otherwise determined by the Committee in writing at
or after grant, but prior to the occurrence of such Change of Control, or, if
and to the extent so determined by the Committee in writing at or after grant
(subject to any right of approval expressly reserved by the Committee at the
time of such determination) in the event of a "Potential Change of Control," as
defined in paragraph (c) of this Section 13:
(i) any Stock Appreciation Rights and any Stock Options
awarded under the Plan not previously exercisable and vested shall become fully
exercisable and vested;
(ii) the restrictions and deferral limitations applicable to
any Restricted Stock and Deferred Stock awards under the Plan shall lapse and
such shares and awards shall be deemed fully vested; and
(iii) the value of all outstanding Stock Options, Director
Stock Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock
Awards, shall, to the extent determined by the Committee at or after grant, be
settled on the basis of the "Change of Control Price" (as defined in paragraph
(d) of this Section 13) as of the date the Change of Control occurs or Potential
Change of Control is determined to have occurred, or such other date as the
Committee may determine prior to the Change of Control or Potential Change of
Control. In the sole discretion of the Committee, such settlements may be made
in cash or in stock, as shall be necessary to effect the desired accounting
treatment for the transaction resulting in the Change of Control. In addition,
any Stock Option, Director Stock Option, and Stock Appreciation Right which has
been outstanding for less than six months shall be settled solely in stock.
(b) For purposes of paragraph (a) of this Section 13, a "Change of
Control" means the happening of any of the following:
(i) when any "person", as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company or a Subsidiary or any
Company employee benefit plan), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of
the Company representing 20 percent or more of the combined voting power of the
Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to
the Company required to be described pursuant to the requirements of 6(e) of
Schedule 14A of Regulation 14A of the Commission under the Exchange Act;
(iii) when, during any period of two consecutive years during
the existence of the Plan, the individuals who, at the beginning of such period,
constitute the
16
<PAGE>
Board cease, for any reason other than death, to constitute at least a
majority thereof, unless each director who was not a director at the
beginning of such period was elected by, or on the recommendation of, at
least two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company
or a Subsidiary through purchase of assets, or by merger, or otherwise.
(c) For purposes of paragraph (a) of this Section 13, a "Potential
Change of Control" means the happening of any of the following:
(i) the entering into an agreement by the Company, the
consummation of which would result in a Change of Control of the Company as
defined in paragraph (b) of this Section 13; or
(ii) the acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company or a
Subsidiary or any Company employee benefit plan) of securities of the Company
representing 5 percent or more of the combined voting power of the Company's
outstanding securities and the adoption by the Board of Directors of a
resolution to the effect that a Potential Change of Control of the Company has
occurred for purposes of this Plan.
(d) For purposes of this Section 13, "Change of Control Price" means
the highest price per share paid in any transaction reported on the New York
Stock Exchange Composite Tape, or paid or offered in any transaction related to
a potential or actual Change of Control of the Company at any time during the
preceding sixty day period as determined by the Committee, except that (i) in
the case of Incentive Stock Options and Stock Appreciation Rights relating to
Incentive Stock Options, such price shall be based only on transactions reported
for the date on which the Committee decides to cashout such options, and (ii) in
the case of Director Stock Options, the sixty day period shall be the period
immediately prior to the Change of Control.
SECTION 14. LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 13 above or any other provision of this
Plan or any other agreement, arrangement or plan, in no event shall the
Company pay or be obligated to pay any Plan participant an amount which would
be an Excess Parachute Payment except as provided in Section 14(f) below and
except as the Committee specifically provides otherwise in the participant's
grant agreement. For purposes of this Agreement, the term "Excess Parachute
Payment" shall mean any payment or any portion thereof which would be an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the
Code, and would result in the imposition of an excise tax under Section 4999
of the Code, in the opinion of tax counsel selected by the Company, ("Tax
17
<PAGE>
Counsel"). In the event it is determined that an Excess Parachute Payment
would result if the full acceleration of vesting and exercisability provided
in Section 13 above were made (when added to any other payments or benefits
contingent on a change of control under any other agreement, arrangement or
plan), the payments due under Section 13(a) shall be reduced to the minimum
extent necessary to prevent an Excess Parachute Payment; then, if necessary
to prevent an Excess Parachute Payment, benefits or payments under any other
plan, agreement or arrangement shall be reduced. If it is established
pursuant to a final determination of a court or an Internal Revenue Service
administrative appeals proceeding that, notwithstanding the good faith of the
participant and the Company in applying the terms of this Section 14(a), a
payment (or portion thereof) made is an Excess Parachute Payment, then, the
Company shall pay to the participant an additional amount in cash (a
"Gross-Up Payment") equal to the amount necessary to cause the amount of the
aggregate after-tax compensation and benefits received by the participant
hereunder (after payment of the excise tax under Section 4999 of the Code
with respect to any Excess Parachute Payment, and any state and federal
income taxes with respect to the Gross-Up Payment) to be equal to the
aggregate after-tax compensation and benefits he would have received as if
Sections 280G and 4999 of the Code had not been enacted.
(b) Subject to the provisions of Section 14(c), the amount of any
Gross-Up Payment and the assumptions to be utilized in arriving at such
amount, shall be determined by a nationally recognized certified public
accounting firm designated by the Company (the "Accounting Firm"). All fees
and expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to Section 14(a), shall be paid by
the Company to the participant within five (5) days after the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and participant.
(c) Participant shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by Company of a Gross-Up Payment. Such notification shall be given no later
than ten (10) business days after participant is informed in writing of such
claim and shall apprise the Company of the nature of the claim and the date
of requested payment. Participant shall not pay the claim prior to the
expiration of the thirty (30) day period following the date on which it gives
notice to the Company. If the Company notifies participant in writing prior
to the expiration of the period that it desires to contest such claim,
participant shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
18
<PAGE>
including, without limitation, accepting legal representation with respect to
such claim by an attorney selected by the Company and reasonably acceptable
to participant;
(iii) cooperate with the Company in good faith in order
to effectively contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim.
Without limitation on the foregoing provisions of this Section 14(c), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct participant
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and participant agrees to prosecute such contest to a
determination before any administration tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; PROVIDED, HOWEVER, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold participant
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of the
contest; PROVIDED, FURTHER, that if the Company directs participant to pay
any claim and sue for a refund, the Company shall advance the amount of the
payment to participant, on an interest-free basis, and shall indemnify and
hold participant harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed
with respect to the advance or with respect to any imputed income with
respect to the advance.
(d) In the event that the Company exhausts its remedies pursuant to
Section 14(c) and participant thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Gross-Up
Payment required and such payment shall be promptly paid by the Company to or
for the benefit of participant.
(e) If, after the receipt of participant of an amount advanced by
the Company pursuant to Section 14(c), participant becomes entitled to
receive any refund with respect to such claim, participant shall promptly
after receiving such refund pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by participant of an amount advanced by the
Company pursuant to Section 14(c), a determination is made that participant
shall not be entitled to any refund with respect to such claim and the
Company does not notify participant in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days
19
<PAGE>
after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in
Section 14(a) shall not apply to a participant if in the opinion of Tax
Counsel or the Accounting Firm (i) the total amounts payable to the
participant hereunder and under any other agreement, arrangement or plan as a
result of a change of control (calculated without regard to the limitation of
Section 14(a)), reduced by the amount of excise tax imposed on the
participant under Code Section 4999 with respect to all such amounts and
reduced by the state and federal income taxes on amounts paid in excess of
the limitation set forth in Section 14(a), would exceed (ii) such total
amounts payable after application of the limitation of Section 14(a). No
Gross-Up Payment shall be made in such case.
SECTION 15. GENERAL PROVISIONS.
(a) All certificates for shares of Stock delivered under the Plan shall
be subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(b) Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee or director of the Company, any
Subsidiary or any Affiliate, any right to continued employment (or, in the case
of a director, continued retention as a director) with the Company, a Subsidiary
or an Affiliate, as the case may be, nor shall it interfere in any way with the
right of the Company, a Subsidiary or an Affiliate to terminate the employment
of any of its employees at any time.
(c) Each participant shall, no later than the date as of which the
value of an award first becomes includible in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee, in its sole discretion, regarding
payment of, any Federal, FICA, state, or local taxes of any kind required by law
to be withheld with respect to the award. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements.
The Committee may permit or require, in its sole discretion,
participants to elect to satisfy their Federal, and where applicable, FICA,
state and local tax withholding obligations with respect to all awards other
than Stock Options which have related Stock Appreciation Rights by the
reduction, in an amount necessary to pay all said withholding
20
<PAGE>
tax obligations, of the number of shares of Stock or amount of cash otherwise
issuable or payable to said participants in respect of an award. The Company
and, where applicable, its Subsidiaries and Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes owed hereunder by a
participant from any payment of any kind otherwise due to said participant.
(d) At the time of grant or purchase, the Committee may provide in
connection with any grant or purchase made under this Plan that the shares of
Stock received as a result of such grant or purchase shall be subject to a right
of first refusal, pursuant to which the participant shall be required to offer
to the Company any shares that the participant wishes to sell, with the price
being the then Fair Market Value of the Stock, subject to the provisions of
Section 13 hereof and to such other terms and conditions as the Committee may
specify at the time of grant.
(e) No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or made
in good faith with respect to the Plan, and all members of the Board or the
Committee and each and any officer or employee of the Company acting on their
behalf shall, to the extent permitted by law, be fully indemnified and protected
by the Company in respect of any such action, determination or interpretation.
SECTION 16. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is approved by a majority
vote of the Company's stockholders.
SECTION 17. TERM OF PLAN.
No Stock Option, Director Stock Option, Stock Appreciation Right,
Restricted Stock award or Deferred Stock award shall be granted pursuant to the
Plan on or after March 2, 2008, but awards theretofore granted may extend beyond
that date.
21
<PAGE>
EXHIBIT 10.23
FIRST AMENDMENT TO WADDELL & REED FINANCIAL, INC.
1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN
WHEREAS, the Company adopted and implemented the Waddell & Reed
Financial, Inc. Executive Deferred Compensation Stock Option Plan as of March 3,
1998 (the "Executive Plan");
WHEREAS, the Company desires to amend certain provisions of the
Executive Plan;
WHEREAS, on October 21, 1998, the Compensation Committee of the Board
of Directors of the Company adopted a resolution authorizing the amendment of
the Executive Plan in accordance with the authority granted to them pursuant to
the Executive Plan.
NOW, THEREFORE, the Executive Plan is hereby amended as follows:
Section 6.1.(a) of the Executive Plan is hereby modified, altered,
amended and replaced in the following respect:
1. SECTION 6.1.(a) "OPTIONS CONVERTED FROM DEFERRED SALARY". During the
same calendar quarter with respect to which a Participant deferred Salary into
the Plan, the Participant shall have the right to convert some or all of his or
her Interest Account for Salary for such quarter or the previous quarter(s) of
that same calendar year into Options pursuant to this Article 6. To make such
election, the Participant must file with the plan administrator a written
irrevocable Secondary Election Form for Salary to receive Options as of the date
of the filing of such Secondary Election Form (the "Option Grant Date").
2. EXHIBIT C "SECONDARY ELECTION FORM FOR SALARY". Exhibit C of the
Executive Plan is hereby replaced and superceded by the revised Exhibit C
attached hereto as Attachment "1".
3. OTHER PROVISIONS AND TERMS. Except as expressly provided for herein,
all other terms, conditions, rights, powers and responsibilities contained in
the Executive Plan shall remain in full force and effect as the same are
prescribed for and provided by the terms and conditions of said Executive Plan.
Capitalized terms used but not defined herein shall have the meaning given them
in the Executive Plan.
<PAGE>
EXHIBIT 10.27
CREDIT AGREEMENT
dated as of
October 15, 1998
among
WADDELL & REED FINANCIAL, INC.
The Lenders Party hereto,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
$200,000,000 REVOLVING CREDIT AND COMPETITIVE ADVANCE
FACILITY
CHASE SECURITIES INC.,
as Advisor, Arranger and Book Manager
<PAGE>
ARTICLE
DEFINITIONS
SECTION 1.01 DEFINED TERMS. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"ADJUSTED LIBO RATE" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Lenders hereunder.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in
a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"AGGREGATE REVENUE BASE" means the sum of Revenue Bases for all W&R
Funds and for all other assets managed by the Borrower or any Subsidiary of the
Borrower for other entities.
"AGREEMENT" means this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"APPLICABLE PERCENTAGE" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in
<PAGE>
effect, giving effect to any assignments.
"APPLICABLE RATE" means, for any day, with respect to any ABR Loan or
Eurodollar Loan, or with respect to the facility fees payable hereunder, as the
case may be, the applicable rate per annum set forth below under the caption
"ABR Spread", "Eurodollar Spread" or "Facility Fee Rate", as the case may be:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
CONSOLIDATED LEVERAGE ABR EURODOLLAR FACILITY FEE
RATIO SPREAD SPREAD RATE
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LESS THAN 2.0:1 0% 0.35% 0.10%
- - ---------------------------------------------------------------------------------------------------------
AE2.0:1 0% 0.50% 0.10%
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"AVAILABILITY PERIOD" means the period from and including the Effective
Date to but excluding the earlier of the Revolving Credit Termination Date and
the date of termination of the Commitments.
"BOARD" means the Board of Governors of the Federal Reserve System of
the United States of America.
"BORROWER" means Waddell & Reed Financial, Inc., a Delaware
corporation.
"BORROWING" means (a) Revolving Loans or Term Loans of the same Type,
made, converted or continued on the same date and, in the case of Eurodollar
Loans, as to which a single Interest Period is in effect, or (b) a Competitive
Loan or group of Competitive Loans of the same Type made on the same date and as
to which a single Interest Period is in effect.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; PROVIDED that, when used in connection with a Eurodollar Loan,
the term "BUSINESS DAY" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
<PAGE>
"CAPITAL EXPENDITURES" means, for any period, with respect to any
Person, the aggregate of all expenditures by such Person and its Subsidiaries
for the acquisition or leasing (pursuant to a capital lease) of fixed or capital
assets or additions to equipment (including replacements, capitalized repairs
and improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"CHANGE IN CONTROL" means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof) other than
the Borrower, of shares representing more than 25% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of the
Borrower; (b) occupation of a majority of the seats (other than vacant seats) on
the board of directors of the Borrower by Persons who were neither (i) nominated
by the board of directors of the Borrower nor (ii) appointed by directors so
nominated; or (c) the acquisition of direct or indirect Control of the Borrower
by any Person or group.
"CHANGE IN LAW" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.15(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"CLASS", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans,
Term Loans or Competitive Loans.
<PAGE>
"CLOSING DATE" means the date on which the conditions precedent set
forth in Section 4.01 shall have been satisfied, which date is October 15, 1998.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITMENT" means, with respect to each Lender, the commitment of such
Lender to make Revolving Loans and Term Loans hereunder, expressed as an amount
representing the maximum aggregate outstanding principal amount of such Lender's
Revolving Loans and Term Loans hereunder, as such commitment may be (a) reduced
from time to time pursuant to Section 2.09, (b) reduced or increased from time
to time pursuant to assignments by or to such Lender pursuant to Section 9.04
and (c) increased from time to time pursuant to Section 2.20. The initial amount
of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment
and Acceptance pursuant to which such Lender shall have assumed its Commitment,
as applicable, and the initial aggregate amount of the Commitments of the
Lenders (as set forth on Schedule 2.01) is $150,000,000.
"COMPETITIVE BID" means an offer by a Lender to make a Competitive Loan
in accordance with Section 2.06.
"COMPETITIVE BID RATE" means, with respect to any Competitive Bid, the
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"COMPETITIVE BID REQUEST" means a request by the Borrower for
Competitive Bids in accordance with Section 2.06.
"COMPETITIVE LOAN" means a Loan made pursuant to Section 2.06.
"CONFIDENTIAL INFORMATION MEMORANDUM" means the Confidential
Information Memorandum dated September 1998 and furnished to the Lenders.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income
for such period PLUS, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period, the sum
of (a) income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other fees
and charges associated with Indebtedness (including the Loans), (c) depreciation
and amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring non-cash expenses or losses (including, whether or not
<PAGE>
otherwise includable as a separate item in the statement of such Consolidated
Net Income for such period, non-cash losses on sales of assets outside of the
ordinary course of business), PROVIDED, that the amounts referred to in this
clause (e) shall not, in the aggregate, exceed $1,000,000 for any fiscal year
of the Borrower, and (f) any other non-cash charges. For the purposes of
calculating Consolidated EBITDA for any period of four consecutive fiscal
quarters (each, a "Reference Period") pursuant to any determination of the
Consolidated Leverage Ratio, (i) if at any time during such Reference Period
the Borrower or any Subsidiary shall have made any Material Disposition, the
Consolidated EBITDA for such Reference Period shall be reduced by an amount
equal to the Consolidated EBITDA (if positive) attributable to the property
that is the subject of such Material Disposition for such Reference Period or
increased by an amount equal to the Consolidated EBITDA (if negative)
attributable thereto for such Reference Period and (ii) if during such
Reference Period the Borrower or any Subsidiary shall have made a Material
Acquisition, Consolidated EBITDA for such Reference Period shall be
calculated after giving PRO FORMA effect thereto as if such Material
Acquisition occurred on the first day of such Reference Period. As used in
this definition, "Material Acquisition" means any acquisition of property or
series of related acquisitions of property that (a) constitutes assets
comprising all or substantially all of an operating unit of a business or
constitutes all or substantially all of the common stock of a Person and (b)
involves the payment of consideration by the Borrower and its Subsidiaries in
excess of $1,000,000; and "Material Disposition" means any Disposition of
property or series of related Dispositions of property that yields gross
proceeds to the Borrower or any of its Subsidiaries in excess of $1,000,000.
"CONSOLIDATED INTEREST COVERAGE RATIO" means, for any period, the ratio
of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense
for such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, interest expense
(including that attributable to Capital Lease Obligations) of the Borrower and
its Subsidiaries for such period with respect to all outstanding Indebtedness of
the Borrower and its Subsidiaries (including all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Hedging Agreements in respect of
interest rates to the extent such net costs are allocable to such period in
accordance with GAAP).
"CONSOLIDATED LEVERAGE RATIO" means, as at the last day of any period,
the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA
for such period.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated
<PAGE>
net income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; PROVIDED that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date
it becomes a Subsidiary of the Borrower or is merged into or consolidated
with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of
any Person (other than a Subsidiary of the Borrower) in which the Borrower or
any of its Subsidiaries has an ownership interest, except to the extent that
any such income is actually received by the Borrower or such Subsidiary in
the form of dividends or similar distributions and (c) the undistributed
earnings of any Subsidiary of the Borrower to the extent that the declaration
or payment of dividends or similar distributions by such Subsidiary is not at
the time permitted by the terms of any Contractual Obligation or Requirement
of Law applicable to such Subsidiary.
"CONSOLIDATED TOTAL DEBT" means, at any date, the aggregate principal
amount of all Indebtedness of the Borrower and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CONTROL" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"CONTROLLING" and "CONTROLLED" have meanings correlative thereto.
"DEFAULT" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"DISCLOSED MATTERS" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"DISTRIBUTION FEES" means all fees payable pursuant to a plan
contemplated by Rule 12b-1 under the Investment Company Act of 1940, as amended,
in connection with the distribution of shares of W&R Funds that are open-end
funds.
"DOLLARS" or "$" refers to lawful money of the United States of
America.
"EFFECTIVE DATE" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
<PAGE>
"ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
<PAGE>
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"EURODOLLAR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the
case of a Competitive Loan, the LIBO Rate).
"EVENT OF DEFAULT" has the meaning assigned to such term in Article
VII.
"EXCLUDED TAXES" means, with respect to the Administrative Agent, any
Lender, or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.19(b)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
or is attributable to such Foreign Lender's failure or inability to comply with
Section 2.17(e), except to the extent that such Foreign Lender's assignor (if
any) was entitled, at the time of assignment, to receive additional amounts from
the Borrower with respect to such withholding tax pursuant to Section 2.17(a).
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or controller of the Borrower.
"FIXED RATE" means, with respect to any Competitive Loan (other than a
Eurodollar Competitive Loan), the fixed rate of interest per annum specified by
the Lender making such Competitive Loan in its related Competitive Bid.
<PAGE>
"FIXED RATE LOAN" means a Competitive Loan bearing interest at a Fixed
Rate.
"FOREIGN LENDER" means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"GAAP" means generally accepted accounting principles in the United
States of America.
"GOVERNMENTAL AUTHORITY" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body (including
self-regulatory body), court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government, including, in any event, the Securities and
Exchange Commission and any applicable state securities commission or similar
body.
"GUARANTEE" of or by any Person (the "GUARANTOR") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; PROVIDED, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"HAZARDOUS MATERIALS" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection
<PAGE>
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price
hedging arrangement.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances and
(k) net liabilities of such Person under Hedging Agreements. The Indebtedness of
any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.
"INTEREST ELECTION REQUEST" means a request by the Borrower to convert
or continue a Revolving Borrowing in accordance with Section 2.08.
"INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan, the
last day of each March, June, September and December, (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration,
after the first day of such Interest Period, and (c) with respect to any Fixed
Rate Loan, the last day of the Interest Period applicable to the Borrowing of
which such Loan is a part and, in the case of a Fixed Rate Borrowing with an
Interest Period of more than 90 days' duration (unless otherwise specified in
the applicable Competitive Bid Request), each day prior to the last day of such
Interest Period that occurs at intervals of 90 days' duration
<PAGE>
after the first day of such Interest Period, and any other dates that are
specified in the applicable Competitive Bid Request as Interest Payment Dates
with respect to such Borrowing.
"INTEREST PERIOD" means (a) with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect, and (b) with respect to any
Fixed Rate Borrowing, the period (which shall not be less than seven days or
more than 364 days) commencing on the date of such Borrowing and ending on the
date specified in the applicable Competitive Bid Request; PROVIDED, that (i) if
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of a Eurodollar Borrowing only, such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day, (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period, and (iii) any Interest Period that would
otherwise extend beyond the Revolving Credit Termination Date or beyond the date
final payment is due on the Term Loans shall end on the Revolving Credit
Termination Date or such date of final payment, as the case may be. For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be
the effective date of the most recent conversion or continuation of such
Borrowing.
"LENDERS" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"LIBO RATE" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets Screen
(or on any successor or substitute page of such Screen, or any successor to or
substitute for such Screen, providing rate quotations comparable to those
currently provided on such page of such Screen, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO RATE" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
<PAGE>
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"LIEN" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"LOANS" means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
"MANAGEMENT CONTRACT" means an agreement, written or oral, pursuant to
which the Borrower or any Subsidiary of the Borrower provides (i) investment
advisory, management or administrative services to a W&R Fund or (ii)investment
advisory or management services to any Person, including, without limitation,
unregistered investment companies and personal or corporate investment accounts.
"MARGIN" means, with respect to any Competitive Loan bearing interest
at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be
added to or subtracted from the LIBO Rate to determine the rate of interest
applicable to such Loan, as specified by the Lender making such Loan in its
related Competitive Bid.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, assets, property, prospects or condition, financial or otherwise, of
the Borrower and its Subsidiaries taken as a whole, or (b) the validity or
enforceability of this Agreement or the rights or remedies of the Administrative
Agent or the Lenders hereunder.
"MATERIAL INDEBTEDNESS" means Indebtedness (other than the Loans), or
obligations in respect of one or more Hedging Agreements, of any one or more of
the Borrower and its Subsidiaries in an aggregate principal amount exceeding
$5,000,000. For purposes of determining Material Indebtedness, the "principal
amount" of the obligations of the Borrower or any Subsidiary in respect of any
Hedging Agreement at any time shall be the maximum aggregate amount (giving
effect to any netting agreements) that the Borrower or such Subsidiary would be
required to pay if such Hedging Agreement were terminated at such time.
<PAGE>
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"NET ASSET VALUE" means, at any date of determination and with respect
to any investment company or account manager, the "current net asset" value (as
defined in Rule 2a-4 under the Investment Company Act of 1940), in the
aggregate, of all outstanding redeemable securities issued by such investment
company at such date.
"OTHER TAXES" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"PERMITTED ACQUISITION" means an acquisition of a Person, or the assets
of a Person or a line of business of a Person, in the same or a related line of
business as the Borrower, PROVIDED that after giving effect to such acquisition
(a) no Default or Event of Default shall have occurred and be continuing, (b)
the Borrower shall be in compliance, on a PRO FORMA basis, as of the end of the
most recent fiscal quarter of the Borrower with the provisions of Section 6.01,
and (c) in the case of an acquisition involving aggregate consideration valued
at $20,000,000 or more, at least three Business Days prior to the date of such
acquisition, the Borrower shall have furnished to the Administrative Agent and
the Lenders a compliance certificate to the effect of clauses (a) and (b)
showing in reasonable detail the calculations supporting the determination of
compliance, on such a PRO FORMA basis, with such provisions.
"PERMITTED ENCUMBRANCES" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and
<PAGE>
other social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Subsidiary;
and
(f) judgment Liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII, so long as such judgment
Liens are not in effect for more than 45 days;
PROVIDED that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"PERMITTED INVESTMENTS" means:
(a) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America
(or by any agency thereof to the extent such obligations are backed by the
full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof which
has a combined capital and surplus and undivided profits of not less than
$500,000,000;
(d) investments in newly created funds or investments intended for sale
to newly created funds advised or managed by the Borrower and its
Subsidiaries, in an aggregate amount (based upon book value on the books of
the Borrower and its Subsidiaries) of not more than $25,000,000
<PAGE>
at any time;
(e) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above; and
(f) other than those contained in (a), (b), (c) and (e) above, United
States dollar denominated fixed income securities and syndicated bank loans
not to exceed $7,500,000 per issuer, with the exception of United States
government securities, and not to exceed $7,500,000 per country, with the
exception of the United States of America.
"PERSON" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"PRIME RATE" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"PUBLIC OFFERING AND SEPARATION AGREEMENT" means the Public Offering
and Separation Agreement made and entered into the 3rd day of March, 1998,
between Torchmark Corporation and the Borrower.
"REGISTER" has the meaning set forth in Section 9.04.
"RELATED PARTIES" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"REQUIRED LENDERS" means, (a) prior to any conversion of Revolving
Loans to Term Loans in accordance with Sections 2.04 and 2.05, Lenders having
Revolving Credit Exposures and unused Commitments representing at least 51% of
the sum of the total Revolving Credit Exposures and unused Commitments at such
time; PROVIDED that, for purposes of declaring the Loans to
<PAGE>
be due and payable pursuant to Article VII, and for all purposes after the
Loans become due and payable pursuant to Article VII or the Commitments
expire or terminate, the outstanding Competitive Loans of the Lenders shall
be included in their respective Revolving Credit Exposures in determining the
Required Lenders, and (b) thereafter, Lenders having Term Loans with a total
outstanding principal amount representing at least 51% of the sum of the
total outstanding principal amount of Term Loans at such time.
"REQUIREMENT OF LAW" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"RESTRICTED PAYMENT" means any dividend or other distribution (whether
in cash, securities or other property) with respect to any shares of any class
of capital stock of the Borrower or any Subsidiary, or any payment (whether in
cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such shares of capital stock of the Borrower
or any option, warrant or other right to acquire any such shares of capital
stock of the Borrower.
"REVENUE BASE" means the sum of (A) the product of (i) with respect to
each W&R Fund, the Net Asset Value of the W&R Fund on the date of calculation
and with respect to assets managed for other entities, the market value or Net
Asset Value of such assets on the date of calculation and (ii) the rate provided
for in the applicable Management Contract for determining the annual fee
required for such advisory, management or administrative services on such date
and (B) Distribution Fees for such W&R Fund.
"REVOLVING BORROWING REQUEST" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.03.
"REVOLVING CREDIT EXPOSURE" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans at such time.
"REVOLVING CREDIT TERMINATION DATE" means October 14, 1999 or such
earlier date as the Commitments shall terminate pursuant to the terms hereof
(or, if such day is not a Business Day, the next preceding Business Day).
"REVOLVING LOAN" means a Loan made pursuant to Section 2.03.
<PAGE>
"S&P" means Standard & Poor's.
"SPIN-OFF" means the distribution to shareholders by Torchmark
Corporation of its remaining equity interests in the Borrower.
"STATUTORY RESERVE RATE" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board or other Governmental Authority to which the
Administrative Agent is subject with respect to the Adjusted LIBO Rate. Such
reserve percentages shall include those imposed pursuant to Regulation D of the
Board. Eurodollar Loans shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D or
any comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"SUBSIDIARY" means, with respect to any Person (the "PARENT") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"SUBSIDIARY" means any subsidiary of the Borrower.
"TAX DISAFFILIATION AGREEMENT" means the Tax Disaffiliation Agreement
dated as of March 3, 1998 by and between Torchmark Corporation and the Borrower.
"TAXES" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"TERM BORROWING REQUEST" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.05.
<PAGE>
"TERMINATION DATE" means the date that is six (6) months after the
Revolving Credit Termination Date.
"TERM LOAN" means a Loan made pursuant to Section 2.04.
"TRANSACTIONS" means the execution, delivery and performance by the
Borrower of this Agreement, the borrowing of Loans and the use of the proceeds
thereof.
"TYPE", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate
Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a
Fixed Rate.
"W&R FUND" MEANS all closed-end funds and open-end mutual funds
sponsored by the Borrower or any of its Subsidiaries or for which the Borrower
or any of its Subsidiaries provides investment advisory, management,
administrative, supervisory, consulting, underwriting or similar services.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02 CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of
this Agreement, Loans may be classified and referred to by Class (E.G., a
"Revolving Loan" or "Term Loan") or by Type (E.G., a "Eurodollar Loan") or by
Class and Type (E.G., a "Eurodollar Revolving Loan" or "Eurodollar Term Loan").
Borrowings also may be classified and referred to by Class (E.G., a "Revolving
Borrowing" or "Term Borrowing") or by Type (E.G., a "Eurodollar Borrowing") or
by Class and Type (E.G., a "Eurodollar Revolving Borrowing" of "Eurodollar Term
Borrowing").
SECTION 1.03 TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such
<PAGE>
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules
to, this Agreement and (e) the words "asset" and "property" shall be
construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
SECTION 1.04 ACCOUNTING TERMS; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; PROVIDED
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE CREDITS
SECTION 2.01 COMMITMENTS. Subject to the terms and conditions set forth
herein, each Lender agrees to make Revolving Loans to the Borrower from time to
time during the Availability Period in an aggregate principal amount that will
not result in (a) such Lender's Revolving Credit Exposure exceeding such
Lender's Commitment or (b) the sum of the total Revolving Credit Exposures plus
the aggregate principal amount of outstanding Competitive Loans exceeding the
total Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Revolving Loans.
SECTION 2.02 LOANS AND BORROWINGS. (a) Each Revolving Loan shall be
made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective Commitments. Each Competitive Loan
shall be made in accordance with the procedures set forth in Section 2.06. The
failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; PROVIDED that the
Commitments and Competitive Bids of the Lenders are several and no
<PAGE>
Lender shall be responsible for any other Lender's failure to make Loans as
required.
(b) Subject to Section 2.14, (i) each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith, and (ii) each Competitive Borrowing shall be comprised
entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; PROVIDED that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $5,000,000;
PROVIDED that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Commitments. Each Competitive
Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $5,000,000. Borrowings of more than one Type and
Class may be outstanding at the same time; PROVIDED that there shall not at any
time be more than a total of ten (10) Eurodollar Revolving Borrowings
outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Revolving Credit Termination Date.
SECTION 2.03 REQUESTS FOR REVOLVING BORROWINGS. To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone prior to 10:00 a.m., New York City time (a) three Business Days before
the date of the proposed Borrowing in the case of a Eurodollar Borrowing or (b)
one Business Day before the date of the proposed Borrowing in the case of an ABR
Borrowing. Each such telephonic Revolving Borrowing Request shall be irrevocable
and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Revolving Borrowing Request in a form approved
by the Administrative Agent and signed by the Borrower. Each such telephonic and
written Revolving Borrowing Request shall specify the following information in
compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
<PAGE>
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period contemplated
by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the requirements of
Section 2.07.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Revolving Borrowing Request in
accordance with this Section, the Administrative Agent shall advise each Lender
of the details thereof and of the amount of such Lender's Loan to be made as
part of the requested Borrowing.
SECTION 2.04 TERM LOANS. The Revolving Loans outstanding at the close
of business on the Revolving Credit Termination Date shall, at the option of the
Borrower by notice given to the Administrative Agent as provided in Section
2.05, convert on such date into term loans (the "TERM LOANS") to the Borrower.
The Term Loans may from time to time be (a) Eurodollar Loans, (b) ABR Loans or
(c) a combination thereof, as determined by the Borrower and notified to the
Administrative Agent in accordance with Sections 2.05 and 2.08.
SECTION 2.05 PROCEDURE FOR TERM BORROWING. To request the conversion of
the Revolving Credit Loans to Term Loans as contemplated in Section 2.04, the
Borrower shall notify the Administrative Agent of such request by telephone
prior to 10:00 A.M., New York City time, (a) three Business Days prior to the
Revolving Credit Termination Date, if all or any part of the Term Loans are to
be initially Eurodollar Borrowing or (b) one Business Day prior to the Revolving
Credit Termination Date, otherwise. Such telephonic Term Borrowing Request shall
be irrevocable and shall be confirmed promptly by hand delivery or telecopy to
the Administrative Agent of a written Term Borrowing Request in a form approved
by the Administrative Agent and signed by the Borrower. Each such telephonic and
written Term Borrowing Request
<PAGE>
shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested conversion;
(ii) the date of such conversion, which shall be a Business Day;
(iii) whether after giving effect to such conversion, the outstanding Term
Loans are to consist of an ABR Borrowing or a Eurodollar Borrowing, or a
combination thereof; and
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to
be applicable thereto, which shall be a period contemplated by the definition of
the term "Interest Period".
If no election as to the Type of Term Loans is specified, then the requested
Term Loans shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Term Borrowing, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Term Borrowing Request in accordance with this Section,
the Administrative Agent shall advise each Lender of the details thereof and of
the amount of such Lender's Loan converted as part of the requested Borrowing.
The aggregate principal amount of the Term Loans shall be equal to the aggregate
principal amount of the Revolving Loans then outstanding and the Term Loans
shall be made by conversion of such Revolving Loans, without any payments being
made by the Lenders.
SECTION 2.06 COMPETITIVE BID PROCEDURE. (a) Subject to the terms and
conditions set forth herein, from time to time during the Availability Period
the Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans; PROVIDED
that the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans at any time shall not exceed
the total Commitments. To request Competitive Bids, the Borrower shall notify
the Administrative Agent of such request by telephone, in the case of a
Eurodollar Borrowing, not later than 10:00 a.m., New York City time, four
Business Days before the date of the proposed Borrowing and, in the case of a
Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one
Business Day before the date of the proposed Borrowing; PROVIDED that the
Borrower may submit up to (but not more than) two Competitive Bid Requests on
the same day, but a Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request, unless any
and all such previous Competitive Bid Requests shall have been withdrawn or all
Competitive Bids received in response
<PAGE>
thereto rejected. Each such telephonic Competitive Bid Request shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Competitive Bid Request in a form approved by the Administrative
Agent and signed by the Borrower. Each such telephonic and written
Competitive Bid Request shall specify the following information in compliance
with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be a Eurodollar
Borrowing or a Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such
Borrowing, which shall be a period contemplated by the definition of the term
"Interest Period";
(v) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the requirements of
Section 2.07; and
(vi) the maturity date of such Borrowing, which shall not
be less than seven or more than 364 days from the date of such Borrowing and
shall not be later than the Revolving Credit Termination Date.
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make one or
more Competitive Bids to the Borrower in response to a Competitive Bid Request.
Each Competitive Bid by a Lender must be substantially in the form of Exhibit D
and must be received by the Administrative Agent by telecopy, in the case of a
Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time,
three Business Days before the proposed date of such Competitive Borrowing, and
in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City
time, on the proposed date of such Competitive Borrowing. Competitive Bids that
do not conform substantially to the form of Exhibit D may be rejected by the
Administrative Agent, and the Administrative Agent shall notify the applicable
Lender as promptly as practicable. Each Competitive
<PAGE>
Bid shall specify (i) the principal amount (which shall be a minimum of
$5,000,000 and an integral multiple of $1,000,000 and which may equal the
entire principal amount of the Competitive Borrowing requested by the
Borrower) of the Competitive Loan or Loans that the Lender is willing to
make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared
to make such Loan or Loans (expressed as a percentage rate per annum in the
form of a decimal to no more than four decimal places) and (iii) the Interest
Period applicable to each such Loan and the last day thereof.
(c) The Administrative Agent shall promptly notify the Borrower by
telecopy of the Competitive Bid Rate and the principal amount specified in each
Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.
(d) Subject only to the provisions of this paragraph, the Borrower may
accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing,
not later than 10:30 a.m., New York City time, three Business Days before the
date of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., New York City time, on the proposed date
of the Competitive Borrowing; PROVIDED that (i) the failure of the Borrower to
give such notice shall be deemed to be a rejection of each Competitive Bid, (ii)
the Borrower shall not accept a Competitive Bid made at a particular Competitive
Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive
Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the
Borrower shall not exceed the aggregate amount of the requested Competitive
Borrowing specified in the related Competitive Bid Request, (iv) to the extent
necessary to comply with clause (iii) above, the Borrower may accept Competitive
Bids at the same Competitive Bid Rate in part, which acceptance, in the case of
multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata
in accordance with the amount of each such Competitive Bid, and (v) except
pursuant to clause (iv) above, no Competitive Bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $5,000,000 and an integral multiple of $1,000,000; PROVIDED FURTHER that if a
Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may be for a minimum of
$1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner
<PAGE>
determined by the Borrower. A notice given by the Borrower pursuant to this
paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender
by telecopy whether or not its Competitive Bid has been accepted (and, if so,
the amount and Competitive Bid Rate so accepted), and each successful bidder
will thereupon become bound, subject to the terms and conditions hereof, to make
the Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive Bid
in its capacity as a Lender, it shall submit such Competitive Bid directly to
the Borrower at least one quarter of an hour earlier than the time by which the
other Lenders are required to submit their Competitive Bids to the
Administrative Agent pursuant to paragraph (b) of this Section.
SECTION 2.07 FUNDING OF BORROWINGS. (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders. The Administrative Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds, to
an account of the Borrower maintained with the Administrative Agent in New York
City and designated by the Borrower in the applicable Revolving Borrowing
Request, Term Borrowing Request or Competitive Bid Request.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the
case of the Borrower, the interest rate applicable to ABR Loans. If such Lender
pays such amount to the Administrative Agent, then such amount shall constitute
such
<PAGE>
Lender's Loan included in such Borrowing.
SECTION 2.08 INTEREST ELECTIONS. (a) Each Revolving Borrowing initially
shall be of the Type specified in the applicable Revolving Borrowing Request
and, in the case of a Eurodollar Revolving Borrowing, shall have an initial
Interest Period as specified in such Revolving Borrowing Request. Thereafter,
the Borrower may elect to convert such Borrowing to a different Type or to
continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing,
may elect Interest Periods therefor, all as provided in this Section. The
Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably
among the Lenders holding the Loans comprising such Borrowing, and the Loans
comprising each such portion shall be considered a separate Borrowing. This
Section shall not apply to Competitive Borrowings, which may not be converted or
continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Revolving Borrowing Request would be required under Section 2.03 if the Borrower
were requesting a Revolving Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to clauses
(iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar
<PAGE>
Borrowing, the Interest Period to be applicable thereto after giving effect
to such election, which shall be a period contemplated by the definition of
the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Revolving Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
continued as a Eurodollar Revolving Borrowing with an Interest Period of one
month. Notwithstanding any contrary provision hereof, (a) if an Event of Default
has occurred and is continuing and the Administrative Agent, at the request of
the Required Lenders, so notifies the Borrower, then, so long as an Event of
Default is continuing (i) no outstanding Revolving Borrowing may be converted to
or continued as a Eurodollar Borrowing, (ii) no outstanding Term Borrowing may
be converted to a Eurodollar Borrowing and (iii) unless repaid, each Eurodollar
Revolving Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto, and (b) no Revolving Loan or Term Loan may
be converted into or continued as a Eurodollar Borrowing after the date that is
one month or 30 days, respectively, prior to the Revolving Credit Termination
Date or the Termination Date, as the case may be.
SECTION 2.09 TERMINATION AND REDUCTION OF COMMITMENTS. (a) Unless
previously terminated, the Commitments shall terminate on the Revolving Credit
Termination Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments; PROVIDED that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $1,000,000 and not less
than $10,000,000 and (ii) the Borrower shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.11, the sum of the Revolving Credit Exposures plus the
aggregate principal amount of outstanding Competitive Loans would exceed the
total Commitments.
<PAGE>
(c) The Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section at
least three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable; PROVIDED that a notice of termination of
the Commitments delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments shall be permanent.
Termination of the Commitments shall also terminate the obligation of the
Lenders to make the Term Loans. Each reduction of the Commitments shall be made
ratably among the Lenders in accordance with their respective Commitments.
SECTION 2.10 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender (i) the then unpaid principal amount of each Revolving
Loan on the Revolving Credit Termination Date (or such earlier date on which the
Revolving Loans become due and payable pursuant to Article VII), (ii) the
principal amount of the Term Loan of such Lender on the Termination Date (or the
then unpaid principal amount of such Term Loan, on the date that the Term Loans
become due and payable pursuant to Article VII), and (iii) the then unpaid
principal amount of each Competitive Loan on the last day of the Interest Period
applicable to such Loan (or such earlier date on which the Competitive Loans
become due and payable pursuant to Article VII).
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
<PAGE>
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be PRIMA FACIE evidence of the existence and
amounts of the obligations recorded therein; PROVIDED that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.11 PREPAYMENT OF LOANS. (a) The Borrower shall have the right
at any time and from time to time to prepay any Borrowing in whole or in part,
subject to prior notice in accordance with paragraph (b) of this Section;
PROVIDED that the Borrower shall not have the right to prepay any Competitive
Loan without the prior consent of the Lender thereof.
(b) The Borrower shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m.,
New York City time, one Business Day before the date of prepayment. Each such
notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; PROVIDED
that, if a notice of prepayment is given in connection with a conditional notice
of termination of the Commitments as contemplated by Section 2.09, then such
notice of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.09. Promptly following receipt of any such notice
relating to a Revolving Borrowing, the Administrative Agent shall advise the
Lenders of the contents thereof. Each partial prepayment of any Revolving
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Revolving Borrowing of the same Type as provided in Section 2.02.
Each prepayment of a Revolving Borrowing
<PAGE>
shall be applied ratably to the Loans included in the prepaid Borrowing.
Prepayments shall be accompanied by accrued interest to the extent required
by Section 2.13. Amounts prepaid on account of Term Loans may not be
reborrowed.
SECTION 2.12 FEES. (a) The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a facility fee, which shall accrue at the
Applicable Rate on the daily amount of the Commitment of such Lender (whether
used or unused) or the outstanding amount of the Term Loans of such Lender,
during the period from and including the Closing Date to but excluding the date
on which such Commitment terminates; PROVIDED that, if such Lender continues to
have any outstanding Loans after its Commitment terminates, then such facility
fee shall continue to accrue on the daily amount of such Lender's outstanding
Loans from and including the date on which its Commitment terminates to but
excluding the date on which such Lender ceases to have any outstanding Loans.
Accrued facility fees shall be payable in arrears on the last day of March,
June, September and December of each year and on the date on which the
Commitments terminate, commencing on the first such date to occur after the date
hereof; PROVIDED that any facility fees accruing after the date on which the
Commitments terminate shall be payable on demand. All facility fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees, to the Lenders. Fees paid shall not be refundable
under any circumstances.
SECTION 2.13 INTEREST. (a) The Loans comprising each ABR Borrowing
shall bear interest at a rate per annum equal to the Alternate Base Rate plus
the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest
at a rate per annum equal to (i) in the case of a Eurodollar Loan, the Adjusted
LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Rate, or (ii) in the case of a Eurodollar Competitive Loan, the LIBO
Rate for the Interest Period in effect for such Borrowing plus (or minus, as
applicable) the Margin applicable to such
<PAGE>
Loan.
(c) Each Fixed Rate Loan shall bear interest at a rate per annum equal
to the Fixed Rate applicable to such Loan.
(d) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided above or (ii) in the case of
any other amount, 2% plus the rate applicable to ABR Loans as provided above.
(e) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; PROVIDED that (i) interest accrued pursuant
to paragraph (d) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan (other than a prepayment of an ABR
Revolving Loan prior to the end of the Availability Period), accrued interest on
the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment, (iii) in the event of any conversion of any Eurodollar
Loan prior to the end of the current Interest Period therefor, accrued interest
on such Loan shall be payable on the effective date of such conversion and (iv)
all accrued interest shall be payable upon termination of the Commitments.
(f) All interest hereunder shall be computed on the basis of a year of
360 days, except that interest computed by reference to the Alternate Base Rate
at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate,
Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error.
SECTION 2.14 ALTERNATE RATE OF INTEREST. If prior to the commencement
of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable,
for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders
<PAGE>
(or, in the case of a Eurodollar Competitive Loan, the Lender that is
required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect
the cost to such Lenders (or Lender) of making or maintaining their Loans (or
its Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective, (ii) if any Revolving Borrowing Request requests a Eurodollar
Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii)
any request by the Borrower for a Eurodollar Competitive Borrowing shall be
ineffective; PROVIDED that (A) if the circumstances giving rise to such notice
do not affect all the Lenders, then requests by the Borrower for Eurodollar
Competitive Borrowings may be made to Lenders that are not affected thereby and
(B) if the circumstances giving rise to such notice affect only one Type of
Borrowings, then the other Type of Borrowings shall be permitted.
SECTION 2.15 INCREASED COSTS. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender (except any such reserve
requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any
other condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans
made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to increase the cost to
such Lender or to reduce the amount of any sum received or receivable by such
Lender hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing
<PAGE>
the rate of return on such Lender's capital or on the capital of such
Lender's holding company, if any, as a consequence of this Agreement or the
Loans made hereunder, to a level below that which such Lender or such
Lender's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's policies and the policies of such
Lender's holding company with respect to capital adequacy), then from time to
time the Borrower will pay to such Lender such additional amount or amounts
as will compensate such Lender or such Lender's holding company for any such
reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; PROVIDED that the Borrower shall not be required to
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than six months prior to the date that such Lender
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
PROVIDED FURTHER that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the six-month period referred to above shall
be extended to include the period of retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section, a Lender
shall not be entitled to compensation pursuant to this Section in respect of any
Competitive Loan if the Change in Law that would otherwise entitle it to such
compensation shall have been publicly announced prior to submission of the
Competitive Bid pursuant to which such Loan was made.
SECTION 2.16 BREAK FUNDING PAYMENTS. In the event of (a) the payment of
any principal of any Eurodollar Loan or Fixed Rate Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an Event
of Default), (b) the conversion of any Eurodollar Loan other than on the last
day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Revolving Loan or Term Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice is permitted to be revocable under Section 2.11(b) and is revoked in
accordance
<PAGE>
herewith), (d) the failure to borrow any Competitive Loan after accepting the
Competitive Bid to make such Loan, or (e) the assignment of any Eurodollar
Loan or Fixed Rate Loan other than on the last day of the Interest Period
applicable thereto as a result of a request by the Borrower pursuant to
Section 2.19, then, in any such event, the Borrower shall compensate each
Lender for the loss, cost and expense attributable to such event. In the case
of a Eurodollar Loan, the loss to any Lender attributable to any such event
shall be deemed to include an amount determined by such Lender to be equal to
the excess, if any, of (i) the amount of interest that such Lender would pay
for a deposit equal to the principal amount of such Loan for the period from
the date of such payment, conversion, failure or assignment to the last day
of the then current Interest Period for such Loan (or, in the case of a
failure to borrow, convert or continue, the duration of the Interest Period
that would have resulted from such borrowing, conversion or continuation) if
the interest rate payable on such deposit were equal to the Adjusted LIBO
Rate (in the case of a Eurodollar Loan) for such Interest Period, over (ii)
the amount of interest that such Lender would earn on such principal amount
for such period if such Lender were to invest such principal amount for such
period at the interest rate that would be bid by such Lender (or an affiliate
of such Lender) for dollar deposits from other banks in the eurodollar market
at the commencement of such period. A certificate of any Lender setting forth
any amount or amounts that such Lender is entitled to receive pursuant to
this Section shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender the amount shown as
due on any such certificate within 10 days after receipt thereof.
SECTION 2.17 TAXES. (a) Any and all payments by or an account of any
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or Lender
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent
<PAGE>
and each Lender within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable
under this Section) paid by the Administrative Agent or such Lender, as the
case may be, and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Borrower by a Lender or by the Administrative
Agent on its own behalf or on behalf of a Lender, shall be conclusive absent
manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Borrower, such properly completed and
executed documentation prescribed by applicable law as will permit such payments
to be made without withholding or at a reduced rate.
SECTION 2.18 PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF
SET-OFFS. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest, fees, or under Section 2.15, 2.16 or
2.17, or otherwise) prior to 12:00 noon, New York City time, on the date when
due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent, c/o The Loan and Agency Services
Group at the address set forth in Section 9.01, except that payments pursuant to
Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof. If any payment hereunder shall be due on a
day that is not a Business Day, the date for
<PAGE>
payment shall be extended to the next succeeding Business Day, and, in the
case of any payment accruing interest, interest thereon shall be payable for
the period of such extension. All payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied (i) first, to pay interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, to pay principal then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal then due to such
parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or Term Loans resulting in such Lender
receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans or Term Loans and accrued interest thereon than the proportion
received by any other Lender, then the Lender receiving such greater proportion
shall purchase (for cash at face value) participations in the Revolving Loans or
Term Loans of other Lenders to the extent necessary so that the benefit of all
such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective
Revolving Loans or Term Loans; PROVIDED that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that
<PAGE>
the Borrower will not make such payment, the Administrative Agent may assume
that the Borrower has made such payment on such date in accordance herewith
and may, in reliance upon such assumption, distribute to the Lenders the
amount due. In such event, if the Borrower has not in fact made such payment,
then each of the Lenders severally agrees to repay to the Administrative
Agent forthwith on demand the amount so distributed to such Lender with
interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the Federal Funds Effective Rate.
(e) If any Lender shall fail to make any payment required to be made by
it pursuant to Section 2.07(b) or 2.18(d), then the Administrative Agent may, in
its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
SECTION 2.19 MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS. (a) If any
Lender requests compensation under Section 2.15, or if the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.17, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
(other than any outstanding Competitive Loans held by it) to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts
<PAGE>
such assignment); PROVIDED that (i) the Borrower shall have received the
prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans (other than
Competitive Loans), accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the Borrower (in the
case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.15 or payments
required to be made pursuant to Section 2.17, such assignment will result in
a reduction in such compensation or payments. A Lender shall not be required
to make any such assignment and delegation if, prior thereto, as a result of
a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
SECTION 2.20 NEW LENDERS; COMMITMENT INCREASES. (a) With the consent of
the Borrower and the Administrative Agent (which, in the case of the
Administrative Agent, shall not be unreasonably withheld), (i) one or more
additional banks or other financial institutions may become a party to this
Agreement by executing a supplement hereto, in form and substance satisfactory
to such bank or other financial institution, the Borrower and the Administrative
Agent, whereupon such bank or other financial institution (a "New Lender") shall
become a Lender for all purposes hereof and to the same extent as if originally
a party hereto and shall be bound by and entitled to the benefits of this
Agreement, and Schedule 2.01 hereto shall be deemed to be amended to add the
name, address and Commitment of such New Lender and (ii) any Lender may increase
the amount of its Commitment by executing a supplement hereto, in form and
substance satisfactory to such Lender, the Borrower and the Administrative
Agent, whereupon such Lender shall be bound by and entitled to the benefits of
this Agreement with respect to the full amount of its Commitment as so
increased, and Schedule 2.01 hereto shall be deemed to be amended to reflect
such increase in the Commitment of such Lender. In no event may the aggregate
Commitments be increased above $300,000,000 pursuant to any supplement described
in this Section 2.20(a).
(b) If on the date upon which a bank or other financial institution
becomes a New Lender or upon which a Lender's Commitment is changed pursuant to
Section 2.20(a), any Revolving Loans are then outstanding, the Borrower shall
borrow Revolving Loans from such Lender in such amount and with such Interest
Period such that, after giving effect thereto, the quotient of (x) the Revolving
Loan of such Lender of each Type and, in the case of Eurodollar Loans, with each
Interest Period and
<PAGE>
(y) such Lender's Commitment is equal to the corresponding comparable
quotient of each other Lender. Any Eurodollar Borrowing borrowed pursuant to
the preceding sentence shall bear interest at a rate equal to the respective
interest rates then applicable to the Eurodollar Revolving Loans of the other
Lenders or such other rate as may be agreed upon by the Borrower and such
Lender.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
SECTION 3.01 ORGANIZATION; POWERS. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02 AUTHORIZATION; ENFORCEABILITY. The Transactions are within
the Borrower's corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action. This Agreement has been duly
executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03 GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions (a)
do not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (b) will not violate any applicable
law or regulation or the charter, by-laws or other organizational documents of
the Borrower or any of its Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries, and (d) will not
result in the creation or imposition of any Lien on any asset of the Borrower or
any of its Subsidiaries.
<PAGE>
SECTION 3.04 FINANCIAL CONDITION; NO MATERIAL ADVERSE EFFECT. (a) The
Borrower has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders equity and cash flows (i) as of and for
the fiscal years ended 1996 and 1997, reported on by KPMG Peat Marwick LLP,
independent public accountants, and (ii) as of and for the fiscal quarters and
the portion of the fiscal year ended March 31, 1998 and June 30, 1998, certified
by its principal accounting officer. Such financial statements present fairly,
in all material respects, the financial position and results of operations and
cash flows of the Borrower and its consolidated Subsidiaries as of such dates
and for such periods in accordance with GAAP, subject to year-end audit
adjustments and the absence of footnotes in the case of the statements referred
to in clause (ii) above. The Borrower and its Subsidiaries do not have any
material Guarantees, contingent liabilities and liabilities for taxes, or any
long-term leases or unusual forward or long-term commitments, including any
interest rate or foreign currency swap or exchange transaction or other
obligation in respect of derivatives, that are not reflected in the most recent
financial statements referred to in this paragraph.
(b) Since December 31, 1997, there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect.
SECTION 3.05 PROPERTIES. (a) Each of the Borrower and its Subsidiaries
has good title to, or valid leasehold interests in, all its real and personal
property material to its business, and none of such property is subject to any
Lien except as permitted by Section 6.03.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06 LITIGATION AND ENVIRONMENTAL MATTERS. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse
<PAGE>
Effect (other than the Disclosed Matters) or (ii) that involve this Agreement
or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither the Borrower nor any of
its Subsidiaries (i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07 COMPLIANCE WITH LAWS AND AGREEMENTS. Each of the Borrower
and its Subsidiaries is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments (including any material investment advisory or
management agreements) binding upon it or its property, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.08 INVESTMENT AND HOLDING COMPANY STATUS. (a) Neither the
Borrower nor any of its Subsidiaries is (i) an "investment company", or a
company "controlled" by an "investment company", each as defined in, or subject
to regulation under, the Investment Company Act of 1940, or (ii) a "holding
company" as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935. Except for net capital and other requirements
imposed on registered broker-dealers, neither the Borrower nor any of its
Subsidiaries is subject to any regulation under any Requirement of Law (other
than Regulation X of the Board) that limits its ability to incur Indebtedness.
(b) The Borrower and each Subsidiary of the Borrower which is engaged
in investment advisory or investment management activities is, and at all times
will be, duly registered as an investment adviser as and to the extent required
under the Investment Advisers Act of 1940, as amended; and each Subsidiary of
the Borrower which is engaged in broker-dealer business is, and at all times
will be, duly registered as a broker-dealer as and to the extent required under
the
<PAGE>
Securities Exchange Act of 1934, as amended, and, as and to the extent
required, is, and at all times will be, a member in good standing of the
National Association of Securities Dealers, Inc.
SECTION 3.09 TAXES. Each of the Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.10 ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $5,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $10,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11 DISCLOSURE. The Borrower has disclosed to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements, certificates
or other information furnished by or on behalf of the Borrower to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; PROVIDED that,
with respect to projected financial information, the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.
<PAGE>
SECTION 3.12 NO DEFAULT. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect that could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
SECTION 3.13 SUBSIDIARIES. Except as disclosed to the Administrative
Agent by the Borrower in writing from time to time after the Closing Date, ()
Schedule 3.13 sets forth the name and jurisdiction of incorporation of each
Subsidiary and, as to each such Subsidiary, the percentage of each class of
Capital Stock owned by the Borrower and () there are no outstanding
subscriptions, options, warrants, calls, rights or other agreements or
commitments (other than stock options or restricted stock granted to employees
or directors and directors' qualifying shares) of any nature relating to any
Capital Stock of the Borrower or any Subsidiary.
SECTION 3.14 FEDERAL REGULATIONS. No part of the proceeds of any Loans
will be used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect in any manner that violates the provisions of the
Regulations of the Board or for any other purpose that violates the provisions
of the Regulations of the Board. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in
Regulation U. No more than 25% of the consolidated assets of the Borrower and
its Subsidiaries (excluding treasury shares) consists of "margin stock" under
Regulation U as now and from time to time hereafter in effect.
SECTION 3.15 YEAR 2000 MATTERS. Any reprogramming required to permit
the proper functioning (but only to the extent that such proper functioning
would otherwise be impaired by the occurrence of the year 2000) in and following
the year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business (including
any such systems and other equipment supplied by others or with which the
computer systems of the Borrower or any of its Subsidiaries interface), and the
testing of all such systems and other equipment as so reprogrammed, is scheduled
to be completed by March 31, 1999. The costs to the Borrower and its
Subsidiaries that have not been incurred as of the date hereof for such
reprogramming and testing and for the other reasonably foreseeable consequences
to them of any improper functioning of other computer
<PAGE>
systems and equipment containing embedded microchips due to the occurrence of
the year 2000 could not reasonably be expected to result in a Default or
Event of Default or to have a Material Adverse Effect. Except for any
reprogramming referred to above, the computer systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient for the conduct of
their business as currently conducted.
SECTION 3.16 SPIN-OFF. The Borrower has heretofore furnished to each
Lender copies of the then-current draft of the material definitive documentation
with respect to the Spin-Off (including any registration statement with respect
to its common stock included in the Spin-Off documentation) and the intercompany
arrangements between the Borrower and Torchmark Corporation (including the
Public Offering and Separation Agreement and the Tax Disaffiliation Agreement).
The consummation of the Spin-Off could not reasonably be expected to result in a
Material Adverse Effect on (i) the Borrower, (ii) the Borrower's ability to
perform its obligations under this Agreement or (iii) the rights and remedies of
the Lenders.
SECTION 3.17 NO BURDENSOME RESTRICTIONS. No Requirement of Law or
Contractual Obligation of the Borrower could reasonably be expected to have a
Material Adverse Effect.
ARTICLE IV
CONDITIONS
SECTION 4.01 EFFECTIVE DATE. The obligations of the Lenders to make
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received from each
party hereto either (i) a counterpart of this Agreement signed on behalf of such
party or (ii) written evidence satisfactory to the Administrative Agent (which
may include telecopy transmission of a signed signature page of this Agreement)
that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated the
Effective Date) of the General Counsel of the Borrower, substantially in the
form of Exhibit B, and covering such other matters
<PAGE>
relating to the Borrower, this Agreement or the Transactions as the Required
Lenders shall reasonably request. The Borrower hereby requests such counsel
to deliver such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably request
relating to the organization, existence and good standing of the Borrower, the
authorization of the Transactions and any other legal matters relating to the
Borrower, this Agreement or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated the
Effective Date and signed by the President, a Vice President or a Financial
Officer of the Borrower, confirming compliance with the conditions set forth in
paragraphs (a) and (b) of Section 4.02 without giving effect to the
parenthetical set forth in paragraph (a) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other amounts
due and payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all reasonable out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.
(f) All governmental and third party approvals necessary in connection with
the continuing operations of the Borrower and its Subsidiaries and the
transactions contemplated hereby shall have been obtained and be in full force
and effect, and all applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority that would restrain,
prevent or otherwise impose adverse conditions on the financing contemplated
hereby.
(g) The Lenders shall have received (i) audited consolidated financial
statements of the Borrower for the 1996 and 1997 fiscal years and (ii) unaudited
interim consolidated financial statements of the Borrower for each quarterly
period ended subsequent to the date of the latest applicable financial
statements delivered pursuant to clause (i) of this paragraph as to which such
financial statements are available, and such financial statements shall not, in
the reasonable judgment of the Lenders, reflect any material adverse change in
the consolidated financial condition of the Borrower, as reflected in the
financial statements or projections contained in the Confidential Information
Memorandum.
(h) The Administrative Agent shall have received from the Borrower
documentation reasonably satisfactory to the Administrative
<PAGE>
Agent, in form and substance, with respect to the Spin-Off and the
intercompany arrangements between the Borrower and Torchmark Corporation
(including the allocation of tax and other liabilities between the Borrower
and Torchmark Corporation).
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 5:00 p.m., New York City time, on
October 15, 1998 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION 4.02 EACH CREDIT EVENT. The obligation of each Lender to make a
Loan on the occasion of any Borrowing (including, without limitation, its
initial Loan) is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrower set forth in this
Agreement (with the exception of the representation and warranty contained in
Section 3.04(b)) shall be true and correct on and as of the date of such
Borrowing.
(b) At the time of and immediately after giving effect to such Borrowing,
no Default shall have occurred and be continuing.
Each Borrowing, the conversion of the Revolving Loans into Term Loans pursuant
to Sections 2.04 and 2.05, and the increase of the aggregate Commitments
pursuant to Section 2.20, shall be deemed to constitute a representation and
warranty by the Borrower on the date thereof as to the matters specified in
paragraphs (a) and (b) of this Section, PROVIDED that (i) such conversion of the
Revolving Loans into Term Loans and (ii) such increase of the aggregate
Commitments shall also be deemed to constitute a representation and warranty by
the Borrower that the matters specified in Section 3.04(b) are true and correct
on and as of the date thereof.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal
of and interest on each Loan and all fees payable hereunder shall have been paid
in full, the Borrower covenants and agrees with the
<PAGE>
Lenders that:
SECTION 5.01 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower
will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the Borrower, the
annual report of the Borrower on Form 10-K filed by the Borrower with the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission;
(b) within 45 days after the end of each of the first three fiscal quarters
of each fiscal year of the Borrower, the quarterly report of the Borrower on
Form 10-Q filed by the Borrower with the Securities and Exchange Commission, or
any Governmental Authority succeeding to any or all of the functions of said
Commission;
(c) concurrently with any delivery of financial statements under clause (a)
or (b) above, a certificate of a Financial Officer of the Borrower (i)
certifying as to whether a Default has occurred and, if a Default has occurred,
specifying the details thereof and any action taken or proposed to be taken with
respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 6.01 and (iii) stating whether any change
in GAAP or in the application thereof has occurred since the date of the audited
financial statements referred to in Section 3.04 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate;
(d) promptly after the same become publicly available, copies of all annual
reports on Form 10-K, quarterly reports on Form 10-Q and all reports on Form
8-K, and all proxy statements, filed by the Borrower or any Subsidiary with the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission, or with any national securities
exchange, or distributed by the Borrower to its shareholders generally, as the
case may be;
(e) after the end of each calendar month, (A) a schedule of the Net Asset
Value of the investment companies and accounts managed by the Borrower and its
Subsidiaries on the last day of such calendar month and certain other
information, substantially in the form of Exhibit C and (B) a schedule showing
the calculation of the Aggregate Revenue Base as of the end of such calendar
month, and an analysis of changes from the preceding calendar month,
substantially in the form of Exhibit C-2, or in such other form as may be
reasonably satisfactory to the Administrative Agent; and
<PAGE>
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of this Agreement, as
the Administrative Agent or any Lender may reasonably request.
SECTION 5.02 NOTICES OF MATERIAL EVENTS. The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its Subsidiaries in an aggregate amount exceeding
$5,000,000;
(d) any suspension or termination of the registration of the Borrower or
any of its Subsidiaries as an investment adviser under the Investment Advisers
Act of 1940, as amended, or any cancellation or expiration without renewal of
any material investment advisory agreement or similar contract to which the
Borrower or any of its Subsidiaries is a party; and
(e) any other development that results in, or could reasonably be expected
to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03 EXISTENCE; CONDUCT OF BUSINESS. The Borrower will, and
will cause each of its Subsidiaries to, (a) do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; PROVIDED that the foregoing shall not prohibit
any merger, consolidation, liquidation or dissolution permitted under Section
6.04, and (b) comply with all Contractual Obligations and Requirements of Law
except to the extent
<PAGE>
that failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 5.04 PAYMENT OF OBLIGATIONS. The Borrower will, and will cause
each of its Subsidiaries to, pay its obligations, including Tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) the
Borrower or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.05 MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower will,
and will cause each of its Subsidiaries to, (a) keep and maintain all property
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted, and (b) maintain, with financially sound and
reputable insurance companies, insurance in such amounts and against such risks
as are customarily maintained by companies engaged in the same or similar
businesses operating in the same or similar locations.
SECTION 5.06 BOOKS AND RECORDS; INSPECTION RIGHTS. The Borrower will,
and will cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the Administrative Agent or any Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.
SECTION 5.07 COMPLIANCE WITH LAWS. The Borrower will, and will cause
each of its Subsidiaries to, comply with all laws, rules, regulations and orders
of any Governmental Authority applicable to it or its property and maintain all
registrations and memberships with any Governmental Authority, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.08 USE OF PROCEEDS. The proceeds of the Loans will be used
only for general corporate purposes, including but not limited (i) to repurchase
shares of the Borrower's Class A Common Stock
<PAGE>
and, after the Spin-Off, the Borrower's Class A and Class B Common Stock and
(ii) to consummate Permitted Acquisitions. No part of the proceeds of any
Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Board, including
Regulations U and X.
SECTION 5.09 ENVIRONMENTAL LAWS. The Borrower will, and will cause each
of its Subsidiaries to, (a) comply in all material respects with all applicable
Environmental Laws, and obtain and comply in all material respects with and
maintain any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws, and (b) conduct and complete
all investigations, studies, sampling and testing, and all remedial, removal and
other actions required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all Governmental
Authorities regarding Environmental Laws, except in each case to the extent that
non-compliance therewith could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 5.10. SPIN-OFF. In the event that the Spin-Off occurs, the
Borrower will ensure that the Spin-Off is consummated in a manner that does not
have a Material Adverse Effect on (i) the Borrower, (ii) the Borrower's ability
to perform its obligations under this Agreement or (iii) the rights and remedies
of the Lenders, and, in concert with Torchmark Corporation, shall procure one or
more rulings from the Internal Revenue Service to the effect that the Spin-Off
will not subject Torchmark Corporation or the Borrower to any federal income
taxes.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
the Borrower covenants and agrees with the Lenders that:
SECTION 6.01 FINANCIAL CONDITION COVENANTS.
(a) CONSOLIDATED LEVERAGE RATIO. The Borrower shall not permit the
Consolidated Leverage Ratio as at the last day of any period of four consecutive
fiscal quarters of the Borrower ending with any fiscal quarter to equal or
exceed the ratio of 3.0 to 1.0.
<PAGE>
(b) CONSOLIDATED INTEREST COVERAGE RATIO. The Borrower shall not permit
the Consolidated Interest Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower ending with any fiscal quarter to be less than
or equal to the ratio of 4.0 to 1.0.
SECTION 6.02 INDEBTEDNESS. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness created hereunder;
(b) Indebtedness existing on the date hereof and set forth in Schedule
6.02, but not any extensions, renewals or replacements of any such Indebtedness
and without increasing, or shortening the maturity of, the principal amount
thereof;
(c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to
the Borrower or any other Subsidiary;
(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any
Subsidiary of Indebtedness of the Borrower or any other Subsidiary;
(e) Indebtedness of the Borrower or any Subsidiary incurred to finance the
acquisition, construction or improvement of any fixed or capital assets,
including Capital Lease Obligations and any Indebtedness assumed in connection
with the acquisition of any such assets or secured by a Lien on any such assets
prior to the acquisition thereof, and extensions, renewals and replacements of
any such Indebtedness that do not increase the outstanding principal amount
thereof; PROVIDED that (i) such Indebtedness is incurred prior to or within 90
days after such acquisition or the completion of such construction or
improvement and (ii) the aggregate principal amount of Indebtedness permitted by
this clause (e) shall not exceed $10,000,000 at any time outstanding;
(f) Indebtedness of any Person that becomes a Subsidiary after the date
hereof; PROVIDED that such Indebtedness exists at the time such Person becomes a
Subsidiary and is not created in contemplation of or in connection with such
Person becoming a Subsidiary;
(g) Indebtedness of the Borrower or any Subsidiary as an account party in
respect of trade letters of credit;
(h) Indebtedness of the Borrower incurred to finance a Permitted
Acquisition; and
<PAGE>
(i) other unsecured Indebtedness in an aggregate principal amount not
exceeding $25,000,000 at any time outstanding.
SECTION 6.03 LIENS. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned or hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Borrower or any Subsidiary
existing on the date hereof and set forth in Schedule 6.02; PROVIDED that (i)
such Lien shall not apply to any other property or asset of the Borrower or any
Subsidiary and (ii) such Lien shall secure only those obligations which it
secures on the date hereof;
(c) any Lien existing on any property or asset prior to the acquisition
thereof by the Borrower or any Subsidiary or existing on any property or asset
of any Person that becomes a Subsidiary after the date hereof prior to the time
such Person becomes a Subsidiary; PROVIDED that (i) such Lien is not created in
contemplation of or in connection with such acquisition or such Person becoming
a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other
property or assets of the Borrower or any Subsidiary and (iii) such Lien shall
secure only those obligations which it secures on the date of such acquisition
or the date such Person becomes a Subsidiary, as the case may be; and
(d) Liens on property, plant and equipment acquired, constructed or
improved by the Borrower or any Subsidiary; PROVIDED that (i) such security
interests secure Indebtedness permitted by clause (e) of Section 6.02, (ii) such
security interests and the Indebtedness secured thereby are incurred prior to or
within 90 days after such acquisition or the completion of such construction or
improvement, (iii) the Indebtedness secured thereby does not exceed 70% of the
cost of acquiring, constructing or improving such property, plant and equipment
and (iv) such security interests shall not apply to any other property or assets
of the Borrower or any Subsidiary.
SECTION 6.04 FUNDAMENTAL CHANGES. (a) The Borrower will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or in a series of
transactions) all or substantially all of its assets, or all or
<PAGE>
substantially all of the stock of any of its Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, except
that, if at the time thereof and immediately after giving effect thereto no
Default shall have occurred and be continuing (i) any other Person, including
a Subsidiary, may merge into the Borrower in a transaction in which the
Borrower is the surviving corporation, (ii) any Subsidiary may merge into any
Subsidiary in a transaction in which the surviving entity is a Subsidiary,
(iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its
assets to the Borrower or to another Subsidiary, (iv) any Subsidiary may
liquidate or dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the Borrower and is
not materially disadvantageous to the Lenders, and (v) the Borrower may merge
into or consolidate with another Person in a transaction in which such other
Person is the surviving entity if such other Person is organized and validly
existing under the laws of the United States or any State thereof and by
operation of law or otherwise assumes all obligations of the Borrower
hereunder and such assumption is evidenced by an opinion of counsel to such
other Person satisfactory in form and substance to the Administrative Agent;
PROVIDED that any such merger involving a Person that is not a wholly owned
Subsidiary immediately prior to such merger shall not be permitted unless
also permitted by Section 6.05.
(b) The Borrower will not, and will not permit any of its Subsidiaries
to, engage to any material extent in any business other than businesses of the
type conducted by the Borrower and its Subsidiaries on the date of execution of
this Agreement and businesses reasonably related thereto.
SECTION 6.05 INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS;
HEDGING AGREEMENTS. (a) The Borrower will not, and will not permit any of its
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger) any
capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit, except:
(i) Permitted Investments;
(ii) investments by the Borrower existing on the date hereof in
the capital stock of its Subsidiaries;
<PAGE>
(iii) loans or advances made by the Borrower to any Subsidiary
and made by any Subsidiary to the Borrower or any other Subsidiary;
(iv) Guarantees constituting Indebtedness permitted by Section
6.02;
(v) Permitted Acquisitions; and
(vi) other investments in an aggregate principal amount not
exceeding $20,000,000 at any time outstanding.
(b) The Borrower will not, and will not permit any of its Subsidiaries to,
enter into any Hedging Agreement, other than Hedging Agreements entered into in
the ordinary course of business to hedge or mitigate risks to which the Borrower
or any Subsidiary is exposed in the conduct of its business or the management of
its liabilities.
SECTION 6.06 RESTRICTED PAYMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except (a) the Borrower or any
of its Subsidiaries may declare and pay dividends with respect to its capital
stock provided that, in the case of any such declaration or payment by the
Borrower, no Default or Event of Default has occurred or is continuing or would
result therefrom, (b) the Borrower may make Restricted Payments pursuant to and
in accordance with stock option plans or other benefit plans for management or
employees of the Borrower and its Subsidiaries and (c) prior to the Spin-Off,
the Borrower may repurchase shares of the Borrower's Class A Common Stock and,
after the Spin-Off, the Borrower may, in addition to the foregoing, repurchase
shares of the Borrower's Class B Common Stock, PROVIDED that such repurchases
are not made with the proceeds of debt financings other than under this
Agreement.
SECTION 6.07 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any of its Subsidiaries to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on terms
and conditions not less favorable to the Borrower or such Subsidiary than could
be obtained on an arm's-length basis from unrelated third parties, (b)
transactions between or among the Borrower and its wholly owned Subsidiaries not
involving any other Affiliate and (c) any Restricted Payment permitted by
<PAGE>
Section 6.06.
SECTION 6.08 RESTRICTIVE AGREEMENTS. The Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into, incur
or permit to exist any agreement or other arrangement that prohibits, restricts
or imposes any condition upon (a) the ability of the Borrower or any Subsidiary
to create, incur or permit to exist any Lien upon any of its property or assets,
or (b) the ability of any Subsidiary to pay dividends or other distributions
with respect to any shares of its capital stock or to make or repay loans or
advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of
the Borrower or any other Subsidiary; PROVIDED that (i) the foregoing shall not
apply to restrictions and conditions imposed by law or by this Agreement, (ii)
the foregoing shall not apply to restrictions and conditions existing on the
date hereof identified on Schedule 6.08 (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness and (v) clause (a) of the foregoing shall not
apply to customary provisions in leases restricting the assignment thereof.
SECTION 6.09 CAPITAL EXPENDITURES. The Borrower will not, and will not
permit any of its Subsidiaries to, make or commit to make any Capital
Expenditure, except Capital Expenditures of the Borrower and its Subsidiaries in
the ordinary course of business not exceeding $25,000,000 in the aggregate from
the date hereof.
SECTION 6.10. SALES AND LEASEBACKS. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any arrangement with any Person
providing for the leasing by the Borrower or any Subsidiary of real or personal
property that has been or is to be sold or transferred by the Borrower or such
Subsidiary to such Person or to any other Person to whom funds have been or are
to be advanced by such Person on the security of such property or rental
obligations of the Borrower or such Subsidiary.
SECTION 6.11. CHANGES IN FISCAL PERIODS. The Borrower will not permit
the fiscal year of the Borrower to end on a day other than December 31 or change
the Borrower's method of determining fiscal
<PAGE>
quarters.
SECTION 6.12. NEGATIVE PLEDGE CLAUSES. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into or suffer to exist or become
effective any agreement that prohibits or limits the ability of the Borrower or
any of its Subsidiaries to create, incur, assume or suffer to exist any Lien
upon any of its property or revenues, whether now owned or hereafter acquired,
to secure its obligations under this Agreement other than (a) this Agreement and
(b) any agreements governing any purchase money Liens or Capital Lease
Obligations otherwise permitted hereby (in which case, any prohibition or
limitation shall only be effective against the assets financed thereby).
SECTION 6.13. OPTIONAL PAYMENTS AND MODIFICATIONS OF CERTAIN DEBT
INSTRUMENTS. The Borrower will not, and will not permit any of its Subsidiaries
to, make or offer to make any optional or voluntary payment, prepayment,
repurchase or redemption of or otherwise optionally or voluntarily defease any
Indebtedness (other than Indebtedness under this Agreement), or amend, modify,
waive or otherwise change, or consent or agree to any amendment, modification,
waiver or other change to, any of the terms relating to the payment or
prepayment of principal of or interest on, any such Indebtedness (other than any
such amendment, modification, waiver or other change that would extend the
maturity or reduce the amount of any payment of principal thereof or reduce the
rate or extend any date for payment of interest thereon).
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events ("EVENTS OF DEFAULT") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and as
the same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee or
any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of five days;
<PAGE>
(c) any representation or warranty made or deemed made by or on behalf of
the Borrower or any Subsidiary in or in connection with this Agreement or any
amendment or modification hereof, or in any report, certificate, financial
statement or other document furnished pursuant to or in connection with this
Agreement or any amendment or modification hereof, shall prove to have been
materially incorrect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant, condition
or agreement contained in Section 5.02, 5.03 (with respect to the Borrower's
existence) or 5.08 or in Article VI;
(e) the Borrower shall fail to observe or perform any covenant, condition
or agreement contained in this Agreement (other than those specified in clause
(a), (b) or (d) of this Article), and such failure shall continue unremedied for
a period of 30 days after notice thereof from the Administrative Agent (given at
the request of any Lender) to the Borrower;
(f) the Borrower or any Subsidiary shall fail to make any payment (whether
of principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable;
(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of any Material Indebtedness or any trustee or agent on its or their behalf to
cause any Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its scheduled maturity;
PROVIDED that this clause (g) shall not apply to secured Indebtedness that
becomes due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or any Subsidiary or its debts, or of a substantial part
of its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered;
<PAGE>
(i) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in writing or
fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate amount
in excess of $5,000,000 shall be rendered against the Borrower, any Subsidiary
or any combination thereof and the same shall remain undischarged for a period
of 30 consecutive days during which execution shall not be effectively stayed,
or any action shall be legally taken by a judgment creditor to attach or levy
upon any assets of the Borrower or any Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the Required
Lenders, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in a Material Adverse Effect; or
(m) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment,
<PAGE>
demand, protest or other notice of any kind, all of which are hereby waived
by the Borrower; and in case of any event with respect to the Borrower
described in clause (h) or (i) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of
the Borrower accrued hereunder, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Except as provided below, each of the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall not be liable for any action taken
or not taken by it with the consent or at the request of the Required Lenders or
in the absence of its own gross negligence or wilful
<PAGE>
misconduct. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and the Administrative
Agent shall not be responsible for or have any duty to ascertain or inquire
into (i) any statement, warranty or representation made by any other Person
in or in connection with this Agreement, (ii) the contents of any
certificate, report or other document delivered by any other Person hereunder
or in connection herewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth herein, (iv) the
validity, enforceability, effectiveness (other than its own due execution) or
genuineness of this Agreement or any other agreement, instrument or document,
or (v) the satisfaction of any condition set forth in Article IV or elsewhere
herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing reasonably believed by it to be
genuine and to have been signed or sent by the proper Person. The Administrative
Agent also may rely upon any statement made to it orally or by telephone and
believed by it to be made by the proper Person, and shall not incur any
liability for relying thereon. The Administrative Agent may consult with legal
counsel (who may be counsel for the Borrower), independent accountants and other
experts selected by it, and shall not be liable for any action taken or not
taken by it in accordance with the advice of any such counsel, accountants or
experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers through Related Parties of the Administrative
Agent. The exculpatory provisions of the preceding paragraphs shall apply to the
Related Parties of the Administrative Agent, and shall apply to their activities
in connection with the syndication of the credit facilities provided for herein
as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided in this paragraph, the Administrative Agent may resign at any
time by notifying the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent
<PAGE>
may, on behalf of the Lenders, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those
payable to its predecessor unless otherwise agreed between the Borrower and
such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 NOTICES. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 6300 Lamar Avenue, Shawnee Mission, Kansas
66202, Attention of John Sundeen (Telecopy No. (913) 236-2252);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, c/o The
Loan and Agency Services Group, 1 Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Laura Rebecca (Telecopy No. (212) 552-7490), with a
copy to Chase Securities Inc., 270 Park Avenue, New York, New York 10017,
Attention of David Stawik (Telecopy
<PAGE>
No. (212) 270-1789); and
(c) if to any other Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02 WAIVERS; AMENDMENTS. (a) No failure or delay by the
Administrative Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders; PROVIDED that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Lender, (v)
increase the aggregate Commitments above
<PAGE>
$300,000,000, without the written consent of each Lender, or (vi) change any
of the provisions of this Section or the definition of "Required Lenders" or
any other provision hereof specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender; PROVIDED FURTHER that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
SECTION 9.03 EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) The Borrower shall
pay (i) all reasonable, documented out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates in amounts previously agreed to in
writing and the reasonable fees, charges and disbursements of counsel for the
Administrative Agent, in connection with the syndication of the credit
facilities provided for herein, the preparation and administration of this
Agreement or any amendments, modifications or waivers of the provisions hereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated) and (ii) all out-of-pocket expenses incurred by the Administrative
Agent or any Lender, including the fees, charges and disbursements of any
counsel for the Administrative Agent or any Lender, in connection with the
enforcement or protection of its rights in connection with this Agreement,
including its rights under this Section, or in connection with the Loans made,
including in connection with any workout, restructuring or negotiations in
respect thereof.
(b) The Borrower shall indemnify the Administrative Agent and each
Lender, and each Related Party of any of the foregoing Persons (each such Person
being called an "INDEMNITEE") against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities, costs and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of this Agreement or any
agreement or instrument contemplated hereby, the performance by the parties
hereto of their respective obligations hereunder or the consummation of the
Transactions or any other transactions contemplated hereby, (ii) any Loan or the
use of the proceeds therefrom, (iii) any actual or alleged presence or release
of Hazardous Materials on or from any property owned or operated by the Borrower
or any of its Subsidiaries, or any Environmental Liability related in any way to
the Borrower or any of its Subsidiaries, or (iv) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto;
<PAGE>
PROVIDED that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities, costs or related
expenses are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount required to
be paid by it to the Administrative Agent under paragraph (a) or (b) of this
Section, each Lender severally agrees to pay to the Administrative Agent such
Lender's Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
PROVIDED that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable not later than
5 days after written demand therefor.
SECTION 9.04 SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it); PROVIDED that (i) except
in the case of an assignment to a Lender or an
<PAGE>
Affiliate of a Lender, each of the Borrower and the Administrative Agent must
give their prior written consent to such assignment (which consent shall not
be unreasonably withheld), (ii) except in the case of an assignment to a
Lender or an Affiliate of a Lender or an assignment of the entire remaining
amount of the assigning Lender's Commitment, the amount of the Commitment of
the assigning Lender subject to each such assignment (determined as of the
date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000
unless each of the Borrower and the Administrative Agent otherwise consent,
(iii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement, except that this clause (iii) shall not apply to rights in
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500 (the
obligation to pay such fee to be shared equally by the assignor and
assignee), and (v) the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent an Administrative Questionnaire; PROVIDED FURTHER
that any consent of the Borrower otherwise required under this paragraph
shall not be required if an Event of Default under clause (h) or (i) of
Article VII has occurred and is continuing. Upon acceptance and recording
pursuant to paragraph (d) of this Section, from and after the effective date
specified in each Assignment and Acceptance, the assignee thereunder shall be
a party hereto and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and
9.03). Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this paragraph shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in
such rights and obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "REGISTER"). The entries in the Register shall be
conclusive, and the Borrower, the
<PAGE>
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder
for all purposes of this Agreement, notwithstanding notice to the contrary.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "PARTICIPANT") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); PROVIDED that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; PROVIDED that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
Subject to paragraph (f) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.15 or 2.17 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of
<PAGE>
Section 2.17 unless the Borrower is notified of the participation sold to
such Participant and such Participant agrees, for the benefit of the
Borrower, to comply with Section 2.17(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any such pledge or assignment to a Federal Reserve Bank,
and this Section shall not apply to any such pledge or assignment of a security
interest; PROVIDED that no such pledge or assignment of a security interest
shall release a Lender from any of its obligations hereunder or substitute any
such assignee for such Lender as a party hereto.
SECTION 9.05 SURVIVAL. All covenants, agreements, representations and
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and
unpaid and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Commitments or the termination of this Agreement or any
provision hereof.
SECTION 9.06 COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been
executed by the Administrative Agent and when the Administrative Agent shall
have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and
<PAGE>
thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07 SEVERABILITY. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08 RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 9.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Administrative Agent or
<PAGE>
any Lender may otherwise have to bring any action or proceeding relating to
this Agreement against the Borrower or its properties in the courts of any
jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. HEADINGS. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. CONFIDENTIALITY. Each of the Administrative Agent and the
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be
<PAGE>
informed of the confidential nature of such Information and instructed to
keep such Information confidential), (b) to the extent requested by any
regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other
party to this Agreement, (e) in connection with the exercise of any remedies
hereunder or any suit, action or proceeding relating to this Agreement or the
enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, to any assignee
of or Participant in, or any prospective assignee of or Participant in, any
of its rights or obligations under this Agreement, (g) with the consent of
the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section or (ii) becomes
available to the Administrative Agent or any Lender on a nonconfidential
basis from a source other than the Borrower. For the purposes of this
Section, "INFORMATION" means all information received from the Borrower
relating to the Borrower or its business, other than any such information
that is available to the Administrative Agent or any Lender on a
nonconfidential basis prior to disclosure by the Borrower; PROVIDED that, in
the case of information received from the Borrower after the date hereof,
such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
SECTION 9.13. INTEREST RATE LIMITATION. Notwithstanding anything herein
to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "CHARGES"), shall exceed the
maximum lawful rate (the "MAXIMUM RATE") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
IN WITNESS WHEREOF, the parties hereto have caused
<PAGE>
this Agreement to be duly executed by their respective authorized officers as
of the day and year first above written.
WADDELL & REED FINANCIAL, INC.,
by
/s/Keith A. Tucker
------------------
Name: Keith A. Tucker
Title: Chairman, Chief
Executive Officer
THE CHASE MANHATTAN BANK, individually and
as Administrative Agent,
by
/s/Lawrence Palumbo, Jr.
------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
by
/s/
Name:
Title:
BANK OF MONTREAL
by
/s/K. Daniel Strieff
--------------------
Name: K. Daniel Strieff
Title: Managing Director
THE BANK OF NEW YORK
by
/s/Scott M. Buitekant
---------------------
Name: Scott M. Buitekant
Title: Assistant Vice President
BANQUE NATIONALE DE PARIS
by
/s/Marguerite L. Lebon
----------------------
<PAGE>
Name: Marguerite L. Lebon
Title: Assistant Vice President
by
/s/Laurent Vanderzyppe
----------------------
Name: Laurent Vanderzyppe
Title: Vice President
DEUTSCHE BANK AG
NEW YORK BRANCH
by
/s/Peter J. Bassler
-------------------
Name: Peter J. Bassler
Title: Vice President
by
/s/Eckhard Osenberg
-------------------
Name: Eckhard Osenberg
Title: Vice President
FLEET NATIONAL BANK
by
/s/David A. Bosselait
---------------------
Name: David A. Bosselait
Title:Vice President
STATE STREET BANK AND TRUST COMPANY
by
/s/F. Omar Hazoury
------------------
Name: F. Omar Hazoury
Title: Vice President
UMB BANK, N.A.
by
/s/David A. Proffitt
--------------------
Name: David A. Proffitt
Title: Senior Vice President
<PAGE>
EXHIBIT 10.28
WADDELL & REED FINANCIAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PURPOSE
The purpose of the Waddell & Reed Financial, Inc. Supplemental Executive
Retirement Plan (the "PLAN") is to provide deferred compensation that
otherwise would be paid currently to select employees of Waddell & Reed
Financial, Inc., a Delaware corporation (the "COMPANY"), and any subsidiaries
or affiliates of the Company that may adopt this Plan with the consent of the
Board of Directors of the Company. This Plan is designed to constitute a
nonqualified deferred compensation arrangement.
ARTICLE I
DEFINITION OF TERMS
Certain words and phrases are defined when first used in later
paragraphs of this Plan. In addition, the following words and phrases when
used herein, unless the context clearly requires otherwise, will have the
following respective meanings:
1.1 "AGGREGATE CONTRIBUTION AMOUNT" means the amount determined by the
Compensation Committee to be allocated among Participants' Deferred
Compensation Accounts for a Plan Year.
1.2 "BASE PAY" means a Participant's base rate of compensation for a
Plan Year as designated by the Compensation Committee.
1.3 "CODE" means the Internal Revenue Code of 1986, as amended.
1.4 "DEFERRED COMPENSATION ACCOUNT" is defined in Section 4.1.
1.5 "EFFECTIVE DATE" means December 10, 1998.
1.6 "EMPLOYEE" means a common-law employee of the Company or a
Participating Employer.
1.7 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
<PAGE>
1.8 "401(k) PLAN" means the Waddell & Reed Financial, Inc. 401(k) and
Thrift Plan, as such plan may be amended from time to time, or any similar
plan in which a Participating Employer participates.
1.9 "PARTICIPANT" means an Employee who has satisfied the requirements
for eligibility under Article III and is participating in the Plan.
1.10 "PARTICIPATING EMPLOYER" means a subsidiary or affiliate of the
Company that adopts this Plan by a properly executed document evidencing such
intent with the consent of the Board of Directors of the Company.
1.11 "PLAN YEAR" means the period commencing January 1 and ending
December 31.
1.12 "TOTAL DISABILITY" means a Participant has satisfied the
requirements to receive long-term disability benefits under the Company's (or
his or her Participating Employer's) long-term disability insurance plan.
1.13 "VALUATION DATE" means December 31 and such other or additional
dates as provided herein or otherwise designated by the Administrator as
Valuation Dates for the purpose of making valuation adjustments to the
Deferred Compensation Accounts in accordance with Section 4.2.
ARTICLE II
ADMINISTRATION
This Plan will be administered by the Company's Compensation Committee,
which will be the "ADMINISTRATOR" of the Plan. The decision of a majority of
the members of the Compensation Committee will control; provided, however,
that a member will not be entitled to participate in discretionary decisions
directly related to such person's own participation in the Plan.
The Administrator will have full power and authority to adopt rules,
regulations, and practices governing the administration of the Plan, to
interpret and apply the provisions of this Plan in its sole discretion, to
alter, amend, or revoke any rules and regulations so adopted, to enter into
contracts on behalf of the Company with respect to the Plan, and to make
discretionary decisions under the Plan, except where that authority is
retained by the Company under this Plan. The Administrator will administer
the Plan and render decisions in a uniform and consistent manner so that all
Participants in similar circumstances are generally treated similarly. The
Administrator's decision as to all aspects of Plan operations, including but
not limited to, the eligibility of persons to participate in the Plan, the
benefits payable under the
<PAGE>
Plan, and the interpretation of the Plan, cannot be overturned unless it is
arbitrary and capricious. The term "ARBITRARY AND CAPRICIOUS" will mean
having no foundation.
ARTICLE III
ELIGIBILITY
An Employee who has been designated by the Administrator as eligible for
participation in the Plan, will be eligible for participation beginning in
the Plan Year with respect to which the designation is made. A Participant
will continue to participate in the Plan until he or she ceases to be a
member of a select group of management or highly compensated employees, or
until the Administrator in its sole discretion determines otherwise.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS
4.1 ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS. At the time an
Employee becomes a Participant in the Plan, the Company will establish a
memorandum account (a "DEFERRED COMPENSATION ACCOUNT") for the Participant on
its books.
4.2 ADDITIONS TO DEFERRED COMPENSATION ACCOUNTS.
(a) 401(k) PLAN BENEFIT RESTORATION -- For each Plan Year, the
Administrator will credit the Deferred Compensation Account of each
Participant with an amount equal to four percent (4%) of his or her Base
Pay, less the amount of any employer matching contribution made or to be
made on the Participant's behalf under the 401(k) Plan with respect to the
Plan Year.
(b) SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFIT -- For each Plan Year,
the Compensation Committee will allocate the Aggregate Contribution Amount
among the Deferred Compensation Accounts of Participants in proportion to
their Base Pay for the Plan Year.
(c) SPECIAL DEFERRAL ELECTION -- With prior approval of the
Administrator, a Participant who receives a distribution from a
nonqualified deferred compensation plan sponsored by Torchmark Corporation
may make a one-time special deferral election to have an amount deferred
from his future compensation from the Company (or his or her Participating
Employer), such amount not to exceed the amount of any such distribution
from a nonqualified deferred compensation plan sponsored by Torchmark
Corporation. The
<PAGE>
amount of any such special deferral election will be credited to the
Participant's Deferred Compensation Account.
(d) VALUATION ADJUSTMENTS -- As of each Valuation Date, the
Administrator will also credit (or charge) the Participant's Deferred
Compensation Account with valuation adjustments determined in accordance
with this Section 4.2(d). The valuation adjustment to be credited (or
charged) to the Participant's Deferred Compensation Account as of any
Valuation Date (the "CURRENT VALUATION DATE") will be an amount equal to
the performance of certain hypothetical investments or investment vehicles
since the last preceding Valuation Date (the "PRECEDING VALUATION DATE") as
described below. The value of the Participant's Deferred Compensation
Account as of the current Valuation Date will be determined as if the
balance of the Deferred Compensation Account as of the preceding Valuation
Date, together with any amounts subsequently credited to such Deferred
Compensation Account, had been invested since the preceding Valuation Date
or the date credited to the Deferred Compensation Account, as the case may
be, in the investments or investment vehicles specified by the
Administrator or its designee.
For purposes of this Section 4.2(d), "PERFORMANCE" will include, but
not be limited to, in the sole discretion of the Administrator, interest,
expenses, and realized and unrealized gains and losses. The crediting (or
charging) of amounts under this Section 4.2(d) will occur so long as there
is a balance in the Participant's Deferred Compensation Account; provided,
however, the crediting (or charging) of amounts under this Section 4.2(d)
will cease at a reasonable time (as determined by the Administrator in its
sole discretion) prior to the date a complete distribution of a
Participant's benefit under this Plan is made.
4.3 FORFEITURE.
(a) All amounts credited to, and not withdrawn from, a Participant's
Deferred Compensation Account will be nonforfeitable, except as provided
below.
(b) Notwithstanding any other provision of this Plan, a Participant's
Deferred Compensation Account will be forfeited in its entirety if the
Administrator determines that the Participant has engaged in any activity
that is (1) illegal and involves fraud, dishonesty, or theft; or (2)
intentionally detrimental to the Company, a Participating Employer, or any
subsidiary or affiliate thereof.
<PAGE>
ARTICLE V
DISTRIBUTION OF BENEFITS
5.1 DISTRIBUTION ON TERMINATION OF EMPLOYMENT. Unless otherwise
elected pursuant to Section 5.4, amounts credited to, and not withdrawn from,
a Participant's Deferred Compensation Account (less applicable tax and other
withholdings) will be paid in a single lump sum payment, in cash or other
property at the Administrator's election, within 90 days after the
Participant's termination of employment with the Company or, if applicable,
Participating Employer.
5.2 DISTRIBUTION ON TOTAL DISABILITY. Unless otherwise elected
pursuant to Section 5.4, amounts credited to, and not withdrawn from, a
Participant's Deferred Compensation Account (less applicable tax and other
withholdings) as of the date the Administrator determines that the
Participant has sustained a Total Disability will be paid in a single lump
sum payment, in cash or other property at the Administrator's election,
within 90 days after such determination.
5.3 DISTRIBUTION ON DEATH. Unless otherwise elected pursuant to
Section 5.4, payment of the amounts credited to, and not withdrawn from, his
or her Deferred Compensation Account (less applicable tax and other
withholdings) as of the date of the Participant's death will be made in a
single lump sum payment, in cash or other property at the Administrator's
election, within 90 days after the Participant's death, to the Participant's
designated beneficiary in accordance with the last such designation received
by the Administrator, or if none, to the Participant's surviving spouse, or
if there is no surviving spouse, to the personal representative of the
Participant's estate.
A Participant will have the right, at any time, to submit, on a form
prescribed by the Administrator, a written designation of primary and
secondary beneficiaries to whom payment under this Plan will be made in the
event of his or her death prior to complete distribution of the benefits due
and payable to the Participant under this Plan. Each beneficiary designation
will become effective only when receipt thereof is acknowledged in writing by
the Administrator.
5.4 FORM OF BENEFIT DISTRIBUTION. A Participant or Beneficiary may
elect the form and timing, subject to the Administrator's approval, of
distribution of his or her benefits and may revoke that election (with or
without a new election) at any time at least 30 days before his or her
payments begin or are scheduled to begin, by notifying the Administrator in
writing of his or her election.
<PAGE>
A Participant or Beneficiary may elect distributions of benefits in one
of the following forms:
(a) LUMP SUM -- a single payment of the entire balance in the
Participant's Deferred Compensation Account, payable as of a date specified
in the election, which date may not be later than the date the Participant
attains (or would have attained) age 65.
(b) INSTALLMENTS -- Period payments over a specified period of time,
beginning as of a date specified in the election, which date may not be
later than the date the Participant attains (or would have attained) age
65, and which time period may not extend beyond the life expectancy of the
Participant or Beneficiary.
5.5 INCAPACITY. In the event of the Participant's incapacity (as
determined by the Administrator), payment pursuant to Sections 5.1 through
5.3, above, will be made to the Participant or to the legal guardian or
conservator of the Participant or to an adult with whom the Participant
maintains his or her residence, as the Administrator in its sole and absolute
discretion will determine. Such a payment to a legal guardian, conservator,
or adult will fully discharge the Administrator, the Company, each
Participating Employer, and the Plan from further liability on account
thereof.
ARTICLE VI
GENERAL PROVISIONS
6.1 NON-TRANSFERABILITY OF INTERESTS. Notwithstanding any other
provision of this Plan, all Deferred Compensation Accounts maintained by the
Company will be general assets of the Company and will be subject to the
claims of such Employer's general creditors.
Except as provided in Section 6.2 below, benefits payable to
Participants and their beneficiaries under this Plan may not in any manner be
anticipated, assigned (either at law or in equity), alienated, sold,
transferred, pledged, encumbered or subjected to attachment, garnishment,
levy, execution, or other legal or equitable process by creditors of the
Participant or the Participant's beneficiaries.
6.2 DOMESTIC RELATIONS ORDERS
(a) To the extent required under a final judgment, decree, or order
(including approval of a property settlement agreement) made pursuant to
a state domestic relations law (a "DOMESTIC RELATIONS ORDER"), any portion
of a
<PAGE>
Participant's Deferred Compensation Account may be paid or set aside for
payment to a spouse, former spouse, or child of the Participant. The
Administrator shall establish written procedures for determining whether a
Domestic Relations Order directed to the Program is a "PLAN-APPROVED
DOMESTIC RELATIONS ORDER" in compliance with Code Section 414(p)(1)(A)(i)
and such procedures.
(b) Where necessary to carry out the terms of a Domestic Relations
Order, a separate account shall be established with respect to the spouse,
former spouse, or child. Any amount so set aside for a spouse, former
spouse, or child shall be paid out in a lump sum at the earliest date that
benefits may be paid to the Participant, unless the judgment, decree, or
order directs a different form of payment. Nothing in this Section shall
be construed to authorize any amount to be distributed under the Plan at a
time or in a form that is not permitted under ERISA or the Code.
(c) A Participant's right to receive benefits under the Plan will be
reduced to the extent that any portion of a Participant's Deferred
Compensation Account has been paid or set side for payment to a spouse,
former spouse, or child pursuant to a Plan-Approved Domestic Relations
Order or to the extent that the Company, a Participating Employer, or the
Plan is otherwise subject to a binding judgment, decree, or order for the
attachment, garnishment, or execution or any portion of the Participant's
Deferred Compensation Account or of any distributions therefrom. The
Participant shall be deemed to have released the Company, each
Participating Employer, and the Program from any claim with respect to such
amounts in any case in which -- (1) the Company, a Participating Employer,
the Plan, or any Plan representative has been served with legal process or
otherwise joined in a proceeding relating to such amounts, (2) the
Participant has been notified of the pendency of such proceeding in the
manner prescribed by the law of the jurisdiction in which the proceeding is
pending for service of process or by mail from the Company, a Participating
Employer, or a Plan representative to the Participant's last known mailing
address, and (3) the Participant fails to obtain an order of the court in
the proceeding relieving the Company, Participating Employer, and the Plan
from the obligation to comply with the judgment, decree, or order.
(d) Neither the Company, any Participating Employer, nor any Plan
representative will be obligated to incur any cost to defend against or set
aside any judgment, decree, or order relating to the division, attachment,
garnishment, or execution of the Participant's Deferred Compensation
Account or of any distribution therefrom. Notwithstanding the foregoing,
if the Company, a Participating Employer, the Plan, or a Plan
representative is joined in any
<PAGE>
such proceeding, a Plan representative will take such steps as it deems
necessary and appropriate to protect the terms of the Plan.
6.3 AMENDMENT, SUSPENSION, AND TERMINATION. The Company, in its sole
and absolute discretion, at any time may amend, suspend, or terminate the
Plan or any portion thereof in any manner and to any extent. Such amendment,
suspension, or termination of the Plan will be final and binding on each
Participating Employer unless objected to in writing by such Participating
Employer within 30 days after written notice is received of such amendment,
suspension, or termination. No amendment, suspension, or termination will
alter or impair any then existing Deferred Compensation Accounts. Upon
termination of the Plan, amounts credited to each Participant's Deferred
Compensation Account will be paid at the Administrator's election (provided
such election applies uniformly to all such Participants) in a single lump
sum benefit (in cash or other property at the Administrator's election)
either (a) at any time after 30 days following the termination of the Plan;
or (b) at such time and in such event as are otherwise provided under this
Plan.
6.4 UNFUNDED OBLIGATION. The Plan is intended to be, and will be
operated and administered so as to be, a plan that is unfunded and maintained
primarily for the purpose of providing deferred compensation for a select
group of management or highly compensated employees. Neither the Company nor
any Participating Employer will make any provision for funding or insuring
the Deferred Compensation Accounts that would cause the Plan to be (a) a
"funded" plan for purposes of Section 404(a)(5) of the Code or Title I of
ERISA, or (b) other than an "unfunded and unsecured promise to pay money or
property in the future" under Treasury Regulations Section 1.83-3(e). A
Participant and his or her beneficiary will be treated as general, unsecured
creditors of the Company and, if applicable, his or her Participating
Employer at all times under the Plan. The Plan constitutes a mere promise by
the Company to make the benefit payments as provided in the future. It is
the intention of the Company that the Deferred Compensation Accounts be
unfunded for tax purposes and for purposes of Title I of ERISA.
The foregoing notwithstanding, the Company may establish a grantor trust
described in Treasury Regulation Section 1.677(a)-(d) to accumulate funds to
pay the Deferred Compensation Accounts, provided that the trust assets will
be subject to the claims of the Company's general creditors and will be
required to be used to satisfy the claims of the Company's general creditors
in the event the Company or a Participating Employer is "insolvent" under the
terms of such trust.
6.5 NO RIGHT TO EMPLOYMENT OR OTHER BENEFITS. Nothing contained herein
will be construed as conferring upon any Participant the right to continue in
the employ of the Company or any Participating Employer. Any compensation
deferred and any
<PAGE>
benefits paid under this Plan will be disregarded in computing benefits under
any employee benefit plan of the Company or any Participating Employer.
6.6 CLAIMS PROCEDURES.
(a) (1) In the event benefits provided under this Plan are not
timely paid, any Participant or, if the Participant is deceased, the
Participant's designated beneficiary (the "CLAIMANT," which term will
include the duly authorized representative of claimant) may file a
claim requesting benefits under the Plan by submitting to the
Administrator (or such officer or agent of the Company as the
Administrator may designate for such purpose) a written statement
setting out the general nature of the claim.
(2) If a duly submitted claim is wholly or partly denied, notice
of the denial will be furnished to the claimant within 60 days after
receipt of the claim by the Administrator. Such notice will be given
as provided in subparagraph 6.6(a)(3) hereunder, and if the claim has
not been granted within 60 days of the submission of the claim, the
claim will be deemed denied for the purposes hereof.
(3) The Administrator will provide to every claimant whose duly
submitted claim for benefits is denied, written notice setting forth
in a manner calculated to be understood by the claimant:
(A) The specific reason or reasons for the denial;
(B) Specific reference to pertinent Plan provisions on
which the denial is based;
(C) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary;
(D) An explanation of the Plan's claim review procedure.
Such notice will be sent by certified mail, return receipt
requested, to the claimant's last known address.
(b) (1) The Administrator will appoint a Claims Review Committee
which will consist of any number of officers of the Company (other
than the claimant), as the Administrator in its discretion will
determine, to review and make decisions on claim denials. All
decisions of the Claims Review Committee will be by majority vote.
<PAGE>
(2) Within 60 days after denial of a claim as herein provided,
the claimant may request review of the denied claim by submitting a
written request therefor to the Claims Review Committee, in the care
of the Administrator.
(3) After the request for a review of the claim denial has been
submitted, and before issuance of the decision on review, the claimant
may upon reasonable advance written notice review pertinent Plan
documents during regular business hours at the Company's office;
provided, however, that such Plan documents will not be considered to
include any documents such as correspondence or memoranda between any
agents or employees of the Company and any other persons or government
agencies. At the option of the Claims Review Committee, the claimant
may be given photocopies of pertinent Plan documents in lieu of a
review of such documents at the Company's offices.
(4) Within 30 days after the request for a review of the claim
denial has been submitted, the claimant may submit issues and comments
in writing to the Compensation Committee.
(5) Upon request of the Claimant, or upon its own motion, the
Compensation Committee may, but will not be required to, provide the
claimant an opportunity for a hearing before the Compensation
Committee.
(6) Within 60 days after receipt of a request for review, the
Compensation Committee will render its decision unless special
circumstances (such as the need to hold a hearing) require an
extension of time for processing the request for review, in which case
a decision will be rendered as soon as possible, but in no event later
than 120 days after receipt of the request for review.
(7) The decision on review will be in writing and will include
specific reasons for the decision, written in a manner calculated to
be understood by the claimant, and specifically referencing pertinent
Plan provisions on which the decision is based.
6.7 INUREMENT. This Plan will be binding upon and inure to the benefit
of the Company, each Participating Employer, their successors and assigns,
the Participant, and his or her successors, heirs, executors, personal
representatives, administrators and beneficiaries.
<PAGE>
6.8 NOTICE. Any notice, consent or demand required or permitted to be
given under the provisions of this Plan will be in writing, and will be
signed by the party giving or making the same. If such notice, consent or
demand is mailed to a party hereto, it will be sent by United States
certified mail, postage prepaid, addressed to such party's last known address
as shown on the records of the Company. The date of such mailing will be
deemed the date of notice, consent or demand. Either party may change the
address to which notice is to be sent by giving notice of change of address
in the manner aforesaid.
6.9 GOVERNING LAW. This Plan, and the rights of the parties hereunder,
will be governed by and construed in accordance with the laws of the State of
Kansas, without reference to the principles of conflict of laws.
IN WITNESS WHEREOF, WADDELL & REED FINANCIAL, INC. has caused this Plan
to be executed by its duly authorized officer, on the 31st day of December,
1998.
WADDELL & REED FINANCIAL, INC.
By: /s/ Keith A. Tucker
------------------------------
Keith A. Tucker,
Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT 10.29
WADDELL & REED FINANCIAL, INC.
1999 MANAGEMENT INCENTIVE PLAN
(EFFECTIVE AS OF JANUARY 1, 1999)
1. PURPOSE
The purposes of the Plan are to advance the interests of stockholders of the
Company by providing performance-based incentives to eligible Participants and
to enable the Company and its Subsidiaries to attract, retain, motivate and
reward the best qualified executive officers and key employees by providing them
with the opportunity to earn competitive compensation directly linked to the
Company's performance. The Plan is designed to assure that amounts paid to
certain executive officers of the Company will not fail to be deductible by the
Company for Federal income tax purposes because of the limitations imposed by
Section 162(m). With respect to individuals who are Covered Employees, the Plan
is intended to provide "qualified performance-based compensation", as such term
is defined in Treas. Reg. 1.162-27(e), to the extent deemed appropriate by the
Committee at the time Performance Goals are established for a Fiscal Year.
Nothing herein shall be construed as preventing the Plan from providing both
"qualified performance-based compensation" and nonqualified compensation for the
same Fiscal Year in the manner permitted under Code Section 162(m). The Plan
shall be administered and construed in a manner consistent with Code Section
162(m) and regulations thereunder for any Fiscal Year in which the Plan is
intended to provide "qualified performance-based compensation".
2. DEFINITIONS
Unless the context requires otherwise, the following words as used in the
Plan shall have the meanings ascribed to each below, it being understood that
masculine, feminine, and neuter pronouns are interchangeable and that each
comprehends the others.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the Compensation Committee of the Board
(or such other committee of the Board that the Board shall
designate from time to time) or any subcommittee thereof
comprised of two or more directors each of whom is an "outside
director" within the meaning of Section 162(m).
(c) "Company" shall mean Waddell & Reed Financial, Inc.
(d) "Covered Employee" shall have the meaning set forth in Section
162(m)(3).
(e) "Fiscal Year" means the twelve month period beginning on each
January 1 and ending on the following December 31.
(f) "Incentive Percentage" means the pre-established award formula
established by
<PAGE>
the Committee for each Fiscal Year which specifies a percentage
of a Participant's rate of salary in effect for the last full
payroll period of the Fiscal Year to be paid as an Incentive Plan
Award. The Committee may establish different Incentive Percentages
for individual Participants or different classes of Participants,
and/or the achievement levels of the Performance Goals. Solely
with respect to Covered Employees, for any Fiscal Year for which
the Plan is intended to provide "qualified performance-based
compensation", the Incentive Percentages applicable to the
Covered Employees must be established by the Committee no later
than 90 days after the beginning of the Fiscal Year for which
the Incentive Plan Award pertains.
(g) "Incentive Plan Award" means the annual incentive compensation
award granted under the Plan which is contingent and based upon
the attainment of the Performance Goals with respect to a Fiscal
Year.
(h) "Participant" shall mean (i) each executive officer of the Company
and (ii) each other key employee of the Company or a Subsidiary
who the Committee designates as a participant under the Plan. For
each Fiscal Year, the Committee shall determine which of such
executive officers and other key employees shall participate in
the Plan. For any Fiscal Year for which "qualified
performance-based compensation" is to be provided, the Committee
shall designate the individual or classes of Covered Employees for
such compensation no later than the 90th day of such Fiscal Year.
(i) "Performance Goals" means the pre-established objective
performance goals established by the Committee for each Fiscal
Year. Solely with respect to Covered Employees, for any Fiscal
Year for which the Plan is intended to provide "qualified
performance-based compensation", Performance Goals applicable to
the Covered Employees must be established by the Committee no
later than 90 days after the beginning of the Fiscal Year to which
the Performance Goals pertain. The Performance Goals may be based
upon the performance of the Company or any Subsidiary, or division
thereof, using one or more of the following operating performance
measures selected by the Committee: (a) earnings; (b) revenue; (c)
operating or net cash flows; (d) financial return ratios;
(e) total stockholder return; (f) market share; (g) pre-tax
profits; (h) earnings per share; or (i) net income. Separate
Performance Goals may be established by the Committee for the
Company or a Subsidiary, or division thereof. With respect to
Participants who are not Covered Employees, the Committee may
establish such other subjective or objective goals, including
individual Performance Goals, which it deems appropriate. The
preceding sentence shall also apply to Covered Employees with
respect to any Incentive Plan Award not intended at time of grant
to be "qualified performance-based compensation". Performance
Goals may be set at a specific level, or may be expressed as a
relative percentage to the comparable measure at comparison
companies or a defined index.
(j) "Plan" shall mean the Waddell & Reed Financial, Inc. 1999
Management Incentive Plan, as set forth herein and as may be
amended from time to time.
2
<PAGE>
(k) "Section 162(m)" shall mean Section 162(m) of the Internal Revenue
Code of 1986, as amended, and any regulations promulgated
thereunder (including any proposed regulations).
(l) "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, stock representing more than 50% of the
voting power of all classes of stock entitled to vote.
3. ADMINISTRATION
The Committee shall administer and interpret the Plan, PROVIDED THAT, in no
event, shall the Plan be interpreted in a manner which would cause any amount
payable under the Plan to any Covered Employee to fail to qualify as
performance-based compensation under Section 162(m). The Committee shall
establish the performance objectives for any calendar year in accordance with
Section 4 and certify whether such performance objectives have been obtained.
Any determination made by the Committee under the Plan shall be final and
conclusive on all parties, but shall be based on such objective information or
financial data as is relevant to the Performance Goal. Subject to the provisions
of the Plan, the Committee shall have full discretionary authority to administer
and interpret the Plan, to exercise all powers either specifically granted to it
under the Plan or as are necessary or advisable in the administration of the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan, all of which shall be binding on all persons,
including the Company, the Participants (or any person claiming any rights under
the Plan from or through any Participant), and any stockholder of the Company. A
majority of the Committee shall constitute a quorum, and the Committee shall act
pursuant to a majority vote or by unanimous written consent. The Committee may
employ such legal counsel, consultants, and agents (including counsel or agents
who are employees of the Company or a Subsidiary) as it may deem desirable for
the administration of the Plan and may rely upon any opinion received from any
such counsel or consultant or agent and any computation received from such
consultant or agent. All expenses incurred in the administration of the Plan,
including, without limitation, for the engagement of any counsel, consultant, or
agent, shall be paid by the Company. No member or former member of the Board or
the Committee shall be liable for any act, omission, interpretation,
construction, or determination made in connection with the Plan other than as a
result of such individual's willful misconduct.
The Committee may delegate its responsibilities for administering the Plan
to one or more persons as the Committee deems necessary. However, the Committee
may not delegate its responsibilities under the Plan relating to any Covered
Employee where such delegation is prohibited under Code Section 162(m)
pertaining to "qualified performance-based compensation".
4. INCENTIVE PLAN AWARDS
(a) PERFORMANCE GOALS. On or before April 1 of each year (or such
other date as may be required or permitted under Section 162(m)),
the Committee shall establish the Performance Goals that must be
satisfied in order for a Participant to receive an Incentive Plan
Award for such year.
(b) CERTIFICATION AND MAXIMUM AMOUNT PAYABLE. The Committee shall,
promptly
3
<PAGE>
after the date on which the necessary financial, individual or
other information for a particular Fiscal Year becomes available,
certify: (i) the degree to which each of the Performance Goals
have been attained; and (ii) with respect to each qualifying
Participant who is a Covered Employee, the amount of the
Incentive Plan Award, if any, payable to such Participant.
The Committee or its designee shall likewise certify the amount of
the Incentive Plan Award, if any, payable with respect to a
qualifying Participant who is not a Covered Employee. If the
Committee certifies in writing that any of the performance
objectives established for the relevant year under Section 4(a)
have been satisfied, each Participant who is employed by the
Company or one of its Subsidiaries on the last day of the calendar
year for which the Incentive Plan Award is payable shall receive
the Incentive Plan Award. The Incentive Plan Award shall be
determined by multiplying the Incentive Percentage applicable to
the Participant by the Participant's rate of base salary in effect
for the last full payroll period of the Fiscal Year to which the
Incentive Plan Award pertains. In no event, however, will an
Incentive Plan Award for a Covered Employee exceed $5,000,000. To
be eligible for payment of any Incentive Plan Award, the
Participant must: (i) have performed the Participant's duties to
the satisfaction of the Committee; (ii) have not engaged in any
act deemed by the Committee to be contrary to the best interests
of the Company; and (iii) otherwise complied with Company policies
at all times prior to the date the Incentive Plan Award is
actually paid. No Incentive Plan Award shall be paid to any
Participant who does not satisfy each of the above. If a
Participant's employment terminates for any reason (including,
without limitation, his death, disability, or retirement under the
terms of any retirement plan maintained by the Company or a
Subsidiary) prior to the last day of the Fiscal Year for which
the Incentive Plan Award is payable, such Participant shall
receive an Incentive Plan Award equal to the maximum Incentive
Plan Award payable to such Participant under the preceding
sentence multiplied by a fraction, the numerator of which is
the number of days that have elapsed during the calendar year in
which the termination occurs prior to and including the date of
the Participant's termination of employment and the denominator
of which is 365.
(c) NEGATIVE DISCRETION. Notwithstanding anything else contained in
Section 4(b) to the contrary, the Committee shall have the right,
in its absolute discretion, (i) to reduce or eliminate the amount
otherwise payable to any Participant under Section 4(b) based on
individual performance or any other factors that the Committee, in
its discretion, shall deem appropriate and (ii) to establish rules
or procedures that have the effect of limiting the amount payable
to each Participant to an amount that is less than the maximum
amount otherwise authorized under Section 4(b).
(d) AFFIRMATIVE DISCRETION. Notwithstanding any other provision in the
Plan to the contrary, (i) the Committee shall have the right, in
its discretion, to pay to any Participant who is not a Covered
Employee an annual Incentive Plan Award for such year in an amount
up to the maximum bonus payable under Section 4(b), based on
individual performance or any other criteria that the Committee
deems appropriate and (ii) in connection with the hiring any
person who is or becomes Covered Employee, the Committee may
provide for a minimum Incentive Plan
4
<PAGE>
Award amount in any calendar year, regardless of whether
performance objectives are attained.
5. PAYMENT
Except as otherwise provided hereunder, payment of any bonus amount
determined under Section 4 shall be made to each Participant as soon as
practicable after the Committee certifies that one or more of the applicable
Performance Goals have been attained (or, in the case of any Incentive Plan
Award payable under the provisions of Section 4(d), after the Committee
determines the amount of any such Incentive Plan Award). The Incentive Plan
Award may be paid in whole or in part, in the discretion of the Committee, in
Company stock options, with the remainder, if any, to be paid in cash.
6. GENERAL PROVISIONS
(a) EFFECTIVENESS OF THE PLAN. The Plan shall be effective with
respect to calendar years beginning on or after January 1, 1999,
subject to the approval of the Company's stockholders, and ending
on or before December 31, 2003, unless the term hereof is extended
by action of the Board.
(b) AMENDMENT AND TERMINATION. Notwithstanding Section 6(a), the Board
or the Committee may at any time amend, suspend, discontinue, or
terminate the Plan; provided, however, that no such amendment,
suspension, discontinuance, or termination shall adversely affect
the rights of any Participant in respect of any Fiscal Year which
has already commenced and no such action shall be effective
without approval by the stockholders of the Company to the extent
necessary to continue to qualify the amounts payable hereunder to
Covered Employees as "qualified performance-based compensation"
under Section 162(m).
(c) DESIGNATION OF BENEFICIARY. Each Participant may designate a
beneficiary or beneficiaries (which beneficiary may be an entity
other than a natural person) to receive any payments which may be
made following the Participant's death. Such designation may be
changed or canceled at any time without the consent of any such
beneficiary. Any such designation, change or cancellation must be
made in a form approved by the Committee and shall not be
effective until received by the Committee. If no beneficiary has
been named, or the designated beneficiary or beneficiaries shall
have predeceased the Participant, the beneficiary shall be the
Participant's spouse or, if no spouse survives the Participant,
the Participant's estate. If a Participant designates more than
one beneficiary, the rights of such beneficiaries shall be payable
in equal shares, unless the Participant has designated otherwise.
(d) NO RIGHT OF CONTINUED EMPLOYMENT. Nothing in this Plan shall be
construed as conferring upon any Participant any right to continue
in the employment of the Company or any of its Subsidiaries.
(e) NO LIMITATION ON CORPORATE ACTIONS. Nothing contained in the Plan
shall be construed to prevent the Company or any Subsidiary from
taking any corporate
5
<PAGE>
action which is deemed by it to be appropriate or in its best
interest, whether or not such action would have an adverse
effect on any awards made under the Plan. No employee,
beneficiary or other person shall have any claim against
the Company or any Subsidiary as a result of any such action.
(f) NONALIENATION OF BENEFITS. Except as expressly provided herein,
no Participant or beneficiary shall have the power or right to
transfer, anticipate, or otherwise encumber the Participant's
interest under the Plan. The Company's obligations under this Plan
are not assignable or transferable except to (i) a corporation
which acquires all or substantially all of the Company's assets,
or (ii) any corporation into which the Company may be merged or
consolidated. The provisions of the Plan shall inure to the
benefit of each Participant and the Participant's beneficiaries,
heirs, executors, administrators, or successors in interest.
(g) WITHHOLDING. Any amount payable to a Participant or a beneficiary
under this Plan shall be subject to any applicable Federal, state,
and local income and employment taxes and any other amounts that
the Company or a Subsidiary is required at law to deduct and
withhold from such payment.
(h) SEVERABILITY. If any provision of this Plan is held unenforceable,
the remainder of the Plan shall continue in full force and effect
without regard to such unenforceable provision and shall be
applied as though the unenforceable provision were not contained
in the Plan.
(i) GOVERNING LAW. The Plan shall be construed in accordance with and
governed by the laws of the State of Kansas, without reference to
the principles of conflict of laws except that any matters
relating to the internal governance of the Company shall be
governed by the general corporate laws of the state of Delaware.
(j) HEADINGS. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in a construction of the
provisions of the Plan.
(k) PLAN NOT FUNDED. Plan awards shall be made solely from the general
assets of the Company. To the extent any person acquires a right
to receive payments from the Company under the Plan, the right is
no greater than the right of any other unsecured general creditor.
(l) NO GUARANTEE. While a discretionary Incentive Plan Award may
have been paid in the past, whether such payments will be made in
the future will depend upon various factors, such as the Company's
financial condition and performance. There is no guarantee that
the Company will pay any such incentive. The Committee may, in its
sole discretion, reduce, eliminate or increase, any Incentive Plan
Award, except that the amount of any Incentive Plan Award intended
to be "qualified performance-based compensation" may not be
increased above the amount established for the Performance Goal
and Incentive Percentage. The Company may withhold an Incentive
Plan Award, or portions thereof, for any reason including gross
misconduct (e.g., theft, dishonesty/compromised integrity, fraud,
harassment, etc.) or any actions deemed to be contrary to the best
interests of the Company by the Committee.
6
<PAGE>
(m) RIGHTS TO PAYMENTS. No absolute right to any Incentive Plan Award
shall be considered as having accrued to any Participant prior to
the close of the Fiscal Year with respect to which the award is
made. No Participant shall have any enforceable right to receive
any Incentive Plan Award made with respect to a Fiscal Year or to
retain any payment made with respect thereto if for any reason the
requirements of Section 4 are not satisfied.
7
<PAGE>
EXHIBIT 10.30
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the ___ day of ______, 199_, by and between
_________________________________ (the "Fund"), a __________ corporation and
Waddell & Reed Services Company ("Agent"), a Missouri corporation,
WITNESSETH:
WHEREAS, the Fund wishes to appoint the Agent to be its Accounting
Services Agent upon and subject to the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the parties agree as follows:
A. Appointment of the Agent as Accounting Services Agent for the
Fund; Acceptance.
(1) The Fund hereby appoints the Agent to act as Accounting
Services Agent for the Fund upon and subject to the terms and provisions of this
Agreement.
(2) Agent hereby accepts the appointment as Accounting Services
Agent for the Fund and agrees to act as such upon and subject to the terms and
provisions of this Agreement.
B. Duties of the Agent.
The Agent shall perform such duties as set forth in this
Paragraph B as agent for and on behalf of the Fund.
(1) Agent shall provide bookkeeping and accounting services and
assistance by providing to the Fund the necessary personnel and facilities to
maintain the Fund's portfolio records and general accounting records, to price
daily the value of shares of the Fund, and with the assistance and advice of the
Fund's attorneys and independent accountants, to prepare or assist the Fund's
attorneys and independent accountants to prepare, as may be applicable, reports
required to be filed by the Fund with regulatory agencies including the
preparation of proxy statements, prospectuses, shareholder reports and other
reports as required by law.
(2) Agent shall maintain and keep current the accounts, books,
records, and other documents relating to the Fund's financial and portfolio
transactions as may be required by rules and regulations of the Securities and
Exchange Commission adopted under Section 31(a) of the Investment Company Act of
1940 as amended (the "Act").
(3) Agent shall cause the subject records of the Fund to be
maintained and preserved pursuant to the requirements under the Act.
(4) In pricing daily the value of shares of the Fund, Agent may
make arrangements to and obtain the value of portfolio securities from pricing
services or quotation services that are compensated by the Fund directly or
indirectly through the placement of portfolio transactions with broker-dealers
who provide such valuation or quotation services to the Agent.
(5) The Agent shall maintain duplicate copies of, or information
from which copies of, the records necessary to the preparation of the Fund's
financial statements and valuations of its assets may be reconstructed. Such
duplicate copies or information shall be maintained at a location other than
where the Agent performs its normal duties hereunder so that in the event the
records established and maintained pursuant to the foregoing provisions of this
Section B are damaged or destroyed, the Agent shall be able to provide the
bookkeeping and accounting services and assistance specified in this Section B.
(6) In the event any of the Agent's facilities or equipment
necessary for the performance of its duties hereunder is damaged, destroyed or
rendered inoperable by reason of fire, vandalism, riot, natural disaster or
otherwise, Agent will use its best efforts to restore all services hereunder to
the Fund and will not seek from the Fund additional compensation to repair or
replace damaged or destroyed facilities or equipment. The Agent shall also make
and maintain arrangements for emergency use of alternative facilities for use in
the event of the aforesaid destruction of or damage to its facilities.
C. Compensation of the Agent.
The Fund agrees to pay to the Agent for its services under this
Agreement, an amount payable on the first day of the month as shown on the
following table pertinent to the average daily net assets of the Fund during the
prior month:
<PAGE>
<TABLE>
<CAPTION>
Fund's Average Daily Net Asset for Monthly Fee
the Month
<S> <C>
$ 0 - $ 10 million $ 0
$ 10 - $ 25 million $ 833
$ 25 - $ 50 million $ 1,667
$ 50 - $ 100 million $ 2,500
$100 - $ 200 million $ 3,333
$200 - $ 350 million $ 4,167
$350 - $ 550 million $ 5,000
$550 - $ 750 million $ 5,833
$750 - $ 1.0 billion $ 7,083
$1.0 billion and over $ 8,333
</TABLE>
D. Right of Fund to Inspect, and Ownership of Records.
The Fund will have the right under this Agreement to perform on-site
inspection of records and accounts, and audits directly pertaining to the Fund's
accounting and portfolio records maintained by the Agent hereunder at the
Agent's facilities. The Agent will cooperate with the Fund's independent
accountants or representatives of appropriate regulatory agencies and furnish
all reasonably requested records and data. Agent acknowledges that these records
are the property of the Fund, and that it will surrender to the Fund all such
records promptly on request.
E. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good
faith in performing its duties hereunder. The Agent will make every reasonable
effort and take all reasonably available measures to assure the adequacy of its
personnel, facilities and equipment as well as the accurate performance of all
services to be performed by it hereunder within, at a minimum, the time
requirements of any applicable statutes, rules or regulations and in conformity
with the Fund's Articles of Incorporation, Bylaws and representations made in
the Fund's current registration statement as filed with the Securities and
Exchange Commission.
The Agent shall not be responsible for, and the Fund agrees to
indemnify the Agent for, any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Fund hereunder; (ii) for any delay, error or omission by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties (except with respect to the Agent's employees),
fire, mechanical breakdown beyond its control, flood catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply; or (iii) for any action taken or omitted to be
taken by the Agent in good faith in reliance on the accuracy of any information
provided to it by the Fund or its directors or in reliance on any advice of
counsel who may be internally employed counsel or outside counsel for the Fund
or advice of any independent accountant or expert employed by the Fund with
respect to the preparation and filing of any document with a governmental agency
or authority.
In order for the rights to indemnification to apply, it is
understood that if in any case the Fund may be asked to indemnify or hold the
Agent harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Fund. The Fund shall have the option to defend the
Agent against any claim which may be the subject of this indemnification and, in
the event that the Fund so elects, it will so notify the Agent, and thereupon
the Fund shall take over complete defense of the claim, and the Agent shall
sustain no further legal or other expenses in such situation for which the Agent
shall seek indemnification under this paragraph. The Agent will in no case
confess any claim or make any compromise in any case in which the Fund will be
asked to indemnify the Agent except with the Fund's prior written consent.
F. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business
on the date hereof and shall continue, unless terminated as hereinafter
provided, for a period of one (1) year and from year-to-year thereafter,
provided that such continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or
may be amended, or a new agreement covering the same topics between the Fund and
the Agent may be entered into only if the terms of this Agreement, such
continuance, the terms of such amendment or the terms of such new agreement have
been approved by the Board of Directors of the Fund, including the vote of
<PAGE>
a majority of the directors who are not "interested persons," as defined in
the Act, of either party to this Agreement, the agreement to be continued,
amendment or new agreement, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as
a "disinterested director vote."
Any disinterested director's vote shall, in favor of continuance,
amendment or execution of a new agreement, include a determination that (i) the
Agreement, amendment, new agreement or continuance in question is in the best
interests of the Fund and its shareholders; (ii) the services to be performed
under the Agreement, the Agreement as amended, new agreement or agreement to be
continued, are services required for the operation of the Fund; (iii) the Agent
can provide services, the nature and quality of which are at least equal to
those provided by others offering the same or similar services; and (iv) the
fees for such services are fair and reasonable in the light of the usual and
customary charges made by others for services of the same nature and quality.
Nothing herein contained shall prevent any disinterested
director vote from being conditioned on the favorable vote of the holders of a
majority (as defined in or under the Act) of the outstanding shares of the Fund.
G. Termination.
(1) This Agreement may be terminated by the Agent at any time
without penalty upon giving the Fund at least one hundred twenty (120) days'
written notice (which notice may be waived by the Fund) and may be terminated by
the Fund at any time without penalty upon giving the Agent at least sixty (60)
days' written notice (which notice may be waived by the Agent), provided that
such termination by the Fund shall be directed or approved by the vote of a
majority of the Board of Directors of the Fund in office at the time or by the
vote of the holders of a majority (as defined in or under the Act) of the
outstanding shares of the Fund.
(2) On termination, the Agent will deliver to the Fund or its
designee all files, documents and records of the Fund used, kept or maintained
by the Agent in the performance of its services hereunder, including such of the
Fund's records in machine readable form as may be maintained by the Agent, as
well as such summary and/or control data relating thereto used by or available
to the Agent.
(3) In addition, on such termination or in preparation
therefore at the request of the Fund and at the Fund's expense, the Agent shall
provide, to the extent that its capabilities then permit, such documentation,
personnel and equipment as may be reasonably necessary in order for a new agent
or the Fund to fully assume and commence to perform the agency functions
described in this Agreement with a minimum disruption to the Fund's activities.
(4) This Agreement shall automatically terminate in the event
of its assignment, the term "assignment" for this purpose having the meaning
defined in Section 2(a)(4) of the Investment Company Act of 1940 and the rules
and regulations thereunder of the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date and year first above written.
------------------------------
By:
----------------------
----------------------
WADDELL & REED SERVICES COMPANY
By:
----------------------
----------------------
<PAGE>
EXHIBIT 10.31
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of August, 1990, by and between____________________
______________ (hereinafter called "United"), and WADDELL & REED, INC.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed, Inc., agrees to act as investment adviser to United
with respect to the investment of its assets and in general to supervise the
investments of United, subject at all times to the direction and control of the
Board of Directors of United, all as more fully set forth herein.
II. Duties of Waddell & Reed, Inc., with respect to investment of assets
of United
A. Waddell & Reed Inc., shall regularly provide investment
advice to United and shall, subject to the succeeding provisions of this
section, continuously supervise the investment and reinvestment of cash,
securities or other property comprising the assets of the investment portfolios
of United; and in furtherance thereof, Waddell & Reed, Inc., shall:
1. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or one or more of the
portfolios of United, and whether concerning the individual companies whose
securities are included in United's portfolios or the industries in which they
engage, or with respect to securities which Waddell & Reed, Inc., considers
desirable for inclusion in United's portfolios;
2. furnish continuously an investment program for each of the
portfolios of United;
3. determine what securities shall be purchased or sold by United;
4. take, on behalf of United, all actions which appear to Waddell &
Reed, Inc., necessary to carry into effect such investment programs and
supervisory functions as aforesaid, including the placing of purchase and sale
orders.
B. Waddell & Reed, Inc., shall make appropriate and regular reports to
the Board of Directors of United on the actions it takes pursuant to Section
II.A. above. Any investment programs furnished by Waddell & Reed, Inc., under
this section, or any supervisory function taken hereunder by Waddell & Reed,
Inc., shall at all times conform to and be in accordance with any requirements
imposed by:
1. the provisions of the Investment Company Act of 1940 and any
rules or regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of United as amended
from time to time;
4. the provisions of the Bylaws of United as amended from time to time;
5. the terms of the registration statements of United, as amended from
time to time, under the Securities Act of 1933 and the Investment Company Act of
1940.
C. Any investment programs furnished by Waddell & Reed, Inc., under
this section or any supervisory functions taken hereunder by Waddell & Reed,
Inc., shall at all times be subject to any directions of the Board of Directors
of United, its Executive Committee, or any committee or officer of United acting
pursuant to authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of United and the expenses of Waddell & Reed, Inc., in
performing its functions under this Agreement shall be divided into two classes,
to wit:
<PAGE>
(i) those expenses which will be paid in full by Waddell & Reed, Inc.,
as set forth in subparagraph "A" hereof, and (ii) those expenses which will be
paid in full by United, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed, Inc., under Section II
above, it shall pay in full, except as to the brokerage and research services
acquired through the allocation of commissions as provided in Section IV
hereinafter, for (a) the salaries and employment benefits of all employees of
Waddell & Reed, Inc. who are engaged in providing these advisory services; (b)
adequate office space and suitable office equipment for such employees; and (c)
all telephone and communications costs relating to such functions. In addition,
Waddell & Reed, Inc., shall pay the fees and expenses of all directors of United
who are affiliated with Waddell & Reed, Inc., or an affiliated corporation and
the salaries and employment benefits of all officers of United who are
affiliated persons of Waddell & Reed, Inc.
B. United shall pay in full for all of its expenses which are not
listed above (other than those assumed by Waddell & Reed, Inc., or its
affiliates in its capacity as Accounting Services Agent for United), including
(a) the costs of preparing and printing prospectuses and reports to shareholders
of United including mailing costs; (b) the costs of printing all proxy
statements and all other costs and expenses of meetings of shareholders of
United; (c) interest, taxes, brokerage commission and premiums on fidelity and
other insurance; (d) audit fees and expenses of independent accountants and
legal fees and expenses of attorneys, but not of attorneys who are employees of
Waddell & Reed, Inc.; (e) fees and expenses of its directors not affiliated with
Waddell & Reed, Inc.; (f) custodian fees and expenses; (g) fees payable by
United under the Securities Act of 1933, the Investment Company Act of 1940, and
the securities or "Blue-Sky" laws of any jurisdiction; (h) fees and assessments
of the Investment Company Institute or any successor organization; (i) such non
recurring or extraordinary expenses as may arise, including litigation affecting
United and any indemnification by United of its officers, directors, employees
and agents with respect thereto; (j) the costs and expenses provided for in any
Shareholder Servicing Agreement or Accounting Services Agreement, including
amendments thereto, contemplated by subsection C of this section III. In the
event that any of the foregoing shall, in the first instance, be paid by Waddell
& Reed, Inc., United shall pay the same to Waddell & Reed, Inc., on presentation
of a statement with respect thereto.
C. Waddell & Reed, Inc., or an affiliate of Waddell & Reed, Inc., may
also act as (i) transfer agent or shareholder servicing agent of United and/or
as (ii) accounting services agent of United if at the time in question there is
a separate agreement, "Shareholder Servicing Agreement" and/or "Accounting
Services Agreement," covering such functions between United and Waddell & Reed,
Inc., or such affiliate. The corporation, whether Waddell & Reed, Inc., or its
affiliate, which is the party to such Agreement with United is referred to as
the "Agent." Each such Agreement shall provide in substance that it shall not go
into effect, or may be amended, or a new agreement covering the same topics
between United and the Agent may be entered into only if the terms of such
Agreement, such amendment or such new agreement have been approved by the Board
of Directors of United, including the vote of a majority of the directors who
are not "interested persons" as defined in the Investment Company Act of 1940,
of either party to the Agreement, such amendment or such new agreement
(considering Waddell & Reed, Inc., to be such a party even if at the time in
question the Agent is an affiliate of Waddell & Reed, Inc.), cast in person at a
meeting called for the purpose of voting on such approval. Such a vote is
referred to as a "disinterested director" vote. Each such Agreement shall also
provide in substance for its continuance, unless terminated, for a specified
period which shall not exceed two years from the date of its execution and from
year to year thereafter only if such continuance is specifically approved at
least annually by a disinterested director vote, and that any disinterested
director vote shall include a determination that (i) the Agreement, amendment,
new agreement or continuance in question is in the best interests of United and
its shareholders; (ii) the services to be performed under the Agreement, the
Agreement as amended, new agreement or agreement to be continued are services
required for the operation of United; (iii) the Agent can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) the fees for such services are
fair and reasonable in light of the usual and customary charges made by others
for services of the same nature and quality. Any such Agreement may also provide
in substance that any disinterested director vote may be conditioned on the
favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class of
United. Any such Agreement shall also provide in substance that it may be
terminated by the Agent at any time without penalty upon giving United one
hundred twenty (120) days' written notice (which notice may be waived by United)
and may be terminated by United at any time without penalty upon giving the
Agent sixty (60) days' written notice (which notice may be waived by the Agent),
provided that such termination by United shall be directed or approved by the
vote of a majority of the Board of Directors of United in office at the time or
by the vote of the holders of a majority (as defined in or under the Investment
Company Act of 1940) of the outstanding shares of each class of United.
IV. Brokerage
(a) Waddell & Reed, Inc., may select brokers to effect the portfolio
transactions of United on the basis of its estimate of their ability to obtain,
for reasonable and competitive commissions, the best execution of particular and
related portfolio transactions. For this purpose, "best execution" means prompt
and reliable execution at the most favorable price obtainable. Such brokers may
be selected on the basis of all relevant factors including the execution
capabilities required by the transaction or transactions, the importance of
speed, efficiency, or confidentiality, and the willingness of the broker to
provide useful or desirable investment
<PAGE>
research and/or special execution services. Waddell & Reed, Inc., shall have
no duty to seek advance competitive commission bids and may select brokers
based solely on its current knowledge of prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed, Inc., shall have
discretion, in the interest of United, to direct the execution of its
portfolio transactions to brokers who provide brokerage and/or research
services (as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934) for United and/or other accounts for which Waddell &
Reed, Inc., and its affiliates exercise "investment discretion" (as that term
is defined in Section 3(a)(35) of the Securities Act of 1934); and in
connection with such transactions, to pay commission in excess of the amount
another adequately qualified broker would have charged if Waddell & Reed,
Inc., determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage and/or research services provided by
such broker, viewed in terms of either that particular transaction or the
overall responsibilities of Waddell & Reed, Inc., and its investment advisory
affiliates with respect to the accounts for which they exercise investment
discretion. In reaching such determination, Waddell & Reed, Inc., will not be
required to attempt to place a specified dollar amount on the brokerage
and/or research services provided by such broker; provided that Waddell &
Reed, Inc., shall be prepared to demonstrate that such determinations were
made in good faith, and that all commissions paid by United over a
representative period selected by its Board of Directors were reasonable in
relation to the benefits to United.
(c) Subject to the foregoing provisions of this Paragraph "IV," Waddell
& Reed, Inc., may also consider sales of insurance policies funded by United's
shares and sales of shares of investment companies distributed by Waddell &
Reed, Inc., or its affiliates, and portfolio valuation or pricing services as a
factor in the selection of brokers to execute brokerage and principal portfolio
transactions.
V. Compensation of Waddell & Reed, Inc.
As compensation in full for services rendered and for the facilities
and personnel furnished under sections I, II, and IV of this Agreement, United
will pay to Waddell & Reed, Inc., for each day the fees specified in Exhibit A
hereto.
The amounts payable to Waddell & Reed, Inc., shall be determined as of
the close of business each day; shall, except as set forth below, be based upon
the value of net assets computed in accordance with the Articles of
Incorporation of United; and shall be paid in arrears whenever requested by
Waddell & Reed, Inc.
Notwithstanding the foregoing, if the laws, regulations or policies of
any state in which shares of United are qualified for sale limit the operation
and management expenses of United, Waddell & Reed, Inc., will refund to United
the amount by which such expenses exceed the lowest of such state limitations.
VI. Undertakings of Waddell & Reed, Inc.; Liabilities
Waddell & Reed, Inc., shall give to United the benefit of its best
judgment, efforts and facilities in rendering advisory services hereunder.
Waddell & Reed, Inc., shall at all times be guided by and be subject to
United's investment policies, the provisions of its Articles of Incorporation
and Bylaws as each shall from time to time be amended, and to the decision and
determination of United's Board of Directors.
This Agreement shall be performed in accordance with the requirements
of the Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent
that the subject matter of this Agreement is within the purview of such Acts.
Insofar as applicable to Waddell & Reed, Inc., as an investment adviser and
affiliated person of United, Waddell & Reed, Inc., shall comply with the
provisions of the Investment Company Act of 1940, the Investment Advisers Act of
1940 and the respective rules and regulations of the Securities and Exchange
Commission thereunder.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Waddell &
Reed, Inc., it shall not be subject to liability to United or to any stockholder
of United (direct or beneficial) for any act or omission in the course of or
connected with rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of business on the
date hereof and shall continue in effect, unless terminated as hereinafter
provided, for a period of one year and from year-to-year thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to this Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or by the vote of the holders of a majority
(as so defined) of the outstanding voting securities of each class of United and
by the vote of a majority of the directors who are not parties to this
<PAGE>
Agreement or "interested persons" (as so defined) of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
VIII. Termination
This Agreement may be terminated by Waddell & Reed, Inc., at any time
without penalty upon giving United one hundred twenty (120) days' written notice
(which notice may be waived by United) and may be terminated by United at any
time without penalty upon giving Waddell & Reed, Inc. sixty (60) days' written
notice (which notice may be waived by Waddell & Reed, Inc.), provided that such
termination by United shall be directed or approved by the vote of a majority of
the Board of Directors of United in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of United. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
______________________________________
By:____________________________
____________________________
WADDELL & REED, INC.
By:____________________________
____________________________
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
___________________________________________
FEE SCHEDULE
A cash fee consisting of two elements:
1. A "specific" fee computed each day on net asset value at the
annual rate of .15 of 1% of net assets; and
2. A pro rata participation based on the relative net asset size of
United in a "Group" fee computed each day on the combined net asset values of
all the Funds in the United Group listed hereafter at the annual rates shown in
the following table:
<TABLE>
<CAPTION>
Group Fee Rate
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate For Each Level
------------------------- -------------------
<S> <C>
From $ 0 to $ 750
From $ 750 to $ 1,500
From $ 1,500 to $ 2,250
From $ 2,250 to $ 3,000
From $ 3,000 to $ 3,750
From $ 3,750 to $ 7,500
From $ 7,500 to $12,000
Over $12,000
</TABLE>
Determined as of the close of business that day or, if not a business day, as of
the close of business the first business day preceding.
The Funds in the United Group are:
United Funds, Inc.
United High Income Fund
United Income Fund
United Accumulative Fund
United Science & Technology Fund
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
United Municipal High Income Fund, Inc.
United Municipal High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc.
United Asset Strategy Fund, Inc.
and such other funds for which Waddell & Reed, Inc., may now or hereafter act as
investment adviser, provided that the parties to this Agreement expressly agree
in writing that such fund shall be included in the present United Group for the
purpose of determining the group fee rate.
<PAGE>
EXHIBIT 10.32
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT, made this ___ day of ____________, 199_, by and between WADDELL
& REED FUNDS, INC. (hereinafter called "Fund"), and WADDELL & REED INVESTMENT
MANAGEMENT COMPANY,
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. IN GENERAL
Waddell & Reed Investment Management Company agrees to act as
investment adviser to Fund with respect to the investment of its assets and in
general to supervise the investments of Fund, subject at all times to the
direction and control of the Board of Directors of Fund, all as more fully set
forth herein.
II. DUTIES OF WADDELL & REED INVESTMENT MANAGEMENT COMPANY WITH
RESPECT TO INVESTMENT OF ASSETS OF FUND
A. Waddell & Reed Investment Management Company shall regularly provide
investment advice to Fund and shall, subject to the succeeding provisions of
this section, continuously supervise the investment and reinvestment of cash,
securities or other property comprising the assets of the investment portfolios
of Fund; and in furtherance thereof, Waddell & Reed Investment Management
Company shall:
1. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or one or
more of the portfolios of Fund, and whether concerning the individual
companies whose securities are included in one or more of Fund's
portfolios or the industries in which they engage, or with respect to
securities which Waddell & Reed Investment Management Company considers
desirable for inclusion in one or more of Fund's portfolios;
2. furnish continuously an investment program for each of the
portfolios of Fund;
3. determine what securities shall be purchased or sold by
Fund;
4. take, on behalf of Fund, all actions which appear to
Waddell & Reed Investment Management Company necessary to carry into
effect such investment programs and supervisory functions as aforesaid,
including the placing of purchase and sale orders.
B. Waddell & Reed Investment Management Company shall make appropriate
and regular reports to the Board of Directors of Fund on the actions it takes
pursuant to Section II.A. above. Any investment programs furnished by Waddell &
Reed Investment Management Company under this section, or any supervisory
function taken hereunder by Waddell & Reed Investment Management Company shall
at all times conform to and be in accordance with any requirements imposed by:
1. the provisions of the Investment Company Act of 1940 and
any rules or regulations in force thereunder;
2. any other applicable provision of law;
<PAGE>
3. the provisions of the Articles of Incorporation of Fund as
amended from time to time;
4. the provisions of the Bylaws of Fund as amended from time
to time;
5. the terms of the registration statement of Fund, as amended
from time to time, under the Securities Act of 1933 and the Investment
Company Act of 1940.
C. Any investment programs furnished by Waddell & Reed Investment
Management Company under this section or any supervisory functions taken
hereunder by Waddell & Reed Investment Management Company shall at all times be
subject to any directions of the Board of Directors of Fund, its Executive
Committee, or any committee or officer of Fund acting pursuant to authority
given by the Board of Directors.
III. ALLOCATION OF EXPENSES
The expenses of Fund and the expenses of Waddell & Reed Investment
Management Company in performing its functions under this Agreement shall be
divided into two classes, to wit: (i) those expenses which will be paid in full
by Waddell & Reed Investment Management Company as set forth in subparagraph "A"
hereof, and (ii) those expenses which will be paid in full by Fund, as set forth
in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed Investment Management
Company under Section II above, it shall pay in full, except as to the brokerage
and research services acquired through the allocation of commissions as provided
in Section IV hereinafter, for (a) the salaries and employment benefits of all
employees of Waddell & Reed Investment Management Company who are engaged in
providing these advisory services; (b) adequate office space and suitable office
equipment for such employees; and (c) all telephone and communications costs
relating to such functions. In addition, Waddell & Reed Investment Management
Company shall pay the fees and expenses of all directors of Fund who are
employees of Waddell & Reed Investment Management Company or an affiliated
corporation and the salaries and employment benefits of all officers of Fund who
are affiliated persons of Waddell & Reed Investment Management Company.
B. Fund shall pay in full for all of its expenses which are not listed
above (other than those assumed by Waddell & Reed Investment Management Company
or one of its affiliates in its capacity as principal underwriter of the shares
of Fund, as Shareholder Servicing Agent or as Accounting Services Agent for
Fund), including (a) the costs of preparing and printing prospectuses and
reports to shareholders of Fund, including mailing costs; (b) the costs of
printing all proxy statements and all other costs and expenses of meetings of
shareholders of Fund (unless Fund and Waddell & Reed Investment Management
Company shall otherwise agree); (c) interest, taxes, brokerage commissions and
premiums on fidelity and other insurance; (d) audit fees and expenses of
independent accountants and legal fees and expenses of attorneys, but not of
attorneys who are employees of Waddell & Reed Investment Management Company or
an affiliated company; (e) fees and expenses of its directors not affiliated
with Waddell & Reed, Inc.; (f) custodian fees and expenses; (g) fees payable by
Fund under the Securities Act of 1933, the Investment Company Act of 1940, and
the securities or "Blue-Sky" laws of any jurisdiction; (h) fees and assessments
of the Investment Company Institute or any successor organization; (i) such
nonrecurring or extraordinary expenses as may arise, including litigation
affecting Fund, and any indemnification by Fund of its officers, directors,
employees and agents with respect thereto; (j) the costs and expenses provided
for in any Shareholder Servicing Agreement or Accounting Services Agreement,
including amendments thereto, contemplated by subsection C of this Section III.
In the event that any of the foregoing shall, in the first instance, be paid by
Waddell & Reed Investment Management Company, Fund shall pay the same to Waddell
& Reed Investment Management Company on presentation of a statement with respect
thereto.
C. Waddell & Reed Investment Management Company or an affiliate of
Waddell & Reed Investment Management Company, may also act as (i) transfer agent
or shareholder servicing agent of Fund and/or as (ii) accounting services agent
of Fund if at the time in question there is a separate agreement, "Shareholder
Servicing Agreement" and/or "Accounting Services Agreement," covering such
functions between Fund and Waddell & Reed Investment Management Company, or such
affiliate. The corporation, whether Waddell & Reed
2
<PAGE>
Investment Management Company, or its affiliate, which is the party to either
such Agreement with Fund is referred to as the "Agent." Each such Agreement
shall provide in substance that it shall go into effect, or be amended, or a
new agreement covering the same topics between Fund and the Agent may be
entered into, only if the terms of such Agreement, such amendment or such new
agreement have been approved by the Board of Directors of Fund, including the
vote of a majority of the directors who are not "interested persons" as
defined in the Investment Company Act of 1940, of either party to the
Agreement, such amendment or such new agreement (considering Waddell & Reed
Investment Management Company to be such a party even if at the time in
question the Agent is an affiliate of Waddell & Reed Investment Management
Company), cast in person at a meeting called for the purpose of voting on
such approval. Such a vote is referred to as a "disinterested director" vote.
Each such Agreement shall also provide in substance for its continuance,
unless terminated, for a specified period which shall not exceed two years
from the date of its execution and from year to year thereafter only if such
continuance is specifically approved at least annually by a disinterested
director vote, and that any disinterested director vote shall include a
determination that (i) the Agreement, amendment, new agreement or continuance
in question is in the best interests of Fund and its shareholders; (ii) the
services to be performed under the Agreement, the Agreement as amended, new
agreement or agreement to be continued are services required for the
operation of Fund; (iii) the Agent can provide services the nature and
quality of which are at least equal to those provided by others offering the
same or similar services; and (iv) the fees for such services are fair and
reasonable in light of the usual and customary charges made by others for
services of the same nature and quality. Any such Agreement may also provide
in substance that any disinterested director vote may be conditioned on the
favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class or
series of Fund. Any such Agreement shall also provide in substance that it
may be terminated by the Agent at any time without penalty upon giving Fund
one hundred twenty (120) days' written notice (which notice may be waived by
Fund) and may be terminated by Fund at any time without penalty upon giving
the Agent sixty (60) days' written notice (which notice may be waived by the
Agent), provided that such termination by Fund shall be directed or approved
by the vote of a majority of the Board of Directors of Fund in office at the
time or by the vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class or
series of Fund.
IV. BROKERAGE
(a) Waddell & Reed Investment Management Company may select brokers to
effect the portfolio transactions of Fund on the basis of its estimate of their
ability to obtain, for reasonable and competitive commissions, the best
execution of particular and related portfolio transactions. For this purpose,
"best execution" means prompt and reliable execution at the most favorable price
obtainable. Such brokers may be selected on the basis of all relevant factors
including the execution capabilities required by the transaction or
transactions, the importance of speed, efficiency, or confidentiality, and the
willingness of the broker to provide useful or desirable investment research
and/or special execution services. Waddell & Reed Investment Management Company
shall have no duty to seek advance competitive commission bids and may select
brokers based solely on its current knowledge of prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed Investment Management
Company shall have discretion, in the interest of Fund, to direct the execution
of its portfolio transactions to brokers who provide brokerage and/or research
services (as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934) for Fund and/or other accounts for which Waddell & Reed
Investment Management Company or one or more of its affiliates exercise
"investment discretion" (as that term is defined in Section 3(a)(35) of the
Securities Exchange Act of 1934); and in connection with such transactions, to
pay commission in excess of the amount another adequately qualified broker would
have charged if Waddell & Reed Investment Management Company determines, in good
faith, that such commission is reasonable in relation to the value of the
brokerage and/or research services provided by such broker, viewed in terms of
either that particular transaction or the overall responsibilities of Waddell &
Reed Investment Management Company and its investment advisory affiliates with
respect to the accounts for which they exercise investment discretion. In
reaching such determination, Waddell & Reed Investment Management Company will
not be required to attempt to place a specified dollar amount on the brokerage
and/or research services provided by such broker; provided that Waddell & Reed
Investment Management Company shall be prepared to demonstrate that such
determinations were made in good faith, and that all commissions paid by
3
<PAGE>
Fund over a representative period selected by its Board of Directors were
reasonable in relation to the benefits to Fund.
(c) Subject to the foregoing provisions of this Paragraph "IV," Waddell
& Reed Investment Management Company may also consider sales of Fund's shares
and shares of investment companies distributed by Waddell & Reed, Inc. or one of
its affiliates, and portfolio valuation or pricing services as a factor in the
selection of brokers to execute brokerage and principal portfolio transactions.
V. COMPENSATION OF WADDELL & REED INVESTMENT MANAGEMENT COMPANY
As compensation in full for services rendered and for the facilities
and personnel furnished under sections I, II, and IV of this Agreement, Fund
will pay to Waddell & Reed Investment Management Company for each day the fees
specified in Exhibit A hereto.
The amounts payable to Waddell & Reed Investment Management Company
shall be determined as of the close of business each day; shall, except as set
forth below, be based upon the value of net assets computed in accordance with
the Articles of Incorporation of Fund; and shall be paid in arrears whenever
requested by Waddell & Reed Investment Management Company. In computing the
value of the net assets of Fund, there shall be excluded the amount owed to Fund
with respect to shares which have been sold but not yet paid to Fund by Waddell
& Reed, Inc.
Notwithstanding the foregoing, if the laws, regulations or policies of
any state in which shares of Fund are qualified for sale limit the operation and
management expenses of Fund, Waddell & Reed Investment Management Company will
refund to Fund the amount by which such expenses exceed the lowest of such state
limitations.
VI. UNDERTAKINGS OF WADDELL & REED INVESTMENT MANAGEMENT COMPANY;
LIABILITIES
Waddell & Reed Investment Management Company shall give to Fund the
benefit of its best judgment, efforts and facilities in rendering advisory
services hereunder.
Waddell & Reed Investment Management Company shall at all times be
guided by and be subject to Fund's investment policies, the provisions of its
Articles of Incorporation and Bylaws as each shall from time to time be amended,
and to the decision and determination of Fund's Board of Directors.
This Agreement shall be performed in accordance with the requirements
of the Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent
that the subject matter of this Agreement is within the purview of such Acts.
Insofar as applicable to Waddell & Reed Investment Management Company, as an
investment adviser and affiliated person of Fund, Waddell & Reed Investment
Management Company shall comply with the provisions of the Investment Company
Act of 1940, the Investment Advisers Act of 1940 and the respective rules and
regulations of the Securities and Exchange Commission thereunder.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Waddell &
Reed Investment Management Company, it shall not be subject to liability to Fund
or to any stockholder of Fund for any act or omission in the course of or
connected with rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
VII. DURATION OF THIS AGREEMENT
This Agreement shall become effective at the start of business on the
date hereof and shall continue in effect, unless terminated as hereinafter
provided, for a period of one year and from year-to-year thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to this Agreement or "interested persons" (as defined in the Investment
4
<PAGE>
Company Act of 1940) of any such party, cast in person at a meeting called
for the purpose of voting on such approval, or by the vote of the holders of
a majority (as so defined) of the outstanding voting securities of each class
or series of Fund and by the vote of a majority of the directors who are not
parties to this Agreement or "interested persons" (as so defined) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
VIII. TERMINATION
This Agreement may be terminated by Waddell & Reed Investment
Management Company at any time without penalty upon giving Fund one hundred
twenty (120) days' written notice (which notice may be waived by Fund) and may
be terminated by Fund at any time without penalty upon giving Waddell & Reed
Investment Management Company sixty (60) days' written notice (which notice may
be waived by Waddell & Reed Investment Management Company), provided that such
termination by Fund shall be directed or approved by the vote of a majority of
the Board of Directors of Fund in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of Fund. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
WADDELL & REED FUNDS, INC.
By:
-----------------------------
-----------------------------
WADDELL & REED INVESTMENT
MANAGEMENT COMPANY
By:
---------------------------
---------------------------
<PAGE>
EXHIBIT 10.33
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this ___ day of ______________, 199_ by and between
TARGET/UNITED FUNDS, INC. (hereinafter called "United", and WADDELL & REED,
INC.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as
follows:
I. IN GENERAL.
Waddell & Reed, Inc., agrees to act as investment
adviser to United with respect to the investment of its assets and in general
to supervise the investments of United, subject at all times to the direction
and control of the Board of Directors of United, all as more fully set forth
herein.
II. DUTIES OF WADDELL & REED, INC., WITH RESPECT TO INVESTMENT OF ASSETS OF
UNITED.
A. Waddell & Reed Inc., shall regularly
provide investment advice to United and shall, subject to the succeeding
provisions of this section, continuously supervise the investment and
reinvestment of cash, securities or other property comprising the assets of
the investment portfolios of United; and in furtherance thereof, Waddell &
Reed, Inc., shall:
1. obtain and evaluate pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or
one or more of the portfolios of United, and whether concerning the
individual companies whose securities are included in United's portfolios or
the industries in which they engage, or with respect to securities which
Waddell & Reed, Inc., considers desirable for inclusion in United's
portfolios;
2. furnish continuously an investment
program for each of the portfolios of United;
3. determine what securities shall be
purchased or sold by United;
4. take, on behalf of United, all actions
which appear to Waddell & Reed, Inc., necessary to carry into effect such
investment programs and supervisory functions as aforesaid, including the
placing of purchase and sale orders.
B. Waddell & Reed, Inc., shall make
appropriate and regular reports to the Board of Directors of United on the
actions it takes pursuant to Section II.A. above. Any investment programs
furnished by Waddell & Reed, Inc., under this section, or any supervisory
function taken hereunder by Waddell & Reed, Inc., shall at all times conform
to and be in accordance with any requirements imposed by:
1. the provisions of the Investment Company
Act of 1940 and any rules or regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of
Incorporation of United as amended from time to time;
4. the provisions of the Bylaws of United as
amended from time to time;
<PAGE>
5. the terms of the registration statements
of United, as amended from time to time, under the Securities Act of 1933 and
the Investment Company Act of 1940.
C. Any investment programs furnished by
Waddell & Reed, Inc., under this section or any supervisory functions taken
hereunder by Waddell & Reed, Inc., shall at all times be subject to any
directions of the Board of Directors of United, its Executive Committee, or
any committee or officer of United acting pursuant to authority given by the
Board of Directors.
III. ALLOCATION OF EXPENSES.
The expenses of United and the expenses of Waddell
& Reed, Inc., in performing its functions under this Agreement shall be
divided into two classes, to wit: (i) those expenses which will be paid in
full by Waddell & Reed, Inc., as set forth in subparagraph "A" hereof, and
(ii) those expenses which will be paid in full by United, as set forth in
subparagraph "B" hereof.
A. With respect to the duties of Waddell &
Reed, Inc., under Section II above, it shall pay in full, except as to the
brokerage and research services acquired through the allocation of
commissions as provided in Section IV hereinafter, for (a) the salaries and
employment benefits of all employees of Waddell & Reed, Inc. who are engaged
in providing these advisory services; (b) adequate office space and suitable
office equipment for such employees; and (c) all telephone and communications
costs relating to such functions. In addition, Waddell & Reed, Inc., shall
pay the fees and expenses of all directors of United who are employees of
Waddell & Reed, Inc., or an affiliated corporation and the salaries and
employment benefits of all officers of United who are affiliated persons of
Waddell & Reed, Inc.
B. United shall pay in full for all of its
expenses which are not listed above (other than those assumed by Waddell &
Reed, Inc., or its affiliates in its capacity as Accounting Services Agent
for United), including (a) the costs of preparing and printing prospectuses
and reports to shareholders of United including mailing costs; (b) the costs
of printing all proxy statements and all other costs and expenses of meetings
of shareholders of United; (c) interest, taxes, brokerage commission and
premiums on fidelity and other insurance; (d) audit fees and expenses of
independent accountants and legal fees and expenses of attorneys, but not of
attorneys who are employees of Waddell & Reed, Inc.; (e) fees and expenses of
its directors; (f) custodian fees and expenses; (g) fees payable by United
under the Securities Act of 1933, the Investment Company Act of 1940, and the
securities or "Blue-Sky" laws of any jurisdiction; (h) fees and assessments
of the Investment Company Institute or any successor organization; (i) such
nonrecurring or extraordinary expenses as may arise, including litigation
affecting United and any indemnification by United of its officers,
directors, employees and agents with respect thereto; (j) the costs and
expenses of maintaining shareholder records and processing transactions for
the issuance and redemption of its shares; and (k) the costs and expenses
provided for in any Accounting Services Agreement, including amendments
thereto, contemplated by subsection C of this section III.
C. Waddell & Reed, Inc., or an affiliate of
Waddell & Reed, Inc., may also act as accounting services agent of United if
at the time in question there is a separate agreement, "Accounting Services
Agreement," covering such functions between United and Waddell & Reed, Inc.,
or such affiliate. The corporation, whether Waddell & Reed, Inc., or its
affiliate, which is the party to such Agreement with United is referred to as
the "Agent." Any such Agreement shall provide in substance that it shall not
go into effect, or may be amended, or a new agreement covering the same
topics between United and the Agent may be entered into only if the terms of
such Agreement, such amendment or such new agreement have been approved by
the Board of Directors of United, including the vote of a majority of the
directors who are not "interested persons" as defined in the Investment
Company Act of 1940, of either party to the Agreement, such amendment or such
new agreement (considering Waddell & Reed, Inc., to be such a party even if
at the time in question the Agent is an affiliate of Waddell & Reed, Inc.),
cast in person at a meeting called for the purpose of voting on such
approval. Such a vote is referrer to as a "disinterested director" vote. Any
such Agreement shall also provide in substance for its continuance, unless
terminated, for a specified period which shall not exceed two years from the
date of its execution and from year to year thereafter only if such
continuance is specifically approved at least annually by a disinterested
director vote, and that any disinterested director vote shall include a
determination that (i) the Agreement, amendment, new agreement or continuance
in question is in the best interests of United and its shareholders; (ii) the
services to be performed under the Agreement, the Agreement as amended, new
<PAGE>
agreement or agreement to be continued are services required for the
operation of United; (iii) the Agent can provide services the nature and
quality of which are at least equal to those provided by others offering the
same or similar services; and (iv) the fees for such services are fair and
reasonable in light of the usual and customary charges made by others for
services of the same nature and quality. Any such Agreement may also provide
in substance that any disinterested director vote may be conditioned on the
favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class of
United. Any such Agreement shall also provide in substance that it may be
terminated by the Agent at any time without penalty upon giving United one
hundred twenty (120) days' written notice (which notice may be waived by
United) and may be terminated by United at any time without penalty upon
giving the Agent sixty (60) days' written notice (which notice may be waived
by the Agent), provided that such termination by United shall be directed or
approved by the vote of a majority of the Board of Directors of United in
office at the time or by the vote of the holders of a majority (as defined in
or under the Investment Company Act of 1940) of the outstanding shares of
each class of United.
IV. BROKERAGE.
(a) Waddell & Reed, Inc., may select brokers
to effect the portfolio transactions of United on the basis of its estimate
of their ability to obtain, for reasonable and competitive commissions, the
best execution of particular and related portfolio transactions. For this
purpose, "best execution" means prompt and reliable execution at the most
favorable price obtainable. Such brokers may be selected on the basis of all
relevant factors including the execution capabilities required by the
transaction or transactions, the importance of speed, efficiency, or
confidentiality, and the willingness of the broker to provide useful or
desirable investment research and/or special execution services. Waddell &
Reed, Inc., shall have no duty to seek advance competitive commission bids
and may select brokers based solely on its current knowledge of prevailing
commission rates.
(b) Subject to the foregoing, Waddell & Reed,
Inc., shall have discretion, in the interest of United, to direct the
execution of its portfolio transactions to brokers who provide brokerage
and/or research services (as such services are defined in Section 28(e) of
the Securities Exchange Act of 1934) for United and/or other accounts for
which Waddell & Reed, Inc., and its affiliates exercise "investment
discretion" (as that term is defined in Section 3(a)(35) of the Securities
Act of 1934); and in connection with such transactions, to pay commission in
excess of the amount another adequately qualified broker would have charged
if Waddell & Reed, Inc., determines, in good faith, that such commission is
reasonable in relation to the value of the brokerage and/or research services
provided by such broker, viewed in terms of either that particular
transaction or the overall responsibilities of Waddell & Reed, Inc., and its
investment advisory affiliates with respect to the accounts for which they
exercise investment discretion. In reaching such determination, Waddell &
Reed, Inc., will not be required to attempt to place a specified dollar
amount on the brokerage and/or research services provided by such broker;
provided that Waddell & Reed, Inc., shall be prepared to demonstrate that
such determinations were made in good faith, and that all commissions paid by
United over a representative period selected by its Board of Directors were
reasonable in relation to the benefits to United.
(c) Subject to the foregoing provisions of
this Paragraph "IV," Waddell & Reed, Inc., may also consider sales of
insurance policies funded by United's shares and sales of shares of
investment companies distributed by Waddell & Reed, Inc., or its affiliates,
and portfolio valuation or pricing services as a factor in the selection of
brokers to execute brokerage and principal portfolio transactions.
V. COMPENSATION OF WADDELL & REED, INC.
As compensation in full for services rendered and
for the facilities and personnel furnished under sections I, II, and IV of
this Agreement, United will pay to Waddell & Reed, Inc., for each day the
fees specified in Exhibit A hereto.
The amounts payable to Waddell & Reed, Inc., shall
be determined as of the close of business each day; shall, except as set
forth below, be based upon the value of net assets computed in accordance
with the Articles of Incorporation of United; and shall be paid in arrears
whenever requested by Waddell & Reed, Inc.
<PAGE>
Notwithstanding the foregoing, if the laws,
regulations or policies of any state in which shares of United are qualified
for sale limit the operation and management expenses of United, Waddell &
Reed, Inc., will refund to United the amount by which such expenses exceed
the lowest of such state limitations.
VI. UNDERTAKINGS OF WADDELL & REED, INC.; LIABILITIES.
Waddell & Reed, Inc., shall give to United the
benefit of its best judgment, efforts and facilities in rendering advisory
services hereunder.
Waddell & Reed, Inc., shall at all times be guided
by and be subject to United's investment policies, the provisions of its
Articles of Incorporation and Bylaws as each shall from time to time be
amended, and to the decision and determination of United's Board of Directors.
This Agreement shall be performed in accordance
with the requirements of the Investment Company Act of 1940, the Investment
Advisors Act of 1940, the Securities Act of 1933, and the Securities Exchange
Act of 1934, to the extent that the subject matter of this Agreement is
within the purview of such Acts. Insofar as applicable to Waddell & Reed,
Inc., as an investment adviser and affiliated person of United, Waddell &
Reed, Inc., shall comply with the provisions of the Investment Company Act of
1940, the Investment Advisers Act of 1940 and the respective rules and
regulations of the Securities and Exchange Commission thereunder.
In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder on
the part of Waddell & Reed, Inc., it shall not be subject to liability to
United or to any stockholder of United (direct of beneficial) for any act or
omission in the course of or connected with rendering services thereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
VII. DURATION OF THIS AGREEMENT.
This Agreement shall become effective at the start
of business on the date hereof and shall continue in effect, unless
terminated as hereinafter provided, for a period of one year and from
year-to-year thereafter only if such continuance is specifically approved at
least annually by the Board of Directors, including the vote of a majority of
the directors who are not parties to this Agreement or "interested persons"
(as defined in the Investment Company Act of 1940) of any such party, cast in
person at a meeting called for the purpose of voting on such approval, or by
the vote of the holders of a majority (as so defined) of the outstanding
voting securities of each class of United and by the vote of a majority of
the directors who are not parties to this Agreement or "interested persons"
(as so defined) of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
VIII. TERMINATION.
This Agreement may be terminated by Waddell &
Reed, Inc., at any time without penalty upon giving United one hundred twenty
(120) days' written notice (which notice may be waived by United) and may be
terminated by United at any time without penalty upon giving Waddell & Reed,
Inc. sixty (60) days' written notice (which notice may be waived by Waddell &
Reed, Inc.), provided that such termination by United shall be directed or
approved by the vote of a majority of the Board of Directors of United in
office at the time or by the vote of a majority (as defined in the Investment
Company Act of 1940) of the outstanding voting securities of United. This
Agreement shall automatically terminate in the event of its assignment, the
term "assignment" for this purpose having the meaning defined in Section
2(a)(4) of the Investment Company Act of 1940 and the rules and regulations
thereunder.
<PAGE>
IN WITNESS WHEREROF, the parties hereto have caused the foregoing instrument
to be executed by their duly authorized officers and their corporate seal to
be hereunto affixed, all as of the day and year first above written.
TMK/UNITED FUNDS, INC.
By:_______________________
-----------------------
WADDELL & REED, INC.
By:_______________________
-----------------------
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
TARGET/UNITED FUNDS, INC.
FEE SCHEDULE
1. A "specific" fee computed each day on net asset value at the annual
rates listed below:
CLASS OF SHARES
---------------
Money Market Portfolio
Bond Portfolio
High Income Portfolio
Growth Portfolio
Income Portfolio
International Portfolio
Small Cap Portfolio
Balanced Portfolio
Limited-Term Bond Portfolio
Asset Strategy Portfolio
Science and Technology Portfolio
2. A "base" fee computed each day on the combined net asset values of
all the portfolios of TMK/United Funds, Inc. and allocated among the eleven
classes of shares based on their relative net asset size at the annual rates
shown in the following table:
<TABLE>
<CAPTION>
Base Fee Rate
Combined Net Asset Level Annual Base
(all dollars in millions) Fee Rate for Each Level
-------------------------- -----------------------
<S> <C>
From $ 0 to $ 750
From $ 750 to $1,500
From $1,500 to $2,250
Over $2,250
</TABLE>
<PAGE>
EXHIBIT 10.34
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the ___ day of ________, 199_, by and
between ______________________, and Waddell & Reed Services Company (the
"Agent"), as amended and restated as of April 1, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the
Company; Acceptance.
(1) The Company hereby appoints the Agent to act as
Shareholder Servicing Agent for the Company upon, and subject to, the terms and
provisions of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder
Servicing Agent for the Company and agrees to act as such upon, and subject to,
the terms and provisions of this Agreement.
(3) The Agent may appoint an entity or entities approved by
the Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment
Company Act of 1940 as amended from time to time;
(b) The term "account" means the shares of the
Company registered on the books of the Company in the name of a shareholder
under a particular account registration number and includes shares subject to
instructions by the shareholder with respect to periodic redemptions and/or
reinvestment in additional shares of any dividends payable on said shares;
(c) The term "affiliate" of a person shall mean
a person controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate
sub-class of a class of shares of the Company, as may now or in the future
exist;
(e) The term "Fund" shall mean each separate
class of shares of the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an
instruction given on behalf of the Company to the Agent and signed on behalf of
the Company by any one or more persons authorized to do so by the Company's
Board of Directors;
(g) The term "prospectus" means the prospectus
and Statement of Additional Information of the applicable Fund or Class from
time to time in effect;
<PAGE>
(h) The term "shares" means shares including
fractional shares of capital stock of the Company, whether or not such shares
are evidenced by an outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner
of record of shares of the Company;
(j) The term "stock certificate" means a
certificate representing shares in the form then currently in use by the
Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in
this paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph (3) above.
(1) Transfers.
Subject to the provisions of this Agreement the
Agent hereby agrees to perform the following functions as transfer agent for
the Company:
(a) Recording the ownership, transfer, exchange
and cancellation of ownership of shares of the Company on the books of the
Company;
(b) Causing the issuance, transfer, exchange and
cancellation of stock certificates;
(c) Establishing and maintaining records of
accounts;
(d) Computing and causing to be prepared and
mailed or otherwise delivered to shareholders payment checks and notices of
reinvestment in additional shares of dividends, stock dividends or stock splits
declared by the Company on shares and of redemption proceeds due by the Company
on redemption of shares;
(e) Furnishing to shareholders such information as
may be reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders
prospectuses, annual and semi-annual reports and proxy materials for shareholder
meetings prepared by or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed
stock certificates in accordance with and subject to procedures and conditions
agreed upon and set out in officers' instructions;
(h) Maintaining such books and records relating to
transactions effected by the Agent pursuant to this Agreement as are required by
the Act, or by rules or regulations thereunder, or by any other applicable
provisions of law, to be maintained by the Company or its transfer agent with
respect to such transactions; preserving, or causing to be preserved, any such
books and records for such periods as may be required by any such law, rule or
regulation; furnishing the Company such information as to such transactions and
at such time as may be reasonably required by it to comply with applicable laws
and regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this
Paragraph 3, as may be required by or be reasonably necessary to comply with any
statute, act, governmental rule, regulation or directive or court order,
including, without limitation, the requirements imposed by the Tax Equity and
Fiscal Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act
of 1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
<PAGE>
The Agent agrees to deal with and answer all
correspondence from or on behalf of shareholders relating to its functions under
this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under
this Agreement in accordance with the schedule as then in effect set forth in
Exhibit B of this Agreement or any amendment thereof. In addition, the Company
agrees to reimburse the Agent for the following "out-of-pocket" expenses of the
Agent within five days after receipt of an itemized statement of such expenses,
to the extent that payment of such expenses has not been or is not to be made
directly by the Company: (i) costs of stationery, appropriate forms, envelopes,
checks, postage, printing (except cost of printing prospectuses, annual and
semi-annual reports and proxy materials) and mailing charges, including returned
mail and proxies, incurred by the Agent with respect to materials and
communications sent to shareholders in carrying out its duties to the Company
under this Agreement; (ii) long distance telephone costs incurred by the Agent
for telephone communications and microfilm and storage costs for transfer agency
records and documents; (iii) costs of all ancillary and supporting services and
related expenses (other than insurance premiums) reasonably required by and
provided to the Agent, other than by its employees or employees of an affiliate,
with respect to functions of the Company being performed by it in its capacity
as Agent hereunder, including legal advice and representation in litigation to
the extent that such payments are permitted under Paragraph 7 of this Agreement
and charges to Agent made by any Subagent; (iv) costs for special reports or
information furnished on request pursuant to this Agreement and not specifically
required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs
and expenses incurred by the Agent in connection with the duties of the Agent
described in Paragraph (3)(1)(i). In addition, the Company agrees to promptly
pay over to the Agent any fees or payment of charges it may receive from a
shareholder for services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution
of the Company's shares, including sales communications, confirmations of
investments (not including reinvestment of dividends) and the clearing or
collection of payments will not be for the account or at the expense of the
Company under this Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to
perform on site inspection of records and accounts and to perform audits
directly pertaining to the Company shareholder accounts serviced by the Agent
hereunder at the Agent's or any Subagent's facilities in accordance with
reasonable procedures at the frequency necessary to assure proper administration
of the Agreement. The Agent will cooperate with the Company's auditors or
representatives of appropriate regulatory agencies and furnish all reasonably
requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit
C, attached hereto, and the Agent will not take any action to eliminate or
decrease such coverage during the term of this Agreement without receiving the
approval of the Fund in advance of any change, except the Agent, after giving
reasonable notice to the Company, may eliminate or decrease any coverage if the
premiums for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good
faith in performing its duties hereunder. The Agent will make every reasonable
effort and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees
to indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with
<PAGE>
the Agent's duties on behalf of the Company hereunder; (ii) for any delay,
error or omission by reason of circumstances beyond its control, including
acts of civil or military authority, national emergencies, labor difficulties
(except with respect to the Agent's employees), fire, mechanical breakdown
beyond its control, flood or catastrophe, acts of God, insurrection, war,
riots, or failure beyond its control of transportation, communication or
power supply; or (iii) for any action taken or omitted to be taken by the
Agent in good faith in reliance on (a) the authenticity of any instrument or
communication reasonably believed by it to be genuine and to have been
properly made and signed or endorsed by an appropriate person, (b) the
accuracy of any records or information provided to it by the Company, (c) any
authorization or instruction contained in any officers' instruction, or (d)
with respect to the functions performed for the Company listed under
Paragraph 3(1) of this Agreement, any advice of counsel approved by the
Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is
understood that if in any case the Company may be asked to indemnify or hold the
Agent harmless, the Company shall be advised of all pertinent facts concerning
the situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to defend
the Agent against any claim which may be the subject of this indemnification
and, in the event that the Company so elects, it will so notify the Agent and
thereupon the Company shall take over complete defense of the claim and the
Agent shall sustain no further legal or other expenses in such situation for
which the Agent shall seek indemnification under this paragraph. The Agent will
in no case confess any claim or make any compromise in any case in which the
Company will be asked to indemnify the Agent except with the Company's prior
written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business
on the date hereof and shall continue, unless terminated as hereinafter
provided, for a period of one year and from year to year thereafter, provided
that such continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or
may be amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination
that (i) the Agreement, amendment, new agreement or continuance in question is
in the best interests of the Company and its shareholders; (ii) the services to
be performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time
without penalty upon giving the Company 120 days' written notice (which notice
may be waived by the Company) and may be terminated by the Company at any time
without penalty upon giving the Agent sixty (60) days' written notice (which
notice may be waived by the Agent), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Board of
Directors of the Company in office at the time or by the vote of the holders of
a majority (as defined in or under the Act) of the outstanding shares of the
Company.
(2) On termination, the Agent will deliver to the Company or
its designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
<PAGE>
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the
appointment of a new shareholder servicing agent, including the Company's acting
as such on its own behalf, the Company shall have the non-exclusive right to the
use of the data processing programs used by the Agent in connection with the
performance of its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation
therefore, at the request of the Company and at the Company's expense the Agent
shall provide to the extent that its capabilities then permit such
documentation, personnel and equipment as may be reasonably necessary in order
for a new agent or the Company to fully assume and commence to perform the
agency functions described in this Agreement with a minimum disruption to the
Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only
and shall not be deemed to constitute a part hereof. Whenever the context
requires, words denoting singular shall be read to include the plural. This
Agreement and the rights and obligations of the parties hereunder, shall be
construed and interpreted in accordance with the laws of the State of Kansas,
except to the extent that the laws of the State of Maryland apply with respect
to share transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly
organized and existing and in good standing under the laws of the State of
Missouri, that it is duly qualified to carry on its business in the State of
Kansas and wherever its duties require, that it has the power and authority
under laws and by its Articles of Incorporation and Bylaws to enter into this
Shareholder Servicing Agreement and to perform the services contemplated by this
Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the
entire and complete agreement between the parties hereto relating to the subject
matter hereof, supersedes and merges all prior discussions between the parties
hereto, and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this
Agreement to be duly executed on the day and year first above written.
UNITED MUNICIPAL HIGH INCOME FUND, INC.
By:
-----------------------------------
-----------------------------------
WADDELL & REED SERVICES COMPANY
By:
-----------------------------------
-----------------------------------
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general
commercial practices and the Rules of the Stock Transfer Association, Inc.
except as they may conflict or be inconsistent with the specific provisions of
the Company's Articles of Incorporation and Bylaws, prospectus, applicable
Federal and state laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event a
signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT 10.35
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this ___ day of ______, 199_, by and between
______________________ (hereinafter the "Company"), a Maryland corporation,
and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management
investment company (mutual fund), and
2) the shares of each of its classes of shares
("Fund") and of each sub-class thereof ("Class"), if any, are, as of the date
of the effectiveness of this Agreement as to each such Fund or Class,
registered with the Securities and Exchange Commission ("SEC") and qualified
or otherwise authorized for sale in all states of the United States as may be
agreed upon. (As to any Fund or Class not registered with the SEC and
qualified or otherwise authorized for sale in all states of the United States
as may be agreed upon, this Agreement shall become effective as to such Fund
or Class upon such registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC
and is duly qualified to offer shares of the Company in all states in which
the shares are currently qualified or otherwise authorized for offer for sale;
2) it is a member of the National Association of
Securities Dealers, Inc. ("NASD");
3) it maintains a retail securities and insurance
sales organization consisting in part of a number of representatives
authorized under Federal and state securities laws to solicit as
representatives of W&R orders for Company shares and other securities;
4) it maintains and enforces procedures to enable
it to supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review
for compliance with applicable securities laws, rules and regulations all
sales literature and promotional materials used by it and authorized to be
used by its representatives in solicitation of orders to buy Company shares,
and it files, when applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby, as applicable, appoints W&R or continues the
appointment of W&R, and W&R, as applicable, agrees to act or continues to
act, as the Company's principal underwriter under the terms and provisions of
this Agreement.
A. Company agrees
1) to use its best efforts to register from time
to time under the Securities Act of 1933 (the "Securities Act") adequate
amounts of its shares for sale by W&R to the public and to qualify or to
permit W&R to qualify such shares for offering to the public in such states
as may from time to time be agreed upon;
<PAGE>
2) to immediately advise W&R (i) when any
post-effective amendment to its registration statement or any further
amendment or supplement thereto or any further registration statement or
amendment or supplement thereto becomes effective, (ii) of any request by the
SEC for amendments to the registration statement(s) or any then effective
prospectus or for additional information, (iii) of the issuance by the SEC of
any stop-order suspending the effectiveness of the registration statement or
the initiation of any proceedings for that purpose, and (iv) of the happening
of any event which makes untrue any material statement made in the
registration statement or any then effective prospectus or which, in the
opinion of counsel for the Company, requires the making of a change in the
registration statement or any then effective prospectus in order to make the
statements therein not misleading; in case of the happening at any time of
any event which materially affects the Company or its securities and which
should be set forth in a supplement to or an amendment of any then effective
prospectus in order to make the statements therein not misleading, to prepare
and furnish to W&R such amendment or amendments to that prospectus as will
correct the prospectus so that as corrected it will not contain, or such
supplement or supplements to that prospectus which when read in conjunction
with that prospectus will make the combined information not contain any
untrue statement of a material fact or any omission to state any material
fact necessary in order to make the statements in that prospectus not
misleading; if any time the SEC shall issue any stop-order suspending the
effectiveness of the registration statement, to make every reasonable effort
to obtain the prompt lifting of such order; and, before filing any amendment
to the registration statement or to any then effective prospectus, to furnish
W&R with a copy of the proposed amendment;
3) to advise W&R of the net asset value of the
shares of each of its Funds and Classes, as applicable, as often as computed
and to furnish to W&R as soon as practical such information as may be
reasonably requested by W&R in order that it may know all of the facts
necessary to sell shares of the Company;
4) to make delivery of its shares subject to the
provisions of its Articles of Incorporation and Bylaws to W&R as ordered by
W&R as soon as reasonably possible after receipt of the orders and against
payment of the consideration to be received by the Company therefor from W&R;
5) to pay or cause to be paid all expenses
incident to the issuance, transfer, registration and delivery of its shares,
all taxes in connection therewith, costs and expenses incident to preparing
and filing any registration statements and prospectuses and any amendments or
supplements to a registration statement or a prospectus, statutory fees
incidental to the registration of additional shares with the SEC, statutory
fees and expenses incurred in connection with any Blue Sky law qualifications
undertaken by or at the request of W&R, and the fees and expenses of the
Company's counsel, accountants or any other experts used in connection with
the foregoing; and
6) not without the consent of W&R to offer any of
its shares for sale directly or to any persons or corporations other than
W&R, except only
a) the reinvestment of dividends and/or
distributions or their declaration in shares of the Company, in optional form
or otherwise;
b) the issuance of additional shares to
stock splits or stock dividends;
c) sale of shares to another investment
or securities holding company in the process of purchasing all or a portion
of its assets;
d) in connection with an exchange of
shares of the Company for shares in another investment or securities holding
company;
e) the sale of shares to registered unit
investment trusts; or
f) in connection with the exchange of
one Fund's shares for shares of another Fund of the Company.
<PAGE>
B. W&R agrees
1) to offer Company shares in such states as may
be agreed upon through its retail account representatives and, at its sole
discretion, through broker-dealers which are members of the NASD on such
terms as are not inconsistent with this Agreement;
2) to order shares from the Company only after it
has received a purchase order therefor;
3) to pay to the Company the net asset value of
shares sold within two business days after the day payment is received by W&R
at its principal place of business from the investor or broker-dealer, or pay
the Company at such other time as may be agreed upon hereafter by the Company
and W&R, or as may be prescribed by law or the Rules of the NASD;
4) in offering shares to comply with the
provisions of the Articles of Incorporation and Bylaws of the Company and
with the provisions stated in its applicable then current prospectus(es);
5) timely to inform the Company of any action or
proceeding to terminate, revoke or suspend W&R's registration as a
broker-dealer with the SEC, membership in the NASD, or authority with any
state securities commission to offer Company shares; and
6) to pay the cost of all sales literature,
advertising and other materials which it may at its discretion use in
connection with the sale of Company shares, including the cost of reports to
the shareholders of the Company in excess of the cost of reports to existing
shareholders and the cost of printing the prospectus(es) furnished to it by
the Company.
III. TERMS FOR SALE OF SHARES
A. It is mutually agreed that
1) W&R shall act as principal in all matters
relating to promotion and sale of Company shares, including the preparation
and use of all advertising, sales literature and other promotional materials,
and shall make and enter into all other arrangements, agreements and
contracts as principal on its own account and not as agent for the Company.
Title to shares issued and sold by the Company through W&R shall pass
directly from the Company to the dealer or investor, or shall first pass to
W&R as it may from time to time be determined by W&R and the Company; except
provided, however, that W&R may, if so agreed by W&R and the Company, act as
agent of the Company without commission on repurchase of shares of the
Company;
2) certificates for shares shall not be created
or delivered by the Company in any case in which the purchase is pursuant to
any provisions of the Company described in its applicable then current
prospectus(es) under the terms of which certificates are not to be issued to
the shareholder. Shares sold by W&R shall be registered in such name or names
and amounts as W&R may request from time to time, and all shares when so paid
for and issued shall be fully paid and non-assessable;
3) the offering price at which shares of the
Company may be sold by W&R shall include such selling commission as may be
applicable to that Class and as may be fixed from time to time by W&R but
shall not be in excess of 8.5 percent of the offering price. W&R shall retain
any such sales commission and may re-allow all or any part of the sales
commission to its account representatives and to selected brokers and dealers
who sell shares of the Company; and
4) W&R may designate, reduce or eliminate its
selling commissions in certain sales or exchanges to the extent described in
the applicable then current prospectus(es) of the Company and in accordance
with Section 22(d) of the Investment Company Act of 1940 and any rules,
regulations or orders of the SEC thereunder.
<PAGE>
IV. THE PLAN
A. It is mutually acknowledged that the Company has adopted
a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (a "Plan"), which Plan is applicable to certain shares and that the
Company may in the future adopt Plans applicable to certain Funds and
Classes, respectively.
B. With respect to any Fund or Class as to which the
Company has adopted a Plan, pursuant to that Plan, each day the Company shall
pay to W&R a distribution fee and/or a service fee at the maximum rates and
under the terms and conditions set forth in the applicable Plan, as amended
from time to time, or such lesser amount as the Company and W&R may agree.
C. The Company shall, after excluding from the redemption
proceeds that portion represented by the reinvestment of dividends and
distributions and the appreciation of the value of Fund shares being
redeemed, promptly pay W&R an amount, if any, equal to the percent of the
amount invested as determined by W&R and as is then stated in the Company's
current prospectus applicable to the shares redeemed (the "contingent
deferred sales charge"). For purposes of determining the applicable
contingent deferred sales charge, if any: the redemptions shall be deemed in
order of investment made when more than one investment has been made; and
when the shares being redeemed were acquired by exchange of shares of another
Fund or Class of the Company, or corresponding class of another registered
investment company for which W&R or its affiliate serves as principal
underwriter, the investment shall be deemed as if it had been made when the
Company's shares were first purchased, and the applicable contingent deferred
sales charges, if any, shall be with respect to the amount originally
invested in Company shares; and provided that any contingent deferred sales
charge shall be determined in accordance with and in the manner set forth in
the applicable then current prospectus and any applicable Order or Rule
issued by the SEC.
D. It is contemplated that W&R may pay commissions to its
field sales force at the time of sale of the Company's shares and may incur
other expenses substantially in advance of receiving the distribution fee, if
any, that may be applicable to the payment of such commissions and expenses.
W&R recognizes that such payments are at its risk and that this Agreement may
be terminated or not continued as hereinafter provided without the payment to
it of any further distribution fees or service fees whatsoever and without
the payment of any penalty. The contingent deferred sales charges, if any,
shall, however, be payable to W&R with respect to all subject sales made
prior to the termination of this Agreement.
E. W&R shall at least quarterly provide to the Company's
board of directors a written report with respect to each Fund or Class, as
applicable, of the amounts of the distribution and/or service fees expended
and the purposes for which these expenditures were made. W&R shall in
addition furnish to the board of directors of the Company such information as
may be requested or as may be necessary to an informed determination by the
directors of whether or not the directors should continue the Company's
Plan(s) and continue this Agreement and to determine whether there is
reasonable likelihood that the Plan(s) and this Agreement will benefit the
Company and its shareholders affected by such Plan(s).
V. INDEMNIFICATION
A. The Company agrees with W&R for the benefit of W&R and
each person, if any, who controls W&R within the meaning of Section 15 of the
Securities Act and each and all and any of them, to indemnify and hold
harmless W&R and any such controlling person from and against any and all
losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, under any other
statute, at common law or otherwise, and to reimburse the underwriter and
such controlling persons, if any, for any legal or other expenses (including
the cost of any investigation and preparation) reasonably incurred by them or
any of them in connection with any litigation whether or not resulting in any
liability, insofar as such losses, claims, damages, liabilities or litigation
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or any
prospectus or any amendment thereof or supplement thereto or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this indemnity agreement
shall not apply to amounts paid in settlement of any such litigation if such
settlement is effected without the consent of the Company or to any such
losses,
<PAGE>
claims, damages, liabilities or litigation arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus or any amendment thereof or
supplement thereto, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission was made in reliance upon information furnished in writing to the
Company by W&R for inclusion in any registration statement or any prospectus
or any amendment thereof or supplement thereto. W&R and each such controlling
person shall promptly, after the complaint shall have been served upon W&R or
such controlling person in any litigation against W&R or such controlling
person in respect of which indemnity may be sought from the Company on
account of its agreement contained in this paragraph, notify the Company in
writing of the commencement thereof. The omission of W&R or such controlling
person so to notify the Company of any such litigation shall relieve the
Company from any liability which it may have to W&R or such controlling
person on account of the indemnity agreement contained in this paragraph but
shall not relieve the Company from any liability which it may have to W&R or
controlling person otherwise than on account of the indemnity agreement
contained in this paragraph. In case any such litigation shall be brought
against W&R or any such controlling person and the underwriter or such
controlling person shall notify the Company of the commencement thereof, the
Company shall be entitled to participate in (and, to the extent that it shall
wish, to direct) the defense thereof at its own expense but such defense
shall be conducted by counsel of good standing and satisfactory to W&R or
such controlling person or persons, defendant or defendants in the
litigation. The indemnity agreement of the Company contained in this
paragraph shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of W&R or any such controlling person
and shall survive any delivery of shares of the Company. The Company agrees
to notify W&R promptly of the commencement of any litigation or proceeding
against it or any of its officers or directors of which it may be advised in
connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding, the
agreement in Section A of this article, insofar as it constitutes a basis for
reimbursement by the Company for liabilities (other than payment by the
Company of expenses incurred or paid in the successful defense of any action,
suit or proceeding) arising under the Securities Act, shall not extend to the
extent of any interest therein of any person who is an underwriter or a
partner or controlling person of an underwriter within the meaning of Section
15 of the Securities Act or who, at the date of this Agreement, is a director
of the Company, except to the extent that an interest of such character shall
have been determined by a court of appropriate jurisdiction the question of
whether or not such interest is against public policy as expressed in the
Securities Act.
C. W&R agrees to indemnify and hold harmless the Company
and its directors and such officers as shall have signed any registration
statement from and against any and all losses, claims, damages or
liabilities, joint or several, to which the Company or such directors or
officers may become subject under the Securities Act, under any other
statute, at common law or otherwise, and will reimburse the Company or such
directors or officers for any legal or other expenses (including the cost of
any investigation and preparation) reasonably incurred by it or them or any
of them in connection with any litigation, whether or not resulting in any
liability insofar as such losses, claims, damages, liabilities or litigation
arise out of, or are based upon, any untrue statement or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, which statement or omission was
made in reliance upon information furnished in writing to the Company by W&R
for inclusion in any registration statement or any prospectus, or any
amendment thereof or supplement thereto, or which statement was made in, or
the alleged omission was from, any advertising or sales literature (including
any reports to shareholders used as such) which relate to the Company.
W&R shall not be liable for amounts paid in settlement of
any such litigation if such settlement was effected without its consent. The
Company and its directors and such officers, defendant or defendants, in any
such litigation shall, promptly after the complaint shall have been served
upon the Company or any such director or officer in any litigation against
the Company or any such director or officer in respect of which indemnity may
be sought from W&R on account of its agreement contained in this paragraph,
notify W&R in writing of the commencement thereof. The omission of the
Company or such director or officer so to notify the underwriter of any such
litigation shall relieve W&R from any liability which it may have to the
Company or such director or officer on account of the indemnity agreement
contained in this paragraph, but shall not relieve W&R from any liability
which it may have to the Company or such director or officer otherwise than
on account of the indemnity agreement contained in this paragraph. In case
any such litigation shall be brought against the Company or any such officer
or director and notice of the commencement thereof shall have been so given
to W&R, W&R shall be entitled to participate in (and, to the extent that it
shall wish, to
<PAGE>
direct) the defense thereof at its own expense, but such defense shall be
conducted by counsel of good standing and satisfactory to the Company. The
indemnity agreement of W&R contained in this paragraph shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Company and shall survive any delivery of shares of the
Company. W&R agrees to notify the Company promptly of the commencement of any
litigation or proceeding against it or any of its officers or directors or
against any such controlling person of which it may be advised, in connection
with the issue and sale of the Company's shares.
D. Notwithstanding any provision contained in this
Agreement, no party hereto and no person or persons in control of any party
hereto shall be protected against any liability to the Company or its
security holders to which they would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of
their duties or by reason of their reckless disregard of their obligations
and duties under this Agreement.
VI. OTHER TERMS
A. This Agreement shall not be deemed to limit W&R from
acting as underwriter and/or dealer for any other mutual fund, from engaging
in any other aspects of the securities business, whether or not such may be
deemed in competition with the sale of shares of the Company, and to carry on
any other lawful business whatsoever.
B. Except as expressly provided in Article V and
hereinabove, the agreements herein set forth have been made and are made
solely for the benefit of the Company and W&R, and the persons expressly
provided for in Article V, their respective heirs and successors, personal
representatives and assigns, and except as so provided, nothing expressed or
mentioned herein is intended or shall be construed to give any person, firm
or corporation other than the Company, W&R and the persons expressly provided
for in Article V any legal or equitable right, remedy or claim under or in
respect of this Agreement or any representation, warranty or agreement herein
contained. Except as so provided, the term "heirs, successors, personal
representatives and assigns" shall not include any purchaser of shares merely
because of such purchase.
C. This Agreement shall continue in effect, unless
terminated as hereinafter provided, for a period of one (1) year and
thereafter only if such continuance is specifically approved at least
annually by the Board of Directors, including the vote of a majority of the
directors who are not parties to the Agreement or "interested persons" (as
defined in the Investment Company Act of 1940) or any such party and who have
no direct or indirect financial interest in the operation of any Plan or any
agreement relating to that Plan (hereafter the "Plan directors"), cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement may be terminated by W&R at any time without penalty upon giving
the Company sixty (60) days' written notice (which notice may be waived by
the Company) and may be terminated by the Company at any time without penalty
upon giving W&R sixty (60) days' written notice (which notice may be waived
by W&R), provided that such termination by the Company shall be directed or
approved by the vote of a majority of the Plan directors, or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the
outstanding voting securities of a Fund with respect to that Fund. This
Agreement shall automatically terminate in the event of its assignment, the
term "assignment" for this purpose having the meaning defined in Section
2(a)(4) of the Investment Company Act of 1940.
D. This Agreement shall be governed and construed in
accordance with the laws of Kansas.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers and their corporate
seals to be affixed as of the day and year first above written.
--------------------------------
By:_____________________________
-----------------------------
WADDELL & REED, INC.
By:____________________________
----------------------------
<PAGE>
EXHIBIT 10.36
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this ___ day of ________, 199_, by and between
____________________ (hereinafter the "Company"), a Maryland corporation, and
Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management investment
company (mutual fund), and
2) the shares of each of its classes of shares
("Fund") and of each sub-class thereof ("Class"), if any, are, as of the date of
the effectiveness of this Agreement as to each such Fund or Class, registered
with the Securities and Exchange Commission ("SEC") and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon.
(As to any Fund or Class not registered with the SEC and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon,
this Agreement shall become effective as to such Fund or Class upon such
registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC and
is duly qualified to offer shares of the Company in all states in which the
shares are currently qualified or otherwise authorized for offer for sale;
2) it is a member of the National Association of
Securities Dealers, Inc. ("NASD");
3) it maintains a retail securities and insurance
sales organization consisting in part of a number of representatives authorized
under Federal and state securities laws to solicit as representatives of W&R
orders for Company shares and other securities;
4) it maintains and enforces procedures to enable it
to supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review for
compliance with applicable securities laws, rules and regulations all sales
literature and promotional materials used by it and authorized to be used by its
representatives in solicitation of orders to buy Company shares, and it files,
when applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby, as applicable, appoints W&R or continues the
appointment of W&R, and W&R, as applicable, agrees to act or continues to act,
as the Company's principal underwriter under the terms and provisions of this
Agreement.
A. Company agrees
1) to use its best efforts to register from time to
time under the Securities Act of 1933 (the "Securities Act") adequate amounts of
its shares for sale by W&R to the public and to qualify or to permit W&R to
qualify such shares for offering to the public in such states as may from time
to time be agreed upon;
2) to immediately advise W&R (i) when any
post-effective amendment to its registration
<PAGE>
statement or any further amendment or supplement thereto or any further
registration statement or amendment or supplement thereto becomes effective,
(ii) of any request by the SEC for amendments to the registration
statement(s) or any then effective prospectus or for additional information,
(iii) of the issuance by the SEC of any stop-order suspending the
effectiveness of the registration statement or the initiation of any
proceedings for that purpose, and (iv) of the happening of any event which
makes untrue any material statement made in the registration statement or any
then effective prospectus or which, in the opinion of counsel for the
Company, requires the making of a change in the registration statement or any
then effective prospectus in order to make the statements therein not
misleading; in case of the happening at any time of any event which
materially affects the Company or its securities and which should be set
forth in a supplement to or an amendment of any then effective prospectus in
order to make the statements therein not misleading, to prepare and furnish
to W&R such amendment or amendments to that prospectus as will correct the
prospectus so that as corrected it will not contain, or such supplement or
supplements to that prospectus which when read in conjunction with that
prospectus will make the combined information not contain any untrue
statement of a material fact or any omission to state any material fact
necessary in order to make the statements in that prospectus not misleading;
if any time the SEC shall issue any stop-order suspending the effectiveness
of the registration statement, to make every reasonable effort to obtain the
prompt lifting of such order; and, before filing any amendment to the
registration statement or to any then effective prospectus, to furnish W&R
with a copy of the proposed amendment;
3) to advise W&R of the net asset value of the shares
of each of its Funds and Classes, as applicable, as often as computed and to
furnish to W&R as soon as practical such information as may be reasonably
requested by W&R in order that it may know all of the facts necessary to sell
shares of the Company;
4) to make delivery of its shares subject to the
provisions of its Articles of Incorporation and Bylaws to W&R as ordered by
W&R as soon as reasonably possible after receipt of the orders and against
payment of the consideration to be received by the Company therefor from W&R;
5) to pay or cause to be paid all expenses incident
to the issuance, transfer, registration and delivery of its shares, all taxes in
connection therewith, costs and expenses incident to preparing and filing any
registration statements and prospectuses and any amendments or supplements to
a registration statement or a prospectus, statutory fees incidental to the
registration of additional shares with the SEC, statutory fees and expenses
incurred in connection with any Blue Sky law qualifications undertaken by or at
the request of W&R, and the fees and expenses of the Company's counsel,
accountants or any other experts used in connection with the foregoing; and
6) not without the consent of W&R to offer any of its
shares for sale directly or to any persons or corporations other than W&R,
except only
a) the reinvestment of dividends and/or
distributions or their declaration in shares of the Company, in optional form or
otherwise;
b) the issuance of additional shares to
stock splits or stock dividends;
c) sale of shares to another investment or
securities holding company in the process of purchasing all or a portion of its
assets;
d) in connection with an exchange of shares
of the Company for shares in another investment or securities holding company;
e) the sale of shares to registered unit
investment trusts; or
f) in connection with the exchange of one
Fund's shares for shares of another Fund of the Company.
2
<PAGE>
B. W&R agrees
1) to offer Company shares in such states as may be
agreed upon through its retail account representatives and, at its sole
discretion, through broker-dealers which are members of the NASD on such terms
as are not inconsistent with this Agreement;
2) to order shares from the Company only after it has
received a purchase order therefor;
3) to pay to the Company the net asset value of
shares sold within two business days after the day payment is received by W&R
at its principal place of business from the investor or broker-dealer, or pay
the Company at such other time as may be agreed upon hereafter by the Company
and W&R, or as may be prescribed by law or the Rules of the NASD;
4) in offering shares to comply with the provisions
of the Articles of Incorporation and Bylaws of the Company and with the
provisions stated in its applicable then current prospectus(es);
5) timely to inform the Company of any action or
proceeding to terminate, revoke or suspend W&R's registration as a broker-dealer
with the SEC, membership in the NASD, or authority with any state securities
commission to offer Company shares; and
6) to pay the cost of all sales literature,
advertising and other materials which it may at its discretion use in connection
with the sale of Company shares, including the cost of reports to the
shareholders of the Company in excess of the cost of reports to existing
shareholders and the cost of printing the prospectus(es) furnished to it by the
Company.
III. TERMS FOR SALE OF SHARES
A. It is mutually agreed that
1) W&R shall act as principal in all matters relating
to promotion and sale of Company shares, including the preparation and use of
all advertising, sales literature and other promotional materials, and shall
make and enter into all other arrangements, agreements and contracts as
principal on its own account and not as agent for the Company. Title to shares
issued and sold by the Company through W&R shall pass directly from the Company
to the dealer or investor, or shall first pass to W&R as it may from time to
time be determined by W&R and the Company; except provided, however, that W&R
may, if so agreed by W&R and the Company, act as agent of the Company without
commission on repurchase of shares of the Company;
2) certificates for shares shall not be created or
delivered by the Company in any case in which the purchase is pursuant to any
provisions of the Company described in its applicable then current
prospectus(es) under the terms of which certificates are not to be issued to the
shareholder. Shares sold by W&R shall be registered in such name or names and
amounts as W&R may request from time to time, and all shares when so paid for
and issued shall be fully paid and non-assessable; and
3) the offering price at which shares of the Company
may be sold by W&R shall include such selling commission as may be applicable to
that Class and as may be fixed from time to time by W&R but shall not be in
excess of 8.5 percent of the offering price. W&R shall retain any such sales
commission and may re-allow all or any part of the sales commission to its
account representatives and to selected brokers and dealers who sell shares of
the Company. W&R may designate, reduce or eliminate its selling commissions in
certain sales or exchanges to the extent described in the applicable then
current prospectus(es) of the Company and in accordance with Section 22(d) of
the Investment Company Act of 1940 and any rules, regulations or orders of the
SEC thereunder.
3
<PAGE>
IV. THE PLAN
A. It is mutually acknowledged that the Company has adopted a
plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(a "Plan"), which Plan is applicable to certain shares and that the Company may
in the future adopt Plans applicable to certain Funds and Classes, respectively.
B. With respect to any Fund or Class as to which the Company
has adopted a Plan, pursuant to that Plan, each day the Company shall pay to W&R
a distribution fee and/or a service fee at the maximum rates and under the terms
and conditions set forth in the applicable Plan, as amended from time to time,
or such lesser amount as the Company and W&R may agree.
C. The Company shall, after excluding from the redemption
proceeds that portion represented by the reinvestment of dividends and
distributions and the appreciation of the value of Fund shares being redeemed,
promptly pay W&R an amount, if any, equal to the percent of the amount invested
as determined by W&R and as is then stated in the Company's current prospectus
applicable to the shares redeemed (the "contingent deferred sales charge"). For
purposes of determining the applicable contingent deferred sales charge, if any:
the redemptions shall be deemed in order of investment made when more than one
investment has been made; and when the shares being redeemed were acquired by
exchange of shares of another Fund or Class of the Company, or corresponding
class of another registered investment company for which W&R or its affiliate
serves as principal underwriter, the investment shall be deemed as if it had
been made when the Company's shares were first purchased, and the applicable
contingent deferred sales charges, if any, shall be with respect to the amount
originally invested in Company shares; and provided that any contingent deferred
sales charge shall be determined in accordance with and in the manner set forth
in the applicable then current prospectus and any applicable Order or Rule
issued by the SEC.
D. It is contemplated that W&R may pay commissions to its
field sales force at the time of sale of the Company's shares and may incur
other expenses substantially in advance of receiving the distribution fee, if
any, that may be applicable to the payment of such commissions and expenses. W&R
recognizes that such payments are at its risk and that this Agreement may be
terminated or not continued as hereinafter provided without the payment to it of
any further distribution fees or service fees whatsoever and without the payment
of any penalty. The contingent deferred sales charges, if any, shall, however,
be payable to W&R with respect to all subject sales made prior to the
termination of this Agreement.
E. W&R shall at least quarterly provide to the Company's board
of directors a written report with respect to each Fund or Class, as applicable,
of the amounts of the distribution and/or service fees expended and the purposes
for which these expenditures were made. W&R shall in addition furnish to the
board of directors of the Company such information as may be requested or as may
be necessary to an informed determination by the directors of whether or not the
directors should continue the Company's Plan(s) and continue this Agreement and
to determine whether there is reasonable likelihood that the Plan(s) and this
Agreement will benefit the Company and its shareholders affected by such
Plan(s).
V. INDEMNIFICATION
A. The Company agrees with W&R for the benefit of W&R and each
person, if any, who controls W&R within the meaning of Section 15 of the
Securities Act and each and all and any of them, to indemnify and hold harmless
W&R and any such controlling person from and against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, under any other statute, at common law
or otherwise, and to reimburse the underwriter and such controlling persons, if
any, for any legal or other expenses (including the cost of any investigation
and preparation) reasonably incurred by them or any of them in connection with
any litigation whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities or litigation arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or any prospectus or any amendment
thereof or supplement thereto or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the
4
<PAGE>
statements therein not misleading; provided, however, that this indemnity
agreement shall not apply to amounts paid in settlement of any such
litigation if such settlement is effected without the consent of the Company
or to any such losses, claims, damages, liabilities or litigation arising out
of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus or any
amendment thereof or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
which statement or omission was made in reliance upon information furnished
in writing to the Company by W&R for inclusion in any registration statement
or any prospectus or any amendment thereof or supplement thereto. W&R and
each such controlling person shall promptly, after the complaint shall have
been served upon W&R or such controlling person in any litigation against W&R
or such controlling person in respect of which indemnity may be sought from
the Company on account of its agreement contained in this paragraph, notify
the Company in writing of the commencement thereof. The omission of W&R or
such controlling person so to notify the Company of any such litigation shall
relieve the Company from any liability which it may have to W&R or such
controlling person on account of the indemnity agreement contained in this
paragraph but shall not relieve the Company from any liability which it may
have to W&R or controlling person otherwise than on account of the indemnity
agreement contained in this paragraph. In case any such litigation shall be
brought against W&R or any such controlling person and the underwriter or
such controlling person shall notify the Company of the commencement thereof,
the Company shall be entitled to participate in (and, to the extent that it
shall wish, to direct) the defense thereof at its own expense but such
defense shall be conducted by counsel of good standing and satisfactory to
W&R or such controlling person or persons, defendant or defendants in the
litigation. The indemnity agreement of the Company contained in this
paragraph shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of W&R or any such controlling person
and shall survive any delivery of shares of the Company. The Company agrees
to notify W&R promptly of the commencement of any litigation or proceeding
against it or any of its officers or directors of which it may be advised in
connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding, the
agreement in Section A of this article, insofar as it constitutes a basis for
reimbursement by the Company for liabilities (other than payment by the Company
of expenses incurred or paid in the successful defense of any action, suit or
proceeding) arising under the Securities Act, shall not extend to the extent of
any interest therein of any person who is an underwriter or a partner or
controlling person of an underwriter within the meaning of Section 15 of the
Securities Act or who, at the date of this Agreement, is a director of the
Company, except to the extent that an interest of such character shall have been
determined by a court of appropriate jurisdiction the question of whether or not
such interest is against public policy as expressed in the Securities Act.
C. W&R agrees to indemnify and hold harmless the Company and
its directors and such officers as shall have signed any registration statement
from and against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or such directors or officers may become subject
under the Securities Act, under any other statute, at common law or otherwise,
and will reimburse the Company or such directors or officers for any legal or
other expenses (including the cost of any investigation and preparation)
reasonably incurred by it or them or any of them in connection with any
litigation, whether or not resulting in any liability insofar as such losses,
claims, damages, liabilities or litigation arise out of, or are based upon, any
untrue statement or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
which statement or omission was made in reliance upon information furnished in
writing to the Company by W&R for inclusion in any registration statement or any
prospectus, or any amendment thereof or supplement thereto, or which statement
was made in, or the alleged omission was from, any advertising or sales
literature (including any reports to shareholders used as such) which relate to
the Company.
W&R shall not be liable for amounts paid in settlement of any
such litigation if such settlement was effected without its consent. The Company
and its directors and such officers, defendant or defendants, in any such
litigation shall, promptly after the complaint shall have been served upon the
Company or any such director or officer in any litigation against the Company or
any such director or officer in respect of which indemnity may be sought from
W&R on account of its agreement contained in this paragraph, notify W&R in
writing of the commencement thereof. The omission of the Company or such
director or officer so to notify the underwriter of any such litigation shall
relieve W&R from any liability which it may have to the Company or such director
or officer on account of the indemnity agreement contained in this paragraph,
but shall not relieve W&R from any liability which it may have to the Company or
5
<PAGE>
such director or officer otherwise than on account of the indemnity agreement
contained in this paragraph. In case any such litigation shall be brought
against the Company or any such officer or director and notice of the
commencement thereof shall have been so given to W&R, W&R shall be entitled to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense, but such defense shall be conducted by counsel of
good standing and satisfactory to the Company. The indemnity agreement of W&R
contained in this paragraph shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Company and shall
survive any delivery of shares of the Company. W&R agrees to notify the Company
promptly of the commencement of any litigation or proceeding against it or any
of its officers or directors or against any such controlling person of which it
may be advised, in connection with the issue and sale of the Company's shares.
D. Notwithstanding any provision contained in this Agreement,
no party hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Company or its security holders to which
they would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of their duties or by reason of their
reckless disregard of their obligations and duties under this Agreement.
VI. OTHER TERMS
A. This Agreement shall not be deemed to limit W&R from acting
as underwriter and/or dealer for any other mutual fund, from engaging in any
other aspects of the securities business, whether or not such may be deemed in
competition with the sale of shares of the Company, and to carry on any other
lawful business whatsoever.
B. Except as expressly provided in Article V and hereinabove,
the agreements herein set forth have been made and are made solely for the
benefit of the Company and W&R, and the persons expressly provided for in
Article V, their respective heirs and successors, personal representatives and
assigns, and except as so provided, nothing expressed or mentioned herein is
intended or shall be construed to give any person, firm or corporation other
than the Company, W&R and the persons expressly provided for in Article V any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any representation, warranty or agreement herein contained. Except as so
provided, the term "heirs, successors, personal representatives and assigns"
shall not include any purchaser of shares merely because of such purchase.
C. This Agreement shall continue in effect, unless terminated
as hereinafter provided, for a period of one (1) year and thereafter only if
such continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to the Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) or any such party and who have no direct or indirect financial
interest in the operation of any Plan or any agreement relating to that Plan
(hereafter the "Plan directors"), cast in person at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated by W&R at
any time without penalty upon giving the Company sixty (60) days' written notice
(which notice may be waived by the Company) and may be terminated by the Company
at any time without penalty upon giving W&R sixty (60) days' written notice
(which notice may be waived by W&R), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Plan
directors, or by the vote of a majority (as defined in the Investment Company
Act of 1940) of the outstanding voting securities of a Fund with respect to that
Fund. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940 and applicable Rules
thereunder.
D. This Agreement shall be governed and construed in
accordance with the laws of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers and their corporate seals to be
affixed as of the day and year first above written.
6
<PAGE>
Waddell & Reed Funds, Inc.
By:
--------------------------
--------------------------
WADDELL & REED, INC.
By:
--------------------------
--------------------------
7
<PAGE>
EXHIBIT 10.37
CUSTODIAN AGREEMENT
DATED AS OF FEBRUARY 22, 1995
AMENDED AND RESTATED AS OF MAY 13, 1998
BETWEEN
UMB BANK, N.A.
AND
_________ _________ _________ FUND, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposits
2.13 Foreign Exchange Transactions
2.14 Securities Loans
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
2
<PAGE>
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Person
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality; Survival of Obligations
Appendix "B"
3
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 22nd day of February, 1995 between
__________ ________ _______ Fund, Inc. (the "Fund") and UMB Bank, n.a.
(the "Custodian") and as amended and restated as of May 13, 1998.
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on
behalf of the Fund in accordance with the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act") and the rules and regulations
thereunder, under the terms and conditions set forth in this Agreement, and the
Custodian has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause to
be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and
duties set forth in this Article II. Pursuant to and in accordance with Article
IV hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
SECTION 2.01. SAFEKEEPING. The Custodian shall accept delivery of
and keep safely the Assets in accordance with the terms and conditions
hereof on behalf of the Fund.
SECTION 2.02. MANNER OF HOLDING SECURITIES.
(a) The Custodian shall at all times hold securities of the Fund
either: (i) by physical possession of the share certificates or other
instruments representing such securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the
Fund in the name of the Fund or the Fund's nominee, or in the nominee name of
the Custodian unless specifically directed by Proper Instructions (as
hereinafter defined) to hold such registered securities in so-called street
name; provided that, in any event, all
4
<PAGE>
Assets shall be held in an account of the Custodian containing only assets of
the Fund. Notwithstanding the foregoing, unless it receives Proper
Instructions to the contrary, the Custodian shall register all securities in
the name of the Custodian's nominee as authorized by the Fund. All securities
held directly or indirectly by the Custodian hereunder shall at all times be
identifiable on the records of the Custodian. Except as otherwise provided
herein, the Custodian shall keep the Assets physically segregated from those
of other persons or entities. The Custodian shall execute and deliver all
certificates and documents in connection with registration of securities as
may be required by the applicable provisions of the Internal Revenue Code,
the laws of any State or territory of the United States and the laws of any
jurisdiction in which the securities are held.
SECTION 2.03. PURCHASE OF ASSETS.
(a) SECURITY PURCHASES. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive securities purchased for the account of the
Fund, provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions: (i)
in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System that
the securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the Custodian
may make payment therefor before receipt of an advice or transaction; and (iii)
in the case of the purchase of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make payment therefor
and receive delivery of such securities in accordance with local custom and
practice generally accepted by Institutional Clients (as hereinafter defined) in
the country in which the settlement occurs, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its business operations, purchases or sells securities and makes use of
custodial services.
(b) OTHER ASSET PURCHASES. Upon receipt of Proper Instructions and
except as otherwise provided herein, the Custodian shall pay for and receive
other Assets for the account of the Fund as provided in Proper Instructions.
SECTION 2.04. EXCHANGES OF SECURITIES. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
SECTION 2.05. SALES OF SECURITIES. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a) cash,
certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the
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account of the Custodian with a clearing corporation of a national securities
exchange of which the Custodian is a member; or (c) credit to the Account of
the Custodian with a Securities System, in accordance with the provisions of
Section 2.22 hereof. Notwithstanding the foregoing: (i) in the case of the
sale of securities, the settlement of which occurs outside of the United
States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events
subject to the standard of care set forth in Article V hereof; and (ii) in
the case of securities held in physical form, such securities shall be
delivered and paid for in accordance with "street delivery custom" to a
broker or its clearing agent, against delivery to the Custodian of a receipt
for such securities, provided that the Custodian shall have taken reasonable
steps to ensure prompt collection of the payment for, or return of, such
securities by the broker or its clearing agent, and provided further that,
subject to the standard of care set forth in Article V hereof, the Custodian
shall not be responsible for the selection of or the failure or inability to
perform of such broker or its clearing agent.
SECTION 2.06. DEPOSITARY RECEIPTS. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , as "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
SECTION 2.07. EXERCISE OF RIGHTS, TENDER OFFERS, ETC. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision of
this Agreement to the contrary, the Custodian shall promptly notify the Fund in
writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian shall,
following receipt or knowledge, convey such information to the Fund in a timely
manner based upon the circumstances of each particular case. Whenever any such
rights or privileges exist, the Fund will, in a timely manner based upon the
circumstances of each particular case, provide the Custodian with Proper
Instructions. Absent the Custodian's timely receipt of Proper Instructions, the
Custodian shall not be liable for not taking any action or not exercising such
rights prior to their expiration unless such failure is due to Custodian's
failure to give timely notice to the Fund in accordance with this Section 2.07.
SECTION 2.08. STOCK DIVIDENDS, RIGHTS, ETC. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
SECTION 2.09. OPTIONS. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to
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compliance with the rules of the Options Clearing Corporation (the "OCC") or
of any registered national securities exchange or similar organization(s),
the Custodian shall: (a) receive and retain confirmations or other documents,
if any, evidencing the purchase or writing of an option by the Fund; (b)
deposit and maintain in a segregated account, securities (either physically
or by book-entry in a Securities System), cash or other Assets; and (c) pay,
release and/or transfer such securities, cash or other Assets in accordance
with any such agreement and with notices or other communications evidencing
the expiration, termination or exercise of such options furnished by the OCC,
the securities or options exchange on which such options are traded or such
other organization as may be responsible for handling such option
transactions. The Fund and the broker-dealer shall be responsible for
determining the sufficiency of assets held in any segregated account
established in compliance with applicable margin maintenance requirements and
the performance of other terms of any option contract; provided, however,
that the Custodian shall be liable for performance of its duties under this
Agreement and in accordance with Proper Instructions, and shall be liable for
performance of its duties under any other agreement between the Custodian,
any registered broker-dealer and, if necessary, the Fund. Notwithstanding
anything herein to the contrary, if the Fund issues Proper Instructions to
sell a naked option (including stock index options), then as part of the
transaction, the Custodian, the Fund and the broker-dealer shall have entered
into a tri-party agreement, as described above.
SECTION 2.10. FUTURES CONTRACTS. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
SECTION 2.11. BORROWING. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
SECTION 2.12. INTEREST BEARING DEPOSITS. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions. Such
Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the
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Custodian by the Banking Institution. The responsibilities of the Custodian
to the Fund for Interest Bearing Deposits accepted on the Custodian's books
in the United States shall be that of a U.S. bank for a similar deposit. With
respect to Interest Bearing Deposits other than those accepted on the
Custodian's books, (a) the Custodian shall be responsible for the collection
of income as set forth in Section 2.15 and the transmission of cash and
instructions to and from such accounts; and (b) the Custodian shall have no
duty with respect to the selection of the Banking Institution or, so long as
the Custodian acts in accordance with Proper Instructions and the terms and
conditions of this Agreement, for the failure of such Banking Institution to
pay upon demand. Upon receipt of Proper Instructions, the Custodian shall
take such reasonable actions as the Fund deems necessary or appropriate to
cause each such Interest Bearing Deposit account to be insured to the maximum
extent possible by all applicable deposit insurers including, without
limitation, the Federal Deposit Insurance Corporation.
SECTION 2.13. FOREIGN EXCHANGE TRANSACTIONS.
(a) FOREIGN EXCHANGE TRANSACTIONS OTHER THAN AS PRINCIPAL. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no duty
with respect to the selection of the currency brokers or Banking Institutions
with which the Fund deals or, so long as the Custodian acts in accordance with
Proper Instructions, for the failure of such brokers or Banking Institutions to
comply with the terms of any contract or option.
(b) FOREIGN EXCHANGE CONTRACTS AS PRINCIPAL. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) PAYMENTS. Notwithstanding anything to the contrary contained
herein, upon receipt of Proper Instructions the Custodian may, in connection
with a foreign exchange contract, make free outgoing payments of cash in the
form of U.S. Dollars or foreign currency prior to receipt of confirmation of
such foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
SECTION 2.14. SECURITIES LOANS. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
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borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
SECTION 2.15. COLLECTIONS. The Custodian shall: (a) collect amounts due
and payable to the Fund with respect to portfolio securities and other Assets;
(b) promptly credit to the account of the Fund all income and other payments
relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian shall
promptly notify the Fund in writing by facsimile transmission or in such other
manner as the Fund and Custodian may agree in writing if any amount payable with
respect to portfolio securities or other Assets is not received by the Custodian
when due. The Custodian shall not be responsible for the collection of amounts
due and payable with respect to portfolio securities or other Assets that are in
default.
SECTION 2.16. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
SECTION 2.17. PROCEEDS FROM SHARES SOLD. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
SECTION 2.18. PROXIES, NOTICES, ETC. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985,
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for the specific purpose of direct communications between such issuer and the
Fund unless the Fund directs the Custodian otherwise in writing.
SECTION 2.19. BILLS AND OTHER DISBURSEMENTS. Upon receipt of
Proper Instructions, the Custodian shall pay or cause to be paid, all
bills, statements, or other obligations of the Fund.
SECTION 2.20. NONDISCRETIONARY FUNCTIONS. The Custodian shall attend to
all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
SECTION 2.21. BANK ACCOUNTS.
(a) ACCOUNTS WITH THE CUSTODIAN. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) DEPOSIT INSURANCE. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
SECTION 2.22. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of
the Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the
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account of the Fund. The Custodian shall transfer securities sold for the
account of the Fund only upon (iii) receipt of advice from the Securities
System that payment for such securities has been transferred to the Account
of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which
shall include each day's transactions in the Securities System for the
account of the Fund. Such transaction reports shall be delivered to the Fund
or any agent designated by the Fund pursuant to Proper Instructions, by
computer or in such other manner as the Fund and Custodian may agree in
writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate
the use of any Securities System (except the federal book-entry system) on
behalf of the Fund as promptly as practicable and shall take all actions
reasonably practicable to safeguard the securities of the Fund maintained with
such Securities System.
SECTION 2.23. OTHER TRANSFERS. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
SECTION 2.24. ESTABLISHMENT OF SEGREGATED ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
SECTION 2.25. CUSTODIAN'S BOOKS AND RECORDS. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records
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maintained by the Custodian shall be maintained in a form acceptable to the
Fund and in compliance with the rules and regulations of the SEC, including,
but not limited to, books and records required to be maintained by Section
31(a) of the 1940 Act and the rules and regulations from time to time adopted
thereunder. All books and records maintained by the Custodian pursuant to
this Agreement shall at all times be the property of the Fund and shall be
available during normal business hours for inspection and use by the Fund and
its agents, including without limitation, its independent certified public
accountants. Notwithstanding the preceding sentence, the Funds shall not take
any actions or cause the Custodian to take any actions which would knowingly
cause, either directly or indirectly, the Custodian to violate any applicable
laws, regulations or orders. Notwithstanding the provisions of this Section
2.25, in the event the Fund purchases cash, securities and other Assets
requiring the use of a Domestic Subcustodian or Foreign Sub-Subcustodian, the
Custodian shall be entitled to rely upon and use the books, records and
accountings of the Domestic Subcustodian as its means of accounting to the
Fund for all cash, securities and other Assets deposited with such entities;
provided however, that such books, records and accountings on which the Bank
may rely must be maintained in the United States by such Domestic
Subcustodian and, provided further, that any agreement between the Custodian
and such Domestic Subcustodian must state that the Domestic Subcustodian
agrees to make any records available upon request and preserve, for the
periods described in Rule 31a-2 of the 1940 Act, the records required to be
maintained by Rule 31a-1 of the 1940 Act. In no event shall the Custodian be
entitled to rely upon and use books, records and accountings which are
maintained outside of the United States.
SECTION 2.26. OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
SECTION 2.27. REPORTS BY INDEPENDENT CERTIFIED PUBLIC Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
SECTION 2.28. OVERDRAFT FACILITY. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in writing
("Overdraft Notice") of any Overdraft by facsimile transmission or in such other
manner as the Fund and the Custodian may agree in writing. The Custodian shall
have a right of set-off against all Assets (except for Assets held in a
segregated margin account or otherwise pledged in connection with options or
futures contracts held for the benefit of the Fund and for Assets allocated to
any other Overdraft or loan made hereunder); provided, however, the Custodian
shall promptly notify the Fund in writing of any intent to exercise a right of
set-off against Assets hereunder and shall not exercise any such right of
set-off against Assets hereunder unless and until the Fund has failed to pay
(within ten (10) days after the Fund's receipt of such notice
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of intent to exercise a right of set-off), any Overdraft, together with all
accrued interest thereon. Notwithstanding the provisions of any applicable
law, including, without limitation, the Uniform Commercial Code, the only
rights or remedies which the Custodian is entitled to with respect to
Overdrafts is the right of set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
SECTION 3.01. PROPER INSTRUCTIONS AND SPECIAL INSTRUCTIONS.
(a) PROPER INSTRUCTIONS. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; PROVIDED, HOWEVER, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) SPECIAL INSTRUCTIONS. As used herein, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the same instrument
containing the Proper Instructions or on a separate instrument relating thereto,
and (ii) delivered by hand, by facsimile transmission or in such other manner as
the Fund and the Custodian agree in writing.
(c) ADDRESS FOR PROPER INSTRUCTIONS AND SPECIAL INSTRUCTIONS. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
SECTION 3.02. AUTHORIZED PERSONS. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special
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Instructions, such persons shall no longer be considered an Authorized Person
or authorized to issue Special Instructions.
SECTION 3.03. PERSONS HAVING ACCESS TO ASSETS OF THE PORTFOLIOS.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
SECTION 3.04. ACTIONS OF CUSTODIAN BASED ON PROPER INSTRUCTIONS AND
SPECIAL INSTRUCTIONS. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed and which has been
designated as a Foreign Custody Manager (as such term is defined in Rule 17f-5
of the 1940 Act) by the Custodian and approved by the Fund's board ("Approved
Foreign Custody Manager") may appoint a Foreign Sub-Subcustodian or Interim
Sub-Subcustodian (as each are hereinafter defined) in accordance with this
Article IV; provided that the Fund's board also has approved the agreement
between the Custodian and the Foreign Custody Manager specifying the Foreign
Custody Manager's duties ("Delegation Agreement"). For purposes of this
Agreement, all Domestic Subcustodians, Special Subcustodians, Foreign
Sub-Subcustodians and Interim Sub-Subcustodians shall be referred to
collectively as "Subcustodians".
SECTION 4.01. DOMESTIC SUBCUSTODIANS. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); PROVIDED, THAT, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and PROVIDED, FURTHER, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved
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Domestic Subcustodian and the countries where, Foreign Sub-Subcustodians and
the securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the
parties hereto in writing, from time to time, in accordance with the
provisions of Section 9.04 hereof (the "Subcustodian List").
SECTION 4.02. FOREIGN SUB-SUBCUSTODIANS AND INTERIM SUB-SUBCUSTODIANS.
(a) FOREIGN SUB-SUBCUSTODIANS. Provided that the Custodian of a
Domestic Subcustodian is an Approved Foreign Custody Manager, the Custodian or
any such Domestic Subcustodian, as applicable, may appoint any (1)(a) "Qualified
Foreign Bank" (as such term is defined in Rule 17f-5) meeting the requirements
of an "Eligible Foreign Custodian" (as such term is defined in Rule 17f-5) or by
SEC order exempt therefrom; (b) majority-owned direct or indirect subsidiary of
a "U.S. bank" (as such term is defined in Rule 17f-5) or bank holding company
meeting the requirements of an Eligible Foreign Custodian or exempt by SEC order
therefrom; or (c) any bank (as such term is defined in Section 2(a)(5) of the
1940 Act) meeting the requirements of a custodian under Section 17(f) of the
1940 Act and the rules and regulations thereunder (each a "Foreign
Sub-Subcustodian") or (2) any "Securities Depository" (as such term is defined
in Rule 17f-5) or clearing agency meeting the requirements of an Eligible
Foreign Custodian or exempt by SEC order therefrom ("Securities Depositories and
Clearing Agencies"), provided that the Foreign Custody Manager's appointments of
such Eligible Foreign Custodians shall at all times be governed by the
Delegation Agreement.
(b) INTERIM SUB-SUBCUSTODIANS. Notwithstanding the foregoing, in the
event that the Fund shall invest in a security or other Asset to be held in a
country in which the Foreign Custody Manager has not appointed an Eligible
Foreign Custodian, the Custodian shall, or shall cause the Domestic Subcustodian
to, promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian shall agree in writing of the
unavailability of an approved Foreign Sub-Subcustodian in such country; and upon
the receipt of Special Instructions, the Custodian shall, or shall cause the
Domestic Subcustodian to, appoint or approve any Person (as hereinafter defined)
designated by the Fund in such Special Instructions, to hold such security or
other Asset. (Any Person appointed or approved as a sub-subcustodian pursuant to
this Section 4.02(b) is hereinafter referred to as an "Interim
Sub-Subcustodian.")
SECTION 4.03. SPECIAL SUBCUSTODIANS. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
SECTION 4.04. TERMINATION OF A SUBCUSTODIAN. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is
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<PAGE>
unable to cause such subcustodian or sub-subcustodian to fully perform its
obligations thereunder, the Custodian shall promptly notify the Fund in
writing and forthwith, upon the receipt of Special Instructions, terminate or
cause the termination of such Subcustodian or Sub-Subcustodian with respect
to the Fund and, if necessary or desirable, appoint or cause the appointment
of a replacement Subcustodian or Sub-Subcustodian in accordance with the
provisions of this Article IV. In addition to the foregoing, the Custodian
(A) may, at any time in its discretion, upon written notification to the
Fund, terminate any Domestic Subcustodian which is not an approved Foreign
Custody Manager, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian or Domestic Subcustodian which is an
Approved Foreign Custody Manager with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and
(C) shall, upon receipt of Special Instructions, cause the Domestic
Subcustodian to terminate any Foreign Sub-Subcustodian or Interim
Sub-Subcustodian as to its use of such entities with respect to the Fund, in
accordance with the termination provisions under the applicable
sub-subcustodian agreement.
SECTION 4.05. CERTIFICATION REGARDING FOREIGN SUB-SUBCUSTODIANS. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on behalf
of the Custodian; (ii) the countries in which and the Securities Depositories
and Clearing Agents through which each such Foreign Sub-Subcustodian is then
holding cash, securities and other Assets of the Fund; and (iii) such other
information as may be requested by the Fund to ensure compliance with rules and
regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
SECTION 5.01. STANDARD OF CARE.
(a) GENERAL STANDARD OF CARE. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) ACTIONS PROHIBITED BY APPLICABLE LAW, ETC. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) MITIGATION BY CUSTODIAN. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
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(d) ADVICE OF COUNSEL. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) EXPENSES OF THE FUND. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) LIABILITY FOR PAST RECORDS. The Custodian shall have no liability
in respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
SECTION 5.02. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHER PERSONS.
(a) DOMESTIC SUBCUSTODIAN AND FOREIGN SUB-SUBCUSTODIAN. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) SPECIAL SUBCUSTODIANS, INTERIM SUB-SUBCUSTODIANS, SECURITY SYSTEMS,
SECURITIES DEPOSITORIES AND CLEARING AGENCIES. The Custodian shall not be liable
to the Fund for any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) REIMBURSEMENT OF EXPENSES. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
SECTION 5.03. INDEMNIFICATION BY FUND.
(a) INDEMNIFICATION OBLIGATIONS OF FUND. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense
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(including reasonable attorneys' fees) suffered or incurred by the Custodian
or its nominee caused by or arising from actions taken by the Custodian, its
employees or agents in the performance of its duties and obligations under
this Agreement; PROVIDED, HOWEVER, that such indemnity shall not apply to
loss, damage and expense occasioned by or resulting from the negligence,
misfeasance or misconduct of the Custodian or its nominee. In addition, the
Fund agrees to indemnify any Person against liability incurred by reason of
taxes assessed to such Person resulting from the fact that securities and
other property of the Fund are registered in the name of such Person in
accordance with the provisions of this Agreement; provided, however, that in
no event shall such indemnification be applicable to income, franchise or
similar taxes which may be imposed or assessed against any Person. It is also
understood that the Fund agrees to indemnify and hold harmless the Custodian
and its nominee for any loss arising from a foreign currency transaction or
contract, where the loss results from a Sovereign Risk (as hereinafter
defined) or where any Person maintaining securities, currencies, deposits or
other Assets of the Fund in connection with any such transactions has
exercised reasonable care maintaining such property or in connection with any
such transaction involving such Assets. A "Sovereign Risk" shall mean
nationalization, expropriation, devaluation, revaluation, confiscation,
seizure, cancellation, destruction or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation, imposition or
enforcement by any such governmental authority of currency restrictions,
exchange controls, taxes, levies or other charges affecting the Fund's
property; or acts of war, terrorism, insurrection or revolution.
(b) NOTICE OF LITIGATION. RIGHT TO PROSECUTE, ETC. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
SECTION 5.04. INVESTMENT LIMITATIONS. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
SECTION 5.05. FUND'S RIGHT TO PROCEED. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities
18
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System or other Person, which the Custodian may have as a consequence of any
such loss, damage or expense, if and to the extent that the Fund has not been
made whole for any such loss, expense or damage. If the Custodian makes the
Fund whole for any such loss, expense or damage, the Custodian shall retain
the ability to enforce its rights directly against such Subcustodian,
Securities System or other Person. Upon the Fund's election to enforce any
rights of the Custodian under this Section 5.05, the Fund shall reasonably
prosecute all actions and proceedings directly relating to the rights of the
Custodian in respect of the loss, damage or expense incurred by the Fund;
provided that, so long as the Fund has acknowledged in writing its obligation
to indemnify the Custodian under Section 5.03 hereof with respect to such
claim, the Fund shall retain the right to settle, compromise and/or terminate
any action or proceeding in respect of the loss, damage or expense incurred
by the Fund without the Custodian's consent and provided further, that if the
Fund has not made an acknowledgement of its obligation to indemnify, the Fund
shall not settle, compromise or terminate any such action or proceeding
without the written consent of the Custodian, which consent shall not be
unreasonably withheld or delayed. The Custodian agrees to cooperate with the
Fund and take all actions reasonably requested by the Fund in connection with
the Fund's enforcement of any rights of the Custodian. Nothing contained in
this Section 5.05 shall be construed as an obligation of the Fund to enforce
the Custodian's rights. The Fund agrees to reimburse the Custodian for
out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
SECTION 5.06. INDEMNIFICATION BY CUSTODIAN.
(a) INDEMNIFICATION OBLIGATIONS OF CUSTODIAN. Subject to the
limitations set forth in this Agreement and in addition to the reimbursement
obligations provided in Section 5.02(a), the Custodian agrees to indemnify and
hold harmless the Fund and its nominees from all loss, damage and expense
(including reasonable attorneys' fees) suffered or incurred by the Fund or its
nominee caused by or arising from the failure of the Custodian, its nominee,
employees or agents to comply with the terms or conditions of this Agreement or
arising out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) NOTICE OF LITIGATION, RIGHT TO PROSECUTE, ETC. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such litigation
or proceedings for which indemnity by the Custodian may be sought and subject to
applicable law and the ruling of any court of competent jurisdiction, the
Custodian shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Custodian may be subject to an indemnification
obligation; provided, however, the Fund shall be entitled to participate in (but
not control) at its own cost and expense, the defense of any such litigation or
proceeding if the Custodian has not acknowledged in writing its obligation to
indemnify the Fund with respect to such litigation or proceeding. If the
Custodian is not permitted to participate or control such litigation or
proceeding under applicable law or by a ruling of a court of competent
jurisdiction, or if the Custodian chooses not to so participate, the Fund shall
not consent to the entry of any judgement or enter into any settlement in any
such litigation or proceeding without providing the Custodian with adequate
notice of any such settlement or judgement, and without the Custodian's prior
written consent which consent shall not be unreasonably withheld or delayed. The
Fund shall submit written evidence to the Custodian with respect to any cost or
expense for which it is seeking indemnification in such form and detail as the
Custodian may reasonably request.
SECTION 5.07. CUSTODIAN'S RIGHT TO PROCEED. Notwithstanding anything to
the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian,
19
<PAGE>
Securities System or other Person for loss, damage or expense caused the
Custodian by such Subcustodian, Securities System or other Person, which the
Fund may have as a consequence of any such loss, damage or expense, if and to
the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon
the Custodian's election to enforce any rights of the Fund under this Section
5.07, the Custodian shall reasonably prosecute all actions and proceedings
directly relating to the rights of the Fund in respect of the loss, damage
and expense incurred by the Custodian; provided that, so long as the
Custodian has acknowledged in writing its obligation to indemnify the Fund
under Section 5.06 hereof with respect to such claim, the Custodian shall
retain the right to settle, compromise and/or terminate any action or
proceeding in respect of the loss, damage or expense incurred by the
Custodian without the Fund's consent and provided further, that if the
Custodian has not made an acknowledgement of its obligation to indemnify, the
Custodian shall not settle, compromise or terminate any such action or
proceeding without the written consent of the Fund, which consent shall not
be unreasonably withheld or delayed. The Fund agrees to cooperate with the
Custodian and take all actions reasonably requested by the Custodian in
connection with the Custodian's enforcement of any rights of the Fund.
Nothing contained in this Section 5.07 shall be construed as an obligation of
the Custodian to enforce the Fund's rights. The Custodian agrees to reimburse
the Fund for out-of-pocket expenses incurred by it in connection with the
fulfillment of its obligations under this Section 5.07; provided, however,
that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of
this Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first
to occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period.
20
<PAGE>
In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's
expense, to the successor custodian; and the Custodian agrees to cooperate
with the Fund in the execution of documents and performance of other actions
necessary or desirable in order to substitute the successor custodian for the
Custodian under this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
<TABLE>
<CAPTION>
TERM SECTION
- - ---- -------
<S> <C>
Account 2.22(A)
ADRs 2.06
Approved Foreign Custody Manager Article IV
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Delegation Agreement Article IV
Distribution Account 2.16
Domestic Subcustodian 4.01
Eligible Foreign Custodian 4.02(a)
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
</TABLE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. EXECUTION OF DOCUMENTS, ETC.
21
<PAGE>
(a) ACTIONS BY THE FUND. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective obligations
under this Agreement or any applicable subcustodian agreement, provided that the
exercise by the Custodian or any Subcustodian of any such rights shall in all
events be in compliance with the terms of this Agreement.
(b) ACTIONS BY CUSTODIAN. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
SECTION 9.02. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) REPRESENTATIONS AND WARRANTIES OF THE CUSTODIAN. The Custodian
hereby represents and warrants that each of the following shall be true, correct
and complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Custodian to the Fund, at all times during the
term of this Agreement: (i) the Custodian is duly organized under the laws of
its jurisdiction of organization and qualifies to serve as a custodian to
open-end management investment companies under the provisions of the 1940 Act;
and (ii) the execution, delivery and performance by the Custodian of this
Agreement are (w) within its power (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Custodian's corporate charter, or other organizational document, or
bylaws, or any amendment thereof. The Custodian acknowledges receipt of a copy
of the Fund's most recent Prospectus and Statement of Additional Information.
SECTION 9.03. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
SECTION 9.04. WAIVERS AND AMENDMENTS. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought.
SECTION 9.05. INTERPRETATION. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
22
<PAGE>
SECTION 9.06. CAPTIONS. Headings contained in this Agreement, which are
included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
SECTION 9.07. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
SECTION 9.08. NOTICES. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
________ _________ ________ Fund, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
UMB Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
SECTION 9.09. ASSIGNMENT. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
SECTION 9.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
SECTION 9.11. CONFIDENTIALITY; SURVIVAL OF OBLIGATIONS. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be applicable
to any information that is publicly
23
<PAGE>
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required to be disclosed by
any bank examiner of the Custodian or any Subcustodians, any auditor or
examiner of the parties hereto, by judicial or administrative process or
otherwise by applicable law or regulation. The provisions of this Section
9.11 and Section 9.01, 9.07, Section 2.28, Section 3.04, Section 4.05,
Section 7.01, Article V and Article VI hereof and any other rights or
obligations incurred or accrued by any party hereto prior to termination of
this Agreement shall survive any termination of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
__________ ________ _______ FUND, INC. UMB BANK, n.a.
By: /s/ By: /s/ Ralph Santoro
---------------------------- -------------------------
Name: Name: Ralph Santoro
Title: Vice President Title: Senior Vice President
24
<PAGE>
SUBCUSTODIAN LIST
PURSUANT TO CUSTODIAN AGREEMENT
BETWEEN
UNITED ASSET STRATEGY FUND, INC.
AND
UMB BANK, n.a.
Dated as of August 31, 1998
This Subcustodian List relates to the Custodian Agreements between UMB
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as subsequently amended and restated:
<TABLE>
<CAPTION>
FUND DATE
---- ----
<S> <C>
United Asset Strategy Fund, Inc. February 22, 1995
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
Target/United Funds, Inc.*
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Asset Strategy Portfolio May 1, 1995
Science and Technology Portfolio April 4, 1997
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
International Growth Fund April 24, 1992
Growth Fund April 24, 1992
Asset Strategy Fund April 20, 1995
High Income Fund July 31, 1997
Science and Technology Fund July 31, 1997
</TABLE>
*Formerly, TMK/United Funds, Inc.
The following is a list of Domestic Subcustodians, Foreign Subcustodian and
Special Subcustodians under the Custodian Agreement as amended:
<PAGE>
<TABLE>
<S> <C>
A. DOMESTIC CUSTODIANS:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. FOREIGN SUB-CUSTODIANS
Country Sub-Custodian Depository
Argentina Citibank, n.a. CDV; CRYL
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, BOVESPA, CLC
Brazil
Canada Canadian Imperial Bank of Commerce CDS; The Bank of Canada
Chile Citibank, n.a. None
China Standard Chartered Bank SSCCRC; SSCC
Czech Republic Ceskoslovenska Obchodni CNB; SCP
Banka A.S.
Denmark Den Danske Bank VP
Finland Merita Securities Association; Finnish
Central
Securities Depository Ltd.
France Banque Indosuez SICOVAM; Banque de France
Germany Deutsche Bank KASSENVEREIN
Hungary Citibank, N.A. KELER Ltd.
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities Clearing Company
India Citibank, N.A., Mumbai National Securities Depository
Limited
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Israel Bank Hapoalim B.M. TASE Clearinghouse Ltd.
Italy Banca Commerciale Italiana MONTE TITOLI, Banca D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia Hong Kong Bank Malaysia Berhad MCD; Bank Negara Malaysia
Mexico Citibank Mexico, s.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. Phillipines Central Depository, Inc.
Poland Bank Polska Kasa Opieki S.A. NPB
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
Thailand HongKong & Shanghai Banking Corp. Share Depository Center (SDC)
Turkey Citibank, n.a. TvS, Central Bank of Turkey
United Kingdom Midland Securities PLC CMO; CGO; CrestCo
C. SPECIAL SUBCUSTODIANS:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
</TABLE>
<PAGE>
Exhibit 11
WADDELL & REED FINANCIAL, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
(in thousands except for per share data)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net income $83,735 $70,292 $66,700
Basic weighted average shares outstanding 65,787 66,467 66,467
======= ======= =======
Diluted weighted average shares outstanding 66,179 66,467 66,467
======= ======= =======
Basic net income per share $ 1.27 $ 1.06 $ 1.00
Diluted net income per share $ 1.27 $ 1.06 $ 1.00
</TABLE>
Note: For comparison purposes, weighted average shares outstanding for 1997 and
1996 are the actual shares outstanding immediately after the initial public
offering.
<PAGE>
EXHIBIT 21
Company Subsidiaries
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
- - ---- -------------
<S> <C>
Waddell & Reed Financial Services, Inc. Missouri
Waddell & Reed Development, Inc. Delaware
Waddell & Reed, Inc. Delaware
Waddell & Reed Investment Management Company Kansas
Waddell & Reed Services Company Missouri
Waddell & Reed Leasing, Inc. Missouri
Waddell & Reed Distributors, Inc. Missouri
W & R Insurance Agency, Inc. Missouri
W & R Insurance Agency of Alabama, Inc. Alabama
W & R Insurance Agency of Arkansas, Inc. Arkansas
W & R Insurance Agency of Massachusetts, Inc. Massachusetts
W & R Insurance Agency of Montana, Inc. Montana
W & R Insurance Agency of Nevada, Inc. Nevada
W & R Insurance Agency of Utah, Inc. Utah
W & R Insurance Agency of Wyoming, Inc. Wyoming
Unicon Agency, Inc. New York
Unicon Insurance Agency of Massachusetts, Inc. Massachusetts
Fiduciary Trust Company of New Hampshire New Hampshire
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Waddell & Reed Financial, Inc.
We consent to the inclusion of our report dated March 1, 1999 in the
Annual Report on Form 10-K of Waddell & Reed Financial, Inc.
KPMG LLP
Kansas City, Missouri
March 19, 1999
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ David L. Boren
David L. Boren, Director
Date: February 11, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ Joseph M. Farley
Joseph M. Farley, Director
Date: February 5, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ Louis T. Hagopian
Louis T. Hagopian, Director
Date: February 5, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ Joseph L. Lanier, Jr.
Joseph L. Lanier, Jr.
Date: February 8, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ Harold T. McCormick
Harold T. McCormick, Director
Date: February 5, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ James M. Raines
James M. Raines, Director
Date: February 5, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ George J. Records, Sr.
George J. Records, Sr., Director
Date: February 9, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ R.K. Richey
R. K. Richey, Director
Date: March 10, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does
hereby constitute and appoint Helge K. Lee, Michael D. Strohm and Daniel C.
Schulte, and each of them severally, his lawful attorneys and agents, for him
and in his name and in the capacity indicated below, with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary,
advisable, or required to enable the said Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in connection with the
Form 10-K for the fiscal year foregoing, the powers granted include the power
and authority to execute and file the Form 10-K, any and all amendments to the
part of or in conjunction with the Form 10-K and any and all instruments or
documents submitted as a part of or in conjunction with the Form 10-K. The
undersigned hereby ratifies and confirms his signature as it may be signed by
said attorneys and all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the date indicated below in his name.
/s/ William L. Rogers
William L. Rogers, Director
Date: February 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES A-3 THROUGH A-5 OF THE COMPANY'S FORM 10-K FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 30,180
<SECURITIES> 103,153
<RECEIVABLES> 34,605
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 172,469
<PP&E> 17,685
<DEPRECIATION> 11,183
<TOTAL-ASSETS> 327,179
<CURRENT-LIABILITIES> 109,794
<BONDS> 0
0
0
<COMMON> 665
<OTHER-SE> 207,136
<TOTAL-LIABILITY-AND-EQUITY> 327,179
<SALES> 278,246
<TOTAL-REVENUES> 289,239
<CGS> 0
<TOTAL-COSTS> 142,234
<OTHER-EXPENSES> 2,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,604
<INCOME-PRETAX> 142,152
<INCOME-TAX> 51,763
<INCOME-CONTINUING> 83,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,735
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
