<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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, 1999
Commission file number 001-13913
WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 51-0261715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
6300 Lamar Avenue
Overland Park, Kansas 66202
913-236-2000
(Address, including zip code, and telephone number of Registrant's principal
executive offices)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
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): $983,596,438 at March 3, 2000.
Shares outstanding of each of the registrant's classes of common stock as of
March 3, 2000:
Class A Common Stock, $.01 par value: 28,803,015
Class B Common Stock, $.01 par value: 27,145,647
DOCUMENTS INCORPORATED BY REFERENCE
In Part III of this Form 10-K, the definitive proxy statement for 2000
annual meeting of stockholders to be held April 26, 2000
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Index of Exhibits (Pages B-1 through B-3)
Total Number of Pages Included Are 56
<PAGE>
WADDELL & REED FINANCIAL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
PART I --------
<S> <C> <C>
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 16
Item 6. Selected Financial Data..................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Risk Factors................................................ 25
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 29
Item 8. Financial Statements and Supplementary Data................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 29
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 29
Item 11. Executive Compensation...................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 30
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 30
SIGNATURES............................................................... 31
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................... A-1
INDEX TO EXHIBITS........................................................ B-1
</TABLE>
2
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PART I
ITEM 1. BUSINESS
BACKGROUND
Waddell & Reed Financial, Inc. (the "Company") is a Delaware 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"). 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 and to institutions and other private
clients. Waddell & Reed Services Company ("WRSCO") provides transfer agency and
accounting services to the funds and their shareholders. On August 9, 1999 the
Company completed the acquisition of Austin, Calvert & Flavin, Inc. ("ACF"), a
privately held investment management firm based out of San Antonio, Texas. ACF
was founded in 1981 and manages investments for trusts, high net worth families
and individuals, and pension plans of corporations, hospitals, schools, labor
unions, endowments, and foundations. The acquisition of ACF added nine
investment professionals to the Company's investment team and $1.7 billion of
assets under management as of December 31, 1999. Waddell & Reed
Financial, Inc., W&R, WRIMCO, WRSCO, and ACF are hereafter collectively referred
to as the "Company", unless the context requires otherwise.
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, 1999, the Company
had $37.3 billion of assets under management, of which $31.9 billion were mutual
fund assets and $5.4 billion were managed institutional and private accounts.
The Company has over 608,000 mutual fund customers having an average investment
of $47,000 and 57,000 variable account customers having an average investment of
$60,000.
The Company is the exclusive underwriter and distributor of 36 mutual fund
portfolios (the "Funds"), including 17 comprising the United Funds (the "United
Funds"), 8 comprising the Waddell & Reed Funds (the "W&R Funds"), and 11
comprising the Target/United Funds (the "Target/United Funds"). As part of its
financial planning services, the Company also distributes variable annuities and
life insurance products, underwritten primarily by UILIC, to its customers.
Commencing October 4, 1999, the United Funds began offering Class B shares
("back-end sales charge shares") and Class C shares ("level sales charge
shares"). These are in addition to the already offered Class A shares
("front-end sales charge shares") and Class Y shares ("institutional shares").
Concurrently, the W&R Funds closed new sales of Class B shares and began
offering Class C shares in addition to the already offered Class Y shares. The
existing W&R Funds' Class B shares will combine with the W&R Fund Class C shares
in the first quarter of 2000.
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, 1999, the Company's sales force consisted of
2,611 financial advisors, including 239 district managers. The sales force is
managed
3
<PAGE>
by eight regional vice presidents, and 136 division and associate managers
operating from 205 sales offices located throughout the United States. For the
year ended December 31, 1999, the Company's financial advisor sales force sold
over $2.1 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, 1999, 37% of the Company's financial advisors have been with
the Company for more than 5 years and 25% for more than 10 years. The Company's
financial advisors are located primarily in smaller metropolitan areas and rural
communities.
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 12 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 retail fund redemption
rate for the five years ended December 31, 1999 of 7.9% for the Funds (other
than money market funds), which is less than one-half of the industry average of
18.9% and a relatively high dividend reinvestment rate of 87.3% for the Funds
for the same period which has constantly been over 20% higher than the industry.
Approximately 50% of the Company's assets under management are in retirement
accounts as of December 31, 1999. 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, 1999
approximately 86.3% 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 generally emphasizes investment at attractive
valuations in companies that the portfolio managers believe can produce above
average growth in earnings.
4
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OPERATIONS
Revenues from operations for the last three years were (in thousands):
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues from:
Investment management..................................... $178,612 137,823 117,784
Underwriting and distribution............................. 126,318 106,615 89,427
Shareholder service....................................... 41,525 33,808 30,763
-------- ------- -------
Revenue excluding investment income....................... 346,455 278,246 237,974
Investment income and other revenue....................... 10,202 9,043 3,798
-------- ------- -------
Total revenue............................................. $356,657 287,289 241,772
======== ======= =======
</TABLE>
MARKETING
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 36% at December 31, 1999. 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 training programs 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 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 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 national 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. The campaign was continued in 1999 and will continue
in 2000. In November of 1999, the Company named Thomas W. Butch as Chief
Marketing Officer. In this newly created position, Mr. Butch is responsible for
marketing and distribution strategy, product development, and all core marketing
and communication activities.
FUNDS AND ASSET MANAGEMENT
The Company serves as underwriter for, and investment advisor to, the United
Funds, the W&R Funds, and the Target/United Funds and distributes variable
annuity and variable life insurance products related to the Target/United 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
5
<PAGE>
is growth equity. The 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 seventeenth out of 92 mutual fund complexes for 1999 and eleventh out of
68 complexes for the five year period ended December 31, 1999. As of
December 31, 1999, 86% of the mutual fund assets under management in the Funds
were invested in equity funds, 11% were invested in fixed income funds, and 3%
were invested in money market funds. Lipper, Inc. also ranked 48% of the
Company's equity funds in the top quartile and 14% in the top 10% when compared
to funds with similar objectives. Management fees from the United Income Fund,
the Company's largest mutual fund, were $44.4 million or 12% of total revenues,
$39.8 million or 14% of total revenues and $32.8 million or 14% of total
revenues for each of the years ended 1999, 1998 and 1997, respectively. The
United Income Fund had a net asset value of $8.4 billion, $7.8 billion and $6.5
billion for the years ended 1999, 1998, and 1997, respectively.
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. On
October 4, 1999, the Company introduced the new United Small Cap Fund. 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 $5.4 billion at December 31, 1999.
Investment management fees from institutional and private accounts were
approximately $9.6 million, or approximately 5%, of total investment management
fees, for the year ended December 31, 1999.
6
<PAGE>
Ending and average assets under management for the last three years were:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
ENDING AVERAGE ENDING AVERAGE ENDING AVERAGE
-------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United Funds
Equity.......................................... $22,626 18,123 16,713 15,320 13,687 12,761
Fixed-income.................................... 3,190 3,464 3,637 3,652 3,632 3,499
Money market.................................... 812 693 644 572 529 498
------- ------ ------ ------ ------ ------
26,628 22,280 20,994 19,544 17,848 16,758
W&R Funds
Equity.......................................... 1,785 1,261 1,050 906 779 684
Fixed-income.................................... 82 88 85 74 66 58
------- ------ ------ ------ ------ ------
1,867 1,349 1,135 980 845 742
Target/United Funds
Equity.......................................... 3,113 2,415 2,127 1,859 1,627 1,452
Fixed-income.................................... 237 243 245 235 223 204
Money market.................................... 64 58 54 45 43 38
------- ------ ------ ------ ------ ------
3,414 2,716 2,426 2,139 1,893 1,694
Total Mutual Funds
Equity.......................................... 27,524 21,799 19,890 18,085 16,093 14,897
Fixed-income.................................... 3,509 3,795 3,967 3,961 3,921 3,761
Money market.................................... 876 751 698 617 572 536
------- ------ ------ ------ ------ ------
31,909 26,345 24,555 22,663 20,586 19,194
Institutional and Private Accounts................ 5,393 3,953 3,189 2,947 2,831 2,103
------- ------ ------ ------ ------ ------
Total Assets Under Management..................... $37,302 30,298 27,744 25,610 23,417 21,297
======= ====== ====== ====== ====== ======
</TABLE>
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, (the "ICA") 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 ICA or the Investment Advisers Act
of 1940, or amended, (the "Advisers Act") and may be terminated without penalty
by the Fund by giving the Company 60 days' written notice, if the termination
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.
7
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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/United 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 shareholder reports. The Funds pay the Company a monthly
fee for such services. A Fund's shareholder servicing agreement and accounting
service agreement may be adopted or amended with the approval of the Fund's
directors who are not interested persons. Each of the shareholder servicing
agreements and accounting service agreements have annually renewable terms of
one year expiring on October 1st of each year.
UNDERWRITING AND DISTRIBUTION
The Company distributes the Funds pursuant to an underwriting agreement with
each Fund (except the Target/United Funds). The Company distributes products
relating to the Target/United Funds under an underwriting agreement between the
Company and UILIC. Commissions paid to the Company by UILIC for distribution of
these products comprised 13%, 12% and 12% of the Company's total revenue for
each of the years ended 1999, 1998 and 1997, 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 Class A shares, which are
front-end load funds, which ranges from zero to 5.75% of the amount invested.
The sales charge for the Class A shares of 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 United Funds
Class B shares generally pay contingent deferred sales charges upon redemption
of shares of up to 5% of the net asset value of the redeemed shares declining to
zero for shares held for more than six years. Class B shares convert to Class A
shares by the end of the eighth year. Investors in the United Funds and
Waddell & Reed Funds Class C shares generally pay a contingent deferred sales
charge of 1% declining to zero for shares held for more than 12 months. Class C
shares do not convert.
Under a distribution plan, shareholders of the United Funds Class B and C
shares as well as the Waddell & Reed Funds Class B and C shares pay a
Rule 12b-1 distribution fee of .75% of the average daily net assets as
compensation for distributing shares of those classes. Under a distribution and
service plan, the United Funds Class A, B and C shares (except the money market
fund), the Waddell & Reed Funds, and the Target/United Funds (service plan
only), may charge a maximum of .25% of the average daily net assets as
compensation for expenses in connection with providing personal service to
shareholders of the Fund, and maintaining shareholder accounts of the Funds.
Each distribution and service plan is subject to annual approval by the board of
directors, including a majority of the independent directors, cast in person at
a meeting called for the purpose of voting on such approval. The Fund may
terminate the distribution and service plan at any time without penalty.
8
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The Company's investment product sales are summarized as follows:
INVESTMENT PRODUCT SALES
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
UNITED FUNDS
Class A................................................... $1,329.0 1,266.8 1,092.7
Class B................................................... 66.5 0 0
Class C................................................... 11.2 0 0
-------- ------- -------
Total United Funds.......................................... 1,406.7 1,266.8 1,092.7
Waddell & Reed Funds
Class B................................................... 289.3 252.3 175.7
Class C................................................... 40.1 0 0
-------- ------- -------
Total Waddell & Reed Funds.................................. 329.4 252.3 175.7
Variable Products (Target/United)........................... 413.7 308.4 249.8
-------- ------- -------
$2,149.8 1,827.5 1,518.2
======== ======= =======
</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, 1999 and a description of its
investment objective.
<TABLE>
<CAPTION>
NET ASSETS AT
DECEMBER 31,
FIRST 1999
FUND NAME OFFERED (IN MILLIONS) INVESTMENT OBJECTIVE
--------- -------- ------------- -------------------------------------
<S> <C> <C> <C>
UNITED FUNDS
Accumulative Fund...................... 1940 $2,254.5 Seeks capital growth, with a
secondary objective of current
income.
Asset Strategy Fund.................... 1995 $ 56.7 Seeks high total return over the
long-term by allocating its assets
among stocks, bonds and short-term
instruments.
Bond Fund.............................. 1964 $ 505.5 Seeks to achieve a reasonable return
with emphasis on preservation of
capital.
Cash Management........................ 1979 $ 812.1 Seeks to maximize current income to
the extent consistent with stability
of principal by investing in money
market instruments.
Continental Income Fund................ 1970 $ 600.0 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.
Government Securities Fund............. 1982 $ 127.6 Seeks high current income consistent
with safety of principal by investing
in securities issued or guaranteed by
the
</TABLE>
9
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<TABLE>
<CAPTION>
NET ASSETS AT
DECEMBER 31,
FIRST 1999
FUND NAME OFFERED (IN MILLIONS) INVESTMENT OBJECTIVE
--------- -------- ------------- -------------------------------------
<S> <C> <C> <C>
U.S. Government or its agencies or
instrumentalities.
High Income Fund....................... 1979 $ 921.5 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 $ 364.3 Seeks a high level of current income,
with a secondary objective of seeking
capital growth when consistent with
its primary objective.
Income Fund............................ 1940 $8,399.1 Seeks maintenance of current income,
subject to market conditions with a
secondary goal of capital growth.
International Growth Fund.............. 1970 $1,885.6 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.
Municipal Bond Fund.................... 1976 $ 805.4 Seeks income that is not subject to
Federal income taxation by investing
principally in tax-exempt municipal
bonds.
Municipal High Income Fund............. 1986 $ 465.3 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 $1,769.0 Seeks capital growth by investing in
a diversified holding of mid-sized
companies believed to offer above-
average growth potential.
Retirement Shares Fund................. 1972 $1,199.9 Seeks the highest long-term total
return consistent with reasonable
safety of capital.
Science and Technology Fund............ 1950 $3,795.5 Seeks long-term capital growth
through a portfolio emphasizing
science and technology securities.
Small Cap Fund......................... 1999 $ 97.7 Seeks capital growth by investing
primarily in new or unseasoned
companies, companies in the early
stages of development, or smaller
companies positioned in new or
emerging industries where there is an
opportunity for rapid growth.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS AT
DECEMBER 31,
FIRST 1999
FUND NAME OFFERED (IN MILLIONS) INVESTMENT OBJECTIVE
--------- -------- ------------- -------------------------------------
<S> <C> <C> <C>
Vanguard Fund.......................... 1969 $2,568.1 Seeks capital appreciation through
diversified holdings of securities
issued primarily by companies that
have appreciation possibilities.
WADDELL & REED FUNDS
Asset Strategy Fund.................... 1995 $ 45.1 Seeks high total return over the
long-term by allocating assets among
stocks, bonds and short-term
instruments.
Growth Fund............................ 1992 $ 743.7 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 $ 25.9 Seeks a high level of current income,
with a secondary objective of seeking
capital growth when consistent with
its primary objective.
International Growth Fund.............. 1992 $ 205.5 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 $ 23.0 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 $ 33.3 Seeks income that is not subject to
Federal income taxation by investing
primarily in municipal bonds.
Science and Technology Fund............ 1997 $ 226.8 Seeks long-term capital growth
through a portfolio emphasizing
science and technology securities.
Total Return Fund...................... 1992 $ 563.5 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.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS AT
DECEMBER 31,
FIRST 1999
FUND NAME OFFERED (IN MILLIONS) INVESTMENT OBJECTIVE
--------- -------- ------------- -------------------------------------
<S> <C> <C> <C>
TARGET/UNITED FUNDS
Asset Strategy Portfolio............... 1995 $ 21.6 Seeks high total return over the
long-term by allocating its assets
among stocks, bonds and short-term
instruments.
Balanced Portfolio..................... 1994 $ 117.2 Seeks current income with a secondary
objective of long-term appreciation
of capital.
Bond Portfolio......................... 1987 $ 110.5 Seeks reasonable return with emphasis
on preservation of capital.
Growth Portfolio....................... 1987 $1,162.7 Seeks capital growth with current
income as a secondary objective.
High Income Portfolio.................. 1987 $ 120.7 Seeks high current income, with a
secondary objective of capital
growth.
Income Portfolio....................... 1991 $ 940.5 Seeks maintenance of current income,
subject to market conditions with a
secondary objective of capital
growth.
International Portfolio................ 1994 $ 300.1 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 Portfolio............ 1994 $ 6.0 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 Portfolio................. 1987 $ 64.4 Seeks maximum current income
consistent with stability of
principal by investing in money
market securities.
Science and Technology Portfolio....... 1997 $ 252.7 Seeks long-term capital growth by
investing primarily in science and
technology securities.
Small Cap Portfolio.................... 1994 $ 318.0 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>
12
<PAGE>
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 Advisers Act and the Funds are registered with the
Commission under the ICA and various filings are made with states under
applicable state laws. A 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.
W&R, a subsidiary of the Company, is also a member of the Securities
Investor Protection Corporation. In its capacity as a broker-dealer, W&R 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. W&R'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 Securities Exchange Act of 1934 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
November 1999. To date, no material issues resulting from those examinations
have been raised.
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,
13
<PAGE>
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 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 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, 1999, the Company had 649 full-time employees. Its 2,611
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 at 6300 Lamar
Avenue, Overland Park, Kansas. The Company is in the process of constructing an
additional 110,000 square foot office building which should be completed in the
third quarter of 2000. When completed, this building will be used primarily for
additional Company occupancy. The Company intends to sell the corporate
headquarters properties in 2000 and to enter into a lease on the same properties
for its occupancy needs. 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. The Company also owned land and four income producing multi-tenant
buildings adjacent to the Company's headquarters. All of these multi-tenant
properties were sold to an unrelated party on December 28, 1999.
14
<PAGE>
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 the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<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. The closing
prices on March 3, 2000, were $29.9375 for Class A Common Stock and $27.875 for
Class B Common Stock.
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:
CLASS A
MARKET PRICE
<TABLE>
<CAPTION>
1999 1998
------------------------------- -------------------------------
DIVIDENDS DIVIDENDS
QUARTER HIGH LOW PER SHARE HIGH LOW PER SHARE
- ------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1.................... $23.8750 $18.8125 $.1325 $27.1250 $25.3750 $.1325
2.................... 27.4375 19.8750 .1325 26.5000 21.8125 .1325
3.................... 27.9375 22.1875 .1325 24.5000 16.6250 .1325
4.................... 27.1875 20.4375 .1325 24.3750 17.0625 .1325
</TABLE>
Year-end closing price for 1999 and 1998, respectively were: $27.1250 and
$23.6875
CLASS B
MARKET PRICE
<TABLE>
<CAPTION>
1999 1998
------------------------------- -------------------------------
DIVIDENDS DIVIDENDS
PER PER
QUARTER HIGH LOW SHARE HIGH LOW SHARE
- ------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1.................... $23.5000 $18.5625 $.1325 $ -- $ -- $.1325
2.................... 27.0000 19.8750 .1325 -- -- .1325
3.................... 27.3125 21.3750 .1325 -- -- .1325
4.................... 25.1250 20.0000 .1325 24.0000 $19.7500 .1325
</TABLE>
Year-end closing price for 1999 and 1998, respectively were: $25.1250 and
$23.2500
STOCKHOLDERS
According to the records of the Company's transfer agent, the Company had
4,029 holders of record of the Class A Common Stock as of March 13, 2000,
compared to 5,403 on March 8, 1999 and 4,430 holders of record of the Class B
Common Stock as of March 13, 2000, compared to 5,853 on March 8, 1999. The
Company believes that a substantially larger number of beneficial owners hold
such shares in depository or nominee form.
DIVIDENDS
The Company intends, from time to time, to pay cash dividends on its common
stock as its Board of Directors deems appropriate, after consideration of the
Company's operating results, financial condition, cash requirements, compliance
with covenants in its revolving credit facility and such other factors as the
Board of Directors deems relevant. The Company anticipates that quarterly
dividends will continue at a level comparable to past quarterly dividends.
16
<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
Operations" and the Consolidated Financial Statements of the Company and the
Notes thereto appearing elsewhere in this report.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AND FINANCIAL ADVISORS DATA)
<S> <C> <C> <C> <C> <C>
Revenues from:
Investment management............ $ 178,612 $ 137,823 $ 117,784 $ 101,466 $ 85,289
Underwriting and distribution.... 126,318 106,615 89,427 85,837 70,393
Shareholder service.............. 41,525 33,808 30,763 28,378 23,527
Revenue excluding investment
Income......................... 346,455 278,246 237,974 215,681 179,209
Total revenue.................... 356,657 287,289 241,772 220,976 183,504
Net income......................... 81,767 83,735 70,292 66,700 53,501
per common share-basic........... 1.37 1.27 1.06 1.00 .80
per common share-diluted......... 1.34 1.27 1.06 1.00 .80
Net income excluding
Nonrecurring items (1)........... 96,382 88,060 74,696 64,174 50,975
per common share--basic (1)(2)... 1.62 1.34 1.12 0.97 0.77
per common share--diluted
(1)(2)......................... 1.58 1.33 1.12 0.97 0.77
Dividends per common share......... $0.53 $0.53 0 0 0
Investment product sales........... $2,149,842 $1,827,526 $1,518,257 $1,505,100 $1,187,609
Financial advisors (end of
period).......................... 2,611 2,370 2,160 2,010 2,335
Financial advisors (average)....... 2,329 2,175 2,072 2,072 2,251
Investment product sales per
advisor.......................... $884 $840 $733 $726 $528
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Assets under management........................ $37,302 $27,744 $23,417 $19,070 $18,489
Balance sheet data:
Goodwill..................................... 113.0 95.9 98.8 101.7 104.6
Total assets (3)............................. 335.1 327.2 447.0 429.3 283.34
Short term debt.............................. 125.3 40.1 0 0 0
Total liabilities (4)........................ 208.7 120.0 676.9 196.7 65.1
</TABLE>
- ------------------------
(1) Excludes nonrecurring charges in 1999 of $14.6 million relating to
restructuring mutual fund products and a loss from the sale of real estate
properties. Excludes impact of nonrecurring interest relating to notes with
Torchmark Corporation ("Torchmark") which were prepaid with proceeds from
the initial public offering for 1998, 1997, 1996, and 1995. Excludes
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 initial public
offering.
(3) Includes amounts due from Torchmark of $0, $0, $192.7, $184.5, and
$57.2 million for 1999, 1998, 1997, 1996, and 1995, respectively.
(4) Includes amounts due to Torchmark of $0, $0, $611.6, $126.6, and
$13.6 million for 1999, 1998, 1997, 1996, and 1995, respectively.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
ACQUISITION STRATEGY. 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/United Funds and institutional accounts. Investment management fees, the
Company's most substantial source of revenue, are based on the amount of assets
under management and are affected by sales levels, financial market conditions,
redemptions and the composition of assets. Underwriting and distribution
revenues consist of sales charges and commissions derived from 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.
In June of 1999, the Funds boards of directors approved the proposal to
restructure the management fee arrangements of the Funds. This restructuring
replaced the group fee structure and specific fund add-on fee with a specific
fee schedule for each Fund. The Funds' fee schedules include breakpoints at
which fee rates decline as assets increase. These schedules more closely conform
with others in the mutual fund industry and as of year end it had a favorable
impact on the Company's overall management fee rate of approximately .08% of
mutual fund assets under management, which is expected to continue.
In October of 1999, the Company restructured its United Funds and the W&R
Funds. Commencing October 4, the United Funds began offering Class B shares
(back-end sales charges) and Class C shares ("level sales charge shares"). These
are in addition to the already offered Class A shares ("front-end sales charge
shares") and Class Y shares ("institutional shares"). Concurrently, the W&R
Funds began offering Class C shares ("level sales charge shares"). These are in
addition to the already offered Class Y shares ("institutional shares"). At the
same time, the W&R Funds Class B shares were no longer offered for new sales due
to their non-industry standard structure. The existing W&R Funds' Class B shares
will convert to W&R Fund Class C shares in the first quarter of 2000. Upon
conversion of the W&R Fund Class B shares, no contingent deferred sales charges
will be collected for any converted share redemptions. As a result of
18
<PAGE>
the discontinuation of the W&R Funds Class B shares, the Company wrote off
$19.0 million of deferred acquisition costs in the fourth quarter of 1999. The
Company expects that this restructuring of shares will enhance competitiveness
and strategic distribution alternatives.
SUMMARY OF OPERATING RESULTS
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
% OF % OF % OF
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
-------- -------- -------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Investment management fees............. $178,612 50.1% 137,823 48.0% 117,784 48.7%
Underwriting and distribution fees..... 126,318 35.4 106,615 37.1 89,427 37.0
Shareholder service fees............... 41,525 11.6 33,808 11.8 30,763 12.7
-------- ----- ------- ----- ------- -----
Total operating revenues............... 346,455 97.1 278,246 96.9 237,974 98.4
Investment and other income............ 10,202 2.9 9,043 3.1 3,798 1.6
-------- ----- ------- ----- ------- -----
Total revenue.......................... 356,657 100.0 287,289 100.0 241,772 100.0
OPERATING EXPENSES:
Underwriting and distribution.......... 124,938 35.1 99,575 34.6 79,995 33.1
Compensation and related costs......... 44,944 12.6 31,512 11.0 26,618 11.0
General and administrative............. 19,245 5.4 8,551 3.0 15,826 6.5
Amortization of goodwill............... 3,224 0.9 2,903 1.0 2,903 1.2
Depreciation........................... 2,162 0.6 1,892 0.7 1,307 0.6
-------- ----- ------- ----- ------- -----
Total operating expense (1)............ 194,513 54.6 144,433 50.3 126,649 52.4
OTHER ITEMS:
Interest expense....................... 6,546 1.8 704 0.2 0 0.0
-------- ----- ------- ----- ------- -----
Total expense.......................... 201,059 56.4 145,137 50.5 126,649 52.4
-------- ----- ------- ----- ------- -----
Income before affiliated items and
income taxes (1)..................... $155,598 43.6% 142,152 49.5% 115,123 47.6%
-------- ----- ------- ----- ------- -----
</TABLE>
- ------------------------
(1) Excludes a $19.0 million charge for write off of deferred acquisition costs
and a $4.6 million loss on sale of real estate in 1999.
TOTAL REVENUES
1999 OVER 1998
Total operating revenues increased $68.2 million or 25% to $346.5 million in
1999 compared to 1998. Total revenues, which include investment and other
income, were $356.7 million in 1999, a 24% increase from 1998. Income before
affiliated items and income taxes increased 9% to $155.6 million in 1999
compared to 1998. Income before affiliated items and income taxes as a
percentage of revenue was 43.6% in 1999 and 49.5% in 1998.
1998 OVER 1997
Total operating revenues increased $40.3 million or 17% to $278.2 million in
1998 compared to 1997. Total revenues, which include investment and other
income, were $287.3 million in 1998, a 19% increase from 1997. Income before
affiliated items and income taxes increased 23% to $142.2 million in 1998 when
compared to 1997. Income before affiliated items and income taxes as a
percentage of revenue was 49.5% and 47.6% in 1998 and 1997, respectively. In
1997, the Company incurred charges related to outsourcing
19
<PAGE>
transfer agency data processing activities and the discontinuation of internally
developed systems, which resulted in a $6.8 million pretax expense.
INVESTMENT MANAGEMENT FEES
1999 OVER 1998
Investment management fees are earned for providing investment advisory
services to the Funds and institutional and privately managed accounts.
Investment management fees in 1999 were $178.6 million, a 30% increase over
1998. Average assets under management were $30.3 billion for 1999, an increase
of 18% compared with 1998. The increase in management fee revenue was due to
several factors. First, the restructuring of the Fund's management fee
arrangements that became effective July 1, 1999 added approximately
$11.2 million to management fee revenue. Secondly, the acquisition of ACF in
August of 1999 contributed approximately $3.6 million. Finally, strong market
performance and relative performance resulted in a greater composition of
average assets in equity funds, especially growth, small cap, and technology
funds, which have higher management fee rates.
1998 OVER 1997
Investment management fees in 1998 were $137.8 million, a 17% increase over
1997. The increase in management fees was due primarily to growth in assets
related to market performance. Average assets under management were
$25.6 billion 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.
UNDERWRITING AND DISTRIBUTION FEES
1999 OVER 1998
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 asset based distribution fees and contingent deferred sales charges
from back-end and level load funds. Underwriting and distribution fees in 1999
increased 18% to $126.3 million. This increase is primarily attributable to
increases in sales volume of front-load investment products. Commission revenues
from front-load investment products, primarily the United Funds and variable
annuity products, accounted for 75%, or $14.7 million of this $19.7 million
increase in 1999 over 1998. Distribution revenue from back-end and level load
funds increased $2.5 million or 28% to $11.3 million due to growth in the asset
value of these funds, partially offset by lower contingent deferred sales
charges. Commission revenue from insurance product sales was up $2.5 million to
$19.1 million for 1999 due to increased sales of variable universal life
insurance.
1998 OVER 1997
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.
20
<PAGE>
SHAREHOLDER SERVICE FEES
1999 OVER 1998
Shareholder service fees include transfer agency fees, custodian fees from
retirement plan accounts and portfolio accounting fees. The transfer agency and
custodian fees, which comprised 95% of the service fee revenues in 1999, are
primarily based on annual charges per account and fluctuate based on the number
of accounts. In 1999, shareholder service fees increased 23% to $41.5 million
due primarily to a 12% increase in the average number of accounts. In addition,
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. This fee
increase contributed $4.8 million to the growth in revenue in 1999.
1998 OVER 1997
The transfer agency fees and custodian fees comprised 94% of the service fee
revenue in 1998. 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.
UNDERWRITING AND DISTRIBUTION EXPENSE
1999 OVER 1998
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 1999 was $124.9 million,
an increase of $25.4 million or 25% compared with 1998. The largest contributor
to the increase in distribution expenses was commission expense and related
sales force payouts related to sales volume. Other factors included higher
production and asset retention incentive compensation of $6.0 million, higher
net costs relating to field offices, marketing and national advertising of
$5.5 million and increased sales program costs of $2.7 million. The Company
began restructuring its mutual fund products in the fourth quarter of 1999. Due
to their non-industry standard structure, the W&R Funds' Class B shares were
closed for new sales and will convert into Class C shares, which have an
industry standard structure. Concurrently, the United Funds began offering
Class B shares and Class C shares. Upon conversion of the W&R Class B shares, no
contingent deferred sales charges will be collected for any converted share
redemptions. The deferred selling costs of $19.0 million related to the W&R
Class B share conversion were written off on November 30(th), concurrent with
the necessary approvals for share conversion. It is estimated that underwriting
and distribution expenses will be reduced by approximately $3.0 million per year
as a result of the restructuring and related write-off, primarily through
foregone amortization of deferred selling costs.
1998 OVER 1997
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.
21
<PAGE>
COMPENSATION AND RELATED COSTS
1999 OVER 1998
Compensation and related costs for 1999 were $44.9 million, an increase of
$13.4 million or 43% compared to 1998. The average number of employees increased
by 25% as the Company continued to invest in investment management, client
service, and support personnel. Additional performance based compensation
accounted for $3.8 million of the increase in compensation costs due primarily
to investment performance compensation paid to portfolio managers and to a
lesser extent to the inclusion of middle management in incentive compensation
plans. Higher pension and health insurance costs were additional factors for the
increase in compensation costs. Pension and related costs were $.8 million
higher due to personnel additions and a higher rate of compensation increase.
Higher health insurance costs contributed $1.1 million to the increase as
reserves were increased to reflect higher claims exposure
1998 OVER 1997
Compensation and related costs were up 18% to $31.5 million in 1998 due
primarily to an increase in the average number of employees of 8%. Higher
performance based compensation and raises accounted for the remaining increase.
GENERAL AND ADMINISTRATIVE EXPENSE
1999 OVER 1998
General and administrative expense, which reflects operating costs other
than compensation and marketing, was up $10.7 million or 125% to $19.2 million
for 1999. Approximately $5.4 million of this increase was attributable to the
implementation of a new transfer agency system in the fourth quarter of 1998.
Higher shareholder service fee revenue coinciding with this implementation
offset most of the increased costs. The growth of the Company's operations added
to higher administrative costs, including the acquisition of ACF, new consulting
arrangements, proxy and shareholder meeting costs, and additional facilities
rental to accommodate growth.
1998 OVER 1997
General and administrative expense 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.
INVESTMENT AND OTHER INCOME
1999 OVER 1998
Investment and other income increased $1.2 million to $10.2 million in 1999.
Average invested cash and marketable securities were $149.3 million in 1999
compared with $144.8 million in 1998. Substantially all of the increase in
investment and other income was attributable to higher net rental income from
investment in real estate properties. These properties were sold on
December 28, 1999 for net proceeds of $16.5 million. Pretax income realized from
rental operations of these properties in 1999 was $1.0 million.
1998 OVER 1997
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 compared with $82.4 million in
1997. All growth in average cash and marketable securities was in securities
which have higher investment yields than cash and cash equivalents.
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<PAGE>
DEPRECIATION
1999 OVER 1998
Depreciation of property and equipment increased by $270,000 or 14% in 1999
to $2.2 million. Property and equipment increased by $7.0 million or 34% to
$27.6 million. This increase was primarily the result of $3.8 million in
expenditures related to the ongoing construction of a building to be used for
the Company's home office operations and a $3.0 million reclassification of land
for the new building site previously classified as investment in real estate. As
previously disclosed, the Company intends to sell the home office properties to
a third party in 2000 and will enter into a lease for its home office
operations. The sale is expected to generate a gain, which will be deferred over
the lease term.
1998 OVER 1997
Depreciation of property and equipment increased by $585,000 or 45% to
$1.9 million due to additions of property and equipment in late 1998. Property
and equipment was $20.6 million at year end 1998, up $8.6 million from 1997. A
reclassification was made to transfer $3.0 million of land from investment in
real estate to property and equipment. The addition of depreciable assets in
1998 was $5.6 million.
INTEREST EXPENSE
1999 OVER 1998
The Company entered into a $200 million credit facility arrangement in
October of 1998. This facility was renewed in October of 1999, when it was
expanded to $220 million. The Company utilized this facility in 1999 to fund
share repurchases during the year and acquire ACF in August of 1999. The average
interest rate applied to this facility, excluding facility costs, was 5.73% in
1999. The average amount outstanding on this facility was $106.0 million. In
1999, interest expense and related facility costs were $6.5 million compared to
$704,000 for 1998. At the end of 1999 the Company had an outstanding balance of
$125.3 million under its credit facility, compared to $40.1 million at the end
of 1998.
LOSS ON THE SALE OF REAL ESTATE
On December 28, 1999, the Company completed the sale of all multi-tenant
properties to unrelated third parties. Proceeds from the sale were
$16.5 million resulting in a $4.6 million pretax loss.
WRITE-OFF OF DEFERRED ACQUISITION COSTS
The Company began restructuring its mutual fund products in the fourth
quarter of 1999. Due to their non-industry-standard structure, the W&R Funds'
Class B shares were closed for new sales and will convert into Class C shares,
which have an industry standard structure. Concurrently, the United Funds began
offering Class B shares and Class C shares. Upon conversion of the W&R Class B
shares, no contingent deferred sales charge will be collected for any converted
share redemptions. The deferred selling costs related to the W&R Funds' Class B
shares in the amount of $19.0 million were written off on November 30(th),
concurrent with the necessary approvals for share conversion. By offering
additional classes of mutual fund shares and closing funds with non-industry
standard structure, the restructuring will: 1) be more consistent with that of
the industry, 2) provide its clients with more choices and greater value, and
3) accommodate additional changes for strategic distribution flexibility.
AFFILIATED INTEREST INCOME AND EXPENSE
Prior to its initial public offering in March of 1998, the Company had
various notes payable and notes receivable with Torchmark and certain
subsidiaries of Torchmark. The affiliated interest income and expense as
reported for 1998 and 1997 pertain to these notes and were prepaid with proceeds
from the offering.
23
<PAGE>
INCOME TAXES
The Company's effective income tax rate was 38.1%, 38.2%, and 39.0% in 1999,
1998, and 1997, respectively.
FINANCIAL CONDITION
At December 31, 1999, the Company's total assets were $335.1 million, up
$7.9 million from December 31, 1998. In 1999, the Company repurchased
5.8 million shares of its common stock at a total cost of $132.2 million
compared to 3.6 million shares of its common stock at a total cost of
$74.8 million during the third and fourth quarters of 1998. The credit facility
was utilized to fund these share repurchases. At December 31, 1999, the
Company's outstanding debt, including principal and accrued interest was
$125.3 million compared to $40.1 million on December 31, 1998. The average
interest rate on the amount outstanding was 6.98% and 5.94% for 1999 and 1998,
respectively. Interest and related costs related to the facility were
$6.5 million during 1999 and $.7 million during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased $29.6 million to
$108.3 million for 1999 due to higher net income from operations, excluding
non-cash items as well as the timing of cash received and cash paid on assets
and liabilities. Net cash provided by investing activities in 1999 was $779,000,
compared to a net $97.7 million used in 1998. Proceeds from the sale and
maturity of investments exceeded purchases of investments by $12.4 million in
1999. In 1998, the Company had net additions to investments of $84.2 million. At
December 31, 1999, the Company had $151.2 million in cash and marketable
investment securities, of which $17.1 million was restricted for the benefit of
customers in compliance with securities industry regulations. Cash and
marketable securities at December 31, 1998 were $133.3 million, of which
$10.8 million was restricted. Other investing activities in 1999 provided
proceeds of $16.5 million from the sale of real estate and used $21.7 million
for the acquisition of ACF. In 1999, the Company used $78.3 million in net
financing activities compared with $24.6 million in 1998. In 1999, the Company
repurchased 2.0 million shares of Class A and 3.8 million shares of Class B
common stock, the combined cost of which was $132.2 million, and paid
$32.0 million in cash dividends. Net borrowings of $85.0 million on the credit
facility were utilized in 1999 to finance share repurchases and the acquisition
of ACF. The $220 million, 364-day revolving credit facility, expandable to
$330 million, had $125.0 million outstanding at December 31, 1999.
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 Company's revolving credit facility.
SUBSEQUENT EVENTS
From January 1, 2000 through March 3, 2000, the Company repurchased 922,000
Class A shares and 836,000 Class B shares at an aggregate cost of
$51.3 million.
The Company had previously expected to enter into a written agreement for
the sale and leaseback of the home office properties to an unrelated party. That
particular transaction was not completed; however, the Company plans to pursue
other buyers for its home office properties in 2000.
On February 28, 2000, the Company announced a definitive agreement to
acquire The Legend Group in a business combination to be accounted for as a
purchase. The Legend Group, through its network of more than 300 financial
advisors, serves employees of school districts and other not-for-profit
organizations nationwide by providing distribution and retirement planning,
primarily in the 403(b) market. The
24
<PAGE>
Company expects to acquire The Legend Group for a purchase price of $61 million
in cash and contingent cash payments over 3 years of up to $14 million. The
excess of the purchase price over the fair market value of the net assets of The
Legend Group will be amortized on a straight-line basis over 25 years. The
Legend Group has approximately 61,000 clients with $3.1 billion in third-party
mutual fund assets, primarily in retirement plans. For the year 1999, The Legend
Group had $39.1 million of revenue and $7.7 million of earnings before interest,
taxes, depreciation, amortization expenses and adjustments for the cancellation
of certain management contracts. The results of operations of The Legend Group
will be included with the results of the Company from the date of acquisition,
which is expected to be March 31, 2000.
On February 23, 2000, the Board of Directors authorized a three-for-two
stock split, to be effected as a dividend, on both its Class A and Class B
common stock to stockholders of record as of March 17, 2000. On April 7, 2000
the additional shares will be distributed along with checks for the value of any
remaining fractional shares. Earnings per share, when restated for this stock
split, in 1999 would have been $0.91 for basic EPS and $0.89 for diluted EPS.
Earnings per share, when restated for this stock split, in 1998 would have been
$0.84 for both basic and diluted EPS.
RECENT ACCOUNTING DEVELOPMENTS
In June of 1998, the Financial Accounting Standards Board issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
Statement is not expected to have a material impact on the Company.
INFORMATION SYSTEMS AND YEAR 2000 READINESS
The Company believes its software programs and operating systems are year
2000 compliant and ready for use beyond the year 2000.
The Company is not currently aware of any material year 2000 problem
relating to any of its material internal software programs or operating systems.
Its internal operations and business are also dependent upon the
computer-controlled systems of third parties such as our suppliers, customers
and other service providers. The Company believes that, absent a systemic
failure outside its control, such as a prolonged loss of electrical or
telecommunications service, year 2000 problems at third parties will not have a
material impact on its operations. The failure of the Company's internal systems
or the systems of third parties to be year 2000 ready could temporarily prevent
the Company from providing service to its customers and could require the
Company to devote significant resources to correct such problems. The costs
associated with remediating any year 2000 problems have not, in the opinion of
management, been material to date. Although the Company does anticipate that
these costs will be material in the future, there can be no assurance that these
costs will not be material.
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.
RISK FACTORS
THERE MAY BE ADVERSE EFFECTS ON OUR REVENUES, EARNINGS AND PROSPECTS IF THE
SECURITIES MARKETS DECLINE. Our results of operations are affected by certain
economic factors, including the level of the securities markets. We have
benefited from the favorable performance of the securities markets in recent
years which has attracted a substantial increase in the investments in the
securities markets. 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
25
<PAGE>
investment, either of which could adversely affect our revenues, earnings and
growth prospects. Because our revenues are, to a large extent, based on the
value of assets under management, a decline in the value of these assets would
adversely affect our revenues. Our growth is dependent to a significant degree
upon our ability to attract and retain mutual fund assets and in an adverse
economic environment, this may prove difficult. Our 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.
THERE MAY BE ADVERSE EFFECTS ON OUR REVENUES AND EARNINGS IF OUR 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 in turn generate higher management fees and
distribution revenues. Good performance also attracts private institutional
accounts. Conversely, poor performance results in decreased sales, increased
redemptions of the Funds' shares, and the loss of private institutional
accounts, resulting in decreases in revenues. Failure of our Funds to perform
well could, therefore, have a material adverse effect on our revenues and
earnings.
THERE MAY BE AN ADVERSE EFFECT ON OUR BUSINESS IF OUR INVESTORS REMOVE THE
ASSETS WE MANAGE ON SHORT NOTICE. A substantial majority of our revenues are
derived from investment management agreements with our funds that are terminable
on 60 days' notice. Each investment management agreement must be approved and
renewed annually by the disinterested members of each fund's board or its
shareholders. Some of these investment management agreements may be terminated
or not renewed, and new agreements may be unavailable. In addition, mutual fund
investors may redeem their investments in the funds at any time without any
prior notice. Investors can terminate their relationship with us, reduce the
aggregate amount of assets under management, or shift their funds to other types
of accounts with different rate structures for any of a number of reasons,
including investment performance, changes in prevailing interest rates and
financial market performance. The decrease in revenues that could result from
any such event could have a material adverse effect on our business.
WE FACE INCREASED COMPETITION IN HIRING AND RETAINING KEY PERSONNEL AND
SALES FORCE. Our continued success depends to a substantial degree on our
ability to attract and retain qualified personnel to conduct our 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 in recent periods because of the growth in the industry. We are
dependent on our sales force to sell our mutual funds and other investment
products. Our growth prospects will be directly affected by the quality and
quantity of financial advisors we are able to successfully recruit and retain.
There can be no assurances that we will be successful in our efforts to recruit
and retain the required personnel.
WE FACE STRONG COMPETITION FROM NUMEROUS AND SOMETIMES LARGER COMPANIES. We
compete with stock brokerage and investment banking firms, insurance companies,
banks, online and Internet investment sites and other financial institutions.
Many of these companies not only offer mutual fund investments and services but
also offer other financial products and services. Many of our competitors have
more products and product lines, services, and may also have substantially
greater assets under management. 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. In recent
years, there has been a trend of consolidation in the mutual fund industry
resulting in stronger competitors with greater financial resources than us.
There has also been a trend toward online Internet financial services. If
existing customers stop investing with us and instead invest with our
competitors, or if potential customers decide to invest with our competitors, it
would cause our market share, revenues and income to decline.
POTENTIAL MISUSE OF FUNDS AND INFORMATION IN THE POSSESSION OF OUR ADVISORS
COULD RESULT IN LIABILITY TO OUR CLIENTS. Our financial advisors handle a
significant amount of funds and financial and personal information for our
clients. Although we have implemented a system of controls to minimize the risk
of fraudulent taking or misuse of funds and information, there can be no
assurance that our controls will be
26
<PAGE>
adequate or that a taking or misuse by our employees can be prevented. We could
have liability in the event of a taking or misuse by our employees and we could
also be subject to regulatory sanctions. Although we believe that we have
adequately insured against these risks, there can be no assurance that our
insurance will be maintained or that it will be adequate to meet any future
liability.
THERE ARE NO ASSURANCES THAT WE WILL PAY FUTURE DIVIDENDS. Our Board of
Directors currently intends to continue to declare quarterly dividends on both
our Class A Common Stock and our Class B Common Stock. The declaration and
payment of dividends is subject to the discretion of our 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, our strategic plans, our financial results and condition,
contractual, legal, and regulatory restrictions on the payment of dividends by
us or our subsidiaries. We are a holding company and, as such, our ability to
pay dividends is subject to the ability of our subsidiaries to provide us cash.
There can be no assurance that the current quarterly dividend level will be
maintained or that we will pay any dividends in any future period.
REGULATORY RISK IS SUBSTANTIAL IN OUR BUSINESS. Our investment management
business is heavily regulated. Noncompliance with applicable laws or regulations
could result in sanctions being levied against us, including fines and censures,
suspension or expulsion from a certain jurisdiction or market or the revocation
of licenses. Noncompliance with applicable laws or regulations would adversely
effect our reputation, prospects, revenues and earnings. In addition, changes in
current laws or regulations or in governmental policies could adversely affect
our operations, revenues and earnings.
PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS COULD DETER TAKEOVER
ATTEMPTS. Under our certificate of incorporation, our Board of Directors has
the authority, without action by our stockholders, to fix certain terms and
issue shares of our Preferred Stock, par value $1.00 per share. Actions of our
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
our certificate of incorporation and in our bylaws impose procedural and other
requirements that could be deemed to have anti-takeover effects, including
replacing incumbent directors. In addition, our Board of Directors 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 our Board of Directors.
As a Delaware corporation we are subject to section 203 of the Delaware
General Corporation Law. With certain exceptions, section 203 imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our voting stock.
OUR STOCKHOLDERS RIGHTS PLAN COULD DETER TAKEOVER ATTEMPTS. In 1999 we
adopted a stockholders rights plan pursuant to which rights attached to each
share of our then outstanding Class A Common Stock and Class B Common Stock. The
rights generally are exercisable only if a person or group acquires 15% or more
of the voting power as represented by our Class A and Class B Common Stock.
Under certain conditions, the rights entitle the holders to receive shares of
our Class A Common Stock having a value equal to two times the exercise price of
the right. Our stockholders rights plan could impede the completion of a merger,
tender offer, or other takeover attempt even though some or a majority of our
stockholders might believe that a merger, tender offer or takeover is in their
best interests and even if such transactions could result in our stockholders
receiving a premium for their shares of our stock over the then current market
price of our stock.
THE TERMS OF OUR CREDIT FACILITY IMPOSE RESTRICTIONS ON OUR OPERATIONS.
THERE ARE NO ASSURANCES WE WILL BE ABLE TO RAISE ADDITIONAL CAPITAL. We have
entered into a loan agreement for a $220 million, expandable to $330 million,
364-day revolving line of credit facility with various lenders. At December 31,
1999, there was $125.3 million outstanding under this line of credit. The terms
and conditions of the revolving credit facility impose restrictions that affect,
among other things, our ability to incur debt, make capital
27
<PAGE>
expenditures, merge, sell assets, make distributions, or create or incur liens.
Availability of our credit facility is also subject to certain financial
covenants. Our ability to comply with the covenants can be affected by events
beyond our control and there can be no assurance that we will achieve operating
results that comply with the provisions of the credit agreement. A breach of any
of these covenants could result in a default under our credit facility. In the
event of a default, the banks could elect to declare the outstanding principal
amount of our credit facility, all interest thereon and all other amounts
payable under our credit facility to be immediately due and payable.
Our ability to satisfy our debt obligations will depend upon our future
operating performance, which will be affected by prevailing economic, financial
and business conditions and other factors, some of which are beyond our control.
We anticipate that borrowings from our existing revolving credit facility, or
the refinancing of our revolving credit facility, and cash provided by operating
activities, will provide sufficient funds to finance anticipated development
plans, meet our operating expenses and service our debt requirements as they
become due. However, in the event that we require additional capital, there can
be no assurance that we will be able to raise such capital when needed or on
satisfactory terms, if at all. Also, there can be no assurance that we will be
able to refinance our current credit facility upon its maturity or on favorable
terms. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
SYSTEMS FAILURE MAY DISRUPT OUR BUSINESS. Our business is highly dependent
on communications and information systems, including our mutual fund transfer
agency system maintained by a third-party service provider. We are highly
dependent on our ability to process a large number of transactions on a daily
basis and also on the proper functioning of computer systems of third parties.
We rely heavily on financial, accounting and other data processing systems. If
any of these do not function properly, we could suffer financial loss, business
disruption, liability to clients, regulatory intervention or damage to our
reputation. If our systems are unable to accommodate an increasing volume of
transactions, our ability to expand could be affected. Although we have back-up
systems in place, we cannot be sure that any systems failure or interruption,
whether caused by a fire, other natural disaster, power or telecommunications
failure, act of war or otherwise will not occur, or that back-up procedures and
capabilities in the event of any failure or interruption will be adequate.
THERE MAY BE AN ADVERSE EFFECT ON THE VALUE OF OUR CLASS A COMMON STOCK DUE
TO THE DISPARATE VOTING RIGHTS OF OUR CLASS A COMMON STOCK AND OUR CLASS B
COMMON STOCK. The holders of our Class A Common Stock and our Class B Common
Stock have identical rights except that (1) holders of our Class A Common Stock
are entitled to one vote per share while holders of our Class B Common Stock are
entitled to five votes per share on all matters to be voted on by our
stockholders and (2) holders of our Class A Common Stock are not eligible to
vote on any alteration of the powers, preferences, or special rights of our
Class B Common Stock that would not adversely affect our Class A Common Stock
and vice versa. For example, holders of our 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 our Class B Common Stock in liquidation, and vice
versa. The differential in the voting rights could 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 we had only
one class of common stock.
WE MAY HAVE DIFFICULTY EXECUTING OUR ACQUISITION STRATEGY. We have adopted
a strategy to selectively pursue acquisitions and alliances that will add new
products or alternative distribution systems. There can be no assurance that we
will find suitable acquisition candidates at acceptable prices, have sufficient
capital resources to realize our acquisition strategy or be successful in
entering into definitive agreements for desired acquisitions. In addition, we
have limited experience in finding, acquiring and integrating other
28
<PAGE>
companies and we may not be successful in the integration of acquired companies.
An acquisition may not prove to add new products or distribution systems or
otherwise be advantageous to us.
WE MAY NOT BE ABLE TO SELL AND LEASE-BACK OUR HOME OFFICE PROPERTIES. In
connection with our decision to sell certain of our investments in real estate,
we are attempting to sell and lease-back our home office properties. There can
be no assurances that we will be successful in our efforts to sell and
lease-back our home office properties on acceptable terms or be successful in
entering into definitive agreements for such a sale and lease-back.
THE RESTRUCTURING OF OUR MUTUAL FUND PRODUCTS TO ENHANCE OUR COMPETITIVENESS
AND DISTRIBUTION CHANNELS MAY NOT BE SUCCESSFUL. In October 1999, we
restructured our mutual fund products by offering additional classes of mutual
fund shares and closing non-industry standard classes in an effort to enhance
our competitiveness and strategic distribution alternatives and favorably impact
our distribution margin. We anticipate that the product restructuring will
result in our product line (1) being more consistent with the industry,
(2) providing our clients with more choices and greater value and
(3) accommodating additional changes for strategic distribution flexibility.
There can be no assurances that the restructuring of our mutual fund products
will enhance our competitiveness and distribution channels or that it will
favorably impact our distribution margin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. The
Company's cash equivalents and short-term investments and its outstanding debt
bear variable interest rates. The Company has not used derivative instruments to
offset the exposure to changes in interest rates. Changes in interest rates are
not expected to have a material impact on the Company's results of operations.
As noted in Item 7, the Company's revenues and net income are based in part
on the value of the investment portfolios managed. Accordingly, financial market
declines will negatively impact the Company's assets under management and, in
turn, its revenues and profitability.
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 February 11, 2000.
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 is incorporated herein by reference to
the Company's definitive proxy statement for the Company's 2000 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is incorporated herein by reference to
the Company's definitive proxy statement for the Company's 2000 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.
29
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is incorporated herein by reference to
the Company's definitive proxy statement for the Company's 2000 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is incorporated herein by reference to
the Company's definitive proxy statement for the Company's 2000 Annual Meeting
of Stockholders Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(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 1999.
(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.
</TABLE>
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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 23, 2000.
<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 below 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 23, 2000
Keith A. Tucker Executive Officer)
/s/ HENRY J. HERRMANN
------------------------------------------- President, Chief Investment March 23, 2000
Henry J. Herrmann Officer and Director
/s/ ROBERT L. HECHLER Chief Operating Officer,
------------------------------------------- Executive Vice President March 23, 2000
Robert L. Hechler and Director
Senior Vice President,
/s/ JOHN E. SUNDEEN, JR. Chief Financial Officer
------------------------------------------- and Treasurer (Principal March 23, 2000
John E. Sundeen, Jr. Financial Officer)
/s/ D. TYLER TOWERY Vice President and
------------------------------------------- Controller (Principal March 23, 2000
D. Tyler Towery Accounting Officer)
/s/ HAROLD T. MCCORMICK*
------------------------------------------- Director March 23, 2000
Harold T. McCormick*
/s/ LOUIS T. HAGOPIAN*
------------------------------------------- Director March 23, 2000
Louis T. Hagopian*
/s/ R.K. RICHEY*
------------------------------------------- Director March 23, 2000
R.K. Richey*
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ JOSEPH L. LANIER, JR.*
------------------------------------------- Director March 23, 2000
Joseph L. Lanier, Jr.*
/s/ WILLIAM L. ROGERS*
------------------------------------------- Director March 23, 2000
William L. Rogers*
/s/ JAMES M. RAINES*
------------------------------------------- Director March 23, 2000
James M. Raines*
/s/ GEORGE J. RECORDS, SR.*
------------------------------------------- Director March 23, 2000
George J. Records, Sr.*
/s/ DAVID L. BOREN*
------------------------------------------- Director March 23, 2000
David L. Boren*
/s/ JOSEPH M. FARLEY*
------------------------------------------- Director March 23, 2000
Joseph M. Farley*
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DANIEL C. SCHULTE
-------------------------------------- Vice President and General
Daniel C. Schulte Counsel March 23, 2000
ATTORNEY-IN-FACT
</TABLE>
32
<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, 1999 and
December 31, 1998......................................... A-3
Consolidated Statements of Operations for each of the years
in the three-year period ended December 31, 1999.......... A-5
Consolidated Statements of Changes in Stockholders' Equity
for each of the years in the three-year period ended
December 31, 1999......................................... A-6
Consolidated Statements of Comprehensive Income for each of
the years in the three-year period ended December 31,
1999...................................................... A-7
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1999.......... 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, 1999 and 1998 and the
related consolidated 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, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Kansas City, Missouri
February 11, 2000
A-2
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 60,977 30,180
Investment securities, available-for-sale................. 90,245 103,153
Receivables:
United Funds and W&R Funds.............................. 7,597 5,740
Customers and other..................................... 19,541 28,865
Deferred income taxes....................................... 37 1,309
Prepaid expenses and other current assets................... 7,111 3,222
-------- -------
Total current assets.................................... 185,508 172,469
-------- -------
Property and equipment, net................................. 27,633 20,649
Investment in real estate................................... 0 21,754
Deferred sales commissions, net............................. 1,851 15,710
Goodwill (net of accumulated amortization of $26,493 and
$23,269).................................................. 112,994 95,928
Deferred income taxes....................................... 5,665 0
Other assets................................................ 1,422 669
-------- -------
Total assets............................................ $335,073 327,179
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Accounts payable.......................................... $ 34,002 28,304
Accrued salesforce compensation........................... 14,578 11,916
Short term notes payable.................................. 125,307 40,076
Income taxes payable...................................... 8,284 13,464
Other current liabilities................................. 16,456 16,034
--------- -------
Total current liabilities............................... 198,627 109,794
--------- -------
Deferred income taxes..................................... 0 208
Accrued pensions and post-retirement costs................ 10,103 10,041
--------- -------
Total liabilities....................................... 208,730 120,043
--------- -------
Stockholders' equity:
Common stock (See table below)............................ 665 665
Additional paid-in capital................................ 238,766 246,271
Retained earnings......................................... 97,129 47,325
Deferred compensation..................................... (11,246) (12,494)
Treasury stock (See table below).......................... (198,360) (74,833)
Accumulated other comprehensive income.................... (611) 202
--------- -------
Total stockholders' equity.............................. 126,343 207,136
--------- -------
Total liabilities and stockholders' equity.................. $ 335,073 327,179
========= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998
COMMON STOCK ------------------------- -------------------------
($.01 PAR VALUE) CLASS A CLASS B CLASS A CLASS B
---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Authorized................ 150,000,000 100,000,000 150,000,000 100,000,000
Issued.................... 32,142,174 34,325,000 32,142,174 34,325,000
Outstanding............... 29,652,212 27,981,247 30,906,445 31,911,956
Treasury Stock............ 2,489,962 6,343,753 1,235,729 2,413,044
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Investment management fees............................. $178,612 137,823 117,784
Underwriting and distribution fees..................... 126,318 106,615 89,427
Shareholder service fees............................... 41,525 33,808 30,763
Investment and other revenue........................... 10,202 9,043 3,798
-------- -------- --------
Total revenue........................................ 356,657 287,289 241,772
-------- -------- --------
Expenses:
Underwriting and distribution.......................... 124,938 99,575 79,995
Compensation and related costs......................... 44,944 31,512 26,618
General and administrative............................. 19,245 8,551 15,826
Depreciation........................................... 2,162 1,892 1,307
Amortization of goodwill............................... 3,224 2,903 2,903
Interest expense....................................... 6,546 704 --
Loss on sale of real estate............................ 4,592 -- --
Write-off of deferred acquisition costs................ 18,981 -- --
-------- -------- --------
Total expenses....................................... 224,632 145,137 126,649
-------- -------- --------
Income before affiliated items and provision for
income taxes....................................... 132,025 142,152 115,123
Affiliated items:
Interest income........................................ -- 1,950 11,323
Interest expense....................................... -- (8,604) (11,299)
-------- -------- --------
Income before provision for income taxes............... 132,025 135,498 115,147
Provision for income taxes............................... 50,258 51,763 44,855
-------- -------- --------
Net income............................................. $ 81,767 83,735 70,292
======== ======== ========
Net income per share:
Basic.................................................. $ 1.37 1.27 1.06
======== ======== ========
Diluted................................................ $ 1.34 1.27 1.06
======== ======== ========
Weighted average shares outstanding--basic............... 59,637 65,787 66,467
--diluted................ 61,032 66,179 66,467
Dividends declared per common share...................... 0.53 0.53 --
</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, 1997, 1998 AND 1999
<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,
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)
Net income.................... -- -- -- 81,767 -- -- --
Recognition of deferred
compensation................ -- -- -- -- -- 1,370 --
Issuance of restricted
shares...................... -- -- 6 -- -- (122) 116
Dividends paid................ -- -- -- (31,963) -- -- --
Exercise of stock options..... -- -- (15,964) -- -- -- 8,537
Tax benefit from exercise of
options..................... -- -- 8,453 -- -- -- --
Treasury stock repurchases.... -- -- -- -- -- -- (132,180)
Unrealized loss on investment
securities.................. -- -- -- -- -- -- --
------ ---- -------- ------- -------- ------- --------
Balance at December 31,
1999........................ 66,467 $665 238,766 97,129 -- (11,246) (198,360)
====== ==== ======== ======= ======== ======= ========
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCKHOLDER'S
COMPREHENSIVE EQUITY
INCOME (DEFICIT)
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
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
Net income.................... -- 81,767
Recognition of deferred
compensation................ -- 1,370
Issuance of restricted
shares...................... -- --
Dividends paid................ -- (31,963)
Exercise of stock options..... -- (7,427)
Tax benefit from exercise of
options..................... -- 8,453
Treasury stock repurchases.... -- (132,180)
Unrealized loss on investment
securities.................. (813) (813)
---- --------
Balance at December 31,
1999........................ (611) 126,343
==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
A-6
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income.................................................. $81,767 83,735 70,292
Other comprehensive income:
Net unrealized appreciation (depreciation) of investments
during the period, net of income taxes of $(387), $(150)
and $110.................................................. (616) (249) 180
Reclassification adjustment for amounts included in net
income, net of income taxes of $(124), $64 and $0......... (197) 107 0
------- ------ ------
Comprehensive income........................................ $80,954 83,593 70,472
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
A-7
<PAGE>
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 81,767 83,735 70,292
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 5,386 4,795 4,210
Recognition of deferred compensation.................... 1,370 1,333 --
(Gain)/loss on sale of investments...................... (375) 171 --
Loss on sale and retirement of fixed assets............. 67 75 65
Write-off of deferred acquisition cost.................. 18,981 -- --
Loss on sale of real estate............................. 4,592 -- --
Capital gains and dividends reinvested.................. (471) (399) (78)
Deferred income taxes................................... (4,089) (1,988) 27
Changes in assets and liabilities net of acquisition:
Receivables from funds................................ (1,857) (1,709) (452)
Other receivables..................................... 10,788 (23,818) (1,195)
Due to/from affiliates--operating..................... -- 4,509 (4,217)
Other assets.......................................... (9,728) (3,661) (5,383)
Accounts payable...................................... 5,457 5,375 (1,883)
Other liabilities..................................... (3,596) 10,237 898
-------- -------- --------
Net cash provided by operating activities................... 108,292 78,655 62,284
-------- -------- --------
Cash flows from investing activities:
Additions to investment securities........................ (16,201) (110,652) (40)
Proceeds from sales of investment securities.............. 635 24,020 1
Proceeds from maturity of investment securities........... 27,995 2,424 1,260
Additions to property and equipment....................... (9,096) (7,602) (3,218)
Investment in real estate................................. 551 (5,913) --
Proceeds from sale of real estate......................... 16,452 -- --
Acquisition of Austin, Calvert & Flavin, (net of $1,611
cash acquired).......................................... (19,557) -- --
Other..................................................... -- 7 50
-------- -------- --------
Net cash provided by/(used in) investing activities......... 779 (97,716) (1,947)
-------- -------- --------
Cash flows from financing activities:
Cash dividends to parent.................................. -- -- (51,665)
Proceeds from IPO......................................... -- 516,014 --
Net borrowings on credit facility......................... 85,000 40,000 --
Cash dividends............................................ (31,963) (26,387) --
Change in due to/from affiliates--nonoperating............ -- (479,373) (37,888)
Purchase of treasury stock................................ (132,180) (74,833) --
Exercise of stock options................................. 869 -- --
Cash contributions from parent............................ -- -- 44,033
-------- -------- --------
Net cash used in financing activities....................... (78,274) (24,579) (45,520)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 30,797 (43,640) 14,817
Cash and cash equivalents at beginning of year.............. 30,180 73,820 59,003
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 60,977 30,180 73,820
======== ======== ========
Cash paid for:
Income taxes.............................................. $ 50,551 48,830 65,754
Interest.................................................. 5,932 628 0
</TABLE>
See accompanying notes to consolidated financial statements
A-8
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
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 1999, management fees from the
United Income Fund were $44.4 million or 12% of total revenues. The United
Income Fund had a net asset value of $8.4 billion at December 31, 1999 and was
the Company's largest fund.
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 Corporation (together, "Torchmark").
The Company was wholly owned by Torchmark until March 4, 1998, when the Company
completed the initial public offering of its Class A Common Stock ("Offering"),
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. 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 1999 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)
DECEMBER 31, 1999, 1998, AND 1997
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 90 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
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.
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.
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 and the August 1999 acquisition of Austin Calvert & Flavin, Inc.
("ACF") by the Company. Amortization related to the acquisition of the Company
by Torchmark is on a straight-line basis over 40 years. Amortization related to
the acquisition of ACF by
A-10
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION
(CONTINUED)
the Company is on a straight-line basis over 25 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 certain shares of
Waddell & Reed funds and United funds. Beginning in the fourth quarter of 1999,
the Company began restructuring its mutual fund products at which time the
Waddell & Reed funds Class B shares were closed for new sales. Existing
Waddell & Reed funds Class B shares will be converted to Waddell & Reed funds
Class C shares in March 2000. The deferred acquisition costs associated with the
discontinued Waddell & Reed funds Class B shares were being amortized over the
life of the shareholder investments not to exceed ten years. As a result of the
discontinuation of these shares, the Company wrote off the balance of related
deferred acquisition costs in the amount of $18,981,000 in the fourth quarter of
1999. Upon conversion of the Waddell & Reed Class B shares, no contingent
deferred sales charge will be collected for any converted share redemptions.
Concurrent with the restructuring of mutual fund products, the United Funds
began selling Class B and Class C shares and the Waddell & Reed funds began
selling Class C shares. The deferred costs associated with the sale of United
funds Class B shares is amortized on a straight-line basis over the life of the
shareholders' investments not to exceed six years. The deferred costs associated
with the sale of United funds Class C shares and the Waddell & Reed funds
Class C shares are amortized on a straight-line basis not to exceed twelve
months. The Company recovers such costs through 12b-1 distribution fees, which
are paid by the Waddell & Reed funds and the United funds Class B and C shares
along with contingent deferred sales charges paid by shareholders who redeem
their shares prior to completion of the required holding periods.
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
$4,592,000, $2,845,000, and $1,046,000 for 1999, 1998 and 1997, respectively.
EARNINGS PER SHARE
The weighted average number of shares for basic earnings per share was
59,637,000, 65,787,000, and 66,467,000 for 1999, 1998 and 1997 respectively. The
weighted average number of shares used in computing diluted earnings per share,
which reflects the potential impact of stock options and restricted stock
awards, was 61,032,000, 66,179,000, and 66,467,000 for 1999, 1998 and 1997,
respectively. The average number of shares used for 1997 is the actual shares
outstanding at the Offering.
A-11
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1999 and 1998 include reserves of
$17,114,000 and $10,810,000, 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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
1999 COST GAINS LOSSES FAIR VALUE
- ---- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States government-backed
mortgage securities................ $ 2,136 2 (3) 2,135
Municipal bonds...................... 39,225 7 (1,959) 37,273
Corporate bonds...................... 36,478 0 (822) 35,656
Preferred stock...................... 3,200 0 0 3,200
Affiliated mutual funds.............. 10,202 1,842 (63) 11,981
------- ----- ------ ------
$91,241 1,851 (2,847) 90,245
======= ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
1998 COST GAINS LOSSES FAIR VALUE
- ---- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States government-backed
mortgage securities............... $ 2,944 50 0 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 0 8,411
Affiliated mutual funds............. 3,547 25 (105) 3,467
-------- ----- ------ -------
$102,825 1,614 (1,286) 103,153
======== ===== ====== =======
</TABLE>
Municipal and corporate bonds held as of December 31, 1999 mature as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Within one year........................................... $ 2,005 2,035
After one year but within five years...................... 29,663 29,470
After five years but within ten years..................... 19,262 19,064
After ten years........................................... 24,773 22,360
------- ------
$75,703 72,929
======= ======
</TABLE>
In 1999, investment securities with fair value of $635,000 were sold, which
resulted in realized gain of $6,000. In 1998, investment securities with fair
value of $24,020,000 were sold, which resulted in realized losses of $171,000.
A-12
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
4. ACQUISITION OF SUBSIDIARY
On August 9, 1999, the Company acquired Austin, Calvert & Flavin, Inc.
("ACF") in a business combination accounted for as a purchase. ACF, based in San
Antonio, TX, is primarily engaged in managing investments for trusts, high net
worth families and individuals, and pension plans of corporations, hospitals,
schools, labor unions, endowments, and foundations. The results of operations of
ACF are included on the accompanying financial statements since the date of
acquisition. The total cost of the acquisition, including expenses, was
$21,168,000, which exceeded the fair value of the net assets of ACF by
$20,289,000. The excess is being amortized on a straight-line basis over
25 years. The acquisition agreement provides for additional purchase price
payments based upon the achievement by ACF of specified earnings levels over the
next five years. These payments could aggregate as much as $8.7 million.
A summary of the net assets acquired is as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired
Cash...................................................... $ 1,611
Accounts Receivable....................................... 1,464
Goodwill.................................................. 20,289
Other assets.............................................. 156
-------
Total..................................................... 23,520
Liabilities assumed......................................... 2,352
-------
Total Purchase Price........................................ $21,168
=======
</TABLE>
The table below presents supplemental pro forma information for 1999 and
1998 as if the ACF acquisition were made on January 1, 1998 at the same purchase
price, based on estimates and assumptions considered appropriate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues......................................... $360,593,000 $293,616,000
Net Income....................................... 81,808,000 83,744,000
Net Income per common share
Basic.......................................... 1.37 1.27
Diluted........................................ 1.34 1.27
</TABLE>
A-13
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
5. INVESTMENT IN REAL ESTATE
A summary of investment in real estate at December 31, 1998 is as follows
(in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
---------
<S> <C> <C>
Land.................................................... 3,886
Buildings............................................... 17,868 40 years
-------
Investment in real estate, at cost...................... 21,754
Less accumulated depreciation........................... 0
-------
Investment real estate, net............................. $21,754
=======
</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 reimbursed TIP $5,913,000 for
improvements made to that property while it was in the partnership.
Effective December 28, 1999, the Company sold its investments in
multi-tenant real estate properties to unrelated third parties. These properties
included four commercial buildings and land. Net proceeds from the sale were
$16,452,000 which resulted in a $4,592,000 pre-tax loss.
Net rental income was $1,026,000 for the year ended 1999 and real estate
partnership income was $465,000 and $199,000 for the years ended December 31,
1998 and 1997, respectively. Depreciation expense for the years ended
December 31, 1999, 1998 and 1997 was $0, $0 and $18,000, respectively.
6. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
ESTIMATED
1999 1998 USEFUL LIVES
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................ $ 5,260 4,680 --
Building........................................ 10,240 6,258 40 years
Furniture and fixtures.......................... 11,229 6,992 3-10 years
Equipment and machinery......................... 14,718 13,903 3-10 years
------- ------
Property and equipment, at cost................. 41,447 31,833
Less accumulated depreciation................... 13,814 11,184
------- ------
Property and equipment, net..................... $27,633 20,649
======= ======
</TABLE>
A-14
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
7. REVOLVING CREDIT AGREEMENT
In October of 1999, the Company renewed its $220 million revolving credit
facility, expandable to $330 million, with a syndicate of eight banks. The
credit facility is a 364-day revolving facility with an interest rate of LIBOR
plus .625% plus an additional .125% fee when utilization of the facility exceeds
50%. The facility provides an additional source of capital to finance share
repurchases, acquisitions and other general corporate needs. As of December 31,
1999, the Company had $125 million outstanding on this facility. 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 these covenants at December 31, 1999.
8. TRANSACTIONS WITH RELATED PARTIES
Until the Offering in March of 1998, the Company was 100% owned by
Torchmark. In November of 1998, Torchmark disposed of its remaining interest in
the Company through a tax-free distribution to its shareholders. 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 $1,413,000, $2,401,000, and $1,241,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. These commissions were
earned under contracts, which have been renewed for 2000 with substantially the
same terms.
The Company earns commissions from UILIC, a Torchmark subsidiary, for
marketing life and health insurance products and variable annuities. For the
years ended December 31, 1999, 1998 and 1997, the commissions amounted to
$46,379,000, $36,724,000, and $30,612,000, respectively.
Prior to the Offering, Torchmark performed certain administrative services
for the Company. Charges for such services were allocated based on a defined
formula that prorated Torchmark's total costs for services provided based on
each affiliate's assets and compensation expense. These charges were $2,008,000
for the year ended December 31, 1997. During 1999 and 1998, no charges were made
pertaining to these administrative services because 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, 1999 and 1998, there were no amounts due from Torchmark and
its affiliates other than normal non-interest bearing amounts for current fees
and commissions due from the sale of Torchmark products.
A-15
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
9. INCOME TAXES
The components of total income tax expense are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal.......................................... $46,608 46,845 38,939
State............................................ 7,044 6,934 5,889
------- ------ ------
53,652 53,779 44,828
Deferred taxes..................................... (3,394) (2,016) 27
------- ------ ------
Income tax expense from operations................. $50,258 51,763 44,855
------- ------ ------
Stockholders' equity--unrealized gain (loss) on
investment securities available-for-sale......... (511) (86) 110
------- ------ ------
Total income taxes................................. $49,747 51,677 44,965
======= ====== ======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs........................ $ (703) (5,732) (4,680)
Fixed assets...................................... (328) 0 (824)
Other............................................. (391) (648) (500)
------- ------ ------
Total gross deferred liabilities.................... (1,422) (6,380) (6,004)
------- ------ ------
Deferred tax assets:
Benefit plans..................................... 4,203 3,824 3,557
Accrued expenses.................................. 2,921 2,674 1,442
Fixed assets...................................... 0 983 0
------- ------ ------
Total gross deferred assets......................... 7,124 7,481 4,999
------- ------ ------
Net deferred tax asset (liability).................. $ 5,702 1,101 (1,005)
======= ====== ======
</TABLE>
A valuation allowance for deferred tax assets was not necessary at
December 31, 1999, 1998, and 1997. The following table reconciles the statutory
federal income tax rate to the Company's effective income tax rate:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<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 3.3
Other items........................................... (0.2) (0.1) 0.7
---- ---- ----
Effective income tax rate............................. 38.1% 38.2 39.0
==== ==== ====
</TABLE>
A-16
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
10. 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. This plan
invests in equity securities of large capitalization companies, investment grade
corporate and government bonds, and cash and cash equivalents.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year.................. $31,254 28,979
Service cost............................................. 2,328 1,612
Interest cost............................................ 2,387 2,294
Actuarial loss (gain).................................... (847) 2,733
Benefits paid............................................ (1,294) (4,364)
------- ------
Benefit obligation at end of year........................ $33,828 31,254
======= ======
Change in plan assets:
Fair value of plan assets at beginning of year........... $28,066 25,689
Actual return on plan assets............................. 6,859 5,249
Company contribution..................................... 3,456 1,492
Benefits paid............................................ (1,294) (4,364)
------- ------
Fair value of plan assets at end of year................. $37,087 28,066
======= ======
Funded status of plan...................................... $ 3,260 (3,188)
Unrecognized actuarial gain................................ (8,036) (3,097)
Unrecognized prior service cost............................ 628 673
Unrecognized net transition obligation..................... 98 103
------- ------
Net amount recognized...................................... $(4,050) (5,509)
======= ======
Weighted average assumptions as of December 31:
Discount rate............................................ 8.00% 6.75%
Expected return on plan assets........................... 9.25% 9.25%
Rate of compensation increase............................ 5.50% 3.75%
Components of net periodic benefit cost:
Service cost............................................. $ 2,328 1,612
Interest cost............................................ 2,387 2,294
Expected return on assets................................ (2,607) (2,407)
Prior service cost amortization.......................... 44 44
Transition obligation amortization....................... 5 5
------- ------
Net periodic benefit cost................................ $ 2,157 1,548
======= ======
</TABLE>
A-17
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
11. 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>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year................... $ 1,151 1,142
Service cost.............................................. 76 64
Interest cost............................................. 90 92
Actuarial (gain) loss..................................... 28 (70)
Retiree contributions..................................... 71 75
Benefits and expenses paid................................ (147) (152)
------- ------
Benefit obligation at end of year......................... $ 1,269 1,151
======= ======
Change in plan assets:
Fair values of plan assets at beginning of year........... $ 0 0
Company contribution...................................... 76 77
Retiree contributions..................................... 71 75
Benefits and expenses paid................................ (147) (152)
Fair value of plan assets at end of year.................. $ 0 0
------- ------
Funded status............................................... $(1,269) (1,151)
Unrecognized loss........................................... 90 62
Unrecognized prior service cost............................. (160) (175)
------- ------
Accrued benefit cost at December 31....................... $(1,339) (1,264)
======= ======
Weighted average assumptions as of December 31:
Discount rate............................................. 7.75% 7.50%
Components of net periodic benefit cost:
Service cost.............................................. 76 64
Interest cost............................................. 90 92
Unrecognized amortization of prior service cost........... (15) (15)
Unrecognized net actuarial gain........................... 0 0
------- ------
Net periodic benefit cost................................. $ 151 141
======= ======
</TABLE>
For measurement purposes, the health care cost trend rate was 7.5% and 8% in
1999 and 1998, respectively. The effect of a 1% annual increase in assumed cost
trend rates would increase the December 31, 1999 accumulated postretirement
benefit obligation by approximately $286,000, and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 1999 by approximately $56,000. The effect of a 1% annual
decrease in assumed cost trend rates would decrease the December 31, 1999
accumulated postretirement benefit obligation by approximately $249,000, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1999 by
approximately $48,000.
A-18
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
12. SAVINGS AND INVESTMENT PLANS
The Company has a savings and investment plan covering substantially all
employees. Until December 31, 1998, this plan provided for a matching Company
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 contributions to
the savings and investment plan for the years ended December 31, 1998 and 1997
were $858,000, and $716,000, respectively. On January 1, 1999, the Company
adopted a 401(k) plan for employees. This plan provides for a 100% Company match
on the first 3% of income and 50% on the next 2% of income, not to exceed 4% of
the employee's eligible salary. The Company's contribution to the 401(k) plan
for the year ended December 31, 1999 was $1,413,000.
13. EMPLOYEE STOCK OPTIONS
The Company has a fixed employee stock-based compensation plan ("Option
Plan"), whereby the Company may grant options on its Class A 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 generally ten years and two
days and generally vests one-third in each of the three years starting two years
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 which is the method used by the Company. 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.
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>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Dividend yield.............................................. 2.10% 2.34%
Risk-free interest rate..................................... 5.97 5.20
Expected volatility......................................... 28.60 29.70
Expected life (in years).................................... 4.71 4.71
</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.
A-19
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
13. EMPLOYEE STOCK OPTIONS (CONTINUED)
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,
1999 follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year........... 8,083,188 $18.67 0 0
Granted.................................. 2,101,097 24.93 4,389,088 $22.63
Granted in restoration................... 1,258,396 25.14 0 0
Exercised................................ (77,475) 11.20 0 0
Exercised in restoration................. (1,732,805) 13.04 0 0
Expired.................................. (67,184) 22.30 0 0
Converted................................ 0 0 3,694,100 13.96
---------- ------ --------- ------
Outstanding, end of year................. 9,565,217 $21.95 8,083,188 $18.67
========== ====== ========= ======
Exercisable, end of year................. 1,902,217 $16.63 2,957,826 $14.42
========== ====== ========= ======
</TABLE>
The range of fair values of options granted during the year was $4.97 to
$7.42, with a weighted average fair value of $6.68.
Had compensation cost for the options granted been determined on the basis
of fair value pursuant to SFAS No. 123, net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income
As reported............................................. $81,767 $83,735
Pro forma............................................... $77,141 $79,744
Basic earnings per share
As reported............................................. $1.37 $1.27
Pro forma............................................... $1.29 $1.21
Diluted earnings per share
As reported............................................. $1.34 $1.27
Pro forma............................................... $1.26 $1.21
</TABLE>
A-20
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
13. EMPLOYEE STOCK OPTIONS (CONTINUED)
Following is a summary of options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
----------------------------------------------- ---------------------------
WEIGHTED AVERAGE
REMAINING
EXERCISE PRICE CONTRACTUAL LIFE WEIGHTED AVERAGE WEIGHTED AVERAGE
YEAR OF GRANT RANGE NUMBER (IN YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- ------------- -------------- --------- ---------------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
*1991-1996 $8.16-13.85 681,407 6.6 $11.52 671,185 $11.56
*1997 $12.05-18.77 1,206,027 7.8 $16.88 919,320 $18.27
1998-1999 $19.59-26.56 7,677,783 9.1 $23.66 311,712 $22.72
</TABLE>
- ------------------------
* Options granted prior to 1998 represented options on Torchmark common stock
granted by Torchmark prior to the Company's March 4, 1998 initial public
offering. These options were converted to options on the Company's common
stock on November 6, 1998, concurrent with Torchmark's distribution of the
Company's stock to its shareholders (spin-off).
14. 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, 1999, W&R had net capital, as defined by the Uniform
Capital Rule, of $13,013,000 which is $9,061,000 in excess of the required net
capital.
15. 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 $7,074,000, $4,937,000, and $4,397,000 and
for the years ended, December 31, 1999, 1998 and 1997, respectively. Future
minimum rental commitments under noncancelable operating leases are as follows:
The Company had minimum remaining rental commitments for the years ended
December 31 (in thousands):
<TABLE>
<S> <C>
2000........................................................ $4,767
2001........................................................ 1,988
2002........................................................ 1,068
2003........................................................ 503
2004........................................................ 234
Thereafter.................................................. 0
------
$8,560
======
</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 2000.
A-21
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
A-22
<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.
4.3 Rights Agreement, dated as of April 28, 1999, by and between
Waddell & Reed Financial, Inc. and First Chicago Trust
Company of New York, which includes the Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Company, as filed on
May 13, 1999 with the Secretary of State of Delaware, as
Exhibit A and the form of Rights Certificate as Exhibit B.
Filed as Exhibit 4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 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. Filed as
Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
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 therein. Filed as Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998 and incorporated herein by reference.
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. Filed as
Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
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. Filed as
Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
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. Filed
as Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 and incorporated
herein by reference.
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. Filed as Exhibit
10.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference.
10.21 First Amendment to 1998 Stock Incentive Plan.
10.22 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.
</TABLE>
B-2
<PAGE>
WADDELL & REED FINANCIAL, INC.
INDEX TO EXHIBITS
<TABLE>
<S> <C>
10.23 First Amendment to 1998 Non-Employee Director Stock Option
Plan.
10.24 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.
10.25 First Amendment to 1998 Executive Deferred Compensation
Stock Option Plan. Filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998 and incorporated herein by reference.
10.26 Second Amendment to 1998 Executive Deferred Compensation
Stock Option Plan.
10.27 Credit Agreement dated October 14, 1999, by and among the
Company, Lenders and The Chase Manhattan Bank.
10.28 The Company Supplemental Executive Retirement Plan. Filed as
Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
10.29 The Company Management Incentive Plan of 1999. Filed as
Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
10.30 Form of Accounting Services Agreement by and between each of
the Funds and Waddell & Reed Services Company. Filed as
Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
10.31 Form of Investment Management Agreement by and between each
of the United Funds and Waddell & Reed, Inc. Filed as
Exhibit 10.31 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
10.32 Form of Investment Management Agreement by and between the
Waddell & Reed Funds and Waddell & Reed Investment
Management Company. Filed as Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998 and incorporated herein by reference.
10.33 Form of Investment Management Agreement by and between the
Target/United Funds and Waddell & Reed, Inc. Filed as
Exhibit 10.33 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
10.34 Form of Shareholder Servicing Agreement by and between each
of the Funds and Waddell & Reed Services Company. Filed as
Exhibit 10.34 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
10.35 Form of Underwriting Agreement by and between each of the
United Funds and Waddell & Reed, Inc. Filed as Exhibit
10.35 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference.
10.36 Form of Underwriting Agreement by and between each of the
Waddell & Reed Funds and Waddell & Reed, Inc. Filed as
Exhibit 10.36 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference.
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 10.21
FIRST AMENDMENT TO THE
WADDELL & REED FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
Waddell & Reed Financial, Inc., a Delaware corporation (the "Company")
previously established the Waddell & Reed Financial, Inc. 1998 Stock Incentive
Plan (the "Plan"). Pursuant to Section 11 of the Plan, the Board of Directors of
the Company reserves the right to amend the Plan. The Board of Directors of the
Company authorized the amendment set forth below. Pursuant to the powers
reserved in the Plan, the Plan is hereby amended, effective April 28, 1999.
1. Section 3 of the Plan is amended by adding the following language at the
end of the second paragraph of Section 3:
In the case of Options exercised with payment in Stock under the
"stock option restoration program" described in section 5(m) below,
the number of shares of Stock transferred by the optionee in payment
of the exercise price plus the number of shares withheld to cover
income and employment taxes (plus any selling commissions) on such
exercise will be netted against the number of shares of Stock issued
to the optionee in the exercise, and only the net number shall be
charged against the 13,000,000 limitation set forth above.
2. Section 4 of the Plan is amended by adding the following language at the
end of subsection 4(a):
For purposes of calculating the 2,500,000 per employee per year limit,
options that lapse, expire or are cancelled continue to count against
the limit, and options granted pursuant to the "stock option
restoration program" described in section 5(m) below, as well as the
number of shares covered by the original option, count against the
limit.
3. Section 5 is amended by changing the title to read "Stock Options for
Employees and Consultants" and by revising the fourth sentence thereof to
read as follows:
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 may only be granted to employees
of the Company or a Subsidiary.
4. Subsection 5(d) is hereby restated to read as follows:
<PAGE>
(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").
Payment in full or in part may also be made in the form of
unrestricted Stock or shares of the Company's Class B Common Stock,
par value $.01 ("Class B Shares") 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 or Class B Shares 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 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 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.
5. Subsection 5(e) is hereby amended by adding "Non-Qualified" before each
reference to "Stock Option" in the first sentence thereof.
6. Section 5 is amended by adding the following new subsection 5(m):
(m) For purposes of subsections 5(f), 5(g), 5(h), 5(i), 5(j) and
5(k), all references to termination of employment shall be construed
to mean termination of all employment and consultancy relationships
with the Company and its Subsidiaries and Affiliates; however, nothing
in this Plan shall be construed to create or continue a common law
employment relationship with any individual characterized by the
Company, a Subsidiary or an Affiliate as an independent contractor or
consultant.
7. Section 5 of the Plan is amended by adding a new subsection 5(n) to read as
follows:
<PAGE>
(n) The Committee, in its discretion, may include in the grant of any
Non-Qualified Stock Option under the Plan, a "stock option restoration
program" ("SORP") provision. Such provision shall provide, without
limitation, that, if payment on exercise of a Stock Option is made in
the form of Stock or Class B Shares, and the exercise occurs on the
Annual SORP Exercise Date, an additional Option ("SORP Option") will
automatically be granted to the optionee as of the date of exercise,
having an exercise price equal to 100% of the Fair Market Value of the
Stock on the date of exercise of the prior Stock Option, having a term
of no more than 10 years and two days from such date of exercise
(subject to any forfeiture provision or shorter limitation on exercise
required under the Plan), having an initial exercise date no earlier
than six months after the date of such exercise, and covering a number
of shares of Stock equal to the number of shares of Stock and/or Class
B Shares used to pay the exercise price of the Stock Option, plus the
number of shares of Stock (if any) withheld or sold to cover income
and employment taxes (plus any selling commissions) on such exercise.
"Annual SORP Exercise Date" shall mean August 1, or if August 1 is not
a trading day on the New York Stock Exchange, "Annual SORP Exercise
Date" shall mean the next succeeding trading date. Notwithstanding the
foregoing, the Committee may delay the Annual SORP Exercise Date to
the extent it determines necessary to comply with regulatory or
administrative requirements.
8. Subsection 6(c) of the Plan is restated to read as follows:
(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"). 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 or Class
B Shares already owned by the optionee (based, in each case, on the
Fair Market Value of the Stock or Class B Shares on the date the
option is exercised, as determined by the Committee). An optionee
shall have rights to dividends or other rights of 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.
<PAGE>
9. Section 6 of the Plan is amended by adding a new subsection 6(f) to read as
follows:
(f) The Committee, in its discretion, may include in the grant of any
Director Stock Option under the Plan, a SORP provision as described in
subsection 5(m) above.
10. Except as hereby amended, the Plan shall remain in full force and effect.
<PAGE>
Exhibit 10.23
FIRST AMENDMENT TO THE
WADDELL & REED FINANCIAL, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Waddell & Reed Financial, Inc., a Delaware corporation (the "Company")
previously established the Waddell & Reed Financial, Inc. 1998 Non-Employee
director Stock Option Plan (the "Plan"). Pursuant to Section 8 of the Plan, the
Board of Directors of the Company reserves the right to amend the Plan. The
Board of Directors of the Company authorized the amendment set forth below.
Pursuant to the powers reserved in the Plan, the Plan is hereby amended,
effective April 28, 1999.
1. Section 6.3 of the Plan is amended by deleting the last sentence of Section
6.3 and adding the following provision:
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"). Payment in full or in
part may also be made in the form of unrestricted Shares or shares of
the Company's Class B Common Stock, par value $.01 ("Class B Shares")
already owned by the Optionee (based, in each case, on the Fair Market
Value of the Shares or Class B Shares on the date the option is
exercised, as determined by the Committee). If payment of the option
exercise price of an Option is made in whole or in part in the form of
Shares that are restricted, the shares received upon the exercise of
such Option shall be restricted in accordance with the original term
of the restricted Shares award in question, except that such
restrictions shall apply to only the number of such shares equal to
the number of shares of restricted shares surrendered upon the
exercise of such option. No Shares shall be issued until full payment
therefor has been made. An Optionee shall have 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.
2. Section 6.5 of the Plan is amended by adding the following language at the
end of Section 6.5:
The Committee, in its discretion, may include in the grant of any
Option under the Plan, a "stock option restoration program" ("SORP")
provision. Such provision shall provide, without limitation, that, if
payment on exercise of an Option is made in the form of Shares or
Class B Shares, and the exercise occurs on the Annual SORP Exercise
Date, an additional Option will automatically be granted to the
Optionee as of the date of exercise, having an exercise price equal to
100% of the Fair Market Value of the Shares on the date of exercise of
the Stock Option, having a term of no more than 10 years and two days
from such date of exercise (subject to any forfeiture provision or
shorter limitation on exercise required under the Plan), having an
initial exercise date no
<PAGE>
earlier than six months after the date of such exercise, and covering
a number of shares equal to the number of Shares and/or Class B Shares
used to pay the exercise price of the Stock Option, plus the number of
Shares (if any) withheld to cover income taxes and employment taxes
(plus any selling commissions) on the exercise. "Annual SORP Exercise
Date" shall mean August 1, or if August 1 is not a trading day on the
New York Stock Exchange, "Annual SORP Exercise Date" shall mean the
next succeeding trading date. Notwithstanding the foregoing, the
Committee may delay the Annual SORP Exercise Date to the extent it
determines necessary to comply with regulatory or administrative
requirements.
3. Article 7 of the Plan is amended by adding the following language at the
end of Section 7.1:
In the case of Options exercised with payment in Shares under the
"stock option restoration program" described in section 6.5 above, the
number of Shares transferred by the Optionee in payment of the
exercise price plus the number of shares withheld to cover income and
employment taxes (plus any selling commissions) on such exercise will
be netted against the number of Shares issued to the Optionee in the
exercise, and only the net number shall be charged against the 800,000
limitation set forth above.
4. Except as hereby amended, the Plan shall remain in full force and effect.
<PAGE>
Exhibit 10.26
SECOND AMENDMENT TO THE
WADDELL & REED FINANCIAL, INC.
1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN
Waddell & Reed Financial, Inc., a Delaware corporation (the "Company")
previously established the Waddell & Reed Financial, Inc. 1998 Executive
Deferred Compensation Stock Option Plan (the "Plan"). Pursuant to Section 8 of
the Plan, the Board of Directors of the Company reserves the right to amend the
Plan. The Board of Directors of the Company authorized the amendment set forth
below. Pursuant to the powers reserved in the Plan, the Plan is hereby amended,
effective April 28, 1999.
1. Article 6 of the Plan is hereby amended by deleting the first sentence of
Section 6.3 and replacing it with the following language:
Each Option shall be first exercisable, cumulatively, as to 10%
commencing on each of the first through tenth anniversaries of the
Option Grant Date. Notwithstanding the foregoing, the exercisability
of any Option held by a Covered Employee shall be deferred to the
extent that the Committee, in its discretion, determines that current
exercise of the Option would cause loss of the Company's tax deduction
pursuant to Section 162(m) of the Internal Revenue Code. In no event
shall such deferral continue beyond the first day of the calendar year
after the Optionee ceases to be a Covered Employee.
2. Article 6 of the Plan is further amended by deleting the last sentence of
Section 6.3 and adding the following new language:
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"). Payment in full or in
part may also be made in the form of unrestricted Shares or shares of
the Company's Class B Common Stock, par value $.01 ("Class B Shares")
already owned by the optionee or Restricted Stock or Deferred Stock
subject to an award under the Waddell & Reed Financial, Inc. 1998
Stock Incentive Plan (based, in each case, on the Fair Market Value of
the Shares or Class B Shares on the date the Option is exercised, as
determined by the Committee). If payment of the option exercise price
of an 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
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 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 shall be
issued until full payment therefor has been made. An Optionee shall
have rights to dividends or other rights of a stockholder with respect
to Shares subject to the Option when the
<PAGE>
Optionee has given written notice of exercise and has paid in full for
such Shares.
3. Article 6 of the Plan is amended by adding new language at the end of
Section 6.5 to read as follows:
The Committee, in its discretion, may include in the grant of any
Option under the Plan, a "stock option restoration program" ("SORP")
provision. Such provision shall provide, without limitation, that, if
payment on exercise of an Option is made in the form of Shares or
Class B Shares, and the exercise occurs on the Annual SORP Exercise
Date, an additional Option ("SORP Option") will automatically be
granted to the Optionee as of the date of exercise, having an exercise
price equal to 100% of the Fair Market Value of the Shares on the date
of exercise of the prior Option, having a term of no more than 10
years and two days from such date of exercise (subject to any
forfeiture provision or shorter limitation on exercise required under
the Plan), having an initial exercise date no earlier than six months
after the date of such exercise, and covering a number of shares equal
to the number of Shares and/or Class B Shares used to pay the exercise
price of the Stock Option, plus the number of shares (if any) withheld
to cover income taxes and employment taxes (plus any selling
commissions) on the exercise. "Annual SORP Exercise Date" shall mean
August 1, or if August 1 is not a trading day on the New York Stock
Exchange, "Annual SORP Exercise Date" shall mean the next succeeding
trading date. Notwithstanding the foregoing, the Committee may delay
the Annual SORP Exercise Date to the extent it determines necessary to
comply with regulatory or administrative requirements.
4. Article 7 of the Plan is amended by adding the following language at the
end of Section 7.1:
In the case of Options exercised with payment in Shares under the
"stock option restoration program" described in section 6.5 above, the
number of Shares transferred by the Optionee in payment of the
exercise price plus the number of shares withheld to cover income and
employment taxes (plus any selling commissions) on such exercise will
be netted against the number of Shares issued to the Optionee in the
exercise, and only the net number shall be charged against the
2,500,000 limitation set forth above.
5. Except as hereby amended, the Plan shall remain in full force and effect.
<PAGE>
Exhibit 10.27
CREDIT AGREEMENT
dated as of
October 14, 1999
among
WADDELL & REED FINANCIAL, INC.,
The Lenders Party Hereto,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent.
BANK OF AMERICA, NA,
as Documentation Agent
DEUTSCHE BANK AG,
as Syndication Agent
$220,000,000 REVOLVING CREDIT AND COMPETITIVE ADVANCE FACILITY
CHASE SECURITIES INC.,
as Advisor, Lead Arranger and Book Manager
<PAGE>
CREDIT AGREEMENT dated as of October
14, 1999, among WADDELL & REED FINANCIAL,
INC. (the "BORROWER"), the LENDERS party
hereto, and THE CHASE MANHATTAN BANK, as
Administrative Agent.
W I T N E S S E T H:
1. The Borrower is party to the Credit Agreement
dated as of October 15, 1998 (the EXISTING CREDIT AGREEMENT) among the
Borrower, the lenders party thereto, and The Chase Manhattan Bank, as
administrative agent.
2. The Borrower, the Lenders and the Administrative
Agent desire to replace the Existing Credit Agreement with this
Agreement upon and subject to the terms and conditions hereinafter set
forth.
The parties hereto agree as follows:
ARTICLE I
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.
<PAGE>
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
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 ABR EURODOLLAR FACILITY FEE
LEVERAGE RATIO SPREAD SPREAD RATE
==========================================================================
<S> <C> <C> <C>
LESS THAN 2.0:1 0% 0.625% 0.125%
==========================================================================
GREATER THAN
OR EQUAL TO 2.0:1 0% 0.875% 0.125%
==========================================================================
</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.
3
<PAGE>
"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.
"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
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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.
"CLOSING DATE" means the date on which the conditions
precedent set forth in Section 4.01 shall have been satisfied, which date is
October 14, 1999.
"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 $220,000,000.
"COMMITMENT UTILIZATION PERCENTAGE" means on any day the
percentage equivalent of a fraction (a) the numerator of which is the sum of
the aggregate outstanding principal amount of Loans and (b) the denominator
of which is the aggregate amount of the Commitments (or, on any day after
termination of the Commitments, the aggregate amount of the Commitments in
effect immediately preceding such termination).
"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
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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 1999 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
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
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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 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.
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"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).
"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
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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 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.
"EXCESS UTILIZATION DAY" means each day on which the
Commitment Utilization Percentage exceeds 50%.
"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
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amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.17(a).
"EXISTING CREDIT AGREEMENT" has the meaning set forth in
the recitals hereto.
"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.
"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
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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
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
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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 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
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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 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.
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"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.
"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
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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 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;
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(b) investments in commercial paper maturing within
270 days from the date of acquisition thereof and having, at
such date of acquisition, an investment-grade credit rating
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 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.
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"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 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.
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"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 13, 2000
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.
"S&P" means Standard & Poor's.
"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.
"TAXES" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
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"TERM BORROWING REQUEST" means a request by the Borrower
for a Revolving Borrowing in accordance with Section 2.05.
"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
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modifications set forth herein), (b) any reference herein to any Person shall
be construed to include such 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;
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PROVIDED that the Commitments and Competitive Bids of the Lenders are several
and no 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;
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(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 shall specify the following information in compliance with Section
2.02:
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(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 thereto rejected. Each such telephonic Competitive Bid
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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 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
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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 determined
by the Borrower. A notice given by the
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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
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shall constitute such 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
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(iv) if the resulting Borrowing is a Eurodollar
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.
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(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.
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(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 shall be applied ratably to the
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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) Prior to conversion of Revolving
Loans into Term Loans pursuant to Section 2.04, 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), 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 and such Loans are not Term Loans that
have been converted from Revolving Loans pursuant to Section 2.04, 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) Prior to conversion of Revolving Loans into Term Loans
pursuant to Section 2.04, the Borrower agrees to pay to the Administrative
Agent for the account of each Lender a utilization fee equal to 0.125% per
annum for each day on which the Commitment Utilization Percentage exceeds
50%, which fee shall accrue on the daily amount of such Lender's outstanding
Loans for each Excess Utilization Day during the period from and including
the day on which the Commitment Utilization Percentage exceeds 50% to but
excluding the day on which the Commitment Utilization Percentage no longer
exceeds 50%. Accrued utilization 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 utilization fees accruing after the
date on which the Commitments terminate shall be payable on demand. All
utilization 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).
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(c) 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.
(d) 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 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.
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(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 (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:
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(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 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
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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 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
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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
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
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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 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
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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 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
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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 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
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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 $330,000,000 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 (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
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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.
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 1997 and 1998, reported
on by KPMG LLP, independent public accountants, and (ii) as of and for the
fiscal quarters and the portion of the fiscal year ended March 31, 1999 and
June 30, 1999, 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
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reflected in the most recent financial statements referred to in this paragraph.
(b) Since December 31, 1998, 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 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.
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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 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
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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.
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, (a)
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 (b) 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
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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, has been
completed. The costs to the Borrower and its Subsidiaries for the reasonably
foreseeable consequences to them of any improper functioning of other computer
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. 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. 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)
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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 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 evidence satisfactory to
it that simultaneously with the making of the initial Loans on the Closing Date,
the Borrower will have repaid in full all amounts outstanding under the Existing
Credit Agreement and the commitments of the lenders under the Existing Credit
Agreement will have been terminated, and the Administrative Agent shall have
received the promissory notes issued under the Existing Credit Agreement marked
"cancelled."
(f) 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.
(g) 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
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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.
(h) The Lenders shall have received (i) audited consolidated financial
statements of the Borrower for the 1997 and 1998 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.
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 14, 1999 (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
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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 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;
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(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
(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.
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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 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
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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 to
finance the payment by the Borrower of outstanding Indebtedness under the
Existing Credit Agreement, to pay related fees and expenses and for general
corporate purposes, including but not limited (i) to repurchase shares of 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.
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.
(b) CONSOLIDATED INTEREST COVERAGE RATIO. The Borrower shall not permit the
Consolidated Interest
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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 permit any Subsidiary to
create, incur, assume or permit to exist any Indebtedness, except:
(a) 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;
(b) Indebtedness of any Subsidiary to the Borrower or any other Subsidiary;
(c) Guarantees by any Subsidiary of Indebtedness of the Borrower or any
other Subsidiary;
(d) Indebtedness of 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 (d)
shall not exceed $10,000,000 at any time outstanding;
(e) 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;
(f) Indebtedness of any Subsidiary as an account party in respect of trade
letters of credit; and
(g) 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:
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(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 6.03; 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 (d) 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 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
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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;
(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
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(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) the Borrower may, in
addition to the foregoing, repurchase shares of the Borrower's Class A and 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
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
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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 (a SALE/LEASEBACK TRANSACTION),
except Sale/Leaseback Transactions entered into with respect to the real
property listed on Schedule 6.10.
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 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
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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 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,
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;
(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;
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(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;
(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
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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, 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.
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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 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
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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 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
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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) 236-1799);
(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 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
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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 $330,000,000, 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
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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; 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
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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 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
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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 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
66
<PAGE>
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 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
67
<PAGE>
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 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
68
<PAGE>
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 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
69
<PAGE>
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 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
70
<PAGE>
(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.
71
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused 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 and
Chief Financial
Officer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
by
/s/ Gail Weiss
--------------
Name: Gail Weiss
Title: Vice President
DEUTSCHE BANK AG
NEW YORK BRANCH
by
/s/ Alan Krouk
--------------
Name: Alan Krouk
Title: Assistant Vice
President
by
/s/ John S. McGill
------------------
Name: John S. McGill
Title: Director
BANK OF AMERICA, NA
by
/s/ John L. D'Amico
-------------------
Name: John L. D'Amico
Title: Principal
THE BANK OF NEW YORK
by
/s/ Joseph A. Blanchard
-----------------------
Name: Joseph A. Blanchard
Title: Vice President
72
<PAGE>
BANQUE NATIONALE DE PARIS
by
/s/ Laurent Vanderzyppe
-----------------------
Name: Laurent Vanderzyppe
Title: Vice President
by
/s/ Marguerite L. Lebon
-----------------------
Name: Marguerite L. Lebon
Title: Assistant 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/ Vincent Starck
------------------
Name: Vincent Starck
Title: Assistant Vice
President
73
<PAGE>
UMB BANK, N.A.
by
/s/ David A. Proffitt
---------------------
Name: David A. Proffitt
Title: Senior Vice
President
74
<PAGE>
SCHEDULE 2.01
COMMITMENTS
<TABLE>
<CAPTION>
=================================================================
Lender Commitment
- -----------------------------------------------------------------
<S> <C>
The Chase Manhattan Bank $35,000,000
- -----------------------------------------------------------------
Deutsche Bank AG - New York Branch $35,000,000
- -----------------------------------------------------------------
Bank of America, NA $35,000,000
- -----------------------------------------------------------------
Fleet National Bank $35,000,000
- -----------------------------------------------------------------
The Bank of New York $25,000,000
- -----------------------------------------------------------------
UMB Bank, n.a. $25,000,000
- -----------------------------------------------------------------
Banque Nationale de Paris (New York) $15,000,000
- -----------------------------------------------------------------
State Street Bank and Trust Company $15,000,000
=================================================================
</TABLE>
75
<PAGE>
SCHEDULE 3.06
DISCLOSED MATTERS
None
76
<PAGE>
SCHEDULE 3.13
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction % of Capital Stock
Name of Incorporation Owned by Borrower(1)
- ---- ---------------- --------------------
<S> <C> <C>
Waddell & Reed Financial Services, Inc. Missouri 100%
Waddell & Reed Development, Inc. Delaware 100%
Waddell & Reed, Inc. Delaware 100%
Waddell & Reed Investment Kansas 100%
Management Company
Waddell & Reed Services Company Missouri 100%
Waddell & Reed Leasing, Inc. Missouri 100%
Waddell & Reed Distributors, Inc. Missouri 100%
W & R Insurance Agency, Inc. Missouri 100%
W & R Insurance Agency of Alabama, Inc. Alabama 100%
W & R Insurance Agency of Arkansas, Inc. Arkansas 100%
W & R Insurance Agency of
Massachusetts, Inc. Massachusetts 100%
W & R Insurance Agency of Montana, Inc. Montana 100%
W & R Insurance Agency of Nevada, Inc. Nevada 100%
W & R Insurance Agency of Utah, Inc. Utah 100%
W & R Insurance Agency of Wyoming, Inc. Wyoming 100%
Unicon Agency, Inc. New York 100%
Unicon Insurance Agency of Massachusetts 100%
Massachusetts, Inc.
Fiduciary Trust Company of New Hampshire New Hampshire 99.88%(2)
Austin, Calvert & Flavin, Inc. Texas 100%
Encino Partners, L.P. Texas General Partner
</TABLE>
- ----------
(1) Owned directly or indirectly through one or more wholly-owned
subsidiaries.
(2) Waddell & Reed, Inc. owns 21,175 shares. 25 qualifying shares are
owned PRO RATA by the five directors.
77
<PAGE>
SCHEDULE 6.02
EXISTING INDEBTEDNESS
None
78
<PAGE>
SCHEDULE 6.03
EXISTING LIENS
None
79
<PAGE>
SCHEDULE 6.08
EXISTING RESTRICTIONS
None
80
<PAGE>
SCHEDULE 6.10
SALE/LEASEBACK PROPERTIES
1. 6300 Lamar Avenue, Overland Park, Kansas
2. 6310 Lamar Avenue, Overland Park, Kansas
3. 6320 Lamar Avenue, Overland Park, Kansas
4. 6330 Lamar Avenue, Overland Park, Kansas
5. 6329 Glenwood, Overland Park, Kansas
6. 6301 Glenwood, Overland Park, Kansas
81
<PAGE>
<PAGE>
Exhibit 11
WADDELL & REED FINANCIAL, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
(in thousands except for per share data)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $81,767 $83,735 $70,292
Basic weighted average shares 59,637 65,787 66,467
outstanding ======= ======= =======
Diluted weighted average shares 61,032 66,179 66,467
outstanding ======= ======= =======
Basic net income per share $1.37 $1.27 $1.06
Diluted net income per share $1.34 $1.27 $1.06
</TABLE>
Note: For comparison purposes, weighted average shares outstanding for 1997
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
Austin, Calvert & Flavin, Inc. Texas
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Waddell & Reed Financial, Inc.
We consent to incorporation by reference in the Registration Statement No.
333-65827 on Form S-8, as amended, of our report dated February 11, 2000,
relating to the consolidated balance sheets of Waddell & Reed Financial, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows and related schedules for each of the years in the
three-year period ended December 31, 1999, which report appears in the
December 31, 1999 Annual Report on Form 10-K of Waddell & Reed Financial, Inc.
/s/ KPMG LLP
Kansas City, Missouri
March 17, 2000
<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 John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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 2, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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 1, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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., Director
Date: February 1, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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 2, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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 2, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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: February 3, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned Director of Waddell & Reed Financial, Inc. does hereby
constitute and appoint John E. Sundeen, Jr., D. Tyler Towery and Daniel C.
Schulte, and each of them severally, his true and lawful attorneys-in-fact and
agents, for him and in his name and in the capacity indicated below, with full
power of substitution and resubstitution and authority to do any and all acts
and things and to execute any and all instruments which said attorneys-in-fact
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 ended December
31, 1999, 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-in-fact and all that said
attorneys-in-fact 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 2, 2000
<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 12 MONTHS
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052100
<NAME> WADDELL & REED FINANCIAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 60,977
<SECURITIES> 90,245
<RECEIVABLES> 27,138
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 185,508
<PP&E> 41,447
<DEPRECIATION> 13,814
<TOTAL-ASSETS> 335,073
<CURRENT-LIABILITIES> 198,627
<BONDS> 0
0
0
<COMMON> 665
<OTHER-SE> 125,678
<TOTAL-LIABILITY-AND-EQUITY> 335,073
<SALES> 0
<TOTAL-REVENUES> 356,657
<CGS> 0
<TOTAL-COSTS> 191,289
<OTHER-EXPENSES> 26,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,546
<INCOME-PRETAX> 132,025
<INCOME-TAX> 50,258
<INCOME-CONTINUING> 81,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,767
<EPS-BASIC> 1.37
<EPS-DILUTED> 1.34
</TABLE>
