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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant /X/)
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
/X/) Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
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Commission file number 001-13913
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WADDELL & REED FINANCIAL, INC.
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(Name of Registrant as Specified In Its Charter)
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Payment of Filing Fee:
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/X/) No fee required.
/ / Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 :
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
March 24, 2000
TO THE STOCKHOLDERS OF
Waddell & Reed Financial, Inc.:
Waddell & Reed Financial, Inc.'s 2000 annual meeting of stockholders will be
held in the William T. Morgan Auditorium at the executive offices of the
Company, 6300 Lamar Avenue, Overland Park, Kansas 66202 at 10:00 a.m., Central
Daylight Time, on Wednesday, April 26, 2000.
The accompanying formal notice and proxy statement discuss matters which
will be presented for a stockholder vote. If you have any questions or comments
about the matters discussed in the proxy statement or about the operations of
your Company, we will be pleased to hear from you.
We have also enclosed our 1999 Annual Report. As you will see in our Annual
Report, we believe that we are making some significant and positive changes in
our business.
It is important that your shares be voted at this meeting. Because we are
always looking for new ways to bring value to our stockholders, we are
introducing telephone voting and Internet voting for the annual meeting, in
addition to the usual method of voting by mail. If you attend the meeting in
person, you may withdraw your proxy and vote your stock if you desire to do so.
We hope that you will take this opportunity to meet with us to discuss the
results and operations of the Company during 1999.
Sincerely,
[SIG]
Keith A. Tucker
CHAIRMAN OF THE BOARD
& CHIEF EXECUTIVE OFFICER
[SIG]
Henry J. Herrmann
PRESIDENT & CHIEF INVESTMENT OFFICER
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WADDELL & REED FINANCIAL, INC.
6300 Lamar Avenue
Overland Park, Kansas 66202
(913) 236-2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 26, 2000
To the Stockholders of
Waddell & Reed Financial, Inc.
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Waddell & Reed Financial, Inc. will be held at our executive offices located at
6300 Lamar Avenue, Overland Park, Kansas, 66202 on Wednesday, April 26, 2000, at
10:00 a.m. for the following purposes:
1. To elect the nominees shown in the accompanying proxy statement as
directors to hold office until the 2003 Annual Meeting of Stockholders or
until their respective successors shall have been duly elected and
qualified.
2. To approve our existing 1998 Stock Incentive Plan in order to comply
with Section 162(m) of the Internal Revenue Code.
3. To approve an amendment to our existing 1998 Stock Incentive Plan to
increase the aggregate number of shares authorized for issuance under the
plan.
4. To approve an amendment to our existing 1998 Executive Deferred
Compensation Stock Plan in order to comply with Section 162(m) of the
Internal Revenue Code.
5. To ratify the appointment of KPMG LLP, certified public accountants, as
our independent auditors for the fiscal year ending December 31, 2000.
6. To transact such other business as may properly come before the annual
meeting or any adjournments thereof.
These matters are more fully discussed in the accompanying proxy statement.
Only our common stockholders of record at the close of business on
March 13, 2000 are entitled to notice of and to vote at the annual meeting.
All stockholders are cordially invited to attend the annual meeting in
person. However, if you are unable to attend in person and wish to have your
shares voted, YOU MAY VOTE BY TELEPHONE, INTERNET OR BY FILLING IN, SIGNING AND
DATING THE ENCLOSED PROXY AND RETURNING IT IN THE ACCOMPANYING ENVELOPE AS
PROMPTLY AS POSSIBLE. Regardless of how you deliver your proxy, your proxy may
be revoked by appropriate notice to the Secretary of Waddell & Reed
Financial, Inc. at any time prior to the voting thereof.
The annual meeting for which this notice is given may be adjourned from time
to time without further notice other than announcement at the meeting or any
adjournment thereof. Any business for which notice is hereby given may be
terminated at any such adjourned meeting.
BY ORDER OF THE BOARD OF DIRECTORS
[SIG]
Daniel C. Schulte
VICE PRESIDENT, GENERAL COUNSEL &
SECRETARY
Overland Park, Kansas
March 24, 2000
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WADDELL & REED FINANCIAL, INC.
6300 Lamar Avenue
Overland Park, Kansas 66202
(913) 236-2000
March 24, 2000
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 26, 2000
SOLICITATION OF PROXIES
This Proxy Statement and the accompanying Proxy and Notice of Annual Meeting
of Stockholders are being furnished to holders of our Class A and Class B common
shares, par value $0.01 per share, in connection with the solicitation by our
Board of Directors of proxies to be used at our 2000 Annual Meeting of
Stockholders to be held on April 26, 2000, at 10:00 a.m. in the William T.
Morgan Auditorium, at our executive offices located at 6300 Lamar Avenue,
Overland Park, Kansas 66202, and at any postponements or adjournments thereof.
Only those stockholders of record at the close of business on March 13, 2000,
will be entitled to receive notice of, and to vote at, the annual meeting.
Copies of this Proxy Statement and the accompanying Proxy and Notice of Annual
Meeting of Stockholders are first being mailed to stockholders on or about
March 24, 2000. Keith A. Tucker and Henry J. Herrmann are named as proxies in
the Proxy and have been designated as directors' proxies by the Board to
represent you and vote your shares at the meeting.
By submitting your proxy (either by executing and returning the paper proxy
card or by voting electronically via the Internet or by telephone), your common
shares represented will be voted in accordance with your directions specified.
If you have not specified any directions, your common shares will be voted as
follows:
"FOR" the election of directors of the nominees named on the accompanying
Proxy;
"FOR" the approval of the Waddell & Reed Financial, Inc. 1998 Stock
Incentive Plan that was established prior to the Company's initial public
offering, in order to comply with the requirements of Section 162(m) of the
Internal Revenue Code;
"FOR" the approval of an amendment to our Stock Incentive Plan to increase
the aggregate number of shares authorized for issuance under the Stock Incentive
Plan;
"FOR" the approval of an amendment to our Executive Deferred Compensation
Stock Option Plan, that was established prior to the Company's initial public
offering, in order to enable such plan to satisfy the requirements of
Section 162(m) of the Internal Revenue Code; and
"FOR" the ratification of the appointment of KPMG LLP, certified public
accountants, as our independent auditors for fiscal year 2000.
Management knows of no other matters that may properly be brought, or which
are likely to be brought, before the annual meeting. However, if any other
matters are properly brought before the annual meeting, the persons named as
proxies in the accompanying Proxy or their substitutes will vote in accordance
with their best judgment on such matters.
Without affecting any vote previously taken, you have the power to revoke
your Proxy at any time prior to its exercise by doing any of the following: (1)
giving notice to us in writing mailed to Daniel C. Schulte, Secretary of the
Company, at our executive offices at 6300 Lamar Avenue, Overland Park, Kansas
66202, (2) by executing a subsequent Proxy, or (3) by attending the annual
meeting and declaring to the company your intent to vote in person. Attendance
at the annual meeting will not, in and of itself, constitute revocation of your
Proxy.
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The Proxy is considered to be voting instructions furnished to the trustees
of the Waddell & Reed Financial, Inc. 401(k) and Thrift Plan, the Torchmark
Corporation Savings and Investment Plan, the Liberty National Life Insurance
Company 401(k) Plan and the Profit Sharing and Retirement Plan of Liberty
National Life Insurance Company with respect to our common shares allocated to
individual accounts under such plan. To the extent that account information is
the same, participants in the plan who are also stockholders of record will
receive a single card representing all of their shares. If a plan participant
does not submit a Proxy to us, the trustees of the plan in which shares are
allocated to his or her individual account will vote such shares in the same
proportion as the total shares in such plan for which directions have been
received.
A quorum of stockholders is necessary to take action at the annual meeting.
A majority of the voting power of our outstanding common shares, represented in
person or by proxy, will constitute a quorum. Votes cast by proxy or in person
at the annual meeting will be tabulated by the inspectors of election appointed
for the annual meeting. Under certain circumstances, a broker or other nominee
may have discretionary authority to vote certain of our common shares if
instructions have not been received from the beneficial owner or other person
entitled to vote. The inspectors of election will treat directions to withhold
authority, abstentions and "broker non-votes" ("Broker non-votes" occur when a
broker or other nominee holding shares for a beneficial owner does not vote on a
particular proposal, because such broker or other nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner) as present and entitled to vote for
purposes of determining the presence of a quorum for the transaction of business
at the annual meeting.
A simple majority vote of the votes cast by the holders of our issued and
outstanding common shares represented in person or by proxy at the annual
meeting is required to elect directors and approve all other matters put to a
vote of stockholders. Abstentions are considered as shares present and entitled
to vote and therefore have the same legal effect as a vote against a matter
presented at the meeting. Any shares which a broker or nominee does not have
discretionary voting authority under applicable New York Stock Exchange rules
will be considered as shares not entitled to vote and will therefore not be
considered in the tabulation of the votes.
We will bear all costs of solicitation of the proxies. Solicitation will be
made by mail, in person, by telephone or by facsimile transmission. In addition,
we will utilize the services of Corporate Investors Communications, Inc., an
independent proxy solicitation firm, and will pay approximately $20,000 plus
reasonable expenses as compensation for these services. Upon request, we will
reimburse banks, brokerage firms, and other custodians, nominees and fiduciaries
for expenses reasonably incurred by them in sending proxy materials to the
beneficial owners of our common shares.
RECORD DATE AND VOTING STOCK
A majority of the voting power of our outstanding common shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at the annual
meeting. Each stockholder of record at the close of business on March 13, 2000
is entitled to one vote for each share of Class A common stock and five votes
per share for each share of Class B common stock held on that date upon each
matter to be voted on by our stockholders at the annual meeting. At the close of
business on March 13, 2000, there were 28,704,615 shares of our Class A common
stock and 27,005,547 shares of our Class B common stock outstanding (not
including 3,437,559 shares of Class A common and 7,319,453 shares of Class B
common held by us which are non-voting while so held). There is no cumulative
voting of our common shares.
On March 7, 2000, we announced a 3-for-2 stock split on both our Class A and
Class B shares. The stock split will be affected as a dividend. The holders of
our Class A and Class B shares as of March 17, 2000 will be entitled to one
additional share for every two shares held on that record date. On April 7,
2000, we will begin to distribute the new shares along with checks for the value
of any resulting fractional
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shares. Since the stock split will not be effected until after the date of this
Proxy Statement, all stock ownership numbers in this Proxy Statement do not
reflect the stock split.
MORE ABOUT THE PROPOSALS
PROPOSAL NO. 1
THE ELECTION OF DIRECTORS OF THE COMPANY TO HOLD OFFICE UNTIL THE 2003
ANNUAL MEETING OF STOCKHOLDERS OR UNTIL THEIR SUCCESSORS SHALL HAVE BEEN DULY
ELECTED AND QUALIFIED.
Our Bylaws provide that the number of directors shall be not less than seven
nor more than fifteen with the exact number to be fixed by the Board of
Directors.
Our Board of Directors proposes the election of David L. Boren, Joseph M.
Farley, Robert L. Hechler and Harold T. McCormick as Class II directors, to hold
office for a term of three years, expiring at the close of the annual meeting of
stockholders to be held in 2003 or until their successors are elected and
qualified. The current terms of office of Messrs. Boren, Farley, Hechler and
McCormick expire in 2000. Messrs. Boren, Farley, Hechler and McCormick were
previously elected to the Board by our stockholders before our initial public
offering of our Class A common stock. The term of office of each of the other
eight directors continues until the close of the annual meeting of stockholders
in the year shown in the biographical information of our directors set forth
below in "Directors and Executive Officers of the Company."
As a matter of general policy, non-employee directors retire from the Board
of Directors at the close of the annual meeting of stockholders which
immediately follows their 73(rd) birthday. However, an exception to this policy
has been adopted by the Board which allows Messrs. Farley, Hagopian and
McCormick to continue to serve on the Board until the close of the annual
meeting of stockholders which immediately follows their 75(th) birthday.
Pursuant to this policy, Mr. Richey will retire from the Board of Directors at
the close of this annual meeting. To date no one has been named by the Board of
Directors to serve for the remainder of Mr. Richey's term.
If any of the nominees becomes unavailable for election, which is not
anticipated, the directors' proxies will vote for the election of such other
person as the Board of Directors may recommend unless the Board reduces the
number of directors to be elected at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES LISTED HEREIN.
PROPOSAL NO. 2
APPROVAL OF THE WADDELL & REED FINANCIAL, INC. 1998 STOCK INCENTIVE PLAN
THAT WAS ESTABLISHED PRIOR TO OUR INITIAL PUBLIC OFFERING, IN ORDER TO COMPLY
WITH THE REQUIREMENTS OF SECTION 162(M) OF THE INTERNAL REVENUE CODE.
The Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan (we refer to it
as the "Stock Incentive Plan") was established in March of 1998, prior to our
initial public offering. We are asking our stockholders to approve the Stock
Incentive Plan at this time to comply with the requirements of Section 162(m) of
the Internal Revenue Code of 1986, as amended (we refer to it as the "Code").
Section 162(m) under the Code generally limits the deductibility of
compensation paid to the chief executive officer and the four other highest paid
officers of a company to $1,000,000 per year. Performance-based compensation is
not subject to this limitation on deductibility. Compensation qualifies as
performance based only if it is payable on account of performance and satisfies
certain other requirements, one of which is that the plan under which the
compensation is paid be approved by the stockholders of the company. The Stock
Incentive Plan was approved initially by the stockholders of the company in 1998
but
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stockholder approval subsequent to the initial public offering is required to
satisfy the requirements of Section 162(m) of the Code. Stockholder approval of
the Stock Incentive Plan will entitle us to tax deductions with respect to
non-qualified stock options and stock appreciation rights granted under the
Stock Incentive Plan, without regard to the $1,000,000 limit on deductibility
under Section 162(m) of the Code. Stockholder approval of the Stock Incentive
Plan is being requested solely to remove the limitations under Section 162(m) of
the Code.
THE ADOPTION OR FAILURE TO ADOPT THIS PROPOSAL WILL NOT AFFECT THE RIGHTS OF
EXISTING OPTION HOLDERS OR THE NUMBER OF OPTIONS PREVIOUSLY GRANTED OR TO BE
GRANTED UNDER THE STOCK INCENTIVE PLAN. AS TO OPTIONS WHICH MIGHT OTHERWISE BE
GRANTED IN THE FUTURE UNDER THE STOCK INCENTIVE PLAN, THE FAILURE TO ADOPT THIS
PROPOSAL MAY DEPRIVE US OF THE TAX BENEFIT DESCRIBED ABOVE WITH RESPECT TO OUR
CHIEF EXECUTIVE OFFICER AND THE FOUR OTHER HIGHEST PAID OFFICERS.
The full text of the Stock Incentive Plan is attached as Exhibit A and the
following description is qualified in its entirety by reference to Exhibit A.
DESCRIPTION OF PLAN
The Stock Incentive Plan permits (1) the grant of options to purchase shares
of our Class A common stock intended to qualify as incentive stock options under
422 of the Code (we refer to such options as "Incentive Options"); (2) the grant
of options that do not so qualify (we refer to such options as "Non-Qualified
Options"); (3) the issuance of our Class A common stock that may be subject to
certain restrictions (we refer to such stock as "Restricted Stock); (4) stock
appreciation rights, which entitle the holder, upon exercise, to receive cash or
shares of our Class A common stock in value not to exceed the appreciation in
value of Class A common stock since the date of grant (we refer to these rights
as "SARs"); and (5) deferred stock awards (we refer to these awards as "Deferred
Stock Awards"), which entitle the recipient to receive shares at future dates
without any payment in cash or property. The tax deductions without regard to
the $1,000,000 limit on deductibility under Section 162(m) of the Code apply to
Non-Qualified and SARs only. The Stock Incentive Plan was designed and intended
as a performance incentive for our officers, employees, consultants, and other
key persons performing services for us to encourage such persons to acquire or
increase a proprietary interest in the success and progress of the Company.
Awards may be made under the Stock Incentive Plan through March 2, 2008. The
Stock Incentive Plan presently states that up to 13,000,000 shares of Class A
common stock are available for awards thereunder subject to adjustment for
future stock splits, stock dividends, mergers, reorganizations and similar
events. However, no employee shall be granted stock options on more than
2,500,000 shares in any calendar year.
The Stock Incentive Plan is administered by the Compensation Committee of
our Board (we refer to it as the "Compensation Committee"). All members of the
Compensation Committee are "outside directors" as defined in Section 162(m) of
the Code and the regulations thereunder. The Compensation Committee has full
power to select, from among the employees and other persons eligible for awards,
the individuals to whom awards will be granted, to make any combination of
awards to participants, and to determine the specific terms and conditions of
each award, subject to the provisions of the Stock Incentive Plan. Persons
eligible to participate in the Stock Incentive Plan will be those officers,
employees, and other key persons, such as consultants, of the Company who are
responsible for or contribute to our management, growth, or profitability, as
selected from time to time by the Compensation Committee. SARs may be granted in
conjunction with options, entitling the holder upon exercise to receive an
amount in any combination of cash or unrestricted common stock (as determined by
the Compensation Committee), not greater in value than the increase in the value
of the shares covered by such right since the date of grant. Each SAR will
terminate upon the termination of the related option.
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Only employees may be granted Incentive Options. The option exercise price
of each option will be determined by the Compensation Committee but generally
may not be less than 100% of the fair market value of our Class A common stock
on the date of grant.
Our Board may at any time amend or discontinue the Stock Incentive Plan and
the Compensation Committee may at any time amend or cancel outstanding awards
for the purpose of satisfying changes in the law or for any other lawful
purpose. No such action may be taken, however, that adversely affects any rights
under outstanding awards without the holder's consent. Further, amendments to
the Stock Incentive Plan will be subject to approval by our stockholders if and
to the extent required by the Code to preserve the qualified status of Incentive
Options or to preserve tax deductibility of compensation earned under stock
options and stock appreciation rights, or if required by stock exchange listing
rules or other regulatory requirements.
The Stock Incentive Plan provides that in the event of a "Change of Control"
(as defined in the Stock Incentive Plan), unless otherwise determined by the
Compensation Committee prior to such Change of Control or to the extent
expressly provided by the Compensation Committee at or after the time of grant,
or in the event of a "Potential Change of Control" (as defined in the Stock
Incentive Plan) (1) all stock options and related SARs will become immediately
exercisable, (2) the restrictions and deferral limitations applicable to
outstanding Restricted Stock Awards and Deferred Stock Awards will lapse and the
shares in question will fully vest, and (3) the value of such options and
awards, to the extent determined by the Compensation Committee, will be settled
on the basis of the highest price paid (or offered) during the preceding 60-day
period, as determined by the Compensation Committee. In the sole discretion of
the Compensation Committee, such settlements may be made in cash or in stock, as
is a necessary to effect the Change of Control. In addition, at any time prior
to or after a Change of Control, the Compensation Committee may accelerate
awards and waive conditions and restrictions on any awards to the extent it may
determine appropriate. Generally, if an optionee's employment or consultant
status with us or a director's status as an outside director terminates by
reason of or within three months following a merger or other business
combination resulting in a Change of Control, the Stock Incentive Plan provides
that such optionee's stock options will terminate upon the latest of (1) six
months and one day after the merger or business combination, (2) ten business
days following the expiration of the period during which publication of
financial results covering at least thirty days of post-merger combined
operations has occurred, and (3) the expiration of the stated term of such stock
option or director stock option.
Approximately 300 employees and financial advisors are currently eligible to
participate in the Stock Incentive Plan. The Stock Option Grant Table set forth
below in "Executive Compensation" reflects the number of awards in 1999 to
executive officers named in the Summary Compensation Table also set forth in
"Executive Compensation." As of March 3, 2000, 3,279,067 shares were available
for future grants under the Stock Incentive Plan, which will become
4,918,601shares as a result of the 3-for-2 stock split, effected as a dividend,
to holders of record on March 17, 2000 and payable on April 7, 2000.
Of the 9,720,933 options granted under the Stock Incentive Plan to date,
approximately 4.7 million of these options were granted as a result of the 1998
spin-off of the company from Torchmark Corporation in which all participants of
the Torchmark Corporation stock option plans were given the opportunity to
convert some or all of their Torchmark Corporation stock options into options
under the Stock Incentive Plan.
In considering whether to vote for approval of the Stock Incentive Plan, you
should be aware that our executive officers have received grants under the Stock
Incentive Plan and, in the future, will receive grants under this plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTIONS. No income will be recognized by an optionee for
federal income tax purposes upon the grant or exercise of an Incentive Option.
However, the excess of the fair market value
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of shares received upon the exercise of an Incentive Option over the option
price for such shares is an item of adjustment for the optionee for purposes of
the alternative minimum tax. Generally, the basis of shares transferred to an
optionee pursuant to the exercise of an Incentive Option is the price paid for
such shares. If the optionee holds such shares for at least one year after
exercise and two years after the grant of the option, the optionee will
recognize capital gain or loss upon sale of the shares equal to the difference
between the amount realized on such sale and the exercise price. Generally, if
the shares are not held for that period, the optionee will recognize ordinary
income upon disposition in an amount equal to the excess of the fair market
value of the shares on the date of exercise over the option price of such
shares. Any additional gain realized by the optionee upon such disposition will
be a capital gain.
We are not entitled to a deduction upon the exercise of an Incentive Option
by an optionee. If the optionee disposes of the shares of stock received
pursuant to such exercise less than one year following exercise or two years
after grant of the option, however, generally, we may deduct an amount equal to
the ordinary income recognized by the optionee upon disposition of the shares at
the time such income is recognized by the optionee.
NON-QUALIFIED STOCK OPTIONS. No income will be recognized by an optionee
for federal income tax purposes upon the grant of a Non-Qualified Option. Upon
exercise of a Non-Qualified Option, the optionee will recognize income equal to
the excess of fair market value of the shares received over the exercise price.
Income recognized upon the exercise of Non-Qualified Options will be considered
compensation subject to withholding. Therefore, we (or one of our affiliates)
must make the necessary arrangements with the optionee to ensure that the amount
of the tax required to be withheld is available for payment. Non-Qualified
Options are designed to ensure that we will be entitled to a deduction equal to
the amount of ordinary income recognized by the optionee at the time of such
recognition by the optionee.
Generally, the basis of shares transferred to an optionee pursuant to
exercise of a Non-Qualified Option is the price paid for such shares plus an
amount equal to any income recognized by the optionee as a result of the
exercise of such option. If an optionee thereafter sells shares acquired upon
exercise of a Non-Qualified Option, any amount realized over the basis of such
shares will constitute capital gain to such optionee for federal income tax
purposes.
STOCK FOR STOCK EXERCISE. If an optionee uses already owned shares of our
Class A or Class B common stock to pay the exercise price for shares under an
option, generally, the number of shares received pursuant to the option which is
equal to the number of shares delivered in payment of the exercise price will be
considered received in a nontaxable exchange. The optionee will have a carryover
basis with respect to those shares received that are equal in number to the
shares surrendered as payment. The optionee's basis in the additional shares
received will be equal to any amount included in the optionee's gross income
(i.e., from the exercise of a Non-Qualified Option), plus any cash paid for such
shares. The optionee will have a carryover holding period with respect to those
shares received that are equal in number to the shares surrendered as payment.
The holding period of any additional shares received will begin on the date that
the option is exercised.
The resulting tax consequences will vary if such already owned shares of
common stock are "statutory option stock," (as defined in Section 424(c)(3)(B)
of the Code) and such statutory option stock has not been held by the optionee
for the applicable holding period referred to in Section 424(c)(3)(A) of the
Code. If the stock used to pay the exercise price of an Incentive Option is
statutory option stock with respect to which the applicable holding period has
not been satisfied, the transfer of such stock will be a disqualifying
disposition described in Section 421(b) of the Code, which will result in the
recognition of ordinary income by the optionee in an amount equal to the excess
of the fair market value of the statutory option stock at the time the option
covering such stock was exercised over the option price of such stock.
RESTRICTED STOCK. No income will be recognized by a holder of Restricted
Stock for federal income tax purposes upon the grant of Restricted Stock until
the first taxable year in which the stock is either
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transferable or no longer subject to substantial risk of forfeiture, whichever
is earlier. At that time the holder will recognize income equal to the excess of
fair market value of the shares received over the price paid for the Restricted
Stock. Income recognized upon the lapse of restrictions with respect to
Restricted Stock will be considered compensation subject to withholding at the
time such income is recognized, and therefore, we (or one of our affiliates)
must make the necessary arrangements with the holder to ensure that the amount
of the tax required to be withheld is available for payment.
A holder of Restricted Stock may make an election under Section 83(b) of the
Code to include the excess of fair market value of the shares received over the
price paid for the Restricted Stock in income during the year when the
Restricted Stock is issued. Such an election must be made not later than
30 days after the transfer of the Restricted Stock to the holder. In the event
such an election is made and the Restricted Stock is later forfeited, no
deduction will be allowed in respect of such forfeiture.
Under the terms of the Plan, the holder of Restricted Stock is entitled to
dividends paid in cash to the same extent as if the stock were not subject to
any restrictions. Dividends paid in cash will constitute ordinary income. Under
the terms of the Plan, dividends paid in stock will be subject to the same
restrictions as the underlying stock and will be taxed in the same manner as the
stock.
Generally, we will be entitled to a deduction in the year in which the
holder of the Restricted Stock recognizes income from the issue of the
Restricted Stock, and in an amount equal to the amount of income recognized.
STOCK APPRECIATION RIGHTS ("SARS"). Upon exercise of an SAR, the optionee
may receive shares of stock or cash. If the optionee receives cash, he or she
will have ordinary income in the amount of cash received. If the optionee
receives stock, he or she will have ordinary income in an amount equal to the
fair market value of the stock. We are generally entitled to a corresponding
deduction when the optionee recognizes compensation income.
DEFERRED STOCK AWARDS. No income will be recognized by a recipient of a
Deferred Stock Award for Federal income tax purposes upon the grant of such
award until the first taxable year in which the stock is actually issued to the
employee, and is either transferable or no longer subject to substantial risk of
forfeiture, whichever is earlier. At that time, the recipient will recognize
income equal to the then-current fair market value of the stock. Such income
will be considered compensation subject to withholding at the time such income
is recognized, and therefore, we (or one of our affiliates) must make the
necessary arrangements with the recipient to ensure that the amount of the tax
required to be withheld is available for payment.
Under the terms of the Plan, the dividends may be paid to recipients of
Deferred Stock Awards in cash. Dividends paid in cash will constitute ordinary
income and be taxable in the year received. Under the terms of the Plan,
dividends may be deferred and deemed to be reinvested. Dividends so deferred
will be accorded the same treatment as the underlying Deferred Stock Award for
Federal income tax purposes.
Generally, we will first be entitled to a deduction in the year in which the
holder of the Deferred Stock Award recognizes income, and in an amount equal to
the amount of income recognized.
PERFORMANCE-BASED COMPENSATION. Non-qualified options and SARs granted to
Named Executive Officers are intended to comply with the "qualified performance
based compensation" rules under Code Section 162(m)(4)(C), so that we can
generally obtain a full deduction for federal income tax purposes for the income
recognized on exercise of such options. Any option granted to such officers with
an exercise price equal to or in excess of the fair market value of a share of
common stock as of the date of grant is to be granted and administered in
accordance with the "qualified performance based compensation" rules. The
Compensation Committee (which is comprised solely of outside directors)
administers such grants.
7
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THE SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES CONTAINED IN THIS PROXY
STATEMENT DOES NOT PURPORT TO BE COMPLETE. The preceding discussion is only a
general summary of Federal income tax consequences and does not address other
taxes or state, local, or foreign taxes. It is based on current law and current
IRS interpretations of the law, which are subject to change at any time. We have
not requested an IRS ruling on any tax issues concerning the Stock Incentive
Plan and do not plan to do so. In some cases, existing IRS rulings and
regulations do not provide complete guidance. Participants in the Stock
Incentive Plan are advised to consult their own tax advisors regarding the tax
effects of their participation in the Stock Incentive Plan.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE STOCK
INCENTIVE PLAN IN ORDER TO COMPLY WITH THE REQUIREMENTS OF SECTION 162(M) OF THE
CODE.
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO THE WADDELL & REED FINANCIAL, INC. 1998 STOCK
INCENTIVE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES AUTHORIZED FOR
ISSUANCE UNDER THE STOCK INCENTIVE PLAN FROM 13,000,000 TO 20,000,000, WHICH
WILL BECOME 19,500,000 TO 30,000,000 AS A RESULT OF THE 3-FOR-2 STOCK SPLIT
PAYABLE ON APRIL 7, 2000.
We utilize stock incentives as part of our overall compensation program. Our
Board believes that stock options and stock based incentives play an important
role in attracting and retaining the services of outstanding personnel and in
encouraging our personnel to have a greater personal financial investment in the
company. For a more detailed description of the Stock Incentive Plan, please
refer to Proposal No. 2 above and to the full text of the Stock Incentive Plan
attached as Exhibit A.
The Board proposes to amend the Stock Incentive Plan to increase the number
of shares of our Class A common stock reserved for issuance thereunder from
13,000,000 to 20,000,000, which will become 19,500,000 to 30,000,000 as a result
of the 3-for-2 stock split, effected as a dividend and payable on April 7, 2000.
As of March 3, 2000, 3,279,067 shares were available for future grants under the
Stock Incentive Plan which will become 4,918,601 shares as a result of the
3-for-2 stock split. As of March 3, 2000, we had 28,803,015 shares of Class A
common stock outstanding and 27,145,647 shares of Class B common stock
outstanding. Of the 9,720,933 options granted under the Stock Incentive Plan to
date, approximately 4.7 million of these options were granted as a result of the
1998 spin-off of the company from Torchmark Corporation in which all
participants of the Torchmark Corporation stock option plans were given the
opportunity to convert some or all of their Torchmark Corporation stock options
into options under the Stock Incentive Plan. All of the Company's stock options
are granted in Class A common stock.
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 fund managers, analysts and
financial advisers is extremely competitive and has grown more so in recent
periods because of the growth in the industry. Our Board believes this amendment
is necessary to assure that an adequate number of shares of our common stock
will be available in order to provide appropriate incentives to our personnel
and to remain competitive in the marketplace. This proposal was adopted by the
Board on February 23, 2000, subject to stockholder approval.
In considering whether to vote for this amendment to the Stock Incentive
Plan to increase the number of our shares issuable under the plan, you should be
aware that our executive officers have received grants under the plan and, in
the future, will receive grants under the plan.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE INCREASE IN THE
NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE STOCK INCENTIVE PLAN FROM
13,000,000 TO 20,000,000, WHICH WILL BECOME 19,500,000 TO 30,000,000 AS A RESULT
OF THE 3-FOR-2 STOCK SPLIT PAYABLE ON APRIL 7, 2000.
8
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PROPOSAL NO. 4
APPROVAL OF AN AMENDMENT TO THE WADDELL & REED FINANCIAL, INC. 1998
EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN IN ORDER TO ENABLE SUCH PLAN
TO SATISFY THE REQUIREMENTS OF SECTION 162(M) OF THE INTERNAL REVENUE CODE.
The Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation
Stock Option Plan (we refer to it as the "Executive Deferral Plan") was
established in March of 1998, prior to our initial public offering. We are
asking our stockholders to approve an amendment to the Executive Deferral Plan
to add the required Section 162(m) language and to allow the Compensation
Committee to pay the bonuses of the key executives out of this plan in Class A
stock options pursuant to this provision. The proposed amendment is to enable
the Executive Deferral Plan to satisfy a requirement of Section 162(m) of the
Code relating to performance-based compensation which is not subject to a
$1,000,000 deductibility limit.
Section 162(m) under the Code generally limits the deductibility of
compensation paid to the chief executive officer and the four other highest paid
officers of a company to $1,000,000 per year. Performance-based compensation is
not subject to this limitation on deductibility. Compensation qualifies as
performance based only if it is payable on account of performance and satisfies
certain other requirements, one of which is that the plan under which the
compensation is paid be approved by the stockholders of the company. The purpose
of stockholder approval of the amendments to the Executive Deferral Plan is to
entitle us to tax deductions, without regard to the $1,000,000 limit on
deductibility under Section 162(m) of the Code. Stockholder approval of the
amendment is being requested solely to remove the limitations under
Section 162(m) of the Code.
THE ADOPTION OR FAILURE TO ADOPT THIS PROPOSAL WILL NOT AFFECT THE RIGHTS OF
EXISTING PARTICIPANTS UNDER THE EXECUTIVE DEFERRAL PLAN. AS TO OPTIONS WHICH
MIGHT OTHERWISE BE GRANTED IN THE FUTURE UNDER THE EXECUTIVE DEFERRAL PLAN, THE
FAILURE TO ADOPT THIS PROPOSAL MAY DEPRIVE US OF THE TAX BENEFIT DESCRIBED ABOVE
WITH RESPECT TO OUR CHIEF EXECUTIVE OFFICER AND THE FOUR OTHER HIGHEST PAID
OFFICERS.
The complete text of the Executive Deferral Plan, including the proposed
amendment, is attached as Exhibit B and the following description is qualified
in its entirety by the full text of the Executive Deferral Plan.
DESCRIPTION OF PLAN
The Executive Deferral Plan will permit eligible executives to defer salary
and bonus into interest-bearing accounts in the Executive Deferral Plan, subject
to a quarterly opportunity to elect to convert within a designated time period
any deferred salary for that year as well as a one time opportunity to elect
within a designated time period to convert any deferred bonus for that calendar
year into options to acquire our Class A common stock. Such options may be
granted with an exercise price of the fair market value of the stock or at a
discount not to exceed 25% of its market value. The eligible executives will be
determined from time to time by the Compensation Committee or its designee or by
our Chairman of the Board. Currently, three persons have been designated as
eligible to participate in the Executive Deferral Plan, and it is contemplated
that the number of eligible executives will not in any case exceed three
persons. Up to 2,500,000 shares of our Class A common stock have been reserved
for issuance pursuant to the Executive Deferral Plan.
On or before the last day of each calendar quarter, an eligible executive
may elect to receive all or a portion of his or her salary for the next calendar
quarter in cash or may irrevocably elect to defer all or a portion in 10% or
$10,000 increments of next quarter's salary into an interest account for salary
under the Executive Deferral Plan by delivering a primary election form for
salary to the plan administrator. The primary election form for salary will
specify the amount of salary to be deferred into the interest-bearing account
and the form and timing of the payout of deferred amounts, except that if an
executive elects to
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defer salary for more than one quarter in a calendar year, the form and timing
of payout for each quarter's deferral must be identical.
At any time prior to December 31 of each year, an eligible executive may
also elect to receive all or a portion of his bonus for the current calendar
year in cash or may irrevocably elect to defer all or a portion (in 10% or
$10,000 increments) of such current calendar year bonus into an interest account
for bonus under the Executive Deferral Plan by delivering a primary election
form for bonus to the plan administrator. The primary election form for bonus
will specify the amount of annual bonus to be deferred and the form and timing
of payout of the deferred amount, except that if an executive elects to defer
both salary and annual bonus for a particular calendar year, the form and timing
must be identical.
The interest accounts of an eligible executive will be segregated to reflect
deferred compensation on a year-by-year basis and the type of compensation
deferred (salary or bonus). Interest will be credited to such interest accounts
at the rate determined from time to time by our Compensation Committee. Payment
of the balances in an executive's interest accounts will be made as designated
by the executive in a lump sum or in the number of approximately equal monthly
installments not to exceed 120 which have been selected by the executive. Such
payments will begin on the earliest of (1) December 31 of the fifth year after
the year with respect to which the deferral was made, (2) the first business day
of the fourth month after the executive's death, or (3) termination as our
employee for any reason other than death.
During the same calendar quarter with respect to which an executive deferred
salary into the Executive Deferral Plan, such executive will have the right to
convert his or her interest account for salary for such quarter or the previous
quarters into options for our Class A common stock by filing an irrevocable
secondary election form for salary. Also, at any time, but only one time, during
the 12-month period following the end of a calendar year with respect to which
an executive has deferred annual bonus into the plan, such executive will have
the right to convert his or her interest account for bonus for such previous
year into options for our Class A common stock by filing an irrevocable
secondary election form for bonus. The filing of such secondary election form
for salary or secondary election form for bonus will result in receipt by the
executive of options as of the date of such filing. An eligible executive may
elect to receive market value stock options, discounted stock options or a
combination of both. To the extent that an executive selects market value
options, he or she will receive options on a larger number of shares with a
higher exercise price than if discounted options on fewer shares with a lower
exercise price were selected. No more than 500,000 shares of our Class A common
stock may be subject to option grants to any one executive per year under the
Executive Deferral Plan. To date, no discounted stock options have been granted.
Options issued pursuant to the Executive Deferral Plan will be non-qualified
stock options. Based upon the eligible executive's decision as to the exercise
price (discounted or market value) of the options to be received, the number of
shares subject to such option will be the whole number of shares equal to
(1) the dollar amount that the executive has elected to convert to options
divided by (2) the per share value of an option on the option grant date, as
determined using an option valuation model selected by our Compensation
Committee. Options are first exercisable, cumulatively, as to 10% of the shares
on each of the first through tenth anniversaries of the option grant date. The
term of the option will be as specified by the Compensation Committee but in no
event may the period of time over which an option may be exercised exceed the
longer of 11 years from the option grant date. In no event will death,
disability, retirement, or other termination of employment shorten the term of
any outstanding option. Options will be subject to accelerated vesting and will
be immediately exercisable upon the executive's death or disability, a Change in
Control, or the unanimous decision of the Compensation Committee to accelerate.
Upon acceleration, an option remains exercisable for the remainder of its
original term.
Options may be exercised in whole or in part. Shares will be issued pursuant
to the exercise of an option only upon receipt by us of payment in full of the
aggregate purchase price for the shares subject to the option or portion thereof
being exercised. The Compensation Committee may determine the specific
10
<PAGE>
method of payment, including permitting "cashless exercises," and other terms
and provisions of options in its sole discretion.
Options will not be assignable or transferable other than by will or by the
laws of descent and distribution, except that the Compensation Committee may
permit transfers that it, in its sole discretion, concludes do not result in
accelerated taxation and that are otherwise appropriate and desirable taking
into account any applicable securities laws.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXECUTIVE DEFERRAL PLAN
Based on current Federal tax laws, a participating executive should not
recognize income upon the making of a proper and timely deferral to interest
accounts nor should income be recognized for federal income tax purposes upon
the conversion of such account balances to options. The executive should
recognize income for purposes of Federal income tax when the amounts in his or
her interest accounts are paid out or immediately upon the exercise of the
non-qualified options, generally in an amount equal to the option spread on the
date of exercise. We generally will receive a corresponding tax deduction when
the executive recognizes income, subject to any applicable deductibility
limitations of the Code.
THE SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES CONTAINED IN THIS PROXY
STATEMENT DOES NOT PURPORT TO BE COMPLETE. The preceding discussion is only a
general summary of Federal income tax consequences and does not address other
taxes or state, local or foreign taxes. It is based on current law and current
IRS interpretations of the law, which are subject to change at any time. We have
not requested an IRS ruling on any tax issues concerning the Executive Deferral
Plan and do not plan to do so. In some cases, existing IRS rulings and
regulations do not provide complete guidance. Participants in the Executive
Deferral Plan are advised to consult their own tax advisors regarding the tax
effects of their participation in the Executive Deferral Plan.
The Executive Deferral Plan is administered by the Compensation Committee,
which has the authority to interpret and construe the plan, make necessary rules
and regulations to administer the plan and designate persons as its agents to
carry out administrative responsibilities under the plan. All members of the
Compensation Committee are "outside directors" as defined in Section 162(m) of
the Code and the regulations thereunder.
Adjustments will be made to the total number of shares reserved for issuance
under the Executive Deferral Plan, the number of shares covered by and the
exercise price of each outstanding option if we at any time change the number of
issued shares through a stock dividend, stock split, recapitalization,
reorganization, or other change in corporate structure affecting the shares. The
Compensation Committee will authorize the issuance, continuation or assumption
of outstanding options or provide for other equitable adjustments after changes
in the number of shares resulting from any merger, consolidation, sale of
assets, acquisition of property or stock, or similar occurrence in which we are
the surviving or continuing corporation upon such terms and conditions as it
deems necessary. In the case of an acquisition where we are not the surviving or
continuing corporation and outstanding shares are not converted into or
exchanged for different securities, cash, or other property, a participating
executive who holds an outstanding option will have the right then and during
the remaining term of the option to receive the same acquisition consideration
received by our other stockholders.
The Board may amend, suspend, or terminate the Executive Deferral Plan or
any stock option award notice under the plan at any time, except that it may
condition amendments or modifications on stockholder approval if necessary or
advisable because of tax, securities, or other applicable laws, policies, or
regulations. No amendment, modification, or termination will adversely affect
any outstanding options or interest accounts without the consent of the
participating executive.
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In considering whether to vote for approval of the Executive Deferral Plan,
you should be aware that our executive officers have received grants under the
Executive Deferral Plan and, in the future, will receive grants under this Plan.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE
EXECUTIVE DEFERRAL PLAN IN ORDER TO ENABLE SUCH PLAN TO SATISFY THE REQUIREMENTS
OF SECTION 162(M) OF THE CODE.
PROPOSAL NO. 5
RATIFICATION OF KPMG LLP AS THE INDEPENDENT ACCOUNTANTS OF THE COMPANY
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
KPMG LLP has served as our principal independent accountants since its
appointment for the year ended 1981. The Board, on the unanimous recommendation
of the Audit Committee, has selected KPMG LLP as our independent accountants for
the year ending December 31, 2000, subject to ratification by our stockholders
at the annual meeting. Representatives of KPMG LLP are expected to be present at
the meeting to respond to appropriate questions and will have an opportunity to
make a statement if they desire to do so.
All services provided to us by KPMG LLP were approved by the Audit
Committee, which also considered the possible effect on the independence of KPMG
LLP by rendering such services. Audit services of KPMG LLP for the year ended
1999 included the examination of the consolidated financial statements and
services related to filings with the Securities and Exchange Commission.
The affirmative vote of a majority of the votes cast on this proposal will
constitute ratification of the appointment of KPMG LLP.
If the stockholders do not approve the appointment of KPMG LLP, the
selection of independent auditors will be reconsidered by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE FISCAL YEAR ENDING 2000.
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OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
NUMBER AND TERM OF DIRECTORS
The Company's Certificate of Incorporation divides the Board into three
categories of as equal size as possible, with the terms of each category
expiring in consecutive years so that only one category is elected in any given
year. Successors to directors whose terms have expired are required to be
elected by stockholder vote. Vacancies in unexpired terms and any additional
positions created by Board action are filled by action of the existing Board.
DIRECTORS AND EXECUTIVE OFFICERS
The names of the directors and executive officers of the Company and their
respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------------------------
<S> <C> <C>
David L. Boren....................... 58 Director
Thomas W. Butch...................... 43 Senior Vice President and Chief Marketing Officer
Joseph M. Farley..................... 72 Director
Louis T. Hagopian.................... 74 Director
Robert L. Hechler.................... 62 Executive Vice President, Chief Operating Officer,
Director
Henry J. Herrmann.................... 57 President, Chief Investment Officer, Director
Joseph L. Lanier, Jr................. 68 Director
Harold T. McCormick.................. 71 Director
James M. Raines...................... 60 Director
George J. Records, Sr................ 65 Director
R.K. Richey.......................... 73 Director
William L. Rogers.................... 53 Director
Michael D. Strohm.................... 48 Senior Vice President
John E. Sundeen, Jr.................. 39 Senior Vice President, Chief Financial Officer,
Treasurer
Keith A. Tucker...................... 54 Chairman of the Board, Chief Executive Officer, Director
Robert J. Williams, Jr............... 55 Senior Vice President
</TABLE>
Set forth below is a description of the backgrounds of the executive
officers and directors of the Company and the terms of the directors.
DAVID L. BOREN has been President of The University of Oklahoma, Norman,
Oklahoma since November 1994, and prior thereto he served as United States
Senator from Oklahoma, 1979-1994 and as a member of the Senate Finance
Committee. Mr. Boren is a director of Torchmark Corporation, Phillips Petroleum
Corporation, AMR Corporation and Texas Instruments, Inc. Mr. Boren's term on the
Board of Directors of the Company expires in 2000. MR. BOREN IS A NOMINEE TO THE
BOARD FOR THE ANNUAL MEETING.
THOMAS W. BUTCH has been Senior Vice President and Chief Marketing Officer
of the Company since November 1999. Previously, he was associated with Stein
Roe & Farnham, Inc., Chicago, Illinois where he served in various positions,
including President (Mutual Funds), Senior Vice President of Marketing, Head of
Marketing and Director of Public Relations from 1994-1999.
JOSEPH M. FARLEY has been Of Counsel at Balch & Bingham, Attorneys and
Counselors, Birmingham, Alabama since November 1992. Mr. Farley is a director of
Torchmark Corporation. Mr. Farley's term on the Board of Directors of the
Company expires in 2000. MR. FARLEY IS A NOMINEE TO THE BOARD FOR THE ANNUAL
MEETING.
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LOUIS T. HAGOPIAN has been owner of Meadowbrook Enterprises, Darien,
Connecticut, an advertising and marketing consultancy, since January 1990.
Mr. Hagopian is a director of Torchmark Corporation. Mr. Hagopian's term on the
Board of Directors of the Company expires in 2002.
ROBERT L. HECHLER has been Director, Executive Vice President and Chief
Operating Officer of the Company since March 1998. In addition, he has been
President, Chief Executive Officer, and Treasurer of Waddell & Reed, Inc. since
April 1993. He is also a Director of the United Group of Mutual Funds, Inc.,
Waddell & Reed Funds, Inc. and Target/United Funds, Inc. Mr. Hechler's term on
the Board of Directors expires in 2000. MR. HECHLER IS A NOMINEE TO THE BOARD
FOR THE ANNUAL MEETING.
HENRY J. HERRMANN has been Director, President and Chief Investment Officer
of the Company since March 1998. Prior thereto he was Vice President and Chief
Investment Officer of the Company since March 1987. He is also a Director of the
United Group of Mutual Funds, Inc., Waddell & Reed Funds, Inc. and Target/United
Funds, Inc. Mr. Herrmann's term on the Board of Directors of the Company expires
in 2001.
JOSEPH L. LANIER, JR. has been Chairman of the Board and Chief Executive
Officer of Dan River Incorporated, Danville, Virginia, a textile manufacturer,
since November 1989. Mr. Lanier is a director of Torchmark Corporation, Flowers
Industries, Inc., Dimon Inc., and SunTrust Banks, Inc. Mr. Lanier's term on the
Board of Directors of the Company expires in 2001.
HAROLD T. MCCORMICK has served as Chairman of the Board and Chief Executive
Officer of Bay Point Yacht & Country Club, Panama City, Florida since
March 1988 and as Chairman, First Ireland Spirits Co., Ltd., Dublin, Ireland,
since February 1996. Mr. McCormick is a director of Torchmark Corporation.
Mr. McCormick's term on the Board of Directors of the Company expires in 2000.
MR. MCCORMICK IS A NOMINEE TO THE BOARD FOR THE ANNUAL MEETING.
JAMES M. RAINES has served as President of James M. Raines and Company, San
Antonio, Texas, an investment banking firm, since September 1988. Mr. Raines is
a director of Hispanic Broadcasting Corporation. Mr. Raines' term on the Board
of Directors of the Company expires in 2001.
GEORGE J. RECORDS, SR. has served as Chairman of the Board of Midland
Financial Co., Oklahoma City, Oklahoma, a bank and financial holding company for
retail banking and mortgage operations, since 1982. Mr. Records is a director of
Torchmark Corporation. Mr. Records' term on the Board of Directors of the
Company expires in 2002.
R. K. RICHEY is the former Chairman of the Board and Chief Executive Officer
of Torchmark Corporation and is a director of Full House Resorts, Inc. and
Torchmark Corporation. He is also a Director Emeritus for the United Group of
Mutual Funds, Inc., Waddell & Reed Funds, Inc. and Target/United Funds, Inc.
Mr. Richey's term on the Board of Directors of the Company expires in 2002.
Mr. Richey will retire from the Board of Directors at the close of the annual
meeting.
WILLIAM L. ROGERS is currently the Managing Director for the Halifax Group,
Los Angeles, California, an investment partnership. Prior thereto, he was a
Principal of Colony Capital, Inc., Los Angeles, California, a real
estate-related investment company, with whom he had been employed since 1994.
Mr. Rogers' term on the Board of Directors of the Company expires in 2001.
MICHAEL D. STROHM has been Senior Vice President of the Company since
January 1999. In addition, he has been Senior Vice President of Waddell &
Reed, Inc. since 1994 and President of Waddell & Reed Services Company since
1999.
JOHN E. SUNDEEN JR. has been Senior Vice President, Chief Financial Officer
and Treasurer of the Company since July 1999. From 1994 to June 1999 he was head
of all fixed income portfolios for the Company and the United Group of Mutual
Funds, Inc., Waddell & Reed Funds, Inc. and Target/United
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Funds, Inc. He has been a Senior Vice President of Waddell & Reed Investment
Management Company since 1995.
KEITH A. TUCKER has been Chairman of the Board and Chief Executive Officer
of the Company since March 1998. Previously, he was a Director and Vice Chairman
of Torchmark Corporation. He is also a Director of the United Group of Mutual
Funds, Inc., Waddell & Reed Funds, Inc. and Target/United Funds, Inc. His term
on the Board of Directors of the Company expires in 2002.
ROBERT J. WILLIAMS, JR. has been Senior Vice President of the Company since
April 1999. In addition, he has been Executive Vice President and National Sales
Manager of Waddell & Reed, Inc. since July 1996. Previously, he was associated
with the Charles Schwab & Co. institutional organization where he served as Vice
President of Sales and Vice President of Support Services from 1991 to 1995.
There are no family relationships among any of the executive officers or
directors of the Company. Executive officers of the Company are elected or
appointed by the Board and hold office until their successors are elected and
qualified or until the earliest of their death, retirement, resignation or
removal.
BOARD MEETINGS
The Board held five meetings during the fiscal year ended December 31, 1999.
All directors attended at least 75% of the meetings of the Board and the
committees on which they served and acted by unanimous consent on one occasion.
BOARD COMMITTEES
The Board of Directors has the following committees: audit, comprised in
1999 of Messrs. Rogers, Hagopian, McCormick and Richey; compensation, comprised
in 1999 of Messrs. Farley, Lanier, Raines and Records; nominating, comprised in
1999 of Messrs. Boren, Farley, Hagopian, Lanier, McCormick, Rogers, Records and
Richey; and executive, comprised in 1999 of Messrs. Boren, Tucker, Herrmann,
Lanier and Records.
Members of the committees are appointed annually by the Board and serve at
the discretion of the Board until their successors are appointed or their
earlier resignation or removal.
The audit committee recommends the independent auditors to be selected by
the Board; discusses the scope of the proposed audit with the independent
auditors and considers the audit reports; discusses the implementation of the
auditors' recommendations with management; reviews the fees of the independent
auditors for audit and non-audit services; reviews the adequacy of the Company's
system of internal accounting controls; reviews, before publication or issuance,
the quarterly and annual financial statements and any annual reports to be filed
with the Securities and Exchange Commission and periodically reviews pending
litigation. Additionally, the audit committee meets with the Company's
independent accountants and internal auditors both with and without management
being present. The audit committee met twice in 1999. All of the members
attended at least 75% of the meetings of this committee.
The compensation committee determines the compensation of senior management
of the Company and its subsidiaries and affiliates. Additionally, the
compensation committee administers the stock incentive and benefit plans of the
Company. None of the individuals serving on the compensation committee has ever
been an officer or employee of the Company. The compensation committee met four
times in 1999. All of the members attended at least 75% of the meetings of this
committee.
The nominating committee reviews the qualifications of potential candidates
for the Board from whatever source received, reports its findings to the Board
and proposes nominations for Board membership for approval by the Board and for
submission to the stockholders for approval. Recommendations of potential Board
candidates may be directed to the nominating committee in care of the Corporate
Secretary of the Company at the address stated herein. The nominating committee
did not meet in 1999.
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<PAGE>
The executive committee, in the interim between meetings of the Board, may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Company, subject to limitations in the Company's
Certificate of Incorporation and Bylaws. The executive committee did not meet in
1999.
COMPENSATION OF DIRECTORS
Directors of the Company are currently compensated on the following basis:
(1) Directors who are not officers or employees of the Company or a
subsidiary of the Company ("Outside Directors") receive a fee of $1,000 for each
attended Board meeting, a fee of $500 for each attended Board compensation
committee meeting, a fee of $1,500 for each attended audit committee meeting and
an annual retainer of $40,000, payable each January for the entire year. They do
not receive fees for the execution of written consents in lieu of Board meetings
and Board committee meetings. They are reimbursed for their travel and lodging
expenses if they do not live in the area where the meeting is held.
Outside Directors may annually elect to make deferrals of such compensation
for the following year into the interest-bearing account of the Company
Non-Employee Director Stock Option Plan and subsequently elect to convert such
balances to Class A common stock options with either fair market value or
discounted exercise prices. In 1999, Messrs. Farley, Hagopian, Lanier,
McCormick, Raines, Records and Rogers chose to make such deferrals of
compensation, which were converted into options on 8,000, 9,271, 9,792, 10,121,
9,480, 9,792 and 8,280 shares, respectively. All options were granted at the
fair market value of the Class A common stock on the grant date.
Each Outside Director is automatically awarded annually non-qualified stock
options on 3,000 shares of Company Class A common stock on the first day of each
calendar year in which stock is traded on the New York Stock Exchange. The
entire Board may award non-qualified stock options on a non-formula basis to all
or such individual Outside Directors as it shall select. Such options may be
awarded at such times and for such number of shares as the Board in its
discretion determines. The price of such options may be fixed by the Board at a
discount not to exceed 25% of the fair market value on the grant date or at the
fair market value of the Class A common stock on the grant date. To date, no
discounted stock options have been granted.
(2) Directors who are officers or employees of the Company or a subsidiary
of the Company waived receipt of all fees for attending Board meetings. They do
not receive fees for the execution of written consents in lieu of Board
meetings. They also do not receive a fee for attending Board committee meetings
or an annual retainer. They are reimbursed for their travel and lodging
expenses, if any, incurred to attend meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires each director and officer of the Company, each person
who beneficially owns more than 10% of a registered class of the Company's
equity securities and any other person subject to Section 16 of the Exchange Act
with respect to the Company to file by specific dates with the United States
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of common shares and other equity securities of
the Company. Officers, directors and 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. The Company is required to report in this Proxy Statement any failure of
its directors and officers, beneficial owners of more than 10% of the Company's
Common Shares and any other person subject to Section 16 of the Exchange Act
with respect to the Company to file by the relevant due date any of these
reports during the Company's fiscal year.
16
<PAGE>
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
required Section 16(a) filings applicable to its executive officers, directors,
and greater than ten percent beneficial owners were timely and correctly made.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2000, the Company committed to invest up to $5,000,000 to
purchase a limited partnership interest in Halifax Capital Partners, L.P., an
investment partnership. As of February 29, 2000, the Company has invested
$503,996. William L. Rogers, a current director of the Company, is a general
partner in Halifax Genpar, L.P., the managing director of Halifax Capital
Partners, L.P. and has investment participation in Halifax Capital Partners,
L.P. The Company, pursuant to its investment, has a customary investment
relationship with Halifax Capital Partners, L.P. which the Company believes is
carried on in the ordinary course of business on an arms-length basis.
Effective December 29, 1999, the Company entered into a contractual
relationship with MidFirst Bank whereby the Company will be allowed to sell
financial products to the customers of MidFirst Bank at certain bank locations
in Oklahoma in exchange for rental payments to MidFirst Bank. George J. Records,
Sr., a current director of the Company, is Chairman of the Board and a
stockholder of Midland Financial Co., the parent holding company of MidFirst
Bank. The Company believes that this relationship was negotiated and will be
carried on in the ordinary course of business on an arms-length basis.
As part of the compensation package in his recruitment by the Company, on
January 21, 2000 the Company loaned Thomas W. Butch, Senior Vice President and
Chief Marketing Officer, $169,020 to be used for the exercise of vested stock
options of his previous employer which were to expire in accordance with their
terms. This loan is to be repaid in three equal annual installments beginning
January 24, 2001. Interest on the outstanding balance is due annually and shall
be applied using the simple average as calculated by Bloomberg for the daily
one-month LIBOR rate as fixed by the British Banker's Association for the period
five business days before the loan was made until five business days before the
loan has a principal payment due plus 1.10%. This additional spread will be
adjusted annually.
17
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table lists all persons known to be the beneficial owner of
more than five percent of the Company's outstanding Class A and Class B common
shares as of December 31, 1999 unless otherwise indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS A CLASS B
NAME AND ADDRESS (#) % % (#)
- ---------------- --------- --------- -------- --------
<S> <C> <C> <C> <C>
BLUM Capital Partners, L.P. (1)........................ 5,013,900 3,114,600 16.9% 11.1%
909 Montgomery Street, Suite 400
San Francisco, CA 94133-4625
T. Rowe Price Associates, Inc. (2)..................... 3,309,443 3,524,841 11.2% 12.6%
100 E. Pratt Street
Baltimore, MD 21202
FMR Corp. (3).......................................... 2,893,245 779,441 9.8% 2.8%
82 Devonshire Street
Boston, MA 02109
Highfields Capital Management LP(4).................... 51,588 2,377,188 .2% 8.5%
200 Clarendon Street,
51(st) Floor
Boston, MA 02117
Keith A. Tucker (5).................................... 1,711,587 23,600 5.8% .08%
6300 Lamar Avenue
Overland Park, KS 66202
</TABLE>
- ------------------------
(1) These shares are owned by (i) five investment advisory clients for which
BLUM Capital Partners, L.P. (formerly Richard C. Blum & Associates, L.P.)
("BLUM LP") is the investment manager with voting and investment discretion;
(ii) four limited partnerships for which BLUM LP is the general partner; and
(iii) one limited partnership for which RCBA GP, LLC ("RCBA GP") serves as
the general partner. Richard C. Blum is a significant stockholder and
chairman of Richard C. Blum & Associates, Inc. ("RCBA Inc.") which is the
general partner of BLUM LP, and a managing member of RCBA GP. Mr. Blum,
RCBA, Inc., BLUM LP and RCBA GP share voting and investment power with
respect to the Class A and Class B shares, but disclaim beneficial ownership
of these shares except to the extent of any pecuniary interest therein. The
number of shares shown represents beneficial ownership as of January 31,
2000, as reported on the stockholder's Form 4, dated February 2, 2000 and as
verified by the Company on February 22, 2000.
(2) These securities are owned by various individual and institutional investors
which T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment adviser with sole power to direct investments and/or sole power
to vote the Class A and Class B shares. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is
deemed to be a beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities. Information relating to the stockholder is based on the
stockholder's Schedule 13G, Amendment No. 2, dated February 14, 2000 for the
Class A shares and on the stockholder's Schedule 13G, Amendment No. 2, dated
February 14, 2000 for the Class B shares.
(3) All stock represented is held by Fidelity Management & Research Company
("Fidelity"), a subsidiary of FMR and an investment adviser; Fidelity
Management Trust Company ("FMTC"), a subsidiary of FMR and a bank; and
Strategic Advisers, Inc., a subsidiary of FMR and an investment adviser. FMR
has sole investment power with respect to 914,391 Class A shares and
Fidelity has sole investment power with respect to 1,978,854 Class A shares.
FMR has sole voting power with respect to 892,454 Class A shares, Fidelity
has sole voting power with respect to 1,978,854 Class A shares and the
clients
18
<PAGE>
of FMTC have retained sole voting power with respect to 21,937 Class A
shares. Information relating to the stockholder is based on the
stockholder's Schedule 13G, Amendment No. 1, dated February 11, 2000 and
Form 13F, dated February 11, 2000.
(4) Ownership of these shares as reported by (i) Highfields Associates LLC with
respect to the shares owned by Highfields Capital I LP and Highfields
Capital II LP for which it serves as the general partner; (ii) Highfields
Capital Management LP which serves as investment manager to Highfields
Capital Ltd., Highfields Capital I LP and Highfields Capital II LP
(collectively, the "Funds") with respect to the shares owned by the Funds;
and (iii) Messrs. Richard L. Grubman and Jonathan S. Jacobson with respect
to the shares directly owned by the Funds. Messrs. Grubman and Jacobson are
Managing Members of Highfields GP LLC, general partner of Highfields Capital
Management LP. Highfields Capital Management LP has sole voting and
investment power with respect to the 2,377,188 Class B shares of which
Highfields Associates LLC has sole voting and investment power with respect
to 737,645 shares and Highfields Capital Ltd. has sole voting and investment
power with respect to 1,639,543 shares. Information relating to the
reporting persons is based on their Schedule 13G, Amendment No. 1, dated
February 14, 2000 and Form 13F, dated February 14, 2000.
(5) Includes 1,283,745 shares that are subject to presently exercisable Company
Class A stock options. Mr. Tucker has sole voting and investment power with
respect to the Class A and Class B shares. Beneficial ownership excludes
8,326 Company Class A shares and 850 Company Class B shares held in the
account of Keith A. Tucker in the Company 401(k) and Thrift Plan as of
January 31, 2000.
19
<PAGE>
EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE EXCHANGE ACT THAT MIGHT INCORPORATE FUTURE FILINGS BY REFERENCE, INCLUDING
THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE
COMPENSATION COMMITTEE SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS, AND SHALL NOT BE DEEMED SOLICITING MATERIAL AS FILED UNDER THE
SECURITIES ACT OR THE EXCHANGE ACT.
REPORT OF THE COMPENSATION COMMITTEE
THE COMPENSATION COMMITTEE
Compensation of officers and senior executives of the Company and its
subsidiaries and affiliates is determined by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee, comprised entirely of
outside directors, meets to fix annual salaries in advance and bonuses for the
current year of officers and senior executives earning more than $150,000, to
review annual goals and reward outstanding annual performance of executives, to
grant stock options pursuant to the 1998 Stock Incentive Plan, to establish and
certify the obtainment of performance goals under the Company Management
Incentive Plan and to determine the senior executives eligible to participate in
the Company Executive Deferred Compensation Plan and Supplemental Executive
Retirement Plan.
In November 1999, the Committee retained William M. Mercer, Inc. to review
certain of its executive compensation policies and practices. The Committee met
on several occasions in 1999 and in January 2000 to discuss the salaries,
bonuses and other compensation of the officers and senior executives of the
Company, including the Chairman and Chief Executive Officer.
GENERAL COMPENSATION POLICY
The Company's executive compensation program is designed to: (1) provide
fair compensation to executives based on their performance and contributions to
the Company; (2) provide incentives to attract and retain key executives
necessary to the long-term success of the Company; and (3) instill a long-term
commitment to the Company through a sense of Company ownership, all in a manner
consistent with stockholder interests.
The executive officers' compensation package has three main parts: (1) base
salary, which is reviewed annually; (2) equity compensation consisting of stock
options; and (3) incentive payments under the Company's Management Incentive
Plan, which may be earned annually depending on the Company's achievement of
pre-established performance goals. The Company has an Executive Deferred
Compensation Stock Option Plan pursuant to which the Committee designated
Messrs. Tucker, Herrmann and Hechler eligible to participate in 1999. The plan
permits eligible executives to defer salary and/or bonus on an annual or
quarterly basis into an interest-bearing account and subsequently, within a
limited time period, to elect to convert all or a portion of their deferred
compensation into Company stock options granted at market value or at a discount
not to exceed 25%. To date, no discounted stock option awards have been granted.
The Committee set the salary of Keith A. Tucker, the Chairman of the Board
and Chief Executive Officer and approved the salaries of Henry J. Herrmann and
Robert L. Hechler, Company executives who served on the Board of Directors
during the fiscal year. As part of its oversight of the Company's compensation
programs, the Committee also reviewed the salaries paid to certain other
officers of the Company and its subsidiaries.
The Committee has acknowledged since its inception that the investment
management and securities industries are highly competitive and that experienced
professionals have significant career mobility. Its members believe that the
ability to attract, retain and provide appropriate incentives for the highest
quality professional personnel is essential to maintain the Company's
competitive position in the investment
20
<PAGE>
management and financial services industries, and thereby provide for the
long-term success of the Company.
The Committee believes that competitive levels of cash compensation,
together with equity and other incentive programs that are consistent with
stockholder interests, are necessary for the motivation and retention of the
Company's professional personnel. During 1999, base salaries for each of the
senior executives on the Board of Directors were unchanged from the prior year.
Consistent with compensation practices generally applied in the investment
management and financial services industries with which the Company competes for
employees, base salaries for the senior executives are intended to form a low
percentage of total cash compensation with the major portion of cash
compensation intended to be derived from payments made under the Company
Management Incentive Plan, provided, of course, that the performance goals
established under the Company Management Incentive Plan are met.
BASE SALARY
Base salaries of Company executives are based on the Company's performance
for the prior fiscal year and upon a subjective evaluation of each executive's
contribution to that performance. In evaluating overall Company performance, the
primary focus is on the Company's financial performance for the year as measured
by net income, earnings per share and return on assets and stockholders' equity.
EQUITY PARTICIPATION
Stock options are generally granted annually in an effort to link
executives' future compensation to the long-term financial success of the
Company, as measured by stock performance. Options are priced at 100% of the
stock market value on the date of grant. They typically vest in three equal
annual increments, beginning two years from the date of grant. The total number
of options awarded to each executive is discretionary with the Committee but is
generally based on the Company's performance and the executive's salary level.
In addition to stock options, certain executives may from time to time be
granted restricted stock under the Company's 1998 Stock Incentive Plan. Any
award of restricted stock will be made by the Committee, which will set the
vesting criteria. Awards may be made to provide incentives to enhance the job
performance of certain executives or to induce them to remain with or to become
associated with the Company. During the past fiscal year, Thomas W. Butch
received 5,000 shares of restricted stock as an inducement to join the Company.
No grants of restricted stock were made to the Company's senior executive
officers. Mr. Tucker had 24,294 shares of restricted stock vest in 1999 which
was part of a restricted stock grant received in 1998 at the time of the
Company's initial public offering representing the conversion of
previously-received restricted stock of Torchmark Corporation.
INCENTIVE PAYMENTS
Incentive payments are made under the Company's Management Incentive Plan
upon achievement of pre-established performance criteria. For the 1999 fiscal
year, the Committee set three levels of overall performance objectives for the
Company: threshold, target and superior.
Corresponding incentive levels for the 1999 fiscal year were assigned to
participants in the plan by the Committee as percentages of base salary. These
incentive levels are tied directly to the achievement of specific levels of
performance objectives. Incentive percentages ranging from a low of 50% of base
salary at the threshold level to a high of 200% at the superior level were
payable under the plan to an executive group including the Chief Executive
Officer, Chief Investment Officer and Chief Operating Officer. However, the
Committee reserves the right, in its sole discretion, to reduce these incentive
percentages in an amount ranging from 66% of the applicable incentive percentage
at the threshold level to 25% of the applicable incentive percentage at the
superior level. For the fiscal year ended December 31, 1999, corporate earnings
per share, as measured, exceeded the target level set by the Committee. As a
result,
21
<PAGE>
incentive payments were made under the Management Incentive Plan in the first
quarter of 2000 for performance in the fiscal year ended December 31, 1999.
STOCK OPTION PROGRAM
The 1998 Stock Incentive Plan under which options in Company Class A stock
are currently awarded has as its stated purpose attracting and retaining
employees who contribute to the Company's, its subsidiaries' and affiliates'
success and enabling those persons to participate in the long-term success and
growth through an equity interest in the Company. To this end, the Committee
grants non-qualified stock options to officers and key employees at the market
value of the Company's Class A common stock on the date of grant, the size of
the grant being based generally on the current compensation of such officers or
key employees. Decisions regarding stock options are made annually and the
number of options previously awarded to an individual executive officer is not a
substantial consideration in determining the amount of options granted to that
officer in the future. Once an officer has been awarded options and becomes a
part of the stock option program, he or she will typically continue to receive
from year-to-year stock options related to salary. Stock options may be
exercised using cash or previously-owned stock for payment or through a
simultaneous exercise and sale program. Such stock options first become
exercisable to the extent of one-third of the shares on the second anniversary
of the option grant date and on the remaining two-thirds on the third and fourth
anniversary, respectively, of the option grant date.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
During the fiscal year, Keith A. Tucker, the Company's Chief Executive
Officer, received a base salary of $800,016 which remained unchanged from the
previous year. He was also granted an option to purchase 144,000 shares in
December 1999 as part of the normal compensation awards for the Company's
officers and senior executives. This set of option grants has an exercise price
equal to the fair market value at the date of grant and vests over a four year
period. Mr. Tucker also received an incentive award of $800,000 under the
Company Management Incentive Plan. This bonus was based on the Company's
achievement of the performance goals established by the Committee. The Committee
awarded half of this bonus in Class A stock options to Mr. Tucker pursuant to
the Company Stock Incentive Plan.
Mr. Tucker's base salary is not directly related to specific measures of
corporate performance. His base salary is determined by his tenure of service
and his current job responsibilities as well as the relative salaries of his
peers in the investment management and securities industry. In 1999 the
Committee retained William M. Mercer, Inc. to review Mr. Tucker's salary as
compared to his peers in the industry. Any stock options awarded to Mr. Tucker
are also not directly tied to specific measures of corporate performance. Such
awards are generally based on his current compensation and the Company's
performance. As previously mentioned, Mr. Tucker's annual incentive payment is
tied to pre-established performance criteria under the Company's Management
Incentive Plan.
DEDUCTIBILITY OF COMPENSATION
Internal Revenue Code Section 162(m) provides that compensation in excess of
$1 million paid to an executive officer is not deductible unless it is
performance based. Base salary does not qualify as performance-based
compensation under Section 162(m). To the extent readily determinable and as one
of the factors in its consideration of compensation matters, the Committee
considers the anticipated tax treatment to the Company and to the executives of
various payments and benefits. Some types of compensation payments and their
deductibility depend upon the timing of an executive's vesting or exercise of
previously granted rights. Further, interpretations and changes in the tax laws
and other factors beyond the Committee's control also affect the deductibility
of compensation. For these and other reasons, the Committee will not necessarily
and in all circumstances limit executive compensation to that deductible under
Section 162(m). The Committee will consider various alternatives to preserving
the deductibility of compensation payments and benefits to the extent reasonably
practicable and to the extent consistent with
22
<PAGE>
its other compensation objectives. To this end, the Committee has established
pre-established performance criteria under the Company's Management Incentive
Plan which was adopted by the stockholders in 1998 to ensure the deductibility
of incentive compensation. In addition, the Committee recommended to the Board,
for approval by the stockholders, Proposals 2 and 4 which, if approved, should
ensure the deductibility of all compensation expense by the Company related to
stock option grants.
SUMMARY
The Committee has compared the Company's compensation levels to relevant
publicly available data for the investment management industry and has found the
Company's compensation levels to be competitive. Certain of these companies are
included in the SNL Investment Adviser Index shown in the Stock Performance
Chart which follows. The Company believes it competes for executive talent with
a large number of investment management, securities and other financial services
companies, some of which are privately owned and others of which have
significantly larger market capitalization than the Company. The Committee's
goal is to maintain compensation programs which are competitive within the
investment management and financial services industries. The Committee believes
that 1999 compensation levels disclosed in this proxy statement are reasonable
and appropriate in light of the Company's performance and believes that the
compensation programs of the Company well serve the interests of the Company's
stockholders. The Committee intends to continue to emphasize programs that it
believes positively affect stockholder value.
WADDELL & REED FINANCIAL, INC., COMPENSATION COMMITTEE
1999 Members
George J. Records, Sr., Chairman, Joseph L. Lanier, Jr.,
Joseph M. Farley and James M. Raines
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1999, none of the Company's
executive officers served on the board of any entities whose directors or
officers serve on the Company's Compensation Committee. No current or past
executive officers of the Company serve on the Committee.
23
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the Company's
Chairman of the Board and Chief Executive Officer and each of the other most
highly compensated executive officers of the Company (the "Named Executive
Officers") for the Company's three most recent fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------- -------------------------
SECURITIES
UNDERLYING
RESTRICTED OPTIONS/ ALL OTHER
BONUS STOCK AWARDS SAR COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(2) $(3) (#) $(4)
- --------------------------- -------- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Keith A. Tucker,(1)................... 1999 $800,016 $400,000 -- 582,124 $351,895
Chairman & Chief 1998 $800,016 $400,000 -- 568,836 $184,082
Executive Officer 1997 $800,016 $ 0 -- -- $ 6,523
Henry J. Herrmann,.................... 1999 $600,000 $300,000 -- 413,623 $273,870
President & Chief 1998 $600,000 $ 0 $2,530,000 640,134 $141,217
Investment Officer 1997 $420,000 $715,000 -- -- $ 4,800
Robert L. Hechler,.................... 1999 $500,000 $250,000 -- 299,409 $238,336
Executive Vice President 1998 $500,000 $100,000 $2,070,000 520,734 $118,924
& Chief Operating Officer 1997 $300,000 $565,000 -- -- $ 4,800
Thomas W. Butch,...................... 1999 $320,000 $250,000 $ 123,750 10,000 $ 118
Senior Vice President 1998 -- -- -- -- --
& Chief Marketing Officer 1997 -- -- -- -- --
Robert J. Williams, Jr.,.............. 1999 $300,000 $250,000 -- 27,763 $ 12,064
Senior Vice President 1998 $275,000 $125,000 -- 88,800 $ 6,168
1997 $200,000 -- -- -- $ 2,750
</TABLE>
- ------------------------
(1) At year end 1999, Mr. Tucker held 48,586 restricted Class A shares valued at
$1,317,895 (based on a year end closing price of $27.125 per share).
Restrictions on the 97,174 restricted shares received by Mr. Tucker at the
time of the Company's initial public offering, which represented 48,000
shares of restricted stock of Torchmark Corporation previously issued to
Mr. Tucker pursuant to a Torchmark Corporation stock plan which were
converted into Company shares, expire over a four-year period and 25% of the
shares vest annually commencing May 1, 1998. On May 1, 1998 and on May 1,
1999, 24,294 of these shares vested. Dividends on all these restricted
shares are paid directly to Mr. Tucker at the same rate as on unrestricted
shares.
(2) Messrs. Tucker, Herrmann and Hechler received $400,000, $300,000 and
$250,000, respectively, of their 1999 bonuses in Class A stock options
pursuant to the 1998 Stock Incentive Plan. Messrs. Tucker, Herrmann and
Hechler received $400,000, $600,000 and $400,000, respectively, of their
1998 bonuses in Class A stock options pursuant to the 1998 Executive
Deferred Compensation Stock Option Plan. Mr. Tucker elected to defer his
1997 bonus of $400,000, and Messrs. Herrmann and Hechler each elected to
defer $100,000 of their 1997 bonuses pursuant to the Torchmark Corporation
1996 Executive Deferred Compensation Stock Option Plan.
(3) Values of Class A restricted stock awards made pursuant to the 1998 Stock
Incentive Plan are based on the initial offering price of Class A stock on
the date of grant for Messrs. Herrmann and Hechler and on the closing market
price of the Class A stock on November 15, 1999 for Mr. Butch. As of
December 31, 1999, Mr. Herrmann held 110,000 shares of restricted Class A
stock, valued at
24
<PAGE>
$2,983,750 (based on a year end closing price of $27.125 per share),
Mr. Hechler held 90,000 shares of restricted Class A stock, valued at
$2,441,250 and Mr. Butch held 5,000 shares of restricted Class A stock,
valued at $135,625. The restrictions on the stock awards granted to
Messrs. Herrmann and Hechler lapse in 33 1/3% annual increments beginning
March 4, 2000 and beginning November 15, 2000 for Mr. Butch. Dividends on
all these restricted shares are paid directly to these individuals at the
same rate as on unrestricted shares.
(4) For Mr. Tucker, this includes corporate contributions to Torchmark
Corporation Savings and Investment Plan, a funded, qualified defined
contribution plan, of $4,800 for 1997 and interest only on prior
contributions to the Torchmark Corporation Supplemental Savings and
Investment Plan, an unfunded deferred contribution plan, of $513 for 1999,
$1,665 for 1998 and $1,723 for 1997. This also includes (1) Company
contributions to the Company 401(k) and Thrift Plan, as amended, a funded
qualified contribution plan for Messrs. Tucker, Herrmann, Hechler and
Williams of $6,400 each for 1999, $4,800 each for 1998 and $4,800 each for
1997 for Messrs. Herrmann and Hechler ($2,750 for Mr. Williams);
(2) Company contributions to the Company Supplemental Executive Retirement
Plan for Messrs. Tucker, Herrmann and Hechler of $336,846, $252,629 and
$210,525, respectively for 1999 and $174,737, $131,053 and $109,210,
respectively for 1998; and (3) amounts of additional premiums paid for life
insurance for Messrs. Tucker, Herrmann, Hechler, Butch and Williams of
$8,136; $14,841, $21,411, $118 and $5,664, respectively, for 1999 and
$2,880, $5,364, $4,914, $0 and $1,368, respectively, for 1998.
25
<PAGE>
STOCK OPTION GRANT TABLE
The following table sets forth certain information concerning Class A common
stock options granted to the Named Executive Officers during the Company's
fiscal year ended December 31, 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK
PRICE APPRECIATION FOR
OPTION
INDIVIDUAL GRANTS TERM (1)
- --------------------------------------------------------------------------------------- ------------------------------
% OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED EXERCISE
UNDERLYING TO OR
OPTIONS EMPLOYEES BASE
GRANTED IN PRICE EXPIRATION
NAME (2)(#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ----------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Keith A. Tucker..................... 366,182(3) 10.88% $25.14 08/03/09 $5,799,664 $14,637,247
144,000(4) 4.28% $25.25 12/11/09 $2,290,680 $ 5,781,240
71,942(5) 2.14% $25.25 12/09/10 $1,289,740 $ 3,360,591
Henry J. Herrmann................... 251,667(3) 7.48% $25.14 08/03/09 $3,985,952 $10,059,784
108,000(4) 3.21% $25.25 12/11/09 $1,718,010 $ 4,335,930
53,956(5) 1.60% $25.25 12/09/10 $ 967,296 $ 2,520,420
Robert L. Hechler................... 164,445(3) 4.88% $25.14 08/03/09 $2,604,513 $ 6,573,294
90,000(4) 2.67% $25.25 12/11/09 $1,431,675 $ 3,613,275
44,964(5) 1.34% $25.25 12/09/10 $ 806,092 $ 2,100,381
Robert J. Williams, Jr.............. 763(3) .02% $25.14 08/03/09 $ 12,085 $ 30,499
27,000(4) .80% $25.25 12/11/09 $ 429,503 $ 1,083,983
Thomas W. Butch..................... 10,000(4) .30% $25.25 12/11/09 $ 159,075 $ 401,475
</TABLE>
- ------------------------
(1) As required by the rules of the SEC, potential values are based on the
assumption that the Company's Class A common stock will appreciate in value
from the grant date to the end of the option term at annualized rates of
five percent and ten percent and, therefore, are not intended to forecast
possible future appreciation, if any, in the price of the Class A common
stock.
(2) All options granted are in Class A common stock pursuant to the Company 1998
Stock Incentive Plan, as amended, and are non-qualified stock options.
(3) This option is a reload option. A reload option is an option granted when an
optionee exercises a stock option and makes payment of the purchase price
using shares of previously owned Company stock. A reload option grant is for
the number of shares utilized in payment of the purchase price and tax
withholding, if any. The option price for a reload option is equal to the
market price of the Company Class A common stock on the date the reload
option is granted. A reload option becomes exercisable six months from the
date the original option was exercised and has the same reload feature. This
option expires ten years and two days from the grant date of the option.
(4) These options were granted on December 10, 1999 with an exercise price equal
to the closing price of the Class A common stock on the grant date. Such
options are not exercisable during the first two years after the grant date
and become first exercisable as to a third of the shares two years after the
grant date and as to a third of the shares on each of the next two
anniversaries of the grant date. These options contain a reload feature as
described above in footnote 3.
(5) These options were granted on December 10, 1999 pursuant to the Company
Management Incentive Plan with an exercise price equal to the closing price
of the Class A common stock on the grant date. Under this Plan the
Compensation Committee has discretion to pay performance-based annual cash
compensation in Company stock options in lieu of cash. These options vest
10% per year commencing on the first anniversary of the grant date. These
options contain a reload feature as described above in Footnote 3.
26
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
TABLE
The following table sets forth information concerning Class A common stock
acquired on exercise of stock options during fiscal 1999, any value realized
therein, the number of unexercised options at the end of fiscal 1999
(exercisable and unexercisable) and the value of Class A stock options held at
the end of 1999 by the Named Executive Officers. The "Value Realized" column
reflects the difference between the market price on the date of exercise and the
market price on the date of grant (which establishes the exercise price for the
option) for all options exercised, even though the executive may have actually
received fewer shares as a result of the surrender of shares to pay the exercise
price, or the withholding of shares to cover the tax liability associated with
the option exercise. Accordingly, the "Value Realized" numbers do not
necessarily reflect what the executive might receive, should he choose to sell
the shares required by the option exercise, since the market price of the shares
so acquired may at any time be higher or lower than the price on the exercise
date of the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
END (#) AT FISCAL YEAR END ($)(3)
SHARES ------------------------------ ---------------------------
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#)(1) ($) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ---------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith A. Tucker................ 569,414 $8,690,879 810,310 1,401,132 $8,855,244 $7,659,237
Henry J. Herrmann.............. 325,346 $3,528,683 159,045 1,036,514 $1,527,347 $3,636,289
Robert L. Hechler.............. 202,511 $1,823,145 38,340 807,550 $ 390,966 $2,873,144
Robert J. Williams, Jr......... 1,053 $ 13,909 15,623 116,563 $ 237,345 $ 447,125
Thomas W. Butch................ 0 0 0 10,000 $ 0 $ 18,750
</TABLE>
- ------------------------
(1) This column reflects the number of shares underlying options exercised in
1999 by the Named Executive Officers. The actual number of shares received
by each of these individuals from options exercised in 1999 (net of shares
surrendered to cover the exercise price and/or surrendered or withheld to
cover the exercise price and tax liability) was: Mr. Tucker, 209,672 shares;
Mr. Herrmann, 73,679 shares; Mr. Hechler, 38,066 shares; and Mr. Williams,
290 shares.
(2) The percentages of total exercisable options that are options converted from
existing Torchmark Corporation stock options at the time of the spin-off of
the Company from Torchmark Corporation are 97.2%; 89.2%; 67.1% and 100% for
Messrs. Tucker, Herrmann, Hechler and Williams, respectively.
(3) The value of unexercised in-the-money options equals the difference between
the closing price of Company Class A common stock at fiscal year end and the
option exercise price, multiplied by the number of shares underlying the
options. The closing price of Company Class A common stock on December 31,
1999 was $27.125.
27
<PAGE>
PENSION PLANS
WADDELL & REED FINANCIAL,INC. RETIREMENT INCOME PLAN. The plan is a
tax-qualified, non-contributory pension plan that covers all eligible employees
of the Company who are 21 years of age or older and have one or more years of
credited service. Benefits under the plan are determined by first multiplying
the average of the participant's earnings in the five consecutive years in which
they were highest during the last ten years before the participant's retirement
by a percentage equal to 2% for each year of credited service up to 30 years and
by 1% for each year of credited service for the next ten years and then second,
reducing that result by a Social Security offset. Earnings for purposes of the
plan do not include bonuses or commissions (other than for Regional Vice
Presidents, and Division/District Managers), directors' fees, expense
reimbursements, employer contributions to retirement plans, deferred
compensation, or any amounts in excess of $160,000 per year (as adjusted).
Benefits under the plan vest 100% after five years. Upon the participant's
retirement, benefits under the plan are payable as an annuity or in a lump sum.
In 1999, covered compensation was $160,000 for Messrs. Tucker, Herrmann, Hechler
and Williams. Messrs. Tucker, Herrmann, Hechler and Williams have 8 years,
26 years, 26 years and 4 years of credited service under the Company Retirement
Income Plan, respectively.
The following table shows the estimated annual benefits payable under the
pension plan upon retirement of participants with varying final average earnings
and years of service. The benefits shown are offset as described above and the
amounts are calculated on the basis of payments for the life of a participant
who is 65 years of age.
WADDELL & REED FINANCIAL, INC. RETIREMENT INCOME PLAN*
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
200,000........................................ $43,000 $57,000 $72,000 $86,000 $93,000
250,000........................................ $43,000 $57,000 $72,000 $86,000 $93,000
300,000........................................ $43,000 $57,000 $72,000 $86,000 $93,000
350,000........................................ $43,000 $57,000 $72,000 $86,000 $93,000
400,000........................................ $43,000 $57,000 $72,000 $86,000 $93,000
500,000........................................ $43,000 $57,000 $72,000 $86,000 $93,000
</TABLE>
- ------------------------
* Benefits paid under a qualified deferred benefit plan which does not operate
in conjunction with a defined benefit supplementary or excess pension award
plan were limited by law in 1999 to $130,000 per year.
WADDELL & REED, INC. CAREER FIELD RETIREMENT PLAN. Until January 1, 1973,
Company employees participated in the Waddell & Reed, Inc. Career Field
Retirement Plan. Under this plan, the Company contributed annually up to 10% of
its profits less forfeitures, which were allocated to the participants on the
basis of their compensation. Voluntary employee contributions were permitted
under the plan but not required. Since January 1, 1973, no new participants have
been admitted to the plan, and participants and the employer make no further
contributions. All participants are fully vested. Upon the participant's
retirement, termination of employment, disability, death, or reaching age 65,
his or her account is used to purchase an annuity or is paid in a lump sum.
Mr. Herrmann is covered under this plan for his service while employed by the
Company prior to 1973. Benefits paid under the plan do not offset benefits paid
under any other pension plan. During 1999 this plan was merged into the Company
401(k) and Thrift Plan.
28
<PAGE>
PERFORMANCE GRAPH
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE EXCHANGE ACT THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART,
THIS SECTION ENTITLED "PERFORMANCE GRAPH" SHALL NOT BE INCORPORATED BY REFERENCE
INTO ANY FUTURE FILINGS, AND SHALL NOT BE DEEMED SOLICITING MATERIAL OR FILED
UNDER THE SECURITIES OR EXCHANGE ACT.
The following graph compares the cumulative total stockholder return on the
Company's Class A common stock from March 5, 1998 (the date the Company became a
public company) through December 31, 1999, with the cumulative total return of
the Standard & Poor's 500 Stock Index ("S&P 500") and the SNL Investment Adviser
Index. The SNL Investment Adviser Index is a composite of twenty-six publicly
traded asset management companies. The graph assumes the investment of $100 in
the Company's Class A common stock and in each of the two indices on March 5,
1998 and the reinvestment of all dividends. The initial public offering price of
the Company's Class A common stock was $23.00 per share. The stock price
performance on the graph is not necessarily an indication of future price
performance.
COMPARISON OF CUMULATIVE TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1999*
WADDELL & REED FINANCIAL, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WADDELL & REED SNL INVESTMENT
<S> <C> <C> <C>
Index Value Financial, Inc. S&P 500 Adviser Index**
3/5/98 $100.00 $100.00 $100.00
6/30/98 $91.00 $110.05 $105.31
12/31/98 $91.19 $120.18 $87.02
6/30/99 $107.44 $135.05 $100.64
12/31/99 $106.91 $145.35 $95.11
</TABLE>
- ------------------------
* Cumulative Total Return assumes an initial investment of $100 on March 5,
1998 and the reinvestment of all dividends. Fiscal year ended December 31,
1999.
** SNL Investment Adviser Index is prepared by SNL Securities LC,
Charlottesville, Virginia, 804-977-1600.
29
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table shows certain information about stock ownership of the
directors, director nominees and executive officers in the Company as of
January 31, 2000. As used in this Proxy Statement, "beneficially owned" means
the sole or shared power to vote or direct the voting of a security and/or the
sole or shared power to dispose or direct the disposition of a security.
COMPANY COMMON STOCK OR OPTIONS BENEFICIALLY OWNED
AS OF JANUARY 31, 2000(1)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B CLASS B
NAME OF BENEFICIAL OWNER DIRECTLY(2)(5) INDIRECTLY(3) DIRECTLY INDIRECTLY(3)
- ------------------------ -------------- ------------- -------- -------------
<S> <C> <C> <C> <C>
David L. Boren.................................... 7,202 0 0 0
Thomas W. Butch................................... 5,000 0 0 0
Joseph M. Farley.................................. 41,576 273 4,321 1,175
Louis T. Hagopian................................. 49,747 0 0 0
Robert L. Hechler................................. 471,665 0 0 0
Henry J. Herrmann................................. 787,552 0 0 0
Joseph L. Lanier, Jr.............................. 50,620 939 3,335 4,043
Harold T. McCormick............................... 20,619 1,491 0 0
James M. Raines................................... 5,179 0 1,000 0
George J. Records, Sr............................. 21,670 0 0 0
R.K. Richey....................................... 436,419 187,947 5,042 301,607
William L. Rogers................................. 9,093 0 0 0
Michael D. Strohm................................. 28,509 0 0 0
John E. Sundeen, Jr............................... 63,114 0 0 0
D. Tyler Towery................................... 42,611 0 0 0
Keith A. Tucker................................... 1,332,331 379,256 23,600 0
Robert J. Williams................................ 40,776 0 0 0
**All Directors, Nominees and Executive Officers
as a group (17 persons)(4)...................... 3,413,683 569,906 37,298 306,825
</TABLE>
- ------------------------
(1) No directors, director nominees or executive officers other than Keith A.
Tucker (5.8%), Henry J. Herrmann (2.64%), Robert L. Hechler (1.59%) and R.K.
Richey (2.11%) beneficially own 1% or more of the Company Class A common
stock. No directors, director nominees or executive officers other than R.K.
Richey (1.10%) beneficially own 1% or more of the Company Class B common
stock.
(2) Includes: for David L. Boren, 6,425 shares; for Joseph M. Farley, 22,463
shares; for Louis T. Hagopian, 29,215 shares; for Robert L. Hechler, 303,479
shares; for Henry J. Herrmann, 528,873 shares; for Joseph L. Lanier, Jr.,
27,655 shares; for Harold T. McCormick, 19,288 shares; for James M. Raines,
5,179 shares; for George J. Records, Sr., 17,670 shares; for R.K. Richey,
296,461 shares; for William L. Rogers, 4,093 shares; for Michael D. Strohm,
27,459 shares; for John E. Sundeen, Jr., 52,291 shares; for D. Tyler Towery,
31,245 shares; for Keith A. Tucker, 1,283,745 shares; for Robert J.
Williams, 36,986 shares and for all directors, executive officers and
nominees as a group, 2,692,527 shares, that are subject to presently
exercisable Company Class A stock options and options exercisable within
sixty days.
(3) Indirect beneficial ownership includes shares (a) owned by the director,
executive officer or spouse as trustee of a trust or executor of an estate,
(b) held in a trust in which the director, executive officer or a family
member living in his home has a beneficial interest, (c) owned by the spouse
or a family member living in the director's, executive officer's or
nominee's home or (d) owned by the director or
30
<PAGE>
executive officer in a personal corporation. Indirect beneficial ownership
excludes 8,326 Company Class A shares and 850 Company Class B shares held in
the account of Keith A. Tucker in the Company 401(k) and Thrift Plan as of
January 31, 2000. Mr. Lanier disclaims beneficial ownership of 939 Class A
shares and 4,043 Class B shares owned by his spouse. Mr. McCormick disclaims
beneficial ownership of 1,491 Class A shares owned by his spouse and a
family trust. Mr. Farley disclaims beneficial ownership of 273 Class A
shares and 1,175 Class B shares held as a trustee of a church endowment
fund.
(4) All directors, nominees and executive officers as a group, beneficially own
12.43% of the Class A and 1.23% of the Class B common stock of the Company.
(5) Includes the following shares of Class A common stock which are subject to
the vesting of restricted stock awards made pursuant to the Company 1998
Stock Incentive Plan: for Keith A. Tucker, 48,586 unvested shares; for Henry
J. Herrmann, 110,000 unvested shares; for Robert L. Hechler, 90,000 unvested
shares and for Thomas W. Butch, 5,000 unvested shares.
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no other business
which may properly be and is likely to be brought before the annual meeting. If
a stockholder proposal that was excluded from this Proxy Statement in accordance
with Rule 14a-8 of the Securities Act is properly brought before the meeting, it
is intended that the proxy holders will use their discretionary authority to
vote the proxies against said proposal. If any other matters should arise at the
annual meeting, shares represented by proxies will be voted at the discretion of
the proxy holders.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
In order for a proposal by a stockholder of the Company to be eligible to be
included in the proxy statement and proxy form for the annual meeting of
stockholders in 2001, the proposal must be received by the Company at its home
office, 6300 Lamar Avenue, Overland Park, Kansas 66202, ATTN: Daniel C. Schulte,
Secretary, on or before November 24, 2000. If a stockholder proposal is
submitted outside the process mandated by SEC, it will be considered untimely if
received after February 9, 2001.
31
<PAGE>
ANNUAL REPORT (FORM 10-K)
THE ANNUAL REPORT OF THE COMPANY FOR 1999, WHICH ACCOMPANIES THIS PROXY
STATEMENT, INCLUDES A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SEC ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 AND THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO. UPON REQUEST AND PAYMENT OF THE COST OF
REPRODUCTION, THE EXHIBITS TO THE FORM 10-K WILL BE FURNISHED. SUCH WRITTEN
REQUEST SHOULD BE DIRECTED TO D. TYLER TOWERY, INVESTOR RELATIONS DEPARTMENT,
WADDELL & REED FINANCIAL, INC. AT ITS ADDRESS STATED HEREIN.
THE COMPANY UNDERTAKES, ON WRITTEN REQUEST AND WITHOUT CHARGE, TO PROVIDE TO
EACH PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999, AS FILED WITH THE SEC, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES.
IN ADDITION, THE COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) IS
AVAILABLE VIA THE INTERNET AT THE COMPANY'S WEBSITE (WWW.WADDELL.COM) AND THE
EDGAR VERSION OF SUCH REPORT (WITH EXHIBITS) IS AVAILABLE AT THE SEC'S WEBSITE
(WWW.SEC.GOV).
By Order of the Board of Directors
[LOGO]
Daniel C. Schulte
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
March 24, 2000
32
<PAGE>
EXHIBIT "A"
WADDELL & REED FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Waddell & Reed Financial, Inc. 1998 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable Waddell & Reed
Financial, Inc. (the "Company") and its Subsidiaries to attract and retain
employees, directors and consultants who contribute to the Company's success by
their ability, ingenuity and industry, and to enable such employees and
directors to participate in the long-term success and growth of the Company
through an equity interest in the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "Affiliate" means (i) any corporation (other than a Subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a 10 percent beneficial ownership interest,
and (ii) the Company's parent company or former parent company.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a participant's willful misconduct or dishonesty, any
of which is directly and materially harmful to the business or reputation of
the Company or any Subsidiary or Affiliate.
d. "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
e. "Committee" means the Compensation Committee of the Board. If at any
time no Committee shall be in office, then the functions of the Committee
specified in the Plan shall be exercised by the Board.
f. "Commission" means the Securities and Exchange Commission.
g. "Company" means Waddell & Reed Financial, Inc., a corporation
organized under the laws of the State of Delaware (or any successor
corporation).
h. "Deferred Stock" means an award made pursuant to Section 9 below of
the right to receive Stock at the end of a specified deferral period.
i. "Director Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 6.
j. "Disability" means total and permanent disability as determined under
the Company's long term disability program. With respect to Director Stock
Options, "Disability" shall be determined as if the Director was covered
under the Company's long term disability program.
k. "Early Retirement" means retirement from active employment with the
Company, any Subsidiary, and any Affiliate pursuant to the early retirement
provisions of the applicable tax-qualified Company pension plan.
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor thereto.
m. "Fair Market Value" means, as of the date of the initial public
offering, the initial public offering price for the stock, and thereafter
the closing price of the Stock on the New York Stock Exchange Composite Tape
on the date in question.
n. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422
of the Code.
A-1
<PAGE>
o. "Immediate Family" means the children, grandchildren or spouse of any
optionee.
p. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
q. "Normal Retirement" means retirement from active employment with the
Company, any Subsidiary, and any Affiliate on or after the normal retirement
date specified in the applicable tax-qualified Company pension plan.
r. "Plan" means this 1998 Stock Incentive Plan.
s. "Restricted Stock" means an award of shares of Stock that are subject
to restrictions under Section 8.
t. "Retirement" means Normal or Early Retirement.
u. "Stock" means the Class A Common Stock of the Company, par value
$.01.
v. "Stock Appreciation Right" means a right granted under Section 7
below to surrender to the Company all or a portion of a Stock Option in
exchange for an amount equal to the difference between (i) the Fair Market
Value, as of the date such Stock Option or such portion thereof is
surrendered, of the shares of Stock covered by such Stock Option or such
portion thereof, and (ii) the aggregate exercise price of such Stock Option
or such portion thereof.
w. "Stock Option" means any option to purchase shares of Stock granted
to employees pursuant to Section 5.
x. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee which shall at all times
comply with any applicable requirements of Rule 16b-3 of the Exchange Act. All
members of the Committee shall also be "outside directors" within the meaning of
Section 162(m) of the Code.
The Committee shall have the power and authority to grant to eligible
employees, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock or (iv) Deferred Stock.
In particular, the Committee shall have the authority:
(i) to select the consultants, officers and other key employees of
the Company, its Subsidiaries, and its Affiliates to whom Stock Options,
Stock Appreciation Rights, Restricted Stock or Deferred Stock awards or a
combination of the foregoing from time to time will be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
or Deferred Stock, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares of Stock to be covered by
each such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (other than Director
Stock Options), including, but not limited to, any restriction on any
Stock Option or other award and/or the shares of Stock relating thereto
based on performance and/or such other factors as the Committee may
determine, in its sole
A-2
<PAGE>
discretion, and any vesting acceleration features based on performance
and/or such other factors as the Committee may determine, in its sole
discretion;
(v) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this Plan
shall be deferred either automatically or at the election of a
participant, including providing for and determining the amount (if any)
of deemed earnings on any deferred amount during any deferral period.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 20,000,000. In no event shall more than 20,000,000 of
shares be issued pursuant to Incentive Stock Options.
If any shares of Stock that have been optioned cease to be subject to
option, or if any shares subject to any Restricted Stock or Deferred Stock award
granted hereunder are forfeited or such award otherwise terminates, such shares
shall again be available for distribution in connection with future awards under
the Plan. In the case of Options exercised with payment in Stock under the
"stock option restoration program" described in section 5(n) 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 20,000,000 share limitation set forth above.
Notwithstanding the foregoing, for purposes of the limitation on the number of
shares available for issuance pursuant to Incentive Stock Options, both shares
received by the optionee and shares withheld will be charged against the total
number of shares available for issuance under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
Stock dividend, or other change in corporate structure affecting the Stock, an
equitable substitution or adjustment shall be made in (i) the aggregate number
of shares reserved for issuance under the Plan, (ii) the number and option price
of shares subject to outstanding Stock Options and Director Stock Options
granted under the Plan, (iii) the number of shares subject to Restricted Stock
or Deferred Stock awards granted under the Plan, (iv) the aggregate number of
shares available for issuance to any employee pursuant to Section 4(a), and
(v) the number of Director Stock Options to be granted each year pursuant to
Section 6, as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
(a) Consultants, officers and other key employees of the Company, its
Subsidiaries or its Affiliates (but excluding members of the Committee and
any person who serves only as a director, except as provided in Section 6
below) who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company, its Subsidiaries, or
its Affiliates are eligible to be granted Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards. Only employees of the
Company and its Subsidiaries are eligible to be granted Incentive Stock
Options.
A-3
<PAGE>
Except as provided in Section 6, the optionees and participants under the
Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award or grant; provided,
however, that no employee shall be granted Stock Options on more than 2,500,000
shares in any calendar year. 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(n) below, as well as the number of
shares covered by the original option, count against the limit.
(b) Directors of the Company (other than directors who are also officers
or employees of the Company, its Subsidiaries or its Affiliates) are
eligible to receive Director Stock Options pursuant to Section 6 of the
Plan.
SECTION 5. STOCK OPTIONS FOR EMPLOYEES AND CONSULTANTS.
Stock Options may be granted either alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve, and the provisions of Stock
Option awards need not be the same with respect to each optionee.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock Options (in each
case with or without Stock Appreciation Rights) except that Incentive Stock
Options may only be granted to employees of the Company or a Subsidiary.
Except as provided in Section 5(1), no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to
disqualify either the Plan or any Incentive Stock Option under Section 422 of
the Code. Notwithstanding the foregoing, in the event an optionee voluntarily
disqualifies an option as an Incentive Stock Option within the meaning of
Section 422 of the Code, the Committee may, but shall not be obligated to, make
such additional grants, awards or bonuses as the Committee shall deem
appropriate, to reflect the tax savings to the Company which results from such
disqualification.
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant but
shall be not less than 100% of the Fair Market Value of the Stock on the
date of the grant of the Stock Option.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date such Incentive Stock Option is granted.
(c) EXERCISABILITY. Subject to paragraph (l) of this Section 5 with
respect to Incentive Stock Options, Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Committee, provided, however, that, except as provided in
Section 5(f), 5(g), 5(h) or 13, no Stock Option shall be exercisable prior
to six months from the date of the granting of the option. Notwithstanding
the limitations set forth in the preceding sentence, the Committee may
accelerate the exercisability of any Stock Option, at any time in whole or
in part, based on performance and/or such other factors as the Committee may
determine in its sole discretion.
(d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part at any time during the option period, by giving written notice of
exercise to the Company specifying the number of shares
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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.
(e) TRANSFERABILITY OF OPTIONS. A Non-Qualified Stock Option agreement
may permit an optionee to transfer the Non-Qualified Stock Option to members
of his or her Immediate Family, to one or more trusts for the benefit of
such Immediate Family members, or to one or more partnerships where such
Immediate Family members are the only partners if (i) the agreement setting
forth such Non-Qualified Stock Option expressly provides that the
Non-Qualified Stock Option may be transferred only with the express written
consent of the Committee, and (ii) the optionee does not receive any
consideration in any form whatsoever for said transfer. Any Stock Option so
transferred shall continue to be subject to the same terms and conditions in
the hands of the transferee as were applicable to said Stock Option
immediately prior to the transfer thereof.
Any Stock Option not (i) granted pursuant to any agreement expressly
allowing the transfer of said Stock Option or (ii) amended expressly to permit
its transfer shall not be transferable by the optionee otherwise than by will or
by the laws of descent and distribution and such Stock Option thus shall be
exercisable during the optionee's lifetime only by the optionee.
(f) TERMINATION BY DEATH. Unless otherwise determined by the Committee,
if an optionee's employment with the Company, any Subsidiary, and any
Affiliate terminates by reason of death (or if an optionee dies following
termination of employment by reason of disability or Normal Retirement), any
Stock Option shall become immediately exercisable and may thereafter be
exercised by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, during the period ending on the
expiration of the stated term of such Stock Option or the first anniversary
of the optionee's death, whichever is later.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise determined by
the Committee, if an optionee's employment with the Company, any Subsidiary
and any Affiliate terminates by reason of Disability, any Stock Option held
by such optionee shall be immediately exercisable and may thereafter be
exercised during the period ending on the expiration of the stated term of
such Stock Option. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined by
the Committee, if an optionee's employment with the Company, any Subsidiary
and any Affiliate terminates by reason of Normal Retirement, any Stock
Option held by such optionee shall become immediately exercisable. A Stock
Option held by an optionee whose employment has terminated by reason of
Normal Retirement shall expire at the end of the stated term of such Stock
Option, unless otherwise determined by the Committee.
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If an optionee's employment with the Company, any Subsidiary and any
Affiliate terminates by reason of Early Retirement, any Stock Option shall
terminate three years from the date of such Early Retirement or upon the
expiration of the stated term of the Stock Option, whichever is shorter, unless
otherwise determined by the Committee. In the event of Early Retirement, there
shall be no acceleration of vesting of the Stock Option unless otherwise
determined by the Committee at or after grant, and said Stock Option may only be
exercised to the extent it is or has become exercisable prior to termination of
the Stock Option.
In the event of termination of employment by reason of Retirement, if an
Incentive Stock Option is exercised after the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(i) TERMINATION FOR CAUSE. If the optionee's employment with the
Company, any Subsidiary and any Affiliate is terminated for Cause, the Stock
Option shall immediately be forfeited to the Company upon the giving of
notice of termination of employment.
(j) OTHER TERMINATION. If the optionee's employment with the Company,
any Subsidiary and any Affiliate is involuntarily terminated by the
optionee's employer without Cause, the Stock Option shall terminate three
months from the date of termination of employment or upon the expiration of
the stated term of the Stock Option, whichever is shorter, unless otherwise
determined by the Committee. If an optionee's employment with the Company,
any Subsidiary and any Affiliate is voluntarily terminated for any reason,
the Stock Option shall terminate one month from the date of termination of
employment or upon the expiration of the stated term of the Stock Option,
whichever is shorter. In the event of involuntary termination without Cause
or voluntary termination for any reason, there shall be no acceleration of
vesting of the Stock Option unless otherwise determined by the Committee and
said Stock Option may only be exercised to the extent it is or has become
exercisable prior to termination of the Stock Option.
(k) TERMINATION UPON CHANGE OF CONTROL. Notwithstanding the provisions
of Section 5(j) or the stated term of the Stock Option, if the optionee's
employment with the Company, any Subsidiary and any Affiliate is
involuntarily terminated by the optionee's employer without Cause by reason
of or within three months after a merger or other business combination
resulting in a "Change of Control" as defined in Section 13 of this Plan,
the Stock Option shall terminate upon the later of six months and one day
after such merger or business combination or ten business days following the
expiration of the period during which publication of financial results
covering at least thirty days of post-merger combined operations has
occurred.
(l) LIMIT ON VALUE OF INCENTIVE STOCK OPTION FIRST EXERCISABLE
ANNUALLY. The aggregate Fair Market Value (determined at the time of grant)
of the Stock for which "incentive stock options" within the meaning of
Section 422 of the Code are exercisable for the first time by an optionee
during any calendar year under the Plan (and/or any other stock option plans
of the Company, any Subsidiary and any Affiliate) shall not exceed $100,000.
Notwithstanding the preceding sentence, the exercisability of such Stock
Options may be accelerated by the Committee and shall be accelerated as
provided in Sections 5(f), 5(g), 5(h), and 13, in which case Stock Options
which exceed such $100,000 limit shall be treated as Non-Qualified Stock
Options. For this purpose, options granted earliest shall be applied first
to the $100,000 limit. In the event that only a portion of the options
granted at the same time can be applied to the $100,000 limit, the Company
shall issue separate share certificates for such number of shares as does
not exceed the $100,000 limit, and shall designate such shares as ISO stock
in its share transfer records.
(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.
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(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.
SECTION 6. DIRECTOR STOCK OPTIONS.
Director Stock Options granted under the Plan shall be Non-Qualified Stock
Options. Such Director Stock Options may be granted pursuant to a
pre-established formula contained in the Plan or may, in the sole discretion of
the entire Board of Directors, be granted as to such number of shares and upon
such terms and conditions as shall be determined by said Board of Directors.
Director Stock Options granted under the Plan shall be evidenced by a
written agreement in such form as the Committee shall from time to time approve,
which agreements shall comply with and be subject to the following terms and
conditions:
(a) FORMULA-BASED DIRECTOR STOCK OPTIONS. For 1998, 6,000 Director
Stock Options shall be granted automatically to each member of the Board who
is not an employee of the Company, its Subsidiaries or Affiliates ("Outside
Director"). For each calendar year thereafter, 3,000 Director Stock Options
shall be granted automatically on the first day of each calendar year on
which Stock is publicly traded on the New York Stock Exchange to each
Outside Director.
The option price per share of Stock purchasable under such Director Stock
Option shall be 100% of the Fair Market Value of the Stock on the date of the
grant of the Director Stock Option. Except as provided in Section 13, said
Director Stock Options shall become exercisable in full six months from the date
of the grant of the option and shall remain exercisable for a term of ten years
and two days from the date such Director Stock Option is granted.
(b) NON-FORMULA BASED DIRECTOR STOCK OPTIONS. Within its sole
discretion, the entire Board may award Director Stock Options on a
non-formula basis to all or such individual Outside Directors as it shall
select. Such Director Stock Options may be awarded at such times and for
such number of shares as the Board in its discretion determines. The price
of such Director Stock Options may be fixed by the Board at a discount not
to exceed 25% of the fair market value of the Stock on the date of grant or
may be the fair market value of the Stock on the grant date. Such Director
Stock Options shall become first exercisable and have an option term as
determined by the Board in its discretion, provided however, that except as
described in Section 13 and in paragraph (e) of this section, no such
Director Stock Option shall be first exercisable until six months from the
date of grant. All other terms and conditions of such Director Stock Options
shall be as established by the Board in its sole discretion.
(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
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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.
(d) TRANSFERABILITY OF OPTIONS. No Director Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Director Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee; provided,
however, that the Committee may (but need not) permit other transfers where
the Committee concludes that such transferability (i) does not result in
accelerated taxation, and (ii) is otherwise appropriate and desirable,
taking into account any state or federal securities laws applicable to
transferable options.
(e) TERMINATION OF SERVICE. Upon an optionee's termination of status as
an Outside Director with the Company for any reason, any Director Stock
Options held by such optionee shall become immediately exercisable and may
thereafter be exercised during the period ending on the expiration of the
stated term of such Director Stock Options or the first anniversary of the
optionee's death, whichever is later. Notwithstanding the foregoing
sentence, if the optionee's status as an Outside Director terminates by
reason of or within three months after a merger or other business
combination resulting in a "Change of Control" as defined in Section 13 of
this Plan, the Director Stock Option shall terminate upon the latest of
(i) six months and one day after the merger or business combination,
(ii) ten business days following the expiration of the period during which
publication of financial results covering at least thirty days of
post-merger combined operations has occurred, and (iii) the expiration of
the stated term of such Director Stock Option.
(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(n) above.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In
the case of a Non-Qualified Stock Option, such rights may be granted either
at or after the time of the grant of such Non-Qualified Stock Option. In the
case of an Incentive Stock Option, such rights may be granted only at the
time of the grant of such Incentive Stock Option.
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A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise provided by the Committee at the time of grant, a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with paragraph (b) of this Section 7, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 7. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and
this Section 7 of the Plan; provided, however, that any Stock
Appreciation Right granted subsequent to the grant of the related Stock
Option shall not be exercisable during the first six months of the term
of the Stock Appreciation Right, except that this additional limitation
shall not apply in the event of death or Disability of the optionee prior
to the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash
or shares of Stock equal in value to the excess of the Fair Market Value
of one share of Stock over the option price per share specified in the
related Stock Option multiplied by the number of shares in respect of
which the Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be transferable
under paragraph (e) of Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation
set forth in Section 3 of the Plan on the number of shares of Stock to be
issued under the Plan.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price
of the Stock subject to the Incentive Stock Option exceeds the exercise
price of such Stock Option.
(vi) In its sole discretion, the Committee may provide, at the time
of grant of a Stock Appreciation Right under this Section 7, that such
Stock Appreciation Right can be exercised only in the event of a "Change
of Control" and/or a "Potential Change of Control" (as defined in
Section 13 below).
(vii) The Committee, in its sole discretion, may also provide that in
the event of a "Change of Control" and/or a "Potential Change of Control"
(as defined in Section 13 below) the amount to be paid upon the exercise
of a Stock Appreciation Right shall be based on the "Change of Control
Price" (as defined in Section 13 below).
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SECTION 8. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee
shall determine the officers and key employees of the Company and its
Subsidiaries and Affiliates to whom, and the time or times at which, grants
of Restricted Stock will be made, the number of shares to be awarded, the
price, if any, to be paid by the recipient of Restricted Stock (subject to
Section 8(b) hereof), the time or times within which such awards may be
subject to forfeiture, and all other conditions of the awards. The Committee
may also condition the grant and/or vesting of Restricted Stock upon the
attainment of specified performance goals, or such other criteria as the
Committee may determine, in its sole discretion. The provisions of
Restricted Stock awards need not be the same with respect to each recipient.
(b) AWARDS AND CERTIFICATES. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement evidencing
the award (a "Restricted Stock Award Agreement"), has delivered a fully
executed copy thereof to the Company, and has otherwise complied with the
then applicable terms and conditions. Awards of Restricted Stock must be
accepted within a period of 60 days (or such shorter period as the Committee
may specify) after the award date by executing a Restricted Stock Award
Agreement and paying the price specified in the Restricted Stock Award
Agreement. Each participant who is awarded Restricted Stock shall be issued
a stock certificate registered in the name of the participant in respect of
such shares of Restricted Stock. The Committee shall specify that the
certificate shall bear a legend, as provided in clause (i) below, and/or be
held in custody by the Company, as provided in clause (ii) below.
(i) The certificate shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such award,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Waddell & Reed Financial, Inc. 1998 Stock
Incentive Plan and a Restricted Stock Award Agreement entered into
between the registered owner and Waddell & Reed Financial, Inc.
Copies of such Plan and Agreement are on file in the offices of
Waddell & Reed Financial, Inc., 6300 Lamar Avenue, Overland Park,
Kansas 66202."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to this Section 8 shall be subject to the following restrictions
and conditions:
(i) Subject to the provisions of this Plan and the Restricted Stock
Award Agreements, during such period as may be set by the Committee
commencing on the grant date (the "Restriction Period"), the participant
shall not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. The Committee may, in its sole
discretion, provide for the lapse of such restrictions in installments
and may accelerate or waive such restrictions in whole or in part, before
or after the participant's termination of employment, based on
performance and/or such other factors as the Committee may determine, in
its sole discretion.
(ii) Except as provided in paragraph (c)(i) of this Section 8, the
participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a stockholder of the Company, including the right to
receive any dividends. Dividends paid in stock of the Company or stock
received in connection with a stock split with respect to Restricted
Stock shall be subject to the
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same restrictions as on such Restricted Stock. Certificates for shares of
unrestricted Stock shall be delivered to the participant promptly after,
and only after, the period of forfeiture shall expire without forfeiture
in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the Restricted Stock Award
Agreement and this Section 8, upon termination of employment for any
reason other than Normal Retirement or death during the Restriction
Period, all shares still subject to restriction shall be forfeited by the
participant, and the participant shall only receive the amount, if any,
paid by the participant for such forfeited Restricted Stock.
SECTION 9. DEFERRED STOCK AWARDS.
(a) ADMINISTRATION. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company, its Subsidiaries
and Affiliates to whom, and the time or times at which, Deferred Stock shall
be awarded, the number of shares of Deferred Stock to be awarded to any
participant, the duration of the period (the "Deferral Period") during
which, and the conditions under which, receipt of the Stock will be
deferred, and the terms and conditions of the award in addition to those set
forth in paragraph (b) of this Section 9. The Committee may also condition
the grant and/or vesting of Deferred Stock upon the attainment of specified
performance goals, or such other criteria as the Committee shall determine,
in its sole discretion. The provisions of Deferred Stock awards need not be
the same with respect to each recipient.
(b) TERMS AND CONDITIONS. The shares of Deferred Stock awarded pursuant
to this Section 9 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, (as defined below) where
applicable), share certificates shall be delivered to the participant, or
his legal representative, in a number equal to the shares covered by the
Deferred Stock award.
(ii) At the time of the award, the Committee may, in its sole
discretion, determine that amounts equal to any dividends declared during
the Deferral Period (or Elective Deferral Period) with respect to the
number of shares covered by a Deferred Stock award will be: (a) paid to
the participant currently; (b) deferred and deemed to be reinvested; or
(c) that such participant has no rights with respect thereto.
(iii) Subject to the provisions of the award agreement and this
Section 9, upon termination of employment for any reason during the
Deferral Period for a given award, the Deferred Stock in question shall
be forfeited by the participant.
(iv) Based on performance and/or such other criteria as the Committee
may determine, the Committee may, at or after grant (including after the
participant's termination of employment), accelerate the vesting of all
or any part of any Deferred Stock award and/or waive the deferral
limitations for all or any part of such award.
(v) A participant may elect to defer further receipt of the award for
a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee, all in its sole discretion.
Subject to any exceptions adopted by the Committee, such election must
generally be made at least six months prior to completion of the Deferral
Period for a Deferred Stock award (or for an installment of such an
award).
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(vi) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock award agreement executed by the Company and the
participant.
SECTION 10. LOAN PROVISIONS.
With the consent of the Committee, the Company may make, or arrange for, a
loan or loans to an employee with respect to the exercise of any Stock Option
granted under the Plan and/or with respect to the payment of the purchase price,
if any, of any Restricted Stock awarded hereunder. The Committee shall have full
authority to decide whether to make a loan or loans hereunder and to determine
the amount, term and provisions of any such loan or loans, including the
interest rate to be charged in respect of any such loan or loans, whether the
loan or loans are to be with or without recourse against the borrower, the terms
on which the loan is to be repaid and the conditions, if any, under which the
loan or loans may be forgiven.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the right of an
optionee or participant under a Stock Option, Director Stock Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock award theretofore
granted, without the optionee's or participant's consent.
Amendments may be made without stockholder approval except as required to
satisfy Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, stock
exchange listing requirements, or other regulatory requirements.
The Committee may amend the terms of any award or option (other than
Director Stock Options) theretofore granted, prospectively or retroactively, but
no such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted Stock
Options including options granted under other plans applicable to the
participant and previously granted Stock Options having higher option prices.
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing set forth herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 13. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall apply in the event
of a "Change of Control" or "Potential Change of Control," as defined in this
Section 13, that occurs more than twelve months after the date of the Company's
initial public offering:
(a) In the event of a "Change of Control" as defined in paragraph (b) of
this Section 13, unless otherwise determined by the Committee in writing at
or after grant, but prior to the occurrence of such Change of Control, or,
if and to the extent so determined by the Committee in writing at or after
grant (subject to any right of approval expressly reserved by the Committee
at the time of such
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determination) in the event of a "Potential Change of Control," as defined
in paragraph (c) of this Section 13:
(i) any Stock Appreciation Rights and any Stock Options awarded under
the Plan not previously exercisable and vested shall become fully
exercisable and vested;
(ii) the restrictions and deferral limitations applicable to any
Restricted Stock and Deferred Stock awards under the Plan shall lapse and
such shares and awards shall be deemed fully vested; and
(iii) the value of all outstanding Stock Options, Director Stock
Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock
Awards, shall, to the extent determined by the Committee at or after
grant, be settled on the basis of the "Change of Control Price" (as
defined in paragraph (d) of this Section 13) as of the date the Change of
Control occurs or Potential Change of Control is determined to have
occurred, or such other date as the Committee may determine prior to the
Change of Control or Potential Change of Control. In the sole discretion
of the Committee, such settlements may be made in cash or in stock, as
shall be necessary to effect the desired accounting treatment for the
transaction resulting in the Change of Control. In addition, any Stock
Option, Director Stock Option, and Stock Appreciation Right which has
been outstanding for less than six months shall be settled solely in
stock.
(b) For purposes of paragraph (a) of this Section 13, a "Change of
Control" means the happening of any of the following:
(i) when any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company or a Subsidiary or any
Company employee benefit plan), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly of
securities of the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the
Company required to be described pursuant to the requirements of 6(e) of
Schedule 14A of Regulation 14A of the Commission under the Exchange Act;
(iii) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board cease, for any reason other than death, to
constitute at least a majority thereof, unless each director who was not
a director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the directors at the beginning
of such period; or
(iv) the occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company or
a Subsidiary through purchase of assets, or by merger, or otherwise.
(c) For purposes of paragraph (a) of this Section 13, a "Potential
Change of Control" means the happening of any of the following:
(i) the entering into an agreement by the Company, the consummation
of which would result in a Change of Control of the Company as defined in
paragraph (b) of this Section 13; or
(ii) the acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or
any Company employee benefit plan) of securities of the Company
representing 5 percent or more of the combined voting power of the
Company's outstanding securities and the adoption by the Board of
Directors of a resolution to the effect that a Potential Change of
Control of the Company has occurred for purposes of this Plan.
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(d) For purposes of this Section 13, "Change of Control Price" means the
highest price per share paid in any transaction reported on the New York
Stock Exchange Composite Tape, or paid or offered in any transaction related
to a potential or actual Change of Control of the Company at any time during
the preceding sixty day period as determined by the Committee, except that
(i) in the case of Incentive Stock Options and Stock Appreciation Rights
relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Committee decides to cashout
such options, and (ii) in the case of Director Stock Options, the sixty day
period shall be the period immediately prior to the Change of Control.
SECTION 14. LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 13 above or any other provision of this Plan
or any other agreement, arrangement or plan, in no event shall the Company
pay or be obligated to pay any Plan participant an amount which would be an
Excess Parachute Payment except as provided in Section 14(f) below and
except as the Committee specifically provides otherwise in the participant's
grant agreement. For purposes of this Agreement, the term "Excess Parachute
Payment" shall mean any payment or any portion thereof which would be an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the
Code, and would result in the imposition of an excise tax under
Section 4999 of the Code, in the opinion of tax counsel selected by the
Company, ("Tax Counsel"). In the event it is determined that an Excess
Parachute Payment would result if the full acceleration of vesting and
exercisability provided in Section 13 above were made (when added to any
other payments or benefits contingent on a change of control under any other
agreement, arrangement or plan), the payments due under Section 13(a) shall
be reduced to the minimum extent necessary to prevent an Excess Parachute
Payment; then, if necessary to prevent an Excess Parachute Payment, benefits
or payments under any other plan, agreement or arrangement shall be reduced.
If it is established pursuant to a final determination of a court or an
Internal Revenue Service administrative appeals proceeding that,
notwithstanding the good faith of the participant and the Company in
applying the terms of this Section 14(a), a payment (or portion thereof)
made is an Excess Parachute Payment, then, the Company shall pay to the
participant an additional amount in cash (a "Gross-Up Payment") equal to the
amount necessary to cause the amount of the aggregate after-tax compensation
and benefits received by the participant hereunder (after payment of the
excise tax under Section 4999 of the Code with respect to any Excess
Parachute Payment, and any state and federal income taxes with respect to
the Gross-Up Payment) to be equal to the aggregate after-tax compensation
and benefits he would have received as if Sections 280G and 4999 of the Code
had not been enacted.
(b) Subject to the provisions of Section 14(c), the amount of any
Gross-Up Payment and the assumptions to be utilized in arriving at such
amount, shall be determined by a nationally recognized certified public
accounting firm designated by the Company (the "Accounting Firm"). All fees
and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to Section 14(a), shall be paid
by the Company to the participant within five (5) days after the receipt of
the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon the Company and participant.
(c) Participant shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Company of a Gross-Up Payment. Such notification shall be given no later
than ten (10) business days after participant is informed in writing of such
claim and shall apprise the Company of the nature of the claim and the date
of requested payment. Participant shall not pay the claim prior to the
expiration of the thirty (30) day period following the date on which it
gives notice to the Company. If the Company notifies participant in writing
prior to the expiration of the period that it desires to contest such claim,
participant shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
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(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney selected by the Company and reasonably acceptable to
participant;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim.
Without limitation on the foregoing provisions of this Section 14(c), the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct participant to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
participant agrees to prosecute such contest to a determination before any
administration tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that the
Company shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold participant harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of the contest; provided, further, that if the Company
directs participant to pay any claim and sue for a refund, the Company shall
advance the amount of the payment to participant, on an interest-free basis, and
shall indemnify and hold participant harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to the advance or with respect to any imputed income with
respect to the advance.
(d) In the event that the Company exhausts its remedies pursuant to
Section 14(c) and participant thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Gross-Up Payment required and such payment shall be promptly paid by the
Company to or for the benefit of participant.
(e) If, after the receipt of participant of an amount advanced by the
Company pursuant to Section 14(c), participant becomes entitled to receive
any refund with respect to such claim, participant shall promptly after
receiving such refund pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto).
If, after the receipt by participant of an amount advanced by the Company
pursuant to Section 14(c), a determination is made that participant shall
not be entitled to any refund with respect to such claim and the Company
does not notify participant in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in
Section 14(a) shall not apply to a participant if in the opinion of Tax
Counsel or the Accounting Firm (i) the total amounts payable to the
participant hereunder and under any other agreement, arrangement or plan as
a result of a change of control (calculated without regard to the limitation
of Section 14(a)), reduced by the amount of excise tax imposed on the
participant under Code Section 4999 with respect to all such amounts and
reduced by the state and federal income taxes on amounts paid in excess of
the limitation set forth in Section 14(a), would exceed (ii) such total
amounts payable after application of the limitation of Section 14(a). No
Gross-Up Payment shall be made in such case.
SECTION 15. GENERAL PROVISIONS.
(a) All certificates for shares of Stock delivered under the Plan shall
be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the rules,
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regulations, and other requirements of the Commission, any stock exchange
upon which the Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
(b) Nothing set forth in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of
the Plan shall not confer upon any employee or director of the Company, any
Subsidiary or any Affiliate, any right to continued employment (or, in the
case of a director, continued retention as a director) with the Company, a
Subsidiary or an Affiliate, as the case may be, nor shall it interfere in
any way with the right of the Company, a Subsidiary or an Affiliate to
terminate the employment of any of its employees at any time.
(c) Each participant shall, no later than the date as of which the value
of an award first becomes includible in the gross income of the participant
for Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee, in its sole discretion, regarding payment of,
any Federal, FICA, state, or local taxes of any kind required by law to be
withheld with respect to the award. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements.
The Committee may permit or require, in its sole discretion, participants to
elect to satisfy their Federal, and where applicable, FICA, state and local tax
withholding obligations with respect to all awards other than Stock Options
which have related Stock Appreciation Rights by the reduction, in an amount
necessary to pay all said withholding tax obligations, of the number of shares
of Stock or amount of cash otherwise issuable or payable to said participants in
respect of an award. The Company and, where applicable, its Subsidiaries and
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes owed hereunder by a participant from any payment of any kind
otherwise due to said participant.
(d) At the time of grant or purchase, the Committee may provide in
connection with any grant or purchase made under this Plan that the shares
of Stock received as a result of such grant or purchase shall be subject to
a right of first refusal, pursuant to which the participant shall be
required to offer to the Company any shares that the participant wishes to
sell, with the price being the then Fair Market Value of the Stock, subject
to the provisions of Section 13 hereof and to such other terms and
conditions as the Committee may specify at the time of grant.
(e) No member of the Board or the Committee, nor any officer or employee
of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Board or
the Committee and each and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
SECTION 16. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is approved by a majority vote of
the Company's stockholders.
SECTION 17. TERM OF PLAN.
No Stock Option, Director Stock Option, Stock Appreciation Right, Restricted
Stock award or Deferred Stock award shall be granted pursuant to the Plan on or
after March 2, 2008, but awards theretofore granted may extend beyond that date.
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EXHIBIT "B"
WADDELL & REED FINANCIAL, INC.
1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN
AS AMENDED AND RESTATED
ARTICLE 1. PURPOSE OF THE PLAN.
SECTION 1.1. PURPOSE. The purpose of the Waddell & Reed Financial, Inc.
1998 Executive Deferred Compensation Stock Option Plan is to promote the
long-term growth of Waddell & Reed Financial, Inc. by providing a vehicle for
Eligible Executives to increase their proprietary interest in Waddell & Reed
Financial, Inc. and to attract and retain highly qualified and capable Eligible
Executives.
ARTICLE 2. DEFINITIONS.
SECTION 2.1. Unless the context clearly indicates otherwise, the following
terms shall have the following meanings:
"Acquisition" has the meaning assigned such term in Section 9.3 hereof.
"Acquisition Consideration" has the meaning assigned such term in Section
9.3 hereof.
"Annual Bonus" means the annual cash bonus payable by the Company to an
Eligible Executive for services to the Company or any of its affiliates, as such
amount may be determined from year to year.
"Beneficiary" means any person or persons designated by a Participant, in
accordance with procedures established by the Committee or Plan Administrator,
to receive benefits hereunder in the event of the Participant's death. If any
Participant shall fail to designate a Beneficiary or shall designate a
Beneficiary who shall fail to survive the Participant, the Beneficiary shall be
the Participant's surviving spouse, or, if none, the Participant's surviving
descendants (who shall take per stirpes) and if there are no surviving
descendants, the Beneficiary shall be the Participant's estate.
"Board" means the Board of Directors of the Company.
"Bonus Deferral Election Date" means the date established by the Plan as the
date by which a Participant must submit a valid Primary Election Form for Bonus
to the Plan Administrator in order to defer Annual Bonus under the Plan for a
calendar year. For each calendar year, the Bonus Deferral Election Date is
December 31 of the calendar year for which the Bonus is to be earned.
"Business Day" shall mean a day on which the New York Stock Exchange or any
national securities exchange or over-the-counter market on which the Shares are
traded is open for business.
"Change in Control" means any of the following that occurs more than twelve
months after the date of the Company's initial public offering:
(i) when any "person", as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Company or a subsidiary thereof or any
Company employee benefit plan), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the Company
that is required to be described pursuant to the requirements of Item 6(e)
of Schedule 14A of Regulation 14A of the Securities and Exchange Commission
under the Exchange Act;
(iii) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board, cease for any reason other than
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death to constitute at least a majority thereof, unless each director who
was not a director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the directors at the beginning of
such period; or
(iv) the occurrence of a transaction requiring stockholder approval for
the acquisition of the Company by an entity other than the Company or a
subsidiary thereof through the purchase of assets, by merger, or otherwise.
"Committee" means the Compensation Committee of the Board.
"Company" means Waddell & Reed Financial, Inc., a Delaware corporation.
"Covered Employee" means an individual defined in Section 162(m)(3) of the
Internal Revenue Code of 1986, as amended, with respect to the Company.
"Disability" means total and permanent disability as determined under the
Company's long term disability program, whether or not the Optionee is covered
under such program. If no such program is in effect, the Disability of a
Participant shall be determined in good faith by the Board (excluding the
Participant).
"Eligible Executive" means an executive officer of the Company or any of its
affiliates, as such officers may be selected by the Chairman of the Board of
Directors or the Committee or its designee from year to year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any given date, the closing price of the
Stock on such date on the New York Stock Exchange Composite Tape.
"Interest Account" means the Interest Account for Bonus and/or the Interest
Account for Salary, as the context requires. The maintenance of individual
Interest Accounts is for bookkeeping purposes only.
"Interest Account for Bonus" means the account established by the Company
for each Participant for Annual Bonus deferred pursuant to the Plan and which
shall be credited with interest on the last day of each calendar quarter (or
such other day as determined by the Plan Administrator).
"Interest Account for Salary" means the account established by the Company
for each Participant for Salary deferred pursuant to the Plan and which shall be
credited with interest on the last day of each calendar quarter (or such other
day as determined by the Plan Administrator).
"Option" means an option to purchase Shares awarded under Article 6. Options
granted under the Plan are not incentive stock options within the meaning of
Section 422 of the Internal Revenue Code.
"Option Grant Date" means the date upon which an Option is granted to an
Eligible Executive pursuant to Article 6.
"Optionee" means an Eligible Executive of the Company to whom an Option has
been granted or, in the event of such Eligible Executive's death prior to the
expiration of an Option, such Eligible Executive's Beneficiary.
"Participant" means any Eligible Executive who is participating in the Plan.
"Plan" means the Waddell & Reed Financial, Inc. 1998 Executive Deferred
Compensation Stock Option Plan.
"Plan Administrator" means the Committee or its delegee of administrative
duties under the Plan pursuant to Section 3.2.
"Primary Election Form" means a Primary Election Form for Salary and/or a
Primary Election Form for Bonus, as the context requires.
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"Primary Election Form for Bonus" means a form, substantially in the form
attached hereto as Exhibit B, pursuant to which an Eligible Executive elects to
defer Bonus under the Plan.
"Primary Election Form for Salary" means a form, substantially in the form
attached hereto as Exhibit A, pursuant to which an Eligible Executive elects to
defer Salary under the Plan.
"Salary" means the salary payable by the Company to an Eligible Executive
for services to the Company or any of its affiliates, as such amount may be
changed from time to time.
"Salary Deferral Election Date" means the date established by the Plan as
the date by which a Participant must submit a valid Primary Election Form for
Salary to the Plan Administrator in order to defer Salary under the Plan for a
calendar quarter. For each calendar quarter, the Salary Deferral Election Date
is the last day of the preceding calendar quarter.
"Secondary Election Form" means a Secondary Election Form for Salary and/or
a Secondary Election Form for Bonus, as the context requires.
"Secondary Election Form for Bonus" means a form, substantially in the form
attached hereto as Exhibit D, pursuant to which an Eligible Executive elects to
convert previously deferred Annual Bonus to Options pursuant to Section 6.1 of
the Plan.
"Secondary Election Form for Salary" means a form, substantially in the form
attached hereto as Exhibit C, pursuant to which an Eligible Executive elects to
convert previously deferred Salary to Options pursuant to Section 6.1 of the
Plan.
"Shares" means shares of the Class A common stock of the Company, par value
$.01.
"Stock Option Award Notice" means a written award notice to an Eligible
Executive from the Company evidencing an Option.
ARTICLE 3. ADMINISTRATION OF THE PLAN.
SECTION 3.1. ADMINISTRATOR OF THE PLAN. The Plan shall be administered by
the Committee. The extent required by Section 162(m)(4)(C) of the Code, only
outside directors shall administer the Plan with respect to Covered Employees.
SECTION 3.2. AUTHORITY OF COMMITTEE. The Committee shall have full power
and authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and administer
the Plan, and (ii) designate persons other than members of the Committee or the
Board to carry out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe, such determinations to be made
in accordance with the Committee's best business judgment as to the best
interests of the Company and its stockholders and in accordance with the
purposes of the Plan. The Committee may delegate administrative duties under the
Plan to one or more agents as it shall deem necessary or advisable.
SECTION 3.3. EFFECT OF COMMITTEE DETERMINATIONS. No member of the Committee
or the Board or the Plan Administrator shall be personally liable for any action
or determination made in good faith with respect to the Plan or any Option or to
any settlement of any dispute between an Eligible Executive and the Company. Any
decision or action taken by the Committee or the Board with respect to an Option
or the administration or interpretation of the Plan shall be conclusive and
binding upon all persons.
ARTICLE 4. PARTICIPATION.
SECTION 4.1. ELECTION TO PARTICIPATE. The Chairman of the Board or the
Committee or its designee shall designate each year those executives who shall
be Eligible Executives for the coming year. An Eligible Executive may
participate in the Plan by delivering to the Plan Administrator a properly
completed and signed (i) Primary Election Form for Salary on or before the
Salary Deferral Election Date, and/or (ii)
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Primary Election Form for Bonus on or before the Bonus Deferral Election Date.
An Eligible Executive's participation in the Plan will be effective (i) as of
the first day of the calendar quarter beginning after the Plan Administrator
receives the Eligible Executive's Primary Election Form for Salary, or (ii) as
of the first day of the year for which an Annual Bonus is earned, in the case of
an Eligible Executive's Primary Election Form for Bonus. A Participant shall not
be entitled to any benefit hereunder unless such Participant has properly
completed a Primary Election Form and deferred the receipt of his or her Annual
Bonus and/or Salary pursuant to the Plan.
SECTION 4.2. IRREVOCABLE ELECTION. A Participant may not revoke or change
his or her Primary Election Form; provided, however, that a Participant may, by
filing a Secondary Election Form with the Plan Administrator within the period
provided in the Plan, subsequently elect to convert the balance in his or her
Interest Account to Options in accordance with Article 6.
SECTION 4.3. PRIOR PARTICIPATION IN TORCHMARK PLAN. An Eligible Executive
who participated in the Torchmark Corporation 1996 Executive Deferred
Compensation Stock Option Plan ("Torchmark Plan"), had elected to defer Salary
or Bonus under the Torchmark Plan, and was eligible to convert such deferred
amounts into options under the Torchmark Plan, but had not done so as of the
date of the Company's initial public offering, may elect to transfer this 1997
Interest Account for Salary, and/or 1997 Interest Account for Bonus, from the
Torchmark Plan to this Plan. Thereafter, such Eligible Executive may elect to
convert such account(s) into Options pursuant to Article 6 below, no later than
December 31, 1998.
SECTION 4.4. NO RIGHT TO CONTINUE AS AN EMPLOYEE. Nothing contained in the
Plan shall be deemed to give any Eligible Executive the right to be retained as
an employee of the Company or any of its affiliates.
ARTICLE 5. PLAN BENEFITS.
SECTION 5.1. DEFERRED ANNUAL BONUS OR SALARY. An Eligible Executive may
elect to defer up to 100% (in increments of 10% or $10,000) of his or her Annual
Bonus and/or Salary to his or her Interest Account, and/or by conversion to
Options in accordance with the terms of the Plan. For bookkeeping purposes, the
amount of the Annual Bonus and/or Salary which an Eligible Executive elects to
defer pursuant to the Plan shall be transferred to and held in individual
Interest Accounts (in annual designations) pending distribution in cash or the
conversion to Options, if applicable, pursuant to Article 6.
SECTION 5.2. TIME OF ELECTION OF DEFERRAL. An Eligible Executive who wishes
to defer Salary for a calendar quarter must irrevocably elect to do so on or
prior to the Salary Deferral Election Date for such calendar quarter, by
delivering a valid Primary Election Form for Salary to the Plan Administrator.
The Primary Election Form for Salary shall indicate: (1) the percentage of
Salary to be deferred, and (2) the form and timing of payout of deferred
amounts; provided, however, that if a Participant elects to defer Salary for
more than one quarter during a particular calendar year, the form and timing of
payout for each quarter's deferral shall be identical. An Eligible Executive who
wishes to defer Annual Bonus for a calendar year must irrevocably elect to do so
on or prior to the Bonus Deferral Election Date for such calendar year, by
delivering a valid Primary Election Form for Bonus to the Plan Administrator.
The Primary Election Form for Bonus shall indicate: (1) the percentage of Annual
Bonus to be deferred, and (2) the form and timing of payout of deferred amounts;
provided, however, that if a Participant elects to defer both Salary and Annual
Bonus for a particular calendar year, the form and timing of payout for each
shall be identical.
SECTION 5.3. INTEREST ACCOUNTS. Amounts in a Participant's Interest Account
will be credited with interest as of the last day of each calendar quarter (or
such other day as determined by the Plan Administrator, which, in the case of
amounts converted to Options under the Plan, shall be the date of such
conversion) at the rate set from time to time by the Committee to be applicable
to the Interest Accounts of all Participants under the Plan. To the extent
required for bookkeeping purposes, a Participant's Interest Accounts will be
segregated to reflect deferred compensation on a year-by-year basis and on
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the basis of the type of compensation deferred. For example, a 1998 Interest
Account for Bonus, a 1998 Interest Account for Salary, a 1999 Interest Account
for Bonus, a 1999 Interest Account for Salary, and so on. Within a reasonable
time after the end of each calendar year, the Plan Administrator shall report in
writing to each Participant the amount held in his or her Interest Accounts at
the end of the year.
SECTION 5.4. RESPONSIBILITY FOR INVESTMENT CHOICES. Each Participant is
solely responsible for any decision to defer Annual Bonus and/or Salary into his
or her Interest Account or convert Annual Bonus and/or Salary to Options under
the Plan and accepts all investment risks entailed by such decision, including
the risk of loss and a decrease in the value of the amounts he or she elects to
defer.
SECTION 5.5. FORM OF PAYMENT.
(a) PAYMENT COMMENCEMENT DATE. Payment of the balances in a Participant's
Interest Accounts shall commence on the earliest to occur of (a) December 31 of
the fifth year after the year with respect to which the deferral was made, (b)
the first Business Day of the fourth month after the Participant's death, or (c)
the Participant's termination as an employee of the Company or any of its
subsidiaries or affiliates, other than by reason of death.
(b) OPTIONAL FORMS OF PAYMENT. Distributions from a Participant's Interest
Accounts may be paid to the Participant either in a lump sum or in a number of
approximately equal monthly installments designated by the Participant on his or
her Primary Election Form. Such monthly installments may be for any number of
months up to 120 months; provided, however, that in the event of the
Participant's death during the payout period, the remaining balance shall be
payable to the Participant's Beneficiary in a lump sum on the first Business Day
of the fourth month after the Participant's death. If a Participant elects to
receive a distribution of his or her Interest Accounts in installments, the Plan
Administrator may purchase an annuity from an insurance company which annuity
will pay the Participant the desired annual installments. If the Plan
Administrator purchases an annuity contract, the Eligible Executive will have no
further rights to receive payments from the Company or the Plan with respect to
the amounts subject to the annuity. If the Plan Administrator does not purchase
an annuity contract, the value of the Interest Accounts remaining unpaid shall
continue to receive allocations of return as provided in Section 5.3. If the
Participant fails to designate a payment method in the Participant's Primary
Election Form, the Participant's Account shall be distributed in a lump sum.
(c) IRREVOCABLE ELECTIONS. A Participant may elect a different payment form
for each year's compensation deferred under the Plan; provided, however, that if
a Participant elects to defer Salary for more than one quarter during a
particular calendar year, or if a Participant elects to defer Salary and Annual
Bonus for a particular calendar year, the form and timing of payout for each
such deferral shall be identical. The payment form elected or deemed elected on
the Participant's Primary Election Form shall be irrevocable.
(d) ACCELERATION OF PAYMENT. If a Participant elects an installment
distribution and the value of such installment payment elected by the
Participant would result in a distribution of less than $3,000 per year, the
Plan Administrator may accelerate payment of the Participant's benefits over a
lesser number of whole years so that the annual amount distributed is at least
$3,000. If payment of the Participant's benefits over a five year period will
not provide annual distributions of at least $3,000, the Participant's Account
shall be paid in a lump sum.
(e) EFFECT OF COMPETITION. Notwithstanding the Primary Election Form or any
provision set forth herein, the entire balance of a Participant's Interest
Accounts shall be paid immediately to the Participant a lump sum in the event
the Participant ceases to be an employee of the Company or any of its
subsidiaries or affiliates and becomes a proprietor, officer, partner, employee
or otherwise becomes affiliated with any business that is in competition with
the Company or an affiliated company, or becomes employed by any governmental
agency having jurisdiction over the activities of the Company or an affiliated
company.
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(f) EFFECT OF ADVERSE DETERMINATION. Notwithstanding the Primary Election
Form or any provision set forth herein, if the Internal Revenue Service
determines, for any reason, that all or any portion of the amounts credited
under this Plan is currently includable in the taxable income of any
Participant, then the amounts so determined to be includable in income shall be
distributed in a lump sum to such Participant as soon as practicable.
(g) PAYMENT TO BENEFICIARY. Upon the Participant's death, all unpaid
amounts held in the Participant's Account shall be paid to the Participant's
Beneficiary in a lump sum on the first Business Day of the fourth month
following the Participant's death.
SECTION 5.6. FINANCIAL HARDSHIP. The Plan Administrator may, in its sole
discretion, accelerate the making of payment to a Participant of an amount
reasonably necessary to handle a severe financial hardship of a sudden and
unexpected nature due to causes not within the control of the Participant. All
financial hardship distributions shall be made in cash in a lump sum. Such
payments will be made on a first-in, first-out basis so that the oldest
compensation deferred under the Plan shall be deemed distributed first in a
financial hardship.
SECTION 5.7. PAYMENT TO MINORS AND INCAPACITATED PERSONS. In the event that
any amount is payable to a minor or to any person who, in the judgment of the
Plan Administrator, is incapable of making proper disposition thereof, such
payment shall be made for the benefit of such minor or such person in any of the
following ways as the Plan Administrator, in its sole discretion, shall
determine:
(a) By payment to the legal representative of such minor or such person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the benefit of
such minor or such person. The Plan Administrator shall make such payments
without the necessary intervention of any guardian or like fiduciary, and
without any obligation to require bond or to see to the further application
of such payment. Any payment so made shall be in complete discharge of the
Plan's obligation to the Participant and his or her Beneficiaries.
SECTION 5.8. APPLICATION FOR BENEFITS. The Plan Administrator may require a
Participant or Beneficiary to complete and file certain forms as a condition
precedent to receiving the payment of benefits. The Plan Administrator may rely
upon all such information given to it, including the Participant's current
mailing address. It is the responsibility of all persons interested in receiving
a distribution pursuant to the Plan to keep the Plan Administrator informed of
their current mailing addresses.
SECTION 5.9. DESIGNATION OF BENEFICIARY. Each Participant from time to time
may designate any person or persons (who may be designated contingently or
successively and who may be an entity other than a natural person) as his or her
Beneficiary or Beneficiaries to whom the Participant's Account is to be paid if
the Participant dies before receipt of all such benefits. Each Beneficiary
designation shall be on the form prescribed by the Plan Administrator and will
be effective only when filed with the Plan Administrator during the
Participant's lifetime. Each Beneficiary designation filed with the Plan
Administrator will cancel all Beneficiary designations previously filed with the
Plan Administrator. The revocation of a Beneficiary designation, no matter how
effected, shall not require the consent of any designated Beneficiary.
ARTICLE 6. OPTIONS.
Each Eligible Executive shall be granted Options subject to the following
terms and conditions:
SECTION 6.1. ELECTION TO RECEIVE OPTIONS.
(a) OPTIONS CONVERTED FROM DEFERRED SALARY. During the same calendar
quarter with respect to which a Participant deferred Salary into the Plan,
the Participant shall have the right to convert some or all of his or her
Interest Account for Salary for such quarter or the previous quarter(s) of
that same
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calendar year into Options pursuant to this Article 6. To make such
election, the Participant must file with the plan administrator a written
irrevocable Secondary Election Form for Salary to receive Options as of the
date of the filing of such Secondary Election Form (the "Option Grant
Date").
(b) OPTIONS CONVERTED FROM DEFERRED BONUS. At any time, but only one
time, during the twelve-month period following the end of a calendar year
with respect to which a Participant deferred Annual Bonus into the Plan, the
Participant shall have the right to convert some or all of his or her
Interest Account for Bonus for such previous year into Options pursuant to
this Article 6. To make such election, the Participant must file with the
Plan Administrator a written irrevocable Secondary Election Form for Bonus
to receive Options as of the date of the filing of such Secondary Election
Form (the "Option Grant Date").
(c) OPTION CONVERTED FROM BONUS AT COMMITTEE DIRECTION. The Committee,
in its sole discretion, may direct that all or any portion of the Annual
Bonus that would otherwise be payable in cash to a Participant, be converted
to Options pursuant to this Article 6.
(d) EXERCISE PRICE OF OPTIONS. The exercise price per Share under each
Option granted pursuant to this Article 6 shall, at the election of the
Optionee as indicated on the Secondary Election Form, be either 100% of the
Fair Market Value per Share on the Option Grant Date, or a lesser percentage
(but not less than 75%) of the Fair Market Value per Share on the Option
Grant Date, such lesser percentage to be determined by the Committee from
time to time. Such Secondary Election Form shall indicate the percentage of
such Options to be granted at each Exercise Price, which choice may affect
the number of Options to be received pursuant to Section 6.2.
Notwithstanding the foregoing, the exercise price under any Option granted
to a Covered Employee shall be 100% of the Fair Market Value per share on
the Option Grant Date.
SECTION 6.2. NUMBER AND TERMS OF OPTIONS. The number of Shares subject to
an Option granted pursuant to this Article 6 shall be the number of whole Shares
equal to A divided by B, where:
A = the dollar amount which the Eligible Executive has elected pursuant
to Section 6.1 to convert to Options; and
B = the per share value of an Option on the Option Grant Date, as
determined by the Committee using an option valuation model selected by the
Committee in its discretion (such value to be expressed as a percentage of
the Fair Market Value per Share on the Option Grant Date).
In determining the number of Shares subject to an Option, (i) the Committee
may designate the assumptions to be used in the selected option valuation model,
and (ii) any fraction of a Share will be rounded up to the next whole number of
Shares. The maximum number of shares with respect to which Options may be
granted to a Covered Employee in any calendar year is 500,000.
SECTION 6.3. EXERCISE OF OPTIONS. 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. An Optionee's death, Disability, retirement or other
termination of employment shall not shorten the term of any outstanding Option.
In no event shall the period of time over which the Option may be exercised
exceed the longer of (i) eleven years from the Option Grant Date, or (ii) the
thirtieth (30th) day of the calendar year immediately following the year in
which an Optionee ceased to be a Covered Employee. An Option, or portion
thereof, may be exercised in whole or in part only with respect to whole Shares.
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
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<PAGE>
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 Optionee has
given written notice of exercise and has paid in full for such Shares.
SECTION 6.4. ACCELERATED VESTING. Notwithstanding the normal vesting
schedule set forth in Section 6.3 hereof, any and all outstanding Options shall
become immediately exercisable upon the first to occur of (i) the death of the
Optionee, (ii) the Disability of the Optionee, (iii) the occurrence of a Change
in Control, or (iv) the unanimous determination by the Committee that a
particular Option or Options shall become fully exercisable. Upon acceleration,
an Option will remain exercisable for the remainder of its original term.
SECTION 6.5. STOCK OPTION AWARD NOTICE. Each Option granted under the Plan
shall be evidenced by a Stock Option Award Notice which shall be executed by an
authorized officer of the Company. Such Award Notice shall contain provisions
regarding (a) the number of Shares that may be issued upon exercise of the
Option, (b) the exercise price per Share of the Option and the means of payment
therefor, (c) the term of the Option, and (d) such other terms and conditions
not inconsistent with the Plan as may be determined from time to time by the
Committee. 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.
SECTION 6.6. TRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable by the Optionee other than by will or the laws of descent and
distribution; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i) does
not result in accelerated taxation, and (ii) is otherwise appropriate and
desirable, taking into account any state or federal securities laws applicable
to transferable Options.
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<PAGE>
ARTICLE 7. SHARES SUBJECT TO THE PLAN.
SECTION 7.1. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided
in Article 9, the aggregate number of Shares which may be acquired upon the
exercise of Options shall not exceed 2,500,000 Shares. Shares acquired upon
exercise of Options may be newly issued Shares or previously issued and
reacquired Shares, and there are hereby reserved for issuance under the Plan
2,500,000 Shares. To the extent that Shares subject to an outstanding Option are
not issued or delivered by reason of the expiration, termination, cancellation
or forfeiture of such Option or by reason of the delivery of Shares to pay all
or a portion of the exercise price of such Option, then such Shares shall again
be available under the Plan. 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.
ARTICLE 8. AMENDMENT AND TERMINATION.
SECTION 8.1. AMENDMENT, SUSPENSION OR EARLY TERMINATION. The Board may
amend, suspend or terminate the Plan or any Stock Option Award Notice at any
time; provided, however, that the Board may condition any amendment or
modification on the approval of stockholders of the Company if such approval is
necessary or deemed advisable with respect to tax, securities or other
applicable laws, policies or regulations, and no such amendment, modification or
termination shall adversely affect any outstanding Options or Interest Accounts
without the consent of the Participant.
ARTICLE 9. ADJUSTMENT PROVISIONS.
SECTION 9.1. CHANGE IN CORPORATE STRUCTURE AFFECTING SHARES. If the Company
shall at any time change the number of issued Shares without new consideration
to the Company (such as by stock dividend, stock split, recapitalization,
reorganization, exchange of shares, liquidation, combination or other change in
corporate structure affecting the Shares) or make a distribution of cash or
property which has a substantial impact on the value of issued Shares, the total
number of Shares reserved for issuance under the Plan shall be appropriately
adjusted and the number of Shares covered by each outstanding Option and the
exercise price per Share under each outstanding Option and the number of shares
underlying Options shall be adjusted so that the aggregate consideration payable
to the Company and the value of each such Option shall not be changed. In
addition, the aggregate number of shares available for issuance to any employee
pursuant to Section 6.2 shall be adjusted to take into account any change in
corporate structure affecting shares.
SECTION 9.2. CERTAIN REORGANIZATIONS. Notwithstanding any other provision
of the Plan, and without affecting the number of Shares reserved or available
hereunder, the Committee shall authorize the issuance, continuation or
assumption of outstanding Options or provide for other equitable adjustments
after changes in the Shares resulting from any merger, consolidation, sale of
assets, acquisition of property or stock, recapitalization, reorganization or
similar occurrence in which the Company is the continuing or surviving
corporation, upon such terms and conditions as it may deem necessary to preserve
Optionees' rights under the Plan.
SECTION 9.3. ACQUISITIONS. In the case of any sale of assets, merger,
consolidation or combination of the Company with or into another corporation
other than a transaction in which the Company is the continuing or surviving
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), any Optionee who holds an outstanding
Option shall have the right (subject to the provisions of the Plan and any
limitation applicable to the Option) thereafter and during the term of the
Option, to receive upon exercise thereof the Acquisition Consideration (as
defined below) receivable upon
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<PAGE>
the Acquisition by a holder of the number of Shares which would have been
obtained upon exercise of the Option or portion thereof, as the case may be,
immediately prior to the Acquisition. The term "Acquisition Consideration" shall
mean the kind and amount of shares of the surviving or new corporation, cash,
securities, evidence of indebtedness, other property or any combination thereof
receivable in respect of one Share of the Company upon consummation of an
Acquisition.
ARTICLE 10. MISCELLANEOUS.
SECTION 10.1. WITHHOLDING. If any Option granted under the Plan is or
becomes subject to any withholding requirement, the Committee may require the
Optionee to remit such withholding as a condition to exercising the Option or
any portion thereof.
SECTION 10.2. COMPLIANCE WITH SEC REGULATIONS. All grants and exercises of
Options under the Plan shall be executed in accordance with any applicable
requirements of Section 16 of the Exchange Act, as amended and any regulations
promulgated thereunder, to the extent applicable. To the extent that any of the
provisions contained herein do not conform with Rule 16b-3 of the Exchange Act
or any amendments thereto or any successor regulation, then the Committee may
make such modifications so as to conform the Plan and any Options granted
thereunder to the Rule's requirements.
SECTION 10.3. VALIDITY. In the event that any provision of the Plan or any
related Stock Option Award Notice is held to be invalid, void or unenforceable,
the same shall not affect, in any respect whatsoever, the validity of any other
provision of the Plan or any related Stock Option Award Notice.
SECTION 10.4. INUREMENT OF RIGHTS AND OBLIGATIONS. The rights and
obligations under the Plan and any related agreements shall inure to the benefit
of, and shall be binding upon the Company, its successors and assigns, and the
Eligible Executives and their beneficiaries.
SECTION 10.5. TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan.
SECTION 10.6. GOVERNING LAW. The Plan shall be construed, governed and
enforced in accordance with the law of Delaware, except as such laws are
preempted by applicable federal law.
ARTICLE 11. LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 6.4 above or any other provision of this Plan or
any other agreement, arrangement or plan, in no event shall the Company pay or
be obligated to pay any Plan Participant an amount which would be an Excess
Parachute Payment except as provided in Section 11(f) below and except as the
Committee specifically provides otherwise in the Participant's grant agreement.
For purposes of this Agreement, the term "Excess Parachute Payment" shall mean
any payment or any portion thereof which would be an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code, and would result in the
imposition of an excise tax under Section 4999 of the Code, in the opinion of
tax counsel selected by the Company, ("Tax Counsel"). In the event it is
determined that an Excess Parachute Payment would result if the full
acceleration of exercisability provided in Section 6.4 above were made (when
added to any other payments or benefits contingent on a change of control under
any other agreement, arrangement or plan), the payments due under Section 6.4
shall be reduced to the minimum extent necessary to prevent an Excess Parachute
Payment; then, if necessary to prevent an Excess Parachute Payment, benefits or
payments under any other plan, agreement or arrangement shall be reduced. If it
is established pursuant to a final determination of a court or an Internal
Revenue Service administrative appeals proceeding that, notwithstanding the good
faith of the Participant and the Company in applying the terms of this Article
11, a payment (or portion thereof) made is an Excess Parachute Payment, then,
the Company shall pay to the Participant an additional amount in cash (a
"Gross-Up Payment") equal to the amount necessary to cause the amount of the
aggregate after-tax compensation and benefits received by the Participant
hereunder (after payment of the excise tax under Section 4999 of
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<PAGE>
the Code with respect to any Excess Parachute Payment, and any state and federal
income taxes with respect to the Gross-Up Payment) to be equal to the aggregate
after-tax compensation and benefits he would have received as if Sections 280G
and 4999 of the Code had not been enacted.
(b) Subject to the provisions of Section 11(c), the amount of any Gross-Up
Payment and the assumptions to be utilized in arriving at such amount, shall be
determined by a nationally recognized certified public accounting firm
designated by the Company (the "Accounting Firm"). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to Section 11(a), shall be paid by the Company to the
Participant within five (5) days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and Participant.
(c) Participant shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Company of a Gross-Up Payment. Such notification shall be given no later than
ten (10) business days after participant is informed in writing of such claim
and shall apprise the Company of the nature of the claim and the date of
requested payment. Participant shall not pay the claim prior to the expiration
of the thirty (30) day period following the date on which it gives notice to the
Company. If the Company notifies Participant in writing prior to the expiration
of the period that it desires to contest such claim, Participant shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney selected by the Company and reasonably acceptable to
Participant;
(iii) cooperate with the Company in good faith in order to effectively
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim.
Without limitation on the foregoing provisions of this Section 11(c), the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct Participant to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
Participant agrees to prosecute such contest to a determination before any
administration tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that the
Company shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold Participant harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of the contest; provided, further, that if the Company
directs Participant to pay any claim and sue for a refund, the Company shall
advance the amount of the payment to Participant, on an interest-free basis, and
shall indemnify and hold Participant harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to the advance or with respect to any imputed income with
respect to the advance.
(d) In the event that the Company exhausts its remedies pursuant to Section
11(c) and Participant thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Gross-Up Payment
required and such payment shall be promptly paid by the Company to or for the
benefit of Participant.
(e) If, after the receipt by Participant of an amount advanced by the
Company pursuant to Section 11(c), Participant becomes entitled to receive any
refund with respect to such claim, Participant shall
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<PAGE>
promptly after receiving such refund pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Participant of an amount advanced
by the Company pursuant to Section 11(c), a determination is made that
Participant shall not be entitled to any refund with respect to such claim and
the Company does not notify Participant in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in Section 11(a)
shall not apply to a Participant if, in the opinion of Tax Counsel or the
Accounting Firm, (i) the total amounts payable to the Participant hereunder and
under any other agreement, arrangement or plan as a result of a change of
control (calculated without regard to the limitation of Section 11(a)), reduced
by the amount of excise tax imposed on the participant under Code Section 4999
with respect to all such amounts and reduced by the state and federal income
taxes on amounts paid in excess of the limitation set forth in Section 11(a),
would exceed (ii) such total amounts payable after application of the limitation
of Section 11(a). No Gross-Up Payment shall be made in such case.
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<PAGE>
WADDELL & REED FINANCIAL, INC.
PROXY
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS OF
WADDELL & REED FINANCIAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Keith A. Tucker and Henry J. Herrmann,
jointly and severally with full power of substitution, to represent and vote, as
represented on the reverse side, all shares of Company Class A and Class B
common stock which the undersigned holds of record and is entitled to vote at
the Annual Meeting of Stockholders to be held at the executive offices of the
Company, 6300 Lamar Avenue, Overland Park, Kansas 66202 on the 26th day of April
2000 at 10:00 a.m. (CDT), or any adjournment thereof. All shares votable by the
undersigned, including shares held of record by agents or trustees for the
undersigned as a participant in the Waddell & Reed Financial, Inc. 401(k) and
Thrift Plan, Torchmark Corporation Savings and Investment Plan, Liberty National
Life Insurance Company 401(k) Plan and the Profit Sharing and Retirement Plan of
Liberty National Life Insurance Company, will be voted in the same manner
specified and in the discretion of the persons named above, or such agents or
trustees, on such other matters as may properly come before the meeting.
ELECTION OF DIRECTORS:
David L. Boren, Joseph M. Farley, Robert L. Hechler, Harold T. McCormick
(change of address/comments)
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes [ X ]
as in this example
THIS PROXY WHEN PROPERLY SIGNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3, 4 AND 5. THE PROXIES WILL USE THEIR DISCRETION WITH
RESPECT TO ANY MATTER REFERRED TO IN PROPOSAL 6. THIS PROXY IS REVOCABLE AT ANY
TIME BEFORE IT IS EXERCISED.
The Board of Directors recommends a vote FOR:
FOR WITHHELD
1. Election of Directors (see reverse) [__] [__]
FOR, except vote withheld from the following nominee(s):
_____________________________________________________
(Instruction: To withhold authority to vote for any
individual nominees, write that nominee's name here.)
2. Approval of the Waddell & Reed Financial, Inc. 1998 Stock Incentive
Plan, as amended, to comply with Section 162(m) of the Internal Revenue
Code.
FOR AGAINST ABSTAIN
[__] [__] [__]
3. Approval of an increase in shares authorized for issuance under the
Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan, as amended.
FOR AGAINST ABSTAIN
[__] [__] [__]
4. Approval of the Waddell & Reed Financial, Inc. 1998 Executive Deferred
Compensation Stock Option Plan, as amended, to comply with Section
162(m) of the Internal Revenue Code.
FOR AGAINST ABSTAIN
[__] [__] [__]
5. Ratification of the selection of KPMG LLP as independent accountants
for the fiscal year 2000.
FOR AGAINST ABSTAIN
[__] [__] [__]
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
IMPORTANT - PLEASE SIGN EXACTLY AS NAME
APPEARS BELOW AND RETURN PROMPTLY. When
shares are held by joint tenants, both
should sign. When signing as attorney,
executive administrator, trustee or
guardian, please give full title as such. If
a corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.
RECEIPT HEREWITH OF THE COMPANY'S ANNUAL REPORT AND NOTICE OF MEETING AND PROXY
STATEMENT, DATED MARCH 24, 2000, IS HEREBY ACKNOWLEDGED.
<PAGE>
Signature ____________________ Signature if held jointly ______________________
Dated ______________ ___, 2000
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
WADDELL & REED FINANCIAL, INC.
--------------------------------
VOTER CONTROL NUMBER PRINTS HERE
--------------------------------
SHAREHOLDER NAME
AND ADDRESS PRINTS HERE
Dear Stockholder:
If voting by proxy, we encourage you to vote your shares electronically this
year either by telephone or via the Internet. This will eliminate the need to
return your proxy card. Your telephone or Internet vote authorizes the named
proxies to vote your shares in the same manner as if you had marked, signed and
retained your proxy card. You will need your proxy card and Social Security
Number (where applicable) when voting your shares electronically. The Voter
Control Number that appears in the box above, just below the perforation, must
be used in order to vote by telephone or via the Internet.
The EquiServe Vote by Telephone and Vote by Internet systems can be accessed
24-hours a day, seven days a week up until the day prior to the meeting.
TO VOTE BY TELEPHONE:
Using a touch-tone phone call Toll-free: 1-877-PRX-VOTE (1-877-779-8683)
From outside the United States, call direct: 1-201-536-8073
TO VOTE BY INTERNET:
Log on to the Internet and go to the website: HTTP://WWW.EPROXYVOTE.COM/WDR
NOTE: IF YOU VOTE OVER THE INTERNET, YOU MAY INCUR COSTS SUCH AS
TELECOMMUNICATION AND INTERNET ACCESS CHARGES FOR WHICH YOU WILL BE RESPONSIBLE.
THANK YOU FOR VOTING YOUR SHARES
YOUR VOTE IS IMPORTANT!
DO NOT RETURN THIS PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET.
Stockholder Inquiries
For General Information Concerning Your Stock,
Call (800) 532-2757
<PAGE>
WADDELL & REED FINANCIAL, INC.
2000 TELEPHONE VOTING SCRIPT
TOLL FREE: 1-877-PRX-VOTE OR 1-877-779 8683
1. Welcome to the electronic voting system. Please have your proxy card or
voting instruction sheet or ballot available before voting.
2. Enter the Voter Control Number as it appears on the card followed by the
pound sign.
3. One moment please while we verify your information.
4. Enter the last four digits of the U.S. Social Security number or the U.S.
taxpayer identification number for this account followed by the pound sign.
5. The company that you are voting is Waddell & Reed Financial, Inc.
6. Your vote is subject to the same terms and authorizations as indicated on
the proxy card. It also authorizes the named proxies to vote according to
the instructions at the meeting of the stockholders.
7. To vote all proposals in accordance with the recommendations of the Board
of Directors, press 1. If you wish to vote on one proposal at a time, press
2.
If 1, go to PLAYBACK.
If 2, go to 8.
8. Item #1. To vote for all nominees press 1. To withhold all nominees press
2. To withhold from individual nominees press 3.
If 1, go to 9.
If 2, go to 9.
If 3, go to DIRECTOR EXCEPTION.
DIRECTOR EXCEPTION
Enter the 2-digit number next to the nominee from whom you would like to
withhold your vote followed by the pound key. Or if you have completed voting on
directors, press the pound key again.
If pound key entered twice, go to the next item.
If valid nominee number, go to NEXT NOMINEE.
NEXT NOMINEE
To withhold your vote from another nominee, enter the 2-digit number next to the
nominee followed by the pound key, or if you have completed voting on directors
press the pound key again.
<PAGE>
If pound key entered twice, go to the next item.
If valid nominee number, go to NEXT NOMINEE.
INVALID NOMINEE NUMBER
You have entered an invalid nominee number.
{Go to NEXT NOMINEE}
9. Item #2. To vote for, press 1; against, press 2; abstain,
press 3.
If 1, go to 10.
If 2, go to 10.
If 3, go to 10.
10. Item #3. To vote for, press 1; against, press 2; abstain,
press 3.
If 1, go to 11.
If 2, go to 11.
If 3, go to 11.
11. Item #4. To vote for, press 1; against, press 2; abstain,
press 3.
If 1, go to 12.
If 2, go to 12.
If 3, go to 12.
12. Item #5. To vote for, press 1; against, press 2; abstain,
press 3.
If 1, go to 13.
If 2, go to 13.
If 3, go to 13.
13. If you would like to attend the annual meeting, press 1. If
not, press 2.
If 1, got to 14.
If 2, go to 14.
14. If you would like to discontinue mailing an annual report to
this account, press 1. If not, press 2
If 1, go to 15.
If 2, go to 15.
15. You have cast your vote as follows:
PLAYBACK {Playback the appropriate vote for this proxy card.}
DEFAULT PLAYBACK
You have voted in the manner recommended bythe Board of
Directors.
DIRECTOR PROPOSAL PLAYBACK
VOTED FOR ALL NOMINEES: Item #. You have voted for all
nominees.
WITHHOLD FROM ALL NOMINEES: Item #. You have voted to withhold
your vote from all nominees.
<PAGE>
WITHHOLD FROM INDIVIDUAL NOMINEES: Item #. You have voted for
all nominees except for the following nominee numbers
FOR/AGAINST/ABSTAIN PROPOSAL PLAYBACK
Item # {For / Against / Abstain}
16. To confirm your vote, press 1. To cancel your vote, press 2.
If 1, go to 18.
If 2, go to 17.
17. Your vote has been cancelled. If you wish to vote another
card, press 1. Otherwise, please hang up and mark, sign, and
return your card in the envelope provided. Thank you for
calling.
18. Your vote has been successfully recorded. It is not necessary
for you to mail your card. If you wish to vote another card or
change your vote, press 1. Otherwise, please hang up. Thank
you for voting.
INVALID CONTROL NUMBERS
We are unable to authenticate the information you entered.
NO KEY PRESSED
Go to the same item (repeat three times); otherwise, go to Error.
INVALID NUMBER
Go to the same item (repeat three times); otherwise, go to Error.
ERROR
We are unable to process your request at this time. Thank you for calling.
{Call ends.}
