<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________
Commission file number 001-13913
WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0261715
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6300 LAMAR AVENUE
OVERLAND PARK, KANSAS
66202
(Address of principal executive offices)
(Zip Code)
(913) 236-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Shares outstanding of each of the registrant's classes of
common stock as of March 31, 2000:
CLASS OUTSTANDING AS OF MARCH 31, 2000*
- ------------------------------------- ---------------------------------
Class A Common stock, $.01 par value 27,756,610
Class B Common stock, $.01 par value 26,984,947
* The number of Class A and Class B shares are 41,633,725 and 40,476,188,
respectively after taking into account the 3-for-2 stock split effectuated
on April 7, 2000.
<PAGE>
WADDELL & REED FINANCIAL, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets at March 31, 2000 and December 31,
1999 3
Consolidated Statements of Operations for the three months ended
March 31, 2000 and March 31, 1999 4
Consolidated Statements of Comprehensive Income for the three
months ended March 31, 2000 and March 31, 1999 5
Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 2000 6
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and March 31, 1999 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II. Other Information
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
==================================================================================================
March 31, December 31,
2000 1999
ASSETS (unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 89,259 60,977
Investment securities, available-for-sale 61,047 90,245
Receivables:
United funds and W&R funds 11,596 7,597
Customers and other 36,321 19,541
Deferred income taxes 0 37
Prepaid expenses and other current assets 4,626 7,111
- --------------------------------------------------------------------------------------------------
Total current assets 202,849 185,508
Property and equipment, net 33,614 27,633
Deferred sales commissions, net 5,020 1,851
Goodwill (net of accumulated amortization of
$27,422 and $26,493) 171,414 112,994
Deferred income taxes 560 5,665
Other assets 2,285 1,422
- --------------------------------------------------------------------------------------------------
Total assets $ 415,742 335,073
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Liabilities:
Current liabilities:
Accounts payable $ 51,491 34,002
Accrued sales force compensation 19,179 14,578
Short term notes payable 220,200 125,307
Income taxes payable 25,672 8,284
Deferred income taxes 13 0
Other current liabilities 21,761 16,456
- --------------------------------------------------------------------------------------------------
Total current liabilities 338,316 198,627
Accrued pensions and post-retirement costs 10,966 10,103
Other liabilities 152 0
- --------------------------------------------------------------------------------------------------
Total liabilities 349,434 208,730
- --------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock (See table below) 997 997
Additional paid-in capital 237,648 238,434
Retained earnings 125,639 97,129
Deferred compensation (10,889) (11,246)
Treasury stock (See table below) (286,262) (198,360)
Accumulated other comprehensive income (825) (611)
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 66,308 126,343
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 415,742 335,073
==================================================================================================
Common stock
($.01 par value) 2000 1999
--------------- ---- ----
Class A Class B Class A Class B
------- ------- ------- -------
Authorized................ 225,000,000 150,000,000 225,000,000 150,000,000
Issued.................... 48,213,261 51,487,500 48,213,261 51,487,500
Outstanding............... 41,634,915 40,477,420 44,478,318 41,971,870
Treasury Stock............ 6,578,346 11,010,080 3,734,943 9,515,630
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited in thousands, except for per share data)
<TABLE>
<CAPTION>
========================================================================================================
For the three months
ended March 31,
2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Investment management fees $ 63,805 $ 37,316
Underwriting and distribution fees: 45,481 30,532
Shareholder service fees 11,294 9,702
Investment and other revenue 4,162 2,923
- --------------------------------------------------------------------------------------------------------
Total revenue 124,742 80,473
- --------------------------------------------------------------------------------------------------------
Expenses:
Underwriting and distribution 41,396 29,812
Compensation and related costs 14,001 9,137
General and administrative 6,612 4,051
Depreciation 631 533
Interest expense 2,499 863
Amortization of goodwill 929 726
- --------------------------------------------------------------------------------------------------------
Total expenses 66,068 45,122
- --------------------------------------------------------------------------------------------------------
Income before provision for income taxes 58,674 35,351
Provision for income taxes 22,548 13,368
- --------------------------------------------------------------------------------------------------------
Net income $ 36,126 $ 21,983
========================================================================================================
Net income per share:
- Basic $ 0.43 $ 0.24
- Diluted $ 0.41 $ 0.23
========================================================================================================
Weighted average shares outstanding:
- Basic 84,713 92,957
- Diluted 87,213 94,811
========================================================================================================
Dividends declared per common share $ 0.0884 $ 0.0884
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited in thousands)
<TABLE>
<CAPTION>
=====================================================================================================
For the three months
ended March 31,
2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 36,126 $ 21,983
Other comprehensive income:
Net unrealized appreciation (depreciation) of
investments during the period, net of income 1,092 (328)
taxes of $686 and $(204)
Reclassification adjustment for amounts included in
net income, net of income taxes of $(818) and $(193) (1,306) (308)
- -----------------------------------------------------------------------------------------------------
Comprehensive Income $ 35,912 $ 21,347
=====================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2000
(Unaudited in thousands)
<TABLE>
<CAPTION>
====================================================================================================================================
Accumulated
Additional other Total
Common Stock paid-in Retained Deferred Treasury comprehensive stockholders'
Shares Amount capital earnings Compensation Stock income equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 99,701 $ 997 238,434 97,129 (11,246) (198,360) (611) 126,343
Net income 0 0 0 36,126 0 0 0 36,126
Recognition of deferred compensation 0 0 0 0 357 0 0 357
Dividends paid 0 0 0 (7,616) 0 0 0 (7,616)
Exercise of stock options, net 0 0 (786) 0 0 3,095 0 2,309
Treasury stock purchases 0 0 0 0 0 (90,997) 0 (90,997)
Unrealized loss on investment
securities 0 0 0 0 0 0 (214) (214)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 99,701 $ 997 237,648 125,639 (10,889) (286,262) (825) 66,308
====================================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited in thousands)
<TABLE>
<CAPTION>
==========================================================================================
For the three months
ended March 31,
2000 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 36,126 $ 21,983
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,577 1,259
Recognition of deferred compensation 357 339
(Gain)/Loss on sale of investments (2,096) 0
Loss on sale and retirement of fixed assets 12 0
Capital gains and dividends reinvested (43) (28)
Deferred income taxes 5,352 736
Changes in assets and liabilities
(net of acquisition):
Receivables from funds (3,999) (2,271)
Other receivables (9,624) 841
Other assets (1,112) (1,646)
Accounts payable 17,453 12,374
Other liabilities 19,762 7,234
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 63,765 40,821
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to investment securities (6,833) (2,247)
Proceeds from sale of investment securities 37,761 0
Proceeds from maturity of investment securities 502 74
Additions of property and equipment (5,604) (1,635)
Investment in real estate 0 462
Acquisition of Legend (net of $1,113 cash acquired) (60,005) 0
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (34,179) (3,346)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings on credit facility 95,000 40,000
Cash dividends (7,616) (8,324)
Purchase of treasury stock (90,997) (35,484)
Exercise of stock options 2,309 34
- ------------------------------------------------------------------------------------------
Net cash used in financing activities (1,304) (3,774)
- ------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 28,282 33,701
Cash and cash equivalents at beginning of period 60,977 30,180
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 89,259 $ 63,881
==========================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
WADDELL & REED FINANCIAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES AND BASIS OF PRESENTATION:
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Waddell & Reed Financial, Inc. and subsidiaries ("Company") derive their
revenue primarily from investment management, administration, distribution and
related services provided to the United mutual funds ("United"), Waddell & Reed
mutual funds ("W&R"), Target/United mutual funds ("Target") and institutional
accounts in the United States.
BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments consisting of normal recurring
adjustments, necessary to present fairly the results of its operations and its
cash flows for the periods ended March 31, 2000 and 1999 and its financial
position at March 31, 2000. These financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1999, from which the accompanying balance sheet as of December 31,
1999 was derived. The operating results and cash flows for the periods ended
March 31, 2000 and 1999 are not necessarily indicative of the results that will
be achieved in future periods.
STOCK SPLIT
On February 23, 2000, the Company declared a three-for-two stock split
on the Company's Class A and Class B common stock payable on April 7, 2000 to
stockholders of record as of March 17, 2000. All per share and shares
outstanding data in the consolidated financial statements and related notes
have been restated to reflect the stock split for all periods presented.
ACQUISITION OF SUBSIDIARY
On March 31, 2000, the Company completed its acquisition of The
Legend Group, a privately-held mutual fund distribution and retirement
planning company based in Palm Beach Gardens, Florida. The acquisition has
been accounted for as a purchase and, accordingly, the results of The Legend
Group will be included with those of the Company commencing on the date of
acquisition. The purchase price of approximately $61,118,000 million,
including direct costs, has been allocated to the assets acquired and
liabilities assumed resulting in goodwill of approximately $59,348,000
million, which will be amortized on a straight line basis over 25 years.
8
<PAGE>
The purchase agreement provides for additional purchase price payments
contingent upon the achievement by The Legend Group of specified earnings levels
over the next three years. These contingent payments could aggregate to as much
as $14.0 million.
A summary of the net assets acquired is as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired
Cash and cash equivalents $ 1,113
Accounts receivable 7,156
Goodwill 59,348
Other assets 1,989
---------
Total 69,606
Liabilities assumed 8,488
---------
Total purchase price $ 61,118
=========
</TABLE>
The table below presents supplemental pro forma information for the first
quarters of 2000 and 1999 as if The Legend Group acquisition were made on
January 1, 1999 (instead of the actual closing date, March 31, 2000) at the
same purchase price, based on estimates and assumptions considered
appropriate:
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------
March 2000 March 1999
---------- ----------
<S> <C> <C>
Revenues $ 136,425 $ 89,315
Net Income 36,392 21,953
Net Income per common share
Basic $0.43 $ 0.24
Diluted $0.42 $ 0.23
</TABLE>
LIQUIDITY AND CAPITAL
On February 23, 2000, the Company declared a dividend payable on May 1,
2000 in the amount of $.0884 per share to stockholders of record as of April
17, 2000. The total dividend paid was $7,281,000 million.
For the three month period ended March 31, 2000, the Company repurchased
4,524,300 Class A and Class B common shares at an average price of $20.09 per
share, on a post-split basis.
The Company has a $220 million, 364-Day revolving credit facility at an
interest rate of LIBOR plus .625%. As of March 31, 2000, the outstanding
balance on this facility was $220 million. During the quarter, the Company
had net borrowings of $95 million. The primary uses of the borrowed funds
were to repurchase stock under the stock repurchase program and to acquire
The Legend Group.
EARNINGS PER SHARE
Basic earnings per share for the 2000 and 1999 periods are based on the
average number of
9
<PAGE>
shares outstanding for the periods ended March 31, 2000 and 1999,
respectively. Diluted earnings per share for these periods also includes the
dilutive impact of stock options.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS OR STRATEGIES REGARDING
THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT INCLUDED
IN THIS FORM 10-Q REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS
STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE OPERATIONS ARE
FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
FORM 10-Q ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE
HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS AND
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT
OR THAT THE COMPANY WILL TAKE ANY ACTIONS THAT MAY PRESENTLY BE PLANNED AND
NEITHER THE COMPANY NOR ANY OTHER PERSON WILL BE RESPONSIBLE FOR THE ACCURACY
OR COMPLETENESS OF ANY SUCH FORWARD-LOOKING STATEMENTS. CERTAIN IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ARE DISCLOSED IN THE "RISK FACTORS" SECTION OF THE
COMPANY'S FORM 10-K ANNUAL REPORT, WHICH INCLUDE, WITHOUT LIMITATION, THE
ADVERSE EFFECT FROM A DECLINE IN SECURITIES MARKETS OR IF THE COMPANY'S
PRODUCTS' PERFORMANCE DECLINES, FAILURE TO RENEW INVESTMENT MANAGEMENT
AGREEMENTS, COMPETITION, CHANGES IN GOVERNMENT REGULATION, AVAILABILITY AND
TERMS OF CAPITAL, YEAR 2000 UNCERTAINTIES, ACQUISITION STRATEGY OR
IMPLEMENTATION, A RISK THAT THE EXPECTED PROFITS FROM THE MUTUAL FUND PRODUCT
RESTRUCTURING AND THIRD-PARTY DISTRIBUTION MAY NOT COME TO FRUITION AND OTHER
RISKS AS SET OUT IN THE REPORTS FILED BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION. SHOULD ONE OR MORE OF THESE RISKS MATERIALIZE OR SHOULD
THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE FORECASTED OR EXPECTED. ALL SUBSEQUENT WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS. UPDATED
INFORMATION WILL BE PERIODICALLY PROVIDED BY THE COMPANY AS REQUIRED BY THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.
OVERVIEW
The Company derives its revenues primarily from providing investment
management, distribution and administrative services to the United, W&R and
Target/United funds, as well as to institutional and privately managed
accounts. Investment management fees, the Company's most substantial source
of revenue, are based on the amount of assets under management and the
management fee rates charged and are affected by sales levels, financial
market conditions, redemptions and the composition of assets. Underwriting
and distribution revenues consist of sales charges and commissions derived
from the sales of investment and insurance products and distribution fees.
The products sold have various sales charge structures and the revenues
received
10
<PAGE>
from sales of products vary based on the type and amount sold. Rule
12b-1 distribution and service fees earned for distributing shares of certain
mutual funds are based upon a percentage of assets and fluctuate based on
sales, redemptions, and financial market conditions. Service fees include
transfer agency fees, custodian fees for retirement plan accounts and
portfolio accounting fees.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AS COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1999
First quarter 2000 net income was $36.1 million or $.41 per share on a
diluted basis, compared with net income of $22.0 million or $.23 per share
for the prior year's first quarter, as adjusted for the three-for-two stock
split announced March 7, 2000. Net income per share increased 78.3% when
compared with net income per share for the same period in 1999. During the
first quarter of 2000, $2.1 million of pretax gains were realized from the
sales of marketable securities. Excluding these gains, first quarter net
income would have been $34.9 million or $0.40 per share on a diluted basis, a
73.9% increase over the same period in 1999. Operating revenues, excluding
investment and other income for the first quarter of 2000, were $120.6
million, up 55.5% over last year's first quarter.
Management fee revenues increased $26.5 million or 71.0% from 1999's
first quarter. Mutual fund management fees contributed $21.2 million or 80%
of the increase. Average mutual fund assets under management increased $8.8
billion or 35.4% as a result of investment performance and net sales. The
restructuring of the funds management fee arrangements implemented in July
1999, combined with greater composition of assets in funds with higher
management fee rates, pushed the aggregate average mutual fund management fee
rate to 67.9 basis points for the first quarter of 2000, up from 58.2 basis
points for last year's first quarter. Net sales and reinvested income also
provided growth. Management fee revenues from institutional and
privately-managed accounts increased $5.1 million to $6.9 million. Assets
managed by Austin, Calvert & Flavin, Inc. ("ACF"), acquired in August of
1999, contributed $2.8 million of this increase. The addition of
institutional growth equity accounts during 1999 and 2000 with higher
management fee rates was also a factor in the increase in revenues.
Total assets under management at March 31, 2000 totaling $41.5 billion
were composed of $35.4 billion in mutual fund assets and $6.1 billion in
institutional and private account assets. Mutual fund assets were up 40.3%
from the first quarter of 1999, while institutional and private account
assets were up 91.6% for the same period. Total assets under management were
up 46.1% from March 31, 1999.
Retail mutual fund net sales were $140.4 million for the first quarter
of 2000 compared to net redemptions of $18.5 million for the first quarter of
1999. The redemption rates on retail mutual funds were 7.7% and 8.8% for the
first quarters ended 2000 and 1999, respectively. Institutional net sales
were $120.6 million for the first quarter of 2000 compared to net redemptions
of $62.9 million for 1999's first quarter.
Underwriting and distribution revenues were $45.5 million, 49.0% higher
than last year's first quarter. Retail investment sales growth of 54.8% year
over year, (see table below) and productivity gains fueled this growth.
Commission revenue from front-end load mutual funds (United Class A) was
$20.6 million for the quarter, $5.3 million or 34.1% higher than the same
period last year. Commissions from variable annuity sales were $11.5 million,
$4.6 million or
11
<PAGE>
67.4% higher than last year's first quarter. Higher revenues also resulted
from the previously announced enhanced commission arrangement on variable
annuity products, effective January 1, 2000. These additional commissions
added $1.7 million to first quarter revenues.
12
<PAGE>
<TABLE>
<CAPTION>
Investment Sales ($ in thousands)
1Q00 1Q99 % CHANGE
---- ---- --------
<S> <C> <C> <C>
United Funds
Class A $ 456,254 $341,254 33.7%
Class B 111,219 -- N/A
Class C 25,795 -- N/A
-------- --------
Total United Funds 593,268 341,254 73.8
Waddell & Reed Funds
Class B -- 92,758 N/A
Class C 72,107 -- N/A
-------- --------
Total Waddell & Reed Funds 72,107 92,758 -22.3
Target/United funds (variable products) 155,380 96,168 61.6
-------- --------
Total Retail 820,755 530,180 54.8
Institutional 317,537 255,020 24.5
-------- --------
Total $1,138,292 $785,200 45.0
========== ========
</TABLE>
Revenues from back-end load (Class B and Class C shares) come primarily
from asset-based 12b-1 fees and to a lesser extent from sales charges paid on
early share redemptions (contingent deferred sales charges). Revenues from
back-end load funds were $4.3 million, up $1.8 million or 74%, in line with
the growth of Class B and Class C assets under management.
Sales force productivity, as measured by retail investment sales per
advisor, increased 43.6% from $225 thousand in the first quarter of 1999 to
$323 thousand for 2000's first quarter. First quarter sales productivity for
financial advisors with two years or more of tenure increased by $125
thousand or 37.3% from the first quarter of 1999. The total number of
financial advisors increased to 2,522, up 164 or 7.0% from last year's first
quarter.
Shareholder service fees from transfer agency, custodian, and
accounting services were $11.3 million for the first quarter of 2000, up
16.4% from the first quarter of last year. The increase was due primarily to
the 250 thousand increase in the average number of customer accounts,
representing a 15.9% increase over the year before. The number of shareholder
accounts was 1.82 million at March 31, 2000, compared to 1.55 million at
March 31, 1999.
Investment and other revenue, which consists primarily of interest
income from investment securities included a gain on the sale of securities
of $2.1 million in the first quarter of 2000. Excluding this gain, Investment
and other income was $2.1 million for the quarter ended March 31, 2000, down
from $2.9 million for the prior year's first quarter, due primarily to lower
balances in investment securities.
Underwriting and distribution expenses, consisting of direct costs and
indirect costs increased $11.6 million or 38.9%, while underwriting and
distribution revenues increased 49.0%. This provided for a distribution
margin of 9.0% compared with 2.4% for last year's first quarter. The
distribution margin came in at the higher end of management's previously
announced 5% - 10% range due primarily to higher sales and productivity
growth.
13
<PAGE>
Compensation and related costs increased $4.9 million or 53.2% from last
year's first quarter. Compensation related to ACF accounted for $1.0 million
of this increase. Performance based compensation increased by $1.5 million,
primarily as a result of superior relative performance of our mutual fund and
institutional accounts. A 23% increase in personnel and normal annual raises
accounted for the remaining increase. The Company continued to invest in
investment management, client service, and support personnel.
General and administrative expenses were $2.6 million higher due to a
variety of operating items. G&A costs of ACF were $0.3 million. Certain
information systems related costs were $0.7 million higher. Additional
factors contributing to the increase include higher costs for mutual fund
prospectuses, and shareholder communications brochures, consulting, and audit
services and space rent for our expanding operations.
Interest expense and related facility costs on the Company's $220.0
million credit facility were $2.5 million compared to $0.9 million for last
year's first quarter. The average amount outstanding on the credit facility
was $150.2 million and $59.1 million for the first quarters 2000 and 1999,
respectively. The average interest rate charged, excluding facility costs,
was 6.7% for the first quarter of 2000 compared with 5.4% for last year's
first quarter. The credit facility has been used to fund share repurchases
and acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and liquid marketable securities were $150.3
million at March 31, 2000, a decrease of $0.9 million from December 31, 1999.
Cash and cash equivalents included reserves of $24.1 million and $17.1
million for the benefit of customers in compliance with securities
regulations at March 31, 2000 and December 31, 1999, respectively.
Cash flow provided from operations was $63.8 million and $40.8 million
for the first quarter of 2000 and 1999, respectively. Cash flows used in
investing activities increased by $30.8 million during the first quarter of
2000 compared with the same period in the prior year. The increase was
attributed to cash used by the Company to acquire The Legend Group of $61.1
million, which was somewhat offset by the sale of investments securities of
$37.8 million during the period. Cash flows from financing activities during
the first quarter of 2000 included net inflows of $95 million provided by
additional borrowings on the Company's credit facility which were used to
fund stock repurchases and The Legend Group acquisition.
Management believes its available cash, marketable securities and
expected cash flow from operations will be sufficient to fund dividends,
obligations and operations as well as advance sales commissions and to meet
any other reasonably foreseeable cash needs. The $220 million credit
facility, expandable to $330 million, is also available for the Company's
use. The outstanding balance on the facility at March 31, 2000 was $220
million.
THE LEGEND GROUP ACQUISITION
On March 31, 2000, the Company completed its acquisition of The Legend
Group, a privately-held mutual fund distribution and retirement planning
company based in Palm Beach Gardens, Florida. Through its network of
approximately 300 financial advisors, The Legend Group serves employees of
school districts and other not-for-profit organizations nationwide.
14
<PAGE>
The acquisition has been accounted for as a purchase and, accordingly,
the results of The Legend Group will be included with those of the Company
commencing with the date of acquisition. The purchase price of approximately
$61.1 million, including direct costs, has been allocated to the assets
acquired and liabilities assumed resulting in goodwill of approximately $59.3
million which will be amortized on a straight line basis over 25 years. The
acquisition agreement provides for additional purchase price payments based
upon the achievement by The Legend Group of specified earnings levels over
the next three years. These payments could aggregate as much as $14.0 million.
The Company will offer its United and Waddell & Reed families of mutual
funds through Legend's financial advisors beginning in May 2000. These
funds will be sold into Legend's various account types, including 403(b)
plans and asset allocation accounts.
STOCK SPLIT
On February 23, 2000, the Company declared a three-for-two stock split
on Waddell & Reed's Class A and Class B common stock payable to stockholders
of record as of March 17, 2000. The split entitled the stockholders of record
to receive one additional share for every two shares held on the record date,
along with cash for the value of fractional shares. Management believes that
over time the split will lead to a more liquid market for the Company's
shares.
STOCK REPURCHASE PROGRAM
The Company continued acquiring shares of its common stock by purchasing
3.0 million Class A and 1.5 million Class B shares (on a post stock split
basis) at an aggregate cost, including commissions, of $91.0 million during
the first quarter of 2000. The average price per share of these repurchases
was $20.09, on a post stock split basis.
THIRD-PARTY DISTRIBUTION
The Company intends to expand distribution into third-party channels
before the end of the year. The United Funds family will remain the Company's
proprietary fund family and will be sold only through Waddell & Reed and
Legend financial advisors. The Waddell & Reed Funds will be available for
sale through both Waddell & Reed financial advisors and third-party channels.
The Company is considering changing the names of its United Funds family and
its Waddell & Reed Funds family. In marketing the Waddell & Reed Funds
family, the Company will focus primarily on distribution environments that
provide significant opportunity for asset growth. These are likely to include
401(k) platforms, registered investment advisors and wrap programs. The
Company expects to begin selling into third-party environments by the fourth
quarter of 2000. These sales are not expected to be material to 2000
financial results, but should begin to have a meaningful impact in 2001.
15
<PAGE>
ASSETS UNDER MANAGEMENT
(amounts in millions)
<TABLE>\
<CAPTION>
ENDING
1Q 00 1Q 99 % change 4Q 99 % change
--------------------- --------
<S> <C> <C> <C> <C> <C>
Mutual Fund
Equity $31,186 $20,550 51.8% $27,523 13.3%
Fixed Income 3,289 3,944 -16.6 3,509 -6.3
Money Market 873 692 26.2 877 -0.5
---------- -------- -------
Total 35,348 25,186 40.3 31,909 10.8
Institutional and private accounts 6,132 3,201 91.6 5,393 13.7
--------- -------- -------
Total Assets Under Management $41,480 $28,387 46.1 $37,302 11.2
========= ======== =======
AVERAGE
1Q 00 1Q 99 % change
---------------------
Mutual Funds
Equity $29,270 $20,099 45.6%
Fixed Income 3,403 3,950 -13.8
Money Market 825 691 19.4
-------- --------
Total 33,498 24,740 35.4
Institutional and private accounts 5,722 3,176 80.2
--------- --------
Total Assets Under Management $39,220 $27,916 40.5
========= ========
OTHER ITEMS
1Q 00 1Q 99 % change
--------------------- --------
Retail Redemption Rate 7.68% 8.78%
Sales per advisor (000'S)
Total 323 225 43.6%
2 + Years * 460 335 37.3
0 to 2 Years ** 95 62 53.2
Other 164 102 60.8
Number of advisors
Total 2,522 2,358 7.0
2 + Years * 1,390 1,271 9.4
0 to 2 Years ** 1,132 1,087 4.1
Other 446 362 23.2
Number shareholder accounts 1,820,771 1,552,450 17.3
</TABLE>
* Advisors licensed with the Company for two or more years.
** Advisors licensed with the Company for less than two years.
INFORMATION SYSTEMS AND YEAR 2000 READINESS
16
<PAGE>
The Company believes its software programs and operating systems are
year 2000 compliant and ready for use beyond the year 2000.
The Company is not currently aware of any material year 2000 problem
relating to any of its material internal software programs or operating
systems. Its internal operation and business are also dependent upon the
computer-controlled systems of third parties such as our suppliers, customers
and other service providers. The Company believes that, absent a systemic
failure outside its control, such as a prolonged loss of electrical or
telecommunications service, year 2000 problems at third parties will not have
a material impact on its operations. The failure of the Company's internal
systems or the systems of third parties to be year 2000 ready could
temporarily prevent the Company from providing service to its customers and
could require the Company to devote significant resources to correct such
problems. The costs associated with remediating any year 2000 problems have
not, in the opinion of management, been material to date. Although the
Company does anticipate that these costs will be material in the future,
there can be no assurance that these costs will not be material.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 31, 1999, there has been no material change in the
information provided in Item 7A of the 1999 Form 10-K Annual Report.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). The
1995 Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide information without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected. Although the
Company does not anticipate that it will make forward-looking statements as a
general policy, the Company will make forward-looking statements as required
by law or regulation, and from time to time may make such statements with
respect to management's estimation of the future operating results and
business of the Company.
The Company hereby incorporates into this report by reference to its
Form 10-K for the year ended December 31, 1999, the cautionary statements
found on pages 25-29 of such Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Purchase Agreement, dated as of February 28, 2000, by and among Waddell
& Reed Financial, Inc., Freemark Investment Management, Inc., Legend
Financial Corporation, Advisory Services Corporation, Performance
Management Group, Inc., Service
17
<PAGE>
Management Advisory Corporation, The Legend Group, Inc., Philip C.
Restino, Restino Family Trust, 01/02/94 Trust FBO John J. Restino,
01/02/94 Trust FBO Robert R. Restino, Mark J. Spinello, Glenn T.
Ferris and David L. Phillips. Filed as Exhibit 2.1 on the Company's
Current Report on Form 8-K, dated March 31, 2000 and incorporated
herein by reference.
10.2 Amended and Restated 1998 Executive Deferred Compensation Stock Option
Plan.
10.3 Amended and Restated 1998 Stock Incentive Plan.
10.4 Letter Agreement Amending Principal Underwriting Agreement, dated as of
July 8, 1999, by and between the United Investors Life Insurance
Company and Waddell & Reed, Inc. effective January 1, 2000.
27 Financial Data Schedule.
(b) Reports on Form 8-K
A Form 8-K dated February 28, 2000 was filed to announce the proposed
acquisition of The Legend Group of Companies, a private mutual fund
distribution and retirement planning company based in Palm Beach Gardens,
Florida. No financial statements were required to be filed.
A Form 8-K dated March 7, 2000 was filed to announce a three-for-two stock
split effective April 7, 2000 for stockholders of record on March 17, 2000.
No financial statements were required to be filed.
A Form 8-K dated March 31, 2000 was filed to report the acquisition of The
Legend Group of Companies, a Palm Beach Gardens, Florida based private mutual
fund distribution and retirement planning company. Financial statements will
be filed by amendment within the required time frame.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 15th day of May, 2000.
WADDELL & REED FINANCIAL, INC.
By: /s/ John E. Sundeen, Jr.
-------------------------
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By: /s/ D. Tyler Towery
-------------------------
Vice President and
Controller
(Principal Accounting Officer)
19
<PAGE>
Exhibit 10.2
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.
<PAGE>
"Business Day" shall mean a day on which the New York Stock Exchange or
any national securities exchange or over-the-counter market on which the Shares
are traded is open for business.
"Change in Control" means any of the following that occurs more than
twelve months after the date of the Company's initial public offering:
(i) when any "person", as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company or a subsidiary thereof or
any Company employee benefit plan), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the
Company that is required to be described pursuant to the requirements of Item
6(e) of Schedule 14A of Regulation 14A of the Securities and Exchange Commission
under the Exchange Act;
(iii) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board, cease for any reason other than death to constitute at
least a majority thereof, unless each director who was not a director at the
beginning of such period was elected by, or on the recommendation of, at least
two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company
or a subsidiary thereof through the purchase of assets, by merger, or otherwise.
"Committee" means the Compensation Committee of the Board.
"Company" means Waddell & Reed Financial, Inc., a Delaware corporation.
"Covered Employee" means an individual defined in Section 162(m)(3) of
the Internal Revenue Code of 1986, as amended, with respect to the Company.
"Disability" means total and permanent disability as determined under the
Company's long term disability program, whether or not the Optionee is covered
under such program. If no such program is in effect, the Disability of a
Participant shall be determined in good faith by the Board (excluding the
Participant).
"Eligible Executive" means an executive officer of the Company or any of
its affiliates, as such officers may be selected by the Chairman of the Board of
Directors or the Committee or its designee from year to year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
"Fair Market Value" means, as of any given date, the closing price of the
Stock on such date on the New York Stock Exchange Composite Tape.
"Interest Account" means the Interest Account for Bonus and/or the
Interest Account for Salary, as the context requires. The maintenance of
individual Interest Accounts is for bookkeeping purposes only.
"Interest Account for Bonus" means the account established by the Company
for each Participant for Annual Bonus deferred pursuant to the Plan and which
shall be credited with interest on the last day of each calendar quarter (or
such other day as determined by the Plan Administrator).
"Interest Account for Salary" means the account established by the
Company for each Participant for Salary deferred pursuant to the Plan and which
shall be credited with interest on the last day of each calendar quarter (or
such other day as determined by the Plan Administrator).
"Option" means an option to purchase Shares awarded under Article 6.
Options granted under the Plan are not incentive stock options within the
meaning of Section 422 of the Internal Revenue Code.
"Option Grant Date" means the date upon which an Option is granted to an
Eligible Executive pursuant to Article 6.
"Optionee" means an Eligible Executive of the Company to whom an Option
has been granted or, in the event of such Eligible Executive's death prior to
the expiration of an Option, such Eligible Executive's Beneficiary.
"Participant" means any Eligible Executive who is participating in the
Plan.
"Plan" means the Waddell & Reed Financial, Inc. 1998 Executive Deferred
Compensation Stock Option Plan.
"Plan Administrator" means the Committee or its delegee of administrative
duties under the Plan pursuant to Section 3.2.
"Primary Election Form" means a Primary Election Form for Salary and/or a
Primary Election Form for Bonus, as the context requires.
"Primary Election Form for Bonus" means a form, substantially in the form
attached hereto as Exhibit B, pursuant to which an Eligible Executive elects to
defer Bonus under the Plan.
<PAGE>
"Primary Election Form for Salary" means a form, substantially in the
form attached hereto as Exhibit A, pursuant to which an Eligible Executive
elects to defer Salary under the Plan.
"Salary" means the salary payable by the Company to an Eligible Executive
for services to the Company or any of its affiliates, as such amount may be
changed from time to time.
"Salary Deferral Election Date" means the date established by the Plan as
the date by which a Participant must submit a valid Primary Election Form for
Salary to the Plan Administrator in order to defer Salary under the Plan for a
calendar quarter. For each calendar quarter, the Salary Deferral Election Date
is the last day of the preceding calendar quarter.
"Secondary Election Form" means a Secondary Election Form for Salary
and/or a Secondary Election Form for Bonus, as the context requires.
"Secondary Election Form for Bonus" means a form, substantially in the
form attached hereto as Exhibit D, pursuant to which an Eligible Executive
elects to convert previously deferred Annual Bonus to Options pursuant to
Section 6.1 of the Plan.
"Secondary Election Form for Salary" means a form, substantially in the
form attached hereto as Exhibit C, pursuant to which an Eligible Executive
elects to convert previously deferred Salary to Options pursuant to Section 6.1
of the Plan.
"Shares" means shares of the Class A common stock of the Company, par
value $.01.
"Stock Option Award Notice" means a written award notice to an Eligible
Executive from the Company evidencing an Option.
ARTICLE 3. ADMINISTRATION OF THE PLAN.
SECTION 3.1. ADMINISTRATOR OF THE PLAN. The Plan shall be administered by
the Committee. 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.
<PAGE>
SECTION 3.3. EFFECT OF COMMITTEE DETERMINATIONS. No member of the
Committee or the Board or the Plan Administrator shall be personally liable for
any action or determination made in good faith with respect to the Plan or any
Option or to any settlement of any dispute between an Eligible Executive and the
Company. Any decision or action taken by the Committee or the Board with respect
to an Option or the administration or interpretation of the Plan shall be
conclusive and binding upon all persons.
ARTICLE 4. PARTICIPATION.
SECTION 4.1. ELECTION TO PARTICIPATE. The Chairman of the Board or the
Committee or its designee shall designate each year those executives who shall
be Eligible Executives for the coming year. An Eligible Executive may
participate in the Plan by delivering to the Plan Administrator a properly
completed and signed (i) Primary Election Form for Salary on or before the
Salary Deferral Election Date, and/or (ii) Primary Election Form for Bonus on or
before the Bonus Deferral Election Date. An Eligible Executive's participation
in the Plan will be effective (i) as of the first day of the calendar quarter
beginning after the Plan Administrator receives the Eligible Executive's Primary
Election Form for Salary, or (ii) as of the first day of the year for which an
Annual Bonus is earned, in the case of an Eligible Executive's Primary Election
Form for Bonus. A Participant shall not be entitled to any benefit hereunder
unless such Participant has properly completed a Primary Election Form and
deferred the receipt of his or her Annual Bonus and/or Salary pursuant to the
Plan.
SECTION 4.2. IRREVOCABLE ELECTION. A Participant may not revoke or change
his or her Primary Election Form; provided, however, that a Participant may, by
filing a Secondary Election Form with the Plan Administrator within the period
provided in the Plan, subsequently elect to convert the balance in his or her
Interest Account to Options in accordance with Article 6.
SECTION 4.3. PRIOR PARTICIPATION IN TORCHMARK PLAN. An Eligible Executive
who participated in the Torchmark Corporation 1996 Executive Deferred
Compensation Stock Option Plan ("Torchmark Plan"), had elected to defer Salary
or Bonus under the Torchmark Plan, and was eligible to convert such deferred
amounts into options under the Torchmark Plan, but had not done so as of the
date of the Company's initial public offering, may elect to transfer this 1997
Interest Account for Salary, and/or 1997 Interest Account for Bonus, from the
Torchmark Plan to this Plan. Thereafter, such Eligible Executive may elect to
convert such account(s) into Options pursuant to Article 6 below, no later than
December 31, 1998.
SECTION 4.4. NO RIGHT TO CONTINUE AS AN EMPLOYEE. Nothing contained in
the Plan shall be deemed to give any Eligible Executive the right to be retained
as an employee of the Company or any of its affiliates.
<PAGE>
ARTICLE 5. PLAN BENEFITS.
SECTION 5.1. DEFERRED ANNUAL BONUS OR SALARY. An Eligible Executive may
elect to defer up to 100% (in increments of 10% or $10,000) of his or her Annual
Bonus and/or Salary to his or her Interest Account, and/or by conversion to
Options in accordance with the terms of the Plan. For bookkeeping purposes, the
amount of the Annual Bonus and/or Salary which an Eligible Executive elects to
defer pursuant to the Plan shall be transferred to and held in individual
Interest Accounts (in annual designations) pending distribution in cash or the
conversion to Options, if applicable, pursuant to Article 6.
SECTION 5.2. TIME OF ELECTION OF DEFERRAL. An Eligible Executive who
wishes to defer Salary for a calendar quarter must irrevocably elect to do so on
or prior to the Salary Deferral Election Date for such calendar quarter, by
delivering a valid Primary Election Form for Salary to the Plan Administrator.
The Primary Election Form for Salary shall indicate: (1) the percentage of
Salary to be deferred, and (2) the form and timing of payout of deferred
amounts; provided, however, that if a Participant elects to defer Salary for
more than one quarter during a particular calendar year, the form and timing of
payout for each quarter's deferral shall be identical. An Eligible Executive who
wishes to defer Annual Bonus for a calendar year must irrevocably elect to do so
on or prior to the Bonus Deferral Election Date for such calendar year, by
delivering a valid Primary Election Form for Bonus to the Plan Administrator.
The Primary Election Form for Bonus shall indicate: (1) the percentage of Annual
Bonus to be deferred, and (2) the form and timing of payout of deferred amounts;
provided, however, that if a Participant elects to defer both Salary and Annual
Bonus for a particular calendar year, the form and timing of payout for each
shall be identical.
SECTION 5.3. INTEREST ACCOUNTS. Amounts in a Participant's Interest
Account will be credited with interest as of the last day of each calendar
quarter (or such other day as determined by the Plan Administrator, which, in
the case of amounts converted to Options under the Plan, shall be the date of
such conversion) at the rate set from time to time by the Committee to be
applicable to the Interest Accounts of all Participants under the Plan. To the
extent required for bookkeeping purposes, a Participant's Interest Accounts will
be segregated to reflect deferred compensation on a year-by-year basis and on
the basis of the type of compensation deferred. For example, a 1998 Interest
Account for Bonus, a 1998 Interest Account for Salary, a 1999 Interest Account
for Bonus, a 1999 Interest Account for Salary, and so on. Within a reasonable
time after the end of each calendar year, the Plan Administrator shall report in
writing to each Participant the amount held in his or her Interest Accounts at
the end of the year.
SECTION 5.4. RESPONSIBILITY FOR INVESTMENT CHOICES. Each Participant is
solely responsible for any decision to defer Annual Bonus and/or Salary into his
or her Interest Account or convert Annual Bonus and/or Salary to Options under
the Plan and accepts all investment risks entailed by such decision, including
the risk of loss and a decrease in the value of the amounts he or she elects to
defer.
<PAGE>
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
<PAGE>
ceases to be an employee of the Company or any of its subsidiaries or affiliates
and becomes a proprietor, officer, partner, employee or otherwise becomes
affiliated with any business that is in competition with the Company or an
affiliated company, or becomes employed by any governmental agency having
jurisdiction over the activities of the Company or an affiliated company.
(f) EFFECT OF ADVERSE DETERMINATION. Notwithstanding the
Primary Election Form or any provision set forth herein, if the Internal Revenue
Service determines, for any reason, that all or any portion of the amounts
credited under this Plan is currently includable in the taxable income of any
Participant, then the amounts so determined to be includable in income shall be
distributed in a lump sum to such Participant as soon as practicable.
(g) PAYMENT TO BENEFICIARY. Upon the Participant's death, all
unpaid amounts held in the Participant's Account shall be paid to the
Participant's Beneficiary in a lump sum on the first Business Day of the fourth
month following the Participant's death.
SECTION 5.6. FINANCIAL HARDSHIP. The Plan Administrator may, in its sole
discretion, accelerate the making of payment to a Participant of an amount
reasonably necessary to handle a severe financial hardship of a sudden and
unexpected nature due to causes not within the control of the Participant. All
financial hardship distributions shall be made in cash in a lump sum. Such
payments will be made on a first-in, first-out basis so that the oldest
compensation deferred under the Plan shall be deemed distributed first in a
financial hardship.
SECTION 5.7. PAYMENT TO MINORS AND INCAPACITATED PERSONS. In the event
that any amount is payable to a minor or to any person who, in the judgment of
the Plan Administrator, is incapable of making proper disposition thereof, such
payment shall be made for the benefit of such minor or such person in any of the
following ways as the Plan Administrator, in its sole discretion, shall
determine:
(a) By payment to the legal representative of such minor or
such person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the
benefit of such minor or such person. The Plan Administrator shall make such
payments without the necessary intervention of any guardian or like fiduciary,
and without any obligation to require bond or to see to the further application
of such payment. Any payment so made shall be in complete discharge of the
Plan's obligation to the Participant and his or her Beneficiaries.
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
<PAGE>
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 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.
<PAGE>
(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 acceptable to the
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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
<PAGE>
Participant hereunder (after payment of the excise tax under Section 4999
of the Code with respect to any Excess Parachute Payment, and any state
and federal income taxes with respect to the Gross-Up Payment) to be
equal to the aggregate after-tax compensation and benefits he would have
received as if Sections 280G and 4999 of the Code had not been enacted.
(b) Subject to the provisions of Section 11(c), the amount of
any Gross-Up Payment and the assumptions to be utilized in arriving at
such amount, 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
<PAGE>
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 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.
<PAGE>
Exhibit 10.3
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.
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<PAGE>
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.
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
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<PAGE>
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 discretion, and any vesting acceleration features
3
<PAGE>
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
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<PAGE>
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.
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.
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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 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
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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
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Affiliate terminates by reason of Disability, any Stock Option held by such
optionee shall be immediately exercisable and may thereafter be exercised during
the period ending on the expiration of the stated term of such Stock Option. In
the event of termination of employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined
by the Committee, if an optionee's employment with the Company, any Subsidiary
and any Affiliate terminates by reason of Normal Retirement, any Stock Option
held by such optionee shall become immediately exercisable. A Stock Option held
by an optionee whose employment has terminated by reason of Normal Retirement
shall expire at the end of the stated term of such Stock Option, unless
otherwise determined by the Committee.
If an optionee's employment with the Company, any Subsidiary and any
Affiliate terminates by reason of Early Retirement, any Stock Option shall
terminate three years from the date of such Early Retirement or upon the
expiration of the stated term of the Stock Option, whichever is shorter, unless
otherwise determined by the Committee. In the event of Early Retirement, there
shall be no acceleration of vesting of the Stock Option unless otherwise
determined by the Committee at or after grant, and said Stock Option may only be
exercised to the extent it is or has become exercisable prior to termination of
the Stock Option.
In the event of termination of employment by reason of Retirement, if an
Incentive Stock Option is exercised after the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(i) TERMINATION FOR CAUSE. If the optionee's employment with the
Company, any Subsidiary and any Affiliate is terminated for Cause, the Stock
Option shall immediately be forfeited to the Company upon the giving of notice
of termination of employment.
(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
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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.
(n) 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
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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
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may be the fair market value of the Stock on the grant date. Such Director Stock
Options shall become first exercisable and have an option term as determined by
the Board in its discretion, provided however, that except as described in
Section 13 and in paragraph (e) of this section, no such Director Stock Option
shall be first exercisable until six months from the date of grant. All other
terms and conditions of such Director Stock Options shall be as established by
the Board in its sole discretion.
(c) METHOD OF EXERCISE. Any Director Stock Option granted pursuant to
the Plan may be exercised in whole or in part at any time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to the
Committee (including instruments providing for "cashless exercise"). 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.
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SECTION 7. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Non-Qualified Stock Option. In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Incentive Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise provided by the Committee at the time of grant, a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with paragraph (b) of this Section 7, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 7. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and this
Section 7 of the Plan; provided, however, that any Stock 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.
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(iii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be transferable under
paragraph (e) of Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related shall
be deemed to have been exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Stock to be issued under the
Plan.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of such
Stock Option.
(vi) In its sole discretion, the Committee may provide, at the
time of grant of a Stock Appreciation Right under this Section 7, that such
Stock Appreciation Right can be exercised only in the event of a "Change of
Control" and/or a "Potential Change of Control" (as defined in Section 13
below).
(vii) The Committee, in its sole discretion, may also provide
that in the event of a "Change of Control" and/or a "Potential Change of
Control" (as defined in Section 13 below) the amount to be paid upon the
exercise of a Stock Appreciation Right shall be based on the "Change of Control
Price" (as defined in Section 13 below).
SECTION 8. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and its Subsidiaries and
Affiliates to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price, if any, to be paid
by the recipient of Restricted Stock (subject to Section 8(b) hereof), the time
or times within which such awards may be subject to forfeiture, and all other
conditions of the awards. The Committee may also condition the grant and/or
vesting of Restricted Stock upon the attainment of specified performance goals,
or such other criteria as the Committee may determine, 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
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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 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.
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(iii) Subject to the provisions of the Restricted Stock Award
Agreement and this Section 8, upon termination of employment for any reason
other than Normal Retirement or death during the Restriction Period, all shares
still subject to restriction shall be forfeited by the participant, and the
participant shall only receive the amount, if any, paid by the participant for
such forfeited Restricted Stock.
SECTION 9. DEFERRED STOCK AWARDS.
(a) ADMINISTRATION. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company, its Subsidiaries and Affiliates
to whom, and the time or times at which, Deferred Stock shall be awarded, the
number of shares of Deferred Stock to be awarded to any participant, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions
of the award in addition to those set forth in paragraph (b) of this Section 9.
The Committee may also condition the grant and/or vesting of Deferred Stock upon
the attainment of specified performance goals, or such other criteria as the
Committee shall determine, in its sole discretion. The provisions of Deferred
Stock awards need not be the same with respect to each recipient.
(b) TERMS AND CONDITIONS. The shares of Deferred Stock awarded
pursuant to this Section 9 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned, transferred, pledged
or otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, (as defined below) where
applicable), share certificates shall be delivered to the participant, or his
legal representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) At the time of the award, the Committee may, in its sole
discretion, determine that amounts equal to any dividends declared during the
Deferral Period (or Elective Deferral Period) with respect to the number of
shares covered by a Deferred Stock award will be: (a) paid to the participant
currently; (b) deferred and deemed to be reinvested; or (c) that such
participant has no rights with respect thereto.
(iii) Subject to the provisions of the award agreement and this
Section 9, upon termination of employment for any reason during the Deferral
Period for a given award, the Deferred Stock in question shall be forfeited by
the participant.
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(iv) Based on performance and/or such other criteria as the
Committee may determine, the Committee may, at or after grant (including after
the participant's termination of employment), accelerate the vesting of all or
any part of any Deferred Stock award and/or waive the deferral limitations for
all or any part of such award.
(v) A participant may elect to defer further receipt of the
award for a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such terms as
are determined by the Committee, all in its sole discretion. Subject to any
exceptions adopted by the Committee, such election must generally be made at
least six months prior to completion of the Deferral Period for a Deferred Stock
award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms
of, a Deferred Stock award agreement executed by the Company and the
participant.
SECTION 10. LOAN PROVISIONS.
With the consent of the Committee, the Company may make, or arrange for,
a loan or loans to an employee with respect to the exercise of any Stock Option
granted under the Plan and/or with respect to the payment of the purchase price,
if any, of any Restricted Stock awarded hereunder. The Committee shall have full
authority to decide whether to make a loan or loans hereunder and to determine
the amount, term and provisions of any such loan or loans, including the
interest rate to be charged in respect of any such loan or loans, whether the
loan or loans are to be with or without recourse against the borrower, the terms
on which the loan is to be repaid and the conditions, if any, under which the
loan or loans may be forgiven.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the right of an
optionee or participant under a Stock Option, Director Stock Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock award theretofore
granted, without the optionee's or participant's consent.
Amendments may be made without stockholder approval except as required to
satisfy Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, stock
exchange listing requirements, or other regulatory requirements.
The Committee may amend the terms of any award or option (other than
Director Stock Options) theretofore granted, prospectively or retroactively, but
no such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted Stock
Options including
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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 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,
17
<PAGE>
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.
(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
18
<PAGE>
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
19
<PAGE>
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to Section 14(a), shall be paid by the
Company to the participant within five (5) days after the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and participant.
(c) Participant shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment by Company of a Gross-Up Payment. Such notification shall be
given no later than ten (10) business days after participant is informed
in writing of such claim and shall apprise the Company of the nature of
the claim and the date of requested payment. Participant shall not pay
the claim prior to the expiration of the thirty (30) day period following
the date on which it gives notice to the Company. If the Company notifies
participant in writing prior to the expiration of the period that it
desires to contest such claim, participant shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time
to time, 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,
20
<PAGE>
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, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable Federal or state
21
<PAGE>
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
22
<PAGE>
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.
23
<PAGE>
Exhibit 10.4
[LOGO] Anthony L. McWhorter FSA, MAAA
PRESIDENT
205-325-2758
FAX 205-325-2520
UNITED INVESTORS LIFE 2001 THIRD AVENUE SOUTH (35233) POST OFFICE BOX 10207,
BIRMINGHAM, ALABAMA 35202-0207
July 8, 1999
Mr. Robert Hechler
President
Waddell & Reed, Inc.
6300 Lamar
Shawnee Mission, KS 66202
Dear Bob:
As you requested, this letter will set forth some details of the agreement
that we reached over the telephone on Wednesday, July 7.
COMPENSATION PAYABLE TO WADDELL & REED BEGINNING 1/1/2000
For variable annuity contracts issued beginning 1/1/2000:
7.75% of premiums received, plus
.25% annually of variable assets, paid monthly beginning the FIRST month
For the in force block of variable annuity business (i.e., issues of 1999 and
earlier):
.20% annually of variable assets, paid monthly
CERTAIN VARIABLE ANNUITY PRODUCT FEATURES
In addition to product features previously proposed, we agree to the
following:
- 1.25% mortality & expense charge
- .15% admin. charge
- 7 year surrender charge period, with surrender charge pattern of 7%,
6, 5, 4, 3, 2, 1, 0%
- $25 contract maintenance fee, waived for accounts GREATER THAN $25,000
By agreeing to the foregoing arrangements, we acknowledge that Waddell & Reed
has withdrawn its consideration of possible relationships on attractive terms
with other third party insurance companies in order to establish a long-term
relationship with us. In doing so, Waddell & Reed has relied on our
representations with respect to our commitment to provide, jointly with
Waddell & Reed, a first-class, competitive product that is fully supported
and serviced by sufficient resources,
<PAGE>
Page 2
July 8, 1999
including personnel, systems and technology. We acknowledge that Waddell &
Reed will commit substantial resources to market and provide a first-class,
competitive product to its customers, and we agree that we will work
cooperatively with Waddell & Reed towards this end. Among other things, we
will cooperate with Waddell & Reed and commit the reasonable resources
necessary (a) to design, create, implement and introduce products and product
features that will be first-class and competitive and (b) to enhance and
improve such products and product features as the market for insurance
products and variable insurance products evolves. In addition, we acknowledge
that the breadth and quality of client service is an integral component of
providing a first-class, competitive product. Accordingly, we also agree to
commit the reasonable resources necessary, including, but not limited to,
personnel, systems and technology, to develop and/or acquire and implement
the services necessary to support and service clients who purchase the
products jointly offered by Waddell & Reed and us, and to enhance and improve
such services in order to remain fully competitive.
Bob, I believe this fully describes the items that we discussed regarding
compensation and product features. If you are in agreement with the foregoing
terms and conditions, please sign this letter below and return a copy to me
as soon as possible.
Sincerely,
/s/ Tony McWhorter
Anthony L. McWhorter
Accepted and agreed to this 12th
day of July, 1999.
Waddell & Reed, Inc.
By: /s/ Robert L. Hechler
----------------------------
Its: President
-----------------------
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS REPORTED IN THE QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> WADDELL & REED FINANCIAL, INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 89,259
<SECURITIES> 61,047
<RECEIVABLES> 47,917
<ALLOWANCES> 0
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<CURRENT-ASSETS> 202,849
<PP&E> 49,213
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<CURRENT-LIABILITIES> 338,316
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0
0
<COMMON> 997
<OTHER-SE> 65,311
<TOTAL-LIABILITY-AND-EQUITY> 415,742
<SALES> 0
<TOTAL-REVENUES> 124,742
<CGS> 0
<TOTAL-COSTS> 62,640
<OTHER-EXPENSES> 929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,499
<INCOME-PRETAX> 58,674
<INCOME-TAX> 22,548
<INCOME-CONTINUING> 36,126
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