FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
INFORMATION STATEMENT
MARCH 31, 1999
INTRODUCTION
This Information Statement is furnished to the shareholders (the
"Shareholders") of Federated Investors, Inc. ("Federated") by the Board of
Directors ("Board") in connection with the Annual Meeting of the Shareholders to
be held on Monday, May 17, 1999 at the Westin William Penn Hotel, William Penn
Ballroom, Lower Lobby, 550 William Penn Place, Pittsburgh, Pennsylvania, at
10:00 a.m. local time. Action will be taken at the Annual Meeting for the
election of directors and any other business that properly comes before the
meeting.
Federated has shares of both its Class A Common Stock, no par value per
share (the "Class A Common Stock") and its Class B Common Stock, no par value
per share (the "Class B Common Stock") issued and outstanding. The Class B
Common Stock is listed on the New York Stock Exchange under the symbol FII.
Except under certain limited circumstances, the entire voting power of Federated
is vested in the holders of the outstanding shares of the Class A Common Stock.
All of the outstanding shares of Class A Common Stock are held by a Voting
Shares Irrevocable Trust, dated May 31, 1989 (the "Voting Trust"), and will be
voted in person at the Annual Meeting. Accordingly, Federated is not soliciting
proxies for the Annual Meeting, but is providing this Information Statement to
its Shareholders in accordance with Regulation ss.240.14c-2 of the Securities
Exchange Act of 1934 (the "Exchange Act").
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement is being mailed to the Shareholders on or about
March 31, 1999. Federated's 1998 Annual Report to Shareholders accompanies this
Information Statement.
VOTING SECURITIES
Only holders of record of Class A Common Stock at the close of business
on March 22, 1999 ("Record Date") will be entitled to vote at the Annual Meeting
or any adjournment or adjournments thereof. On that date, 6,000 shares of Class
A Common Stock were outstanding, all of which were held by the Voting Trust, the
trustees of which are John F. Donahue, his wife and his son J. Christopher
Donahue, for the benefit of the members of the family of John F. Donahue.
The presence of the holder of the Class A Common Stock, constituting all
of the votes that all Shareholders are entitled to cast in the election of
directors, will constitute a quorum for the transaction of business at the
Annual Meeting. Under the terms of the Voting Trust, the trustees are authorized
to vote shares owned by the Voting Trust, and as a result, all of the
outstanding shares of Class A Common Stock will be voted in person at the Annual
Meeting. The Voting Trust is entitled to cast one vote per share of Class A
Common Stock for the election of directors. Directors will be elected by a
plurality of the votes cast. Cumulative voting is not allowed. The trustees of
the Voting Trust have advised that they intend to vote in favor of all the
directors nominated by the Board.
BOARD OF DIRECTORS AND ELECTION OF DIRECTORS
The Board consists of ten members. Under Federated's bylaws, directors
are elected at each annual meeting and each director holds office until the
expiration of the term of one year for which he or she was selected and until a
successor is selected and qualified.
The Board has nominated John F. Donahue, J. Christopher Donahue, Arthur L.
Cherry, Thomas R. Donahue, Michael J. Farrell, John B. Fisher, James F. Getz,
Eugene F. Maloney, John W. McGonigle and James L. Murdy for election as
directors. The nominees for directors have previously served as members of the
Board.
<TABLE>
<CAPTION>
<S> <C>
JOHN F. DONAHUE Mr. John F. Donahue was Chairman and Chief Executive
Age 74 Officer of Federated and a trustee of Federated Investors,
a Delaware business trust (the "Trust")
prior to the May 1998 merger of the Trust
into Federated, its wholly-owned subsidiary
( the "Merger"), and has continued as
Chairman of Federated following the
consummation of the Merger. He served as
President of Federated from 1989 until 1993
and was a founder of the predecessor to
Federated. Mr. Donahue is Chairman or
President and a director or trustee of the
investment companies managed by subsidiaries
of Federated. Mr. Donahue was a member of
the Board of Directors of Aetna Life and
Casualty Company until April 1995. Mr.
Donahue is the father of J. Christopher
Donahue and Thomas R. Donahue, each of whom
serves as an executive officer and director
of Federated.
J. CHRISTOPHER DONAHUE Mr. J. Christopher Donahue was a trustee of the Trust from
Age 49 1989 until the Merger and has been a director of Federated
since the consummation of the Merger. He served as
President and Chief Operating Officer of Federated from
1993 until April 1998, when he became President and Chief
Executive Officer. Prior to 1993, he served as Vice
President of Federated. He is President or Executive Vice
President of the investment companies managed by
subsidiaries of Federated and a director, trustee or
managing general partner of some of the investment
companies. Mr. Donahue is the son of John F. Donahue and
the brother of Thomas R. Donahue.
ARTHUR L. CHERRY Mr. Arthur L. Cherry was a trustee of the Trust from 1997
Age 45 until the Merger and has been a director of Federated since
the consummation of the Merger. He is the
President of Federated Services Company, a
wholly-owned subsidiary of Federated. Prior
to joining Federated in January 1997, he was
a managing partner of AT&T Solutions and
former president of Scudder Services
Corporation. He also served as a managing
director of Scudder, Stevens and Clark from
1984 to 1994. In addition, Mr. Cherry has
worked in various capacities with The Boston
Company, Boston Financial Data Services and
EDS Consulting.
THOMAS R. DONAHUE Mr. Thomas R. Donahue was a trustee of the Trust from 1995
Age 40 until the Merger and has been a director of Federated since
the consummation of the Merger. He has been Vice President
of Federated since 1993 and currently serves as Vice
President, Treasurer and Chief Financial Officer. Prior to
joining Federated, Mr. Donahue was in the venture capital
business, and from 1983 to 1987 was employed by PNC Bank in
its Investment Banking Division. Mr. Donahue is the son of
John F. Donahue and the brother of J. Christopher Donahue.
MICHAEL J. FARRELL Mr. Michael J. Farrell was elected to the Board in August
Age 49 1998. He is currently the President of Farrell & Co., a
merchant banking firm specializing in heavy manufacturing
companies. He has also served in executive capacities
for MK Rail Corporation, Motor Coil Manufacturing Co. and
Season-All Industries. Mr. Farrell is a Certified Public
Accountant.
JOHN B. FISHER Mr. John B. Fisher has been a director of Federated since
Age 42 the consummation of the Merger. He is
President-Institutional Sales Division of
Federated Securities Corp., a wholly-owned
subsidiary of Federated, and is responsible
for the distribution of Federated's products
and services to investment advisors,
insurance companies, retirement plans and
corporations. Mr. Fisher is the son of
Richard B. Fisher, Executive Vice President
of Federated.
JAMES F. GETZ Mr. James F. Getz has been a director of Federated since
Age 52 the consummation of the Merger. He serves as President -
Retail Sales Division of Federated Securities Corp., a
wholly-owned subsidiary of Federated and is responsible for
the marketing and sales efforts in the trust and
broker/dealer markets. Mr. Getz is a Chartered Financial
Analyst.
EUGENE F. MALONEY Mr. Eugene F. Maloney was a trustee of the Trust from 1989
Age 54 until the Merger and has continued as a director of
Federated since the consummation of the
Merger. He serves as the Executive Vice
President of Federated Investors Management
Company, a wholly-owned subsidiary of
Federated, and provides certain legal,
technical and management expertise to
Federated's sales divisions, including
regulatory and legal requirements relating
to a bank's use of mutual funds in both
trust and commercial environments. Mr.
Maloney is an adjunct Professor of Law at
Boston University School of Law.
JOHN W. MCGONIGLE Mr. John W. McGonigle was a trustee of the Trust from 1989
Age 60 until the Merger and has been a director of Federated
since the consummation of the Merger. Mr. McGonigle has
served as Secretary of Federated since 1989. He served as
Vice President of Federated from 1989 until August 1995,
when he became Executive Vice President. Mr. McGonigle
acted as General Counsel of Federated until 1998 when he
became the Chief Legal Officer. Mr. McGonigle is
Executive Vice President and Secretary of the investment
companies managed by subsidiaries of Federated.
JAMES L. MURDY Mr. James L. Murdy was elected to the Board in August
Age 60 1998. He is currently Director, Executive Vice President,
Finance & Administration and Chief Financial Officer of
Allegheny Teledyne, Incorporated, a diversified
manufacturing corporation, and, prior to becoming Executive
Vice President, served as Senior Vice President and Chief
Financial Officer of Allegheny Ludlum Corporation. Mr.
Murdy is a Certified Public Accountant.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD
From the date of the Merger through December 31, 1998, the Board met on
four occasions. The Board has an Audit Committee and a Compensation Committee.
The Board does not have a Nominating Committee.
The Audit Committee currently consists of Michael J. Farrell and James
L. Murdy, neither of whom is an officer or employee (or former officer or
employee) of Federated. Mr. Murdy is Chairman of the Audit Committee. The Audit
Committee is responsible for assisting the Board in fulfilling its statutory and
fiduciary responsibilities for the audit function of Federated and in monitoring
its accounting and financial reporting practices; determining that Federated has
adequate administrative, operational and internal accounting controls and that
Federated is operating in accordance with its prescribed procedures and codes of
conduct; determining that Federated has in place policies and procedures to
enable it to comply with applicable laws and regulations and that such
compliance is occurring; and providing general oversight for the internal and
external audit function. Its functions include recommending to the Board the
appointment of independent auditors and reviewing with the internal auditors and
the independent auditors their annual audit plans and monitoring their progress
during the year. In discharging its responsibilities, the Audit Committee is
entitled to rely upon the reports, findings and representations of Federated's
auditors, legal counsel and responsible officers. The Audit Committee was formed
in August 1998 and met in October 1998.
The Compensation Committee currently consists of Michael J. Farrell,
James L. Murdy and J. Christopher Donahue as a non-voting member. Mr. Donahue is
the President and Chief Executive Officer of Federated. Mr. Farrell is Chairman
of the Compensation Committee. This committee recommends compensation levels of
senior management, works with senior management on benefit and compensation
programs for Federated employees and monitors local and national compensation
trends to ensure Federated's compensation program is competitive within the
mutual fund industry. The Compensation Committee was established in August 1998
and met in October 1998. The base compensation levels of the Chief Executive
Officer and other executive officers for 1998 were established by the Board of
Trustees of the Trust prior to the May 1998 Merger of the Trust into Federated
and prior to the establishment of the Compensation Committee. The bonus awards
for the year ended December 31, 1998 and the base compensation levels for 1999
were established by the Compensation Committee.
COMPENSATION OF DIRECTORS
Members of the Board who are also employees of Federated do not receive
cash compensation for their services as directors. Members of the Board who are
not employees receive (i) $15,000 per year, payable in quarterly installments,
(ii) options to purchase 5,000 shares of Class B Common Stock upon initial
election to the Board, which are subject to a three-year vesting schedule, (iii)
1,500 options to purchase shares of Class B Common Stock annually, which vest
immediately upon grant, and (iv) $1,000 annually as compensation for Committee
Chairmanship. According to Federated's Stock Incentive Plan, all of the vested
options granted to outside directors are immediately exercisable and may be
exercised for a period of ten years from the date of the grant, provided that,
in the event of the death or disability of the outside director, the options may
only be exercised within twelve months after the death or disability and, in the
event that the outside director's service to Federated is terminated for any
reason other than death or disability, the options may only be exercised for a
period of thirty days after the date of such termination of services.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the year
ended December 31, 1997 and December 31, 1998 for Federated's Chief Executive
Officer and for the four other most highly compensated executive officers of
Federated (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
-----------------------------------------------------------------------------
SECURITIES
-------------------------- ------ OTHER UNDERLYING ALL OTHER
ANNUAL RESTRICTED OPTIONS/SARS COMPENSATION
NAME AND SALARY ($) BONUS($)(1) COMPENSATION STOCK (#)(3) ($)(4)
-------------------------- YEAR ($) AWARDS ($)
PRINCIPAL POSITION(S)
------- --------------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Donahue 1998 1,650,000 900,000 --- --- --- 10,439
Chairman 1997 1,600,000 800,000 83,894 --- --- 9,760
J. Christopher Donahue 1998 860,000 408,784 --- --- 30,800 18,810
President and Chief 1997 830,000 415,000 53,695 --- --- 13,432
Executive Officer
John W. McGonigle 1998 780,000 196,104 --- --- 14,800 39,236
Executive Vice 1997 750,000 250,000 --- --- --- 15,102
President and Secretary
Arthur L. Cherry 1998 630,000 294,156 --- --- 322,200 8,099
President, Federated 1997 600,000 300,000 73,924 197,500 (2) 360,000 1,350
Services Company
James F. Getz 1998 365,000 469,300 --- --- 35,000 7,915
President, Retail 1997 350,000 550,000 --- --- 60,000 8,920
Sales
Division of Federated
Securities Corp.
---------------------------
</TABLE>
(1) The amounts set forth in this column for 1998 do not include amounts
which were earned by the Named Executive Officers in 1998 but which the
Named Executive Officers chose to forego pursuant to a program under
which such Named Executive Officers elected to acquire options to
purchase shares of Class B Common Stock in lieu of cash compensation.
These options were awarded to the Named Executive Officers as a portion
of their respective performance bonuses in January 1999. Based on the
fair market value of the options to purchase Class B Common Stock,
determined by using the Black-Scholes valuation methodology, Messrs. J.
Christopher Donahue, McGonigle, Cherry and Getz elected to forego
$216,216, $103,896, $155,844, and $245,700, respectively, in cash bonus
awards in favor of options.
(2) Based on the latest available independent valuation on the date of grant
in the case of Mr. Cherry with respect to the grant of 75,000 shares of
the Class B Common Stock of the Trust (after giving effect to a one for
one stock dividend paid on April 15, 1998 and a one for two stock
dividend paid on April 30, 1998), which was fully vested in January 1998.
Pursuant to the Merger, all outstanding Class B Common Shares of the
Trust were converted into shares of the Class B Common Stock of
Federated.
(3) Securities reported in this column for 1998 consist of shares of Class B
Common Stock subject to options acquired in January 1999, by the Named
Executive Officers in lieu of a portion of their respective 1998 earned
cash bonus awards, in the following amounts: Mr. J. Christopher Donahue,
30,800 shares; Mr. McGonigle, 14,800 shares; Mr. Cherry, 22,200 shares;
and Mr. Getz, 35,000 shares. All such options are currently exercisable.
Securities reported in this column with respect to Mr. Cherry for 1998
also consist of 300,000 Class B Common Stock options which are not
currently exercisable. Securities reported in this column with respect to
Mr. Cherry (60,000 shares) and Mr. Getz (60,000 shares) for 1997 consist
of Class B Common Stock subject to options which are not currently
exercisable. Three hundred thousand (300,000) Class B Common Stock
options awarded to Mr. Cherry in 1997 were vested and exercised in 1998.
(4) Includes matching contributions under Federated's 401(k) Plan of $6,400
in 1998 for each of Mr. John F. Donahue, Mr. J. Christopher Donahue, Mr.
McGonigle, Mr. Cherry and Mr. Getz. Also included is the present value of
the economic benefit to the executive in 1998 of the corporate premiums
paid to purchase split dollar life insurance contracts of $5,656 for Mr.
J. Christopher Donahue and of $26,082 for Mr. McGonigle. In addition,
Federated paid premiums for life insurance with respect to Mr. John F.
Donahue of $4,039, Mr. J. Christopher Donahue of $6,754, Mr. McGonigle of
$6,754, Mr. Cherry of $1,699 and Mr. Getz of $1,515 in 1998. The split
dollar life insurance contract for Mr. John F. Donahue is fully paid, and
Federated is entitled to recover all of the premiums paid by it through
the cash surrender value of such policy.
OPTION GRANTS IN LAST YEAR
The table below sets forth information with respect to stock
options granted to the Named Executive Officers in 1998. The options listed
below are included in the Summary Compensation Table above.
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<CAPTION>
% OF
NUMBER TOTAL
OF OPTIONS
SECURITIES GRANTED EXERCISE GRANT DATE
UNDERLYING TO PRICE EXPIRATION PRESENT
OPTIONS EMPLOYEES
IN
NAME GRANTED YEAR ($/SH) DATE VALUE($)(2)
(1)
<S> <C> <C> <C> <C> <C>
- - ------------------------- --------------------- --------- ----------- -------------
John F. Donahue ___ ___ ___
J. Christopher Donahue 30,800 5.5 17.625 1/25/2009 216,216
John W. McGonigle 14,800 2.7 17.625 1/25/2009 103,896
Arthur L. Cherry 22,200 4.0 17.625 1/25/2009 155,844
300,000 53.8 9.30 6/30/2008 513,000
James F. Getz 35,000 6.3 17.625 1/25/2009 245,700
- - -------------------------
</TABLE>
(1) Securities reported in this column consist of shares of Class B Common Stock
subject to options acquired in January 1999, by the Named Executive Officers
in lieu of a portion of their respective 1998 earned cash bonus awards,
which are currently exercisable, in the following amounts: Mr. J.
Christopher Donahue, 30,800 shares; Mr. McGonigle, 14,800 shares; Mr.
Cherry, 22,200 shares; and Mr. Getz, 35,000 shares. Mr. Cherry was also
awarded 300,000 Class B Common Stock options which are not currently
exercisable.
(2) The Grant Date Present Value for the options acquired by the Named Executive
Officers in lieu of a portion of their respective cash bonus awards was
calculated using the Black-Scholes option pricing model. The Black-Scholes
value was calculated using the following assumptions; an expected volatility
of 29.0%, a risk-free rate of return of 4.84%, a dividend yield of 0.86% and
an expected time to exercise of eight years. The Grant Date Present Value
for Mr. Cherry's additional 300,000 options was calculated using the Minimum
Value option pricing model with the following assumptions; a risk-free rate
of return of 5.75%, a dividend yield of 1.60% and an expected time to
exercise of ten years.
AGGREGATED OPTION/SAR GRANTS IN LAST YEAR
AND YEAR-END OPTION/SAR VALUES
The table below sets forth information with respect to stock
options exercised by the Named Executive Officers in 1998. The options listed
below are included in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT FY-END FY-END ($)(3)
(#)(2)
SHARES EXERCISABLE/
NAME ACQUIRED ON VALUE REALIZED EXERCISABLE/ UNEXERCISABLE
EXERCISE (#) ($)(1) UNEXERCISABLE
<S> <C> <C> <C> <C>
- - ------------------------- - --------------- -- ----------------- - --------------- - -----------------
John F. Donahue --- --- 0/0 0/ 0
J. Christopher Donahue --- --- 0/0 0/ 0
John W. McGonigle --- --- 0/0 0/ 0
Arthur L. Cherry 300,000 1,370,000 0/360,000 0/ 3,375,000
James F. Getz --- --- 0/60,000 0/ 727,500
- - -------------------------
</TABLE>
(1) The amount shown for Mr. Cherry as "value realized" is calculated by
subtracting the exercise price paid upon exercise from the fair value of the
shares received, based on the latest available independent valuation at the
time of exercise.
(2) Securities reported in this column do not include shares of Class B Common
Stock subject to options acquired by the Named Executive Officers in 1999 in
lieu of a portion of their respective cash bonus awards for 1998 in the
following amounts: Mr. J. Christopher Donahue, 30,800 shares; Mr. McGonigle
14,800 shares; Mr. Cherry, 22,200 shares; and Mr. Getz, 35,000 shares. All
such options are currently exercisable. With respect to Mr. Cherry,
securities reported in this column include 300,000 options awarded in 1998
and 60,000 options awarded in 1997, none of which are currently exercisable.
With respect to Mr. Getz, securities reported in this column include 60,000
shares which were awarded in 1997 and which are not currently exercisable.
(3) The "value of unexercised in-the-money options" is calculated by subtracting
the exercise price from $18.125, which was the closing sales price of a
share of Class B Common Stock on the New York Stock Exchange on December 31,
1998.
EMPLOYMENT AGREEMENTS
Federated has entered into employment contracts with the following
executive officers:
ARTHUR L. CHERRY. Pursuant to a January 16, 1997 agreement, Federated is
obligated to provide Mr. Cherry with (i) a base salary, (ii) an opportunity to
earn a bonus and (iii) certain other benefits, including health and severance
pay benefits, among others. Mr. Cherry agrees not to compete with Federated for
a period of six months following the termination of his employment by Federated,
unless such termination occurs more than three years following the sale of 51%
or greater of Federated's Class A Common Stock to a non-family member of the
current holders of the Class A Common Stock. Furthermore, Mr. Cherry agrees not
to solicit employees of Federated for any other organization or to employ any
employee of Federated for a period of three years following the termination of
his employment with Federated.
JAMES F. GETZ. Pursuant to a December 22, 1993 agreement, Federated is
obligated to provide Mr. Getz with an annual base salary and certain other
benefits. Upon the termination of his employment with Federated, Mr. Getz agrees
not to compete with Federated for a period of two years. In addition, Mr. Getz
agrees not to solicit or employ any of the employees of Federated following the
termination of his employment by Federated.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The members of the Compensation Committee of the Board (the
"Committee"), were elected on August 31, 1998. The Committee consists of two
voting members, Federated's independent directors and one non-voting member, the
Chief Executive Officer. Because the Committee was formed after the initial
public offering ("IPO") of Federated, the 1998 salaries for the Chief Executive
Officer and the executive officers had been previously established through
procedures which involved an analysis of similar factors to those set forth
below by the President and Board of Trustees of Federated Investors, the
predecessor to Federated. The Committee did establish the 1998 bonuses for such
individuals as well as the salaries for 1999.
Federated's compensation program for executive officers (including the
Chief Executive Officer) consists primarily of salary and annual incentive
bonuses based upon the individual's and Federated's performance. Compensation of
the Named Executive Officers is determined by the Committee with bonus awards
made under the Executive Annual Incentive Compensation Plan (the "Compensation
Plan") and the Stock Incentive Plan (the "Stock Plan"). Consistent with
compensation practices generally applied in the investment management business,
base salaries in many areas of responsibility are intended to form a relatively
low percentage of total cash compensation with a significant portion of cash
compensation intended to be derived from payments made under the Compensation
Plan and the Stock Plan, provided, of course, that the performance goals are
met. As a general matter, the size of the pool available for such bonus payments
under the Compensation Plan is 7.5% of operating profits of Federated, which
consists of annual total revenues less distributions to minority interests and
less total expenses excluding amortization of intangibles and debt expenses.
In determining the appropriate level of compensation, the Committee
acknowledges that the investment management business is highly competitive and
that experienced professionals have significant career mobility. Its members
believe that the ability to attract, retain, and provide appropriate incentives
for highly qualified and experienced personnel is critical to maintain
Federated's competitive position in the investment management business, and
thereby provide for the future success of Federated. The Committee believes that
competitive levels of cash compensation, together with equity and other
incentive programs that are consistent with stockholder interests, are necessary
for the motivation and retention of Federated's professional personnel.
Federated's compensation programs are keyed to achievement, as determined by the
Committee, of short- and long-term performance goals.
The Committee believes that the opportunity to earn incentive
compensation motivates employees and ties their success to that of Federated.
The payment of incentive compensation in the form of stock of Federated further
aligns the interests of the management of Federated with those of its
stockholders and encourages them to focus on the long range growth and
development of Federated. The Committee is continuing to review this part of the
compensation program. In 1998, nine of the senior executives chose to have a
portion of their cash bonus paid in options on Class B Common Stock of
Federated. Options on 200,000 shares of Class B Common Stock were awarded
pursuant to this election at an exercise price equal to the market price on the
day the options were granted.
In determining the awards for 1998 the Committee considered a variety of
factors, including that Federated had achieved record revenues, earnings and
earnings per share for the year. The Committee also considered the fact that
Federated became publicly held in May 1998 and the performance of Federated's
stock as compared to the indices set forth in the performance graph included in
this Information Statement. The Committee also considered investment performance
and financial performance on a comparative basis with other public companies in
the investment management business. Marketing and sales effectiveness, customer
service, technology use and corporate infrastructure were also reviewed. The
Committee took into consideration Federated's historical compensation policies
as well as industry compensation trends. In its review of compensation, and, in
particular, in determining the amount and form of actual awards for the Chief
Executive Officer and the other executive officers, the Committee considered
amounts paid to executive officers in prior years as salary, bonus and other
compensation, Federated's overall performance during the prior periods, and its
future objectives and challenges. Although the Committee considered a number of
different individual and corporate performance factors, no specific weighting
was given to any such factor.
The Committee has determined that Mr. J. Christopher Donahue will
participate in the Compensation Plan. Bonuses paid to Mr. J. Christopher Donahue
depend upon both his performance and that of Federated. The Committee has also
taken into account the IPO by Federated and the increased responsibilities of
operating as a public company.
The Committee's goal is to maintain compensation programs which are
competitive within the investment management business. The Committee believes
that 1998 compensation levels disclosed in this Information Statement are
reasonable and appropriate in light of Federated's strong performance.
Executive officers also participate in a combined 401(k)/Profit Sharing
Plan and are entitled to receive medical, life and disability insurance coverage
and other corporate benefits available to most employees of Federated.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code, as amended, which limits
the deductibility by Federated of certain executive compensation for federal
income tax purposes, did not apply to Federated in the year ended December 31,
1998. This is due to the application of the private to public exception, which
limits the application of Section 162(m) for the first three years following the
calendar year in which the IPO takes place, provided (i) the compensation plans
or arrangements in existence were disclosed in the prospectus accompanying the
IPO, (ii) the plan or arrangement does not expire or undergo material
modification or (iii) all stock allocated under the plan has been issued.
Federated will endeavor to comply with Section 162(m) in the future to take
advantage of potential tax benefits. However, Federated may make awards that do
not comply with Section 162(m) if it believes that the compensation awards
granted were commensurate with the performance of the covered employees and were
necessary and appropriate to meet competitive requirements even if such
compensation exceeded the deductibility limits of Section 162(m).
Respectfully Submitted:
Compensation Committee
Michael J. Farrell, Chairman
James L. Murdy
J. Christopher Donahue (non-voting)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, no director of Federated served as an executive officer of
or beneficially owned of record in excess of a 10% equity interest in (i) any
business or professional entity which made during 1998 or proposes to make
during the current year, payments to Federated for property or services in
excess of five percent of Federated's consolidated gross revenues for 1998 or in
excess of five percent of the other entity's consolidated gross revenues for the
last year, (ii) any business or professional entity to which Federated made
during 1998 or proposes to make during the current year payments for property or
services in excess of five percent of Federated's consolidated gross revenues
for 1998 or in excess of the other entity's consolidated gross revenues for its
last year, or (iii) any business or professional entity to which Federated was
indebted to at the end of 1998 in an aggregate amount in excess of five percent
of Federated's total consolidated assets at the end of 1998.
None of the directors of Federated was, during 1998: (i) a member of, or
counsel to, any law firm that Federated retained during 1998 or proposes to
retain during the current year, or (ii) a partner or executive officer of any
investment banking firm that performed services for Federated during 1998 or
that Federated proposes to have perform services for Federated during the
current year. Federated is not aware of any other relationships between any of
the directors nominated for election to the Board at the Annual Meeting that are
similar in nature and scope to those relationships discussed above.
COMPARATIVE STOCK PERFORMANCE
The following performance graph compares the total stockholder return of
an investment in Federated's Class B Common Stock to that of the Russell 1000
(R) Index and to a Peer Group Index* of publicly-traded asset management firms
for the period commencing with May 13, 1998, the date on which the Class B
Common Stock was first registered under Section 12 of the Securities Exchange
Act of 1934, as amended, and publicly traded and ending on December 31, 1998.
The graph assumes that the value of the investment in Federated's Class B Common
Stock and each index was $100 on May 13, 1998. Total return includes
reinvestment of all dividends. The Russell 1000 (R) Index measures the
performance of the 1,000 largest U.S. companies based on total market
capitalization. Federated is included in this index. Peer Group returns are
weighted by the market capitalization of each firm at the beginning of the
fiscal quarter during which Federated completed its IPO. The historical
information set forth below is not necessarily indicative of future performance.
Federated does not make or endorse any predictions as to future stock
performance.
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/13/98 6/30/98 7/31/98 8/31/98 9/30/98 10/30/98 11/30/98 12/31/98
------- ------- ------- ------- ------- -------- -------- --------
Federated 100 97 94 69 76 95 89 96
Russell 1000(R) 100 101 100 85 90 98 104 110
Peer Group 100 100 89 69 67 79 87 75
</TABLE>
- - -------------------
* The following companies are included in the Peer Group:
Franklin Resources, Inc. Liberty Financial Companies, Inc.
T. Rowe Price Associates, Inc. Phoenix Investment Partners, Ltd.
Waddell & Reed Financial, Inc. The Pioneer Group, Inc.
Eaton Vance Corp. United Asset Managers Corp.
The John Nuveen Company Affiliated Managers Group
SECURITY OWNERSHIP
CLASS A COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Federated's Class A Common Stock by each person who is known by
Federated to own beneficially more than 5% of the outstanding shares of Class A
Common Stock as of February 28, 1999.
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
- - ---------------------------------------------------- --------------------------
Voting Shares Irrevocable Trust
dated May 31, 6,000 100.0%
1989.................................................
c/o The Beechwood Company
Suite 718 Bigelow Corporate Center
Pittsburgh, Pennsylvania 15219
All of the outstanding shares of Class A Common Stock are held by the
Voting Trust, the trustees of which are John F. Donahue, his wife, and his son
J. Christopher Donahue for the benefit of members of the family of John F.
Donahue. Under the terms of the Voting Trust, the trustees are authorized to
vote shares held by the Voting Trust and the trustees additionally may sell,
transfer or otherwise dispose of shares owned by the Voting Trust. The entire
voting power of Federated is vested in the holder of the outstanding shares of
Class A Common Stock, except as otherwise provided in the Restated Articles of
Incorporation of Federated or as required by applicable law.
CLASS B COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Federated's Class B Common Stock as of February 28, 1999 by (i)
each of the Directors of Federated, (ii) Named Executive Officers of Federated,
and (iii) all Directors and Executive Officers of Federated as a group.
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED (1)(2) CLASS
John F. Donahue (3) 9,957,664 11.6%
John W. McGonigle (4) 4,706,300 5.5
J. Christopher Donahue (5) 4,641,388 5.4
Thomas R. Donahue (6) 1,758,928 2.0
James F. Getz 610,244 *
Arthur L. Cherry (7) 524,207 *
Eugene F. Maloney (8) 350,850 *
John B. Fisher 300,000 *
Michael J. Farrell 5,000 *
James L. Murdy 3,000 *
All Directors and Executive
Officers as a Group (14 persons)................ 27,041,381 31.4%
- - -------------------------------------------------
* Less than 1%.
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Unless stated
below, each such person has sole voting and investment power with respect
to all such shares.
(2) Does not include 620,487 shares of Class B Common Stock allocated to the
accounts of directors and executive officers who are participants in the
401(k)/ Profit Sharing Plan.
(3) Includes 4,649,000 shares owned by The Beechwood Company, a limited
partnership of which Mr. Donahue and Oyster Bay Properties, Inc., of which
Mr. John F. Donahue is the sole shareholder, are general partners (Mr.
Donahue disclaims beneficial ownership of 2,325,000 shares owned by The
Beechwood Company); 4,240,372 shares owned by Comax Company, a limited
partnership of which Comax, Inc. is general partner; Mr. Donahue is the
sole shareholder of Comax, Inc. (Mr. Donahue disclaims beneficial ownership
of substantially all of the 4,240,372 shares owned by Comax Company); and
1,068,292 shares owned by Shamrock Partners LP, a limited partnership of
which Mr.
Donahue and Shamrock Properties, Inc., of which Mr. Donahue is the sole
shareholder, are general partners.
(4) All of the shares are owned by Fairview Partners, a limited partnership of
which Mr. McGonigle is the sole general partner.
(5) Includes 3,157,578 shares owned jointly with Mrs. J. Christopher Donahue;
includes 841,230 shares for which Mr. J. Christopher Donahue has the power
to sell, transfer or otherwise dispose under powers of attorney; includes
267,580 shares for which Mr. J. Christopher Donahue is a custodian of
shares under the Uniform Trust for Minors Act (Mr. J. Christopher Donahue
disclaims beneficial ownership of all of the 267,580 shares for which he
acts as custodian).
(6) Includes 1,197,510 shares of which Mr. Thomas R. Donahue is a custodian of
shares under the Uniform Trust for Minors Act (Mr. Thomas R. Donahue
disclaims beneficial ownership of all of the 1,197,510 shares for which he
acts as custodian); includes 297,418 shares owned jointly by Mr. and Mrs.
Thomas R. Donahue.
(7) Includes 49,259 shares owned by or on behalf of Mr. Cherry's children;
includes 65,304 shares owned jointly by Mr. and Mrs. Cherry; includes
13,054 shares owned by Mrs. Cherry.
(8) Includes 110,000 shares owned by Mrs. Maloney.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, Federated's directors,
its executive officers and any persons beneficially owning more than ten percent
of Federated's Class A Common Stock and Class B Common Stock are required to
report their ownership of Federated's Class A and Class B Common Stock and any
changes in that ownership to the Commission and to the New York Stock Exchange.
Specific due dates for these reports have been established and Federated is
required to report in this Information Statement any failure to file by these
dates. All of these filing requirements were satisfied. In making these
statements, Federated has relied on copies of the reports that its officers,
directors and beneficial owners of more than ten percent of Federated's Class A
or Class B Common Stock have filed with the Commission.
INDEPENDENT AUDITORS
Ernst & Young LLP has served as the independent auditors for 1998 and
continues to serve as independent auditors for Federated. Representatives of
Ernst & Young will be present at the Annual Meeting, will have an opportunity to
make a statement if they desire to do so, and will be available to respond to
appropriate questions.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Rule 14a-8 of the Exchange Act contains the procedures for including
certain shareholder proposals in Federated's Information Statement and related
materials. Shareholders entitled to vote may submit a shareholder proposal
pursuant to Rule 14a-8 for the year 2000 Annual Meeting of Shareholders of
Federated prior to December 1, 1999. Except under certain limited circumstances,
the holders of Class B Common Stock are not entitled to vote their shares. Any
shareholder proposals should be addressed to the Secretary of Federated,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
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SKU# 1746-IS99
G02596-01 (3/99)
