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 JUNE 30, 1999
----------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-14818
FEDERATED INVESTORS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1111467
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 412-288-1900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ______.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: As of August 4, 1999, the
Registrant had outstanding 6,000 shares of Class A Common Stock and 84,267,450
shares of Class B Common Stock.
<PAGE>
Federated Investors, Inc.
Form 10-Q
For the Three Months and Six Months Ended
June 30, 1999
Index
PAGE NO.
Part I. Financial Information
Item 1.Financial Statements
Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1999 and 1998 4
Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II. Other Information
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K 18
(b) Reports on Form 8-K 18
Signatures 19
<TABLE>
<CAPTION>
FEDERATED INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited) JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................................156,257.........185,581
Securities available for sale...................................................................55,309..........13,398
Receivables, net of reserve of $456 and $1,276,
respectively................................................................................... 32,135 30,969
Accrued revenues..............................................................................4,914...........3,666
Prepaid expenses..............................................................................3,628...........4,688
Other current assets..........................................................................2,075...........3,958
Total current assets.............................................................254,318.........242,260
LONG-TERM ASSETS:
Customer relationships, net of accumulated amortization of $10,601 and $39,571,
respectively....................................................................................11,812..........17,743
Goodwill, net of accumulated amortization of $14,887 and $13,762,
respectively....................................................................................33,981..........35,107
Other intangible assets, net of accumulated amortization of $100 and $3,608,
respectively 91 103
Deferred sales commissions, net
284,924 258,593
Property and equipment, net of accumulated depreciation of $43,734 and $42,949,
respectively....................................................................................31,649..........21,550
Other long-term assets.......................................................................17,114...........4,664
Total long-term assets..........................................................379,571.........337,760
Total assets...............................................................633,889.........580,020
============= =============
CURRENT LIABILITIES:
Cash $ $
overdraft........................................................................................5,350...........5,932
Current portion of long-term debt - recourse....................................................249............ 239
Accrued expenses.............................................................................39,045..........51,096
Accounts payable.............................................................................26,293..........24,864
Income taxes payable..........................................................................3,289...........2,522
Other current liabilities.....................................................................2,402...........1,675
Total current liabilities........................................................76,628..........86,328
LONG-TERM LIABILITIES:
Long-term debt - recourse....................................................................98,571..........98,698
Long-term debt - nonrecourse................................................................296,627.........272,850
Deferred tax liability, net..................................................................32,547..........29,949
Other long-term liabilities...................................................................5,315...........2,818
Total long-term liabilities....................................................................433,060.........404,315
Total liabilities..............................................................................509,688.........490,643
Minority interest..................................................................................326.............671
SHAREHOLDERS' EQUITY :
Common Stock :
Class A, no par value, 20,000 shares
authorized, 6,000 shares issued and
outstanding...................................................................................189 189
Class B, no par value, 900,000,000 shares
authorized, 86,337,000 shares
issued........................................................................................75,139 75,090
Retained
earnings......................................................................................64,913..........14,556
Treasury stock, at cost, 1,083,950 and 138,750 shares Class B Common Stock,
respectively..................................................................................(14,876) (23)
Employee restricted stock
plan...........................................................................................(1,272).........(1,512)
Accumulated other comprehensive
income...........................................................................................(218).............406
------------- -------------
Total shareholders' equity......................................................123,875..........88,706
------------- -------------
Total liabilities, minority interest, and shareholders' $ $
equity.........................................................................................633,889.........580,020..........
============= =============
</TABLE>
<TABLE>
<CAPTION>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.)
FEDERATED INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SIX MONTHS ENDED
(dollars in thousands, except per share data) JUNE 30, JUNE 30,
---------------------- --------------------------
(unaudited) 1999 1998 1999 1998
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Investment advisory fees, net-Federated funds..........$75,277.......$64,862.......$149,117 $126,767
Investment advisory fees, net-other.................... 2,857.........1,880...... 5,122 3,652
Administrative service fees, net-Federated funds....... 20,171........17,696.........39,972 34,959
Administrative service fees, net-other...................5,753.........6,224.........11,056 12,884
Other service fees, net-Federated funds.................31,370........25,146... 59,749 47,642
Other service fees, net-other........................... 5,717... ....5,713.........11,077 11,992
Commission income........................................1,088.........1,201..........2,078 2,142
Interest and dividends...................................3,410... . ...2,163..........6,489 3,559
Gain (loss) on sale of securities available for sale........19...... .(148).......... 767 41
Other income.............................................4,516... ....1,479... .......6,019 5,171
Total revenue.....................................150,178..... 126,216........ 291,446........248,809
---------- --------- ----------- ------------
OPERATING EXPENSES:
Compensation and related.............................. 38,842......37,283.........77,945 74,801
Advertising and promotional............................. 12,725.......9,731.........25,584 20,939
Systems and communications................................6,471.......6,732.........13,809 13,093
Office and occupancy......................................6,283.......7,298.........12,698 13,923
Professional service fees.................................6,863.......3,117.........12,813 8,708
Travel and related........................................3,803.......3,563..........7,150 6,686
Amortization of deferred sales commissions.............. 11,644.......9,531.........21,885 14,706
Amortization of intangible assets.........................3,463.......3,778..........7,069 7,554
Other..........................................................1,561.......2,007..........1,976 5,330
---------- --------- ----------- ------------
Total operating expenses............................91,655....83,040........180,929.........165,740
---------- --------- ----------- ------------
Operating income..............................................58,523......43,176........110,517..........83,069
---------- --------- ----------- ------------
NONOPERATING EXPENSES:
Debt expense - recourse....................................2,211......2,213.........4,431 4,419
Debt expense - nonrecourse.................................5,667......4,548........11,130 8,494
Total nonoperating expenses...........................7,878......6,761........15,561.........12,913
---------- --------- ----------- ------------
Income before minority interest and income taxes..............50,645 36,415 94,956 70,156
Minority interest..............................................2,591.......2,213 5,040 4,208
---------- --------- ----------- ------------
Income before income taxes....................................48,054.......34,202........ 89,916 65,948
Income tax provision..........................................17,537......13,131 32,678 24,039
---------- --------- ----------- ------------
Net income $30,517.....$21,071........$57,238........$41,909
========== ========= =========== ============
EARNINGS PER SHARE:
$ 0.36 $ 0.25 $ 0.68 $ 0.50
Basic
========== ========= =========== ============
Diluted...............................................$ 0.35 $ 0.24 $ 0.66 $ 0.49
========== ========= =========== ============
Cash dividends per $ 0.0420 $ 0.0380 $ 0.0800 $ 0.0588
share
========== ========= =========== ============
</TABLE>
PER SHARE AMOUNTS HAVE BEEN RESTATED TO REFLECT THE ONE-FOR-ONE AND THE
ONE-FOR-TWO STOCK DIVIDENDS PAID IN 1998.
<TABLE>
<CAPTION>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.)
FEDERATED INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED
(dollars in thousands) JUNE 30,
----------------------
(unaudited) 1999 1998
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net $ 57,238 $ 41,909
income
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Amortization of intangible 7,069 7,554
assets
Depreciation and other 3,429 3,803
amortization
Amortization of deferred sales 21,885 14,706
commissions
Minority 5,040 4,208
interest
Gain on disposal of property and (2,942) (59)
equipment
Amortization of employee restricted stock and other compensation 289 521
plans
Provision (benefit) for deferred income 2,976 (210)
taxes
Net realized gain on sale of securities available for (767) (41)
sale
Deferred sales commissions (65,786) (80,046)
paid
Contingent deferred sales charges 17,570 10,180
received
Foreign currency translation, net of tax (35) (1)
12 0
Other
Other changes in assets and liabilities:
Increase in receivables, (1,166) (1,914)
net
(Increase) decrease in accrued (1,248) 226
revenues
Decrease in prepaid expenses and other current 2,944 491
assets
(Increase) decrease in other long-term (1,458) 342
assets
(Decrease) increase in accounts payable and accrued (10,622) 15,046
expenses
Increase in income taxes 766 7,401
payable
Increase (decrease) in other current 146 (5,666)
liabilities
Increase in other long-term 2,505 78
liabilities
---------- ---------
Net cash provided by operating 37,845 18,528
activities
---------- ---------
INVESTING ACTIVITIES:
Additions to property and (14,036) (1,603)
equipment
Proceeds from disposal of property and 4,007 0
equipment
Cash paid for 0 (308)
acquisitions
Investment in joint (592) 0
venture
Purchases of securities available for (70,684) (1,063)
sale
Proceeds from redemptions of securities available for 17,598 7,598
sale
---------- ---------
Net cash (used) provided by investing (63,707) 4,624
activities
---------- ---------
FINANCING ACTIVITIES:
Distributions to minority (5,386) (4,314)
interest
Dividends (6,883)
paid............................................................................................(4,920)
Proceeds from issuance of common 0 47,532
stock/options
Purchase of treasury 0
stock..............................................................................(14,853)
Proceeds from new borrowings - 63,431
nonrecourse......................................................................................73,609
Payments on debt - (117) (137)
recourse
Payments on debt - (39,654)
nonrecourse....................................................................................(24,924)
---------- ---------
Net cash (used) provided by financing (3,462) 86,846
activities
---------- ---------
Net (decrease) increase in cash and cash (29,324) 109,998
equivalents
Cash and cash equivalents, beginning of 185,581 22,912
period
---------- ---------
Cash and cash equivalents, end of $ 156,257 $ 132,910
period
========== =========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.)
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Summary of Significant Accounting Policies
(a) BASIS OF PRESENTATION
The interim consolidated financial statements of Federated Investors,
Inc. (Federated) included herein have been prepared in accordance with
generally accepted accounting principles. In the opinion of management,
the financial statements reflect all adjustments which are of a normal
recurring nature and necessary for a fair statement of the results for
the interim periods presented.
In preparing the unaudited interim consolidated financial statements,
management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results will differ
from such estimates and such differences may be material to the
financial statements.
These financial statements should be read in conjunction with
Federated's Annual Report on Form 10-K for the year ended December 31,
1998. Certain items previously reported have been reclassified to
conform with the current year's presentation.
(b) RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), requires that
all derivatives, including hedges, be recorded at fair value and that
all changes in the fair value or cash flow of both the hedge and the
hedged item be recognized in earnings in the same period.
SFAS 133 is effective for years beginning after June 15, 2000. Federated
intends to adopt SFAS 133 effective
January 1, 2001, and does not expect this adoption to have a significant
effect on earnings or the financial position of Federated based on the current
minimal use of derivatives.
(2) Securitization of B Share Assets and Nonrecourse Debt
Federated sells the rights to the future revenue streams associated
with the 12b-1, shareholder service and contingent deferred sales
charges (CDSC) fees of the Class B Shares of various mutual funds it
manages on a continuous basis. For accounting purposes, transactions
executed under the agreement are reflected as financings and nonrecourse
debt has been recorded at interest rates based on current market
conditions at the time of the financings.
<PAGE>
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(2) Securitization of B Share Assets and Nonrecourse Debt, Continued
The following tables summarize the changes in both the deferred sales
commissions and nonrecourse debt related to this agreement:
Six Months
Ended
June 30, 1999
----------------
(IN THOUSANDS)
Deferred B Share Sales Commissions:
Financed balance at December 31, $ 249,580
1998...........................
B Share sales commissions 61,919
financed..............................
CDSC fees (16,976)
collected.................................................
Amortization...................................(19,917)
----------------
Financed balance at June 30, $ 274,606
1999.......................................
================
Nonrecourse Debt:
Balance at December 31, $ 272,850
1998.............................................
Additional 63,431
financings...............................................
Payments of nonrecourse (39,654)
debt.........................................
----------------
Balance at June 30, $ 296,627
1999...................................................
================
<TABLE>
<CAPTION>
Below is the activity of the nonrecourse debt tranches:
(IN THOUSANDS)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Balance Additional Balance
Tranche Rate 12/31/98 Financings Payments 6/30/99
- ----------------------------------- -------------- ------------- ----------- ----------- ------------
1997-1 Class A.......................7.44% $ 74,251 $ $ 11,040 $ 63,211
-
1997-1 Class B.......................9.80% 9,700 9,700
- -
Financings 10/97 through 6.68% - 7.60% 188,899 63,431 28,614 223,716
6/99.............................
============= =========== =========== ============
$ 272,850 $ 63,431 $ 39,654 $ 296,627
============= =========== =========== ============
</TABLE>
(3) Long-Term Debt - Recourse
<TABLE>
<CAPTION>
Federated's long-term debt - recourse consisted of the following:
Interest June 30, December 31,
Rate 1999 1998
----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Recourse Debt:
Senior Secured Note Purchase 7.96% $ 98,000 $ 98,000
Agreement.............................
Capitalized 7.1%-8.5% 820 937
leases........................................................
------------- -------------
Total recourse 98,820 98,937
debt.........................................................
Less current 249 239
portion......................................................
-------------
============= =============
Total long-term debt - recourse...................$ 98,571 $ 98,698
============= =============
</TABLE>
<PAGE>
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(4) Common Stock
(a) Initial Public Offering and Subsequent Merger
On May 19, 1998, Federated Investors was merged with and into Federated
Investors, Inc., its wholly owned subsidiary. All outstanding Class A
and Class B common shares of Federated Investors were exchanged for an
equal number of shares of no par Class A and Class B common stock of
Federated Investors, Inc., respectively, with the same proportionate
ownership and substantially similar rights, and all Treasury Stock of
Federated Investors was retired.
As a condition precedent to the merger described above, Federated
Investors, Inc. issued an additional 2,610,000 shares of Class B common
stock in an initial public offering for net cash proceeds of
approximately $46.2 million.
(b) Dividends
Federated's Senior Secured Credit Agreement allows dividends in an
amount not to exceed $20 million plus 50% of any net income (less 100%
of any loss) of Federated less any stock repurchase payments during the
period from January 1, 1998 to and including the date of payment. The
Senior Secured Note Purchase Agreement allows dividends to an amount of
$5 million plus 50% of any net income (less 100% of any loss) of
Federated during the period from January 1, 1996 to and including the
date of payment. Cash dividends of $0.038 and $0.042 per share or
approximately $3.3 million and $3.6 million, were paid in the first and
second quarter of 1999, respectively, to holders of common shares.
Additionally, on July 20, 1999, the board of directors declared a
dividend of $0.042 per share to be paid on August 13, 1999, to
shareholders of record as of August 2, 1999. After the payment of the
dividend on August 13, 1999, and stock repurchase payments through
August 4, 1999, approximately $39.5 million is available to pay
dividends under the more restrictive of the two debt covenant
limitations.
(c) Employee Stock Purchase Plan
In July 1998, Federated established an Employee Stock Purchase Plan
which allows employees to purchase a maximum of 500,000 shares of Class
B common stock. Employees may contribute up to 10% of their salary to
purchase shares of Federated's Class B common stock on a quarterly basis
at the market price. The shares under the plan may be newly issued or
may be shares purchased on the open market. As of June 30, 1999, 9,333
shares have been purchased by employees in this plan.
(d) Stock Repurchase Program
On January 26, 1999, the board of directors approved a share
repurchase program authorizing Federated to purchase up to $20.0 million
of Federated Class B common stock over the next 12 months in open market
transactions. On July 20, 1999, a second share repurchase program was
approved by the board authorizing Federated to purchase an additional
five million shares of Federated Class B common stock in open market and
private transactions over the next 12 months. The programs authorize
executive management to determine the timing and the amount of shares
for each purchase. The stock will be held in treasury for employee
benefit plans, potential acquisitions and other corporate activities. As
of June 30, 1999, Federated had purchased 900,200 shares of Class B
common stock for approximately $14.8 million under the first program. As
of August 4, 1999, Federated has expended the total allowable amount of
$20.0 million with the purchase of 1,184,653 shares of Class B common
stock under the first program and has repurchased an additional 701,147
shares of Class B common stock for $13.3 million under the second
program.
<PAGE>
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(5) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net income...................................$ 30,517 $ 21,071 $ 57,238 $ 41,909
========= ========= ========= =========
Denominator:
Basic weighted-average shares 84,418 83,964 84,708 83,090
outstanding.................................................
Dilutive potential shares from stock-based 2,526 2,673 2,552 2,485
compensation.............
--------- --------- --------- ---------
Diluted weighted-average shares 86,944 86,637 87,260 85,575
outstanding.............................................
========= ========= ========= =========
Basic earnings per $ 0.36 $ 0.25 $ 0.68 $ 0.50
share............................................................................
========= ========= ========= =========
Diluted earnings per $ 0.35 $ 0.24 $ 0.66 $ 0.49
share............................................................................
========= ========= ========= =========
</TABLE>
(6) Comprehensive Income
Comprehensive income was $30.3 million and $21.1 million for the
three-month periods ended June 30, 1999 and 1998, respectively, and $56.6
million and $41.9 million for the six-month periods ended June 30, 1999 and
1998, respectively.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
<CAPTION>
HIGHLIGHTS
SELECTED OPERATING DATA Three Months Ended Six Months Ended
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE June 30, June 30,
DATA)
--------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenue..................................$ 150,178 $ 126,216 $ 291,446 $ 248,809
Operating 91,655 83,040 180,929 165,740
expenses...........................................................................................
----------- ----------- ---------- ----------
Operating 58,523 43,176 110,517 83,069
income.............................................................................................
Nonoperating expenses and minority 10,469 8,974 20,601 17,121
interest.........................................................
----------- ----------- ---------- ----------
Income before income 48,054 34,202 89,916 65,948
taxes............................................................................
Income tax 17,537 13,131 32,678 24,039
provision........................................................................................
=========== =========== ========== ==========
Net income.....................................$ 30,517 $ 21,071 $ 57,238 $ 41,909
=========== =========== ========== ==========
Operating margin percentage 39.0% 34.2% 37.9% 33.4%
Earnings per share - $ 0.36 $ 0.25 $ 0.68 $ 0.50
basic............................................................
Earnings per share $ 0.35 $ 0.24 $ 0.66 $ 0.49
- -diluted............................................................
</TABLE>
MANAGED AND ADMINISTERED ASSETS AT PERIOD
END (IN MILLIONS) June 30, %
<TABLE>
<CAPTION>
---------------------------
1999 1998 Change
----------- ----------- --------
<S> <C> <C> <C>
Money market $ 77,894 $ 67,842 14.8%
funds
Equity 18,199 14,561 25.0%
funds
Fixed income 16,725 15,816 5.7%
funds
Separate 4,516 2,350 92.2%
accounts
=========== ===========
Total Managed $ 117,334 $ 100,569 16.7%
Assets
=========== ===========
Total Administered $ 34,643 $ 55,528 -37.6%
Assets
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
AVERAGE MANAGED AND ADMINISTERED ASSETS Three Months Ended Six Months Ended
(IN MILLIONS) June 30, % June 30, %
--------------------------- --------------------------
1999 1998 Change 1999 1998 Change
----------- ----------- -------- ---------- ---------- --------
Money market $ 79,335 $ 65,439 21.2% $ 78,915 $ 65,135 21.2%
funds.................................................................................
Equity 17,386 14,195 22.5% 16,596 13,381 24.0%
funds......................................................................................................
Fixed income 16,938 15,787 7.3% 16,874 15,597 8.2%
funds.........................................................................................
Separate 4,356 2,330 87.0% 3,707 2,313 60.3%
accounts.................................................................................................
=========== =========== ========== ==========
Total average Managed $ 118,015 $ 97,751 20.7% $ 116,092 $ 96,426 20.4%
Assets.................................................................
=========== =========== ========== ==========
Total average Administered $ 34,569 $ 54,411 -36.5% $ 32,012 $ 52,179 -38.6%
Assets.................................................................
=========== =========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPONENTS OF CHANGES IN EQUITY AND FIXED INCOME FUND MANAGED
ASSETS
<S> <C> <C> <C> <C>
(IN Three Months Ended Six Months Ended
MILLIONS)
June 30, June 30,
--------------------------- ----------------------------
EQUITY 1999 1998 1999 1998
- -------
FUNDS
---------- ----------- ----------- -----------
Beginning $ 16,126 $ 13,843 $ 15,503 $ 11,710
assets..................................................................
---------- ----------- ----------- -----------
Sales..............................1,535 1,403 2,904 2,793
Redemptions.......................(998) (711) (2,005) (1,342)
---------- ----------- ----------- -----------
Net 537 692 899 1,451
sales......................................
Net 68 (69) 79 (18)
exchanges......................................
Other*............................1,468 95 1,718 1,418
========== =========== =========== ===========
Ending $ 18,199 $ 14,561 $ 18,199 $ 14,561
assets....................................................................
========== =========== =========== ===========
FIXED INCOME FUNDS
Beginning $ 16,967 $ 15,601 $ 16,437 $ 15,067
assets...................................................................
---------- ----------- ----------- -----------
Sales..............................1,645 1,404 3,421 2,981
Redemptions........................(1,496) (1,138) (2,955) (2,201)
---------- ----------- ----------- -----------
Net 149 266 466 780
sales......................................
Net (110) (127) 97 (257)
exchanges......................................
Other*............................281) 76 (275) 226
========== =========== =========== ===========
Ending $ 16,725 $ 15,816 $ 16,725 $ 15,816
assets...................................................................
========== =========== =========== ===========
</TABLE>
* Primarily reinvested dividends and distributions, net investment income
and changes in the value of securities held by the funds.
In preparing the discussion and analysis below, Federated has presumed
that the readers of the interim financial information have read or have
access to Federated's discussion and analysis of financial condition and
results of operations contained in Federated's Annual Report on Form
10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1998
NET INCOME. Net income for the three months ended June 30, 1999 was
$30.5 million, or $0.35 per diluted share, as compared to $21.1 million,
or $0.24 per diluted share for the same period in 1998. Net income for
the second quarter 1999 included a non-recurring $1.9 million after-tax
gain on the sale of certain non-earning assets. Excluding the effect of
this gain, Federated would have realized net income of $28.6 million or
$0.33 per diluted common share for the second quarter 1999.
REVENUE. Federated's consolidated revenue increased $24.0 million, or
19.0%, to $150.2 million for the second quarter 1999 from $126.2 million
for the same period in 1998. Revenue from managed assets increased $20.0
million, or 18.0%, due principally to the 20.7% increase in average
managed assets to $118.0 billion for the second quarter 1999 from $97.8
billion for the second quarter 1998, including increases of 21.2%, 22.5%
7.3%, and 87.0% in money market funds, equity funds, fixed income funds,
and separate accounts, respectively. The large percentage increase in
separate accounts is predominantly due to the assets associated with the
newly formed joint venture in Germany and the collateralized bond
obligation. Service-related revenues from sources other than managed
assets decreased by $0.5 million due primarily to the 36.5% reduction in
average administered assets from $54.4 billion for the second quarter
1998 to $34.6 billion for the second quarter 1999, resulting from the
termination of service contracts in 1998. Interest and dividends
increased by $1.2 million, or 57.6%, over the prior year second quarter
as a result of higher levels of invested cash resulting from cash
generated from operations and to a lesser extent, the net proceeds from
Federated's initial public offering in May 1998. Other income increased
$3.0 million, or 205%, from $1.5 million for the second quarter 1998 to
$4.5 million for the same period in 1999 as a result of a non-recurring
gain realized on the sale of certain non-earning assets in the second
quarter 1999.
OPERATING EXPENSES. Total operating expenses were $91.7 million for the
second quarter 1999 as compared to $83.0 million for the second quarter
1998, an increase of $8.7 million, or 10.4%. Expense management
continues to be a major focus for Federated, with expense increases
largely attributable to increases in variable expenses due to continued
sales and the resultant growth in assets under management as well as
higher levels of profitability. As a result, expense growth has been
contained at levels substantially below the 19.0% increase in revenues
and, accordingly, operating margins have improved to 37.7% for the
quarter ended June 30, 1999 (excluding the effect of the non-recurring
sale of non-earning assets) from 34.2% for the same period in 1998.
Compensation and related expenses were $38.8 million for the second
quarter 1999 as compared to $37.3 million for the same period in 1998.
This increase of $1.5 million, or 4.2% is due principally to salary
increases for employees over the prior year as well as the resulting
increases in payroll taxes and retirement plan matching contributions.
Advertising and promotional expenses were $12.7 million for the second
quarter 1999 as compared to $9.7 million for the second quarter 1998.
This increase of $3.0 million, or 30.8% reflects higher levels of
marketing allowances being paid to brokers and bank clients for
retailing efforts of marketing funds.
Office and occupancy expenses were $6.3 million in the second quarter
1999 as compared to $7.3 million in the same period of 1998. This
decrease of $1.0 million or 13.9% is largely attributable to reduced
rent expense for leased office space as a result of the consolidation of
certain servicing functions and the ultimate reduction in leased office
space in late 1998. The decrease also reflects decreased depreciation
expense attributable to the retirement of certain property and equipment
in the fourth quarter 1998.
Professional service fees were $6.9 million for the second quarter 1999
as compared to $3.1 million for the same period in 1998. This increase
of $3.8 million, or 120.2% is largely due to increased service fees
related to subcontracted portfolio accounting services as well as
increased legal and consulting fees related to the German joint venture,
Year 2000, and other system related projects.
Amortization of deferred sales commissions was $11.6 million for the
second quarter 1999 as compared to $9.5 million for the same period in
1998. This increase of $2.1 million, or 22.2% is due to higher levels of
deferred sales commissions as a result of the continued sale of shares
of funds which require Federated to advance commissions to the broker /
dealers.
Other expenses were $1.6 million for the second quarter 1999 as compared to
$2.0 million for the second quarter 1998. This decrease of $0.4 million or 22.2%
is predominantly attributable to the rebate of certain non-income related taxes.
NONOPERATING EXPENSES. Nonoperating expenses were $7.9 million for the
second quarter 1999 as compared to $6.8 million for the same period of
1998. This increase of $1.1 million or 16.5% reflects an increase in
interest expense recognized relative to the higher level of nonrecourse
debt incurred as a result of the continued financing of certain future
cash flows related to the B Share fund assets.
MINORITY INTEREST. The minority interest was $2.6 million for the
second quarter 1999 as compared to $2.2 million for the second quarter
1998. This increase of $0.4 million or 17.0% is a result of higher net
income being recorded for the subsidiary for which Federated acts as the
general partner with a majority interest of 50.5%. The increase in
income is attributable to higher average managed assets of the funds
which the subsidiary advises.
INCOME TAXES. The income tax provision for the second quarter 1999 was
$17.5 million as compared to $13.1 million for the second quarter 1998,
an increase of $4.4 million, or 33.6%. This increase is due primarily to
the increase in the level of income before income taxes from $34.2
million for the second quarter 1998 to $48.1 million for the second
quarter 1999, an increase of $13.9 million or 40.5%. The effective tax
rate for the second quarter 1999 and 1998 was 36.5% and 38.4%,
respectively.
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1998
NET INCOME for the first six months of 1999 was $57.2 million, or $0.66
per diluted share, compared with net income of $41.9 million, or $0.49
per diluted share, for the same period in 1998. The increase primarily
reflects increased revenues generated from higher levels of average
managed and administered assets and a non-recurring $1.9 million
after-tax gain recorded on the sale of certain non-earning assets.
Excluding the effect of this gain, Federated would have realized net
income of $55.3 million, or $0.63 per diluted share.
REVENUE. Total revenue increased by $42.6 million or 17.1% to $291.4
million in the first six months of 1999 from $248.8 million in the first
six months of 1998. Approximately $40.9 million, or 96.0% of the
increase in total revenue is due to increased average managed assets.
Average managed assets increased $19.7 billion or 20.4% from $96.4
billion for the first six months of 1998 to $116.1 billion for the same
period in 1999, including increases of 21.2%, 24.0%, 8.2%, and 60.3% in
money market funds, equity funds, fixed income funds, and separate
accounts, respectively. The large percentage increase in separate
accounts is predominantly due to the assets associated with the newly
formed joint venture in Germany and the collateralized bond obligation.
Service related revenues from sources other than managed assets
decreased by approximately $2.7 million due primarily to a decrease in
average administered assets. Average administered assets decreased $20.2
billion or 38.6% from $52.2 billion for the first six months of 1998 to
$32.0 billion for the same period in 1999, resulting from the
termination of service contracts in 1998. Interest and dividends
increased by $2.9 million as a result of higher levels of invested cash
from cash generated from operations and to a lesser extent, the net
proceeds from the initial public offering. Other income improved $0.8
million and in the first six months of 1999 included a non-recurring
$3.0 million gain from the sale of certain non-earning assets while in
the first six months of 1998 included $2.5 million of income from a
servicing contract buyout of a bank-sponsored mutual fund complex.
OPERATING EXPENSES. Total operating expenses increased to $180.9
million for the six month period ended June 30, 1999 from $165.7 million
for the same period in 1998, an increase of $15.2 million or 9.2%.
Compensation and related expenses were $77.9 million for the first six
months of 1999 as compared to $74.8 million for the same period in 1998.
This increase of $3.1 million or 4.2% is mainly attributable to an
increase in employee salaries over the prior year and resultant
increases in payroll taxes and retirement plan expenses.
Advertising and promotional expenses were $25.6 million for the first
six months of 1999 as compared to $20.9 million for the same period in
1998. This increase of $4.7 million or 22.2% is primarily the result of
higher levels of marketing allowances being paid to brokers and bank
clients for retailing efforts of marketing funds.
Systems and communications expenses were $13.8 million for the first
six months of 1999 as compared to $13.1 million for the same period in
1998. This increase of $0.7 million or 5.5% is primarily due to new
computer hardware leasing agreements and increased costs to third-party
system vendors in the first half of 1999.
Office and occupancy expenses were $12.7 million for the first six
months of 1999 as compared to $13.9 million for the first six months of
1998. The decrease of $1.2 million or 8.8% is primarily attributable to
reduced rent expense for leased office space as a result of the
consolidation of certain servicing functions and the ultimate reduction
in leased office space in late 1998.
Professional service fees expenses were $12.8 million for the first six
months of 1999 as compared to $8.7 million for the same period in 1998.
The increase of $4.1 million or 47.2% is largely the result of increased
service fees related to subcontracted portfolio accounting services, as
well as increased legal and consulting fees related to the German joint
venture, Year 2000, and other system related projects.
Amortization of deferred sales commissions were $21.9 million for the
first six months of 1999 as compared to $14.7 million for the same
period in 1998. This increase of $7.2 million or 48.8% is due to higher
levels of deferred sales commissions as a result of the continued sale
of shares of funds which require the Company to advance a commission to
the broker/dealers.
Other expenses were $2.0 million for the first six months of 1999 as
compared to $5.3 million for the first six months of 1998. This decrease
of $3.3 million or 62.9% is primarily attributable to the reduction of
bad debt expense as a result of improved collection of accounts
receivable and the rebate of certain non-income related taxes.
NONOPERATING EXPENSES. Nonoperating expenses were $15.6 million for the
first six months of 1999 as compared to $12.9 million for the same
period in 1998, an increase of $2.7 million or 20.5%. This increase is
primarily due to increased interest expense attributable to higher
average nonrecourse debt levels incurred for the securitization of
certain B share fund assets.
MINORITY INTEREST. The minority interest increased to $5.0 million for
the first six months of 1999 from $4.2 million for the same period in
1998 as a result of higher net income for the subsidiary for which the
Company acts as the general partner with a majority interest of 50.5%.
The increase in income is attributable to higher average managed assets
of the funds advised by the subsidiary.
INCOME TAXES. The income tax provision for the six month period ended
June 30, 1999 was $32.7 million as compared to $24.0 million for the
same period in 1998, an increase of $8.7 million or 35.9%. This increase
was due primarily to the 36.3% increase in the level of income before
income taxes from $65.9 million for the six months ended June 30, 1998
to $89.9 million for the six months ended June 30, 1999. The effective
tax rate for the six month periods ended June 30, 1999 and 1998 were
36.3% and 36.5%, respectively.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW. Cash provided by operating activities totaled $37.8 million
for the first six months of 1999 as compared to $18.5 million for the
first six months of 1998. The increase is largely attributable to
increased profitability. Cash flows from operating activities for the
first six months of 1999 were primarily utilized for purchases of
securities available for sale, purchases of property and equipment,
dividend payments, distributions to the minority interest, the
repurchase of treasury stock as well as payments on long-term debt.
Purchases of securities available for sale in the first six months of
1999 included Federated's $11.0 million investment in subordinated notes
of a collateralized bond obligation (CBO). Federated purchased the
subordinated notes, which are classified as "Other long-term assets" in
the Consolidated Balance Sheets, in the second quarter of 1999.
DEFERRED SALES COMMISSIONS AND NONRECOURSE DEBT. Certain subsidiaries
of Federated pay commissions to broker / dealers (deferred sales
commissions) to promote investments in certain mutual funds. For mutual
fund shares sold under such marketing programs, Federated retains
certain distribution and servicing fees from the mutual fund over the
outstanding life of such shares. These fees consist of 12b-1,
shareholder service and contingent deferred sales charge (CDSC) fees.
Both 12b-1 and shareholder service fees are calculated as a percentage
of average managed assets associated with the related classes of shares.
If shares are redeemed before the end of a specified holding period as
outlined in the related mutual fund prospectus, the mutual fund
shareholder is normally required to pay Federated a CDSC fee based on a
percentage of the lower of the current market value or the original cost
basis of the redeemed shares, such percentage diminishing over a
recovery schedule not to exceed six years.
For non-B Share related sales, the up-front commissions Federated pays
to broker / dealers are capitalized, recorded as deferred sales
commissions and amortized over the estimated benefit period not to
exceed CDSC periods. The 12b-1 and shareholder service fees are
recognized in the statements of income over the life of the mutual fund
class share. Any CDSC fees collected are used to reduce the deferred
sales commission asset.
For B Share related sales, Federated has agreed to sell, on a regular
basis over a three-year contract period terminating in 2000, the rights
associated with certain of the future fee revenue associated with the
deferred sales commissions. For accounting purposes, the sales of the
future cash flow rights have been accounted for as financings and
nonrecourse debt was recorded.
<PAGE>
The following table demonstrates the effects of the B Share financing
program on both the Consolidated Balance Sheets at June 30, 1999 and
December 31, 1998, and the Consolidated Statements of Income for the
three and six-month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
JUNE 30 AND DECEMBER 31, RESPECTIVELY
Assets
Deferred sales commissions, net* $ 274,606 $ 249,580
Receivables 6,910 6,314
Other long-term assets 2,428 2,798
Liabilities
Long-term debt - nonrecourse $ 296,627 $ 272,850
Accounts payable 4,777 3,951
THREE MONTHS ENDED JUNE 30
Revenues
Other service fees, net - Federated $ 17,526 $ 12,738
funds
Expenses
Amortization of deferred sales $ 10,654 $ 8,691
commissions
Debt expense - nonrecourse 5,667 4,548
Other expenses 147 185
SIX MONTHS ENDED JUNE 30
Revenues
Other service fees, net - Federated $ 33,455 $ 23,786
funds
Expenses
Amortization of deferred sales $ 19,917 $ 13,208
commissions
Debt expense - nonrecourse 11,130 8,494
Other expenses 307 431
</TABLE>
* EXCLUDES DEFERRED SALES COMMISSIONS RELATED TO B SHARE REVENUE STREAMS WHICH
HAVE NOT BEEN FINANCED AS OF THE END OF THE PERIOD DUE TO THE TIMING OF THE SALE
OF THE REVENUE STREAMS TO THE THIRD PARTY.
Due to the nonrecourse nature of this financing arrangement, the $17.5
million excess of B Share-related liabilities over the related assets at
June 30, 1999, will be recognized in income over the remaining life of
the B Share cash flows.
CAPITAL EXPENDITURES. Capital expenditures totaled $14.0 million for the
first six months of 1999, which excludes Year 2000-related project costs
described below.
DIVIDENDS. Federated's board of directors adopted a policy in 1998 to
declare and pay cash dividends on a quarterly basis. A dividend of
$0.042 per share was paid in the second quarter of 1999. On July 20,
1999, Federated's board of directors declared a dividend of $0.042 per
share to be paid on August 13, 1999 to registered shareholders as of
August 2, 1999. After the payment of the dividend on August 13, 1999,
and stock repurchase payments through August 4, 1999, and given current
debt covenants, Federated, has the ability to pay dividends of
approximately $39.5 million.
DEBT FACILITIES. Federated has the following recourse debt facilities:
Senior Secured Credit Agreement and Senior Secured Note Purchase Agreement.
SENIOR SECURED CREDIT AGREEMENT: At June 30, 1999, the outstanding
balance under the Senior Secured Credit Agreement was zero with an
amount available to borrow of $150.0 million. The Senior Secured Credit
Agreement contains various financial and other covenants. Federated was
in compliance with all debt covenants at June 30, 1999.
SENIOR SECURED NOTE PURCHASE AGREEMENT: The Senior Secured Note
Purchase Agreement debt totaled $98.0 million as of June 30, 1999. The
notes are due in seven annual $14.0 million installments beginning June
27, 2000, and maturing June 27, 2006. Federated was in compliance with
all debt covenants at June 30, 1999.
CAPITALIZED LEASE OBLIGATIONS. At June 30, 1999, Federated had
capitalized lease obligations totaling $0.8 million related to certain
telephone equipment. The scheduled principal payments approximate $0.2
million per year for 1999 through 2002.
SHAREHOLDERS' EQUITY. In May 1998, Federated Investors was merged with
and into Federated Investors, Inc., its wholly owned subsidiary. All
outstanding Class A and Class B Common Shares of Federated Investors
were exchanged for an equal number of shares of no par Class A and Class
B Common Stock of Federated Investors, Inc., respectively, with the same
proportionate ownership and substantially similar rights. All treasury
stock of Federated Investors was retired, and additional paid-in capital
was transferred to the no par Class A and Class B Common Stock of
Federated Investors, Inc. based on their relative proportionate values
immediately prior to the merger.
Also in May 1998, Federated issued an additional 2,610,000 shares of
Class B Common Stock in an initial public offering for net proceeds of
approximately $46.2 million in cash.
FUTURE CASH REQUIREMENTS. Management expects that the principal needs
for cash will be to repurchase company stock, pay shareholder dividends,
advance sales commissions, service debt and fund strategic business
acquisitions. Management believes that Federated's existing liquid
assets, together with the expected continuing cash flow from operations,
its borrowing capacity under current credit facilities, its B Share
financing arrangement and its ability to issue stock will be sufficient
to meet its present and reasonably foreseeable cash needs.
YEAR 2000 READINESS DISCLOSURE. Many existing information technology
(IT) products and systems and non-IT products and systems containing
embedded processor technology were originally programmed to represent
any date by using six digits (e.g., 12/31/99), as opposed to eight
digits (e.g., 12/31/1999). Accordingly, such products and systems may
experience miscalculations, malfunctions or disruptions when attempting
to process information containing dates that fall after December 31,
1999 or when attempting to recognize the year 2000 as a leap year. These
potential problems are collectively referred to as the "Year 2000," or
"Y2K" problem. Also, the occurrence of such problems may take place
before the year 2000 if a computer system utilizes future dates during
its processing.
STATE OF READINESS: Computer processing is critical to Federated's
business operations, and the Y2K issue poses a significant potential
risk to operations. Therefore, Federated has established an
enterprise-wide project to address this issue. The project includes four
phases: inventory / assessment, which includes the identification of all
components of Federated's computing environment and the assessment of
Y2K issues for these components; remediation of the Y2K issues
identified in the inventory / assessment phase; testing to ensure that
remediation was successful; and implementation of the modified systems.
The project scope has been divided into four segments which comprise
Federated's computing environment as follows:
o systems developed internally by Federated's IT division - this constitutes
the majority of Federated's Y2K efforts; o mission-critical processing
provided by the funds' service providers;
o other critical aspects of systems and operations within the business units,
including both commercially available computer applications and the
progress of key business partners; and
o embedded systems - for Federated's operations, embedded systems mainly
consist of building systems and office equipment.
As of the end of June 1999, Federated is 100% complete with
inventory/assessment, remediation, internal system testing, and
implementation for all internally supported applications. In addition,
over 90% of Y2K testing of external, interfacing systems is complete.
This testing is expected to be complete by the end of the third quarter
1999.
Remaining work for internal systems includes continued testing with
external partners, finalize IT infrastructure upgrades from vendors, and
complete upgrades to certain desktop software packages. Each of these
efforts is mostly complete with completion targeted for the third
quarter 1999.
Certain mission-critical processing is performed for Federated's funds
by outside service providers, including the transfer agency, portfolio
accounting, and custody functions. Federated has identified these
service providers, is monitoring the progress of these companies in
addressing Y2K issues via progress reports and meetings, and is working
with these service providers to test their systems, as appropriate. As
of the end of the second quarter of 1999, the critical service providers
have reported good progress towards their Y2K readiness. Further,
Federated's acceptance testing has been successful.
For business unit operations, most vendor-provided applications have
been upgraded for Y2K compliance. Completion of this effort is expected
by the end of August. Critical business partners have been contacted
regarding their Y2K readiness and their efforts are being monitored. All
property managers for Federated's facilities have been contacted. These
firms state that most remediation and testing for building systems is
complete. The remaining work will be monitored during the rest of 1999.
Additionally, Federated participated in the "industry-wide testing"
coordinated by the Securities Industry Association. This testing was
conducted to ensure that major broker / dealers, exchanges, clearing
houses, and depositories will be able to communicate properly in the
year 2000. Federated participated in initial tests for processing of
mutual fund transactions in both July and October 1998. Federated has
also participated in the full industry-wide test conducted in March /
April 1999 and encountered no Y2K-related errors.
COSTS TO ADDRESS Y2K: Federated estimates its Y2K project will cost
approximately $10 million. Federated has incurred approximately $7.6
million from the inception of the Y2K project through June 30, 1999,
with $2.4 million being reflected within the current year's financial
statements. Y2K costs are being funded from operating revenue and are
being expensed as incurred. These cost estimates are subject to change
as the project continues. The estimated total costs are not considered
to have a material impact on Federated's results of operations or
financial position.
While certain non time-sensitive IT projects have been delayed due to
Y2K efforts and costs, no strategic projects or projects for legal or
regulatory requirements have been deferred or canceled.
RISKS OF YEAR 2000 ISSUES: It must be realized that, as with all other
companies in the financial services industry, many day-to-day functions
of Federated are dependent on accurate computer processing. Further,
this processing is conducted by an extensive network of systems, both
internal to Federated and external, with both direct and indirect
interaction. Accordingly, if not addressed, Y2K issues could result in
Federated's inability to perform mission-critical functions, including
the trading of securities and processing of fund shareowner
transactions.
A portion of Federated's business involves international investments,
thereby exposing Federated to operations, custody and settlement
processes outside the United States. Federated is monitoring the
progress of the funds' international custodians in these areas.
Federated is also assessing Y2K issues for other aspects of its
international operations.
Y2K is a risk for many of the issuers of the specific securities in
which Federated's funds invest, in both the U.S. and international
markets. Accordingly, Federated has incorporated assessment of Y2K risk
into its investment management process.
CONTINGENCY PLANS: Because Federated's operations are reliant upon
systems which are not under its direct control, Federated's Y2K plan
includes the development of contingency plans to address its critical
operations in the event of Y2K-related disruptions. The creation of
these plans is currently underway. We expect to create, document, and
validate our contingency plans by the end of October, 1999. However, in
an operation as complex and geographically distributed as Federated's
business, there are limited alternatives to certain of its
mission-critical systems or public utilities. If certain
mission-critical systems or public utilities are not made Year 2000
compliant or fail, there would be a material adverse impact upon
Federated's business, financial condition and results of operations.
Although Federated is investigating alternative solutions, it is
unlikely that an adequate contingency plan can be developed to avoid
such an adverse impact in the event mission-critical systems or public
utilities fail to achieve compliance.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION. Certain statements
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Future Cash Requirements and Year
2000 Readiness Disclosure sections and elsewhere in this report,
constitute forward-looking statements, which involve known and unknown
risks, uncertainties, and other factors that may cause the actual
results, levels of activity, performance, or achievements of Federated,
or industry results, to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by
such forward-looking statements. For a discussion of such risk factors,
see the section titled Risk Factors and Cautionary Statements in
Federated's Annual Report on Form 10-K for the year ended December 31,
1998, and other reports on file with the Securities and Exchange
Commission. As a result of the foregoing and other factors, no assurance
can be given as to future results, levels of activity, performance, or
achievements, and neither Federated nor any other person assumes
responsibility for the accuracy and completeness of such statements.
<PAGE>
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
Federated's investments are primarily in money market and fixed income
funds. Occasionally, Federated invests in new fluctuating net asset
value mutual funds (priming) sponsored by Federated in order to provide
investable cash to the fund, allowing the fund to establish a
performance history. Federated may use derivative financial instruments
in an attempt to hedge these investments. As of June 30, 1999, the book
value of the priming investments and the derivative financial
instruments were $4.9 million and $137,000, respectively. In the second
quarter of 1999, Federated became the collateral manager of an
approximately $361.0 million collateralized bond obligation (CBO)
consisting of high yield debt securities. At the same time, Federated
purchased $11.0 million of subordinated notes due 2011. Payments of
interest and principal on the subordinated notes will be subordinated to
interest and principal payments on senior and mezzanine notes issued by
the CBO as well as costs incurred by the CBO. All of Federated's debt
instruments carry fixed interest rates and therefore are not subject to
market risk.
Part II, Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits required to be filed by Item 601 of Regulation
S-K are filed herewith and incorporated by reference herein:
Exhibit 10.1. Material contracts - Federated Investors, Inc. Amendment No.
7 To Credit Agreement, dated as of February 22, 1999, by and among Federated
Investors, Inc. and the Banks set forth therein and PNC Bank, National
Association (filed herewith)
Exhibit 10.2. Material contracts - Federated Investors, Inc. Employee Stock
Purchase Plan Amended as of July 20, 1999 (filed herewith)
Exhibit 10.3. Material contracts - Federated Investors, Inc. Stock
Incentive Plan Amended as of July 20, 1999 (filed herewith)
Exhibit 21.1. Subsidiaries of the Registrant (filed herewith)
Exhibit 27.1. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the period
subject to this Quarterly Report on Form 10-Q.
<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.
FEDERATED INVESTORS, INC.
(Registrant)
Date AUGUST 12, 1999 By: /S/ JOHN W. MCGONIGLE
John W. McGonigle
Executive Vice President
Date AUGUST 12, 1999 By: /S/ THOMAS R. DONAHUE
Thomas R. Donahue
Chief Financial Officer and
Principal Accounting Officer
Exhibit 10.01
FEDERATED INVESTORS, INC.
EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE AS OF JULY 1, 1998
AMENDED AS OF JULY 20, 1999
ARTICLE I - PURPOSE
1.01. PURPOSE. The Federated Investors, Inc. Employee Stock
Purchase Plan (as the same may be amended from time to time, the "Plan") is
intended to provide an arrangement under which employees of Federated Investors,
Inc., a Pennsylvania corporation (the "Company"), and its corporate subsidiaries
will have an opportunity to acquire a proprietary interest in the Company
through the purchase of shares of the Class B Common Stock of the Company. It is
the intention of the Company that the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The provisions of the Plan shall be construed so as to
comply in all respects with the requirements of the Code applicable to employee
stock purchase plans. The Plan shall be effective July 1, 1998.
ARTICLE II - DEFINITIONS
2.01. "ACCOUNT" shall mean a bookkeeping account to which a
Participant's payroll deductions are credited in accordance with Section 4.02.
2.02. "ADJUSTMENT TRANSACTION" shall have the meaning given to that term in
Section 10.04.
2.03. "BOARD" shall mean the Board of Directors of the Company.
2.04. "CODE" shall have the meaning given to such term in Section 1.01.
2.05. "COMMITTEE" shall mean the committee described in Article IX.
2.06. "COMMON STOCK" shall mean the Class B Common Stock, no par value, of
the Company.
2.07. "COMPANY" shall have the meaning given to such term in Section 1.01.
2.08 "COMPENSATION" shall mean a Participant's wages as reported
in Box 1 of IRS Form W-2 plus any salary reduction contributions to a 401(k)
plan, cafeteria plan or tax deferred annuity which are not includable in the
gross income of the Participant. Compensation shall include all forms of
Compensation including any lump-sum variable payments that may be paid on a
periodic basis. Compensation shall not include any bonus amount, including, but
not limited to, payments made under any stock incentive, executive incentive
compensation or deferred bonus plans.
2.09. "EMPLOYEE" shall mean any person who is (i) employed on a
full-time basis by the Company or any of its corporate subsidiaries or (ii)
employed on a part-time basis by the Company or any of its corporate
subsidiaries and who meets the Company's requirements for benefits eligibility
at the beginning of the Offering Period; provided, however, that the following
employees shall be excluded from participation in the Plan: (a) temporary
employees and (b) any Five Percent Owner.
2.10. "FAIR MARKET VALUE" shall mean, as of any applicable date:
(i) if the Common Stock is listed on a national securities exchange or is
authorized for quotation on The Nasdaq Stock Market's National Market ("NNM"),
the closing price, regular way, of the Common Stock on such exchange or NNM, as
the case may be, or if no such reported sale of the Common Stock shall have
occurred on such date, on the next preceding date on which there was such a
reported sale; or (ii) if the Common Stock is not listed for trading on a
national securities exchange or authorized for quotation on NNM, the closing bid
price as reported by The Nasdaq Stock Market or The Nasdaq SmallCap Market (if
applicable), or if no such prices shall have been so reported for such date, on
the next preceding date for which such prices were so reported; or (iii) if the
Common Stock is not listed for trading on a national securities exchange or
authorized for quotation on NNM, The Nasdaq Stock Market or The Nasdaq SmallCap
Market (if applicable), the last reported bid price published in the "pink
sheets" or displayed on the National Association of Securities Dealers, Inc.
("NASD") Electronic Bulletin Board, as the case may be; or (iv) if the Common
Stock is not listed for trading on a national securities exchange, or is not
authorized for quotation on NNM, The Nasdaq Stock Market or The Nasdaq SmallCap
Market, or is not published in the "pink sheets" or displayed on the NASD
Electronic Bulletin Board, the Fair Market Value of the Common Stock as
determined in good faith by the Committee.
2.11. "FIVE PERCENT OWNER" shall mean an employee of the Company
or any of its corporate subsidiaries who after the grant of an Option under this
Plan, would own stock, and/or hold outstanding Options to purchase stock,
possessing in the aggregate 5% or more of the total combined voting power or
value of all classes of stock of the Company (for purposes of this section, the
rules of ss.424(d) of the Code shall apply in determining stock ownership of any
employee);
2.12. "MAXIMUM CONTRIBUTION" shall mean the maximum amount of
Compensation which each Employee may deduct for the purpose of purchasing shares
of Common Stock under the Plan. The Maximum Contribution, which shall be ten
percent (10%) of Compensation or such other percentage (in whole percentages) of
Compensation as may from time to time be determined from time to time by the
Committee on a uniform basis with respect to all Participants.
2.13 "MINIMUM CONTRIBUTION" shall mean 1% of Compensation for any payroll
period.
2.14. "OFFERING COMMENCEMENT DATE" shall mean each January 1, April 1, July
1 and October 1 during the term of the Plan, beginning July 1, 1998.
2.15. "OFFERING PERIOD" shall mean each three-month period beginning on an
Offering Commencement Date.
2.16. "OFFERING TERMINATION DATE" shall mean the last business day of each
Offering Period.
2.17. "OPTION" shall mean an option to acquire shares of Common Stock
deemed to have been granted to a Participant as described in Section 5.02.
2.18. "OPTION PRICE" shall mean the purchase price of shares of
Common Stock subject to an Option as described in Section 5.03.
2.19. "PARTICIPANT" shall mean an Employee who elects to participate in the
Plan in accordance with Article III.
2.20. "PLAN" shall have the meaning given to such term in Section 1.01.
2.21 "PURCHASE DATE" shall mean the tenth (10th) business day
following the applicable Offering Termination Date, or such earlier business day
on or following the Offering Termination Date as determined by the Company, as
of which purchases of Common Stock shall be made with contributions accumulated
during a particular Offering Period.
ARTICLE III - ELIGIBILITY AND PARTICIPATION
3.01. INITIAL ELIGIBILITY. Any Employee is eligible to
participate in the Plan for each Offering Period commencing on or after such
Employee's first day of employment with the Company or any of its corporate
subsidiaries.
3.02. RESTRICTIONS ON PARTICIPATION. Notwithstanding any
provisions of the Plan to the contrary, no Employee shall be permitted to
participate in the Plan or shall be deemed to have been granted an Option under
the Plan which permits his or her rights to purchase stock under all employee
stock purchase plans (as described in Section 423 of the Code) of the Company to
accrue at a rate which exceeds $25,000 (or such other amount as may be the
applicable dollar limitation under Section 423(b)(8) of the Code) in Fair Market
Value of the Common Stock (determined at the time such Option is granted) for
each calendar year in which such Option is outstanding.
3.03. COMMENCEMENT OF PARTICIPATION. An eligible Employee may
become a Participant by completing an authorization for a payroll deduction on
the form provided by the Company and filing it with the Company on or before the
due date established for the applicable Offering Period by the Committee or its
designee. Payroll deductions for a Participant, as elected in accordance with
Article IV, shall apply to each payroll period the pay date for which occurs
during the applicable Offering Period. Such payroll deduction election shall
remain in effect throughout that initial Offering Period and during each
subsequent Offering Period until modified or terminated as provided in Section
4.03 and Article VII.
ARTICLE IV - PAYROLL DEDUCTIONS
4.01. AMOUNT OF DEDUCTION. At the time a Participant files his or
her authorization for payroll deduction, he or she shall elect to have
deductions made from his or her Compensation on each payday during the time he
or she is a Participant of a specified whole percentage of his or her
Compensation in an amount not less than the Minimum Contribution and not in
excess of the Maximum Contribution.
4.02. PARTICIPANT'S ACCOUNT. All payroll deductions made for a
Participant shall be credited to his or her Account under the Plan. A
Participant may not make any separate cash payment into such Account. No
interest shall accrue on the amount of payroll deductions credited to a
Participant's Account under the Plan at any time.
4.03. CHANGES IN PAYROLL DEDUCTIONS. A Participant may
discontinue participation in the Plan at any time prior to the applicable
deadline, as provided in Article VII, but no other change can be made during an
Offering Period. A Participant may elect to change or terminate his or her
payroll deductions for a subsequent Offering Period by providing written notice
to the Company on or before the due date established for the applicable Offering
Period by the Committee or its designee.
ARTICLE V - OFFERING PERIODS AND GRANTING OF OPTIONS
5.01. OFFERING PERIODS. Except as otherwise provided in this Plan
or as otherwise determined by the Committee, in each calendar year during the
term of the Plan there shall be four Offering Periods, beginning on each
Offering Commencement Date and ending on the next following Offering Termination
Date.
5.02. OPTION PRICE. The Option Price with respect to an Offering
Period shall be such price as the Committee shall determine; provided, however,
that unless and until the Committee decides otherwise, the Option Price shall
equal the average price per share actually paid to acquire the shares for the
Plan as of the applicable Purchase Date; provided further, however, that in no
event shall the Option Price be less than 85% of the lower of:
(a) the Fair Market Value of the Common Stock on the Offering Commencement
Date; or
(b) the Fair Market Value of the Common Stock on the Offering Termination
Date.
5.03. NUMBER OF OPTION SHARES. Subject to Section 3.02, on the
Offering Commencement Date for each Offering Period, a Participant shall be
deemed to have been granted an Option to purchase the number of whole and
fractional shares (determined to not more than four decimal places) of Common
Stock as can be purchased at the Option Price with the amount credited to such
Participant's Account as of the Offering Termination Date with respect to that
Offering Period; provided, however, that if the number of shares of Common Stock
remaining available for issuance under the Plan, is less than the number of
shares to be purchased as of an Offering Termination Date, a pro rata allocation
of the available shares shall be made based upon the respective amounts then
credited to Participants' Accounts, and the cash balance credited to each such
Account shall be returned to the Participant whose Account has been so credited.
ARTICLE VI - EXERCISE OF OPTION
6.01. AUTOMATIC EXERCISE. Unless a Participant gives written
notice of withdrawal from the Plan to the Company as provided in Article VII
prior to the Offering Termination Date of an Offering Period, the Option deemed
to have been granted to such Participant under Section 5.02 hereof will be
deemed to have been exercised in full automatically on the Purchase Date
applicable to such Offering Period.
6.02. DELIVERY OF COMMON STOCK. Each Participant's Account shall
be credited with the number of whole and fractional shares (determined to not
more than four decimal places) of Common Stock purchased on his or her behalf
for each Offering Period. Such Participant shall be deemed to be a shareholder
with respect to such shares for all purposes and shall have all of the rights of
a shareholder with respect to such shares, including, but not limited to, the
right to receive dividends, if any, paid with respect to such shares. Promptly
after receiving a written request from a Participant, the Company shall deliver
to such Participant stock certificate(s) representing all, but not less than
all, of the shares of Common Stock purchased on behalf of such Participant under
the Plan which have not been previously delivered to such Participant, subject
to such Participant's payment of any transaction costs associated with such
transfer; provided, however, that the value of any fractional share shall be
paid to the Participant in cash as provided in Section 8.06.
6.03. DEATH OR RETIREMENT. Upon termination of the Participant's
employment by reason of death while in the employ of the Company or retirement,
the Participant or, in the event the Participant is deceased, the Participant's
beneficiary (as defined in Section 10.01), shall have the right to elect, by
written notice given to the Company prior to the later of (i) the Offering
Termination Date for the Offering Period during which the Participant
terminated, or (ii) if applicable, the date which is sixty (60) days following
the date of the Participant's death, either:
(a) to withdraw all of the payroll deductions credited to the Participant's
Account, or
(b) to exercise the Participant's Option on such Offering Termination Date
for the number of full shares of stock which the accumulated payroll deductions
credited to the Participant's Account at the date of the Participant's
termination of employment, will purchase at the applicable Option Price, and any
excess in such Account will be returned to said Participant or beneficiary,
without interest.
In the event that no such written notice of election shall be
duly received by the Company, the Participant or beneficiary shall automatically
be deemed to have elected, pursuant to paragraph (b) above, to exercise the
Participant's Option.
6.04. OTHER TERMINATION OF EMPLOYMENT. Upon termination of the
Participant's employment for any reason other than death while in the employ of
the Company or retirement, the payroll deductions credited to such Participant's
Account for the Offering Period during which such termination occurs will be
returned to him or her as soon as practicable following the termination of
employment..
ARTICLE VII - WITHDRAWAL
7.01. IN GENERAL. A Participant may withdraw payroll deductions
credited to his or her Account during an Offering Period by giving written
notice to the Company no later than five (5) business days prior to the Offering
Termination Date of such Offering Period or by such other due date for
withdrawal notices the Committee may establish. All of the payroll deductions
credited to a Participant's Account for such Offering Period, without interest,
will be paid to such Participant as soon as practicable following the receipt by
the Company of the written notice. No further payroll deductions will be made
with respect to such Participant during such Offering Period or any subsequent
Offering Period unless such Participant again commences participation in
accordance with Section 3.03.
7.02. EFFECT ON SUBSEQUENT PARTICIPATION. A Participant who
withdraws from the Plan shall be eligible to participate again in the Plan
beginning with the first Offering Period which commences after the date of
withdrawal.
ARTICLE VIII - STOCK
8.01. MAXIMUM SHARES. The maximum number of shares of Common
Stock which shall be issued under the Plan (subject to adjustment pursuant to
Section 10.04) during the term hereof shall be 500,000 shares. Such shares may
be authorized but unissued shares or treasury shares, as the Committee may
determine. If an Option shall expire or terminate without being exercised in
full, any shares not purchased pursuant to such Option shall again be available
for granting Options hereunder.
8.02. PARTICIPANT'S INTEREST IN OPTION STOCK. The Participant
will have no interest in the shares of Common Stock covered by an Option deemed
to have been granted hereunder until such Option has been exercised under
Section 6.01.
8.03. REGISTERED OWNERSHIP OF COMMON STOCK. Shares of Common
Stock to be delivered to a Participant under the Plan will be registered in the
name of the Participant, or, if the Participant so directs by written notice to
the Company prior to the Offering Termination Date applicable thereto, in the
names of the Participant and one such other person as may be designated by the
Participant, as joint tenants with rights of survivorship or as tenants by the
entireties, to the extent permitted by applicable law.
8.04. RESTRICTIONS ON EXERCISE. The Board may, in its discretion,
require as conditions to the exercise of any Option that the shares of Common
Stock reserved for issuance upon the exercise of the Option shall have been duly
listed, upon official notice of issuance, on a stock exchange or NNM, and that
either:
(a) a Registration Statement under the Securities Act of
1933, as amended, with respect to said shares shall be effective, or
(b) the Participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is
his or her intention to purchase the shares for investment and not for
resale or distribution.
8.05 RESTRICTIONS ON SHARES. The Committee shall have the
authority to impose transfer restrictions on the shares of Common Stock
purchased under the Plan and to place restrictive legends on the certificates
for such restricted shares; provided, however, that if any such restrictions are
to apply to shares of Common Stock purchased for an Offering Period, then prior
to the due date for Participant payroll deduction elections for such Offering
Period, the Committee shall notify prospective Participants of the nature of
such restrictions.
8.06. ESTABLISHMENT OF ACCOUNT WITH TRANSFER AGENT. By enrolling
in the Plan, each Participant will be deemed to have authorized the
establishment of an account in his or her name with the Company's transfer agent
for the Common Stock and to have consented to the sharing by such transfer agent
with the Company of information regarding the disposition of shares from said
account. With respect to any fractional shares credited to such account, upon
the withdrawal of such fractional shares from the account for any reason:
(a) the Participant will receive cash in lieu of such fractional shares,
(b) such cash will be payable solely from proceeds of the sale of
underlying whole shares held by the Plan, net of any fees and commissions
incurred on such sale; and
(c) the Company's transfer agent shall determine the time and manner of the
sale of underlying whole shares held by the Plan in accordance with its standard
procedures for transacting in fractional shares.
ARTICLE IX - ADMINISTRATION
9.01. APPOINTMENT OF COMMITTEE. The Board shall appoint a
Committee to administer the Plan, which shall consist of no fewer than two
members of the Board. No member of the Committee shall be eligible to purchase
Common Stock under the Plan. The Committee may, subject to compliance with
applicable legal requirements, delegate such of its powers and authority under
the Plan as it deems appropriate to designated officers or employees of the
Company. In addition, the Board may exercise any of the authority conferred upon
the Committee hereunder. In the event of any such delegation of authority or
exercise of authority by the Board, references in the Plan to the Committee
shall be deemed to refer to the delegate of the Committee or the Board, as the
case may be.
9.02. AUTHORITY OF COMMITTEE. Subject to the express provisions
of the Plan, the Committee shall have plenary authority in its sole and absolute
discretion to interpret and construe any and all provisions of the Plan, to
adopt rules and regulations for administering the Plan, and to make all other
determinations deemed necessary or advisable for administering the Plan. The
Committee's determination on the foregoing matters shall be conclusive.
ARTICLE X - MISCELLANEOUS
10.01. DESIGNATION OF BENEFICIARY. A Participant may file a
written designation of a beneficiary for purposes of the Plan. Such designation
of beneficiary may be changed by the Participant at any time by written notice
to the Company. In the event of the death of a Participant and in the absence of
a beneficiary validly designated under the Plan who is living at the time of
such Participant's death, the beneficiary shall be the executor or administrator
of the estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the beneficiary shall be, in
the sole and absolute discretion of the Company, the spouse or any one or more
dependents of the Participant. No beneficiary shall, prior to the death of the
Participant by whom he or she has been designated, acquire any interest under
the Plan.
10.02. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's Account nor any rights with regard to the exercise of an Option or
to receive Common Stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company
may, in its sole discretion, treat such act as an election to withdraw funds in
accordance with Section 7.01.
10.03. USE OF FUNDS. All payroll deductions received or held by
the Company under the Plan may be used by the Company for any corporate purpose
and the Company shall not be obligated to segregate such payroll deductions or
any Accounts.
10.04. EQUITABLE ADJUSTMENT. If, while any Options are
outstanding, the outstanding shares of Common Stock of the Company have
increased, decreased, changed into, or been exchanged for a different number or
kind of shares or securities of the Company or any other entity through
reorganization, merger, recapitalization, reclassification, stock split, reverse
stock split or other transaction (an "Adjustment Transaction"), appropriate and
proportionate adjustments may be made by the Committee in the number and/or kind
of shares which are subject to purchase under outstanding Options, and/or the
Option Price applicable to such outstanding Options or the Committee, if it
deems it appropriate, may convert Options into the right to receive cash or
other property pursuant to the Adjustment Transaction. In addition, in any such
event, the number and/or kind of shares which may be offered for purchase under
the Plan may also be proportionately adjusted if deemed appropriate by the
Committee.
10.05. AMENDMENT AND TERMINATION. The Board shall have complete
power and authority to terminate or amend the Plan. No termination,
modification, or amendment of the Plan may, without the consent of a Participant
then having an unexercised Option under the Plan, adversely affect the rights of
such Participant with respect to such Option
10.06. COSTS AND EXPENSES. No brokerage commissions or other
transaction costs and fees shall be charged by the Company in connection with
the purchase of shares under the Plan. All other costs and expenses incurred in
administering the Plan shall be borne by the Company; provided that any
commissions or other transactions costs incurred in the sale of Common Stock by
a Participant, the transfer of Common Stock to another brokerage account
established by a Participant, or the transfer of stock certificates to a
Participant shall be passed through to and paid by such Participant. The Company
or its transfer agent may deduct the amount of such commissions or transactions
costs from the proceeds of any sale of the Common Stock by a Participant or from
amounts credited to a Participant's Account. Any amounts credited to Accounts
shall constitute general assets of the Company and nothing in the Plan shall be
construed to create a trust or fiduciary relationship with respect to such
Accounts.
10.07. NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create any right for the benefit of any Employee or class of
Employees to purchase any shares under the Plan, or create in any Employee or
class of Employees any right with respect to continuation of employment by the
Company and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an Employee's employment at any time.
10.08. GOVERNING LAW. The law of the Commonwealth of Pennsylvania, other
than the conflict of laws provisions of such law, will govern all matters
relating to the Plan.
Exhibit 10.02
AMENDMENT NO. 7 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 7 TO CREDIT AGREEMENT ("AMENDMENT NO. 7") is dated as
of February 22, 1999, and is by and among FEDERATED INVESTORS, INC., a
Pennsylvania corporation (the "BORROWER"), the BANKS set forth therein
(collectively, the "BANKS"), and PNC BANK, NATIONAL ASSOCIATION, as agent for
the Banks (the "AGENT").
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Senior Secured Credit Agreement dated as of January 31, 1996, as amended
by Amendment No. 1 to Credit Agreement dated as of June 27, 1996, Amendment No.
2 to Credit Agreement dated as of December 13, 1996 and Amendment No. 3 to
Credit Agreement dated as of October 1, 1997, Amendment No. 4 to Credit
Agreement dated as of May 11, 1998, Amendment No. 5 to Credit Agreement dated as
of July 17, 1998 and Amendment No. 6 to Credit Agreement dated as of December 3,
1998 (the "CREDIT AGREEMENT");
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the same meanings given to them in the Credit Agreement; and
WHEREAS, the Borrower, the Banks and the Agent wish to amend the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto, intending to be legally bound, agree as
follows:
DEFINITIONS.
Defined terms used herein unless otherwise defined herein shall
have the meanings ascribed to them in the Credit Agreement as amended by this
Amendment.
AMENDMENT OF CREDIT AGREEMENT.
Section 6.1 of the Credit Agreement is hereby amended by
inserting the following immediately at the end of such Section:
(dd) YEAR 2000. The Companies have reviewed the areas within
their business and operations which could be adversely affected by, and
have developed or are developing a program to address on a timely basis,
the risk that certain computer applications used by the Companies (or
any of their respective material suppliers, customers or vendors) may be
unable to recognize and perform properly date-sensitive functions
involving dates prior to and after December 31, 1999 (the "YEAR 2000
PROBLEM"). To the best knowledge of the Companies, except as set forth
in the Borrower's most recent Form 10-Q or Form 10-K filed with the
Securities and Exchange Commission, the Year 2000 Problem will not
result in any Material Adverse Change.
Section 8.2(j)(iii) [Liquidations, Mergers, Consolidations and
Acquisitions] is hereby amended by deleting the second proviso in its entirety
and
inserting in lieu thereof:
PROVIDED, FURTHER, that the foregoing dollar limitation shall not
apply to acquisitions in which the only assets being acquired are (A)
the right of one or more of the Companies to receive Fund Fees and any
related contract rights, covenants not to compete, goodwill or other
intangibles and (B) SUBJECT TO THE CAPITAL EXPENDITURE LIMITATION SET
FORTH IN SECTION 8.2(O), FIXED ASSETS, so long as IN ANY SUCH
ACQUISITION (i) any mutual fund generating the Fund Fees which are being
acquired ("TARGET FUND") is merged into an existing fund, (ii) the
composition of the board of directors of any Target Fund is identical to
the board of directors of an existing Fund, or (iii) one or more of the
Companies has entered into a servicing contract with the Target Fund and
such contract or related contracts contain make-whole provisions upon
early termination reasonably acceptable to the Agent.
CONDITIONS OF EFFECTIVENESS OF AMENDMENT OF CREDIT AGREEMENT. The
effectiveness of the amendment of the Credit Agreement is expressly conditioned
upon satisfaction of each of the following conditions precedent on the date
hereof:
REPRESENTATIONS AND WARRANTIES; NO DEFAULTS. The representations and
warranties of the Borrower contained in Article VI of the Credit Agreement shall
be true and accurate on the date thereof with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and the Borrower shall have
performed and complied with all covenants and conditions under the Senior Loan
Documents and hereof; and no Event of Default or Potential Default under the
Credit Agreement and the other Senior Loan Documents shall have occurred and be
continuing or shall exist.
AUTHORIZATION AND INCUMBENCY. There shall be delivered to the Agent for the
benefit of each Bank a certificate, dated as of the date hereof, and signed by
the Secretary or an Assistant Secretary of the Borrower, certifying as
appropriate as to: all action taken by the Borrower in connection with this
Amendment and the other Loan Documents; and
the names of the officer or officers authorized
to sign this Amendment and the other
documents executed and delivered in
connection herewith and described in this
Section 3 and the true signatures of such
officer or officers and, in the case of the
Borrower, specifying the Authorized Officers
permitted to act on behalf of the Borrower
for purposes of the Loan Documents and the
true signatures of such officers, on which
the Agent and each Bank may conclusively
rely.
ACKNOWLEDGMENT. Each of the Loan Parties, other than the Borrower, shall
have executed the Confirmation in the form attached hereto as EXHIBIT 1 hereto.
LEGAL DETAILS; COUNTERPARTS. All legal details and proceedings in
connection with the transactions contemplated by this Amendment shall be in form
and substance satisfactory to the Agent, the Agent shall have received from the
Borrower and the Required Banks an executed original of this Amendment and the
Agent shall have received all such other counterpart originals or certified or
other copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agent.
FEES AND EXPENSES. The Borrower hereby agrees to reimburse the
Agent and the Banks on demand for all legal costs, expenses and disbursements
relating to this Amendment No. 7 which are payable by the Borrower as provided
in Sections 10.5 and 11.3 of the Credit Agreement.
FORCE AND EFFECT. Except as expressly modified by this Amendment,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect after the date hereof.
GOVERNING LAW. This Amendment shall be deemed to be a contract
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
[SIGNATURE PAGES FOLLOW]
<PAGE>
SIGNATURE PAGE 1 OF 2 TO AMENDMENT NO. 7 TO CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Amendment No. 7 as of the date first above
written.
FEDERATED INVESTORS, INC.
By:
Title:
PNC BANK, NATIONAL ASSOCIATION
individually and as Agent
By:
Title:
BANK OF AMERICA NT&SA
By:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
Title:
COMMERZBANK AKTIENGESELLSCHAFT
NEW YORK BRANCH
By:
Title:
<PAGE>
SIGNATURE PAGE 2 OF 2 TO AMENDMENT NO. 7 TO CREDIT AGREEMENT
THE BANK OF NEW YORK
By:
Title:
THE BANK OF NOVA SCOTIA
By:
Title:
FIRST UNION NATIONAL BANK
By:
Title:
NATIONAL CITY BANK OF PENNSYLVANIA
By:
Title:
STAR BANK, N.A.
By:
Title:
THE CHASE MANHATTAN BANK
By:
Title:
<PAGE>
EXHIBIT 1
FORM OF
CONFIRMATION
Reference is hereby made to that certain Senior Secured Credit Agreement
by and between FEDERATED INVESTORS, INC. (successor by merger to Federated
Investors), the BANKS set forth therein and PNC BANK, NATIONAL ASSOCIATION, as
Agent for the Banks dated as of January 31, 1996, as amended (the "CREDIT
AGREEMENT"). All terms used herein unless otherwise defined herein shall have
the meanings given to them in the Credit Agreement.
On the date hereof, the Borrower, the Banks and the Agent are entering
into that certain Amendment No. 7 to Credit Agreement (the "AMENDMENT"), a copy
of which has been provided to the undersigned. This Confirmation is delivered to
the Bank pursuant to Section 3(c) of the Amendment.
Pursuant to the Credit Agreement, on the Closing Date (i) the Borrower,
the Pledging Subsidiaries and the holders of the Class A Shares entered into
that certain Pledge Agreement in favor of the Agent for the benefit of the Banks
(the "PLEDGE AGREEMENT"), (ii) the Grantors entered into that certain Security
Agreement in favor of the Agent for the benefit of the Banks (the "SECURITY
AGREEMENT") and (iii) the Borrower and its Subsidiaries entered into that
certain Intercompany and Subordination Agreement in favor of the Agent for the
benefit of the Banks (the "INTERCOMPANY SUBORDINATION AGREEMENT"). This
Confirmation will confirm to the Agent and the Banks that the undersigned
Pledging Subsidiaries, holders of the Class A Shares, Grantors and Subsidiaries
of the Borrower have read and understand the Amendment which amends Section
8.2(j) of the Credit Agreement [Liquidations, Mergers, Consolidations and
Acquisitions] as set forth therein.
The Pledging Subsidiaries and the holders of the Class A Shares hereby
ratify and confirm the Pledge Agreement. The Grantors hereby ratify and confirm
the Security Agreement. The Subsidiaries of the Borrower hereby ratify and
confirm the Intercompany Subordination Agreement.
[SIGNATURE PAGES FOLLOW]
<PAGE>
[SIGNATURE PAGE 1 OF 5 OF CONFIRMATION]
IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned,
by their duly authorized officers, have executed this Confirmation as of
February ___, 1999.
ADVANCED INFORMATION SERVICES
By:
Title:
EDGEWOOD SERVICES, INC.
By:
Title:
FEDERATED ADMINISTRATIVE SERVICES
By:
Title:
FEDERATED ADMINISTRATIVE SERVICES, INC.
By:
Title:
FEDERATED ADVISERS
By:
Title:
<PAGE>
[SIGNATURE PAGE 2 OF 5 OF CONFIRMATION]
FEDERATED INVESTORS TRUST CO.
By:
Title:
FEDERATED FINANCIAL SERVICES, INC.
By:
Title:
FEDERATED GLOBAL RESEARCH CORP.
By:
Title:
FEDERATED INTERNATIONAL MANAGEMENT LIMITED
By:
Title:
FEDERATED INVESTMENT COUNSELING
By:
Title:
FEDERATED INVESTORS BUILDING CORP.
By:
Title:
<PAGE>
[SIGNATURE PAGE 3 OF 5 OF CONFIRMATION]
FEDERATED INVESTORS INSURANCE, INC.
By:
Title:
FEDERATED INVESTORS MANAGEMENT COMPANY
By:
Title:
FEDERATED MANAGEMENT
By:
Title:
FEDERATED RESEARCH
By:
Title:
FEDERATED RESEARCH CORP.
By:
Title:
FEDERATED SECURITIES CORP.
By:
Title:
<PAGE>
[SIGNATURE PAGE 4 OF 5 OF CONFIRMATION]
FEDERATED SERVICES COMPANY
By:
Title:
FEDERATED SHAREHOLDER SERVICES
By:
Title:
FEDERATED SHAREHOLDER SERVICES COMPANY
By:
Title:
FFSI INSURANCE AGENCY, INC.
By:
Title:
FII HOLDINGS, INC.
By:
Title:
PASSPORT RESEARCH, LTD.
By:
Title:
<PAGE>
[SIGNATURE PAGE 5 OF 5 OF CONFIRMATION]
RETIREMENT PLAN SERVICE COMPANY OF AMERICA
By:
Title:
THE VOTING SHARES IRREVOCABLE TRUST
By:/s/J. Christopher Donahue
J. Christopher Donahue, Trustee
By:/s/John F. Donahue
John F. Donahue, Trustee
By:/s/Rhodora J. Donahue
Rhodora J. Donahue, Trustee
Exhibit 10.03
FEDERATED INVESTORS, INC.
STOCK INCENTIVE PLAN
(Adopted as of February 20, 1998)
(Amended as of August 26,1998)
(Amended as of August 31, 1998)
(Amended as of January 26, 1999)
(Amended as of May 17, 1999)
(Amended as of July 20, 1999)
. PURPOSE
The purpose of the Federated Investors, Inc. Stock Incentive Plan (the
"PLAN") is to:
Facilitate the assumption by Federated Investors,
Inc., as the surviving corporation of a
merger with its parent corporation,
Federated Investors, of certain stock
incentive awards previously made by
Federated Investors to its employees; and
Continue to promote the long-term growth and
performance of Federated Investors, Inc. and
its affiliates and to attract and retain
outstanding individuals by awarding
directors, executive officers and key
employees stock options, stock appreciation
rights, performance awards, restricted stock
and/or other stock-based awards.
. DEFINITIONS
The following definitions are applicable to the Plan:
"AWARD" means the grant of Options, SARs, Performance Awards, Restricted
Stock or other stock-based award under the Plan.
"BOARD" means the Board of Directors of the Company.
"BOARD COMMITTEE" means the committee of the Board appointed in
accordance with Section 4 to administer the Plan.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Class B Common Stock of the Company, par value
$0.01 per share.
"COMPANY" means Federated Investors, Inc., a Pennsylvania corporation, and
its successors and assigns.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, on any date, the closing sale price of one
share of Common Stock, as reported on the New York Stock Exchange or any
national securities exchange on which the Common Stock is then listed or on The
NASDAQ Stock Market's National Market ("NNM") if the Common Stock is then quoted
thereon, as published in the Wall Street Journal or another newspaper of general
circulation, as of such date or, if there were no sales reported as of such
date, as of the last date preceding such date as of which a sale was reported.
In the event that the Common Stock is not listed for trading on a national
securities exchange or authorized for quotation on NNM, Fair Market Value shall
be the closing bid price as reported by The NASDAQ Stock Market or The NASDAQ
SmallCap Market (if applicable), or if no such prices shall have been so
reported for such date, on the next preceding date for which such prices were so
reported. In the event that the Common Stock is not listed on the New York Stock
Exchange, a national securities exchange or NNM, and is not listed for quotation
on The NASDAQ Stock Market or The NASDAQ SmallCap Market, Fair Market Value
shall be determined in good faith by the Board Committee in its sole discretion,
and for this purpose the Board Committee shall be entitled to rely on the
opinion of a qualified appraisal firm with respect to such Fair Market Value,
but the Board Committee shall in no event be obligated to obtain such an opinion
in order to determine Fair Market Value.
"GRANT DATE" means the date on which the grant of an Option under Section
5.1 hereof or a SAR under Section 6.1 hereof becomes effective pursuant to the
terms of the Stock Option Agreement or Stock Appreciation Rights Agreement, as
the case may be, relating thereto.
"INCENTIVE STOCK OPTION" means an option to purchase shares of Common
Stock designated as an incentive stock option and which complies with Section
422 of the Code.
"NON-STATUTORY STOCK OPTION" means an option to purchase shares of
Common Stock which is not an Incentive Stock Option.
"OFFERING" means the initial public offering of Class B Common Stock by
United States and international underwriters.
"OPTION" means any option to purchase shares of Common Stock granted
under Sections 5.1 or 10.1 hereof.
"OPTION PRICE" means the purchase price of each share of Common Stock
under an Option.
"OUTSIDE DIRECTOR" means a member of the Board who is not an employee of
the Company or any Subsidiary.
"PARTICIPANT" means any salaried employee of the Company and its
affiliates designated by the Board Committee to receive an Award under the Plan.
"PERFORMANCE AWARD" means an Award of shares of Common Stock granted
under Section 7.
"PERFORMANCE PERIOD" means the period of time established by the Board
Committee for achievement of certain objectives under Section 7.1 hereof.
"RESTRICTION PERIOD" means the period of time specified in a Performance
Share Award Agreement or a Restricted Stock Award Agreement, as the case may be,
between the Participant and the Company during which the following conditions
remain in effect: (i) certain restrictions on the sale or other disposition of
shares of Common Stock awarded under the Plan, and (ii) subject to the terms of
the applicable agreement, a requirement of continued employment of the
Participant in order to prevent forfeiture of the Award.
"STOCK APPRECIATION RIGHTS" or "SARS" means the right to receive a cash
payment from the Company equal to the excess of the Fair Market Value of a
stated number of shares of Common Stock at the exercise date over a fixed price
for such shares.
"SUBSIDIARY" means any corporation, business trust or partnership (other
than the Company) in an unbroken chain of corporations, business trusts or
partnerships beginning with the Company if each of the corporations, business
trusts or partnerships (other than the last corporation, business trust or
partnership in the chain) owns stock, beneficial interests or partnership
interests possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations, business trusts or
partnerships in the chain.
"TEN PERCENT HOLDER" means a person who owns (within the meaning of Section
424(d) of the Code) more than ten percent of the voting power of all classes of
stock of the Company or of its parent corporation or Subsidiary.
. SHARES SUBJECT TO PLAN
SHARES RESERVED UNDER THE PLAN. Subject to adjustment as provided in
Section 3.2, the number of shares of Common Stock cumulatively available
under the Plan shall equal 13,500,000 shares. All of such authorized shares of
Common Stock shall be available for the grant of Incentive Stock Options under
the Plan. No Participant shall receive Awards in respect of more than 600,000
shares of Common Stock in any fiscal year of the Company. In addition, the
aggregate Fair Market Value (determined on the Grant Date) of Common Stock with
respect to which Incentive Stock Options granted a Participant become
exercisable for the first time in any single calendar year shall not exceed
$100,000. Any Common Stock issued by the Company through the assumption or
substitution of outstanding grants from an acquired corporation or entity shall
not reduce the shares available for grants under the Plan. Shares of Common
Stock to be issued pursuant to the Plan may be authorized and unissued shares,
treasury shares, or any combination thereof. Subject to Section 6.2 hereof, if
any shares of Common Stock subject to an Award hereunder are forfeited or any
such Award otherwise terminates without the issuance of such shares of Common
Stock to a Participant, or if any shares of Common Stock are surrendered by a
Participant in full or partial payment of the Option Price of an Option, such
shares, to the extent of any such forfeiture, termination or surrender, shall
again be available for grant under the Plan.
ADJUSTMENTS. The aggregate number of shares of Common Stock which may be
awarded under the Plan and the terms of outstanding Awards shall be
adjusted by the Board Committee to reflect a change in the capitalization of the
Company, including but not limited to, a stock dividend or split,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, spin-off, spin-out or other distribution of assets to shareholders;
PROVIDED that the number and price of shares subject to outstanding Options
granted to Outside Directors pursuant to Section 10 hereof and the number of
shares subject to future Options to be granted pursuant to Section 10 shall be
subject to adjustment only as set forth in Section 10 hereof.
MERGER WITH FEDERATED INVESTORS. Notwithstanding the foregoing, the
Company's merger with Federated Investors and assumption of its outstanding
stock incentive awards will not result in any adjustment to the number of shares
available under the Plan and will reduce the number of shares available under
this Plan accordingly. For purposes of this Plan, after the merger all such
stock incentive awards shall be treated as Awards under this Plan, except that
any Grant Date, Performance Period or Restricted Period shall relate back to the
date on which the awards were made by Federated Investors.
. ADMINISTRATION OF PLAN
ADMINISTRATION BY THE BOARD COMMITTEE. The Plan shall be administered as
follows.
Prior to an Offering, the Plan shall be
administered by either the full Board or by
the Board Committee if one is established by
the Board. Prior to an Offering, any member
of the Board may serve on the Board
Committee.
After an Offering, the Plan shall be administered
by the Board Committee, which shall consist
of no fewer than two members of the Board
who are (i) "Non-Employee Directors" for
purposes of Rule 16b-3 of the Commission
under the Exchange Act and (ii) to the
extent required to ensure that awards under
the Plan are exempt for purposes of Section
162(m) of the Code, "outside directors" for
purposes of Section 162(m); PROVIDED,
HOWEVER, that the Board Committee may
delegate some or all of its authority and
responsibility under the Plan with respect
to Awards to Participants who are not
subject to Section 16 of the Exchange Act to
the Chief Executive Officer of the Company.
In the event that, after an Offering, the
Board does not have two members who qualify
as "Non-Employee Directors" for purposes of
Rule 16b-3, the Plan shall be administered
by the full Board.
The Board Committee shall have authority to
interpret the Plan, to establish, amend, and
rescind any rules and regulations relating
to the Plan, to prescribe the form of any
agreement or instrument executed in
connection herewith, and to make all other
determinations necessary or advisable for
the administration of the Plan. All such
interpretations, rules, regulations and
determinations shall be conclusive and
binding on all persons and for all purposes.
In addition, the Board Committee shall have
authority, without amending the Plan, to
grant Awards hereunder to Participants who
are foreign nationals or employed outside
the United States or both, on terms and
conditions different from those specified
herein as may, in the sole judgment and
discretion of the Board Committee, be
necessary or desirable to further the
purpose of the Plan.
Notwithstanding the foregoing, the Board Committee
shall not have any discretion with respect
to Options granted to Outside Directors
pursuant to Section 10 hereof. In the event
that the Board does not establish a Board
Committee for any reason, any reference in
this Plan to the Board Committee shall be
deemed to refer to the full Board.
DESIGNATION OF PARTICIPANTS. Participants shall be selected, from time to
time, by the Board Committee, from those executive officers and key
employees of the Company and its affiliates who, in the opinion of the Board
Committee, have the capacity to contribute materially to the continued growth
and successful performance of the Company. Outside Directors shall be
Participants only in accordance with Section 10.
. STOCK OPTIONS
GRANTS. Options may be granted, from time to time, to such Participants as
may be selected by the Board Committee on such terms, not inconsistent with this
Plan, as the Board Committee shall determine. The Option Price shall be
determined by the Board Committee effective on the Grant Date; PROVIDED,
HOWEVER, that (i) in the case of Incentive Stock Options granted to a
Participant who on the Grant Date is not a Ten Percent Holder, such price shall
not be less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock on the Grant Date, (ii) in the case of an Incentive Stock Option
granted to a Participant who on the Grant Date is a Ten Percent Holder, such
price shall be not less than one hundred and ten percent (110%) of the Fair
Market Value of a share of Common Stock on the Grant Date, and (iii) in the case
of Non-Statutory Stock Options, such price shall be not less than eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the Grant
Date. The number of shares of Common Stock subject to each Option granted to
each Participant, the terms of each Option, and any other terms and conditions
of an Option granted hereunder shall be determined by the Board Committee, in
its sole discretion, effective on the Grant Date; PROVIDED, HOWEVER, that no
Incentive Stock Option shall be exercisable any later than ten (10) years from
the Grant Date. Each Option shall be evidenced by a Stock Option Agreement
between the Participant and the Company which shall specify the type of Option
granted, the Option Price, the term of the Option, the number of shares of
Common Stock to which the Option pertains, the conditions upon which the Option
becomes exercisable and such other terms and conditions as the Board Committee
shall determine.
PAYMENT OF OPTION PRICE. No shares of Common Stock shall be issued upon
exercise of an Option until full payment of the Option Price therefor by the
Participant. Upon exercise, the Option Price may be paid in cash, in shares of
Common Stock having a Fair Market Value equal to the Option Price, or in any
combination thereof, or in any other manner approved by the Board Committee.
RIGHTS AS SHAREHOLDERS. Participants shall not have any of the rights of a
shareholder with respect to any shares subject to an Option until such shares
have been issued upon the proper exercise of such Option.
TRANSFERABILITY OF OPTIONS. Options granted under the Plan may not be sold,
transferred, pledged, assigned, hypothecated or otherwise disposed
of except by will or by the laws of descent and distribution; PROVIDED, HOWEVER,
that, if authorized in the applicable Award agreement, a Participant may make
one or more gifts of Options granted hereunder to members of the Participant's
immediate family or trusts or partnerships for the benefit of such family
members. All Options granted to a Participant under the Plan shall be
exercisable during the lifetime of such Participant only by such Participant,
his agent, guardian or attorney-in-fact; provided, however, that all Options
transferred in a manner consistent with the terms of an Award agreement may be
exercised by the transferee.
TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of
either the Company or of any of its affiliates, the Options granted hereunder
shall be exercisable in accordance with the Stock Option Agreement between the
Participant and the Company.
DESIGNATION OF INCENTIVE STOCK OPTIONS. Except as otherwise expressly
provided in the Plan, the Board Committee may, at the time of the grant of an
Option, designate such Option as an Incentive Stock Option under Section 422 of
the Code.
CERTAIN INCENTIVE STOCK OPTION TERMS. In the case of any grant of an
Incentive Stock Option, whenever possible, each provision in the Plan and
in any related agreement shall be interpreted in such a manner as to entitle the
Option holder to the tax treatment afforded by Section 422 of the Code, and if
any provision of this Plan or such agreement shall be held not to comply with
requirements necessary to entitle such Option to such tax treatment, then (i)
such provision shall be deemed to have contained from the outset such language
as shall be necessary to entitle the Option to the tax treatment afforded under
Section 422 of the Code, and (ii) all other provisions of this Plan and the
agreement relating to such Option shall remain in full force and effect. If any
agreement covering an Option designated by the Board Committee to be an
Incentive Stock Option under this Plan shall not explicitly include any terms
required to entitle such Incentive Stock Option to the tax treatment afforded by
Section 422 of the Code, all such terms shall be deemed implicit in the
designation of such Option and the Option shall be deemed to have been granted
subject to all such terms.
. STOCK APPRECIATION RIGHTS
GRANTS. Stock Appreciation Rights may be granted, from time to time, to
such salaried employees of the Company and its affiliates as may be
selected by the Board Committee. SARs may be granted at the discretion of the
Board Committee either (i) in connection with an Option or (ii) independent of
an Option. The price from which appreciation shall be computed shall be
established by the Board Committee at the Grant Date; PROVIDED, HOWEVER, that
such price shall not be less than one-hundred percent (100%) of the Fair Market
Value of the number of shares of Common Stock subject of the grant on the Grant
Date. In the event the SAR is granted in connection with an Option, the fixed
price from which appreciation shall be computed shall be the Option Price. Each
grant of a SAR shall be evidenced by a Stock Appreciation Rights Agreement
between the Participant and the Company which shall specify the type of SAR
granted, the number of SARs, the conditions upon which the SARs vest and such
other terms and conditions as the Board Committee shall determine.
EXERCISE OF SARS. SARs may be exercised upon such
terms and conditions as the Board Committee shall determine; PROVIDED, HOWEVER,
that SARs
granted in connection with Options may be exercised only to the extent the
related Options are then exercisable. Notwithstanding Section 3.1 hereof, upon
exercise of a SAR granted in connection with an Option as to all or some of the
shares subject of such Award, the related Option shall be automatically canceled
to the extent of the number of shares subject of the exercise, and such shares
shall no longer be available for grant hereunder. Conversely, if the related
Option is exercised as to some or all of the shares subject of such Award, the
related SAR shall automatically be canceled to the extent of the number of
shares of the exercise, and such shares shall no longer be available for grant
hereunder.
PAYMENT OF EXERCISE. Upon exercise of a SAR, the holder shall be paid in
cash the excess of the Fair Market Value of the number of shares subject of the
exercise over the fixed price, which in the case of a SAR granted in connection
with an Option shall be the Option Price for such, shares.
RIGHTS OF SHAREHOLDERS. Participants shall not have any of the rights of a
shareholder with respect to any Options granted in connection with a SAR until
shares have been issued upon the proper exercise of an Option.
TRANSFERABILITY OF SARS. SARs granted under the Plan may not be sold,
transferred, pledged, assigned, hypothecated or otherwise disposed of except by
will or by the laws of descent and distribution. All SARs granted to a
Participant under the Plan shall be exercisable during the lifetime of such
Participant only by such Participant, his agent, guardian, or attorney-in-fact.
TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of
either the Company or of any of its affiliates, SARs granted hereunder shall be
exercisable in accordance with the Stock Appreciation Rights Agreement between
the Participant and the Company.
. PERFORMANCE AWARDS
AWARDS. Awards of shares of Common Stock may be made, from time to time, to
such Participants as may be selected by the Board Committee. Such shares shall
be delivered to the Participant only upon (i) achievement of such corporate,
sector, division, individual or any other objectives or criteria during the
Performance Period as shall be established by the Board Committee and (ii) the
expiration of the Restriction Period. Except as provided in the Performance
Share Award Agreement between the Participant and the Company, shares subject to
such Awards under this Section 7.1 shall be released to the Participant only
after the expiration of the relevant Restriction Period. Each Award under this
Section 7.1 shall be evidenced by a Performance Share Award Agreement between
the Participant and the Company which shall specify the applicable performance
objectives, the Performance Period, the Restriction Period, any forfeiture
conditions and such other terms and conditions as the Board Committee shall
determine.
STOCK CERTIFICATES. Upon an Award of shares of Common Stock under Section
7.1 of the Plan, the Company shall issue a certificate registered in the name of
the Participant bearing the following legend and any other legend required by
any federal or state securities laws or by the Delaware Business Trust Act:
"The sale or other transfer of the shares of stock represented by
this certificate is subject to certain restrictions set forth in
the Federated Investors, Inc. Stock Incentive Plan,
administrative rules adopted pursuant to such Plan and a
Performance Share Award Agreement between the registered owner
and Federated Investors, Inc. A copy of the Plan, such rules and
such Agreement may be obtained from the Secretary of Federated
Investors, Inc."
Unless otherwise provided in the Performance Share Award Agreement between the
Participant and the Company, such certificates shall be retained by the Company
until the expiration of the Restriction Period. Upon the expiration of the
Restriction Period, the Company shall (i) cause the removal of the legend from
the certificates for such shares as to which a Participant is entitled in
accordance with the Performance Share Award Agreement between the Participant
and the Company and (ii) release such shares to the custody of the Participant.
RIGHTS AS SHAREHOLDERS. Subject to the provisions of the Performance Share
Award Agreement between the Participant and the Company, during the
Performance Period, dividends and other distributions paid with respect to all
shares awarded thereto under Section 7.1 hereof shall, in the discretion of the
Board Committee, either be paid to Participants or held in escrow by the Company
and paid to Participants only at such time and to such extent as the related
Performance Award is earned. During the period between the completion of the
Performance Period and the expiration of the Restriction Period, Participants
shall be entitled to receive dividends and other distributions only as to the
number of shares determined in accordance with the Performance Share Award
Agreement between the Participant and the Company.
TRANSFERABILITY OF SHARES. Certificates evidencing the shares of Common
Stock awarded under the Plan shall not be sold, exchanged, assigned,
transferred, pledged, hypothecated or otherwise disposed of until the expiration
of the Restriction Period.
TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of
either the Company or of one of its affiliates, the number of shares
subject of the Award, if any, to which the Participant shall be entitled
shall be determined in accordance with the Performance Share Award Agreement
between the Participant and the Company.
TRANSFER OF EMPLOYMENT. If a Participant transfers employment from one
business unit of the Company or any of its affiliates to another
business unit during a Performance Period, such Participant shall be eligible to
receive such number of shares of Common Stock as the Board Committee may
determine based upon such factors as the Board Committee in its sole discretion
may deem appropriate.
. RESTRICTED STOCK AWARDS
AWARDS. Awards of shares of Common Stock subject to such restrictions as to
vesting and otherwise as the Board Committee shall determine, may
be made, from time to time, to Participants as may be selected by the Board
Committee. The Board Committee may in its sole discretion at the time of the
Award or at any time thereafter provide for the early vesting of such Award
prior to the expiration of the Restriction Period. Each Award under this Section
8.1 shall be evidenced by a Restricted Stock Award Agreement between the
Participant and the Company which shall specify the vesting schedule, any rights
of acceleration, any forfeiture conditions, and such other terms and conditions
as the Board Committee shall determine.
STOCK CERTIFICATES. Upon an Award of shares of Common Stock under Section
8.1 of the Plan, the Company shall issue a certificate registered in the name of
the Participant bearing the following legend and any other legend required by
any federal or state securities laws or by the Delaware Business Trust Act.
"The sale or other transfer of the shares of stock represented by
this certificate is subject to certain restrictions set forth in
the Federated Investors, Inc. Stock Incentive Plan,
administrative rules adopted pursuant to such Plan and a
Restricted Stock Award Agreement between the registered owner and
Federated Investors, Inc. A copy of the Plan, such rules and such
agreement may be obtained form the Secretary of Federated
Investors, Inc."
Unless otherwise provided in the Restricted Stock Award Agreement between the
Participant and the Company, such certificates shall be retained in custody by
the Company until the expiration of the Restriction Period. Upon the expiration
of the Restriction Period, the Company shall (i) cause the removal of the legend
from the certificates for such shares as to which a Participant is entitled in
accordance with the Restricted Stock Award Agreement between the Participant and
the Company and (ii) release such shares to the custody of the Participant.
RIGHTS AS SHAREHOLDERS. During the Restriction Period, Participants shall
be entitled to receive dividends and other distributions paid with respect to
all shares awarded thereto under Section 8.1 hereof.
TRANSFERABILITY OF SHARES. Certificates evidencing the shares of Common
Stock awarded under the Plan shall not be sold, exchanged, assigned,
transferred, pledged, hypothecated or otherwise disposed of until the expiration
of the Restriction Period.
TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of
either the Company or of any of its affiliates, the number of shares
subject of the Award, if any, to which the Participant shall be entitled shall
be determined in accordance with the Restricted Stock Award Agreement between
the Participant and the Company. All remaining shares as to which restrictions
apply at the date of termination of employment shall be forfeited subject to
such exceptions, if any, authorized by the Board Committee.
. OTHER STOCK-BASED AWARDS
Awards of shares of Common Stock and other awards that are valued in
whole or in part by reference to, or are otherwise based on, Common Stock, may
be made, from time to time, to salaried employees of the Company and its
affiliates as may be selected by the Board Committee. Such Awards may be made
alone or in addition to or in connection with any other Award hereunder. The
Board Committee may in its sole discretion determine the terms and conditions of
any such Award. Each such Award shall be evidenced by an agreement between the
Participant and the Company which shall specify the number of shares of Common
Stock subject of the Award, any consideration therefor, any vesting or
performance requirements and such other terms and conditions as the Board
Committee shall determine.
. OUTSIDE DIRECTORS' OPTIONS
INITIAL GRANTS. Effective on the dates set forth below, each category of
Outside Director of the Company described below shall be automatically granted
an Option to purchase 5,000 shares of Common Stock:
(i) for any Outside Director serving on the Board at the effective date of the
Offering, the effective date of the Offering;
(ii) for any Outside Director elected by the shareholders of the Company
subsequent to the effective time of the Offering, the date of such Outside
Director's initial election to the Board; and
(iii)for any Outside Director appointed by the Board subsequent to the
effective time of the Offering, the date such Outside Director's
appointment to the Board becomes effective.
All such Options shall be Non-Statutory Stock Options. The Option Price for all
Options granted pursuant to this Section 10 shall be the greater of (a) $19.00
per share or (b) one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the date of grant.
ANNUAL GRANTS. Effective on the date of each Annual Meeting of the
shareholders of the Company that occurs after the Offering, each Outside
Director who will be continuing as a director after such Annual Meeting, but not
including any Outside Director who is first elected at such Annual Meeting,
shall automatically be granted an Option to purchase 1,500 shares of Common
Stock. All such Options shall be Non-Statutory Stock Options. The Option price
shall be one-hundred percent (100%) of the Fair Market Value per share of Common
Stock on the date of the grant.
EXERCISE OF OPTIONS. Two thousand (2,000) of the initial Options granted
pursuant to Section 10.1 shall vest in an Outside Director on the first
anniversary of such grant and one thousand five hundred (1,500) of the initial
Options shall vest on each subsequent anniversary of such grant until such
Options are fully vested at the end of three years. All Options granted pursuant
to Section 10.2 shall vest immediately. All vested Options shall be immediately
exercisable and may be exercised by the Outside Director for a period of ten
(10) years from the date of grant; PROVIDED, HOWEVER, that in the event of the
death or disability of an Outside Director, the Options shall be exercisable
only within the twelve (12) months next succeeding the date of death or
disability and only if and to the extent that the Outside Director was entitled
to exercise the Options at the date of the Outside Director's death or
disability, as the case may be. If an Outside Director's service with the
Corporation terminates due to retirement all vested Options may be exercised by
the Outside Director for a period of ten (10) years from the date of grant;
PROVIDED, HOWEVER, that in the event of the death of a retired Outside Director,
the Options shall be exercisable only within the twelve (12) months next
succeeding the date of death. If an Outside Director's service with the Company
terminates for any reason other than retirement, death or disability, the
Options shall be exercisable for thirty (30) days after the date of such
termination and only if and to the extent the Outside director was entitled to
exercise the Options at the date of such termination. In the case of death, such
Options shall be exercisable only by the executor or administrator of the
Outside Director's estate or by the person or persons to whom the Outside
Director's rights under the Options shall pass by the Outside Director's will or
the laws of descent and distribution. Notwithstanding the foregoing, in no event
shall any Option be exercisable more than ten (10) years after the date of
grant.
PAYMENT OF OPTION PRICE. An Option granted to an
Outside Director shall be exercisable only upon payment to the Company of the
Option price.
Payment for the shares shall be in United States dollars, payable in cash or by
check.
ADJUSTMENTS. In case there shall be a merger, reorganization,
consolidation, recapitalization, stock dividend or other change in corporate
structure such that the shares of Common Stock are changed into or become
exchangeable for a larger or smaller number of shares, thereafter the number of
shares subject to outstanding Options granted to Outside Directors and the
number of shares subject to Options to be granted to Outside Directors pursuant
to the provisions of this Section 10 shall be increased or decreased, as the
case may be, in direct proportion to the increase or decrease in the number of
shares of Common Stock by reason of such change in corporate structure, provided
that the number of shares shall always be a whole number, and the purchase price
per share of any outstanding Options shall, in the case of an increase in the
number of shares, be proportionately reduced, and in the case of a decrease in
the number of shares, shall be proportionately increased.
. AMENDMENT OR TERMINATION OF PLAN
The Board may amend, suspend or terminate the Plan or any part thereof
from time to time, provided that no change may be made which would impair the
rights of a Participant to whom shares of Common Stock have theretofore been
awarded without the consent of said Participant.
. MISCELLANEOUS
RIGHTS OF EMPLOYEES. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or any affiliate to terminate any Participant's
employment at any time, nor confer upon any Participant any right to continued
employment with the Company or any affiliate.
TAX WITHHOLDING. The Company shall have the authority to withhold, or to
require a Participant to remit to the Company, prior to issuance or
delivery of any shares or cash hereunder, an amount sufficient to satisfy
federal, state and a local tax withholding requirements associated with any
Award. In addition, the Company may, in its sole discretion, permit a
Participant to satisfy any tax withholding requirements, in whole or in part, by
(i) delivering to the Company shares of Common Stock held by such Participant
having a Fair Market Value equal to the amount of the tax or (ii) directing the
Company to retain shares of Common stock otherwise issuable to the Participant
under the Plan.
STATUS OF AWARDS. Awards hereunder shall not be deemed compensation for
purposes of computing benefits under any retirement plan of the Company or
affiliate and shall not affect any benefits under any other benefit plan now or
hereafter in effect under which the availability or amount of benefits is
related to the level of compensation.
WAIVER OF RESTRICTIONS. The Board Committee may, in its sole discretion,
based on such factors as the Board Committee may deem appropriate, waive in
whole or in part, any remaining restrictions or vesting requirements in
connection with any Award hereunder.
ADJUSTMENT OF AWARDS. Subject to Section 11, the Board Committee shall be
authorized to make adjustments in performance award criteria or in
the terms and conditions of other Awards (except Options granted pursuant to
Section 10 hereof) in recognition of unusual or nonrecurring events affecting
the Company or its financial statements or changes in applicable laws,
regulations or accounting principles; PROVIDED HOWEVER, that no such adjustment
shall impair the rights of any Participant without his consent. The Board
Committee may also make Awards hereunder in replacement of, or as alternatives
to, Awards previously granted to Participants, including without limitation,
previously granted Options having higher Option Prices and grants or rights
under any other plan of the Company or of any acquired entity. The Board
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry it into effect. In the event the Company shall assume
outstanding employee benefit awards or the right or obligation to make future
such awards in connection with the acquisition of another corporation or
business entity, the Board Committee may, in its discretion, make such
adjustments in the terms of Awards under the Plan as it shall deem appropriate.
Notwithstanding the above, only the full Board (and not the Board Committee)
shall have the right to make any adjustments in the terms or conditions of
Options granted pursuant to Section 10.
CONSIDERATION FOR AWARDS. Except as otherwise required in any applicable
agreement or by the terms of the Plan, Participants under the Plan shall not be
required to make any payment or provide consideration for an Award other than
the rendering of services.
SPECIAL FORFEITURE RULE. Notwithstanding any other provision of this Plan
to the contrary, the Board Committee shall be authorized to impose
additional forfeiture restrictions with respect to Awards granted under the
Plan, other than Awards pursuant to Section 10 hereof, including, without
limitation, provisions for forfeiture in the event the Participant shall engage
in competition with the Company or in any other circumstance the Board Committee
may determine.
EFFECTIVE DATE AND TERM OF PLAN. The Plan shall be effective as of the date
it is approved by the Board, subject to the approval thereof by the shareholders
of the Company. Unless terminated under the provisions of Section 11 hereof, the
Plan shall continue in effect indefinitely; PROVIDED, HOWEVER, that no Incentive
Stock Options shall be granted after the tenth anniversary of the effective date
of the Plan.
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Edgewood Services, Inc.
Federated Administrative Services
Federated Administrative Services, Inc.
Federated Investment Management Company
Federated Financial Services, Inc.
Federated Funding 1997-1, Inc.
Federated Global Investment Management Corp.
Federated International Holdings, B.V.
Federated International Management Limited
Federated Investment Counseling
Federated Investors Management Company
Federated Investors Trust Company
Federated Securities Corp.
Federated Services Company
Federated Shareholder Services, Co.
FII Holdings, Inc.
Passport Research Limited
Retirement Plan Services Company of America
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
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0
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