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, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ----------------
Commission File Number 001-14818
FEDERATED INVESTORS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1111467
(State or other
jurisdiction of (IRS Employer
incorporation or Identification No.)
organization)
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 8, 2000, the
Registrant had outstanding 9,000 shares of Class A Common Stock and 118,462,609
shares of Class B Common Stock.
Federated Investors, Inc.
Form 10-Q
For the Three Months and Six Months Ended
June 30, 2000
Table of Contents
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
June 30, 2000, and December 31, 1999 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 2000 and 1999 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 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K 15
(b) Reports on Form 8-K 15
Signatures 16
Part I, Item I. Financial Statements
<TABLE>
<CAPTION>
FEDERATED INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited) JUNE 30, DECEMBER 31,
2000 1999
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 122,003 171,490
Securities available for sale 79,678 66,438
Receivables, net of reserve of $78 and $184,
respectively 33,052 35,163
Accrued revenues 5,837 6,050
Prepaid expenses 6,080 3,305
Current deferred tax asset, net 1,817 1,382
Other current assets 349 319
--------------- ---------------
Total current assets 248,816 284,147
--------------- ---------------
LONG-TERM ASSETS:
Customer relationships, net of accumulated
amortization of $14,998 and $12,800, respectively 7,415 9,613
Goodwill, net of accumulated amortization of
$17,430 and $16,013, respectively 33,504 32,856
Other intangible assets, net of accumulated
amortization of $125 and $112, respectively 65 78
Deferred sales commissions, net of accumulated
amortization of $106,791 and $79,365, respectively 331,631 298,978
Property and equipment, net of accumulated
depreciation of $40,391 and $44,605, respectively 32,258 31,305
Other long-term assets 22,709 16,216
Total long-term assets 427,582 389,046
Total assets 676,398 $ 673,193
CURRENT LIABILITIES:
Cash overdraft 7,390 $ 9,111
Current portion of long-term debt - recourse 14,270 14,259
Accrued expenses 49,064 58,768
Accounts payable 33,717 29,321
Income taxes payable 1,558 2,865
Other current liabilities 2,558 1,148
Total current liabilities 108,557 115,472
LONG-TERM LIABILITIES:
Long-term debt - recourse 70,301 84,446
Long-term debt - nonrecourse 336,529 309,741
Long-term deferred tax liability, net 42,444 37,177
Other long-term liabilities 7,394 6,949
Total long-term liabilities 456,668 438,313
Total liabilities 565,225 553,785
Minority interest 397 596
SHAREHOLDERS' EQUITY :
Common stock :
Class A, no par value, 20,000 shares
authorized, 9,000 shares issued and outstanding 189 189
Class B, no par value, 900,000,000 shares
authorized, 129,505,456 shares issued 75,175 75,087
Retained earnings 191,103 124,653
Treasury stock, at cost, 11,000,047 and 6,933,540
shares Class B common stock, respectively (152,034) (79,976)
Employee restricted stock plan (891) (1,046)
Accumulated other comprehensive income (2,766) (95)
Total shareholders' equity 110,776 118,812
Total liabilities, minority
interest, and shareholders' equity 676,398 $ 673,193
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.)
<TABLE>
<CAPTION>
FEDERATED INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS SIX MONTHS
ENDED ENDED
(dollars in thousands, except per share data) JUNE 30, JUNE 30,
(unaudited) 2000 1999 2000 1999
REVENUE:
<S> <C> <C> <C> <C>
Investment-advisory fees, net-Federated funds $ 90,315 $ 76,208 $ 180,179 $ 150,843
Investment-advisory fees, net-other 3,154 2,857 6,257 5,122
Administrative-service fees, net-Federated funds 21,226 20,171 42,463 39,972
Administrative-service fees, net-other 5,715 5,753 11,743 11,056
Other service fees, net-Federated funds 33,888 31,370 68,730 59,749
Other service fees, net-other 6,906 5,717 14,087 11,077
Commission income 1,758 1,088 3,362 2,078
Interest and dividends 4,351 3,410 9,061 6,489
Gain (loss) on sale of securities available
for sale 56 19 (295) 767
Other income 918 3,585 1,574 4,293
Total revenue 168,287 150,178 337,161 291,446
OPERATING EXPENSES:
Compensation and related 42,021 38,842 84,852 77,945
Advertising and promotional 15,639 12,725 30,809 25,584
Systems and communications 7,405 6,471 14,234 13,809
Professional service fees 5,980 6,863 12,473 12,813
Office and occupancy 6,309 6,283 12,453 12,698
Travel and related 3,942 3,803 6,953 7,150
Amortization of deferred sales commissions 14,624 11,644 29,423 21,885
Amortization of intangible assets 1,833 3,463 3,628 7,069
Other 2,650 1,561 4,529 1,976
Total operating expenses 100,403 91,655 199,354 180,929
Operating income 67,884 58,523 137,807 110,517
NONOPERATING EXPENSES:
Debt expense - recourse 2,201 2,211 4,430 4,431
Debt expense - nonrecourse 6,354 5,667 12,515 11,130
Total nonoperating expenses 8,555 7,878 16,945 15,561
Income before minority interest and income taxes 59,329 50,645 120,862 94,956
Minority interest 2,462 2,591 4,996 5,040
Income before income taxes 56,867 48,054 115,866 89,916
Income tax provision 20,237 17,537 41,588 32,678
Net income $ 36,630 $30,517 $ 74,278 $ 57,238
EARNINGS PER SHARE:
Basic 0.31 $ 0.24 $ 0.62 $ 0.45
Diluted 0.30 $ 0.23 $ 0.60 $ 0.44
Cash dividends per share 0.037 $ 0.028 $ 0.065 $ 0.053
</TABLE>
PER SHARE AMOUNTS HAVE BEEN RESTATED TO REFLECT THE THREE-FOR-TWO STOCK SPLIT
ANNOUNCED ON JUNE 22, 2000 AND PAID ON JULY 17, 2000.
(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) 2000 1999
-------- -----------
OPERATING ACTIVITIES:
Net income $ 74,278 $ 57,238
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY
OPERATING ACTIVITIES:
Amortization of intangible assets 3,628 7,069
Depreciation and other amortization 3,971 3,718
Amortization of deferred sales commissions 29,423 21,885
Minority interest 4,996 5,040
Gain on disposal of property and equipment (44) (2,942)
Provision for deferred income taxes 6,291 3,396
Net realized loss (gain) on sale of securities 295 (767)
available for sale
Deferred sales commissions paid (87,114) (65,786)
Contingent deferred sales charges received 25,038 17,570
Other changes in assets and liabilities:
Decrease (increase) in receivables, net 2,340 (1,166)
Decrease (increase) in accrued revenues 271 (1,248)
(Increase) decrease in other current assets (4,744) 2,944
Decrease (increase) in other long-term assets 1,268 (1,458)
Decrease in accounts payable and accrued (5,522) (10,622)
expenses
(Decrease) increase in income taxes payable (1,307) 346
(Decrease) increase in other current (325) 146
liabilities
Increase in other long-term liabilities 1,177 2,482
-------- -----------
-------- -----------
Net cash provided by operating activities 53,920 37,845
-------- -----------
INVESTING ACTIVITIES:
Additions to property and equipment (4,109) (14,036)
Proceeds from disposal of property and equipment 158 4,007
Cash paid for business acquisitions and joint (2,619) (592)
venture
Purchases of securities available for sale (26,201) (70,684)
Proceeds from redemptions of securities available 1,792 17,598
for sale
-------- -----------
-------- -----------
Net cash used by investing activities (30,979) (63,707)
-------- -----------
FINANCING ACTIVITIES:
Distributions to minority interest (5,195) (5,386)
Dividends paid (7,829) (6,883)
Purchase of treasury stock (72,058) (14,853)
Proceeds from new borrowings - nonrecourse 80,636 63,431
Payments on debt - recourse (14,134) (117)
Payments on debt - nonrecourse (53,848) (39,654)
-------- -----------
Net cash used by financing activities (72,428) (3,462)
-------- -----------
Net decrease in cash and cash equivalents (49,487) (29,324)
Cash and cash equivalents, beginning of period 171,490 185,581
-------- -----------
Cash and cash equivalents, end of period $122,003 $ 156,257
======== ===========
(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 accounting
principles generally accepted in the United States. 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 may 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, 1999. 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.
The impact of adopting the provisions of this statement on Federated's earnings
and financial position will depend on the nature and extent of Federated's
investment in derivative instruments at the time of adoption. Given Federated's
current minimal use of derivatives, we do not expect this adoption to have a
significant effect on our earnings or financial position.
(2) Securitization of B-Share Future Revenue Streams and Nonrecourse Debt
Pursuant to an agreement with a third party, Federated sells the rights to
the future revenue streams associated with the 12b-1 fees, shareholder service
fees and contingent deferred sales charges (CDSCs) 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. This agreement expires in October
2000. Prior to expiration, management intends to negotiate an arrangement to
continue selling the rights to these future revenue streams.
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(2) Securitization of B-Share Future Revenue Streams and Nonrecourse Debt
(continued)
The following tables summarize the changes in the deferred sales
commissions related to this agreement:
Six Months
Ended
June 30, 2000
----------------
(IN THOUSANDS)
Deferred B-Share Sales Commissions:
Financed balance at December $ 288,844
31, 1999
B-Share sales commissions 78,670
financed
CDSCs collected (24,129)
Amortization (26,497)
----------------
Financed balance at June 30, $ 316,888
2000
================
Below is the activity of the nonrecourse debt tranches:
(IN THOUSANDS)
---------------------------------------------
Interest Balance Additional Balance
Tranche Rate 12/31/99 Financings 6/30/00
Payments
---------------------- -------- ---------- --------- ---------- ----------
1997-1 Class A 7.44% $ 52,976 $ 0 9,869 $ 43,107
Class B 9.80% 9,700 0 0 9,700
Financings 10/97
through 6/00 6.68% - 247,065 80,636 43,979 283,722
8.60%
---------- --------- ---------- ----------
$ 309,741 $ 80,636 53,848 $ 336,529
========== ========= ========== ==========
(3) Long-Term Debt - Recourse
Federated's long-term debt - recourse consisted of the following:
Interest June 30, December 31,
Rate 2000 1999
--------- ------------ ----------
(IN THOUSANDS)
Recourse Debt:
Senior Secured Note 7.96% $ 84,000 $ 98,000
Purchase Agreement
Capitalized leases 7.1%-8.5% 571 705
------------ ----------
Total recourse debt 84,571 98,705
Less current portion 14,270 14,259
------------
------------ ----------
Total long-term debt - $ 70,301 $ 84,446
recourse
============ ==========
On March 28, 2000, a wholly-owned subsidiary of Federated, Edgewood
Services, Inc., entered into a discretionary line of credit agreement with a
bank under which it can borrow up to $45.0 million for the
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(3) Long-Term Debt - Recourse (continued)
payment of obligations associated with daily net settlements of mutual
funds processed through the National Securities Clearing Corporation.
Borrowings under this agreement bear interest at a rate defined
by the bank at the time of the borrowing and are payable on demand. At June
30, 2000, the outstanding balance under this agreement was zero.
(4) Common Stock
(a) Cash 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 during the period from January 1, 1998, to and
including the date of payment, less certain stock repurchase payments. The
Senior Secured Note Purchase Agreements allow 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, less certain stock repurchase payments. Cash dividends of $0.028
and $0.037 per share or approximately $3.4 million and $4.4 million were
paid in the first and second quarter of 2000, respectively, to holders of
common shares. Additionally, on July 18, 2000, the board of directors
declared a dividend of $0.037 per share to be paid on August 15, 2000, to
shareholders of record as of August 4, 2000. After considering earnings
through June 30, 2000, the dividend payment on August 15, 2000, and
certain stock repurchase payments, approximately $19.0 million is
available to pay dividends under the more restrictive of the two debt
covenant limitations.
(b) Stock Split
On June 22, 2000, the board of directors approved a three-for-two stock
split on Federated's common stock. The stock split was effected as a
dividend to shareholders of record as of July 7, 2000 and new shares were
distributed on July 17, 2000. Earnings and dividends per share, as well as
other share data, have been adjusted to reflect the stock distribution.
(c) Employee Stock Purchase Plan
Federated offers an Employee Stock Purchase Plan which allows employees
to purchase a maximum of 750,000 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 shares, treasury shares or shares
purchased on the open market. As of June 30, 2000, a total of 31,595
shares have been purchased by employees in this plan.
(d) Stock Repurchase Program
In 1999, the board of directors approved two separate share repurchase
programs authorizing Federated to purchase up to $20.0 million of
Federated Class B common stock under the first program and up to 7.5
million shares of Federated Class B common stock under the second program.
In March 2000, the board of directors approved a third program to purchase
up to 7.5 million shares of Federated Class B common stock. Under the
programs, shares can be repurchased in open market transactions over a
period of 12 months from the date of the board resolution. In addition,
under the second and third programs, shares can also be repurchased in
private transactions. The programs authorize executive management to
determine the timing and the amount of shares for each purchase. The
repurchased stock is held in treasury to be used for employee benefit
plans, potential acquisitions and other corporate activities. As of June
30, 2000, Federated had purchased 10,589,422 shares of Class B common
stock for approximately $152.0 million under the programs. Current debt
covenants restrict stock repurchases between April 26, 2000, and January
31, 2001, to 7.5 million shares or $160.0 million.
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>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
2000 1999 2000 1999
--------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income $ 36,630 $ 30,517 $ 74,278 $ 57,238
========= ======== ========= =========
Denominator:
Basic weighted-average shares
outstanding 117,937 126,626 119,011 127,062
Dilutive potential shares from 4,638 3,789 4,407 3,828
stock-based compensation
--------- -------- --------- ---------
Diluted weighted-average shares 122,575 130,415 123,418 130,890
outstanding
========= ======== ========= =========
Basic earnings per share $ 0.31 $ 0.24 $ 0.62 $ 0.45
========= ======== ========= =========
Diluted earnings per share $ 0.30 $ 0.23 $ 0.60 $ 0.44
========= ======== ========= =========
</TABLE>
PER SHARE AMOUNTS HAVE BEEN RESTATED TO REFLECT THE THREE-FOR-TWO STOCK SPLIT
ANNOUNCED ON JUNE 22, 2000 AND PAID ON JULY 17, 2000.
(6) Comprehensive Income
Comprehensive income was $34.3 million and $30.3 million for the three-month
periods ended June 30, 2000 and 1999, respectively, and $71.6 million and
$56.6 million for the six-month periods ended June 30, 2000 and 1999,
respectively.
(7) Business Combination
On June 16, 2000, Federated signed a definitive agreement with Investment
Advisers, Inc. (IAI) to purchase the mutual fund assets of IAI. As a result
of this transaction, assets of the mutual funds currently advised by IAI,
totaling approximately $400 million, are planned to be merged into existing
Federated funds on the transaction close date which is anticipated for
September 2000. This acquisition will be accounted for using the purchase
method of accounting.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The discussion and analysis below should be read in conjunction with the
consolidated financial statements appearing elsewhere in this report. We
have presumed that the readers of this interim financial information have
read or have access to our discussion and analysis of financial condition
and results of operations appearing in our Annual Report on Form 10-K for
the year ended December 31, 1999.
GENERAL
The majority of our revenue is derived through advising, distributing
and servicing the Federated funds, separately managed accounts and other
related products, in both domestic and international markets. We also
derive revenue through servicing third-party mutual funds.
Investment advisory, distribution and the majority of our servicing fees
are based on the net asset value of investment portfolios that we manage
or administer. As such, these revenues are dependent upon factors
including market conditions and the ability to attract and maintain
assets. Accordingly, our revenues will fluctuate with changes in the total
value and composition of the assets under management or administration.
ASSET HIGHLIGHTS
MANAGED AND ADMINISTERED ASSETS
AT PERIOD END
(IN MILLIONS) As of June 30, Percent
2000 1999 Change
-------- --------- --------
Money market funds $ 83,497 $ 77,894 7%
Equity funds 22,512 18,199 24%
Fixed-income funds 14,660 16,725 (12%)
Separate accounts 5,140 4,516 14%
-------- --------
Total managed assets $ 125,809 $ 117,334 7%
======== ========
Total administered assets $ 44,332 $ 34,643 28%
======== =========
<TABLE>
<CAPTION>
AVERAGE MANAGED AND
ADMINISTERED ASSETS
(IN MILLIONS) Three Months Six Months Ended
Ended
June 30, Percent June 30, Percent
2000 1999 Change 2000 1999 Change
<S> <C> <C> <C> <C> <C> <C>
Money market funds 83,511 79,335 5% 83,391 78,915 6%
Equity funds 21,951 17,386 26% 22,011 16,596 33%
Fixed-income funds 14,739 16,938 (13%) 15,096 16,874 (11%)
Separate accounts 4,690 4,356 8% 4,661 3,707 26%
-------- ------- -------- --------
Total average managed 124,891 118,015 6% 125,159 116,092 8%
assets
Total average 43,442 34,569 26% 43,491 32,012 36%
administered assets
</TABLE>
COMPONENTS OF CHANGES IN EQUITY AND FIXED-INCOME FUND
MANAGED ASSETS
(IN MILLIONS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Six Months Ended
Ended
June 30, June 30,
2000 1999 2000 1999
EQUITY
FUNDS
Beginning assets $ 23,431 $ 16,126 $ 20,941 $ 15,503
Sales 2,886 1,535 6,635 2,904
Redemptions (1,978) (998) (4,265) (2,005)
Net sales 908 537 2,370 899
Net exchanges (14) 68 139 79
Other* (1,813) 1,468 (938) 1,718
Ending assets $ 22,512 $18,199 $ 22,512 $ 18,199
FIXED-INCOME FUNDS
Beginning assets $ 15,041 $16,967 $ 15,857 $ 16,437
Sales 963 1,645 1,985 3,421
Redemptions (1,359) (1,496) (3,006) (2,955)
Net (396) 149 (1,021) 466
(redemptions) sales
Net exchanges (50) (110) (253) 97
Other* 65 (281) 77 (275)
Ending assets $ 14,660 $16,725 $ 14,660 $ 16,725
* Includes changes in the market value of securities held by the funds,
reinvested dividends and distributions, and net investment income.
RESULTS OF OPERATIONS
The table below presents the highlights of our operations for the three-
and six-month periods ended June 30, 2000 and 1999:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three months ended Six months ended
June 30, Percent June 30, Percent
2000 1999 Change Change 2000 1999 Change Change
Net income (IN MILLIONS) $36.6 $30.5 $6.1 20% $74.3 $57.2 $17.1 30%
Earnings per share
Basic $0.31 $0.24 $0.07 29% $0.62 $0.45 $0.17 38%
Diluted $0.30 $0.23 $0.07 30% $0.60 $0.44 $0.16 36%
Revenue (IN MILLIONS)
Revenue from managed assets $150.4 $131.7 $18.7 14% $301.0 $257.8 $43.2 17%
Service-related revenue from 12.6 11.5 1.1 10% 25.8 22.1 3.7 17%
sources other than managed assets
Other 5.3 7.0 (1.7) (24%) 10.4 11.5 (1.1) (10%)
TOTAL REVENUE $168.3 $150.2 $18.1 12% $337.2 $291.4 $45.8 16%
Operating margin 40.3% 39.0% 1.3% 3% 40.9% 37.9% 3.0% 8%
</TABLE>
PER SHARE AMOUNTS HAVE BEEN RESTATED TO REFLECT THE THREE-FOR-TWO STOCK
SPLIT ANNOUNCED ON JUNE 22, 2000 AND PAID ON JULY 17, 2000.
NET INCOME. Net income for the three- and six-month periods ended June 2000
increased 20% and 30%, respectively, compared to the same periods last year.
These increases primarily reflect increased revenue from managed assets as a
result of continued growth in fees from equity assets and improved operating
margins. Net income for the three- and six-month periods ended June 1999
included a non-recurring after-tax gain from the sale of non-earning assets of
$2.0 million. Excluding this gain, net income for the three- and six-month
periods ended June 2000 increased 28% and 34%, respectively, compared to the
same periods last year.
REVENUE. Total revenue for the three- and six-month periods ended June 2000
increased $18.1 million and $45.8 million, respectively, compared to the same
periods last year primarily as a result of increased revenue from managed
assets. Average managed assets continued to climb from $118.0 billion for the
second quarter of 1999 to $124.9 billion for the second quarter of 2000 and from
$116.1 billion in the first half of 1999 to $125.2 billion for the first half of
2000. These increases included significant asset growth in money market funds,
equity funds and separate accounts. Revenue from managed assets increased at a
rate higher than the rate of average managed asset growth during these periods
due to the shift in the managed asset mix towards equity products that earn
higher than average fees per invested dollar. At June 30, 2000, equity fund
assets comprised 18% of total managed assets as compared to 16% at June 30,
1999.
Service-related revenues from sources other than managed assets increased
by $1.1 million and $3.7 million for the three- and six-month periods ended June
2000, respectively, as compared to the same periods last year due primarily to
the growth in average administered assets.
Other revenue for the three- and six-month periods ended June 2000
decreased compared to the same periods last year due to a $3.0 million
non-recurring gain realized on the sale of certain non-earning assets in 1999
partially offset by higher interest earned in 2000 as a result of new
investments and a general increase in yields on invested cash since June 1999.
OPERATING EXPENSES. Operating expenses for the three- and six-month periods
ended June 30, 2000 and 1999 are set forth in the following table:
<TABLE>
<CAPTION>
Three months Percent Six months Percent of
ended of ended
June 30, Total June 30, Total
(IN MILLIONS) 2000 1999 Change Change 2000 1999 ChangeChange
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Expenses
Compensation and related $42.0 $38.8 $3.2 37% $84.9 $77.9 $7.0 38%
Advertising and 15.6 12.7 2.9 33% 30.8 25.6 5.2 28%
promotional
Amortization of deferred 14.6 11.6 3.0 34% 29.4 21.9 7.5 41%
sales commissions
Other 28.2 28.6 (0.4) (4%) 54.3 55.5 (1.2) (7%)
TOTAL $100.4 $91.7 $8.7 100% $199.4$180.9$18.5 100%
OPERATING EXPENSES
</TABLE>
Total operating expenses for the three- and six-month periods ended June
2000 increased as compared to the same periods last year. Approximately 80% and
84% of the change over the three- and six-month periods of 1999, respectively,
is due to the increase in certain operating expenses that tend to increase with
increases in sales and/or managed assets. These expenses include incentive
compensation (included in Compensation and related), marketing allowances
(included in Advertising and promotional) and the amortization of deferred sales
commissions. Each of these expenses increased over the same periods last year
due in large part to increased sales and/or managed assets. All other expenses
combined for the three- and six-month periods ended June 2000 have decreased
slightly from the same period last year primarily as a result of the full
amortization of certain intangible assets in 1999.
INCOME TAXES. The income tax provision for the three- and six-month periods
ended June 2000 was $20.2 million and $41.6 million, respectively, as compared
to $17.5 million and $32.7 million for the same periods of 1999. The provision
increased for both of these periods primarily as a result of the increases in
the level of income before income taxes for the three- and six-month periods as
compared to the same periods in 1999. Our effective tax rate was 35.6% and 36.5%
for the second quarter 2000 and 1999, respectively, and 35.9% and 36.3% for the
first half of 2000 and 1999, respectively.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW. Cash and cash equivalents and the current portion of securities
available for sale totaled $201.7 million at June 30, 2000 as compared to $237.9
million at December 31, 1999.
Cash provided by operating activities totaled $53.9 million for the
six-month period ended June 2000, as compared to $37.8 million for the same
period of 1999. This increase is primarily due to higher profitability in the
first half of 2000. Net cash used by investing activities in the first half of
2000 primarily reflects an investment of $14.0 million in two new fluctuating
value funds (performance seeds), $11.5 million invested in asset-backed
securities, $4.1 million paid to acquire property and equipment and $2.6 million
paid for business acquisitions. Other uses of cash flow from operating
activities in the first half of 2000 included the purchase of treasury stock,
payments on debt, dividend payments and distributions to the minority interest
partner.
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.
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 contingent deferred
sales charge (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 the fourth quarter 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.
The following table presents the effects of the B-Share financing program
on the Consolidated Balance Sheets at June 30, 2000 and December 31, 1999, and
the Consolidated Statements of Income for the three- and six-month periods ended
June 30, 2000 and 1999, respectively:
(IN MILLIONS)
JUNE 30 AND DECEMBER 31, RESPECTIVELY 2000 1999
Assets
Deferred sales commissions, net* $316.9 $288.8
Receivables 8.4 8.4
Other long-term assets 1.7 2.1
Liabilities
Long-term debt - nonrecourse $336.5 $309.7
Accounts payable 6.6 6.2
THREE MONTHS ENDED JUNE 30
Revenues
Other service fees, net - Federated funds $20.8 $18.0
Expenses
Amortization of deferred sales commissions $12.8 $10.7
Debt expense - nonrecourse 6.4 5.7
Other expenses 0.1 0.1
SIX MONTHS ENDED JUNE 30
Revenues
Other service fees, net - Federated funds $42.7 $34.1
Expenses
Amortization of deferred sales commissions $26.5 $19.9
Debt expense - nonrecourse 12.5 11.1
Other expenses 0.3 0.3
* EXCLUDES DEFERRED SALES COMMISSIONS RELATED TO B-SHARE REVENUE STREAMS
THAT 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 $16.1
million excess of B-Share-related liabilities over the related assets at June
30, 2000, will be recognized in income over the remaining life of the B-Share
cash flows.
CAPITAL EXPENDITURES. Capital expenditures totaled $2.3 million and $4.4
million for the three- and six-month periods ended June 2000, respectively,
compared to $12.9 million and $14.0 million for the same periods of 1999.
Year-to-date 2000 capital expenditures include cash paid for equipment purchased
in connection with the asset purchase of InvestLink Technologies, Inc.
CASH DIVIDENDS. Federated pays cash dividends on a quarterly basis.
Dividends of $0.028 and $0.037 per share were paid in the first and second
quarter of 2000, respectively. Federated's board of directors declared a
dividend of $0.037 per share to be paid on August 15, 2000, to shareholders of
record as of August 4, 2000. After considering earnings through June 30, 2000,
the dividend payment on August 15, 2000, and certain stock repurchases,
Federated, given current debt covenants, has the ability to pay dividends of
approximately $19.0 million.
DEBT FACILITIES. Federated has the following recourse debt facilities:
SENIOR SECURED CREDIT AGREEMENT: At June 30, 2000, 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, 2000.
SENIOR SECURED NOTE PURCHASE AGREEMENTS: The Senior Secured Note Purchase
Agreements debt totaled $84.0 million as of June 30, 2000. The notes are due in
$14.0 million annual installments and mature in June 2006. The first of these
installments was paid on June 27, 2000. Federated was in compliance with all
debt covenants at June 30, 2000.
DISCRETIONARY LINE OF CREDIT: On March 28, 2000, a wholly-owned subsidiary
of Federated, Edgewood Services, Inc., entered into a discretionary line of
credit agreement with a bank under which it can borrow up to $45.0 million for
the payment of obligations associated with daily net settlements of mutual funds
processed through the National Securities Clearing Corporation. Borrowings under
this agreement bear interest at a rate defined by the bank at the time of the
borrowing and are payable on demand. At June 30, 2000, the outstanding balance
under this agreement was zero.
CAPITALIZED LEASE OBLIGATIONS. At June 30, 2000, we had capitalized lease
obligations totaling $0.6 million related to certain telephone equipment. The
scheduled principal payments approximate $0.3 million per year for 2000 through
2002.
SHAREHOLDERS' EQUITY. In 1999, the Federated board of directors approved
two separate share repurchase programs authorizing Federated to purchase up to
$20.0 million of Federated Class B common stock under the first program and up
to 7.5 million shares of Federated Class B common stock under the second
program. In March 2000, the board of directors approved a third program to
purchase up to 7.5 million shares of Federated Class B common stock. Under the
programs, shares can be repurchased in open market transactions over a period of
12 months from the date of the board resolution. In addition, under the second
and third programs, shares can also be repurchased in private transactions. The
programs authorize executive management to determine the timing and the amount
of shares for each purchase. The repurchased stock is held in treasury to be
used for employee benefit plans, potential acquisitions and other corporate
activities. During the second quarter 2000, Federated purchased an additional
2,298,600 shares of Class B common stock for approximately $45.1 million under
the programs. Current debt covenants restrict stock repurchases between April
26, 2000, and January 31, 2001, to 7.5 million shares or $160.0 million.
On June 22, 2000, the board of directors approved a three-for-two stock
split on Federated's common stock. The stock split was effected as a dividend to
shareholders of record as of July 7, 2000, and new shares were distributed on
July 17, 2000. Earnings and dividends per share, as well as other share data,
have been adjusted to reflect the stock distribution.
FUTURE CASH REQUIREMENTS. Management expects that the principal needs for
cash will be to advance sales commissions, repurchase company stock, service
recourse debt, fund property and equipment acquisitions, pay shareholder
dividends, seed new products 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION. Certain statements
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in Future Cash Requirements 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 our achievements, 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, 1999, 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 we nor any other person assumes responsibility for the
accuracy and completeness of such statements.
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our investments are primarily in money market and fluctuating value mutual
funds with investments of two years or less. In addition, as of June 30, 2000,
we have investments in high yield asset-backed securities and mortgage-backed
securities which are included in "Other long-term assets" on the Consolidated
Balance Sheets. Occasionally, we invest in new fluctuating value mutual funds
(performance seeds) that we sponsor in order to provide investable cash to the
fund allowing the fund to establish a performance history. Federated may use
derivative financial instruments to hedge these investments. As of June 30,
2000, the book value of the performance seed investments and the derivative
financial instruments were $29.3 million and $0.1 million, respectively. All of
our 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. Supplemental
Agreement, dated as of April 20, 2000, amending the Note Purchase Agreements
dated as of June 15, 1996 (filed herewith)
Exhibit 10.2 Material contracts - Federated Investors, Inc. Amendment No. 8
To Credit Agreement, dated as of April 14, 2000, by and among Federated
Investors, Inc. and the Banks set forth therein and PNC Bank, National
Association (filed herewith)
Exhibit 27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K:
Form 8-K filed on July 12, 2000
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 14, 2000 By: /S/ J. CHRISTOPHER DONAHUE
J. Christopher Donahue
President and
Chief Executive Officer
Date AUGUST 14, 2000 By: /S/ THOMAS R. DONAHUE
Thomas R. Donahue
Chief Financial Officer and
Principal Accounting Officer
FEDERATED INVESTORS, INC.
------------------------
SUPPLEMENTAL AGREEMENT
Dated as of April 20, 2000
amending the
Note Purchase Agreements dated as of June 15, 1996
------------------------
7.96% Senior Secured Notes due 2006
FEDERATED INVESTORS, INC.
SUPPLEMENTAL AGREEMENT
as of April 20, 2000
Re: 7.96% Senior Secured Notes due 2006
TO THE SEVERAL NOTEHOLDERS WHOSE
NAMES APPEAR IN THE ACCEPTANCE
FORM AT THE END HEREOF
Ladies and Gentlemen:
FEDERATED INVESTORS, INC., a Pennsylvania corporation (the "COMPANY"),
hereby agrees with you as follows:
1. ORIGINAL NOTE PURCHASE AGREEMENTS AND THE NOTES; PROPOSED AMENDMENTS.
Pursuant to the several Note Purchase Agreements dated as of June 15, 1996,
as supplemented and amended by a Supplemental Agreement dated as of October 1,
1997 (as so supplemented and amended the "ORIGINAL NOTE PURCHASE AGREEMENTS"),
entered into by the Company with the institutional investors named in Schedule A
thereto, the Company issued and sold $98,000,000 aggregate principal amount of
its 7.96% Senior Secured Notes due 2006 (the "NOTES"), of which Notes in said
unpaid principal amount remain outstanding on the date hereof. Unless the
context otherwise requires, capitalized terms used herein without definition
have the respective meanings ascribed thereto in the Original Note Purchase
Agreements.
The Company proposes to amend the Original Note Purchase Agreements as
hereinafter set forth (the Original Note Purchase Agreements as so amended are
sometimes called the "AMENDED NOTE PURCHASE AGREEMENTS").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you as of the Effective Date (as
below defined) as follows: A. ORGANIZATION, AUTHORIZATION, ETC. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania, and has all requisite power and authority
to execute, deliver and perform its obligations under this Supplemental
Agreement and the Amended Note Purchase Agreements.
The execution and delivery of this Supplemental Agreement and the
performance of this Supplemental Agreement and the Amended Note Purchase
Agreements have been duly authorized by all necessary corporate and, if
required, stockholder action on the part of the Company. This Supplemental
Agreement and the Amended Note Purchase Agreements are legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
B. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery
and performance by the Company of this Supplemental Agreement and the Amended
Note Purchase Agreements do not and will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Company or any Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other agreement or instrument to which the
Company or any Subsidiary is bound or by which the Company or any Subsidiary or
any of their respective properties may be bound or affected, (ii) conflict with
or result in a breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or any Subsidiary or (iii) violate any
provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Company or any Subsidiary.
C. NO DEFAULT, ETC. No Event of Default or Default has occurred and is
continuing, and neither the Company nor any Subsidiary is in default (whether or
not waived) in the performance or observance of any of the terms, covenants or
conditions contained in any instrument evidencing any Indebtedness and there is
no pending request by the Company (except pursuant to this Supplemental
Agreement and the Existing Bank Credit Facility in respect of the transactions
contemplated hereby) or any Subsidiary for any amendment or waiver in respect of
any contemplated or possible default with respect to such Indebtedness and no
event has occurred and is continuing which, with notice or lapse of time or
both, would become such a default.
D. NO UNDISCLOSED FEES. The Company has not, directly or indirectly, paid
or caused to be paid any consideration (as supplemental or additional interest,
a fee or otherwise) to any holder of Notes or to any bank party to the Existing
Bank Credit Facility in order to induce such holder to enter into this
Supplemental Agreement or such bank to modify the Existing Bank Credit Facility
or such holder or bank take any other action in connection with the transactions
contemplated hereby, nor has the Company agreed to make any such payment.
3. REPRESENTATION OF THE NOTEHOLDER.
You represent to the Company that you are the beneficial owner of Notes in
the aggregate unpaid principal amount set forth below your name in the
acceptance form of this Supplemental Agreement.
4. RELEASE OF COLLATERAL AND CONSENT TO AMENDMENT TO COLLATERAL DOCUMENTS.
Subject to the Supplemental Agreement becoming effective as below provided,
you (a) authorize the Collateral Agent to release up to 35% of the capital stock
of Federated International Management Limited, an Ireland limited liability
company, from the Pledge Agreement, subject to receipt of the consent of the
Required Creditors (as defined in the Intercreditor Agreement), and (b) consent
to the execution and delivery by the Collateral Agent of Amendment No. 1 to
Security Agreement attached hereto as Annex I and Amendment No. 1 to Pledge
Agreement attached hereto as Annex II.
5. AMENDMENTS OF ORIGINAL NOTE PURCHASE AGREEMENTS, ETC.
The Original Note Purchase Agreements are amended pursuant to
Section 17.1 thereof as follows:
A. Section 10.3 is amended by deleting the word "or" at the end of clause (b)
thereof, by deleting the period at the end of clause (c) thereof and
inserting ",or" and by adding a new clause (d) to read as follows:
"(d) CONSOLIDATED CASH FLOW -- Consolidated Cash Flow for any period of
four consecutive fiscal quarters ending in 2000 to be less than $200,000,000."
B. Section 10.3 is further amended by changing the phrase "For purposes of
clause (c) above" appearing at the beginning of the final sentence thereof
to read "For purposes of clause (c) above and, in the case of Consolidated
Cash Flow, clause (d) above".
C. Section 7.2(a) is amended to read in its entirety as follows:
"(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.1 to 10.6, inclusive, during the
quarterly or annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the calculations
of the maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of the amount,
ratio or percentage then in existence, and with respect to Section 10.4, showing
the respective numbers of Class B Shares repurchased, and the respective
aggregate amounts expended for such repurchases, as contemplated by subclauses
(y) and (z) of the final sentence of such Section); and"
D. Section 10.4 is amended by changing the final sentence thereof to read as
follows:
"Notwithstanding the limitations of clause (a) above, (x) no payment made
to Aetna Life Insurance Company or any of its affiliates prior to the date of
this Agreement or stock redemption in connection therewith prior to the date of
this Agreement, in each case in connection with the Repurchase described in the
Disclosure Documents, shall be deemed to constitute a Restricted Payment, (y)
the Company may from time to time from the date of the Closing until payment in
full of all outstanding Notes repurchase Class B Shares issued in accordance
with the Federated Investors, Inc. Employees Restricted Stock Plan for an
aggregate amount not to exceed $1,000,000, and no such repurchase shall be
deemed to constitute a Restricted Payment and (z) the Company may from time to
time between April 26, 2000 and January 31, 2001 repurchase up to 5,000,000
outstanding Class B Shares for an aggregate amount not to exceed $160,000,000,
primarily on a public stock exchange and in accordance with any stock repurchase
plan authorized by the Board from time to time."
6. EFFECTIVENESS OF THIS SUPPLEMENTAL AGREEMENT.
This Supplemental Agreement will become effective on the date (the
"EFFECTIVE DATE") on which all of the following conditions precedent shall have
been satisfied:
A. PROCEEDINGS. All proceedings taken by the Company in connection with
the transactions contemplated hereby and all documents and papers
incident thereto shall be satisfactory to you, and you and your
special counsel shall have received all such counterpart originals or
certified or other copies of such documents and papers, all in form
and substance satisfactory to you, as you or they may reasonably
request in connection therewith.
B. EXECUTION OF THIS SUPPLEMENTAL AGREEMENT. Counterparts of this
Supplemental Agreement shall have been executed and delivered by the
Company and the Required Holders.
C. OPINION OF COUNSEL. You shall have received an opinion, dated the
Effective Date, addressed to you and otherwise satisfactory in scope
and substance to you, from Joseph M. Huber, Esq., Corporate Counsel
for the Company, as to the matters described in Annex III hereto, and
covering such other matters incident to the transactions contemplated
hereby as you may reasonably request.
D. PAYMENT OF FEES. The Company shall have paid the fees and
disbursements of your special counsel as contemplated by Section 8 of
this Supplemental Agreement.
7. NOTATION OF NOTES.
Prior to any transfer of an outstanding Note by the holder thereof, such
holder shall either make a notation on said Note to reflect the transactions
contemplated by this Supplemental Agreement and the amendment to such Note or
surrender such Note for a new Note (the text of which may make reference to this
Supplemental Agreement) in accordance with Section 13.2 of the Amended Note
Purchase Agreements.
8. EXPENSES.
Without limiting the generality of Section 15.1 of the Amended Note
Purchase Agreements, the Company agrees, whether or not the transactions
contemplated hereby are consummated, to pay the reasonable fees and
disbursements of Willkie Farr & Gallagher, your special counsel, for their
services rendered in connection with such transactions and with respect to this
Supplemental Agreement and any other document delivered pursuant to this
Supplemental Agreement and reimburse you for your out-of-pocket expenses in
connection with the foregoing.
In furtherance of the foregoing, on the Effective Date the Company will pay
or cause to be paid the reasonable fees and disbursements of Willkie Farr &
Gallagher which are reflected in the statement of Willkie Farr & Gallagher
delivered to the Company on or prior to the Effective Date. The Company will
also pay promptly upon receipt of supplemental statements therefor, reasonable
additional fees, if any, and disbursements of Willkie Farr & Gallagher in
connection with the transactions contemplated hereby (including disbursements
unposted as of the Effective Date).
9. RATIFICATION.
Except as amended hereby, the Original Note Purchase Agreements are in all
respects ratified and confirmed and the provisions thereof shall remain in full
force and effect.
10. COUNTERPARTS.
This Supplemental Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11. GOVERNING LAW.
This Supplemental Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
If you are in agreement with the foregoing, please sign the form of
acceptance in the space below provided, whereupon this Supplemental Agreement
shall become a binding agreement between you and the Company, subject to
becoming effective as hereinabove provided.
FEDERATED INVESTORS, INC.
By /S/ THOMAS R. DONAHUE
Title:
ACCEPTED AND AGREED:
NOTEHOLDERS:
THE TRAVELERS INSURANCE COMPANY
By SIGNATURE ILLEGIBLE
Title: Investment Officer
Principal Amount of Notes Held: $25,000,000
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By CIGNA INVESTMENTS, INC.
By /S/ JAMES R. KUZEMCHAK
Title: Managing Director
Principal Amount of Notes Held: $9,000,000
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, on
behalf of one or more separate accounts
By CIGNA INVESTMENTS, INC.
By /S/ JAMES R. KUZEMCHAK
Title: Managing Director
Principal Amount of Notes Held: $7,540,000
ALLSTATE LIFE INSURANCE COMPANY
By SIGNATURE ILLEGIBLE
Title:
By SIGNATURE ILLEGIBLE
Title:
Principal Amount of Notes Held: $12,500,000
ALLSTATE INSURANCE COMPANY
By SIGNATURE ILLEGIBLE
Title:
By SIGNATURE ILLEGIBLE
Title:
Principal Amount of Notes Held: $7,500,000
NORTHERN LIFE INSURANCE COMPANY
By___________________________
Title:
Principal Amount of Notes Held: $6,000,000
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
By___________________________
Title:
Principal Amount of Notes Held: $4,000,000
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY
By___________________________
Title:
Principal Amount of Notes Held: $10,000,000
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By___________________________
Title:
By___________________________
Title:
Principal Amount of Notes Held: $8,000,000
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln Investment Management, Inc.,
Attorney-in-fact
By SIGNATURE ILLEGIBLE
Title: Vice President
Principal Amount of Notes Held: $3,000,000
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
By: Lincoln Investment Management, Inc., Attorney-in-fact
By SIGNATURE ILLEGIBLE
Title: Vice President
Principal Amount of Notes Held: $2,460,000
FIRST TRENTON INDEMNITY COMPANY
By TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY
By___________________________
Title:
Principal Amount of Notes Held: $3,000,000
ANNEX I
Amendment No. 1 to Security Agreement
ANNEX II
Amendment No. 1 to Pledge Agreement
ANNEX III
(to Supplemental Agreement)
OPINION OF COUNSEL FOR THE COMPANY
The following opinions are to be provided by counsel for the Company,
subject to customary assumptions, limitations and qualifications. All
capitalized terms used herein without definition shall have the meanings
ascribed thereto in the Supplemental Agreement.
1. The Company is a corporation validly existing under the laws of the
Commonwealth of Pennsylvania and has all requisite power and authority
to execute and deliver the Supplemental Agreement and to perform the
provisions thereof.
2. The Supplemental Agreement has been duly authorized, executed and
delivered by the Company and the Amended Note Purchase Agreements
constitute legal, valid and binding agreements of the Company,
enforceable against the Company in accordance with their terms.
3. No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required on the part
of the Company for the validity of the execution and delivery or for
the performance by the Company of the Supplemental Agreement.
AMENDMENT NO. 8 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 8 TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of
April 14, 2000, 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, 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, Amendment No. 6 to Credit Agreement dated as of December 3, 1998 and
Amendment No. 7 to Credit Agreement dated as of February 22, 1999 (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:
12. 1. 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.
13. 2. AMENDMENT OF CREDIT AGREEMENT.
(a) Section 1.1 [Certain Definitions] of the Credit Agreement is hereby
amended by deleting the definitions of "Certain Fixed Charges," "Debt
Service Coverage Ratio" and "EBDA" in their entirety.
(b) The definition of "Permitted Investments" in Section 1.1 [Certain
Definitions] of the Credit Agreement is hereby amended by inserting
the following immediately before the end of such definition:
; and (ix) any money market fund with minimum investment amounts of
not less than $250,000.
(c) Section 1.1 [Certain Definitions] of the Credit Agreement is hereby
amended by inserting the following new definitions in alphabetical
order:
"DOMESTIC SUBSIDIARIES" shall mean any Subsidiary of the Borrower that is
organized or incorporated under the Laws of any state or commonwealth in the
United States of America.
"FOREIGN SUBSIDIARIES" shall mean any Subsidiary of the Borrower that is
not a Domestic Subsidiary.
(d) Section 8.1(l) [New Subsidiaries] of the Credit Agreement is hereby
amended by deleting such Section in its entirety and inserting in lieu
thereof the following:
(l) NEW SUBSIDIARIES. The Borrower shall pledge, and shall cause each
of its Subsidiaries as applicable to pledge, to the Agent for the
benefit of the Banks, all of the capital stock of any Domestic
Subsidiaries hereafter created or acquired by any of the
Companies and 65% of the capital stock of any Foreign
Subsidiaries hereafter created or acquired by any of the
Companies, and shall cause each such Subsidiary to enter into the
Intercompany Subordination Agreement and (other than registered
investment adviser or broker-dealer Subsidiaries or Foreign
Subsidiaries) the Security Agreement and shall cause to be
delivered a legal opinion of such outside counsel reasonably
acceptable to the Agent and its counsel in form and substance
satisfactory to the Agent and its counsel as to the matters set
forth on EXHIBIT K.
(e) Section 8.2(a) [Minimum Debt Service Coverage Ratio] of the Credit
Agreement is hereby amended by deleting such Section in its entirety
and inserting in lieu thereof the following:
(a) MINIMUM CASH FLOW FROM OPERATIONS. The Borrower shall not permit Cash
Flow From Operations as of the end of each fiscal quarter for the four
(4) fiscal quarters then ended to be less than $200,000,000.
(f) Section 8.2(h)(ii) and (iii) [Loans and Investments] of the
Credit Agreement is hereby amended by deleting such clauses in
their entirety and inserting in lieu thereof the following:
(ii) investments in wholly owned Subsidiaries existing on the date
hereof and wholly owned Subsidiaries hereafter created or
acquired, PROVIDED the Borrower and each of its Subsidiaries
shall comply with the requirements of Section 8.1(l), PROVIDED,
FURTHER, that notwithstanding the foregoing, only Limited
Investments not greater than $1,000,000 in the aggregate shall be
permitted to be made by the Companies in the Insurance
Subsidiaries;
(iii)investments in (A) Subsidiaries other than Passport, which are
less than wholly owned, but over which the Borrower maintains
control, and (B) corporate entities in which the Borrower does
not maintain control but for which none of the Companies has any
liability greater than its initial investment in such entity and
where the activities in which such entity engages are consistent
with the activities set forth in Section 6.1(aa), PROVIDED, that
(1) the investments permitted by clauses (A) or (B) of this
Section 8.2(h)(iii), together with any other acquisitions
permitted under Section 8.2(j)(iii), shall not exceed the
Permitted Acquisition Payment, (2) the stock of any such
Subsidiary or corporate entity which is owned by the Borrower or
another Subsidiary shall be pledged to the Agent for the benefit
of the Banks under the Pledge Agreement PROVIDED THAT,
notwithstanding the foregoing, in no event shall the Borrower or
another Subsidiary be required to pledge more than 65% of the
capital stock of any Foreign Subsidiary, PROVIDED, FURTHER,
however, with respect to investments pursuant to clause (B)
above, such stock must be pledged only upon the request of the
Agent, upon the occurrence of an Event of Default or Potential
Default, and (3) no investments in the Insurance Subsidiaries
shall be permitted under this clause (iii) of Section 8.2(h),
since the last proviso in clause (ii) of Section 8.2(h) shall
govern all investments in the Insurance Subsidiaries;
(g) Section 8.2(i)(ii) [Dividends and Related Distributions] of the Credit
Agreement is hereby amended by deleting such clause in its entirety
and inserting in lieu thereof the following:
(ii) in addition to repurchases of Unpledged Shares permitted pursuant
to Section 8.2(i)(iv) below, so long as no Event of Default or
Potential Default has occurred and is continuing, the Borrower
may repurchase not in excess of (a) from and after April 26, 2000
through the term of the Agreement, primarily on a public stock
exchange and in accordance with any stock repurchase plan
authorized by the Borrower's Board of Directors from time to
time, up to $250,000,000 of Unpledged Shares but in no event more
than the lesser of (1) 10,000,000 Unpledged Shares in the
aggregate under this Section 8.2(i)(ii)(a) or (2) the amount
permitted under the note purchase agreements executed in
connection with the Senior Notes, and (b) during the term of this
Agreement, $1,000,000 of Restricted Stock; and at any time, the
Borrower may repurchase up to $1,900,000 of the Unpledged Shares
held by Mellon Bank, N.A., as trustee of the Westinghouse
Electric Corporation Master Trust Agreement for the Westinghouse
Pension Plan, or any successor trustee;
(h) Section 3 of Exhibit L [Form of Compliance Certificate] to the Credit
Agreement is hereby deleted in its entirety and the following is
inserted in lieu thereof:
(3) MINIMUM CASH FLOW FROM OPERATIONS.
(Section 8.2(a)). Cash Flow From
Operations, for the four (4) fiscal quarters
ending as of the Report Date, is $__________
(see item 4(A)(iv) below), which is not less
than $200,000,000.
(i) Section 10 of Exhibit L [Form of Compliance Certificate] to the Credit
Agreement is hereby deleted in its entirety and the following is
inserted in lieu thereof:
(10) DIVIDENDS AND RELATED DISTRIBUTIONS (Section 8.2(i)). The
Companies have not made or paid or agreed to make or pay any
dividends or other distributions on account of any shares of
Borrower's capital stock or the purchase, redemption or
retirement of any such shares (or warrants, rights or
options therefor) during the quarter ending on the Report
Date except for purchases of Unpledged Shares in the amount
of $________ or purchases of Restricted Stock in the amount
of $____________ made in compliance with Section 8.2(i)(ii)
and (iv) of the Agreement and dividends on Borrower's Common
Shares in the amount of $________ made in compliance with
Section 8.2(i)(iv) of the Agreement.
(A) PURCHASE OF UNPLEDGED SHARES AND RESTRICTED STOCK
(Subsection (ii) of 8.2(i)). The Borrower has purchased
Unpledged Shares (net of purchases of Restricted Stock)
from and after April 14, 2000 through the Report Date,
primarily on the open market and in accordance with any
stock repurchase plan authorized by the Board of
Directors from time to time, in an amount of
$__________ which is not more than $250,000,000 and the
number of Unpledged Shares purchased is _________ which
does not exceed the lesser of 10,000,000 or the amount
permitted under the note purchase agreements executed
in connection with the Senior Notes. The Borrower has
purchased Restricted Stock during the term of the
Agreement in the amount of $__________ which does not
exceed the permitted amount of $1,000,000.
(B) Dividends and Repurchases (Subsection (iv) of Section
8.2(i)). Borrower has paid dividends on its Common
Shares and, in addition to repurchases of Unpledged
Shares permitted pursuant to Section 8.2(i)(ii) above,
made repurchases of Unpledged Shares during its current
fiscal year in the amount of $_________ which does not
exceed on a cumulative basis the permitted amount of
$20,000,000 plus 50% of any net income (or minus 100%
of any net loss) of the Borrower and its Subsidiaries
from January 1, 1998 through the date of payment.
(i) Dividends paid by Borrower on its $________
Common Shares and purchases of
Unpledged Shares (in addition to
repurchases permitted pursuant to
Section 8.2(i)(ii) above) from
January 1, 1998 through the
quarter preceding the quarter
ending on Report Date
(ii) Dividends paid by Borrower on $________ its
Common Shares and repurchases of Unpledged Shares
(in addition to repurchases permitted pursuant to
Section 8.2(i)(ii) above) during the quarter
ending on the Report Date
(iii) $20,000,000 plus 50% of any net $________ income
(or minus 100% of any net loss) of the Borrower
and its Subsidiaries from January 1, 1998 through
the date of payment.
(iv) Sum of clauses (i) and (ii) (may $________
not exceed amount in line (iii))
3. RELEASE OF COLLATERAL AND CONSENT TO AMENDMENT TO COLLATERAL DOCUMENTS.
THE BANKS HEREBY (A) AUTHORIZE PNC BANK, NATIONAL ASSOCIATION, AS COLLATERAL
AGENT UNDER THE INTERCREDITOR AGREEMENT (SENIOR NOTES) (THE "COLLATERAL AGENT"),
TO RELEASE FEDERATED INTERNATIONAL MANAGEMENT LIMITED, AN IRELAND LIMITED
LIABILITY COMPANY ("FIM"), FROM THE SECURITY AGREEMENT AND TO RELEASE FROM THE
PLEDGE AGREEMENT 35% OF THE CAPITAL STOCK OF FIM, SUBJECT TO RECEIPT OF THE
CONSENT OF THE REQUIRED CREDITORS (AS DEFINED IN THE INTERCREDITOR AGREEMENT
(SENIOR NOTES)) AND(B) CONSENT TO THE EXECUTION AND DELIVERY BY THE COLLATERAL
AGENT OF AMENDMENT NO. 1 TO SECURITY AGREEMENT ATTACHED HERETO AS EXHIBIT 2 AND
AMENDMENT NO. 1 TO PLEDGE AGREEMENT ATTACHED HERETO AS EXHIBIT 3.
4. CONDITIONS OF EFFECTIVENESS OF AMENDMENT OF CREDIT AGREEMENT. THE
EFFECTIVENESS OF THIS AMENDMENT OF THE CREDIT AGREEMENT IS EXPRESSLY CONDITIONED
UPON SATISFACTION OF EACH OF THE FOLLOWING CONDITIONS PRECEDENT ON THE DATE
HEREOF:
(a) 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.
(b) 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:
(i) all action taken by the Borrower in connection with this
Amendment and the other Senior Loan Documents; and
(ii) 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.
(c) ACKNOWLEDGMENT. There shall be delivered to the Agent for the benefit
of each Bank the Confirmation in the form attached hereto as EXHIBIT 1
hereto executed by each of the Loan Parties (other than the Borrower).
(d) AMENDMENT TO COLLATERAL DOCUMENTS. There shall be delivered to the
Agent for the benefit of each Bank Amendment No. 1 to the Security
Agreement in the form attached hereto as EXHIBIT 2 and Amendment No. 1
to the Pledge Agreement in the form attached hereto as EXHIBIT 3, in
each case executed by the parties thereto.
(e) CONSENT AND SUPPLEMENTAL AGREEMENT TO NOTE PURCHASE AGREEMENT. There
shall be delivered to the Agent for the benefit of each Bank a consent
executed by the Majority Holders (as defined in the Intercreditor
Agreement (Senior Notes)) consenting to the amendments to the
collateral documents described in clause (d) above and a copy of the
Supplemental Agreement to Note Purchase Agreement amending Section
10.4 [Restricted Payments] of the Note Purchase Agreement.
(f) 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 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.
5. 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 WHICH ARE PAYABLE BY THE BORROWER AS PROVIDED IN SECTIONS 10.5
AND 11.3 OF THE CREDIT AGREEMENT.
6. FORCE AND EFFECT. EXCEPT AS EXPRESSLY MODIFIED BY THIS AMENDMENT, THE
CREDIT AGREEMENT AND THE OTHER SENIOR LOAN DOCUMENTS ARE HEREBY RATIFIED AND
CONFIRMED AND SHALL REMAIN IN FULL FORCE AND EFFECT AFTER THE DATE HEREOF.
7. 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]
SIGNATURE PAGE 1 OF 3 TO AMENDMENT NO. 8 TO CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Amendment No. 8 to Credit Agreement as of the
date first above written.
FEDERATED INVESTORS, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
------------------------------------
Title: VICE PRESIDENT
------------------------------------
PNC BANK, NATIONAL ASSOCIATION
individually and as Agent
By: /S/ THOMAS V. KONDRAT
--------------------------------------
Name: THOMAS V. KONDRAT
-------------------------------------
Title: MANAGING DIRECTOR
-----------------------------------
BANK OF AMERICA, NATIONAL ASSOCIATION
By: /S/ MEHUL MEHTA
---------------------------------------
Name: MEHUL MEHTA
-------------------------------------
Title: VICE PRESIDENT
-----------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /S/ JOHN T. DALEY
--------------------------------------
Name: JOHN T. DALEY
-------------------------------------
Title: VICE PRESIDENT
-----------------------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /S/ ROBERT BOTTAMEDI
---------------------------------------
Name: ROBERT BOTTAMEDI
-------------------------------------
Title: VICE PRESIDENT
-----------------------------------
SIGNATURE PAGE 2 OF 3 TO AMENDMENT NO. 8 TO CREDIT AGREEMENT
COMMERZBANK AKTIENGESELLSCHAFT
NEW YORK BRANCH
By: /S/ MICHAEL P. MCCARTHY /S/ HENRY SPARK
------------------------------------------
Name: MICHAEL P. MCCARTHY HENRY SPARK
Title: VICE PRESIDENT ASSISTANT TREASURER
THE BANK OF NEW YORK
By: /S/ SCOTT H. BUITEKANT
---------------------------------------
Name: SCOTT H. BUITEKANT
-------------------------------------
Title: VICE PRESIDENT
------------------------------------
THE BANK OF NOVA SCOTIA
By: /S/ F.C.H. ASHBY
---------------------------------------
Name: F.C.H. ASHBY
-------------------------------------
Title: SENIOR MANAGER - LOAN OPERATIONS
-------------------------------------
FIRST UNION NATIONAL BANK
By: /S/ WALTER PRINGLE
---------------------------------------
Name: WALTER PRINGLE
-------------------------------------
Title: VICE PRESIDENT
-----------------------------------
NATIONAL CITY BANK OF PENNSYLVANIA
By: /S/ PAUL A. SAKALIK
---------------------------------------
Name: PAUL A. SAKALIK
------------------------------------
Title: VICE PRESIDENT
-----------------------------------
FIRSTAR BANK, N.A.
By: /S/ DAVID J. DANNEMILLER
---------------------------------------
Name: DAVID J. DANNEMILLER
------------------------------------
Title: VICE PRESIDENT
-----------------------------------
SIGNATURE PAGE 3 OF 3 TO AMENDMENT NO. 8 TO CREDIT AGREEMENT
THE CHASE MANHATTAN BANK
By: /S/ ELISABETH H. SCHWABE
---------------------------------------
Name: ELISABETH H. SCHWABE
-------------------------------------
Title: MANAGING DIRECTOR
------------------------------------
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. 8 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 (as
amended by Amendment No. 1 to Pledge Agreement dated as of April 14, 2000, the
"PLEDGE Agreement"), (ii) the Grantors entered into that certain Security
Agreement in favor of the Agent for the benefit of the Banks (as amended by
Amendment No. 1 to Security Agreement dated as of April 14, 2000, the "SECURITY
AGREEMENT") and (iii) the Borrower and its Subsidiaries entered into that
certain Intercompany 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 various
covenants.
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]
[SIGNATURE PAGE 1 OF 4 OF CONFIRMATION]
IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned,
by their duly authorized officers, have executed this Confirmation as of April
14, 2000.
EDGEWOOD SERVICES, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: EXECUTIVE VICE PRESIDENT
-----------------------------------
FEDERATED ADMINISTRATIVE SERVICES
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
-----------------------------------
FEDERATED ADMINISTRATIVE SERVICES, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED INVESTORS TRUST CO.
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED FINANCIAL SERVICES, INC.
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------------
[SIGNATURE PAGE 2 OF 4 OF CONFIRMATION]
FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
(formerly Federated Global Research Corp.)
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
-----------------------------------
FEDERATED INTERNATIONAL MANAGEMENT LIMITED
By: /S/ J. CHRISTOPHER DONAHUE
--------------------------------------
Name: J. CHRISTOPHER DONAHUE
-------------------------------------
Title:
-----------------------------------
FEDERATED INVESTMENT COUNSELING
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED INVESTORS MANAGEMENT COMPANY
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: PRESIDENT
------------------------------------
FEDERATED SECURITIES CORP.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: EXECUTIVE VICE PRESIDENT
-----------------------------------
[SIGNATURE PAGE 3 OF 4 OF CONFIRMATION]
FEDERATED SERVICES COMPANY
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED SHAREHOLDER SERVICES COMPANY
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
-----------------------------------
FII HOLDINGS, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: PRESIDENT
------------------------------------
PASSPORT RESEARCH, LTD.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
-----------------------------------
RETIREMENT PLAN SERVICE COMPANY OF AMERICA
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED INVESTMENT MANAGEMENT COMPANY
(formerly Federated Advisors)
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
[SIGNATURE PAGE 4 OF 4 OF CONFIRMATION]
INVESTLINK TECHNOLOGIES INC.
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED PRIVATE ASSET MANAGEMENT, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------------
FEDERATED INTERNATIONAL HOLDINGS BV
By: /S/ J. CHRISTOPHER DONAHUE
---------------------------------------
Name: J. CHRISTOPHER DONAHUE
-------------------------------------
Title:
-----------------------------------
FEDERATED FONDS-SERVICE GmbH
By: /S/ J. CHRISTOPHER DONAHUE
---------------------------------------
Name: J. CHRISTOPHER DONAHUE
-------------------------------------
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
AMENDMENT NO. 1 TO SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO SECURITY AGREEMENT (the "AMENDMENT") is dated as of
April 14, 2000, and is made by and among Federated Investors, Inc. (the
"BORROWER"), each of the Subsidiaries of Borrower set forth on the signature
page hereof (the "GRANTOR SUBSIDIARIES") (the Borrower and the Grantor
Subsidiaries being collectively referred to herein as the "GRANTORS" and each as
a "GRANTOR"), and PNC Bank, National Association (the "COLLATERAL AGENT"), as
collateral agent for (i) the banks (the "BANKS") referred to in Section 1.1 of
the Senior Secured Credit Agreement dated as of January 31, 1996 among the
Borrower, the Banks and PNC Bank, National Association, as Agent for the Banks
(the "AGENT") (as it has been and may hereafter be amended or otherwise modified
from time to time, the "CREDIT AGREEMENT") and (ii) the holders from time to
time of the Borrower's 7.96% Senior Secured Notes due 2006 (the "NOTEHOLDERS"
and, together with the Agent and the Banks, sometimes collectively referred to
as the "CREDITORS") issued pursuant to the Note Purchase Agreements dated as of
June 15, 1996 between the Borrower and each of the purchasers named in Schedule
A thereto (as it has been and may hereafter be amended or otherwise modified
from time to time, the "NOTE PURCHASE AGREEMENTS").
WITNESSETH THAT:
WHEREAS, the Grantors and the Collateral Agent are parties to that certain
Security Agreement dated as of June 15, 1996 (the "SECURITY AGREEMENT"); and
WHEREAS, the parties hereto wish to amend the Security Agreement as set
forth herein.
NOW, THEREFORE, intending to be legally bound hereby and for value
received, the parties hereto covenant and agree to amend the Security Agreement
as follows:
1. DEFINITIONS.
-----------
Defined terms used herein unless otherwise defined herein shall have the
meanings given to them in the Security Agreement.
2. AMENDMENT OF SECURITY AGREEMENT.
-------------------------------
Section 5(j) of the Security Agreement is hereby deleted in its entirety
and the following is inserted in lieu thereof:
(j) it will cause each of its Subsidiaries which may hereafter
be created or acquired (other than registered investment advisor or
broker-dealer Subsidiaries or any Subsidiary that is not organized
or incorporated under the Laws of any state or commonwealth in the
United States of America) to enter into and become a party and
signatory to this Security Agreement and do all such acts and things
and execute, deliver and file all such documents and instruments as
the Collateral Agent may deem necessary and desirable to create and
perfect a first priority perfected security interest in the
Collateral of such Subsidiary.
3. CONDITIONS OF EFFECTIVENESS OF THIS AMENDMENT.
---------------------------------------------
The effectiveness of this Amendment is expressly conditioned upon the
receipt by the Collateral Agent for the benefit of the Creditors of (a) a fully
executed Amendment and (b) the consent of the Banks and the Majority Holders as
required by Section 14 of the Security Agreement and Section 5(a) of the
Intercreditor Agreement.
4. LEGAL DETAILS.
-------------
All legal details and proceedings in connection with the transactions
contemplated by this Amendment shall be in form and substance satisfactory to
the Collateral Agent.
5. FULL FORCE AND EFFECT; NO NOVATION.
----------------------------------
The Security Agreement, as amended by this Amendment, is hereby ratified
and confirmed and is and shall remain in full force and effect, taking into
account this Amendment. No novation, suspension of continuity, satisfaction,
discharge of prior duties or termination of the security interest, or collateral
therefor is intended or consented to by the parties hereto except as expressly
set forth herein.
6. COUNTERPARTS.
------------
This Amendment may be executed by different parties hereto in any number
of separate counterparts, each of which, when so executed and delivered, shall
be an original, and all of such counterparts shall together constitute one and
the same instrument.
7. 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]
[SIGNATURE PAGE 1 OF 2 TO AMENDMENT NO. 1 TO SECURITY AGREEMENT]
WITNESS the due execution hereof as of the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION, as Agent for the
Banks and as Collateral Agent for the Banks and
the Noteholders
By: /S/ THOMAS V. KONDRAT
---------------------------------------
Name: THOMAS V. KONDRAT
-------------------------------------
Title: MANAGING DIRECTOR
-----------------------------------
FEDERATED INVESTORS, INC.
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: VICE PRESIDENT
----------------------------------
FEDERATED ADMINISTRATIVE SERVICES, INC.
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
-----------------------------------
FEDERATED INVESTORS MANAGEMENT COMPANY
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: PRESIDENT
-----------------------------------
[SIGNATURE PAGE 2 OF 2 TO AMENDMENT NO. 1 TO SECURITY AGREEMENT]
FEDERATED SERVICES COMPANY
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
-----------------------------------
FEDERATED SHAREHOLDER SERVICES COMPANY
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FII HOLDINGS, INC.
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: PRESIDENT
-----------------------------------
RETIREMENT PLAN SERVICE COMPANY OF AMERICA
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
INVESTLINK TECHNOLOGIES, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED PRIVATE ASSET MANAGEMENT, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------------
AMENDMENT NO. 1 TO PLEDGE AGREEMENT
THIS AMENDMENT NO. 1 TO PLEDGE AGREEMENT (the "PLEDGE AMENDMENT") is dated
as of April 14, 2000, and is made by and among Federated Investors, Inc. (the
"Borrower"), FII Holdings, Inc., Federated Services Company, Federated
Shareholders Services Company and FS Holdings, Inc., subsidiaries of the
Borrower (the "PLEDGING SUBSIDIARIES") (the Borrower and the Pledging
Subsidiaries being the owners of the Subsidiaries listed on SCHEDULE 1 to the
Pledge Agreement (as defined herein), the shareholders of the Borrower which are
signatories hereto and are listed on Schedule 1 to the Pledge Agreement (the
"SHAREHOLDERS") (the Borrower, the Pledging Subsidiaries and the Shareholders
being collectively referred to herein as the "PLEDGORS" and each as a
"PLEDGOR"), and PNC Bank, National Association (the "COLLATERAL AGENT"), as
collateral agent for (i) the banks (the "BANKS") referred to in Section 1.1 of
the Senior Secured Credit Agreement dated as of January 31, 1996 among the
Borrower, the Banks and PNC Bank, National Association, as Agent for the Banks
(as it has been and may hereafter be amended or otherwise modified from time to
time, the "CREDIT AGREEMENT") and (ii) the holders from time to time of the
Borrower's 7.96% Senior Secured Notes due 2006 (the "NOTEHOLDERS" and, together
with the Agent and the Banks, sometimes collectively referred to as the
"CREDITORS") issued pursuant to the Note Purchase Agreements dated as of June
15, 1996 between the Borrower and each of the purchasers named in Schedule A
thereto (as it has been and may hereafter be amended or otherwise modified from
time to time, the "NOTE PURCHASE AGREEMENTS").
WITNESSETH THAT:
WHEREAS, the Pledgors and the Collateral Agent are parties to that certain
Pledge Agreement dated as of June 15, 1996 (the "PLEDGE AGREEMENT"); and
WHEREAS, the parties hereto wish to amend the Pledge Agreement as set forth
herein.
NOW, THEREFORE, intending to be legally bound hereby and for value
received, the parties hereto covenant and agree to amend the Pledge Agreement as
follows:
1. DEFINITIONS.
-----------
Defined terms used herein unless otherwise defined herein shall have the
meanings given to them in the Pledge Agreement.
2. AMENDMENT OF PLEDGE AGREEMENT.
-----------------------------
Clause (1) of Section 6(b) of the Pledge Agreement is hereby deleted in
its entirety and the following is inserted in lieu thereof:
(1) it will pledge or cause to be pledged hereunder any shares
of capital stock or beneficial or partnership interests of any
Subsidiary organized or incorporated under the Laws of any state or
commonwealth in the United States of America ("DOMESTIC SUBSIDIARY")
hereafter created or acquired by the Borrower or any of the
Subsidiaries and 65% of the capital stock of any Subsidiary that is
not a Domestic Subsidiary hereafter created or acquired by the
Borrower or any of the Subsidiaries, and that it will have good and
marketable title to and the right to pledge such shares of capital
stock or beneficial or partnership interests of any Subsidiary
hereafter created or acquired.
3. RELEASE.
-------
The Collateral Agent hereby releases from the lien of the Pledge Agreement
35% of the capital stock of Federated International Management Limited, an
Ireland limited liability company, and agrees to take such further action as is
necessary to effectuate such release.
4. CONDITIONS OF EFFECTIVENESS OF THIS AMENDMENT.
---------------------------------------------
The effectiveness of this Amendment is expressly conditioned upon the
receipt by the Collateral Agent for the benefit of the Creditors of (a) a fully
executed Amendment and (b) the consent of the Banks and the Majority Holders as
required by Section 15 of the Pledge Agreement and Section 5(a) of the
Intercreditor Agreement.
5. LEGAL DETAILS.
-------------
All legal details and proceedings in connection with the transactions
contemplated by this Amendment shall be in form and substance satisfactory to
the Collateral Agent.
6. FULL FORCE AND EFFECT; NO NOVATION.
----------------------------------
The Pledge Agreement, as amended by this Amendment, is hereby ratified and
confirmed and is and shall remain in full force and effect, taking into account
this Amendment. No novation, suspension of continuity, satisfaction, discharge
of prior duties or termination of the security interest, or collateral therefor
is intended or consented to by the parties hereto except as expressly set forth
herein.
7. COUNTERPARTS.
------------
This Amendment may be executed by different parties hereto in any number
of separate counterparts, each of which, when so executed and delivered, shall
be an original, and all of such counterparts shall together constitute one and
the same instrument.
8. 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]
[SIGNATURE PAGE 1 OF 2 TO AMENDMENT NO. 1 TO PLEDGE AGREEMENT]
WITNESS the due execution hereof as of the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION, as Agent for the
Banks and Collateral Agent for the Banks and the
Noteholders
By: /S/ THOMAS V. KONDRAT
---------------------------------------
Name: THOMAS V. KONDRAT
-------------------------------------
Title: MANAGING DIRECTOR
-----------------------------------
FEDERATED INVESTORS, INC.
By: /S/ THOMAS R. DONAHUE
--------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: VICE PRESIDENT
-----------------------------------
FEDERATED SERVICES COMPANY
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: TREASURER
------------------------------------
FEDERATED INTERNATIONAL HOLDING BV
By: /S/ J. CHRISTOPHER DONAHUE
--------------------------------------
Name: J. CHRISTOPHER DONAHUE
-------------------------------------
Title:
-----------------------------------
FII HOLDINGS, INC.
By: /S/ THOMAS R. DONAHUE
---------------------------------------
Name: THOMAS R. DONAHUE
-------------------------------------
Title: PRESIDENT
------------------------------------
[SIGNATURE PAGE 2 OF 2 TO AMENDMENT NO. 1 TO PLEDGE AGREEMENT]
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
