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FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
INFORMATION STATEMENT
MARCH 31, 2000
INTRODUCTION
This Information Statement is furnished to the shareholders (the
"Shareholders") of Federated Investors, Inc. ("Federated") by the Board of
Directors ("Board") in connection with the Annual Meeting of the Shareholders to
be held on Wednesday, April 26, 2000 at the Doubletree Hotel, Allegheny Grand
Ballroom, Third Floor, 1000 Penn Avenue, Pittsburgh, Pennsylvania, at 10:00 a.m.
local time. Action will be taken at the Annual Meeting for the election of
directors and any other business that properly comes before the meeting.
Federated has shares of both its Class A Common Stock, no par value per
share (the "Class A Common Stock") and its Class B Common Stock, no par value
per share (the "Class B Common Stock") issued and outstanding. The Class B
Common Stock is listed on the New York Stock Exchange under the symbol FII.
Except under certain limited circumstances, the entire voting power of Federated
is vested in the holders of the outstanding shares of the Class A Common Stock.
All of the outstanding shares of Class A Common Stock are held by a Voting
Shares Irrevocable Trust, dated May 31, 1989 (the "Voting Trust"), and will be
voted in person at the Annual Meeting. Accordingly, Federated is not soliciting
proxies for the Annual Meeting, but is providing this Information Statement to
its Shareholders in accordance with Regulation ss.240.14c-2 of the Securities
Exchange Act of 1934 (the "Exchange Act").
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement is being mailed to the Shareholders on or about
March 31, 2000. Federated's 1999 Annual Report to Shareholders accompanies this
Information Statement.
VOTING SECURITIES
Only holders of record of Class A Common Stock at the close of business on
March 22, 2000 ("Record Date") will be entitled to vote at the Annual Meeting or
any adjournment or adjournments thereof. On that date, 6,000 shares of Class A
Common Stock were outstanding, all of which were held by the Voting Trust, the
trustees of which are John F. Donahue, his wife and his son J. Christopher
Donahue, for the benefit of the members of the family of John F. Donahue.
The presence of the holder of the Class A Common Stock, constituting all
of the votes that all Shareholders are entitled to cast in the election of
directors, will constitute a quorum for the transaction of business at the
Annual Meeting. Under the terms of the Voting Trust, the trustees are authorized
to vote shares owned by the Voting Trust, and as a result, all of the
outstanding shares of Class A Common Stock will be voted in person at the Annual
Meeting. The Voting Trust is entitled to cast one vote per share of Class A
Common Stock for the election of directors. Directors will be elected by a
plurality of the votes cast. Cumulative voting is not allowed. The trustees of
the Voting Trust have advised that they intend to vote in favor of all the
directors nominated by the Board.
BOARD OF DIRECTORS AND ELECTION OF DIRECTORS
The Board consists of ten members. Under Federated's bylaws, directors are
elected at each annual meeting and each director holds office until the
expiration of the term of one year for which he or she was selected and until a
successor is selected and qualified.
The Board has nominated John F. Donahue, J. Christopher Donahue, Arthur
L. Cherry, Thomas R. Donahue, Michael J. Farrell, John B. Fisher, James F.
Getz, Eugene F. Maloney, John W. McGonigle and James L. Murdy for election as
directors. The nominees for directors have previously served as members of
the Board.
JOHN F. DONAHUE Mr. John F. Donahue was Chairman and Chief
Age 75 Executive Officer of Federated and a trustee of
Federated Investors, a Delaware business trust
(the "Trust") prior to the May 1998 merger of the
Trust into Federated, its wholly-owned subsidiary
(the "Merger"), and has continued as Chairman of
Federated following the consummation of the
Merger. He served as President of Federated from
1989 until 1993 and was a founder of the
predecessor to Federated. Mr. Donahue is Chairman
or President and a director or trustee of the
investment companies managed by subsidiaries of
Federated. Mr. Donahue was a member of the Board
of Directors of Aetna Life and Casualty Company
until April 1995. Mr. Donahue is the father of J.
Christopher Donahue and Thomas R. Donahue, each of
whom serves as an executive officer and director
of Federated.
J. CHRISTOPHER DONAHUE Mr. J. Christopher Donahue was a trustee of the
Age 50 Trust from 1989 until the Merger and has been a
director of Federated since the consummation of
the Merger. He served as President and Chief
Operating Officer of Federated from 1993 until
April 1998, when he became President and Chief
Executive Officer. Prior to 1993, he served as
Vice President of Federated. He is President or
Executive Vice President of the investment
companies managed by subsidiaries of Federated
and a director, trustee, officer or managing
general partner of the investment companies. Mr.
Donahue is the son of John F. Donahue and the
brother of Thomas R. Donahue.
ARTHUR L. CHERRY Mr. Arthur L. Cherry was a trustee of the Trust
Age 46 from 1997 until the Merger and has been a director
of Federated since the consummation of the Merger.
He is the President of Federated Services Company,
a wholly-owned subsidiary of Federated. Prior to
joining Federated in January 1997, he was a
managing partner of AT&T Solutions and former
president of Scudder Services Corporation.
THOMAS R. DONAHUE Mr. Thomas R. Donahue was a trustee of the Trust
Age 41 from 1995 until the Merger and has been a director
of Federated since the consummation of the
Merger. He has been Vice President of Federated
since 1993 and currently serves as Vice President,
Treasurer and Chief Financial Officer. Prior to
joining Federated, Mr. Donahue was in the venture
capital business, and from 1983 to 1987 was
employed by PNC Bank in its Investment Banking
Division. Mr. Donahue is the son of John F.
Donahue and the brother of J. Christopher Donahue.
MICHAEL J. FARRELL Mr. Michael J. Farrell was elected to the Board in
Age 50 August 1998. He is currently the President of
Farrell & Co., a merchant banking firm
specializing in heavy manufacturing companies. He
has also served in executive capacities for MK
Rail Corporation, Motor Coil Manufacturing Co. and
Season-All Industries. Mr. Farrell is a Certified
Public Accountant. Mr. Farrell currently serves
as a director of C-Cor.net Corp.
JOHN B. FISHER Mr. John B. Fisher has been a director of
Age 43 Federated since the consummation of the Merger.
He is President-Institutional Sales Division of
Federated Securities Corp., a wholly-owned
subsidiary of Federated, and is responsible for the
distribution of Federated's products and services
to investment advisors, insurance companies,
retirement plans and corporations.
JAMES F. GETZ Mr. James F. Getz has been a director of Federated
Age 53 since the consummation of the Merger. He serves
as President - Retail Sales Division of Federated
Securities Corp., a wholly-owned subsidiary of
Federated and is responsible for the marketing and
sales efforts in the trust and broker/dealer
markets. Mr. Getz is a Chartered Financial
Analyst.
EUGENE F. MALONEY Mr. Eugene F. Maloney was a trustee of the Trust
Age 55 from 1989 until the Merger and has continued as a
director of Federated since the consummation of the
Merger. He serves as a Vice President of Federated,
and provides certain legal, technical and
management expertise to Federated's sales
divisions, including regulatory and legal
requirements relating to a bank's use of mutual
funds in both trust and commercial environments.
JOHN W. MCGONIGLE Mr. John W. McGonigle was a trustee of the Trust
Age 61 from 1989 until the Merger and has been a director
of Federated since the consummation of the
Merger. Mr. McGonigle has served as Secretary of
Federated since 1989. He served as Vice President
of Federated from 1989 until August 1995, when he
became Executive Vice President. Mr. McGonigle
acted as General Counsel of Federated until 1998
when he became the Chief Legal Officer.
Mr. McGonigle is Executive Vice President and
Secretary of the investment companies managed by
subsidiaries of Federated.
JAMES L. MURDY Mr. James L. Murdy was elected to the Board in
Age 61 August 1998. He is currently Director, Executive
Vice President, Finance & Administration and Chief
Financial Officer of Allegheny Teledyne,
Incorporated, a diversified manufacturing
corporation, and, prior to becoming Executive Vice
President, served as Senior Vice President and
Chief Financial Officer of Allegheny Ludlum
Corporation. Mr. Murdy is a Certified Public
Accountant. Mr. Murdy also currently serves as a
director of Allegheny Technologies, Inc.
MEETINGS AND COMMITTEES OF THE BOARD
In 1999, the Board met on six occasions. The Board has an Audit
Committee and a Compensation Committee. The Board does not have a Nominating
Committee.
The Audit Committee currently consists of Michael J. Farrell and James L.
Murdy, neither of whom is an officer or employee (or former officer or employee)
of Federated. Mr. Murdy is Chairman of the Audit Committee. The Audit Committee
is responsible for assisting the Board in fulfilling its statutory and fiduciary
responsibilities for the audit function of Federated and in monitoring its
accounting and financial reporting practices; determining that Federated has
adequate administrative, operational and internal accounting controls and that
Federated is operating in accordance with its prescribed procedures and codes of
conduct; determining that Federated has in place policies and procedures to
enable it to comply with applicable laws and regulations and that such
compliance is occurring; and providing general oversight for the internal and
external audit function. Its functions include recommending to the Board the
appointment of independent auditors and reviewing with the internal auditors and
the independent auditors their annual audit plans and monitoring their progress
during the year. In discharging its responsibilities, the Audit Committee is
entitled to rely upon the reports, findings and representations of Federated's
auditors, legal counsel and responsible officers. In 1999, the Audit Committee
met on five occasions.
The Compensation Committee currently consists of Michael J. Farrell,
James L. Murdy and J. Christopher Donahue as a non-voting member. Mr.
Donahue is the President and Chief Executive Officer of Federated. Mr.
Farrell is Chairman of the Compensation Committee. This committee recommends
compensation levels of senior management, works with senior management on
benefit and compensation programs for Federated employees and monitors local
and national compensation trends to ensure Federated's compensation program
is competitive within the mutual fund industry. In 1999, the Compensation
Committee met on two occasions. The bonus awards for the year ended December
31, 1998 and the base compensation levels for 1999 were established by the
Compensation Committee.
COMPENSATION OF DIRECTORS
Members of the Board who are also employees of Federated do not receive
cash compensation for their services as directors. Members of the Board who are
not employees receive (i) $15,000 per year, payable in quarterly installments,
(ii) options to purchase 5,000 shares of Class B Common Stock upon initial
election to the Board, which are subject to a three-year vesting schedule, (iii)
1,500 options to purchase shares of Class B Common Stock annually, which vest
immediately upon grant, and (iv) $1,000 annually as compensation for Committee
Chairmanship. According to Federated's Stock Incentive Plan, all of the vested
options granted to outside directors are immediately exercisable and may be
exercised for a period of ten years from the date of the grant, provided that,
in the event of the death or disability of the outside director, the options may
only be exercised within twelve months after the death or disability and, in the
event that the outside director's service to Federated is terminated for any
reason other than death or disability, the options may only be exercised for a
period of thirty days after the date of such termination of services.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the years
ended December 31, 1997, December 31, 1998 and December 31, 1999 for Federated's
Chief Executive Officer and for the four other most highly compensated executive
officers of Federated (the "Named Executive Officers").
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
--------------------------------- -------------------------------
SECURITIES
OTHER UNDERLYINGALL OTHER
NAME AND ANNUAL RESTRICTED OPTIONS/SACOMPENSATION
PRINCIPAL POSITION(S) YEAR SALARY BONUS($)(1COMPENSATION STOCK (#)(3) ($)(4)
($) ($) AWARDS ($)
-------------------------------------- -------------------------------
John F. Donahue 1999 1,680,000 900,000 86,139 --- --- 10,874
Chairman 1998 1,650,000 900,000 --- --- --- 10,439
1997 1,600,000 800,000 83,894 --- --- 9,760
J. Christopher 1999 890,000 513,482 --- --- 31,800 17,674
Donahue
President and 1998 860,000 408,784 --- --- 30,800 18,810
Chief
Executive Officer 1997 830,000 415,000 53,695 --- --- 13,432
Arthur L. Cherry 1999 660,000 403,354 --- --- 24,600 8,309
President, 1998 630,000 294,156 --- --- 322,200 8,099
Federated
Services Company 1997 600,000 300,000 73,924 197,500 360,000 1,350
(2)
James F. Getz 1999 390,000 579,244 --- --- 35,600 8,465
President, Retail 1998 365,000 469,300 --- --- 35,000 7,915
Sales
Division of 1997 350,000 550,000 --- --- 60,000 8,920
Federated
Securities Corp.
Thomas R. Donahue 1999 660,000 387,364 --- --- 23,600 14,314
Vice President and 1998 640,000 268,196 --- --- 20,200 14,505
Chief
Financial 1997 540,000 350,000 --- --- 60,000 13,861
Officer
</TABLE>
(1) The amounts set forth in this column for 1999 do not include amounts which
were earned by the Named Executive Officers in 1999 but which the Named
Executive Officers chose to forego pursuant to a program under which such
Named Executive Officers elected to acquire options to purchase shares of
Class B Common Stock in lieu of cash compensation. These options were
awarded to the Named Executive Officers as a portion of their respective
performance bonuses in January 2000. Based on the fair market value of the
options to purchase Class B Common Stock, determined by using the
Black-Scholes valuation methodology, Messrs. J. Christopher Donahue,
Cherry, Getz, and Thomas R. Donahue elected to forego $286,518, $221,646,
$320,756, and $212,636, respectively, in cash bonus awards in favor of
options.
The amounts set forth in this column for 1998 do not include amounts which
were earned by the Named Executive Officers in 1998 but which the Named
Executive Officers chose to forego pursuant to a program under which such
Named Executive Officers elected to acquire options to purchase shares of
Class B Common Stock in lieu of cash compensation. These options were
awarded to the Named Executive Officers as a portion of their respective
performance bonuses in January 1999. Based on the fair market value of the
options to purchase Class B Common Stock, determined by using the
Black-Scholes valuation methodology, Messrs. J. Christopher Donahue,
Cherry, Getz, and Thomas R. Donahue elected to forego $216,216, $155,844,
$245,700, and $141,804 respectively, in cash bonus awards in favor of
options.
(2) Based on the latest available independent valuation on the date of grant
in the case of Mr. Cherry with respect to the grant of 75,000 shares of
the Class B Common Stock of the Trust (after giving effect to a one for
one stock dividend paid on April 15, 1998 and a one for two stock dividend
paid on April 30, 1998), which was fully vested in January 1998. Pursuant
to the Merger, all outstanding Class B Common Shares of the Trust were
converted into shares of the Class B Common Stock of Federated.
(3) Securities reported in this column for 1999 consist of shares of Class B
Common Stock subject to options acquired in January 2000, by the Named
Executive Officers in lieu of a portion of their respective 1999 earned
cash bonus awards. All such options are currently exercisable.
Securities reported in this column for 1998 consist of shares of Class B
Common Stock subject to options acquired in January 1999, by the Named
Executive Officers in lieu of a portion of their respective 1998 earned
cash bonus awards, in the following amounts: Mr. J. Christopher Donahue,
30,800 shares; Mr. Cherry, 22,200 shares; Mr. Getz, 35,000 shares; and Mr.
Thomas R. Donahue, 20,200 shares. All such options are currently
exercisable. Securities reported in this column with respect to Mr. Cherry
for 1998 also consist of 300,000 Class B Common Stock options which were
not exercisable as of the fiscal year end. Securities reported in this
column with respect to Mr. Cherry (60,000 shares), Mr. Getz (60,000
shares), and Mr. Thomas R. Donahue (60,000 shares) for 1997 consist of
Class B Common Stock subject to options which are not currently
exercisable. Three hundred thousand (300,000) Class B Common Stock options
awarded to Mr. Cherry in 1997 were vested and exercised in 1998.
(4) Includes matching contributions under Federated's 401(k) Plan of $6,400
in 1999 for each of Mr. John F. Donahue, Mr. J. Christopher Donahue,
Mr. Cherry, Mr. Getz, and Mr. Thomas R. Donahue. Also included is the
present value of the economic benefit to the executive in 1999 of the
corporate premiums paid to purchase split dollar life insurance
contracts of $3,860 for Mr. J. Christopher Donahue and of $330 for Mr.
Thomas R. Donahue. In addition, Federated paid premiums for life
insurance with respect to Mr. John F. Donahue of $4,474, Mr. J.
Christopher Donahue of $7,414, Mr. Cherry of $1,909, Mr. Getz of
$2,065, and Mr. Thomas R. Donahue of $7,584 in 1999. The split dollar
life insurance contract for Mr. John F. Donahue is fully paid, and
Federated is entitled to recover all of the premiums paid by it through
the cash surrender value of such policy.
Includes matching contributions under Federated's 401(k) Plan of $6,400
in 1998 for each of Mr. John F. Donahue, Mr. J. Christopher Donahue,
Mr. Cherry, Mr. Getz, and Mr. Thomas R. Donahue. Also included is the
present value of the economic benefit to the executive in 1998 of the
corporate premiums paid to purchase split dollar life insurance
contracts of $5,656 for Mr. J. Christopher Donahue and of $1,351 for
Mr. Thomas R. Donahue. In addition, Federated paid premiums for life
insurance with respect to Mr. John F. Donahue of $4,039, Mr. J.
Christopher Donahue of $6,754, Mr. Cherry of $1,699, Mr. Getz of
$1,515, and Mr. Thomas R. Donahue of $6,754 in 1998.
OPTION GRANTS IN LAST YEAR
......The table below sets forth information with respect to stock options
granted to the Named Executive Officers in 1999. The options listed below are
included in the Summary Compensation Table above.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NUMBER OF % OF
SECURITIES TOTAL
UNDERLYING OPTIONS GRANT
OPTIONS GRANTED EXERCISE EXPIRATION DATE
NAME GRANTED TO PRICE DATE PRESENT
(1)(2) EMPLOYEES ($/SH) VALUE
IN YEAR ($)(3)
- ---------------------- ----------- ----------- ----------- ----------- ---------
J. Christopher 31,800 4.1 19.8125 1/24/2010 286,518
Donahue
Arthur L. Cherry 24,600 3.2 19.8125 1/24/2010 221,646
James F. Getz 35,600 4.6 19.8125 1/24/2010 320,756
Thomas R. Donahue 23,600 3.1 19.8125 1/24/2010 212,636
- ----------------------
</TABLE>
(1)Securities reported in this column consist of shares of Class B Common Stock
subject to options acquired in January 2000, by the Named Executive Officers
in lieu of a portion of their respective 1999 earned cash bonus awards, all
of which are currently exercisable.
(2) Securities reported in this column do not reflect shares of Class B
Common Stock subject to options acquired in January 1999, by the Named
Executive Officers in lieu of a portion of their respective 1998 earned
cash bonus awards, which are currently exercisable, in the following
amounts: Mr. J. Christopher Donahue, 30,800 shares; Mr. Cherry, 22,200
shares; Mr. Getz, 35,000 shares; and Mr. Thomas R. Donahue, 20,200
shares.
(3)The Grant Date Present Value for the options acquired by the Named Executive
Officers in lieu of a portion of their respective cash bonus awards was
calculated using the Black-Scholes option pricing model. The Black-Scholes
value was calculated using the following assumptions; an expected volatility
of 29.9%, a risk-free rate of return of 6.82%, a dividend yield of 0.85% and
an expected time to exercise of eight years.
AGGREGATED OPTION/SAR GRANTS IN LAST YEAR
AND YEAR-END OPTION/SAR VALUES
......The table below sets forth information with respect to stock options
exercised by the Named Executive Officers in 1999. The options listed below are
included in the Summary Compensation Table.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT FY-END FY-END ($)(2)
SHARES VALUE (#)(1)
NAME ACQUIRED REALIZED EXERCISABLE/
ON ($) EXERCISABLE/ UNEXERCISABLE
EXERCISE UNEXERCISABLE
(#)
- ----------------------- ----------- ----------- --------------- -----------------
J. Christopher Donahue --- --- 30,800/0 75,075/0
Arthur L. Cherry --- --- 22,200/360,000 54,113/4,072,500
James F. Getz --- --- 35,000/60,000 85,313/843,750
Thomas R. Donahue --- --- 20,200/60,000 49,238/843,750
- -----------------------
</TABLE>
(1) Securities reported in this column do not include shares of Class B Common
Stock subject to options acquired by the Named Executive Officers in 2000
in lieu of a portion of their respective cash bonus awards for 1999 in the
following amounts: Mr. J. Christopher Donahue, 31,800 shares; Mr. Cherry,
24,600 shares; Mr. Getz, 35,600 shares, and Mr. Thomas R. Donahue, 23,600
shares. All such options are currently exercisable. With respect to Mr.
Cherry, securities reported in this column include 300,000 options awarded
in 1998 and 60,000 options awarded in 1997, none of which were exercisable
as of the fiscal year end. With respect to Mr. Getz and Mr. Thomas R.
Donahue, securities reported in this column include 60,000 options which
were awarded in 1997 and which are not currently exercisable.
(2) The "value of unexercised in-the-money options" is calculated by
subtracting the exercise price from $20.0625, which was the closing sales
price of a share of Class B Common Stock on the New York Stock Exchange on
December 31, 1999.
EMPLOYMENT AGREEMENTS
Federated has entered into employment contracts with the following Named
Executive Officers:
ARTHUR L. CHERRY. Pursuant to a January 16, 1997 agreement, Federated is
obligated to provide Mr. Cherry with (i) a base salary, (ii) an opportunity to
earn a bonus and (iii) certain other benefits, including health and severance
pay benefits, among others. Mr. Cherry agrees not to compete with Federated for
a period of six months following the termination of his employment by Federated,
unless such termination occurs more than three years following the sale of 51%
or greater of Federated's Class A Common Stock to a non-family member of the
current holders of the Class A Common Stock. Furthermore, Mr. Cherry agrees not
to solicit employees of Federated for any other organization or to employ any
employee of Federated for a period of three years following the termination of
his employment with Federated.
JAMES F. GETZ. Pursuant to a December 22, 1993 agreement, Federated is
obligated to provide Mr. Getz with an annual base salary and certain other
benefits. Upon the termination of his employment with Federated, Mr. Getz
agrees not to compete with Federated for a period of two years. In
addition, Mr. Getz agrees not to solicit or employ any of the employees of
Federated following the termination of his employment by Federated.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") consists of two
voting members, Federated's independent directors and one non-voting member, the
Chief Executive Officer. The Committee established the 1999 salaries and the
1998 and 1999 bonuses for the Chief Executive Officer and the executive officers
as well as their salaries for 2000.
Federated's compensation program for executive officers (including the
Chief Executive Officer) consists primarily of salary and annual incentive
bonuses based upon the individual's and Federated's performance. Compensation of
the Named Executive Officers is determined by the Committee with bonus awards
made under the Executive Annual Incentive Compensation Plan (the "Compensation
Plan") and the Stock Incentive Plan (the "Stock Plan"). Consistent with
compensation practices generally applied in the investment management business,
base salaries in many areas of responsibility are intended to form a competitive
percentage of total cash compensation with a significant portion of cash
compensation intended to be derived from payments made under the Compensation
Plan and the Stock Plan, provided, of course, that the performance goals are
met. As a general matter, the size of the pool available for such bonus payments
under the Compensation Plan is 7.5% of operating profits of Federated, which
consists of annual total revenues less distributions to minority interests and
less total expenses excluding amortization of intangibles and debt expenses.
In determining the appropriate level of compensation, the Committee
acknowledges that the investment management business is highly competitive and
that experienced professionals have significant career mobility. Its members
believe that the ability to attract, retain, and
provide appropriate incentives for highly qualified and experienced personnel is
critical to maintain Federated's competitive position in the investment
management business, and thereby provide for the future success of Federated.
The Committee believes that competitive levels of cash compensation, together
with equity and other incentive programs that are consistent with stockholder
interests, are necessary for the motivation and retention of Federated's
professional personnel. Federated's compensation programs are keyed to
achievement, as determined by the Committee, of short and long-term performance
goals.
The Committee believes that the opportunity to earn incentive compensation
motivates employees and ties their success to that of Federated. The payment of
incentive compensation in the form of stock of Federated further aligns the
interests of the management of Federated with those of its stockholders and
encourages them to focus on the long range growth and development of Federated.
The Committee is continuing to review this part of the compensation program. In
1999, nine of the senior executives chose to have a portion of their cash bonus
paid in options on Class B Common Stock of Federated. Options on 200,000 shares
of Class B Common Stock were awarded pursuant to this election at an exercise
price equal to the market price on the day the options were granted.
In determining the awards for 1999 the Committee considered a variety of
factors, including that Federated had achieved record revenues, earnings and
earnings per share for the year. The Committee considered the performance of
Federated's stock as compared to the indices set forth in the performance graph
included in this Information Statement and investment performance and financial
performance on a comparative basis with other public companies in the investment
management business. Marketing and sales effectiveness, customer service, and
technology use were also reviewed. The Committee took into consideration
Federated's historical compensation policies as well as industry compensation
trends. In its review of compensation, and, in particular, in determining the
amount and form of actual awards for the Chief Executive Officer and the other
executive officers, the Committee considered amounts paid to executive officers
in prior years as salary, bonus and other compensation, Federated's overall
performance during the prior periods, and its future objectives and challenges.
Although the Committee considered a number of different individual and corporate
performance factors, no specific weighting was given to any such factor.
The Committee has determined that Mr. J. Christopher Donahue will
participate in the Compensation Plan. Bonuses paid to Mr. J. Christopher
Donahue depend upon both his performance and that of Federated. The Committee
has also taken into consideration the responsibilities of operating as a
public company.
The Committee's goal is to maintain compensation programs which are
competitive within the investment management business. The Committee believes
that 1999 compensation levels disclosed in this Information Statement are
reasonable and appropriate in light of Federated's strong performance.
Executive officers also participate in a combined 401(k)/Profit Sharing
Plan and are entitled to receive medical, life and disability insurance coverage
and other corporate benefits available to most employees of Federated.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code, as amended, which limits the
deductibility by Federated of certain executive compensation for federal income
tax purposes, did not apply to Federated in the year ended December 31, 1999.
This is due to the application of the private to public exception, which limits
the application of Section 162(m) for the first three years following the
calendar year in which the IPO takes place, provided (i) the compensation plans
or arrangements in existence were disclosed in the prospectus accompanying the
IPO, (ii) the plan or arrangement does not expire or undergo material
modification or (iii) all stock allocated under the plan has been issued.
Federated will endeavor to comply with Section 162(m) in the future to take
advantage of potential tax benefits. However, Federated may make awards that do
not comply with Section 162(m) if it believes that the compensation awards
granted were commensurate with the performance of the covered employees and were
necessary and appropriate to meet competitive requirements even if such
compensation exceeded the deductibility limits of Section 162(m).
Respectfully Submitted:
Compensation Committee
Michael J. Farrell, Chairman
James L. Murdy
J. Christopher Donahue (non-voting)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, no director of Federated served as an executive officer of or
beneficially owned of record in excess of a 10% equity interest in (i) any
business or professional entity which made during 1999 or proposes to make
during the current year, payments to Federated for property or services in
excess of five percent of Federated's consolidated gross revenues for 1999 or in
excess of five percent of the other entity's consolidated gross revenues for the
last year, (ii) any business or professional entity to which Federated made
during 1999 or proposes to make during the current year payments for property or
services in excess of five percent of Federated's consolidated gross revenues
for 1999 or in excess of the other entity's consolidated gross revenues for its
last year, or (iii) any business or professional entity to which Federated was
indebted to at the end of 1999 in an aggregate amount in excess of five percent
of Federated's total consolidated assets at the end of 1999.
None of the directors of Federated was, during 1999: (i) a member of, or
counsel to, any law firm that Federated retained during 1999 or proposes to
retain during the current year, or (ii) a partner or executive officer of any
investment banking firm that performed services for Federated during 1999 or
that Federated proposes to have perform services for Federated during the
current year. Federated is not aware of any other relationships between any of
the directors nominated for election to the Board at the Annual Meeting that are
similar in nature and scope to those relationships discussed above.
COMPARATIVE STOCK PERFORMANCE
The following performance graph compares the total stockholder return of
an investment in Federated's Class B Common Stock to that of the Russell 1000
(R) Index and to a Peer Group Index* of publicly-traded asset management firms
for the period commencing with May 13, 1998, the date on which the Class B
Common Stock was first registered under Section 12 of the Securities Exchange
Act of 1934, as amended, and ending on December 31, 1999. The graph assumes that
the value of the investment in Federated's Class B Common Stock and each index
was $100 on May 13, 1998. Total return includes reinvestment of all dividends.
The Russell 1000 (R) Index measures the performance of the 1,000 largest U.S.
companies based on total market capitalization. Federated is included in this
index. Peer Group returns are weighted by the market capitalization of each firm
at the beginning of the fiscal quarter during which Federated completed its IPO.
The historical information set forth below is not necessarily indicative of
future performance. Federated does not make or endorse any predictions as to
future stock performance.
[OBJECT OMITTED]
5/13/98 12/31/98 12/31/99
------- -------- --------
Federated 100 107.02
95.8
Russell 1000(R) 100 109.38 130.67
Peer Group 100
75.57 78.72
* The following companies are included in the Peer Group:
Franklin Resources, Inc. Liberty Financial
Companies, Inc.
T. Rowe Price Associates, Inc. Phoenix Investment
Partners, Ltd.
Waddell & Reed Financial, Inc. The Pioneer Group, Inc.
Eaton Vance Corp. United Asset Management Corp.
The John Nuveen Company Affiliated Managers Group,
Inc.
SECURITY OWNERSHIP
CLASS A COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Federated's Class A Common Stock by each person who is known by
Federated to own beneficially more than 5% of the outstanding shares of Class A
Common Stock as of February 29, 2000.
SHARES
BENEFICIALLPERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
- ------------------------------------------- ----------------------
Voting Shares Irrevocable Trust
dated May 31, 6,000 100.0%
1989.................................................
c/o The Beechwood Company
Suite 718, Bigelow Corporate Center
Pittsburgh, Pennsylvania 15219
All of the outstanding shares of Class A Common Stock are held by the
Voting Trust, the trustees of which are John F. Donahue, his wife, and his son
J. Christopher Donahue for the benefit of members of the family of John F.
Donahue. Under the terms of the Voting Trust, the trustees are authorized to
vote shares held by the Voting Trust and the trustees additionally may sell,
transfer or otherwise dispose of shares owned by the Voting Trust. The entire
voting power of Federated is vested in the holder of the outstanding shares of
Class A Common Stock, except as otherwise provided in the Restated Articles of
Incorporation of Federated or as required by applicable law.
CLASS B COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Federated's Class B Common Stock as of February 29, 2000 by (i)
each of the Directors of Federated, (ii) Named Executive Officers of Federated,
and (iii) all Directors and Executive Officers of Federated as a group.
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED (1)(2) CLASS
- ----------------------------------------- ----------------- -----------------
John F. Donahue (3) 9,520,599 11.6%
J. Christopher Donahue (4) 4,709,138 5.8
John W. McGonigle (5) 4,581,816 5.6
Thomas R. Donahue (6) 2,161,693 2.6
Arthur L. Cherry (7) 871,265 1.1
.
James F. Getz (8) 694,600 *
John B. Fisher (9) 330,200 *
Eugene F. Maloney (10) 105,350 *
Michael J. Farrell (11) 23,500 *
James L. Murdy (12) 6,500 *
All Directors and Executive 23,616,861 28.9%
Officers as a Group (13 persons)
- -----------------------------------------
* Less than 1%.
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Unless stated
below, each such person has sole voting and investment power with respect
to all such shares.
(2) Does not include 420,474 shares of Class B Common Stock allocated to the
accounts of directors and executive officers who are participants in the
401(k)/ Profit Sharing Plan.
(3) Includes 4,633,505 shares owned by The Beechwood Company, a limited
partnership of which AWOL, Inc. is the general partner; Mr. John F. Donahue
is a shareholder of AWOL, Inc. (Mr. Donahue disclaims beneficial ownership
of approximately 2,316,752 shares owned by The Beechwood Company);
3,538,892 shares owned by Comax Partners Limited Partnership, a limited
partnership of which Comax, Inc. is general partner; Mr. Donahue is the
sole shareholder of Comax, Inc. (Mr. Donahue disclaims beneficial ownership
of substantially all of the 3,538,892 shares owned by Comax Partners
Limited Partnership); 559,049 shares owned Shamrock Properties, Inc., a
corporation of which Mr. Donahue is the sole shareholder; 438,000 shares
owned by Richmond Farms Realty Trust, a Pennsylvania business trust, of
which Mr. Donahue is a shareholder (Mr. Donahue disclaims beneficial
ownership of substantially all of the 438,000 shares owned by Richmond
Farms Realty Trust); and 341,649 shares owned by Bay Road Partners, a
Delaware limited partnership, of which AWOL, Inc. is the general partner.
(4) Includes 3,631,408 shares owned jointly with Mrs. J. Christopher
Donahue; includes 841,230 shares for which Mr. J. Christopher Donahue
has the power to sell, transfer or otherwise dispose under powers of
attorney; includes 173,860 shares for which Mr. J. Christopher Donahue
is a custodian of shares under the Uniform Trust for Minors Act (Mr. J.
Christopher Donahue disclaims beneficial ownership of all of the 173,860
shares for which he acts as custodian); and includes 62,640 stock
options which are currently exercisable.
(5) Includes 4,555,216 shares owned by Fairview Partners, a limited partnership
of which 713 Investment Corporation is the sole general partner; Mr.
McGonigle is a shareholder of 713 Investment Corporation; includes 13,631
stock options held by 713 Investment Company, L.P., an limited partnership
of which 713 Investment Corporation is the sole general partner; and
includes 12,969 stock options held in a trust for the benefit of certain
descendants.
(6) Includes 1,100,460 shares of which Mr. Thomas R. Donahue is a custodian
of shares under the Uniform Trust for Minors Act (Mr. Thomas R. Donahue
disclaims beneficial ownership of all of the 1,100,460 shares for which
he acts as custodian); 406,733 shares owned jointly by Mr. and Mrs.
Thomas R. Donahue; 610,700 shares owned by Maxfund Partners, L.P., a
limited partnership, of which Maxfund, Inc. is the general partner; Mr.
T. Donahue is a shareholder of Maxfund, Inc.; and includes 43,800 stock
options which are currently exercisable.
(7) Includes 49,287 shares owned by or on behalf of Mr. Cherry's children;
includes 65,304 shares owned jointly by Mr. and Mrs. Cherry; includes
13,081 shares owned by Mrs. Cherry; and includes 346,800 stock options
which are currently exercisable.
(8) Includes 70,600 stock options which are currently exercisable.
(9) Includes 85,000 shares held by Rosewood Limited Partnership, a limited
partnership of which Mr. Fisher is a general partner; and includes 30,200
stock options which are currently exercisable.
(10) Includes 25,000 shares owned by Mrs. Maloney.
(11) Includes 3,500 stock options which are currently exercisable.
(12) Includes 3,500 stock options which are currently exercisable.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, Federated's directors, its
executive officers and any persons beneficially owning more than ten percent of
Federated's Class A Common Stock and Class B Common Stock are required to report
their ownership of Federated's Class A and Class B Common Stock and any changes
in that ownership to the Commission and to the New York Stock Exchange. Specific
due dates for these reports have been established and Federated is required to
report in this Information Statement any failure to file by these dates. All of
these filing requirements were satisfied, except that The Beechwood Company, a
limited partnership, the control of which is attributed to Mr. John F. Donahue,
reported late the disposition of 1,000 shares of Federated Class B Common Stock
to one of its employees. In making these statements, Federated has relied on
copies of the reports that its officers, directors and beneficial owners of more
than ten percent of Federated's Class A or Class B Common Stock have filed with
the Commission.
INDEPENDENT AUDITORS
Ernst & Young LLP has served as the independent auditors for 1999 and
continues to serve as independent auditors for Federated. Representatives of
Ernst & Young will be present at the Annual Meeting, will have an opportunity to
make a statement if they desire to do so, and will be available to respond to
appropriate questions.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Rule 14a-8 of the Exchange Act contains the procedures for including
certain shareholder proposals in Federated's Information Statement and related
materials. Shareholders entitled to vote may submit a shareholder proposal
pursuant to Rule 14a-8 for the year 2001 Annual Meeting of Shareholders of
Federated prior to December 1, 2000. Except under certain limited circumstances,
the holders of Class B Common Stock are not entitled to vote their shares. Any
shareholder proposals should be addressed to the Secretary of Federated,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
[OBJECT OMITTED]
Federated
World-Class Investment Manager(TM)
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
www.FederatedInvestors.com
SKU# 1746-IS99
G02596-01 (3/99)
