UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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STILWELL FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1804048
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
114 WEST 11TH STREET, KANSAS CITY, MISSOURI 64105
(Address of principal executive offices)
816-983-1237
Registrant's Telephone Number Including Area Code
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class to Name of Each Exchange on Which
be Registered each Class is to be Registered
---------------------- ------------------------------
Common Stock, par value New York Stock Exchange
$.01 per share
Preferred Stock Purchase New York Stock Exchange
Rights
Securities to be registered pursuant to Section 12(g) of the Act: None
<PAGE>
EXPLANATORY NOTE
This Form 10 Registration Statement has been prepared on a prospective
basis on the assumption that, among other things, the Distribution (as
hereinafter described) and the related transactions contemplated to occur
prior to or contemporaneously with the Distribution will be consummated as
contemplated by the Information Statement which is a part of this
Registration Statement. There can be no assurance, however, that any or all
of such transactions will occur or will occur as so contemplated. Any
significant modifications or variations in the transactions contemplated will
be reflected in an amendment or supplement to this Registration Statement.
(Remainder of page intentionally left blank.)
<PAGE>
STILWELL FINANCIAL, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED HEREIN BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
1. BUSINESS
Summary; Introduction; Risk Factors; The Distribution;
Management's Discussion and Analysis of Financial Condition and Results of
Operations; Business; Index to Financial Statements
2. FINANCIAL INFORMATION
Summary - Summary Financial and Operating Data; Risk Factors;
Selected Financial and Operating Data; Financing; Management's Discussion and
Analysis of Financial Condition and Results of Operations; Index to Financial
Statements; Exhibit 27 - Financial Data Schedule
3. PROPERTIES
Business - Properties
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Distribution; Management; Principal Stockholders and Stock
Owned Beneficially by Stilwell's Directors and Certain Executive Officers
5. DIRECTORS AND EXECUTIVE OFFICERS
Summary; Risk Factors; The Distribution; Relationship Between
KCSI and Stilwell After the Distribution; Management; Description of Capital
Stock
6. EXECUTIVE COMPENSATION
Relationship Between KCSI and Stilwell After the Distribution;
Management; Principal Stockholders and Stock Owned Beneficially by Stilwell's
Directors and Certain Executive Officers
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Summary; Introduction; Risk Factors; The Distribution;
Relationship Between KCSI and Stilwell After the Distribution; Management;
Certain Relationships and Related Transactions; Index to Financial Statements
8. LEGAL PROCEEDINGS
Business - Legal Matters
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Summary; Introduction; Risk Factors; The Distribution;
Management; Principal Stockholders and Stock Owned Beneficially by Stilwell's
Directors and Certain Executive Officers; Description of Capital Stock
10. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable
11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Description of Capital Stock; Exhibit 3.1.1 - Form of Amended and
Restated Certificate of Incorporation of Stilwell Financial, Inc.; Exhibit
3.1.2 - Form of Certificate of Designation; Exhibit 3.2 - Form of Amended and
Restated Bylaws of Stilwell Financial, Inc.; Exhibit 4.2.1 - Form of
Stockholders' Rights Agreement
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Management; Description of Capital Stock; Exhibit 3.1.1 - Form of
Amended and Restated Certificate of Incorporation of Stilwell Financial,
Inc.; Exhibit 3.2 - Form of Amended and Restated Bylaws of Stilwell
Financial, Inc.; Exhibit 10.1 - Representative Director Indemnification
Agreement; Exhibit 10.2 - Representative Officer Indemnification Agreement
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Summary - Summary Financial and Operating Data; Capitalization;
Selected Financial and Operating Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations; Index to Financial
Statements
14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
15. FINANCIAL STATEMENTS AND EXHIBITS
(a) The Financial Statements filed as a part of this Registration
Statement on Form 10 are listed on the Index to Financial
Statements contained on page F-1 of the Information Statement
(Exhibit 99.1) forming a part hereof.
(b) Exhibits to Registration Statement on Form 10.
The exhibit list included in this Form 10 is incorporated by
reference in response to this Item 15(b).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
STILWELL FINANCIAL, INC.
August 18, 1999 By: /s/ Landon H. Rowland
---------------------------------------
Title: Chairman of the Board, President
and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1.1 Form of Delaware Certificate of Incorporation of Stilwell
Financial, Inc. as Amended and Restated on [ ], 1999 is
attached as Exhibit 3.1.1.
3.1.2 Form of Certificate of Designation dated [ ], 1999
establishing Series A Preferred Stock is attached as Exhibit
3.1.2.
3.2 Form of Bylaws of Stilwell Financial, Inc. as Amended and
Restated on [ ], 1999 is attached as Exhibit 3.2.
4.1@ Form of Certificate representing Stilwell Financial, Inc. Common
Stock is attached as Exhibit 4.1.
4.2.1 Form of Stockholders' Rights Agreement, dated as of [ ],
1999 between Stilwell Financial, Inc. and UMB Bank, N.A., as
Rights Agent, is attached as Exhibit 4.2.1.
4.2.2 Form of Certificate of Designation establishing Series A
Preferred Stock attached hereto as Exhibit 3.1.2 is hereby
incorporated by reference as Exhibit 4.2.2.
4.3 Article FOURTH, Article FIFTH, Article SIXTH, Article SEVENTH and
Article ELEVENTH of Exhibit 3.1.1 are hereby incorporated by
reference as Exhibit 4.3.
4.4 Article II, Article III, Section 2 and Article V of Exhibit 3.2
are hereby incorporated by reference as Exhibit 4.4.
10.1 Representative Director Indemnification Agreement is attached as
Exhibit 10.1 with schedule.
10.2 Representative Officer Indemnification Agreement is attached as
Exhibit 10.2 with schedule.
10.3 Intercompany Agreement, dated as of August 16, 1999 between
Kansas City Southern Industries, Inc. and Stilwell Financial,
Inc. is attached as Exhibit 10.3.
10.4 Tax Disaffiliation Agreement, dated as of August 16, 1999,
between Kansas City Southern Industries, Inc. and Stilwell
Financial, Inc. is attached as Exhibit 10.4.
10.5.1 The Registration Rights Agreement, dated October 24, 1995, by and
between DST Systems, Inc. and Kansas City Southern Industries,
Inc., which is attached as Exhibit 4.1 to the DST Systems, Inc.
Registration Statement on Form S-1 dated October 30, 1995, as
amended (Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 10.5.1. This Agreement has been assigned
pursuant to an Assignment, Consent and Acceptance Agreement,
dated August 10, 1999.
10.5.2 Amendment to Registration Rights Agreement, dated June 30, 1999,
by and between DST Systems, Inc. and Kansas City Southern
Industries, Inc. is attached as Exhibit 10.5.2. This Amendment
has been assigned pursuant to an Assignment, Consent and
Acceptance Agreement, dated August 10, 1999.
10.6.1 Form of Employment Agreement dated [________] by and between
Stilwell Financial, Inc. and Landon H. Rowland, is attached as
Exhibit 10.6.1.
10.6.2 Form of Employment Agreement dated [________] by and between
Stilwell Financial, Inc. and Joseph D. Monello, is attached as
Exhibit 10.6.2.
10.6.3 Form of Employment Agreement dated [________] by and between
Stilwell Financial, Inc. and Danny R. Carpenter, is attached as
Exhibit 10.6.3.
10.6.4 Form of Employment Agreement dated [________] by and between
Stilwell Financial, Inc. and Anthony P. McCarthy is attached as
Exhibit 10.6.4.
10.7.1+ Stock Purchase Agreement, dated April 13, 1984, by and among
Kansas City Southern Industries, Inc., Thomas H. Bailey, William
C. Mangus, Bernard E. Niedermeyer III, Michael Stolper, and Jack
R. Thompson is attached as Exhibit 10.7.1.
10.7.2+ Amendment to Stock Purchase Agreement, dated January 4, 1985, by
and among Kansas City Southern Industries, Inc., Thomas H.
Bailey, Bernard E. Niedermeyer III, Michael Stolper, and Jack R.
Thompson is attached as Exhibit 10.7.2.
10.7.3+ Second Amendment to Stock Purchase Agreement, dated March 18,
1988, by and among Kansas City Southern Industries, Inc., Thomas
H. Bailey, Michael Stolper, and Jack R. Thompson is attached as
Exhibit 10.7.3.
10.7.4+ Third Amendment to Stock Purchase Agreement, dated February 5,
1990, by and among Kansas City Southern Industries, Inc., Thomas
H. Bailey, Michael Stolper, and Jack R. Thompson is attached as
Exhibit 10.7.4.
10.7.5+ Fourth Amendment to Stock Purchase Agreement, dated January 1,
1991, by and among Kansas City Southern Industries, Inc., Thomas
H. Bailey, Michael Stolper, and Jack R. Thompson is attached as
Exhibit 10.7.5.
10.8 Stilwell Financial, Inc. 1998 Long Term Incentive Stock Plan as
Amended and Restated on August 11, 1999, is attached as Exhibit
10.8.
10.9 Stilwell Executive Plan dated August 11, 1999 is attached as
Exhibit 10.9.
21 List of Stilwell Financial, Inc. Subsidiaries is attached as
Exhibit 21.
27 Financial Data Schedule is attached as Exhibit 27.
99.1 Stilwell Financial, Inc. Information Statement dated August 18,
1999 is attached as Exhibit 99.1.
99.2@ Solvency and Surplus Opinion of Duff & Phelps, L.L.C. is attached
as Exhibit 99.2.
99.3 The consolidated financial statements and related notes, together
with the Report of Independent Accountants, of DST Systems, Inc.
(an approximate 32% owned affiliate of Stilwell accounted for
under the equity method) for the years ended December 31, 1996,
1997 and 1998, which are included in the DST Systems, Inc. Annual
Report on Form 10-K for the year ended December 31, 1998
(Commission File No. 1-14036) are incorporated by reference in
this Information Statement.
@ To be filed by amendment
+ This agreement and the amendments thereto have not been assigned to
Stilwell Financial, Inc. ("Stilwell"). Pursuant to the Intercompany
Agreement attached as Exhibit 10.3, Stilwell is obligated to Kansas City
Southern Industries, Inc. ("KCSI") in the same manner that KCSI is obligated
under this agreement and Stilwell has the right to any benefits and assets
received by KCSI under such agreement.
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STILWELL FINANCIAL, INC.
The undersigned, Stilwell Financial, Inc., a Delaware corporation (the
"Corporation"), for the purpose of amending and restating the Certificate of
Incorporation of the Corporation originally filed January 23, 1998, in
accordance with the General Corporation Law of Delaware ("Delaware
Corporation Law"), does hereby make and execute this Amended and Restated
Certificate of Incorporation and does hereby certify that it was duly adopted
in accordance with Sections 242 and 245 of the Delaware Corporation Law.
FIRST. The name of the Corporation is Stilwell Financial, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the Delaware Corporation Law.
FOURTH. The total number of shares of stock which the Corporation has
authority to issue is 1,010,000,000 shares, divided into classes and with par
values as follows:
Number of Shares Par Value
Class in Class Per Share
---------------- ---------
Common Stock 1,000,000,000 $.01
Preferred Stock 10,000,000 $1.00
A. The powers, preferences and rights, and the qualifications,
limitations and restrictions thereof, of the shares of Common Stock are as
follows:
1. VOTING RIGHTS. At all elections of directors of the
Corporation and for the purposes of all other matters upon which stockholders
are entitled to vote, the holders of the Common Stock shall be entitled to
vote on the basis of one vote for each share held.
B. The Board of Directors is hereby authorized, subject to any
limitations prescribed by law, to provide for the issuance from time to time
of shares of Preferred Stock in one or more series, and by filing a
certificate pursuant to the Delaware Corporation Law (a "Certificate of
Designation"), to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof, including without
limitation the dividend rights, dividend rate, conversion rights, voting
rights and the liquidation preferences of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series and the designation thereof, or any of them.
The number of shares of any series subsequent to the issuance of shares of
that series may be increased or decreased (but not below the number of shares
of such series then outstanding) pursuant to a resolution adopted by a
majority of the entire Board of Directors (the "Whole Board"), without the
vote of the holders of the Common Stock or the holders of the Preferred
Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Certificate of Designation. In case
the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
FIFTH. The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by a
Board of Directors consisting of not less than three (3) nor more than
eighteen (18) persons. The exact number of directors within the minimum and
maximum limitations specified in the preceding sentence shall be fixed
exclusively from time to time by the Board of Directors pursuant to a
resolution adopted by a majority of the Whole Board. The directors, other
than those who may be elected by the holders of any class or series of
Preferred Stock, shall be divided into three classes as nearly equal in
number as possible, with the term of office of the first class to expire at
the conclusion of the 2000 annual meeting of stockholders, the term of office
of the second class to expire at the conclusion of the 2001 annual meeting of
stockholders and the term of office of the third class to expire at the
conclusion of the 2002 annual meeting of stockholders. At each annual meeting
of stockholders, successors to directors of the class whose terms then expire
shall be elected to hold office for a term expiring at the third succeeding
annual meeting of stockholders. Each director shall hold office until his or
her successor shall have been duly elected and qualified. If the number of
directors is changed, any increase or decrease shall be so apportioned among
the classes as to make all classes as nearly equal in number as possible.
B. Subject to the rights of any holder of any class or series of
Preferred Stock then outstanding, any vacancy on the Board of Directors
(whether because of death, resignation, retirement, removal, an increase in
the number of directors, or any other cause) shall be filled exclusively by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and any director so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of
office of the class to which he or she has been elected expires, and until
his or her successor is duly elected and shall qualify, or until his or her
earlier resignation or removal. No decrease in the number of directors shall
shorten the term of any incumbent director.
C. Subject to the rights of holders of any class or series of
Preferred Stock then outstanding, any director, or the Whole Board, may be
removed from office by the stockholders only for cause and such removal shall
require the affirmative vote of the majority of the then-outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"); PROVIDED, HOWEVER, that on and
after the day following the Trigger Date (as hereinafter defined in this
Article FIFTH, Section D.2), a director may be removed from office for cause
only by the affirmative vote of the holders of at least seventy percent (70%)
of the Voting Stock.
D. For purposes of this Article FIFTH, and Articles SIXTH, SEVENTH,
ELEVENTH and TWELFTH hereof:
1. "KCSI" shall mean Kansas City Southern Industries, Inc., a
Delaware corporation.
2. "Trigger Date" shall mean the first date on which any
Person becomes an Interested Stockholder (as hereinafter defined in this
Article FIFTH, Section D.4).
3. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, a limited liability company, a limited
liability partnership, an association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or similar company, any
other entity, or syndicate or any group formed for the purpose of acquiring,
holding or disposing of securities.
4. "Interested Stockholder" shall mean any Person (other than
the Corporation, any Holding Company (as hereinafter defined in this Article
FIFTH, Section D.9) or Subsidiary (as hereinafter defined in this Article
FIFTH, Section D.8) thereof or KCSI (as defined in this Article FIFTH,
Section D.1), but KCSI shall be so excluded only until the distribution by
KCSI of the shares of Common Stock of the Corporation held by KCSI to KCSI's
holders of record of common stock) who or which:
(a) is the Beneficial Owner (as hereinafter defined in
this Article FIFTH, Section D.5), directly or indirectly, of more than
twenty percent (20%) of the voting power of the outstanding Voting
Stock; or
(b) is an Affiliate (as hereinafter defined in this
Article FIFTH Section D.7) of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
Beneficial Owner, directly or indirectly, of twenty (20%) or more of
the voting power of the then-outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned
by any Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933.
A Person shall not be deemed an Interested Stockholder if such
Person would become an Interested Stockholder solely as a result of a
reduction of the number of shares of Common Stock of the Corporation
outstanding, including repurchases of outstanding shares of Common Stock of
the Corporation by the Corporation, which reduction increases the percentage
of outstanding shares of Common Stock of the Corporation of which such Person
is the Beneficial Owner, until such Person shall thereafter become the
Beneficial Owner of any additional shares of Common Stock.
5. A Person shall be a "Beneficial Owner" of any Voting Stock:
(a) which such Person or any of its Affiliates or
Associates (as hereinafter defined in this Article FIFTH, Section
D.7) beneficially owns, directly or indirectly within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on
July 15, 1999; or
(b) which such Person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (ii) the right to vote pursuant to any agreement, arrangement or
understanding (but neither such Person nor any such Affiliate or
Associate shall be deemed to be the beneficial owner of any shares of
Voting Stock solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public solicitation
of proxies for such meeting, and with respect to which shares neither
such Person nor any such Affiliate or Associate is otherwise deemed
the Beneficial Owner); or
(c) which is beneficially owned, directly or indirectly
within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as in effect on July 15, 1999, by any other Person with which
such Person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purposes of acquiring, holding,
voting (other than solely by reason of a revocable proxy as described
in Subparagraph (b) of this Paragraph 5) or in disposing of any shares
of Voting Stock; PROVIDED, HOWEVER, that (1) no director or officer
of the Corporation (or any Affiliate of any such director or officer)
shall, solely by reason of any or all of such directors or officers
acting in their capacities as such, be deemed, for any purposes
hereof, to own beneficially any Common Stock beneficially owned by any
other such director or officer (or any Affiliate thereof), and (2)
neither any employee stock ownership, retirement or similar plan of
the Corporation or any Subsidiary of the Corporation nor any trustee
with respect thereto (or any Affiliate of such trustee) shall, solely
by reason of such capacity of such trustee, be deemed, for any
purposes hereof, to own beneficially any Common Stock held under any
such plan.
6. For purposes of computing the percentage of beneficial
ownership of Common Stock of a Person, the outstanding Common Stock shall
include shares deemed owned by such Person through application of Paragraph 5
of Section D of this Article FIFTH but shall not include any other Common
Stock which may be issuable by the Corporation pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise. For
all other purposes, the outstanding Common Stock shall include only Common
Stock then outstanding and shall not include any Common Stock which may be
issuable by the Corporation pursuant to any agreement, or upon the exercise
of conversion rights, warrants or options, or otherwise.
7. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on July
15, 1999.
8. "Subsidiary" means any corporation or other entity of which
a majority of any class of Equity Security (as that term is defined in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on July
15, 1999) is owned, directly or indirectly, by the Corporation; PROVIDED,
HOWEVER, that for the purposes of the definition of Interested Stockholder
set forth in Paragraph 4 of Section D of this Article FIFTH, the term
"Subsidiary" shall mean only a corporation or other entity of which a
majority of each class of Equity Security is owned, directly or indirectly,
by the Corporation.
9. "Holding Company" shall mean any Person that directly or
indirectly owns eighty percent (80%) or more of the Corporation's Voting
Stock.
E. Special meetings of stockholders of the Corporation may be called
only by the Chief Executive Officer of the Corporation and shall be called by
the Chief Executive Officer at the request in writing by the Board of
Directors pursuant to a resolution approved by a majority of the Whole Board,
upon not less than ten (10) nor more than sixty (60) days' written notice.
Such notice shall state the purpose or purposes of the proposed meeting and
the business transacted at any special meeting shall be limited to the
purpose or purposes stated in the notice.
F. Stockholder nominations for the election of directors and
business to be brought by stockholders of the Corporation shall be given or
brought, as the case may be, only in the manner provided in the Bylaws of the
Corporation.
SIXTH. The Board of Directors, pursuant to a resolution approved by a
majority of the Whole Board, may adopt, amend or repeal the Bylaws of the
Corporation. The stockholders shall also have the power to adopt, amend or
repeal the Bylaws of the Corporation; PROVIDED, HOWEVER, that on and after
the day following the Trigger Date, the affirmative vote of the holders of at
least seventy percent (70%) of the Voting Stock shall be required to adopt,
amend or repeal any provisions of the Bylaws of the Corporation.
SEVENTH.
A. Except as otherwise expressly provided in this Section, the
affirmative vote of the holders of at least seventy percent (70%) of the
Voting Stock, voting together as a single class, shall be required to
approve:
1. any merger or consolidation of the Corporation or any
Subsidiary with (i) any Interested Stockholder or (ii) any other corporation
or other entity (whether or not itself an Interested Stockholder) which is,
or after such merger or consolidation would be, an Affiliate of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder, or any Affiliate of any Interested Stockholder,
of any assets of the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined in this Article SEVENTH, Section C.2)
equaling or exceeding twenty-five percent (25%) of the Fair Market Value of
the combined assets immediately prior to such transfer of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange for
cash, securities or other property (or a combination thereof), of any
securities of the Corporation or any Subsidiary having an aggregate Fair
Market Value equaling or exceeding twenty-five percent (25%) of the Fair
Market Value of the combined assets immediately prior to such transfer of the
Corporation and its Subsidiaries except pursuant to an employee benefit plan
of the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Interested
Stockholder or any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse
stock split), recapitalization of the Corporation, merger or consolidation of
the Corporation with any of its Subsidiaries or other transaction (whether or
not with or into or otherwise involving an Interested Stockholder), which has
the effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible securities of
the Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested Stockholder (a
"Disproportionate Transaction"); PROVIDED, HOWEVER, that no such transaction
shall be deemed a Disproportionate Transaction if the increase in the
proportionate ownership of the Interested Stockholder or Affiliate as a
result of such transaction is no greater than the increase experienced by the
other stockholders generally.
The term "Business Combination" as used in this Article SEVENTH shall
mean any transaction which is referred to in any one or more of paragraphs 1
through 5 of Section A of this Article SEVENTH.
B. The provisions of Section A of this Article SEVENTH requiring the
affirmative vote of the holders of at least seventy percent (70%) of the
Voting Stock, voting together as a single class, shall not be applicable to
any particular Business Combination, and such Business Combination shall
require only such vote as is required by law or by this Amended and Restated
Certificate of Incorporation (other than Article SEVENTH Section A),
whichever is greater, if the Business Combination shall have been approved by
a majority of the Disinterested Directors (as hereinafter defined in this
Article SEVENTH, Section C.1).
C. For the purposes of this Article SEVENTH:
1. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and who was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any director who is
thereafter chosen to fill any vacancy on the Board of Directors or who is
elected and who, in either event, is unaffiliated with the Interested
Stockholder, and in connection with his or her initial assumption of office
is recommended for appointment or election by a majority of Disinterested
Directors then on the Board of Directors.
2. "Fair Market Value" means: (a) in the case of stock, the
highest closing sale price of the stock during the 30-day period immediately
preceding the date in question of a share of such stock admitted to trading
on a principal United States securities exchange registered under the
Securities Exchange Act of 1934, or if such stock is admitted to trading on
the National Association of Securities Dealers Automated Quotations
("NASDAQ") System or any system then in use, the Fair Market Value shall be
the highest closing sale price reported during the 30-day period preceding
the date in question, or, if no such quotations are available, the Fair
Market Value on the date in question of a share of such stock as determined
by the Board of Directors in good faith, in each case with respect to any
class of stock, appropriately adjusted for any dividend or distribution in
shares of such stock or any combination or reclassification of outstanding
shares of such stock into a smaller number of shares of such stock, and (b)
in the case of property other than cash or stock, the Fair Market Value of
such property on the date in question as determined by the Board of Directors
in good faith.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this Article
SEVENTH, on the basis of information known to them after reasonable inquiry,
(a) whether a Person is an Interested Stockholder; (b) the number of shares
of Voting Stock of which any Person is the Beneficial Owner; (c) whether a
Person is an Affiliate or Associate of another; and (d) whether the assets
which are the subject of any Business Combination have, or the consideration
to be received for the issuance or transfer of securities by the Corporation
or any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding twenty-five percent (25%) of the Fair Market
Value of the combined assets immediately prior to such transfer of the
Corporation and its Subsidiaries. A majority of the Disinterested Directors
shall have the further power to interpret all of the terms and provisions of
this Article SEVENTH.
E. Nothing contained in this Article SEVENTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
EIGHTH. The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article FIFTH, Section D.3 hereof) to
(A) make a tender or exchange offer for any Equity Security (as that term is
defined in Section 3(a)(11) of the Securities Exchange Act of 1934, as in
effect on July 15, 1999) of the Corporation, (B) merge or consolidate the
Corporation with another corporation or other entity or (C) purchase or
otherwise acquire all or substantially all of the properties and assets of
the Corporation, may in consideration with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
stockholders, give due consideration to all relevant factors, including
without limitation: (i) the social and economic effect of acceptance of such
offer on the Corporation's present and future customers and employees and
those of its Subsidiaries (as defined in Article FIFTH, Section D.8 hereof),
including the impact on investment companies advised or managed by any of the
Corporation's Subsidiaries, (ii) the social and economic effect on the
communities in which the Corporation and its Subsidiaries operate or are
located, (iii) the ability of the Corporation to fulfill its corporate
objectives and (iv) the consideration being offered in relation to the then
current market price for the Corporation's outstanding shares of capital
stock, in relation to the then current value of the Corporation in a freely
negotiated transaction and in relation to the Board of Directors' estimate of
the future value of the Corporation (including the unrealized value of its
properties and assets) as an independent going concern.
NINTH.
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he or she is or was a director, officer, employee,
agent, trustee, committee member or representative of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee, agent, trustee, committee member or representative of another
corporation or other entity, including, without limitation, any Subsidiary
(as defined in Article FIFTH, Section D.8 hereof), partnership, joint
venture, limited liability company, limited liability partnership,
unincorporated organization or similar company, trust or other enterprise,
including service with respect to any employee benefit plan (such person an
"Indemnitee"), whether the basis of such Proceeding is alleged action in an
official capacity or in any other capacity while serving as a director,
officer, employee, agent, trustee, committee member or representative, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by reason of such
Indemnitee acting in any such capacity; PROVIDED, HOWEVER, that with respect
to Proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such Indemnitee in connection with a Proceeding (or part
thereof) initiated by such Indemnitee only if such Proceeding (or part
thereof) is conducted as provided in Section C of this Article NINTH or if
such Proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this
Article NINTH shall include the right to have the Corporation pay the
expenses incurred in defending any such Proceeding in advance of its final
disposition (an "Advancement of Expenses"); PROVIDED, HOWEVER, that, if the
Delaware Corporation Law so requires, an Advancement of Expenses incurred by
an Indemnitee shall be made only upon delivery to the Corporation of an
undertaking (an "Undertaking"), by or on behalf of such Indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (a "Final
Adjudication"), that such Indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise. The rights to indemnification
and to the Advancement of Expenses conferred in Sections A and B of this
Article NINTH shall be contract rights and such rights shall continue as to
an Indemnitee who has ceased to be a director, officer, employee, agent,
trustee, committee member or representative and shall inure to the benefit of
the Indemnitee's heirs, executors and administrators.
C. If a claim under Section A this Article NINTH is not paid in full
by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, or a claim under Section B of this Article NINTH
for an Advancement of Expenses is not paid in full by the Corporation within
twenty (20) days after a written claim has been received by the Corporation,
the Indemnitee may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim. If successful in whole or in part
in any such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the
Indemnitee shall also be entitled to be paid the expense of prosecuting or
defending such suit, including any reasonable attorneys' fees. In any suit
by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the Corporation shall be entitled to recover such
expenses upon a Final Adjudication that the Indemnitee has not met any
applicable standard for indemnification set forth in the Delaware Corporation
Law as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment). Neither the failure of
the Corporation (including its Board of Directors, independent legal counsel
or its stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the Indemnitee is proper in the
circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the Indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
Indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the Indemnitee, be a defense to such suit. In any
suit brought by the Indemnitee to enforce a right to indemnification or to an
Advancement of Expenses hereunder, or by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the burden
of proving that the Indemnitee is not entitled to be indemnified, or to such
Advancement of Expenses, under this Article or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the Advancement of Expenses
conferred in this Article NINTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Amended and Restated Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or Disinterested Directors (as defined in
Article SEVENTH, Section C.1 hereof) or otherwise.
E. The Corporation may maintain insurance, at its own expense, to
protect itself and any director, officer, employee, agent, trustee, committee
member or representative of the Corporation or another corporation,
partnership, joint venture, limited liability company, limited liability
partnership, unincorporated organization or similar company, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under this Amended and Restated Certificate of
Incorporation or the Delaware Corporation Law.
TENTH. A director shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Corporation Law or
(iv) for any transaction for which the director derived an improper personal
benefit. If the Delaware Corporation Law is hereafter amended after July 15,
1999 to eliminate or limit further the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited
to the furthest extent permitted by the Delaware Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
ELEVENTH. Pursuant to Section 228 of the Delaware Corporation Law, any
action required or permitted to be taken by the stockholders of the
Corporation may be effected only at a duly called annual or special meeting
of such stockholders and may not be effected by a consent in writing by such
stockholders in lieu of a meeting. At any annual meeting or special meeting
of stockholders of the Corporation, only such business shall be conducted as
shall have been brought before such meeting in the manner provided in this
Amended and Restated Certificate of Incorporation and the Bylaws of the
Corporation.
TWELFTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed by the Delaware
Corporation Law and all rights conferred on the stockholders are granted
subject to this reservation; PROVIDED, HOWEVER, that on and after the day
following the Trigger Date, notwithstanding any other provision of this
Amended and Restated Certificate of Incorporation or any other provision of
law which might permit a lesser or no vote, but in addition to any vote of
the holders of any class or series of stock of the Corporation required by
law or by this Amended and Restated Certificate of Incorporation, the
affirmative vote of the holders of at least seventy percent (70%) of the
Voting Stock, voting together as a single class, shall be required to amend,
alter, change or repeal this Article TWELFTH and Articles FOURTH, FIFTH,
SIXTH, SEVENTH, EIGHTH, NINTH, TENTH and ELEVENTH.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed on behalf of the Corporation by its President
and attested by its Secretary as of August ___, 1999, and each of them does
hereby affirm and acknowledge that this Amended and Restated Certificate of
Incorporation is the act and deed of the Corporation and that the facts
stated herein are true.
STILWELL FINANCIAL, INC.
----------------------------------------
By:
Its: President
ATTEST:
- -----------------------------------
By:
Its: Secretary
FORM OF
CERTIFICATE OF DESIGNATION
OF
STILWELL FINANCIAL, INC.
SERIES A PREFERRED STOCK
Stilwell Financial, Inc., a corporation organized and existing under
and by virtue of The General and Business Corporation Law of Delaware, DOES
HEREBY CERTIFY:
That at a meeting of the Board of Directors of Stilwell Financial, Inc.
the following resolution was duly adopted creating [_______] shares of
Preferred Stock, designated as Series A Preferred Stock.
RESOLVED, that pursuant to the authority
granted to and vested in the Board of Directors of
this Corporation in accordance with the provisions of
the Articles of Incorporation, as amended, a series
of Series A Preferred Stock of the Corporation be,
and it hereby is created, and the designation and
amount thereof and the voting powers, preferences and
relative, participating, optional and other special
rights of such series, and the qualifications,
limitations or restrictions thereof (in addition to
the provisions set forth in the Articles of
Incorporation, as amended, of the Corporation, which
are applicable to the Preferred Stock of all classes
and series) are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "SERIES A PREFERRED STOCK" and the number of shares initially
constituting such series shall be [________].
2. DIVIDENDS AND DISTRIBUTIONS.
---------------------------
(A) Subject to any prior and superior rights of the holders of
any series of Preferred Stock ranking prior and superior to the shares of
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled prior to the payment of any
dividends on shares ranking junior to the Series A Preferred Stock to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
last day of March, June, September and December in each year (each such date
being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b)
subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock,
par value $0.001 per share, of the Corporation (the "COMMON STOCK") or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the Corporation shall at any
time after [_______________], 1999 (the "RIGHTS DECLARATION DATE") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event. Such adjustment
shall be made successively whenever such a dividend or change in the Common
Stock is consummated.
(B) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock); PROVIDED, that in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on
the Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued ant payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for
the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each 1/1,000th share of Series A Preferred Stock shall entitle the
holder thereof to one vote on all matters voted on at a meeting of the
stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, or (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of votes per share to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event. Such adjustment shall be made successively whenever such a
dividend or change in the Common Stock is consummated.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters voted on at a meeting
of stockholders of the Corporation.
(C) Except as set forth herein, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
4. CERTAIN RESTRICTIONS.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in SECTION
2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of capital stock of the Corporation ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of capital stock of the Corporation ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders
of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any capital stock of the Corporation ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock; provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any capital stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
capital stock of the Corporation unless the Corporation could, under
paragraph (A) of this SECTION 4, purchase or otherwise acquire such shares at
such time and in such manner.
5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
--------------------------------------
(A) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
on any shares of capital stock of the Corporation that rank junior (whether
as to dividends or upon liquidation, dissolution or winding up) to Series A
Preferred unless prior thereto the holders of Series A Preferred Shares shall
have received an amount equal to 1,000 times the aggregate amount to be
distributed per share to holders of the common stock.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A liquidation preference
and the liquidation preferences of all other series of preferred stock, if
any, which rank on a parity with the Series A Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
7. MERGER; CONSOLIDATION. ETC. In case the Corporation shall enter
into any merger, consolidation, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then, in each such
case, the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
8. NO REDEMPTION. The Series A Preferred Stock shall not be
redeemable.
9. RANKING. The Series A Preferred Stock shall rank on a parity with
all other series of the Corporation's Preferred Stock as to the payment of
dividends and other distribution of assets, unless the terms of any such
other series shall provide otherwise.
10. AMENDMENT. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner that would materially alter or
change the powers, preferences, rights, qualifications, limitations and
restrictions of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
11. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share, which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
IN WITNESS HEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President and attested by its Secretary
this [______] day of October, 1999.
STILWELL FINANCIAL, INC.
By:-------------------------------
President
ATTEST:
- ----------------------------
Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
Before me, the undersigned Notary Public in and for said county and
state, this day personally appeared __________________________, personally
known to me to be the President of STILWELL FINANCIAL, INC. and who executed
the foregoing instrument as President of Stilwell Financial, Inc., and being
first duly sworn, acknowledged reading in full and fully understanding the
foregoing, acknowledged the facts therein stated to be true and correct, and
who further acknowledged the execution of the same as the voluntary act of
the Corporation.
Witness my hand and seal this [______] day of October, 1999.
---------------------------------
Notary Public
My Commission Expires:
- ------------------------
FORM OF
AMENDED AND RESTATED BYLAWS
OF
STILWELL FINANCIAL, INC.
ARTICLE I
---------
OFFICES
-------
Section 1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be at such location within the
State of Delaware as shall from time to time be determined by the Board of
Directors.
Section 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
----------
STOCKHOLDERS
------------
Section 1. PLACE OF MEETINGS. All meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders, at which
they shall elect directors and transact such other business as may be
properly brought before the meeting, shall be held on the second Wednesday in
May of each year unless the Board of Directors shall designate some other
date therefor in April, May or June.
Section 3. ADVANCE NOTICE OF STOCKHOLDER PROPOSED BUSINESS. At an
annual meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be either (i) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (ii) otherwise properly brought before the meeting by or
at the direction of the Board of Directors or (iii) otherwise properly
brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 60 days nor
more than 90 days prior to the meeting; PROVIDED, HOWEVER, that in the event
that the meeting is designated by the Board of Directors to be held at a date
other than the second Wednesday in May and less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of capital stock of the Corporation
which are beneficially owned by such stockholder, and (iv) any material
interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 3 of Article II; PROVIDED, HOWEVER, that
nothing in this Section 3 of Article II shall be deemed to preclude
discussion by any stockholder of any business properly brought before the
annual meeting in accordance with such procedures.
The Chairman of the annual meeting shall, in his or her discretion,
determine whether or not business is properly brought before the meeting in
accordance with the provisions of Section 3.
Section 4. NOTICES OF ANNUAL MEETINGS. Written notice of each annual
meeting of stockholders stating the place, date and hour of the meeting shall
be given to each stockholder entitled to vote at such meeting not less than
10 nor more than 60 days before the date of the meeting. Notice of any
meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy, except that such notice
shall be required for any stockholder who shall attend such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. Except as otherwise required by law, notice of any meeting of
stockholders following an adjournment shall not be required to be given if
the time and place thereof are announced at the meeting which is adjourned.
Section 5. VOTING LISTS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make or cause to be prepared and
made through a transfer agent appointed by the Board of Directors, at least
10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, may be called only in accordance with the
Certificate of Incorporation of the Corporation.
Section 7. QUORUM. The holders of a majority of the stock issued and
outstanding which are entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute, by the Certificate of Incorporation or by these Bylaws. If,
however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes, the
Certificate of Incorporation or these Bylaws, a different vote is required in
which case such express provision shall govern and control the decision of
such question.
Section 8. VOTING OF SHARES. The holders of Common Stock shall have
such voting rights as are provided in the Certificate of Incorporation. The
holders of Preferred Stock shall have such voting rights as may be provided
in applicable Certificates of Designation.
Section 9. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize, either in writing or by electronic
transmission, another person or persons to act for him or her by proxy, but
no proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.
Section 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 5 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 11. CONDUCT OF MEETING. The Chairman of the Board, or, if none
or in his or her absence, the Chief Executive Officer, the President or one
of the Vice Presidents, shall call meetings of the stockholders to order and
act as Chairman of such meeting. In the absence of all these officers, the
Board of Directors may appoint a Chairman of the meeting. The Secretary of
the Corporation, or in his or her absence, an Assistant Secretary, if any,
or, in the absence of both the Secretary and Assistant Secretaries, any
person whom the Chairman shall appoint, shall act as secretary of the meeting
of the stockholders. The conduct of any meeting of the Stockholders shall be
governed by such rules, regulations and procedures as the Chairman of the
meeting, in his or her sole and exclusive discretion shall determine.
Section 12. INSPECTORS OF ELECTION. For each meeting of stockholders
there shall be appointed by the Board of Directors or by the Chairman of the
meeting three (3) inspectors of election. If any inspector shall fail or be
unable to serve as inspector or for any reason be unable to complete his or
her duties, an alternate inspector shall be appointed by the Board of
Directors or the Chairman of the meeting. The inspectors of election shall
examine and canvass the proxies and ballots, and make and submit a signed
report of the votes cast at the meeting, which shall be entered at large upon
the records.
Section 13. INSPECTORS' OATH. An inspector, before he enters into the
duties of his or her office, shall take and subscribe an oath substantially
in the following form before any officer authorized by law to administer
oaths:
"I do solemnly swear that I will execute the duties of an
inspector of the election now to be held with strict impartiality
and according to the best of my ability."
ARTICLE III
-----------
DIRECTORS
---------
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
which shall constitute the whole board shall be as set forth in the
Certificate of Incorporation. Directors need not be stockholders.
The Board of Directors shall be divided into three classes as nearly
equal in number as reasonably possible. At each annual meeting of
stockholders, successors to directors of the class whose terms then expire
shall be elected to hold office for a term expiring at the third succeeding
annual meeting of stockholders. If the number of directors is changed, any
newly created directorships or any decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal in
number as possible. Any additional director of any class elected to fill a
vacancy resulting from an increase in such class shall hold office for a term
that shall coincide with the remaining term of the class.
Section 2. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors at a meeting of stockholders. Nominations of persons for election
to the Board of Directors may be made at a meeting of stockholders, by the
Board of Directors or by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2. Nominations by stockholders shall be
made pursuant to timely written notice to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
60 days nor more than 90 days prior to the meeting; PROVIDED, HOWEVER, that
in the event that the meeting is designated by the Board of Directors to be
held at a date other than the second Wednesday in May and less than 60 days'
notice or prior public disclosure of the date of the meeting is given or made
to the stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 15th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to
the Secretary shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares
of capital stock of the Corporation which are beneficially owned by the
person and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended; and (b) as to the stockholder giving the notice (i) the name and
record address of the stockholder and (ii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the
stockholder. The Stockholder's Notice shall include a signed consent of each
such nominee to serve as a director of the Corporation, if elected. The
Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director. No person shall
be eligible for election as a director by the stockholders unless nominated
in accordance with the procedures set forth herein.
The Chairman of the meeting shall, in his or her discretion, determine
whether or not a nomination was made in accordance with the foregoing
procedure, and if the Chairman should determine that the nomination was not
made in accordance with the foregoing procedure, the Chairman shall so
declare to the stockholders present at the meeting and the defective
nomination shall be disregarded. In addition to the foregoing provisions of
this Bylaw, a stockholder shall also comply with all applicable requirements
of the Securities Exchange Act, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw.
Section 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created
directorships and vacancies which shall occur in the Board of Directors
because of death, resignation, disqualification, any increase in the number
of directors or any other cause, may be filled by a majority of the directors
then in office, though less than a quorum, pursuant to Section 223 of the
General Corporation Law of Delaware and the Corporation's Certificate of
Incorporation. Such directors may, by resolution, eliminate any vacant
directorship thereby reducing the size of the whole Board of Directors but in
no event shall the size of the Board of Directors be reduced to less than
three directors. No decrease in the Board of Directors shall shorten the
term of any incumbent directors.
Section 4. GENERAL POWERS. The business of the Corporation shall be
managed under the direction of its Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 5. MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State
of Delaware.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at the request of the Chairman of the Board, the
Executive Committee, the President, or any three members of the Board of
Directors. Notice of the time and place of such meeting shall be given to
each director by mail not less than three (3) days before the meeting or
personally, by courier, telephone, facsimile, telecopy or by other electronic
means to each director not less than twelve (12) hours before such meeting.
Section 8. QUORUM. At all meetings of the Board of Directors a
majority of the directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation or by these Bylaws. If a quorum shall not be present at any
meeting of the Board of Directors the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board, or in his or her absence, the President of the
Corporation, or in his or her absence, a Vice Chairman, or in the absence of
all of said officers, a Chairman chosen by a majority of the directors
present, shall preside. The Secretary of the Corporation, or in his or her
absence, an Assistant Secretary, if any, or, in the absence of both the
Secretary and Assistant Secretaries, any person whom the Chairman shall
appoint, shall act as secretary of the meeting.
Section 10. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 11. PARTICIPATION BY CONFERENCE TELEPHONE. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, members of
the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board or such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section shall constitute presence
in person at such meeting.
Section 12. COMPENSATION. The directors may receive reasonable fees to
be determined from time to time by the Board of Directors for services
actually performed in attending meetings and for other services actually
performed and the expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors. A
director who is, at the same time, an officer or employee of the Corporation
or an officer or employee of a subsidiary or affiliate more than 50% owned by
the Corporation, shall not be entitled to receive any compensation or fee for
service as a director or as a member of any committee of the Board of
Directors.
ARTICLE IV
----------
COMMITTEES
----------
Section 1. EXECUTIVE COMMITTEE; ORGANIZATION AND POWERS. There may be
an Executive Committee to consist of two or more directors. The Board of
Directors shall elect the members of the Executive Committee by vote of a
majority of the whole Board of Directors and one member of the Executive
Committee shall be elected as Chairman by the vote of a majority of the whole
Board of Directors. The members of the Executive Committee shall be elected
annually at the Board's organizational meeting or as soon thereafter as
possible.
When the Board of Directors is not in session, the Executive Committee
shall have and may exercise all the powers of the Board of Directors in the
management of the business and affairs of the Corporation as permitted by
Delaware law in all cases in which specific directions shall not have been
given by the Board of Directors including, but not limited to, the power to
declare dividends on the common and preferred stock of the Corporation, and
to authorize the seal of the Corporation to be affixed to all papers which
may require it. The members of the Executive Committee shall act only as a
Committee and individual members shall have no power as such.
The Executive Committee shall have full power to act as the Nominating
Committee, which, when acting as such, shall have the power and duty to make
recommendations to the Board of Directors as to suitable nominees for
election to the Board of Directors by the stockholders or by the remaining
members of the Board of Directors, to fill newly created directorships and to
fill any vacancies which shall occur.
When acting as the Nominating Committee, it shall have the power to
meet with and consider suggestions from such other members of the Board of
Directors, stockholders, members of management, consultants and other
persons, firms or corporations as they deem necessary or advisable in the
premises to assist them in making such recommendations.
Section 2. COMPENSATION COMMITTEE; ORGANIZATION AND POWERS. There
shall be a Compensation Committee to consist of two or more directors who are
not officers or employees of the Corporation, each of whom shall be a "non-
employee director" within the meaning ascribed thereto under Rule 16b-3
promulgated under the Securities Exchange Act of 1934 as amended from time to
time and interpreted by the Securities and Exchange Commission and an
"outside director" within the meaning ascribed thereto under 162(m) of the
Internal Revenue Code as amended from time to time and interpreted by the
Internal Revenue Service. The Board of Directors shall elect the members of
the Compensation Committee by vote of a majority of the whole Board of
Directors, and one member of the Compensation Committee shall be elected its
Chairman by the vote of a majority of the whole Board of Directors. The
members of the Compensation Committee shall be elected annually at the
Board's organizational meeting or as soon thereafter as possible.
The Compensation Committee shall have the power: to authorize and
determine all salaries for the officers and supervisory employees of the
Corporation; to administer the incentive compensation plans of the
Corporation in accordance with the powers and authority granted in such
plans; to determine any incentive allowances to be made to officers and staff
of the Corporation; to administer all stock option plans, stock purchase
plans and other equity ownership, compensation, retirement and benefit plans
of the Corporation; to approve the performance based compensation of
individuals pursuant to 162(m) of the Internal Revenue Code; and to authorize
and determine all other matters relating to the compensation or benefits of
the Corporation.
Section 3. AUDIT COMMITTEE; ORGANIZATION AND POWERS. There shall be an
Audit Committee to consist of three or more directors who are not officers or
employees of the Corporation. The Board of Directors shall elect the members
of the Audit Committee by vote of a majority of the whole Board of Directors
and one member of the Audit Committee shall be elected as Chairman by a vote
of a majority of the whole Board of Directors. The members of the Audit
Committee shall be appointed by the Board of Directors to serve staggered
three-year terms.
The Audit Committee shall have the power and the duty to meet with and
consider suggestions from members of management and of the Corporation's
internal audit staff, as well as with the Corporation's independent
accountants, concerning the financial operations of the Corporation. The
Audit Committee shall additionally have the power to review audited financial
statements of the Corporation and consider and recommend the employment of,
and approve the fee arrangement with, independent accountants for both audit
functions and for advisory and other consulting services.
Section 4. RULES, RECORDS AND REPORTS. Each Committee may make and
adopt such rules and regulations governing their proceedings as they may deem
proper and which are consistent with the statutes of the State of Delaware,
the Certificate of Incorporation and these Bylaws. Each Committee shall keep
a full and accurate record of all their acts and proceedings and report the
same from time to time to the Board of Directors.
Section 5. MEETINGS. Regular meetings of the Committees shall be held
at such times and at such places as from time to time may be fixed by the
Committees. Special meetings of the Committees may be held at such other
times as may in the judgment of the Chairman or, he being absent, in the
judgment of a Committee member, be necessary. Notice of regular meetings need
not be given. Notice of special meetings shall be given to each member by
mail not less than three (3) days before the meeting or personally, by
courier, telephone, facsimile, telecopy or by other electronic means to each
member not less than twelve (12) hours before the meeting, unless the
Chairman of the Committee, or a member acting in that capacity in his or her
absence, shall deem a shorter notice expedient.
Section 6. QUORUM. A majority of members of a Committee shall
constitute a quorum for the transaction of business and the act of a majority
of those present shall be the act of the Committee.
Section 7. SUBCOMMITTEES. A Committee may appoint such subcommittees
as it shall deem necessary.
Section 8. VACANCIES. Any vacancy in a Committee shall be filled by a
majority of the whole Board of Directors.
Section 9. SUBSTITUTE MEMBERS. Whenever at any time a member of any
Committee shall be absent from a meeting of that Committee and it shall be
necessary in order to constitute a quorum or, for any other reason, it may be
deemed expedient or desirable, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously designate a director (subject to the
eligibility requirements set forth in Sections 2 and 3 of this Article IV) to
serve and act in his or her stead; and in the event that the absence of a
Committee member shall be prolonged, such substitute member may, subject to
the approval of the Committee, continue to act for the term of its duration.
A director so designated shall rank as a duly qualified member of the
Committee during incumbency, and shall be entitled to participate in its
deliberations with the same force and effect as if elected in the manner
herein elsewhere provided.
Section 10. COMPENSATION. Subject to the provisions of Section 13 of
Article III of these Bylaws, each member of any Committee may receive a
reasonable fee to be fixed by the Board of Directors for services actually
performed in attending meetings, and for other services actually performed,
and shall receive expenses of attendance, if any actually incurred by him for
attendance at any meeting of the Committee.
ARTICLE V
---------
NOTICES
-------
Section 1. WRITTEN NOTICE. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, notice is
required to be given to any director or stockholder, such notice shall be in
writing and shall be given in person or by mail to such director or
stockholder, except that notice to directors may also be given personally by
courier, telephone, facsimile, telecopy or by other electronic means. If
mailed, notice shall be addressed to such director or stockholder at his or
her address as it appears on the records of the Corporation, with postage
thereon prepaid, and shall be deemed to be given at the time when the same
shall be deposited in the United States mail.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
----------
OFFICERS
--------
Section 1. NUMBER. The officers of the Corporation shall be chosen by
the Board of Directors and shall include a President, a Treasurer and a
Secretary. The Board of Directors, in its discretion, may also choose a
Chairman of the Board and one or more Vice Chairmen of the Board from among
their members, one or more Executive Vice Presidents and one or more
additional Vice Presidents, and one or more Assistant Treasurers and
Assistant Secretaries. The Board of Directors may also elect a Chief
Executive Officer, a Chief Financial Officer and a Chief Operating Officer.
The Board of Directors may appoint such other officers and agents as it shall
deem desirable who shall hold their offices for such terms and shall exercise
such powers and responsibilities and perform such duties as shall be
specified and from time to time modified or changed by the Board of
Directors. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide. The officers
of the Corporation need not be stockholders of the Corporation.
Section 2. ELECTION AND TERM OF OFFICE. The Board of Directors at its
first meeting after each annual meeting of stockholders shall elect the
officers of the Corporation. The officers of the Corporation shall hold
office until their successors shall have been duly elected or appointed and
qualified, or until they shall become disabled, die, retire, resign or be
removed.
Section 3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed, with or without cause, at any time by the
affirmative vote of a majority of the Board of Directors present at any
meeting or by any committee or superior officer upon whom such power of
removal may be conferred by the Board of Directors. All officers and
employees not appointed by the Board of Directors shall hold their offices at
the discretion of the Executive Committee or of the officer appointing them.
Section 4. VACANCIES. The Board of Directors shall, as soon as
practicable, fill any vacancy in the office of President. Any vacancy in any
other office may be filled temporarily by the Chairman of the Board, or
President. In case of temporary incapacity or absence of any of the
officers, the Chairman of the Board, or the President, may make an
appointment pro tem and confer on such appointee full power and authority to
act in place of any of said officers or appointees so temporarily
incapacitated or absent; but such appointment shall be subject to change by
the Board of Directors or by the Executive Committee at any regular or
special meeting.
Section 5. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Corporation. Such resignation shall take effect at the
date of the receipt of such notice, or at any later time specified therein
and, unless otherwise provided therein, the acceptance of such resignation
shall not be necessary to make it effective.
CHAIRMAN OF THE BOARD
Section 6. DUTIES. The Chairman of the Board, if one is elected,
shall preside, if present, at all meetings of the Board of Directors. The
Chairman of the Board shall also perform such other duties and he or she may
exercise such other powers as from time to time may be prescribed by these
Bylaws or by the Board of Directors. In his or her absence, the President
shall discharge the duties of the Chairman of the Board.
VICE CHAIRMEN OF THE BOARD
Section 7. DUTIES. The Vice Chairmen of the Board, if any, shall
perform such duties and may exercise such powers as from time to time may be
prescribed by the Board of Directors.
CHAIRMAN OF THE EXECUTIVE COMMITTEE
Section 8. DUTIES. The Chairman of the Executive Committee shall
preside at all meetings of the Executive Committee. In the absence of the
Chairman of the Executive Committee, his or her duties shall be discharged by
the President.
PRESIDENT
Section 9. GENERAL POWERS AND DUTIES. The President shall have the
general care, supervision and control of the Corporation's business and
operations. The President shall have such other powers and perform such
other duties as the Board of Directors may from time to time prescribe and
shall perform such other duties as are incidental to the office of President.
In the event there is no Chairman of the Board or in the absence or
incapacity of the Chairman of the Board, he shall preside at all meetings of
the Board of Directors and stockholders.
Section 10. APPOINTMENTS. Except as otherwise provided by statute, the
Certificate of Incorporation, or these Bylaws, the President may employ such
persons as he shall deem necessary for the proper management of the business
and property of the Corporation.
VICE PRESIDENTS
Section 11. POWERS AND DUTIES. The Vice Presidents shall have such
designations or titles and powers and perform such duties as shall from time
to time be conferred and prescribed by the Board of Directors, the Executive
Committee, the Chairman of the Board or the President.
SECRETARY
Section 12. DUTIES. The Secretary, or, in his or her absence, an
Assistant Secretary, shall attend all meetings of the stockholders, of the
Board of Directors and of the Committees of the Board of Directors.
Section 13. NOTICE OF MEETINGS. The Secretary, or any Assistant
Secretary, shall give due notice of all meetings of the stockholders and of
the Board of Directors and of the Executive Committee, where such notice is
required by law, by the Certificate of Incorporation, by these Bylaws, by the
Board of Directors or by the Executive Committee.
Section 14. CUSTODY OF SEAL. The Secretary shall be custodian of the
seal of the Corporation, of its records, and of such papers and documents as
may be committed to his or her care by the Board of Directors or of the
Executive Committee. He shall have power to affix the seal of the
Corporation to instruments to which the same is authorized to be affixed by
the Board of Directors or by the Executive Committee, and shall have power to
attest the same. He shall perform such other duties as may be assigned to
him by the Chairman of the Board (if any), the President, the Board of
Directors or the Executive Committee, or as may be prescribed in the rules or
regulations to be adopted by the Board of Directors.
Section 15. DUTIES OF ASSISTANT SECRETARIES. The Assistant Secretary
or Secretaries shall perform the duties of the Secretary in his or her
absence and such duties as may be assigned to him or them by the Board of
Directors, the Executive Committee, the Chairman of the Board, or the
President, or as may be prescribed in the rules or regulations to be adopted
by the Board of Directors or the Executive Committee; and, he or they shall
have the power to affix the corporate seal to instruments and to attest the
same and to sign the certificates of stock of the Corporation.
OTHER OFFICERS
Section 16. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the President or the Board of
Directors. The Board of Directors may delegate to any officer of the
Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
Section 17. OTHER POSITIONS. The President may authorize the use of
titles, including the titles of chairman, president and vice president, by
individuals who hold management positions with the business groups, divisions
or other operational units of the Corporation, but who are not and shall not
be deemed officers of the Corporation. Individuals in such positions shall
hold such titles at the discretion of the appointing officer, who shall be
the President or any officer to whom the President delegates such appointing
authority, and shall have such powers and perform such duties as such
appointing officer may from time to time determine.
ARTICLE VII
-----------
CERTIFICATES OF STOCK AND THEIR TRANSFER
----------------------------------------
Section 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate, in such form as the
Board of Directors shall prescribe, signed in the name of the Corporation by
(i) the Chairman of the Board, President or a Vice President and (ii) by the
Chief Financial Officer or an Assistant Chief Financial Officer or the
Secretary or an Assistant Secretary of the Corporation, certifying the number
and class of shares owned by him or her in the Corporation. Any of or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent, transfer clerk or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were
such officer, transfer agent or registrar at the date of issue.
Section 2. RECORDS OF CERTIFICATES. A record shall be kept of the
name of the person, firm or corporation of record holding the stock
represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer
shall be cancelled and no new certificate or certificates shall be issued in
exchange for any existing certificate until such existing certificate shall
have been so cancelled, except in cases provided for in Section 3 of this
Article VII.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board
of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond in such sum as it may direct and/or do such other act as
the Board of Directors shall determine is required as indemnity to protect
against any claim that may be made against the Corporation with respect to
the certificate alleged to have been lost, stolen or destroyed.
Section 4. TRANSFERS OF STOCK. Transfer of the capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof, or by his or her attorney thereunto authorized by a power of
attorney duly executed and filed with the transfer agent of the Corporation,
and on surrender for cancellation of the certificate or certificates for such
shares. A person in whose name shares of stock stand on the books of the
Corporation and no one else shall be deemed the owner thereof as regards the
Corporation.
Section 5. TRANSFER AND REGISTRY AGENTS. The Corporation may maintain
a transfer office or agency where its stock shall be directly transferable
and a registry office, which may be identical with the transfer or agency,
where its stock shall be registered; and the Corporation may, from time to
time, maintain one or more other transfer offices or agencies, and registry
offices; and the Board of Directors may from time to time, define the duties
of such transfer agents and registrars and make such rules and regulations as
it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the capital
stock of the Corporation.
Section 6. CLOSING OF TRANSFER BOOKS; RECORD DATE. The Board of
Directors may close the stock transfer books of the Corporation for a period
of not more than sixty (60) days nor less than ten (10) days preceding the
date of any meeting of stockholders or the date for payment of any dividend
or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect. In lieu of
closing the stock transfer books as aforesaid, the Board of Directors may fix
in advance a date, not more than sixty (60) days nor less than ten (10) days
preceding the date of any meeting of stockholders, or the date for the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into
effect, as a record date for the determination of the stockholders entitled
to notice of, and to vote at, any such meeting, and any adjournment thereof,
or entitled to receive payment of any such dividend, or to any such allotment
of rights, or to exercise the rights in respect of any such change,
conversion or exchange of capital stock and, in such case, such stockholders
and only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting and
any adjournment thereof, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights, as the case may
be notwithstanding any transfer of any stock on the books of the Corporation
after any such record date fixed as aforesaid.
Section 7. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
------------
AMENDMENTS AND GENERAL PROVISIONS
---------------------------------
Section 1. AMENDMENTS. These Bylaws may only be altered, amended or
repealed in accordance with the Corporation's Certificate of Incorporation.
Section 2. PROXIES. Unless otherwise provided by resolution of the
Board of Directors, the President or any Vice President, from time to time in
the name and on behalf of the Corporation may: (i) himself cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise
in any other corporation any of whose stock or other securities may be held
by the Corporation, at meetings of the holders of the stock or other
securities of such other corporations or consent in writing to any action by
such other corporation; (ii) appoint an attorney or attorneys, agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the votes which the Corporation may be entitled to cast as a stockholder
or otherwise in any other corporation any of whose stock or other securities
may be held by the Corporation, at meetings of the holders of the stock or
other securities of such other corporations or to consent in writing to any
action by such other corporation, may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent and
may execute or cause to be executed in the name or on behalf of the
Corporation and under its corporate seal all such written proxies or other
instruments as may be necessary or proper to evidence the appointment of such
attorneys and agents.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall end
on the last day of December in each year.
FORM OF
---------------------------------------------------------------------
STILWELL FINANCIAL, INC
AND
UMB BANK, N.A.,
RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF
OCTOBER [____], 1999
----------------------------------------------------------------------
<PAGE>
STILWELL FINANCIAL, INC. RIGHTS AGREEMENT
TABLE OF CONTENTS
Section 1. Certain Definitions............................ ............... 1
Section 2. Appointment of a Rights Agent................... ...............4
Section 3. Certificates and Transfer of Agents.............. ..............4
Section 4. Form of Rights Certificates....................... .............7
Section 5. Countersignature and Registration.................. ............8
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates........................................ ...........8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. .9
Section 8. Cancellation and Destruction of Rights Certificates............11
Section 9. Reservation and Availability of Shares of Capital Stock........11
Section 10. Preferred Stock Record Date....................................12
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights...............................................13
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.....20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power..........................................................20
Section 14. Fractional Rights and Fractional Shares........................23
Section 15. Rights of Action...............................................24
Section 16. Agreement of Right Holders.....................................24
Section 17. Rights Certificate Holder Not Deemed a Stockholder.............25
Section 18. Concerning the Rights Agent....................................25
Section 19. Merger or Consolidation or Change of Name of Rights Agent......26
Section 20. Duties of Rights Agent.........................................26
Section 21. Change of Rights Agent.........................................28
Section 22. Issuance of New Rights Certificates............................29
Section 23. Redemption and Termination.....................................29
Section 24. Notice of Certain Events.......................................30
Section 25. Notices........................................................31
Section 26. Supplements and Amendments.....................................32
Section 27. Successors.....................................................32
Section 28. Determination and Actions by the Board of Directors, etc. .....32
Section 29. Benefits of this Agreement.....................................33
Section 30. Severability...................................................33
Section 31. Governing Law..................................................33
Section 32. Counterparts...................................................33
Section 33. Descriptive Headings...........................................34
Exhibit A Form of Certificate of Designation
Exhibit B Form of Rights Certificate
Form of Assignment
Certificate
Notice
Form of Election to Purchase
Certificate
Notice
Exhibit C Summary of Rights to Purchase Preferred Stock
<PAGE>
RIGHTS AGREEMENT
----------------
This Agreement, dated as of October [_____], 1999, between STILWELL
FINANCIAL, INC., a Delaware corporation (the "COMPANY"), and UMB Bank, N.A.,
a national banking association organized and existing under the laws of the
United States of America, as rights agent (the "RIGHTS AGENT").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend of one Right (as defined herein) for each outstanding
share of the common stock (as defined herein), of the Company at the close of
business on [_____________], 1999 (the "RECORD DATE") and has authorized the
issuance of one Right (as such number may hereinafter be adjusted pursuant to
the provisions of SECTION 11 hereof) in respect of each share of Common Stock
of the Company issued (whether originally issued or delivered from the
Company's treasury) between the Record Date and the earlier of the
Distribution Date, the Expiration Date or the Final Expiration Date (as such
terms are hereinafter defined), each Right initially representing the right
to purchase, under certain circumstances, 1/1,000ths of a share of Preferred
Stock (as defined herein), upon the terms and subject to the conditions
hereinafter set forth (the "RIGHTS");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the Company and the Rights Agent
hereby agree as follows.
SECTION 1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
indicated.
(a) "ACQUIRING PERSON" shall mean any Person who, together with all
Affiliates or Associates of such Person, shall be the Beneficial Owner of a
Substantial Block, whether or not such Person continues to be the Beneficial
Owner of a Substantial Block, but shall not include: (i) the Company; (ii)
any Subsidiary of the Company; (iii) any employee benefit plan of the Company
or of any Subsidiary of the Company, or any Person organized, appointed or
established by the Company or by any Subsidiary of the Company for or
pursuant to the terms of any such plan; or (iv) a Person who, together with
all Affiliates and Associates of such Person, would become an Acquiring
Person solely as a result of a reduction of the number of shares of Common
Stock of the Company outstanding, including repurchases of outstanding shares
of Common Stock of the Company by the Company, which reduction increases the
percentage of outstanding shares of Common Stock of the Company beneficially
owned by such Person until such Person, Affiliate or Associate shall
thereafter become the Beneficial Owner of any additional shares of Common
Stock.
(b) "ADJUSTED NUMBER OF SHARES" shall have the meaning given the term
in SECTION 11(a)(iii) of this Agreement.
(c) "ADJUSTED PURCHASE PRICE" shall have the meaning given the term
in SECTION 11(a)(iii) of this Agreement.
(d) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the Exchange Act as in effect on the
date hereof.
(e) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be
deemed to "BENEFICIALLY OWN" any securities that:
(i) Such Person, or any of such Person's Affiliates or
Associates, beneficially owns, directly or indirectly (as determined
pursuant to Rule 13d-3 of the Exchange Act);
(ii) Such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has: (A) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing), or upon the exercise,
conversion or exchange of rights, warrants or options, or otherwise,
(PROVIDED, HOWEVER, that a Person shall not be deemed the "Beneficial
Owner" of, or to beneficially own, securities tendered pursuant to a
tender or exchange offer made by such Person or any such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange and securities issuable upon the exercise of
the Rights at any time prior to the occurrence of a Triggering Event);
or (B) the right to vote or dispose of pursuant to any agreement,
arrangement or understanding (whether or not in writing) PROVIDED,
HOWEVER, that a Person shall not be deemed the Beneficial Owner or to
beneficially own, any security under this clause (B) if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given in response to a public proxy
or consent solicitation made pursuant to, and in accordance with, the
Exchange Act and (2) is not also then reportable on Schedule 13D under
the Exchange Act (or any comparable or successor report); or
(iii) Are beneficially owned, directly or indirectly, by any
other Person with which such former Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in
clause (B) of subparagraph (ii) of this paragraph (c)) or disposing of
any securities of the Company;
PROVIDED, however, that nothing in this paragraph (e) shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting until
the expiration of forty days after the date of such acquisition.
(f) "CAPITAL STOCK EQUIVALENTS" shall have the meaning given the term
in SECTION 11(a)(iii) of this Agreement.
(g) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(h) "CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m., New
York, New York time, on such date, PROVIDED, HOWEVER, if such date is not a
Business Day it shall mean 5:00 p.m. on the next succeeding Business Day.
(i) "COMMON STOCK" when used with reference to the Company shall mean
the Common Stock, $0.01 par value, of the Company as adjusted from time to
time. "Common Stock" when used with reference to any Person other than the
Company shall mean the capital stock with the greatest voting power of such
Person or the equity securities or other equity interest having power to
control or direct the management of such Person.
(j) "CURRENT MARKET PRICE" of the Common Stock shall have the meaning
given the term in SECTION 11(d)(i) of this Agreement.
(k) "CURRENT MARKET PRICE" of the Preferred Stock shall have the
meaning given the term in SECTION 11(d)(ii) of this Agreement.
(l) "DISTRIBUTION DATE" shall have the meaning given the term in
SECTION 3(a) of this Agreement.
(m) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any successor thereto, and the rules and regulations promulgated
thereunder, all as the same shall be amended from time to time.
(n) "EXPIRATION DATE" shall have the meaning given the term in
SECTION 7(a) of this Agreement.
(o) "FINAL EXPIRATION DATE" shall have the meaning given the term in
SECTION 7(a) of this Agreement.
(p) "PERMITTED OFFER" shall mean a tender offer or exchange offer
that is for all outstanding Common Stock of the Company at a price and on
terms determined to be adequate prior to the purchase of shares under such
tender offer or exchange offer, by at least 70% of the members of the Board
of Directors of the Company, taking into account all factors that such
directors deem relevant including, without limitation, prices that could
reasonably be achieved if the Company or its assets were sold on an orderly
basis designed to realize maximum value and otherwise in the best interests
of the Company and its stockholders (other than the Person or any Affiliate
or Associate thereof for whose benefit the offer is being made).
(q) "PERSON" shall mean any individual, firm, corporation, limited
liability company, partnership, joint venture, association, trust or other
entity.
(r) "PREFERRED STOCK" shall mean the shares of Series A Preferred
Stock, par value $0.001 per share, of the Company having substantially the
rights, powers and preferences set forth in the Certificate of Designation
attached hereto as EXHIBIT A, and, to the extent that there are not a
sufficient number of shares of Series A Preferred Stock authorized to permit
the full exercise of the Rights, any other series of Preferred Stock of the
Company designated for such purpose containing terms substantially similar to
the terms of the Series A Preferred Stock.
(s) "PRINCIPAL PARTY" shall have the meaning given the term in
SECTION 13(b) of this Agreement.
(t) "PRORATION FACTOR" shall have the meaning given the term in
SECTION 11(a)(iii) of this Agreement.
(u) "RIGHTS CERTIFICATES" shall have the meaning given the term in
SECTION 3 of this Agreement.
(v) "SHARE ACQUISITION DATE" shall mean the close of business on the
tenth calendar day after the first date of public announcement (which, for
purposes of this definition, shall include, without limitation, a report
filed pursuant to SECTION 13(d) of the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
(w) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor thereto, and the rules, regulations, and forms
promulgated thereunder, all as the same shall be amended from time to time.
(x) A "SUBSIDIARY" of any Person shall mean any Person of whom a
majority of the voting power of the voting equity securities or voting
interests is owned or, directly or indirectly, by such former Person, or any
Person which is otherwise controlled, directly or indirectly, by such former
Person.
(y) "SUBSTANTIAL BLOCK" shall mean a number of shares of the Common
Stock of the Company that equals or exceeds 15 percent of the number of
shares of the Common Stock of the Company then outstanding.
(z) "TRADING DAYS" shall have the meaning given the term in SECTION
11(d)(i) of this Agreement.
(aa) "TRIGGERING EVENT" shall mean any event described in SECTION
11(a)(ii) or SECTION 13(a) of this Agreement.
SECTION 2. APPOINTMENT OF A RIGHTS AGENT.
The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with SECTION 3,
hereof shall prior to the Distribution Date also be the holders of the Common
Stock of the Company) in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company may from time
to time appoint such Co-Rights Agents as it may deem necessary or desirable.
SECTION 3. CERTIFICATES AND TRANSFER OF RIGHTS.
(a) COMMON STOCK OUTSTANDING ON THE RECORD DATE. Until the earlier
of (unless extended by the Board of Directors of the Company) (i) the Share
Acquisition Date or (ii) the close of business on the tenth calendar day (or
such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date
of the commencement of, or first public announcement of the intent of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Person organized, appointed or established
by the Company or any Subsidiary of the Company for or pursuant to the terms
of any such plan) to commence (which intention to commence remains in effect
for five business days after such announcement) a tender or exchange offer
if, upon consummation thereof, such Person would be an Acquiring Person
(including any such date that is after the date of this Agreement and prior
to the issuance of the Rights) (the earlier of the dates in subsections (i)
and (ii) hereof being herein referred to as the "Distribution Date"), the
Rights will be evidenced (subject to the provisions of paragraph (b) of this
SECTION 3) by the certificates for Common Stock of the Company (which
certificates of such Common Stock of the Company shall be deemed also to be
Rights Certificates), and not by separate Rights Certificates, and the right
to receive Rights Certificates will be transferable only in connection with
the transfer of such Common Stock (including a transfer to the Company). With
respect to certificates for the Common Stock of the Company outstanding as of
the Record Date, until the Distribution Date, the Rights will be evidenced by
such certificates for the Common Stock of the Company with or without a
Summary of Rights attached thereto and the registered holders of the Common
Stock of the Company shall also be the registered holders of the associated
Rights. Until the earlier of Distribution Date or Expiration Date, the
surrender or transfer (including a transfer to the Company) of any of the
certificates for the Common Stock of the Company outstanding on the Record
Date shall also constitute the transfer of the Rights associated with the
Common Stock of the Company represented by such certificate. The Company
will include with its mailing, by third-class, postage prepaid mail, of its
quarterly report to Stockholders, if any, a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit C (the "SUMMARY OF
RIGHTS"). If such mailing has not occurred by the expiration of 60 days
after the expiration of the quarter in which this Agreement becomes
effective, the Company will promptly mail the Summary of Rights separately,
by first-class, postage prepaid mail, to each record holder of the Common
Stock of the Company as of the close of business on the Record Date, at the
address of such holder shown on the records of the Company.
(b) DISTRIBUTION OF SEPARATE RIGHTS CERTIFICATES. As soon as
practicable after the Distribution Date, the Rights Agent will send, by
first-class, insured, postage prepaid mail, to each record holder of the
Common Stock of the Company as of the close of business on the Distribution
Date, at the address of such holder shown on the records of the Company, a
separate Rights Certificate in substantially the form of Exhibit B attached
hereto evidencing one Right for each share of the Common Stock of the Company
so held, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per Common Share has been made pursuant to
SECTION 11(p) hereof, at the time of distribution of the Rights Certificate,
the Company shall make the necessary and appropriate rounding adjustments (in
accordance with SECTION 14(a) hereof) so that Rights Certificates
representing only whole numbers of Rights are distributed and cash is paid in
lieu of any fractional Rights. As of and after the Distribution Date, the
Rights will be evidenced solely by such Rights Certificates.
(c) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AND RIGHTS. Rights
shall be issued in respect of all shares of Common Stock of the Company
issued (whether originally issued or delivered from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or
the Expiration Date. Certificates representing such shares of such Common
Stock shall be deemed to be impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between
Stilwell Financial, Inc. and UMB Bank, N.A. dated as of October
[_____], 1999, as may be amended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal
executive offices of Stilwell Financial, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
may be redeemed, may expire or may be evidenced by separate
certificates and will no longer be evidenced by this certificate.
Stilwell Financial, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the
date of mailing, without charge within five business days after
receipt of a written request therefor. Under certain
circumstances, Rights issued to, or which are or were
beneficially owned by, Acquiring Persons or their Affiliates or
Associates (as such terms are defined in the Rights Agreement)
and any subsequent holder of such Rights may become null and
void.
Until the earlier of the Distribution Date or the Expiration Date, the Rights
associated with the Common Stock of the Company represented by certificates
containing the foregoing legend shall be evidenced by such certificates
alone, and the surrender for transfer of any of such certificates shall also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
(d) PURCHASE OF COMMON STOCK BY THE COMPANY. In the event that the
Company purchases or acquires any of its Common Stock after the Record Date
but prior to the Distribution Date, the Company shall not be entitled to
exercise any Rights associated with the Common Stock so purchased or
acquired. Upon reissuance of such Common Stock by the Company the Rights
shall again attach to such Common Stock as set forth in SECTION 3(c) of this
Agreement.
(e) RESTRICTION ON TRANSFERS TO ACQUIRING PERSONS. Notwithstanding
anything in this Agreement to the contrary, no Right shall at any time be
transferable or transferred, in one transaction or in a series of related
transactions (including a tender offer or exchange offer), directly or
indirectly (i) to any Person who is an Acquiring Person, (ii) to any Person
in connection with a transaction or series of related transactions in which
such Person becomes an Acquiring Person, (iii) to any Person who, as a result
of such transfer, would beneficially own 15 percent or more of the Rights, or
(iv) to any Affiliate or Associate of a Person referred to in any one or more
of the foregoing clauses (i), (ii), or (iii). Any purported or attempted
transfer of a Right on or after the Record Date in violation of the foregoing
provisions (regardless whether such purported or attempted transfer shall be
recorded on any transfer ledger) shall be null and void as of the date of the
purported or attempted transfer without any further action on the part of the
Company or the Rights Agent, and any Right that has been the subject of any
such purported or attempted transfer shall for purposes of this Agreement and
the Right Certificate be deemed to be held beneficially by the Person who
attempted to make such purported or attempted transfer and, thereafter, shall
continue to be exercisable by such Person or, in the case of a transfer not
prohibited by this Agreement, such Person's transferee, for a like number of
1/l,000ths of a Preferred Share (or other securities, cash or other assets,
as the case may be) pursuant to this Agreement. The Company may require (or
cause the Rights Agent or any transfer agent of the Company to require) any
Person who submits a Right Certificate for transfer on the registry books or
to exercise the Rights represented thereby to establish to the satisfaction
of the Company, in its sole discretion, that such attempted transfer is not
in violation of the provisions of this SECTION 3(e). The Company and the
Rights Agent shall use all reasonable efforts to insure the provisions of
this SECTION 3(e) are complied with, but shall have no liability to any
holder of a Right Certificate (other than as specifically provided herein) or
any other Person as a result of a failure to so insure.
SECTION 4. FORM OF RIGHTS CERTIFICATES.
(a) FORM OF CERTIFICATE. The Rights Certificates (and the forms of
election to purchase shares and of assignment to be printed on the reverse
thereof) shall, subject to paragraph (a) of SECTION 3 of this Agreement, be
substantially the same as EXHIBIT B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Rights may from time to time be listed, or to conform to usages. Subject to
the provisions of SECTION 11 and SECTION 22 hereof, the Rights Certificates,
whenever issued, shall be dated as of the Record Date, and on their face
shall entitle the holders thereof to purchase such number of 1/l,000ths of a
share of Preferred Stock as shall be set forth therein at the price per
1/1,000ths of a share of Preferred Stock set forth therein (the "PURCHASE
PRICE"), but the number of such shares and the Purchase Price shall be
subject to adjustment as provided herein.
(b) Notwithstanding any other provision of this Agreement, any Rights
Certificate issued pursuant to SECTION 3 or SECTION 22 hereof that represent
Rights beneficially owned by (i) an Acquiring Person or any Associate or
Affiliate thereof, (ii) a transferee of an Acquiring Person (or of any
Associate or Affiliate of such Acquiring Person) who becomes a transferee
after the Acquiring Person became such, or (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate of such Acquiring Person) who
becomes a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
(whether or not in writing) regarding the transferred Rights or (B) a
transfer which the Board of Directors of the Company has determined is part
of a plan, arrangement or understanding that has a primary purpose or effect
avoidance of SECTION 7(e) hereof, any Rights Certificate issued at any time
to any nominee of such Acquiring Person, Associate or Affiliate, and any
Rights Certificate issued pursuant to SECTION 6 or SECTION 11 upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred
to in this sentence, shall contain the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or an Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and void in the circumstances specified in SECTION
7(e) of the Rights Agreement.
The provisions of SECTION 7(e) of the Rights Agreement shall be operative
whether or not the foregoing legend is contained on any Rights Certificate.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company in the manner provided in the By-Laws of the Company for certificates
for Common Stock of the Company. The Rights Certificates shall be
countersigned by the Rights Agent, either manually or by facsimile, and shall
not be valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any of the Rights Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent, issued and delivered
with the same force and effect as though the person who signed such Rights
Certificate had not ceased to be such officer of the Company; and any Rights
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date
of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of the Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights Certificates, the number of Rights evidenced
on its face by each of the Rights Certificates and the date of each of the
Rights Certificates, and such other information as the Rights Agent deems
appropriate in the circumstances.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
Subject to the provisions of SECTION 4(b), SECTION 7(e) and SECTION 14
hereof, at any time after the close of business on the Distribution Date and
at or prior to the close of business on the Expiration Date, any Rights
Certificates may be transferred, split up or combined with or exchanged for
any other Rights Certificates, entitling the registered holder to purchase a
like number of 1/1,000ths of a share of Preferred Stock (or following a
Triggering Event, Common Stock, other securities or other assets, as may be
necessary) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder (or former holder in the case of a transfer) to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate shall make such request in writing delivered
to the Rights Agent, and shall surrender the Rights Certificate or Rights
Certificates to be transferred, split up, combined or exchanged at the
principal office or offices of the Rights Agent designated for such purpose
of the Rights Agent. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any
such surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on
the reverse side of such Rights Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to SECTION
4(b), SECTION 7(e) and SECTION 14 hereof, countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Rights Certificate, and in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will make and deliver a new Rights Certificate of like
tenor to the Rights Agent for delivery to the registered owner in lieu of the
Rights Certificates so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Subject to SECTION 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in SECTION 9(c), SECTION 11(a)(iii) and SECTION
23(a) hereof) in whole or in part at any time after the Distribution Date
upon surrender of the Rights Certificate, with the form of election to
purchase on the reverse side thereof duly completed and executed, to the
Rights Agent at the principal office of the Rights Agent or offices
designated by the Rights Agent for such purposes, together with payment of
the aggregate Purchase Price for the total number of 1/1,000ths of a share of
Preferred Stock (or other securities or assets, as may be necessary and
authorized) as to which such surrendered Rights are exercised, at or prior to
the close of business on the earlier of: (i) [____________] (the "FINAL
EXPIRATION DATE"); (ii) the date on which the Rights are redeemed as provided
in SECTION 23; or (iii) the consummation of a transaction contemplated by
SECTION 13(d) hereof (such earlier date being herein referred to as the
"EXPIRATION DATE").
(b) The Purchase Price for each 1/1,000ths of a share of Preferred
Stock pursuant to the exercise of a Right shall initially be $[_________],
shall be subject to adjustment from time to time as provided in SECTION 11
and SECTION 13 hereof and shall be payable in accordance with paragraph (c)
below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights with the form of election to purchase and the Certificate duly
completed and executed, payment of the Purchase Price for the number of
1/1,000ths of a share of Preferred Stock (or other securities or other
assets, as the case may be) to be purchased and an amount equal to any
applicable transfer tax, the Rights Agent shall thereupon, subject to SECTION
20(k), promptly:
(i) (A) requisition from any transfer agent of the Preferred
Stock (or make available, if the Rights Agent is the transfer agent for
such Preferred Stock) a certificate for the total number of 1/1,000ths
of a share of the Preferred Stock to be purchased, and the Company
hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) if the Company shall have elected to deposit the
total number of shares of Preferred Stock issuable upon exercise of the
Rights hereunder with a depositary agent, requisition from the
depositary agent a depositary receipt representing such number of
1/1,000ths of a share of Preferred Stock as are to be purchased (in
which case certificates for the shares of Preferred Stock represented
by such receipts shall be deposited by the transfer agent with the
depositary agent), and the Company hereby irrevocably authorizes such
depositary agent to comply with such request;
(ii) when appropriate, requisition from the Company the amount
of cash, if any, to be paid in lieu of issuance of fractional shares in
accordance with SECTION 14;
(iii) promptly after receipt of such certificate or depositary
receipt, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificates, registered in such name
or names as may be designated by such holder; and
(iv) when appropriate, after receipt promptly deliver such cash,
if any, to or upon the order of the registered holder of such Rights
Certificate.
The payment of the Purchase Price may be made: (i) in cash or by certified
bank check or bank draft payable to the order of the Company, (ii) by
delivery of a certificate or certificates (with appropriate stock powers
executed in blank attached thereto) evidencing a number of shares of Common
Stock equal to the then Purchase Price divided by the current market price
(as determined pursuant to SECTION 11(d) hereof) per share of Common Stock on
the Trading Date immediately preceding the date of such exercise, or (iii) by
a combination of (i) and (ii). In the event that the Company is obligated to
issue securities, distribute property or pay cash pursuant to SECTION
11(a)(iii) hereof, the Company will make all arrangements necessary so that
cash, property or securities are available for issuance, distribution or
payment by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Rights
Certificate or to his duly authorized assigns, subject to the provisions of
SECTION 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, if
there occurs the event set forth in SECTION 11(a)(ii), then any Rights that
are or were beneficially owned by: (i) an Acquiring Person or any Associate
or Affiliate of such Acquiring Person; (ii) any subsequent holder of such
Rights; (iii) a transferee of an Acquiring Person or of any Associate or
Affiliate thereof who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person
to holders of equity interests in such Acquiring Person or to any Person with
whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which a
majority of the Board has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
SECTION 7(e) shall become or be (as the case may be) null and void with
respect to the rights provided under SECTION 11(a)(ii) without any further
action, and shall thereafter not provide any such holder with any rights
whatsoever under this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this SECTION 7(e) and
SECTION 4(b) hereof are complied with, but shall have no liability to any
holder of Rights Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees thereof.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this SECTION 7 unless such registered
holder shall have: (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise; and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Company or the Rights Agent shall
reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES.
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange, if surrendered to the Company or
to any of its agents, shall be delivered to the Rights Agent for cancellation
or in canceled form, or if surrendered to the Rights Agent, then shall be
canceled by it, and no Rights Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Rights
Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other
Rights Certificate purchased or acquired by the Company otherwise than upon
the exercise thereof. The Rights Agent shall deliver all canceled Rights
Certificates to the Company, or, at the written request of the Company,
destroy such canceled Rights Certificates, and in such latter case shall
deliver a certificate of destruction thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF SHARES OF CAPITAL STOCK.
The Company covenants and agrees that it will:
(a) Cause to be reserved and kept available out of its authorized and
unissued shares of Preferred Stock (and following the occurrence of a
Triggering Event, out of its authorized and unissued shares of Common Stock
or its authorized and issued Common Stock held in its treasury, other
securities as provided herein or some combination thereof) the number of
shares of Preferred Stock or other securities as provided herein or some
combination of such securities that will be sufficient to permit the exercise
in full of all outstanding Rights whenever issued.
(b) If the shares of Preferred Stock (and following the occurrence of
a Triggering Event, Common Stock and/or other securities) issuable upon the
exercise of Rights are listed on any national securities exchange, use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
(c) Use its best efforts to: (i) file, as soon as practicable
following the first occurrence of the Distribution Date, a registration
statement under the Securities Act with respect to the securities purchasable
upon exercise of the Rights on an appropriate form; (ii) cause such
registration statement to become effective as soon as practicable after such
filing; (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the date of the expiration of the Rights; (iv) to otherwise comply with all
requirements of the Securities Act and the Exchange Act applicable to the
exercise of the Rights and issuance of the securities upon such exercise; and
(v) take promptly such action as may be appropriate under the blue sky or
securities laws of the States such laws of which would be applicable to the
Rights and the exercise thereof in order for the securities issuable upon
exercise of the Rights to be offered, sold and delivered in accordance with
such laws. Notwithstanding any provision of this Agreement to the contrary,
the Rights shall not be exercisable in any jurisdiction unless the requisite
qualifications in such jurisdiction shall have been obtained.
(d) Take all such action as may be necessary to ensure that all
1/1,000ths shares of the Preferred Stock (and following the occurrence of a
Triggering Event, the other securities as permitted herein) delivered upon
exercise of Rights shall, at the time of delivery of the certificates for
such shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and non-assessable.
(e) Pay when due and payable any and all federal and state transfer
taxes and charges which may be payable in respect of the issuance or delivery
of the Rights Certificates or of any certificates for a number of 1/1,000ths
shares of the Preferred Stock (or other securities, as the case may be) upon
the exercise of Rights all costs and expenses incurred in connection with the
obligations set forth in this SECTION 9. The Company shall not, however, be
required: (i) to pay any transfer tax that may be payable in respect of any
transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of a number of certificates for whole or fractional
shares of a Preferred Stock (or other securities, as the case may be) in a
name other than that of the registered holder of the Rights Certificate
evidencing Rights surrendered for exercise; or (ii) to issue or deliver any
certificates for whole or fractional shares of the Preferred Stock upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction
that no such tax is due.
SECTION 10. PREFERRED STOCK RECORD DATE.
Each person in whose name any certificate for any whole or fractional
shares of Preferred Stock (or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become
the holder of record of such shares of Preferred Stock (or other securities,
as the case may be) represented thereby, and such certificate shall be dated,
the date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; PROVIDED, HOWEVER, that if the date of such surrender and
payment is a date upon which the Preferred Stock (or other securities, as the
case may be) transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such
certificates shall be dated, the next succeeding business day on which such
transfer books for such securities are open. Prior to the exercise of the
Rights evidenced thereby, the holder of a Rights Certificate shall not be
entitled to any rights as a stockholder of the Company with respect to shares
for which the Rights may be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER
OF RIGHTS.
The Purchase Price, the number and kind of shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to
time as provided in this SECTION 11.
(a) In the event that:
(i) CHANGES IN THE PREFERRED STOCK. The Company shall at any
time after the date of this Agreement (A) declare a dividend on the
Preferred Stock payable in shares of the Preferred Stock, (B) subdivide
the outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this SECTION 11(a) and SECTION 7(e)
hereof, then the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock (or other securities, as the case may be), issuable on
such date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive, upon the
payment of the Purchase Price then in effect, the aggregate number
(whether whole or fractional) and kind of securities that if such Right
had been exercised immediately prior to such date and at a time when
the Preferred Stock transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination or reclassification.
If an event occurs that would require an adjustment under both this SECTION
11(a)(i) and SECTION 11(a)(ii) hereof, the adjustment provided for in this
SECTION 11 (a)(i) shall be in addition to, and shall be made prior to any
adjustment required pursuant to SECTION 11(a)(ii).
(ii) DETERMINATION OF SHARES OF PREFERRED STOCK. Any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any of its subsidiaries or any Person
holding securities of the Company organized, appointed or established
by the Company or any of its subsidiaries for or pursuant to the terms
of any such plan), alone or together with its Affiliates and
Associates, shall become an Acquiring Person (except pursuant to a
Permitted Offer), then proper provisions shall be made so that each
holder of a Right, except as provided in SECTION 7(e) hereof, shall,
for a period of 60 days after the effective date of an appropriate
registration statement filed pursuant to SECTION 9 hereof, have a right
to receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of whole or
fractional shares of Preferred Stock (or if the Board determines prior
to the Distribution Date, such number of shares of Common Stock of the
Company in lieu of the Preferred Stock) as shall equal the result
obtained by multiplying the then current Purchase Price by the then
number of 1/1,000ths of a share of Preferred Stock (or such Common
Stock) for which a Right is exercisable immediately prior to the
occurrence of such SECTION 11(a)(ii) event then dividing that product
(which, following such first occurrence, shall thereafter be referred
to as the Purchase Price for each Right and for all other purposes of
this Agreement) by 50 percent of the current market price per one share
of Preferred Stock (or Common Stock of the Company, as the case may be)
(determined pursuant to SECTION 11(d)) on the date of the first
occurrence of the event set forth in this SUBPARAGRAPH (ii) (such
number of shares being referred to as the "ADJUSTMENT SHARES").
(iii) INSUFFICIENT PREFERRED STOCK. There shall not be
sufficient treasury shares or authorized but unissued and unreserved
Preferred Stock (or Common Stock of the Company as provided for in
SECTION 11(a)(ii) hereof) to permit the exercise in full of all the
outstanding Rights in accordance with the foregoing subparagraph (ii)
and the Rights become so exercisable, notwithstanding any other
provision of this Agreement, to the extent necessary and permitted by
applicable law, each Right shall thereafter represent the right to
receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement: (A) shares (whether whole
or fractional) of Common Stock of the Company that may permissibly be
issued; (B) a number (whether whole or fractional) of other equity
securities of the Company (or in the discretion of the Board of
Directors of the Company, debt) including, but not limited to, whole or
fractional shares of preferred stock of the Company other than the
Preferred Stock (such alternative securities of the Company being
referred to as "CAPITAL STOCK EQUIVALENTS"); or (C) some combination of
(A), (B) and the Preferred Stock, that, in the case of (A), (B) or (C),
the Board of Directors of the Company has determined to have the same
aggregate current market value as determined based upon advice of a
nationally recognized investment banking firm selected by a majority of
the Board and/or pursuant to SECTION 11(d)(i) AND (ii) hereof, to the
extent applicable as the aggregate value of the Preferred Stock if
there were available for issuance sufficient shares of Preferred Stock;
PROVIDED, HOWEVER, if there are unavailable sufficient Preferred Stock
or Capital Stock Equivalents, then the Company shall, to the extent
permitted by applicable law, promptly take all such action as may be
necessary to authorize additional Preferred Stock or Capital Stock
Equivalents for issuance upon exercise of the Rights, including the
calling of a meeting of stockholders; and PROVIDED, FURTHER, that if
the Company is unable to cause sufficient Preferred Stock or Capital
Stock Equivalents to be available for issuance upon exercise in full of
all of the outstanding Rights, then each Right shall thereafter
represent the right to receive the Adjusted Number of Shares upon
exercise of the Adjusted Purchase Price (as such terms are hereinafter
defined). As used herein, the term "ADJUSTED NUMBER OF SHARES" shall
be equal to that number of whole or fractional shares of Preferred
Stock (or Capital Stock Equivalents) equal to the product of (A) the
number of Adjustment Shares and (B) a fraction, the numerator of which
is the number of Shares of Preferred Stock (or Capital Stock
Equivalents) available for issuance upon exercise of the Rights and the
denominator of which is the aggregate number of Adjustment Shares
otherwise issuable upon exercise in full of all Rights (assuming there
were a sufficient number of shares of Preferred Stock (or Capital Stock
Equivalents as the case may be) available) (such fraction being
referred to as the "PRORATION FACTOR"). The "ADJUSTED PURCHASE PRICE"
shall mean the product of the Purchase Price and the Proration Factor.
The Board of Directors may, but shall not be required to, establish
procedures to allocate the right to receive Shares of Preferred Stock
and other Capital Stock Equivalents upon exercise of the Rights among
holders of Rights.
(b) PREFERRED STOCK RIGHTS OR WARRANTS. In case the Company shall
fix a record date for the issuance of rights or warrants to all holders of
Preferred Stock entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Stock (or
Securities convertible into the Preferred Stock or similar preferred stock)
at a price per share of Preferred Stock (or having a conversion price per
share of Preferred Stock, if a security convertible into Preferred Stock)
less than the current market price per share of Preferred Stock (as defined
in SECTION 11(d) hereof) on such record date, then the Purchase Price to be
in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction
the numerator of which shall be the number of shares of Preferred Stock
(whether whole or fractional) outstanding on such record date plus the number
of shares of Preferred Stock that the aggregate offering price of the total
number of shares of Preferred Stock and/or similar preferred stock so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price and
the denominator of which shall be the number of shares of Preferred Stock
(whether whole or fractional) outstanding on such record date plus the number
of additional shares of Preferred Stock (whether whole or fractional) and/or
similar preferred stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible).
In case such subscription price may be paid in part or all in a form other
than cash, then the value of such consideration shall be as determined in
good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent and the Holders of the Rights. Shares of
Preferred Stock (whether whole or fractional) owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights or warrants are not
so issued, the Purchase Price shall be adjusted to be the Purchase Price that
would then be in effect if such record date has not been fixed.
(c) DISTRIBUTIONS ON THE PREFERRED STOCK. In case the Company shall
fix a record date for the making of a distribution to all holders of
Preferred Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing corporation)
of evidences of indebtedness, assets (other than a regular periodic cash
dividend at a rate not in excess of 125 percent of the rate of the last cash
dividend theretofore paid out of the earnings or retained earnings of the
Company or a dividend payable in Preferred Stock (but including any dividend
payable in stock other than Preferred Stock)), securities or subscription
rights or warrants (excluding those referred to in SECTION 11(b) hereof),
then the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction the numerator of which shall be the current
market price per share of Preferred Stock (as defined in SECTION 11(d)
hereof) on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent and the Holders of the Rights) of the portion of
the assets, evidences of indebtedness, securities, subscription rights or
warrants so to be distributed and applicable to one share of Preferred Stock
and the denominator of which shall be such current market price per share of
Preferred Stock (as determined pursuant to SECTION 11(d) hereof). Such
adjustments shall be made successively whenever such a record date is fixed;
and in the event that such distribution is not so made, the Purchase Price
shall again be adjusted to be the Purchase Price that would then be in effect
if such record date had not been fixed.
(d) DETERMINATION OF CURRENT MARKET PRICE. For the purpose of any
computation hereunder:
(i) The "CURRENT MARKET PRICE" per share of Common Stock on any
date shall be deemed to be for purposes other than SECTION 11(a)(iii)
hereof the average of the daily closing prices per share of such Common
Stock for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date and for purposes of SECTION
11(a)(iii) hereof, the average of the daily closing prices per share of
such Common Stock for the 10 consecutive Trading Days immediately prior
to that date; PROVIDED, HOWEVER, that in the event that the current
market price per share of Common Stock is determined during the period
following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such
Common Stock or securities convertible into shares of such Common Stock
(other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, shall not have occurred prior to the
commencement of the requisite 30 or 10 Trading Day period, then, and in
each such case, the current market price shall be appropriately
adjusted to reflect the current market price per Common Stock
equivalent. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
principal national securities exchange on which the shares of the
Common Stock are listed or admitted to trading or, if the shares of the
Common Stock are not listed or admitted to trading on any national
securities exchange, the last sale price or, if not so reported, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System (the "NASDAQ SYSTEM") or such other
system then in use, or, if on any such date the shares of the Common
Stock are not quoted by such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board of Directors of the
Company. If on any such date no market maker is making a market in the
Common Stock, the fair value of such Common Stock on such date shall be
as determined in good faith by a majority of the Board (or, if at the
time of such determination there is an Acquiring Person, by a
nationally recognized investment banking firm selected by such
majority). The term "TRADING DAY" shall mean a day on which the
principal national securities exchange on which the shares of Common
Stock are listed or admitted for trading is open for the transaction of
business or, if the shares of the Common Stock are not listed or
admitted for trading on any national securities exchange, a Business
Day on which securities were traded in the over-the-counter market. If
the Common Stock is not publicly held or not so listed or traded,
"CURRENT MARKET PRICE" per share shall mean the fair value per share as
determined in good faith by the Board of Directors, or, if at the time
of such determination there is an Acquiring Person, by a nationally
recognized investment banking firm, which determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) The "CURRENT MARKET PRICE" per share of Preferred Stock
shall be determined in the same manner as set forth above for the
Common Stock in clause (i) of this SECTION 11(d) (other than the last
sentence thereof). If the current market price per share of Preferred
Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner
described in clause (i) of this SECTION 11(d), the "CURRENT MARKET
PRICE" per share of Preferred Stock shall be conclusively deemed to be
an amount equal to 1,000 (as such number may be appropriately adjusted
for such events as stock splits, stock dividends and recapitalization
with respect to the Common Stock occurring after the date of this
Agreement) multiplied by the current market price per share of the
Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, "CURRENT MARKET PRICE" per share
of the Preferred Stock shall be determined in the same manner as set
forth in the last sentence of SECTION 11(d)(i). For all purposes of
this Agreement, the "CURRENT MARKET PRICE" of 1/1,000ths of a share of
Preferred Stock shall be equal to the "CURRENT MARKET PRICE" of one
share of Preferred Stock divided by 1,000.
(e) LIMITATION ON ADJUSTMENT ON PURCHASE PRICE. Notwithstanding
anything herein to the contrary, no adjustment in the Purchase Price shall be
required unless such adjustment would require an increase or decrease of at
least 1 percent in such price; PROVIDED, HOWEVER, that any adjustments that
by reason of this SECTION 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this SECTION 11 shall be made to the nearest cent or to
the nearest ten-thousandth of a share as the case may be. Notwithstanding the
first sentence of this SECTION 11(e), any adjustment required by this SECTION
11 shall be made no later than the earlier of (i) three years from the date
of the transaction which mandates such adjustment or (ii) the Expiration
Date.
(f) If, as a result of an adjustment made pursuant to SECTION 11(a),
the holder of any Right thereafter exercised shall become entitled to receive
any Capital Stock Equivalents or other shares of capital stock of the Company
other than shares of Preferred Stock, thereafter the number of such other
shares so receivable upon exercise of any Right and the payment Purchase
Price thereof shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in SECTION 11(a) THROUGH (o),
inclusive, and the provisions of SECTIONS 7, 9, 10, 13 AND 14 with respect to
the Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of 1/1,000ths of a share
of Preferred Stock purchasable from time to time hereunder upon exercise of
the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in SECTION 11(i) hereof, upon each adjustment of the Purchase Price as a
result of the calculations made in SECTIONS 11(b) AND (c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of 1/1,000ths of a share of Preferred Stock (calculated to the
nearest ten-thousandth) obtained by (i) multiplying (x) the number of
1/1,000ths of a share covered by a Right immediately prior to this adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment of
the Purchase Price and (ii) dividing the product so obtained by the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights in lieu of any adjustment
in the number of 1/1,000ths of a share of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding, after such
adjustment of the number of Rights, shall be exercisable for the number of
1/1,000ths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to
such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after the adjustment of the Purchase
Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment
and, if known at the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is adjusted or any
date thereafter, but, if the Rights Certificates have been issued, shall be
at least 10 Business Days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this SECTION 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
SECTION 14, the additional Rights to which such holders shall be entitled as
a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for
the Rights Certificates held by such holders prior to the date of adjustment,
and upon surrender thereof, if required by the Company, new Rights
Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
(and may bear, at the option of the Company, the adjusted Purchase Price) and
shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of 1/1,000ths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per 1/1,000ths of a share
and the number of 1/l,000ths of a share that were expressed in the initial
Rights Certificates issued hereunder and if so, shall not affect in any way
the adjustments or changes required under this Agreement.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of
1/1,000ths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action that may, in the opinion
of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and non-assessable such number of 1/1,000ths of a
share of such Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this SECTION 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record
date the number of 1/1,000ths of a share of Preferred Stock and Capital Stock
Equivalents, if any, issuable upon such exercise over and above the number of
1/1,000ths of a share of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis
of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER,
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) or other securities upon the occurrence of the
event requiring such adjustment.
(m) Notwithstanding anything in this SECTION 11 to the contrary, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this SECTION 11, as and
to the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation
or subdivision of Preferred Stock, (ii) issuance wholly for cash of any
shares of Preferred Stock at less than the current market price, (iii)
issuance wholly for cash of shares of Preferred Stock or securities which by
their terms are convertible into or exchangeable for shares of Preferred
Stock, (iv) stock dividends, or (v) issuance of rights, options or warrants
referred to hereinabove in this SECTION 11, hereafter made by the Company to
holders of its Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by SECTION 23 or SECTION 26 hereof,
take (nor will it permit any of its subsidiaries to take) any action if at
the time such action is taken it is reasonably foreseeable that such action
will diminish substantially or otherwise eliminate the benefits intended to
be afforded by the Rights.
(o) The Company covenants and agrees that it shall not, at any time
after the Distribution Date (other than in a transaction or series of
transactions that comply with SECTION 11(n) hereof): (i) consolidate with;
(ii) merge with or into; or (iii) sell or transfer (or permit any of its
subsidiaries to sell or transfer), in one or more transactions, assets or
earning power aggregating more than 50 percent of the assets or earning power
of the Company and its subsidiaries (taken as a whole) to any other Person if
at the time of or immediately after such consolidation, merger or sale there
are any rights, warrants, other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.
(p) Notwithstanding anything in this Agreement to the contrary, in
the event that the Company shall at any time after the Record Date and prior
to the Distribution Date: (i) declare a dividend on the outstanding shares
of Common Stock of the Company payable in shares of Common Stock of the
Company, (ii) subdivide the outstanding shares of Common Stock of the
Company, or (iii) combine the outstanding shares of Common Stock of the
Company into a smaller number of shares, then the number of Rights associated
with each share of Common Stock of the Company then outstanding, or issued or
delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated
with each share of Common Stock of the Company following any such event shall
equal the result obtained by multiplying the number of Rights associated with
each share of Common Stock of the Company immediately prior to such event by
a fraction, the numerator of which shall be the total number of shares of
Common Stock of the Company outstanding immediately prior to the occurrence
of the event and the denominator of which shall be the total number of shares
of Common Stock of the Company outstanding immediately following the
occurrence of such event.
(q) The exercise of Rights under SECTION 11(a)(ii) shall only result
in the loss of rights under SECTION 11(a)(ii) to the extent so exercised and
shall not otherwise affect the rights provided for under this Agreement,
including the rights provided for by SECTION 13.
(r) Notwithstanding any other provision of this Agreement to the
contrary, if the Company determines that a registration statement filed
pursuant to SECTION 9(c) hereof is required to be amended or supplemented to
continue to comply with the Securities Act, then the Company may suspend the
exercisability of the Rights and shall promptly after such determination take
all necessary steps to cause to be effective such amended or supplemented
registration statement. Immediately following such determination to amend or
supplement such registration statement, and immediately following the time
such amended or supplemented registration statement shall become effective,
the Company shall publicly announce the suspension of the exercisability of
the Rights or the termination of such suspension.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in SECTION 11 and SECTION 13
hereof, the Company shall: (a) promptly prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment; (b) promptly file with the Rights Agent and with each transfer
agent for the Preferred Stock and the Common Stock copy of such certificate;
and (c) mail a brief summary thereof to each holder of a Rights Certificate
(or, if prior to the Distribution Date, to each holder of a certificate
representing Shares of Common Stock) in accordance with SECTION 25 hereof.
The Rights Agent shall be fully protected in relying on any such certificate
and on any adjustment therein contained.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) EFFECT ON RIGHTS. In the event that, following the Share
Acquisition Date, directly or indirectly: (x) the Company shall consolidate
with, or merge with and into, any other Person (other than a Subsidiary of
the Company in a transaction that complies with SECTION 11(o) hereof) and the
Company shall not be the surviving or continuing corporation of such
consolidation or merger; (y) any Person (other than a Subsidiary of the
Company in a transaction that complies with SECTION 11(o) hereof) shall
consolidate with, or merge with or into, the Company, and the Company shall
be the continuing or surviving corporation of such consolidation or merger
and, in connection with such consolidation or merger, all or part of the
outstanding Shares of Common Stock of the Company shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property; or (z) the Company shall sell or otherwise transfer (or one
or more of its subsidiaries shall sell or otherwise transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50 percent of the assets or earning power of the
Company and its subsidiaries (taken as a whole) to any other Person or
Persons (other than the Company or any Subsidiary of the Company in one or
more transactions each of which complies with SECTION 11(o) hereof), then,
and in each such case (except as may be contemplated by SECTION 13(d)
hereof), proper provision shall be made so that: (i) each holder of a Right
(except as provided in SECTION 7(e) hereof) shall thereafter be entitled to
receive, upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of shares of validly
authorized and issued, fully paid, non-assessable and freely tradable Common
Stock of the Principal Party (as hereinafter defined), not subject to any
liens, encumbrances, rights of call or first refusal, or other adverse claims
as shall be equal to the result obtained by (A) multiplying the then current
Purchase Price by the then number of 1/1,000ths of a share of Preferred Stock
for which a Right is then exercisable immediately prior to the first
occurrence of any of the events described in subsections (x), (y) or (z) of
this paragraph (a) of SECTION 13 (each a "SECTION 13 EVENT") (or, if an event
described in SECTION 11(a)(ii) (each a "SECTION 11(a)(ii) EVENT") has
occurred prior to the first occurrence of a Section 13 Event, multiplying the
number of such 1/1,000ths of a share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event) by
the Purchase Price in effect immediately prior to such first occurrence, and
(B) dividing that product (which following the first occurrence of a Section
13 Event, shall be referred to as the "PURCHASE PRICE" for each Right and for
all purposes of the Agreement) by 50 percent of the current market price per
share of the Common Stock of such Principal Party (determined in the manner
described in SECTION 11(d)(i) hereof) on the date of consummation of such
Section 13 Event; (ii) the Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Section 13 Event, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term "COMPANY"
shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of SECTION 11 hereof apply to such
Principal Party following the first occurrence of a Section 13 Event; and
(iv) such Principal Party shall take such steps (including, but not limited
to, the authorization and reservation of a sufficient number of shares of its
Common Stock) in connection with the consummation of any such transaction as
may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to the shares of its
Common Stock thereafter deliverable upon the exercise of the Rights.
(b) DEFINITION OF PRINCIPAL PARTY. The term "PRINCIPAL PARTY" shall
mean:
(i) in the case of any transaction described in subsection (x)
or (y) of paragraph (a) of this SECTION 13, the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to the
merger or consolidation; or
(ii) in the case of any transaction described in subsection (z)
of paragraph (a) of this SECTION 13, the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
PROVIDED, HOWEVER, that in any such case, (x) if the Common Stock of such
Person is not at such time and has not been continuously over the
preceding 12-month period registered under Section 12 of the Exchange Act,
and such Person is a direct or indirect Subsidiary of another Person the
Common Stock of which is and has been so registered, "PRINCIPAL PARTY"
shall refer to such other Person the Common Stock of which is so
registered; (y) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Stocks of all of which are
and have been so registered, "PRINCIPAL PARTY" shall refer to whichever of
such Persons is the issuer of the Common Stock having the greatest market
value of shares held by the public, and (z) in case such Person is owned,
directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules
set forth in (x) and (y) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations sat forth in this
SECTION 13 in the same ratio as their direct or indirect interests in such
Person bear to the total of such interests.
(c) LIMITATION ON CONSUMMATION OF MERGERS. The Company shall not
consummate any such consolidation, merger, sale or transfer unless the
Principal Party shall have a sufficient number of authorized shares of its
Common Stock that have not been issued or reserved for issuance to permit the
exercise in full of all of the Outstanding Rights in accordance with this
SECTION 13 and unless prior thereto the Company and such Principal Party
shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
SECTION 13 and further providing that, as soon as practicable after the date
of any consolidation, merger or sale of assets mentioned in paragraph (a) of
this SECTION 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, will
use its best efforts to cause such registration statement to (A) become
effective as soon as practicable after such filing, and (B) will use
its best efforts to cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the date of expiration of the Rights and will
use its best efforts to comply with all applicable State blue sky and
other securities laws; and
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration under the
Exchange Act.
The provisions of this SECTION 13 shall similarly apply to successive mergers
or consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a SECTION 11(i)(ii)
Event, the Rights which have not theretofore been exercised shall thereafter
become exercisable in the manner described in SECTION 13(a).
(d) PERMITTED OFFERS. Notwithstanding anything in this Agreement to
the contrary, SECTION 13 shall not be applicable to a transaction described
in subsections (x) and (y) of paragraph (a) of this SECTION 13 if: (i) such
transaction is consummated with a Person or Persons who acquired shares of
Common Stock pursuant to a Permitted Offer (or a wholly owned subsidiary of
any such Person or Persons); (ii) the price per share of Common Stock of the
Company offered in such transaction is not less than the price per Common
Share of the Company paid to all holders of Common Stock of the Company whose
shares were purchased pursuant to such Permitted Offer; and (iii) the form of
consideration being offered to the remaining holders of Common Stock of the
Company pursuant to such transaction is the same as the form of consideration
paid pursuant to such Permitted Offer. Upon consummation of such transaction
contemplated by this paragraph (d), all Rights hereunder shall expire.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) ISSUANCE OF FRACTIONAL RIGHTS. The Company shall not be required
to issue fractions of Rights, except prior to the Distribution Date in
accordance with SECTION 11(p) hereof, or to distribute Rights Certificates
that evidence fractional Rights. In lieu of such fractional Rights, there
shall be paid to the registered holders of the Rights Certificates with
regard to which such fractional Rights would otherwise be issuable, an amount
in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this SECTION 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price of the Rights for any day shall be the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if the
Rights are not listed or admitted to trading on any national securities
exchange, the last sale price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
NASDAQ System or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a
market in the Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the Rights, the fair
value of the Rights on such date shall be as determined in good faith by the
Board, or, if at the time of such determination there is an Acquiring Person,
by a nationally recognized investment banking firm selected by such majority.
(b) ISSUANCE OF CERTAIN FRACTIONAL SHARES OF PREFERRED STOCK. The
Company shall not be required to issue fractions of shares of Preferred Stock
(other than fractions that are integral multiples of 1/1,000ths of a share of
Preferred Stock) upon exercise of the Rights or to distribute certificates
which evidence fractional shares (other than fractions that are integral
multiples of 1/1,000ths of a share of Preferred Stock). In lieu of
fractional shares that are not integral multiples of 1/1,000ths of a share of
Preferred Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of
1/1,000ths of a share of Preferred Stock. For purposes of this SECTION
14(b), the current market value of 1/1,000ths of a share of Preferred Stock
shall be 1/1,000ths of the closing price of a share of Preferred Stock (as
determined pursuant to SECTION 11(d)(ii) for the Trading Day immediately
prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event the Company shall
not be required to issue fractions of shares of its Common Stock upon
exercise of the Rights or to distribute certificates which evidence
fractional shares of such Common Stock. In lieu of fractional shares of such
Common Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of one
(1) share of a the Common Stock of the Company. For purposes of this SECTION
14(c), the current market value of one share of Common Stock shall be the
closing price of one share of Common Stock (as determined pursuant to SECTION
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares
upon exercise of a Right except as permitted by this SECTION 14.
SECTION 15. RIGHTS OF ACTION.
All rights of action in respect of this Agreement are vested in the
respective registered holders of the Rights Certificates (and, prior to the
Distribution Date, the registered holders of the Common Stock); and any
registered holder of any Rights Certificate (or, prior to the Distribution
Date, of the Common Stock), may, in his own behalf and for his own benefit,
enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner
provided in such Rights Certificate and in this Agreement. Without limiting
the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Agreement and will be entitled
to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS.
Every holder of a Right by accepting the same consents and agrees with
the Company and the Rights Agents and with every other holder of a Right
that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer and with the appropriate forms and certificates
fully executed;
(c) subject to SECTION 6(a), SECTION 7(e) and SECTION 7(f) hereof,
the Company and the Rights Agent may deem and treat the Person in whose name
the Rights Certificate (or, prior to the Distribution Date, the associated
Common Stock certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Rights Certificates or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to the last
sentence of SECTION 7(e) hereof, shall be required to be affected by any
notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any
holder of a Right or other Person as a result of its inability to perform any
of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or
otherwise restraining performance of such obligation; PROVIDED, HOWEVER, the
Company must use its best efforts to have any such order, decree or ruling
lifted or otherwise overturned as soon as possible.
SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the number
of shares of Preferred Stock or any other securities of the Company which may
at any time be issuable on the exercise of the Rights represented thereby,
nor shall anything contained herein or in any Rights Certificate be construed
to confer upon the holder of any Rights Certificate, as such, any of the
rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in SECTION 24), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Rights Certificates
shall have been exercised in accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to
time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability or expense incurred without negligence,
bad faith or willful misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the cost and expenses of
defending against any claim of liability in the premises and reasonable
counsel fees and expenses.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
(c) Anything in this Agreement to the contrary notwithstanding, in no
event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the likelihood of such
loss or damage and regardless of the form of action.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation,
succeeding to the corporate trust, stock transfer or other stockholder
services business of the Rights Agent or any successor Rights Agent, shall be
the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, PROVIDED, HOWEVER, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of SECTION 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have
been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificate so countersigned; and in case at that time any of the
Rights Certificates shall not have been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at
that time any of the Rights Certificates shall not have been countersigned,
the Rights Agent may countersign such Rights Certificates either in its prior
name or in its changed name; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT.
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with the legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the Chairman of
the Board, the President, any Vice President, the Treasurer, any assistant
Treasurer, the Secretary, or any assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for, or by reason of, any of
the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except as to its countersignature thereof) or be
required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights
Certificate; nor shall it be responsible for any adjustment required under
the provisions of SECTION 11 or SECTION 13 hereof or be responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Rights Certificates after
actual notice of any such adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock or Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any
shares of the Common Stock or Preferred Stock will, when so issued, be
validly authorized and issued, fully paid and non-assessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may be reasonably
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the President, any Vice President, the
Treasurer, any assistant Treasurer, the Secretary, or any assistant Secretary
of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken
or suffered to be taken by it in good faith in accordance with instructions
of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any
such act, default, neglect or misconduct provided that reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicated an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the
Company.
SECTION 21. CHANGE OF RIGHTS AGENT.
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement and upon 30 days notice in
writing mailed to the Company and to each transfer agent of the Preferred
Stock and the Common Stock by registered or certified mail, and to the
holders of the Rights Certificates by first class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case
may be, and to each transfer agent of the Preferred Stock and the Common
Stock by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Rights
Certificate (who shall, with such notice, submit his Rights Certificate for
inspection by the Company), then the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be: (i) a corporation
organized, existing and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million; or (ii) an Affiliate of a corporation
described in clause (i) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any
such appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Preferred Stock and
the Common Stock, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for
in this SECTION 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board
of Directors to reflect any adjustment or change in the Purchase Price per
share and the number or kind or class of shares or other securities or
property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the
issuance or sale of shares of Common Stock of the Company following the
Distribution Date and prior to the redemption or expiration of the Rights,
the Company (a) shall, with respect to such shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan
or arrangement granted or awarded prior to or as of the Distribution Date, or
upon the exercise, conversion or exchange of securities hereinafter issued by
the Company, and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; PROVIDED, HOWEVER, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material
adverse tax consequences to the Company or the Person to whom such Rights
Certificates would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise
have been made in lieu of the issuance thereof.
SECTION 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option, at any
time prior to 5:00 p.m., New York, New York time, on the earlier of (x) the
Share Acquisition Date (or if the Share Acquisition Date shall have occurred
prior to the Record Date, the close of business on the tenth day following
the Record Date) or (y) the Final Expiration Date, redeem all but not less
than all of the then outstanding Rights at a redemption price of $0.0005 per
Right as such amount may be appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "REDEMPTION
PRICE"), PROVIDED, HOWEVER, that if, following the occurrence of a Share
Acquisition Date but prior to any event described in SECTION 13(a), either
(x) in connection with any event specified in SECTION 13(a) in which all
holders of Common Stock are treated alike and not involving (other than as a
holder of Common Stock being treated like all other such holders) an
Acquiring Person or an Affiliate or Associate of an Acquiring Person or any
other person in which such Acquiring Person, Affiliate or such Associate has
any interest, or any other Person acting directly or indirectly on behalf of
or in association with any such Acquiring Person, Affiliate or Associate, or
(y) following the occurrence of an event set forth in, and the expiration of
any period during which the holders of Rights may exercise the Rights under,
SECTION 11(a)(ii) if each of the following shall have occurred and remain in
effect: (i) such SECTION 11(a)(ii) Event shall be deemed inadvertent as
determined by the Board in its discretion taking into account all such
factors as the Board deems relevant; (ii) a Person who is an Acquiring Person
shall have transferred or otherwise disposed of a number of shares of Common
Stock in a transaction, or series of transactions, which did not result in
the occurrence of a Triggering Event such that such Person is thereafter a
Beneficial Owner of 10 percent or less of the outstanding shares of Common
Stock of the Company, (iii) there are no other Persons, immediately following
the occurrence of the event described in clause (ii) hereof, who is Acquiring
Persons, and (iv) the transfer or other disposition described in clause (ii)
hereof, above was other than pursuant to a transaction, or series of
transactions, which directly or indirectly involved the Company or any of its
Subsidiaries, then the right of redemption shall be reinstated and thereafter
be subject to the provisions of this SECTION 23.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and
the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Promptly after the action of the Board of Directors
ordering the redemption for the Rights, the Company shall file with the
Rights Agent evidence of such action by the Board of Directors and shall give
notice of such redemption to the holders of the then outstanding Rights by
mailing such notice to each such holder at such holder's last address as it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent for the Common
Stock of the Company. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Company nor any of
its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in
this SECTION 23, and other than in connection with the purchase of Common
Stock of the Company prior to the Distribution Date.
SECTION 24. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose at any time following the
Distribution Date: (i) to pay any dividend payable in stock of any class to
the holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a regular periodic cash dividend at a
rate not in excess of 125 percent of the rate of the last cash dividend
theretofore paid); (ii) to offer to the holders of Preferred Stock rights or
warrants to subscribe for or to purchase any additional shares of Preferred
Stock or shares of stock of any class or any other securities, rights or
options; (iii) to effect any reclassification of Preferred Stock (other than
a reclassification involving only the subdivision of outstanding shares of
Preferred Stock); (iv) to effect any consolidation or merger into or with any
other Person (other than a Subsidiary of the Company in a transaction or
transactions that comply with SECTION 11(o) hereof); (v) to effect any sale
or other transfer (or to permit one or more of its subsidiaries to effect any
sale or other transfer), in one or more transactions, of more than 50 percent
of the assets or earning power of the Company and its subsidiaries (taken as
a whole) to, any other Person (other than a Subsidiary of the Company in a
transaction or transactions that comply with SECTION 11(o) hereof); or (vi)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to each holder of a Rights
Certificate, in accordance with SECTION 25, a notice of such proposed action,
which shall specify the record date for, and the purposes of, such stock
dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Preferred Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty days prior to the record date for
determining holders of Preferred Stock for purposes of such action, and in
the case of any such other action, at least twenty days prior to the date of
the taking of such proposed action or the date of participation therein by
the holders of the Preferred Stock, whichever shall be earlier.
(b) In case any of the events set forth in SECTION 11(a)(ii) of this
Agreement shall occur, then, in any such case; (i) the Company shall, as soon
as practicable thereafter, give to each holder of a Rights Certificate, in
accordance with SECTION 25 and to the extent feasible, a notice of the
occurrence of such event, which shall specify the event and the consequences
of the event to holders of Rights under SECTION 11(a)(ii); and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed to
thereafter refer to Common Stock and/or other securities, as the case may be.
SECTION 25. NOTICES.
Notices or demands authorized by this Agreement to be given or made by
the Rights Agent or by the holder of any Rights Certificate to or on the
Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Stilwell Financial, Inc.
Attn.: President
114 West 11th Street
Kansas City, Missouri 64105
Subject to the provisions of SECTION 21, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
UMB Bank, N.A.
Attn.: Corporate Stock Transfer Department
1010 Grand Avenue
Kansas City, Missouri 64106
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the
registry books of the Company.
SECTION 26. SUPPLEMENTS AND AMENDMENTS.
Prior to the Distribution Date and subject to the penultimate sentence
of this SECTION 26, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of Rights Certificates. From and after the
Distribution Date and subject to the penultimate sentence of this SECTION 26,
the Company and the Rights Agent shall, if the Company so directs,
supplement, amend, remove any provision of this Agreement without approval of
any holders of Rights in order: (i) to cure any ambiguity; (ii) to correct or
supplement any provision contained herein that may be defective or
inconsistent with any other provisions herein; (iii) to shorten or lengthen
any time period hereunder (which lengthening or shortening, following the
first occurrence of an event set forth in clauses (i) and (ii) of the first
provision to SECTION 23(a) hereof, shall be effective only if approved by at
least 70 percent of the then members of the Board); or (iv) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Rights Certificates (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); PROVIDED, this Agreement may
not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at
such time as the Rights are not then redeemable, or (B) any other time period
unless such lengthening is for the purpose of protecting, enhancing or
clarifying the rights of, and/or the benefits to, the holders of Rights.
Upon the delivery of a certificate from an appropriate officer of the Company
that states that the proposed supplement or amendment is in compliance with
the terms of this SECTION 26, the Rights Agent shall execute such supplement
or amendment unless the Rights Agent shall have determined in good faith that
such supplement or amendment would adversely affect its interests under this
Agreement. Notwithstanding anything contained in this Agreement to the
contrary, no supplement or amendment shall be made which changes the
Redemption Price, the Final Expiration Date, the Purchase Price or the number
of 1/1,000ths of a share of Preferred Stock for which a Right is exercisable.
Prior to the Distribution Date, the interests of the holders of Rights shall
be deemed coincident with the interests of the holders of Common Stock of the
Company.
SECTION 27. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of
shares of Common Stock of the Company outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding shares of Common Stock of the Company of which any Person is the
Beneficial Owner, shall be made in accordance with the provisions of Rule
13d-3(d)(l)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or
not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for the purpose
of clause (ii) below, all omissions with respect to the foregoing which are
done or made by the Board) in good faith, shall (i) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights
Certificates and all other parties, and (ii) not subject to the Board to any
liability to the holders of the Rights Certificates.
SECTION 29. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give any Person other
than the Company, the Rights Agent and the registered holders of the Rights
Certificates any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of
the Company, the Rights Agent and the registered holders of the Rights
Certificates.
SECTION 30. SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated; PROVIDED, HOWEVER, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this
Agreement, the right or redemption set forth in SECTION 23 hereof shall be
reinstated and shall not expire until the close of business on the tenth day
following the date of such determination by the Board of Directors. Without
limiting the foregoing, if any provision requiring a majority of the Board of
Directors of the Company to be Continuing Directors to act is held by any
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board of
Directors of the Company in accordance with applicable law and the Company's
Certificate of Incorporation and By-Laws.
SECTION 31. GOVERNING LAW.
This Agreement, each Rights Certificate and each Right issued hereunder
shall be deemed to be a contract made under the laws of the State of Delaware
and for all purposes shall be governed by and construed in accordance with
the laws of such State applicable to contracts to be made and performed
entirely within such State, except for SECTIONS 18, 19, 20 AND 21 hereof and
relating to the rights, duties and obligations of the Rights Agent, which
shall be governed by the laws of the State of [__________] without reference
to its choice of law rules.
SECTION 32. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
all such counterparts shall together constitute but one and the same
instrument.
SECTION 33. DESCRIPTIVE HEADINGS.
Descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested all as of the day and year first above written.
[SEAL] STILWELL FINANCIAL, INC.
Attest:
By: By:
---------------------------- -------------------------------------
Name: Name:
------------------------ --------------------------------
Title: Title:
----------------------- -------------------------------
[SEAL]
Attest:
By:
- -------------------------------- -------------------------------------
Name: Name:
------------------------ --------------------------------
Title: Title:
----------------------- -------------------------------
<PAGE>
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
OF
STILWELL FINANCIAL, INC.
SERIES A PREFERRED STOCK
Stilwell Financial, Inc., a corporation organized and existing under
and by virtue of The General and Business Corporation Law of Delaware, DOES
HEREBY CERTIFY:
That at a meeting of the Board of Directors of Stilwell Financial, Inc.
the following resolution was duly adopted creating [_______] shares of
Preferred Stock, designated as Series A Preferred Stock.
RESOLVED, that pursuant to the authority
granted to and vested in the Board of Directors of
this Corporation in accordance with the provisions of
the Articles of Incorporation, as amended, a series
of Series A Preferred Stock of the Corporation be,
and it hereby is created, and the designation and
amount thereof and the voting powers, preferences and
relative, participating, optional and other special
rights of such series, and the qualifications,
limitations or restrictions thereof (in addition to
the provisions set forth in the Articles of
Incorporation, as amended, of the Corporation, which
are applicable to the Preferred Stock of all classes
and series) are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "SERIES A PREFERRED STOCK" and the number of shares initially
constituting such series shall be [________].
2. DIVIDENDS AND DISTRIBUTIONS.
---------------------------
(A) Subject to any prior and superior rights of the holders of
any series of Preferred Stock ranking prior and superior to the shares of
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled prior to the payment of any
dividends on shares ranking junior to the Series A Preferred Stock to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
last day of March, June, September and December in each year (each such date
being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b)
subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock,
par value $0.001 per share, of the Corporation (the "COMMON STOCK") or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the Corporation shall at any
time after [_______________], 1999 (the "RIGHTS DECLARATION DATE") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event. Such adjustment
shall be made successively whenever such a dividend or change in the Common
Stock is consummated.
(B) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock); PROVIDED, that in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on
the Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued ant payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for
the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each 1/1,000th share of Series A Preferred Stock shall entitle the
holder thereof to one vote on all matters voted on at a meeting of the
stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, or (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of votes per share to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event. Such adjustment shall be made successively whenever such a
dividend or change in the Common Stock is consummated.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters voted on at a meeting
of stockholders of the Corporation.
(C) Except as set forth herein, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
4. CERTAIN RESTRICTIONS.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in SECTION
2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of capital stock of the Corporation ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of capital stock of the Corporation ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders
of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any capital stock of the Corporation ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock; provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any capital stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
capital stock of the Corporation unless the Corporation could, under
paragraph (A) of this SECTION 4, purchase or otherwise acquire such shares at
such time and in such manner.
5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
--------------------------------------
(A) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
on any shares of capital stock of the Corporation that rank junior (whether
as to dividends or upon liquidation, dissolution or winding up) to Series A
Preferred unless prior thereto the holders of Series A Preferred Shares shall
have received an amount equal to 1,000 times the aggregate amount to be
distributed per share to holders of the common stock.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A liquidation preference
and the liquidation preferences of all other series of preferred stock, if
any, which rank on a parity with the Series A Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
7. MERGER; CONSOLIDATION. ETC. In case the Corporation shall enter
into any merger, consolidation, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then, in each such
case, the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
8. NO REDEMPTION. The Series A Preferred Stock shall not be
redeemable.
9. RANKING. The Series A Preferred Stock shall rank on a parity with
all other series of the Corporation's Preferred Stock as to the payment of
dividends and other distribution of assets, unless the terms of any such
other series shall provide otherwise.
10. AMENDMENT. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner that would materially alter or
change the powers, preferences, rights, qualifications, limitations and
restrictions of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
11. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share, which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
IN WITNESS HEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President and attested by its Secretary
this [______] day of October, 1999.
STILWELL FINANCIAL, INC.
By:-------------------------------
President
ATTEST:
- ----------------------------
Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
Before me, the undersigned Notary Public in and for said county and
state, this day personally appeared __________________________, personally
known to me to be the President of STILWELL FINANCIAL, INC. and who executed
the foregoing instrument as President of Stilwell Financial, Inc., and being
first duly sworn, acknowledged reading in full and fully understanding the
foregoing, acknowledged the facts therein stated to be true and correct, and
who further acknowledged the execution of the same as the voluntary act of
the Corporation.
Witness my hand and seal this [______] day of October, 1999.
---------------------------------
Notary Public
My Commission Expires:
- ------------------------
<PAGE>
EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. A- [___________] Rights
NOT EXERCISABLE AFTER [_____________] OR EARLIER IF
REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$[__________________] PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE
RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
PRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED
IN SECTION 7(e) OF THE RIGHTS AGREEMENT.]*
*The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
RIGHTS CERTIFICATE
------------------
This certifies that [________________________________________], or
registered assigns is the registered owner of the number of Rights set forth
above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement dated as of October
[_____], 1999 (the "RIGHTS AGREEMENT") between Stilwell Financial, Inc., a
Delaware corporation (the "COMPANY"), and UMB Bank, N.A., a national banking
association organized and existing under the laws of the United States of
America (the "RIGHTS AGENT"), to purchase from the Company at any time prior
to 5:00 P.M. (New York, New York time) on [_______________] at the principal
office or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, 1/1,000ths of a fully paid nonassessable share of
the Series A Preferred Stock (the "PREFERRED STOCK"), of the Company, at a
purchase price of $[_________] per 1/1,000ths of a share (the "PURCHASE
PRICE"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of
shares which may be purchased upon exercise thereof) set forth above, and the
Purchase Price per 1/1,000ths share set forth above, are the number and
Purchase Price as of [_______________], 1999, based on the Preferred Stock of
the Company as constituted at such date.
Upon the occurrence of a transaction listed in Section 11(a)(ii) (a
"SECTION 11(a)(ii) EVENT"), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate
or Associate of any such Acquiring Person (as such terms are defined in the
Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate
or Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right
with respect to such Rights from and after the occurrence of such Section
11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities which may be
purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to
which Rights Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitation of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in
the Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office or offices the Rights Agent designated for such
purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of 1/1,000ths of a share of Preferred Stock
as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its options at a
redemption price of $0.0005 per Right.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of 1/1,000ths of a share of Preferred Stock), but in
lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Preferred Stock
or of any other securities of the Company which may at any time be issuable
on the exercise hereof, nor shall anything contained in the Rights Agreement
or herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other action affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Right evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of this [______] day of [________________],
1999.
[SEAL] STILWELL FINANCIAL, INC.
By:--------------------------------
Title: President
ATTEST:
- -------------------------------
Title: Secretary
Countersigned:
[RIGHTS AGENT]
By:_____________________________
Authorized Signature
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such holder desires to
transfer the Rights Certificates.)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________________________________
- ----------------------------------------------------------------------
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ___________________________
-----------------------------------
Signature
Signature Guaranteed:
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ________________________
----------------------------------------
Signature
Signature Guaranteed:
<PAGE>
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires
to exercise Rights represented
by the Rights Certificate)
To:____________________________
The undersigned hereby irrevocably elects to exercise ______ Rights
represented by this Rights Certificate to purchase the shares of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of
the Company or of any other person which may be issuable upon the exercise of
the Rights) and requests that certificates for such shares be issued in the
name of and delivered to:
Please insert social security
or other identifying number
- ---------------------------------------------------------------------------
(Please print name and address)
- ---------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- ---------------------------------------------------------------------------
(Please print name and address)
- ---------------------------------------------------------------------------
Dated:____________________, ________
---------------------------------------
Signature
Signature Guaranteed:
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated:_________________, 1999
----------------------------------
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
EXHIBIT C
DETAILED SUMMARY OF RIGHTS TO PURCHASE
SERIES A PREFERRED STOCK
On _____________ 1999, the Board of Directors of Stilwell Financial,
Inc. (the "Company") declared a dividend distribution of one Right for each
outstanding share of the Company's Common Stock, $0.01 par value per share
(the "Common Stock"), of the Company to the stockholders of record on
_______________, 1999, (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company 1/1,000ths of a share of
Series A Preferred Stock the ("Preferred Stock") or in some circumstances,
Common Stock, other securities, cash or other assets as summarized below at a
price of $_______ per share (the "Purchase Price"), (both shares and price
are subject to adjustment as described below). The complete terms and
conditions of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and __________________________, dated as of
_______________, 1999, as may be amended from time to time. Capitalized
terms not defined herein are defined in the Rights Agreement.
Each share outstanding on the Record Date will receive one Right.
Until the Distribution Date (or the earlier redemption or expiration of the
Rights), shares of Common Stock issued (whether newly issued or from
treasury) will have the Rights automatically attached. Following the
Distribution Date, shares of Common Stock issued will be accompanied by
Rights only in certain instances.
In the event that a Person or group of affiliated or associated persons
(an "Acquiring Person") becomes the beneficial owner of or announces a tender
or exchange offer for 15 percent or more of the outstanding shares of Common
Stock of the Company, proper provision shall be made so that each holder of a
Right, other than of Rights that are or were beneficially owned by the
Acquiring Person (which will thereafter be null and void), will thereafter
have the right to receive upon exercise that number of shares of the
Preferred Stock (or in certain circumstances, Common Stock or assets or other
securities of the Company) having a market value of two times the exercise
price of the Right. In the event that the Company were acquired in a merger
or other business combination transaction (other than pursuant to a Permitted
Offer) or more than 50 percent of the Company's (together with its
subsidiaries) assets or earning power were sold, proper provision shall be
made so that each holder of a Right, other than of Rights that are or were
beneficially owned by an Acquiring Person (which will thereafter be null and
void) shall thereafter have the right to receive, upon the exercise thereof
at the then current exercise price of the Right, that number of shares of the
highest priority voting securities of the acquiring company (or certain of
its affiliates) that at the time of such transaction would have a market
value of two times the exercise price of the Right. If the Rights are
exercised to acquire the Preferred Stock, then the Rights will not be
exercisable to acquire the securities of any Acquiring Person.
Until ten calendar days following the earlier to occur of (unless
extended by the Board of Directors and subject to the earlier redemption or
expiration of the Rights): (i) the date of a public announcement that an
Acquiring Person acquired, or obtained the right to acquire, beneficial
ownership of 15 percent or more of the outstanding shares of the Common Stock
of the Company, or (ii) the commencement or announcement of an intention to
make a tender offer or exchange offer that would result in an Acquiring
Person beneficially owning 15 percent or more of such outstanding shares of
Common Stock of the Company (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of
the Company's Common Stock certificates outstanding as of the Record Date, by
such Common Stock certificate. The certificates for shares of Common Stock
issued after the Record Date, but prior to the Distribution Date will have a
notation referencing the Rights Agreement. The Rights Agreement provides
that, until the Distribution Date, the Rights will be transferred with and
only with the Company's Common Stock, and until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer
of any of the Company's Common Stock certificates outstanding as of the
Record Date, will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Rights Certificates") will be mailed to holders of record of the Company's
Common Stock as of the close of business on the Distribution Date and such
separate Rights Certificates alone will evidence the Rights.
Permitted Offer is defined in the Rights Agreement as a tender offer
that is for all outstanding Common Stock of the Company at a price and on
terms determined to be adequate prior to the purchase of shares under such
tender or exchange offer, by at least 70% of the members of the Board of
Directors of the Company, taking into account all factors that such directors
deem relevant including, without limitation, prices that could reasonably be
achieved if the Company or its assets were sold on an orderly basis designed
to realize maximum value and otherwise in the best interests of the Company
and its stockholders (other than the Person or any Affiliate or Associate
thereof for whose benefit the offer is being made).
The Purchase Price payable, and the number of shares of Preferred Stock
(or Common Stock, other securities, cash or other assets, as the case may be)
issuable upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of the Preferred Stock, (ii)
upon the grant to holders of the Preferred Stock of certain rights or
warrants to subscribe for shares of the Preferred Stock or convertible
securities at less than the current market price of the Preferred Stock or
(iii) upon the distribution to holders of the Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends out of
earnings or retained earnings or dividends payable in the Preferred Stock) or
of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1
percent in such Purchase Price. No fractional shares will be issued (other
than fractional shares which are integral multiples of 1/1,000ths of a share
of Preferred Stock) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the Preferred Stock on the last Trading Date
prior to the date of exercise.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on ________________, unless earlier redeemed by the Company as
described below.
At any time prior to 5:00 p.m. New York, New York time on the tenth
calendar day after the first date after the public announcement that an
Acquiring Person has acquired beneficial ownership of 15 percent or more of
the outstanding shares of the Common Stock of the Company (the "Share
Acquisition Date"), the Company may redeem the Rights in whole, but not in
part, at a price of $0.0005 per Right (the "Redemption Price"). Following the
Share Acquisition Date, but prior to an event listed in Section 13(a) of the
Rights Agreement (i.e. a merger, consolidation or sale of more than 50
percent of the assets or earnings power of the Company and its subsidiaries),
the Company may redeem the Rights in connection with any event specified in
Section 13(a) in which all stockholders are treated alike and which does not
include the Acquiring Person or its Affiliates or Associates. In addition,
the Company's right of redemption may be reinstated following an inadvertent
trigger of the Rights (as determined by the Board) if an Acquiring Person
reduces its beneficial ownership to 10 percent or less of the outstanding
shares of Common Stock of the Company in a transaction or series of
transactions not involving the Company. Immediately upon the action of the
Board of Directors of the Company electing to redeem the Rights, the Company
shall make announcement thereof, and upon such election, the right to
exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Company, stockholders may,
depending on the circumstances, recognize taxable income in the event that
the Rights become exercisable for the Preferred Stock (or other securities,
as the case may be) of the Company.
Prior to the Distribution Date the Company may amend or supplement any
provision of the Rights Agreement without the consent of the holders of the
Rights. Following the Distribution Date, the Company may amend the
provisions of the Rights Agreement in order to cure any ambiguity, to correct
any defect or inconsistency, to make changes deemed necessary or desirable so
long as such changes do not adversely affect the interests of the holders of
the Rights (excluding the interests of any Acquiring Person and its
affiliates and associates). In either case, however, the Company may not
amend or supplement the Rights Agreement to change or supplement the
Redemption Price, Final Expiration Date, the Purchase Price or the number of
1/1,000ths of a share of Preferred Stock for which a Right is exercisable.
The Rights may have the effect of impeding a change in control of the
Company without the prior consent of the Company's Board of Directors, and
the Rights could cause substantial dilution to a person that attempts to
acquire the Company without conditioning the offer on redemption of the Rights
by the Company's Board of Directors or on the acquisition by such person of a
substantial number of Rights.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10
dated ___________, 1999. A copy of the Rights Agreement is available free of
charge from the Company by written request to Stillwell Financial, Inc., 114
West 11th Street, Kansas City, Missouri 64105. This summary description of
the Rights does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, which is hereby incorporated herein by
reference. In the event of a conflict between this summary and the Rights
Agreement, the Rights Agreement will prevail.
REPRESENTATIVE
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and effective as of this ____ day of __________,
1999, between Stilwell Financial, Inc., a Delaware corporation
("Corporation") and ______________ ("Director").
WHEREAS, Director is a member of the Board of Directors of Corporation
and in such capacity may be exposed to risks of undue personal liability; and
WHEREAS, the Amended and Restated Certificate of Incorporation (the
"Certificate") of the Corporation, which requires the Corporation to
indemnify and advance expenses to Director to the fullest extent permitted by
the Delaware General Corporation Law, is subject to change by amendment; and
WHEREAS, the directors' and officers' liability insurance obtained by
the Corporation may not provide complete protection to Director against all
risks of undue personal liability; and
WHEREAS, Director is serving the Corporation in part in reliance upon
the continued availability of effective protection against undue personal
liability arising out of or in connection with Director's service to the
Corporation; and
WHEREAS, to supplement the Corporation's directors' and officers'
liability insurance and to provide Director with specific contractual
assurance that the protection provided by the Corporation's Certificate will
continue to be available to Director regardless of, among other things, an
amendment of the Certificate or a change in management or control of the
Corporation, the Corporation has agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the above premises and of
Director's continued service to the Corporation, the parties hereto agree as
follows:
1. INDEMNITY OF DIRECTOR. In the event Director was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or
was a director, officer, employee, agent, trustee, committee member or
representative of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee, agent, trustee, committee
member or representative of another corporation or other entity, including,
without limitation, any Subsidiary (as defined in the Certificate),
partnership, joint venture, limited liability company, limited liability
partnership, unincorporated organization or similar company, trust or other
enterprise, including service with respect to any employee benefit plan,
whether the basis of such Proceeding is alleged action in an official
capacity or in any other capacity while serving as a director, officer,
employee, agent, trustee, committee member or representative (an
"Indemnifiable Event"), Director shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by reason of Director acting in any such capacity;
PROVIDED, HOWEVER, that with respect to Proceedings to enforce rights to
indemnification, the Corporation shall indemnify Director in connection with
a Proceeding (or part thereof) initiated by Director only if such Proceeding
(or part thereof) is conducted as provided in Section 3 below or if such
Proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
2. ADVANCEMENT OF EXPENSES. The right to indemnification conferred
in Section 1 hereof shall include the right to have the Corporation pay the
expenses incurred in defending any Proceeding in advance of its final
disposition (an "Advancement of Expenses"); PROVIDED, HOWEVER, that, if the
Delaware General Corporation Law so requires, an Advancement of Expenses
incurred by Director shall be made only upon delivery to the Corporation of
an undertaking (an "Undertaking"), by or on behalf of Director, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (a "Final
Adjudication"), that Director is not entitled to be indemnified for such
expenses under this Section or otherwise.
3. ENFORCEMENT. If a claim under Section 1 hereof is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, or a claim under Section 2 hereof for an
Advancement of Expenses is not paid in full by the Corporation within twenty
(20) days after a written claim has been received by the Corporation,
Director may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, Director
shall also be entitled to be paid the expense of prosecuting or defending
such suit, including any reasonable attorneys' fees. In any suit by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the Corporation shall be entitled to recover such expenses upon
a Final Adjudication that Director has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment). Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of Director is proper in the circumstances because
Director has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that Director has not met such applicable standard of conduct,
shall create a presumption that Director has not met the applicable standard
of conduct or, in the case of such a suit brought by Director, be a defense
to such suit. In any suit brought by Director to enforce a right to
indemnification or to an Advancement of Expenses hereunder, or by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the burden of proving that Director is not entitled to be
indemnified, or to such Advancement of Expenses, under this Article or
otherwise shall be on the Corporation.
4. CHANGE IN CONTROL.
(a) Upon the Trigger Date (as defined in the Certificate in
effect on the date hereof), the Corporation shall seek legal advice
concerning the rights of Director to indemnity payments under this
Agreement, the Certificate, or any other bylaw or agreement now or
hereafter in effect, only from special independent counsel selected by
Director and approved by the Corporation (which approval shall not be
unreasonably withheld). Such counsel shall not have otherwise
performed services for the Corporation (except in connection with
similar questions about payments of indemnity), and the Corporation
shall not engage such counsel for any purpose other than with respect
to rights under this or similar agreements. Such counsel, among other
things, shall determine whether and to what extent Director is
permitted to be indemnified under applicable law and shall render its
written opinion to the Corporation and Director to such effect.
(b) The Corporation agrees to pay the reasonable fees of the
special independent counsel referred to above and to fully indemnify
such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto except for such counsel's
willful misconduct or gross negligence.
5. DEFENSE. The Corporation shall have the right to participate at
its own expense in any action, suit, proceeding, inquiry or investigation
against Director with respect to an Indemnifiable Event and to assume the
defense thereof with counsel satisfactory to Director. Director shall have
the right to employ separate counsel in any such action, suit, proceeding,
inquiry or investigation and the fees and expenses of such separate counsel
shall be borne by Director; provided that, all fees and expenses of such
separate counsel shall be borne by the Corporation if: (i) the Corporation
shall have authorized the engagement of such separate counsel, (ii) the
Corporation shall have failed to employ any counsel to represent Director in
such matter, or (iii) such separate counsel shall have reasonably advised
Director that there may be a conflict of interest between Director and
Corporation in the defense or investigation of such matter.
6. ADDITIONAL INDEMNITY. The Corporation shall indemnify Director
to the fullest extent permitted by law against any and all expenses
(including attorneys' fees) and, if requested by Director, shall (within
twenty business days of such request) advance such expenses to Director,
which are incurred in connection with any claim asserted or action brought by
Director for (i) indemnification or advance payment of expenses by the
Corporation under this Agreement, the Certificate or any other bylaw or
agreement hereafter in effect relating to claims for Indemnifiable Events
and/or (ii) recovery under any directors' and officers' liability insurance
policies maintained by the Corporation; provided that, if Director ultimately
is determined in the manner provided for herein not to be entitled to such
indemnification, advance payment of expenses or insurance recovery, Director
shall, and Director hereby undertakes to, reimburse the Corporation for all
such amounts received by Director promptly after receipt of a written demand
therefor from the Corporation.
7. ADDITIONAL RIGHTS. The rights of Director hereunder shall be in
addition to any other rights Director may have under the Certificate as in
effect on the date of this Agreement or the Delaware General Corporation Law
or otherwise. To the extent a change in the Delaware General Corporation Law
(whether by statute or judicial decision) or in the Certificate permits
greater indemnification by agreement than would be afforded currently, it is
the intent of the parties hereto that Director shall enjoy by this Agreement
the greater benefits afforded by such change.
8. INSURANCE COVERAGE. To the extent the Corporation maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Director shall be covered by such policy or policies, in
accordance with the terms thereof, to the maximum extent of the coverage
available for any director or officer of the Corporation.
9. MODIFICATION OF AGREEMENT. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof nor shall such waiver constitute a continuing waiver.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director. Director shall do everything reasonably
necessary to enable the Corporation to secure and enforce such rights,
provided any costs incurred by Director in connection therewith shall be
advanced or promptly reimbursed by the Corporation.
11. LIMITS OF CORPORATION'S LIABILITY. The Corporation shall not be
liable under this Agreement to make any payment in connection with any claim
made against Director to the extent Director has otherwise actually received
payment (under any insurance policy, bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
12. BINDING EFFECT. This Agreement shall be binding upon Director
and upon the Corporation, its successors and assigns, and shall inure to the
benefit of Director, such Director's heirs, personal representatives and
assigns and to the benefit of Corporation, its successors and assigns. This
Agreement shall continue in effect regardless of whether Director continues
to serve the Corporation or any other enterprise at the Corporation's
request.
13. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, and if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware, without regard to
conflicts of law rules or principles which might refer such interpretation or
enforcement to the laws of another state or country.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
STILWELL FINANCIAL, INC.
By -------------------------------
Title: --------------------------
---------------------------------
Director
<PAGE>
SCHEDULE
TO
REPRESENTATIVE DIRECTOR INDEMNIFICATION AGREEMENT
-------------------------------------------------
In accordance with the instructions to Item 601 of Regulation S-K, this
schedule supplements the Representative Director Indemnification Agreement
(the "Director Indemnification Agreement"). The Director Indemnification
Agreement was entered into by the following individual directors on the
following dates. There are no other material differences between the
Director Indemnification Agreement and the agreements entered into by such
individuals.
DIRECTOR DATE
-------- ----
Landon H. Rowland ________, 1999
Morton I. Sosland ________, 1999
James E. Barnes ________, 1999
A. Edward Allinson ________, 1999
REPRESENTATIVE
OFFICER INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and effective as of this ____ day of __________,
1999, between Stilwell Financial, Inc., a Delaware corporation
("Corporation") and ___________________ ("Officer").
WHEREAS, Officer is an officer of Corporation and in such capacity may
be exposed to risks of undue personal liability; and
WHEREAS, the Amended and Restated Certificate of Incorporation (the
"Certificate") of the Corporation, which requires the Corporation to
indemnify and advance expenses to Officer to the fullest extent permitted by
the Delaware General Corporation Law, is subject to change by amendment; and
WHEREAS, the directors' and officers' liability insurance obtained by
the Corporation may not provide complete protection to Officer against all
risks of undue personal liability; and
WHEREAS, Officer is serving the Corporation in part in reliance upon
the continued availability of effective protection against undue personal
liability arising out of or in connection with Officer's service to the
Corporation; and
WHEREAS, to supplement the Corporation's directors' and officers'
liability insurance and to provide Officer with specific contractual
assurance that the protection provided by the Corporation's Certificate will
continue to be available to Officer regardless of, among other things, an
amendment of the Certificate or a change in management or control of the
Corporation, the Corporation has agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the above premises and of Officer's
continued service to the Corporation, the parties hereto agree as follows:
1. INDEMNITY OF OFFICER. In the event Officer was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or
was a director, officer, employee, agent, trustee, committee member or
representative of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee, agent, trustee, committee
member or representative of another corporation or other entity, including,
without limitation, any Subsidiary (as defined in the Certificate),
partnership, joint venture, limited liability company, limited liability
partnership, unincorporated organization or similar company, trust or other
enterprise, including service with respect to any employee benefit plan,
whether the basis of such Proceeding is alleged action in an official
capacity or in any other capacity while serving as a director, officer,
employee, agent, trustee, committee member or representative (an
"Indemnifiable Event"), Officer shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by reason of Officer acting in any such capacity;
PROVIDED, HOWEVER, that with respect to Proceedings to enforce rights to
indemnification, the Corporation shall indemnify Officer in connection with a
Proceeding (or part thereof) initiated by Officer only if such Proceeding (or
part thereof) is conducted as provided in Section 3 below or if such
Proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
2. ADVANCEMENT OF EXPENSES. The right to indemnification conferred
in Section 1 hereof shall include the right to have the Corporation pay the
expenses incurred in defending any Proceeding in advance of its final
disposition (an "Advancement of Expenses"); PROVIDED, HOWEVER, that, if the
Delaware General Corporation Law so requires, an Advancement of Expenses
incurred by Officer shall be made only upon delivery to the Corporation of an
undertaking (an "Undertaking"), by or on behalf of Officer, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (a "Final
Adjudication"), that Officer is not entitled to be indemnified for such
expenses under this Section or otherwise.
3. ENFORCEMENT. If a claim under Section 1 hereof is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, or a claim under Section 2 hereof for an
Advancement of Expenses is not paid in full by the Corporation within twenty
(20) days after a written claim has been received by the Corporation, Officer
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such
suit, or in a suit brought by the Corporation to recover an Advancement of
Expenses pursuant to the terms of an Undertaking, Officer shall also be
entitled to be paid the expense of prosecuting or defending such suit,
including any reasonable attorneys' fees. In any suit by the Corporation to
recover an Advancement of Expenses pursuant to the terms of an Undertaking,
the Corporation shall be entitled to recover such expenses upon a Final
Adjudication that Officer has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment). Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of Officer is proper in the circumstances because
Officer has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that Officer has not met such applicable standard of conduct,
shall create a presumption that Officer has not met the applicable standard
of conduct or, in the case of such a suit brought by Officer, be a defense to
such suit. In any suit brought by Officer to enforce a right to
indemnification or to an Advancement of Expenses hereunder, or by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the burden of proving that Officer is not entitled to be
indemnified, or to such Advancement of Expenses, under this Article or
otherwise shall be on the Corporation.
4. CHANGE IN CONTROL.
(a) Upon the Trigger Date (as defined in the Certificate in
effect on the date hereof), the Corporation shall seek legal advice
concerning the rights of Officer to indemnity payments under this
Agreement, the Certificate, or any other bylaw or agreement now or
hereafter in effect, only from special independent counsel selected by
Officer and approved by the Corporation (which approval shall not be
unreasonably withheld). Such counsel shall not have otherwise
performed services for the Corporation (except in connection with
similar questions about payments of indemnity), and the Corporation
shall not engage such counsel for any purpose other than with respect
to rights under this or similar agreements. Such counsel, among other
things, shall determine whether and to what extent Officer is permitted
to be indemnified under applicable law and shall render its written
opinion to the Corporation and Officer to such effect.
(b) The Corporation agrees to pay the reasonable fees of the
special independent counsel referred to above and to fully indemnify
such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto except for such counsel's
willful misconduct or gross negligence.
5. DEFENSE. The Corporation shall have the right to participate at
its own expense in any action, suit, proceeding, inquiry or investigation
against Officer with respect to an Indemnifiable Event and to assume the
defense thereof with counsel satisfactory to Officer. Officer shall have the
right to employ separate counsel in any such action, suit, proceeding,
inquiry or investigation and the fees and expenses of such separate counsel
shall be borne by Officer; provided that, all fees and expenses of such
separate counsel shall be borne by the Corporation if: (i) the Corporation
shall have authorized the engagement of such separate counsel, (ii) the
Corporation shall have failed to employ any counsel to represent Officer in
such matter, or (iii) such separate counsel shall have reasonably advised
Officer that there may be a conflict of interest between Officer and
Corporation in the defense or investigation of such matter.
6. ADDITIONAL INDEMNITY. The Corporation shall indemnify Officer to
the fullest extent permitted by law against any and all expenses (including
attorneys' fees) and, if requested by Officer, shall (within twenty business
days of such request) advance such expenses to Officer, which are incurred in
connection with any claim asserted or action brought by Officer for (i)
indemnification or advance payment of expenses by the Corporation under this
Agreement, the Certificate or any other bylaw or agreement hereafter in
effect relating to claims for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Corporation; provided that, if Officer ultimately is determined in the manner
provided for herein not to be entitled to such indemnification, advance
payment of expenses or insurance recovery, Officer shall, and Officer hereby
undertakes to, reimburse the Corporation for all such amounts received by
Officer promptly after receipt of a written demand therefor from the
Corporation.
7. ADDITIONAL RIGHTS. The rights of Officer hereunder shall be in
addition to any other rights Officer may have under the Certificate as in
effect on the date of this Agreement or the Delaware General Corporation Law
or otherwise. To the extent a change in the Delaware General Corporation Law
(whether by statute or judicial decision) or in the Certificate permits
greater indemnification by agreement than would be afforded currently, it is
the intent of the parties hereto that Officer shall enjoy by this Agreement
the greater benefits afforded by such change.
8. INSURANCE COVERAGE. To the extent the Corporation maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Officer shall be covered by such policy or policies, in accordance
with the terms thereof, to the maximum extent of the coverage available for
any director or officer of the Corporation.
9. MODIFICATION OF AGREEMENT. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof nor shall such waiver constitute a continuing waiver.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Officer. Officer shall do everything reasonably
necessary to enable the Corporation to secure and enforce such rights,
provided any costs incurred by Officer in connection therewith shall be
advanced or promptly reimbursed by the Corporation.
11. LIMITS OF CORPORATION'S LIABILITY. The Corporation shall not be
liable under this Agreement to make any payment in connection with any claim
made against Officer to the extent Officer has otherwise actually received
payment (under any insurance policy, bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
12. BINDING EFFECT. This Agreement shall be binding upon Officer and
upon the Corporation, its successors and assigns, and shall inure to the
benefit of Officer, such Officer's heirs, personal representatives and
assigns and to the benefit of Corporation, its successors and assigns. This
Agreement shall continue in effect regardless of whether Officer continues to
serve the Corporation or any other enterprise at the Corporation's request.
13. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, and if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware, without regard to
conflicts of law rules or principles which might refer such interpretation or
enforcement to the laws of another state or country.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
STILWELL FINANCIAL, INC.
By -------------------------------
Title:----------------------------
----------------------------------
Officer
<PAGE>
SCHEDULE
TO
REPRESENTATIVE OFFICER INDEMNIFICATION AGREEMENT
------------------------------------------------
In accordance with the instructions to Item 601 of Regulation S-K, this
schedule supplements the Representative Officer Indemnification Agreement
(the "Officer Indemnification Agreement"). The Officer Indemnification
Agreement was entered into by the following individual officers on the
following dates. There are no other material differences between the Officer
Indemnification Agreement and the agreements entered into by such
individuals.
OFFICER DATE
------- ----
Landon H. Rowland ________, 1999
Joseph D. Monello ________, 1999
Danny R. Carpenter ________, 1999
Anthony P. McCarthy ________, 1999
FORM OF
INTERCOMPANY AGREEMENT
This Intercompany Agreement is made and entered into this 16th day of
August 1999, by and between Kansas City Southern Industries, Inc., a Delaware
corporation ("KCSI") and Stilwell Financial, Inc., a Delaware corporation
("Stilwell").
WHEREAS, KCSI plans to separate its transportation and financial
services businesses through a spin-off of a holding company for the financial
services businesses to the shareholders of KCSI; and
WHEREAS, Stilwell has been formed as the holding company for KCSI's
financial services businesses, and Stilwell and KCSI desire to enter into
this agreement with respect to the proposed spin-off and the relationship of
KCSI and Stilwell thereafter.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. EFFECTIVE DATE
--------------
This agreement shall become effective on the date that the Board
of Directors ("the Board") of KCSI approves the distribution of all or
substantially all of the shares of Stilwell stock owned by KCSI to the
shareholders of KCSI (the "Spin-off") and fixes a record date (the "Record
Date") and a payment or distribution date for the Spin-off. The date of such
Board action hereinafter is referred to as the "Effective Date". The date
for the distribution of the Stilwell shares in the Spin-off is referred to as
the "Distribution Date".
2. CONTRIBUTION AGREEMENT
----------------------
KCSI and Stilwell acknowledge that on July 7, 1999 they entered
into a Contribution Agreement providing for the transfer of all of KCSI's
financial services subsidiaries, investments and related assets to Stilwell
and the assumption by Stilwell of all liabilities related to such assets
effective July 1, 1999 (the "Contribution Agreement"). The principal
financial services companies now owned by Stilwell are Janus Capital
Corporation (approximately 82%), Berger Associates, Inc. (100%), Nelson Money
Managers PLC (80%), and DST Systems, Inc. (approximately 32%). Such
companies are hereinafter referred to as Janus, Berger, Nelson, and DST,
respectively.
3. ASSIGNMENT OF AGREEMENTS
------------------------
Subject to Stilwell's securing any consents in writing necessary to
assign and transfer the following described agreements and providing copies
of such consents to KCSI prior to the Effective Date, KCSI hereby assigns and
transfers to Stilwell, as of the Effective Date, all of its interest in and
rights, and Stilwell hereby assumes and agrees to satisfy and discharge and
to be bound by all of KCSI's obligations, under the following agreements or
portions of agreements:
(a) Agreements relating to Janus:
- Stock Purchase Agreement dated April 13, 1984, between
Kansas City Southern Industries, Inc. and Thomas H.
Bailey, et al, as amended on January 4, 1985, March 18,
1988, February 5, 1990 and January 1, 1996.
- Stock Purchase Agreement dated January 5, 1995, between
Kansas City Southern Industries, Inc., Janus Capital
Corporation and Thomas H. Bailey, et al.
- Stock Purchase Agreement dated May 4, 1995, between
Kansas City Southern Industries, Inc., Janus Capital
Corporation and Thomas F. Marsico, et al.
- Stock Purchase Agreement dated August 1, 1995, between
Kansas City Southern Industries, Inc., Janus Capital
Corporation and Jack R. Thompson, et al.
- Restriction Agreement dated January 5, 1995, between
Kansas City Southern Industries, Inc., Janus Capital
Corporation and Jack R. Thompson, et al, as amended on
August 1, 1995, December 31, 1996 and September 22,
1997.
- Agreement Imposing Restrictions on Shares dated
September 29, 1997, among Kansas City Southern
Industries, Inc., Janus Capital Corporation and each
of the following individuals (each being party to a
separate agreement):
Laurence J. Chang Blaine P. Rollins
David J. Corkins Sandy R. Rufenacht
David C. Decker Claire Young
Helen Y. Hayes Steven R. Goodbarn
C. Mike Lu Marjorie G. Hurd
Brent A. Lynn Scott W. Schoelzel
Thomas R. Malley Christine K. Snyder
Lester K. Moore Ronald V. Speaker
Elias M. Pinto Mark B. Whiston
Karen L. Reidy
- Restricted Stock Agreement dated March 27, 1998 among
Janus Capital Corporation, Kansas City Southern
Industries, Inc. and each of the following
individuals (each being party to a separate agreement):
Laurence J. Chang Elias M. Pinto
David J. Corkins Karen L. Reidy
David C. Decker Blaine P. Rollins
Brent A. Lynn Sandy R. Rufenacht
C. Mike Lu Claire Young
Thomas R. Malley
- Right of First Refusal and Exchange Agreement dated
September 29, 1997 by and between Janus Capital
Corporation, Kansas City Southern Industries, Inc.,
Norwest Bank Colorado, N.A. and Lawrence J. Chang,
et al.
- Note and Pledge Agreements signed by certain employees
of Janus Capital Corporation or its subsidiaries as
listed in paragraph 2(e) of the Contribution Agreement.
- Restricted Stock Agreement dated December 14, 1998
among Janus Capital Corporation, Kansas City Southern
Industries, Inc., and each of the following
individuals (each being party to a separate agreement):
Thomas A. Early
Helen Y. Hayes
Scott W. Schoelzel
- Agreement Imposing Restrictions on Shares dated April
16, 1999, among Janus Capital Corporation, Kansas
City Southern Industries, Inc., and each of the
following individuals (each being party to a separate
agreement):
Scott W. Schoelzel John Schreiber
Helen Y. Hayes Ron Sachs
Will Bales Mike Dugas
Jonathan Coleman Julian Roberts
Brent Lynn Tom Early
- Tax Allocation Agreement between KCSI and Janus Capital
Corporation dated January 1, 1989, as amended effective
January 1, 1998.
- Intercorporate Revolving Credit Agreement between KCSI
and Janus effective January 1, 1998.
As to any agreement relating to Janus which is not assigned to
Stilwell because of Stilwell's inability to secure a required
consent for assignment of such agreement,
i) Stilwell shall be required to perform, for KCSI, all
obligations KCSI is obligated to perform for another party under such
agreement at the time and in the same manner as KCSI is required to perform
its obligation to such other party.
ii) All benefits and assets that are received by KCSI under such
agreement shall be transferred to Stilwell at the same time and in the same
manner as such benefits and assets are received by KCSI.
iii) If Stilwell is required to deliver any funds to KCSI by reason
of the foregoing, Stilwell shall deliver such funds to KCSI in time so as to
allow KCSI to use such funds to satisfy its obligations under such agreement.
iv) If KCSI receives any notice or has any elections or choices
under any such agreement, KCSI shall provide a copy of any such notice to
Stilwell within two (2) business days of KCSI's receipt thereof, and KCSI
shall make any election or choice under any such agreement only as approved
in writing by Stilwell.
v) KCSI will not provide any consents or waivers under any
such agreement or agree to any amendment of any such agreement without the
prior written approval of Stilwell.
(b) AGREEMENTS RELATING TO BERGER:
-----------------------------
- Stock Purchase Agreement among Kansas City Southern
Industries, Inc., Berger Associates, Inc., and William M.
B. Berger, et al dated July 6, 1994, as supplemented on
October 21, 1997.
- Exchange Agreement among Kansas City Southern Industries,
Inc., Louis P. Bansbach III, Lynda B. Collins, Trustee of
the Louis P. Bansbach IV, Trust 1 and Lynda B. Collins,
Trustee of the Brooke Allison Bansbach, Trust 1, dated
as December 3, 1997.
(c) AGREEMENTS RELATING TO NELSON:
-----------------------------
- All rights and obligations of KCSI, as Guarantor,
contained in the Agreement for the acquisition of the
majority of the issued share capital of Nelson Money
Managers PLC among David Cassidy and others, Barclays
Industrial Development Limited and others, FAM UK
Limited, Kansas City Southern Industries, Inc., and
Nelson Money Managers PLC dated April 9, 1998.
- Shareholders agreement among David Cassidy and others,
FAM UK Limited and Kansas City Southern Industries, Inc.
dated April 20, 1998.
(d) AGREEMENTS RELATING TO DST:
--------------------------
- Registration Rights Agreement between Kansas City
Southern Industries, Inc. and DST Systems, Inc. dated
October 24, 1995.
- Agreement between DST Systems, Inc. and Kansas City
Southern Industries, Inc. dated April 2, 1998, relating
to Midland claims.
- Letter Agreement dated September 2, 1998 between Kansas
City Southern Industries, Inc. and DST Systems, Inc.
relating to KCSI's spin-off of its financial services
business.
(e) AGREEMENTS RELATING TO MIDWEST SUPERCONDUCTIVITY, INC.:
------------------------------------------------------
- Loan agreement dated July 12, 1996, among Kansas City
Southern Industries, Inc., SOS & Co. and Midwest
Superconductivity, as amended on January 31, 1997, July
25, 1997 and November 24, 1997.
- Convertible Promissory Note of Midwest Superconductivity,
Inc. dated July 12, 1996 in the principle amount of
$1,300,000.
- Security Agreement dated July 12, 1996 among Midwest
Superconductivity, Inc., Kansas City Southern Industries,
Inc. and SOS & Co.
- Patent Security Agreement dated July 12, 1996 among
Midwest Superconductivity, Inc., Kansas City Southern
Industries, Inc. and SOS & Co.
- Letter agreement dated September 3, 1996 between Kansas
City Southern Industries, Inc., and SOS & Co.
(f) OTHER AGREEMENTS
----------------
- Consulting Agreement with Albert P. Mauro dated June 27,
1995, as amended on June 28, 1996, June 30, 1997, June 26,
1998 and May 7, 1999.
- Consulting Agreement with Victor D. Canterbury dated
December 29, 1998.
4. KCSI AND STILWELL STOCK OPTIONS
-------------------------------
(a) KCSI acknowledges and agrees that all KCSI stock options
held by present and former employees and directors of Stilwell and its
subsidiaries and affiliates on the Distribution Date shall continue to be
exercisable by such persons in accordance with the terms of such options as
in effect on the Distribution Date and that the Spin-off shall not constitute
or result in a termination of employment or directorship for purposes of any
KCSI option plan or agreement, and neither the Spin-off nor the transfer of
employment or directorship from KCSI to Stilwell in connection with the Spin-
off will result in the termination of any KCSI stock options.
(b) Not later than the Distribution Date, Stilwell shall grant
stock options for the purchase of Stilwell common stock to all persons who
hold KCSI stock options on the day after the Record Date (the "Stilwell
Substitute Options"). The number of Stilwell Substitute Options granted to
each holder shall bear the same ratio to the holder's KCSI stock options as
the number of Stilwell shares distributed in the Spin-off bears to the number
of KCSI shares outstanding on the Record Date. Each Stilwell Substitute
Option shall have substantially the same terms as the KCSI stock option to
which it relates, including a term of option which will expire on the same
date as the related KCSI option, except that the exercise price shall be a
prorated amount of the exercise price for the related KCSI option determined
by reference to the average trading prices of KCSI and Stilwell common stock
for the first three business days on which there is trading on the New York
Stock Exchange in both Stilwell shares and KCSI shares "ex-dividend." The
trading prices of KCSI and Stilwell common stock on each day shall be the
mean between the high and the low prices of the shares on the New York Stock
Exchange on the day in question.
(c) For purposes of this Agreement, a subsidiary shall mean any
corporation, partnership or any other entity of which at least 50% of the
voting stock or other controlling interests is or was owned, directly or
indirectly, by the party in question and an affiliate shall mean any
corporation, partnership, or other entity (which is not a subsidiary) of
which at least 10% of the voting stock or other controlling interest is or
was owned, directly or indirectly by the party in question or its
subsidiaries or affiliates.
5. EMPLOYEES, OFFICERS AND DIRECTORS
---------------------------------
(a) The individuals listed on Exhibit A are now or will become
by the Distribution Date employees of Stilwell (the "Stilwell Employees"), and
Stilwell shall have full responsibility for all compensation and benefits for
the Stilwell Employees earned after the Distribution Date, except as
otherwise provided in this agreement. KCSI and Stilwell shall use reasonable
efforts to cause any existing employment agreements between Stilwell
Employees and KCSI to be terminated not later than the Distribution Date, and
Stilwell shall assume responsibility for any obligations of KCSI under any
employment agreement with a Stilwell Employee that is not terminated.
(b) Stilwell shall reimburse KCSI for the cost of any medical
plan benefits, life insurance and long term disability insurance for the
inactive or former employees listed on Exhibit B. KCSI's cost of such program
shall be determined based upon KCSI's actual costs of premiums and claims
incurred in providing such benefits or insurance under its programs, plus an
administrative fee equal to 5% of such cost.
(c) KCSI shall cause each of its employees who will remain KCSI
employees to resign, effective not later than the close of business of the
Distribution Date, from all positions as a director, officer and/or committee
member of Stilwell and any Stilwell subsidiary; and Stilwell shall cause each
of its employees to resign, effective not later than the close of business on
the Distribution Date, from all positions as a director, officer and/or
committee member of KCSI or any KCSI subsidiary (other than Stilwell and
Stilwell subsidiaries), except as otherwise agreed between the parties.
(d) The Contribution Agreement provides that certain
obligations of KCSI under the KCSI Directors' Deferred Fee Plan will be
assumed by Stilwell and that certain assets related to such obligations will
be transferred to Stilwell. Accordingly, after the Distribution Date, KCSI
shall have no obligations to the Stilwell outside directors under the KCSI
Directors' Deferred Fee Plan.
6. PENDING CLAIMS AND LITIGATION
-----------------------------
(a) KCSI and Stilwell agree that the following claims,
lawsuits or other proceedings pending by or against KCSI or its present or
former subsidiaries are related to the historical financial services
businesses of KCSI:
i) FIRST AUSA LIFE INSURANCE COMPANY, ET AL, V. KANSAS CITY
SOUTHERN INDUSTRIES, INC., et. al., Case No. 95-0297-CV-W-6 in the United
States District Court for the Western District of Missouri.
ii) FOUNTAIN INVESTMENTS, INC., ET AL V. MLS, L.P., et al,
Case No. 98-1096-CV-W-9 in the United States District Court for the Western
District of Missouri.
iii) PVI, INC. AND WILLIAM G. SKELLY V. RATIOPHARM GMBH, Case
No. 95-0899-CV-W-2 in the United States District Court for the Western
District of Missouri.
iv) PVI, INC. AND WILLIAM G. SKELLY V. KLAUS LICTENBERGER, et
al, Case No. CV96-25818 in the Circuit Court of Jackson County, Missouri at
Kansas City.
(b) Legal title to the above-listed claims and lawsuits shall
remain with KCSI, which shall continue to prosecute and/or defend the claims
asserted in such lawsuits in its own name. However, Stilwell shall be
entitled to make all decisions concerning all such claims and lawsuits,
including the prosecution of all related claims, counterclaims and cross-
claims in the name of KCSI; the defense of all related claims, counterclaims
and cross-claims in the name of KCSI; and the authorization and approval of
any and all settlements or compromises (all of the foregoing litigation,
claims, counterclaims, settlements and compromises are hereinafter referred
to as the "Stilwell-related Litigation"). Stilwell shall be entitled to
direct the handling of all matters involving the Stilwell-related Litigation
directly with legal counsel selected by Stilwell and to direct and authorize
any activities required of counsel in connection with the Stilwell-related
Litigation.
(c) KCSI shall cooperate with Stilwell in the handling of the
Stilwell-related Litigation and shall take all action and sign all documents
as may reasonably be requested or directed by Stilwell in connection with the
Stilwell-related Litigation, including any action relating to the following
agreements:
- Agreement for Purchase and Sale of Corporate Stock and
Limited Partnership Interest between Kansas City Southern
Industries, Inc., and Fountain Investments, Inc. and
Midland Data Systems, Inc. dated February 26, 1996.
- Agreement between Midland Data Systems, Inc., Midland Loan
Services, L.P., MLS Investors, L.L.C., Alan L. Atterbury,
A. Keith Weber, Fountain Investments, Inc., Kansas City
Southern Industries, Inc., and DST Systems, Inc. dated
April 2, 1998.
- Escrow Agreement between Midland Data Systems, Inc.,
Midland Loan Services, L.P., MLS Investors, L.L.C., Alan L.
Atterbury, A. Keith Weber, Fountain Investments, Inc.,
Kansas City Southern Industries, Inc., DST Systems, Inc.
and UMB Bank, N.A. dated April 2, 1998, as amended.
KCSI shall not make or agree to any changes, amendments or modifications to
the foregoing agreements or provide any waivers, consents or notifications
pursuant to such agreements, except as specifically requested or directed in
writing by Stilwell.
(d) KCSI shall pay to Stilwell, within two business days of receipt
by KCSI, any and all amounts received or collected by KCSI in connection with
Stilwell-related Litigation, including amounts received or collected by
reason of final judgment, settlement or otherwise.
(e) Stilwell agrees to satisfy and discharge all liabilities and
obligations of KCSI relating to Stilwell-related Litigation and to pay
directly or reimburse KCSI for all out-of-pocket expenses, including
attorneys' fees, paid or incurred after the Effective Date relating to such
Stilwell-related Litigation. If Stilwell is required to deliver any funds to
KCSI by reason of the foregoing, Stilwell shall deliver such funds to KCSI in
time so as to allow KCSI to use such funds to satisfy its obligations.
7. ON-GOING RELATIONSHIPS
----------------------
(a) For a period of 90 days after the Distribution Date, Stilwell may
continue to occupy office space currently occupied by Stilwell employees, and
KCSI shall provide normal office services (including fax, photocopy,
telephone, computers, maintenance and cleaning) during the time Stilwell
occupies such space. Stilwell may vacate such space on fifteen days' advance
written notice to KCSI. Stilwell shall pay KCSI for the use of such space
and services at the rate of $6,250 per calendar month, prorated for any
partial month.
(b) At Stilwell's request, KCSI shall continue medical, dental,
vision, life insurance and long-term disability coverage for some or all of
the Stilwell Employees as specified by Stilwell from the Distribution Date
through December 31, 1999. Stilwell shall pay KCSI the cost of providing such
coverage to Stilwell Employees, determined on the basis of KCSI's actual costs
for such premiums and claims, plus an administrative fee equal to 5% of such
cost. If any such Stilwell Employees retire while covered by KCSI's plans,
KCSI shall provide such individuals with retiree medical plan coverage,
retiree life insurance and retiree disability insurance and Stilwell shall
reimburse KCSI for the costs thereof in accordance with paragraph 5(b). KCSI
reserves the right to change the terms of its medical, dental, vision, life
insurance and long-term disability coverage at any time.
(c) KCSI shall continue coverage of Stilwell and its subsidiaries
under KCSI's business insurance policies until the earlier of December 31,
1999 or the expiration of the existing policies. Any cost incurred by KCSI as
the result of the continuing of such coverage for Stilwell shall be paid for
by Stilwell. KCSI shall maintain its directors' and officers' liability
insurance and executive risk coverage through the Distribution Date for all
KCSI and Stilwell directors, officers and executives. Stilwell shall be
responsible for its own directors' and officers' liability insurance and
executive risk coverage commencing on the day after the Distribution Date.
(d) KCSI shall provide Stilwell with full, active access to KCSI's
Geac Enterprise ("Geac") accounting system and associated data available on
that system until December 31, 1999. After December 31, 1999, Stilwell may,
upon written request to KCSI, obtain from KCSI, through its Geac support
provider, DST, a data tape of historical financial and accounting records and
information applicable to Stilwell and its subsidiaries, affiliates and
investments. The format of the data tape, requested by Stilwell, must be
technologically available and acceptable to DST. Stilwell may also, upon
written request, obtain copies of printed historical reports, transaction
ledgers or other financial and accounting records and information, related to
Stilwell as KCSI may have available. KCSI understands that Stilwell has
implemented and is utilizing a new accounting software system from Great
Plains Software for its transactional accounting requirements. Stilwell
acknowledges that the computer information available to Stilwell after
December 31, 1999, as created using the Geac system, has not been remediated
or tested for year 2000 readiness. KCSI makes no assurances that the
information contained on any requested data tape made available after December
31, 1999, will be accessible, readable, printable or usable, in any manner, by
any computer system. Stilwell shall reimburse KCSI for any reasonable out-of-
pocket costs resulting from Stilwell's access or requests for information
provided in this section.
(e) After the Distribution Date, KCSI shall use reasonable efforts to
cause Wyandotte Garage Corporation ("Wyandotte") to continue to make parking
spaces available in its parking facility for individuals who are employees or
directors of Stilwell after the Distribution Date and who now park in the
garage. In addition, KCSI shall use reasonable efforts to cause Wyandotte to
make additional parking spaces available in the garage for other employees,
directors or guests of Stilwell as may be requested from time to time by
Stilwell for its reasonable business purposes. Stilwell or its employees
shall pay Wyandotte for such spaces at the rates generally applicable to the
public. The provisions of this paragraph shall remain in effect as long as
KCSI directly or indirectly owns at least 50% of Wyandotte.
(f) From and after the Distribution Date, each party hereto shall
afford to the other party and its authorized accountants, counsel and other
designated representatives (collectively, "Representatives") reasonable access
(including using reasonable efforts to give access to third parties possessing
information) and duplicating rights during normal business hours to all
business records, books, contracts (except this Agreement, the Contribution
Agreement and the Tax Disaffiliation Agreement), instruments, accounting and
financial information, employee and payroll information, computer data and
other data and information (collectively, "Information") within such party's
possession relating to such other party or any subsidiary or affiliate of such
other party, insofar as such access is reasonably required by such other
party. Information may be requested under this paragraph 7(f) for, without
limitation, audit, accounting, claims, litigation (including Stilwell-related
Litigation) and tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations and for performing this Agreement and the
transactions contemplated hereby. Also, each of KCSI and Stilwell and their
respective subsidiaries shall use reasonable efforts to make available to the
other party and their subsidiaries, upon written request, their present and
former directors, officers, employees and agents (for purposes of this
paragraph 7(f), individually or collectively, "Personnel") to the extent that
any of such Personnel may reasonably be required (including for reasonable
affidavits) in connection with any matters referred to in this paragraph 7(f)
or any legal, administrative or other proceedings in which the requesting
party may from time to time be involved. The requesting party shall pay to
the party providing access to Information or Personnel reasonable out-of-
pocket costs associated with providing such Information or Personnel and shall
also pay a per diem fee for the use of Personnel of the party providing
Information or Personnel based on the Personnel's salary (if such Personnel is
employed by the party providing the Personnel), if the requesting party uses
such Personnel for more than two full working days.
(g) Each party shall provide to the other party from time to time all
Information regarding the providing party's employees, former employees,
benefit plans, payrolls and other Information reasonably needed by the
receiving party for the administration of such party's benefit plans and human
resource policies and for the transition of Stilwell's employees to Stilwell
benefit plans from KCSI benefit plans. Such Information shall include,
without limitation, reports by each of Stilwell and KCSI to the other party
containing the information described in Exhibit C until all stock options held
by employees and former employees of the providing party and its subsidiaries
and affiliates for shares of the other party's stock have been exercised or
have expired.
(h) For a period of two years after the Distribution Date, KCSI shall
provide Stilwell and its Representatives access to KCSI's law and tax
libraries. Stilwell shall reimburse KCSI for any reasonable out-of-pocket
costs resulting from Stilwell use.
(i) Except as otherwise required by law, each of KCSI and Stilwell
shall retain, and shall cause their subsidiaries to retain, for a period
following the Distribution Date consistent with normal practice and with
relevant law, all significant Information relating to the business of the
other party and the other party's subsidiaries and affiliates, except that all
Information relating to tax matters shall be retained until all issues for the
years in question are closed by the relevant statute of limitations or by
final resolution of all issues, and all Information relating to any litigation
or other legal proceedings shall be retained until the proceedings are finally
concluded. KCSI will retain all historical general ledger accounting records
indefinitely, provided if KCSI no longer wishes to maintain such records, it
shall transfer to Stilwell those that relate to Stilwell operations.
(j) KCSI and Stilwell each shall hold, and shall cause its
subsidiaries and Representatives to hold, in strict confidence, all
Information concerning the other party or its subsidiaries or affiliates in
its possession or furnished by the other party or the other party's
Representatives pursuant to either this Agreement, the Contribution Agreement
or the Tax Disaffiliation Agreement (except to the extent that such
information (i) is on the date hereof or hereafter becomes generally available
to the public other than as a result of an unauthorized disclosure, directly
or indirectly, by such party or its subsidiaries or Representatives or (ii)
was or becomes available to such party on a non-confidential basis prior to
its disclosure to such party or its subsidiaries or Representatives, in each
case from a source other than the party furnishing such information, which
source was not itself bound by a confidentiality agreement with the party
furnishing such information and had not received such information, directly or
indirectly, from a person or entity so bound, and each party shall not release
or disclose such information to any other person or entity, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors, unless compelled to disclose by judicial or administrative process
or, as advised by its counsel, by other requirements of law.
(k) Stilwell acknowledges that it has no interest in and no right to
use or display the name, trademark or other intellectual property of KCSI or
any KCSI subsidiary and shall cease any such use or display within 90 days
after the Distribution Date. KCSI acknowledges that it has no interest in and
no right to use or display the name, trademark or other intellectual property
of Stilwell or any Stilwell subsidiary, and shall cease any such use or
display within 90 days after the Distribution Date.
(l) Stilwell shall not directly or indirectly, through a subsidiary
or otherwise, for a period of one year after the Distribution Date, solicit or
hire any employee of KCSI or any KCSI subsidiary to consider employment with
Stilwell or any Stilwell subsidiary without the prior written consent of KCSI.
KCSI shall not directly or indirectly, through a subsidiary or otherwise, for
a period of one year after the Distribution Date, solicit or hire any employee
of Stilwell or any Stilwell subsidiary to consider employment with KCSI or any
KCSI subsidiary without the prior written consent of Stilwell.
8. OTHER MATTERS
-------------
(a) KCSI and Stilwell acknowledge that KCSI maintains a donor
advisory fund with the Greater Kansas City Community Foundation which holds
shares of DST stock, shares of Kansas City Royals Preferred Class C stock and
cash or cash equivalents. On or before the Distribution Date, such donor
advisory fund shall be split into two funds which funds shall be the existing
donor advisory fund and a new Stilwell donor advisory fund. All Kansas City
Royals Preferred Class C Stock and cash or cash equivalents in the amount of
$3,000,000 shall remain in the existing donor advisory fund and all remaining
assets shall be transferred to the new Stilwell donor advisory fund.
(b) On or before the Distribution Date, all leases for company
automobiles relating to Stilwell Employees and carried on the books of KCSI
or any subsidiary of KCSI shall be assigned to Stilwell.
9. REPRESENTATIONS AND WARRANTIES
------------------------------
(a) Stilwell represents and warrants to KCSI that (1) to the actual
knowledge of Landon H. Rowland, Joseph D. Monello, Danny R. Carpenter and
Anthony P. McCarthy, there are no claims or liabilities with respect to KCSI
or Stilwell, or any of their respective subsidiaries or affiliates, except
those (A) reflected on the KCSI books or for which some amount of reserves
has been established on the KCSI books, (B) which are otherwise disclosed in
the KCSI financial statements, (C) which are the subject of or related to
pending litigation, (D) which arise in the ordinary course of business, or
(E) which are already known by Michael R. Haverty, Richard P. Bruening,
Robert H. Berry, Warren K. Erdman or Louis G. Van Horn; and (2) the
agreements referred to in paragraph 3 are all of the agreements between KCSI
and any of the Stilwell Group with continuing performance obligations.
(b) KCSI represents and warrants to Stilwell that to the actual
knowledge of Michael R. Haverty, Richard P. Bruening, Robert H. Berry, Warren
K. Erdman and Louis G. Van Horn, there are no claims or liabilities with
respect to KCSI or Stilwell, or any of their respective subsidiaries or
affiliates, except those (i) reflected on the KCSI books or for which some
amount of reserves has been established on the KCSI books, (ii) which are
otherwise disclosed in the KCSI financial statements, (iii) which are the
subject of or related to pending litigation, (iv) which arise in the ordinary
course of business, or (v) which are already known by Landon H. Rowland,
Joseph D. Monello, Danny R. Carpenter or Anthony P. McCarthy.
10. INDEMNIFICATION
---------------
(a) Except with respect to any matter otherwise specifically
provided for under this Agreement, the Contribution Agreement or the Tax
Disaffiliation Agreement between KCSI and Stilwell dated August 16, 1999 (the
"Tax Disaffiliation Agreement"), Stilwell shall indemnify, defend and hold
harmless KCSI and all KCSI subsidiaries and their directors, officers,
employees and agents from and against any and all Losses (as hereinafter
defined) of KCSI and KCSI subsidiaries (i) arising out of or relating to
Stilwell, any present or former financial services subsidiary or affiliate
listed in Exhibit D (Stilwell and such subsidiaries and affiliates are
hereafter referred to individually and collectively as the "Stilwell Group")
or the business conducted (formerly or currently) or to be conducted by the
Stilwell Group whether such Losses relate to events occurring, or are
asserted before, on or after, the Distribution Date, (ii) arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading, made in the Information Statement
(except matters relating to KCSI's transportation businesses or the KCSI
Group, as defined below) contemplated to be sent to the holders of KCSI
common stock in connection with the Spin-off or made with respect to the
Stilwell Group in any other securities filing or disclosure document prepared
or filed by Stilwell or (iii) arising out of any breach by Stilwell of any
representation, warranty or covenant contained in this Agreement or the
Contribution Agreement or (iv) arising out of or relating to any of the
agreements referred to in paragraph 3.
(b) Except with respect to any matter otherwise specifically
provided for under this Agreement, the Contribution Agreement or the Tax
Disaffiliation Agreement, KCSI shall indemnify, defend and hold harmless
Stilwell and all Stilwell subsidiaries and their directors, officers,
employees and agents from and against any and all Losses (as hereinafter
defined) of Stilwell and Stilwell subsidiaries (i) arising out of or relating
to KCSI's transportation division, any present or former transportation
subsidiary or affiliate listed in Exhibit E (KCSI's transportation division
and such subsidiaries and affiliates are hereafter referred to individually
and collectively as the "KCSI Group") or the business conducted (formerly or
currently) or to be conducted by the KCSI Group, whether such Losses relate
to events occurring, or are asserted before, on or after, the Distribution
Date, (ii) arising out of or relating to KCSI after the Distribution Date,
(iii) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, made
in the Confidential Information Memorandum or the Supplemental Prospectus
(except matters relating to KCSI's financial services businesses or the
Stilwell Group) used or contemplated to be used by KCSI in connection with an
offering of securities or made with respect to KCSI or its subsidiaries or
affiliates in any other securities filing or disclosure document prepared or
filed by KCSI, (iv) arising out of any breach by KCSI of any representation,
warranty, or covenant contained in this Agreement or the Contribution
Agreement, or (v) arising out of any failure to cooperate by KCSI or any
refusal by KCSI to take action or sign documents as requested by Stilwell in
connection with the Stilwell-related Litigation described in paragraph 6(c)
of this Agreement.
(c) For any liability of KCSI which is not covered by indemnity
under paragraph 10(a) or 10(b) of this Agreement or by Section 3.3 or Section
5.1 of the Tax Disaffiliation Agreement ("KCSI Holding Company Matters"),
KCSI and Stilwell agree the liability shall be split between them, with each
of KCSI and Stilwell paying one-half of any such liability. If the liability
arises from a claim or lawsuit, KCSI and Stilwell agree to determine how to
divide the handling of the defense of KCSI Holding Company Matters on a case-
by-case basis, with each party agreeing to provide prompt notice to the other
of KCSI Holding Company Matters and each party participating in KCSI Holding
Company Matters in a good faith manner. In the absence of a subsequent
agreement to the contrary, KCSI and Stilwell shall each pay one-half of all
costs of claims and litigation relating to KCSI Holding Company matters,
including reasonable attorneys' and expert fees.
(d) For purposes of this paragraph 10, the term "Loss" or "Losses"
means all losses, liabilities, damages, claims, demands, judgments or
settlements of any kind or nature, known or unknown, fixed, accrued, absolute
or contingent, liquidated or unliquidated, including reasonable attorneys'
fees and other reasonable costs and expenses relating thereto; provided,
however, that the amount of any Losses shall be reduced by any insurance
proceeds recovered or recoverable by or on behalf of the person or entity
incurring the Losses. Losses incurred by a KCSI or Stilwell subsidiary or a
director, officer, employee or agent of KCSI or Stilwell or a subsidiary, may
be recovered under this Agreement directly by KCSI or Stilwell, as the case
may be, as if such losses were incurred in their entirety by such party.
(e) The amount which a party (the "Indemnifying Party") is or may
be required to pay to any other person or entity (an "Indemnitee") pursuant
to paragraph 10(a) or (b) shall be reduced by any insurance proceeds or other
amounts actually recovered from unrelated third parties by or on behalf of
such Indemnitee, in reduction of the related Loss, net of expenses associated
with such recovery. Each indemnitee shall be obligated to use reasonable
efforts to maximize recovery of insurance proceeds and other amounts in
reduction of the related Loss. If an Indemnitee shall have received the
payment required by this Agreement from the Indemnifying Party in respect of
any Loss and shall subsequently actually receive insurance proceeds or other
amounts in reduction of such Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such insurance proceeds or
other amounts actually received net of expenses associated with such recovery
(not in excess of the amount of any indemnity payment made hereunder).
(f) If an Indemnitee shall actually realize a tax saving by reason
of having incurred a Loss for which such Indemnitee shall have received a
payment from the Indemnifying Party, then such Indemnitee shall pay to such
Indemnifying Party an amount equal to such tax saving actually realized.
Whenever there is a substantial likelihood that an Indemnitee will receive a
tax saving by reason of a Loss, such Indemnitee shall file its tax returns in
a manner designed to recover such tax saving, provided that such Indemnitee
shall have the sole responsibility for the preparation of its tax returns and
reporting thereon such Loss and any payments received from the Indemnifying
Party. An Indemnitee shall be deemed actually to have realized a tax saving
with respect to a Loss if, and to the extent that, for any taxable period,
whether ending before, on or after the Distribution Date, the aggregate
federal, state, local and foreign tax liability actually payable by such
Indemnitee and any of its consolidated subsidiaries, computed by taking into
account any deductions, credits or other items attributable to a Loss and the
receipt of an indemnity payment with respect thereto, is less than such
aggregate tax liability, computed without regard to such deductions, credits
or other items attributable to a Loss or the receipt of an indemnity payment
with respect thereto. In the event that, following a payment by an
Indemnitee pursuant to this paragraph 10(f) in respect of a tax saving, there
shall be a final adjustment to the amount of such tax saving as a result of
an audit or other proceeding in respect of such Indemnitee's tax returns, the
parties shall take appropriate actions to reflect such adjustment. The term
"tax saving" shall be determined net of any expenses associated with such tax
saving and shall also be deemed to include any interest received from a
governmental tax authority, net of any federal, state, local or foreign taxes
payable thereon.
(g) If the amount of any Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
11. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS
----------------------------------------------------
(a) If an Indemnitee shall receive notice or learn of the assertion
by a person or entity (including, without limitation, any governmental
entity) which is not a party to this Agreement of any claim or of the
commencement by any such person or entity of any proceeding with respect to
which the Indemnifying Party may be obligated to provide indemnification
pursuant to paragraph 10 of this Agreement (a "Third Party Claim"), such
Indemnitee shall give such Indemnifying Party written notice thereof promptly
(and in any event within 30 calendar days) after becoming aware of such Third
Party Claim; PROVIDED, HOWEVER, that the failure of any Indemnitee to give
notice as provided in this paragraph 10(a) shall not relieve the Indemnifying
Party of its obligations under this Agreement, except and only to the extent
that such Indemnifying Party is prejudiced by such failure to give notice.
Such notice shall describe the Third Party Claim in reasonable detail and, if
ascertainable, shall indicate the amount (estimated if necessary) of the Loss
that has been or may be sustained by such Indemnitee.
(b) The Indemnifying Party may elect to defend any Third Party
Claim against the Indemnitee at such Indemnifying Party's own expense and by
such Indemnifying Party's own counsel. Within 30 calendar days of the
receipt of notice from an Indemnitee in accordance with paragraph 10(a) (or
sooner, if the nature of such Third Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether the
Indemnifying Party will assume responsibility for defending such Third Party
Claim, which election shall specify any reservations or exceptions. After
notice from the Indemnifying Party to an Indemnitee of its election to assume
the defense of a Third Party Claim, the Indemnifying Party shall not be
liable to such Indemnitee under this Agreement for any legal or other
expenses (except expenses approved in writing in advance by the Indemnifying
Party) subsequently incurred by such Indemnitee in connection with the
defense thereof; PROVIDED, HOWEVER, that if the defendants in any such Third
Party Claim include both the Indemnifying Party or one or more of its
affiliates and one or more Indemnitees, in any Indemnitee's reasonable
judgment a conflict of interest between one or more of such Indemnitees and
such Indemnifying Party exists in respect of such Third Party Claim or if the
Indemnifying Party shall have assumed responsibility for such Third Party
Claim with any reservations or exceptions, such Indemnitees shall have the
right to employ separate counsel to represent such Indemnities and in that
event the reasonable fees and expenses of such separate counsel (but not more
than one separate counsel or law firm other than local counsel) and separate
experts and consultants shall be paid by the Indemnifying Party. If the
Indemnifying Party elects not to assume responsibility for defending a Third
Party Claim or fails to notify an Indemnitee of its election as provided in
this paragraph 10(b), such Indemnitee may defend or (subject to the remainder
of this paragraph 10(b)) seek to compromise or settle such Third Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
Third Party Claim without the consent of the Indemnifying Party; PROVIDED,
HOWEVER, that consent to settlement or compromise shall not be unreasonably
withheld.
(c) In the event of payment by the Indemnifying Party to any
Indemnitee in connection with any Third Party Claim, the Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to
any events or circumstances in respect of which such Indemnitee may have any
right or claim relating to such Third Party Claim against any claimant
asserting such Third Party Claim or against any other person or entity. Such
Indemnitee shall cooperate with the Indemnifying Party in a reasonable
manner, and at the cost and expense of the Indemnifying Party, in prosecuting
any subrogated right or claim.
(d) The remedies provided in this paragraph 11 shall be cumulative
and shall not preclude assertion by any Indemnitee of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
12. PRIVILEGED MATTERS
------------------
The parties hereto recognize that legal and other professional
services that have been and will be provided on and prior to the Distribution
Date have been and will be rendered for the benefit of KCSI and Stilwell and
their subsidiaries and affiliates, and that each of the foregoing should be
deemed to be the client for the purposes of asserting all privileges which
may be asserted under applicable law. To allocate the interests of each
party in the Information as to which any party or any of its subsidiaries or
affiliates is entitled to assert a privilege, the parties agree as follows:
(a) Stilwell shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged
Information which relates to the Stilwell Group, to the business of the
Stilwell Group or to any Stilwell-related Litigation, whether or not the
privileged Information is in the possession of or under the control of KCSI
or Stilwell or any of their subsidiaries or affiliates.
(b) KCSI shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged
Information which relates to the KCSI Group or to the business of the KCSI
Group, whether or not the privileged Information is in the possession of or
under the control of KCSI or Stilwell or any of their subsidiaries or
affiliates.
(c) With respect to any matter not related to either the
KCSI Group or the Stilwell Group, KCSI and Stilwell agree that neither shall
waive, modify or fail to assert any privilege in connection with privileged
Information without the consent of the other.
(d) Upon receipt by either party hereto or by any subsidiary
or affiliate thereof of any subpoena, discovery or other request which calls
for the production or disclosure of Information subject to a privilege which
the other party has the right hereunder to assert, such party shall promptly
notify the other party of the existence of the request and shall provide the
other party a reasonable opportunity to review the Information and to assert
any rights it may have under this paragraph 12 to prevent the production or
disclosure of such privileged information.
(e) Neither the access to Information pursuant to paragraph
7(f) nor the access to individuals pursuant to paragraph 7(f) shall be deemed a
waiver of any privilege that has been or may be asserted pursuant this
Agreement or otherwise.
13. MEDIATION AND ARBITRATION
-------------------------
If any dispute arises between the parties relating to the
separation of the KCSI transportation and financial services businesses, or
relating to any of the subjects included in this Agreement, the Contribution
Agreement or the Tax Disaffiliation Agreement, then such dispute shall be
resolved exclusively as set forth in this section.
(a) First, the parties shall try in good faith to settle the
dispute between themselves, without the intervention of any other person or
agency. However, if it appears to either party that the parties are unable
to resolve the dispute themselves, then either party may at any time elect to
invoke mediation as set forth below.
(b) Second, and as a prerequisite to any further dispute
resolution procedure, either party may submit the dispute to mediation in
which both parties must participate.
i) Mediation shall be initiated by written notice
from one party to the other, setting forth the
nature of the dispute.
ii) Following receipt of written notice, the parties
shall have 30 days to agree upon a mediator and a
time and place for the mediation session.
iii) If the parties fail to so agree within 30 days,
then the mediation shall be administered by the
American Arbitration Association ("AAA") under
its Commercial Mediation Rules.
iv) If, after participating in at least one mediation
session, it appears to either party that mediation
will not resolve the dispute, then either party
may invoke arbitration as set forth below.
(c) Third, and as the final dispute resolution procedure,
either party may submit the dispute to arbitration administered by the AAA in
accordance with its Commercial Arbitration Rules (including the Emergency
Interim Relief Procedures), and both parties must participate in such
arbitration.
i) If the dispute involves a total amount of less
than $100,000, then there shall be one neutral
arbitrator; otherwise, there shall be three
neutral arbitrators. There shall be a tape or
stenographic record of any arbitration hearing
conducted by three neutral arbitrators.
ii) The place of arbitration shall be Kansas City,
Missouri.
iii) The parties acknowledge that this agreement
evidences a transaction involving interstate
commerce; therefore, the Federal Arbitration
Act shall govern the interpretation, enforcement
and proceedings pursuant to this arbitration
clause in this agreement.
iv) Consistent with the expedited nature of
arbitration, each party will, upon the written
request of the other party, within 30 days of
receipt of the request, provide the other with
copies of documents relevant to the issues
raised by any claim, counterclaim, or defense.
Any dispute regarding discovery shall be
determined by the arbitrator(s), which
determination shall be conclusive. All document
discovery shall be completed within 60 days
following the appointment of the arbitrator(s).
v) At the request of a party, the arbitrator(s)
shall have the discretion to order examination
by deposition of witnesses to the extent
the arbitrator(s) deems such deposition relevant
and appropriate. Depositions should be limited
to a maximum of 3 per party, and should be held
within 30 days of the making of a request, unless
the arbitrator(s) for good cause determines
otherwise. All deposition objections are
reserved for the arbitration hearing except for
objections based on privilege and proprietary
or confidential information.
vi) The arbitrator(s) will have no authority to award
punitive or other damages not measured by the
prevailing party's actual damages, except as
may be specifically authorized by statute.
vii) Any monetary award may, at the discretion of the
arbitrator(s), include pre-award interest at the
rate then provided by Missouri law.
viii) The arbitrator(s) shall allocate the
arbitrator(s') compensation and the
administrative fees of the arbitration between
the parties. Except for such compensation and
fees, each party shall bear its own costs.
ix) The award shall be in writing, shall be signed
by a majority of the arbitrators, and shall
include a statement of the reasons for
the disposition of each claim.
x) Except as may be required by law, neither the
parties nor any arbitrator(s) shall disclose
the existence, content or results of any
arbitration hereunder without the prior written
consent of both parties.
xi) Unless an appeal is permitted and is taken as
set forth below, the award shall be final and
binding, and judgment may be entered by a
court having jurisdiction thereof.
xii) Within 30 days of receipt of any award in excess
of the total amount of $1,000,000 against any one
party, either party may notify the AAA of an
intention to appeal to a second arbitral tribunal,
constituted in the same manner as the initial
tribunal. The appeal tribunal shall consider
the first arbitration hearing record, any new
written briefs and oral arguments of the
parties, but not any other evidence. The appeal
tribunal shall be entitled to affirm the initial
award, modify or set aside the initial award,
or substitute a new award for the initial award;
however, the appeal tribunal shall not modify,
set aside or replace the initial award except
for clear errors of law or because of clear and
convincing factual errors. The award of the
appeal tribunal shall be final and binding, and
judgment may be entered by a court having
jurisdiction thereof.
14. FURTHER ASSURANCES
------------------
From time to time after the Distribution Date, KCSI and
Stilwell each shall take such action and execute and deliver to the other
party or its subsidiaries or affiliates all such instruments and documents
as such other party may reasonably request to carry out the intent and
purposes of this Agreement and the transactions contemplated hereby.
15. MISCELLANEOUS
-------------
(a) Each party shall pay all of its own costs and
expenses related to the Spin-Off.
(b) This Agreement, the Contribution Agreement and the
Tax Disaffiliation Agreement, including any schedules and exhibits hereto or
thereto, and other agreements and documents referred to herein, shall
constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous commitments and
writings with respect to such subject matter, except that KCSI and Stilwell
acknowledge that they may deal with specific ongoing items such as Stilwell
employee parking in the Wyandotte Garage or the use of the KCSI airplane by
separate agreements.
(c) This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without regard to the
principles of conflicts of laws thereof.
(d) All notices hereunder shall be in writing and shall
be delivered personally or by courier or sent by registered or certified mail
(postage prepaid) to the other party at the following address (or at such
other addresses for a party as shall be specified by like notice) and shall
be deemed given on the date on which such notice is received:
if to KCSI:
Kansas City Southern Industries, Inc.
114 West 11th Street
Kansas City, MO 64105
Attn: Senior Vice President, General Counsel & Secretary
if to Stilwell:
Stilwell Financial, Inc.
114 West 11th Street
Kansas City, MO 64105
Attn: President
(e) This Agreement may not be modified or amended except
by an instrument in writing signed by each of the parties.
(f) This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. No party may assign its respective rights
or delegate its respective obligations under this Agreement without the
express prior written consent of the other party hereto.
(g) Titles and headings to sections herein are inserted
for the convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(h) If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof shall remain in full force and effect and shall
in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party.
(i) The failure of any party hereto to enforce at any time
any provision of this Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this Agreement or any
part hereof or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
Kansas City Southern Industries, Inc.
By: /s/ M. R. Haverty
-----------------------------------
Name: Michael R. Haverty
Title: Executive Vice President
Stilwell Financial, Inc.
By: /s/ Landon H. Rowland
-----------------------------------
Name: Landon H. Rowland
Title: Chairman, President and
Chief Executive Officer
<PAGE>
EXHIBIT A
INTERCOMPANY AGREEMENT
STILWELL EMPLOYEES
Astorga, Martha
Brown, Phillip
Burgess, Julie
Cecil, Mark
Carpenter, Danny
Cooper, Sherry
Hamilton, Vickie
Ince, Nancy
McCarthy, Anthony
Monello, Joseph Jr.
Nickerson, Doug
Pittman, Douglas
Rowland, Landon
Royle, Gwen
Simkins, Jeff
Vogel, Judy
Wood, E. Faye
<PAGE>
EXHIBIT B
INTERCOMPANY AGREEMENT
LIST OF INACTIVE OR FORMER EMPLOYEES
EMPLOYEES (SPOUSES) COMPANY - DEPARTMENT
- ------------------- --------------------
Retirees:
Armstrong, Jan KCSI Corporate Secretary
Bates, W. A. MATV
Brown, Phillip S. (12/31/99 retirement) KCSI Legal
Canterbury, Vic KCSI Security
Lagomancino, Richard Argus
Mauro, Albert P. KCSI Corporate Secretary
Smith, O. J. KCSI Executive
Spidle, B. S. KCSI Executive
Zind, Richard KCSI Executive
Long Term Disability:
Smith, Gerald Central Biomedia
<PAGE>
EXHIBIT C
EXCHANGE OF INFORMATION FOR STOCK OPTION GRANTS
Stilwell and KCSI will exchange the following information in order to
track the various periods of exercisability of stock options following a
grantee's termination of employment and to calculate the correct withholding
and payroll taxes for each grantee upon exercise of an option.
HUMAN RESOURCES
Each company will provide a monthly and year-to-date report of the
employee and director terminations by the third business day of each month.
These listings will show all holders of options whose relationship with the
company has been terminated or who have been placed on leave and will include
the following fields:
PRINTED REPORT TO STOCK OPTION ADMINISTRATOR
Name Effective date of termination
Reason for Termination: Employee ID #
Resignation with notice Company or Work Location
Retirement, Official Effective Date of Total
Discharged Disability
Deceased Age
Total Disability
Other ________________
PAYROLL
Each company will provide the necessary information to determine the
tax liability for each employee option exercise. Federal and state
withholding percentages must be determined, and any payroll tax with a cap
(FICA, Tier 1 or Tier 2) must be calculated so maximums are not exceeded.
Due to the large number of employees involved in the option plan it will be
necessary to exchange electronic files (with a confirming hard copy report)
not less frequently than monthly containing the following information:
ELECTRONIC FILE TO STOCK OPTION ADMINISTRATOR (WITH PRINTED REPORT):
Name SS#
Number of Exemptions from W-4 Married or Single
Pay Period: Monthly, semi-monthly, etc. Previous pay period wages
State for withholding Year to date FICA or Tier 1
Year to date Tier 2
ELECTRONIC FILE TO PAYROLL FROM STOCK OPTION ADMINISTRATOR (WITH PRINTED
REPORT) FOR ALL EMPLOYEE OPTION EXERCISES:
Name SS#
Taxable Income Federal Tax Withheld
State Tax Withheld Local Tax Withheld
FICA or Tier 1 Withheld Tier 2 Withheld
Medicare Withheld Type of Tax Form: W-2 or 1099
Company
<PAGE>
EXHIBIT D
INTERCOMPANY AGREEMENT
FINANCIAL SERVICES SUBSIDIARIES AND AFFILIATES
- ----------------------------------------------
Animal Resources, Inc.
Argus Computing
Argus Health Systems, Inc.
Argus PMS, Inc.
Argus Research International, Inc.
Ash Pharmaceutical, Inc.
Barco Laboratories of Iowa, Inc.
Barco Laboratories, Inc.
BBOI Worldwide LLC
Bellview Pharmaceutical, Inc.
Belvedere Financial Systems, Inc.
Berger Associates, Inc.
Berger/Bay Isle LLC
Berger Distributors, Inc.
Birch Pharmaceutical, Inc.
Board of Trade Building, Inc.
Brighton Pharmaceutical, Inc.
Brookside Water Treatment, Inc.
Central Biomedia, Inc.
Data Retrieval Services, Inc.
DST Acquisition Corporation
DST Clearing, Inc.
DST Keywest, Inc.
DST Realty, Inc.
DST Securities, Inc.
DST Systems of Delaware, Inc.
DST Systems, Inc.
Eleventh Street Corridor Development Corporation
Elm Pharmaceutical, Inc.
FAM UK Limited
Fillmore Agency, Inc.
First President Corporation
Fountain Investments, Inc.
Fountain Investments UK
H.B. Shaine & Co., Inc.
<PAGE>
EXHIBIT D
INTERCOMPANY AGREEMENT
FINANCIAL SERVICES SUBSIDIARIES AND AFFILIATES
- ----------------------------------------------
Hickory Pharmaceutical, Inc.
Hillside Properties Corporation
Holly Pharmaceutical, Inc.
IDEManagement Company
Infra-Park, Inc.
James Keller & Associates, Inc.
Janus Capital Corporation
Janus Capital International Ltd.
Janus Distributors, Inc.
Janus Service Corporation
Jefferson Building Corporation
Jerian Pharmaceutical, Inc.
Joseph Nelson Limited
Kansas City Microwave Communications, Inc.
KC-PW, Inc.
Lincoln Pharmaceutical, Inc.
Linden Pharmaceutical, Inc.
Loess Corporation
Mail Processing Systems, Inc.
Martec Pharmaceutical of Missouri, Inc.
Martec Pharmaceutical, Inc.
MGI Output Technologies, Inc.
Midcon Laboratories of Iowa
Midcon Laboratories, Inc.
Monitor Capital Management, Inc.
Monitor Development, Inc.
Monitor Services, Inc.
National Realty Partners, Inc.
Nelson Investment Planning Limited
Nelson Management Limited
Nelson Money Managers PLC
Network Graphics, Inc.
Northern Pharmaceutical, Inc.
NRS Bayshore Development, Inc.
NRS Development, Inc.
NRS Palmetto Development, Inc.
Olive Pharmaceutical, Inc.
<PAGE>
EXHIBIT D
INTERCOMPANY AGREEMENT
FINANCIAL SERVICES SUBSIDIARIES AND AFFILIATES
- ----------------------------------------------
Oread Pharmaceutical, Inc.
OTI Vital Records Storage Group, Inc. (Formerly DRS)
Output Technologies Central Region, Inc. (UMSI)
Output Technologies Eastern Region, Inc. (Mail Processing)
Output Technologies Network Graphics Design Group, Inc.
Output Technologies of California
Output Technologies of Illinois, Inc.
Output Technologies Omni Media Group, Inc. (James Keller)
Output Technologies Phoenix Litho Group, Inc.
Output Technologies SRI Group (Formerly SRI)
Output Technologies Summit Development Corporation
Output Technologies Western Region, Inc. (Formerly UMSI-CO)
Output Technologies, Inc.
Pathco, Inc.
Phoenix Litho, Inc.
Pioneer Western Corporation
Pioneer Western Energy Corporation
Pioneer Western Financial Corporation
Pioneer Western Financial Planning Corp.
Pioneer Western Management, Inc.
Pioneer Western Marketing Corp.
Pioneer Western Properties Corporation
Piowest Agency, Inc.
Policyholder Service Corporation
Property Resource & Entity Management, Inc.
PVI, Inc.
PW Distributors, Inc.
PW Securities, Inc.
Rockhill Pharmaceutical, Inc.
RX Data, Inc.
SERA, Inc.
Spring Pharmaceutical, Inc.
Stanton Pharmaceutical, Inc.
Stilwell Financial, Inc.
Support Resources, Inc.
Taproot Limited
The L.M. Johnson Company
Transaction Services, Inc.
<PAGE>
EXHIBIT D
INTERCOMPANY AGREEMENT
FINANCIAL SERVICES SUBSIDIARIES AND AFFILIATES
- ----------------------------------------------
Troost Pharmaceutical, Inc.
UMS Enterprises, Inc.
UMSI of Colorado, Inc.
United Micrographic Systems, Inc.
U.S.I. Technology, Inc.
Vantage P & C Systems, Inc.
Vantage Computer Systems, Inc.
VCS Systems, Inc.
Villa Mare Development, Inc.
Winchester Business Center, Inc.
Z-Gard, Inc.
<PAGE>
EXHIBIT E
INTERCOMPANY AREEMENT
TRANSPORTATION SUBSIDIARIES AND AFFILIATES
- ------------------------------------------
American Coleman Company
Bates County Land, Inc.
Canama Transportation
Carland, Inc.
CAYMEX Transportation, Inc.
City Cellular Telephone, Inc.
Fort Smith & Van Buren Railway Company
Gateway Eastern Railway
Gateway Western Railway
Global Terminaling Services, Inc. (formerly Pabtex)
Graysonia Nashville & Ashdown Railroad Company
Grupo Transportacion Ferroviaria Mexicana S.A. de C.V.
Joplin Southern Corporation
Joplin Union Depot
K&M Newco, Inc.
Kansas City Southern Transport Company, Inc.
KCS Investment Management, Inc.
KCS Transport Company, Inc.
Landa Motor Lines
LDX Broadcast, Inc.
LDX Group, Inc.
LDX Midwest Cellular, Inc.
LDX Net, Inc.
LDX Telecom Services, Inc.
Louisiana, Arkansas & Texas Transportation Company
Louisiana & Arkansas Railway Company
Mexrail, Inc.
Mid-American Cellular, Inc.
Mid-South Corporation
Mid-South Microwave, Inc.
Midlouisiana Rail Corporation
Midsouth Rail Corporation
Mulberry Western Company
NAFTA Rail S.A. de C.V.
North American Freight Transportation Alliance Railroad Company
<PAGE>
EXHIBIT E
INTERCOMPANY AREEMENT
TRANSPORTATION SUBSIDIARIES AND AFFILIATES
- ------------------------------------------
Panama Canal Railway Company
Port Arthur Bulk Marine Terminal Company
Rice-Carden Corporation
Southern Capital LLC
Southern Commercial Credit Corporation
Southern Credit Corporation
Southern Development Company
Southern Group, Inc.
Southern Industrial Services, Inc.
Southern Leasing Corporation
Southern Pacific Acquisition Company
Southrail Corporation
Telecom Consulting Group, Inc.
Telecom Engineering
Tennrail Corporation
Texas Mexican Railway Company
TFM S.A. de C.V.
The Arkansas Western Railway
The Kansas & Missouri Railway & Terminal Company
The Kansas City Northern Railway Company
The Kansas City Southern Railway Company
The Maywood & Sugar Creek Railway
Tolmak, Inc.
TransFin Insurance Ltd.
Trans-Serve, Inc.
United Energy Partners
Veals Baton Rouge I
Veals Baton Rouge II
Veals Baton Rouge III
Veals, Inc.
Wyandotte Garage Corporation
FORM OF
TAX DISAFFILIATION AGREEMENT
THIS AGREEMENT dated as of this 16th day of August 1999, by and between
Kansas City Southern Industries, Inc., a Delaware corporation ("KCSI") and
Stilwell Financial, Inc., a Delaware corporation ("Stilwell"):
WHEREAS, KCSI owns all of the issued and outstanding common stock of
Stilwell ("Stilwell shares"), which was incorporated as FAM Holdings, Inc. on
January 23, 1998 and which changed its name to Stilwell Financial, Inc. on
July 8, 1999;
WHEREAS, KCSI is the common parent of an affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the members of the affiliated
group, which include Stilwell and its subsidiaries beginning in 1998, have
prior to 1999 joined in filing consolidated federal income tax returns which
would have included Stilwell if Stilwell had been in existence and in its
current position in the affiliated group of corporations;
WHEREAS, KCSI plans to distribute all or substantially all of the
Stilwell shares to the stockholders of KCSI in a tax-free transaction
pursuant to Code Section 355 (the "Spin-off") which will reduce KCSI's
ownership of Stilwell, so that Stilwell and its subsidiaries will no longer
be members of the KCSI affiliated group for federal income tax purposes;
WHEREAS, KCSI submitted a private letter ruling request to the Internal
Revenue Service (the "IRS") to the effect that, for United States federal
income tax purposes, no gain or loss will be recognized by KCSI or Stilwell
from the Spin-off or by the holders of KCSI common stock upon receipt of
Stilwell shares in the Spin-off (the initial submission on January 26, 1999
(the "Initial Submission") and all supplements thereto referred to herein as
the "Ruling Request");
WHEREAS, KCSI and Stilwell desire on behalf of themselves, their
subsidiaries and their successors to set forth their rights and obligations
with respect to taxes due for periods before and after the date of the Spin-
off (the "Disaffiliation Date") upon which Disaffiliation Date Stilwell and
its subsidiaries will no longer be members of the KCSI affiliated group,
including obligations with respect to any adjustments to the consolidated
federal income tax returns and any consolidated or combined state tax returns
of KCSI through the Disaffiliation Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties agree as follows:
ARTICLE I. PREPARATION AND FILING OF TAX RETURNS
Section 1.1 RESPONSIBILITY FOR PREPARATION OF CONSOLIDATED AND COMBINED
RETURNS. KCSI shall timely file or cause to be filed all Tax Returns which
are filed on a consolidated or combined basis including Stilwell and its U.S.
Subsidiaries (a) for all periods ending on or prior to the Disaffiliation
Date and (b) that are required to be filed for the taxable year of the KCSI
affiliated group that begins before and ends on or after the Disaffiliation
Date. In the absence of a change in controlling law, all Tax Returns filed
after the date of this Agreement shall be prepared on a basis consistent with
the elections, accounting methods, conventions, and principles of taxation
used for the most recent taxable periods for which Tax Returns involving
similar tax items have been filed except to the extent that an inconsistent
position would not result in an increase in the taxes paid or payable by
either Stilwell or KCSI or if mutually agreed between Stilwell and KCSI.
Subject to the provisions of this Agreement, all decisions relating to the
preparation of Tax Returns shall be made in the reasonable good faith
judgment of the party responsible under this Agreement for such preparation.
For purposes of this Agreement, "Tax Returns" shall mean any return,
report, filing, declaration, questionnaire or other document required to be
filed, including requests for extensions of time, filings made with estimated
tax payments, claims for refund and amended returns that may be filed, for
any period with any taxing authority (whether domestic or foreign) in
connection with any tax or taxes (whether or not a payment is required to be
made with respect to such filing). For purposes of this Agreement, (i)
"Subsidiary" shall mean any entity taxable as a corporation as to which the
ownership test of Code Section 1504(a)(2) (or any predecessor provision) is
now or was in the past met, but including any such entity only for the period
or periods as to which such ownership test was met; (ii) the "Stilwell Group"
shall mean the Stilwell Group as defined in the Intercompany Agreement
between KCSI and Stilwell (the "Intercompany Agreement") and shown on Exhibit
D thereto, except where the context of this Agreement shall indicate a
discussion of consolidated or combined Tax Returns, in which case the
Stilwell Group shall mean Stilwell and its U.S. Subsidiaries only; and (iii)
the "KCSI Group" shall mean the KCSI Group as defined in the Intercompany
Agreement and shown on Exhibit E thereto (except the KCSI Group also shall
include KCSI for actions, occurrences or omissions arising after the
Disaffiliation Date), except where the context of this Agreement shall
indicate a discussion of consolidated or combined Tax Returns, in which case
the KCSI Group shall mean KCSI and its U.S. Subsidiaries only. Stilwell
shall provide, at Stilwell's expense and to the extent permitted by law,
consistent with Stilwell's past tax accounting methods, information necessary
for KCSI to complete the portion of the KCSI consolidated and combined Tax
Returns relating to the Stilwell Group for the period through the
Disaffiliation Date (or such longer period as necessary for the ratable
allocation election discussed below) and any periods thereafter which are
included in a KCSI consolidated or combined Tax Return. Each Tax Return and
supporting details shall provide the type of information on members of the
Stilwell Group as is consistent with past practice and shall be prepared in
accordance with Section 1.3 hereof. For purposes of each federal income Tax
Return, Stilwell and KCSI shall make an irrevocable ratable allocation
election under Treasury Regulation Section 1.1502-76(b)(2)(ii) or any
successor provision, and each shall take all action reasonably required of it
to comply with the requirements of such election. Stilwell shall submit all
such information and supporting details to KCSI at least forty-five (45) days
prior to the date on which the consolidated or combined Tax Returns are due,
including extensions.
Section 1.2 PAYMENT OF TAXES. With respect to periods covered by Tax
Returns prepared in accordance with Section 1.1, Stilwell shall make
estimated tax payments in accordance with Section 1.3 hereof and also shall
pay to KCSI in time to allow KCSI to pay from funds received from Stilwell
any additional taxes of the Stilwell Group which are due at the time of
filing any request for an extension of the time to file a Tax Return. Prior
to the filing of such consolidated or combined Tax Returns, Stilwell shall
pay to KCSI in time to allow KCSI to pay from funds received from Stilwell
the excess, if any, of the final tax liability (and any interest and
penalties due thereon at the rate applicable to tax payment balances due) of
the Stilwell Group over any estimated tax payments or other credits relating
to the Stilwell Group, and KCSI shall pay to Stilwell the excess (including
any interest thereon at the rate applicable to tax payment balances due), if
any, of any such estimated tax payments and other credits over the final tax
liability of the Stilwell Group. Such payments shall be made within 15 days
after the filing of any federal consolidated Tax Return and, with respect to
all consolidated or combined state Tax Returns covering the same tax period,
within 15 days after the filing of the last such state Tax Return, except
that if the payment called for by this Section 1.2 is the subject of a
request for a refund, within two days after the receipt of the refund or the
crediting of the refund amount against other tax liability.
Section 1.3 STILWELL TAX ALLOCATION AGREEMENT. Solely for the purpose
of Tax Returns prepared after the date of this Agreement in accordance with
Section 1.1 and with respect to the periods covered by such Tax Returns,
Stilwell and KCSI agree as follows:
(a) KCSI and Stilwell shall execute and file such consents, elections
and other documents as may be required or appropriate for the proper filing
of such Tax Returns.
(b) KCSI and Stilwell shall maintain and shall cause any U.S.
Subsidiaries now in existence or subsequently formed to maintain concurrent
fiscal years.
(c) With respect to consolidated Federal income Tax Returns:
i) Stilwell shall pay to KCSI the amount (if any) of Federal income
taxes for which Stilwell would have been liable for that year, computed as
though Stilwell had filed a separate Tax Return for the Stilwell Group. For
purposes of this Agreement, Stilwell's tax liability if it had filed a
separate Tax Return shall be computed using the maximum corporate income tax
rate then in effect (disregarding any graduated tax rates).
ii) A computation of Stilwell's estimated tax liability for each
calendar quarter shall be made on a cumulative year-to-date basis, and
Stilwell shall pay to KCSI in time to allow KCSI to pay from funds received
from Stilwell the amount of estimated tax calculated for such quarter and due
on the following dates: April 15 for the first calendar quarter; June 15 for
the second calendar quarter; September 15 for the third calendar quarter; and
December 15 for the fourth calendar quarter.
(d) In any state in which KCSI files consolidated or combined Tax
Returns:
(i) Stilwell shall pay to KCSI a portion of income taxes payable
to such state on a consolidated or combined basis determined by allocating
among the entities included in such Tax Return on the basis of the separate
taxable income or loss of each such entity which is reported to such state in
such Tax Return. If a loss is involved, the amount of taxes payable shall be
computed first without including such loss and allocated as above; amounts in
excess of taxes actually payable shall then be paid to the loss companies in
proportion to their taxable losses.
(ii) A computation of Stilwell's estimated state tax liability for
each calendar quarter shall be made on a cumulative year-to-date basis, and
Stilwell shall make payment of estimated state income taxes to KCSI on the
dates on which estimated state income tax payments are required to be made in
the states in question.
(iii) Until Stilwell is able to obtain any consent required to
assign and transfer to Stilwell the Tax Allocation Agreement between KCSI and
Janus Capital Corporation dated January 1, 1989, as amended effective January
1, 1998:
(A) Stilwell shall be required to perform, for KCSI, all
obligations KCSI is obligated to perform for another party under such
agreement at the time and in the same manner as KCSI is required to perform
its obligation to such other party.
(B) All benefits and assets that are received by KCSI under
such agreement shall be transferred to Stilwell at the same time and in the
same manner as such benefits and assets are received by KCSI.
(C) If Stilwell is required to deliver any funds to KCSI by
reason of the foregoing, Stilwell shall deliver such funds to KCSI in time so
as to allow KCSI to use such funds to satisfy its obligations under such
agreement.
(D) If KCSI receives any notice or has any elections or
choices under such agreement, KCSI shall provide a copy of any such notice to
Stilwell within two (2) business days of KCSI's receipt thereof, and KCSI
shall make any election or choice under such agreement only as approved in
writing by Stilwell.
(E) KCSI will not provide any consents or waivers under
such agreement or agree to any amendment of such agreement without the prior
written approval of Stilwell.
Section 1.4 OTHER RETURNS. KCSI shall timely file or cause to be filed
all other Tax Returns required with respect to the KCSI Group, and Stilwell
shall timely file or cause to be filed all other Tax Returns with respect to
the Stilwell Group.
ARTICLE II. ACTIONS WITH RESPECT TO SPIN-OFF
Section 2.1 KCSI GROUP.
(a) KCSI agrees that it will not take, and it will not permit any
member of the KCSI Group to take, any action that will cause the Spin-off to
fail to qualify as a tax-free spin-off under Code Section 355 unless required
to do so by law.
(b) KCSI represents and warrants that with respect to the portions of
the representations made on pages 52 and 53 of the Initial Submission labeled
(j), (k), (q), (s), (t) and (u) which relate to the KCSI Group, such
representations are true and correct, and none of the KCSI Group has engaged
in discussions which would cause such representations to be untrue.
(c) KCSI represents and warrants that with respect to the portions of
the representations which relate to the KCSI Group made in the letter ruling
dated July 9, 1999 issued to KCSI with respect to the Spin-off (the "Letter
Ruling", in which KCSI is referred to as Distributing), such representations
are true and correct, and none of the KCSI Group has engaged in discussions
which would cause such representations to be untrue.
(d) For a period of three years after the Disaffiliation Date, KCSI
agrees to notify Stilwell: (i) at least 30 days before KCSI issues any common
stock or any interest convertible into common stock (all such interests "KCSI
Common Stock") (other than pursuant to the exercise of stock options or the
KCSI Employee Stock Purchase Plan) or (ii) within five days after KCSI
becomes aware of any acquisition, exchange, merger or other corporate
transaction which would involve 10% or more of the then outstanding KCSI
Common Stock. The notice shall include a description of the occurrence that
will involve KCSI Common Stock.
Section 2.2 STILWELL GROUP.
(a) Stilwell agrees that it will not take, and it will not permit any
member of the Stilwell Group to take, any action that will cause the Spin-off
to fail to qualify as a tax-free spin-off under Code Section 355 unless
required to do so by law.
(b) Stilwell represents and warrants that with respect to the portions
of the representations made on pages 52 and 53 of the Initial Submission
labeled (j), (k), (q), (r) and (u) which relate to the Stilwell Group, such
representations are true and correct, and none of the Stilwell Group has
engaged in discussions which would cause such representations to be untrue.
(c) Stilwell represents and warrants that with respect to the portions
of the representations made in the Letter Ruling which relate to the Stilwell
Group (Stilwell is referred to in the Letter Ruling as Controlled), such
representations are true and correct, and none of the Stilwell Group has
engaged in discussions which would cause such representations to be untrue.
(d) For a period of three years after the Disaffiliation Date, Stilwell
agrees to notify KCSI: (i) at least 30 days before Stilwell issues any
common stock or any interest convertible into common stock (all such
interests "Stilwell Common Stock") (other than pursuant to the exercise of
stock options or the Stilwell Employee Stock Purchase Plan) or (ii) within
five days after Stilwell becomes aware of any acquisition, exchange, merger
or other corporate transaction which would involve 10% or more of the then
outstanding KCSI Common Stock. The notice shall include a description of the
occurrence that will involve Stilwell Common Stock.
Section 2.3 INFORMATION TO STOCKHOLDERS. KCSI agrees that it shall
provide each KCSI stockholder as of the record date fixed by the KCSI Board
of Directors to determine the KCSI stockholders who will receive Stilwell
common stock in the Spin-off the information related to the Spin-off required
to be attached to each such stockholder's federal income Tax Return for the
taxable year in which the Spin-off occurs.
ARTICLE III. INDEMNIFICATION OF TAX LIABILITIES
Section 3.1 INDEMNIFICATION BY KCSI. KCSI shall indemnify and hold
harmless Stilwell and each member of the Stilwell Group against liability for
(a) any and all Taxes attributable to the income, operations, or assets
of any of the KCSI Group, whether arising before or after the Disaffiliation
Date;
(b) any and all Taxes or other loss resulting from any breach by any of
the KCSI Group of any representation, warranty or covenant contained in this
Agreement; and
(c) any and all Taxes imposed on any member of the Stilwell Group or on
any KCSI or Stilwell stockholder, and any and all claims brought by a KCSI or
Stilwell stockholder against any member of the Stilwell Group, including
Taxes or claims which arise as a result of the failure of the Spin-off to
qualify as a tax-free spin-off under Code Section 355 by reason of (w) any
act or failure to act by any member of the KCSI Group, (x) any other party's
actions with respect to the KCSI Group (including any change of ownership of
KCSI), (y) any inaccurate information regarding any member of the KCSI Group
contained in the Ruling Request or any breach of any representation set forth
in the Ruling Request or the Letter Ruling with respect to any member of the
KCSI Group, or (z) any omission from the Ruling Request of information with
respect to any member of the KCSI Group required to be included in a private
letter ruling request under Code Section 355 by Rev. Proc. 96-30, 1996-1 C.B.
696.
As used herein, "Taxes" means all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, valued added,
property or windfall profit taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest,
penalties and other additions to tax imposed by any governmental authority,
domestic or foreign.
Section 3.2 INDEMNIFICATION BY STILWELL. Stilwell shall indemnify and
hold harmless KCSI and each member of the KCSI Group against liability for
(a) any and all Taxes (including any Taxes arising from the triggering
of any excess loss account relating to KCSI's ownership of Stilwell stock)
attributable to the income, operations or assets of the Stilwell Group,
whether arising before or after the Disaffiliation Date;
(b) any and all Taxes or other loss resulting from any breach by any of
the Stilwell Group of any representation, warranty or covenant contained in
this Agreement; and
(c) any and all Taxes imposed on any member of the KCSI Group or on any
KCSI or Stilwell stockholder, and any and all claims brought by a KCSI or
Stilwell stockholder against any member of the KCSI Group, including Taxes or
claims which arise as a result of the failure of the Spin-off to qualify as a
tax-free spin-off under Code Section 355 solely by reason of (w) any act or
failure to act by any member of the Stilwell Group, (x) any other party's
actions with respect to the Stilwell Group (including any change of ownership
of Stilwell), (y) any inaccurate information regarding any member of the
Stilwell Group contained in the Ruling Request or any breach of any
representation set forth in the Ruling Request or the Letter Ruling with
respect to any member of the Stilwell Group, or (z) any omission from the
Ruling Request of information with respect to any member of the Stilwell
Group required to be included in a private letter ruling request under Code
Section 355 by Rev. Proc. 96-30, 1996-1 C.B. 696.
Section 3.3 DIVISION OF TAX LIABILITY. If there should arise any Taxes
incurred with respect to periods prior to the Spin-off which are not
attributable solely to either the Stilwell Group or the KCSI Group, such
Taxes shall be divided between the Stilwell Group and the KCSI Group in
proportion to each of the Stilwell Group's and the KCSI Group's relative
responsibility, except that any Taxes incurred with respect to issues for
which a specific reserve has been established shall be paid by whichever of
Stilwell or KCSI (or the particular KCSI Group or Stilwell Group member) has
been allocated such reserve. If there should arise any Taxes the origin of
which cannot be determined to be partially or solely with the Stilwell Group
or the KCSI Group, such Taxes shall be divided equally between the Stilwell
Group and the KCSI Group.
Section 3.4 PAYMENT TREATMENT. All payments made pursuant to Section
3.1 or 3.2 with respect to periods for which consolidated or combined Tax
Returns were filed and which included members of both the KCSI Group and the
Stilwell Group shall be treated, to the fullest extent possible, as payments
made directly to the taxing authority by a taxpayer having a direct
obligation (whether joint or joint and several) to the taxing authority.
ARTICLE IV. ADDITIONAL TAXES, REFUNDS AND CARRYBACKS
Section 4.1 ADDITIONAL TAXES AND TAX REFUNDS. Taxes resulting from any
adjustments in any consolidated Tax Return or consolidated or combined Tax
Return year which are attributable to Stilwell or its Subsidiaries (including
years ended prior to fiscal 1999) shall be borne by Stilwell, and KCSI shall
pay to Stilwell any refund of any Tax and any interest on such refund which
is received as the result of an adjustment in any consolidated Tax Return or
consolidated or combined Tax Return year after the Disaffiliation Date by any
member of the KCSI Group or credited after the Disaffiliation Date against
any liability of any member of the KCSI Group and which is attributable to
the income, operations or assets of any member of the Stilwell Group. Such
payment shall be made within ten days of receipt or the crediting of such
refund. The crediting of a refund shall be deemed to occur at the time the
liability would have been paid absent the refund.
Section 4.2 CARRYBACKS. If any member of the Stilwell Group generates
a deduction, loss or credit for any Tax period ending after the
Disaffiliation Date that can be carried back to any prior consolidated or
combined Tax year which includes members of both the KCSI Group and the
Stilwell Group, KCSI shall, at the written request of Stilwell and at
Stilwell's expense, prepare and file an amended Tax Return for such prior
year reflecting such carryback. KCSI shall pay to Stilwell an amount equal
to any Tax refund and interest received with respect to such carryback in
accordance with Section 4.1
V. TAX AUDITS
Section 5.1 GENERAL. Except as provided in Section 5.2, KCSI shall
have sole responsibility for all audits and other proceedings with respect to
Taxes or Tax Returns of the KCSI Group, and Stilwell shall have sole
responsibility for all audits and other proceedings with respect to Taxes or
Tax Returns of the Stilwell Group. If there should arise any audit expenses
(including legal and accounting expenses) incurred with respect to periods
prior to the Spin-off which are not attributable solely to either the
Stilwell Group or the KCSI Group, such audit expenses shall be divided
between the Stilwell Group and the KCSI Group in proportion to each of the
Stilwell Group's and the KCSI Group's relative responsibility, except that
any audit expenses incurred with respect to issues for which a specific
reserve has been established shall be paid by whichever of Stilwell or KCSI
(or the particular KCSI Group or Stilwell Group member) has been allocated
such reserve. If there should arise any audit expense the origin of which
cannot be determined to be partially or solely with the Stilwell Group or the
KCSI Group, such audit expense shall be divided equally between the Stilwell
Group and the KCSI Group, and the Stilwell Group and the KCSI Group shall
manage the underlying audit issue jointly and shall have joint authority and
responsibility with respect to such audit issue.
Section 5.2 INDEMNIFIED CLAIMS. KCSI or Stilwell, as the case may be,
shall promptly notify the other in writing of any proposed adjustment to a
Tax Return, or obligation that may result in liability of the other party
(the "Indemnitor") under this Agreement. The Indemnitor shall have the right
to control and contest the proposed adjustment and to employ counsel, experts
and consultants of its choice at its expense; provided, however, that if the
proposed adjustment involves a consolidated or combined Tax Return for which
the indemnified party is responsible and proceedings involving the proposed
adjustment cannot be separated from other proposed adjustments or
proceedings, the Indemnitor shall not settle the proposed adjustment without
the written consent of the indemnified party, which consent shall not be
unreasonably withheld. The Indemnitor shall provide the indemnified party
with such notice and information as are reasonably necessary to keep the
indemnified party reasonably apprised of the progress of any audit, protest
or other proceeding involving the proposed adjustment and shall, in good
faith, consider all reasonable suggestions of the indemnified party with
respect to the handling of such audit, protest or other proceeding.
ARTICLE VI. STOCK OPTIONS
Section 6.1 SUBSTITUTED OPTIONS. As part of the Spin-off, KCSI plans to
substitute options for all KCSI non-qualified stock options outstanding on
the day after the record date for the Spin-off ("Options") in order to
provide for the equitable adjustment of the Options as allowed by the KCSI
stock option plans pursuant to which the Options have been granted. All such
Options will remain outstanding with an adjusted exercise price ("New KCSI
Options"), and holders of the Options will receive separately exercisable
options to buy Stilwell common stock ("New Stilwell Options") (collectively
the New KCSI Options and the New Stilwell Options are referred to as
"Substituted Options").
Section 6.2 WITHHOLDING AND PAYROLL TAXES. KCSI and Stilwell each
agree that the issuer of the stock issued upon the exercise of a Substituted
Option shall withhold all federal, state, local or other taxes required to be
withheld in connection with the exercise of a Substituted Option, and shall
provide a statement to the optionee (or his or her estate) showing the
compensation income recognized under Code Section 83 during the applicable
calendar year. KCSI and Stilwell also agree that the company which is paying
the employee (or if the optionee exercising is no longer employed, the
company which was paying such optionee at the time he or she left service) at
the time of exercise of a Substituted Option shall pay the employer portion
of any FICA (including Medicare) and Railroad Retirement taxes due on the
exercise of the Substituted Options.
Section 6.3 ISSUANCE OF STOCK. KCSI and Stilwell each agree to issue
shares of their stock upon the exercise of the New KCSI Options and the New
Stilwell Options, respectively, and agree that holders of the Substituted
Options shall purchase shares in each of KCSI and Stilwell directly from the
relevant corporation upon the exercise of a New KCSI Option or a New Stilwell
Option, as the case may be.
ARTICLE VII. COOPERATION
KCSI and Stilwell shall cooperate with each other as necessary in the
filing of Tax Returns and the conduct of audits and other proceedings and
each shall execute and deliver such powers of attorney and other documents
and make available such information and documents as are necessary to carry
out the intent of this Agreement. Stilwell shall have the right to review Tax
Returns prior to the time such Tax Returns are filed pursuant to Section 1.1
and any amended KCSI Tax Returns for periods prior to the Disaffiliation Date
which may affect the liability of any member of the Stilwell Group, and may
control the presentation in such Tax Returns of any matters which affect any
member of the Stilwell Group's liability.
Each party agrees to notify the other party of any audit adjustment
which does not result in Tax liability but can be reasonably expected to
affect Tax Returns of the other party or any of its subsidiaries. KCSI and
Stilwell shall retain adequate records, documents, accounting data and other
information necessary for the preparation and filing of all Tax Returns
required to be filed by KCSI or any member of the KCSI Group or the Stilwell
Group, respectively, and for any audits and litigation relating to such Tax
Returns or to any Taxes payable by KCSI or any member of the KCSI Group or
the Stilwell Group, respectively, for periods prior to the Disaffiliation
Date and to give the other party reasonable access to such records,
documents, accounting data and other information and to its personnel and
premises, for the purpose of the review or audit of such Tax Returns and
obtaining copies thereof to the extent relevant to an obligation or liability
of a party under this Agreement. KCSI shall provide to Stilwell, upon
reasonable request, all tax accounting information in KCSI's possession or
control relating to Stilwell's, or any of Stilwell's Subsidiaries, operations
and assets (for whatever purpose deemed necessary by Stilwell), including,
without limitation, earnings and profits studies and calculations, asset
depreciation and amortization schedules and other such information. Tax
Returns and support files and work papers for periods ending on or prior to
the Disaffiliation Date shall remain in the possession of KCSI, subject to
the provisions of the two preceding sentences. The obligations set forth in
this paragraph shall continue until the final conclusion of any audits or
litigation to which the records and information relate or until expiration of
all applicable statutes of limitations, whichever is longer.
ARTICLE VIII. MISCELLANEOUS PROVISIONS
Section 8.1 NOTICES. Any notice required or permitted to be given
pursuant to this Agreement shall be in writing and shall be delivered
personally, by courier service providing a delivery receipt or by registered
or certified U.S. mail, postage prepaid, to the other party at the address
set forth below or at such other address as the party may designate by
written notice to the other party:
If to KCSI:
Kansas City Southern Industries, Inc.
114 West 11th Street
Kansas City, Missouri 64105
Attn: Senior Vice President and General Counsel
If to Stilwell:
Stilwell Financial, Inc.
114 West 11th Street
Kansas City, Missouri 64105
Attn: President
Section 8.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri, without
regard to its principles of conflicts of laws.
Section 8.3 LIMITATION ON WAIVERS. The provisions of this Agreement
may be waived only if the waiver is in writing and signed by the party making
the waiver. No delay or omission in exercising any right under this
Agreement will operate as a waiver of the right on any further occasion. No
waiver of any particular provisions of this Agreement will be treated as a
waiver of any other provision, and no waiver of any rights will be deemed a
continuing waiver of the same right with respect to subsequent occurrences
that give rise to it. All rights given by this Agreement are cumulative to
other rights provided for in this Agreement and to any other rights available
under applicable law.
Section 8.4 COMPLETE AGREEMENT. This Agreement supersedes all other
prior negotiations, agreements and understandings between the parties with
respect to the subject matter hereof, including tax allocation agreements
between or among KCSI and any members of the KCSI Group or the Stilwell Group
where the terms of such tax allocation agreements conflict with the terms of
this Agreement, except that KCSI and Stilwell acknowledge that (i) paragraph
3 of the Intercompany Agreement provides a supplemental position with respect
to the Janus Agreement and (ii) paragraph 13 of the Intercompany Agreement
regarding mediation and arbitration of disputes shall also apply to this
Agreement.
Section 8.5 TERM. This Agreement shall commence on the date shown on
page 1 hereof and shall continue in effect until otherwise agreed to in
writing by KCSI and Stilwell or their successors.
Section 8.6 SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. KCSI and Stilwell hereby guarantee the
performance of actions, agreements and obligations contained in this
Agreement of each member of the KCSI Group and the Stilwell Group,
respectively. Neither KCSI nor Stilwell shall assign any of their rights or
delegate any of their duties under this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ M. R. Haverty
-------------------------------
Name: Michael R. Haverty
Title: Executive Vice President
STILWELL FINANCIAL, INC.
By: /s/ Landon H. Rowland
------------------------------
Name: Landon H. Rowland
Title: Chairman, President and
Chief Executive Officer
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
-----------------------------
WHEREAS, DST Systems, Inc. ("DST") and Kansas City Southern Industries,
Inc. ("KCSI") are parties to that certain Registration Rights Agreement dated
as of October 24, 1995 (the "Agreement"); and
WHEREAS, DST and KCSI desire to amend the Agreement as set forth herein.
NOW, THEREFORE, DST and KCSI agree as follows:
1. Capitalized terms used herein have the meaning set forth herein or
in the Agreement.
2. Clause (ii) of Section 1(b) of the Agreement is hereby amended to
read as follows:
"(ii) such securities shall have been distributed pursuant to Rule
144 or KCSI otherwise transfers or disposes of such securities without the
written consent of DST."
3. Clause (a) of Section 1.(g) of the Agreement is hereby amended to
read as follows:
"(a) the date on which KCSI or its Permitted Assignee no longer
holds any Registrable Securities . . . ."
4. Section 1 of the Agreement is hereby amended to add a new Section
1(h) to read as follows:
"(h) "Permitted Assignee" shall mean any entity to which any
rights under this Agreement are assigned with DST's written consent."
5. Section 3(b) of the Agreement is hereby amended to read as follows:
(b)(i) if the registration referred to in the first sentence of
this Section 3 is to be an underwritten primary registration on behalf of the
Company, and the managing underwriter advised the Company in writing that, in
such firm's opinion, such offering would be materially and adversely affected
by the inclusion therein of the Registrable Securities requested to be included
therein, the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account ("Company
Securities"), (2) second, up to the full number of Registrable Securities held
by KCSI and requested to be included in such registration by KCSI in excess of
the number or dollar amount of securities the Company proposes to sell which,
in the good-faith opinion of such managing underwriter, can be sold without so
materially and adversely affecting such offering, and (3) third, an amount of
other securities, if any, requested to be included therein in excess of the
number or dollar amount of Company Securities and Registrable Securities held
by KCSI which, in the opinion of such underwriter(s), can be so sold without
materially and adversely affecting such offering (allocated among the holders
of such other securities in such proportions as such holders and the Company
may agree); and (ii) if the registration referred to in the first sentence of
this Section 3 is to be an underwritten secondary registration on behalf of
holders of securities (other than Registrable Securities) of the Company (the
"Other Holders"), and the managing underwriter advises the Company in writing
that in its good-faith opinion such offering would be materially and adversely
affected by the inclusion therein of the Registrable Securities requested to be
included therein, the Company shall include in such registration the amount of
securities (including Registrable Securities) that such managing underwriter
advises can be sold allocated pro rata among the Other Holders and KCSI, on the
basis of the number of securities (including Registrable Securities) requested
to be included therein by each Other Holder and KCSI;
6. Section 6 of the Agreement is hereby amended to read as follows:
6. Non-assignability of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Agreement
are reserved for the use and benefit of KCSI and may not be assigned or
transferred by KCSI to any other person, without the written consent of the
Company.
7. This Amendment shall be effective as of June 30, 1999 (the
"Effective Date"). Except as amended hereby, the Agreement shall continue in
full force and effect in accordance with its terms.
IN WITNESS WHEREOF, DST and KCSI have caused this Amendment to be duly
executed by their authorized representatives as of the Effective Date.
DST SYSTEMS, INC.
By: /s/ Kenneth V. Hager
------------------------------
Printed Name: Kenneth V. Hager
Title: Vice President, Chief Financial
Officer and Treasurer
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Landon H. Rowland
------------------------------
Printed Name: Landon H. Rowland
Title: Chairman of the Board, President
and Chief Executive Officer
FORM OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of this ____ day of
____________, 1999, by and between Stilwell Financial, Inc., a Delaware
corporation ("Stilwell") and Landon H. Rowland, an individual ("Executive") to
be effective on _________, 1999.
WHEREAS, concurrently with the execution of this Agreement, all of the
issued and outstanding stock of Stilwell is being distributed (the
"Distribution") to the shareholders of Kansas City Southern Industries, Inc.
("KCSI") which has been the parent of Stilwell since its formation on January
23, 1998; and
WHEREAS, Executive previously was employed by KCSI, and Stilwell and
Executive desire for Stilwell to continue to employ Executive on the terms and
conditions set forth in this Agreement and to provide an incentive to Executive
to remain in the employ of Stilwell hereafter, particularly in the event of any
Change in Control (as herein defined) of Stilwell or any Significant Subsidiary
(as herein defined), thereby establishing and preserving continuity of
management of Stilwell.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is agreed by and between Stilwell and Executive as
follows:
1. EMPLOYMENT. Stilwell hereby employs Executive as its Chairman of
the Board, President and Chief Executive Officer to serve at the pleasure of
the Board of Directors of Stilwell (the "Stilwell Board") and to have such
duties, powers and responsibilities as may be prescribed or delegated from time
to time by the Stilwell Board, subject to the powers vested in the Stilwell
Board and in the stockholders of Stilwell. Executive shall faithfully perform
his duties under this Agreement to the best of his ability and shall devote
substantially all of his working time and efforts to the business and affairs
of Stilwell and its affiliates.
2. COMPENSATION.
------------
(a) BASE COMPENSATION. Stilwell shall pay Executive as
compensation for his services hereunder an annual base salary at the rate of
$750,000. Such rate shall not be increased prior to January 1, 2000 and shall
not be reduced except as agreed by the parties or except as part of a general
salary reduction program imposed by Stilwell and applicable to all officers of
Stilwell.
(b) INCENTIVE COMPENSATION. For the year 1999, Executive shall
not be entitled to participate in any Stilwell incentive compensation plan.
3. BENEFITS AND STOCK OWNERSHIP.
----------------------------
(a) BENEFITS. During the period of his employment hereunder,
Stilwell shall provide Executive with coverage under such benefit plans and
programs as are made generally available to similarly situated employees of
Stilwell, provided (a) Stilwell shall have no obligation with respect to any
plan or program if Executive is not eligible for coverage thereunder, and (b)
Executive acknowledges that stock options and other stock and equity
participation awards are granted in the discretion of the Stilwell Board or the
Compensation Committee of the Stilwell Board and that Executive has no right to
receive stock options or other equity participation awards or any particular
number or level of stock options or other awards. In determining
contributions, coverage and benefits under any disability insurance policy and
under any cash compensation-based plan provided to Executive by Stilwell, it
shall be assumed that the value of Executive's annual compensation, pursuant to
this Agreement is $875,000. Executive acknowledges that all rights and
benefits under benefit plans and programs shall be governed by the official
text of each such plan or program and not by any summary or description thereof
or any provision of this Agreement (except to the extent this Agreement
expressly modifies such benefit plans or programs) and that Stilwell is not
under any obligation to continue in effect or to fund any such plan or program,
except as provided in Paragraph 7 hereof. Stilwell also shall reimburse
Executive for ordinary and necessary travel and other business expenses in
accordance with policies and procedures established by Stilwell.
(b) STOCK OWNERSHIP. During the period of his employment
hereunder, Executive shall retain ownership in himself or in members of his
immediate family of at least a majority of the number of shares of (i) Stilwell
stock received by Executive or members of his immediate family in the
Distribution, and (ii) Stilwell stock acquired upon the exercise of stock
options, but excluding from such number of shares any such shares transferred
to KCSI to pay the purchase price upon the exercise of stock options or to meet
withholding tax requirements.
4. TERMINATION.
-----------
(a) TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement and his employment hereunder by at least thirty (30) days advance
written notice to Stilwell, except that in the event of any material breach of
this Agreement by Stilwell, Executive may terminate this Agreement and his
employment hereunder immediately upon notice to Stilwell.
(b) DEATH OR DISABILITY. This Agreement and Executive's
employment hereunder shall terminate automatically on the death or disability
of Executive, except to the extent employment is continued under Stilwell's
disability plan. For purposes of this Agreement, Executive shall be deemed to
be disabled if he qualifies for disability benefits under Stilwell's long-term
disability plan.
(c) TERMINATION BY STILWELL FOR CAUSE. Stilwell may terminate
this Agreement and Executive's employment "for cause" immediately upon notice
to Executive. For purposes of this Agreement (except for Paragraph 7),
termination "for cause" shall mean termination based upon any one or more of
the following:
(i) Any material breach of this Agreement by Executive;
(ii) Executive's dishonesty involving Stilwell or any
subsidiary of Stilwell;
(iii) Gross negligence or willful misconduct in the
performance of Executive's duties as determined in good faith by the
Stilwell Board;
(iv) Willful failure by Executive to follow reasonable
instructions of the President or other officer to whom Executive reports
concerning the operations or business of Stilwell or any subsidiary of
Stilwell;
(v) Executive's fraud or criminal activity; or
(vi) Embezzlement or misappropriation by Executive.
(d) TERMINATION BY STILWELL OTHER THAN FOR CAUSE.
--------------------------------------------
(i) Stilwell may terminate this Agreement and Executive's
employment other than for cause immediately upon notice to Executive, and
in such event, Stilwell shall provide severance benefits to Executive in
accordance with Paragraph 4(d)(ii) below.
(ii) Unless the provisions of Paragraph 7 of this Agreement
are applicable, if Executive's employment is terminated under Paragraph
4(d)(i), Stilwell shall continue, for a period of two (2) years following
such termination, (a) to pay to Executive as severance pay a monthly
amount equal to one-twelfth (1/12th) of the annual base salary referenced
in Paragraph 2(a) above, at the rate in effect immediately prior to
termination, and, (b) to reimburse Executive for the cost (including
state and federal income taxes payable with respect to this
reimbursement) of continuing the health insurance coverage provided
pursuant to this Agreement or obtaining health insurance coverage
comparable to the health insurance provided pursuant to this Agreement,
and obtaining coverage comparable to the life insurance provided pursuant
to this Agreement, unless Executive is provided comparable health or life
insurance coverage in connection with other employment. The foregoing
obligations of Stilwell shall continue until the end of such two (2) year
period notwithstanding the death or disability of Executive during said
period (except, in the event of death, the obligation to reimburse
Executive for the cost of life insurance shall not continue). In the
year in which termination of employment occurs, Executive shall be
eligible to receive benefits under the Stilwell Incentive Compensation
Plan and the Stilwell Executive Plan (if such Plans then are in existence
and Executive was entitled to participate immediately prior to
termination) in accordance with the provisions of such plans then
applicable, and severance pay received in such year shall be taken into
account for the purpose of determining benefits, if any, under the
Stilwell Incentive Compensation Plan but not under the Stilwell Executive
Plan. After the year in which termination occurs, Executive shall not be
entitled to accrue or receive benefits under the Stilwell Incentive
Compensation Plan or the Stilwell Executive Plan with respect to the
severance pay provided herein, notwithstanding that benefits under such
plan then are still generally available to executive employees of
Stilwell. After termination of employment, Executive shall not be
entitled to accrue or receive benefits under any other employee benefit
plan or program, except that Executive shall be entitled to participate
in the Stilwell Profit Sharing Plan, the Stilwell Employee Stock
Ownership Plan and the Stilwell Section 401(k) Plan in the year of
termination of employment only if Executive meets all requirements of
such plans for participation in such year.
5. NON-DISCLOSURE AND NON-COMPETE.
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(a) NON-DISCLOSURE. During the term of this Agreement and at all
times after any termination of this Agreement, Executive shall not, either
directly or indirectly, use or disclose any Stilwell trade secret, except to
the extent necessary for Executive to perform his duties for Stilwell while an
employee. For purposes of this Agreement, the term "Stilwell trade secret"
shall mean any information regarding the business or activities of Stilwell or
any subsidiary or affiliate, including any formula, pattern, compilation,
program, device, method, technique, process, customer list, technical
information or other confidential or proprietary information, that (a) derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use, and (b) is the subject of
efforts of Stilwell or its subsidiary or affiliate that are reasonable under
the circumstance to maintain its secrecy. In the event of any breach of this
Paragraph 5 by Executive, Stilwell shall be entitled to terminate any and all
remaining severance benefits under Paragraph 4(d)(ii) and shall be entitled to
pursue such other legal and equitable remedies as may be available.
(b) NON-COMPETE. Following termination of this Agreement, except
termination pursuant to Paragraph 4(d) or any termination after a Change in
Control (as herein defined of Stilwell), for a period ending three (3) years
after the last payment of salary or severance pay to Executive, Executive shall
not, directly or indirectly, as an individual, consultant, employer, employee,
officer, director, advisory director, principal, agent, partner, member,
stockholder (except non-controlling holdings of stock of not more than 2% of a
publicly traded company) or otherwise, (i) engage in a business in competition
with any business conducted by Stilwell or any subsidiary of Stilwell at any
time within five (5) years preceding the commencement of the period of non-
compete provided herein or any business which Stilwell or any of its
subsidiaries was actively considering for ownership or conduct during the
aforesaid five (5) year period, or (ii) participate in management of any
holding company owning, directly or indirectly, more than 5% of any such
business. Executive acknowledges that certain subsidiaries of Stilwell now
conduct business throughout the United States and in foreign countries, and
agrees that this non-compete shall apply in all countries and jurisdictions in
which Stilwell or any of its subsidiaries conduct business or was actively
considering for the conduct of business during the aforesaid five (5) year
period.
6. DUTIES UPON TERMINATION; SURVIVAL.
---------------------------------
(a) DUTIES. Upon termination of this Agreement by Stilwell or
Executive for any reason, Executive shall immediately return to Stilwell all
Stilwell trade secrets which exist in tangible form and shall sign such written
resignations from all positions as an officer, director or member of any
committee or board of Stilwell and all direct and indirect subsidiaries and
affiliates of Stilwell as may be requested by Stilwell and shall sign such
other documents and papers relating to Executive's employment, benefits and
benefit plans as Stilwell may reasonably request.
(b) SURVIVAL. The provisions of Paragraphs 5, 6(a) and 7 of this
Agreement shall survive any termination of this Agreement by Stilwell or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Stilwell under Paragraph 4(d)(i).
7. CONTINUATION OF EMPLOYMENT UPON CHANGE IN CONTROL OF STILWELL.
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(a) CONTINUATION OF EMPLOYMENT. Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control (as
defined in Paragraph 7(d)) at any time during the term of this Agreement,
Executive agrees to remain in the employ of Stilwell for a period of three
years (the "Three-Year Period") from the date of such Change in Control (the
"Control Change Date"). Stilwell agrees to continue to employ Executive for
the Three-Year Period. During the Three-Year Period, (i) the Executive's
position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 12 month period immediately before the Control
Change Date and (ii) the Executive's services shall be performed at the
location where Executive was employed immediately before the Control Change
Date or at any other location less than 40 miles from such former location.
During the Three-Year Period, Stilwell shall continue to pay to Executive an
annual base salary on the same basis and at the same intervals as in effect
prior to the Control Change Date at a rate not less than 12 times the highest
monthly base salary paid or payable to the Executive by Stilwell in respect of
the 12-month period immediately before the Control Change Date.
(b) BENEFITS. During the Three-Year Period, Executive shall be
entitled to participate, on the basis of his executive position, in each of
the following Stilwell plans (together, the "Specified Benefits") in
existence, and in accordance with the terms thereof, at the Control Change
Date:
(i) any benefit plan, and trust fund associated therewith,
related to (a) life, health, dental, disability, accidental death and
dismemberment insurance or accrued but unpaid vacation time, (b) profit
sharing, thrift or deferred savings (including deferred compensation,
such as under Sec. 401(k) plans), (c) retirement or pension benefits,
(d) ERISA excess benefits and similar plans and (e) tax favored employee
stock ownership (such as under ESOP, and Employee Stock Purchase
programs); and
(ii) any other benefit plans hereafter made generally
available to executives of Executive's level or to the employees of
Stilwell generally.
In addition, Stilwell shall use its best efforts to cause all
outstanding options held by Executive under any stock option plan of Stilwell
or its affiliates to become immediately exercisable on the Control Change Date
and to the extent that such options are not vested and are subsequently
forfeited, the Executive shall receive a lump-sum cash payment within 5 days
after the options are forfeited equal to the difference between the fair
market value of the shares of stock subject to the non-vested, forfeited
options determined as of the date such options are forfeited and the exercise
price for such options. During the Three-Year Period Executive shall be
entitled to participate, on the basis of his executive position, in any
incentive compensation plan of Stilwell in accordance with the terms thereof
at the Control Change Date; provided that if under Stilwell programs or
Executive's Employment Agreement in existence immediately prior to the Control
Change Date, there are written limitations on participation for a designated
time period in any incentive compensation plan, such limitations shall
continue after the Control Change Date to the extent so provided for prior to
the Control Change Date.
If the amount of contributions or benefits with respect to the Specified
Benefits or any incentive compensation is determined on a discretionary basis
under the terms of the Specified Benefits or any incentive compensation plan
immediately prior to the Control Change Date, the amount of such contributions
or benefits during the Three-Year Period for each of the Specified Benefits
shall not be less than the average annual contributions or benefits for each
Specified Benefit for the three plan years ending prior to the Control Change
Date and, in the case of any incentive compensation plan, the amount of the
incentive compensation during the Three-Year Period shall not be less than 75%
of the maximum that could have been paid to the Executive under the terms of
the incentive compensation plan.
(c) PAYMENT. With respect to any plan or agreement under which
Executive would be entitled at the Control Change Date to receive Specified
Benefits or incentive compensation as a general obligation of Stilwell which
has not been separately funded (including specifically, but not limited to,
those referred to under Paragraph 7(b)(i)(d) above), Executive shall receive
within five (5) days after such date full payment in cash (discounted to the
then present value on the basis of a rate of seven percent (7%) per annum) of
all amounts to which he is then entitled thereunder.
(d) CHANGE IN CONTROL. Except as provided in the last sentence
of this Paragraph 7(d), for purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred if:
(i) for any reason at any time less than seventy-five
percent (75%) of the members of the Stilwell Board shall be individuals
who fall into any of the following categories: (a) individuals who were
members of the Stilwell Board on the date of the Agreement; or (b)
individuals whose election, or nomination for election by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who were
members of the Stilwell Board on the date of the Agreement; or (c)
individuals whose election, or nomination for election, by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who were
elected in the manner described in (a) or (b) above; provided however,
that no individuals described in (b) or (c) above shall be treated as so
elected or nominated if such election or nomination shall have occurred
as part of a proxy contest, tender offer or any proposed purchase,
merger or other similar transaction; or
(ii) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act")) shall have become, according to a public announcement or filing,
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Stilwell representing
thirty percent (30%) (or, with respect to Paragraph 7(c) hereof, 40%) or
more (calculated in accordance with Rule 13d-3) of the combined voting
power of the then outstanding voting securities ("Voting Power") of
Stilwell; or
(iii) the stockholders of Stilwell shall have approved a
merger, consolidation or dissolution of Stilwell or a sale, lease,
exchange or disposition of all or substantially all of Stilwell's
assets, if persons who were the beneficial owners of the Voting Power of
Stilwell immediately before any such merger, consolidation, dissolution,
sale, lease, exchange or disposition do not immediately thereafter,
beneficially own, directly or indirectly, in substantially the same
proportions, more than 60% of the Voting Power of any corporation or
other entity resulting from any such transaction.
(iv) Stilwell shall have directly or indirectly sold or
disposed of, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, any Significant
Subsidiary or otherwise reduced Stilwell's direct or indirect
beneficial ownership of any Significant Subsidiary to less than 50% of
the Voting Power of such entity.
For purposes of this Agreement, "Significant Subsidiary" shall mean (A) any
entity of which at least 50% of the Voting Power is beneficially owned,
directly or indirectly, by Stilwell and which contributed 30% or more of the
total combined revenues of Stilwell and all entities of which Stilwell owned
at least 50% of the Voting Power for the prior calendar year, and (B) any one
or more entities, businesses or groups of assets directly or indirectly sold
or disposed of by Stilwell (within the meaning of paragraph 7(d)(iv)) within
any two year period that contributed 30% of more of such total combined
revenues or would have contributed such 30% based on revenues of such
entities, businesses or groups of assets for the calendar year prior to their
sale or disposition.
Notwithstanding the foregoing provisions of this Paragraph 7(d) to the
contrary, the distribution of all or substantially all of the shares of
Stilwell owned by KCSI to the shareholders of KCSI shall not constitute a
Change in Control.
(e) TERMINATION AFTER CONTROL CHANGE DATE. Notwithstanding any
other provision of this Paragraph 7, at any time after the Control Change
Date, Stilwell may terminate the employment of Executive (the "Termination"),
but unless such Termination is for Cause as defined in subparagraph (g) or for
disability, within five (5) days of the Termination Stilwell shall pay to
Executive his full base salary through the Termination, to the extent not
theretofore paid, plus a lump sum amount (the "Special Severance Payment")
equal to the product (discounted to the then present value on the basis of a
rate of seven percent (7%) per annum) of (i) 175% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) three and Specified Benefits
(excluding any incentive compensation) to which Executive was entitled
immediately prior to Termination shall continue until the end of the 3-year
period ("Benefits Period") beginning on the date of Termination. If any plan
pursuant to which Specified Benefits are provided immediately prior to
Termination would not permit continued participation by Executive after
Termination, then Stilwell shall pay to Executive within five (5) days after
Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received under such plan if Executive had been fully
vested in the average annual contributions or benefits in effect for the three
plan years ending prior to the Control Change Date (regardless of any
limitations based on the earnings or performance of Stilwell) and a continuing
participant in such plan to the end of the Benefits Period. Following the end
of the Benefits Period, Stilwell shall continue to provide to the Executive
and the Executive's family the following benefits ("Post-Period Benefits"):
(1) prior to the Executive's attainment of age sixty (60), health,
prescription and dental benefits equivalent to those then applicable to active
peer executives of Stilwell and their families, as the same may be modified
from time to time, and (2) following the Executive's attainment of age sixty
(60) (and without regard to the Executive's period of service with Stilwell),
health and prescription benefits equivalent to those then applicable to
retired peer executives of Stilwell and their families, as the same may be
modified from time to time. The cost to the Executive of such Post-Period
Benefits shall not exceed the cost of such benefits to active or retired (as
applicable) peer executives, as the same may be modified from time to time.
Notwithstanding the preceding two sentences of this Paragraph 7(e), if the
Executive is covered under any health, prescription or dental plan provided by
a subsequent employer, then the corresponding type of plan coverage (i.e.,
health, prescription or dental) required to be provided as Post-Period
Benefits under this Paragraph 7(e) shall cease. The Executive's rights under
this Paragraph 7(e) shall be in addition to, and not in lieu of, any post-
termination continuation coverage or conversion rights the Executive may have
pursuant to applicable law, including without limitation continuation coverage
required by Section 4980 of the Code. Nothing in this Paragraph 7(e) shall be
deemed to limit in any manner the reserved right of Stilwell, in its sole and
absolute discretion, to at any time amend, modify or terminate health,
prescription or dental benefits for active or retired employees generally.
(f) RESIGNATION AFTER CONTROL CHANGE DATE. In the event of a
Change in Control as defined in Paragraph 7(d), thereafter, upon good reason
(as defined below), Executive may, at any time during the 3-year period
following the Change in Control, in his sole discretion, on not less than
thirty (30) days' written notice (the "Notice of Resignation") to the
Secretary of Stilwell and effective at the end of such notice period, resign
his employment with Stilwell (the "Resignation"). Within five (5) days of
such a Resignation, Stilwell shall pay to Executive his full base salary
through the effective date of such Resignation, to the extent not theretofore
paid, plus a lump sum amount equal to the Special Severance Payment (computed
as provided in the first sentence of Paragraph 7(e), except that for purposes
of such computation all references to "Termination" shall be deemed to be
references to "Resignation"). Upon Resignation of Executive, Specified
Benefits to which Executive was entitled immediately prior to Resignation
shall continue on the same terms and conditions as provided in Paragraph 7(e)
in the case of Termination (including equivalent payments provided for
therein), and Post-Period Benefits shall be provided on the same terms and
conditions as provided in Paragraph 7(e) in the case of Termination. For
purposes of this Agreement, "good reason" means any of the following:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
offices, titles, reporting requirements or responsibilities), authority
or duties as contemplated by Section 7(a)(i), or any other action by
Stilwell which results in a diminution or other material adverse change
in such position, authority or duties;
(ii) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
(iii) Stilwell's requiring the Executive to be based at any
office or location other than the location described in Section
7(a)(ii);
(iv) any other material adverse change to the terms and
conditions of the Executives employment; or
(v) any purported termination by Stilwell of the
Executive's employment other than as expressly permitted by this
Agreement (any such purported termination shall not be effective for any
other purpose under this Agreement).
A passage of time prior to delivery of the Notice of Resignation or a failure
by the Executive to include in the Notice of Resignation any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of the Executive under this Agreement or preclude the Executive from
asserting such fact or circumstance in enforcing rights under this Agreement.
(g) TERMINATION FOR CAUSE AFTER CONTROL CHANGE DATE.
Notwithstanding any other provision of this Paragraph 7, at any time after the
Control Change Date, Executive may be terminated by Stilwell "for cause."
Cause means commission by the Executive of any felony or willful breach of
duty by the Executive in the course of the Executive's employment; except that
Cause shall not mean:
(i) bad judgment or negligence;
(ii) any act or omission believed by the Executive in good
faith to have been in or not opposed to the interest of Stilwell
(without intent of the Executive to gain, directly or indirectly, a
profit to which the Executive was not legally entitled);
(iii) any act or omission with respect to which a
determination could properly have been made by the Stilwell Board that
the Executive met the applicable standard of conduct for indemnification
or reimbursement under Stilwell's by-laws, any applicable
indemnification agreement, or applicable law, in each case in effect at
the time of such act or omission; or
(iv) any act or omission with respect to which Notice of
Termination of the Executive is given more than 12 months after the
earliest date on which any member of the Stilwell Board, not a party to
the act or omission, knew or should have known of such act or omission.
Any Termination of the Executive's employment by Stilwell for Cause shall
be communicated to the Executive by Notice of Termination.
(h) GROSS-UP FOR CERTAIN TAXES. If it is determined (by the
reasonable computation of Stilwell's independent auditors, which
determinations shall be certified to by such auditors and set forth in a
written certificate ("Certificate") delivered to the Executive) that any
benefit received or deemed received by the Executive from Stilwell pursuant to
this Agreement or otherwise (collectively, the "Payments") is or will become
subject to any excise tax under Section 4999 of the Code or any similar tax
payable under any United States federal, state, local or other law (such
excise tax and all such similar taxes collectively, "Excise Taxes"), then
Stilwell shall, immediately after such determination, pay the Executive an
amount (the "Gross-up Payment") equal to the product of:
(i) the amount of such Excise Taxes;
multiplied by
(ii) the Gross-up Multiple (as defined in Paragraph 7(k).
The Gross-up Payment is intended to compensate the Executive
for the Excise Taxes and any federal, state, local or other income or
excise taxes or other taxes payable by the Executive with respect to the
Gross-up Payment.
Stilwell shall cause the preparation and delivery to the
Executive of a Certificate upon request at any time. Stilwell shall, in
addition to complying with this Paragraph 7(h), cause all determinations
and certifications under Paragraphs 7(h)-(o) to be made as soon as
reasonably possible and in adequate time to permit the Executive to
prepare and file the Executive's individual tax returns on a timely
basis.
(i) DETERMINATION BY THE EXECUTIVE.
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(i) If Stilwell shall fail (a) to deliver a Certificate to
the Executive or (b) to pay to the Executive the amount of the Gross-up
Payment, if any, within 14 days after receipt from the Executive of a
written request for a Certificate, or if at any time following receipt
of a Certificate the Executive disputes the amount of the Gross-up
Payment set forth therein, the Executive may elect to demand the payment
of the amount which the Executive, in accordance with an opinion of
counsel to the Executive ("Executive Counsel Opinion"), determines to be
the Gross-up Payment. Any such demand by the Executive shall be made by
delivery to Stilwell of a written notice which specifies the Gross-up
Payment determined by the Executive and an Executive Counsel Opinion
regarding such Gross-up Payment (such written notice and opinion
collectively, the "Executive's Determination"). Within 14 days after
delivery of the Executive's Determination to Stilwell, Stilwell shall
either (a) pay the Executive the Gross-up Payment set forth in the
Executive's Determination (less the portion of such amount, if any,
previously paid to the Executive by Stilwell) or (b) deliver to the
Executive a Certificate specifying the Gross-up Payment determined by
Stilwell's independent auditors, together with an opinion of Stilwell's
counsel ("Stilwell Counsel Opinion"), and pay the Executive the Gross-up
Payment specified in such Certificate. If for any reason Stilwell fails
to comply with clause (b) of the preceding sentence, the Gross-up
Payment specified in the Executive's Determination shall be controlling
for all purposes.
(ii) If the Executive does not make a request for, and
Stilwell does not deliver to the Executive, a Certificate, Stilwell
shall, for purposes of Paragraph 7(j), be deemed to have determined that
no Gross-up Payment is due.
(j) ADDITIONAL GROSS-UP AMOUNTS. If, despite the initial
conclusion of Stilwell and/or the Executive that certain Payments are neither
subject to Excise Taxes nor to be counted in determining whether other
Payments are subject to Excise Taxes (any such item, a "Non-Parachute Item"),
it is later determined (pursuant to subsequently-enacted provisions of the
Code, final regulations or published rulings of the IRS, final IRS
determination or judgment of a court of competent jurisdiction or Stilwell's
independent auditors) that any of the Non-Parachute Items are subject to
Excise Taxes, or are to be counted in determining whether any Payments are
subject to Excise Taxes, with the result that the amount of Excise Taxes
payable by the Executive is greater than the amount determined by Stilwell or
the Executive pursuant to Paragraph 7(h) or Paragraph 7(i), as applicable,
then Stilwell shall pay the Executive an amount (which shall also be deemed a
Gross-up Payment) equal to the product of:
(i) the sum of (a) such additional Excise Taxes and (b)
any interest, fines, penalties, expenses or other costs incurred by the
Executive as a result of having taken a position in accordance with a
determination made pursuant to Paragraph 7(h); multiplied by
(ii) the Gross-up Multiple.
(k) GROSS-UP MULTIPLE. The Gross-up Multiple shall equal a
fraction, the numerator of which is one (1.0), and the denominator of
which is one (1.0) minus the sum, expressed as a decimal fraction, of
the rates of all federal, state, local and other income and other taxes
and any Excise Taxes applicable to the Gross-up Payment; provided that,
if such sum exceeds 0.8, it shall be deemed equal to 0.8 for purposes of
this computation. (If different rates of tax are applicable to various
portions of a Gross-up Payment, the weighted average of such rates shall
be used.)
(l) OPINION OF COUNSEL. "Executive Counsel Opinion" means a
legal opinion of nationally recognized executive compensation counsel that
there is a reasonable basis to support a conclusion that the Gross-up Payment
determined by the Executive has been calculated in accord with this Paragraph
7 and applicable law. "Company Counsel Opinion" means a legal opinion of
nationally recognized executive compensation counsel that (i) there is a
reasonable basis to support a conclusion that the Gross-up Payment set forth
in the Certificate of Stilwell's independent auditors has been calculated in
accord with this Paragraph 7 and applicable law, and (ii) there is no
reasonable basis for the calculation of the Gross-up Payment determined by the
Executive.
(m) AMOUNT INCREASED OR CONTESTED. The Executive shall notify
Stilwell in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by Stilwell of a Gross-up Payment. Such
notice shall include the nature of such claim and the date on which such claim
is due to be paid. The Executive shall give such notice as soon as
practicable, but no later than 10 business days, after the Executive first
obtains actual knowledge of such claim; provided, however, that any failure to
give or delay in giving such notice shall affect Stilwell's obligations under
this Paragraph 7 only if and to the extent that such failure results in actual
prejudice to Stilwell. The Executive shall not pay such claim less than 30
days after the Executive gives such notice to Stilwell (or, if sooner, the
date on which payment of such claim is due). If Stilwell notifies the
Executive in writing before the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give Stilwell any information that it reasonably
requests relating to such claim;
(ii) take such action in connection with contesting such
claim as Stilwell reasonably requests in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by Stilwell;
(iii) cooperate with Stilwell in good faith to contest such
claim; and
(iv) permit Stilwell to participate in any proceedings
relating to such claim; provided, however, that Stilwell shall bear and
pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify
and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax, including related interest and penalties, imposed as
a result of such representation and payment of costs and expenses.
Without limiting the foregoing, Stilwell shall control all proceedings
in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may,
at its sole option, either direct the Executive to pay the tax claimed
and sue for a refund or contest the claim in any permissible manner.
The Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as Stilwell shall determine; provided,
however, that if Stilwell directs the Executive to pay such claim and
sue for a refund, Stilwell shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify the
Executive, on an after-tax basis, for any Excise Tax or income tax,
including related interest or penalties, imposed with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. The Stilwell's control
of the contest shall be limited to issues with respect to which a Gross-
up Payment would be payable. The Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the IRS or
other taxing authority.
(n) REFUNDS. If, after the receipt by the Executive of an
amount advanced by Stilwell pursuant to Paragraph 7(m), the Executive receives
any refund with respect to such claim, the Executive shall (subject to
Stilwell's complying with the requirements of Paragraph 7(m)) promptly pay
Stilwell the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by Stilwell pursuant to Paragraph 7(m), a
determination is made that the Executive shall not be entitled to a full
refund with respect to such claim and Stilwell does not notify the Executive
in writing of its intent to contest such determination before the expiration
of 30 days after such determination, then the applicable part of such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid. Any contest of a denial of refund shall be
controlled by Paragraph 7(m).
(o) EXPENSES. If any dispute should arise under this Agreement
after the Control Change Date involving an effort by Executive to protect,
enforce or secure rights or benefits claimed by Executive hereunder, Stilwell
shall pay (promptly upon demand by Executive accompanied by reasonable
evidence of incurrence) all reasonable expenses (including attorneys' fees)
incurred by Executive in connection with such dispute, without regard to
whether Executive prevails in such dispute except that Executive shall repay
Stilwell any amounts so received if a court having jurisdiction shall make a
final, nonappealable determination that Executive acted frivolously or in bad
faith by such dispute. To assure Executive that adequate funds will be made
available to discharge Stilwell's obligations set forth in the preceding
sentence, Stilwell has established a trust and upon the occurrence of a Change
in Control shall promptly deliver to the trustee of such trust to hold in
accordance with the terms and conditions thereof that sum which the Stilwell
Board shall have determined is reasonably sufficient for such purpose.
(p) PREVAILING PROVISIONS. On and after the Control Change
Date, the provisions of this Paragraph 7 shall control and take precedence
over any other provisions of this Agreement which are in conflict with or
address the same or a similar subject matter as the provisions of this
Paragraph 7.
8. MITIGATION AND OTHER EMPLOYMENT. After a termination of
Executive's employment pursuant to Paragraph 4(d)(i) or a Change in Control as
defined in Paragraph 7(d), Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and except as otherwise specifically provided in
Paragraph 4(d)(ii) with respect to health and life insurance and in Paragraph
7(e) with respect to health, prescription and dental benefits, no such other
employment, if obtained, or compensation or benefits payable in connection
therewith shall reduce any amounts or benefits to which Executive is entitled
hereunder. Such amounts or benefits payable to Executive under this Agreement
shall not be treated as damages but as severance compensation to which
Executive is entitled because Executive's employment has been terminated.
9. NOTICE. Notices and all other communications to either party
pursuant to this Agreement shall be in writing and shall be deemed to have been
given when personally delivered, delivered by facsimile or deposited in the
United States mail by certified or registered mail, postage prepaid, addressed,
in the case of Stilwell, to Stilwell at 114 West 11th Street, Kansas City,
Missouri 64105, Attention: Secretary, or, in the case of the Executive, to him
at EverGlades Farm, 12717 Mt. Olivet, Kansas City, MO 64166, or to such other
address as a party shall designate by notice to the other party.
10. AMENDMENT. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, waiver, modification or
discharge is agreed to in a writing signed by Executive and the President of
Stilwell. No waiver by any party hereto at any time of any breach by another
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time.
11. SUCCESSORS IN INTEREST. The rights and obligations of Stilwell
under this Agreement shall inure to the benefit of and be binding in each and
every respect upon the direct and indirect successors and assigns of Stilwell,
regardless of the manner in which such successors or assigns shall succeed to
the interest of Stilwell hereunder, and this Agreement shall not be terminated
by the voluntary or involuntary dissolution of Stilwell or by any merger or
consolidation or acquisition involving Stilwell or upon any transfer of all or
substantially all of Stilwell's assets, or terminated otherwise than in
accordance with its terms. In the event of any such merger or consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon and
shall inure to the benefit of the surviving corporation or the corporation or
other person to which such assets shall be transferred. Neither this Agreement
nor any of the payments or benefits hereunder may be pledged, assigned or
transferred by Executive either in whole or in part in any manner, without the
prior written consent of Stilwell.
12. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
13. CONTROLLING LAW AND JURISDICTION. The validity, interpretation and
performance of this Agreement shall be subject to and construed under the laws
of the State of Missouri, without regard to principles of conflicts of law.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and terminates
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the terms of Executive's employment
or severance arrangements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above stated.
STILWELL FINANCIAL, INC.
By
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Name:
-------------------------------------
Title:
-------------------------------------
EXECUTIVE
---------------------------------------
Landon H. Rowland
FORM OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of this ____ day of
____________, 1999, by and between Stilwell Financial, Inc., a Delaware
corporation ("Stilwell") and Joseph D. Monello, an individual ("Executive")
to be effective on ____________, 1999.
WHEREAS, concurrently with the execution of this Agreement, all of the
issued and outstanding stock of Stilwell is being distributed to the
shareholders of Kansas City Southern Industries, Inc. ("KCSI") which has been
the parent of Stilwell since its formation on January 23, 1998; and
WHEREAS, Executive previously was employed by KCSI with duties
primarily relating to Stilwell since its formation in 1998, and Stilwell and
Executive desire for Stilwell to continue to employ Executive on the terms
and conditions set forth in this Agreement and to provide an incentive to
Executive to remain in the employ of Stilwell hereafter, particularly in the
event of any Change in Control (as herein defined) of Stilwell or any
Significant Subsidiary (as herein defined), thereby establishing and
preserving continuity of management of Stilwell.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is agreed by and between Stilwell and Executive as
follows:
1. EMPLOYMENT. Stilwell hereby employs Executive as its Executive
Vice President to serve at the pleasure of the Board of Directors of Stilwell
(the "Stilwell Board") and to have such duties, powers and responsibilities
as may be prescribed or delegated from time to time by the President or other
officer to whom Executive reports, subject to the powers vested in the
Stilwell Board and in the stockholders of Stilwell. Executive shall
faithfully perform his duties under this Agreement to the best of his ability
and shall devote substantially all of his working time and efforts to the
business and affairs of Stilwell and its affiliates.
2. COMPENSATION.
------------
(a) BASE COMPENSATION. Stilwell shall pay Executive as
compensation for his services hereunder an annual base salary at the rate of
$600,000. Such rate shall not be increased prior to January 1, 2000 and
shall not be reduced except as agreed by the parties or except as part of a
general salary reduction program imposed by Stilwell and applicable to all
officers of Stilwell.
(b) INCENTIVE COMPENSATION. For the year 1999, Executive shall
not be entitled to participate in any Stilwell incentive compensation plan.
3. BENEFITS. During the period of his employment hereunder,
Stilwell shall provide Executive with coverage under such benefit plans and
programs as are made generally available to similarly situated employees of
Stilwell, provided (a) Stilwell shall have no obligation with respect to any
plan or program if Executive is not eligible for coverage thereunder, and (b)
Executive acknowledges that stock options and other stock and equity
participation awards are granted in the discretion of the Stilwell Board or
the Compensation Committee of the Stilwell Board and that Executive has no
right to receive stock options or other equity participation awards or any
particular number or level of stock options or other awards. In determining
contributions, coverage and benefits under any disability insurance policy
and under any cash compensation-based plan provided to Executive by Stilwell,
it shall be assumed that the value of Executive's annual compensation,
pursuant to this Agreement, is 166.67% of Executive's annual base salary.
Executive acknowledges that all rights and benefits under benefit plans and
programs shall be governed by the official text of each such plan or program
and not by any summary or description thereof or any provision of this
Agreement (except to the extent this Agreement expressly modifies such
benefit plans or programs) and that Stilwell is not under any obligation to
continue in effect or to fund any such plan or program, except as provided in
Paragraph 7 hereof. Stilwell also shall reimburse Executive for ordinary and
necessary travel and other business expenses in accordance with policies and
procedures established by Stilwell.
4. TERMINATION.
-----------
(a) TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement and his employment hereunder by at least thirty (30) days advance
written notice to Stilwell, except that in the event of any material breach
of this Agreement by Stilwell, Executive may terminate this Agreement and his
employment hereunder immediately upon notice to Stilwell.
(b) DEATH OR DISABILITY. This Agreement and Executive's
employment hereunder shall terminate automatically on the death or disability
of Executive, except to the extent employment is continued under Stilwell's
disability plan. For purposes of this Agreement, Executive shall be deemed
to be disabled if he qualifies for disability benefits under Stilwell's long-
term disability plan.
(c) TERMINATION BY STILWELL FOR CAUSE. Stilwell may terminate
this Agreement and Executive's employment "for cause" immediately upon notice
to Executive. For purposes of this Agreement (except for Paragraph 7),
termination "for cause" shall mean termination based upon any one or more of
the following:
(i) Any material breach of this Agreement by Executive;
(ii) Executive's dishonesty involving Stilwell or any
subsidiary of Stilwell;
(iii) Gross negligence or willful misconduct in the
performance of Executive's duties as determined in good faith by the
Stilwell Board;
(iv) Willful failure by Executive to follow reasonable
instructions of the President or other officer to whom Executive
reports concerning the operations or business of Stilwell or any
subsidiary of Stilwell;
(v) Executive's fraud or criminal activity; or
(vi) Embezzlement or misappropriation by Executive.
(d) TERMINATION BY STILWELL OTHER THAN FOR CAUSE.
--------------------------------------------
(i) Stilwell may terminate this Agreement and Executive's
employment other than for cause immediately upon notice to Executive,
and in such event, Stilwell shall provide severance benefits to
Executive in accordance with Paragraph 4(d)(ii) below.
(ii) Unless the provisions of Paragraph 7 of this
Agreement are applicable, if Executive's employment is terminated under
Paragraph 4(d)(i), Stilwell shall continue, for a period of one (1)
year following such termination, (a) to pay to Executive as severance
pay a monthly amount equal to one-twelfth (1/12th) of the annual base
salary referenced in Paragraph 2(a) above, at the rate in effect
immediately prior to termination, and, (b) to reimburse Executive for
the cost (including state and federal income taxes payable with respect
to this reimbursement) of continuing the health insurance coverage
provided pursuant to this Agreement or obtaining health insurance
coverage comparable to the health insurance provided pursuant to this
Agreement, and obtaining coverage comparable to the life insurance
provided pursuant to this Agreement, unless Executive is provided
comparable health or life insurance coverage in connection with other
employment. The foregoing obligations of Stilwell shall continue until
the end of such one (1) year period notwithstanding the death or
disability of Executive during said period (except, in the event of
death, the obligation to reimburse Executive for the cost of life
insurance shall not continue). In the year in which termination of
employment occurs, Executive shall be eligible to receive benefits
under the Stilwell Incentive Compensation Plan and the Stilwell
Executive Plan (if such Plans then are in existence and Executive was
entitled to participate immediately prior to termination) in accordance
with the provisions of such plans then applicable, and severance pay
received in such year shall be taken into account for the purpose of
determining benefits, if any, under the Stilwell Incentive Compensation
Plan but not under the Stilwell Executive Plan. After the year in
which termination occurs, Executive shall not be entitled to accrue or
receive benefits under the Stilwell Incentive Compensation Plan or the
Stilwell Executive Plan with respect to the severance pay provided
herein, notwithstanding that benefits under such plan then are still
generally available to executive employees of Stilwell. After
termination of employment, Executive shall not be entitled to accrue or
receive benefits under any other employee benefit plan or program,
except that Executive shall be entitled to participate in the Stilwell
Profit Sharing Plan, the Stilwell Employee Stock Ownership Plan and the
Stilwell Section 401(k) Plan in the year of termination of employment
only if Executive meets all requirements of such plans for
participation in such year.
5. NON-DISCLOSURE. During the term of this Agreement and at all
times after any termination of this Agreement, Executive shall not, either
directly or indirectly, use or disclose any Stilwell trade secret, except to
the extent necessary for Executive to perform his duties for Stilwell while
an employee. For purposes of this Agreement, the term "Stilwell trade
secret" shall mean any information regarding the business or activities of
Stilwell or any subsidiary or affiliate, including any formula, pattern,
compilation, program, device, method, technique, process, customer list,
technical information or other confidential or proprietary information, that
(a) derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and
(b) is the subject of efforts of Stilwell or its subsidiary or affiliate that
are reasonable under the circumstance to maintain its secrecy. In the event
of any breach of this Paragraph 5 by Executive, Stilwell shall be entitled to
terminate any and all remaining severance benefits under Paragraph 4(d)(ii)
and shall be entitled to pursue such other legal and equitable remedies as
may be available.
6. DUTIES UPON TERMINATION; SURVIVAL.
---------------------------------
(a) DUTIES. Upon termination of this Agreement by Stilwell or
Executive for any reason, Executive shall immediately return to Stilwell all
Stilwell trade secrets which exist in tangible form and shall sign such
written resignations from all positions as an officer, director or member of
any committee or board of Stilwell and all direct and indirect subsidiaries
and affiliates of Stilwell as may be requested by Stilwell and shall sign
such other documents and papers relating to Executive's employment, benefits
and benefit plans as Stilwell may reasonably request.
(b) SURVIVAL. The provisions of Paragraphs 5, 6(a) and 7 of
this Agreement shall survive any termination of this Agreement by Stilwell or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Stilwell under Paragraph 4(d)(i).
7. CONTINUATION OF EMPLOYMENT UPON CHANGE IN CONTROL OF STILWELL.
-------------------------------------------------------------
(a) CONTINUATION OF EMPLOYMENT. Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control (as
defined in Paragraph 7(d)) at any time during the term of this Agreement,
Executive agrees to remain in the employ of Stilwell for a period of three
years (the "Three-Year Period") from the date of such Change in Control (the
"Control Change Date"). Stilwell agrees to continue to employ Executive for
the Three-Year Period. During the Three-Year Period, (i) the Executive's
position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 12 month period immediately before the
Control Change Date and (ii) the Executive's services shall be performed at
the location where Executive was employed immediately before the Control
Change Date or at any other location less than 40 miles from such former
location. During the Three-Year Period, Stilwell shall continue to pay to
Executive an annual base salary on the same basis and at the same intervals
as in effect prior to the Control Change Date at a rate not less than 12
times the highest monthly base salary paid or payable to the Executive by
Stilwell in respect of the 12-month period immediately before the Control
Change Date.
(b) BENEFITS. During the Three-Year Period, Executive shall be
entitled to participate, on the basis of his executive position, in each of
the following Stilwell plans (together, the "Specified Benefits") in
existence, and in accordance with the terms thereof, at the Control Change
Date:
(i) any benefit plan, and trust fund associated
therewith, related to (a) life, health, dental, disability, accidental
death and dismemberment insurance or accrued but unpaid vacation time,
(b) profit sharing, thrift or deferred savings (including deferred
compensation, such as under Sec. 401(k) plans), (c) retirement or
pension benefits, (d) ERISA excess benefits and similar plans and (e)
tax favored employee stock ownership (such as under ESOP, and Employee
Stock Purchase programs); and
(ii) any other benefit plans hereafter made generally
available to executives of Executive's level or to the employees of
Stilwell generally.
In addition, Stilwell shall use its best efforts to cause all
outstanding options held by Executive under any stock option plan of Stilwell
or its affiliates to become immediately exercisable on the Control Change
Date and to the extent that such options are not vested and are subsequently
forfeited, the Executive shall receive a lump-sum cash payment within 5 days
after the options are forfeited equal to the difference between the fair
market value of the shares of stock subject to the non-vested, forfeited
options determined as of the date such options are forfeited and the exercise
price for such options. During the Three-Year Period Executive shall be
entitled to participate, on the basis of his executive position, in any
incentive compensation plan of Stilwell in accordance with the terms thereof
at the Control Change Date; provided that if under Stilwell programs or
Executive's Employment Agreement in existence immediately prior to the
Control Change Date, there are written limitations on participation for a
designated time period in any incentive compensation plan, such limitations
shall continue after the Control Change Date to the extent so provided for
prior to the Control Change Date.
If the amount of contributions or benefits with respect to the
Specified Benefits or any incentive compensation is determined on a
discretionary basis under the terms of the Specified Benefits or any
incentive compensation plan immediately prior to the Control Change Date, the
amount of such contributions or benefits during the Three-Year Period for
each of the Specified Benefits shall not be less than the average annual
contributions or benefits for each Specified Benefit for the three plan years
ending prior to the Control Change Date and, in the case of any incentive
compensation plan, the amount of the incentive compensation during the Three-
Year Period shall not be less than 75% of the maximum that could have been
paid to the Executive under the terms of the incentive compensation plan.
(c) PAYMENT. With respect to any plan or agreement under which
Executive would be entitled at the Control Change Date to receive Specified
Benefits or incentive compensation as a general obligation of Stilwell which
has not been separately funded (including specifically, but not limited to,
those referred to under Paragraph 7(b)(i)(d) above), Executive shall receive
within five (5) days after such date full payment in cash (discounted to the
then present value on the basis of a rate of seven percent (7%) per annum) of
all amounts to which he is then entitled thereunder.
(d) CHANGE IN CONTROL. Except as provided in the last sentence
of this Paragraph 7(d), for purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred if:
(i) for any reason at any time less than seventy-five
percent (75%) of the members of the Stilwell Board shall be individuals
who fall into any of the following categories: (a) individuals who
were members of the Stilwell Board on the date of the Agreement; or (b)
individuals whose election, or nomination for election by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who
were members of the Stilwell Board on the date of the Agreement; or (c)
individuals whose election, or nomination for election, by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who
were elected in the manner described in (a) or (b) above; provided
however, that no individuals described in (b) or (c) above shall be
treated as so elected or nominated if such election or nomination shall
have occurred as part of a proxy contest, tender offer or any proposed
purchase, merger or other similar transaction; or
(ii) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act")) shall have become, according to a public announcement or filing,
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Stilwell representing
thirty percent (30%) (or, with respect to Paragraph 7(c) hereof, 40%)
or more (calculated in accordance with Rule 13d-3) of the combined
voting power of the then outstanding voting securities ("Voting Power")
of Stilwell; or
(iii) the stockholders of Stilwell shall have approved a
merger, consolidation or dissolution of Stilwell or a sale, lease,
exchange or disposition of all or substantially all of Stilwell's
assets, if persons who were the beneficial owners of the Voting Power
of Stilwell immediately before any such merger, consolidation,
dissolution, sale, lease, exchange or disposition do not immediately
thereafter, beneficially own, directly or indirectly, in substantially
the same proportions, more than 60% of the Voting Power of any
corporation or other entity resulting from any such transaction.
(iv) Stilwell shall have directly or indirectly sold or
disposed of, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, any Significant
Subsidiary or otherwise reduced Stilwell's direct or indirect
beneficial ownership of any Significant Subsidiary to less than 50% of
the Voting Power of such entity.
For purposes of this Agreement, "Significant Subsidiary" shall mean (A) any
entity of which at least 50% of the Voting Power is beneficially owned,
directly or indirectly, by Stilwell and which contributed 30% or more of the
total combined revenues of Stilwell and all entities of which Stilwell owned
at least 50% of the Voting Power for the prior calendar year, and (B) any one
or more entities, businesses or groups of assets directly or indirectly sold
or disposed of by Stilwell (within the meaning of paragraph 7(d)(iv)) within
any two year period that contributed 30% of more of such total combined
revenues or would have contributed such 30% based on revenues of such
entities, businesses or groups of assets for the calendar year prior to their
sale or disposition.
Notwithstanding the foregoing provisions of this Paragraph 7(d) to the
contrary, the distribution of all or substantially all of the shares of
Stilwell owned by KCSI to the shareholders of KCSI shall not constitute a
Change in Control.
(e) TERMINATION AFTER CONTROL CHANGE DATE. Notwithstanding any
other provision of this Paragraph 7, at any time after the Control Change
Date, Stilwell may terminate the employment of Executive (the "Termination"),
but unless such Termination is for Cause as defined in subparagraph (g) or
for disability, within five (5) days of the Termination Stilwell shall pay to
Executive his full base salary through the Termination, to the extent not
theretofore paid, plus a lump sum amount (the "Special Severance Payment")
equal to the product (discounted to the then present value on the basis of a
rate of seven percent (7%) per annum) of (i) 166.67% of his annual base
salary specified in Paragraph 7(a) multiplied by (ii) three and Specified
Benefits (excluding any incentive compensation) to which Executive was
entitled immediately prior to Termination shall continue until the end of the
3-year period ("Benefits Period") beginning on the date of Termination. If
any plan pursuant to which Specified Benefits are provided immediately prior
to Termination would not permit continued participation by Executive after
Termination, then Stilwell shall pay to Executive within five (5) days after
Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received under such plan if Executive had been fully
vested in the average annual contributions or benefits in effect for the
three plan years ending prior to the Control Change Date (regardless of any
limitations based on the earnings or performance of Stilwell) and a
continuing participant in such plan to the end of the Benefits Period.
Following the end of the Benefits Period, Stilwell shall continue to provide
to the Executive and the Executive's family the following benefits ("Post-
Period Benefits"): (1) prior to the Executive's attainment of age sixty
(60), health, prescription and dental benefits equivalent to those then
applicable to active peer executives of Stilwell and their families, as the
same may be modified from time to time, and (2) following the Executive's
attainment of age sixty (60) (and without regard to the Executive's period of
service with Stilwell), health and prescription benefits equivalent to those
then applicable to retired peer executives of Stilwell and their families, as
the same may be modified from time to time. The cost to the Executive of
such Post-Period Benefits shall not exceed the cost of such benefits to
active or retired (as applicable) peer executives, as the same may be
modified from time to time. Notwithstanding the preceding two sentences of
this Paragraph 7(e), if the Executive is covered under any health,
prescription or dental plan provided by a subsequent employer, then the
corresponding type of plan coverage (i.e., health, prescription or dental)
required to be provided as Post-Period Benefits under this Paragraph 7(e)
shall cease. The Executive's rights under this Paragraph 7(e) shall be in
addition to, and not in lieu of, any post-termination continuation coverage
or conversion rights the Executive may have pursuant to applicable law,
including without limitation continuation coverage required by Section 4980
of the Code. Nothing in this Paragraph 7(e) shall be deemed to limit in any
manner the reserved right of Stilwell, in its sole and absolute discretion,
to at any time amend, modify or terminate health, prescription or dental
benefits for active or retired employees generally.
(f) RESIGNATION AFTER CONTROL CHANGE DATE. In the event of a
Change in Control as defined in Paragraph 7(d), thereafter, upon good reason
(as defined below), Executive may, at any time during the 3-year period
following the Change in Control, in his sole discretion, on not less than
thirty (30) days' written notice (the "Notice of Resignation") to the
Secretary of Stilwell and effective at the end of such notice period, resign
his employment with Stilwell (the "Resignation"). Within five (5) days of
such a Resignation, Stilwell shall pay to Executive his full base salary
through the effective date of such Resignation, to the extent not theretofore
paid, plus a lump sum amount equal to the Special Severance Payment (computed
as provided in the first sentence of Paragraph 7(e), except that for purposes
of such computation all references to "Termination" shall be deemed to be
references to "Resignation"). Upon Resignation of Executive, Specified
Benefits to which Executive was entitled immediately prior to Resignation
shall continue on the same terms and conditions as provided in Paragraph 7(e)
in the case of Termination (including equivalent payments provided for
therein), and Post-Period Benefits shall be provided on the same terms and
conditions as provided in Paragraph 7(e) in the case of Termination. For
purposes of this Agreement, "good reason" means any of the following:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
offices, titles, reporting requirements or responsibilities), authority
or duties as contemplated by Section 7(a)(i), or any other action by
Stilwell which results in a diminution or other material adverse change
in such position, authority or duties;
(ii) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
(iii) Stilwell's requiring the Executive to be based at any
office or location other than the location described in Section
7(a)(ii);
(iv) any other material adverse change to the terms and
conditions of the Executives employment; or
(v) any purported termination by Stilwell of the
Executive's employment other than as expressly permitted by this
Agreement (any such purported termination shall not be effective for
any other purpose under this Agreement).
A passage of time prior to delivery of the Notice of Resignation or a failure
by the Executive to include in the Notice of Resignation any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of the Executive under this Agreement or preclude the Executive
from asserting such fact or circumstance in enforcing rights under this
Agreement.
(g) TERMINATION FOR CAUSE AFTER CONTROL CHANGE DATE.
Notwithstanding any other provision of this Paragraph 7, at any time after
the Control Change Date, Executive may be terminated by Stilwell "for cause."
Cause means commission by the Executive of any felony or willful breach of
duty by the Executive in the course of the Executive's employment; except
that Cause shall not mean:
(i) bad judgment or negligence;
(ii) any act or omission believed by the Executive in good
faith to have been in or not opposed to the interest of Stilwell
(without intent of the Executive to gain, directly or indirectly, a
profit to which the Executive was not legally entitled);
(iii) any act or omission with respect to which a
determination could properly have been made by the Stilwell Board that
the Executive met the applicable standard of conduct for
indemnification or reimbursement under Stilwell's by-laws, any
applicable indemnification agreement, or applicable law, in each case
in effect at the time of such act or omission; or
(iv) any act or omission with respect to which Notice of
Termination of the Executive is given more than 12 months after the
earliest date on which any member of the Stilwell Board, not a party to
the act or omission, knew or should have known of such act or omission.
Any Termination of the Executive's employment by Stilwell for Cause shall
be communicated to the Executive by Notice of Termination.
(h) GROSS-UP FOR CERTAIN TAXES. If it is determined (by the
reasonable computation of Stilwell's independent auditors, which
determinations shall be certified to by such auditors and set forth in a
written certificate ("Certificate") delivered to the Executive) that any
benefit received or deemed received by the Executive from Stilwell pursuant
to this Agreement or otherwise (collectively, the "Payments") is or will
become subject to any excise tax under Section 4999 of the Code or any
similar tax payable under any United States federal, state, local or other
law (such excise tax and all such similar taxes collectively, "Excise
Taxes"), then Stilwell shall, immediately after such determination, pay the
Executive an amount (the "Gross-up Payment") equal to the product of:
(i) the amount of such Excise Taxes;
multiplied by
(ii) the Gross-up Multiple (as defined in Paragraph 7(k).
The Gross-up Payment is intended to compensate the
Executive for the Excise Taxes and any federal, state, local or other
income or excise taxes or other taxes payable by the Executive with
respect to the Gross-up Payment.
Stilwell shall cause the preparation and delivery to the
Executive of a Certificate upon request at any time. Stilwell shall,
in addition to complying with this Paragraph 7(h), cause all
determinations and certifications under Paragraphs 7(h)-(o) to be made
as soon as reasonably possible and in adequate time to permit the
Executive to prepare and file the Executive's individual tax returns on
a timely basis.
(i) DETERMINATION BY THE EXECUTIVE.
------------------------------
(i) If Stilwell shall fail (a) to deliver a Certificate
to the Executive or (b) to pay to the Executive the amount of the
Gross-up Payment, if any, within 14 days after receipt from the
Executive of a written request for a Certificate, or if at any time
following receipt of a Certificate the Executive disputes the amount of
the Gross-up Payment set forth therein, the Executive may elect to
demand the payment of the amount which the Executive, in accordance
with an opinion of counsel to the Executive ("Executive Counsel
Opinion"), determines to be the Gross-up Payment. Any such demand by
the Executive shall be made by delivery to Stilwell of a written notice
which specifies the Gross-up Payment determined by the Executive and an
Executive Counsel Opinion regarding such Gross-up Payment (such written
notice and opinion collectively, the "Executive's Determination").
Within 14 days after delivery of the Executive's Determination to
Stilwell, Stilwell shall either (a) pay the Executive the Gross-up
Payment set forth in the Executive's Determination (less the portion of
such amount, if any, previously paid to the Executive by Stilwell) or
(b) deliver to the Executive a Certificate specifying the Gross-up
Payment determined by Stilwell's independent auditors, together with an
opinion of Stilwell's counsel ("Stilwell Counsel Opinion"), and pay the
Executive the Gross-up Payment specified in such Certificate. If for
any reason Stilwell fails to comply with clause (b) of the preceding
sentence, the Gross-up Payment specified in the Executive's
Determination shall be controlling for all purposes.
(ii) If the Executive does not make a request for, and
Stilwell does not deliver to the Executive, a Certificate, Stilwell
shall, for purposes of Paragraph 7(j), be deemed to have determined
that no Gross-up Payment is due.
(j) ADDITIONAL GROSS-UP AMOUNTS. If, despite the initial
conclusion of Stilwell and/or the Executive that certain Payments are neither
subject to Excise Taxes nor to be counted in determining whether other
Payments are subject to Excise Taxes (any such item, a "Non-Parachute Item"),
it is later determined (pursuant to subsequently-enacted provisions of the
Code, final regulations or published rulings of the IRS, final IRS
determination or judgment of a court of competent jurisdiction or Stilwell's
independent auditors) that any of the Non-Parachute Items are subject to
Excise Taxes, or are to be counted in determining whether any Payments are
subject to Excise Taxes, with the result that the amount of Excise Taxes
payable by the Executive is greater than the amount determined by Stilwell or
the Executive pursuant to Paragraph 7(h) or Paragraph 7(i), as applicable,
then Stilwell shall pay the Executive an amount (which shall also be deemed a
Gross-up Payment) equal to the product of:
(i) the sum of (a) such additional Excise Taxes and (b)
any interest, fines, penalties, expenses or other costs incurred by the
Executive as a result of having taken a position in accordance with a
determination made pursuant to Paragraph 7(h); multiplied by
(ii) the Gross-up Multiple.
(k) GROSS-UP MULTIPLE. The Gross-up Multiple shall equal a
fraction, the numerator of which is one (1.0), and the denominator of which
is one (1.0) minus the sum, expressed as a decimal fraction, of the rates of
all federal, state, local and other income and other taxes and any Excise
Taxes applicable to the Gross-up Payment; provided that, if such sum exceeds
0.8, it shall be deemed equal to 0.8 for purposes of this computation. (If
different rates of tax are applicable to various portions of a Gross-up
Payment, the weighted average of such rates shall be used.)
(l) OPINION OF COUNSEL. "Executive Counsel Opinion" means a
legal opinion of nationally recognized executive compensation counsel that
there is a reasonable basis to support a conclusion that the Gross-up Payment
determined by the Executive has been calculated in accord with this Paragraph
7 and applicable law. "Company Counsel Opinion" means a legal opinion of
nationally recognized executive compensation counsel that (i) there is a
reasonable basis to support a conclusion that the Gross-up Payment set forth
in the Certificate of Stilwell's independent auditors has been calculated in
accord with this Paragraph 7 and applicable law, and (ii) there is no
reasonable basis for the calculation of the Gross-up Payment determined by
the Executive.
(m) AMOUNT INCREASED OR CONTESTED. The Executive shall notify
Stilwell in writing of any claim by the IRS or other taxing authority that,
if successful, would require the payment by Stilwell of a Gross-up Payment.
Such notice shall include the nature of such claim and the date on which such
claim is due to be paid. The Executive shall give such notice as soon as
practicable, but no later than 10 business days, after the Executive first
obtains actual knowledge of such claim; provided, however, that any failure
to give or delay in giving such notice shall affect Stilwell's obligations
under this Paragraph 7 only if and to the extent that such failure results in
actual prejudice to Stilwell. The Executive shall not pay such claim less
than 30 days after the Executive gives such notice to Stilwell (or, if
sooner, the date on which payment of such claim is due). If Stilwell
notifies the Executive in writing before the expiration of such period that
it desires to contest such claim, the Executive shall:
(i) give Stilwell any information that it reasonably
requests relating to such claim;
(ii) take such action in connection with contesting such
claim as Stilwell reasonably requests in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by Stilwell;
(iii) cooperate with Stilwell in good faith to contest such
claim; and
(iv) permit Stilwell to participate in any proceedings
relating to such claim; provided, however, that Stilwell shall bear and
pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify
and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax, including related interest and penalties, imposed as
a result of such representation and payment of costs and expenses.
Without limiting the foregoing, Stilwell shall control all proceedings
in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may,
at its sole option, either direct the Executive to pay the tax claimed
and sue for a refund or contest the claim in any permissible manner.
The Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as Stilwell shall determine;
provided, however, that if Stilwell directs the Executive to pay such
claim and sue for a refund, Stilwell shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify
the Executive, on an after-tax basis, for any Excise Tax or income tax,
including related interest or penalties, imposed with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. The Stilwell's control
of the contest shall be limited to issues with respect to which a
Gross-up Payment would be payable. The Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
IRS or other taxing authority.
(n) REFUNDS. If, after the receipt by the Executive of an
amount advanced by Stilwell pursuant to Paragraph 7(m), the Executive
receives any refund with respect to such claim, the Executive shall (subject
to Stilwell's complying with the requirements of Paragraph 7(m)) promptly pay
Stilwell the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by Stilwell pursuant to Paragraph 7(m), a
determination is made that the Executive shall not be entitled to a full
refund with respect to such claim and Stilwell does not notify the Executive
in writing of its intent to contest such determination before the expiration
of 30 days after such determination, then the applicable part of such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid. Any contest of a denial of refund shall be
controlled by Paragraph 7(m).
(o) EXPENSES. If any dispute should arise under this Agreement
after the Control Change Date involving an effort by Executive to protect,
enforce or secure rights or benefits claimed by Executive hereunder, Stilwell
shall pay (promptly upon demand by Executive accompanied by reasonable
evidence of incurrence) all reasonable expenses (including attorneys' fees)
incurred by Executive in connection with such dispute, without regard to
whether Executive prevails in such dispute except that Executive shall repay
Stilwell any amounts so received if a court having jurisdiction shall make a
final, nonappealable determination that Executive acted frivolously or in bad
faith by such dispute. To assure Executive that adequate funds will be made
available to discharge Stilwell's obligations set forth in the preceding
sentence, Stilwell has established a trust and upon the occurrence of a
Change in Control shall promptly deliver to the trustee of such trust to hold
in accordance with the terms and conditions thereof that sum which the
Stilwell Board shall have determined is reasonably sufficient for such
purpose.
(p) PREVAILING PROVISIONS. On and after the Control Change
Date, the provisions of this Paragraph 7 shall control and take precedence
over any other provisions of this Agreement which are in conflict with or
address the same or a similar subject matter as the provisions of this
Paragraph 7.
8. MITIGATION AND OTHER EMPLOYMENT. After a termination of
Executive's employment pursuant to Paragraph 4(d)(i) or a Change in Control
as defined in Paragraph 7(d), Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and except as otherwise specifically provided in
Paragraph 4(d)(ii) with respect to health and life insurance and in Paragraph
7(e) with respect to health, prescription and dental benefits, no such other
employment, if obtained, or compensation or benefits payable in connection
therewith shall reduce any amounts or benefits to which Executive is entitled
hereunder. Such amounts or benefits payable to Executive under this
Agreement shall not be treated as damages but as severance compensation to
which Executive is entitled because Executive's employment has been
terminated.
9. NOTICE. Notices and all other communications to either party
pursuant to this Agreement shall be in writing and shall be deemed to have
been given when personally delivered, delivered by facsimile or deposited in
the United States mail by certified or registered mail, postage prepaid,
addressed, in the case of Stilwell, to Stilwell at 114 West 11th Street,
Kansas City, Missouri 64105, Attention: Secretary, or, in the case of the
Executive, to him at 10051 Hardy Drive, Overland Park, KS 66212, or to
such other address as a party shall designate by notice to the other party.
10. AMENDMENT. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, waiver, modification or
discharge is agreed to in a writing signed by Executive and the President of
Stilwell. No waiver by any party hereto at any time of any breach by another
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time.
11. SUCCESSORS IN INTEREST. The rights and obligations of Stilwell
under this Agreement shall inure to the benefit of and be binding in each and
every respect upon the direct and indirect successors and assigns of
Stilwell, regardless of the manner in which such successors or assigns shall
succeed to the interest of Stilwell hereunder, and this Agreement shall not
be terminated by the voluntary or involuntary dissolution of Stilwell or by
any merger or consolidation or acquisition involving Stilwell or upon any
transfer of all or substantially all of Stilwell's assets, or terminated
otherwise than in accordance with its terms. In the event of any such merger
or consolidation or transfer of assets, the provisions of this Agreement
shall be binding upon and shall inure to the benefit of the surviving
corporation or the corporation or other person to which such assets shall be
transferred. Neither this Agreement nor any of the payments or benefits
hereunder may be pledged, assigned or transferred by Executive either in
whole or in part in any manner, without the prior written consent of
Stilwell.
12. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
13. CONTROLLING LAW AND JURISDICTION. The validity, interpretation
and performance of this Agreement shall be subject to and construed under the
laws of the State of Missouri, without regard to principles of conflicts of
law.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and
terminates and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the terms of
Executive's employment or severance arrangements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above stated.
STILWELL FINANCIAL, INC.
By:
-------------------------------
Name:
-------------------------------
Title:
--------------------------------
EXECUTIVE
---------------------------------
Joseph D. Monello
FORM OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1999, by and between Stilwell Financial, Inc., a Delaware
corporation ("Stilwell") and Danny R. Carpenter, an individual ("Executive")
to be effective on ____________, 1999.
WHEREAS, concurrently with the execution of this Agreement, all of the
issued and outstanding stock of Stilwell is being distributed to the
shareholders of Kansas City Southern Industries, Inc. ("KCSI") which has been
the parent of Stilwell since its formation on January 23, 1998; and
WHEREAS, Executive previously was employed by KCSI with duties primarily
relating to Stilwell since its formation in 1998, and Stilwell and Executive
desire for Stilwell to continue to employ Executive on the terms and
conditions set forth in this Agreement and to provide an incentive to
Executive to remain in the employ of Stilwell hereafter, particularly in the
event of any Change in Control (as herein defined) of Stilwell or any
Significant Subsidiary (as herein defined), thereby establishing and
preserving continuity of management of Stilwell.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is agreed by and between Stilwell and Executive as
follows:
1. EMPLOYMENT. Stilwell hereby employs Executive as its Vice
President and Secretary to serve at the pleasure of the Board of Directors of
Stilwell (the "Stilwell Board") and to have such duties, powers and
responsibilities as may be prescribed or delegated from time to time by the
President or other officer to whom Executive reports, subject to the powers
vested in the Stilwell Board and in the stockholders of Stilwell. Executive
shall faithfully perform his duties under this Agreement to the best of his
ability and shall devote substantially all of his working time and efforts to
the business and affairs of Stilwell and its affiliates.
2. COMPENSATION.
------------
(a) BASE COMPENSATION. Stilwell shall pay Executive as
compensation for his services hereunder an annual base salary at the rate of
$330,000. Such rate shall not be increased prior to January 1, 2000 and shall
not be reduced except as agreed by the parties or except as part of a general
salary reduction program imposed by Stilwell and applicable to all officers of
Stilwell.
(b) INCENTIVE COMPENSATION. For the year 1999, Executive shall
not be entitled to participate in any Stilwell incentive compensation plan.
3. BENEFITS. During the period of his employment hereunder, Stilwell
shall provide Executive with coverage under such benefit plans and programs as
are made generally available to similarly situated employees of Stilwell,
provided (a) Stilwell shall have no obligation with respect to any plan or
program if Executive is not eligible for coverage thereunder, and (b)
Executive acknowledges that stock options and other stock and equity
participation awards are granted in the discretion of the Stilwell Board or
the Compensation Committee of the Stilwell Board and that Executive has no
right to receive stock options or other equity participation awards or any
particular number or level of stock options or other awards. In determining
contributions, coverage and benefits under any disability insurance policy and
under any cash compensation-based plan provided to Executive by Stilwell, it
shall be assumed that the value of Executive's annual compensation, pursuant
to this Agreement, is 175% of Executive's annual base salary. Executive
acknowledges that all rights and benefits under benefit plans and programs
shall be governed by the official text of each such plan or program and not by
any summary or description thereof or any provision of this Agreement (except
to the extent this Agreement expressly modifies such benefit plans or
programs) and that Stilwell is not under any obligation to continue in effect
or to fund any such plan or program, except as provided in Paragraph 7 hereof.
Stilwell also shall reimburse Executive for ordinary and necessary travel and
other business expenses in accordance with policies and procedures established
by Stilwell.
4. TERMINATION.
-----------
(a) TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement and his employment hereunder by at least thirty (30) days advance
written notice to Stilwell, except that in the event of any material breach of
this Agreement by Stilwell, Executive may terminate this Agreement and his
employment hereunder immediately upon notice to Stilwell.
(b) DEATH OR DISABILITY. This Agreement and Executive's
employment hereunder shall terminate automatically on the death or disability
of Executive, except to the extent employment is continued under Stilwell's
disability plan. For purposes of this Agreement, Executive shall be deemed to
be disabled if he qualifies for disability benefits under Stilwell's long-term
disability plan.
(c) TERMINATION BY STILWELL FOR CAUSE. Stilwell may terminate
this Agreement and Executive's employment "for cause" immediately upon notice
to Executive. For purposes of this Agreement (except for Paragraph 7),
termination "for cause" shall mean termination based upon any one or more of
the following:
(i) Any material breach of this Agreement by Executive;
(ii) Executive's dishonesty involving Stilwell or any
subsidiary of Stilwell;
(iii) Gross negligence or willful misconduct in the
performance of Executive's duties as determined in good faith by the
Stilwell Board;
(iv) Willful failure by Executive to follow reasonable
instructions of the President or other officer to whom Executive reports
concerning the operations or business of Stilwell or any subsidiary of
Stilwell;
(v) Executive's fraud or criminal activity; or
(vi) Embezzlement or misappropriation by Executive.
(d) TERMINATION BY STILWELL OTHER THAN FOR CAUSE.
--------------------------------------------
(i) Stilwell may terminate this Agreement and Executive's
employment other than for cause immediately upon notice to Executive,
and in such event, Stilwell shall provide severance benefits to
Executive in accordance with Paragraph 4(d)(ii) below.
(ii) Unless the provisions of Paragraph 7 of this Agreement
are applicable, if Executive's employment is terminated under Paragraph
4(d)(i), Stilwell shall continue, for a period of one (1) year following
such termination, (a) to pay to Executive as severance pay a monthly
amount equal to one-twelfth (1/12th) of the annual base salary
referenced in Paragraph 2(a) above, at the rate in effect immediately
prior to termination, and, (b) to reimburse Executive for the cost
(including state and federal income taxes payable with respect to this
reimbursement) of continuing the health insurance coverage provided
pursuant to this Agreement or obtaining health insurance coverage
comparable to the health insurance provided pursuant to this Agreement,
and obtaining coverage comparable to the life insurance provided
pursuant to this Agreement, unless Executive is provided comparable
health or life insurance coverage in connection with other employment.
The foregoing obligations of Stilwell shall continue until the end of
such one (1) year period notwithstanding the death or disability of
Executive during said period (except, in the event of death, the
obligation to reimburse Executive for the cost of life insurance shall
not continue). In the year in which termination of employment occurs,
Executive shall be eligible to receive benefits under the Stilwell
Incentive Compensation Plan and the Stilwell Executive Plan (if such
Plans then are in existence and Executive was entitled to participate
immediately prior to termination) in accordance with the provisions of
such plans then applicable, and severance pay received in such year
shall be taken into account for the purpose of determining benefits, if
any, under the Stilwell Incentive Compensation Plan but not under the
Stilwell Executive Plan. After the year in which termination occurs,
Executive shall not be entitled to accrue or receive benefits under the
Stilwell Incentive Compensation Plan or the Stilwell Executive Plan with
respect to the severance pay provided herein, notwithstanding that
benefits under such plan then are still generally available to executive
employees of Stilwell. After termination of employment, Executive shall
not be entitled to accrue or receive benefits under any other employee
benefit plan or program, except that Executive shall be entitled to
participate in the Stilwell Profit Sharing Plan, the Stilwell Employee
Stock Ownership Plan and the Stilwell Section 401(k) Plan in the year of
termination of employment only if Executive meets all requirements of
such plans for participation in such year.
5. NON-DISCLOSURE. During the term of this Agreement and at all
times after any termination of this Agreement, Executive shall not, either
directly or indirectly, use or disclose any Stilwell trade secret, except to
the extent necessary for Executive to perform his duties for Stilwell while an
employee. For purposes of this Agreement, the term "Stilwell trade secret"
shall mean any information regarding the business or activities of Stilwell or
any subsidiary or affiliate, including any formula, pattern, compilation,
program, device, method, technique, process, customer list, technical
information or other confidential or proprietary information, that (a) derives
independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other
persons who can obtain economic value from its disclosure or use, and (b) is
the subject of efforts of Stilwell or its subsidiary or affiliate that are
reasonable under the circumstance to maintain its secrecy. In the event of
any breach of this Paragraph 5 by Executive, Stilwell shall be entitled to
terminate any and all remaining severance benefits under Paragraph 4(d)(ii)
and shall be entitled to pursue such other legal and equitable remedies as may
be available.
6. DUTIES UPON TERMINATION; SURVIVAL.
---------------------------------
(a) DUTIES. Upon termination of this Agreement by Stilwell or
Executive for any reason, Executive shall immediately return to Stilwell all
Stilwell trade secrets which exist in tangible form and shall sign such
written resignations from all positions as an officer, director or member of
any committee or board of Stilwell and all direct and indirect subsidiaries
and affiliates of Stilwell as may be requested by Stilwell and shall sign such
other documents and papers relating to Executive's employment, benefits and
benefit plans as Stilwell may reasonably request.
(b) SURVIVAL. The provisions of Paragraphs 5, 6(a) and 7 of
this Agreement shall survive any termination of this Agreement by Stilwell or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Stilwell under Paragraph 4(d)(i).
7. CONTINUATION OF EMPLOYMENT UPON CHANGE IN CONTROL OF STILWELL.
-------------------------------------------------------------
(a) CONTINUATION OF EMPLOYMENT. Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control (as
defined in Paragraph 7(d)) at any time during the term of this Agreement,
Executive agrees to remain in the employ of Stilwell for a period of three
years (the "Three-Year Period") from the date of such Change in Control (the
"Control Change Date"). Stilwell agrees to continue to employ Executive for
the Three-Year Period. During the Three-Year Period, (i) the Executive's
position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 12 month period immediately before the Control
Change Date and (ii) the Executive's services shall be performed at the
location where Executive was employed immediately before the Control Change
Date or at any other location less than 40 miles from such former location.
During the Three-Year Period, Stilwell shall continue to pay to Executive an
annual base salary on the same basis and at the same intervals as in effect
prior to the Control Change Date at a rate not less than 12 times the highest
monthly base salary paid or payable to the Executive by Stilwell in respect of
the 12-month period immediately before the Control Change Date.
(b) BENEFITS. During the Three-Year Period, Executive shall be
entitled to participate, on the basis of his executive position, in each of
the following Stilwell plans (together, the "Specified Benefits") in
existence, and in accordance with the terms thereof, at the Control Change
Date:
(i) any benefit plan, and trust fund associated therewith,
related to (a) life, health, dental, disability, accidental death and
dismemberment insurance or accrued but unpaid vacation time, (b) profit
sharing, thrift or deferred savings (including deferred compensation,
such as under Sec. 401(k) plans), (c) retirement or pension benefits,
(d) ERISA excess benefits and similar plans and (e) tax favored employee
stock ownership (such as under ESOP, and Employee Stock Purchase
programs); and
(ii) any other benefit plans hereafter made generally
available to executives of Executive's level or to the employees of
Stilwell generally.
In addition, Stilwell shall use its best efforts to cause all
outstanding options held by Executive under any stock option plan of Stilwell
or its affiliates to become immediately exercisable on the Control Change Date
and to the extent that such options are not vested and are subsequently
forfeited, the Executive shall receive a lump-sum cash payment within 5 days
after the options are forfeited equal to the difference between the fair
market value of the shares of stock subject to the non-vested, forfeited
options determined as of the date such options are forfeited and the exercise
price for such options. During the Three-Year Period Executive shall be
entitled to participate, on the basis of his executive position, in any
incentive compensation plan of Stilwell in accordance with the terms thereof
at the Control Change Date; provided that if under Stilwell programs or
Executive's Employment Agreement in existence immediately prior to the Control
Change Date, there are written limitations on participation for a designated
time period in any incentive compensation plan, such limitations shall
continue after the Control Change Date to the extent so provided for prior to
the Control Change Date.
If the amount of contributions or benefits with respect to the Specified
Benefits or any incentive compensation is determined on a discretionary basis
under the terms of the Specified Benefits or any incentive compensation plan
immediately prior to the Control Change Date, the amount of such contributions
or benefits during the Three-Year Period for each of the Specified Benefits
shall not be less than the average annual contributions or benefits for each
Specified Benefit for the three plan years ending prior to the Control Change
Date and, in the case of any incentive compensation plan, the amount of the
incentive compensation during the Three-Year Period shall not be less than 75%
of the maximum that could have been paid to the Executive under the terms of
the incentive compensation plan.
(c) PAYMENT. With respect to any plan or agreement under which
Executive would be entitled at the Control Change Date to receive Specified
Benefits or incentive compensation as a general obligation of Stilwell which
has not been separately funded (including specifically, but not limited to,
those referred to under Paragraph 7(b)(i)(d) above), Executive shall receive
within five (5) days after such date full payment in cash (discounted to the
then present value on the basis of a rate of seven percent (7%) per annum) of
all amounts to which he is then entitled thereunder.
(d) CHANGE IN CONTROL. Except as provided in the last sentence
of this Paragraph 7(d), for purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred if:
(i) for any reason at any time less than seventy-five
percent (75%) of the members of the Stilwell Board shall be individuals
who fall into any of the following categories: (a) individuals who were
members of the Stilwell Board on the date of the Agreement; or (b)
individuals whose election, or nomination for election by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who were
members of the Stilwell Board on the date of the Agreement; or (c)
individuals whose election, or nomination for election, by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who were
elected in the manner described in (a) or (b) above; provided however,
that no individuals described in (b) or (c) above shall be treated as so
elected or nominated if such election or nomination shall have occurred
as part of a proxy contest, tender offer or any proposed purchase,
merger or other similar transaction; or
(ii) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act")) shall have become, according to a public announcement or filing,
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Stilwell representing
thirty percent (30%) (or, with respect to Paragraph 7(c) hereof, 40%) or
more (calculated in accordance with Rule 13d-3) of the combined voting
power of the then outstanding voting securities ("Voting Power") of
Stilwell; or
(iii) the stockholders of Stilwell shall have approved a
merger, consolidation or dissolution of Stilwell or a sale, lease,
exchange or disposition of all or substantially all of Stilwell's
assets, if persons who were the beneficial owners of the Voting Power of
Stilwell immediately before any such merger, consolidation, dissolution,
sale, lease, exchange or disposition do not immediately thereafter,
beneficially own, directly or indirectly, in substantially the same
proportions, more than 60% of the Voting Power of any corporation or
other entity resulting from any such transaction.
(iv) Stilwell shall have directly or indirectly sold or
disposed of, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, any Significant
Subsidiary or otherwise reduced Stilwell's direct or indirect beneficial
ownership of any Significant Subsidiary to less than 50% of the Voting
Power of such entity.
For purposes of this Agreement, "Significant Subsidiary" shall mean (A) any
entity of which at least 50% of the Voting Power is beneficially owned,
directly or indirectly, by Stilwell and which contributed 30% or more of the
total combined revenues of Stilwell and all entities of which Stilwell owned
at least 50% of the Voting Power for the prior calendar year, and (B) any one
or more entities, businesses or groups of assets directly or indirectly sold
or disposed of by Stilwell (within the meaning of paragraph 7(d)(iv)) within
any two year period that contributed 30% of more of such total combined
revenues or would have contributed such 30% based on revenues of such
entities, businesses or groups of assets for the calendar year prior to their
sale or disposition.
Notwithstanding the foregoing provisions of this Paragraph 7(d) to the
contrary, the distribution of all or substantially all of the shares of
Stilwell owned by KCSI to the shareholders of KCSI shall not constitute a
Change in Control.
(e) TERMINATION AFTER CONTROL CHANGE DATE. Notwithstanding any
other provision of this Paragraph 7, at any time after the Control Change
Date, Stilwell may terminate the employment of Executive (the "Termination"),
but unless such Termination is for Cause as defined in subparagraph (g) or for
disability, within five (5) days of the Termination Stilwell shall pay to
Executive his full base salary through the Termination, to the extent not
theretofore paid, plus a lump sum amount (the "Special Severance Payment")
equal to the product (discounted to the then present value on the basis of a
rate of seven percent (7%) per annum) of (i) 175% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) three and Specified Benefits
(excluding any incentive compensation) to which Executive was entitled
immediately prior to Termination shall continue until the end of the 3-year
period ("Benefits Period") beginning on the date of Termination. If any plan
pursuant to which Specified Benefits are provided immediately prior to
Termination would not permit continued participation by Executive after
Termination, then Stilwell shall pay to Executive within five (5) days after
Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received under such plan if Executive had been fully
vested in the average annual contributions or benefits in effect for the three
plan years ending prior to the Control Change Date (regardless of any
limitations based on the earnings or performance of Stilwell) and a continuing
participant in such plan to the end of the Benefits Period. Following the end
of the Benefits Period, Stilwell shall continue to provide to the Executive
and the Executive's family the following benefits ("Post-Period Benefits"):
(1) prior to the Executive's attainment of age sixty (60), health,
prescription and dental benefits equivalent to those then applicable to active
peer executives of Stilwell and their families, as the same may be modified
from time to time, and (2) following the Executive's attainment of age sixty
(60) (and without regard to the Executive's period of service with Stilwell),
health and prescription benefits equivalent to those then applicable to
retired peer executives of Stilwell and their families, as the same may be
modified from time to time. The cost to the Executive of such Post-Period
Benefits shall not exceed the cost of such benefits to active or retired (as
applicable) peer executives, as the same may be modified from time to time.
Notwithstanding the preceding two sentences of this Paragraph 7(e), if the
Executive is covered under any health, prescription or dental plan provided by
a subsequent employer, then the corresponding type of plan coverage (i.e.,
health, prescription or dental) required to be provided as Post-Period
Benefits under this Paragraph 7(e) shall cease. The Executive's rights under
this Paragraph 7(e) shall be in addition to, and not in lieu of, any post-
termination continuation coverage or conversion rights the Executive may have
pursuant to applicable law, including without limitation continuation coverage
required by Section 4980 of the Code. Nothing in this Paragraph 7(e) shall be
deemed to limit in any manner the reserved right of Stilwell, in its sole and
absolute discretion, to at any time amend, modify or terminate health,
prescription or dental benefits for active or retired employees generally.
(f) RESIGNATION AFTER CONTROL CHANGE DATE. In the event of a
Change in Control as defined in Paragraph 7(d), thereafter, upon good reason
(as defined below), Executive may, at any time during the 3-year period
following the Change in Control, in his sole discretion, on not less than
thirty (30) days' written notice (the "Notice of Resignation") to the
Secretary of Stilwell and effective at the end of such notice period, resign
his employment with Stilwell (the "Resignation"). Within five (5) days of
such a Resignation, Stilwell shall pay to Executive his full base salary
through the effective date of such Resignation, to the extent not theretofore
paid, plus a lump sum amount equal to the Special Severance Payment (computed
as provided in the first sentence of Paragraph 7(e), except that for purposes
of such computation all references to "Termination" shall be deemed to be
references to "Resignation"). Upon Resignation of Executive, Specified
Benefits to which Executive was entitled immediately prior to Resignation
shall continue on the same terms and conditions as provided in Paragraph 7(e)
in the case of Termination (including equivalent payments provided for
therein), and Post-Period Benefits shall be provided on the same terms and
conditions as provided in Paragraph 7(e) in the case of Termination. For
purposes of this Agreement, "good reason" means any of the following:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
offices, titles, reporting requirements or responsibilities), authority
or duties as contemplated by Section 7(a)(i), or any other action by
Stilwell which results in a diminution or other material adverse change
in such position, authority or duties;
(ii) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
(iii) Stilwell's requiring the Executive to be based at any
office or location other than the location described in Section
7(a)(ii);
(iv) any other material adverse change to the terms and
conditions of the Executives employment; or
(v) any purported termination by Stilwell of the
Executive's employment other than as expressly permitted by this
Agreement (any such purported termination shall not be effective for any
other purpose under this Agreement).
A passage of time prior to delivery of the Notice of Resignation or a failure
by the Executive to include in the Notice of Resignation any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of the Executive under this Agreement or preclude the Executive from
asserting such fact or circumstance in enforcing rights under this Agreement.
(g) TERMINATION FOR CAUSE AFTER CONTROL CHANGE DATE. Notwith-
standing any other provision of this Paragraph 7, at any time after the
Control Change Date, Executive may be terminated by Stilwell "for cause."
Cause means commission by the Executive of any felony or willful breach of
duty by the Executive in the course of the Executive's employment; except that
Cause shall not mean:
(i) bad judgment or negligence;
(ii) any act or omission believed by the Executive in good
faith to have been in or not opposed to the interest of Stilwell
(without intent of the Executive to gain, directly or indirectly, a
profit to which the Executive was not legally entitled);
(iii) any act or omission with respect to which a
determination could properly have been made by the Stilwell Board that
the Executive met the applicable standard of conduct for indemnification
or reimbursement under Stilwell's by-laws, any applicable
indemnification agreement, or applicable law, in each case in effect at
the time of such act or omission; or
(iv) any act or omission with respect to which Notice of
Termination of the Executive is given more than 12 months after the
earliest date on which any member of the Stilwell Board, not a party to
the act or omission, knew or should have known of such act or omission.
Any Termination of the Executive's employment by Stilwell for Cause shall
be communicated to the Executive by Notice of Termination.
(h) GROSS-UP FOR CERTAIN TAXES. If it is determined (by the
reasonable computation of Stilwell's independent auditors, which
determinations shall be certified to by such auditors and set forth in a
written certificate ("Certificate") delivered to the Executive) that any
benefit received or deemed received by the Executive from Stilwell pursuant to
this Agreement or otherwise (collectively, the "Payments") is or will become
subject to any excise tax under Section 4999 of the Code or any similar tax
payable under any United States federal, state, local or other law (such
excise tax and all such similar taxes collectively, "Excise Taxes"), then
Stilwell shall, immediately after such determination, pay the Executive an
amount (the "Gross-up Payment") equal to the product of:
(i) the amount of such Excise Taxes;
multiplied by
(ii) the Gross-up Multiple (as defined in Paragraph 7(k).
The Gross-up Payment is intended to compensate the Executive
for the Excise Taxes and any federal, state, local or other income or
excise taxes or other taxes payable by the Executive with respect to the
Gross-up Payment.
Stilwell shall cause the preparation and delivery to the
Executive of a Certificate upon request at any time. Stilwell shall, in
addition to complying with this Paragraph 7(h), cause all determinations
and certifications under Paragraphs 7(h)-(o) to be made as soon as
reasonably possible and in adequate time to permit the Executive to
prepare and file the Executive's individual tax returns on a timely
basis.
(i) DETERMINATION BY THE EXECUTIVE.
------------------------------
(i) If Stilwell shall fail (a) to deliver a Certificate to
the Executive or (b) to pay to the Executive the amount of the Gross-up
Payment, if any, within 14 days after receipt from the Executive of a
written request for a Certificate, or if at any time following receipt
of a Certificate the Executive disputes the amount of the Gross-up
Payment set forth therein, the Executive may elect to demand the payment
of the amount which the Executive, in accordance with an opinion of
counsel to the Executive ("Executive Counsel Opinion"), determines to be
the Gross-up Payment. Any such demand by the Executive shall be made by
delivery to Stilwell of a written notice which specifies the Gross-up
Payment determined by the Executive and an Executive Counsel Opinion
regarding such Gross-up Payment (such written notice and opinion
collectively, the "Executive's Determination"). Within 14 days after
delivery of the Executive's Determination to Stilwell, Stilwell shall
either (a) pay the Executive the Gross-up Payment set forth in the
Executive's Determination (less the portion of such amount, if any,
previously paid to the Executive by Stilwell) or (b) deliver to the
Executive a Certificate specifying the Gross-up Payment determined by
Stilwell's independent auditors, together with an opinion of Stilwell's
counsel ("Stilwell Counsel Opinion"), and pay the Executive the Gross-up
Payment specified in such Certificate. If for any reason Stilwell fails
to comply with clause (b) of the preceding sentence, the Gross-up
Payment specified in the Executive's Determination shall be controlling
for all purposes.
(ii) If the Executive does not make a request for, and
Stilwell does not deliver to the Executive, a Certificate, Stilwell
shall, for purposes of Paragraph 7(j), be deemed to have determined that
no Gross-up Payment is due.
(j) ADDITIONAL GROSS-UP AMOUNTS. If, despite the initial
conclusion of Stilwell and/or the Executive that certain Payments are
neither subject to Excise Taxes nor to be counted in determining whether
other Payments are subject to Excise Taxes (any such item, a "Non-Parachute
Item"), it is later determined (pursuant to subsequently-enacted provisions
of the Code, final regulations or published rulings of the IRS, final IRS
determination or judgment of a court of competent jurisdiction or
Stilwell's independent auditors) that any of the Non-Parachute Items are
subject to Excise Taxes, or are to be counted in determining whether any
Payments are subject to Excise Taxes, with the result that the amount of
Excise Taxes payable by the Executive is greater than the amount
determined by Stilwell or the Executive pursuant to Paragraph 7(h) or
Paragraph 7(i), as applicable, then Stilwell shall pay the Executive an
amount (which shall also be deemed a Gross-up Payment) equal to the product
of:
(i) the sum of (a) such additional Excise Taxes and (b)
any interest, fines, penalties, expenses or other costs incurred by the
Executive as a result of having taken a position in accordance with a
determination made pursuant to Paragraph 7(h); multiplied by
(ii) the Gross-up Multiple.
(k) GROSS-UP MULTIPLE. The Gross-up Multiple shall equal a
fraction, the numerator of which is one (1.0), and the denominator of which is
one (1.0) minus the sum, expressed as a decimal fraction, of the rates of all
federal, state, local and other income and other taxes and any Excise Taxes
applicable to the Gross-up Payment; provided that, if such sum exceeds 0.8, it
shall be deemed equal to 0.8 for purposes of this computation. (If different
rates of tax are applicable to various portions of a Gross-up Payment, the
weighted average of such rates shall be used.)
(l) OPINION OF COUNSEL. "Executive Counsel Opinion" means a
legal opinion of nationally recognized executive compensation counsel that
there is a reasonable basis to support a conclusion that the Gross-up Payment
determined by the Executive has been calculated in accord with this Paragraph
7 and applicable law. "Company Counsel Opinion" means a legal opinion of
nationally recognized executive compensation counsel that (i) there is a
reasonable basis to support a conclusion that the Gross-up Payment set forth
in the Certificate of Stilwell's independent auditors has been calculated in
accord with this Paragraph 7 and applicable law, and (ii) there is no
reasonable basis for the calculation of the Gross-up Payment determined by the
Executive.
(m) AMOUNT INCREASED OR CONTESTED. The Executive shall notify
Stilwell in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by Stilwell of a Gross-up Payment. Such
notice shall include the nature of such claim and the date on which such claim
is due to be paid. The Executive shall give such notice as soon as
practicable, but no later than 10 business days, after the Executive first
obtains actual knowledge of such claim; provided, however, that any failure to
give or delay in giving such notice shall affect Stilwell's obligations under
this Paragraph 7 only if and to the extent that such failure results in actual
prejudice to Stilwell. The Executive shall not pay such claim less than 30
days after the Executive gives such notice to Stilwell (or, if sooner, the
date on which payment of such claim is due). If Stilwell notifies the
Executive in writing before the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give Stilwell any information that it reasonably
requests relating to such claim;
(ii) take such action in connection with contesting such
claim as Stilwell reasonably requests in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by Stilwell;
(iii) cooperate with Stilwell in good faith to contest such
claim; and
(iv) permit Stilwell to participate in any proceedings
relating to such claim; provided, however, that Stilwell shall bear and
pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify
and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax, including related interest and penalties, imposed as
a result of such representation and payment of costs and expenses.
Without limiting the foregoing, Stilwell shall control all proceedings
in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may,
at its sole option, either direct the Executive to pay the tax claimed
and sue for a refund or contest the claim in any permissible manner.
The Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as Stilwell shall determine; provided,
however, that if Stilwell directs the Executive to pay such claim and
sue for a refund, Stilwell shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify the
Executive, on an after-tax basis, for any Excise Tax or income tax,
including related interest or penalties, imposed with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. The Stilwell's control
of the contest shall be limited to issues with respect to which a Gross-
up Payment would be payable. The Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the IRS or
other taxing authority.
(n) REFUNDS. If, after the receipt by the Executive of an
amount advanced by Stilwell pursuant to Paragraph 7(m), the Executive receives
any refund with respect to such claim, the Executive shall (subject to
Stilwell's complying with the requirements of Paragraph 7(m)) promptly pay
Stilwell the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by Stilwell pursuant to Paragraph 7(m), a
determination is made that the Executive shall not be entitled to a full
refund with respect to such claim and Stilwell does not notify the Executive
in writing of its intent to contest such determination before the expiration
of 30 days after such determination, then the applicable part of such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid. Any contest of a denial of refund shall be
controlled by Paragraph 7(m).
(o) EXPENSES. If any dispute should arise under this Agreement
after the Control Change Date involving an effort by Executive to protect,
enforce or secure rights or benefits claimed by Executive hereunder, Stilwell
shall pay (promptly upon demand by Executive accompanied by reasonable
evidence of incurrence) all reasonable expenses (including attorneys' fees)
incurred by Executive in connection with such dispute, without regard to
whether Executive prevails in such dispute except that Executive shall repay
Stilwell any amounts so received if a court having jurisdiction shall make a
final, nonappealable determination that Executive acted frivolously or in bad
faith by such dispute. To assure Executive that adequate funds will be made
available to discharge Stilwell's obligations set forth in the preceding
sentence, Stilwell has established a trust and upon the occurrence of a Change
in Control shall promptly deliver to the trustee of such trust to hold in
accordance with the terms and conditions thereof that sum which the Stilwell
Board shall have determined is reasonably sufficient for such purpose.
(p) PREVAILING PROVISIONS. On and after the Control Change
Date, the provisions of this Paragraph 7 shall control and take precedence
over any other provisions of this Agreement which are in conflict with or
address the same or a similar subject matter as the provisions of this
Paragraph 7.
8. MITIGATION AND OTHER EMPLOYMENT. After a termination of
Executive's employment pursuant to Paragraph 4(d)(i) or a Change in Control as
defined in Paragraph 7(d), Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and except as otherwise specifically provided in
Paragraph 4(d)(ii) with respect to health and life insurance and in Paragraph
7(e) with respect to health, prescription and dental benefits, no such other
employment, if obtained, or compensation or benefits payable in connection
therewith shall reduce any amounts or benefits to which Executive is entitled
hereunder. Such amounts or benefits payable to Executive under this Agreement
shall not be treated as damages but as severance compensation to which
Executive is entitled because Executive's employment has been terminated.
9. NOTICE. Notices and all other communications to either party
pursuant to this Agreement shall be in writing and shall be deemed to have
been given when personally delivered, delivered by facsimile or deposited in
the United States mail by certified or registered mail, postage prepaid,
addressed, in the case of Stilwell, to Stilwell at 114 West 11th Street,
Kansas City, Missouri 64105, Attention: Secretary, or, in the case of the
Executive, to him at 5639 High Drive, Shawnee Mission, KS 66208, or to such
other address as a party shall designate by notice to the other party.
10. AMENDMENT. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, waiver, modification or
discharge is agreed to in a writing signed by Executive and the President of
Stilwell. No waiver by any party hereto at any time of any breach by another
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time.
11. SUCCESSORS IN INTEREST. The rights and obligations of Stilwell
under this Agreement shall inure to the benefit of and be binding in each and
every respect upon the direct and indirect successors and assigns of Stilwell,
regardless of the manner in which such successors or assigns shall succeed to
the interest of Stilwell hereunder, and this Agreement shall not be terminated
by the voluntary or involuntary dissolution of Stilwell or by any merger or
consolidation or acquisition involving Stilwell or upon any transfer of all or
substantially all of Stilwell's assets, or terminated otherwise than in
accordance with its terms. In the event of any such merger or consolidation
or transfer of assets, the provisions of this Agreement shall be binding upon
and shall inure to the benefit of the surviving corporation or the corporation
or other person to which such assets shall be transferred. Neither this
Agreement nor any of the payments or benefits hereunder may be pledged,
assigned or transferred by Executive either in whole or in part in any manner,
without the prior written consent of Stilwell.
12. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
13. CONTROLLING LAW AND JURISDICTION. The validity, interpretation
and performance of this Agreement shall be subject to and construed under the
laws of the State of Missouri, without regard to principles of conflicts of
law.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and terminates
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the terms of Executive's employment
or severance arrangements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above stated.
STILWELL FINANCIAL, INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
EXECUTIVE
-------------------------------
Danny R. Carpenter
FORM OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of this __ day of _______, 1999,
by and between Stilwell Financial, Inc., a Delaware corporation ("Stilwell")
and Anthony P. McCarthy, an individual ("Executive") to be effective on
______________, 1999.
WHEREAS, concurrently with the execution of this Agreement, all of the
issued and outstanding stock of Stilwell is being distributed to the
shareholders of Kansas City Southern Industries, Inc. ("KCSI") which has been
the parent of Stilwell since its formation on January 23, 1998; and
WHEREAS, Executive previously was employed by KCSI with duties primarily
relating to Stilwell since its formation in 1998, and Stilwell and Executive
desire for Stilwell to continue to employ Executive on the terms and conditions
set forth in this Agreement and to provide an incentive to Executive to remain
in the employ of Stilwell hereafter, particularly in the event of any Change in
Control (as herein defined) of Stilwell or any Significant Subsidiary (as
herein defined), thereby establishing and preserving continuity of management
of Stilwell.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is agreed by and between Stilwell and Executive as
follows:
1. EMPLOYMENT. Stilwell hereby employs Executive as its Vice
President and Treasurer to serve at the pleasure of the Board of Directors of
Stilwell (the "Stilwell Board") and to have such duties, powers and
responsibilities as may be prescribed or delegated from time to time by the
President or other officer to whom Executive reports, subject to the powers
vested in the Stilwell Board and in the stockholders of Stilwell. Executive
shall faithfully perform his duties under this Agreement to the best of his
ability and shall devote substantially all of his working time and efforts to
the business and affairs of Stilwell and its affiliates.
2. COMPENSATION.
------------
(a) BASE COMPENSATION. Stilwell shall pay Executive as
compensation for his services hereunder an annual base salary at the rate of
$180,000. Such rate shall not be increased prior to January 1, 2000 and shall
not be reduced except as agreed by the parties or except as part of a general
salary reduction program imposed by Stilwell and applicable to all officers of
Stilwell.
(b) INCENTIVE COMPENSATION. For the year 1999, Executive shall
not be entitled to participate in any Stilwell incentive compensation plan.
3. BENEFITS. During the period of his employment hereunder, Stilwell
shall provide Executive with coverage under such benefit plans and programs as
are made generally available to similarly situated employees of Stilwell,
provided (a) Stilwell shall have no obligation with respect to any plan or
program if Executive is not eligible for coverage thereunder, and (b) Executive
acknowledges that stock options and other stock and equity participation awards
are granted in the discretion of the Stilwell Board or the Compensation
Committee of the Stilwell Board and that Executive has no right to receive
stock options or other equity participation awards or any particular number or
level of stock options or other awards. In determining contributions, coverage
and benefits under any disability insurance policy and under any cash
compensation-based plan provided to Executive by Stilwell, it shall be assumed
that the value of Executive's annual compensation, pursuant to this Agreement,
is 160% of Executive's annual base salary. Executive acknowledges that all
rights and benefits under benefit plans and programs shall be governed by the
official text of each such plan or program and not by any summary or
description thereof or any provision of this Agreement (except to the extent
this Agreement expressly modifies such benefit plans or programs) and that
Stilwell is not under any obligation to continue in effect or to fund any such
plan or program, except as provided in Paragraph 7 hereof. Stilwell also shall
reimburse Executive for ordinary and necessary travel and other business
expenses in accordance with policies and procedures established by Stilwell.
4. TERMINATION.
-----------
(a) TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement and his employment hereunder by at least thirty (30) days advance
written notice to Stilwell, except that in the event of any material breach of
this Agreement by Stilwell, Executive may terminate this Agreement and his
employment hereunder immediately upon notice to Stilwell.
(b) DEATH OR DISABILITY. This Agreement and Executive's
employment hereunder shall terminate automatically on the death or disability
of Executive, except to the extent employment is continued under Stilwell's
disability plan. For purposes of this Agreement, Executive shall be deemed to
be disabled if he qualifies for disability benefits under Stilwell's long-term
disability plan.
(c) TERMINATION BY STILWELL FOR CAUSE. Stilwell may terminate
this Agreement and Executive's employment "for cause" immediately upon notice
to Executive. For purposes of this Agreement (except for Paragraph 7),
termination "for cause" shall mean termination based upon any one or more of
the following:
(i) Any material breach of this Agreement by Executive;
(ii) Executive's dishonesty involving Stilwell or any
subsidiary of Stilwell;
(iii) Gross negligence or willful misconduct in the
performance of Executive's duties as determined in good faith by the
Stilwell Board;
(iv) Willful failure by Executive to follow reasonable
instructions of the President or other officer to whom Executive reports
concerning the operations or business of Stilwell or any subsidiary of
Stilwell;
(v) Executive's fraud or criminal activity; or
(vi) Embezzlement or misappropriation by Executive.
(d) TERMINATION BY STILWELL OTHER THAN FOR CAUSE.
--------------------------------------------
(i) Stilwell may terminate this Agreement and Executive's
employment other than for cause immediately upon notice to Executive, and
in such event, Stilwell shall provide severance benefits to Executive in
accordance with Paragraph 4(d)(ii) below.
(ii) Unless the provisions of Paragraph 7 of this Agreement
are applicable, if Executive's employment is terminated under Paragraph
4(d)(i), Stilwell shall continue, for a period of one (1) year following
such termination, (a) to pay to Executive as severance pay a monthly
amount equal to one-twelfth (1/12th) of the annual base salary referenced
in Paragraph 2(a) above, at the rate in effect immediately prior to
termination, and, (b) to reimburse Executive for the cost (including
state and federal income taxes payable with respect to this
reimbursement) of continuing the health insurance coverage provided
pursuant to this Agreement or obtaining health insurance coverage
comparable to the health insurance provided pursuant to this Agreement,
and obtaining coverage comparable to the life insurance provided pursuant
to this Agreement, unless Executive is provided comparable health or life
insurance coverage in connection with other employment. The foregoing
obligations of Stilwell shall continue until the end of such one (1) year
period notwithstanding the death or disability of Executive during said
period (except, in the event of death, the obligation to reimburse
Executive for the cost of life insurance shall not continue). In the
year in which termination of employment occurs, Executive shall be
eligible to receive benefits under the Stilwell Incentive Compensation
Plan and the Stilwell Executive Plan (if such Plans then are in existence
and Executive was entitled to participate immediately prior to
termination) in accordance with the provisions of such plans then
applicable, and severance pay received in such year shall be taken into
account for the purpose of determining benefits, if any, under the
Stilwell Incentive Compensation Plan but not under the Stilwell Executive
Plan. After the year in which termination occurs, Executive shall not be
entitled to accrue or receive benefits under the Stilwell Incentive
Compensation Plan or the Stilwell Executive Plan with respect to the
severance pay provided herein, notwithstanding that benefits under such
plan then are still generally available to executive employees of
Stilwell. After termination of employment, Executive shall not be
entitled to accrue or receive benefits under any other employee benefit
plan or program, except that Executive shall be entitled to participate
in the Stilwell Profit Sharing Plan, the Stilwell Employee Stock
Ownership Plan and the Stilwell Section 401(k) Plan in the year of
termination of employment only if Executive meets all requirements of
such plans for participation in such year.
5. NON-DISCLOSURE. During the term of this Agreement and at all times
after any termination of this Agreement, Executive shall not, either directly
or indirectly, use or disclose any Stilwell trade secret, except to the extent
necessary for Executive to perform his duties for Stilwell while an employee.
For purposes of this Agreement, the term "Stilwell trade secret" shall mean any
information regarding the business or activities of Stilwell or any subsidiary
or affiliate, including any formula, pattern, compilation, program, device,
method, technique, process, customer list, technical information or other
confidential or proprietary information, that (a) derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and (b) is the subject of efforts of Stilwell
or its subsidiary or affiliate that are reasonable under the circumstance to
maintain its secrecy. In the event of any breach of this Paragraph 5 by
Executive, Stilwell shall be entitled to terminate any and all remaining
severance benefits under Paragraph 4(d)(ii) and shall be entitled to pursue
such other legal and equitable remedies as may be available.
6. DUTIES UPON TERMINATION; SURVIVAL.
---------------------------------
(a) DUTIES. Upon termination of this Agreement by Stilwell or
Executive for any reason, Executive shall immediately return to Stilwell all
Stilwell trade secrets which exist in tangible form and shall sign such written
resignations from all positions as an officer, director or member of any
committee or board of Stilwell and all direct and indirect subsidiaries and
affiliates of Stilwell as may be requested by Stilwell and shall sign such
other documents and papers relating to Executive's employment, benefits and
benefit plans as Stilwell may reasonably request.
(b) SURVIVAL. The provisions of Paragraphs 5, 6(a) and 7 of this
Agreement shall survive any termination of this Agreement by Stilwell or
Executive, and the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Stilwell under Paragraph 4(d)(i).
7. CONTINUATION OF EMPLOYMENT UPON CHANGE IN CONTROL OF STILWELL.
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(a) CONTINUATION OF EMPLOYMENT. Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control (as
defined in Paragraph 7(d)) at any time during the term of this Agreement,
Executive agrees to remain in the employ of Stilwell for a period of three
years (the "Three-Year Period") from the date of such Change in Control (the
"Control Change Date"). Stilwell agrees to continue to employ Executive for
the Three-Year Period. During the Three-Year Period, (i) the Executive's
position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 12 month period immediately before the Control
Change Date and (ii) the Executive's services shall be performed at the
location where Executive was employed immediately before the Control Change
Date or at any other location less than 40 miles from such former location.
During the Three-Year Period, Stilwell shall continue to pay to Executive an
annual base salary on the same basis and at the same intervals as in effect
prior to the Control Change Date at a rate not less than 12 times the highest
monthly base salary paid or payable to the Executive by Stilwell in respect of
the 12-month period immediately before the Control Change Date.
(b) BENEFITS. During the Three-Year Period, Executive shall be
entitled to participate, on the basis of his executive position, in each of
the following Stilwell plans (together, the "Specified Benefits") in
existence, and in accordance with the terms thereof, at the Control Change
Date:
(i) any benefit plan, and trust fund associated therewith,
related to (a) life, health, dental, disability, accidental death and
dismemberment insurance or accrued but unpaid vacation time, (b) profit
sharing, thrift or deferred savings (including deferred compensation,
such as under Sec. 401(k) plans), (c) retirement or pension benefits,
(d) ERISA excess benefits and similar plans and (e) tax favored employee
stock ownership (such as under ESOP, and Employee Stock Purchase
programs); and
(ii) any other benefit plans hereafter made generally
available to executives of Executive's level or to the employees of
Stilwell generally.
In addition, Stilwell shall use its best efforts to cause all
outstanding options held by Executive under any stock option plan of Stilwell
or its affiliates to become immediately exercisable on the Control Change Date
and to the extent that such options are not vested and are subsequently
forfeited, the Executive shall receive a lump-sum cash payment within 5 days
after the options are forfeited equal to the difference between the fair
market value of the shares of stock subject to the non-vested, forfeited
options determined as of the date such options are forfeited and the exercise
price for such options. During the Three-Year Period Executive shall be
entitled to participate, on the basis of his executive position, in any
incentive compensation plan of Stilwell in accordance with the terms thereof
at the Control Change Date; provided that if under Stilwell programs or
Executive's Employment Agreement in existence immediately prior to the Control
Change Date, there are written limitations on participation for a designated
time period in any incentive compensation plan, such limitations shall
continue after the Control Change Date to the extent so provided for prior to
the Control Change Date.
If the amount of contributions or benefits with respect to the Specified
Benefits or any incentive compensation is determined on a discretionary basis
under the terms of the Specified Benefits or any incentive compensation plan
immediately prior to the Control Change Date, the amount of such contributions
or benefits during the Three-Year Period for each of the Specified Benefits
shall not be less than the average annual contributions or benefits for each
Specified Benefit for the three plan years ending prior to the Control Change
Date and, in the case of any incentive compensation plan, the amount of the
incentive compensation during the Three-Year Period shall not be less than 75%
of the maximum that could have been paid to the Executive under the terms of
the incentive compensation plan.
(c) PAYMENT. With respect to any plan or agreement under which
Executive would be entitled at the Control Change Date to receive Specified
Benefits or incentive compensation as a general obligation of Stilwell which
has not been separately funded (including specifically, but not limited to,
those referred to under Paragraph 7(b)(i)(d) above), Executive shall receive
within five (5) days after such date full payment in cash (discounted to the
then present value on the basis of a rate of seven percent (7%) per annum) of
all amounts to which he is then entitled thereunder.
(d) CHANGE IN CONTROL. Except as provided in the last sentence
of this Paragraph 7(d), for purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred if:
(i) for any reason at any time less than seventy-five
percent (75%) of the members of the Stilwell Board shall be individuals
who fall into any of the following categories: (a) individuals who were
members of the Stilwell Board on the date of the Agreement; or (b)
individuals whose election, or nomination for election by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who were
members of the Stilwell Board on the date of the Agreement; or (c)
individuals whose election, or nomination for election, by Stilwell's
stockholders, was approved by a vote of at least seventy-five percent
(75%) of the members of the Stilwell Board then still in office who were
elected in the manner described in (a) or (b) above; provided however,
that no individuals described in (b) or (c) above shall be treated as so
elected or nominated if such election or nomination shall have occurred
as part of a proxy contest, tender offer or any proposed purchase,
merger or other similar transaction; or
(ii) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act")) shall have become, according to a public announcement or filing,
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Stilwell representing
thirty percent (30%) (or, with respect to Paragraph 7(c) hereof, 40%) or
more (calculated in accordance with Rule 13d-3) of the combined voting
power of the then outstanding voting securities ("Voting Power") of
Stilwell; or
(iii) the stockholders of Stilwell shall have approved a
merger, consolidation or dissolution of Stilwell or a sale, lease,
exchange or disposition of all or substantially all of Stilwell's
assets, if persons who were the beneficial owners of the Voting Power
of Stilwell immediately before any such merger, consolidation,
dissolution, sale, lease, exchange or disposition do not immediately
thereafter, beneficially own, directly or indirectly, in substantially
the same proportions, more than 60% of the Voting Power of any corporation
or other entity resulting from any such transaction.
(iv) Stilwell shall have directly or indirectly sold or
disposed of, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, any Significant
Subsidiary or otherwise reduced Stilwell's direct or indirect
beneficial ownership of any Significant Subsidiary to less than 50% of
the Voting Power of such entity.
For purposes of this Agreement, "Significant Subsidiary" shall mean (A) any
entity of which at least 50% of the Voting Power is beneficially owned,
directly or indirectly, by Stilwell and which contributed 30% or more of the
total combined revenues of Stilwell and all entities of which Stilwell owned
at least 50% of the Voting Power for the prior calendar year, and (B) any one
or more entities, businesses or groups of assets directly or indirectly sold
or disposed of by Stilwell (within the meaning of paragraph 7(d)(iv)) within
any two year period that contributed 30% of more of such total combined
revenues or would have contributed such 30% based on revenues of such
entities, businesses or groups of assets for the calendar year prior to their
sale or disposition.
Notwithstanding the foregoing provisions of this Paragraph 7(d) to the
contrary, the distribution of all or substantially all of the shares of
Stilwell owned by KCSI to the shareholders of KCSI shall not constitute a
Change in Control.
(e) TERMINATION AFTER CONTROL CHANGE DATE. Notwithstanding any
other provision of this Paragraph 7, at any time after the Control Change
Date, Stilwell may terminate the employment of Executive (the "Termination"),
but unless such Termination is for Cause as defined in subparagraph (g) or for
disability, within five (5) days of the Termination Stilwell shall pay to
Executive his full base salary through the Termination, to the extent not
theretofore paid, plus a lump sum amount (the "Special Severance Payment")
equal to the product (discounted to the then present value on the basis of a
rate of seven percent (7%) per annum) of (i) 160% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) two and Specified Benefits
(excluding any incentive compensation) to which Executive was entitled
immediately prior to Termination shall continue until the end of the 3-year
period ("Benefits Period") beginning on the date of Termination. If any plan
pursuant to which Specified Benefits are provided immediately prior to
Termination would not permit continued participation by Executive after
Termination, then Stilwell shall pay to Executive within five (5) days after
Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received under such plan if Executive had been fully
vested in the average annual contributions or benefits in effect for the three
plan years ending prior to the Control Change Date (regardless of any
limitations based on the earnings or performance of Stilwell) and a continuing
participant in such plan to the end of the Benefits Period. Following the end
of the Benefits Period, Stilwell shall continue to provide to the Executive
and the Executive's family the following benefits ("Post-Period Benefits"):
(1) prior to the Executive's attainment of age sixty (60), health,
prescription and dental benefits equivalent to those then applicable to active
peer executives of Stilwell and their families, as the same may be modified
from time to time, and (2) following the Executive's attainment of age sixty
(60) (and without regard to the Executive's period of service with Stilwell),
health and prescription benefits equivalent to those then applicable to
retired peer executives of Stilwell and their families, as the same may be
modified from time to time. The cost to the Executive of such Post-Period
Benefits shall not exceed the cost of such benefits to active or retired (as
applicable) peer executives, as the same may be modified from time to time.
Notwithstanding the preceding two sentences of this Paragraph 7(e), if the
Executive is covered under any health, prescription or dental plan provided by
a subsequent employer, then the corresponding type of plan coverage (i.e.,
health, prescription or dental) required to be provided as Post-Period
Benefits under this Paragraph 7(e) shall cease. The Executive's rights under
this Paragraph 7(e) shall be in addition to, and not in lieu of, any post-
termination continuation coverage or conversion rights the Executive may have
pursuant to applicable law, including without limitation continuation coverage
required by Section 4980 of the Code. Nothing in this Paragraph 7(e) shall be
deemed to limit in any manner the reserved right of Stilwell, in its sole and
absolute discretion, to at any time amend, modify or terminate health,
prescription or dental benefits for active or retired employees generally.
(f) RESIGNATION AFTER CONTROL CHANGE DATE. In the event of a
Change in Control as defined in Paragraph 7(d), thereafter, upon good reason
(as defined below), Executive may, at any time during the 3-year period
following the Change in Control, in his sole discretion, on not less than
thirty (30) days' written notice (the "Notice of Resignation") to the
Secretary of Stilwell and effective at the end of such notice period, resign
his employment with Stilwell (the "Resignation"). Within five (5) days of
such a Resignation, Stilwell shall pay to Executive his full base salary
through the effective date of such Resignation, to the extent not theretofore
paid, plus a lump sum amount equal to the Special Severance Payment (computed
as provided in the first sentence of Paragraph 7(e), except that for purposes
of such computation all references to "Termination" shall be deemed to be
references to "Resignation". Upon Resignation of Executive, Specified
Benefits to which Executive was entitled immediately prior to Resignation
shall continue on the same terms and conditions as provided in Paragraph 7(e)
in the case of Termination (including equivalent payments provided for
therein), and Post-Period Benefits shall be provided on the same terms and
conditions as provided in Paragraph 7(e) in the case of Termination. For
purposes of this Agreement, "good reason" means any of the following:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
offices, titles, reporting requirements or responsibilities), authority
or duties as contemplated by Section 7(a)(i), or any other action by
Stilwell which results in a diminution or other material adverse change
in such position, authority or duties;
(ii) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
(iii) Stilwell's requiring the Executive to be based at any
office or location other than the location described in Section
7(a)(ii);
(iv) any other material adverse change to the terms and
conditions of the Executives employment; or
(v) any purported termination by Stilwell of the
Executive's employment other than as expressly permitted by this
Agreement (any such purported termination shall not be effective for any
other purpose under this Agreement).
A passage of time prior to delivery of the Notice of Resignation or a failure
by the Executive to include in the Notice of Resignation any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of the Executive under this Agreement or preclude the Executive from
asserting such fact or circumstance in enforcing rights under this Agreement.
(g) TERMINATION FOR CAUSE AFTER CONTROL CHANGE DATE.
Notwithstanding any other provision of this Paragraph 7, at any time after the
Control Change Date, Executive may be terminated by Stilwell "for cause."
Cause means commission by the Executive of any felony or willful breach of
duty by the Executive in the course of the Executive's employment; except that
Cause shall not mean:
(i) bad judgment or negligence;
(ii) any act or omission believed by the Executive in good
faith to have been in or not opposed to the interest of Stilwell
(without intent of the Executive to gain, directly or indirectly, a
profit to which the Executive was not legally entitled);
(iii) any act or omission with respect to which a
determination could properly have been made by the Stilwell Board that
the Executive met the applicable standard of conduct for indemnification
or reimbursement under Stilwell's by-laws, any applicable
indemnification agreement, or applicable law, in each case in effect at
the time of such act or omission; or
(iv) any act or omission with respect to which Notice of
Termination of the Executive is given more than 12 months after the
earliest date on which any member of the Stilwell Board, not a party to
the act or omission, knew or should have known of such act or omission.
Any Termination of the Executive's employment by Stilwell for Cause shall
be communicated to the Executive by Notice of Termination.
(h) GROSS-UP FOR CERTAIN TAXES. If it is determined (by the
reasonable computation of Stilwell's independent auditors, which
determinations shall be certified to by such auditors and set forth in a
written certificate ("Certificate") delivered to the Executive) that any
benefit received or deemed received by the Executive from Stilwell pursuant to
this Agreement or otherwise (collectively, the "Payments") is or will become
subject to any excise tax under Section 4999 of the Code or any similar tax
payable under any United States federal, state, local or other law (such
excise tax and all such similar taxes collectively, "Excise Taxes"), then
Stilwell shall, immediately after such determination, pay the Executive an
amount (the "Gross-up Payment") equal to the product of:
(i) the amount of such Excise Taxes;
multiplied by
(ii) the Gross-up Multiple (as defined in Paragraph 7(k).
The Gross-up Payment is intended to compensate the Executive
for the Excise Taxes and any federal, state, local or other income or
excise taxes or other taxes payable by the Executive with respect to the
Gross-up Payment.
Stilwell shall cause the preparation and delivery to the
Executive of a Certificate upon request at any time. Stilwell shall, in
addition to complying with this Paragraph 7(h), cause all determinations
and certifications under Paragraphs 7(h)-(o) to be made as soon as
reasonably possible and in adequate time to permit the Executive to
prepare and file the Executive's individual tax returns on a timely
basis.
(i) DETERMINATION BY THE EXECUTIVE.
------------------------------
(i) If Stilwell shall fail (a) to deliver a Certificate to
the Executive or (b) to pay to the Executive the amount of the Gross-up
Payment, if any, within 14 days after receipt from the Executive of a
written request for a Certificate, or if at any time following receipt
of a Certificate the Executive disputes the amount of the Gross-up
Payment set forth therein, the Executive may elect to demand the payment
of the amount which the Executive, in accordance with an opinion of
counsel to the Executive ("Executive Counsel Opinion"), determines to be
the Gross-up Payment. Any such demand by the Executive shall be made by
delivery to Stilwell of a written notice which specifies the Gross-up
Payment determined by the Executive and an Executive Counsel Opinion
regarding such Gross-up Payment (such written notice and opinion
collectively, the "Executive's Determination"). Within 14 days after
delivery of the Executive's Determination to Stilwell, Stilwell shall
either (a) pay the Executive the Gross-up Payment set forth in the
Executive's Determination (less the portion of such amount, if any,
previously paid to the Executive by Stilwell) or (b) deliver to the
Executive a Certificate specifying the Gross-up Payment determined by
Stilwell's independent auditors, together with an opinion of Stilwell's
counsel ("Stilwell Counsel Opinion"), and pay the Executive the Gross-up
Payment specified in such Certificate. If for any reason Stilwell fails
to comply with clause (b) of the preceding sentence, the Gross-up
Payment specified in the Executive's Determination shall be controlling
for all purposes.
(ii) If the Executive does not make a request for, and
Stilwell does not deliver to the Executive, a Certificate, Stilwell
shall, for purposes of Paragraph 7(j), be deemed to have determined that
no Gross-up Payment is due.
(j) ADDITIONAL GROSS-UP AMOUNTS. If, despite the initial conclusion
of Stilwell and/or the Executive that certain Payments are neither subject to
Excise Taxes nor to be counted in determining whether other Payments are subject
to Excise Taxes (any such item, a "Non-Parachute Item"), it is later determined
(pursuant to subsequently-enacted provisions of the Code, final regulations or
published rulings of the IRS, final IRS determination or judgment of a court of
competent jurisdiction or Stilwell's independent auditors) that any of the
Non-Parachute Items are subject to Excise Taxes, or are to be counted in
determining whether any Payments are subject to Excise Taxes, with the result
that the amount of Excise Taxes payable by the Executive is greater than the
amount determined by Stilwell or the Executive pursuant to Paragraph 7(h) or
Paragraph 7(i), as applicable, then Stilwell shall pay the Executive an
amount (which shall also be deemed a Gross-up Payment) equal to the product of:
(i) the sum of (a) such additional Excise Taxes and (b)
any interest, fines, penalties, expenses or other costs incurred by the
Executive as a result of having taken a position in accordance with a
determination made pursuant to Paragraph 7(h); multiplied by
(ii) the Gross-up Multiple.
(k) GROSS-UP MULTIPLE. The Gross-up Multiple shall equal a
fraction, the numerator of which is one (1.0), and the denominator of which is
one (1.0) minus the sum, expressed as a decimal fraction, of the rates of all
federal, state, local and other income and other taxes and any Excise Taxes
applicable to the Gross-up Payment; provided that, if such sum exceeds 0.8, it
shall be deemed equal to 0.8 for purposes of this computation. (If different
rates of tax are applicable to various portions of a Gross-up Payment, the
weighted average of such rates shall be used.)
(l) OPINION OF COUNSEL. "Executive Counsel Opinion" means a
legal opinion of nationally recognized executive compensation counsel that
there is a reasonable basis to support a conclusion that the Gross-up Payment
determined by the Executive has been calculated in accord with this Paragraph
7 and applicable law. "Company Counsel Opinion" means a legal opinion of
nationally recognized executive compensation counsel that (i) there is a
reasonable basis to support a conclusion that the Gross-up Payment set forth
in the Certificate of Stilwell's independent auditors has been calculated in
accord with this Paragraph 7 and applicable law, and (ii) there is no
reasonable basis for the calculation of the Gross-up Payment determined by the
Executive.
(m) AMOUNT INCREASED OR CONTESTED. The Executive shall notify
Stilwell in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by Stilwell of a Gross-up Payment. Such
notice shall include the nature of such claim and the date on which such claim
is due to be paid. The Executive shall give such notice as soon as
practicable, but no later than 10 business days, after the Executive first
obtains actual knowledge of such claim; provided, however, that any failure to
give or delay in giving such notice shall affect Stilwell's obligations under
this Paragraph 7 only if and to the extent that such failure results in actual
prejudice to Stilwell. The Executive shall not pay such claim less than 30
days after the Executive gives such notice to Stilwell (or, if sooner, the
date on which payment of such claim is due). If Stilwell notifies the
Executive in writing before the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give Stilwell any information that it reasonably
requests relating to such claim;
(ii) take such action in connection with contesting such
claim as Stilwell reasonably requests in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by Stilwell;
(iii) cooperate with Stilwell in good faith to contest such
claim; and
(iv) permit Stilwell to participate in any proceedings
relating to such claim; provided, however, that Stilwell shall bear and
pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify
and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax, including related interest and penalties, imposed as
a result of such representation and payment of costs and expenses.
Without limiting the foregoing, Stilwell shall control all proceedings
in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may,
at its sole option, either direct the Executive to pay the tax claimed
and sue for a refund or contest the claim in any permissible manner.
The Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as Stilwell shall determine; provided,
however, that if Stilwell directs the Executive to pay such claim and
sue for a refund, Stilwell shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify the
Executive, on an after-tax basis, for any Excise Tax or income tax,
including related interest or penalties, imposed with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. The Stilwell's control
of the contest shall be limited to issues with respect to which a Gross-
up Payment would be payable. The Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the IRS or
other taxing authority.
(n) REFUNDS. If, after the receipt by the Executive of an
amount advanced by Stilwell pursuant to Paragraph 7(m), the Executive receives
any refund with respect to such claim, the Executive shall (subject to
Stilwell's complying with the requirements of Paragraph 7(m)) promptly pay
Stilwell the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by Stilwell pursuant to Paragraph 7(m), a
determination is made that the Executive shall not be entitled to a full
refund with respect to such claim and Stilwell does not notify the Executive
in writing of its intent to contest such determination before the expiration
of 30 days after such determination, then the applicable part of such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid. Any contest of a denial of refund shall be
controlled by Paragraph 7(m).
(o) EXPENSES. If any dispute should arise under this Agreement
after the Control Change Date involving an effort by Executive to protect,
enforce or secure rights or benefits claimed by Executive hereunder, Stilwell
shall pay (promptly upon demand by Executive accompanied by reasonable
evidence of incurrence) all reasonable expenses (including attorneys' fees)
incurred by Executive in connection with such dispute, without regard to
whether Executive prevails in such dispute except that Executive shall repay
Stilwell any amounts so received if a court having jurisdiction shall make a
final, nonappealable determination that Executive acted frivolously or in bad
faith by such dispute. To assure Executive that adequate funds will be made
available to discharge Stilwell's obligations set forth in the preceding
sentence, Stilwell has established a trust and upon the occurrence of a Change
in Control shall promptly deliver to the trustee of such trust to hold in
accordance with the terms and conditions thereof that sum which the Stilwell
Board shall have determined is reasonably sufficient for such purpose.
(p) PREVAILING PROVISIONS. On and after the Control Change
Date, the provisions of this Paragraph 7 shall control and take precedence
over any other provisions of this Agreement which are in conflict with or
address the same or a similar subject matter as the provisions of this
Paragraph 7.
8. MITIGATION AND OTHER EMPLOYMENT. After a termination of
Executive's employment pursuant to Paragraph 4(d)(i) or a Change in Control as
defined in Paragraph 7(d), Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and except as otherwise specifically provided in
Paragraph 4(d)(ii) with respect to health and life insurance and in Paragraph
7(e) with respect to health, prescription and dental benefits, no such other
employment, if obtained, or compensation or benefits payable in connection
therewith shall reduce any amounts or benefits to which Executive is entitled
hereunder. Such amounts or benefits payable to Executive under this Agreement
shall not be treated as damages but as severance compensation to which
Executive is entitled because Executive's employment has been terminated.
9. NOTICE. Notices and all other communications to either party
pursuant to this Agreement shall be in writing and shall be deemed to have been
given when personally delivered, delivered by facsimile or deposited in the
United States mail by certified or registered mail, postage prepaid, addressed,
in the case of Stilwell, to Stilwell at 114 West 11th Street, Kansas City,
Missouri 64105, Attention: Secretary, or, in the case of the Executive, to him
at 1701 Deerrun Trail, Blue Springs, MO 64015, or to such other address as a
party shall designate by notice to the other party.
10. AMENDMENT. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, waiver, modification or
discharge is agreed to in a writing signed by Executive and the President of
Stilwell. No waiver by any party hereto at any time of any breach by another
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time.
11. SUCCESSORS IN INTEREST. The rights and obligations of Stilwell
under this Agreement shall inure to the benefit of and be binding in each and
every respect upon the direct and indirect successors and assigns of Stilwell,
regardless of the manner in which such successors or assigns shall succeed to
the interest of Stilwell hereunder, and this Agreement shall not be terminated
by the voluntary or involuntary dissolution of Stilwell or by any merger or
consolidation or acquisition involving Stilwell or upon any transfer of all or
substantially all of Stilwell's assets, or terminated otherwise than in
accordance with its terms. In the event of any such merger or consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon and
shall inure to the benefit of the surviving corporation or the corporation or
other person to which such assets shall be transferred. Neither this Agreement
nor any of the payments or benefits hereunder may be pledged, assigned or
transferred by Executive either in whole or in part in any manner, without the
prior written consent of Stilwell.
12. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
13. CONTROLLING LAW AND JURISDICTION. The validity, interpretation and
performance of this Agreement shall be subject to and construed under the laws
of the State of Missouri, without regard to principles of conflicts of law.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and terminates
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the terms of Executive's employment
or severance arrangements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above stated.
STILWELL FINANCIAL, INC.
By
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
EXECUTIVE
---------------------------------
Anthony P. McCarthy
STOCK PURCHASE AGREEMENT, dated April 13, 1984, by and among Kansas
City Southern Industries, Inc., a Missouri corporation ("KCSI"), and Thomas
H. Bailey, William C. Mangus, Bernard E. Niedermeyer III, Michael Stolper,
and Jack R. Thompson, as individuals.
WHEREAS, Janus Capital Corporation, a Colorado corporation ("JCC"), is
a registered investment adviser under the Investment Advisers Act of 1940,
managing assets for corporations, individuals, and pension and profit-sharing
plans; and
WHEREAS, Janus Management Corporation, a Colorado corporation ("JMC"),
is a registered investment adviser under the Investment Advisers Act of 1940
and is the investment adviser to Janus Fund, Inc. ("Janus Fund"); and
WHEREAS, Thomas H. Bailey, William C. Mangus, Bernard E. Niedermeyer
III, Michael Stolper, and Jack R. Thompson (referred to collectively as the
"Shareholders of JCC") own all of the outstanding capital stock of JCC,
consisting of 400 shares of Common Stock, par value $.01 per share, and all
of the outstanding capital stock of JMC, consisting of 24,014 shares of
Common Stock, par value $.01 per share;
WHEREAS, immediately after the initial stock purchase by KCSI
contemplated by this Agreement, JMC will merge into JCC in accordance with
Colorado law, JCC to be the surviving corporation; and
WHEREAS, the Shareholders of JCC and KCSI after the merger of JMC into
JCC, will own all of the authorized and outstanding capital stock of JCC,
then consisting of 10,000,000 shares of common stock, $.01 par value per
share (the "JCC Shares"); and
WHEREAS, KCSI and the Shareholders of JCC desire that KCSI acquire from
the Shareholders of JCC, shares of JMC and JCC such that KCSI will own 80% of
the shares of JCC outstanding after such merger, on the terms and conditions
set forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
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STOCK PURCHASES AND MERGER
Subject to the terms and conditions set forth below, the stock
purchases contemplated by the parties shall be effectuated at the following
times and in the following manner:
1.01 At the Closing provided for in paragraph 3.01 hereof, KCSI shall
purchase and each of the Shareholders of JCC shall sell, convey, assign,
transfer and deliver to KCSI, free and clear of all liens and encumbrances, a
total of 16,996 shares of JMC and 253 shares of JCC for a total price of
$10,937,922.24, in the following proportions:
NO. OF SHARES SOLD PURCHASE
NAME OF SELLER JMC JCC PRICE
- -------------- --- --- -------
Thomas H. Bailey 5,454 153 $5,016,009.33
William C. Mangus 10,054 100 $5,428,826.99
Bernard E. Niedermeyer III 645 -0- $ 213,736.84
Michael Stolper 843 -0- $ 279,349.08
Jack R. Thompson -0- -0- $ -0-
1.02 Immediately upon consummation of the stock purchases by KCSI
provided for in paragraph 1.01, KCSI and the Shareholders of JCC shall take
all steps necessary to effect a duly and validly authorized merger of JMC
into JCC in accordance with the laws of the State of Colorado and other
applicable laws, JCC to be the surviving corporation. Upon consummation of
such merger, each of the Shareholders of JCC and KCSI shall own the number of
JCC Shares set forth below, which shall be all of the issued and outstanding
capital stock of JCC:
NUMBER OF
SHARES OF
NAME OF HOLDER JCC
-------------- ---------
Thomas H. Bailey 2,898,671
William C. Mangus -0-
Bernard E. Niedermeyer III 134,039
Michael Stolper 175,181
Jack R. Thompson 75,789
KCSI 6,716,320
1.03 As soon after October 31, 1985 as the amount of Net After-Tax
Earnings of JCC for the fiscal year then ended has been determined as
provided in paragraph 2.04, but not later than thirty days after the date of
such determination, KCSI shall purchase and the Shareholders of JCC other
than William C. Mangus (the "Remaining Shareholders of JCC") shall sell,
convey, assign, transfer and deliver to KCSI, free and clear of all liens and
encumbrances, on a pro-rata basis, or on such other basis as the Shareholders
of JCC shall agree among themselves which does not violate the other
provisions of this Agreement, a total of 427,894 of the JCC shares at a price
per share equal to fifteen times the Net After-Tax Earnings per share of JCC
for the fiscal year ended October 31, 1985.
1.04 As soon after October 31, 1986 as the amount of Net After-Tax
Earnings of JCC for the fiscal year then ended has been determined as
provided in paragraph 2.04, but not later than thirty days after the date of
such determination, KCSI shall purchase and the Remaining Shareholders of JCC
shall sell, convey, assign, transfer and deliver to KCSI, free and clear of
all liens and encumbrances, on a pro-rata basis, or on such other basis as
the Shareholders of JCC shall agree among themselves which does not violate
the other provisions of this Agreement, a total of 427,893 of the JCC shares
at a price per share equal to fifteen times the Net After-Tax Earnings per
share of JCC for the fiscal year ended October 31, 1986.
1.05 As soon after October 31, 1987 as the amount of Net After-Tax
Earnings of JCC for the fiscal year then ended has been determined as
provided in paragraph 2.04, but not later than thirty days after the date of
such determination, KCSI shall purchase and the Remaining Shareholders of JCC
shall sell, convey, assign, transfer and deliver to KCSI, free and clear of
all liens and encumbrances, on a pro-rata basis, or on such other basis as
the Shareholders of JCC shall agree among themselves which does not violate
the other provisions of this Agreement, a total of 427,893 of the JCC shares
at a price per share equal to fifteen times the Net After-Tax Earnings per
share of JCC for the fiscal year ended October 31, 1987.
ARTICLE II
----------
NET AFTER-TAX EARNINGS
2.01 The term "Net After-Tax Earnings of JCC" as used in this
Agreement shall mean all income of JCC for the applicable period from
operations in the ordinary course of business, less the expenses of JCC for
the applicable period, including salaries, bonuses and related employee
costs, rent, utilities, depreciation, taxes, travel and entertainment
expenses and all other operating expenses, and including federal and state
income taxes payable on account of such income, all calculated in accordance
with generally accepted accounting principles applied on a consistent basis;
provided that "Net After-Tax Earnings of JCC" shall not include earnings, nor
be reduced by losses, of any corporation or other entity acquired by JCC
(including any acquisition of substantially all the assets of any such
corporation or other entity) after the date of the Closing provided for in
Section 3.01 of this Agreement. For purposes of this calculation, (i) no
charge shall be made to JCC by KCSI or any affiliate of KCSI for any services
furnished to JCC by KCSI or any such affiliate unless such services have been
approved by Thomas H. Bailey and (ii) no change shall be made in the kind or
methods of computing of such expenses from the kind and methods employed
during the year ended October 31, 1983, without KCSI's consent in advance.
2.02 Whenever KCSI is permitted to consolidate the income of JCC with
the income of KCSI for federal income tax purposes, the tax rate to be
applied to net earnings to determine the Net After-Tax Earnings of JCC shall
be the federal income tax rate which would be applicable to JCC if no such
consolidation were to have occurred.
2.03 For purposes of determining the Net After-Tax Earnings of JCC,
the direct, out-of-pocket cost of organizing a new mutual fund requested in
writing by KCSI and initially registering such fund or its shares under the
Investment Company Act of 1940, the Securities Act of 1933 and state
securities or Blue Sky laws, including legal, accounting and printing costs,
shall be shared equally by JCC and by KCSI or an affiliate of KCSI.
2.04 At the end of each fiscal year during which at any time any of
the Shareholders of JCC owned, beneficially or otherwise, any JCC Shares, the
Net After-Tax Earnings of JCC as defined in this Article II shall be
determined and certified by Price Waterhouse, or a comparable certified
public accounting firm (one of the so called "Big Eight" firms) then
providing accounting services to JCC.
ARTICLE III
-----------
CLOSING
3.01 The Closing of the purchase and sale provided for in paragraph
1.01 (the "Closing") shall be held in the offices of Davis, Graham & Stubbs
in Denver, Colorado at 10:00 a.m. Mountain Standard Time on the first
business day following the obtaining of shareholder approval required by
paragraphs 7.06 and 8.02 (the "Closing Date"), or at such other time or place
as KCSI and the Shareholders of JCC may agree.
3.02 At the Closing, each of the Shareholders of JCC shall deliver a
certificate or certificates representing the shares of JMC and JCC being sold
by him pursuant to paragraph 1.01, duly endorsed to KCSI with such
endorsement signature guaranteed, and KCSI shall deliver to each of the
Shareholders of JCC a certified or bank check for the purchase price of the
shares being purchased from such Shareholder of JCC.
3.03 Closings of the purchases and sales of JCC Shares provided for in
paragraphs 1.03, 1.04 and 1.05 shall be held at the offices of JCC in Denver,
Colorado, at such time (no later than thirty days after the date that the
amount of Net After-Tax Earnings of JCC for the preceding fiscal year has
been determined as provided in paragraph 2.04) as KCSI and the Remaining
Shareholders of JCC may agree. At each such closing, the Remaining
Shareholders of JCC shall deliver certificates representing the JCC Shares
being sold and KCSI shall deliver payment for such shares in the manner
provided in paragraph 3.02.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF KCSI
KCSI hereby represents and warrants as follows:
4.01 KCSI is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has full corporate
power and authority to carry on the business it is now conducting.
4.02 The execution, delivery and performance of this Agreement by KCSI
has been duly and validly authorized and approved by all necessary action of
KCSI, and this Agreement is a valid and binding obligation of KCSI,
enforceable against it in accordance with its terms.
4.03 Neither the execution, the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby nor compliance by KCSI
with any of the provisions hereof will (i) violate or conflict with, or
result in a breach of any provisions of the Certificate of Incorporation or
Bylaws of KCSI, or (ii) constitute a default under, or result in the
termination of, any material note, bond, mortgage, indenture, deed of trust,
license, agreement or other instrument or obligation to which KCSI is a
party, or (iii) violate any order, writ, injunction or decree applicable to
KCSI or any of KCSI's material assets, or (iv) violate any applicable law or
any order, rule or regulation of any regulatory or governmental authority
having jurisdiction.
4.04 KCSI has not entered into and will not enter into any agreement,
arrangement or understanding with any person or firm which will result in an
obligation of JCC or JMC to pay any finder's fee, brokerage commission, or
similar payment in connection with the transactions contemplated by this
Agreement.
4.05 The representations and warranties contained in this Article IV
shall survive the Closing, and remain in effect for a period of three years
following the Closing.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS OF JCC
The Shareholders of JCC hereby represent and warrant as follows:
5.01 The shares of JMC and JCC to be sold under this Agreement have
been and will remain upon delivery to KCSI duly and validly authorized for
issuance, legally issued, fully paid and non-assessable. As to the shares
being delivered to KCSI at each closing provided for in Article III (i) each
of the Shareholders of JCC has and will have immediately prior to delivery to
KCSI hereunder full right, title and interest to his respective portion of
such shares free and clear of all liens and encumbrances, (ii) except as set
forth in this Agreement, there are no agreements or understandings with
respect to the voting of such shares, (iii) there are not outstanding, and
will not be outstanding at the Closing Date or at the date of the other
closings provided for in Article III any options, warrants or rights to
purchase or otherwise acquire any of such shares, except as provided herein,
and (iv) upon proper endorsement and delivery of the certificate or
certificates representing any such shares to KCSI, KCSI shall have full
right, title and interest to such shares free and clear of all liens and
encumbrances.
5.02 JCC and JMC are corporations duly organized, validly existing and
in good standing under the laws of the State of Colorado, have full corporate
power and authority to carry on the businesses they are now conducting and to
own or lease and operate the assets and properties now owned or leased and
operated by them, and are not required to be qualified to do business in any
other jurisdiction except for jurisdictions in which failure to be so
qualified could not subject JCC or JMC to any material liability or
disability by reason of such failure. Neither JCC nor JMC have any
subsidiaries.
5.03 The Shareholders of JCC have delivered to KCSI balance sheets of
JCC and JMC as of October 31, 1983, and statements of operations and
statements of changes in financial position of JCC and JMC for the fiscal
year ended October 31, 1983, all of which have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods indicated and present fairly the financial position of JCC and
JMC and their results of operations and changes in financial position for the
periods indicated. Other than as disclosed on the JCC and JMC balance sheets
dated October 31, 1983 and in exhibit 5.03 attached hereto and made a part
hereof, but without expanding the scope of the other representations and
warranties herein, JCC and JMC do not have any liability of any nature,
including without limitation liability for federal, state, local or foreign
taxes, which is material, whether accrued or contingent, other than
liabilities arising since October 31, 1983 in the ordinary course of business
which are not inconsistent with the representations and warranties made
herein.
5.04 JCC and JMC have filed, or caused to be filed, with the
appropriate governmental agencies, all federal, state and local tax returns
and all reports with respect to income and other reports, the filing of which
is necessary for the conduct of their businesses or required by any taxing
authority having jurisdiction. All such tax returns and reports properly
reflect the taxes attributable to the businesses of JCC and JMC for the
periods covered thereby. All federal, state and local taxes, assessments,
interest, penalties, deficiencies, fees or other governmental charges or
impositions called for by such tax returns or reports, or to JCC's or JMC's
knowledge are claimed to be due by any taxing authority, have been properly
paid. JCC or JMC have not received any notice of deficiency or assessment or
a proposed deficiency or assessment from the Internal Revenue Service or any
other taxing authority. JCC or JMC have not waived any law or regulation
fixing, or consented to the extension of, any period of time for assessment
of any tax.
5.05 The Shareholders of JCC have furnished to KCSI a schedule listing
all policies of insurance maintained by JCC and JMC. All such policies are
outstanding and duly in force on the date hereof, are in the amounts shown
in, and insure against the losses and risks described in said schedule. JCC
or JMC have not received notice from any insuror or its agent of cancellation
of any insurance policy or that substantial actions will have to be taken or
that substantial capital improvements or other expenditures will have to be
made in order to continue such insurance.
5.06 Other than as disclosed to KCSI in exhibits 5.06 and 5.08
attached hereto and made a part hereof, there is no (i) litigation,
proceeding, arbitral action or governmental investigation pending or, as far
as is known to any of the Shareholders of JCC or to JCC or JMC, threatened
against JCC or JMC or their assets, (ii) fact known to any of the
Shareholders of JCC or to JCC or JMC that may give rise to any such
litigation, proceeding or investigation, nor (iii) decree, injunction or
order of any court or governmental department or agency outstanding against
JCC or JMC with respect to its business.
5.07 To the best knowledge of the Shareholders of JCC after reasonable
investigation, except as disclosed to KCSI in exhibit 5.07 attached hereto
and made a part hereof, JCC and JMC hold all material licenses, permits, and
authorizations necessary for the lawful conduct of their businesses under,
and are otherwise in compliance with, all applicable statutes, regulations,
orders, ordinances, and other laws of the United States and all states and
local governments, and agencies thereof, that have a material effect upon
JCC or JMC or the conduct of their businesses. Neither JCC nor JMC has
received any notice or otherwise been advised that it is in violation of any
such statute, regulation, order, ordinance, or other law. Neither JCC, JMC
nor any of the Shareholders of JCC knows after reasonable investigation of
any existing circumstance that is likely to result in such a violation.
Except for properties which in the aggregate are not material to JCC or JMC,
JCC and JMC respectively have good and marketable title to all of their
respective real and personal properties except for such minor imperfections
in title which do not materially detract from the value, nor prohibit the
present use, of such properties. To the best knowledge of the Shareholders of
JCC after reasonable investigation, the respective real and personal
properties of JCC and JMC are subject to no mortgage, pledge, lien,
encumbrance, charge, security interest or other security arrangement except
for (i) liens for the payment of taxes, the payment of which is not
delinquent or subject to penalty and (ii) encumbrances incidental to the
conduct of their respective businesses which were not incurred in connection
with the borrowing of money and which do not in the aggregate materially
detract from the value of such properties or materially impair the use
thereof, except as disclosed on their respective financial statements or in
exhibit 5.07 attached hereto and made a part hereof. All leases pursuant to
which JCC or JMC lease any substantial amount of real or personal property
are valid and effective in accordance with their terms.
5.08 Except as disclosed to KCSI in exhibit 5.08 attached hereto and
made a part hereof, no officer, director, or employee of JCC or JMC is a
party or is expected to become a party to any material transaction with JCC
or JMC, including without limitation any contract, agreement, or other
arrangement (i) providing for the furnishing of services by, (ii) providing
for the rental of real or personal property from, or (iii) otherwise
requiring payments (other than for service as officer, director, or employee)
to any such person or corporation, partnership, trust, or other entity in
which any such person has a substantial interest as an officer, director,
trustee, or partner.
5.09 Since October 31, 1983, (i) JCC and JMC have operated their
businesses in the ordinary course and exercised all reasonable efforts to
preserve their businesses intact, to keep available the services of their
employees and to preserve the goodwill of their clients, (ii) there has been
no change in JCC's or JMC's condition (financial or otherwise), assets,
liabilities, earnings, or businesses, except for changes in the ordinary
course of business which are not individually or in the aggregate materially
adverse to JCC or JMC, and (iii) JCC and JMC have not declared or paid any
dividend or made any distribution in respect of any JCC or JMC shares, or
issued, redeemed, purchased or otherwise acquired or disposed of any of their
shares of capital stock except as contemplated herein.
5.10 To the best knowledge of the Shareholders of JCC after reasonable
investigation, JCC and JMC are in compliance with all provisions of the
Investment Advisers Act of 1940 applicable to them and their operations, and,
except as disclosed to KCSI in exhibit 5.10 attached hereto and made a part
hereof, with all investment adviser registration or qualification
requirements of applicable state securities or Blue Sky laws.
5.11 To the best knowledge of the Shareholders of JCC after reasonable
investigation, except as disclosed to KCSI in exhibit 5.11 attached hereto
and made a part hereof, Janus Fund is in compliance with all applicable
requirements of the Securities Act of 1933, the Investment Company Act of
1940.
5.12 Neither the execution or delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor compliance by the
Shareholders of JCC with any of the provisions hereof will (i) violate or
conflict with, or result in a breach of any provisions of the Articles of
Incorporation or Bylaws of JCC or JMC, or (ii) constitute a default under, or
result in the termination of, any material note, bond, mortgage, indenture,
deed of trust, license, agreement or other instrument or obligation to which
JCC, JMC or the Shareholders of JCC is a party, or (iii) violate any order,
writ, injunction or decree applicable to JCC, JMC or the Shareholders of JCC,
or any of their material assets, or (iv) to the best knowledge of the
Shareholders of JCC after reasonable investigation, except as disclosed to
KCSI in exhibit 5.12 attached hereto and made a part hereof, violate any
applicable law or any order, rule or regulation of any regulatory or
governmental authority having jurisdiction.
5.13 JCC and JMC have not entered into and will not enter into any
agreement, arrangement or understanding with any person or firm which will
result in an obligation of JCC, JMC or KCSI to pay any finder's fee,
brokerage commission, or similar payment in connection with the transactions
contemplated by this Agreement.
5.14 JCC and JMC have delivered to KCSI a complete and accurate copy
of the Articles of Incorporation and Bylaws of JCC and JMC, as in effect on
the date hereof, and a list of all material investment advisory and other
contracts, agreements, instruments, leases and licenses of JMC and JCC. True
and complete copies of the documents referred to in such list have been made
available to KCSI. To the best knowledge of the Shareholders of JCC after
reasonable investigation neither JMC nor JCC nor any other party to any such
contract, agreement, instrument, lease or license is in default in complying
with any material provision thereof, and each such contract, agreement,
instrument, lease and license is in full force and is valid and effective in
accordance with its respective terms. Neither JCC nor JMC is a party to or is
bound by any contract, agreement, deed, instrument, lease or license, or
subject to any charter or other corporate restriction, which has had or which
is reasonably likely to have a material adverse effect on the financial
condition, results of operation, business, properties, assets or liabilities
of JMC or JCC.
5.15 JCC and JMC have delivered to KCSI a list of all pension,
profit-sharing, option and other employee benefit plans of JCC and JMC. True
and complete copies of the documents referred to in such list have been made
available to KCSI. All obligations of JCC and JMC under such plans are fully
funded as to past service benefits and all accrued payments thereunder have
been paid except as disclosed in such list. As to any plan purporting to be a
qualified plan under Section 401(a) of the Internal Revenue Code, (i) all
necessary action has been taken to effect and maintain the qualification of
such plan, (ii) any trust established in connection with any such plan has no
liability of any nature which is accrued or contingent including without
limitation liability for federal, state, local or foreign taxes, except as
described in such list, and (iii) no such plan or trust is in violation of,
or in default with respect to, any law, order, judgment, decree, or
regulation.
5.16 It is expressly understood that Michael Stolper is a Shareholder
of JCC but not an employee of JCC or JMC, and that he is not expected to make
inquiry into any of the matters about which the Shareholders of JCC make
representations to the best of their knowledge after reasonable investigation
in this Article V. The representations and warranties contained in this
Article V shall survive the Closing and remain in effect for a period of
three years following the Closing.
5.17 None of the Shareholders of JCC have any claims or causes of
action against JCC or JMC, or knowledge of any basis for any such claims or
causes under any contracts or agreements, for any tort or alleged tort, or
upon any other basis or with respect to any other matter.
ARTICLE VI
----------
AFFIRMATIVE COVENANTS
6.01 Until the date of the Closing (the "Closing Date"), the
Shareholders of JCC will cause JCC and JMC to conduct their businesses only
in the ordinary course except as otherwise permitted or required by this
Agreement or consented to by KCSI in writing. In addition, JCC and JMC, prior
to the Closing Date, will not, except as otherwise permitted or required by
this Agreement or consented to by KCSI in writing, (i) declare, set aside or
pay any dividend or other distribution of assets to the Shareholders of JCC,
except that nothing herein shall prevent the payment of bonuses to employees
of JCC or JMC on a basis which is in accordance with past practices and is
not inconsistent with the financial projections heretofore furnished KCSI by
the Shareholders of JCC, (ii) make any change in the number of shares of
authorized or issued capital stock of JCC or JMC or other securities or
obligations to issue securities, (iii) lend any money or otherwise pledge the
credit of JCC or JMC except in the ordinary course of business, (iv) fail in
any material respect to comply with any statutes, laws, ordinances, rules,
regulations or other governmental restrictions applicable to them or with any
contract, commitment or agreement to which either of them is a party, or (v)
merge or consolidate with, purchase substantially all the assets of, or
otherwise acquire any business or proprietorship, firm, association,
corporation or other business organization or division thereof, other than
the merger of JMC into JCC contemplated herein.
6.02 Until the Closing Date, the Shareholders of JCC shall cause JCC
and JMC to (i) duly comply in all material respects with all laws and
regulations applicable to JCC and JMC and to the conduct of their businesses
and all laws and regulations applicable to the transactions contemplated by
this Agreement, (ii) maintain in full force and effect the insurance policies
heretofore maintained by JCC and JMC (or policies providing substantially the
same coverage), and (iii) maintain all books and records in the usual,
regular and ordinary manner and promptly advise KCSI in writing of any
material adverse change in their condition (financial or otherwise), assets,
liabilities or businesses.
6.03 Until the Closing Date, subject to the merger of JMC into JCC,
the Shareholders of JCC will use their best efforts to preserve the business
organizations of JCC and JMC intact, to continue operations as in the past,
to keep available to KCSI the services of the present officers and employees
of JCC and JMC, and to preserve for KCSI the goodwill of the clients and
others having business relations with JCC or JMC.
6.04 Prior to the Closing Date, the Shareholders of JCC shall seek the
approval of the Board of Directors and shareholders of Janus Fund to a new
Investment Advisory Agreement to be entered into between JCC and Janus Fund,
which shall become effective upon the purchase of stock of JMC and JCC by
KCSI as provided for in paragraph 1.01 and upon the consummation of the
merger between JMC and JCC as provided for in paragraph 1.02. Such Investment
Advisory Agreement shall contain terms substantially identical to the terms
of the present Investment Advisory Agreement between Janus Fund and JMC,
except for changes (none of which shall materially change the allocation of
expenses between Janus Fund and the investment adviser) that are deemed
necessary or desirable to conform to applicable rules or regulations of the
Securities and Exchange Commission or the National Association of Securities
Dealers, Inc. and which are consented to in advance by KCSI.
6.05 Prior to the Closing Date, the Shareholders of JCC shall seek the
consent of each of JCC's principal investment advisory clients to the
continuation of the investment advisory relationship between JCC and each of
such clients subsequent to the Closing Date.
6.06 The Shareholders of JCC shall deliver to KCSI copies of financial
statements of JCC or JMC prepared monthly commencing January 31, 1984 to the
Closing Date and copies of any filings by JCC or JMC with, and notices or
orders received by JCC or JMC from, the Securities and Exchange Commission,
and any state securities commission or authority, during such period.
6.07 Prior to the Closing Date, the Shareholders of JCC shall cause
JMC and JCC to allow the officers, employees and authorized representatives
of KCSI to have full access to all offices, properties, files, books and
records of JCC and JMC, and shall provide all information reasonably
requested by such officers, employees and authorized representatives of KCSI
which is within their knowledge or reasonably obtainable by them concerning
JCC, JMC and Janus Fund, including, without limitation, information about
their respective operations, capitalization and shareholders, and any of
their investment advisory clients. The Shareholders of JCC shall cause the
officers and employees of JMC and JCC to cooperate with and assist KCSI in
its review and investigation of the businesses and affairs of JCC, JMC and
Janus Fund and shall permit Price Waterhouse to review, audit or examine, at
KCSI's discretion and expense, such books, records, financial data and other
information relating to the business of JCC and JMC as KCSI may direct.
6.08 In addition to the approvals and consents to be obtained pursuant
to paragraphs 6.04 and 6.05, prior to the Closing Date, the Shareholders of
JCC shall cause JCC and JMC to use their best efforts, and KCSI shall use its
best efforts, to obtain all requisite approvals and consents from
governmental or regulatory bodies or agencies, or pursuant to leases,
mortgages, contracts or agreements, permits or licenses of or affecting JCC
or JMC or KCSI, respectively, relative to the transactions contemplated by
this Agreement.
6.09 The Shareholders of JCC shall not transfer, dispose of, or in any
way encumber any of their shares of JMC or JCC in any manner which would
prevent them from selling such shares to KCSI as herein provided and the
certificates for all shares of JCC to be delivered after the Closing Date
pursuant to the subsequent closings provided for in Article III shall bear a
legend disclosing the existence of this Agreement and the limitations upon
disposition set forth in this paragraph 6.10. Notwithstanding the
limitations set forth in this paragraph 6.10, any Shareholder of JCC may
transfer any share of JCC after the Closing Date to any relative of such
Shareholder, or to any trust or other entity for the benefit of such
relative, provided such transfer is effected in accordance with law,
including applicable securities laws and regulations, and such relative,
trust or entity agrees to be, and becomes at the time of such transfer, bound
by the terms and provisions of this Stock Purchase Agreement.
6.10 Settlement of the litigation pending in the District Court of
Denver County, Denver, Colorado, entitled GORDON YALE V. JANUS MANAGEMENT
CORPORATION, THOMAS H. BAILEY AND WILLIAM C. MANGUS, shall be made only as
approved or directed by KCSI, and any amounts paid, or obligations incurred,
by JMC or JCC (except for the fees and expenses of their counsel) in
connection with such litigation, including any settlement thereof not in
excess of $100,000 or satisfaction of any judgment obtained therein, shall be
borne solely by Thomas H. Bailey and William C. Mangus provided that they
shall bear the costs of settlement up to $100,000 only if they have approved
such settlement, in the same proportion as their respective ownership of the
shares of JCC and JMC owned by them immediately prior to the Closing Date.
If, at the time of any such settlement or judgment, Thomas H. Bailey or
William C. Mangus is an employee of JCC, in lieu of receiving reimbursement
for any amount that such employee may be liable for hereunder, JCC shall
reduce such employee's compensation by such amount.
ARTICLE VII
-----------
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE SHAREHOLDERS OF JCC TO CLOSE
The obligations of the Shareholders of JCC under this Agreement with
respect to the sale of their shares shall be subject to the fulfillment on or
prior to the Closing Date of each of the following conditions:
7.01 All of the representations and warranties by KCSI contained in
this Agreement shall be true and correct as of the Closing Date. KCSI shall
have complied with and performed all of the agreements, covenants and
conditions required by this Agreement to be performed and complied with by it
on or prior to the Closing Date. The Shareholders of JCC shall have been
furnished at the Closing Date with a Certificate dated the Closing Date,
signed by the President and Secretary of KCSI, certifying to the best of
their knowledge, but without personal liability under such certificate except
for intentional misstatements or omissions, the fulfillment of the foregoing
conditions.
7.02 There shall have been delivered to the Shareholders of JCC an
opinion, dated the Closing Date, and addressed to the Shareholders of JCC by
Richard P. Bruening, Esq., KCSI's general counsel, or such other counsel as
shall be acceptable to the parties hereto, to the effect that:
(a) KCSI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has corporate
power to carry on its business as it is then being conducted;
(b) Such counsel does not know of any material litigation,
proceeding, arbitral action or governmental investigation pending or
threatened against KCSI that seeks to prevent, or claims damages arising out
of, the transactions contemplated by this Agreement;
(c) The execution, delivery and performance of this Agreement
has been duly authorized and approved on behalf of KCSI by all corporate
action required and this Agreement has been duly executed and delivered by
KCSI pursuant to such authorization and constitutes a valid and binding
obligation of KCSI subject to applicable bankruptcy, insolvency and other
laws affecting the enforcement of creditors' rights generally; and
(d) Neither the execution, the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby nor compliance by
KCSI with any of the provisions hereof (i) violates or conflicts with, or
results in a breach of any provisions of the Certificate of Incorporation or
Bylaws of KCSI, or (ii) to the best of such counsel's knowledge constitutes a
default under, or results in the termination, any material note, bond,
mortgage, indenture, deed of trust, license, agreement or other instrument or
obligation of which such counsel has knowledge to which KCSI is a party,
except for such conflict, breach or default as to which requisite waivers or
consents shall have been obtained by KCSI prior to the Closing Date, or (iii)
violates any order, writ, injunction or decree, of which such counsel has
knowledge, applicable to KCSI or any of KCSI's material assets.
7.03 KCSI shall have obtained all approvals and consents required of
it from governmental or regulatory bodies or agencies or pursuant to leases,
mortgages, contracts, agreements, permits or licenses to which KCSI is a
party relative to the transactions contemplated by this Agreement.
7.04 No adverse change in ownership of KCSI (as defined in paragraph
10.06) shall have occurred after this date hereof and prior to the Closing
Date.
7.05 There shall not have been instituted any suit or proceeding to
restrain or invalidate this transaction or seeking damages from or to impose
obligations upon JCC or JMC which in JCC's or JMC's judgment, reasonably
exercised, would involve expenses or lapses of time that would be materially
adverse to JCC's or JMC's interests.
7.06 The approval of the Board of Directors and shareholders of Janus
Fund to a new Investment Advisory Agreement as provided for in paragraph 6.04
shall have been duly obtained.
ARTICLE VIII
------------
CONDITIONS PRECEDENT TO KCSI'S OBLIGATION TO CLOSE
The obligation of KCSI under this Agreement to purchase shares of JMC
and JCC at the Closing shall be subject to the fulfillment of each of the
following conditions, on or prior to the Closing Date, and the obligation of
KCSI to purchase shares of JCC after the Closing Date shall be subject to
fulfillment of the conditions set forth in paragraphs 8.10 and 8.13 on or
prior to each of such closings;
8.01 All of the representations and warranties of the Shareholders of
JCC contained in this Agreement shall be true and correct at and as of the
Closing Date except for changes contemplated herein. The Shareholders of JCC
shall have complied with and performed all of the agreements, covenants, and
conditions required by this Agreement to be performed and complied with by
them on or prior to the Closing Date. KCSI shall have been furnished at the
Closing Date with a Certificate, dated as of the Closing Date, signed by
Thomas H. Bailey and William C. Mangus, individually and as officers of JCC,
certifying to the best of their knowledge, but without personal liability
under such certificate beyond their personal liability otherwise arising
hereunder except for intentional misstatements or omissions, the fulfillment
of the foregoing conditions.
8.02 The approval of the Board of Directors and shareholders of Janus
Fund to a new Investment Advisory Agreement as provided for in paragraph 6.04
shall have been duly and validly obtained.
8.03 Since October 31, 1983, there shall have been no change in the
condition (financial or otherwise), assets, liabilities, earnings, or
business of JCC from that of JCC and JMC combined as of October 31, 1983,
except for changes in the ordinary course of business of JCC and JMC which
are not in the aggregate materially adverse to JCC.
8.04 The principal advisory clients of JCC shall have been given
notice of the proposed change of control that will result from the
transactions provided for herein and advisory clients accounting for at least
75% of the assets managed by JCC at December 1, 1983 shall have consented to
such change.
8.05 The Shareholders of JCC and JMC shall have obtained all requisite
approvals and consents from governmental or regulatory bodies or agencies or
pursuant to leases, mortgages, contracts or agreements (other than those
referred to in paragraphs 6.04 and 6.05 hereof), permits or licenses relative
to the transactions contemplated by this Agreement.
8.06 There shall have been delivered to KCSI an opinion, dated the
Closing Date (and, at the option of KCSI, with respect to the Remaining
Shareholders' interests under paragraph 8.06(f), the date of each of the
other closings pursuant to Article III) and addressed to KCSI of Davis,
Graham & Stubbs, counsel to the Shareholders of JCC, to the effect that:
(a) JCC and JMC are corporations duly organized and existing
and in good standing under the laws of the State of Colorado;
(b) Such counsel does not know, after reasonable investigation,
of any material litigation, proceeding, arbitral action or governmental
investigation pending or threatened against JCC or JMC that seeks to prevent,
or claims damages arising out of, the transactions contemplated by this
Agreement;
(c) This Agreement constitutes a valid and binding obligation
of each of the Shareholders of JCC;
(d) Neither the execution or delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor compliance by the
Shareholders of JCC with any of the provisions hereof violates or conflicts
with, or results in a breach of any provisions of (i) the Articles of
Incorporation or Bylaws of JMC or JCC, or (ii) to the best of such counsel's
knowledge constitutes a default under, or results in the termination of, any
material note, bond, mortgage, indenture, deed of trust, license, agreement
or other instrument or obligation of which such counsel has knowledge to
which JCC, JMC or the Shareholders of JCC is a party, except the Investment
Advisory Agreement between Janus Fund and JMC, and except for Investment
Advisory Agreements between JCC and any of its clients who have not consented
and do not consent to the change of control of JCC that results from the
transactions provided for herein, or (iii) violates any order, writ,
injunction or decree of which such counsel has knowledge, applicable to JCC,
JMC or the Shareholders of JCC, or any of their material assets;
(e) The authorized capital stock of JCC consists of 6,000
shares of common stock, $.01 par value per share and the authorized capital
stock of JMC consists of 50,000 shares of Common stock, $0.01 par value per
share; all outstanding shares of each such stock have been duly authorized
and are validly issued, fully paid and non-assessable; and
(f) To the best knowledge of such counsel, the Shareholders of
JCC own the JMC and JCC shares free and clear of any liens or encumbrances
and have full right, power and authority to sell and deliver said shares to
KCSI as contemplated in this Agreement.
(g) To the best knowledge of such counsel, no affiliation
between the Janus Fund and Cerberus Partners, Ltd. or between the Janus Fund
and Taurus Partners, Ltd. exists at the Closing Date which would result in
any transactions by such entities being deemed "joint transactions" violative
of Section 17(d) of the Investment Company Act of 1940 or Rule 17(d)
thereunder.
(h) The Janus Fund Proxy Statement does not contain any
material misstatements or omissions which would be in violation of SEC Rule
14a-9, except that such counsel need express no opinion with respect to
compliance with state securities or Blue Sky laws.
8.07 There shall have been delivered to KCSI an opinion, dated the
Closing Date and addressed to KCSI, of counsel to the Janus Fund to the
effect that the shareholders of such Fund have duly approved an Investment
Advisory Agreement, in the form attached as Exhibit 8.07 hereto, to be
entered into and to become effective immediately following the merger of JMC
and JCC, and upon due execution and delivery of such Agreement by such Fund
and JCC, such Agreement will be in full force and effect in accordance with
its terms.
8.08 The approval of the Janus Fund Board of Directors and
shareholders provided for in paragraph 6.04 shall have been duly obtained.
8.09 KCSI shall not have advised the Shareholders of JCC prior to that
date which shall be one week after the date hereof that KCSI is dissatisfied,
in its sole judgment, with the results of its investigation of JCC and JMC
pursuant to paragraph 6.07.
8.10 On or prior to each of the closings provided for under Article
III, the representations and warranties of the Shareholders of JCC provided
for in paragraph 5.01 remain true and correct at and as of each such date
except for changes contemplated herein.
8.11 All pending or known claims, and all litigation, against JCC, JMC
or the Janus Fund shall have been resolved, or provision for such resolution
made, on a basis which is satisfactory to KCSI.
8.12 Receipt by KCSI of the duly executed escrow agreement referred to
in paragraph 17.01.
8.13 Prior to any purchase by KCSI of shares of JCC after the Closing
Date, JMC shall have merged into JCC in a duly and validly authorized merger
in accordance with the laws of the State of Colorado and any other applicable
laws, and such merger shall have become effective.
8.14 JCC shall have registered in each state in which its rendition of
investment advisory service requires such registration.
8.15 There shall not have been any material revision of the Janus Fund
proxy material as filed with the Securities and Exchange Commission on or
about March 31, 1984, which revision is objected to by KCSI.
8.16 The Board of Directors or Executive Committee of KCSI shall have
approved this Agreement.
ARTICLE IX
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OTHER TRANSFERS OF SHARES; RIGHTS OF FIRST REFUSAL
9.01 If at any time after the Closing Date, any Shareholder other than
Thomas H. Bailey of JCC desires to sell or otherwise dispose of any of his
remaining JCC Shares, he shall first offer the shares he desires to dispose
of to such employee or employees of JCC as might be designated by JCC
pursuant to paragraph 9.10 to be eligible to purchase such JCC Shares or a
portion thereof, and to the other Remaining Shareholders of JCC (other than
KCSI) in writing for thirty days, at a price per share equal to fifteen times
the Net After-Tax Earnings per share of JCC for the fiscal year ended
immediately prior to such sale, except that if such sale occurs before
October 31, 1985 the price shall be $1.6373 per share. Any such employee or
employees designated by JCC shall have a prior right to purchase an amount of
JCC Shares designated by JCC, and any remaining shares may be purchased by
the other Remaining Shareholders of JCC (other than KCSI) in the proportion
that each such other Shareholder's holding in JCC bears to the holdings of
all such other Remaining Shareholders of JCC. If any Shareholder of JCC to
whom an offer is made pursuant to this paragraph 9.01 does not accept the
offer with respect to all the JCC Shares offered to him, the other
Shareholders of JCC to whom an offer was also made shall have the right to
purchase any remaining JCC Shares on such basis as they may agree among
themselves and at the price specified herein, provided such purchase by such
other Shareholders of JCC occurs within thirty days after the offer to such
employee or employees made pursuant to this paragraph 9.01.
9.02 If within thirty days after any JCC Shares are offered pursuant
to paragraph 9.01, any designated employee or employees of JCC or the other
Shareholders of JCC (other than KCSI) have not accepted the offer with
respect to all of the JCC Shares offered, any remaining shares shall be
offered to JCC in writing for 30 days at the price specified in paragraph
9.01.
9.03 If within thirty days after the JCC Shares are offered pursuant
to paragraph 9.02, JCC has not accepted the offer with respect to all the JCC
Shares offered, any remaining shares shall be purchased by KCSI at the price
provided for in paragraph 9.01.
9.04 If, after the Closing Date, Bernard E. Niedermeyer III, Jack R.
Thompson or any employee of JCC who first acquired JCC Shares after the
Closing Date leaves the employ of JCC for any reason, including, without
limitation, death or disability, but not including sick leave or a leave of
absence or sabbatical for a period of up to one year that has been authorized
by the Board of Directors of JCC, the JCC Shares held by such Shareholder
shall be offered first to any designated employee or employees of JCC and the
other Shareholders of JCC, then to JCC, and finally to KCSI, under the
procedures and at the price specified in paragraphs 9.01 through 9.03.
9.05 If, after the Closing Date, Thomas H. Bailey dies or becomes
disabled, or if his employment by JCC is terminated by the Board of Directors
of JCC other than for cause (as hereinafter defined), Mr. Bailey (or his
personal representative if he is deceased or legally incompetent) shall sell,
and KCSI shall purchase all of Mr. Bailey's JCC Shares not theretofore
purchased by KCSI at a price equal to fifteen times the Net After-Tax
Earnings per share of JCC for the fiscal year ended immediately prior to the
date of such death, disability or termination, except that if such date is
before October 31, 1985, the price shall be $1.6373 per share.
9.06 Thomas H. Bailey hereby agrees that he will continue to serve as
the chief executive officer of JCC at least until October 31, 1987. If,
notwithstanding such agreement, Mr. Bailey terminates his employment by JCC
prior to October 31, 1987, or if his employment is terminated by the Board of
Directors of JCC for cause, KCSI is hereby granted an option, which KCSI may
exercise at any time within 120 days following such termination, to purchase
all of Mr. Bailey's JCC Shares at a price equal to fifteen times the Net
After-Tax Earnings per share of JCC for the fiscal year ended immediately
prior to the date of such termination of employment, except that if such date
is before October 31, 1985, the price shall be $1.6373 per share. Such option
may be exercised by written notice to Mr. Bailey within such 120-day period
and upon such exercise Mr. Bailey shall promptly sell and deliver such shares
to KCSI as provided in this paragraph 9.06.
9.07 If, after October 31, 1987, Thomas H. Bailey desires to sell or
otherwise dispose of any of his remaining JCC Shares, he shall notify KCSI
of such desire, stating the number of shares he desires to sell and he shall
thereupon be obligated to sell and KCSI shall be obligated to purchase the
specified shares at a price equal to fifteen times the Net After-Tax Earnings
per share of JCC for the fiscal year ended immediately prior to the date of
such notice.
9.08 For purposes of paragraphs 9.05 and 9.06, "cause" for terminating
the employment of Thomas H. Bailey shall be his failure or refusal to perform
the responsibilities of the chief executive officer of JCC as reasonably
prescribed by the Board of Directors of JCC, and the continuation of such
failure or refusal for 30 days after written notice to him by the Board of
Directors of JCC specifying the nature of such failure. Performance of his
responsibilities in a manner substantially similar to the manner in which Mr.
Bailey has performed those responsibilities prior to the date of this
Agreement shall not constitute "cause" for his termination, nor shall his
absence by reason of illness nor a leave of absence or sabbatical for a
period of up to one year that has been approved by the Board of Directors of
JCC constitute such "cause."
9.09 If Michael Stolper dies, or becomes disabled, or if Thomas H.
Bailey disposes of all of his JCC Shares or if his employment by JCC is
terminated for any reason, the JCC Shares held by Michael Stolper shall be
offered first to any designated employee or employees of JCC and the other
Shareholders of JCC, then to JCC, and finally to KCSI, under the procedures
and at the price provided for in paragraphs 9.01 to 9.03.
9.10 JCC shall be permitted in the discretion of its Board of
Directors after the Closing Date to designate an employee or employees, other
than Thomas H. Bailey, to be eligible to purchase a specified amount of any
JCC Shares offered pursuant to paragraphs 9.01, 9.04 or 9.09. JCC shall also
be permitted, in the discretion of its Board of Directors to sell to its
employees, other than Thomas H. Bailey, any JCC Shares acquired by JCC
pursuant to this Article IX, at a price no less than the price at which it
acquired such shares, on such terms as the Board of Directors of JCC may deem
appropriate. Each such JCC employee so purchasing any JCC Shares shall
thereafter (subject to the provisions of paragraph 9.12) be deemed to be a
Shareholder of JCC, with the same restrictions on transfer of his JCC Shares
and entitled to the same rights and obligations as the Remaining Shareholders
of JCC under the provisions of this Article IX, and shall be required at the
time of purchase to sign a written agreement to that effect.
9.11 During such time as any Remaining Shareholder of JCC holds any
JCC Shares, neither KCSI nor any of the Remaining Shareholders of JCC shall
cause JCC to transfer or otherwise dispose of any JCC Shares held by JCC to
anyone other than KCSI, the Remaining Shareholders of JCC, or JCC's
employees, in accordance with the provisions of this Agreement.
9.12 At such time as any Shareholder of JCC no longer holds any shares
of JCC, he shall cease to be a Shareholder of JCC with the rights and
obligations conferred upon Shareholders of JCC by the provisions of this
Article IX and Article X.
9.13 The closing of any purchase of JCC Shares made pursuant to this
Article IX shall take place as the parties to such sale may agree, within
thirty days after the date of acceptance of an offer to sell, the exercise of
an option to purchase, or the incurring of an obligation to purchase,
pursuant to this Article IX. At each such closing, the selling Shareholders
of JCC shall deliver certificates representing the JCC Shares being sold and
KCSI shall deliver payment for such shares in the manner provided in
paragraph 3.02.
9.14 No purchase by KCSI pursuant to the provisions of this Article IX
shall in any way affect the obligation and right of KCSI to purchase JCC
Shares from the Shareholders of JCC or their permitted purchasers under
paragraphs 9.01 and 9.02 in accordance with the provisions of Article I.
9.15 If after KCSI acquires 80% or more of the JCC Shares, KCSI
determines to sell all of its shares of JCC for cash, stock or other
consideration, the then owners of the JCC Shares not owned by KCSI shall at
KCSI's request, sell their shares of JCC to KCSI or to KCSI's designee at the
price which shall be the greater of $1.6373 per share, fifteen times the Net
After-Tax Earnings per share of JCC for the fiscal year immediately preceding
the year of such sale or the consideration to be received by KCSI in such
transaction, such sale to occur at such time and place and in such manner as
KCSI shall reasonably request.
ARTICLE X
---------
ADVERSE CHANGE IN OWNERSHIP OF KCSI
10.01 If, after the Closing Date but prior to the time that KCSI owns
80% of the JCC Shares, there is an adverse change in ownership of KCSI (as
hereinafter defined), the Remaining Shareholders of JCC other than KCSI shall
have the option in the manner provided in this Article X either:
(a) to purchase from KCSI all JCC Shares acquired by KCSI; or
(b) to require KCSI to purchase from them all the JCC Shares
still owned by them, provided the condition precedent contained in paragraph
8.10 of this Agreement shall be met or waived by KCSI prior to such purchase.
10.02 Any sale of JCC Shares which occurs pursuant to this Article X
shall be at a price per share equal to fifteen times the Net After-Tax
Earnings per share of JCC for the fiscal year ending immediately after the
adverse change in ownership giving rise to such sale, or $1.6373, whichever
is greater.
10.03 If notice is served upon KCSI in accordance with paragraph 10.05
that the holders of a majority of the JCC Shares other than KCSI desire to
purchase shares from KCSI pursuant to paragraph 10.01(a), KCSI shall sell to
the JCC Shareholders, and the JCC Shareholders shall purchase from KCSI, all
of KCSI's JCC Shares on a pro rata basis according to the proportion that
each such purchasing Shareholder's holding in JCC bears to all such
purchasing Shareholders' holdings in JCC. Any JCC Shareholder who does not
purchase from KCSI his pro rata portion of KCSI's JCC Shares in accordance
with this paragraph shall sell all his JCC Shares to the other Shareholders
of JCC other than KCSI and such other Shareholders of JCC shall purchase such
JCC Shares of such JCC Shareholder and of KCSI on the same pro rata basis.
Until KCSI has acquired the JCC Shares to be acquired pursuant to Article I,
KCSI shall not transfer, dispose of, or in any way encumber any JCC Shares
acquired by it in any manner which would prevent it from complying with a
notice served under this paragraph 10.03.
10.04 If notice is served upon KCSI in accordance with paragraph 10.05
that the holders of a majority of the JCC Shares other than KCSI desire to
sell to KCSI in accordance with paragraph 10.01(b), KCSI shall purchase from
the Shareholders of JCC, and each such other Shareholder of JCC shall sell to
KCSI, any and all JCC Shares not owned by KCSI.
10.05 Written notice of a purchase or sale to occur pursuant to
paragraph 10.03 or 10.04 shall have been received by KCSI no more than six
months after the JCC Shareholders are notified by KCSI of the change in
ownership of KCSI. Such notice shall be signed by the holders of a majority
of the JCC Shares held by other than KCSI and shall state the date upon which
the Shareholders of JCC were notified by KCSI of the change in ownership.
10.06 For purposes of this Article X, "adverse change in ownership of
KCSI" shall mean a transfer of 25% or more of KCSI's voting stock outstanding
at the time of such transfer to one person, or to an identifiable group of
persons acting in concert, not presently controlling KCSI, which in the
reasonable judgment of the holders of a majority of the JCC Shares held at
that time by other than KCSI will have an adverse effect upon JCC or its
operations.
10.07 The closing of any purchase or sale of JCC Shares to occur
pursuant to this Article X shall take place as the parties to such purchase
or sale may agree, within 30 days of the date upon which KCSI receives notice
of the purchase or sale in accordance with paragraph 10.05, or within 30 days
after the date upon which the applicable Net After-Tax Earnings of JCC shall
be determined, whichever is later. At any such closing, the Remaining
Shareholders of JCC shall deliver certificates representing the JCC Shares
being sold and KCSI shall deliver payment for such shares, or vice versa as
the case may be, in the manner provided in paragraph 3.02.
ARTICLE XI
----------
CONTINUITY OF MANAGEMENT
11.01 The parties hereto have agreed that the present management of JCC
shall continue to operate the business of JCC, including the business of JMC
prior to the merger of JMC into JCC, of providing investment advice and
management services to Janus Fund, as hereinafter provided. So long as Thomas
H. Bailey is a holder of at least 5% of the shares of JCC and continues to be
employed as President of JCC, (i) he shall continue to establish and
implement policy with respect to the investment advisory and portfolio
management activity of JCC, (ii) without his consent, KCSI shall not cause
JCC to implement, or impose on the management of JCC any policies, conditions
or restrictions regarding the policy referred to in (i) other than those
which were in place at November 15, 1983, and (iii) any changes in management
philosophy, style or approach influencing the management of JCC with respect
to the policy referred to in (i) shall be mutually agreed to by him and by
KCSI. In furtherance of this objective, so long as Thomas H. Bailey is a
holder of at least 5% of the shares of JCC and continues to be employed as
President of JCC, KCSI agrees to vote its JCC Shares to elect directors of
JCC, at least a majority of whom shall be selected by Thomas H. Bailey,
subject to KCSI's approval, which approval shall not be unreasonably
withheld. Immediately following the merger provided for in paragraph 1.07 the
Board of Directors of JCC shall consist of the persons whose names appear on
Exhibit 11.01 attached hereto. Each of the preceding provisions set forth in
this paragraph is expressly conditioned, however, upon such management and
Thomas H. Bailey continuing to perform their respective duties with
reasonable care and in a manner which is consistent with past practice and
not contrary to the best interests of JCC.
ARTICLE XII
-----------
DISTRIBUTION OF DIVIDENDS
12.01 So long as there are shareholders of JCC other than KCSI, KCSI
shall cause JCC, within four months after the end of each fiscal year of JCC,
to declare and distribute dividends to the shareholders of JCC (including
KCSI) in an amount equal to 90% of the Net After-Tax Earnings of JCC for each
such fiscal year. The record date for such dividends for the fiscal years
ended October 31, 1985, 1986, and 1987 shall be immediately prior to the date
that the purchases of JCC Shares by KCSI pursuant to paragraphs 1.03, 1.04
and 1.05, respectively, are made.
ARTICLE XIII
CONFIDENTIAL TREATMENT OF INFORMATION
13.01 Until the Closing Date, KCSI shall hold in strict confidence all
confidential information of whatever type or form which it obtains concerning
JCC, JMC or Janus Fund, and shall not use or disclose such information to
anyone other than such officers, employees and representatives of JCC and
KCSI as may be necessary or advisable to reasonably fulfill the purposes of
this Agreement, except as such information was public knowledge at the time
it was obtained, or became public knowledge thereafter other than by a breach
of this provision by KCSI, and except as may be necessary or advisable in
connection with the application for approvals or rulings from, or filing
reports or tax returns with, such governmental authorities as KCSI deems
necessary or advisable.
13.02 If for any reason the purchase of shares of JMC and JCC provided
for in paragraph 1.01 does not occur on or before June 30, 1984, or such
later date to which the Closing Date may be extended pursuant to paragraph
3.01, or if before KCSI acquires the JCC Shares to be acquired under Article
I, the Shareholders of JCC elect to repurchase the JCC Shares pursuant to
Article X, KCSI shall cause all confidential information concerning JCC, JMC
or Janus Fund of whatever type or form obtained in connection with the
negotiation and performance of this Agreement, which information was not
public knowledge at the time it was obtained by KCSI, or became public
knowledge thereafter other than by a breach of this provision by KCSI, to
continue being treated confidentially, as provided in paragraph 13.01, and to
the extent practicable, shall cause all copies of documents containing such
information to be returned to JCC, and KCSI shall not use, or knowingly
permit others to use, any such information in any manner.
ARTICLE XIV
-----------
COVENANT OF NON-SOLICITATION
14.01 Simultaneously with the purchase of shares of JMC and JCC by KCSI
provided for in paragraph 1.01, Thomas H. Bailey shall execute and deliver to
KCSI a covenant of non-solicitation, by which shall be prohibited, for a
period of one year from the date of his notice of termination from the
employment of JCC, from soliciting any client who has an account being
managed or advised by JCC at the date of his notice of termination, other
than the Taurus Partnership and the Cerberus Partnership; provided that, if
such notice of termination is given before October 31, 1987 such prohibition
shall be for a period of three years or until that date which shall be 1 year
after October 31, 1987, whichever is sooner. Such covenant of nonsolicitation
shall not apply in the event that Mr. Bailey's employment by JCC is
terminated concurrently with or following a notice to KCSI pursuant to
paragraph 10.05 hereof of a purchase of KCSI's JCC Shares pursuant to
paragraph 10.01(a).
ARTICLE XV
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NO UNFAIR BURDEN ON FUND
15.01 KCSI and the Shareholders of JCC shall not impose, and shall not
cause or permit JCC to impose, any unfair burden upon Janus Fund as a result
of the transactions contemplated herein, or any expressed or implied terms,
conditions, or understandings applicable thereto, and specifically shall not
cause or permit any arrangement, during the two-year period after the Closing
Date, whereby JCC or any interested person of JCC (as that term is defined in
the Investment Company Act of 1940) receives or is entitled to receive any
compensation directly or indirectly
(i) from any person in connection with the purchase or sale of
securities or other property to, from, or on behalf of
Janus Fund, other than bona fide ordinary compensation as
principal underwriter for such company; or
(ii) from Janus Fund or its security holders for other than
bona fide investment advisory or other services;
ARTICLE XVI
-----------
TERMINATION
16.01 This Agreement may be terminated at or at any time prior to the
Closing Date as follows: (i) by mutual consent of the Shareholders of JCC
and.KCSI; (ii) by KCSI or the Shareholders of JCC, respectively, if, upon the
Closing Date, any condition precedent to closing set forth herein for the
benefit of KCSI or the Shareholders of JCC, respectively, shall not have been
timely met; (iii) by KCSI or the Shareholders of JCC if the Closing shall not
have occurred on or before June 30, 1984, or such later date as may have been
agreed upon by KCSI and the Shareholders of JCC; or (iv) by KCSI or the
Shareholders of JCC, respectively, if a material representation or warranty
made herein for the benefit of KCSI or the Shareholders of JCC, respectively,
or in any certificate, schedule or document furnished to KCSI or the
Shareholders of JCC, respectively, pursuant to this Agreement is untrue in
any material respect, or KCSI or the Shareholders of JCC, respectively, shall
have defaulted in material respect in the performance of any material
obligations of this Agreement.
16.02 Upon termination of this Agreement pursuant to paragraph 16.01,
no party shall have any liability or obligation hereunder (except to observe
the confidentiality of information provisions hereof), and each party shall
bear the expenses incurred by it.
ARTICLE XVII
------------
ESCROW AND INDEMNITY
17.01 William C. Mangus agrees to deposit in escrow with Investors
Fiduciary Trust Company, 1006 Baltimore Avenue, Kansas City, Missouri, the
sum of $250,000 to secure his obligations, if any, which may arise with
respect to the litigation referred to in paragraph 6.10, such escrow to be
pursuant to a written escrow agreement acceptable to William C. Mangus and
KCSI which is executed and delivered at the Closing Date.
17.02 The Shareholders of JCC hereby indemnify and hold harmless KCSI
from and against any and all liability, cost, loss and expense of any kind
whatsoever, including but not limited to liability for any taxes, incurred by
KCSI which it would not have incurred had KCSI not become a shareholder of
JMC or JCC prior to the merger of JMC into JCC. The provisions of this
paragraph 17.02 shall survive execution, delivery and performance of this
Stock Purchase Agreement.
17.03 JCC shall recommend to the Janus Fund that Janus Fund undertake
to make offers of rescission to all persons who purchased shares of the Janus
Fund prior to the date of this Agreement pursuant to offers made in states
where such shares were not registered for sale and the Closing shall not
occur prior to substantial completion of such rescission offers and
expiration of applicable waiting periods with respect thereto.
ARTICLE XVIII
-------------
MISCELLANEOUS
18.01 All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be deemed to have been fully
given if delivered or mailed, first class, postage prepaid, to the following
addresses:
(a) If to KCSI:
Kansas City Southern Industries, Inc.
114 West Eleventh Street
Kansas City, Missouri 64105
cc: John F. Marvin, Esq.
Watson, Ess, Marshall & Enggas
15th Floor, 1006 Grand Avenue
Kansas City, Missouri 64106
(b) If to the Shareholders of JCC:
Janus Capital Corporation
100 Fillmore Street, Suite 300
Denver, Colorado 80206
cc: Lester R. Woodward, Esq.
Davis, Graham & Stubbs
2600 Colorado National Building
Post Office Box 185
Denver, Colorado 80201
or to any other address or addresses as may hereafter be specified by notice
given by any of the above for itself to the others.
18.02 Each party shall bear its own expenses and costs, including the
fees of any attorney retained by it, incurred in connection with the
preparation of this Agreement and the consummation of the transactions
contemplated hereby.
18.03 This Agreement shall not be assignable by any of the parties
hereto. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs and successors. Nothing in this
Agreement is intended to confer, expressly or by implication, upon any person
who is not a party or who does not become a party as permitted herein any
rights or remedies under or by reason of this Agreement.
18.04 This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Colorado.
18.05 This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original.
18.06 KCSI and the Shareholders of JCC agree that the content and
timing of press releases and other announcements with respect to this
Agreement shall be subject to mutual agreement, provided, however, that such
agreement shall not prohibit either party from furnishing any information to
any governmental, regulatory or administrative agency or authority or from
making any other disclosure required by applicable law.
18.07 This Agreement, any exhibits hereto and the documents delivered
pursuant hereto or referred to herein contain the entire Agreement among the
parties with respect to the transactions contemplated among them and, except
as otherwise provided, supercede all previous negotiations, commitments and
writings.
18.08 No alteration, modification or change of this Agreement shall be
valid unless made in writing executed by the parties hereto. No failure or
delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties)
shall operate as a waiver of any right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or
other default. No single or partial exercise of any right, power or privilege
shall preclude the further or full exercise thereof.
18.09 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Landon H. Rowland
--------------------------------
LANDON H. ROWLAND, PRESIDENT
/s/ Thomas H. Bailey
-----------------------------------
THOMAS H. BAILEY
/s/ William C. Mangus
-----------------------------------
WILLIAM C. MANGUS
/s/ Bernard E. Niedermeyer III
-----------------------------------
BERNARD E. NIEDERMEYER III
/s/ Michael Stolper
-----------------------------------
MICHAEL STOLPER
/s/ Jack R. Thompson
-----------------------------------
JACK R. THOMPSON
AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------
THIS AMENDMENT to Stock Purchase Agreement, dated as of January
4, 1985, by and among KANSAS CITY SOUTHERN INDUSTRIES, INC., a Delaware
corporation ("KCSI"), and THOMAS H. BAILEY, BERNARD E. NIEDERMEYER III,
MICHAEL STOLPER, and JACK R. THOMPSON, individuals (the "Selling Shareholders
of JCC").
WHEREAS, on April 13, 1984, the parties hereto (with the addition
of WILLIAM C. MANGUS) entered into a Stock Purchase Agreement (the
"Agreement") whereby, under the terms and conditions thereof, KCSI agreed to
purchase certain stock interests in Janus Capital Corporation (the "JCC
Shares");
WHEREAS, on January 4, 1985, the parties hereto entered into a
certain letter agreement (the "Letter Agreement") modifying the Agreement to
permit KCSI to acquire, as of December 31, 1984, additional JCC Shares from
the Selling Shareholders of JCC, such that KCSI holds 80% of the outstanding
capital stock of Janus Capital; and
WHEREAS, the parties desire to amend the Agreement as set forth
below in order to implement the terms of the Letter Agreement.
NOW, THEREFORE, in exchange for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Paragraphs 1.03 through 1.05 of the Agreement are hereby
deleted in their entirety, and the following are substituted in their place:
1.03 As of December 31, 1984, KCSI shall
purchase and each of the Shareholders of JCC other
than William C. Mangus (the "Remaining Shareholders
of JCC") shall sell, convey, assign, transfer and
deliver to KCSI, free and clear of all liens and
encumbrances, a total of 1,283,680 shares of JCC, in
the proportions specified below:
NAME OF SELLER NO. OF SHARES SOLD
-------------- ------------------
Thomas H. Bailey 1,159,933
Bernard E. Niedermeyer III 53,658
Michael Stolper 70,089
Jack R. Thompson -0-
1.04 Payment for the JCC Shares purchased by KCSI
pursuant to paragraph 1.03 shall be made on an
installment basis, as follows: As soon after each of
December 31, 1985, 1986 and 1987 as the amount of Net
After-Tax Earnings of JCC for each of the fiscal
years then ended has been determined as provided in
paragraph 2.04, but not later than 30 days after the
date of each such determination, KCSI shall deliver
to each of the Selling Shareholders of JCC a
certified or bank check in an amount equal to the sum
of (i) a principal payment in the amount of fifteen
times the Net After-Tax Earnings per share of JCC
times a number equal to one-third the number of
shares sold by each such Shareholder of JCC in
accordance with paragraph 1.03, and (ii) an amount
equal to interest computed at a rate of 14.75% per
annum from the later of January 1, 1985 or the date
of the last previous installment payment on the total
principal amount of the obligation outstanding at the
date of such payment (calculated by adding the
principal amount due at such installment as
calculated above, plus the principal amount that
would be due in future installments if the Net
After-Tax Earnings of JCC is unchanged at the time
that future principal payments are calculated).
The interest payable with respect to each
principal payment shall be based upon the actual
amount of such principal payment, although with
respect to the second and third installments, the
interest payable before the principal payment is
calculated can only be estimated as provided above.
At the time of the second and third installment
payments provided for hereby, an adjustment shall be
made for any overpayment or underpayment of interest
in the previous year or years with respect to that
principal payment, which has occurred as a result of
the Net After-Tax Earnings of JCC for the then
current year not being the same as for the previous
year, as was assumed in the previous year's interest
calculation."
2. Paragraph 3.03 of the Agreement is hereby deleted in its
entirety.
3. As soon as practicable after the date hereof, the Selling
Shareholders of JCC shall deliver to KCSI certificates representing the JCC
Shares sold pursuant to paragraph 1.03 of the Agreement, as revised.
4. The Selling Shareholders of JCC hereby represent and
warrant to KCSI the matters contained in paragraph 5.01 of the Agreement as
if such representations and warranties were herein restated in their entirety
with respect to the sale of JCC Shares provided for in paragraph 1.03 of the
Agreement, as revised.
5. For purposes of the sale of JCC Shares pursuant to
paragraph 1.03, as revised, KCSI and each of the Selling JCC Shareholders
hereby waives any right of first refusal it or he may have pursuant to
paragraph 9.01 of the Agreement.
6. Paragraph 9.15 of the Agreement is hereby deleted in its
entirety, and the following is substituted in its place:
"9.15 If after March 1, 1988, KCSI determines
to sell all of its shares of JCC for cash, stock or
other consideration, the then owners of the JCC
Shares not owned by KCSI shall at KCSI's request,
sell their shares of JCC to KCSI or to KCSI's
designee at the price which shall be the greater of
$1.6373 per share, fifteen times the Net After-Tax
Earnings per share of JCC for the fiscal year
immediately preceding the year of such sale or the
consideration to be received by KCSI in such
transaction, such sale to occur at such time and
place and in such manner as KCSI shall reasonably
request."
7. Paragraph 10.01 of the Agreement is hereby deleted in its
entirety, and the following is substituted in its place:
"10.01 If, after the Closing Date but prior to
March 1, 1988, there is an adverse change in
ownership of KCSI (as hereinafter defined), the
Remaining Shareholders of JCC other than KCSI shall
have the option in the manner provided in this
Article X either:
(a) to purchase from KCSI all JCC Shares
acquired by KCSI; or
(b) to require KCSI to purchase from them all
the JCC Shares still owned by them, provided the
condition precedent contained in paragraph 8.10 of
this Agreement shall be met or waived by KCSI prior
to such purchase."
8. The second sentence of paragraph 12.01 of the Agreement is
hereby deleted in its entirety.
9. All terms and provisions of the Agreement not hereby
amended shall remain in full force and effect.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Landon H. Rowland
-----------------------------------
LANDON H. ROWLAND, President
/s/ Thomas H. Bailey
----------------------------------------
THOMAS H. BAILEY
/s/ Bernard E. Niedermeyer III
----------------------------------------
BERNARD E. NIEDERMEYER III
/s/ Michael Stolper
----------------------------------------
MICHAEL STOLPER
/s/ Jack R. Thompson
----------------------------------------
JACK R. THOMPSON
SECOND AMENDMENT TO
STOCK PURCHASE AGREEMENT
------------------------
THIS SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT ("SECOND AMENDMENT")
is executed this 18th day of March, 1988, by and among KANSAS CITY SOUTHERN
INDUSTRIES, INC., a Delaware corporation ("KCSI"), THOMAS H. BAILEY, MICHAEL
STOLPER, and JACK R. THOMPSON, individually.
RECITALS:
--------
A. The undersigned (with the addition of WILLIAM C. MANGUS and
BERNARD E. NIEDERMEYER III) are all parties to that certain Stock Purchase
Agreement, dated April 13, 1984, as amended by that certain First Amendment
to Stock Purchase Agreement, dated January 4, 1985 (the "STOCK PURCHASE
AGREEMENT");
B. The parties now desire to amend the Stock Purchase Agreement, as
provided for herein in order to more clearly set forth their respective
rights, duties, and obligations; and
C. The parties desire to set forth such amendments in writing.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to hereby
amend the Stock Purchase Agreement as follows:
1. The parties hereby consent and agree to the deletion of Paragraph
9.07 from Article IX of the Stock Purchase Agreement, and the addition of the
following Paragraph 9.07 to Article IX of the Stock Purchase Agreement in
full substitution therefor:
9.07. If Thomas H. Bailey desires to sell or
otherwise dispose of his remaining JCC Shares, he
shall notify KCSI of such desire, stating the number
of Shares he desires to sell and he shall thereupon
be obligated to sell and KCSI shall be obligated to
purchase the specified Shares at a price equal to the
greater of:
(a) 15 times the Net After-Tax Earnings per
Share of JCC for the fiscal year ended December 31,
1987; or
(b) 15 times the Net After-Tax Earnings per
Share of JCC for the fiscal year ended immediately
prior to the date of such notice.
2. The parties hereby consent and agree to the deletion of Paragraph
9.09 from Article IX of the Stock Purchase Agreement and the addition of the
following Paragraph 9.09 to Article IX of the Stock Purchase Agreement in
full substitution therefor:
9.09. If Michael Stolper dies, or become
disabled, or if Thomas H. Bailey disposes of all of
his JCC Shares, or if his employment by JCC is
terminated for any reason, Michael Stolper and Jack
R. Thompson shall thereupon be obligated to sell, and
KCSI shall be obligated to purchase all of the JCC
Shares owned by Michael Stolper and Jack R. Thompson
at a price equal to the greater of:
(a) 15 times the Net After-Tax Earnings per
Share of JCC for the fiscal year ended December 31,
1987; or
(b) 15 times the Net After-Tax Earnings per
Share of JCC for the fiscal year ended immediately
prior to the date of such death, disability,
disposition or termination.
3. The parties hereby consent and agree to delete the word "Adverse"
from the caption of Article X of the Stock Purchase Agreement, and hereby
further consent and agree to the deletion of Paragraph 10.01 from Article X
of the Stock Purchase Agreement and the addition of the following Paragraph
10.01 to Article X of the Stock Purchase Agreement in full substitution
therefor:
10.01. If there is a Change in Ownership of KCSI (as
hereinafter defined), the Remaining Shareholders of JCC, other
than KCSI, shall have the option in the manner provided in this
Article X either:
(a) to purchase from KCSI all JCC Shares
acquired by KCSI; or
(b) to require KCSI to purchase from them all
the JCC Shares still owned by them, provided the
condition precedent contained in Paragraph 8.10 of
this Agreement shall be met or waived by KCSI prior
to such purchase.
4. The parties hereby consent and agree to the deletion of Paragraph
10.02 from Article X of the Stock Purchase Agreement and the addition of the
following Paragraph 10.02 to Article X of the Stock Purchase Agreement in
full substitution therefor:
10.02. Any sale of JCC Shares which occurs pursuant to
this Article X shall be at a price per Share equal to:
(a) 15 times the Net After-Tax Earnings per
Share of JCC for the fiscal year ending immediately
after the Change in Ownership giving rise to such
sale; or
(b) as otherwise negotiated between the
parties.
5. The parties hereby consent and agree to the deletion of Paragraph
10.06 from Article X of the Stock Purchase Agreement and the addition of the
following Paragraph 10.06 to Article X of the Stock Purchase Agreement in
full substitution therefor:
10.06. For purposes of this Article X and elsewhere in
this Agreement, the term "CHANGE IN OWNERSHIP" shall mean the
earlier to occur of the following:
(a) less than 75% of the members of the Board
of Directors of KCSI shall be individuals who were
members of the Board on the date of this Amendment or
individuals whose election, or nomination for
election by KCSI's stockholders, was approved by a
vote of at least 75% of the members of the Board then
still in office who were members of the Board on the
date of this Amendment; or
(b) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the "EXCHANGE ACT")) shall have
become, without the prior approval of at least 75% of
the members of the Board of Directors of KCSI then
still in office who were members of such Board on the
date of this Amendment, the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of
securities of KCSI representing 25% or more
(calculated in accordance with Rule 13d-3) of the
combined voting power of KCSI's then outstanding
voting securities, and such person shall have filed a
proxy statement, or tender offer materials, or any
other statement or schedule with the Securities
Exchange Commission, indicating an intention to
acquire control of KCSI.
6. The parties hereby consent and agree to the addition of the
following Paragraph 12.02 to Article XII of the Stock Purchase Agreement.
12.02. Notwithstanding anything to the contrary in
Paragraph 12.01 of this Agreement, in the event that the
Shareholders of JCC, other than KCSI, exercise any provision of
this Agreement whereunder such persons' JCC Shares are acquired
by JCC or KCSI, KCSI shall cause JCC to distribute dividends to
the Shareholders of JCC, other than KCSI, in accordance with
Paragraph 12.01 of this Agreement, prorated to the date of the
acquisition of such persons' JCC's Shares (using the prior year's
dividend rate).
7. The parties hereby consent and agree to the deletion of Article
XIV from the Stock Purchase Agreement and the addition of the following
Article XIV to the Stock Purchase Agreement in full substitution therefor:
ARTICLE XIV
-----------
COMPENSATION UPON TERMINATION
-----------------------------
14.01. The parties hereto agree that if the employment by
JCC of those persons listed in Paragraph 14.02, or any of them,
is terminated for any reason, such terminated employee shall
receive from JCC and/or by KCSI (KCSI hereby guaranteeing any
obligation of JCC) a payment equal to the amounts as set forth in
Paragraph 14.02 as of the date he received notice of his
termination. Such payment shall be made in a lump sum not later
than thirty (30) days after his receipt of notice of termination.
14.02. If any person listed in this Paragraph 14.02 is
terminated as provided in Paragraph 14.01, he shall be
compensated as follows:
(a) if Thomas H. Bailey, Thomas F. Marsico,
James P. Craig, III, Jack R. Thompson, or Michael E.
McGoldrick is such terminated employee, he shall
receive payment equal to 100% of his prior year's
current and deferred compensation, including salary,
bonuses and profit sharing contributions.
(b) if Susan R. Hughes or Kathleen A. Burns
is such terminated employee, she shall receive
payment equal to 50% of her prior year's current and
deferred compensation, including salary, bonuses and
profit sharing contributions.
(c) if Warren B. Lammert or Helen Y. Hayes is
such terminated employee, he or she shall receive
payment equal to 25% of his or her prior year's
current and deferred compensation, including salary,
bonuses and profit sharing contributions.
14.03. Notwithstanding Paragraphs 14.01 and 14.02, the
payments provided for in such Paragraphs 14.01 and 14.02 shall
only be made on the event of the following:
(a) a Change in Ownership;
(b) termination occurs within one (1) year
from the date of the Change in Ownership; and
(c) Thomas H. Bailey does not terminate such
person.
14.04. The Covenant of Non-Solicitation dated June 14,
1984, executed by Thomas H. Bailey, attached hereto as Exhibit A,
shall remain in full force and effect in accordance with its
terms, except that the provison in the second paragraph thereof
shall be deleted, as noted in Exhibit A.
8. The parties hereby consent and agree to the addition of the
following Paragraphs 18.10 and 18.11 to Article XVIII of the Stock Purchase
Agreement:
18.10. On or before the 10th day following any Change of
Ownership (as defined in Paragraph 10.06 of the Agreement), KCSI
shall deliver to Thomas H. Bailey as representative of the
Remaining Shareholders of JCC, other than KCSI, a clean
irrevocable Letter of Credit (in form and substance acceptable to
Thomas H. Bailey) drawn on a financial institution acceptable to
Thomas H. Bailey in the amount of 110% of the greatest of the
total amounts which would be due under this Agreement to Thomas
H. Bailey, any employee of JCC, and/or the Remaining Shareholders
of JCC, other than KCSI, if the provisions of this Agreement were
exercised by such persons, as applicable, in order to secure
payment to such persons under the applicable provisions of this
Agreement. Such Letter of Credit shall be maintained by KCSI at
its sole cost and expense for a period ending on the earlier to
occur of the following:
(a) the date that is one (1) year from the
date such Letter of Credit is delivered to Thomas H.
Bailey and is accepted by him in writing, which
acceptance will not be unreasonably withheld;
(b) the date that such Letter of Credit is
drawn; or
(c) the date that all payments due to Thomas
H. Bailey, those employees of JCC entitled to
payments, and all Remaining Shareholders of JCC,
other than KCSI, have been made in full under any
applicable provisions of this Agreement.
18.11. In the event that the Letter of Credit provided for
in Paragraph 18.10 of this Agreement is not timely delivered, and
subsequently KCSI defaults in its obligations to Thomas H.
Bailey, employees of JCC entitled to payments under this
Agreement, and the Remaining Shareholders of JCC, other than
KCSI, or any of them, KCSI shall be liable for and shall pay to
such persons as liquidated damages an amount equal to two (2)
times the amount determined to be owing to such persons under the
applicable provisions of this Agreement. The parties hereby
acknowledge that in the event of such default by KCSI, Thomas H.
Bailey, the employees of JCC, and the remaining Shareholders of
JCC, other than KCSI, will suffer substantial damages, the
amount of which cannot be reasonably ascertained. Therefore, the
parties agree that the amount of liquidated damages set forth
above is fair and equitable.
9. Except as expressly amended herein, the Stock Purchase Agreement
shall remain in full force and effect.
10. If any conflict shall arise between the terms and conditions of
this Second Amendment and the terms and conditions of the Stock Purchase
Agreement, this Second Amendment shall govern with respect to the matters
described herein.
IN WITNESS WHEREOF, the parties have executed this Second Amendment on
the date and year first above written.
"KCSI"
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Landon H. Rowland
-----------------------------------
LANDON H. ROWLAND, PRESIDENT
/s/ Thomas H. Bailey
-----------------------------------
THOMAS H. BAILEY
/s/ Bernard E. Niedermeyer III
-----------------------------------
BERNARD E. NIEDERMEYER III
/s/ Michael Stolper
-----------------------------------
MICHAEL STOLPER
/s/ Jack R. Thompson
-----------------------------------
JACK R. THOMPSON
THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------------
This Third Amendment to Stock Purchase Agreement ("Third Amendment") is
executed this 5th day of February 1990, by and among Kansas City Southern
Industries, Inc., a Delaware corporation ("KCSI"), Thomas H. Bailey, Michael
Stolper and Jack R. Thompson, individually.
RECITALS:
--------
A. The undersigned (with the addition of William C. Mangus and
Bernard E. Niedermeyer III) are all parties to that certain Stock Purchase
Agreement, dated April 13, 1984, as amended by that certain First Amendment
to Stock Purchase Agreement, dated January 4, 1985 and that certain Second
Amendment to Stock Purchase Agreement, dated March 18, 1988 (the "Stock
Purchase Agreement");
B. The parties now desire to amend further the Stock Purchase
Agreement, as provided for herein in order to more clearly set forth their
respective rights, duties and obligations.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree to hereby amend the Stock
Purchase Agreement as follows:
1. The parties hereby consent and agree to the deletion of Paragraph
9.15 from Article IX of the Stock Purchase Agreement, and the addition of the
following paragraph 9.15 to Article IX of the Stock Purchase Agreement in
full substitution therefor:
9.15 If KCSI determines to sell all of its shares of JCC for
cash, stock or other consideration, the then owners of the JCC
Shares not owned by KCSI shall at KCSI's request, sell their
shares of JCC to KCSI or to KCSI's designee at the price which
shall be the greater of the following:
(a) $1.6373 per share; or
(b) Fifteen times the Net After-Tax Earnings per Share of
JCC for the fiscal year ended December 31, 1987; or
(c) Fifteen times the Net After-Tax Earnings per Share of
JCC for the fiscal year ended immediately prior to the
date of such sale; or
(d) The per share consideration to be received by KCSI in
such transaction.
Such sale shall occur at such time and place and in such manner
as KCSI shall reasonably request.
2. Except as expressly amended herein, the Stock Purchase Agreement
shall remain in full force and effect.
3. If any conflict shall arise between the terms and conditions of
this Third Amendment and the terms and conditions of the Stock Purchase
Agreement, this Third Amendment shall govern with respect to the matters
described herein.
IN WITNESS WHEREOF, the parties have executed this Third Amendment on
the date first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Landon H. Rowland
--------------------------------
LANDON H. ROWLAND, PRESIDENT
/s/ Thomas H. Bailey
-----------------------------------
THOMAS H. BAILEY
/s/ Michael Stolper
-----------------------------------
MICHAEL STOLPER
/s/ Jack R. Thompson
-----------------------------------
JACK R. THOMPSON
FOURTH AMENDMENT TO STOCK PURCHASE AGREEMENT
This Fourth Amendment to Stock Purchase Agreement ("Fourth Amendment")
is executed as of this 1st day of January, 1991, by and among Kansas City
Southern Industries, Inc., a Delaware corporation ("KCSI"), Thomas H. Bailey,
Michael Stolper and Jack R. Thompson, individually.
RECITALS
A. The undersigned (with the addition of William C. Mangus and
Bernard E. Niedermeyer III) are all parties to that certain Stock Purchase
Agreement, dated April 13, 1984, as amended by that certain First Amendment
to Stock Purchase Agreement, dated January 4, 1985, that certain Second
Amendment to Stock Purchase Agreement, dated March 18, 1988, and that certain
Third Amendment to Stock Purchase Agreement, dated February 5, 1990
(collectively, "Stock Purchase Agreement");
B. The parties now desire to further amend the Stock Purchase
Agreement, as provided for herein in order to more clearly set forth their
respective rights, duties and obligations.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree to
amend the Stock Purchase Agreement as follows:
1. The parties hereby consent and agree to the addition of the
following paragraph 2.05 to Article II of the Stock Purchase Agreement:
2.05 For the purposes of determining for any period the Net
After-Tax Earnings of JCC for all purposes under this Agreement
other than the distribution of dividends pursuant to paragraph
12.01, the Net After-Tax Earnings of JCC as otherwise determined
shall be adjusted by adding back any amounts which were deducted
from the Net After-Tax Earnings of JCC and which are attributable
to any payments or accruals made for such period for Dividend
Bonuses, Termination Bonuses, Change of Control Bonuses or
Disability Bonuses pursuant to the section entitled "Additional
Incentive Compensation" contained in the Employment Agreements
dated as of January 1, 1991 between JCC and Messrs. Thomas F.
Marsico, James P. Craig III and Jack R. Thompson (the "Employment
Agreements").
2. The parties hereby consent and agree to the revision of paragraph
12.01 to Article XII of the Stock Purchase Agreement which shall read in its
entirety as follows:
12.01 So long as there are shareholders of JCC other than KCSI,
KCSI shall cause JCC, within four (4) months after the end of
each fiscal year of JCC, to declare and distribute dividends to
the shareholders of JCC (including KCSI) in an amount equal to
ninety percent (90%) of the Net After-Tax Earnings of JCC for
each such fiscal year. For the purpose of computing the amount of
dividends to be paid to JCC shareholders for each year, all
outstanding Share Equivalents granted to employees entitled to a
Dividend Bonus for such year pursuant to the Employment
Agreements, shall be regarded as if such Share Equivalents were
outstanding shares of stock of JCC entitled to receive dividends
at the same rate as such stock, thereby reducing proportionately
the amount of such dividends payable to JCC shareholders with
respect to JCC stock. For purposes of this Section 12.01,
notwithstanding the provisions of Section 2.05, Net After-Tax
Earnings of JCC for each such year shall include a reduction for
any accruals or payments made for such year with respect to any
Termination Bonus, Change in Control Bonus or Disability Bonus
pursuant to the Employment Agreements.
3. Section 14.02 (contained in the Second Amendment to Stock
Purchase Agreement) is hereby amended by deleting therefrom the names "Thomas
F. Marsico, James P. Craig III and Jack R. Thompson," to avoid a duplication
of benefits to such persons.
4. If any conflict shall arise between the terms and conditions of
this Fourth Amendment and the terms and conditions of the Stock Purchase
Agreement, the Fourth Amendment shall govern with respect to the matters
described herein.
5. Except as expressly amended herein, the Stock Purchase Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as
of the date first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Landon H. Rowland
-------------------------------
LANDON H. ROWLAND, PRESIDENT
/s/ Thomas H. Bailey
-------------------------------
THOMAS H. BAILEY
/s/ Michael Stopler
-------------------------------
MICHAEL STOLPER
/s/ Jack R. Thompson
-------------------------------
JACK R. THOMPSON
STILWELL FINANCIAL, INC.
1998 AMENDED AND RESTATED LONG TERM INCENTIVE STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF ___________, 1999)
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TABLE OF CONTENTS
ARTICLE PAGE
1. Amendment and Restatement, Effective Date, Objectives
and Duration 1
2. Definitions 1
3. Administration 8
4. Shares Subject to the Plan and Maximum Awards 10
5. Eligibility and General Conditions of Awards 11
6. Stock Options 15
7. Stock Appreciation Rights and Limited Stock Appreciation
Rights 18
8. Restricted Shares 19
9. Performance Units and Performance Shares 20
10. Bonus Shares 21
11. Beneficiary Designation 21
12. Deferrals 21
13. Rights of Employees/Directors/Consultants 22
14. Change of Control 22
15. Amendment, Modification, and Termination 23
16. Withholding 24
17. Successors 25
18. Additional Provisions 25
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STILWELL FINANCIAL, INC.
1998 LONG TERM INCENTIVE STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF AUGUST 11, 1999)
ARTICLE 1. HISTORY, EFFECTIVE DATE, OBJECTIVES AND DURATION
1.1 HISTORY. Stilwell Financial, Inc., a Delaware corporation
(the "Company"), has established the Stilwell Financial, Inc. 1998 Long Term
Incentive Stock Plan, as set forth herein, and as the same may be amended
from time to time (the "Plan"). The Plan was originally adopted by the Board
of Directors of the Company (the "Board") and approved by the sole
stockholder of the Company, Kansas City Southern Industries, Inc. ("KCSI")
and by the stockholders of KCSI on July 15, 1998, to be effective as of June
1, 1998 (the "Effective Date"). Effective as of __________, the Board
amended Sections 2.14 and 15.1 of the Plan, renamed the Plan and restated the
Plan, as so amended, as set forth herein.
1.2 OBJECTIVES OF THE PLAN. The Plan is intended to allow
employees, directors and consultants of the Company and its Subsidiaries to
acquire or increase equity ownership in the Company, thereby strengthening
their commitment to the success of the Company and stimulating their efforts
on behalf of the Company, and to assist the Company and its Subsidiaries in
attracting new employees, directors and consultants and retaining existing
employees, directors and consultants. The Plan also is intended to optimize
the profitability and growth of the Company through incentives which are
consistent with the Company's goals; to provide employees, directors and
consultants with an incentive for excellence in individual performance; and
to promote teamwork among employees, directors and consultants.
1.3 DURATION OF THE PLAN. The Plan shall commence on the
Effective Date and shall remain in effect, subject to the right of the Board
to amend or terminate the Plan at any time pursuant to Article 15 hereof,
until all Shares subject to it shall have been purchased or acquired
according to the Plan's provisions. However, in no event may an Incentive
Stock Option be granted under the Plan on or after the date 10 years
following the earlier of (i) the date the Plan was adopted and (ii) the date
the Plan was approved by the stockholders of the Company.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
2.1 "ARTICLE" means an Article of the Plan.
2.2 "AWARD" means Options (including Incentive Stock Options),
Restricted Shares, Bonus Shares, stock appreciation rights (SARs), limited
stock appreciation rights (LSARs), Performance Units or Performance Shares
granted under the Plan.
2.3 "AWARD AGREEMENT" means the written agreement by which an
Award shall be evidenced.
2.4 "BOARD" has the meaning set forth in Section 1.1.
2.5 "BONUS SHARES" means Shares that are awarded to a Grantee
without cost and without restrictions in recognition of past performance
(whether determined by reference to another employee benefit plan of the
Company or otherwise) or as an incentive to become an employee, director or
consultant of the Company or a Subsidiary.
2.6 "CAUSE" means, unless otherwise defined in an Award
Agreement,
(i) before the occurrence of a Change of Control, any one or
more of the following, as determined by the Committee:
(A) a Grantee's commission of a crime which, in the
judgment of the Committee, resulted or is likely to result in damage or
injury to the Company or a Subsidiary;
(B) the material violation by the Grantee of written
policies of the Company or a Subsidiary;
(C) the habitual neglect or failure by the Grantee in the
performance of his or her duties to the Company or a Subsidiary (but
only if such neglect or failure is not remedied within a reasonable
remedial period after Grantee's receipt of written notice from the
Company which describes such neglect or failure in reasonable detail
and specifies the remedial period); or
(D) action or inaction by the Grantee in connection with
his or her duties to the Company or a Subsidiary resulting, in the
judgment of the Committee, in material injury to the Company or a
Subsidiary; and
(ii) from and after the occurrence of a Change of Control, the
occurrence of any one or more of the following, as determined in the good
faith and reasonable judgment of the Committee:
(A) Grantee's conviction for committing an act of fraud,
embezzlement, theft, or any other act constituting a felony involving
moral turpitude or causing material damage or injury, financial or
otherwise, to the Company;
(B) a demonstrably willful and deliberate act or failure
to act which is committed in bad faith, without reasonable belief that
such action or inaction is in the best interests of the Company, which
causes material damage or injury, financial or otherwise, to the
Company (but only if such act or inaction is not remedied within 15
business days of Grantee's receipt of written notice from the Company
which describes the act or inaction in reasonable detail); or
(C) the consistent gross neglect of duties or consistent
wanton negligence by the Grantee in the performance of the Grantee's
duties (but only if such neglect or negligence is not remedied within a
reasonable remedial period after Grantee's receipt of written notice
from the Company which describes such neglect or negligence in
reasonable detail and specifies the remedial period).
2.7 "CHANGE OF CONTROL" means, unless otherwise defined in an
Award Agreement, any one or more of the following:
(i) the acquisition or holding by any person, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act), other
than by the Company or any Subsidiary or any employee benefit plan of the
Company or a Subsidiary (and other than by KCSI prior to the Spin-off
Distribution), of beneficial ownership (within the meaning of Rule 13d-3
under the 1934 Act) of 20% or more of the then-outstanding Common Stock or
the then-outstanding Voting Power of the Company; PROVIDED, HOWEVER, that no
Change of Control shall occur solely by reason of any such acquisition by a
corporation with respect to which, after such acquisition, more than 60% of
both the then-outstanding common shares and the then-outstanding Voting Power
of such corporation are then beneficially owned, directly or indirectly, by
the persons who were the beneficial owners of the then-outstanding Common
Stock and Voting Power of the Company immediately before such acquisition, in
substantially the same proportions as their respective ownership, immediately
before such acquisition, of the then-outstanding Common Stock and Voting
Power of the Company; or
(ii) individuals who, as of the date of the Spin-off
Distribution, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least 75% of the Board; PROVIDED that any individual
who becomes a director after the Effective Date whose election or nomination
for election by the Company's stockholders was approved by at least 75% of
the Incumbent Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened "election contest" relating to the election of the directors of
the Company (as such terms are used in Rule 14a-11 under the 1934 Act) or
"tender offer" (as such term is used in Section 14(d) of the 1934 Act) or a
proposed Extraordinary Transaction (as defined below)) shall be deemed to be
a member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of any one or
more of the following:
(A) a merger, reorganization, consolidation or similar
transaction (any of the foregoing, an "Extraordinary Transaction") with
respect to which persons who were the respective beneficial owners of the
then-outstanding Common Stock and Voting Power of the Company immediately
before such Extraordinary Transaction would not, if such Extraordinary
Transaction were to be consummated immediately after such stockholder
approval (but otherwise in accordance with the terms presented in writing to
the stockholders of the Company for their approval), beneficially own,
directly or indirectly, more than 60% of both the then-outstanding common
shares and the then-outstanding Voting Power of the corporation resulting
from such Extraordinary Transaction, in substantially the same proportions as
their respective ownership, immediately before such Extraordinary
Transaction, of the then-outstanding Common Stock and Voting Power of the
Company,
(B) a liquidation or dissolution of the Company, or
(C) the sale or other disposition of all or substantially
all of the assets of the Company in one transaction or a series of related
transactions.
2.8 "CHANGE OF CONTROL VALUE" means the Fair Market Value of a
Share on the date of a Change of Control.
2.9 "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and regulations and rulings thereunder. References to a
particular section of the Code include references to successor provisions of
the Code or any successor code
2.10 "COMMITTEE," "PLAN COMMITTEE" and "MANAGEMENT COMMITTEE"
have the meanings set forth in Article 3.
2.11 "COMMON STOCK" means the common stock, $.01 par value, of
the Company.
2.12 "COMPANY" has the meaning set forth in Section 1.1.
2.13 "COVERED EMPLOYEE" means a Grantee who, as of the date that
the value of an Award is recognizable as taxable income, is one of the group
of "covered employees," within the meaning of Code Section 162(m).
2.14 "DISABILITY" means, unless otherwise defined in an Award
Agreement, for purposes of the exercise of an Incentive Stock Option after
Termination of Affiliation, a disability within the meaning of Section
22(e)(3) of the Code, and for all other purposes, means total disability as
determined for purposes of the long term disability plan of Stilwell or any
Subsidiary or other employer of the Grantee and disability shall be deemed to
occur for purposes of the Plan on the date such determination of disability
is made.
2.15 "DISQUALIFYING DISPOSITION" has the meaning set forth in
Section 6.4.
2.16 "EFFECTIVE DATE" has the meaning set forth in Section 1.1.
2.17 "ELIGIBLE PERSON" means (i) any employee (including any
officer) of the Company or any Subsidiary, including any such employee who is
on an approved leave of absence, layoff, or has been subject to a disability
which does not qualify as a Disability, (ii) any director of the Company or
any Subsidiary and (iii) any person performing services for the Company or a
Subsidiary in the capacity of a consultant. Solely for purposes of granting
KCSI Substitute Options (as defined in Section 6.3), Eligible Person shall
also include any person who holds a KCSI Option (as defined in Section 6.3)
as of the date that a KCSI Substitute Option is granted.
2.18 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time. References to a particular section of the
Exchange Act include references to successor provisions.
2.19 "EXTRAORDINARY TRANSACTION" has the meaning set forth in
Section 2.7.
2.20 "FAIR MARKET VALUE means (A) with respect to any property
other than Shares, the fair market value of such property determined by such
methods or procedures as shall be established from time to time by the
Committee, and (B) with respect to Shares, unless otherwise determined by the
Committee, as of any date, (i) the average of the high and low trading prices
on the date of determination on the New York Stock Exchange (or, if no sale
of Shares was reported for such date, on the next preceding date on which a
sale of Shares was reported); (ii) if the Shares are not listed on the New
York Stock Exchange, the average of the high and low trading prices of the
Shares on such other national exchange on which the Shares are principally
traded or as reported by the National Market System, or similar organization,
or if no such quotations are available, the average of the high bid and low
asked quotations in the over-the-counter market as reported by the National
Quotation Bureau Incorporated or similar organizations; or (iii) in the event
that there shall be no public market for the Shares, the fair market value of
the Shares as determined by the Committee.
2.21 "FREESTANDING SAR" means an SAR that is granted
independently of any other Award.
2.22 "GOOD REASON" means, unless otherwise defined in an Award
Agreement, the occurrence after a Change of Control, without a Grantee's
prior written consent, of any one or more of the following:
(i) the assignment to the Grantee of any duties which result in
a material adverse change in the Grantee's position (including status,
offices, titles, and reporting requirements), authority, duties, or
other responsibilities with the Company, or any other action of the
Company which results in a material adverse change in such position,
authority, duties, or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Company promptly after
receipt of notice thereof given by the Grantee,
(ii) any relocation of the Grantee of more than 40 miles from
the place where the Grantee was located at the time of the Change of
Control, or
(iii) a material reduction or elimination of any component of the
Grantee's rate of compensation, including (x) base salary, (y) any
incentive payment or (z) benefits or perquisites which the Grantee was
receiving immediately prior to a Change of Control.
2.23 "GRANT DATE" has the meaning set forth in Section 5.2.
2.24 "GRANTEE" means an individual who has been granted an
Award.
2.25 "INCENTIVE STOCK OPTION" means an option granted under
Article 6 of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provisions thereto.
2.26 "INCLUDING" or "INCLUDES" means "including, without
limitation," or "includes, without limitation," respectively.
2.27 "LSAR" means a limited stock appreciation right.
2.28 "MATURE SHARES" means Shares for which the holder thereof
has good title, free and clear of all liens and encumbrances, and which such
holder either (i) has held for at least six months or (ii) has purchased on
the open market.
2.29 "MINIMUM CONSIDERATION" means $.01 per Share or such other
amount that is from time to time considered to be capital for purposes of
Section 154 of the Delaware General Corporation Law.
2.30 "OPTION" means an option granted under Article 6 of the
Plan.
2.31 "OPTION PRICE" means the price at which a Share may be
purchased by a Grantee pursuant to an Option.
2.32 "OPTION TERM" means the period beginning on the Grant Date
of an Option and ending on the expiration date of such Option, as specified
in the Award Agreement for such Option and as may, consistent with the
provisions of the Plan, be extended from time to time by the Committee prior
to the expiration date of such Option then in effect.
2.33 "OUTSIDE DIRECTOR" means a member of the Board who is not
an employee of the Company or any Subsidiary.
2.34 "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.35 "PERFORMANCE PERIOD" has the meaning set forth in Section
9.2.
2.36 "PERFORMANCE SHARE" or "PERFORMANCE UNIT" has the meaning
set forth in Article 9.
2.37 "PERIOD OF RESTRICTION" means the period during which the
transfer of Restricted Shares is limited in some way (the length of the
period being based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by the
Committee), and the Shares are subject to a substantial risk of forfeiture,
as provided in Article 8.
2.38 "PERSON" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
2.39 "PLAN" has the meaning set forth in Section 1.1.
2.40 "REQUIRED WITHHOLDING" has the meaning set forth in Article
16.
2.41 "RESTRICTED SHARES means Shares that are subject to
forfeiture if the Grantee does not satisfy the conditions specified in the
Award Agreement applicable to such Shares.
2.42 "RETIREMENT" means, for any Grantee who is an employee,
Termination of Affiliation by the Grantee upon either (i) having both
attained age fifty-five (55) and completed at least ten (10) years of service
with the Company or a Subsidiary or (ii) meeting such other requirements as
may be specified by the Committee.
2.43 "RULE 16B-3" means Rule 16b-3 promulgated by the SEC under
the Exchange Act, as amended from time to time, together with any successor
rule, as in effect from time to time.
2.44 "SAR" means a stock appreciation right.
2.45 "SEC" means the United States Securities and Exchange
Commission, or any successor thereto.
2.46 "SECTION" means, unless the context otherwise requires, a
Section of the Plan.
2.47 "SECTION 16 PERSON" means a person who is subject to
potential liability under Section 16(b) of the 1934 Act with respect to
transactions involving equity securities of the Company.
2.48 "SHARE" means a share of Common Stock.
2.49 "SPIN-OFF DISTRIBUTION" means the distribution by KCSI of
at least 80% of the outstanding Shares, as a result of which the Company
ceases to be a subsidiary of KCSI.
2.50 "STRIKE PRICE" of any SAR shall equal, for any Tandem SAR
(whether such Tandem SAR is granted at the same time as or after the grant of
the related Option), the Option Price of such Option, or for any other SAR,
100% of the Fair Market Value of a Share on the Grant Date of such SAR;
PROVIDED that the Committee may specify a higher Strike Price in the Award
Agreement.
2.51 "SUBSIDIARY" means, for purposes of grants of Incentive
Stock Options, a corporation as defined in Section 424(f) of the Code (with
the Company being treated as the employer corporation for purposes of this
definition) and, for all other purposes, a United States or foreign
corporation with respect to which the Company owns, directly or indirectly,
50% (or such lesser percentage as the Committee may specify, which percentage
may be changed from time to time and may be different for different entities)
or more of the Voting Power of such corporation.
2.52 "TANDEM SAR" means an SAR that is granted in connection
with a related Option, the exercise of which shall require cancellation of
the right to purchase a Share under the related Option (and when a Share is
purchased under the related Option, the Tandem SAR shall similarly be
canceled).
2.53 "TERMINATION OF AFFILIATION" occurs on the first day on
which an individual is for any reason no longer providing services to the
Company or any Subsidiary in the capacity of an employee, director or
consultant, or with respect to an individual who is an employee or director
of, or consultant to, a corporation which is a Subsidiary, the first day on
which such corporation ceases to be a Subsidiary.
2.54 "10% OWNER" means a person who owns capital stock
(including stock treated as owned under Section 424(d) of the Code)
possessing more than 10% of the total combined voting power of all classes of
capital stock of the Company or any Subsidiary.
2.55 "VOTING POWER" means the combined voting power of the then-
outstanding securities of a corporation entitled to vote generally in the
election of directors.
ARTICLE 3. ADMINISTRATION
3.1 COMMITTEE.
(a) Subject to Article 15, and to Section 3.2, the Plan shall
be administered by the Board, or a committee appointed by the Board to
administer the Plan ("Plan Committee"). To the extent the Board considers it
desirable to comply with or qualify under Rule 16b-3 or meet the Performance-
Based Exception, the Plan Committee shall consist of two or more directors of
the Company, all of whom qualify as "outside directors" as defined for
purposes of the regulations under Code Section 162(m) and "non-employee
directors" within the meaning of Rule 16b-3. The number of members of the
Plan Committee shall from time to time be increased or decreased, and shall
be subject to such conditions, in each case as the Board deems appropriate to
permit transactions in Shares pursuant to the Plan to satisfy such conditions
of Rule 16b-3 and the Performance-Based Exception as then in effect.
(b) The Board or the Plan Committee may appoint and delegate to
another committee ("Management Committee") any or all of the authority of the
Board or the Plan Committee, as applicable, with respect to Awards to
Grantees other than Grantees who are Section 16 Persons at the time any such
delegated authority is exercised.
(c) Any references herein to "Committee" are references to the
Board, or the Plan Committee or the Management Committee, as applicable.
3.2 POWERS OF COMMITTEE. Subject to the express provisions of
the Plan, the Committee has full and final authority and sole discretion as
follows:
(i) to determine when, to whom and in what types and amounts
Awards should be granted and the terms and conditions applicable to each
Award, including the benefit payable under any SAR, Performance Unit or
Performance Share, and whether or not specific Awards shall be granted in
connection with other specific Awards, and if so whether they shall be
exercisable cumulatively with, or alternatively to, such other specific
Awards;
(ii) to determine the amount, if any, that a Grantee shall pay
for Restricted Shares, whether to permit or require the payment of cash
dividends thereon to be deferred and the terms related thereto, when
Restricted Shares (including Restricted Shares acquired upon the exercise of
an Option) shall be forfeited and whether such shares shall be held in
escrow;
(iii) to construe and interpret the Plan and to make all
determinations necessary or advisable for the administration of the Plan;
(iv) to make, amend, and rescind rules relating to the Plan,
including rules with respect to the exercisability and nonforfeitability of
Awards upon the Termination of Affiliation of a Grantee;
(v) to determine the terms and conditions of all Award
Agreements (which need not be identical) and, with the consent of the
Grantee, to amend any such Award Agreement at any time, among other things,
to permit transfers of such Awards to the extent permitted by the Plan;
PROVIDED that the consent of the Grantee shall not be required for any
amendment which (A) does not adversely affect the rights of the Grantee, or
(B) is necessary or advisable (as determined by the Committee) to carry out
the purpose of the Award as a result of any new or change in existing
applicable law:
(vi) to cancel, with the consent of the Grantee, outstanding
Awards and to grant new Awards in substitution therefor;
(vii) to accelerate the exercisability (including exercisability
within a period of less than six months after the Grant Date) of, and to
accelerate or waive any or all of the terms and conditions applicable to, any
Award or any group of Awards for any reason and at any time, including in
connection with a Termination of Affiliation;
(viii) subject to Sections 1.3 and 5.3, to extend the time during
which any Award or group of Awards may be exercised;
(ix) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are advisable to fulfill the
purposes of the Plan or to comply with applicable local law;
(x) to impose such additional terms and conditions upon the
grant, exercise or retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate, including limiting the
percentage of Awards which may from time to time be exercised by a Grantee;
and
(xi) to take any other action with respect to any matters
relating to the Plan for which it is responsible.
All determinations on all matters relating to the Plan or any Award
Agreement may be made in the sole and absolute discretion of the Committee,
and all such determinations of the Committee shall be final, conclusive and
binding on all Persons. No member of the Committee shall be liable for any
action or determination made with respect to the Plan or any Award.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to
adjustment as provided in Section 4.2, the number of Shares hereby reserved
for issuance under the Plan shall be 30,000,000, and the number of Shares for
which Awards (other than KCSI Substitute Options, as defined in Section 6.3)
may be granted to any Grantee on any Grant Date, when aggregated with the
number of Shares for which Awards (other than KCSI Substitute Options) have
previously been granted to such Grantee in the same calendar year, shall not
exceed one percent (1%) of the total Shares outstanding as of such Grant
Date; provided, however, that the total number of Shares for which Awards
(other than KCSI Substitute Options) may be granted to any Grantee in any
calendar year shall not exceed 2,000,000. If any Shares subject to an Award
granted hereunder are forfeited or such Award otherwise terminates without
the issuance of such Shares or of other consideration in lieu of such Shares,
the Shares subject to such Award, to the extent of any such forfeiture or
termination shall again be available for grant under the Plan. If any Shares
(whether subject to or received pursuant to an Award granted hereunder,
purchased on the open market, or otherwise obtained) are withheld, applied as
payment, or sold pursuant to procedures approved by the Committee and the
proceeds thereof applied as payment in connection with the exercise of an
Award or the withholding of taxes related thereto, such Shares, to the extent
of any such withholding or payment, shall again be available or shall
increase the number of Shares available, as applicable, for grant under the
Plan. The Committee may from time to time determine the appropriate
methodology for calculating the number of Shares issued pursuant to the Plan.
Shares issued pursuant to the Plan may be treasury Shares or newly-issued
Shares.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event that the
Committee determines that any dividend or other distribution (whether in the
form of cash, Shares, other securities, or other property), recapitalization,
stock split, reverse stock split, subdivision, consolidation or reduction of
capital, reorganization, merger, scheme of arrangement, split-up, spin-off or
combination involving the Company or repurchase or exchange of Shares or
other rights to purchase Shares or other securities of the Company, or other
similar corporate transaction or event that occurs at any time after the
Spin-off Distribution affects the Shares such that any adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject
to outstanding Awards, and (iii) the grant or exercise price with respect to
any Award or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award or the substitution of other property for
Shares subject to an outstanding Award; PROVIDED, in each case that with
respect to Awards of Incentive Stock Options no such adjustment shall be
authorized to the extent that such adjustment would cause the Plan to violate
Section 422(b)(1) of the Code or any successor provision thereto; and
PROVIDED FURTHER, that the number of Shares subject to any Award denominated
in Shares shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS
5.1 ELIGIBILITY. The Committee may grant Awards to any
Eligible Person, whether or not he or she has previously received an Award.
5.2 GRANT DATE. The Grant Date of an Award shall be the date
on which the Committee grants the Award or such later date as specified by
the Committee.
5.3 MAXIMUM TERM. The Option Term or other period during which
an Award may be outstanding shall under no circumstances extend more than
10 years after the Grant Date, and shall be subject to earlier termination as
herein provided; PROVIDED, HOWEVER, that any deferral of a cash payment or of
the delivery of Shares that is permitted or required by the Committee
pursuant to Article 12 may, if so permitted or required by the Committee,
extend more than 10 years after the Grant Date of the Award to which the
deferral relates.
5.4 AWARD AGREEMENT. To the extent not set forth in the Plan,
the terms and conditions of each Award (which need not be the same for each
grant or for each Grantee) shall be set forth in an Award Agreement.
5.5 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise or
vesting of an Award as it may deem advisable, including restrictions under
applicable federal securities laws.
5.6 TERMINATION OF AFFILIATION. Except as otherwise provided
in an Award Agreement, and subject to the provisions of Section 14.1, the
extent to which the Grantee shall have the right to exercise, vest in, or
receive payment in respect of an Award following Termination of Affiliation
shall be determined in accordance with the following provisions of this
Section 5.6.
(a) FOR CAUSE. If a Grantee has a Termination of Affiliation
for Cause, (i) the Grantee's Restricted Shares that are forfeitable shall
thereupon be forfeited, subject to the provisions of Section 8.4 regarding
repayment of certain amounts to the Grantee; and (ii) any unexercised Option,
LSAR or SAR, and any Performance Share or Performance Unit with respect to
which the Performance Period has not ended as of the date of such Termination
of Affiliation, shall terminate effective immediately upon such Termination
of Affiliation.
(b) ON ACCOUNT OF DEATH OR DISABILITY. If a Grantee has a
Termination of Affiliation on account of death or Disability, then:
(i) the Grantee's Restricted Shares that were forfeitable
shall thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not
exercisable on the date of such Termination of Affiliation, may be exercised,
in whole or in part, within the first 12 months after such Termination of
Affiliation (but only during the Option Term) by the Grantee or, after his or
her death, by (A) his or her personal representative or the person to whom
the Option or SAR, as applicable, is transferred by will or the applicable
laws of descent and distribution, or (B) the Grantee's beneficiary designated
in accordance with Article 11; and
(iii) the benefit payable with respect to any Performance
Share or Performance Unit with respect to which the Performance Period has
not ended as of the date of such Termination of Affiliation on account of
death or Disability shall be equal to the product of the Fair Market Value of
a Share as of the date of such Termination of Affiliation or the value of the
Performance Unit specified in the Award Agreement (determined as of the date
of such Termination of Affiliation), as applicable, multiplied successively
by each of the following:
(1) a fraction, the numerator of which is the
number of months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the date of such
Termination of Affiliation and the denominator of which is the number of
months (including as a whole month any partial month) in the Performance
Period; and
(2) a percentage determined by the Committee that
would be earned under the terms of the applicable Award Agreement assuming
that the rate at which the performance goals have been achieved as of the
date of such Termination of Affiliation would continue until the end of the
Performance Period, or, if the Committee elects to compute the benefit after
the end of the Performance Period, the Performance Percentage, as determined
by the Committee, attained during the Performance Period.
(c) ON ACCOUNT OF RETIREMENT. If a Grantee has a Termination
of Affiliation on account of Retirement, then:
(i) the Grantee's Restricted Shares that were forfeitable
shall thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not
exercisable on the date of such Termination of Affiliation, may be exercised,
in whole or in part, within the first five years after such Termination of
Affiliation (but only during the Option Term) by the Grantee or, after his or
her death, by (A) his or her personal representative or the person to whom
the Option or SAR, as applicable, is transferred by will or the applicable
laws of descent and distribution, or (B) the Grantee's beneficiary designated
in accordance with Article 11; and
(iii) the benefit payable with respect to any Performance
Share or Performance Unit with respect to which the Performance Period has
not ended as of the date of such Termination of Affiliation on account of
Retirement shall be equal to the product of the Fair Market Value of a Share
as of the date of such Termination of Affiliation or the value of the
Performance Unit specified in the Award Agreement (determined as of the date
of such Termination of Affiliation), as applicable, multiplied successively
by each of the following:
(1) a fraction, the numerator of which is the
number of months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the date of such
Termination of Affiliation and the denominator of which is the number of
months (including as a whole month any partial month) in the Performance
Period; and
(2) a percentage determined by the Committee that
would be earned under the terms of the applicable Award Agreement assuming
that the rate at which the performance goals have been achieved as of the
date of such Termination of Affiliation would continue until the end of the
Performance Period, or, if the Committee elects to compute the benefit after
the end of the Performance Period, the Performance Percentage, as determined
by the Committee, attained during the Performance Period.
(d) ANY OTHER REASON. If a Grantee has a Termination of
Affiliation for any reason other than for Cause, death, Disability or
Retirement, then:
(i) the Grantee's Restricted Shares, to the extent
forfeitable on the date of the Grantee's Termination of Affiliation, shall be
forfeited on such date;
(ii) any unexercised Option or SAR, to the extent
exercisable immediately before the Grantee's Termination of Affiliation, may
be exercised in whole or in part, not later than three months after such
Termination of Affiliation (but only during the Option Term) by the Grantee
or, after his or her death, by (A) his or her personal representative or the
person to whom the Option or SAR, as applicable, is transferred by will or
the applicable laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Article 11; and
(iii) any Performance Shares or Performance Units with
respect to which the Performance Period has not ended as of the date of such
Termination of Affiliation shall terminate immediately upon such Termination
of Affiliation.
5.7 NONTRANSFERABILITY OF AWARDS.
(a) Except as provided in Section 5.7(c) below, each Award, and
each right under any Award, shall be exercisable only by the Grantee during
the Grantee's lifetime, or, if permissible under applicable law, by the
Grantee's guardian or legal representative or by a transferee receiving such
Award pursuant to a qualified domestic relations order (a "QDRO") as defined
in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the rules thereunder.
(b) Except as provided in Section 5.7(c) below, no Award (prior
to the time, if applicable, Shares are issued in respect of such Award), and
no right under any Award, may be assigned, alienated, pledged, attached, sold
or otherwise transferred or encumbered by a Grantee otherwise than by will or
by the laws of descent and distribution (or in the case of Restricted Shares,
to the Company) or pursuant to a QDRO, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void
and unenforceable against the Company or any Subsidiary; PROVIDED, that the
designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
(c) To the extent and in the manner permitted by the Committee,
and subject to such terms, conditions, restrictions or limitations that may
be prescribed by the Committee, a Grantee may transfer an Award (other than
an Incentive Stock Option) to (i) a spouse, sibling, parent, child (including
an adopted child) or grandchild (any of which, an "Immediate Family Member")
of the Grantee; (ii) a trust, the primary beneficiaries of which consist
exclusively of the Grantee or Immediate Family Members of the Grantee; or
(iii) a corporation, partnership or similar entity, the owners of which
consist exclusively of the Grantee or Immediate Family Members of the
Grantee.
5.8 CANCELLATION AND RESCISSION OF AWARDS. Unless the Award
Agreement specifies otherwise, the Committee may cancel, rescind, suspend,
withhold, or otherwise limit or restrict any unexercised Award at any time if
the Grantee is not in compliance with all applicable provisions of the Award
Agreement and the Plan or if the Grantee has a Termination of Affiliation for
Cause.
5.9 LOANS AND GUARANTEES. The Committee may, subject to
applicable law, (i) allow a Grantee to defer payment to the Company of all or
any portion of the Option Price of an Option or the purchase price of
Restricted Shares, or (ii) cause the Company to loan to the Grantee, or
guarantee a loan from a third party to the Grantee for, all or any portion of
the Option Price of an Option or the purchase price of Restricted Shares or
all or any portion of any taxes associated with the exercise of,
nonforfeitability of, or payment of benefits in connection with, an Award.
Any such payment deferral, loan or guarantee by the Company shall be on such
terms and conditions as the Committee may determine.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of
the Plan, Options may be granted to any Eligible Person in such number, and
upon such terms, and at any time and from time to time as shall be determined
by the Committee. Without in any manner limiting the generality of the
foregoing, the Committee may grant to any Eligible Person, or permit any
Eligible Person to elect to receive, an Option in lieu of or in substitution
for any other compensation (whether payable currently or on a deferred basis,
and whether payable under this Plan or otherwise) which such Eligible Person
may be eligible to receive from the Company or a Subsidiary.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by
an Award Agreement that shall specify the Option Price, the Option Term, the
number of shares to which the Option pertains, the time or times at which
such Option shall be exercisable and such other provisions as the Committee
shall determine.
6.3 OPTION PRICE. The Option Price of an Option under this
Plan shall be determined by the Committee, and shall be equal to or more than
100% of the Fair Market Value of a Share on the Grant Date; provided,
however, that any Option that is (i) granted to a Grantee in connection with
the Spin-off Distribution, (ii) associated with an option to purchase shares
of stock of KCSI ("KCSI Option") held by such Grantee immediately prior to
such Spin-off Distribution, and (iii) intended to preserve for the Grantee
the economic value of all or a portion of such KCSI Option ("KCSI Substitute
Option") may, to the extent necessary to achieve such preservation of
economic value, be granted with an Option Price that is less than 100% of the
Fair Market Value of a Share on the Grant Date; and provided, further, that
any Option that is (x) granted to a Grantee in connection with the
acquisition ("Acquisition"), however effected, by the Company of another
corporation or entity ("Acquired Entity") or the assets thereof,
(y) associated with an option to purchase shares of stock of the Acquired
Entity or an affiliate thereof ("Acquired Entity Option") held by such
Grantee immediately prior to such Acquisition, and (z) intended to preserve
for the Grantee the economic value of all or a portion of such Acquired
Entity Option ("Substitute Option") may, to the extent necessary to achieve
such preservation of economic value, be granted with an Option Price that is
less than 100% of the Fair Market Value of a Share on the Grant Date.
6.4 GRANT OF INCENTIVE STOCK OPTIONS. At the time of the grant
of any Option, the Committee may designate that such Option shall be made
subject to additional restrictions to permit it to qualify as an "incentive
stock option" under the requirements of Section 422 of the Code. Any Option
designated as an Incentive Stock Option shall, to the extent required by
Section 422 of the Code:
(i) if granted to a 10% Owner, have an Option Price not less
than 110% of the Fair Market Value of a Share on its Grant Date;
(ii) be exercisable for a period of not more than 10 years (five
years in the case of an Incentive Stock Option granted to a 10% Owner) from
its Grant Date, and be subject to earlier termination as provided herein or
in the applicable Award Agreement;
(iii) not have an aggregate Fair Market Value (as of the Grant
Date of each Incentive Stock Option) of the Shares with respect to which
Incentive Stock Options (whether granted under the Plan or any other stock
option plan of the Grantee's employer or any parent or Subsidiary thereof
("Other Plans")) are exercisable for the first time by such Grantee during
any calendar year, determined in accordance with the provisions of Section
422 of the Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) if the aggregate Fair Market Value of the Shares
(determined on the Grant Date) with respect to the portion of such grant
which is exercisable for the first time during any calendar year ("Current
Grant") and all Incentive Stock Options previously granted under the Plan and
any Other Plans which are exercisable for the first time during the same
calendar year ("Prior Grants") would exceed the $100,000 Limit be exercisable
as follows:
(A) the portion of the Current Grant which would, when
added to any Prior Grants, be exercisable with respect to Shares which
would have an aggregate Fair Market Value (determined as of the
respective Grant Date for such options) in excess of the $100,000 Limit
shall, notwithstanding the terms of the Current Grant, be exercisable
for the first time by the Grantee in the first subsequent calendar year
or years in which it could be exercisable for the first time by the
Grantee when added to all Prior Grants without exceeding the $100,000
Limit; and
(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the preceding
provisions of this Section during any calendar year commencing with the
calendar year in which it is first exercisable through and including
the last calendar year in which it may by its terms be exercised, such
portion of the Current Grant shall not be an Incentive Stock Option,
but shall be exercisable as an Option which is not an Incentive Stock
Option at such date or dates as are provided in the Current Grant;
(v) be granted within 10 years from the earlier of the date the
Plan is adopted or the date the Plan is approved by the stockholders of the
Company; and
(vi) by its terms not be assignable or transferable other than
by will or the laws of descent and distribution and may be exercised, during
the Grantee's lifetime, only by the Grantee; PROVIDED, HOWEVER, that the
Grantee may, in any manner permitted by the Plan and specified by the
Committee, designate in writing a beneficiary to exercise his or her
Incentive Stock Option after the Grantee's death.
Any Option designated as an Incentive Stock Option shall also require
the Grantee to notify the Committee of any disposition of any Shares issued
pursuant to the exercise of the Incentive Stock Option under the
circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions) (any such circumstance, a "Disqualifying
Disposition"), within 10 days of such Disqualifying Disposition.
Notwithstanding the foregoing and Section 3.2(v), the Committee may,
without the consent of the Grantee, at any time before the exercise of an
Option (whether or not an Incentive Stock Option), take any action necessary
to prevent such Option from being treated as an Incentive Stock Option.
6.5 PAYMENT. Options granted under this Article 6 shall be
exercised by the delivery of a written notice of exercise to the Company,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares made by any one or more
of the following means subject to the approval of the Committee:
(a) cash, personal check or wire transfer;
(b) Mature Shares, valued at their Fair Market Value on the
date of exercise;
(c) Restricted Shares held by the Grantee for at least six
months prior to the exercise of the Option, each such Share valued at
the Fair Market Value of a Share on the date of exercise;
(d) subject to applicable law, pursuant to procedures approved
by the Committee, through the sale of the Shares acquired on exercise
of the Option through a broker-dealer to whom the Grantee has submitted
an irrevocable notice of exercise and irrevocable instructions to
deliver promptly to the Company the amount of sale or loan proceeds
sufficient to pay for such Shares, together with, if requested by the
Company, the amount of federal, state, local or foreign withholding
taxes payable by Grantee by reason of such exercise; or
(e) when permitted by the Committee, payment may also be made
in accordance with Section 5.9.
If any Restricted Shares ("Tendered Restricted Shares") are used to pay
the Option Price, a number of Shares acquired on exercise of the Option equal
to the number of Tendered Restricted Shares shall be subject to the same
restrictions as the Tendered Restricted Shares, determined as of the date of
exercise of the Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the
Plan, SARs may be granted to any Eligible Person at any time and from time to
time as shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs, or any combination thereof.
The Committee shall determine the number of SARs granted to each
Grantee (subject to Article 4), the Strike Price thereof, and, consistent
with Section 7.2 and the other provisions of the Plan, the other terms and
conditions pertaining to such SARs.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for
all or part of the Shares subject to the related Award upon the surrender of
the right to exercise the equivalent portion of the related Award. A Tandem
SAR may be exercised only with respect to the Shares for which its related
Award is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR, (i) the Tandem SAR will expire no later than the
expiration of the underlying Option; (ii) the value of the payout with
respect to the Tandem SAR may be for no more than 100% of the difference
between the Option Price of the underlying Option and the Fair Market Value
of the Shares subject to the underlying Option at the time the Tandem SAR is
exercised; and (iii) the Tandem SAR may be exercised only when the Fair
Market Value of the Shares subject to the Option exceeds the Option Price of
the Option.
7.3 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, the
Grantee shall be entitled to receive payment from the Company in an amount
determined by multiplying:
(a) the excess of the Fair Market Value of a Share on the date
of exercise over the Strike Price;
by
(b) the number of Shares with respect to which the SAR is
exercised;
provided that the Committee may provide in the Award Agreement that the
benefit payable on exercise of an SAR shall not exceed such percentage of the
Fair Market Value of a Share on the Grant Date as the Committee shall
specify. As determined by the Committee, the payment upon SAR exercise may
be in cash, in Shares which have an aggregate Fair Market Value (as of the
date of exercise of the SAR) equal to the amount of the payment, or in some
combination thereof, as set forth in the Award Agreement.
7.4 GRANT OF LSARS. Subject to the terms and conditions of the
Plan, LSARs may be granted to any Eligible Person at any time and from time
to time as shall be determined by the Committee. Each LSAR shall be
identified with a Share subject to an Option or SAR held by the Grantee,
which may include an Option or SAR previously granted under the Plan. Upon
the exercise, expiration, termination, forfeiture or cancellation of the
Option or SAR with which an LSAR is identified, such LSAR shall terminate.
7.5 EXERCISE OF LSARS. Each LSAR shall automatically be
exercised upon a Change of Control which has not been approved by the
Incumbent Board. The exercise of an LSAR shall result in the cancellation of
the Option or SAR with which such LSAR is identified, to the extent of such
exercise.
7.6 PAYMENT OF LSAR AMOUNT. Within 10 business days after the
exercise of an LSAR, the Company shall pay to the Grantee, in cash, an amount
equal to the difference between:
(a) the greatest of (i) the Change of Control Value, (ii) the
Fair Market Value of a Share on the date occurring during
the 180-day period immediately preceding the date of the
Change of Control on which such Fair Market Value is the
greatest or (iii) such other valuation amount, if any, as
may be determined pursuant to the provisions of the
applicable Award Agreement;
minus
(b) either (i) in the case of an LSAR identified with an
Option, the Option Price of such Option or (ii) in the case
of an LSAR identified with an SAR, the Strike Price of such
SAR.
ARTICLE 8. RESTRICTED SHARES
8.1 GRANT OF RESTRICTED SHARES. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time to time, may
grant Restricted Shares to any Eligible Person in such amounts as the
Committee shall determine.
8.2 AWARD AGREEMENT. Each grant of Restricted Shares shall be
evidenced by an Award Agreement that shall specify the Period(s) of
Restriction, the number of Restricted Shares granted, and such other
provisions as the Committee shall determine. The Committee may impose such
conditions and/or restrictions on any Restricted Shares granted pursuant to
the Plan as it may deem advisable, including restrictions based upon the
achievement of specific performance goals (Company-wide, divisional,
Subsidiary and/or individual), time-based restrictions on vesting, and/or
restrictions under applicable securities laws.
8.3 CONSIDERATION. The Committee shall determine the amount,
if any, that a Grantee shall pay for Restricted Shares, which shall be
(except with respect to Restricted Shares that are treasury shares) at least
the Minimum Consideration for each Restricted Share. Such payment shall be
made in full by the Grantee before the delivery of the shares and in any
event no later than 10 business days after the Grant Date for such shares.
8.4 EFFECT OF FORFEITURE. If Restricted Shares are forfeited,
and if the Grantee was required to pay for such shares or acquired such
Restricted Shares upon the exercise of an Option, the Grantee shall be deemed
to have resold such Restricted Shares to the Company at a price equal to the
lesser of (x) the amount paid by the Grantee for such Restricted Shares, or
(y) the Fair Market Value of a Share on the date of such forfeiture. The
Company shall pay to the Grantee the required amount as soon as is
administratively practical. Such Restricted Shares shall cease to be
outstanding, and shall no longer confer on the Grantee thereof any rights as
a stockholder of the Company, from and after the date of the event causing
the forfeiture, whether or not the Grantee accepts the Company's tender of
payment for such Restricted Shares.
8.5 ESCROW; LEGENDS. The Committee may provide that the
certificates for any Restricted Shares (x) shall be held (together with a
stock power executed in blank by the Grantee) in escrow by the Secretary of
the Company until such Restricted Shares become nonforfeitable or are
forfeited and/or (y) shall bear an appropriate legend restricting the
transfer of such Restricted Shares. If any Restricted Shares become
nonforfeitable, the Company shall cause certificates for such shares to be
issued without such legend.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Subject
to the terms of the Plan, Performance Units or Performance Shares may be
granted to any Eligible Person in such amounts and upon such terms, and at
any time and from time to time, as shall be determined by the Committee.
9.2 VALUE/PERFORMANCE GOALS. Each Performance Unit shall have
an initial value that is established by the Committee at the time of grant.
Each Performance Share shall have an initial value equal to the Fair Market
Value of a Share on the date of grant. The Committee shall set performance
goals which, depending on the extent to which they are met, will determine
the number or value of Performance Units or Performance Shares that will be
paid out to the Grantee. For purposes of this Article 9, the time period
during which the performance goals must be met shall be called a "Performance
Period."
9.3 EARNING OF PERFORMANCE UNITS AND PERFORMANCE SHARES.
Subject to the terms of this Plan, after the applicable Performance Period
has ended, the holder of Performance Units or Performance Shares shall be
entitled to receive a payout based on the number and value of Performance
Units or Performance Shares earned by the Grantee over the Performance
Period, to be determined as a function of the extent to which the
corresponding performance goals have been achieved.
If a Grantee is promoted, demoted or transferred to a different
business unit of the Company during a Performance Period, then, to the extent
the Committee determines the performance goals or Performance Period are no
longer appropriate, the Committee may adjust, change or eliminate the
performance goals or the applicable Performance Period as it deems
appropriate in order to make them appropriate and comparable to the initial
performance goals or Performance Period.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS AND
PERFORMANCE SHARES. Payment of earned Performance Units or Performance
Shares shall be made in a lump sum following the close of the applicable
Performance Period. The Committee may pay earned Performance Units or
Performance Shares in the form of cash or in Shares (or in a combination
thereof) which have an aggregate Fair Market Value equal to the value of the
earned Performance Units or Performance Shares at the close of the applicable
Performance Period. Such Shares may be granted subject to any restrictions
deemed appropriate by the Committee. The form of payout of such Awards shall
be set forth in the Award Agreement pertaining to the grant of the Award.
As determined by the Committee, a Grantee may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units or Performance Shares but not yet
distributed to the Grantee. In addition, a Grantee may, as determined by the
Committee, be entitled to exercise his or her voting rights with respect to
such Shares.
ARTICLE 10. BONUS SHARES
Subject to the terms of the Plan, the Committee may grant Bonus Shares
to any Eligible Person, in such amount and upon such terms and at any time
and from time to time as shall be determined by the Committee. The terms of
such Bonus Shares shall be set forth in the Award Agreement pertaining to the
grant of the Award.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Grantee under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Grantee, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Grantee in writing with the Company during the Grantee's lifetime. In the
absence of any such designation, benefits remaining unpaid at the Grantee's
death shall be paid to the Grantee's estate.
ARTICLE 12. DEFERRALS
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due by
virtue of the exercise of an Option or SAR, the lapse or waiver of
restrictions with respect to Restricted Shares, the satisfaction of any
requirements or goals with respect to Performance Units or Performance
Shares, or the grant of Bonus Shares. If any such deferral is required or
permitted, the Committee shall establish rules and procedures for such
deferrals. Except as otherwise provided in an Award Agreement, any payment
or any Shares that are subject to such deferral shall be made or delivered to
the Grantee upon the Grantee's Termination of Affiliation.
ARTICLE 13. RIGHTS OF EMPLOYEES/DIRECTORS/CONSULTANTS
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Grantee's
employment, directorship or consultancy at any time, nor confer upon any
Grantee the right to continue in the employ or as a director or consultant of
the Company.
13.2 PARTICIPATION. No employee, director or consultant shall
have the right to be selected to receive an Award under the Plan or, having
been so selected, to be selected to receive a future Award.
ARTICLE 14. CHANGE OF CONTROL
14.1 CHANGE OF CONTROL. Except as otherwise provided in an
Award Agreement, if a Change of Control occurs, then:
(i) the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not exercisable
on the date of such Change of Control, shall thereupon be fully exercisable
and may be exercised, in whole or in part; and
(iii) the Company shall immediately pay to the Grantee, with
respect to any Performance Share or Performance Unit with respect to which
the Performance Period has not ended as of the date of such Change of
Control, a cash payment equal to the product of (A) in the case of a
Performance Share, the Change of Control Value or (B) in the case of a
Performance Unit, the value of the Performance Unit specified in the Award
Agreement, as applicable, multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of
whole and partial months that have elapsed between the beginning of such
Performance Period and the date of such Change of Control and the denominator
of which is the number of whole and partial months in the Performance Period;
and
(2) a percentage equal to a greater of (x) the target
percentage, if any, specified in the applicable Award Agreement or (y) the
maximum percentage, if any, that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance
goals have been achieved as of the date of such Change of Control would
continue until the end of the Performance Period.
14.2 POOLING OF INTERESTS ACCOUNTING. If the Committee
determines, prior to a sale or merger of the Company that the Committee
determines is reasonably likely to occur, that the grant or exercise of
Options, SARs or LSARs would preclude the use of pooling of interests
accounting ("pooling") after the consummation of such sale or merger and that
such preclusion of pooling would have a material adverse effect on such sale
or merger, the Committee may (a) make any adjustments in such Options, SARs
or LSARs prior to the sale or merger that will permit pooling after the
consummation of such sale or merger or (b) cause the Company to pay the
benefits attributable to such Options, SARs or LSARs (including for this
purpose not only the spread between the then Fair Market Value of the Shares
subject to such Options, SARs or LSARs and the Option Price or Strike Price
applicable thereto, but also the additional value of such Options, SARs, or
LSARs in excess of such spread, as determined by the Committee) in the form
of Shares if such payment would not cause the transaction to remain or become
ineligible for pooling; provided, however, no such adjustment or payment may
be made that would adversely affect in any material way any such Options,
SARs or LSARs without the consent of the affected Grantee.
ARTICLE 15. AMENDMENT, MODIFICATION, AND TERMINATION
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the
terms of the Plan, the Board may at any time and from time to time, alter,
amend, suspend or terminate the Plan in whole or in part without the approval
of the Company's stockholders. The Board may delegate to the Plan Committee
any or all of the authority of the Board under Section 15.1 to alter, amend,
suspend or terminate the Plan.
15.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL
OR NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual
or nonrecurring events (including the events described in Section 4.2)
affecting the Company or the financial statements of the Company or of
changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan; provided that no such
adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan's meeting the requirements of the Performance-
Based Exception.
15.3 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other
provision of the Plan to the contrary, no termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the Grantee
of such Award.
ARTICLE 16. WITHHOLDING
16.1 WITHHOLDING
(a) MANDATORY TAX WITHHOLDING.
(1) Whenever, under the Plan, Shares are to be delivered
upon exercise or payment of an Award or upon Restricted Shares
becoming nonforfeitable, or any other event with respect to
rights and benefits hereunder, the Company shall be entitled to
require (i) that the Grantee remit an amount in cash, or if
determined by the Committee, Mature Shares, sufficient to satisfy
all federal, state, local and foreign tax withholding
requirements related thereto ("Required Withholding"), (ii) the
withholding of such Required Withholding from compensation
otherwise due to the Grantee or from any Shares or other payment
due to the Grantee under the Plan or (iii) any combination of the
foregoing.
(2) Any Grantee who makes a Disqualifying Disposition or
an election under Section 83(b) of the Code shall remit to the
Company an amount sufficient to satisfy all resulting Required
Withholding; PROVIDED that, in lieu of or in addition to the
foregoing, the Company shall have the right to withhold such
Required Withholding from compensation otherwise due to the
Grantee or from any Shares or other payment due to the Grantee
under the Plan.
(b) ELECTIVE SHARE WITHHOLDING.
(1)Subject to subsection 16.1(b)(2), a Grantee may elect
the withholding ("Share Withholding") by the Company of a portion
of the Shares subject to an Award upon the exercise of such Award
or upon Restricted Shares becoming non-forfeitable or upon making
an election under Section 83(b) of the Code (each, a "Taxable
Event") having a Fair Market Value equal to (i) the minimum
amount necessary to satisfy Required Withholding liability
attributable to the Taxable Event; or (ii) with the Committee's
prior approval, a greater amount, not to exceed the estimated
total amount of such Grantee's tax liability with respect to the
Taxable Event.
(2) Each Share Withholding election shall be subject to
the following conditions:
(i) any Grantee's election shall be subject to the
Committee's discretion to revoke the Grantee's right to elect Share
Withholding at any time before the Grantee's election if the Committee has
reserved the right to do so in the Award Agreement;
(ii) the Grantee's election must be made before the
date (the "Tax Date") on which the amount of tax to be withheld is
determined; and
(iii) the Grantee's election shall be irrevocable.
16.2 NOTIFICATION UNDER CODE SECTION 83(B). If the Grantee, in
connection with the exercise of any Option, or the grant of Restricted
Shares, makes the election permitted under Section 83(b) of the Code to
include in such Grantee's gross income in the year of transfer the amounts
specified in Section 83(b) of the Code, then such Grantee shall notify the
Company of such election within 10 days of filing the notice of the election
with the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under Section 83(b) of the Code. The
Committee may, in connection with the grant of an Award or at any time
thereafter prior to such an election being made, prohibit a Grantee from
making the election described above.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise of all or substantially all of
the business and/or assets of the Company.
ARTICLE 18. ADDITIONAL PROVISIONS
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. If any part of the Plan is declared by any
court or governmental authority to be unlawful or invalid, such unlawfulness
or invalidity shall not invalidate any other part of the Plan. Any Section or
part of a Section so declared to be unlawful or invalid shall, if possible,
be construed in a manner which will give effect to the terms of such Section
or part of a Section to the fullest extent possible while remaining lawful
and valid.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
stock exchanges as may be required. Notwithstanding any provision of the
Plan or any Award, Grantees shall not be entitled to exercise, or receive
benefits under, any Award, and the Company shall not be obligated to deliver
any Shares or other benefits to a Grantee, if such exercise or delivery would
constitute a violation by the Grantee or the Company of any applicable law or
regulation.
18.4 SECURITIES LAW COMPLIANCE.
(a) If the Committee deems it necessary to comply with any
applicable securities law, or the requirements of any stock exchange upon
which Shares may be listed, the Committee may impose any restriction on
Shares acquired pursuant to Awards under the Plan as it may deem advisable.
All certificates for Shares delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the SEC, any stock exchange upon which Shares are
then listed, any applicable securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. If so requested by the Company, the Grantee
shall make a written representation to the Company that he or she will not
sell or offer to sell any Shares unless a registration statement shall be in
effect with respect to such Shares under the Securities Act of 1993, as
amended, and any applicable state securities law or unless he or she shall
have furnished to the Company evidence satisfactory to the Company that such
registration is not required.
(b) If the Committee determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any Award would
violate any applicable provision of securities laws or the listing
requirements of any stock exchange upon which any of the Company's equity
securities are listed, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as applicable, but the Company shall use all
reasonable efforts to cause such exercise, nonforfeitability or delivery to
comply with all such provisions at the earliest practicable date.
18.5 NO RIGHTS AS A STOCKHOLDER. A Grantee shall not have any
rights as a stockholder of the Company with respect to the Shares (other than
Restricted Shares) which may be deliverable upon exercise or payment of such
Award until such shares have been delivered to him or her. Restricted Shares,
whether held by a Grantee or in escrow by the Secretary of the Company, shall
confer on the Grantee all rights of a stockholder of the Company, except as
otherwise provided in the Plan or Award Agreement. At the time of a grant of
Restricted Shares, the Committee may require the payment of cash dividends
thereon to be deferred and, if the Committee so determines, reinvested in
additional Restricted Shares. Stock dividends and deferred cash dividends
issued with respect to Restricted Shares shall be subject to the same
restrictions and other terms as apply to the Restricted Shares with respect
to which such dividends are issued. The Committee may provide for payment of
interest on deferred cash dividends.
18.6 NATURE OF PAYMENTS. Awards shall be special incentive
payments to the Grantee and shall not be taken into account in computing the
amount of salary or compensation of the Grantee for purposes of determining
any pension, retirement, death or other benefit under (a) any pension,
retirement, profit-sharing, bonus, insurance or other employee benefit plan
of the Company or any Subsidiary or (b) any agreement between (i) the Company
or any Subsidiary and (ii) the Grantee, except as such plan or agreement
shall otherwise expressly provide.
18.7 PERFORMANCE MEASURES. Unless and until the Committee
proposes for stockholder vote and stockholders approve a change in the
general performance measures set forth in this Section 18.7, the performance
measure(s) to be used for purposes of such Awards shall be chosen from among
the following:
(a) Earnings (either in the aggregate or on a per-share basis);
(b) Net income (before or after taxes);
(c) Operating income;
(d) Cash flow;
(e) Return measures (including return on assets, equity, or sales);
(f) Earnings before or after either, or any combination of, taxes,
interest or depreciation and amortization;
(g) Gross revenues;
(h) Share price (including growth measures and stockholder return or
attainment by the Shares of a specified value for a specified
period of time);
(i) Reductions in expense levels in each case, where applicable,
determined either on a Company-wide basis or in respect of any
one or more business units;
(j) Net economic value; or
(k) Market share.
Any of the foregoing performance measures may be applied, as determined
by the Committee, on the basis of the Company as a whole, or in respect of
any one or more Subsidiaries or divisions of the Company or any part of a
Subsidiary or division of the Company that is specified by the Committee.
The Committee may adjust the determinations of the degree of attainment
of the preestablished performance goals; provided, however, that Awards which
are designed to qualify for the Performance-Based Exception may not be
adjusted upward without the approval of the Company's stockholders (the
Committee may adjust such Awards downward).
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures
without obtaining stockholder approval of such changes, and still qualify for
the Performance-Based Exception, the Committee shall have sole discretion to
make such changes without obtaining stockholder approval.
18.8 GOVERNING LAW. The Plan, and all agreements hereunder,
shall be construed in accordance with and governed by the laws of the State
of Delaware other than its laws respecting choice of law.
STILWELL FINANCIAL, INC.
EXECUTIVE PLAN
___________________________________________
THIS EXECUTIVE PLAN (the "Plan") is executed this 11th day of August,
1999 by Stilwell Financial, Inc. ("Stilwell"), a corporation organized under
the laws of the State of Delaware.
WITNESSETH:
WHEREAS, Kansas City Southern Industries, Inc. ("KCSI") owns 100% of the
issued and outstanding shares of Stilwell; and
WHEREAS, KCSI plans to distribute all or substantially all of the Stilwell
shares to the stockholders of KCSI in a tax-free transaction pursuant to
Section 355 of the Internal Revenue Code of 1986, as amended, (the "Code")
which transaction (the "Spin-off") will reduce KCSI's ownership of Stilwell,
so that Stilwell and its subsidiaries will no longer be members of the KCSI
affiliated group for federal income tax purposes; and
WHEREAS, KCSI and certain of its subsidiaries maintain qualified
retirement plans subject to Sections 401(a)(17) and 415 of the Code, which
plans limit the annual contributions permitted to certain participants in such
plans and in which plans Stilwell participants are participating until the date
of the Spin-off (the "Disaffiliation Date"); and
WHEREAS, KCSI has preferred to provide a benefit to certain participants
in addition to the annual contributions permitted under its qualified
retirement plans and therefore established an Executive Plan on January 18,
1985 which plan has been amended from time to time (the "KCSI Executive Plan");
and
WHEREAS, in conjunction with the Spin-off, Stilwell will adopt its own
qualified retirement plans subject to Sections 401(a)(17) and 415 of the
Code, which plans will limit the annual contributions permitted to certain
participants in such plans; and
WHEREAS, Stilwell also prefers to provide a benefit to certain
participants in addition to the annual contributions permitted under its
qualified retirement plans; and
WHEREAS, upon the Disaffiliation Date, Stilwell employees will no
longer be eligible to participate in the KCSI Executive Plan;
NOW, THEREFORE, Stilwell hereby adopts this Plan to provide benefits to
Stilwell employees similar to those previously provided under the KCSI
Executive Plan as follows:
1.1 Definitions.
1.2 "Account" shall mean the separate account for a Participant which
Stilwell maintains under the Stilwell Executive Plan.
1.3 "Annual Benefit" shall mean for each calendar year the amount by
which (a) below exceeds (b) below:
(a) The amount of the annual contributions (other than elective
deferrals) and forfeitures which the Participant would have been entitled to
receive under one or more of the Qualified Plans, except that (1) any
limitations imposed on such contributions under Section 401(a)(17) or 415 of
the Internal Revenue Code shall be disregarded, (2) in computing such amount,
the definition of "Compensation" contained in Section 1.4 herein shall be used
instead of the definition of "Compensation" contained in such Qualified Plans,
if different, (3) the amount of matching contributions that the Participant
would have been entitled to receive under the Stilwell Financial, Inc. 401(k)
Plan With Profit Sharing Portion (the "401(k) Plan") shall be deemed to be
equal to 3% of the Participant's Compensation, and (4) any eligibility
requirements for participation in the Qualified Plans shall be disregarded; and
(b) The amount of the annual contributions (other than elective
deferrals) and forfeitures which the Participant is entitled to receive under
the Qualified Plans as limited by Sections 401(a)(17) and 415 of the Internal
Revenue Code and any eligibility requirements for participation in the
Qualified Plans, and with respect to the 401(k) Plan, treating the Participant
as having received the maximum matching contributions available under 401(k)
Plan, as if the Participant had made the maximum elective deferrals permitted
by Section 402(g) of the Code, disregarding the limitations of the 401(k) Plan.
1.4 "Company" shall mean Stilwell Financial, Inc., and each of its
subsidiary companies which is at least eighty percent (80%) owned; PROVIDED,
such subsidiary company is admitted to participate in the Plan on or after the
Disaffiliation Date upon approval of the Compensation Committee.
1.5 "Compensation" shall mean actual cash compensation paid to a
Participant as base compensation and incentive compensation for a taxable year,
but not including any amount paid as severance pay. If a Participant and the
Company have entered into an agreement fixing the value of a Participant's
annual compensation for purposes of any cash compensation-based plan for a
particular year, then that value shall be deemed to be such Participant's
annual base and incentive compensation for that year, and such annual
base and incentive compensation shall be deemed to be paid ratably throughout
that year.
1.6 "Compensation Committee" shall mean the Compensation and
Organization Committee of the Board of Directors of Stilwell Financial, Inc.
1.7 "Participant" is an employee of the Company who is eligible to
participate in the Plan under Section 2 and whose participation in the Plan
is approved by the Compensation Committee or the Chief Executive Officer of
Stilwell.
1.8 "Plan" shall mean this Stilwell Financial, Inc. Executive Plan.
1.9 "KCSI Qualified Plans" shall mean the Kansas City Southern Industries,
Inc. Profit Sharing Plan, The Kansas City Southern Industries, Inc.
Employee Stock Ownership Plan and the Kansas City Southern Industries, Inc.
401(k) Plan, or any successor plans.
1.10 "Qualified Plans" shall mean the 401(k) Plan and the Stilwell
Financial, Inc. Employee Stock Ownership Plan or any successor plans, which
plans are to be established in conjunction with the Spin-off; for purposes of
any year in which a participant participated in the KCSI Qualified Plans or
both the KCSI Qualified Plans and the Qualified Plans, Qualified Plans or a
reference to a single KCSI Qualified Plan, shall include KCSI Qualified Plans
or the comparable single KCSI Qualified Plan, as the case may be, for purposes
of determining the Participant's Annual Benefit.
1.11 "Vesting Schedule" shall mean the vesting schedule applicable to each
Participant under the terms and provisions of the 401(k) Plan.
2.0 Eligibility. Eligibility in the Plan shall be limited to any employee
of the Company who is a corporate officer of the Company for whom the Company's
contributions to the Qualified Plans are limited or prohibited as provided
under Section 401(a)(17) of the Code, Section 415 of the Code, and/or the
eligibility requirements of one or more of the Qualified Plans.
3.0 Election of Form of Benefits. Each Participant may elect to receive
the Annual Benefit available under the Plan either in cash or through a grant
of non-qualified stock options to purchase shares of common stock of Stilwell
("Stock Options"). Such election shall be made with respect to each calendar
year covered by the Plan, but may be an ongoing election which remains in
effect until changed unless the Participant otherwise specifies in the
election. The election for each calendar year shall be made not later than
October 31 of that year. An ongoing election may be changed at any time by a
Participant, but any such change shall not be effective for the calendar year
in which the election is made unless such change is made prior to October 31
of such year. Elections of part cash and part Stock Options shall not be
permitted. Notwithstanding the foregoing or any election made by a
Participant to receive an Annual Benefit in Stock Options, no Stock Options
shall be issued unless the Participant is an active employee of the Company on
the date of grant of the Stock Options, but instead the Annual Benefit shall be
paid in cash.
4.1 Payment of Annual Benefit. Annual Benefits under the Plan shall be
paid as Stock Options, unless the Participant shall have elected in accordance
with Section 3 hereof to receive cash.
4.2 Time of Payment. Annual Benefits shall be paid by no later than the
date of the annual Stilwell stockholders' meeting held in the year following
the calendar year in which the Annual Benefit is earned.
4.3 Stock Option Grants. If a Participant has elected to receive his or
her benefit in the form of Stock Options, the Compensation Committee shall
grant the Participant Stock Options which the Compensation Committee determines
have a value equal to 125% of the Annual Benefit, rounded to the nearest whole
share. The Compensation Committee shall value the Stock Options as of the time
of grant using the Black-Scholes method in the manner determined by the
Compensation Committee applied on a consistent basis.
4.4 Termination During a Calendar Year. If a Participant's employment is
terminated during a calendar year for any reason, the Participant shall be
entitled to an Annual Benefit for the year of termination only if the
Participant is entitled to a contribution under one or more Qualified Plans in
such year. Following the date of termination of employment, the Participant
shall not be entitled to any further benefits under the Plan (except for
payment of Annual Benefits, if any, through the date of termination of
employment).
4.5 Vesting Schedule. Stock Options granted under this Plan shall become
exercisable in accordance with the Vesting Schedule. Notwithstanding any other
provision of this Plan to the contrary, no Annual Benefit shall be paid in cash
except to the extent that the amount paid is vested in accordance with the
Vesting Schedule. Any undistributed cash balance of any Annual Benefit shall
earn a return based on a hypothetical investment of such undistributed cash
balance in the following investments: 33 1/3% in Janus Venture Fund, 33 1/3%
in Janus Twenty Fund and 33 1/3% in Janus Worldwide Fund, and shall be
distributed as it vests under the Vesting Schedule.
5. No Trust. Nothing contained in this Plan and no action taken pursuant
to the provisions of the Plan shall create or be construed to create a trust
of any kind or a fiduciary relationship between the Company and the Participant
or any other person.
6. Source of Payments. The Participant and any other person or persons
having or claiming a right to benefits hereunder or to any interest in the Plan
shall rely solely on the unsecured promise of the Company set forth herein and
nothing in the Plan shall be construed to give the Participant or any other
person or persons any right, title, interest or claim in or to any specific
asset, fund, reserve, account or property of any kind whatsoever owned by the
Company or in which it may have any right, title or interest now or in the
future, but the Participant shall have the right to enforce his claim against
the Company in the same manner as any unsecured creditor.
7. No Assignment. The right of the Participant or any other person to the
payment of benefits under the Plan shall not be assigned, transferred, pledged
or encumbered in any way.
8. Incapacity of Participant or Beneficiary. If the Compensation
Committee shall find that any person to whom any payment is payable under the
Plan is unable to care for his affairs because of illness or accident or is a
minor, any payment due (unless a prior claim therefor shall have been made by
a duly appointed guardian, committee or other legal representative) may be paid
to the spouse, a child, a parent or a brother or sister, or to any person
deemed by the Compensation Committee to have incurred expense for such person
otherwise entitled to payment in accordance with the applicable provisions of
Section 4 above. Any such payment shall be a complete discharge of the
liabilities of the Company under the Plan.
9. Compensation Committee Powers and Liabilities. The Compensation
Committee in its absolute discretion shall have the full power and authority to
interpret, construe and administer the Plan and the Compensation Committee's
interpretations and construction thereof, and action thereunder, including the
determination of the amount or recipient of the payment to be made therefrom,
shall be binding and conclusive on all persons for all purposes. No member of
the Compensation Committee shall be liable to any person for any action taken
or omitted in connection with the interpretation and administration of the Plan.
10. Benefits Not Treated as Compensation. Any benefits payable under the
Plan shall not be deemed cash compensation to the Participant for the purpose
of computing benefits to which he may be entitled under this Plan.
11. Governing Law. This Plan shall be construed in accordance with and
governed by the law of the State of Missouri, excluding provisions for choice
of laws.
12. Amendment. This Plan may be amended at any time and from time to
time by the Compensation Committee.
13. Binding Effect. This Plan shall be binding upon and inure to the
benefit of the Company, its successors and assigns and the Participants and
their heirs, executors, administrators and legal representatives.
IN WITNESS WHEREOF, this Plan has been duly executed as of the day and
year first above stated.
Stilwell Financial, Inc.
By /s/ Landon H. Rowland
____________________________
Landon H. Rowland, Chairman
List of Subsidiaries
All subsidiaries of Stilwell listed below are included in the
consolidated financial statements unless otherwise indicated.
State or other
Percentage Jurisdiction of
of Incorporation or
Ownership Organization
Animal Resources, Inc. (1)* 49% Missouri
BBOI Worldwide LLC*(2) 50 Delaware
Berger LLC(3) ____ Nevada
Berger/Bay Isle LLC*(2) 50 Delaware
Berger Distributors, LLC(4) 100 Colorado
DST Systems, Inc.* 32 Missouri
Fillmore Agency, Inc.(5) 100 Colorado
Fountain Investments, Inc. 100 Missouri
Fountain Investments UK 100 United Kingdom
Janus Capital Corporation 83 Colorado
Janus Capital International, Ltd.(5) 100 Colorado
Janus Distributors, Inc.(5) 100 Colorado
Janus Service Corporation(5) 100 Colorado
Joseph Nelson Limited(6) 100 United Kingdom
Martec Pharmaceutical, Inc.*(1) 49 Delaware
Nelson Investment Planning Limited(7) 100 United Kingdom
Nelson Investment Management Limited(6) 100 United Kingdom
Nelson Money Managers plc(8) 80 United Kingdom
PVI, Inc. 100 Delaware
Stilwell Management, Inc. 100 Delaware
FAM UK Limited 100 United Kingdom
Taproot Limited(6) 100 United Kingdom
*Unconsolidated Affiliate, Accounted for Using the Equity Method
(1) Subsidiary of PVI, Inc.
(2) Unconsolidated Affiliate of Berger LLC. Berger LLC is the successor to
the operating assets and business of Berger Associates, Inc. as of
September 30, 1999.
(3) Subsidiary of Stilwell Management, Inc.
(4) Subsidiary of Berger LLC. Berger Distributors, LLC converted from a
Colorado corporation to a Colorado limited liability company as of
September 30, 1999.
(5) Subsidiary of Janus Capital Corporation
(6) Subsidiary of Nelson Money Managers plc
(7) Subsidiary of Joseph Nelson Limited
(8) Subsidiary of FAM UK Limited
Subsidiaries and affiliates not shown, if taken in the aggregate, would not
constitute a significant subsidiary of Stilwell. Subsidiaries and affiliates
of DST Systems Inc. are not shown.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM Balance Sheets at June 30, 1999
(unaudited), December 31, 1998, December 31, 1997 and
December 31, 1996; Statements of Income for the six
months ended June 30, 1999 (unaudited) 12 months ended
December 31, 1998, December 31, 1997 and December 31,
1996; Statements of Cash Flows for the six months ended
June 30, 1999 (unadited) and 12 months ended December 31,
1998, December 31, 1997 and December 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-TYPE> 6-MOS 12-MOS 12-MOS 12 MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1999 DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 51,200,000 21,600,000 33,700,000 22,800,000
<SECURITIES> 0 0 0 0
<RECEIVABLES> 108,600,000 76,600,000 53,700,000 38,700,000
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 286,600,000 259,300,000 194,200,000 135,400,000
<PP&E> 83,900,000 69,700,000 38,600,000 36,200,000
<DEPRECIATION> 36,100,000 32,300,000 29,200,000 27,600,000
<TOTAL-ASSETS> 921,100,000 822,900,000 672,600,000 548,200,000
<CURRENT-LIABILITIES> 107,100,000 71,100,000 63,400,000 50,100,000
<BONDS> 0 16,600,000 84,100,000 117,400,000
0 0 0 0
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> 614,800,000 540,200,000 348,300,000 234,800,000
<TOTAL-LIABILITY-AND-EQUITY> 912,100,000 822,900,000 672,600,000 548,200,000
<SALES> 0 0 0 0
<TOTAL-REVENUES> 515,500,000 670,800,000 485,100,000 329,600,000
<CGS> 0 0 0 0
<TOTAL-COSTS> 302,800,000 390,200,000 285,900,000 197,800,000
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 1,700,000 6,500,000 10,400,000 6,800,000
<INCOME-PRETAX> 242,700,000 289,300,000 229,900,000 208,600,000
<INCOME-TAX> 86,900,000 103,700,000 87,000,000 58,200,000
<INCOME-CONTINUING> 131,900,000 152,200,000 118,000,000 134,600,000
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 131,900,000 152,200,000 118,000,000 134,600,000
<EPS-BASIC> 131,900 152,200 118,000 134,600
<EPS-DILUTED> 130,100 149,900 117,400 134,000
</TABLE>
PRELIMINARY COPY
SUBJECT TO COMPLETION OR AMENDMENT, DATED AUGUST 18, 1999
INFORMATION STATEMENT
STILWELL FINANCIAL, INC.
Common Stock, par value $.01 per share
This information statement (the "Information Statement") is being
furnished by Kansas City Southern Industries, Inc., a Delaware corporation
("KCSI"), in connection with the distribution (the "Distribution") to holders
of record of common stock of KCSI ("KCSI Common Stock"), on [________], 1999
(the "Record Date") of two shares of common stock, par value $.01 per share,
including certain attached preferred stock purchase rights (collectively, the
"Stilwell Common Stock"), of Stilwell Financial, Inc., a Delaware corporation
("Stilwell"), for every one share of KCSI Common Stock outstanding on the
Record Date. Stilwell was formed recently by KCSI as a holding company for the
group of businesses and investments that comprised the financial services
segment of KCSI. The Distribution will result in all of the outstanding shares
of Stilwell Common Stock being distributed to holders of KCSI Common Stock on a
pro-rata basis.
The Distribution will be effective on [________], 1999 (the "Distribution
Date"), and it is expected that certificates representing Stilwell Common Stock
will be mailed within [____] days following the Distribution Date (the "Mailing
Date").
No consideration will be paid by KCSI's stockholders for the shares of
Stilwell Common Stock to be received by them in the Distribution nor will they
be required to surrender or exchange shares of KCSI Common Stock or take any
other action in order to receive Stilwell Common Stock.
There has been no established trading market for the shares of Stilwell
Common Stock, although it is expected that a "when-issued" trading market will
develop near the Record Date. [Stilwell has received approval, subject to
official notice of issuance, to have the Stilwell Common Stock listed on the
New York Stock Exchange under the symbol "SV."] There can be no assurance,
however, that Stilwell will be successful in meeting the requirements for
continued listing on the New York Stock Exchange.
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER
THE MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" WHICH BEGINS ON
PAGE 17.
____________________
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS
DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY
ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND OTHERWISE IN COMPLIANCE WITH APPLICABLE LAW.
THE DATE OF THIS INFORMATION STATEMENT IS [___________], 1999.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY............................................................ 5
The Distribution................................................ 5
Stilwell Financial, Inc......................................... 10
Summary Financial and Operating Data............................ 14
INTRODUCTION....................................................... 17
RISK FACTORS....................................................... 17
THE DISTRIBUTION................................................... 29
Background and Reasons for the Distribution..................... 29
Manner of Effecting the Distribution............................ 31
Results of the Distribution..................................... 31
Certain Federal Income Tax Consequences......................... 31
Trading of Stilwell Common Stock................................ 33
Modification or Abandonment of the Distribution................. 35
Solvency and Surplus Opinion of Financial Advisor............... 35
RELATIONSHIP BETWEEN KCSI AND STILWELL AFTER THE DISTRIBUTION...... 36
Intercompany Agreement.......................................... 36
Tax Disaffiliation Agreement.................................... 37
Employee Benefits............................................... 37
FINANCING.......................................................... 41
Description of the Credit Facility.............................. 41
Need for Additional Financing................................... 41
CAPITALIZATION..................................................... 42
DIVIDEND POLICY.................................................... 43
SELECTED FINANCIAL AND OPERATING DATA.............................. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 47
BUSINESS........................................................... 75
Background......................................................... 75
Stilwell Financial, Inc............................................ 75
Stilwell's Principal Subsidiaries and Equity Investments...... 75
Janus Capital Corporation................................ 75
Berger LLC............................................... 81
Nelson Money Managers Plc................................ 90
DST Systems, Inc......................................... 92
Properties...................................................... 93
Employees....................................................... 93
Stilwell Business Strategy...................................... 93
Competition..................................................... 94
Regulation...................................................... 95
Legal Matters................................................... 96
MANAGEMENT......................................................... 97
Directors and Executive Officers............................. 97
Composition of Stilwell's Board of Directors.................... 99
Committees of Stilwell's Board of Directors..................... 99
Compensation of Stilwell's Directors............................ 100
Executive Compensation.......................................... 100
Summary Compensation Table...................................... 101
1998 Option/SAR Grants In Last Fiscal Year...................... 103
1998 Aggregate Option Exercises and Year-End Option
Values........................................................ 105
Employment Agreements with the Named Executive Officers......... 107
Indemnification Agreements...................................... 110
Other Compensatory Plans and Arrangements....................... 111
PRINCIPAL STOCKHOLDERS AND STOCK OWNED BENEFICIALLY
BY STILWELL'S DIRECTORS AND CERTAIN EXECUTIVE OFFICERS........... 115
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 117
DESCRIPTION OF CAPITAL STOCK....................................... 118
Common Stock.................................................... 118
Preferred Stock................................................. 118
Certain Antitakeover Effects.................................... 119
Stockholders' Rights Plan....................................... 123
Transfer Agent.................................................. 124
ADDITIONAL INFORMATION............................................. 124
INDEX TO FINANCIAL STATEMENTS...................................... F-1
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS INFORMATION STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION SET FORTH IN THIS
INFORMATION STATEMENT, WHICH SHOULD BE READ IN ITS ENTIRETY. UNLESS OTHERWISE
STATED OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS INFORMATION
STATEMENT TO (i) KCSI AND STILWELL INCLUDE KCSI'S AND STILWELL'S RESPECTIVE
DIRECT AND INDIRECT SUBSIDIARIES AND EQUITY INVESTMENTS, (ii) STILWELL PRIOR TO
THE DISTRIBUTION DATE REFER TO KCSI'S FINANCIAL SERVICES SEGMENT (AS DESCRIBED
BELOW) AND (iii) BERGER (AS DEFINED HEREIN) PRIOR TO SEPTEMBER 30, 1999 REFER
TO BERGER ASSOCIATES, INC.
THE DISTRIBUTION
Distributing Corporation Kansas City Southern Industries, Inc., a
Delaware corporation.
Distributed Corporation
and Business Stilwill Financial, Inc., a Delaware corporation and
wholly-owned subsidiary of KCSI. Stilwell was formed
recently by KCSI as a holding company for the group
of businesses and investments that comprised the
KCSI financial services segment. The businesses
which comprise the financial services segment offer
a variety of asset management and related financial
services to registered investment companies, retail
investors, institutions and individuals. See
"Business."
Principal Business to be
Retained by KCSI KCSI is retaining its rail transportation business.
KCSI, through its principal subsidiaries and joint
ventures, owns and operates a rail network of
approximately 6,000 miles of main and branch lines
that links the key commercial and industrial
markets of the United States and Mexico and will
rebuild and operate the transisthmus railroad in
Panama.
Primary Purposes of the
Distribution To separate the financial services business, to be
owned solely by Stilwell, from the rail
transportation business, to be owned solely by
KCSI, so that each company can (i) focus on
adopting strategies and pursuing objectives
appropriate to its specific business; (ii)
focus attention and financial resources on
the development and management of growth in
each of their respective core businesses;
(iii) eliminate time and resources spent
resolving differences between the businesses
relating to utilization of KCSI resources,
available capital, capitalization, management
style, organizational structure and long-term
and short-term strategies and goals; (iv)
minimize the exposure of each business to the
liabilities arising from the operations of the
other; (v) issue its own securities to implement
more focused stock-based compensation programs
keyed more directly to its earnings and
performance; and (vi) issue its own securities
to pursue acquisitions or strategic relationships.
See "The Distribution-Background and Reasons for
the Distribution."
Distribution Ratio Each KCSI stockholder will receive two shares of
Stilwell Common Stock, including certain attached
preferred stock purchase rights, for every one
share of KCSI Common Stock held on the Record
Date. No consideration will need to be paid by
KCSI's stockholders for the shares of Stilwell
Common Stock to be received by them in the
Distribution nor will they be required to
surrender or exchange shares of KCSI Common Stock
or take any other action in order to receive
Stilwell Common Stock. See "The Distribution-
Manner of Effecting the Distribution" and
"Description of Capital Stock-Stockholders'
Rights Plan."
Shares to be Distributed The actual number of shares to be distributed will
depend on the number of shares of KCSI Common
Stock outstanding on the Record Date. Based on
the number of shares of KCSI Common Stock
outstanding as of June 30, 1999, approximately
221,000,000 shares of Stilwell Common Stock will
be distributed. The shares of Stilwell Common
Stock to be distributed will constitute all of the
outstanding shares of Stilwell Common Stock on the
Distribution Date. See "The Distribution-Manner of
Effecting the Distribution" and "The Distribution-
Results of the Distribution."
Distribution Agent UMB Bank, N.A. (the "Distribution Agent"), 1010
Grand Avenue, Kansas City, Missouri 64106.
Modification or
Abandonment of
the Distribution KCSI's Board of Directors intends to complete the
Distribution unless an event arises that, in its
judgment, would have a material adverse effect on
KCSI or its stockholders. The Distribution may be
amended, modified or abandoned at any time prior
to the Record Date by, and in the sole discretion
of, KCSI's Board of Directors. See "The
Distribution-Modification or Abandonment of the
Distribution."
No Fractional Share No fractional shares of Stilwell Common Stock will
be distributed in the Distribution. See "The
Distribution-Manner of Effecting the
Distribution."
Trading Market There has been no established trading market for
Stilwell Common Stock, although a "when-issued"
trading market is expected to develop near the
Record Date. [Stilwell has received approval,
subject to official notice of issuance, to have
the Stilwell Common Stock listed on the New York
Stock Exchange under the symbol "SV."] There can
be no assurance, however, that Stilwell will be
successful in meeting the requirements for
continued listing on the New York Stock Exchange.
See "The Distribution-Trading of Stilwell Common
Stock."
Record Date Close of business on [______], 1999 (the "Record
Date").
Distribution Date Certificates representing the shares of Stilwell
Common Stock will be delivered to the Distribution
Agent on [__________], 1999 (the "Distribution
Date") and the Distribution will be effective on
that date.
Mailing Date Certificates representing the shares of Stilwell
Common Stock are expected to be mailed by the
Distribution Agent to KCSI stockholders within
[____] days following the Distribution Date (the
"Mailing Date"). See "The Distribution-Manner of
Effecting the Distribution."
Tax Consequences KCSI has received a tax ruling (the "Tax Ruling")
from the Internal Revenue Service (the "IRS") to
the effect that for United States federal income
tax purposes, the Distribution qualifies as a tax-
free distribution under Section 355 of the
Internal Revenue Code of 1986, as amended (the
"Code") and thus no gain or loss will be
recognized by KCSI or Stilwell from the
Distribution or by the holders of KCSI Common
Stock upon receipt of the Stilwell Common Stock in
the Distribution. See "Risk Factors-Federal
Income Tax Considerations" and "The Distribution-
Certain Federal Income Tax Consequences."
Relationship between
KCSI and Stilwell After
the Distribution Following the Distribution, KCSI and Stilwell will
be operated as independent companies. KCSI and
Stilwell will, however, continue to have a limited
relationship, including a common director, during a
transitional period as a result of the agreements
and relationships being entered into between them
in connection with the Distribution. These
agreements include an intercompany agreement (the
"Intercompany Agreement") and a tax disaffiliation
agreement (the "Tax Disaffiliation Agreement").
Except as referred to above or as otherwise
described herein, KCSI and Stilwell are not
expected to have any material relationship with
each other following the Distribution. See
"Results of the Distribution," "Relationship
Between KCSI and Stilwell After the Distribution,"
and "Certain Relationships and Related
Transactions."
Dividend Policy Stilwell has never declared or paid any dividends
on the Stilwell Common Stock. The payment of
dividends by Stilwell is subject to the discretion
of Stilwell's Board of Directors. It is
anticipated that Stilwell will pay cash dividends.
However, the payment and amount of such dividends
by Stilwell will be based on, and affected by, a
number of factors, including Stilwell's financial
position, its capital requirements and liquidity,
the existence of a stock repurchase program,
contractual and legal requirements, results of
operations and such other factors as Stilwell's
Board of Directors considers relevant. In
addition, as a holding company, Stilwell's ability
to pay dividends is dependent on the dividends and
income it receives from its subsidiaries. There
can be no assurance that any dividends will be
declared or paid after the Distribution. See "Risk
Factors-Uncertainty of Dividends" and "Dividend
Policy."
Risk Factors Stockholders should carefully consider the matters
discussed in the section entitled "Risk Factors"
for a complete discussion of the matters that
should be considered in owning Stilwell Common
Stock.
Certain Antitakeover
Considerations Provisions of Stilwell's certificate of incorpora-
tion (the "Certificate") and bylaws (the
"Bylaws"), certain agreements, Stilwell's
Stockholders' Rights Plan (the "Rights Plan"), and
provisions of the Delaware General Corporation Law
(the "DGCL") and the Code, may have the effect of
delaying, deterring or preventing a change in
control of Stilwell. See "Risk Factors," "The
Distribution-Certain Federal Income Tax
Consequences" and "Description of Capital Stock."
* * *
THIS INFORMATION STATEMENT IS BEING FURNISHED SOLELY TO PROVIDE
INFORMATION TO KCSI STOCKHOLDERS WHO WILL RECEIVE SHARES OF STILWELL COMMON
STOCK IN THE DISTRIBUTION. IT IS NOT, AND IS NOT TO BE CONSTRUED AS, AN
INDUCEMENT OR ENCOURAGEMENT TO BUY OR SELL ANY SECURITIES OF KCSI OR STILWELL.
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS BELIEVED TO BE
ACCURATE AS OF THE DATE SET FORTH ON ITS COVER. CHANGES MAY OCCUR AFTER THAT
DATE, AND NEITHER KCSI NOR STILWELL WILL UPDATE THE INFORMATION EXCEPT IN THE
NORMAL COURSE OF THEIR RESPECTIVE REQUIRED PUBLIC DISCLOSURES.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
<PAGE>
STILWELL FINANCIAL, INC.
BACKGROUND
KCSI is a holding company that has owned and managed, through its direct
and indirect subsidiaries, two principal business segments: rail
transportation and financial services. ONLY THE FINANCIAL SERVICES SEGMENT IS
INCLUDED IN THE DISTRIBUTION. The primary entities comprising the financial
services segment are Janus Capital Corporation ("Janus"), an approximately 82%
owned subsidiary; Berger LLC ("Berger"), a [_____%] owned subsidiary; Nelson
Money Managers Plc ("Nelson"), an 80% owned subsidiary; DST Systems, Inc.
("DST"), an equity investment in which KCSI holds an approximately 32%
interest, and miscellaneous other subsidiaries and equity investments (the
"Miscellaneous Corporations"). Janus is the principal business of the
financial services segment of KCSI, representing 96% of assets under management
at June 30, 1999 and 95% of revenues and 88% of net income for the six months
ended June 30, 1999. The businesses which comprise the financial services
segment offer a variety of asset management and related financial services to
registered investment companies, retail investors, institutions and
individuals.
After extensive review and discussion, the Board of Directors of KCSI
concluded that it is in the best interests of KCSI and its stockholders for
KCSI to focus on the rail transportation business and for a separate company to
focus on the financial services business. See "The Distribution-Background and
Reasons for the Distribution." On January 23, 1998, KCSI formed Stilwell as a
holding company for the group of businesses and investments that comprised the
KCSI financial services segment. In connection with the Distribution, KCSI
transferred to Stilwell KCSI's investments in Janus, Berger, Nelson, DST, the
Miscellaneous Corporations and certain other financial services-related assets,
and Stilwell assumed all of KCSI's liabilities associated with the assets
transferred, effective July 1, 1999.
STILWELL FINANCIAL, INC.
Stilwell Financial, Inc. is a holding company that manages its
investments in the principal subsidiaries and equity investments more
particularly described below and elsewhere in this Information Statement.
The functions performed by Stilwell Financial, Inc. include consolidated
accounting; consolidated tax return preparation and filing; corporate
secretarial functions; banking and financing; administration of retirement
and stock option plans; internal auditing; investor relations; analysis and
evaluation of acquisition and strategic business opportunities; insurance
assessment and coverage and holding company legal services.
STILWELL'S PRINCIPAL SUBSIDIARIES AND EQUITY INVESTMENTS
JANUS CAPITAL CORPORATION
-------------------------
Janus and its adviser subsidiaries are investment advisers registered
with the U.S. Securities and Exchange Commission (the "SEC") or other
regulatory bodies, and are the investment advisers of the Janus Investment
Fund, Janus Aspen Series and Janus World Funds plc (collectively, the "Janus
Advised Funds"). Additionally, Janus is the adviser or sub-adviser to other
investment companies and institutional and individual private accounts,
including pension, profit-sharing and other employee-benefit plans, trusts,
charitable organizations, endowments, foundations and others (collectively,
"Janus Sub-Advised Funds and Private Accounts"). As of June 30, 1999, Janus
had total assets under management of $155.8 billion, of which $125.6 billion
are in the Janus Advised Funds and the remainder are in Janus Sub-Advised
Funds and Private Accounts. Janus primarily offers equity portfolios to its
investors, which comprised approximately 94% of total assets under management
for Janus and its affiliates at June 30, 1999. At that date, funds advised
by Janus had more than 3.5 million shareowner accounts. For the five-year
period ended June 30, 1999, Janus' total assets under management increased
625 percent. See "Business-Stilwell's Principal Subsidiaries and Equity
Investments-Janus Capital Corporation."
BERGER LLC
----------
Berger is the successor entity to which Berger Associates, Inc.
contributed its operating assets and business as part of a restructuring
consummated as of September 30, 1999. Berger is an investment adviser
registered with the SEC and serves as an investment adviser to a group of
registered investment companies known as the Berger Advised Funds (as defined
in "Business--Stilwell's Principal Subsidiaries and Equity Investments-Berger
LLC"). Berger also serves as investment sub-adviser to a group of registered
investment companies and separate accounts known as the Berger Sub-Advised
Funds (as defined in "Business--Stilwell's Principal Subsidiaries and Equity
Investments-Berger LLC"). In addition, Berger owns 50% of BBOI Worldwide LLC,
a Delaware limited liability company ("BBOI"), a joint venture with the Bank of
Ireland Asset Management (U.S.) Limited ("BIAM"). Berger and BIAM have
executed a non-binding letter of intent pursuant to which, under certain
conditions, BBOI will purchase BIAM's interest in BBOI. If consummated, that
transaction would result in Berger owning all of BBOI. BBOI serves as the
investment adviser and sub-administrator to the Berger/BIAM Funds (as defined
in "Business--Stilwell's Principal Subsidiaries and Equity Investments-Berger
LLC"). Moreover, BBOI acts as investment adviser to certain separate accounts
(the "BBOI Sub-Advised Funds"). Berger owns 80% of Berger/Bay Isle LLC, a
Delaware limited liability company ("B/B Isle"), which is a joint venture with
Bay Isle Financial Corporation. B/B Isle acts as investment adviser to
privately managed separate accounts (the "B/B Isle Separate Accounts"). As of
June 30, 1999, the Berger Complex (as defined in "Business--Stilwell's
Principal Subsidiaries and Equity Investments-Berger LLC") had total assets
under management of $4.7 billion. Of this amount, Berger managed $3.7 billion
in the Berger Advised Funds and $0.4 million in the Berger Sub-Advised Funds;
BBOI managed $0.2 million in the Berger/BIAM Funds and $0.4 million in the BBOI
Sub-Advised Funds; and B/B Isle managed less than $0.1 million in the B/B Isle
Separate Accounts. As of June 30, 1999, funds included in the Berger Complex
had more than 248,000 shareowner accounts. For the five-year period ended June
30, 1999, assets under management in the Berger Complex increased by 99
percent. See "Business-Stilwell's Principal Subsidiaries and Equity
Investments-Berger LLC."
NELSON MONEY MANAGERS PLC
-------------------------
Nelson provides investment advice and investment management services in
the United Kingdom, primarily to individuals who are retired or contemplating
retirement. In order to reach these clients, Nelson has traditionally
performed financial planning seminars for employees of companies in the United
Kingdom. More recently, Nelson has also been offering services directly to the
public via advertisements in the media. For individuals interested in Nelson's
services, Nelson assigns a specific investment adviser to have a one-on-one
consultation. The investment adviser works with each client to conduct an
analysis of the client's investment objectives and then recommends in writing
the construction of a portfolio to meet those objectives. Recommendations for
the design and ongoing maintenance of the portfolio structure are the
responsibility of the investment adviser. The selection and management of the
instruments which constitute the portfolio are the responsibility of Nelson's
investment management team. At June 30, 1999, Nelson employed 40 investment
advisers and managed approximately $1.2 billion ((pound) 751 million)
in assets. At June 30, 1999, Nelson managed assets for approximately 13,000
individuals. For the five-year period ended June 30, 1999, Nelson's total
assets under management increased by 215 percent. See "Business-Stilwell's
Principal Subsidiaries and Equity Investments-Nelson Money Managers Plc."
DST SYSTEMS, INC.
----------------
DST, together with its subsidiaries and joint ventures, provides
information processing, printing and mailing and computer software services and
products to mutual funds, investment managers, communications industries and
other service industries through business units organized into three operating
segments: Financial Services, Customer Management and Output Solutions. DST's
Financial Services segment serves primarily mutual funds, insurance companies,
banks and other financial services organizations. DST's Customer Management
segment provides services and products to cable television, direct broadcast
satellite, wireless and wire-line telephony, utility and multi-service
providers. DST's Output Solutions segment provides statement processing and
solutions to customers of DST's other segments and to other customers. See
"Business-Stilwell's Principal Subsidiaries and Equity Investments-DST Systems,
Inc."
STILWELL BUSINESS STRATEGY
Stilwell believes that it has established a strong platform to support
future growth in revenues, deriving its strength in large part from the
experience and capabilities of Stilwell's subsidiaries and equity investments
as full service providers of asset management and related financial services.
The strength of Stilwell's subsidiaries and equity investments is based on core
investment professionals, solid investment performance results, sophisticated
distribution systems, quality customer service, talented support and service
staff and product expertise and systems. In addition, Stilwell believes that
it will benefit from the brand name equity associated with the names JANUS,
BERGER, NELSON and DST. Opportunities for growth for Stilwell are expected to
come, principally through its subsidiaries and equity investments, from new and
existing clients, strategic acquisitions and alliances and strengthening the
brand name and brand image of Stilwell's subsidiaries and equity investments.
MAINTAIN AND ENHANCE EXISTING CLIENT RELATIONSHIPS. As one of its primary
business objectives, Stilwell intends to maintain and enhance existing client
relationships by continuing to provide a high level of quality service to
existing clients through strong support and service staff, excellent customer
service and product expertise and systems.
GENERATE GROWTH FROM NEW AND EXISTING CLIENTS. Stilwell will pursue growth
from new clients through on-going sales and marketing efforts. Additionally,
Stilwell will seek to increase its share of existing clients' managed assets.
To encourage growth, Stilwell intends to continue compensation programs
with equity incentives for key management employees of its principal
subsidiaries to provide incentives through ownership of stock in the
enterprises in which they are employed. Stilwell seeks to facilitate the
acquisition of such ownership through such compensation programs and by making
such programs competitive with, if not superior to, compensation programs of
other financial services companies.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. Stilwell plans to regularly
evaluate strategic acquisitions, joint ventures and alliances and pursue those
that appear appropriate as a means of expanding the range of its product
offerings and distribution, as well as for increasing its sales and marketing
capabilities.
STRENGTHEN BRAND NAME AND BRAND IMAGE. Stilwell intends to continue
developing several independent financial services businesses with autonomous
management and separate brand names. Stilwell believes it has a strong starting
position for this strategy, based on its existing ownership of Janus, Berger
and Nelson, as well as its equity investment in DST. Management of each of
Stilwell's affiliates has general autonomy over its respective day-to-day
operations, allowing each business to develop a separate public identity,
satisfy legal requirements regarding separation of investment decisions and
maintain compliance with certain minority stockholder agreements.
ORGANIZATIONAL STRUCTURE
The following chart shows the organizational structure of Stilwell's
principal subsidiaries and equity investments.
[Organizational Chart Inserted Here]
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table presents summary financial data of Stilwell. The
information set forth below should be read in conjunction with, and is
qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Information Statement.
The summary financial data for the five years ended December 31, 1998 was
derived from the audited consolidated financial statements of Stilwell. The
summary financial data as of and for the six months ended June 30, 1998 and
1999 was derived from the unaudited consolidated financial statements of
Stilwell, which were prepared on the same basis as the historical audited
financial statements.
The summary financial data set forth below may not be indicative of
Stilwell's future performance and does not necessarily reflect the financial
position and results of operations of Stilwell had Stilwell operated as a
separate, stand-alone entity during each of the periods presented. In
addition to historical earnings per share data based on the Stilwell capital
structure as of June 30, 1999 (1,000 shares outstanding), pro forma earnings
per share information is presented for the year ended December 31, 1998 and
for the six months ended June 30, 1998 and 1999. This pro forma information
is presented for comparison purposes to future years and was derived assuming
an issuance of two shares of Stilwell Common Stock for every one outstanding
share of KCSI Common Stock as of June 30, 1999. In addition, dilutive
options were included based on the number of dilutive KCSI stock options
assumed to be exercised as of June 30, 1999 in connection with the
determination of KCSI's diluted earnings per share computations. The results
for the six months ended June 30, 1999 are not necessarily indicative of the
results for the full fiscal year.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------------------------- ----------------
1994(i) 1995(ii) 1996(iii) 1997 1998(iv) 1998 1999
---- ---- ---- ---- ---- ---- ----
(Dollars in Millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
- --------------
INCOME STATEMENT
DATA:
Revenues $583.8 $236.7 $329.6 $485.1 $670.8 $312.9 $515.5
Operating expenses 515.2 156.5 197.8 285.9 390.2 179.9 302.8
------ ------ ------ ------ ------ ------ ------
Operating Income 68.6 80.2 131.8 199.2 280.6 133.0 212.7
Equity in earnings
of unconsolidated
affiliates 24.8 29.6 68.6 24.9 25.8 15.6 22.5
Reduction in
ownership of DST -- -- -- -- (29.7) -- --
Gain on sale
of DST -- 296.3 -- -- -- -- --
Other, net 0.4 3.7 8.2 5.8 12.6 11.1 7.5
------ ------ ------ ------ ------ ----- -----
Pretax Income 93.8 409.8 208.6 229.9 289.3 159.7 242.7
Income tax
provision 31.4 181.3 58.2 87.0 103.7 57.0 86.9
Minority interest 5.3 10.5 15.8 24.9 33.4 16.4 23.9
------ ------ ------ ------ ------ ----- -----
Net Income $ 57.1 $218.0 $134.6 $118.0 $152.2 $ 86.3 $131.9
====== ====== ====== ====== ====== ===== ======
Per Share Data:
Weighted Average
Common shares
outstanding 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Basic Earnings
per share $57,100 $218,000 $134,600 $118,000 $152,200 $86,300 $131,900
Diluted Earnings
per share 57,100 218,000 134,000 117,400 149,900 85,500 130,100
Pro Forma
Per Share Data:
Common shares
outstanding (in
thousands) 220,869 220,869 220,869
Basic Earnings per share $ 0.69 $ 0.39 $ 0.60
Diluted Common
shares outstanding
(in thousands) 228,848 228,848 228,848
Diluted Earnings per share $ 0.66 $ 0.37 $ 0.57
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets $672.4 $475.2 $548.2 $672.6 $822.9 $811.0 $921.1
Long term obligations:
Third Parties 38.5 0.4 0.1 -- -- -- --
KCSI 223.1 -- 117.3 84.1 16.6 36.6 --
Cash dividends per
Common share n/a n/a n/a n/a n/a n/a n/a
OPERATING DATA:
- --------------
Total Assets Under
Management
(in billions) 25.9 $ 34.5 $ 50.3 $ 71.6 $113.5 $ 94.4 $161.7
Total Shareowner
Accounts
(in millions) 2.4 2.5 2.5 2.7 3.0 2.9 3.8
<FN>
<F1>
(i) Reflects DST as a consolidated subsidiary. See (ii) below for discussion
of DST public offering in 1995.
<F2>
(ii) Reflects DST as an unconsolidated affiliate as of January 1, 1995 due
to the DST public offering and associated transactions completed in
November 1995, which reduced Stilwell's ownership of DST to approximately
41% and resulted in deconsolidation of DST from Stilwell's consolidated
financial statements. The public offering and associated transactions
resulted in a $144.6 million after-tax gain to Stilwell.
<F3>
(iii) Includes a one-time after-tax gain of $47.7 million, representing
Stilwell's proportionate share of the one-time gain recognized by DST in
connection with the merger of The Continuum Company, Inc. ("Continuum"),
formerly a DST equity affiliate, with Computer Sciences Corporation
("CSC")in a tax-free share exchange.
<F4>
(iv) Includes a one-time non-cash charge of $36.0 million ($23.2 million
after-tax) resulting from the merger of a wholly-owned subsidiary of DST
with USCS International, Inc. ("USCS"). The merger was accounted for by
DST under the pooling of interests method. The charge reflects
Stilwell's reduced ownership of DST (from 41% to approximately 32%),
together with Stilwell's proportionate share of DST and USCS fourth
quarter merger-related costs.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
KCSI formed Stilwell in 1998 as a holding company for the group of
businesses and investments that comprise the financial services business of
KCSI and to effect the Distribution. Such businesses include Janus, Berger,
Nelson, DST and the Miscellaneous Corporations. In connection with the
Distribution, KCSI transferred to Stilwell KCSI's investments in these
businesses and certain other financial services-related assets and Stilwell
assumed all of KCSI's liabilities associated with the assets transferred,
effective July 1, 1999.
On [________], 1999, the Board of Directors of KCSI gave final approval to
the Distribution, payable to holders of record of KCSI Common Stock on the
Record Date, of two shares of Stilwell Common Stock for every one share of KCSI
Common Stock outstanding on the Record Date. As a result of the Distribution,
all of the outstanding shares of Stilwell Common Stock will be distributed to
holders of KCSI Common Stock on a pro-rata basis (including the holders of KCSI
Common Stock through accounts in the KCSI ESOP, the DST ESOP and the KCSI
Profit Sharing Plan (as each is defined herein)). No fractional shares of
Stilwell Common Stock will be distributed in the Distribution. Certificates
representing shares of Stilwell Common Stock are expected to be mailed by the
Distribution Agent to KCSI stockholders on the Mailing Date.
Stockholders of KCSI with inquiries relating to the Distribution should
contact: The Office of the Corporate Secretary; 114 West 11th Street, Kansas
City, MO 64105, telephone (816) 983-1237.
RISK FACTORS
Stockholders of KCSI should carefully consider and evaluate all of the
information set forth in this Information Statement, including the risk factors
listed below. In addition to the historical information included herein, the
discussion set forth below, as well as other portions of this Information
Statement, contains comments not based upon historical fact. Such forward-
looking comments are based upon information currently available to management
and management's perception thereof as of the date of this Information
Statement. Readers can identify these forward-looking comments by their use of
such verbs as "expects," "anticipates," "believes" or similar verbs or
conjugations of such verbs. The actual results of operations of Stilwell could
materially differ from those indicated in forward-looking comments. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, the following risk factors. Readers are
strongly encouraged to consider these factors when evaluating any such forward-
looking comments. Because most of Stilwell's revenues are based on the value
of its subsidiaries' assets under management, readers are also encouraged to
review the prospectuses for each of the mutual funds and other accounts managed
by Janus and Berger, copies of which are available from Janus and Berger, to
understand other factors that may adversely affect the value of assets under
management for those entities. Stilwell will not update any forward-looking
comments set forth in this Information Statement.
VOLATILITY OF SECURITIES MARKETS
The results of operations of Janus and Berger are affected by many
economic factors, including the performance of the U.S. securities markets.
Favorable performance by the U.S. securities markets over the last several
years has attracted a substantial increase in the investments in these
markets. Partly as a result of this financial environment, the assets under
management of Janus and Berger have increased significantly and levels of
profitability have grown. Similar factors in the securities markets of the
United Kingdom have influenced the growth of Nelson's assets under management.
A decline in the securities markets, failure of the securities markets to
sustain their recent levels of growth, or short-term volatility in the
securities markets could result in investors withdrawing assets from the markets
or decreasing their rate of investment, either of which could adversely affect
Janus, Berger and Nelson. Because most of Stilwell's revenues are based on the
value of assets under management, a decline in the value of those assets would
adversely affect revenues of Stilwell. The growth rate of Stilwell's
subsidiaries and equity investments has varied from year to year, and there can
be no assurance that the high average growth rates sustained in the recent past
will continue. In addition, in periods of slowing growth or declining revenues,
profits and profit margins are adversely affected because certain expenses
remain relatively fixed. There can be no assurance that the levels of profits
and profit margins achieved in the recent past will continue.
NEED TO MAINTAIN INVESTMENT PERFORMANCE
Success for Janus and Berger is dependent to a significant extent on the
investment performance of the mutual funds and other accounts (the "Funds")
managed by these entities. Good performance stimulates sales of the Funds'
shares and tends to keep redemptions low. Increased sales of the Funds' shares
generate higher revenues for Stilwell (which are directly related to assets
under management). Conversely, poor performance tends to result in decreased
sales and increased redemptions of the Funds' shares, with corresponding
decreases in revenues to Stilwell. Similarly, success for Nelson is partly
dependent on attaining consistently reasonable investment returns for the
assets managed by Nelson. Failure of the Funds to perform well or failure of
Nelson to attain reasonable investment returns could, therefore, have an
adverse effect on Stilwell.
POSSIBLE TERMINATION OF INVESTMENT ADVISORY AGREEMENTS
Most of the revenues of Janus and Berger are derived pursuant to
investment advisory agreements with their respective funds. These investment
advisory agreements may be terminated without penalty by either party with
notice and will be terminated in the event of an "assignment" (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")). The
investment advisory agreements must be approved and renewed on an annual basis
by each fund's Board of Directors or Trustees or by an affirmative vote of a
majority of the outstanding voting securities of each of the funds and in
either case by vote of a majority of the Board of Directors or Trustees who are
not "interested persons" (as defined in the 1940 Act) of such funds.
On March 26, 1999, a number of minority stockholders and employees of
Janus, including members of Janus' management, its chief executive officer, its
chief investment officer, all portfolio managers and assistant portfolio
managers who own a material number of Janus shares, five of the six Janus
directors and others (the "Janus Minority Group"), proposed that KCSI's Board
of Directors consider as an alternative to the Distribution a separate spin-off
of Janus. The Boards of Trustees or Directors of the Janus Advised Funds
expressed support for the proposal of the Janus Minority Group that Janus be
spun-off as a separate entity. Several members of the Janus Minority Group
made a formal presentation to KCSI's Board of Directors to that effect on June
23, 1999. After reviewing and considering the information presented by the
Janus Minority Group, KCSI's Board of Directors decided it was in the best
interests of KCSI and its stockholders to proceed with the Distribution in the
manner previously contemplated and as described herein. The Boards of Trustees
or Directors of the Janus Advised Funds generally may terminate the investment
advisory agreements upon written notice for any reason, including if they
believe the Distribution may adversely affect the funds. See "Business."
Generally, any change in control of Janus or Berger would constitute an
"assignment" under the 1940 Act, resulting in termination of their respective
investment advisory agreements. The Distribution is not expected to result in
a change of control of Janus or Berger and therefore under the applicable rules
of the SEC would not constitute such an assignment. However, a reduction in
the ownership of Janus common stock by its chief executive officer may result
in an assignment by virtue of certain provisions in an agreement with him. Any
termination of or failure to renew a significant number of these agreements
could have a material adverse impact on Janus and/or Berger. See "Risk
Factors-Substantial Influence of Minority Stockholder."
DEPENDENCE ON GROWTH OF U.S. MUTUAL FUND INDUSTRY
The future growth and success of Janus, Berger and DST depend in part upon
the continued growth of the mutual fund industry in the United States, which
has experienced significant growth over the last several years. Janus and
Berger derive a substantial portion of their revenues from assets under
management in U.S. mutual funds. DST derives a substantial portion of its
revenues from the delivery of services and products to U.S. mutual fund
industry clients. Any event affecting the U.S. mutual fund industry which
results in a general decrease in assets under management or a significant
general decline in the number of U.S. mutual fund industry clients or accounts
could have a material adverse effect on Janus, Berger and DST.
RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS
Funds advised by Janus and Berger may enter into futures contracts on
securities, financial indices and foreign currencies and options on such
contracts and may invest in options on securities, financial indices and
foreign currencies, forward contracts and interest rate swaps and swap-related
products (collectively, "Derivative Instruments"). The use of Derivative
Instruments exposes such funds to additional investment risks and transaction
costs. Risks inherent in the use of Derivative Instruments include the risk
that interest rates, securities prices and currency markets will not move in
the direction that a portfolio manager anticipates; the risk of imperfect
correlation between the price of Derivative Instruments and movements in the
prices of the securities, interest rates or currencies being hedged; and the
risk of the inability to close out certain hedged positions to avoid adverse
tax consequences.
DEPENDENCE ON KEY PERSONNEL
As with other investment management businesses, Stilwell's future
performance depends to a significant degree upon the continued contributions of
certain officers, portfolio managers and other key management personnel.
Stilwell's business is also similar to other investment management businesses
in that it is dependent on its ability to attract and retain highly skilled,
and often highly specialized, technical and management personnel. There is
substantial competition for qualified technical and management personnel.
Further, relations between Stilwell and the management of its key subsidiary,
Janus, have been strained recently, primarily as the result of disagreements
over the structure of the Distribution. See "The Distribution-Background and
Reasons for the Distribution." The portfolio managers and other key employees
of Janus are not subject to any noncompete agreements that would preclude them
from participating in a competing financial services business, although they
are subject to agreements that prohibit them for a specific period of time
following the end of their employment from soliciting any investment advisory
or investment management clients of Janus or soliciting employees to leave the
employ of Janus. There can be no assurance that losses of key personnel will
not occur in the future or that Stilwell will be able to attract or retain the
qualified personnel required, which could materially and adversely affect
Stilwell's business, financial condition, results of operations and business
prospects. See "Management."
SUBSTANTIAL COMPETITION
Stilwell is subject to substantial competition in all aspects of its
business. Janus and Berger compete with hundreds of other mutual fund
management distribution and service companies that distribute their fund shares
through a variety of methods, including affiliated and unaffiliated sales
forces, broker-dealers, and direct sales to the public. Nelson competes with
other money managers in obtaining new client business. DST competes with third
party providers, in-house systems and broker-dealers for the provision of
processing services. Although no one company or group of companies dominates
the financial services industry, many are larger, better known and have greater
resources than Stilwell. Stilwell believes that competition in the mutual fund
industry will increase as a result of increased flexibility afforded to banks
and other financial institutions to sponsor mutual funds and distribute mutual
fund shares, and as a result of consolidation and acquisition activity within
the industry. In addition, the mutual fund industry, in general, faces
significant competition as the number of mutual funds continues to increase,
marketing and distribution channels become more creative and complex, and
investors place greater emphasis on published fund recommendations and
investment category rankings. Barriers to entry to the investment management
business are relatively few, and Stilwell anticipates that Janus, Berger and
Nelson will face a growing number of competitors. See "Business -
Competition."
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
Stilwell was formed recently as a holding company for the group of
businesses and investments that formerly comprised the financial services
business of KCSI, and has never operated as a stand-alone company. Following
the Distribution, KCSI will have no obligation to provide financial or other
assistance to Stilwell except as described in the Intercompany Agreement and
the Tax Disaffiliation Agreement. There can be no assurance that Stilwell will
be able to effectively manage its business as a stand-alone company. See
"Relationship Between KCSI and Stilwell After the Distribution," "Financing"
and "Business."
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The historical financial information included in this Information
Statement may not be indicative of Stilwell's future performance, and does not
necessarily reflect the financial position and results of operations of
Stilwell had Stilwell operated as a separate stand-alone entity during each of
the periods presented. In addition, the financial information included herein
does not reflect any changes that may occur in the financial condition and
operations of Stilwell as a result of the Distribution. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
Stilwell's consolidated financial statements.
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY; NEED FOR ADDITIONAL FINANCING
The Credit Facility (as defined herein) contains covenants that, among
other things, restrict the ability of Stilwell to transfer assets, merge, incur
debt and create liens. In addition, the Credit Facility requires Stilwell to
maintain specified financial ratios, including maximum leverage, minimum net
worth and minimum interest coverage. The ability of Stilwell to comply with
such provisions may be affected by events beyond Stilwell's control. The
breach of any of these covenants would result in a default under the Credit
Facility. In the event of any such default, lenders party to the Credit
Facility could elect to declare all amounts borrowed under the Credit Facility,
together with accrued interest and other fees, to be due and payable. If any
indebtedness under the Credit Facility is accelerated, there can be no
assurance that the assets of Stilwell would be sufficient to repay such
indebtedness in full.
Stilwell believes that the financing available under the Credit Facility,
together with cash flows from operations, should be sufficient to satisfy its
foreseeable operating and capital requirements. The timing of Stilwell's
future capital requirements, however, will depend on a number of factors,
including the ability of Stilwell to successfully implement its business
strategy. In addition, Stilwell, as a continuation of its practice of
providing credit facilities to its subsidiaries, contemplates assigning a
portion of its credit line under the Credit Facility to Janus for use by Janus
for general corporate purposes, in which case the portion assigned would be
unavailable for use by Stilwell Financial, Inc. Stilwell may require
additional capital sooner than anticipated to the extent that Stilwell's
operations do not progress as anticipated or if certain put rights are
exercised by Janus stockholders. Stilwell intends to obtain any additional
financing for general corporate purposes on substantially the same terms and
conditions as the Credit Facility. There can be no assurance, however, that
any required additional capital will be available on acceptable terms, or at
all, and the failure to obtain any such required capital could have a material
adverse effect on Stilwell's operations. See "Financing" and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations-
Minority Purchase Agreements."
PERVASIVE REGULATION
Virtually all aspects of Stilwell's business are subject to various laws
and regulations. Applicable laws include the 1940 Act, the Investment Advisers
Act of 1940, as amended (the "Advisers Act"), the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and various state securities and related laws (including laws
in the United Kingdom). Applicable regulations include, but are not limited
to, in the United States, the rules and regulations of the SEC, the National
Association of Securities Dealers (the "NASD") and other securities exchanges
and the Department of Labor (the "DOL") and, in the United Kingdom, the
Investment Management Regulatory Organization Limited ("IMRO"), the Personal
Investment Authority ("PIA") and the Financial Services Authority ("FSA").
These laws and regulations generally grant regulatory agencies and bodies broad
administrative powers, including, in some cases, the power to limit or restrict
Stilwell from operating its businesses in the event it fails to comply with
such laws and regulations. Due to the extensive regulations and laws to which
Stilwell is subject, management of Stilwell is required to devote substantial
time and effort to legal and regulatory compliance issues. Violations of such
laws or regulations could subject Stilwell and/or its employees to disciplinary
proceedings or civil or criminal liability, including revocation of licenses,
censures, fines or temporary suspension or permanent bar from the conduct of
their business. Any such proceeding or liability could have a material adverse
effect upon Stilwell's business, financial condition, results of operations and
business prospects. Stilwell believes that it is in substantial compliance with
all material laws and regulations.
In addition, the regulatory environment in which Stilwell operates is
subject to change. Stilwell may be adversely affected as a result of new or
revised legislation or regulations or by changes in the interpretation or
enforcement of existing laws and regulations. For example, the amount of asset
management revenue for Janus and Berger could be affected by, among other
things, proposed changes in existing tax legislation and other governmental
regulations and policies (including, without limitation, the interest rate
policies of the Federal Reserve Board). See "Business-Regulation."
ABSENCE OF PUBLIC MARKET FOR STILWELL COMMON STOCK
There has been no established trading market for Stilwell Common Stock.
While it is expected that a "when-issued" trading market will develop near the
Record Date, until the Stilwell Common Stock is fully distributed and an
orderly trading market develops, the prices at which trading in Stilwell Common
Stock occurs may fluctuate significantly and levels of profitability have
grown. In addition, there can be no assurance that an active trading market in
Stilwell Common Stock will develop or be sustained in the future. In the event
trading does occur, the prices at which shares of Stilwell Common Stock trade
will be determined by the marketplace and may be influenced by many factors,
including, among others, Stilwell's performance and prospects, the depth and
liquidity of the market for Stilwell Common Stock, investor perception of
Stilwell and its businesses and the industry in which Stilwell operates,
Stilwell's dividend policy, general financial and other market conditions,
domestic and international economic conditions and the impact of factors
described in this "Risk Factors" section. In addition, the stock market has
experienced price and volume fluctuations that have affected the market price
of many stocks and that, at times, could be viewed as unrelated or
disproportionate to the operating performance of such companies. Such
volatility and other factors may have a material adverse effect on the market
price for shares of Stilwell Common Stock. See "The Distribution-Trading of
Stilwell Common Stock."
POTENTIAL FOR SUBSTANTIAL SALES OF STILWELL COMMON STOCK
The Distribution involves the distribution of an aggregate of
approximately 221,000,000 shares of Stilwell Common Stock to the stockholders
of KCSI as of the Record Date, representing all of the issued and outstanding
shares of Stilwell Common Stock as of that date. Substantially all of such
shares will be eligible for immediate resale in the public market. Neither
KCSI nor Stilwell is able to predict whether substantial amounts of Stilwell
Common Stock will be sold in the open market following the Distribution. Any
sales of substantial amounts of Stilwell Common Stock in the public market, or
the perception that such sales might occur, whether as a result of the
Distribution or otherwise, could depress the market price of Stilwell Common
Stock. See "The Distribution-Trading of Stilwell Common Stock."
POSSIBILITY OF SYSTEMS FAILURE; DEPENDENCE ON VENDORS
Janus, Berger, Nelson and DST are highly dependent on communications,
information systems and certain third party vendors for securities pricing
information and updates from certain software. In addition, DST's processing
services are dependent on the Winchester and Poindexter Data Centers, DST's
facilities for computer operations, information processing and image
processing. There can be no assurance that Stilwell's subsidiaries and equity
investments will not suffer a systems failure or interruption, whether caused
by an earthquake, fire, other natural disaster, power or telecommunications
failure, unauthorized access, act of God, act of war or otherwise, or that
Stilwell's back-up procedures and capabilities will be adequate or sufficient
to eliminate the risk of extended interruptions in operations. Thus, there can
be no assurance that Janus, Berger and Nelson will continue to be able to
obtain timely and accurate securities pricing information from third party
vendors on an ongoing basis or that DST will be able to provide accurate
processing services. Any delays or inaccuracies in securities pricing
information or information processing could give rise to claims against Janus,
Berger, Nelson and DST, which could have a material adverse effect on
Stilwell's business, financial condition, results of operations and business
prospects.
FEDERAL INCOME TAX CONSIDERATIONS
KCSI has received the Tax Ruling to the effect that for United States
federal income tax purposes, the Distribution qualifies as a tax-free
distribution under Code Section 355. See "The Distribution-Certain Federal
Income Tax Consequences." The Tax Ruling is based on certain factual
representations and assumptions provided by KCSI. If these factual
representations and assumptions were incorrect in any material respect, the
ability of KCSI and Stilwell to rely on the Tax Ruling would be jeopardized.
Neither KCSI nor Stilwell is aware of any facts or circumstances which should
cause such representations and assumptions to be untrue. In the Tax
Disaffiliation Agreement, KCSI and Stilwell each agreed not to take any action
which would cause the Distribution to fail to qualify as a tax-free
distribution under Code Section 355 unless required to do so by law. KCSI and
Stilwell have agreed to indemnify each other with respect to any tax liability
resulting from their respective failures to comply with such provisions.
However, such tax liability could amount to $4-$5 billion or more and there is
no assurance that the entities would be able to satisfy their indemnification
obligations. See "Relationship Between KCSI and Stilwell After the
Distribution-Tax Disaffiliation Agreement."
In addition, if 50 percent or more of the total combined interests (by
vote or value) of KCSI or Stilwell is acquired, directly or indirectly,
subsequent to the Distribution (but including transactions up to two years
before the Distribution) in an acquisition which is part of a plan that
included the Distribution (which would be presumed if such an acquisition were
within two years of the Distribution), KCSI could be required to recognize gain
for federal income tax purposes as of the Distribution Date equal to the
difference between the fair market value and adjusted basis of the Stilwell
Common Stock. KCSI estimates that the tax on such gain could amount to more
than $2.0 billion. Under the Tax Disaffiliation Agreement, Stilwell is
required to indemnify KCSI for any taxes resulting from any changes in
ownership of Stilwell. See "Relationship Between KCSI and Stilwell After the
Distribution-Tax Disaffiliation Agreement." Neither KCSI nor Stilwell is aware
of any such plan or contemplated transaction.
INDEMNIFICATION OBLIGATIONS
The Intercompany Agreement and the Tax Disaffiliation Agreement allocate
responsibility between KCSI and Stilwell for various liabilities and
obligations. The Intercompany Agreement provides that each party will
indemnify the other against claims relating to or arising out of their
respective businesses before and after the Distribution. The Tax
Disaffiliation Agreement provides that each party will indemnify the other with
respect to taxes attributable to their respective businesses arising before or
after the Distribution, taxes or losses caused by their respective breach of
the Tax Disaffiliation Agreement and taxes and claims relating to their
respective businesses caused by KCSI's or Stilwell's actions, failure to act,
any party's actions with respect to KCSI or Stilwell, inaccurate or incomplete
information provided by KCSI or Stilwell in the ruling request or any actions
taken by KCSI or Stilwell that negatively impact the Tax Ruling. However, the
availability of such indemnities will depend upon the future financial strength
of KCSI and Stilwell. No assurance can be given that KCSI or Stilwell will be
in a position to fund such indemnities. See "Relationship Between KCSI and
Stilwell after the Distribution."
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its business strategy, Stilwell intends to consider
acquisitions of similar or complementary businesses. See "Business-Stilwell
Business Strategy." No assurance can be given that Stilwell will be successful
in identifying attractive acquisition candidates or completing acquisitions on
favorable terms. In addition, any future acquisitions will be accompanied by
the risks commonly associated with acquisitions. These risks include, among
others, potential exposure to unknown liabilities of acquired companies and to
acquisition costs and expenses, the difficulty and expense of integrating the
operations and personnel of the acquired companies, the potential disruption to
the business of the combined company and potential diversion of management's
time and attention, the impairment of relationships with and the possible loss
of key employees and clients as a result of the changes in management, the
occurrence of amortization expenses if an acquisition is accounted for as a
purchase and dilution to the stockholders of the combined company if the
acquisition is made for stock of the combined company. There can be no
assurance that products, technologies or businesses of acquired companies would
be effectively assimilated into Stilwell's business or that product offerings
of the combined company will have a positive effect on the combined company's
revenues or earnings. Further, the combined company may incur significant
expense to complete acquisitions and to support the acquired products and
businesses. Any such acquisitions may be funded with cash, debt or equity,
which could have the effect of diluting or otherwise adversely affecting the
holdings or the rights of stockholders acquiring Stilwell Common Stock in the
Distribution.
POTENTIAL ANTITAKEOVER CONSIDERATIONS
Some provisions of Stilwell's Certificate and Bylaws may delay or make
more difficult acquisitions or changes in control of Stilwell. Under
Stilwell's Certificate, the Board of Directors of Stilwell has the authority to
fix the terms of, and to issue, shares of preferred stock. Stilwell's
Certificate and Bylaws also require a supermajority stockholder vote for
approval of certain types of business combinations. Other provisions in
Stilwell's Certificate and Bylaws impose procedural and other requirements that
could make it more difficult to effect certain corporate actions, including
replacing incumbent directors and amending the Certificate or Bylaws. In
addition, Stilwell's Board of Directors is divided into three classes, each of
which is to serve for a staggered three-year term after the initial
classification and election, which may make it more difficult for a third party
to gain control of Stilwell's Board of Directors. Stilwell adopted a Rights
Plan on [______, 1999] which, under certain circumstances, could significantly
dilute the interest in Stilwell of persons seeking to acquire control of
Stilwell without prior approval of Stilwell's Board of Directors. The Rights
Plan and such provisions of the Certificate and Bylaws may have the effect of
delaying, deterring or preventing a change in control of Stilwell. Further,
income taxes that could be imposed by the Code as a result of ownership changes
of Stilwell made in conjunction with the Distribution may have the effect of
delaying or making more difficult changes in control of Stilwell. See
"Relationship between KCSI and Stilwell after the Distribution-Certain Federal
Income Tax Consequences" and "Description of Capital Stock."
REQUIRED PURCHASES OF JANUS STOCK UPON CHANGE IN OWNERSHIP OF KCSI FOLLOWING
THE DISTRIBUTION
Stilwell may have to sell its ownership interest in Janus, or purchase the
interest in Janus owned by certain minority stockholders as the result of a
Change in Ownership (as defined below) of KCSI (which will not be affiliated
with Stilwell following the Distribution). Under a stock purchase agreement
with two minority stockholders of Janus, as amended (the "Janus Stock Purchase
Agreement"), which minority stockholders own approximately 12.7% of Janus, upon
the occurrence of a Change in Ownership, KCSI may be required, at such holders'
option, to sell its stock of Janus to such minority stockholders, or to
purchase such holders' Janus stock, in either instance, at a purchase price
equal to fifteen times the net after-tax earnings per share of Janus for the
fiscal year ending immediately after the Change in Ownership, or as otherwise
negotiated between the parties (the "Janus Purchase Rights"). A Change in
Ownership of KCSI is deemed to occur if (i) any person or entity, without the
prior approval of certain KCSI directors, becomes the beneficial owner of
securities of KCSI representing 25% or more of the combined voting power of
KCSI's outstanding voting securities with the intent to acquire control of KCSI
or (ii) less than 75% of KCSI's Board of Directors are individuals who were
members of KCSI's Board of Directors on the date of the second amendment to the
Janus Stock Purchase Agreement or individuals whose election, or nomination
for election by KCSI's stockholders, was approved by a vote of at least 75% of
the members of KCSI's Board of Directors then still in office who were members
of KCSI's Board of Directors on the date of the second amendment to the Janus
Stock Purchase Agreement.
Under certain stock purchase agreements and restriction agreements with
all other minority stockholders, upon the occurrence of a Change in Ownership
of KCSI which has not been approved by KCSI's Board of Directors, KCSI may be
required, at such stockholders' option, to purchase such minority stockholders'
Janus stock at a purchase price equal to fifteen times the net after-tax
earnings over the period indicated in the relevant agreement (such rights to be
included in the term "Janus Purchase Rights"), or in some circumstances at a
purchase price as determined by Janus' Stock Option Committee. A Change in
Ownership of KCSI is deemed to occur under the circumstances described in
clause (i) above or if less than 75% of KCSI's Board of Directors are
individuals who were members of KCSI's Board of Directors on the date of the
relevant agreement or individuals whose election, or nomination for election by
KCSI's stockholders, was approved by a vote of at least 75% of the members of
KCSI's Board of Directors in office prior to such election or nomination.
Neither the Janus Stock Purchase Agreement nor any of these other agreements
have been assigned to Stilwell. However, pursuant to the Intercompany
Agreement, Stilwell is obligated to KCSI in the same manner that KCSI is
obligated under these agreements and Stilwell has the right to any benefits and
assets received by KCSI under such agreements. A Change in Ownership of KCSI
after the Distribution Date would trigger the Janus Purchase Rights. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Minority Purchase Agreements."
SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED SHARES
Stilwell is authorized to issue one billion shares of Stilwell Common
Stock. Approximately 221,000,000 shares of Stilwell Common Stock will be
distributed and outstanding after the Distribution. See "Capitalization" and
"Description of Capital Stock." The Board of Directors of Stilwell has full
discretion to issue shares of Stilwell Common Stock at any time in the future,
subject to applicable legal, stock exchange and other regulatory requirements.
If more shares of Stilwell Common Stock are issued, the equity interests of
existing Stilwell stockholders could be diluted and the earnings per share of
Stilwell Common Stock could be adversely affected.
SUBSTANTIAL INFLUENCE OF MINORITY STOCKHOLDER
KCSI is a party to the Janus Stock Purchase Agreement with Thomas H.
Bailey ("Mr. Bailey"), Chairman, President and Chief Executive Officer of
Janus and the holder of 12% of Janus common stock, which provides that so
long as Mr. Bailey is a holder of at least 5% of the shares of Janus and
continues to be employed as President of Janus, Mr. Bailey shall continue to
establish and implement policy with respect to the investment advisory and
portfolio management activity of Janus. In furtherance of such objective,
such agreement provides that in those circumstances KCSI will vote its shares
of Janus stock to elect directors of Janus, at least the majority of whom are
selected by Mr. Bailey, subject to KCSI's approval, which approval may not be
unreasonably withheld. The agreement also provides that any change in
management philosophy, style or approach with respect to investment advisory
and portfolio management policies of Janus shall be mutually agreed upon by
KCSI and Mr. Bailey. In addition, Janus is party to employment agreements
with certain key employees of Janus that provide that in the event that (i)
Mr. Bailey, James P. Craig, Vice Chairman and Chief Investment Officer of
Janus, or an individual mutually agreed to by Mr. Bailey and the Board of
Directors of Janus, no longer serves as the Chief Executive Officer of Janus,
or (ii) Mr. Bailey ceases to have the foregoing rights with respect to
selection of a majority of the Board of Directors of Janus, these employees
would be entitled to additional benefits following certain terminations of
their employment. By virtue of the Janus Stock Purchase Agreement, a
transfer of Mr. Bailey's shares of Janus which reduces his ownership below 5%
could be deemed to constitute a change of control which may result in an
assignment and termination of Janus' investment advisory agreements. See
"Risk Factors-Possible Termination of Investment Advisory Agreement."
UNCERTAINTY OF DIVIDENDS
The payment of dividends by Stilwell is subject to the discretion of
Stilwell's Board of Directors. It is anticipated that Stilwell will pay cash
dividends. However, the payment and amount of such dividends by Stilwell will
be based on, and affected by, a number of factors, including Stilwell's
financial position, its capital requirements and liquidity, the existence of a
stock repurchase program, contractual and legal requirements, results of
operations and such other factors as Stilwell's Board of Directors considers
relevant. In addition, as a holding company, Stilwell's ability to pay
dividends is dependent on the dividends and income it receives from its
subsidiaries. There can be no assurance that any dividends will be declared or
paid after the Distribution. See "Dividend Policy."
CHANGES IN TRADING PRICES OF KCSI COMMON STOCK AND STILWELL COMMON STOCK
After the Distribution, KCSI expects that the KCSI Common Stock will
continue to be listed for trading on the New York Stock Exchange. As a result
of the Distribution, absent other action, the trading prices of KCSI Common
Stock are expected to be significantly lower than the trading prices of KCSI
Common Stock immediately prior to the Distribution. In an attempt to address
this issue, KCSI's Board of Directors intends to effect, after the Record Date,
a reverse stock split whereby every two shares of KCSI Common Stock then
outstanding will be combined into one share of KCSI Common Stock.
Nevertheless, even after such reverse stock split, the combined trading prices
of KCSI Common Stock and Stilwell Common Stock after the Distribution may be
less than, equal to, or greater than, the trading prices of KCSI Common Stock
immediately prior to the Distribution. See "The Distribution-Trading of
Stilwell Common Stock."
INFLUENCE OF INTERNATIONAL MARKETS
Certain portions of the managed portfolios of Janus and Berger as well as
assets managed by Nelson are invested from time to time in various securities
of corporations located or doing business in foreign trading markets and
developing regions of the world commonly known as emerging markets. These
portfolios and assets, and revenues derived from the management of such
portfolios and assets, are subject to significant risks of loss from
unfavorable political and diplomatic developments, currency fluctuations,
social instability, changes in governmental policies, expropriation,
nationalization, confiscation of assets and changes in legislation relating to
foreign ownership. Foreign trading markets, particularly in some emerging
market countries, are often smaller, less liquid, less regulated and
significantly more volatile.
YEAR 2000 READINESS
Many existing computer programs and microprocessors that use only two
digits (rather than four) to identify a year could fail or create erroneous
results with respect to dates after December 31, 1999 if not corrected to read
all four digits. This computer program flaw is expected to affect all companies
and organizations, either directly (through a company's own computer programs
or systems that use computer programs, such as telephone systems) or indirectly
(through customers and vendors of a company). Stilwell is evaluating and
pursuing discussions with its various customers, partners and vendors with
respect to their preparedness for Year 2000 issues. However, no assurance can
be made that all such parties will be Year 2000 ready. In addition, Stilwell is
working with project teams comprised of employees and third party consultants
to identify and resolve the numerous issues surrounding the Year 2000. While
Stilwell cannot fully determine its impact, the inability to complete Year 2000
readiness for its computer systems could result in significant difficulties in
processing and completing fundamental transactions. In such events, Stilwell's
results of operations, financial position and cash flows could be materially
adversely affected.
These Year 2000 related issues are of particular importance to Stilwell.
Stilwell depends upon its computer and other systems and the computers and
other systems of third parties (including DST) to conduct and manage its
business. Additionally, Stilwell's products and services are heavily dependent
upon using accurate dates in order to function properly. These Year 2000
related issues may also adversely affect the operations and financial
performance of one or more of Stilwell's customers and suppliers as well as the
companies in which Janus, Berger and Nelson invest. As a result, the failure
of Stilwell's computer and other systems, products or services, the computer
systems and other systems upon which Stilwell depends, Stilwell's customers,
suppliers or the companies in which Janus, Berger and Nelson invest to be Year
2000 ready could have a material adverse impact on Stilwell's results of
operations, financial position and cash flows. Stilwell is unable to assess
the extent or duration of that impact at this time, but it could be
substantial.
Areas that could be affected include, but are not limited to, the
ability to accurately track pricing and trading information, obtain, process
and complete customer orders and investor transactions, order and obtain
critical supplies, and operate equipment and control systems. In addition,
the investment performance of various funds could be adversely affected if
the trading prices of the capital stock of a number of companies within such
funds are lower as a result of Year 2000 related issues. These risks are
presently under assessment and Stilwell has no basis to form an estimate of
costs or lost revenues at this time.
In the event that Stilwell or key third parties are not Year 2000 ready,
Stilwell's results of operations, financial position and cash flows could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<PAGE>
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
KCSI was incorporated in 1962 as a holding company for its rail
transportation business. Following its formation, KCSI engaged in a series of
transactions aimed at diversifying beyond the railroad business. KCSI entered
the mutual fund industry in 1963 when it acquired a Chicago-based mutual fund
manager, later named Supervised Investor Services, Inc. ("SIS").
During the late 1960s, mutual funds began to experience difficulty in
securing accurate and timely recordkeeping for their shareowners as the volume
of mutual fund transactions increased. Using computer and data processing
capabilities developed for its railroad business, KCSI in cooperation with SIS
management developed specialized data processing systems and computer software
services and products designed specifically for mutual funds. In 1968, DST
(originally called "DATA-SYS-TANCE") was incorporated by KCSI to own, enhance
and market these systems to the financial services industry. DST's financial
services business eventually expanded to provide information processing and
computer software services and products to mutual funds, investment managers
and other financial services organizations.
KCSI sold SIS in 1970 and subsequently reduced its ownership in DST to
32%. Through a series of transactions starting in 1984, KCSI acquired an
approximately 82% ownership interest in Janus. KCSI further expanded its
mutual fund business when it acquired a minority interest in Berger in 1992,
and later increased that interest to over 80%. In 1998, KCSI acquired an 80%
interest in Nelson.
For the last few years, KCSI management has considered a number of
proposals for separating the financial services and transportation segments.
These proposals included a combination or a public offering of its rail
transportation segment and a spin-off separating the rail transportation and
financial services segments. KCSI management retained investment bankers and
other advisors to examine KCSI's structure and to advise on various aspects of
separating the two businesses. After extensive review and discussion, KCSI's
Board of Directors determined that the Distribution was the best way to
accomplish a separation of the rail transportation and financial services
businesses. On February 3, 1998, KCSI announced that its Board of Directors
intended to pursue a strategic restructuring plan to effect the Distribution
after receipt of a favorable tax ruling from the IRS.
On February 27, 1998, KCSI filed a ruling request with the IRS requesting
that the IRS rule that the Distribution qualifies as a tax-free distribution
under Code Section 355. On April 29, 1998, KCSI's Board of Directors approved
the Distribution, which it indicated it would effect after declaration of the
dividend of Stilwell Common Stock at a later date, receipt of a favorable tax
ruling from the IRS and satisfaction of other conditions.
On July 15, 1998, the stockholders of KCSI approved a reverse stock split
of KCSI Common Stock to be effective after the Record Date and a benefit plan
for Stilwell Financial, Inc. in contemplation of KCSI completing the
Distribution. No further stockholder vote is required in connection with the
Distribution.
When KCSI determined that the IRS might not rule favorably on the
Distribution without changes in the planned structure for Stilwell's
subsidiaries and equity investments, the ruling request was withdrawn. A
revised ruling request was submitted to the IRS by letter dated January 26,
1999.
On March 26, 1999, the Janus Minority Group proposed that KCSI's Board of
Directors consider as an alternative to the Distribution a separate spin-off of
Janus. The Boards of Trustees or Directors of the Janus Advised Funds
expressed support for the proposal of the Janus Minority Group. Several
members of the Janus Minority Group made a formal presentation to KCSI's Board
of Directors to that effect on June 23, 1999. After reviewing and considering
the information presented by the Janus Minority Group, KCSI's Board of
Directors decided it was in the best interests of KCSI and its stockholders to
proceed with the Distribution in the manner previously contemplated and as
described herein.
The Distribution is intended to accomplish several purposes. First, it is
intended to separate the financial services business of Stilwell from the rail
transportation business of KCSI, each such business having its own distinct
financial, investment and operating characteristics, so that each can focus on
adopting strategies and pursuing objectives more appropriate to its specific
business than is possible with Stilwell's businesses consolidated with those of
KCSI.
In addition, KCSI's Board of Directors believes that the Distribution will
better enable management of each business segment to focus attention and
financial resources on the development and management of growth in each of
their respective core businesses, without regard to the corporate objectives,
policies, challenges and investment criteria of the other.
KCSI's two segments have different dynamics and business cycles, serve
different marketplaces and customer bases, are subject to different competitive
forces and regulations, have different organizational structures and management
styles and must be managed with different long-term and short-term strategies
and goals. KCSI management believes that separating the two businesses into
independent companies, each with its own management team and board of
directors, is necessary to address management and competitive issues and
considerations that result from operating these diverse businesses under a
single holding company structure. Separating the two segments also will help
resolve differences between them over utilization of KCSI's resources,
available capital and capitalization.
Further, KCSI's rail transportation business is subject to risks of
environmental liabilities and catastrophe, collision or property loss and
currency and other risks of conducting business outside the United States while
its financial services business is subject to risks arising from market
volatility, exposure to derivatives and hedges and other regulatory and
operating conditions specific to the financial services industry. Separating
the two businesses is intended to eliminate the exposure of each to liabilities
arising from operations of the other.
Finally, as separate companies, KCSI and Stilwell will be able to issue
their own respective securities to develop more focused stock-based
compensation programs keyed more directly to their respective earnings and
performance. The Board of Directors of KCSI believes that such programs should
enhance KCSI's and Stilwell's ability to attract, motivate and retain key
employees for the further development and growth of the rail transportation
business and financial services business, respectively. Stilwell and KCSI will
each also have greater ability to effect acquisitions or strategic
relationships by issuing their own respective securities.
MANNER OF EFFECTING THE DISTRIBUTION
Prior to the Distribution, Stilwell will issue additional shares of
Stilwell Common Stock to KCSI pursuant to a stock split effected in the form of
a dividend to provide a sufficient number of shares for the Distribution. KCSI
will effect the Distribution on the Distribution Date by delivering all of the
outstanding shares of Stilwell Common Stock to the Distribution Agent for
distribution to the stockholders of record of KCSI Common Stock on the Record
Date. The Distribution will be made on the basis of two shares of Stilwell
Common Stock for every one share of KCSI Common Stock held on the Record Date.
The shares of Stilwell Common Stock to be distributed will constitute all of
the outstanding shares of Stilwell Common Stock on the Distribution Date. The
shares of Stilwell Common Stock will be fully paid and non-assessable and the
holders thereof will not be entitled to preemptive rights. See "Description of
Capital Stock-Common Stock." The shares of Stilwell Common Stock will also be
distributed with certain attached preferred stock purchase rights. See
"Description of Capital Stock-Stockholders' Rights Plan." Certificates
representing shares of Stilwell Common Stock are expected to be mailed by the
Distribution Agent to KCSI stockholders on the Mailing Date.
No holder of KCSI Common Stock will be required to pay any consideration
for the shares of Stilwell Common Stock to be received by them in the
Distribution, to surrender or exchange any shares of KCSI Common Stock, or to
take any other action in order to receive the shares of Stilwell Common Stock
to which they are entitled in the Distribution. No fractional shares of
Stilwell Common Stock will be distributed in the Distribution.
RESULTS OF THE DISTRIBUTION
Stilwell will be a separate, independent company after the Distribution.
Based on the number of shares of KCSI Common Stock outstanding as of June 30,
1999 and the number of stockholders as of June 30, 1999, approximately
221,000,000 shares of Stilwell Common Stock will be distributed to
approximately 5,500 KCSI stockholders in the Distribution on a pro-rata basis
(including the holders of KCSI Common Stock through accounts in the KCSI ESOP,
the DST ESOP and the KCSI Profit Sharing Plan). The actual number of shares of
Stilwell Common Stock that will be distributed will be determined as of the
Record Date. The Distribution will not affect the number of outstanding shares
of KCSI Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
KCSI received the Tax Ruling to the effect that for United States federal
income tax purposes, the Distribution qualifies as a tax-free distribution
under Code Section 355 and thus no gain or loss will be recognized by KCSI or
Stilwell from the Distribution or by the holders of KCSI Common Stock upon
receipt of the Stilwell Common Stock in the Distribution. The Tax Ruling is
based upon the accuracy of certain factual representations and assumptions
provided by KCSI. The following discussion describes the material United
States federal income tax consequences if the transaction qualifies as a tax-
free transaction. It further discusses the material United States federal
income tax consequences if the Distribution were not to qualify as a tax-free
transaction for any reason, including inaccuracy in the factual representations
and assumptions in the Tax Ruling. See "Risk Factors-Federal Income Tax
Considerations." Finally, the discussion describes the tax consequences of
certain ownership changes of KCSI or Stilwell. The discussion is based on the
Code, United States Treasury regulations promulgated thereunder, and judicial
and administrative interpretations thereof, all as in effect on the date
hereof, and is subject to any changes in these or other laws occurring after
such date. The discussion generally does not address the effects of any state,
local or foreign tax laws. In addition, the discussion set forth below may not
be applicable to certain KCSI stockholders who, among other limitations,
received their shares of KCSI Common Stock as compensation, who are not
citizens or residents of the United States or who are otherwise subject to
special treatment under the Code.
CONSEQUENCES OF QUALIFICATION AS A TAX-FREE DISTRIBUTION. Subject to
certain special circumstances that may apply to certain KCSI stockholders, the
Distribution will have the following federal income tax consequences if treated
as non-taxable under Code Section 355:
(1) A KCSI stockholder will not recognize gain or loss, and no
amount will be included in the income of a KCSI stockholder upon the receipt
of Stilwell Common Stock by such stockholder as a result of the
Distribution.
(2) A KCSI stockholder's tax basis in the KCSI Common Stock with
respect to which Stilwell Common Stock is received will be apportioned
between such stockholder's KCSI shares and the shares of Stilwell Common
Stock received by such stockholder in proportion to the relative fair market
values of KCSI and Stilwell.
(3) A KCSI stockholder's holding period for Stilwell Common Stock
received in the Distribution will include the period during which such
stockholder held the KCSI Common Stock with respect to which the Stilwell
Common Stock is distributed, provided that such KCSI Common Stock is held as
a capital asset by such holder on the Distribution Date.
Current United States Treasury regulations require that each KCSI
stockholder who receives shares of Stilwell Common Stock pursuant to the
Distribution attach a statement to such stockholder's federal income tax return
for the taxable year in which the Distribution occurs, providing certain
information with respect to the applicability of Code Section 355 to the
Distribution. KCSI has agreed that it will provide each KCSI stockholder as of
the Record Date information necessary to comply with this requirement.
CONSEQUENCES OF FAILURE TO QUALIFY AS A TAX-FREE DISTRIBUTION. If the
Distribution ultimately were determined not to qualify as a tax-free
transaction pursuant to Code Section 355, the following federal income tax
consequences would result:
(1) Each KCSI stockholder would be considered to have received a
distribution in an amount equal to the fair market value, when distributed,
of the shares of Stilwell Common Stock received by such stockholder. Such a
distribution would be taxed as a dividend to such stockholder to the extent
of KCSI's current or accumulated earnings and profits for federal income tax
purposes (which current earnings and profits, if any, will be increased by
any gain recognized by KCSI as a result of the Distribution (as discussed
below)). To the extent that the aggregate fair market value of the shares of
Stilwell Common Stock distributed exceeds such earnings and profits, such
excess would be treated first as a non-taxable reduction in the tax basis of
a stockholder's KCSI Common Stock to the extent of such tax basis, and
thereafter as short-term or long-term capital gain, provided the KCSI Common
Stock is held by the stockholder as a capital asset.
(2) A KCSI stockholder's tax basis in the shares of Stilwell
Common Stock received in the Distribution would equal the fair market value
of the Stilwell Common Stock on the Distribution Date, and the stockholder's
holding period for the shares of Stilwell Common Stock would begin on such
date. In such event, a KCSI stockholder's tax basis in such stockholder's
KCSI Common Stock would not be affected by the Distribution, unless, as
described above, the amount of the Distribution were to exceed the current
and accumulated earnings and profits of KCSI and were treated as a non-
taxable reduction in tax basis. Upon a subsequent sale of the shares of
Stilwell Common Stock, a stockholder would recognize gain or loss measured
by the difference between the amount realized on such sale and the
stockholder's tax basis in the shares of Stilwell Common Stock sold.
(3) KCSI would recognize gain in an amount equal to the
difference between the fair market value of the shares of Stilwell Common
Stock distributed and KCSI's basis in the shares of Stilwell Common Stock.
CONSEQUENCES OF CERTAIN OWNERSHIP CHANGES. Code Section 355 would
require KCSI to recognize gain for federal income tax purposes as of the
Distribution Date equal to the difference between the fair market value and
adjusted basis of the Stilwell Common Stock if 50 percent or more of the total
combined interests (by vote or value) of KCSI or Stilwell were acquired,
directly or indirectly, subsequent to the Distribution (but including
transactions up to two years before the Distribution) in an acquisition which
is part of a plan that included the Distribution (which would be presumed if
such an acquisition were within two years of the Distribution). Under the Tax
Disaffiliation Agreement, Stilwell is required to indemnify KCSI for any taxes
resulting from any changes in ownership of Stilwell. See "Relationship Between
KCSI and Stilwell After the Distribution-Tax Disaffiliation Agreement."
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO STOCKHOLDERS WHO RECEIVED
THEIR SHARES OF KCSI COMMON STOCK THROUGH THE EXERCISE OF AN OPTION OR
OTHERWISE AS COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES OR WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. ALL
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
TRADING OF STILWELL COMMON STOCK
There has been no established trading market for the Stilwell Common
Stock. A "when-issued" trading market in the Stilwell Common Stock is expected
to develop near the Record Date. The term "when-issued" means trading in
shares prior to the time certificates are actually available or issued. Prices
at which shares of the Stilwell Common Stock may trade, on a when-issued basis
or after the Distribution, cannot be predicted. Until the Stilwell Common
Stock is fully distributed and an orderly trading market develops, the prices
at which trading in such stock occurs may fluctuate significantly. In
addition, there can be no assurance that an active trading market in Stilwell
Common Stock will develop or be sustained in the future. [Stilwell has
received approval, subject to official notice of issuance, to have the Stilwell
Common Stock listed on the New York Stock Exchange under the symbol "SV."] In
the event trading does occur, the prices at which shares of Stilwell Common
Stock trade will be determined by the marketplace and may be influenced by many
factors, including, among others, Stilwell's performance and prospects, the
depth and liquidity of the market for Stilwell Common Stock, investor
perception of Stilwell and its businesses and the industry in which Stilwell
operates, Stilwell's dividend policy, general financial and other market
conditions, domestic and international economic conditions and the impact of
factors referred to in "Risk Factors." In addition, the stock market has
experienced price and volume fluctuations that have affected the market price
of many stocks and that, at times, could be viewed as unrelated or
disproportionate to the operating performance of such companies. Such
volatility and other factors may have a material adverse effect on the market
price for shares of Stilwell Common Stock. See "Risk Factors-Absence of Public
Market for Stilwell Common Stock."
As a result of the Distribution, absent other action, the trading prices
of KCSI Common Stock are expected to be significantly lower than the trading
prices of KCSI Common Stock immediately prior to the Distribution. In an
attempt to address the effect of the Distribution on KCSI Common Stock's
trading price on the New York Stock Exchange and in contemplation of the
Distribution, KCSI's Board of Directors received stockholder approval to
effect, after the Record Date, a reverse stock split, whereby every two shares
of KCSI Common Stock then outstanding will be combined into one share of KCSI
Common Stock. No further stockholder approval is required for the
Distribution. Nevertheless, even after such reverse stock split, the combined
trading prices of KCSI Common Stock and Stilwell Common Stock after the
Distribution may be less than, equal to, or greater than, the trading price of
KCSI Common Stock immediately prior to the Distribution. Such prices may also
be affected by certain provisions of Stilwell's Certificate and Bylaws, certain
agreements, the Rights Plan, the Code and the DGCL, all of which may have an
antitakeover effect. See "Risk Factors-Changes in Trading Prices of KCSI
Common Stock," "Risk Factors-Potential Antitakeover Considerations," and
"Description of Capital Stock."
Shares of Stilwell Common Stock distributed to KCSI stockholders will be
freely transferable, except for shares received by persons who may be deemed to
be "affiliates" of Stilwell under the Securities Act. Persons who may be
deemed to be affiliates of Stilwell after the Distribution will generally
include individuals or entities that control, are controlled by, or are under
common control with Stilwell and may include certain officers and directors of
Stilwell as well as principal stockholders of Stilwell. Persons who are
affiliates of Stilwell will be permitted to sell their shares of Stilwell
Common Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemptions afforded by Section 4(2) of the
Securities Act and Rule 144 thereunder.
MODIFICATION OR ABANDONMENT OF THE DISTRIBUTION
KCSI's Board of Directors intends to complete the Distribution unless an
event or development arises that, in the judgment of KCSI's Board of Directors,
would have a material adverse effect on KCSI or its stockholders. The
Distribution may be amended, modified or abandoned at any time prior to the
Record Date by, and in the sole discretion of, KCSI's Board of Directors.
SOLVENCY AND SURPLUS OPINION OF FINANCIAL ADVISOR
KCSI has engaged Duff & Phelps, LLC ("Duff & Phelps") as its financial
advisor in connection with the Distribution. KCSI has requested Duff & Phelps
to render opinions to KCSI's Board of Directors that after effecting the
Distribution (i) the fair salable value of KCSI's assets exceeds the stated
value of KCSI's liabilities (including contingent liabilities); (ii) KCSI will
not have an unreasonably small amount of capital for the operation of the
businesses in which it is engaged; (iii) KCSI will be able to pay its stated
liabilities (including contingent liabilities) as they mature; and (iv) the
fair salable value of KCSI's assets exceeds the stated value of KCSI's
liabilities (including all contingent liabilities) by an amount greater than
the sum of the aggregate par value of its issued capital stock and all amounts
allocated to capital by KCSI's Board of Directors.
Duff & Phelps rendered such opinions on [_______, 1999]. Duff & Phelps
received customary fees, including reimbursement of certain out-of-pocket
expenses, for its services as a financial advisor related to the Distribution.
KCSI has agreed to indemnify Duff & Phelps against certain liabilities and
expenses in connection with its services as a financial advisor.
<PAGE>
RELATIONSHIP BETWEEN KCSI AND STILWELL
AFTER THE DISTRIBUTION
For the purpose of governing certain of the limited ongoing relationships
between KCSI and Stilwell during a transitional period after the Distribution
and providing for an orderly transition of Stilwell to a separate company, KCSI
and Stilwell have entered into various agreements and relationships, including
those described in this section regarding certain transition services,
indemnification, tax matters and other matters relating to the Distribution.
INTERCOMPANY AGREEMENT
KCSI and Stilwell have entered into an Intercompany Agreement which
generally provides for a number of matters relating to the Distribution and
certain other matters involving a limited ongoing relationship between KCSI and
Stilwell during a transitional period, including certain indemnification
rights, insurance matters, access to records and information and certain
transitional support services.
Under the Intercompany Agreement, each of the parties has agreed to
indemnify the other against certain claims relating to or arising out of their
respective businesses before and after the Distribution and to have joint
responsibility for obligations, if any, of KCSI which relate neither to
Stilwell nor KCSI's respective businesses (unless KCSI and Stilwell otherwise
agree). The Intercompany Agreement provides that Stilwell is obligated to KCSI
with respect to all of KCSI's agreements relating to the financial services
segment that were not assigned to Stilwell in the same manner that KCSI is
obligated under such agreements, and Stilwell has the right to any benefits and
assets received by KCSI under such agreements. The Intercompany Agreement also
provides for the continuation of KCSI's medical, dental, vision, life insurance
and long-term disability insurance coverage for Stilwell active employees
through December 31, 1999 and for Stilwell-related individuals who retire
through that date. In addition, the Intercompany Agreement provides for
continuation of KCSI's property and casualty insurance in effect at the time of
the Distribution to cover Stilwell and its subsidiaries until the earlier of
December 31, 1999 or the expiration of such insurance policies. The
Intercompany Agreement also grants Stilwell access to historical financial and
accounting information regarding Stilwell. In addition, KCSI and Stilwell will
provide each other with access to business records, materials and personnel for
appropriate purposes and agreed to certain document retention arrangements.
Pursuant to the Intercompany Agreement, KCSI shall provide Stilwell with
inquiry-only access to its computer system and data available regarding
Stilwell on that system for a transitional period after the Distribution Date.
In addition, for a limited time, KCSI will provide Stilwell with certain office
space and make normal office services (including fax, photocopy, telephone,
computers, maintenance and cleaning) available during the time Stilwell
occupies any of KCSI's office space. The cost associated with the services and
facilities to be provided by KCSI will be a fixed dollar amount or percentage
based on the estimated cost to KCSI of providing such services and facilities.
All such transitional and ongoing relationships will be on an arm's-length
basis. Stilwell believes that the amounts to be paid to KCSI for services or
facilities will not exceed the amounts that would have to be paid if such
services and facilities were provided by third parties. Finally, the
Intercompany Agreement outlines mediation and arbitration procedures to resolve
any disputes between the parties relating to the subjects included in the
agreements between KCSI and Stilwell.
TAX DISAFFILIATION AGREEMENT
KCSI and Stilwell have entered into a Tax Disaffiliation Agreement which
provides for their respective obligations concerning various tax liabilities
and the procedures for preparing and filing consolidated and combined tax
returns for the periods prior to and including the Distribution Date. The Tax
Disaffiliation Agreement further provides that KCSI will indemnify and hold
harmless Stilwell with respect to all federal, state, local and foreign income,
franchise and similar taxes ("Taxes") attributable to the income, operations or
assets of the transportation division of KCSI for any taxable period, whether
arising before or after the Distribution Date. It also provides that Stilwell
will indemnify and hold harmless KCSI with respect to all Taxes attributable to
the income, operations or assets of Stilwell for any taxable period, whether
arising before or after the Distribution Date. The Tax Disaffiliation
Agreement also provides for payments between the two companies for tax
adjustments, carrybacks and refunds. Further, the Tax Disaffiliation Agreement
provides for cooperation with respect to certain tax matters, including the
preparation of income tax returns, the exchange of information, the handling of
tax audits and other proceedings and the retention of records which may affect
the income tax liability of either party.
Additionally, KCSI and Stilwell each agree not to take any action which
would cause the Distribution to fail to qualify as a tax-free distribution
under Code Section 355 unless required to do so by law. KCSI and Stilwell have
agreed to indemnify each other with respect to any tax liability resulting from
their respective failures to comply with such provisions. KCSI and Stilwell
have also agreed to indemnify each other if either should cause the
Distribution to fail to qualify as a tax-free spin-off under Code Section 355
because of a change of ownership of their respective companies. See "Risk
Factors--Indemnification Obligations."
EMPLOYEE BENEFITS
Pursuant to the Intercompany Agreement, Stilwell will retain or assume, as
the case may be, sole responsibility as employer for all employees of KCSI
designated to become Stilwell employees, and will use reasonable efforts to
cause any employee of Stilwell who is then a party to any employment, change in
control or other employment-related agreement (other than any stock option
agreements) with KCSI to terminate such agreement or agreements not later than
the Distribution Date.
KCSI currently provides benefits to its employees under the KCSI Profit
Sharing Plan and Trust Agreement (the "KCSI Profit Sharing Plan"), The Employee
Stock Ownership Plan and Trust Agreement of KCSI (the "KCSI ESOP"), The KCSI
401(k) Plan and Trust Agreement (the "KCSI 401(k) Plan") and The Employee Stock
Purchase Plan of KCSI (the "KCSI Purchase Plan"). Options to purchase KCSI
Common Stock are also currently outstanding pursuant to the KCSI 1991 Amended
and Restated Stock Option and Performance Award Plan (the "KCSI Stock Option
Plan"). KCSI and Stilwell have agreed to adjust each existing KCSI employee
benefit or award in the following manner:
- - PROFIT SHARING PLAN. The Stilwell Financial, Inc. 401(k) Plan (the
"Stilwell 401(k) Plan") has a profit sharing portion for accounts of
participants and for future contributions (the "Profit Sharing Portion").
The trustee for the KCSI Profit Sharing Plan, the KCSI 401(k) Plan and the
KCSI ESOP (the "Trustee") will divide the KCSI Profit Sharing Plan as of
the Distribution and will transfer the accounts of participants of
Stilwell Financial, Inc. to the Profit Sharing Portion in a plan-to-plan
transfer of assets. An investment manager will manage the participant
accounts in the Profit Sharing Portion. The Profit Sharing Portion
provides generally the same eligibility and vesting requirements and
distribution provisions as the KCSI Profit Sharing Plan.
- - STILWELL 401(K) PLAN. As of the Distribution, the Trustee will transfer
the accounts of the Stilwell participants who will participate in the
401(k) portion of the Stilwell 401(k) Plan (the "401(k) Portion") to the
401(k) Portion. The 401(k) Portion provides generally the same investment
options and the same eligibility and vesting requirements and distribution
provisions as the KCSI 401(k) Plan. The trustee for the Stilwell 401(k)
Plan will accept the transferred accounts from the KCSI 401(k) Plan and
participants' elections under the KCSI 401(k) Plan will remain in effect
under the 401(k) Portion until changed by the Stilwell participants.
- - STILWELL STOCK OPTION PLAN. As part of the Distribution, KCSI and
Stilwell plan to substitute options for KCSI non-qualified stock options
held by KCSI and Stilwell employees, former KCSI employees and KCSI
directors (including former directors) to provide for the equitable
adjustment of the stock options as allowed by the KCSI Stock Option Plan.
Specifically, as part of the Distribution, all KCSI non-qualified stock
options outstanding as of the Record Date ("Options") will remain
outstanding with an adjusted exercise price ("New KCSI Options"), and
holders of the Options will receive separately exercisable options to buy
Stilwell Common Stock ("New Stilwell Options") (collectively, the New KCSI
Options and the New Stilwell Options are referred to as "Substituted
Options"). New Stilwell Options for approximately 17,000,000 shares will
be issued to current and former employees and directors of KCSI and
Stilwell and will result in the dilution of ownership of Stilwell
stockholders.
The exercise prices of the Substituted Options will be a prorated amount
of the exercise price for the related Options based on the ratio of the
average trading price of Stilwell Common Stock to the total of the average
trading prices of both KCSI Common Stock and Stilwell Common Stock. For
this purpose, the average trading prices will be based on trading prices
for the first three days on which there is trading on the New York Stock
Exchange in both Stilwell Common Stock and KCSI Common Stock ex-
distribution. The respective trading prices of KCSI Common Stock ex-
distribution and Stilwell Common Stock on each day shall be the mean
between the high and the low prices of the shares on the New York Stock
Exchange on the day in question. The other terms of the Substituted
Options will be the same as for the Options.
The New Stilwell Options will be granted in the same proportion as the
distribution of Stilwell Common Stock in the Distribution; i.e., two New
Stilwell Options for each Option held. New KCSI Options and New Stilwell
Options which will be substituted for Options which were subject to time
vesting (under the KCSI Stock Option Plan, vesting means the Options
become exercisable; therefore, Options which time vest are Options which
become exercisable after the passage of a specified period of time) will
vest at the time the Options for which they were substituted would have
vested. The 1998 Amended and Restated Long Term Incentive Stock Plan
("Stilwell Stock Option Plan") will govern the New Stilwell Options.
The substitution of New KCSI Options and New Stilwell Options for Options
is provided for in the Intercompany Agreement under which (1) the New KCSI
Options and New Stilwell Options will be established with the exercise
prices determined as described above based on an allocation of the
exercise price of the Options; and (2) KCSI and Stilwell assume the
obligation to issue shares of their Common Stock upon the exercise of the
New KCSI Options and the New Stilwell Options, respectively.
- - STILWELL ESOP. The KCSI ESOP will participate in the Distribution.
Promptly after the Distribution, the Trustee will transfer the Stilwell
participant accounts to The Employee Stock Ownership Plan of Stilwell (the
"Stilwell ESOP"). Immediately after the Distribution, participants in the
Stilwell ESOP will have two shares of Stilwell Common Stock for each one
share of KCSI Common Stock in their accounts. To allow Stilwell
participants to retain the KCSI Common Stock in their respective Stilwell
ESOP accounts, Stilwell participants will have an election with respect to
the portion of each Stilwell participant's account allocated to KCSI
Common Stock to keep the KCSI Common Stock in their accounts or to have
the trustee for the Stilwell ESOP sell the KCSI Common Stock in their
accounts and reinvest the proceeds in either Stilwell Common Stock or in a
guaranteed investment contract fund. The election may be a partial
election; however, once a participant elects to have the KCSI Common Stock
held in his or her ESOP account sold, the participant may not reinvest in
KCSI Common Stock, nor may a participant elect to sell any of the Stilwell
Common Stock in his or her account to invest in the guaranteed investment
contract fund. For any participant who does not affirmatively elect to
retain the KCSI Common Stock in his or her account, the trustee for the
Stilwell ESOP will sell the KCSI Common Stock from his or her account and
will reinvest the proceeds in Stilwell Common Stock.
- - STILWELL STOCK PURCHASE PLAN. The KCSI Purchase Plan provides that if a
KCSI subsidiary should cease to be a subsidiary of KCSI in certain
specified situations, including a transaction such as the Distribution,
and establishes its own arrangement to substitute new options for the old
options to purchase KCSI Common Stock its employees held under the KCSI
Stock Purchase Plan, the committee which administers the KCSI Purchase
Plan may choose to have that entity's arrangement assume the old options
for the employees of that entity. The committee which administers the
KCSI Purchase Plan has designated the Stilwell Employee Stock Purchase
Plan (the "Stilwell Stock Purchase Plan") to assume the options of the
Stilwell participants to purchase shares of KCSI Common Stock from the
KCSI Purchase Plan. Accordingly, immediately after the Distribution, the
KCSI Purchase Plan will transfer to the Stilwell Stock Purchase Plan the
contributions collected from the Stilwell participants. For the rest of
the offering period under the current offering under the KCSI Purchase
Plan; i.e., until December 31, 1999, the Stilwell participants from the
KCSI Purchase Plan will participate in the Stilwell Stock Purchase Plan.
At the end of the offering period for the current offering under the KCSI
Purchase Plan, the money collected in the Stilwell participant accounts
will be used to purchase Stilwell Common Stock.
- - The main provisions of the Stilwell Stock Purchase Plan are substantially
similar to the KCSI Purchase Plan: eligible employees may purchase during
certain periods Stilwell Common Stock at 85% of the average market price
on either the exercise date or the grant date, whichever is lower, but in
no event at less than the par value of the shares. Eligible Stilwell
employees may elect to have up to a board-determined maximum percentage of
annualized base pay applied to purchase Stilwell Common Stock, and the
purchase price will be collected via employee payroll deductions. With
certain exceptions, all employees of Stilwell or any eligible Stilwell
affiliates who work at least 20 hours per week for five months of the year
will be eligible to participate in the Stilwell Stock Purchase Plan. The
Stilwell Stock Purchase Plan will be administered by Stilwell's Board of
Directors or Stilwell's Compensation Committee.
<PAGE>
FINANCING
DESCRIPTION OF THE CREDIT FACILITY
On May 14, 1999, KCSI renewed a $100 million, 364-day senior unsecured
competitive advance/revolving credit facility (the "Credit Facility") with
several banks and institutional lenders (the "Lenders"). The Credit Facility
has been transferred to Stilwell. The Credit Facility contains interest rates
below prime and terms which can be fixed up to the expiration date. The Credit
Facility can be increased to $300 million after the Distribution.
The Credit Facility includes customary covenants that, among other things,
restrict the ability of Stilwell to create liens, incur debt, enter into
certain sale and lease-back transactions and transactions with affiliates,
transfer assets, merge, maintain specified financial assets and otherwise
restrict corporate activities. The Credit Facility also contains various
financial covenants, including the requirement for Stilwell to maintain
specified financial ratios such as maximum leverage, minimum net worth and
minimum interest coverage. Because of such financial covenants, maximum
utilization of Stilwell's available lines of credit may be restricted.
The Credit Facility contains customary events of default, including, but
not limited to, failure by Stilwell to satisfy its obligations under the Credit
Facility, a change of control of Stilwell, events of bankruptcy, insolvency and
reorganization and other material indebtedness defaults by Stilwell. See "Risk
Factors-Restrictions Imposed by the Credit Facility; Need for Additional
Financial" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
NEED FOR ADDITIONAL FINANCING
Stilwell believes that the financing available under the Credit Facility,
together with cash flows from operations, should be sufficient to satisfy its
foreseeable operating and capital requirements. The timing of Stilwell's
future capital requirements, however, will depend on a number of factors,
including the ability of Stilwell to successfully implement its business
strategy. In addition, Stilwell, as a continuation of its practice of
providing credit facilities to its subsidiaries, contemplates assigning a
portion of its credit line under the Credit Facility to Janus for use by Janus
for general corporate purposes, in which case the portion assigned would be
unavailable for use by Stilwell Financial, Inc. Stilwell may also require
additional capital sooner than anticipated to the extent that Stilwell's
operations do not progress as anticipated or if certain put rights are
exercised by Janus stockholders. Stilwell intends to obtain any additional
financing for general corporate purposes on terms and conditions substantially
similar to the Credit Facility. There can be no assurance, however, that any
required additional capital will be available on acceptable terms, or at all,
and the failure to obtain any such required capital could have a material
adverse effect on Stilwell's operations. See "Risk Factors-Restrictions
Imposed by the Credit Facility; Need for Additional Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Minority Purchase Agreements."
<PAGE>
CAPITALIZATION
Set forth below is the capitalization of Stilwell as of June 30, 1999 and
on a pro forma basis to give effect to the Distribution as if the Distribution
and related transactions had occurred on that date. The table set forth below
should be read in conjunction with the financial statements set forth elsewhere
in this Information Statement. The pro forma information may not reflect the
capitalization of Stilwell in the future or as it would have been had Stilwell
been a separate, independent company.
June 30, 1999
Actual Pro Forma
------ ---------
(in millions)
Debt obligations $ -- $ --
Equity:
Preferred Stock, $1.00 par value;
10,000,000 shares authorized; no shares issued or
outstanding (no shares, as adjusted) -- --
Common Stock, $.01 par value; 1,000,000,000
shares authorized; 1,000 issued and outstanding;
(220,868,702 issued and outstanding,
as adjusted) (1) -- 2.2
Net investment by KCSI 106.8 0
Retained Earnings 417.2 417.2
Accumulated other comprehensive income 90.8 90.8
Additional paid-in capital -- 104.6
------ ------
Total Equity 614.8 614.8
------ ------
Total Capitalization $ 614.8 $614.8
======= ======
(1) Based on an assumed two shares of Stilwell Common Stock for every one
share of KCSI Common Stock. There were 110,434,351 shares of KCSI
Common Stock issued and outstanding at June 30, 1999. Excludes an
estimated 17,444,562 shares of Stilwell Common Stock reserved for
issuance upon the exercise of New Stilwell Options granted in connection
with the Distribution (assuming that two Stilwell options are granted
for every one KCSI stock option).
<PAGE>
DIVIDEND POLICY
Stilwell has never declared or paid any dividends on the Stilwell Common
Stock. The payment of dividends by Stilwell is subject to the discretion of
Stilwell's Board of Directors. It is anticipated that Stilwell will pay cash
dividends. However, the payment and amount of such dividends by Stilwell will
be based on, and affected by, a number of factors, including Stilwell's
financial position, its capital requirements and liquidity, the existence of a
stock repurchase program, contractual and legal requirements, results of
operations and such other factors as Stilwell's Board of Directors considers
relevant. In addition, as a holding company, Stilwell's ability to pay
dividends is dependent on the dividends and income it receives from its
subsidiaries. There can be no assurance that any dividends will be declared or
paid after the Distribution. See "Risk Factors-Uncertainty of Dividends."
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table presents selected financial data of Stilwell. The
information set forth below should be read in conjunction with, and is
qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Information Statement.
The selected financial data for the five years ended December 31, 1998 was
derived from the audited consolidated financial statements of Stilwell. The
selected financial data as of and for the six months ended June 30, 1998 and
1999 was derived from the unaudited consolidated financial statements of
Stilwell, which were prepared on the same basis as the historical audited
financial statements.
The selected financial data set forth below may not be indicative of
Stilwell's future performance, and does not necessarily reflect the financial
position and results of operations of Stilwell had Stilwell operated as a
separate, stand-alone entity during each of the periods presented. In addition
to historical earnings per share data based on the Stilwell capital structure
as of June 30, 1999 (1,000 shares outstanding), pro forma earnings per share
information is presented for the year ended December 31, 1998 and for the six
months ended June 30, 1998 and 1999. This pro forma information is presented
for comparison purposes to future years and was derived assuming an issuance
of two shares of Stilwell Common Stock for every one outstanding share of
KCSI Common Stock as of June 30, 1999. In addition, dilutive options were
included based on the number of dilutive KCSI stock options assumed to be
exercised as of June 30, 1999 in connection with the determination of KCSI's
diluted earnings per share computations. The results for the six months
ended June 30, 1999 are not necessarily an indication of the results for the
full fiscal year.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
---------------------------------------------------- -------------
1994 (i) 1995 (ii) 1996 (iii) 1997 1998 (iv) 1998 1999
---- ---- ---- ---- ---- ---- ----
(Dollars in Millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
- --------------
INCOME STATEMENT
DATA:
Revenues $583.8 $236.7 $329.6 $485.1 $670.8 $312.9 $515.5
Operating expenses 515.2 156.5 197.8 285.9 390.2 179.9 302.8
------ ------ ------ ------ ------ ------ ------
Operating Income 68.6 80.2 131.8 199.2 280.6 133.0 212.7
Equity in earnings
of unconsolidated
affiliates 24.8 29.6 68.6 24.9 25.8 15.6 22.5
Reduction in
ownership of DST -- -- -- -- (29.7) -- --
Gain on sale
of DST -- 296.3 -- -- -- -- --
Other, net 0.4 3.7 8.2 5.8 12.6 11.1 7.5
------ ------ ------ ------ ------ ----- -----
Pretax Income 93.8 409.8 208.6 229.9 289.3 159.7 242.7
Income tax
provision 31.4 181.3 58.2 87.0 103.7 57.0 86.9
Minority interest 5.3 10.5 15.8 24.9 33.4 16.4 23.9
------ ------ ------ ------ ------ ----- -----
Net Income $ 57.1 $218.0 $134.6 $118.0 $152.2 $ 86.3 $131.9
====== ====== ====== ====== ====== ===== ======
Per Share Data:
Weighted Average
Common shares
outstanding 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Basic Earnings
per share $57,100 $218,000 $134,600 $118,000 $152,200 $86,300 $131,900
Diluted Earnings
per share 57,100 218,000 134,000 117,400 149,900 85,500 130,100
Pro Forma
Per Share Data:
Common shares
outstanding (in
thousands) 220,869 220,869 220,869
Basic Earnings per share $ 0.69 $ 0.39 $ 0.60
Diluted Common
shares outstanding
(in thousands) 228,848 228,848 228,848
Diluted Earnings per share $ 0.66 $ 0.37 $ 0.57
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets $672.4 $475.2 $548.2 $672.6 $822.9 $811.0 $921.1
Long term obligations:
Third Parties 38.5 0.4 0.1 -- -- -- --
KCSI 223.1 -- 117.3 84.1 16.6 36.6 --
Cash dividends per
Common share n/a n/a n/a n/a n/a n/a n/a
OPERATING DATA:
- --------------
Total Assets Under
Management
(in billions) $ 25.9 $ 34.5 $ 50.3 $ 71.6 $113.5 $ 94.4 $161.7
Total Shareowner
Accounts
(in millions) 2.4 2.5 2.5 2.7 3.0 2.9 3.8
<FN>
<F1>
(i) Reflects DST as a consolidated subsidiary. See (ii) below for discussion
of DST public offering in 1995.
<F2>
(ii) Reflects DST as an unconsolidated affiliate as of January 1, 1995 due
to the DST public offering and associated transactions completed in
November 1995, which reduced Stilwell's ownership of DST to approximately
41% and resulted in deconsolidation of DST from Stilwell's consolidated
financial statements. The public offering and associated transactions
resulted in a $144.6 million after-tax gain to Stilwell.
<F3>
(iii) Includes a one-time after-tax gain of $47.7 million, representing
Stilwell's proportionate share of the one-time gain recognized by DST in
connection with the merger of Continuum, formerly a DST equity affiliate,
with CSC in a tax-free share exchange.
<F4>
(iv) Includes a one-time non-cash charge of $36.0 million ($23.2 million
after-tax) resulting from the merger of a wholly-owned subsidiary of DST
with USCS. The merger was accounted for by DST under the pooling of
interests method. The charge reflects Stilwell's reduced ownership of
DST (from 41% to approximately 32%), together with Stilwell's
proportionate share of DST and USCS fourth quarter merger-related costs.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The discussion set forth below, as well as other portions of this
Information Statement, contains comments not based upon historical fact.
Such forward-looking comments are based upon information currently available
to management and management's perception thereof as of the date of this
Information Statement. Readers can identify these forward-looking comments
by the use of such verbs as "expects," "anticipates," "believes" or similar
verbs or conjugations of such verbs. The actual results of operations of
Stilwell could materially differ from those indicated in forward-looking
comments. The differences could be caused by a number of factors or
combination of factors including, but not limited to, those factors
identified in the section of this Information Statement which identifies risk
factors, which are hereby incorporated by reference herein. Readers are
strongly encouraged to consider these factors when evaluating any forward-
looking comments. Stilwell will not update any forward-looking comments set
forth in this Information Statement.
This discussion and the financial statements included in this Information
Statement were prepared by attributing the historical data for the financial
services segment of KCSI to Stilwell utilizing accounting policies consistent
with those applied to the preparation of KCSI's historical financial
statements. Since the financial services business was operated as part of KCSI
during the periods presented, such financial information and statements may not
necessarily reflect the results of operations or financial position of Stilwell
or what the results of operations would have been if Stilwell had been a
separate, independent company during those periods.
As a result, within this Management's Discussion and Analysis of
Financial Condition and Results of Operations, historical transactions and
events involving KCSI's financial services segment are discussed as if
Stilwell were the entity involved in the transaction or event, unless
otherwise indicated. Unless otherwise stated or the context otherwise
requires, references herein to Stilwell include Stilwell's direct and
indirect subsidiaries and equity investments. Also, intercompany
transactions between Stilwell and KCSI during the periods covered herein are
reflected as transfers from or dividends to KCSI.
The discussion herein is intended to clarify and focus on Stilwell's
results of operations, certain changes in its financial position, liquidity,
capital structure and business developments for the periods covered by the
consolidated financial statements included in this Information Statement.
This discussion should be read in conjunction with these consolidated
financial statements, the related notes and the Report of Independent
Accountants thereon, and is qualified in its entirety by reference thereto.
OVERVIEW
On January 23, 1998, KCSI formed Stilwell as a holding company for the
group of businesses and investments that comprised the financial services
segment of KCSI. The primary entities comprising the financial services
segment are Janus, an 83% owned subsidiary (subject to vesting of Janus
restricted stock held by various Janus employees which would reduce ownership
to 82%); Berger, a wholly-owned subsidiary (subject to the exercise of
management options to acquire approximately 3.9% of Berger as of June 30,
1999); Nelson, an 80% owned subsidiary; DST, an equity investment in which
KCSI holds an approximate 32% interest; and the Miscellaneous Corporations.
KCSI transferred to Stilwell KCSI's investments in Janus, Berger, Nelson,
DST, the Miscellaneous Corporations and certain other financial services-
related assets, and Stilwell assumed all of KCSI's liabilities associated
with the assets transferred, effective July 1, 1999.
RESULTS OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
Consolidated operating results from 1996 to June 30, 1999 were affected
by the following significant developments.
PLANNED DISTRIBUTION BY KCSI OF FINANCIAL SERVICES SEGMENT. After
examining a number of proposals over the last few years for separating the
financial services and transportation segments, KCSI's Board of Directors
decided to approve a 100% spin-off of the financial services business. On
July 9, 1999, KCSI received a tax ruling from the IRS to the effect that for
United States federal income tax purposes the Distribution qualifies as a
tax-free distribution under Code Section 355. Subject to certain conditions,
the Distribution is expected to occur before the end of 1999.
On March 26, 1999, the Janus Minority Group proposed that KCSI's Board of
Directors consider as an alternative to the Distribution a separate spin-off of
Janus. The Boards of Trustees or Directors of the Janus Advised Funds
expressed support for the proposal of the Janus Minority Group. Several
members of the Janus Minority Group made a formal presentation to KCSI's Board
of Directors to that effect on June 23, 1999. After reviewing and considering
the information presented by the Janus Minority Group, KCSI's Board of
Directors decided it was in the best interests of KCSI and its stockholders to
proceed with the Distribution in the manner previously contemplated and as
described herein.
BERGER MANAGEMENT REALIGNMENT. In second quarter 1999, Berger appointed a
new president and chief executive officer and rearranged the management of
several of its advised funds. Two existing Berger portfolio managers assumed
the responsibility for Berger's largest fund, the Berger One Hundred Fund,
which had assets under management of approximately $1.5 billion at June 30,
1999. Additionally, changes in portfolio management were made for the Berger
Balanced Fund and the Berger Select Fund.
DST MERGER. On December 21, 1998, DST and USCS announced the completion
of the merger of USCS with a wholly-owned DST subsidiary. Under the terms of
the merger, USCS became a wholly-owned subsidiary of DST. The merger,
accounted for as a pooling of interests by DST, expands DST's presence in the
output solutions and customer management software and services industries.
DST issued approximately 13.8 million shares of its common stock in the
transaction, reducing Stilwell's ownership interest from 41% to approximately
32%. Stilwell recorded a one-time pretax non-cash charge of approximately
$36.0 million ($23.2 million after-tax), reflecting Stilwell's reduced
ownership of DST and Stilwell's proportionate share of DST and USCS costs
incurred in the fourth quarter related to the merger. Stilwell accounts for
its investment in DST under the equity method.
ACQUISITION OF NELSON. On April 20, 1998, Stilwell completed the
acquisition of 80% of Nelson, an investment adviser and manager based in the
United Kingdom. Nelson provides investment advice and investment management
services in the United Kingdom primarily to individuals who are retired or
contemplating retirement. Nelson managed approximately $1.2 billion ((pound)
696 million) in assets as of December 31, 1998. The acquisition,
which was accounted for as a purchase, was completed using a combination of
cash, KCSI Common Stock and notes payable. The KCSI Common Stock issued in
connection with the transaction has been reflected as a contribution from KCSI
to Stilwell in the consolidated financial statements. The total purchase price
was approximately $33 million, and the amount in excess of the fair market
value of the net tangible and identifiable intangible assets received was
recorded as goodwill, to be amortized over a period of 20 years. If the
acquisition of Nelson had been completed January 1, 1998, inclusion of
Nelson's results on a pro forma basis would not have been material to
Stilwell's consolidated results of operations for the year ended December 31,
1998.
ASSET IMPAIRMENT CHARGES. In connection with Stilwell's review of its
accounts for the year ended December 31, 1997 in accordance with its
established accounting policies, $15.7 million of asset impairment charges
were recorded during fourth quarter 1997. After consideration of related tax
effects, these charges reduced consolidated earnings by $14.6 million. The
asset impairment charges included a $12.7 million impairment of goodwill
associated with Stilwell's investment in Berger. This charge was recorded
because management determined that a portion of the carrying value of the
investment in Berger, including identifiable intangible assets and goodwill,
was not recoverable, primarily due to below-peer performance and growth of
the core Berger funds. In addition, the charges included a $3.0 million
allowance for a non-core cost investment reflecting recoverability issues.
BERGER OWNERSHIP INTEREST. In January and December 1997, Berger purchased,
for treasury, the common stock of minority stockholders. In December 1997,
Stilwell also acquired additional Berger shares from a minority stockholder
through the issuance of shares of KCSI Common Stock. The shares of KCSI Common
Stock are reflected as a contribution from KCSI to Stilwell in the financial
statements of Stilwell. As a result of such transactions, Stilwell increased
its ownership in Berger to 100% from approximately 80% at December 31, 1996.
In connection with these transactions, Berger granted stock options to certain
of its employees to acquire shares of common stock of Berger. At June 30,
1999, Stilwell's ownership in Berger would have been diluted to approximately
96.1% if all of the outstanding stock options were exercised. The various 1997
transactions resulted in approximately $17.8 million of goodwill, which is
being amortized over 15 years. However, see discussion of impairment of a
portion of this goodwill in "Asset Impairment Charges" above.
Stilwell's acquisition of a 100% interest in Berger included several
transactions under a stock purchase agreement (the "Berger SPA") covering a
period ending no later than October 1999. Pursuant to the Berger SPA, Stilwell
is required to make additional purchase price payments of $3.0 million during
third quarter 1999. No additional payments will be made thereafter. In 1996
and 1997, Stilwell made additional purchase price payments of $23.9 and $3.1
million, respectively. Stilwell made no payments under the Berger SPA during
1998. These goodwill amounts are being amortized over 15 years.
DST'S INVESTMENT IN CONTINUUM. On August 1, 1996, Continuum, formerly
an approximately 23% owned DST equity affiliate, merged with CSC in a tax-
free share exchange. In exchange for its ownership interest in Continuum,
DST received common stock in CSC, which DST accounts for as "available for
sale" securities as defined in Statement of Financial Accounting Standards
No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
("FAS 115").
As a result of the transaction, Stilwell's earnings for the year ended
December 31, 1996 include Stilwell's $47.7 million after-tax share of the
one-time gain recognized by DST in connection with the merger. Continuum
ceased to be an equity affiliate of DST, thereby eliminating any future
equity earnings or losses from Continuum.
BERGER JOINT VENTURE. During 1996, Berger entered into a joint venture
named BBOI with BIAM to develop and market a series of international and global
mutual funds. Regulatory approvals were received in October 1996, and in
fourth quarter 1996, the first no-load mutual fund products from BBOI -- the
Berger/BIAM International Fund, the Berger/BIAM International Core Fund and the
International Equity Fund -- were introduced. BBOI has grown and currently is
the investment adviser and sub-administrator to the Berger/BIAM Funds and the
BBOI Sub-Advised Funds. Assets under management for these funds and products
totaled $522 million at December 31, 1998 compared with $161 million at
December 31, 1997. Berger accounts for its 50% investment in BBOI under the
equity method. Berger and BIAM have executed a non-binding letter of intent
pursuant to which, under certain conditions, BBOI will purchase BIAM's interest
in BBOI. If consummated, that transaction would result in Berger owning all of
BBOI.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
Stilwell's revenues, operating income and net income (including amortization
and interest costs attributed to the respective subsidiary) were as follows
(in millions):
Six Months
Ended June 30,
-----------------------
1998 1999
---- ----
Revenues
Janus $ 291.6 $ 490.0
Berger 17.7 17.5
Other 3.6 8.0
-------- --------
Total $ 312.9 $ 515.5
======== ========
Operating income (loss):
Janus $ 140.1 $ 223.3
Berger (0.3) (2.0)
Other (6.8) (8.6)
-------- --------
Total $ 133.0 $ 212.7
======== ========
Net income (loss):
Janus $ 76.7 $ 115.7
Berger (1.8) (0.7)
Other 11.4 16.9
-------- --------
Total $ 86.3 $ 131.9
======== ========
Assets under management as of June 30, 1998 and 1999 were as follows (in
billions):
June 30,
-----------------------
1998 1999
---- ----
JANUS
Janus Advised Funds:
Janus Investment Funds (i) $62.9 $108.7
Janus Aspen Series (ii) 4.8 9.4
Janus Money Market Funds 4.3 6.8
Janus World Funds (iii) -- 0.7
------- ------
Total Janus Advised Funds 72.0 125.6
Janus Sub-Advised Funds
and Private Accounts 17.1 30.2
------- ------
Total Janus 89.1 155.8
------- ------
BERGER
Berger Advised Funds 3.4 3.7
Berger/BIAM Funds 0.2 0.2
Berger and BBOI Sub-Advised Funds 0.6 0.8
------- ------
Total Berger 4.2 4.7
------- ------
NELSON 1.1 1.2
------- ------
Total Assets Under Management $94.4 $161.7
======= ======
(i) Excludes money market funds
(ii) The Janus Aspen Series consists of eleven portfolios offered through
variable annuity and variable life insurance contracts, and certain
qualified pension plans.
(iii) The Janus World Funds are a group of Ireland-domiciled funds introduced
in December 1998.
For the six months ended June 30, 1999, Stilwell reported consolidated
earnings of $131.9 million versus $86.3 million for the same 1998 period.
Exclusive of an after-tax $4.4 million one-time gain resulting from Janus'
sale of IDEX Management, Inc. ("IDEX") in second quarter 1998, Stilwell
earnings increased 61% over comparable 1998. This improvement was
attributable to a 65% and 60% increase in revenues and operating income,
respectively, period to period.
Year to date 1999 revenues totaled $515.5 million versus $312.9 million
for the six months ended June 30, 1998. Assets under management increased
$48.2 billion during the first six months of 1999 reaching $161.7 billion at
June 30, 1999 compared to $113.5 billion at December 31, 1998 and $94.4
billion at June 30, 1998. This increase from year end 1998 was driven by net
sales of $27.0 billion and market appreciation of $21.2 billion. Shareowner
accounts numbered nearly 3.8 million as of June 30, 1999 (an increase of 26%
from December 31, 1998).
Operating margins declined slightly period to period (from 42.5% in 1998
to 41.3% for the first six months of 1999). Operating expenses for the six
months ended June 30, 1999 increased to $302.8 million from $179.9 million
for the comparable period in 1998, primarily due to the significant growth in
revenues, continued infrastructure efforts and an increase in certain
discretionary expenses.
Higher expenses were evident in salaries and wages (primarily incentive
compensation, an increased number of employees and associated training, and
certain one-time severance costs), marketing and fulfillment, and alliance
fees under mutual fund "supermarket" distribution arrangements based on a
higher level of assets under management through these channels. These three
components totaled approximately 44% of total revenues during the six months
ended June 30, 1999 versus approximately 42% in 1998. Additionally,
infrastructure initiatives throughout 1998 and 1999 to ensure the ongoing
quality and reliability of customer service resulted in higher depreciation
and various other costs.
Year to date 1999 equity earnings from DST increased 43% to $21.5
million from $15.0 million in comparable 1998, primarily due to improved
earnings in DST's Financial Services and Output Solutions segments, as well
as from required capitalization of internal use software development costs in
1999. Consolidated DST revenues increased due to a higher number of
shareowner accounts processed (totaling 53.3 million at June 30, 1999 versus
48.2 million at June 30, 1998), images produced and statements mailed.
Consolidated operating margins improved to 17.1% during 1999 versus 14.6% in
the same 1998 period. Additionally, DST's equity in earnings of
unconsolidated affiliates improved in 1999 compared to 1998.
Other, net was higher in second quarter 1998 versus 1999 due to an $8.8
million one-time gain recognized on the sale of the Janus equity investment
in IDEX. Year to date 1999 interest expense declined from the same 1998
period due to lower average debt balances owed to KCSI.
A brief discussion of significant items relating to Janus, Berger and
Nelson during the six months ended June 30, 1999 follows:
Janus
-----
Janus assets under management increased $47.5 billion (44%) during the
six months ended June 30, 1999. Further, shareowner accounts increased
nearly 30% during the first six months of 1999. These increases
reflect ongoing favorable investment performance by various
funds/portfolios within the Janus group of mutual funds, continued
growth through net sales, as evidenced by 1999 net sales that more than
doubled the entire year for 1998, and competitive levels of expenses
and fees.
Berger
------
Berger assets under management increased 18% (to $4.7 billion) during
the six months ended June 30, 1999, primarily due to market
appreciation. While shareowner accounts declined approximately 10%
(primarily in the Berger One Hundred Fund), new sales - primarily in
Berger's newer fund offerings - offset the cash outflows that
accompanied shareowner departures. In connection with efforts to
revitalize the core Berger funds (i.e., those introduced prior to
1997), certain senior management personnel changes were undertaken
during second quarter 1999, resulting in approximately $1.7 million
(pretax) of one-time severance costs.
Nelson
------
Stilwell acquired 80% of Nelson in April 1998. Accordingly, results for
1998 include only three months of activity compared to the six month
period ended June 30, 1999. Nelson's assets under management increased
8% to (pound) 751 million as of June 30, 1999 from (pound) 696
million at December 31, 1998. Beginning in late first quarter
1999, Nelson initiated expansion efforts throughout the United Kingdom.
This project will be ongoing and Stilwell expects that during this phase
of Nelson's development, Nelson will operate at a loss. These losses,
however, are not expected to have a material impact on Stilwell's results
of operations or financial position.
YEAR TO YEAR COMPARISONS
Stilwell's revenues, operating income and net income (including
amortization and interest costs attributed to the respective subsidiary) were
as follows (in millions):
December 31,
1996 (i) 1997 1998 (ii)
------- ---- ---------
REVENUES:
Janus $295.3 $450.1 $626.2
Berger 34.6 34.9 33.5
Other (0.3) 0.1 11.1
------ ------ ------
Total $329.6 $485.1 $670.8
====== ====== ======
OPERATING INCOME (LOSS):
Janus $136.6 $224.4 $294.1
Berger 5.7 (14.3) 0.4
Other (10.5) (10.9) (13.9)
------ ------ ------
Total $131.8 $199.2 $280.6
====== ====== ======
NET INCOME (LOSS):
Janus $ 70.3 $117.7 $161.4
Berger (1.2) (17.8) (3.2)
Other 65.5 18.1 (6.0)
------ ------ ------
Total $134.6 $118.0 $152.2
====== ====== ======
(i) Includes a one-time after-tax gain of $47.7 million representing
Stilwell's proportionate share of the one-time gain recognized by DST in
connection with the merger of Continuum with CSC in a tax-free share
exchange.
(ii) Includes a one-time non-cash charge of $36.0 million ($23.2 million
after-tax) resulting from the merger of a wholly-owned subsidiary of DST
with USCS. The merger was accounted for by DST under the pooling of
interests method. The charge reflects Stilwell's reduced ownership of
DST (from 41% to approximately 32%), together with Stilwell's
proportionate share of DST and USCS costs in the fourth quarter related
to the merger.
Assets under management as of December 31, 1996, 1997 and 1998 were as
follows (in billions):
December 31,
1996 1997 1998
---- ---- ----
JANUS
Janus Advised Funds
Janus Investment Funds $33.2 $47.5 $ 75.9
Janus Aspen Series 1.4 3.3 6.2
Janus Money Market Funds 2.5 3.8 4.8
Janus World Funds plc -- -- 0.1
----- ----- -----
Total Janus Advised Funds 37.1 54.6 87.0
Janus Sub-Advised Funds
and Private Accounts 9.6 13.2 21.3
----- ----- -----
Total Janus 46.7 67.8 108.3
----- ----- -----
BERGER
Berger Advised Funds 3.3 3.2 3.3
Berger/BIAM Funds -- 0.1 0.2
Berger and BBOI Sub-Advised
Funds 0.3 0.5 0.5
----- ----- ------
Total Berger 3.6 3.8 4.0
----- ----- -----
NELSON -- -- 1.2
----- ----- -----
Total Assets Under Management $50.3 $71.6 $113.5
===== ===== ======
Stilwell reported earnings of $152.2 million in 1998 versus $118.0
million in 1997. Exclusive of the one-time items recorded in both years as
discussed in the "Significant Developments" section above, earnings were
$38.4 million, or 29%, higher than 1997. Revenues increased $185.7 million,
or 38%, over 1997, leading to higher operating income. While operating
income increased, efforts to ensure an adequate infrastructure to provide for
consistent, reliable and accurate service to investors caused a decrease in
operating margins in 1998, from 44% for the year ended December 31, 1997
(exclusive of one-time charges) to 42% for the year ended December 31, 1998.
Total assets under management increased $41.9 billion, or 59%, during 1998,
reaching $113.5 billion at December 31, 1998. Total shareowner accounts
exceeded three million as of December 31, 1998, a 12% increase over 1997.
Stilwell earned $118.0 million in 1997, a $16.6 million decline from
1996. Exclusive of certain one-time items in 1997 and 1996 as discussed in
"Significant Developments" above, earnings improved 53%. Revenues increased
$155.5 million over 1996, leading to higher operating income and improved
operating margins. Operating margins increased from 40% for the year ended
December 31, 1996 to 44% for 1997 (exclusive of one-time charges). Assets
under management increased 42% during 1997, reaching $71.6 billion at
December 31, 1997. Further, shareowner accounts grew to approximately 2.7
million as of December 31, 1997.
Increases in Stilwell's revenue and operating income are a direct result
of growth in assets under management. Assets under management and shareowner
accounts have grown in recent years from a combination of new money
investments (i.e., fund sales) and market appreciation. Fund sales have
risen in response to marketing efforts, favorable fund performance,
introduction and market reception of new products and the current popularity
of no-load mutual funds. Market appreciation has resulted from increases in
investment values.
Following is a detailed discussion of the operating results of the
primary subsidiaries of Stilwell.
JANUS CAPITAL CORPORATION
1998
In 1998, assets under management increased 59.7% to $108.3 billion as a
result of net fund sales of $13.4 billion and market appreciation of $27.1
billion. Approximately $87.0 billion was invested in the Janus Advised Funds
with the remainder held by the Janus Sub-Advised Funds and Private Accounts.
Equity portfolios comprised 94% of total assets under management at December
31, 1998.
Excluding money market funds, 1998 net sales of the Janus Investment
Funds, Janus Aspen Series and Janus World Funds were $11.3 billion and net
sales of Janus Sub-Advised Funds and Private Accounts totaled $1.6 billion.
Total Janus shareowner accounts increased 353,000, or 15%, to 2.7 million.
Janus' revenues, derived largely from fees based upon a percent of
assets under management, increased $176.1 million (39%) to $626.2 million in
1998, driven by the significant growth in assets under management year to
year.
Exclusive of $2.7 and $2.2 million in amortization costs attributed to
Janus in 1998 and 1997, respectively, operating expenses increased 47% from
$223.5 million in 1997 to $329.4 million in 1998. This increase reflects the
significant growth in assets under management and revenues, as well as Janus'
efforts to develop its infrastructure to ensure consistent quality of
service. Approximately 47% of Janus' 1998 operating expenses were variable
items such as incentive compensation and mutual fund supermarket fees, 19%
were discretionary items such as marketing and pension plan contributions and
the remainder were fixed. There can be no assurance that the levels of
profitability sustained in the recent past will continue.
A brief discussion of key expense increases follows:
- - Employee compensation and benefits increased $45 million, or 40%, in
1998 compared to 1997 due to an increased number of employees
(including senior investment management, marketing and administration
employees, as well as additional shareowner servicing and technology
support personnel) and incentive compensation. Incentive compensation
increased principally due to growth in assets under management combined
with strong investment performance. In particular, portfolio
management incentive compensation - formulated to reward top investment
performance - approached its highest possible rate in 1998 as a result
of more than 93% of assets under management ending 1998 in the top
quartile of investment performance compared to their respective peer
groups (as defined pursuant to compensation agreements).
- - Alliance and mutual fund supermarket fees increased 65% in 1998 to
$62.3 million. This increase was principally due to an increase in
assets under management being distributed through these channels, from
$19.0 billion at December 31, 1997 to $32.3 billion at December 31,
1998.
- - Marketing, promotional and advertising expenditures increased $17.5
million during 1998 to capitalize on generally favorable market
conditions, to respond to market volatility and to continue
establishing the Janus brand.
- - Depreciation and amortization increased $2.3 million in 1998 compared
to 1997 due to increased infrastructure spending as discussed below.
1997
Assets under management increased 45% during 1997 to $67.8 billion as a
result of net fund sales of $10.7 billion and market appreciation of $10.4
billion. Approximately $54.6 billion was invested in the Janus Advised Funds
with the remainder held by Janus Sub-Advised Funds and Private Accounts.
Equity portfolios comprised 92% of total assets under management at December
31, 1997. Total shareowner accounts grew 10% during 1997 to 2.4 million.
Driven by the increase in assets under management from 1996 to 1997,
Janus revenues improved 52% during 1997. Additionally, as a result of a
slower rate of growth in expenses compared to revenues during 1997, operating
margins improved to 50% versus 46% in 1996. Approximately 43% of Janus' 1997
operating expenses consisted of variable costs, 18% were discretionary and
the remainder represented fixed costs. The following discussion highlights
changes in key expense categories.
- - Salaries and wages increased year to year, primarily from a higher number
of employees in 1997 compared to 1996 and variable compensation tied to
investment and financial performance.
- - Alliance and mutual fund supermarket fees were higher in 1997 as a result
of a greater amount of assets being distributed through these channels -
approximately 28% of Janus' December 31, 1997 assets under management
were generated through these distribution arrangements compared to 23% as
of December 31, 1996.
GENERAL
The 60% and 45% increases in assets under management in 1998 and 1997,
respectively, are attributable to several factors including, among others:
(i) strong securities markets, particularly equities; (ii) strong investment
performance across all of Janus' products; (iii) strategic marketing and
public relations; (iv) effective use of third party distribution channels for
both retail and sub-advised products; and (v) a strong brand awareness.
During December 1998, Janus introduced the Janus World Funds, a group of
offshore multiclass funds modeled after certain of the Janus Investment Funds
and domiciled in Dublin, Ireland. There are currently seven investment
portfolios offered for sale, including two equity portfolios, three fixed
income portfolios, a balanced portfolio and a money market portfolio. Total
assets at December 31, 1998 were $66 million. More than 80% of sales were
made into the funds' class B shares, which require Janus to advance sales
commissions to various financial intermediaries. Payment of these
commissions, although minor as of December 31, 1998 in relation to Janus'
investment holdings, may impact future liquidity and cash resources. See
"Liquidity" and "Capital Structure."
Janus introduced the following domestic funds during the three year
period ended December 31, 1998:
- - 1998 - Janus Global Technology Fund; Janus Global Life Sciences Fund;
Janus Aspen Growth and Income Portfolio
- - 1997 - Janus Aspen Capital Appreciation Portfolio; Janus Aspen Equity
Income Portfolio
- - 1996 - Janus Aspen High Yield Portfolio; Janus Equity Income Fund; Janus
Special Situations Fund
In 1997 and 1998, Janus spent $11 and $41 million, respectively, on its
infrastructure to ensure uninterrupted service to shareowners; to provide up-
to-the-minute investment and securities trading data; to improve operating
efficiency; to integrate information systems; and to obtain additional
physical space for expansion. These efforts produced, among other things:
- - an enterprise-wide reporting system, producing more efficient and
timely management reporting and allowing full integration of portfolio
management, human resources, budgeting and financial systems;
- - a second investor service and data center opened in Austin, Texas in
1998, including redundant data and telephone connections to allow the
facility to operate in the event that Denver facilities and personnel
become unavailable;
- - an upgrade of Janus' web site, providing shareowners the opportunity to
customize their personal Janus home page and to process most
transactions on-line; and
- - improvements of physical facilities, producing a more efficient
workspace and allowing Janus to accommodate additional growth and
technology.
BERGER
1998
Berger reported 1998 net earnings of $3.9 million compared to $2.7
million in 1997, exclusive of interest and amortization charges attributed to
Berger in both years and the 1997 one-time charges discussed in "Significant
Developments" above. Including the interest and amortization charges in both
years, Berger reported a net loss of $3.2 million in 1998 versus a loss of $5.1
million in 1997 (exclusive of the 1997 one-time charges). Total assets under
management held by the Berger Complex increased to $4.0 billion as of December
31, 1998, a 5% increase over comparable 1997. This increase was attributable
to market appreciation of $0.9 billion, largely offset by net redemptions of
$0.7 billion. While total Berger shareowner accounts decreased approximately
13% during 1998, primarily within the Berger One Hundred Fund, the number of
accounts in the funds introduced during 1997 and 1998 increased 88% year to
year. These fluctuations in shareowner accounts generally are indicative of
recent performance compared to peer groups.
As a result of fluctuations in the level of assets under management
throughout 1998, revenues decreased approximately 4% in 1998 from 1997.
Berger's 1998 operating expenses were essentially even with 1997. While
reductions in marketing costs resulted from a more targeted advertising program,
these savings were offset by higher salaries and wages resulting from an
increased average number of employees during 1998 versus 1997. Amortization
expense attributed to Berger was lower in 1998 due to reduced goodwill from the
1997 impairment discussed previously.
Berger recorded $1.5 million in equity earnings from its joint venture
investment, BBOI, for the year ended December 31, 1998 compared to $0.6 million
in 1997. This increase reflects continued growth in BBOI assets under
management, which totaled $522 million at December 31, 1998 versus $161 million
at December 31, 1997.
1997
Berger reported net earnings of $2.7 million in 1997 compared to $5.2
million in 1996, excluding interest and amortization charges attributed to
Berger in both years and the one-time 1997 charges. Including interest and
amortization, Berger reported net losses of $5.1 and $1.2 million in 1997 and
1996, respectively. Assets under management increased to $3.8 billion at
December 31, 1997 from $3.6 billion at December 31, 1996. Shareowner accounts
declined 16% from 1996, totaling 317,400 at December 31, 1997. This decrease
generally reflects shareowner reaction to below-peer performance by certain of
the larger funds.
Due to higher average assets under management during 1997, Berger
experienced a slight increase in revenues year to year. Operating costs,
however, increased more than revenues, resulting in a higher net loss than the
prior year. Higher expenses (e.g., consulting fees and advertising) reflected
Berger's efforts to enhance product awareness and acceptance. Additionally,
during 1997, Stilwell increased its ownership in Berger to 100% through several
transactions by Berger and Stilwell. Stilwell recorded approximately $17.8
million in goodwill as a result of these transactions. Accordingly,
amortization expense was higher in 1997 than in 1996.
In connection with Stilwell's review of the recoverability of its assets,
Stilwell determined that $12.7 million of goodwill associated with its Berger
investment was not recoverable as of December 31, 1997, primarily due to below-
peer performance and growth of the core Berger funds. Accordingly, a portion
of the goodwill recorded in connection with the repurchase of Berger minority
interest was charged to expense.
GENERAL
During 1998 and 1997, Berger introduced five new equity funds: the Berger
Mid Cap Value Fund; the Berger Small Cap Value Fund; the Berger Balanced Fund;
the Berger Mid Cap Growth Fund; and the Berger Select Fund. These funds held
approximately $493 million of assets under management at December 31, 1998,
more than three times the $155 million at December 31, 1997.
While the core Berger Funds (i.e., those introduced prior to 1997)
experienced declines in assets under management during 1998 and 1997, the newer
Berger offerings, as noted above, reported a growth in assets. Berger made
certain changes in the portfolio management of these core equity funds during
1998 and 1997 and believes these changes improve Berger's opportunity for
growth in the future.
At December 31, 1997 and 1998, approximately 26.3% and 27.6%,
respectively, of Berger's total assets under management were generated
through mutual fund "supermarkets."
OTHER SUBSIDIARIES / AFFILIATES AND HOLDING COMPANY COMPONENTS
NELSON MONEY MANAGERS PLC
As noted in the "Significant Developments" section above, Stilwell
acquired Nelson in April 1998. Nelson contributed $0.6 million to
consolidated earnings in 1998, exclusive of charges attributed to Nelson
relating to the amortization of intangibles recorded in connection with the
acquisition. Including the amortization costs, Nelson reported a net loss of
$0.7 million for the period from acquisition to December 31, 1998. Nelson
revenues - $11.1 million for the period from acquisition to year end 1998 -
were earned based on a percentage of funds under management for ongoing
management and administration of each client's portfolio, together with a fee
on the client's initial investment. Operating expenses, exclusive of
amortization of intangibles, totaled $9.9 million. The intangible amounts
associated with the acquisition of Nelson are being amortized over a 20 year
period.
EQUITY IN EARNINGS OF DST
Exclusive of the one-time fourth quarter merger-related charges
resulting from the DST and USCS merger, equity earnings from DST increased
$6.3 million to $30.6 million for the year ended December 31, 1998. This
improvement over 1997 was attributable to revenue growth resulting from a
10.7% increase in mutual fund shareowner accounts serviced (reaching 49.8
million at December 31, 1998), improved international operating results and
higher operating margins year to year (15.1% versus 14.2% in 1997).
As discussed in the "Significant Developments" section above, fourth
quarter and year ended 1998 include a one-time $23.2 million (after-tax) non-
cash charge resulting from the merger of a wholly-owned subsidiary of DST and
USCS. This charge reflects Stilwell's reduced ownership of DST (from 41% to
approximately 32%), together with Stilwell's proportionate share of DST and
USCS fourth quarter merger-related costs.
Equity in net earnings of DST for the year ended December 31, 1997 totaled
$24.3 million. Exclusive of the 1996 one-time gain on the Continuum merger
discussed in "Significant Developments" above, equity earnings from DST
increased 48% year to year. This increase in DST earnings reflects an increase
in 1997 DST revenues compared to 1996 (improvements in both domestic and
international revenues) and improved operating margins in 1997 (14.2% versus
9.8% in 1996).
INTEREST EXPENSE AND OTHER, NET
Fluctuations in interest expense from 1996 through 1998 reflect changes in
the average debt balances during the respective years. In 1998, average debt
balances were lower than 1997 as repayments reduced outstanding balances early
in 1998; accordingly, 1998 interest expense declined from 1997. Interest
expense in 1997 was higher than 1996 as a result of borrowings in connection
with KCSI's Common Stock repurchase program.
Other, net increased in 1998 versus 1997 as a result of an $8.8 million
(pretax) gain on the sale of Janus' 50% interest in IDEX. Janus continues as
sub-adviser to the five portfolios in the IDEX group of mutual funds it
served prior to the sale. This gain was partially offset by reduced 1998
other income recorded at Stilwell Financial, Inc. relating to a sales
agreement with a former affiliate. The change in other, net between 1997 and
1996 was not material.
TRENDS AND OUTLOOK
Future growth of Stilwell's revenues and operating income will be
largely dependent on prevailing financial market conditions, relative
performance of Janus, Berger and Nelson products, introduction and market
reception of new products, as well as other factors, including changes in the
stock and bond markets, increases in the rate of return of alternative
investments, increasing competition as the number of mutual funds continues
to grow and changes in marketing and distribution channels.
As a result of the rapid revenue growth during the last two years,
Stilwell's operating margins have been strong. Management expects that
Stilwell will experience margin pressures in the future as the various
subsidiaries strive to ensure that the operational and administrative
infrastructure continues to meet the high standards of quality and service
historically provided to investors. Additionally, a higher rate of growth in
costs compared to revenues is expected in connection with Nelson's efforts to
expand its operations.
Stilwell expects to continue to participate in the earnings or losses from
its DST investment.
LIQUIDITY
Summary cash flow data is as follows (in millions):
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
1996 1997 1998 1998 1999
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used for):
Operating activities $41.0 $147.0 $176.0 $79.2 $135.2
Investing activities (56.1) (45.0) (92.8) (36.7) 12.7
Financing activities 8.9 (91.1) (95.3) (64.5) (118.3)
----- ----- ------ ----- -----
Net increase (decrease) in cash
and cash equivalents (6.2) 10.9 (12.1) (22.0) 29.6
Cash and cash equivalents at beginning
of period 29.0 22.8 33.7 33.7 21.6
----- ----- ----- ----- -----
Cash and cash equivalents at end
of period $22.8 $33.7 $21.6 $11.7 $ 51.2
===== ===== ===== ===== =====
</TABLE>
OPERATING CASH FLOWS. Stilwell's cash flow from operations has
historically been positive and sufficient to fund operations, property
acquisitions, and investments in and loans with affiliates. Borrowings from
KCSI, when necessary, have typically been used in connection with
acquisitions and the KCSI Common Stock repurchase program.
The following table summarizes consolidated operating cash flow information.
<TABLE>
<CAPTION>
(in millions):
Six Months
Year Ended December 31, Ended June 30,
1996 1997 1998 1998 1999
------ ------- ------ ---- ----
<S> <C> <C> <C> <C> <C>
Net income $ 134.6 $ 118.0 $ 152.2 $ 86.3 $ 131.9
Depreciation and amortization 12.9 13.1 16.8 6.3 14.7
Equity in undistributed earnings (64.9) (24.7) (24.7) (15.1) (22.3)
Reduction in ownership of DST -- -- 29.7 -- --
Asset impairment charges -- 15.7 -- -- --
Employee deferred compensation 18.3 8.7 3.8 (1.4) (1.3)
Deferred income taxes 3.0 (4.4) (12.4) 2.4 11.1
Minority interest in consolidate
earnings 15.8 24.9 33.4 16.4 23.9
Change in working capital items (71.1) (4.2) (12.3) (6.2) (4.2)
Prepaid Commissions -- -- -- -- (17.7)
Other (7.6) (0.1) (10.5) (9.5) (0.9)
------ ------ ----- ----- ----
Net operating cash flow $ 41.0 $ 147.0 $ 176.0 $79.2 $135.2
====== ====== ====== ==== =====
</TABLE>
Operating cash flow for the six months ended June 30, 1999 increased by
$56.0 million from June 30, 1998. This increase is attributable to higher
earnings driven by revenue growth, offset partially by payments of prepaid
commissions in connection with the Janus World Funds B shares arrangement.
1998 operating cash flows increased by approximately $29.0 million from 1997.
This increase was primarily due to higher ongoing earnings in 1998, partially
offset by various changes in working capital items.
Operating cash flows for the year ended December 31, 1997 exceeded 1996
by nearly $106 million, largely because of the 1996 payment of approximately
$74 million in federal and state income taxes resulting from the taxable
gains associated with the DST public stock offering and associated
transactions completed in November 1995. Also, ongoing earnings were
approximately $45.7 million higher in 1997 than in 1996.
INVESTING CASH FLOWS. Due to timing of operational needs and Janus
quarterly dividends, net sales of investments in advised funds of $40 million
occurred for the six months ended June 30, 1999 (compared to net investment
of $9.7 million through June 30, 1998). Due to growth in operating cash
flows throughout the 1996 to 1998 period (largely due to increasing ongoing
earnings), Janus and Berger had invested an additional $40, $31 and $43
million in investments in advised funds at December 31, 1996, 1997 and 1998,
respectively.
Cash was used for property acquisitions of $1.4, $5.8, and $35.0 million
in 1996, 1997, and 1998, respectively, and $12.6 and $17.6 million for the
six months ended June 30, 1998 and 1999, respectively. The significant
increase in property acquisitions in 1998 and 1999 reflects the
infrastructure enhancements at Janus.
Cash was also used for investments in and loans with affiliates of $27.2
million in 1996 (primarily the additional payment to Berger under the Berger
SPA), $12.0 million in 1997, and $24.3 million in 1998 as a result of the
acquisition of Nelson. Approximately $21.1 and $17.2 million of cash was
used for investments in and loans with affiliates through June 30, 1998 and
1999, respectively, primarily relating to the 1998 investment in Nelson and
1999 Janus treasury stock transactions.
FINANCING CASH FLOWS. For the period ending June 30, 1999, the net
activity with KCSI (which includes the change in long-term debt and note
receivable together with the amounts treated as net transfers from and
dividends to KCSI) resulted in cash to KCSI of $89.8 million. This cash
outflow represents dividends received by Stilwell (from Janus) that were
treated as passed through to KCSI (to the extent that Stilwell did not
require use of the cash for operational or strategic needs), as well as
repayment of indebtedness owed to KCSI. For the comparable 1998 period, the
net activity with KCSI was an outflow of $34.5 million reflecting the
repayment of indebtedness to KCSI, partially offset by amounts treated as
transfers to Stilwell from KCSI. These transfers were used primarily in
connection with the 1998 acquisition of 80% of Nelson.
For the year ended December 31, 1998, the net activity with KCSI
resulted in cash to KCSI of $55.1 million. This outflow was attributable to
repayment of indebtedness to KCSI, offset partially by amounts treated as
transfers to Stilwell from KCSI. These transfers were used primarily in
connection with the 1998 acquisition of 80% of Nelson.
In 1997, the net cash outflow to KCSI was $73.7 million, reflecting
dividends received by Stilwell from Janus and Berger treated as passed
through to KCSI (after satisfaction of ongoing Stilwell operational
obligations), as well as partial repayment of indebtedness to KCSI.
The net activity with KCSI for the year ended December 31, 1996 resulted
in a net inflow to Stilwell of $19.1 million. This net inflow was
attributable to: (i) repayment by KCSI of $70.4 million owed to Stilwell;
and (ii) borrowing by Stilwell from KCSI in connection with KCSI's Common
Stock repurchase program and for additional investment in Berger. Those net
inflows were largely offset by dividends received by Stilwell from Janus and
Berger that were treated as passed through to KCSI.
During the period from 1996 through June 30, 1999, the amount of
distributions to minority stockholders has continued to grow based on
improved earnings at Janus. During that period, Janus distributed at least
90% of its net income to its stockholders each year.
See discussion under "Minority Purchase Agreements" for information
relative to existing contingencies.
CAPITAL STRUCTURE
CAPITAL REQUIREMENTS. Capital requirements, when necessary, for Janus,
Berger, Nelson and other subsidiaries have been funded with cash flows from
operations and negotiated term financing.
During 1998, Janus opened a new facility in Austin, Texas as an investor
service and data center for transfer agent operations, allowing for
continuous service in the event the Denver facility is unavailable. Also,
throughout the period from 1996 to June 30, 1999, Janus has continued efforts
to upgrade and expand its information technology and facilities
infrastructure (as discussed in detail above). These efforts were generally
funded with existing cash flows.
CAPITAL.
Components of capital are shown as follows (in millions):
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Debt due within one year $ 0.3 $ 0.1 $ -- $ --
Long-term debt (third parties and KCSI) 117.4 84.1 16.6 --
------ ----- ----- -----
Total debt (third parties and KCSI) 117.7 84.2 16.6
Stockholder's equity 234.8 348.3 540.2 614.8
------ ------ ------ -----
Total debt plus equity $352.5 $432.5 $556.8 $614.8
====== ====== ====== =====
Total debt as a percent of
total debt plus equity 33.3% 19.5% 3.0% 0.0%
====== ====== ====== =====
</TABLE>
During the period from December 31, 1996 to 1998, Stilwell's
consolidated debt ratio (total debt as a percent of total debt plus equity)
declined as a result of debt repayments and increased earnings. Also,
positive non-cash equity adjustments related to unrealized gains (net of
deferred income tax) on "available for sale" securities held by Stilwell and
DST contributed to higher equity.
Management anticipates that the debt ratio will remain low as a result
of profitable operations and positive operating cash flows (subject to, among
others, any stock repurchase programs approved by Stilwell's Board of Directors,
acquisitions using debt and/or any required funding pursuant to mandatory put
rights under the Janus minority purchase agreements -- see below). Note,
however, that unrealized gains on "available for sale" securities held by
Stilwell and DST, which are included net of deferred income taxes as accumulated
other comprehensive income, are contingent on market conditions and thus, are
subject to significant fluctuations in value. Significant declines in the value
of these securities would negatively impact stockholder's equity and impact
Stilwell's debt ratio.
STILWELL / KCSI CREDIT AGREEMENTS. In May 1998, KCSI established the
Credit Facility assumable by Stilwell for its use upon separation of KCSI's two
business segments. On May 14, 1999 KCSI renewed the Credit Facility. The
Credit Facility has been transferred to Stilwell. The Credit Facility contains
interest rates below prime and terms which can be fixed up to the expiration
date. At June 30, 1999, the full $100 million was available under the Credit
Facility. The Credit Facility can be increased to $300 million after the
Distribution. Stilwell, as a continuation of its practice of providing credit
facilities to its subsidiaries, contemplates assigning a portion of the credit
line under the Credit Facility to Janus for use by Janus for general corporate
purposes, in which case the portion assigned would be unavailable for use by
Stilwell Financial, Inc. Stilwell may also require additional capital sooner
than anticipated to the extent that Stilwell's operations do not progress as
anticipated or if certain put rights are exercised by Janus stockholders.
Stilwell intends to obtain any additional financing for general corporate
purposes on substantially the same terms and conditions as the Credit Facility.
The Credit Facility contains a number of covenants, including various
financial covenants. Stilwell was in compliance with these various provisions,
including the financial covenants, as of December 31, 1998 and June 30, 1999.
Because of certain financial covenants contained in the Credit Facility,
however, maximum utilization of Stilwell's line of credit may be restricted.
MINORITY PURCHASE AGREEMENTS. The Janus Stock Purchase Agreement and
certain restriction agreements with other Janus minority stockholders
contain, among other provisions, mandatory put rights whereby at the election
of such minority stockholders, KCSI would be required to purchase the
minority interests of such Janus minority stockholders at a purchase price
equal to fifteen times the net after-tax earnings over the period indicated
in the relevant agreement, or in some circumstances at a purchase price as
determined by an independent appraisal. These agreements have not been
assigned to Stilwell. However, pursuant to the Intercompany Agreement,
Stilwell is obligated to KCSI in the same manner that KCSI is obligated under
such agreements and Stilwell has the right to any benefits and assets
received by KCSI under such agreements. If all of the puts under such Janus
minority stockholder agreements were exercised, Stilwell would be required to
pay KCSI (to purchase the respective minority interests) approximately $467
million as of June 30, 1999, compared to $220, $337 and $456 million at
December 31, 1996, 1997 and 1998, respectively. Payment for the purchase of
the respective minority interests is to be made under the Janus Stock
Purchase Agreement 30 days after receiving notification of exercise of the
put rights. Under the restriction agreements, payment for the purchase of
the respective minority interests is to be made 30 days after the later to
occur of (i) receiving notification of exercise of the put rights or (ii)
determination of the purchase price through the independent appraisal
process.
The Janus Stock Purchase Agreement and certain stock purchase agreements
and restriction agreements with other minority stockholders also contain
provisions whereby upon the occurrence of a Change in Ownership (as defined
in such agreements) of KCSI (which will not be affiliated with Stilwell
following the Distribution), Stilwell may be required to purchase such
holders' Janus stock or, as to the two stockholders that are parties to the
Janus Stock Purchase Agreement, at such holders' option, to sell its stock of
Janus to such minority stockholders. The purchase price for such minority
holders' Janus stock would be equal to fifteen times the net after-tax
earnings over the period indicated in the relevant agreement, or in some
circumstances at a purchase price as determined by Janus' Stock Option
Committee. If Stilwell were required to purchase the holders' Janus stock,
Stilwell would be required to pay KCSI (to purchase the respective minority
interests) approximately $642 million as of June 30, 1999.
Management is currently exploring various financing alternatives for,
among other things, the payment of the purchase price if Stilwell were to
purchase the holders' Janus stock, including the use of existing cash and
holding company short-term investments, borrowings under the Credit Facility,
and financing opportunities utilizing the relative strength of Stilwell's
balance sheet.
OVERALL LIQUIDITY. Stilwell's cash management approach generally
reflects efforts to minimize cash balances through debt repayment, when
applicable. Cash not required for immediate operating or investing activities
will be utilized to repay indebtedness under lines of credit. This approach is
used to help mitigate Stilwell's floating-rate debt exposure to fluctuations in
interest rates. If all indebtedness has been paid, Stilwell generally invests
this cash in a money market or similar account.
Pursuant to a contractual agreement, Janus has distributed at least 90%
of its net income to its stockholders each year. Stilwell uses its portion
of these dividends in accordance with its strategic plans, which have
included, among others, repayment of indebtedness to KCSI, funding in
connection with KCSI's Common Stock repurchase program, and investments in
affiliates.
Purchases of class B shares in the Janus World Funds require a
commission to be advanced by Janus. Prepaid commissions were not material to
the December 31, 1998 consolidated financial statements. Funding during the
six months ended June 30, 1999 totaled $17.7 million. As funding
requirements grow in future years, Janus expects to obtain a credit line
either through assignment of the Credit Facility (see above) or from third
parties.
Stilwell believes it has adequate resources available - including a
sufficient line of credit (within the financial covenants referred to above)
and businesses which have historically been positive cash flow generators -
to satisfy its operating and capital requirements, and the continuing
business needs of Stilwell.
OTHER
Year 2000.
GENERAL. The Year 2000 discussion below contains forward-looking
statements, including those concerning Stilwell's plans and expected completion
dates, cost estimates, assessments of Year 2000 readiness for Stilwell as well
as for third parties, and the potential risks of any failure on the part of
Stilwell or third parties to be Year 2000 ready on a timely basis. Forward-
looking statements involve a number of risks and uncertainties that could cause
actual results to differ from those projected. See additional information in
the opening paragraph under "Introduction" in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the opening
paragraph under "Risk Factors" in this Information Statement.
While Stilwell continues to evaluate and pursue discussions with its
various customers, partners and vendors with respect to their preparedness
for Year 2000 issues, no assurance can be made that all such parties will be
Year 2000 ready. While Stilwell cannot fully determine its impact, the
inability to complete Year 2000 readiness for its computer systems could
result in significant difficulties in processing and completing fundamental
transactions. In such events, Stilwell's results of operations, financial
position and cash flows could be materially adversely affected.
Many existing computer programs and microprocessors that use only two
digits (rather than four) to identify a year could fail or create erroneous
results with respect to dates after December 31, 1999 if not corrected to
read all four digits. This computer program flaw is expected to affect all
companies and organizations, either directly (through a company's own
computer programs or systems that use computer programs, such as telephone
systems) or indirectly (through customers and vendors of the company).
These Year 2000 related issues are of particular importance to Stilwell.
Stilwell (including its subsidiaries and affiliates) depends upon its
computer and other systems and the computers and other systems of third
parties to conduct and manage its businesses. Additionally, Stilwell's
products and services are heavily dependent upon using accurate dates in
order to function properly. These Year 2000 related issues may also
adversely affect the operations and financial performance of one or more of
Stilwell's customers and suppliers as well as the companies in which Janus,
Berger and Nelson invest. As a result, the failure of Stilwell's computer
and other systems, products or services, the computer systems and other
systems upon which Stilwell depends, or Stilwell's customers, suppliers or
the companies in which Janus, Berger and Nelson invest to be Year 2000 ready
could have a material adverse impact on Stilwell's results of operations,
financial position and cash flows. Stilwell is unable to assess the extent
or duration of that impact at this time, but they could be substantial.
In 1997, Stilwell and its key subsidiaries formed project teams
comprised of employees and third party consultants to identify and resolve
the numerous issues surrounding the Year 2000. The project teams, which are
supervised by members of senior management, regularly report their progress
toward remediating Year 2000 issues to management and appropriate boards of
directors and committees of such boards. The areas in which the project
teams are focusing most of their efforts are information technology ("IT")
systems, non-IT systems and third party issues. The project teams also
provide comprehensive corporate tracking, coordination and monitoring of all
Year 2000 activities. As part of resolving any potential Year 2000 issues,
Stilwell expects to identify all computer systems, products, services and
other systems (including systems provided by third parties) that must be
modified; evaluate the alternatives available to make any identified systems,
products or services Year 2000 ready (including modification, replacement or
abandonment); complete the modifications and replacement of identified
systems; and conduct adequate testing of the systems, products and services,
including interoperability testing with clients and key organizations in the
financial services industry.
KEY AREAS AND PROGRESS. The following provides a summary of each area and
the progress toward identifying and resolving Year 2000 issues:
IT SYSTEMS. The IT systems (including mission critical and significant
non-critical operating, accounting and supporting systems) and underlying
hardware for Stilwell have been analyzed and are being modified and tested for
Year 2000 readiness. Management believes that virtually all mission critical
systems and other systems have been tested and are believed to be Year 2000
ready. Any remaining remediation and testing is expected to be completed by
the end of third quarter 1999.
NON-IT SYSTEMS. All equipment that contains an internal clock or embedded
micro-processor is being analyzed for Year 2000 readiness. This includes
personal computers, software, fax machines, telephone systems, elevator
systems, security and fire control systems and other miscellaneous equipment.
Replacement and upgrades of this type of equipment is substantially completed,
with any minor areas expected to be finalized by September 30, 1999.
THIRD PARTY SYSTEMS. Stilwell depends heavily on third party systems in
the operation of its businesses. As part of the Year 2000 project, significant
third party relationships are being evaluated to determine the status of their
Year 2000 readiness and the potential impact on Stilwell's operations if those
significant third parties fail to become Year 2000 ready. Questionnaires have
been sent to critical suppliers, major customers, key banking and financial
institutions, and primary service providers to determine the status of their
Year 2000 readiness.
Both Janus and Berger have participated in various industry-wide efforts
(e.g., trading and account maintenance, trade execution, confirmation, etc.) to
facilitate testing of Year 2000 preparedness and reliability. Additionally,
Janus and Berger are required to periodically report to the SEC their progress
with respect to Year 2000 preparedness.
Based upon the responses received to the questionnaires and ongoing
discussions with these third parties, Stilwell believes that the majority of
the significant customers, suppliers, service providers and banking and
financial institutions are or will be Year 2000 ready in all material respects
by fourth quarter 1999. Stilwell does not anticipate, however, performing
significant independent testing procedures to verify that the information
received by Stilwell from these third parties is accurate (except for the above
mentioned industry-wide testing efforts). For those third parties who have not
responded or who have expressed uncertainty as to their Year 2000 readiness,
management is exploring alternatives to limit the impact this will have on
Stilwell's operations and financial results. Stilwell will continue to monitor
its third party relationships for Year 2000 issues.
DST, an approximately 32% owned equity investment, provides various
services to Janus and Berger. DST has completed its review and evaluation of
its mission critical U.S. shareowner accounting and U.S. portfolio accounting
related products, services and internal systems and believes it has achieved
material Year 2000 readiness in such products, services and systems. DST
anticipates internal readiness for all of its other mission critical systems
and products by September 30, 1999. Additionally, DST intends on testing its
systems with clients and other third parties for Year 2000 related issues as
needed throughout 1999. As part of addressing its Year 2000 issues, DST has
formalized and tested contingency plans for its U.S. shareowner accounting and
U.S. portfolio accounting business units, is formalizing contingency plans for
its other mission critical products, services and systems and intends to test
such plans by October 31, 1999, and has reviewed existing formal contingency
plans for its two major data centers with respect to failures that could be
caused by Year 2000 issues.
TESTING AND DOCUMENTATION PROCEDURES. All material modifications to IT
and non-IT systems are being documented and maintained by the project teams for
purposes of tracking the Year 2000 project and as a part of Stilwell's due
diligence process. All modified systems have been or are in the process of
being tested for Year 2000 remediation, unit acceptance, system acceptance and
user acceptance. The testing procedures used and the results of these tests
are being documented and maintained as a part of the Year 2000 due diligence
process.
The project teams meet regularly to discuss their progress and ensure
that all issues and problems are identified and properly addressed. Monthly
updates and quarterly reviews are held with senior management to keep them
apprised of the progress of the Year 2000 project.
YEAR 2000 RISKS. Stilwell continues to evaluate the principal risks
associated with its IT and non-IT systems, as well as third party systems if
they were not to be Year 2000 ready on a timely basis. Areas that could be
affected include, but are not limited to, the ability to accurately track
pricing and trading information, obtain and process customer orders and
investor transactions, order and obtain critical supplies, and operate
equipment and control systems. In addition, the investment performance of
various funds could be adversely affected if the trading prices of the
capital stock of a number of companies within such funds are lower as a
result of Year 2000 related issues. These risks are presently under
assessment and Stilwell has no basis to form an estimate of costs or lost
revenues at this time.
Stilwell believes, however, that the risks involved with the successful
completion of its Year 2000 conversion relate primarily to available
resources and third party readiness. The key success factors include the
proper quality and quantity of human and capital resources to address the
complexity and costs of the project tasks. Stilwell has allocated
substantial resources to the Year 2000 project and believes that it is
adequately staffed by employees, consultants and contractors. The inability
to complete Year 2000 readiness for the computer systems of Stilwell could
result in significant difficulties in processing and completing fundamental
transactions.
In addition, Stilwell is taking precautions to ensure its third party
relationships have been adequately addressed. Based on work performed and
information received to date, Stilwell believes its key suppliers, customers
and other significant third party relationships will be prepared for the Year
2000 in all material respects within an acceptable time frame (or that
acceptable alternatives will be available); however, management of Stilwell
makes no assurances that all such parties will be Year 2000 ready within an
acceptable time frame.
In the event that Stilwell or key third parties are not Year 2000 ready,
Stilwell's results of operations, financial position and cash flows could be
materially adversely affected.
CONTINGENCY PLANS. Stilwell and its subsidiaries are in the process of
identifying alternative plans in the event that the Year 2000 project is not
completed on a timely basis or otherwise does not meet anticipated needs.
Consulting professionals have been utilized by Janus, Berger and Nelson in
connection with Year 2000 efforts, including contingency planning. Stilwell
is also making alternative arrangements in the event that critical suppliers,
customers, utility providers and other significant third parties are not Year
2000 ready. The contingency planning and testing processes are scheduled to
be completed by October 31, 1999.
In addition, information system black-out periods have been scheduled at
the various Stilwell subsidiaries, generally from third quarter 1999 through
second quarter 2000. During this period, the project team and other members
of the information systems group will focus all of their efforts and time
toward addressing Year 2000 related issues. No new project requests or
hardware/software upgrades will be allowed during this time with the
exception of ongoing routine maintenance.
YEAR 2000 COSTS. Through June 30, 1999, Stilwell has spent
approximately $10.3 million in connection with ensuring that all computer
programs are compatible with Year 2000 requirements. In addition, Stilwell
anticipates future spending of approximately $2.2 million in connection with
this process. Current accounting principles require all costs associated
with Year 2000 issues to be expensed as incurred. A portion of these costs
will not result in an increase in expense to Stilwell because existing
employees and equipment are being used to complete the project.
FOREIGN EXCHANGE MATTERS AND OTHER FINANCIAL INSTRUMENTS. In connection
with Stilwell's investment in Nelson, an 80% owned subsidiary operating in
the United Kingdom, matters arise with respect to financial accounting and
reporting for foreign currency transactions and for translating foreign
currency financial statements into U.S. dollars. Stilwell follows the
requirements outlined in Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation", and related authoritative guidance.
Nelson's financial statements are accounted for using the British pound
as the functional currency. Any gains or losses arising from transactions
not denominated in the British pound are recorded as a foreign currency gain
or loss and included in the results of operations of Nelson. The translation
of Nelson's financial statements from the British pound into the U.S. dollar
results in an adjustment to accumulated other comprehensive income. At
December 31, 1998 and June 30, 1999, the cumulative translation adjustment
was not material.
Stilwell continues to evaluate existing alternatives with respect to
utilizing foreign currency instruments to hedge its U.S. dollar investment in
Nelson as market conditions change or exchange rates fluctuate. At June 30,
1999, Stilwell had no outstanding foreign currency hedging instruments.
Stilwell intends to respond to evolving business and market conditions in
order to manage risks and exposures associated with Stilwell's various
operations.
NEW ACCOUNTING PRONOUNCEMENTS.
DERIVATIVE INSTRUMENTS. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 133 establishes accounting and reporting standards for derivative
financial instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities measured at fair value. Pursuant
to an amendment by the FASB, FAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000 and should not be retroactively
applied to financial statements of periods prior to adoption.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS. Statement of Financial
Accounting Standards No. 132 "Employers' Disclosure about Pensions and Other
Postretirement Benefits -- an amendment of FASB Statements No. 87, 88, and
106" ("FAS 132") was adopted by Stilwell in 1998. FAS 132 establishes
standardized disclosure requirements for pension and other postretirement
benefit plans, requires additional information on changes in the benefit
obligations and fair values of plan assets, and eliminates certain
disclosures that are no longer useful. The standard does not change the
measurement or recognition of pension or postretirement benefit plans. The
adoption of FAS 132 did not have a material impact on Stilwell's disclosures.
SEGMENT DISCLOSURES. In 1998, Stilwell adopted the provisions of
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131
establishes standards for the manner in which public business enterprises
report information about operating segments in annual financial statements
and requires disclosure of selected information about operating segments in
interim financial reports issued to stockholders. FAS 131 also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The adoption of FAS 131 did not have a material
impact on the disclosures of Stilwell.
COMPREHENSIVE INCOME. Effective January 1, 1998, Stilwell adopted the
provisions of Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("FAS 130"), which establishes standards for reporting
and disclosure of comprehensive income and its components in the financial
statements. Prior year information has been included pursuant to FAS 130.
Stilwell's other comprehensive income consists primarily of unrealized gains
and losses relating to investments held by Stilwell and DST as "available for
sale" securities as defined by FAS 115. Stilwell records its proportionate
share of any unrealized gains or losses related to these investments, net of
deferred income taxes, in stockholder's equity as accumulated other
comprehensive income. The unrealized gain related to these investments
increased $30.1, $42.6 and $40.3 million ($18.5, $25.9 and $24.1 million, net
of deferred income taxes) for the years ended December 31, 1996, 1997 and
1998, respectively, and $69.7 and $27.3 million ($42.9 and $15.9 million, net
of deferred income taxes) for the six months ended June 30, 1998 and 1999,
respectively.
MINORITY RIGHTS. In Issue No. 96-16, the Emerging Issues Task Force
("EITF 96-16") of the FASB, reached a consensus that substantive
"participating" minority rights which provide the minority stockholder with
the right to effectively control significant decisions in the ordinary course
of an investee's business could impact whether the majority stockholder
should consolidate the investee. Management evaluated the rights of the
minority stockholders of its consolidated subsidiaries and concluded that
application of EITF 96-16 did not affect Stilwell's consolidated financial
statements.
INTERNALLY DEVELOPED SOFTWARE. In 1998, Stilwell adopted the guidance
outlined in American Institute of Certified Public Accountant's Statement of
Position 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that computer
software costs incurred in the preliminary project stage, as well as training
and maintenance costs be expensed as incurred. This guidance also requires
that direct and indirect costs associated with the application development
stage of internal use software be capitalized until such time that the
software is substantially complete and ready for its intended use.
Capitalized costs are to be amortized on a straight line basis over the
useful life of the software. The adoption of this guidance did not have a
material impact on Stilwell's results of operations, financial position or
cash flows.
LITIGATION. From time to time Stilwell is involved in various legal
actions arising in the normal course of business. While the outcome of the
various legal proceedings involving Stilwell cannot be predicted with
certainty, it is the opinion of management (after consultation with legal
counsel) that the litigation reserves of Stilwell are adequate and that legal
actions involving Stilwell and ultimate resolution of these matters will not be
material to Stilwell's consolidated financial position, results of operations
or cash flows.
REGULATORY INFLUENCE. Virtually all aspects of Stilwell's business is
subject to various laws and regulations. Applicable laws include the 1940
Act, the Advisers Act, the Securities Act, the Exchange Act, ERISA and
various state securities and related laws (including laws in the United
Kingdom). Applicable regulations include, but are not limited to, in the
United States, the rules and regulations of the SEC, the DOL, securities
exchanges and the NASD, and in the United Kingdom, IMRO, PIA and the FSA.
While management of Stilwell is required to devote substantial time and
effort in regulatory compliance issues, Stilwell does not foresee that such
compliance under present statutes will impair its competitive capability or
result in any material effect on results of operations.
INFLATION. Inflation has not had a significant impact on Stilwell's
operations in the past three years. Generally accepted accounting principles
require the use of historical costs. Replacement cost and related
depreciation expense of Stilwell's property would be higher than the
historical costs reported. Any increase in expenses from these fixed costs,
coupled with variable cost increases due to significant inflation, would be
difficult to recover through price increases given the competitive
environments of Stilwell's principal subsidiaries.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Stilwell utilizes various financial instruments which entail certain
inherent market risks. Generally, these instruments have not been entered
into for trading purposes. The following information, together with information
included in other parts of this Management's Discussion and Analysis of
Financial Condition and Results of Operations, describe the key aspects of
certain financial instruments which have market risk to Stilwell.
INTEREST RATE SENSITIVITY
Stilwell's interest sensitive liabilities include its long-term floating-
rate debt obligations. At December 31, 1998, Stilwell had no indebtedness
outstanding under any line of credit.
FOREIGN EXCHANGE SENSITIVITY
Stilwell owns 80% of Nelson, a United Kingdom based financial services
corporation. In connection with this investment, matters arise with respect to
financial accounting and reporting for foreign currency transactions and for
translating foreign currency financial statements into U.S. dollars.
Therefore, Stilwell is exposed to fluctuations in the value of the British
pound.
As the relative price of the British pound fluctuates versus the U.S.
dollar, Stilwell's proportionate share of the earnings or losses of Nelson is
affected. The following table provides an example of the potential impact of a
10% change in the price of the British pound assuming that Nelson has earnings
of $1,000 and using its ownership interest at December 31, 1998. The British
pound is Nelson's functional currency.
Assumed Nelson Earnings (pound) 1,000
Exchange Rate (to U.S. $) 0.5 to 1
---------
Converted U.S. Dollars $2,000
Stilwell Ownership Percentage of Nelson 80%
---------
Assumed Earnings $1,600
Assumed 10% increase in Exchange Rate 0.55 to 1
---------
Converted to U.S. Dollars $1,818
Stilwell Ownership Percentage of Nelson 80%
---------
Assumed Earnings $1,454
-------
Effect of 10% increase in
Exchange Rate $ (146)
=======
The impact of changes in exchange rates on the balance sheet are
reflected in a cumulative translation adjustment account as a part of
accumulated other comprehensive income and do not affect earnings.
While not currently utilizing foreign currency instruments to hedge its
U.S. dollar investment in Nelson, Stilwell continues to evaluate existing
alternatives as market conditions and exchange rates fluctuate.
AVAILABLE FOR SALE INVESTMENT SENSITIVITY
Both Janus and Berger invest a portion of the revenues earned from
providing investment advisory services in certain of their respective
sponsored funds. These investments are classified as available for sale
securities pursuant to FAS 115. Accordingly, these investments are carried
in Stilwell's consolidated financial statements at fair market value and are
subject to the investment performance of the underlying sponsored fund. Any
unrealized gain or loss is recognized upon the sale of the investment.
Additionally, DST, a 32% owned equity investment, holds available for
sale investments which may affect Stilwell's consolidated financial
statements. Similarly to the Janus and Berger securities, any changes to the
market value of the DST available for sale investments are reflected, net of
deferred income tax, in DST's "accumulated other comprehensive income"
component of its equity. Accordingly, Stilwell records its proportionate
share of this amount as part of the investment in DST. While these changes
in market value do not result in any impact to Stilwell's consolidated
results of operations currently, upon disposition by DST of these
investments, Stilwell will record its proportionate share of the gain or loss
as a component of equity earnings.
EQUITY PRICE SENSITIVITY
As noted above, Stilwell owns 32% of DST, a publicly traded company.
While changes in the market price of DST are not reflected in Stilwell's
consolidated results of operation or financial position, they may affect the
perceived value of the Stilwell Common Stock. Specifically, the market value
of DST shares at any given point in time multiplied by the number of shares
owned by Stilwell provides an amount, which when divided by the outstanding
number of shares of Stilwell Common Stock, derives a per share "value"
presumably attributable to Stilwell's investment in DST. Fluctuations in
this "value" as a result of changes in the DST market price may affect
Stilwell's stock price.
The revenues earned by Janus, Berger and Nelson are dependent on the
underlying assets under management in the funds to which investment advisory
services are provided. The portfolio of investments included in these
various funds include combinations of equity, bond, annuity and other types
of securities. Fluctuations in the value of these various securities are
common and are generated by numerous factors, including, among others, market
volatility, the overall economy, inflation, changes in investor strategies,
availability of alternative investment vehicles, government regulations and
others. Accordingly, declines in any one or a combination of these factors,
or other factors not separately identified, may reduce the value of
investment securities and, in turn, the underlying assets under management on
which Stilwell revenues are earned.
<PAGE>
BUSINESS
BACKGROUND
KCSI is a holding company that has owned and managed, through its direct
and indirect subsidiaries, two principal business segments: rail
transportation and financial services. ONLY THE FINANCIAL SERVICES SEGMENT
IS INCLUDED IN THE DISTRIBUTION. The primary entities comprising the
financial services segment are Janus, an approximately 82% owned subsidiary;
Berger, a [_____%] owned subsidiary; Nelson, an 80% owned subsidiary; DST, an
equity investment in which KCSI holds an approximately 32% interest, and the
Miscellaneous Corporations. Janus is the principal business of the financial
services segment of KCSI, representing 96% of assets under management at June
30, 1999 and 95% of revenues and 88% of net income for the six months ended
June 30, 1999. The businesses which comprise the financial services segment
offer a variety of asset management and related financial services to
registered investment companies, retail investors, institutions and
individuals.
After extensive review and discussion, the Board of Directors of KCSI
concluded that it is in the best interests of KCSI and its stockholders for
KCSI to focus on the rail transportation business and for a separate company
to focus on the financial services business. See "The Distribution-
Background and Reasons for the Distribution." On January 23, 1998, KCSI
formed Stilwell as a holding company for the group of businesses and
investments that comprised the financial services segment of KCSI. In
connection with the Distribution, KCSI transferred to Stilwell KCSI's
investments in Janus, Berger, Nelson, DST, the Miscellaneous Corporations and
certain other financial services-related assets, and Stilwell assumed all of
KCSI's liabilities associated with the assets transferred.
STILWELL FINANCIAL, INC.
Stilwell Financial, Inc. is a holding company that manages its
investments in the principal subsidiaries and equity investments more
particularly described below and elsewhere in this Information Statement.
The functions performed by Stilwell Financial, Inc. include consolidated
accounting; consolidated tax return preparation and filing; corporate
secretarial functions; banking and financing; administration of retirement
and stock option plans; internal auditing; investor relations; analysis and
evaluation of acquisition and strategic business opportunities; insurance
assessment and coverage and holding company legal services.
STILWELL'S PRINCIPAL SUBSIDIARIES AND EQUITY INVESTMENTS
JANUS CAPITAL CORPORATION
-------------------------
Janus and its adviser subsidiaries are investment advisers registered with
the SEC or other regulatory bodies, and are the investment advisers or sub-
advisers to the Janus Advised Funds and Janus Sub-Advised Funds and Private
Accounts. As of June 30, 1999, Janus had total assets under management of
$155.8 billion, of which $125.6 billion were in the Janus Advised Funds and the
remainder were in the Janus Sub-Advised Funds and Private Accounts. Janus
primarily offers equity portfolios to investors, which comprised approximately
94% of total assets under management for Janus and its affiliates at June 30,
1999. At that date, funds advised by Janus had more than 3.5 million
shareowner accounts. For the five-year period ended June 30, 1999, Janus'
total assets under management increased 625 percent.
Janus Management Corporation was formed in 1969 by Thomas H. Bailey
(Janus' current president and chairman) and served as the initial investment
adviser to the Janus Advised Funds, which began selling shares in 1970. Janus
Capital Corporation was incorporated on June 27, 1978 as Bailey & Griffiths,
Ltd. (Bailey & Griffiths, Ltd. was the successor to an investment adviser
partnership which originally was named Logan Capital Management). In 1984,
Janus Management Corporation was merged into Janus Capital Corporation. In
1984 and 1985, KCSI acquired an 80% ownership interest in Janus. Subsequent
sales of stock in 1995, 1997, 1998 and 1999 resulted in approximately 6% of
Janus being owned by approximately 63 employees (subject to vesting), in
addition to the 12% owned by Mr. Bailey, as of June 30, 1999.
Janus has three wholly-owned subsidiaries. One such subsidiary, Janus
Service Corporation ("Janus Service"), provides administrative and shareowner
services to the Janus Advised Funds, and is a registered transfer agent.
Another subsidiary, Janus Distributors, Inc. ("Janus Distributors"), serves as
a distributor of the Janus Advised Funds and is a registered broker-dealer.
The other wholly-owned subsidiary, Janus Capital International, Ltd. ("Janus
International"), executes securities trades from London and is a registered
company with IMRO.
The following table sets forth beginning assets, the changes during each
period and ending assets for the Janus Advised Funds and the Janus Sub-Advised
Funds and Private Accounts.
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Janus Advised Funds:
Beginning Assets $17,739.5 $18,013.2 $24,633.7 $37,123.0 $54,572.2 $54,572.2 $86,987.8
Net Sales 438.4 1,487.8 7,487.0 9,141.6 11,848.0 5,300.2 22,761.2
Appreciation
(depreciation) (164.7) 5,132.7 5,002.3 8,307.6 20,567.6 12,112.7 15,853.9
-------- --------- --------- --------- -------- -------- --------
Ending Assets 18,013.2 24,633.7 37,123.0 54,572.2 86,987.8 71,985.1 125,602.9
-------- --------- --------- --------- -------- -------- --------
Janus Sub-Advised Funds
and Private Accounts:
Beginning Assets 4,434.1 4,848.2 6,495.3 9,551.2 13,224.6 13,224.6 21,274.3
Net Sales (redemptions) 667.8 (148.0) 1,812.4 1,576.1 1,529.3 162.2 4,233.1
Appreciation
(depreciation) (253.7) 1,795.1 1,243.5 2,097.3 6,520.4 3,695.5 4,701.0
-------- ------- ------- -------- --------- -------- --------
Ending Assets 4,848.2 6,495.3 9,551.2 13,224.6 21,274.3 17,082.3 30,208.4
-------- ------- ------- -------- --------- -------- --------
Total assets
under management $22,861.4 $31,129.0 $46,674.2 $67,796.8 $108,262.1 $89,067.4 $155,811.3
========= ========= ========= ========= ========== ========= ==========
</TABLE>
<PAGE>
JANUS INVESTMENT MANAGEMENT
Pursuant to investment advisory agreements with each of the Janus Advised
Funds and the Janus Sub-Advised Funds and Private Accounts, Janus provides
overall investment management services. The investment advisory agreements
generally provide that Janus will furnish continuous advice and recommendations
concerning investments and reinvestments in conformity with the investment
objectives and restrictions of the applicable fund or account. With respect to
the Janus Advised Funds and the Janus Sub-Advised Funds, each investment
advisory agreement must be approved and renewed annually by the fund's Board of
Directors or Trustees who are not "interested persons" (as defined in the 1940
Act) of any such party. Amendments to such agreements generally must be
approved by a majority of the shareowners of the affected fund and a majority
of the Trustees or Board of Directors of the affected fund, including the
Trustees or Directors who are not "interested persons" of that fund or Janus.
Each agreement automatically terminates in the event of its "assignment" (as
defined in the 1940 Act or the Advisers Act) and either party may terminate the
agreement without penalty after written notice. The Distribution is not
expected to result in a change of control of Janus and therefore under the
applicable rules of the SEC would not constitute such an assignment.
Janus derives its revenue and net income primarily from diversified
investment advisory services provided to the Janus Advised Funds and the Janus
Sub-Advised Funds and Private Accounts. For the year ended December 31, 1998,
Janus derived approximately $508 million in revenue from investment advisory
services, representing approximately 81% of total revenue for Janus.
Investment advisory fees for the Janus Advised Funds and the Janus Sub-Advised
Funds and Private Accounts are negotiated separately and subject to extreme
market pressures. Such fees vary depending on the type of the fund or account
and the size of the assets managed, with fee rates above specified asset levels
being reduced. The fees for the Janus Advised Funds generally range from .20%
to .75% depending on the type of portfolio and the amount of assets under
management. With respect to the Janus Advised Funds, Janus may from time to
time agree to waive all or a portion of its management fees, agree to expense
caps and/or waive all or a portion of the operating expenses for marketing
reasons. Additional information on the services provided to and all fees
payable by the Janus Advised Funds and the Janus Sub-Advised Funds is contained
in the prospectus for each of the funds, copies of which are available from
Janus. The Private Accounts' fees generally are computed on the basis of the
market value of the assets managed at the end of the preceding month and
generally are paid in arrears on a monthly basis.
The Janus Advised Funds and the Janus Sub-Advised Funds generally bear the
expenses associated with the operation of each fund and the issuance and
redemption of its securities, except that advertising, promotional, and sales
expenses of the Janus Advised Funds are assumed by Janus. In particular, the
expenses for the Janus Advised Funds and the Janus Sub-Advised Funds include
but are not limited to investment advisory fees; shareowner servicing fees and
expenses; transfer agent fees and expenses; custodian fees and expenses; legal
and auditing fees; expenses of preparing, printing, and mailing prospectuses
and shareowner reports distributed to existing shareowners; registration fees
and expenses; proxy and annual meeting expenses (if any); and outside
directors' fees and expenses. Certain of these services are furnished to the
Janus Advised Funds by Janus Service. The investment advisory agreements with
the Janus Advised Funds provide that the Janus Advised Funds reimburse Janus
for expenses incurred by Janus in providing certain services to the Janus
Advised Funds.
JANUS DISTRIBUTION SERVICES AND THIRD PARTY DISTRIBUTION
Pursuant to a distribution agreement, Janus Distributors acts a
principal underwriter for and distributes the Janus Advised Funds. Janus
expends substantial resources in media advertising and direct mail
communications to its existing and potential Janus Advised Funds' shareowners
and in providing a staff and telecommunications equipment to respond to
inquiries via toll-free telephone lines. Such expenses, particularly
advertising, are expected to continue to increase.
Janus Distributors acts pursuant to distribution agreements that must be
approved and renewed annually by the Trustees or by vote of a majority of the
outstanding securities of the Janus Investment Fund or, with respect to the
retirement shares class of the Janus Aspen Series, the Janus Aspen Series,
and, in any case, by vote of a majority of the Trustees who are not
"interested persons" (as that term is defined in the 1940 Act) of the Janus
Advised Funds. The distribution agreements are subject to termination by
each fund or Janus Distributors (or, with respect to the retirement shares
class of the Janus Aspen Series, by an individual portfolio) on 60 days'
written notice and terminate automatically in the event of their "assignment"
(as defined in the 1940 Act). The Distribution is not expected to result in a
change of control of Janus and therefore under the applicable rules of the SEC
would not constitute such an assignment. Janus Investment Fund does not
compensate Janus Distributors for its services under the distribution
agreement, but Janus Distributors may be reimbursed by Janus for certain
expenses in distributing shares.
Many of the Janus funds are available through mutual fund supermarkets
and other third party distribution channels. Such distribution channels
provide an alternative to the direct sales approach utilized by Janus with
most of its funds. All shareowner accounting and servicing is handled by the
mutual fund supermarket or third party sponsor and Janus pays a fee equal to
a percentage of the assets under management acquired through such
distribution channels to the appropriate sponsor for these services. As of
December 31, 1997 and 1998, approximately 28% and 30%, respectively, of total
Janus assets under management were generated through these third party
distribution channels.
JANUS ADMINISTRATIVE AND SHAREOWNER SERVICES
Pursuant to transfer agency agreements with each of the Janus Advised
Funds, Janus Service performs accounting, recordkeeping and shareowner
services for the funds and their shareowners. Each fund pays Janus Service
fees for these services. Complete information on the services provided to
and all fees payable by the Janus Advised Funds is contained in the
prospectus for each of the funds, copies of which are available from Janus.
The accounting services provided include maintaining all shareowner accounts;
mailing shareowner reports and prospectuses; withholding taxes on nonresident
alien and foreign corporation accounts; backup withholding for pension and
deferred income; preparing and mailing checks for disbursement of income
dividends and capital gains distributions; preparing and filing various U.S.
Treasury Department forms (such as Form 1099-DIV and B) for all shareowners;
preparing and mailing confirmation forms to shareowners and dealers with
respect to all purchases and redemptions of shares and other transactions in
shareowner accounts for which confirmations are required; recording
reinvestments of dividends and distributions in shares; and, as necessary,
preparing shareowner meeting lists; mailing proxies; and receiving and
tabulating proxies.
Shareowner servicing functions include maintenance of a staff to respond
to all telephone inquiries from existing shareowners. Janus Service has
purchased or leased sophisticated telecommunications systems to handle
inquiries from existing shareowners. "Intelligent" workstation applications,
document imaging, an automated work distributor and an automated call
management system are used by customer service and back office personnel.
Additionally, Janus Service offers investors access to their accounts, with
the ability to perform certain transactions, using touch tone telephones or
personal computers. These services are supported through a distributed
automated voice response system and an interactive Internet web site called
www.janus.com.
In addition, Janus Service provides all administrative and operational
support for the Janus Advised Funds, including accounting, tax reporting,
compliance, institutional sales, in-house legal, marketing, public relations,
and federal and blue sky registration and reporting.
The transfer agency agreements with each of the Janus Advised Funds must
be approved and renewed annually by the Trustees of the Janus Advised Funds
or by an affirmative vote of a majority of the outstanding voting securities
of each of the Janus Advised Funds and in either case by vote of a majority
of the Boards of Trustees who are not "interested persons" (as defined in the
1940 Act) of any such party. Amendments to the agreements of the Janus
Advised Funds generally must be approved by a majority of the Trustees of the
affected fund. Each agreement may only be assigned with the prior written
consent of the other party and either party may terminate the agreement
without penalty after written notice of at least 60 days.
From time to time, Janus Service contracts with DST to provide fund
accounting and shareowner recordkeeping services to the Janus funds. In
addition, DST Securities, Inc., a wholly-owned subsidiary of DST, is designated
as an introductory broker on certain portfolio transactions.
JANUS PORTFOLIO MANAGEMENT AND RESEARCH
Janus' investment philosophy embraces a belief that the earnings growth
of individual companies ultimately determines the valuation of their stock.
For this reason, Janus' proprietary analysis is geared to understanding the
earnings potential of the companies in which it invests. Janus believes that
intensive research, focusing on the fundamental factors affecting the
business prospects of companies, can uncover growth opportunities.
Janus portfolios are constructed one security at a time rather than in
response to preset regional, country, economic sector, or industry
diversification guidelines. Security selection is based on the earnings
growth outlook for individual companies, wherever they may exist, with all
other factors being a residual of the investment process. Likewise, cash
position is a function of the ability to find attractive investment
opportunities at reasonable valuations. Cash may occasionally build during
periods of high equity valuations when otherwise appealing investments appear
to be expensive relative to their growth prospects.
Emphasizing the propriety work of Janus' own analysts, more than 90% of
research is performed in-house. Securities analysts follow a large universe
of stocks, reviewing earnings reports, corporate and industry developments,
trading activity, research reports and other data. For a smaller universe of
companies, very close and continuing scrutiny is applied, including direct
contacts with corporate management, analysis of contracts with competitors,
customers and suppliers, frequent on-site visitation of facilities, media
coverage, and other qualitative factors. Hundreds of individual companies
are visited each year, and many more visit Janus' offices in Denver and
London. Particularly close attention is paid to a company's stock on
occasions when earnings estimates differ significantly from the rest of the
investment community.
Janus does not employ a committee system of portfolio management.
Subject to general oversight by the senior officer of the investment
management group, each portfolio manager has autonomy in security selection
and is able to implement portfolio decisions immediately with the goal of
providing timeliness in trade execution.
Janus focuses on common stocks of two types of companies - those
experiencing or expected to experience above-average unit growth relative to
their peer group or the economy generally; and those realizing or expected to
realize positive change as a result of catalysts such as new product
development, an improved regulatory environment, changing demographics or
strong management team. Restructurings, acquisitions or divestitures are
also significant factors in analyzing a company's potential growth.
<PAGE>
BERGER LLC
----------
Berger is an investment adviser registered with the SEC and serves as an
investment adviser to the Berger One Hundred Fund, the Berger Growth and
Income Fund, the Berger Investment Portfolio Trust (comprising the Berger
Small Company Growth Fund, the Berger New Generation Fund, the Berger
Balanced Fund, the Berger Select Fund, the Berger Mid Cap Growth Fund, the
Berger Mid Cap Value Fund and the Berger Information Technology Fund
(offering investor and institutional share classes)), the Berger Omni
Investment Trust (comprising the Berger Small Cap Value Fund (offering
investor and institutional share classes)) and a portion of the Berger
Institutional Products Trust (with respect to the Berger IPT-100 Fund, Berger
IPT-Growth and Income Fund and Berger IPT-Small Company Growth Fund)
(collectively, the "Berger Advised Funds"). Berger also serves as investment
adviser to certain registered mutual funds and separate accounts
(collectively, the "Berger Sub-Advised Funds"). Berger owns 50% of BBOI in a
joint venture with BIAM. Berger and BIAM have executed a non-binding letter
of intent pursuant to which, under certain conditions, BBOI will purchase
BIAM's interest in BBOI. If consummated, that transaction would result in
Berger owning all of BBOI. BBOI serves as the investment adviser and sub-
administrator to the Berger/BIAM Worldwide Portfolios Trust (which serves as
a master portfolio for the Berger/BIAM International Fund, the International
Equity Fund and the Berger/BIAM International Core Fund, all series of the
Berger/BIAM Worldwide Funds Trust) and the Berger/BIAM IPT International Fund
(a series of the Berger Institutional Products Trust), all open end
management investment companies, as well as administrator to the Berger/BIAM
Worldwide Funds Trust (collectively, the "Berger/BIAM Funds"). Moreover,
BBOI acts as investment adviser to the BBOI Sub-Advised Funds. Berger owns
80% of B/B Isle in a joint venture with Bay Isle Financial Corporation. B/B
Isle serves as investment adviser to the B/B Isle Separate Accounts. The
Berger Advised Funds and Berger Sub-Advised Funds are collectively referred
to as the "Berger Funds." The Berger Advised Funds, Berger Sub-Advised
Funds, Berger/BIAM Funds, BBOI Sub-Advised Funds and B/B Isle Separate
Accounts are collectively referred to as the "Berger Complex." As of June 30,
1999, the Berger Complex had total assets under management of $4.7 billion. Of
this amount, Berger managed $3.7 billion in the Berger Advised Funds and $0.4
million in the Berger Sub-Advised Funds; BBOI managed $0.2 million in the
Berger/BIAM Funds and $0.4 million in the BBOI Sub-Advised Funds; and B/B Isle
managed less than $0.1 million in the B/B Isle Separate Accounts. As of
June 30, 1999, funds included in the Berger Complex had more than 248,000
shareowner accounts. For the five-year period ended June 30, 1999, assets
under management in the Berger Complex increased by 99 percent.
Berger was incorporated on April 23, 1973 as Robert Fleming Services
Corp. On May 22, 1973, Robert Fleming Services Corp. changed its name to
Fleming Berger Associates, Inc. On February 23, 1975 the name was changed to
Berger Associates, Inc. In 1974, Berger's predecessors began managing the
Berger One Hundred Fund and the Berger One Hundred and One Fund (renamed the
Berger Growth and Income Fund in 1996). KCSI acquired a minority interest in
Berger in 1992, which interest KCSI increased to over 80% in 1994, and then
to 100% in 1997. During 1996, Berger entered into a joint venture agreement
with BIAM, forming BBOI to develop and market a series of international and
global mutual funds. In late 1998, Berger entered into a joint venture
arrangement with Bay Isle Financial Corporation, forming B/B Isle to manage
separate accounts, primarily large cap value accounts. The Berger Complex
currently maintains eleven retail mutual fund products and eight
institutional mutual fund products of which BBOI advises one and three,
respectively. On September 30, 1999, Berger Associates, Inc. assigned and
transferred its operating assets and business to its subsidiary, Berger LLC,
and then changed its name to Stilwell Management, Inc. Stilwell Management,
Inc. owns a [_____%] interest in, and acts as the manager of, Berger LLC and
holds the 32% equity investment in DST.
Berger Distributors LLC, a wholly-owned subsidiary of Berger LLC
("Berger Distributors"), which converted from a Colorado corporation to a
Colorado limited liability company on September 30, 1999 serves as
distributor of the Berger Advised Funds and Berger/BIAM Funds and is a
limited registered broker-dealer.
The following table sets forth beginning assets, the changes during each
period and ending assets for the Berger Advised Funds, the Berger/BIAM Funds,
the Berger Sub-Advised Funds and BBOI Sub-Advised Funds.
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Berger Advised Funds:
Beginning assets $3,062.7 (a) $2,870.6 $3,134.1 $3,272.7 $3,178.8 $3,178.8 $3,274.0
Net sales (redemptions) (22.7) (340.3) (225.4) (559.9) (284.8) (183.4) (53.9)
Appreciation (depreciation)(169.4) 603.8 364.0 466.0 380.0 361.6 516.7
------- ------- ------- ------- ------- ------- -------
Ending assets 2,870.6 3,134.1 3,272.7 3,178.8 3,274.0 3,357.0 3,736.8
------- ------- ------- ------- ------- ------- -------
Berger/BIAM Funds:
Beginning assets -- -- -- 38.6 127.4 127.4 209.8
Net sales -- -- 36.7 87.1 57.8 52.6 14.6
Appreciation -- -- 1.9 1.7 24.6 25.1 14.6
------- ------- ------- ------- ------- ------- -------
Ending assets -- -- 38.6 127.4 209.8 205.1 239.0
------- ------- ------- ------- ------- ------- -------
Berger and BBOI Sub-Advised Funds:
Beginning assets 113.7 (a) 118.9 188.0 342.2 487.4 487.4 507.3
Net sales (redemptions) 13.4 53.6 119.1 31.0 (444.4) (214.0) 31.0
Appreciation
(depreciation) (8.2) 15.5 35.1 114.2 464.3 388.8 204.2
------- ------- ------- ------- ------- ------- -------
Ending assets 118.9 188.0 342.2 487.4 507.3 662.2 742.5
------- ------- ------- ------- ------- ------- -------
Total assets under
management $2,989.5 $3,322.1 $3,653.5 $3,793.6 $3,991.1 $4,224.3 $4,718.3
======== ======== ======== ======== ======== ======== ========
<FN>
<F1>
(a) Balance as of 10/31/94 as KCSI acquired controlling interest in Berger
on 10/14/94
</FN>
</TABLE>
<PAGE>
BERGER INVESTMENT MANAGEMENT
Berger provides investment advisory services to the Berger Funds. In
addition, BBOI serves as the investment adviser to the Berger/BIAM Funds.
Such investment advisory services for both retail and institutional funds are
provided pursuant to investment advisory agreements which have been approved
by, and the continuation of which is approved on an annual basis by, each of
the Board of Directors or Trustees of the Berger Funds or Berger/BIAM Funds
or by an affirmative vote of a majority of the outstanding voting securities
of each of the Berger Funds or Berger/BIAM Funds and in either case by vote
of a majority of the Board of Directors or Trustees who are not "interested
persons" (as that term is defined in the 1940 Act) of the Berger Funds, the
Berger/BIAM Funds, Berger or BBOI. The investment advisory agreements
generally provide that Berger and BBOI manage the investment and reinvestment
of assets of the Berger Funds and Berger/BIAM Funds, respectively, in
conformity with their investment objectives and restrictions. Amendments to
such investment advisory agreements generally must by approved by a majority
of the shareowners of the affected fund and a majority of the Trustees or
Board of Directors of the affected fund, including the Trustees or Directors
who are not "interested persons" (as defined in the 1940 Act) of that fund or
Berger. The investment advisory agreements with the Berger Funds and
Berger/BIAM Funds are generally terminable without penalty by either party
with written notice. Each agreement automatically terminates in the event of
its "assignment" (as defined in the 1940 Act). The Distribution is not
expected to result in a change of control of Berger and therefore under the
applicable rules of the SEC would not constitute such an assignment.
Berger and BBOI derive revenue primarily from investment advisory
services provided to the Berger Advised Funds and Berger/BIAM Funds,
respectively. For the year ended December 31, 1998, Berger derived
approximately $26.7 million in revenue from investment advisory services
provided to the Berger Advised Funds, representing approximately 80% of total
revenue of Berger. For the year ended December 31, 1998, BBOI derived
approximately $2.7 million in revenue from investment advisory services
provided to the Berger/BIAM Funds, representing approximately 90% of total
revenue of BBOI. Berger's and BBOI's revenues from investment advisory fees
for each of the Berger Advised Funds and Berger/BIAM Funds are negotiated
separately with each fund. The investment advisory fees for these funds vary
depending on the type of fund. They generally range from .70% to .90%
depending on the type of fund. Berger and BBOI from time to time may agree
to waive all or a portion of their investment advisory fees and/or assume all
or a portion of the operating expenses of a Berger Advised Fund or
Berger/BIAM Fund for competitive reasons. Additional information on the
services provided to and all fees payable by the Berger Advised Funds and
Berger/BIAM Funds is contained in the prospectus for each of the funds,
copies of which are available from Berger. The management fees for the
Berger Sub-Advised Funds, BBOI Sub-Advised Funds and B/B Isle Separate
Accounts vary depending upon the type of fund or account and, in some
circumstances, size of assets managed, with fee rates above specified asset
levels being reduced.
Berger and BBOI generally pay most expenses incurred in connection with
Berger's and BBOI's provision of investment management and advisory services
to the Berger Funds and the Berger/BIAM Funds, respectively. All charges and
expenses other than those specifically assumed by Berger and BBOI are paid by
the Berger Funds and Berger/BIAM Funds. Such expenses include, but are not
limited to, brokerage commissions, custodian and transfer agency fees, legal
and accounting expenses, administrative expenses, interest charges and the
expenses of printing and distributing reports to shareowners.
BERGER ADMINISTRATIVE SERVICES
Under a separate administrative services agreement with respect to each
of the Berger Funds, Berger performs certain administrative and recordkeeping
services not otherwise performed by the Berger Fund's custodian and
recordkeeper, including the supervision of the Funds' vendors and the
preparation of financial statements and reports to be filed with the SEC and
state regulatory authorities. Each Berger fund pays Berger fees for these
services in addition to the investment advisory fees paid under the
investment advisory agreements. The administrative services fees may be
changed by each fund's Board of Directors or Trustees without shareowner
approval.
Under administrative services agreements with the Berger/BIAM Funds,
BBOI serves as the administrator of the Berger/BIAM Funds. In this capacity,
BBOI is responsible for administering and managing all aspects of the
Berger/BIAM Fund's day-to-day operations, subject to the oversight of the
Trustees or Board of Directors of the Berger/BIAM Funds. BBOI is
responsible, at its expense, for furnishing (or procuring other parties to
furnish) all administrative services reasonably necessary for the operation
of the Berger/BIAM Funds, including but not limited to recordkeeping and
pricing services, custodian services and transfer agency and dividend
disbursing services. The Berger/BIAM Funds pay BBOI fees for these services
in addition to the investment advisory fees paid under the investment
advisory agreements.
Under a sub-administration agreement between BBOI and Berger, Berger has
been delegated the responsibility to perform certain of the administrative
and recordkeeping services required under BBOI's administrative services
agreements and to procure, at BBOI's expense, third parties to provide the
services not provided by Berger. Under the sub-administration agreement,
Berger is paid certain fees by BBOI for its services. During certain
periods, Berger may voluntarily waive all or a portion of its fee from BBOI,
which will not affect the fee paid by the Berger/BIAM Funds to BBOI under the
administrative services agreement. Additional information on the services
provided to and the fees payable by the Berger Advised Funds and Berger/BIAM
Funds is contained in the prospectus for each of the funds, copies of which
are available from Berger.
The administrative services agreements for the Berger/BIAM Funds must be
approved and renewed annually by the Board of Directors or Trustees of the
Berger/BIAM Funds or by an affirmative vote of a majority of the outstanding
voting securities of each of the Berger/BIAM Funds and in either case by vote
of a majority of the Board of Directors or Trustees who are not "interested
persons" (as defined in the 1940 Act) of any such party. Amendments to the
agreements of the Berger Funds and Berger/BIAM Funds generally must be
approved by a majority of the Trustees or Board of Directors of the affected
fund. Each agreement may only be assigned with the prior written consent of
the other party and either party may terminate the agreement without penalty
after written notice.
BERGER DISTRIBUTION SERVICES AND THIRD PARTY DISTRIBUTION
Berger Distributors, as the distributor of the Berger Advised Funds and
Berger/BIAM Funds, is the principal underwriter of all the shares of such
funds. Berger Distributors is registered with the NASD and the SEC as a
limited registered broker-dealer. Berger Distributors acts as the agent of
the Berger Advised Funds and Berger/BIAM Funds in connection with the sale of
each fund's shares in all states in which the shares are eligible for sale
and in which Berger Distributors is qualified as a broker-dealer. Berger
Distributors continuously offers shares of the Berger Funds and Berger/BIAM
Funds and solicits orders to purchase shares at net asset value. In its
capacity as distributor, Berger Distributors utilizes Berger to perform such
distribution services. Berger Distributors supervises Berger in this
capacity.
Berger Distributors acts pursuant to a distribution agreement that must
be approved and renewed annually by the Board of Directors or Trustees or by
vote of a majority of the outstanding securities of the Berger Advised Funds
and Berger/BIAM Funds and in either case by vote of a majority of the Board
of Directors or Trustees who are not "interested persons" (as defined in the
1940 Act) of the Berger Advised Funds, Berger/BIAM Funds or Berger
Distributors. The distribution agreement is subject to termination by each
fund or Berger Distributors on written notice and terminates automatically in
the event of its "assignment" (as defined in the 1940 Act). The Distribution
is not expected to result in a change of control of Berger and therefore under
the applicable rules of the SEC would not constitute such an assignment. Berger
Distributors is not compensated for its services under the distribution
agreement, but is reimbursed by Berger for its costs in distributing shares.
Since 1992, Berger has participated in arrangements with broker-dealers,
recordkeepers and administrators to provide sub-accounting and/or other
services to investors purchasing shares of the funds in the Berger Complex
through investment programs, such as no-transaction fee programs and mutual
fund supermarkets. Many of the Berger funds are available through mutual fund
supermarkets and other third party distribution channels. Such distribution
channels provide an alternative to the direct sales approach utilized by
Berger with most of its funds. All shareowner accounting and servicing is
handled by the mutual fund supermarket or third party sponsor and Berger pays
a fee equal to a percentage of the assets under management acquired through
such distribution channels to the appropriate sponsor for these services. As
of December 31, 1997 and 1998, approximately 26% and 28%, respectively, of
total Berger assets under management were generated through these third party
distribution channels.
BERGER MARKETING SERVICES
Marketing within Berger is balanced between institutional and retail
distribution opportunities. Retail marketing, which traces back to the
inception of Berger, is focused on serving and cross-selling to existing fund
shareowners. Institutional marketing, an effort that began in late 1995,
pursues opportunities with pension, profit-sharing and high net worth investors
through relationships with consulting, advisory and brokerage firms, insurance
companies and banks. Institutional assets now comprise one-third of Berger's
assets under management.
The Berger Funds and Berger/BIAM Funds are sold as no-load funds and
distributed primarily through direct marketing and third party
intermediaries, such as broker-dealers, and retirement plan administrators.
Certain of the Berger Funds and Berger/BIAM Funds sold in retail markets have
approved distribution plans ("12b-1 Plans") pursuant to Rule 12b-1 under the
1940 Act. The 12b-1 Plans provide that Berger shall engage in activities
that are intended to result in sales of the shares of the Berger Funds or
Berger/BIAM Funds. Such activities include advertising, marketing and
promotion, printing and distributing prospectuses and sales literature and
support services. In addition, Berger, BBOI and certain mutual funds for
whom they serve as an administrator or sub-administrator have entered into
agreements with certain broker-dealers or other organizations (such as
recordkeepers and administrators) to provide subtransfer agency,
recordkeeping, shareowner communications, subaccounting and/or other services
to investors who have purchased shares of the Berger Funds or Berger/BIAM
Funds through investment programs or pension plans established or serviced by
such organizations. As a result, Berger, BBOI or a fund (if approved by its
Board of Directors or Trustees) may pay fees to such companies for their
services. The agreements pursuant to which such services are performed are
generally terminable upon 90 days written notice. However, fees under such
agreements are generally continual despite such termination so long as the
contracted services are provided to those shareowners who purchased shares
under the program. Complete information on the services provided to and the
fees payable by the Berger Advised Funds and Berger/BIAM Funds is contained
in the prospectus for each of the funds, copies of which are available from
Berger. The 12b-1 Plans must be approved and renewed on an annual basis by
each of the Board of Directors or Trustees of the Berger Funds or Berger/BIAM
Funds and by an affirmative vote of those members of the Board of Directors
or Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Berger Funds or Berger/BIAM Funds, as the case may be, and have no direct
or indirect financial interest in the operations of the 12b-1 Plans or any
related agreements. Amendments to such agreements generally must be approved
by a majority of the shareowners of the affected Fund and a majority of the
Board of Directors or Trustees of the affected Fund who are not "interested
person" (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operations of the 12b-1 Plans or any related agreements.
Each 12b-1 Plan may be terminated by a vote of a majority of the Board of
Directors or Trustees of the Fund or a majority of the Fund's outstanding
voting securities.
Berger maintains a sales staff funded by Berger to market directly to
new institutional investors and to serve current investors in the
institutional funds. Sales of the institutional funds are made directly or
through banks and other financial institutions. In addition, certain banks
and financial institutions invest in institutional funds through financial
intermediaries such as broker-dealers. Neither Berger nor BBOI has any
marketing responsibility for Berger Sub-Advised Funds or BBOI Sub-Advised
Funds. Berger also has marketing responsibility for B/B Isle Separate
Accounts.
BERGER SHAREOWNER SERVICES
The Berger Advised Funds and Berger/BIAM Funds have agreements with a
trust company to provide accounting, recordkeeping and pricing services,
custody services, transfer agency, dividend disbursing and shareowner
services. The trust company has engaged DST as sub-agent to provide transfer
agency and dividend disbursing services for the Berger Advised Funds and
Berger/BIAM Funds.
As recordkeeping and pricing agent, the trust company calculates the
daily net asset value of each of the Berger Advised Funds and Berger/BIAM
Funds and performs certain accounting and recordkeeping functions required by
the Berger Advised Funds and Berger/BIAM Funds. The trust company, as
custodian, and its subcustodians have custody and provide for the safekeeping
of the securities and cash of the Berger Advised Funds and Berger/BIAM Funds,
and receive and remit the income thereon as directed by the management of the
Berger Advised Funds and Berger/BIAM Funds. As sub-transfer agent and
dividend disbursing agent, the trust company (through DST, as sub-agent)
maintains all shareowner accounts of record; assists in mailing all reports,
proxies and other information to the shareowners of the Berger Advised Funds
and Berger/BIAM Funds; calculates the amount of, and delivers to the
shareowners of the Berger Advised Funds and Berger/BIAM Funds, proceeds
representing all dividends and distributions; and performs other related
services.
In addition to these services, investors have access to their accounts
with the ability to perform certain transactions using personal computers.
These services are supported through an Internet site called
www.bergerfunds.com. At this site, investors may also obtain account
information and learn general history and information regarding Berger, the
Berger Funds and the Berger/BIAM Funds.
BERGER PORTFOLIO MANAGEMENT AND RESEARCH
Berger's principal method of securities evaluation is based on growth-
style investing, using a "bottom-up" fundamental research and valuation
analysis undertaken by its internal staff of full-time research analysts,
supplemented by research undertaken by Berger's portfolio managers. Berger's
growth-style approach toward equity investing requires the companies in which
Berger invests to have high relative earnings per share growth potential, to
participate in large and growing markets, to have a strong management team,
to have strong overall financial characteristics, and to have above average
expected total returns. Analysts and portfolio managers of Berger often meet
personally with the management of the companies in which Berger invests. The
main sources of information Berger uses include financial publications and
on-line services, inspections of activities (including company visits and
interviews), research materials prepared in-house and by others, corporate
rating services, SEC filings and company press releases. Berger holds
frequent investment strategy meetings in which portfolio managers and
research analysts discuss investment strategy.
Berger and BIAM formed BBOI to bring international investment products
to investors. These investment products focus on long-term capital
appreciation pursued by investing in a portfolio consisting primarily of
common stocks of well-established foreign companies. The investment manager
for these funds identifies economic and business themes that are believed to
provide a favorable framework for selecting stocks and selects individual
companies best positioned to take advantage of opportunities presented by
these themes. The investment manager generally looks for companies with
securities that are fundamentally undervalued relative to their long-term
prospective earnings growth rates, their historic valuation levels and their
competitors. In addition, the investment manager searches for companies with
business operations predominantly in well-regulated and more stable foreign
markets and companies with substantial size and liquidity, strong balance
sheets, proven management and diversified earnings.
Certain of the Berger Advised Funds emphasize value-style investing.
These investment products focus on capital appreciation. In pursuit of that
goal, these funds primarily invest in companies that are out of favor with
markets or otherwise believed to be undervalued. The investment managers of
these funds generally look for companies with low prices relative to their
assets, earnings and cash flows or companies with competitive advantages
because of quality products and services, strong balance sheets and
exceptional management. The B/B Isle Separate Accounts also emphasize value-
style investing. This product focuses on companies with strong fundamentals
and management that are at discounts to their estimated fair value and are
expected to outperform their peers.
<PAGE>
NELSON MONEY MANAGERS PLC
-------------------------
Founded in Chester, England as a general brokerage firm in 1970, Nelson
began specializing in the provision of investment advice and planning in
1980. In 1988, a separate asset management division was incorporated and
regulatory approval was obtained to carry on the investment management
business. At the same time, Nelson began an expansion program and since that
time has opened regional offices in Durham, Bath, York, London and Lichfield
in England and Stirling in Scotland. In April 1998, KCSI purchased an 80%
equity interest in Nelson.
Nelson provides investment advice and investment management services in
the United Kingdom, primarily to individuals who are retired or contemplating
retirement. In order to reach these clients, Nelson has traditionally
performed financial planning seminars for employees of companies in the
United Kingdom. At these seminars, Nelson's investment advisers outline the
range of investment strategies and instruments available to individual
investors. At a subsequent meeting, Nelson's investment advisers discuss the
advantages and disadvantages of these strategies and instruments and
recommendations are made in writing. More recently, Nelson has also been
offering services directly to the public via advertisements in the media. At
June 30, 1999, Nelson employed 40 investment advisers and managed
approximately $1.2 billion ((pound) 696 million) in assets. At June
30, 1999, Nelson managed assets for approximately 13,000 individuals. For the
five-year period ended June 30, 1999, Nelson's total assets under management
increased by 215 percent.
For individuals interested in Nelson's services, Nelson assigns a
specific investment adviser to have a one-on-one consultation. The
investment adviser works with each client individually to conduct an analysis
of the client's investment objectives and then recommends the construction of
a portfolio to meet those objectives. These recommendations are contained in
a personal investment report for the client which discusses and outlines the
client's investment portfolio. Recommendations for the design and ongoing
maintenance of the portfolio structure are the responsibility of the
investment adviser. The selection and management of the instruments which
constitute the portfolio are the responsibility of Nelson's investment
management team. Taking into account the client's attitude towards risk,
Nelson's investment managers utilize a "top down" investment methodology in
structuring investment portfolios, beginning with an analysis of macro-
economic and capital market conditions. Nelson's investment managers
undertake quantitative analyses, including asset/liability analyses, yield
curve analyses and asset allocation modeling to examine these areas. Using
this information, Nelson's investment managers construct an investment
portfolio that adheres to each client's objectives as well as Nelson's
investment strategy.
Nelson, through continued investment in technology, has developed
proprietary systems delivering economies of scale to provide a broad range of
investment instruments used by Nelson's investment managers to construct a
balanced investment portfolio. Nelson's investment managers invest in fixed
interest securities, international and domestic securities, sterling
deposits, sterling commercial paper, floating rate notes, certificates of
deposit and tax-free and fixed income corporate bonds. Nelson also invests
directly in equities, unit trusts and investment trusts with characteristics
ranging from conservative to aggressive.
After establishment of a client's portfolio, Nelson provides several
services aimed at establishing a long-term relationship with each client.
Each investment adviser meets periodically with each client to discuss
reinvestment of maturing investments as they arise and to ensure that the
balance of deposits, bonds and equities in each investor's portfolio
continues to meet the investor's investment strategy. Nelson also maintains
a staff to respond to inquiries from clients. In addition, Nelson
distributes a personal investment portfolio report to each investor every six
months which details his or her current portfolio investments and outlines
all transactions that have taken place in the prior six months together with
a commentary from the investment management team. Furthermore, Nelson
distributes investment and budget newsletters to investors. Finally, Nelson
regularly holds investment road shows throughout the United Kingdom so that
clients can meet Nelson's directors, investment managers and staff.
For providing investment advice, Nelson charges an initial fee
calculated as a percentage of capital invested into each individual
investment portfolio. Nelson also charges annual fees for the ongoing
management and administration of each investment portfolio. These fees are
based on the type of investments and amount of assets contained in each
investor's portfolio. The fee schedules typically provide lower incremental
fees for assets under management above certain levels.
Nelson maintains an internal investment research staff which provides
several sources of information for making investment decisions. In addition,
Nelson utilizes research provided by London's leading investment houses,
certain credit rating agencies, Moody's Investor Service and Standard and
Poor's. Nelson holds frequent investment strategy meetings with senior
management, portfolio managers and research analysts to discuss investment
strategy.
<PAGE>
EQUITY INVESTMENTS
DST SYSTEMS, INC.
-----------------
DST, together with its subsidiaries and joint ventures, provides
information processing, printing and mailing and computer software services
and products to mutual funds, investment managers, communications industries
and other service industries. DST has organized its business units into
three operating segments: Financial Services, Customer Management and Output
Solutions.
DST FINANCIAL SERVICES
DST's financial services segment serves primarily mutual funds,
investment managers, insurance companies, banks and other financial services
organizations. DST's proprietary software systems include shareowner
accounting and recordkeeping systems offered to the U.S. mutual fund
industry; shareowner accounting and recordkeeping systems offered to non-U.S.
mutual funds and unit trusts; a securities transfer system offered primarily
to corporate trustees and securities transfer agents; portfolio accounting
and investment management systems offered to U.S. and international fund
accountants and investment managers; image-based work management system
offered primarily to mutual funds, insurance companies and other financial
services organizations; and securities exchange and broker order systems
offered to brokers and companies involved in the exchange of equity, bond and
derivative securities primarily outside the U.S. DST was a pioneer in the
development of on-line automated recordkeeping and accounting for U.S. mutual
fund shareowner accounts. As discussed above, DST provides full-service
shareowner accounting and recordkeeping to Berger. In addition, DST provides
remote services to Janus, primarily shareowner recordkeeping and other
shareowner services.
DST CUSTOMER MANAGEMENT
DST's Customer Management segment provides sophisticated customer
management processing and computer software services and products to cable
television, direct broadcast satellite, wireless and wire-line telephony,
utilities and multi-service providers. Its proprietary software systems
enables clients to manage customer relationship functions, including new
account set-up, order processing, customer support, management reporting and
marketing analysis.
DST OUTPUT SOLUTIONS
DST's Output Solutions segment provides bill and statement processing
services and solutions, including electronic presentment and generation of
customized statements. Output processing services and solutions are provided
to customers of DST's other segments as well as to other industries.
DST INVESTMENTS
DST also held significant investments in equity securities with a market
value of approximately $1.0 billion at December 31, 1998, including
approximately 8.6 million shares of CSC, with a market value of $554.6
million, and 6.0 million shares of State Street Corporation, with a market
value of $420.9 million.
DST common stock is listed on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol "DST."
PROPERTIES
In the opinion of management, the various facilities, office space and
other properties owned by and/or leased by Stilwell are adequate for existing
operating needs.
Janus leases approximately 340,000 square feet of office space in three
facilities for investment, administrative, marketing, information technology,
and shareowner processing operations, and approximately 33,500 square feet
for mail processing and storage requirements. These corporate offices and
mail processing facilities are located in Denver, Colorado. In
September 1998, Janus opened a 51,500 square foot investor service and data
center in Austin, Texas. Janus also leases 2,800 square feet of office space
in Westport, Connecticut for development of the Janus World Funds and 1,500
square feet of office space in London, England for securities research and
trading.
Berger leases approximately 29,800 square feet of office space in
Denver, Colorado for its administrative and corporate functions.
Nelson leases 8,000 square feet of office space in Chester, England, the
location of its corporate headquarters, investment operations and one of its
marketing offices. During 1998, Nelson acquired additional office space
adjacent to its Chester location to accommodate expansion efforts. Also,
Nelson leases or owns six branch marketing offices totaling approximately
8,500 square feet in the following locations in England: London, Lichfield,
Bath, York and Durham as well as a location in Stirling, Scotland.
EMPLOYEES
As of June 30, 1999, Janus had approximately 2,000 employees, Berger had
approximately 80 employees, Nelson had approximately 170 employees and
Stilwell Financial, Inc. had 17 employees. None of the employees of Stilwell
are represented by a labor union.
STILWELL BUSINESS STRATEGY
Stilwell believes that it has established a strong platform to support
future growth in revenues, deriving its strength in large part from the
experience and capabilities of Stilwell's subsidiaries and equity investments
as full service providers of asset management and related financial services.
The strength of Stilwell's subsidiaries and equity investments is based on
core investment professionals, solid investment performance results,
sophisticated distribution systems, quality customer service, talented
support and service staff and product expertise and systems. In addition,
Stilwell believes that it will benefit from the brand name equity associated
with the names JANUS, BERGER, NELSON and DST. Opportunities for growth for
Stilwell are expected to come, principally through its subsidiaries and
equity investments, from new and existing clients, strategic acquisitions and
alliances and strengthening the brand name and brand image of Stilwell's
subsidiaries and equity investments.
MAINTAIN AND ENHANCE EXISTING CLIENT RELATIONSHIPS. As one of its primary
business objectives, Stilwell intends to maintain and enhance existing client
relationships by continuing to provide a high level of quality service to
existing clients through strong support and service staff, excellent customer
service and product expertise and systems.
GENERATE GROWTH FROM NEW AND EXISTING CLIENTS. Stilwell will pursue
growth from new clients through on-going sales and marketing efforts.
Additionally, Stilwell will seek to increase its share of existing clients'
managed assets.
To encourage growth, Stilwell intends to continue compensation programs
with equity incentives for key management employees of its principal
subsidiaries to provide incentives through ownership of stock in the
enterprises in which they are employed. Stilwell seeks to facilitate the
acquisition of such ownership through such compensation programs and by making
such programs competitive with, if not superior to, compensation programs of
other financial services companies.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. Stilwell plans to regularly
evaluate strategic acquisitions, joint ventures and alliances and pursue those
that appear appropriate as a means of expanding the range of its product
offerings and distribution, as well as for increasing its sales and marketing
capabilities.
STRENGTHEN BRAND NAME AND BRAND IMAGE. Stilwell intends to continue
developing several independent financial services businesses with autonomous
management and separate brand names. Stilwell believes it has a strong starting
position for this strategy, based on its existing ownership of Janus, Berger
and Nelson, as well as its equity investment in DST. Management of each of
Stilwell's affiliates has general autonomy over its respective day-to-day
operations, allowing each business to develop a separate public identity,
satisfy legal requirements regarding separation of investment decisions and
maintain compliance with certain minority stockholder agreements.
COMPETITION
Stilwell is subject to substantial competition in all aspects of its
business. Janus and Berger compete with hundreds of other mutual fund
management distribution and service companies that distribute their fund
shares through a variety of methods including affiliated and unaffiliated
sales forces, broker-dealers, and direct sales to the public of shares.
Nelson competes with other money managers in obtaining new client business.
DST competes with third party providers, in-house systems and broker-dealers
for the provision of services. In addition, Stilwell's subsidiaries and
equity investments compete with brokerage and investment banking firms,
insurance companies, banks, and other financial institutions in all aspects
of its business. Although no one company or group of companies dominates the
mutual fund management and services industry, many are larger, better known
and have greater resources than Stilwell. Management of Stilwell believes
that competition in the mutual fund industry will increase as a result of
increased flexibility afforded to banks and other financial institutions to
sponsor mutual funds and distribute mutual fund shares, and as a result of
consolidation and acquisition activity within the industry. In addition, the
mutual fund industry, in general, faces significant competition as the number
of mutual funds continues to increase, marketing and distribution channels
become more creative and complex, and investors place greater emphasis on
published fund recommendations and investment category rankings. Barriers to
entry to the investment management business are relatively few, and
management of Stilwell anticipates Janus, Berger and Nelson will face a
growing number of competitors. Competition for Janus and Berger is based on
the methods of distribution of fund shares, the ability to meet the changing
needs of investors, the ability to achieve superior investment management
performance, the type and quality of shareowner services, and the success of
marketing efforts. Competition for Nelson is based on the ability to achieve
reasonable investment management returns, the quality of investor services
and the success of marketing efforts. DST's ability to compete is based on
the quality of service and features offered, including the ability to handle
rapidly changing transaction volumes, commitment to hardware capacity and
software development and price.
While Stilwell's subsidiaries and equity investments have implemented
programs to improve performance in all of these areas, there can be no
assurance that Stilwell's subsidiaries and equity investments will be able to
compete successfully against current and future competitors or that
competitive pressures faced by Stilwell's subsidiaries and equity investments
will not materially and adversely affect Stilwell's business, financial
condition, results of operations and business prospects.
REGULATION
Virtually all aspects of Stilwell's business are subject to various laws
and regulations. Applicable laws include the 1940 Act, the Advisers Act, the
Securities Act, the Exchange Act, ERISA and various state securities and
related laws (including laws in the United Kingdom). Applicable regulations
include, but are not limited to, in the United States, the rules and
regulations of the SEC, the NASD and other securities exchanges and the DOL,
and generally in the United Kingdom, IMRO, PIA and the FSA. These laws and
regulations generally grant regulatory agencies and bodies broad
administrative powers, including in some cases the power to limit or restrict
Stilwell from operating its businesses in the event it fails to comply with
such laws and regulations. Due to the extensive regulations and laws to
which Stilwell is subject, management of Stilwell is required to devote
substantial time and effort to legal and regulatory compliance issues.
Violations of such laws or regulations could subject Stilwell and/or its
employees to disciplinary proceedings or civil or criminal liability,
including revocation of licenses, censures, fines or temporary suspension or
permanent bar from the conduct of their business. Stilwell believes that it
is in substantial compliance with all material laws and regulations.
Janus and Berger are registered with the SEC as investment advisers
under the Advisers Act and with the appropriate authorities in each of the
states in which registration is required. Each of the funds of Janus and
Berger is registered with the SEC under the 1940 Act. Nelson is regulated by
IMRO, PIA and FSA and Janus International is regulated by IMRO. Various
regulations also cover certain investment strategies that may be used by
Janus, Berger and Nelson for hedging purposes. To the extent that Janus and
Berger purchase futures contracts, Janus and Berger may be subject to the
commodities and futures regulations of the Commodity Futures Trading
Commission. Under the rules and regulations of the SEC promulgated pursuant
to the federal securities laws, Stilwell is subject to periodic examination
by the SEC. Stilwell is also subject to periodic examination by the NASD.
LEGAL MATTERS
From time to time Stilwell is involved in various legal actions arising
in the normal course of business. While the ultimate outcome of the various
legal proceedings involving Stilwell cannot be predicted with certainty, it
is the opinion of management (after consultation with legal counsel) that the
litigation reserves of Stilwell are adequate and that legal actions involving
Stilwell and ultimate resolution of these matters currently are not material
to Stilwell's consolidated financial position, results of operations or cash
flows.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the individuals who
are the directors and executive officers of Stilwell. Stilwell's Board of
Directors is comprised of four directors, as indicated in the table below,
and is divided into three classes. The initial term of the first class of
directors ("Class I Directors") will expire at the 2000 annual meeting of
stockholders, the initial term of the second class of directors ("Class II
Directors") will expire at the conclusion of the 2001 annual meeting of
stockholders and the initial term of the third class of directors ("Class III
Directors") will expire at the conclusion of the 2002 annual meeting of
stockholders. Commencing with the 2000 annual meeting of stockholders,
directors elected to succeed the initial directors whose terms expire will be
elected to serve a three-year term of office. Officers serve at the
discretion of Stilwell's Board of Directors.
NAME AGE POSITION AND OFFICES
---- --- --------------------
Landon H. Rowland 62 Director; Chairman of the Board, President
and Chief Executive Officer
Joseph D. Monello 54 Executive Vice President
Danny R. Carpenter 53 Vice President and Secretary
Anthony P. McCarthy 52 Vice President and Treasurer
Morton I. Sosland 74 Director
James E. Barnes 65 Director
A. Edward Allinson 64 Director
Gwen E. Royle 39 Vice President and Tax Counsel
Douglas E. Nickerson 33 Vice President and Comptroller
LANDON H. ROWLAND (Class III Director) has been a director of KCSI since
1983. He has been President of KCSI since July 1983, Chief Executive Officer
of KCSI since January 1987 and Chairman of KCSI's Board of Directors since
May 1997. Mr. Rowland is also a director of Janus, Berger, Nelson,
Transportacion Maritima Mexicana, S.A. de C.V. and Grupo Transportacion
Ferroviaria Mexicana, S.A. de C.V.
JOSEPH D. MONELLO has continuously served as Vice President and Chief
Financial Officer of KCSI since March 1994. From October 1992 to March 1994,
he served as Vice President-Finance. Mr. Monello is also a director of
Berger and Nelson.
DANNY R. CARPENTER has continuously served as Vice President-Finance of KCSI
since November 1996, and served as Vice President-Finance and Tax of KCSI
from May 1995 to November 1996, and as Vice President-Tax of KCSI from June
1993 to May 1995. Prior to June 1993, he was a member in the law firm of
Watson & Marshall, L.C., Kansas City, Missouri. Mr. Carpenter is also a
director of Berger and Nelson.
ANTHONY P. MCCARTHY has continuously served as Vice President and Treasurer
of KCSI since May 1996. He was Treasurer of KCSI from December 1989 to May
1996.
MORTON I. SOSLAND (Class I Director) has been a director of KCSI since 1976.
He has been Chairman of the Sosland Companies, Inc. (the "Sosland
Companies"), Kansas City, Missouri, since January 1993 and was President from
July 1968 through December 1992. He has also served as Chairman of Sosland
Publishing Company, Kansas City, Missouri, since 1984. The Sosland Companies
are publishers and venture capital investors. Mr. Sosland is also a director
of H&R Block, Inc., Kansas City, Missouri.
JAMES E. BARNES (Class III Director) has been a director of KCSI since 1986.
Prior to retirement, Mr. Barnes was Chairman of the Board of Directors,
President and Chief Executive Officer of MAPCO Inc., Tulsa, Oklahoma. He was
Chairman of the Board of Directors and Chief Executive Officer from December
1991 to September 1995 and Chairman of the Board of Directors, President and
Chief Executive Officer from May 1986 to December 1991. MAPCO processes,
transports, stores, purchases and sells petroleum and natural gas liquid
products. Mr. Barnes is also a director of BOK Financial Corporation, Tulsa,
Oklahoma; SBC Communications Inc., San Antonio, Texas; and Parker Drilling
Co., Tulsa, Oklahoma.
A. EDWARD ALLINSON (Class II Director) has been a director of KCSI since
1990. He has been an Executive Vice President of State Street Bank and Trust
Company, Chairman of the Board of Directors of Boston Financial Data
Services, Inc. ("BFDS") and Executive Vice President of State Street
Corporation since March 1990. BFDS provides full service shareowner
accounting and recordkeeping services to mutual funds, selected services to
certain retirement plans and certain securities transfer services. DST owns
50% of BFDS. Mr. Allinson is also a director of DST.
GWEN E. ROYLE has continuously served as Senior Assistant Vice President and
Tax Counsel of KCSI since November 1996. She was Tax Counsel of KCSI from
July 1995 to November 1996. She was a member in the law firm Slagle, Bernard
& Gorman, P.C. from 1991 to July 1995.
DOUGLAS E. NICKERSON has continuously served as Assistant Comptroller of KCSI
since September 1997, and served as Manager of Financial Reporting of KCSI
from October 1995 to July 1997. From January 1995 to October 1995, Mr.
Nickerson was financial reporting manager of Ferrellgas Partners, L.P.
Ferrellgas Partners, L.P. is engaged in the sale, distribution, marketing and
trading of propane and other natural gas liquids. From May 1992 to January
1995, he was a marketing representative with Hoffmann-LaRoche, which is an
international manufacturer and distributor of pharmaceuticals.
There are no arrangements or understandings between the directors or
executive officers and any other person pursuant to which the director or
executive officer was or is to be selected as a director or officer, except
with respect to the executive officers who have employment agreements with
Stilwell. None of the above directors or officers are related to one another
by family.
COMPOSITION OF STILWELL'S BOARD OF DIRECTORS
Stilwell's Board of Directors will consist of not fewer than 3 nor more
than 18 directors with the number of directors fixed exclusively from time to
time by a majority of Stilwell's entire Board of Directors. Stilwell's Board
of Directors is divided into three classes. The initial term of the first
class expires at the conclusion of the 2000 annual meeting of stockholders,
the initial term of the second class expires at the conclusion of the 2001
annual meeting of stockholders and the initial term of the third class
expires at the conclusion of the 2002 annual meeting of stockholders.
Commencing with the 2000 annual meeting of stockholders, directors elected to
succeed the initial directors whose terms expire will be elected to serve a
three-year term of office. Directors hold office until the next annual
meeting of stockholders at which their terms expire and until their
successors are duly elected and qualified. As a result, approximately one-
third of Stilwell's Board of Directors will be elected each year. Officers
are elected by Stilwell's Board of Directors and serve until their successors
are duly elected or appointed and qualified or until they shall die, resign
or be removed. See "Description of Capital Stock-Certain Antitakeover
Effects."
COMMITTEES OF STILWELL'S BOARD OF DIRECTORS
Stilwell's Board of Directors has established an Executive Committee
(which also nominates individuals to serve as directors of Stilwell), an
Audit Committee and a Compensation Committee. Commencing with the 2000
annual meeting of stockholders, the members of the committees will be elected
at the annual meeting of Stilwell's Board of Directors. Pursuant to the
Bylaws of Stilwell, Stilwell's Board of Directors may also establish other
committees from time to time in its discretion.
EXECUTIVE COMMITTEE. The Executive Committee consists of directors
elected by Stilwell's Board of Directors to serve one-year terms. When
Stilwell's Board of Directors is not in session, the Executive Committee has
all powers and rights necessary to exercise the full authority of Stilwell's
Board of Directors in the management of the business and affairs of Stilwell,
except as provided in the DGCL, the Certificate or the Bylaws of Stilwell.
The Executive Committee has full power to act as the Nominating Committee
which, when acting as such, has the power and duty to make recommendations to
Stilwell's Board of Directors as to suitable nominees for election to
Stilwell's Board of Directors by the stockholders or by the remaining members
of Stilwell's Board of Directors, to fill newly created directorships and to
fill any vacancies which shall occur. When acting as the Nominating
Committee, it has the power to meet with and consider suggestions from such
other members of Stilwell's Board of Directors, stockholders, members of
management, consultants and other persons, firms or corporations as they deem
necessary or advisable to assist them in making such recommendations.
AUDIT COMMITTEE. The Audit Committee consists of outside directors
elected by Stilwell's Board of Directors to serve staggered three-year terms.
The Audit Committee meets with and considers suggestions from members of
management and members of Stilwell's internal audit staff, as well as
Stilwell's independent accountants, concerning the financial operations of
Stilwell. The Audit Committee also has the power to review audited financial
statements of Stilwell and consider and recommend the employment of, and
approve the fee arrangement with, independent accountants for both audit
functions and for advisory and other consulting services.
COMPENSATION COMMITTEE. The Compensation Committee consists of outside
directors elected by Stilwell's Board of Directors to serve one-year terms.
The Compensation Committee has the power: to authorize and determine all
salaries for the officers and supervisory employees of Stilwell Financial,
Inc.; to administer the incentive compensation plans of Stilwell Financial,
Inc. in accordance with the powers and authority granted in such plans; to
determine any incentive allowances to be made to officers and staff of
Stilwell Financial, Inc.; to administer all stock option plans, stock
purchase plans and other equity ownership, compensation, retirement and
benefit plans of Stilwell Financial, Inc.; to approve the performance-based
compensation of individuals pursuant to Code Section 162(m); and to
administer all other matters relating to the compensation or benefits of
Stilwell Financial, Inc.
COMPENSATION OF STILWELL'S DIRECTORS
Directors who are employees of Stilwell do not receive any fees or other
compensation for service on Stilwell's Board of Directors or its committees.
Members of Stilwell's Board of Directors who do not receive compensation as
officers or employees of Stilwell receive a fee of $4,000 for each meeting of
Stilwell's Board of Directors attended, a fee of $2,000 for attendance at any
committee meeting, and a fee of $2,000 or $1,000 for participation in any
telephonic Board of Directors or committee meeting, respectively. In
addition, all members of Stilwell's Board of Directors are reimbursed for
reasonable travel expenses in connection with attending Board of Directors
and committee meetings. The chairman of a committee receives an additional
$500 for each committee meeting attended. Directors will also receive a
discretionary grant of options to purchase shares of Stilwell Common Stock on
an annual basis immediately following each annual meeting of Stilwell's
stockholders. To date, the Board of Directors of Stilwell has not taken any
action with respect to such discretionary grants of options.
EXECUTIVE COMPENSATION
Although Stilwell has entered into employment agreements with certain of
Stilwell's executive officers effective as of the Distribution Date, to date,
no compensation has been paid pursuant to such agreements and the executive
officers have received compensation pursuant to their existing employment
arrangements with KCSI. The information under this heading therefore
summarizes compensation paid by KCSI to the individual that is Stilwell's
Chief Executive Officer and individuals who, based upon employment and
compensation paid by KCSI during the fiscal year ended December 31, 1998, are
the four individuals initially expected to be the most highly compensated
executive officers of Stilwell. Stilwell expects to review the Stilwell
employment agreements and enter into revised employment agreements by January
1, 2000. As a result, the compensation described below does not necessarily
reflect the compensation such executive officers will receive following the
Distribution. The principal positions listed below are those that will be
held by the executive officers in Stilwell following the Distribution.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE*
Long Term
Annual Compensation Compensation Awards
------------------------------------------ --------------------
Securities
Other Annual Underlying All Other
Name and Principal Compensation Options/ Compensation
Position Year Salary($) Bonus($) ($) SARs(#)<6> ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Landon H. Rowland 1998 750,000 --- 53,877<F1> 6,138 26,632<F1>
Director; Chairman 1997 750,000 --- 57,900 --- 114,801
of the Board, 1996 500,004 --- 52,252 459,000 88,816
President and Chief
Executive Officer
Thomas H. Bailey 1998 900,000 833,000<F2> --- --- 109,000<F2>
Chairman of the 1997 900,000 675,000 --- --- 75,667
Board, President 1996 585,000 400,000 --- --- 74,747
and Chief Executive
Officer of Janus
Joseph D. Monello 1998 250,008 --- --- 65,000 43,754<F3>
Executive Vice 1997 250,008 --- --- --- 62,640
President 1996 250,008 --- --- --- 63,637
Danny R. Carpenter 1998 190,008 --- --- 31,481 16,000<F4>
Vice President and 1997 190,008 --- --- --- 43,751
Secretary 1996 190,008 --- --- --- 48,697
Anthony P. McCarthy 1998 110,004 --- --- 10,000 11,052<F5>
Vice President 1997 110,004 --- --- --- 11,394
and Treasurer 1996 110,004 --- --- --- 10,241
*Reflects compensation paid by KCSI.
<FN>
<F1> Other Annual Compensation for Mr. Rowland includes premiums on disability
insurance policy of $53,877. All other compensation for Mr. Rowland for 1998
is comprised of: (i) contributions to his account under the KCSI ESOP of
$6,400; (ii) interest on deferred directors' fees of $4,314; (iii) an
estimated contribution to his account under KCSI's 401(k) plan of $4,800;
(iv) an estimated contribution to his account under KCSI's profit sharing
plan of $4,800; and (v) premiums on group term life insurance of $6,318. As
of December 31, 1998, Mr. Rowland held no shares of restricted stock.
<F2> The bonus for Mr. Bailey for 1998 was under a performance based incentive
compensation plan approved by KCSI stockholders in 1997. All other
compensation for Mr. Bailey for 1998 is comprised of: (i) directors' fees in
the amount of $27,000 and $66,000, paid to Mr. Bailey in his capacity as
director of Janus Capital Corporation and Janus Investment Fund and the Janus
Aspen Series, respectively; (ii) a contribution to his account under the KCSI
ESOP of $6,400; (iii) an estimated contribution to his account under KCSI's
401(k) plan of $4,800; and (iv) an estimated contribution to his account
under Janus' profit sharing plan of $4,800. As of December 31, 1998, Mr.
Bailey held no shares of restricted stock.
<F3> All other compensation for Mr. Monello for 1998 is comprised of: (i) a
contribution to his account under the KCSI ESOP of $6,400; (ii) an estimated
contribution to his account under KCSI's 401(k) plan of $4,800; (iii) an
estimated contribution to his account under KCSI's profit sharing plan of
$4,800; and (iv) an amount estimated to be credited to his account under the
KCSI Executive Plan of $27,754. As of December 31, 1998, Mr. Monello held no
shares of restricted stock.
<F4> All other compensation for Mr. Carpenter for 1998 is comprised of: (i) a
contribution to his account under the KCSI ESOP of $6,400; (ii) an estimated
contribution to his account under KCSI's 401(k) plan of $4,800; and (iii) an
estimated contribution to his account under KCSI's profit sharing plan of
$4,800. As of December 31, 1998, Mr. Carpenter held no shares of restricted
stock.
<F5> All other compensation for Mr. McCarthy for 1998 is comprised of: (i) a
contribution to his account under the KCSI ESOP of $4,587; (ii) an estimated
contribution to his account under KCSI's 401(k) plan of $3,025; (iii) an
estimated contribution to his account under KCSI's profit sharing plan of
$3,440. As of December 31, 1998, Mr. McCarthy held no shares of restricted
stock.
<F6> All option award information relates to options to purchase shares of KCSI
Common Stock. In connection with the Distribution, all Options will remain
outstanding with an adjusted exercise price and the holders of the Options
will be granted New Stilwell Options. As a result, the value of the options
to purchase Stilwell Common Stock will depend on the future value of Stilwell
Common Stock. See "Relationship Between KCSI and Stilwell After the
Distribution-Employee Benefits" and "Management-Other Compensatory Plans and
Arrangements."
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------
Grant Date
Individual Grants Value
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/SARs Exercise Grant
Underlying Granted to or Base Date
Options/SARs Employees in Price Expiration Present
Name Granted (#)<5> Fiscal Year<2> ($/Sh)<3> Date Value $<4>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Landon H. Rowland 6,138<1> * 28.4063 01/27/08 45,843
Thomas H. Bailey -- --
Joseph D. Monello 65,000<2> 5.5% 42.3125 11/16/08 896,353
Danny R. Carpenter 1,481<1> * 28.4063 01/27/08 11,061
30,000<2> 2.5% 42.3125 11/16/08 413,701
Anthony P. McCarthy 10,000<2> * 42.3125 11/16/08 137,900
* Less than one percent of the total options granted.
<FN>
<F1> The options were granted under the KCSI Stock Option Plan in connection with
KCSI's Executive Plan. Under the Executive Plan, the participants may elect
to receive their accumulated balance and annual benefit either in cash or in
non-qualified stock options with an estimated value (using the Black-Scholes'
valuation mode) equal to 125 percent of the annual cash benefit. These
options were granted on January 28, 1998 and became exercisable on January
28, 1999. Limited stock appreciation rights ("LSARs") were granted in tandem
with these options. All of the LSARs are automatically exercised upon a
change in control of KCSI that is not approved by the incumbent board of KCSI
(as such terms are defined in the 1991 Plan). All the options expire at the
end of ten years, subject to earlier termination as provided in the
individual's option agreement. Holders of options have the right to satisfy
the minimum tax withholding requirements in shares of stock.
<F2> The options were granted under the KCSI Stock Option Plan on November 17,
1998 and become exercisable on January 1, 2000. If there is a change in
control of KCSI that is approved by the incumbent board of KCSI (as such
terms are defined in the 1991 Plan), however, the options become immediately
exercisable. LSARs were granted in tandem with these options. All of the
LSARs are automatically exercised upon a change in control that is not
approved by the incumbent board of KCSI (as such terms are defined in the
1991 Plan). All the options expire at the end of ten years, subject to
earlier termination as provided in the individual's option agreement. Holders
of options have the right to satisfy the minimum tax withholding requirements
in shares of stock.
<F3> Average of the high and low prices of the Common Stock on the date of grant
as reported on the NYSE.
<F4> Valuation determined using Black-Scholes' option pricing model with the
following assumptions for the grant dates indicated parenthetically: market
price of stock is equal to the exercise price of options; stock volatility
(based on 3-year monthly data): 30.37% and 41.63% (1/28/98 and 11/17/98,
respectively); annualized risk-free interest rate: 5.36% and 4.74% (1/28/98
and 11/17/98, respectively); option term (in years) 3; and stock's dividend
yield: 0.56% and 0.38% (1/28/98 and 11/17/98, respectively).
<F5> All option award information relates to options to purchase shares of KCSI
Common Stock. In connection with the Distribution, all Options will remain
outstanding with an adjusted exercise price and the holders of the Options
will be granted New Stilwell Options. As a result, the value of the options
to purchase Stilwell Common Stock will depend on the future value of Stilwell
Common Stock. See "Relationship Between KCSI and Stilwell After the
Distribution-Employee Benefits" and "Management-Other Compensatory Plans and
Arrangements."
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the aggregate
option exercises during 1998 by the executive officers and the number and value
of options held by such officers as of December 31, 1998 (the last trading day
of the year).
- -----------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End at FY-End
(#) ($)
Shares
Acquired
on Value
Exercise Realized<1> Exercisable/ Exercisable/
Name (#) ($) Unexercisable<2> Unexercisable<1>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Landon H. Rowland 0 N/A 2,763,000/ 114,043,374/
6,138 118,732
Thomas H. Bailey 0 N/A 0/0 N/A
Joseph D. Monello 141,000 5,588,811 330,000/ 10,667,511/
65,000 353,438
Danny R. Carpenter 0 0 261,000/ 8,557,256/
31,481 191,773
Anthony P. McCarthy 0 N/A 74,250/ 2,515,424/
10,000 54,375
<FN>
<F1> The dollar value in columns (c) and (e) is calculated by determining the
difference between the fair market value of the securities underlying the
options and the exercise price of the options on the date of exercise or
December 31, 1998 (the last trading day of 1998), respectively, times the
number of options exercised or held at year end.
<F2> All option award information relates to options to purchase shares of KCSI
Common Stock. In connection with the Distribution, all Options will remain
outstanding with an adjusted exercise price, and the holders of the Options
will be granted New Stilwell Option. As a result, the value of the options
to purchase Stilwell Common Stock will depend on the future value of Stilwell
Common Stock. See "Relationship Between KCSI and Stilwell After the
Distribution-Employee Benefits" and "Management--Other Compensatory Plans and
Arrangements."
</FN>
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENTS WITH THE NAMED EXECUTIVE OFFICERS
Certain executive officers of Stilwell have entered into employment
agreements with Stilwell that are effective as of the Distribution Date.
Stilwell expects to enter into revised employment agreements with such
executive officers by January 1, 2000. Such revised employment agreements may
vary significantly from the current Stilwell employment agreements. For
example, Stilwell's Compensation Committee may make significant adjustments
to the salaries of the executive officers based on a study of competitive
executive officer salaries in the mutual fund industry. However, several
terms are expected to be similar to the current Stilwell employment
agreements. For example, it is expected that following the effective date of
the revised employment agreements, the salaries of the executive officers
will not be increased for a certain period and cannot be decreased except in
certain circumstances, the executive officers will not be able to participate
in incentive compensation plans for a period of time and a one-time grant of
stock options will be made as part of the compensation packages pursuant to
the revised employment agreements. The Compensation Committee of the Board of
Directors of Janus, with the aid of an independent compensation consultant,
sets Mr. Bailey's base salary and recommends incentive compensation.
Stilwell's Compensation Committee also approves such incentive compensation.
MR. ROWLAND. Stilwell entered into an employment agreement with Mr.
Rowland effective as of the Distribution Date, which provides for Mr.
Rowland's employment as Chairman of the Board, President and Chief Executive
Officer of Stilwell.
The employment agreement provides that Mr. Rowland is to serve at the
pleasure of Stilwell's Board of Directors and does not contain a fixed term
of employment. Pursuant to the employment agreement, Mr. Rowland receives a
fixed annual base salary of $750,000, which is not to be increased prior to
January 1, 2000 and is not to be reduced except by mutual agreement of
Stilwell and Mr. Rowland or except as part of a general salary reduction
program applicable to all officers of Stilwell. Mr. Rowland is not entitled
to participate in any Stilwell incentive compensation plan during 1999, but
continues to participate in other benefit plans or programs of Stilwell
generally available to executive employees and is provided with certain
disability insurance coverage and life insurance payable to beneficiaries
designated by him. Under the employment agreement the value of Mr. Rowland's
annual compensation is fixed at $875,000 for purposes of cash compensation
based benefit plans.
The employment agreement provides for twenty-four (24) months of
severance pay at an annual rate equal to Mr. Rowland's base salary and for
certain health and life insurance benefits in the event of the termination of
his employment without cause, other than in connection with a change in
control of Stilwell (as defined in the employment agreement), unless such
benefits are provided by another employer. In the year in which termination
occurs, Mr. Rowland shall remain eligible to receive benefits under the
Stilwell Incentive Compensation Plan, if any, and the Stilwell Executive
Plan. After termination, Mr. Rowland shall not be entitled to accrue or
receive any benefits under any other employee benefit plan, except he will be
entitled to participate in the Stilwell Profit Sharing Plan, the Stilwell
Employee Stock Ownership Plan and the Stilwell 401(k) Plan in the year of
termination if he meets the requirements for participation in such
termination year.
As part of the employment agreement, Mr. Rowland has agreed not to use
or disclose any Stilwell trade secret (as defined in the employment
agreement) after any termination of his employment and not to engage in, or
manage, a business in competition with any business conducted by Stilwell or
its subsidiaries, in any country or jurisdiction in which Stilwell or any of
its subsidiaries conduct business, for a period of three years following Mr.
Rowland's resignation or termination of his employment for cause or due to
his disability.
During the period of his employment under the employment agreement, Mr.
Rowland has agreed to retain ownership in himself or members of his immediate
family of at least a majority of the number of shares of (i) Stilwell Common
Stock received in the Distribution and (ii) Stilwell Common Stock acquired
upon exercise of stock options granted in connection with the Distribution
(other than shares transferred to Stilwell to pay the purchase price upon the
exercise of stock options or used to satisfy tax withholding requirements).
If there is a change in control of Stilwell or its Significant
Subsidiaries (as defined in the employment agreement) during the term of the
employment agreement, Mr. Rowland's employment, executive capacity, salary
and benefits would be continued for a three-year period at levels in effect
on the Control Change Date (as defined in the employment agreement) at a rate
not less than twelve times the highest monthly base salary paid or payable to
him in the twelve months prior to any change in control. During such three-
year period, Mr. Rowland would also be eligible to participate in all benefit
plans generally made available to executives of his level or to the employees
of Stilwell generally, would be eligible to participate in any Stilwell
incentive compensation plan, and would be entitled to immediately exercise
all outstanding stock options and receive a lump-sum cash payment equal to
the fair market value of all non-vested options. If the amounts payable
during this three-year period are discretionary, the benefits continued shall
not be less than the average annual amount for the three years prior to the
change in control and incentive compensation shall not be less than 75% of
the maximum amount which could have been paid to Mr. Rowland under the terms
of the incentive compensation plan. With respect to unfunded employer
obligations under the benefit plans, Mr. Rowland would be entitled to a
discounted cash payment of amounts to which he is entitled. Mr. Rowland's
employment may be terminated after the Control Change Date, but where it is
other than For Cause (as defined in the employment agreement) he would be
entitled to payment of his base salary through termination plus a discounted
cash severance payment equal to 175% of three times his annual base salary
and continuation or payment of benefits for a three-year period at levels in
effect on the Control Change Date. Mr. Rowland also is permitted to resign
employment after a change in control upon Good Reason (as defined in the
employment agreement) and advance written notice, and to receive the same
payments and benefits as if his employment had been terminated by Stilwell.
Mr. Rowland's employment agreement also provides for payments to him
necessary to relieve him of certain adverse federal income tax consequences
if amounts received under the employment agreement involve "parachute
payments" under Code Section 4999.
MESSRS. CARPENTER, MONELLO AND MCCARTHY. Stilwell has entered into
employment agreements with Messrs. Carpenter, Monello and McCarthy effective
as of the Distribution Date. These employment agreements provide,
respectively, for Mr. Carpenter's employment as Vice President and Secretary
of Stilwell, Mr. Monello's employment as Executive Vice President of Stilwell
and Mr. McCarthy's employment as Vice President and Treasurer of Stilwell.
The employment agreements are subject to termination under certain
circumstances.
Pursuant to their employment agreements, Messrs. Carpenter and Monello
receive as compensation for their services an annual base salary at the rate
approved on November 17, 1998. Such salary shall not be increased prior to
January 1, 2000 and shall not be reduced except as agreed to by the parties
or as part of a general salary reduction by Stilwell applicable to all
officers of Stilwell. Under the employment agreements, neither Mr. Carpenter
nor Mr. Monello is entitled to participate in any Stilwell incentive
compensation plan during 1999, but both are eligible to participate in other
benefit plans or programs generally made available to executive employees of
Stilwell. The employment agreements provide that the value of Messrs.
Carpenter's, Monello's, and McCarthy's annual compensation is fixed at 175%,
167%, and 160%, respectively, of their annual base salaries for purposes of
cash compensation based benefit plans.
In the event of termination without cause by Stilwell, Messrs.
Carpenter, Monello and McCarthy would be entitled to twelve months of
severance pay at an annual rate equal to their base salary and for
reimbursement for the costs of continuing or obtaining comparable health and
life insurance benefits unless such benefits are provided by another
employer. In the year in which termination occurs, Messrs. Carpenter,
Monello and McCarthy shall remain eligible to receive benefits under the
Stilwell Incentive Compensation Plan, if any, and the Stilwell Executive
Plan. After termination, the officers shall not be entitled to accrue or
receive benefits under any other employee benefit plan, except the officers
will be entitled to participate in the Stilwell Profit Sharing Plan, the
Stilwell Employee Stock Ownership Plan and the Stilwell 401(k) Plan in the
year of termination if such officers meet the requirements for participation
in such termination year.
As part of their employment agreements, Messrs. Carpenter, Monello and
McCarthy have agreed not to use or disclose any Stilwell trade secret (as
defined in the employment agreements) after any termination of their
employment and shall, immediately upon termination of employment, return to
Stilwell or its subsidiaries or affiliates any trade secrets in their
possession which exist in tangible form.
If there is a change in control of Stilwell or its Significant
Subsidiaries (as defined in the employment agreements) during the term of the
employment agreements, the officers' employment, executive capacity, salary
and benefits would be continued for a three-year period at levels in effect
on the Control Change Date (as that term is defined in the employment
agreements). During the three-year period, salary is to be paid at a rate
not less than twelve times the highest monthly base salary paid or payable to
the officers by Stilwell in the twelve months immediately prior to any change
in control. During the three-year period, the officers also would be
eligible to participate in all benefit plans generally made available to
executives of their level or to the employees of Stilwell generally, would be
eligible to participate in any Stilwell incentive compensation plan and would
be entitled to immediately exercise all outstanding stock options and receive
a lump-sum cash payment equal to the fair market value of all non-vested
options. If the amounts payable during this three-year period are
discretionary, the benefits continued shall not be less than the average
annual amount for the three years prior to the change in control and
incentive compensation shall not be less than 75% of the maximum amount which
could have been paid to the officers under the terms of the incentive
compensation plan. With respect to unfunded employer obligations under
benefit plans, the officers would be entitled to a discounted cash payment of
amounts to which they are entitled. The officers' employment may be
terminated after the Control Change Date, but where it is other than For
Cause (as defined in the employment agreements) they would be entitled to
payment of their base salary through termination plus Messrs. Carpenter,
Monello and McCarthy would receive a discounted cash severance payment equal
to 175% for Mr. Carpenter and 166.67% for Mr. Monello of three times their
annual base salaries, and for Mr. McCarthy 160% of two times his annual base
salary, continuation of payment of benefits for a three-year period at the
Control Change Date and certain health, prescription and dental benefits for
the remainder of their lives unless such benefits are otherwise provided by a
subsequent employer. In addition, the officers receive continuation or
payment of benefits for a three-year period at levels in effect on the
Control Change Date. The officers also are permitted to resign employment
after a change in control upon Good Reason (as that term is defined in the
employment agreements) and advance written notice, and to receive the same
payments and benefits as if their employment had been terminated. The
employment agreements also provide for payments to such officers necessary to
relieve them of certain adverse federal income tax consequences if amounts
received under the agreements involve "parachute payments" under Code Section
4999.
MR. BAILEY. Mr. Bailey has the right under the Janus Stock Purchase
Agreement to require KCSI to purchase his shares of stock of Janus at a per
share price equal to fifteen times the net after-tax earnings per share
of Janus for the year ended immediately prior to the date of notice, or, a
price per share equal to fifteen times the after-tax earnings per share of
Janus for the year ended December 31, 1987, whichever is greater. Under that
agreement, Mr. Bailey is also entitled, upon a termination of his employment
within one year of a defined change of ownership of KCSI, to receive a
payment equal to his prior year's current and deferred compensation.
INDEMNIFICATION AGREEMENTS
Stilwell entered into indemnification agreements with its officers and
directors effective as of the Distribution Date (the "Stilwell
Indemnification Agreements"). Such agreements are intended to supplement
Stilwell's officers' and directors' liability insurance and to provide the
officers and directors with specific contractual assurance that the
protection provided by Stilwell's Certificate will continue to be available
regardless of, among other things, an amendment to the Certificate or a
change in management or control of Stilwell. The Stilwell Indemnification
Agreements provide for prompt indemnification to the fullest extent permitted
by law and for the prompt advancement of expenses, including attorney's fees
and all other costs and expenses incurred in connection with any action, suit
or proceeding in which the director or officer is a witness or other
participant, or to which the director or officer is a party, by reason (in
whole or in part) of service in certain capacities. The Stilwell
Indemnification Agreements provide a mechanism to seek court relief if
indemnification or expense advances are denied or not received within the
periods provided in the Stilwell Indemnification Agreements. Indemnification
and advancement of expenses are also provided with respect to a court
proceeding initiated for a determination of rights under the Stilwell
Indemnification Agreements or of certain other matters. Stilwell has entered
into such indemnification agreements with all current directors and officers
of Stilwell.
OTHER COMPENSATORY PLANS AND ARRANGEMENTS
STILWELL STOCK PURCHASE PLAN. The main provisions of the Stilwell Stock
Purchase Plan are substantially similar to the KCSI Purchase Plan: eligible
employees may purchase during certain periods Stilwell Common Stock at 85% of
the average market price on either the exercise date or the grant date,
whichever is lower, but in no event at less than the par value of the shares.
Eligible Stilwell employees may elect to have up to a board-determined
maximum percentage of annualized base pay applied to purchase Stilwell Common
Stock, and the purchase price will be collected via employee payroll
deductions. With certain exceptions, all employees of Stilwell or any
eligible Stilwell affiliates who work at least 20 hours per week for five
months of the year will be eligible to participate in the Stilwell Stock
Purchase Plan. The right to participate in the Stilwell Stock Purchase Plan
will terminate immediately upon the date the participant ceases employment
with Stilwell or any eligible Stilwell affiliate except in certain
circumstances.
STILWELL EXECUTIVE PLAN. The Stilwell Executive Plan is a non-qualified
plan for participants who are certain officers of Stilwell and is designed to
provide benefits in addition to the annual contributions permitted under the
Stilwell qualified retirement plans.
The annual benefit provided on behalf of each participant in the
Stilwell Executive Plan equals the amount which would have been contributed
to the Stilwell qualified retirement plans for such participant based on the
participant's compensation under the Stilwell qualified retirement plans
without regard to statutory contribution limitations or eligibility
requirements, less the amount participants were entitled to receive under
such plans (assuming, with respect to the 401(k) Portion, that the
participant was entitled to receive the maximum matching contribution). Each
participant may irrevocably elect in advance to receive the annual benefit
available under the Stilwell Executive Plan either in cash or through a grant
of non-qualified stock options to purchase shares of Stilwell Common Stock
(using a Black-Scholes valuation model which values the stock options at 125
percent of the annual cash benefit). For purposes of the Stilwell Executive
Plan, compensation includes base compensation plus cash incentive
compensation; certain participants have agreed that their compensation is a
fixed amount or a certain percentage of their annual base salaries, pursuant
to their employment agreements.
After the Distribution, those Stilwell employees in the KCSI Executive
Plan will no longer be eligible to participate in the KCSI Executive Plan,
but their KCSI compensation for the year including the Distribution will be
credited under the Stilwell Executive Plan.
STILWELL STOCK OPTION PLAN. The Stilwell Stock Option Plan provides
for the grant, at the discretion of Stilwell's Board of Directors or of a
committee appointed by Stilwell's Board of Directors (in either case, the
"Committee") of various types of equity incentive awards, including options
(incentive and non-statutory), restricted shares, bonus shares, SARS
(freestanding and tandem) and LSARs (including, in each case, dividend
equivalents), performance units and performance shares. Awards may be made
to any employee director or consultant of Stilwell or of any Stilwell
subsidiary. A maximum of 30,000,000 shares of Stilwell Common Stock may be
issued under the Stilwell Stock Option Plan (subject to adjustment in the
event of stock splits, recapitalizations, reorganizations or similar events),
approximately 17,000,000 of which shares will be subject to New Stilwell
Options. The Committee administers the Stilwell Stock Option Plan and has
broad discretionary powers to designate grantees, determine the number and
type of awards, prescribe the terms and conditions of each award and to
modify the terms and conditions of individual awards. The Committee's
discretionary powers extend to awards granted to outside directors as well as
to employees and consultants.
The Stilwell Stock Option Plan will govern the New Stilwell Options as
well as Stilwell stock options and other incentive awards granted pursuant to
the Stilwell Stock Option Plan in connection with and after the Distribution.
As part of the Distribution, KCSI and Stilwell plan to substitute options for
Options held by KCSI and Stilwell employees, former KCSI employees and KCSI
directors (including former directors) to provide for the equitable
adjustment of the Options as allowed by the KCSI Stock Option Plan.
Specifically, as part of the Distribution, all Options will remain
outstanding with an adjusted exercise price as New KCSI Options, and holders
of the Options will receive New Stilwell Options.
The exercise prices of the Substituted Options will be a prorated
amount of the exercise price for the related Options based on the ratio of
the average trading price of Stilwell Common Stock to the total of the
average trading prices of both KCSI Common Stock and Stilwell Common Stock.
For this purpose, the average trading prices will be based on trading prices
for the first three days on which there is trading on the New York Stock
Exchange in both Stilwell Common Stock and KCSI Common Stock ex-distribution.
The respective trading prices of KCSI Common Stock ex-distribution and
Stilwell Common Stock on each day shall be the mean between the high and the
low prices of the shares on the New York Stock Exchange on the day in
question. The other terms of the Substituted Options will be the same as for
the Options.
The New Stilwell Options will be granted in the same proportion as the
distribution of Stilwell Common Stock in the Distribution; i.e., two New
Stilwell Options for each Option held. New KCSI Options and New Stilwell
Options which will be substituted for Options which were subject to time
vesting (under the KCSI Stock Option Plan, vesting means the Options become
exercisable; therefore, Options which time vest are Options which become
exercisable after the passage of a specified period of time) will vest at the
time the Options for which they were substituted would have vested.
The substitution of New KCSI Options and New Stilwell Options for
Options is provided for in the Intercompany Agreement under which (1) the New
KCSI Options and New Stilwell Options will be established with the exercise
prices determined as described above based on an allocation of the exercise
price of the Options; and (2) KCSI and Stilwell assume the obligation to
issue shares of their Common Stock upon the exercise of the New KCSI Options
and the New Stilwell Options, respectively.
STILWELL 401(k) PLAN (WITH PROFIT SHARING PORTION). The 401(k) Portion
is a qualified voluntary self-directed employee contribution plan, and the
Profit Sharing Portion is a qualified, non-contributory defined contribution
profit sharing plan. New employees of Stilwell and of Stilwell affiliates
which participate in the Stilwell 401(k) Plan, other than certain excluded
employees as defined in the Stilwell 401(k) Plan ("Eligible Employees"), may
elect to participate in the 401(k) Portion on the first plan entry date on or
after the commencement of their employment. Under the 401(k) Portion,
Eligible Employees may defer up to 10% of their compensation through payroll
deduction, up to certain limits prescribed by the Code. Stilwell will
contribute matching contributions to each participant's account, up to 3% of
the employee's compensation, again subject to certain Code-prescribed limits.
Participants in the 401(k) Portion may choose to invest their 401(k) Portion
accounts in any one or more of 11 diversified investment options. A
participant is always fully vested in his or her contributions to the 401(k)
Portion.
As of the Distribution, the Trustee will transfer the accounts of the
Stilwell participants who will participate in the 401(k) Portion to the
401(k) Portion. The trustee for the Stilwell 401(k) Plan will accept the
transferred accounts from the KCSI 401(k) Plan, and participants' elections
under the KCSI 401(k) Plan will remain in effect under the 401(k) Portion
until changed by the Stilwell participants.
With respect to the Profit Sharing Portion, the Trustee will divide the
KCSI Profit Sharing Plan as of the Distribution and will transfer the
accounts of Stilwell Financial, Inc. participants to the Profit Sharing
Portion in a plan-to-plan transfer of assets. An investment manager will
manage the participant accounts in the Profit Sharing Portion.
With respect to the employer contributions made to the Stilwell 401(k)
Plan, participants vest at the rate of 25% at three years of service, 50% at
four years of service and 100% at five years of service. The Stilwell 401(k)
Plan will treat all service credited with respect to an employee under the
KCSI 401(k) Plan, for the 401(k) Portion, and the KCSI Profit Sharing Plan,
for the Profit Sharing Portion, prior to the Distribution as service with
Stilwell. A participant's interest in employer contributions also becomes
fully vested at retirement, death, disability or a change in control of
Stilwell. Distributions under the Stilwell 401(k) Plan will be made in
connection with a participant's death, disability, retirement or other
termination of employment. A participant has the right to elect whether
payment of his or her benefits will be in a lump sum, in installments, or in
a combination thereof.
Stilwell's Board of Directors has appointed a trustee to hold the assets
of the Stilwell 401(k) Plan in a trust fund. The Stilwell Compensation
Committee has appointed a Stilwell 401(k) Plan Advisory Committee (the
"Advisory Committee") to administer the Stilwell 401(k) Plan. Stilwell's
Board of Directors, Stilwell's Compensation Committee and the Advisory
Committee may amend the Stilwell 401(k) Plan, although any amendment may not
adversely affect any person's accrued benefits under the Stilwell 401(k)
Plan.
STILWELL ESOP. New employees of Stilwell and of Stilwell affiliates
which participate in the Stilwell ESOP (other than excluded employees as
defined in the Stilwell ESOP), will be eligible to participate in the
Stilwell ESOP on the first plan entry date on or after the commencement of
their employment. The Stilwell ESOP does not permit participant contributions
or rollover contributions.
The KCSI ESOP will participate in the Distribution. Promptly after the
Distribution, the Trustee will transfer the Stilwell participant accounts to
the Stilwell ESOP. Immediately after the Distribution, participants in the
Stilwell ESOP will have two shares of Stilwell Common Stock for each one
share of KCSI Common Stock in their accounts.
To allow Stilwell participants to retain the KCSI Common Stock in their
respective Stilwell ESOP accounts, Stilwell participants will have an
election with respect to the portion of each Stilwell participant's account
allocated to KCSI Common Stock to keep the KCSI Common Stock in their
accounts or to have the trustee for the Stilwell ESOP sell the KCSI Common
Stock in their accounts and reinvest the proceeds in either Stilwell Common
Stock or in a guaranteed investment contract fund. The election may be a
partial election; however, once a participant elects to have the KCSI Common
Stock held in his or her ESOP account sold, the participant may not reinvest
in KCSI Common Stock, nor may a participant elect to sell any of the Stilwell
Common Stock in his or her account to invest in the guaranteed investment
contract fund. For any participant who does not affirmatively elect to
retain the KCSI Common Stock in his or her account, the trustee for the
Stilwell ESOP will sell the KCSI Common Stock from his or her account and
will reinvest the proceeds in Stilwell Common Stock.
Stilwell's Compensation Committee will appoint an advisory committee
(the "Stilwell ESOP Advisory Committee") to administer the Stilwell ESOP.
Stilwell's Board of Directors, Stilwell's Compensation Committee and the
Stilwell ESOP Advisory Committee may amend the Stilwell ESOP, although any
amendment may not adversely affect any person's accrued benefits under the
Stilwell ESOP. A participant's interest in Stilwell contributions is 100%
vested upon five years of service, with no vesting prior to that time, but
becomes fully vested at retirement, death, disability or a change in control
of Stilwell.
<PAGE>
PRINCIPAL STOCKHOLDERS AND STOCK OWNED BENEFICIALLY BY
STILWELL'S DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
The table below sets forth beneficial ownership of Stilwell Common Stock
as if the Distribution had occurred on June 30, 1999, based upon beneficial
ownership of KCSI's Common Stock as of June 30, 1999 by: (i) beneficial
owners of more than 5% of the outstanding Stilwell Common Stock that have
publicly disclosed their ownership of KCSI Common Stock; (ii) the members of
Stilwell's Board of Directors and certain executive officers; and (iii) all
Stilwell officers and directors as a group. The table includes shares of
Stilwell Common Stock that would be deemed beneficially owned by each such
person in connection with the treatment of the Options in the Distribution.
See "Relationship Between KCSI and Stilwell After the Distribution--Employee
Benefits" and "Management--Other Compensatory Plans and Arrangements." No
officer or director of Stilwell Financial, Inc. owns any equity securities of
any subsidiary of Stilwell. Beneficial ownership is generally either the
sole or shared power to vote or dispose of the shares. Neither KCSI nor
Stilwell is aware of any arrangement which would at a subsequent date result
in a change in control of Stilwell.
Common Percent of
Name Stock (1) Outstanding (1)
- ---- --------- ---------------
UMB Bank, N.A., as trustee 11,063,452(2) 4.85%
of certain fiduciary accounts (2)
Amvescap, Inc. and certain 15,704,570(3) 6.89%
affiliates
A. Edward Allinson 146,936(1)(4) *
Director
Thomas H. Bailey 58,262(4) *
Chairman of the Board,
President and Chief Executive
Officer of Janus
James E. Barnes 180,000(1)(5) *
Director
Danny R. Carpenter 578,460(1)(4) *
Vice President and Secretary
Anthony P. McCarthy 396,254(1)(4) *
Vice President and Treasurer
Joseph D. Monello 815,250(1)(4) *
Executive Vice President
Landon H. Rowland 7,090,598(1)(4) 3.13%
Chairman of the
Board, President and Chief
Executive Officer
Morton I. Sosland 472,962(1)(5) *
Director
All Directors and Executive 9,757,418(1)(4) 4.3%
Officers as a Group
(10 Persons)
- ------------------------------------------------
* Less than 1% of the outstanding shares.
(1) Percentage ownership is based on the number of shares outstanding as of
June 30, 1999 plus any Additional Shares (as defined below). The holders
may disclaim beneficial ownership of shares included under certain
circumstances. Except as noted, the holders have sole voting and
dispositive power over the shares. Under applicable law, shares that may
be acquired upon the exercise of options or other convertible securities
that are exercisable on the Record Date or will become exercisable within
60 days of that date (the "Additional Shares") are considered
beneficially owned. The Additional Shares included in the amounts shown
above are as follows: Mr. Allinson, 134,800; Mr. Barnes, 162,000; Mr.
Carpenter, 526,922; Mr. McCarthy, 148,500; Mr. Monello, 660,000;
Mr. Rowland 5,538,276; Mr. Sosland, 6,000; and all directors and
executive officers as a group, 7,187,838. Certain directors and
executive officers disclaim beneficial ownership of 355,400 of these
shares.
(2) Based on information reported in Amendment No. 12 to Schedule 13G,
dated February 16, 1999 jointly filed by UMB Financial Corporation
("UMBFC"), its wholly-owned subsidiary UMB Bank, N.A. and the KCSI ESOP
and subsequent correspondence. UMB Bank, N.A. is the trustee of the KCSI
ESOP and the DST Systems, Inc. Employee Stock Ownership Plan (the "DST
ESOP"), which also holds some KCSI Common Stock. Shares reported as held
by UMB Bank, N.A. include the shares held as trustee of the KCSI ESOP and
DST ESOP. Voting and dispositive power over the shares held by these
ESOPs that are allocated to participant accounts are vested in the ESOP
participants (they have the right to direct the voting of all allocated
shares and the tendering of such shares in response to offers to
purchase). Under the terms of the trust agreement, any unallocated
shares are to be voted by the trustee in the same proportion as the
allocated shares. All shares of Stilwell Common Stock have been
allocated to participants' accounts. Therefore, UMB Bank, N.A., the KCSI
ESOP and the DST ESOP disclaim beneficial ownership of all shares held in
the KCSI ESOP and DST ESOP. The amount shown for UMB Bank, N.A. does not
include 1,136,312 shares held by UMB Bank, N.A. in custody accounts for
which UMB Bank, N.A. does not have voting or dispositive power. UMBFC
reports that it does not beneficially own any shares of KCSI or Stilwell
Common Stock held by UMB Bank, N.A. in various capacities because UMBFC
is prohibited by law from directing voting or disposition of such shares
and therefore excludes the shares held by UMB Bank, N.A. in various
capacities. The address for UMB Bank, N.A. is 1010 Grand Boulevard,
Kansas City, Missouri 64106.
(3) Based upon information in Schedule 13G filed February 12, 1999, the
address for Amvescap, Inc. is 11 Devonshire Square, London EC2M 4YR,
England. The reporting persons expressly declared that the filing of the
information on Schedule 13G shall not be construed as an admission that
they are the beneficial owners of any securities covered by such
statement.
(4) Under applicable law, shares that are held indirectly are also
considered beneficially owned. Such shares included in the amounts shown
above are as follows: Mr. Allinson owns 4,800 shares in a Keogh Plan;
Mr. Bailey owns 43,552 shares through the KCSI ESOP; Mr. Carpenter owns
16,904 shares through the KCSI ESOP; Mr. McCarthy owns 54,212 and 7,806
shares through the KCSI ESOP and KCSI's Profit Sharing Plan,
respectively. Mr. Monello owns 68,378 shares through the KCSI ESOP; Mr.
Rowland owns 122,942 and 954 shares through the KCSI ESOP and KCSI's
Profit Sharing Plan, respectively; and all directors and executive
officers as a group own indirectly 677,904 shares.
(5) Directors and Executive Officers may also be deemed to own beneficially
shares held in other capacities as follows: Mr. Barnes, 18,000 shares
held jointly with his wife; and Mr. Sosland, 9,600 shares held in trust
over which he has sole voting and dispositive power as trustee, 24,000
shares held by his wife, and 321,800 shares over which he has shared
voting and/or dispositive power but as to which beneficial ownership is
disclaimed, which shares are held as follows: 72,000 shares held by
certain companies of which he is a director, 217,800 shares held as co-
trustee of certain testamentary trusts, and 32,000 shares in a charitable
foundation of which he is a director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
KCSI will have a transitional relationship with Stilwell as a result of
the Intercompany Agreement, the Tax Disaffiliation Agreement and certain other
agreements and relationships. In addition, Mr. Landon Rowland, who serves as
Chairman of the Board of Directors of Stilwell, will serve as Chairman of the
Board of Directors of KCSI for a transitional period. Mr. Rowland will have no
executive position with KCSI. It is expected that he will be the only director
common to the boards of both KCSI and Stilwell, and KCSI and Stilwell will have
no common employees. Except as contemplated by such agreements or as otherwise
described in this Information Statement, KCSI and Stilwell are not expected to
have any other material relationships with each other. See "Relationship
Between KCSI and Stilwell After the Distribution."
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Certificate provides that the authorized capital stock of Stilwell
consists of 1,010,000,000 shares, of which 1,000,000,000 shares is Common Stock
and 10,000,000 shares is preferred stock. The following summary of the terms
and provisions of Stilwell's capital stock does not purport to be complete and
is qualified in its entirety by reference to the Certificate and the Bylaws,
copies of which are included as exhibits to the Registration Statement on Form
10 of which this Information Statement is a part, and applicable law.
COMMON STOCK
Following the Distribution, and based upon the ownership of KCSI Common
Stock on June 30, 1999, it is anticipated that there will be approximately
221,000,000 shares of Stilwell Common Stock, par value $.01 per share, issued
and outstanding, held of record by approximately 5,500 stockholders. The
holders of Stilwell Common Stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders and may not cumulate votes for the
election of directors. Accordingly, the owners of a majority of the shares of
Stilwell Common Stock outstanding has the power to elect all of Stilwell's
Board of Directors. Each share of Stilwell Common Stock outstanding is
entitled to participate equally in any distribution of net assets made to the
stockholders in liquidation, dissolution or winding up of Stilwell and is
entitled to participate equally in dividends as and when declared by Stilwell's
Board of Directors. There are no redemption, sinking fund, conversion or
preemptive rights with respect to the shares of Stilwell Common Stock. All
shares of Stilwell Common Stock have equal rights and preferences. The rights,
preferences and privileges of the holders of Stilwell Common Stock are subject
to and may be adversely affected by the rights of holders of shares of any
series of preferred stock that Stilwell may designate and issue in the future.
PREFERRED STOCK
Stilwell is authorized to issue 10,000,000 shares of preferred stock, par
value $1.00 per share (the "Stilwell Preferred Stock"). The Certificate
authorizes Stilwell's Board of Directors, subject to certain limitations
prescribed by law, to establish one or more series of Stilwell Preferred Stock,
and by filing a certificate pursuant to the DGCL ("Certificate of
Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix or alter from time to time the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof, including without
limitation the dividend rights, dividend rates, conversion rights, voting
rights, liquidation preferences and the number of shares constituting any
series or designation of such series. Stilwell believes that the ability of
Stilwell's Board of Directors to issue one or more series of Stilwell Preferred
Stock provides Stilwell with flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs which might
arise. The authorized shares of Stilwell Preferred Stock, as well as shares of
Stilwell Common Stock, are available for issuance without further action by
Stilwell's stockholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which
Stilwell's securities may be listed or traded, or pursuant to the terms of any
Certificate of Designation. If the approval of Stilwell's stockholders is not
required for the issuance of shares of Stilwell Preferred Stock or Stilwell
Common Stock, Stilwell's Board of Directors may determine not to seek
stockholder approval.
Stilwell's Board of Directors could issue a series of preferred stock that
could, depending on the terms of such series, delay, defer or prevent a change
in control of Stilwell. Stilwell's Board of Directors will make any
determination to issue such shares based on its judgment as to the best
interests of Stilwell and its stockholders. Stilwell's Board of Directors, in
so acting, could issue Stilwell Preferred Stock having terms that could
discourage an acquisition attempt through which an acquiror may be able to
change the composition of Stilwell's Board of Directors, including a tender
offer or other transaction that some, or a majority, of Stilwell's stockholders
might believe to be in their best interests or in which stockholders might
receive a premium for their stock over the then-current market price of such
stock.
CERTAIN ANTITAKEOVER EFFECTS
Stockholder rights and related matters are governed by the DGCL, the
Certificate and the Bylaws. Certain provisions of Stilwell's Certificate,
Bylaws, Rights Plan and Delaware statutory law described in this section may
delay or make more difficult acquisitions or changes in control of Stilwell.
Such provisions may also adversely affect prevailing market prices for Stilwell
Common Stock, although such transactions might be considered desirable by
Stilwell's stockholders. Stilwell believes that such provisions are necessary
to enable Stilwell to develop its business in a manner that will foster its
long-term growth without disruption caused by the threat of a takeover not
deemed by Stilwell's Board of Directors to be in the best interests of Stilwell
and its stockholders. See "Risk Factors-Potential Antitakeover
Considerations."
BOARD OF DIRECTORS. The Certificate provides that the number of directors
of Stilwell will be fixed from time to time exclusively by a majority of the
entire Board of Directors of Stilwell, but cannot be fewer than three nor more
than eighteen. Stilwell's Board of Directors, other than those who may be
elected by the holders of Stilwell Preferred Stock, is divided into three
classes, as nearly equal in number as possible, with one class to be elected
for a term expiring at the annual meeting of stockholders to be held in 2000,
another class to be elected for a term expiring at the annual meeting of
stockholders to be held in 2001, and another class to be elected for a term
expiring at the annual meeting of stockholders to be held in 2002. Commencing
with the 2000 annual meeting of stockholders, successors to Stilwell's Board of
Directors whose terms expire at the annual meeting will be elected for a three-
year term, with each director to hold office until a successor has been duly
elected and qualified. As a result, approximately one-third of Stilwell's
Board of Directors will be elected each year.
The Certificate and Bylaws provide that, except as otherwise provided for
or fixed by or pursuant to a Certificate of Designation, newly created
directorships resulting from any increase in the authorized number of directors
and any vacancies on Stilwell's Board of Directors resulting from death,
resignation, retirement, removal or other cause will be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of Stilwell's Board of Directors. Any director
elected in accordance with the provisions described in the preceding sentence
will hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred, and until
his or her successor is duly elected and qualified, or until his or her earlier
resignation or removal. No decrease in the number of directors constituting
Stilwell's Board of Directors shortens the term of any incumbent director.
Subject to the rights of holders of Stilwell Preferred Stock, any director may
be removed from office only for cause by the affirmative vote of the holders of
the majority of the then-outstanding shares of the capital stock of Stilwell
entitled to vote generally in the election of directors; provided, however,
that on and after the day that someone becomes an Interested Stockholder (as
defined in the Certificate), a director may be removed from office for cause
only by the affirmative vote of the holders of at least 70% of the Voting Stock
(as defined herein).
These provisions would preclude a third party from removing incumbent
directors without cause and simultaneously gaining control of the Stilwell's
Board of Directors by filling the vacancies created by removal with its own
nominees. In addition, such provisions would preclude a third party from
enlarging Stilwell's Board of Directors and filling new directorships with its
own nominees. Under the classified board provisions described above, it would
take at least two elections of directors for any individual or group to gain
control of Stilwell's Board of Directors. Accordingly, these provisions could
discourage a third party from initiating a proxy contest, making a tender offer
or otherwise attempting to gain control of Stilwell.
NO STOCKHOLDER ACTION BY UNANIMOUS WRITTEN CONSENT; LIMITATIONS ON CALL OF
SPECIAL MEETINGS. The Certificate and Bylaws provide that any action required
or permitted to be taken by the stockholders of Stilwell must be effected only
at a duly called annual or special meeting of such stockholders and may not be
effected by any consent in writing by such holders in lieu of a meeting.
Except as otherwise required by law, special meetings of stockholders of
Stilwell for any purpose or purposes may be called only by the Chief Executive
Officer of Stilwell pursuant to a resolution approved by a majority of the
entire Board of Directors of Stilwell. These provisions may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by Stilwell's Chief Executive Officer.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws establish an advance notice procedure for the
nomination of candidates for election as directors by stockholders entitled to
vote for the election of directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. Notice must be received
by Stilwell not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that the meeting is designated by
Stilwell's Board of Directors to be held at a date other than the second
Wednesday in May and less than 60 days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
15th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made, whichever first occurs.
Such notice must contain certain specified information concerning the persons
to be nominated or the matters to be brought before the meeting, in addition to
information concerning the stockholder submitting the proposal. The
chairperson of the meeting has the power to determine whether business is
properly brought before the meeting.
By requiring advance notice of nominations by stockholders, the foregoing
procedures will afford Stilwell's Board of Directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed necessary
or desirable by Stilwell's Board of Directors, to inform stockholders about
such qualifications. By requiring advance notice of other proposed business,
such procedures will provide Stilwell's Board of Directors with an opportunity
to inform stockholders of business proposed to be conducted at such meetings
and the Board of Directors' recommendations with respect to such business, so
that stockholders can better decide whether to attend such a meeting or to
grant a proxy regarding such business.
The above-described procedures may have the effect of precluding a contest
for the election of directors or the consideration of stockholder proposals if
the proper procedures are not followed, and of discouraging or deterring a
third party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
Stilwell and its stockholders.
AMENDMENTS; BUSINESS COMBINATIONS. Stilwell, in its Certificate, reserves
the right to amend, alter, change or repeal any provisions contained in the
Certificate in the manner prescribed by the DGCL, and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that
on and after the day that someone becomes an Interested Stockholder, the
affirmative vote of the holders of at least 70% of the then-outstanding shares
of the capital stock of Stilwell entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single class, shall be
required to amend, alter, change or repeal certain provisions of the
Certificate. The Certificate further provides that provisions of the Bylaws
(including the stockholder notice procedure) may be adopted, amended or
repealed by Stilwell's entire Board of Directors or Stilwell's stockholders;
provided, however, that on and after the day that someone becomes an Interested
Stockholder, the affirmative vote of the holders of at least 70% of the Voting
Stock is required to adopt, amend or repeal any provisions of the Bylaws. In
addition, the affirmative vote of at least 70% of the Voting Stock, voting
together as a single class, is required to enter into certain business
combinations (defined broadly to include mergers, consolidations, certain sales
or other dispositions of assets, and certain transactions that would increase
certain interested stockholders' percentage ownership of stock in Stilwell)
with an Interested Stockholder or its affiliates.
EXPANDED CONSIDERATIONS BY STILWELL'S BOARD OF DIRECTORS WHEN EVALUATING
CERTAIN TRANSACTIONS. The Certificate provides that Stilwell's Board of
Directors, when evaluating a tender offer, exchange offer, merger,
consolidation or offer to purchase all, or substantially all, of the properties
and assets of Stilwell made by another party, may consider expanded factors,
including, without limitation, certain social and economic effects on
Stilwell's present and future customers and employees and those of its
subsidiaries, including the impact on investment companies advised or managed
by any of Stilwell's subsidiaries, the social and economic effect on the
communities in which Stilwell is located or operated, the ability of Stilwell
to fulfill its corporate objectives, and the consideration being offered in
relation to the current market price of Stilwell's outstanding shares of
capital stock, in relation to the current value of Stilwell in a freely
negotiated transaction and in relation to Stilwell's Board of Director's
estimate of the future value of Stilwell (including the unrealized value of its
properties and assets) as an independent going concern.
DELAWARE BUSINESS COMBINATION STATUTE. Section 203 of the DGCL prohibits
certain transactions between a Delaware corporation and an "interested
stockholder," which is defined as a person who, together with any affiliates
and/or associates of such person, beneficially owns, directly or indirectly,
15% or more of the outstanding voting stock of a Delaware corporation. This
provision prohibits certain business combinations (defined broadly to include
mergers, consolidations, sales or other dispositions of assets having an
aggregate value of 10% or more of the consolidated assets of the corporation,
and certain transactions that would increase the interested stockholders'
percentage ownership of stock in the corporation) between an interested
stockholder and a corporation for a period of three years after the date the
interested stockholder acquired its stock and became an interested stockholder,
unless: (i) the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder acquired shares; (ii)
the interested stockholder acquired at least 85% of the voting stock of the
corporation in the transaction in which it became an interested stockholder; or
(iii) the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the outstanding voting
stock owned by disinterested stockholders at an annual or special meeting. A
Delaware corporation, pursuant to a provision in its certificate of
incorporation or bylaws, may elect not to be governed by Section 203 of the
DGCL.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who could be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the stockholders may elect to exclude a corporation from the
restrictions imposed thereunder. The Certificate does not exclude Stilwell
from the restrictions imposed under Section 203 of the DGCL and, as a result,
Stilwell is subject to its provisions upon consummation of the Distribution.
It is anticipated that the provisions of Section 203 of the DGCL may encourage
companies interested in acquiring Stilwell to negotiate in advance with
Stilwell's Board of Directors, since the stockholder approval requirement would
be avoided if a majority of the directors then in office approves, prior to the
date on which a stockholder becomes an interested stockholder, either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder. Such provisions may also have the effect
of preventing changes in the management of Stilwell. It is possible that such
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interest.
LIMITATION ON LIABILITY. The Certificate also provides for expanded
indemnification of Stilwell's Board of Directors and officers of Stilwell and
limits the liability of directors of Stilwell. Pursuant to those provisions,
Stilwell shall indemnify each officer, director, employee, agent, trustee,
committee member or representative of Stilwell, or any officer, director,
employee, agent, trustee, committee member or representative of any other
company or other entity who was serving at the request of Stilwell, to the
fullest extent permitted under the DGCL against all expenses, liability and
loss reasonably incurred by such indemnitee in any legal proceeding to which
such indemnitee is made or is threatened to be made a party by reason of such
indemnitee acting in such capacity. Such right to indemnification includes the
right to advancement of expenses incurred by such person prior to final
disposition of the proceeding, provided that if the DGCL requires, such
indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee) shall
provide Stilwell with an undertaking to repay all amounts so advanced if it
shall ultimately be determined by final judicial decision that such person is
not entitled to be indemnified for such expenses. The Certificate gives such
indemnitee the right to bring suit against Stilwell if such advancement of
expenses is not paid by Stilwell within the period set forth in the
Certificate. The Certificate provides that a director of Stilwell shall not be
personally liable to Stilwell or its stockholders for monetary damages for
breach of fiduciary duty as a director except for liability: (i) for any breach
of the director's duty of loyalty to Stilwell or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for
any transaction from which the director derived an improper personal benefit.
If the DGCL is amended to further eliminate or limit the personal liability of
directors, the Certificate provides that the liability of a director of
Stilwell shall be eliminated or limited to the fullest extent permitted by the
DGCL, as so amended.
STOCKHOLDERS' RIGHTS PLAN. Stilwell entered into the Rights Plan with UMB
Bank, N.A., as rights agent as of [________, 1999]. In connection with the
Rights Plan, Stilwell's Board of Directors declared a dividend of one right
("Right") for each outstanding share of Stilwell Common Stock as of the close
of business on [_________, 1999] (the "Rights Record Date"). Shares of
Stilwell Common Stock issued in the Distribution (assuming no triggering event)
automatically receive these Rights upon issuance. The Rights are not
exercisable or transferable separately from the shares of Stilwell Common Stock
until the earlier of: (1) ten days following a public announcement that a
person or group has acquired or obtained the right to acquire beneficial
ownership of 15% or more of the outstanding shares of Stilwell Common Stock; or
(ii) ten days following the commencement or announcement of an intention to
make a tender or exchange offer that would result in an acquiring person or
group beneficially owning 15% or more of the outstanding shares of Stilwell
Common Stock (an "Acquiring Person"), unless Stilwell's Board of Directors sets
a later date in either event (the earlier of (i) or (ii) being the "Rights
Distribution Date"). Under the Rights Plan, Stilwell's Board of Directors has
the option to redeem the Rights at a nominal cost or prevent the Rights from
being triggered by designating certain offers for all the outstanding Stilwell
Common Stock as a Permitted Offer (as defined in the Rights Plan). No
supplement or amendment may be made to the Rights Plan which changes the
Redemption Price, the Final Expiration Date, the Purchase Price (as those terms
are defined in the Rights Plan) or the number of 1/1,000ths of a share of
Preferred Stock for which a Right is exercisable. Subject to the foregoing,
prior to the Rights Distribution Date, Stilwell may amend or supplement the
Rights Plan without the consent of any of the holders of the Rights. Following
the Rights Distribution Date, the Rights Plan may be amended to cure any
ambiguity, to correct or supplement any provision that is defective or
inconsistent with any other provision of the Rights Plan, or to change or
supplement any provision so long as such amendment or supplement does not
adversely affect the holders of the Rights (other than an acquiring person or
group). The Rights expire ten years after the Rights Record Date unless
earlier redeemed by Stilwell.
The Rights, when exercisable, entitle their holders (other than those held
by an Acquiring Person) to purchase 1/1,000 of a share of Series A Stilwell
Preferred Stock (subject to adjustment) or, in certain instances, other
securities of Stilwell, including Stilwell Common Stock, having a market value
equal to twice the exercise price of the Right. In certain circumstances, if
Stilwell is involved in a merger or consolidation and is not the surviving
entity or disposes of more than 50 percent of its assets or earnings power, the
Rights also entitle their holders (other than an acquiring person or group) to
purchase the highest priority voting shares in the surviving entity or its
affiliates having a market value of two times the exercise price of the
Rights. See "Description of Capital Stock-Stilwell Preferred Stock."
The Rights Plan is intended to encourage a potential acquiring person or
group to negotiate directly with Stilwell's Board of Directors, but may have
certain antitakeover effects. The Rights Plan could significantly dilute the
interests in Stilwell of an Acquiring Person. The Rights Plan may therefore
have the effect of delaying, deterring or preventing a change in control of
Stilwell.
TRANSFER AGENT
The transfer agent and registrar of the Stilwell Common Stock is UMB Bank,
N.A.
ADDITIONAL INFORMATION
Stilwell has filed with the SEC a Registration Statement on Form 10 (the
"Registration Statement", including any amendments or supplements thereto)
under the Exchange Act with respect to the shares of Stilwell Common Stock
being received by the holders of KCSI Common Stock in the Distribution. This
Information Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Information Statement as to
the contents of any contract, agreement or other document referred to herein
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to such exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference.
This Registration Statement and the exhibits thereto filed by Stilwell
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the regional offices of the SEC at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, 13th Floor, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of fees prescribed by the SEC. The SEC also maintains a website at
http://www.sec.gov that contains reports, proxy and information statements,
Registration Statements and other information that has been or will be filed by
Stilwell.
After the Distribution, Stilwell will be required to comply with the
reporting requirements of the Exchange Act and to file with the SEC reports,
proxy statements and other information as required by the Exchange Act.
Additionally, Stilwell will be required to provide annual reports containing
audited financial statements to its stockholders in connection with its annual
meetings of stockholders. After the Distribution, these reports, proxy
statements and other information will be available to be inspected and copied
at the public reference facilities of the SEC or obtained by mail or over the
Internet from the SEC, as described above. [Stilwell has received approval,
subject to official notice of issuance, to have the Stilwell Common Stock
listed on the New York Stock Exchange under the symbol "SV."] When the
Stilwell Common Stock commences trading on the New York Stock Exchange, such
reports, proxy statements and other information will be available for
inspection at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1997 and 1998 F-3
Consolidated Statements of Income for the six months ended June 30,
1998 and 1999 (unaudited) and the years ended December 31, 1996,
1997 and 1998 F-4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1999 (unaudited) and the years ended December 31,
1996, 1997 and 1998 F-6
Consolidated Statements of Changes in Stockholder's Equity for
the six months ended June 30, 1999 (unaudited) and the years
ended December 31, 1996, 1997 and 1998 F-8
Notes to Consolidated Financial Statements F-10 to F-35
All schedules are omitted because they are not applicable, insignificant or
the required information is presented in the consolidated financial
statements or notes thereto.
The consolidated financial statements and related notes, together with the
Report of Independent Accountants, of DST Systems, Inc. (an approximately 32%
owned affiliate of Stilwell accounted for under the equity method) for the
years ended December 31, 1996, 1997 and 1998, which are included in the DST
Systems, Inc. Annual Report on Form 10-K for the year ended December 31, 1998
(Commission File No. 1-14036) are incorporated by reference in this
Information Statement.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Stilwell Financial, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in
stockholder's equity present fairly, in all material respects, the financial
position of Stilwell Financial, Inc. (a wholly-owned subsidiary of Kansas City
Southern Industries, Inc.) and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
August 11, 1999
<PAGE>
STILWELL FINANCIAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF KANSAS CITY SOUTHERN INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
December 31, June 30,
----------------------- ---------
1997 1998 1999
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 33.7 $ 21.6 $ 51.2
Accounts receivable 53.7 76.6 108.6
Investments in advised funds 100.4 149.1 114.1
Other current assets 6.4 12.0 12.7
------- ------- ------
Total current assets 194.2 259.3 286.6
Investments held for
operating purposes 348.1 379.2 426.4
Property and equipment, net 9.4 37.4 47.8
Intangibles and other assets, net 120.9 147.0 160.3
------- ------- ------
Total assets $ 672.6 $ 822.9 $921.1
====== ====== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Debt due within one year
- third parties $ 0.1 $ -- $ --
Accounts and wages payable 48.5 61.7 90.1
Federal income taxes payable 5.5 3.6 6.3
Other accrued liabilities 9.3 5.8 10.7
------ ------- ------
Total current liabilities 63.4 71.1 107.1
Other liabilities:
Long-term debt - Parent 84.1 16.6
Deferred income taxes 107.0 118.4 128.6
Other liabilities 41.6 42.3 37.0
------ ------ ------
Total liabilities 296.1 248.4 272.7
------ ------- ------
Commitments and contingencies
(Notes 5, 9, 10, 13, 15) ------ ------ ------
Minority interest in consolidated
subsidiaries 28.2 34.3 33.6
------ ------ ------
STOCKHOLDER'S EQUITY
Net investment by Parent 91.2 106.8 1O6.8
Retained earnings 206.3 358.5 417.2
Accumulated other
comprehensive income 50.8 74.9 90.8
------ ------ ------
Total stockholder's equity 348.3 540.2 614.8
------ ------ ------
Total liabilities and
stockholder's equity $672.6 $822.9 $921.1
====== ====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
STILWELL FINANCIAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF KANSAS CITY SOUTHERN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
For the year ended For the six months
December 31, ended June 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Investment management
fees $ 266.8 $ 389.3 $ 545.1 $ 255.0 $ 421.9
Shareowner servicing
fees 50.0 81.1 108.9 50.6 81.9
Other 12.8 14.7 16.8 7.3 11.7
------- ------- ------- ------- ------
Total 329.6 485.1 670.8 312.9 515.5
------- ------- ------- ------- ------
OPERATING EXPENSES:
Compensation 95.4 118.0 167.8 75.0 135.9
Marketing and promotion 29.9 34.2 50.8 29.2 35.6
Alliance and third party
administrator fees 13.5 38.4 64.0 27.9 56.0
Depreciation and
amortization 12.9 13.1 16.8 6.3 14.7
Other 46.1 82.2 90.8 41.5 60.6
------- ------- ------- ------- ------
Total 197.8 285.9 390.2 179.9 302.8
------- ------- ------- ------- ------
OPERATING INCOME 131.8 199.2 280.6 133.0 212.7
Equity in earnings of
unconsolidated affiliates 68.6 24.9 25.8 15.6 22.5
Interest expense - Parent (6.8) (10.4) (6.5) (3.6) (1.7)
Reduction in ownership of
DST Systems, Inc. (29.7)
Other, net 15.0 16.2 19.1 14.7 9.2
------- ------ ------- ------- ------
Pretax income 208.6 229.9 289.3 159.7 242.7
Income tax provision 58.2 87.0 103.7 57.0 86.9
Minority interest in
consolidated earnings 15.8 24.9 33.4 16.4 23.9
------- ------ ------ ------ ------
NET INCOME $ 134.6 $ 118.0 $ 152.2 $ 86.3 $ 131.9
======= ======= ======= ======= =====
PER SHARE DATA (Notes 1 and 2):
Weighted Average Common
shares outstanding 1,000 1,000 1,000 1,000 1,000
Basic Earnings per share $134,600 $118,000 $152,200 $ 86,300 $131,900
Diluted Earnings
per share 134,000 117,400 149,900 85,500 130,100
Pro Forma Per Share Data (Unaudited) (Notes 2 and 3):
Common shares outstanding
(in thousands) 220,869 220,869 220,869
Basic Earnings per share $ 0.69 $ 0.39 $ 0.60
Diluted Common shares outstanding
(in thousands) 228,848 228,848 228,848
Diluted Earnings per share $ 0.66 $ 0.37 $ 0.57
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STILWELL FINANCIAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF KANSAS CITY SOUTHERN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
For the year ended For the six months
December 31, ended June 30,
-------------------------- ------------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $ 134.6 $ 118.0 $ 152.2 $ 86.3 $131.9
Adjustments to net income:
Depreciation and
amortization 12.9 13.1 16.8 6.3 14.7
Deferred income taxes 3.0 (4.4) (12.4) 2.4 11.1
Minority interest in
consolidated earnings 15.8 24.9 33.4 16.4 23.9
Equity in undistributed
earnings of unconsolidated
affiliates (64.9) (24.7) (24.7) (15.1) (22.3)
Asset impairment charges 15.7
Gain on sale of equity
investment (2.8) (8.8) (8.8)
Reduction in ownership of DST
Systems, Inc. 29.7
Employee deferred
compensation 18.3 8.7 3.8 (1.4) (1.3)
Changes in working
capital items:
Accounts receivable (11.6) (15.0) (21.3) (18.0) (32.1)
Other current assets (0.3) (3.3) (5.3) (3.5) (3.3)
Accounts and wages
payable 10.9 13.4 12.8 5.7 27.7
Federal income taxes
payable and other
accrued liabilities (70.1) 0.7 1.5 9.6 3.5
Prepaid commissions (17.7)
Other, net (4.8) (0.1) (1.7) (0.7) (0.9)
------- ------ ------- ------- ------
Net operating 41.0 147.0 176.0 79.2 135.2
------ ------ ------- ------ ------
INVESTING ACTIVITIES:
Property acquisitions (1.4) (5.8) (35.0) (12.6) (17.6)
Investments in and loans
with affiliates (27.2) (12.0) (24.3) (21.1) (17.2)
Sale of investments in
advised funds 165.5 299.5 509.0 251.0 541.1
Purchase of investments
in advised funds (205.6) (330.5) (552.2) (260.7) (501.6)
Other, net 12.6 3.8 9.7 6.7 8.0
------- ------- ------- ------- ------
Net investing (56.1) (45.0) (92.8) (36.7) 12.7
------- ------- -------- ------- ------
FINANCING ACTIVITIES:
Change in long-term
debt and note
receivable - Parent 187.7 (33.2) (67.5) (47.2) (16.6)
Repayment of long-term
debt - third parties (0.3) (0.3) (6.6) (6.6)
Amounts treated as
transfers from
(dividends to)
Parent, net (168.6) (40.5) 12.4 12.7 (73.2)
Distributions to
minority interest (10.6) (12.9) (32.8) (23.6) (26.1)
Other, net 0.7 (4.2) (0.8) 0.2 (2.4)
------- ------- ------- ------- ------
Net financing 8.9 (91.1) (95.3) (64.5) (118.3)
-------- ------- ------- ------- ------
CASH AND CASH EQUIVALENTS:
Net increase
(decrease) (6.2) 10.9 (12.1) (22.0) 29.6
At beginning of period 29.0 22.8 33.7 33.7 21.6
------- ------- ------- -------- ------
At end of period $ 22.8 $ 33.7 $ 21.6 $ 11.7 $ 51.2
======= ======= ======= ======== ======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STILWELL FINANCIAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF KANSAS CITY SOUTHERN INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN MILLIONS)
Accumulated Total
Net other com- stock-
investment Retained prehensive holder's
by Parent earnings income equity
---------- -------- ------------- --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995 $ 81.1 $ 162.8 $ 6.4 $ 250.3
Comprehensive income:
Net income 134.6
Net unrealized gain on
investments 18.5
COMPREHENSIVE INCOME 153.1
Dividends to Parent, net (168.6) (168.6)
------- ------- ------- -------
BALANCE AT DECEMBER 31,
1996 81.1 128.8 24.9 234.8
Comprehensive income:
Net income 118.0
Net unrealized gain on
investments 25.9
COMPREHENSIVE INCOME 143.9
Dividends to Parent, net (40.5) (40.5)
Non-cash contribution
from Parent: additional
investment in Berger
Associates, Inc.
(Note 5) 10.1 10.1
------- ------- ------- -------
BALANCE AT DECEMBER 31,
1997 91.2 206.3 50.8 348.3
Comprehensive income:
Net income 152.2
Net unrealized gain on
investments 24.1
COMPREHENSIVE INCOME 176.3
Transfers from Parent,
net 12.4 12.4
Non-cash contribution from Parent:
acquisition of Nelson
Money Managers Plc
(Note 5) 3.2 3.2
------- ------- ------- -------
BALANCE AT DECEMBER 31,
1998 106.8 358.5 74.9 540.2
Comprehensive income:
Net income (unaudited) 131.9
Net unrealized gain on 15.9
investments (unaudited)
COMPREHENSIVE INCOME (unaudited) 147.8
Dividends to Parent,
net (unaudited) (73.2) (73.2)
------- -------- -------- -------
BALANCE AT JUNE 30,
1999 (unaudited) $ 106.8 $ 417.2 $ 90.8 $ 614.8
======= ======== ======== =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
STILWELL FINANCIAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF KANSAS CITY SOUTHERN INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE BUSINESS
FORMATION OF STILWELL FINANCIAL, INC. Kansas City Southern Industries,
Inc. ("KCSI"; "Parent") is a holding company that has owned and managed,
through its direct and indirect subsidiaries, two principal business segments:
rail transportation and financial services. The primary entities comprising
the financial services segment are: Janus Capital Corporation ("Janus"), an 83%
owned subsidiary (subject to vesting of Janus restricted stock with various
Janus employees which will reduce ownership to 82% - see Note 12); Berger
Associates, Inc. ("Berger"), a wholly-owned subsidiary (subject to the exercise
of management options to acquire approximately 3.9% of Berger); Nelson Money
Managers Plc ("Nelson"), an 80% owned subsidiary; DST Systems, Inc. ("DST"), an
equity investment in which KCSI holds an approximately 32% interest; and
various other subsidiaries and equity investments (the "Miscellaneous
Corporations"). Janus is the principal business comprising the financial
services segment of KCSI, representing 96% of assets under management at June
30, 1999 and 95% of revenues and 88% of the net income for the six months ended
June 30, 1999. The businesses which comprise the financial services segment
offer a variety of asset management and related financial services to
registered investment companies, retail investors, institutions and
individuals.
On January 23, 1998, KCSI formed Stilwell Financial, Inc. ("Stilwell") as
a wholly-owned holding company for the group of businesses and investments that
comprise the financial services segment of KCSI. Unless otherwise stated or
the context otherwise requires, references in these financial statements to
Stilwell include Stilwell's direct and indirect subsidiaries and equity
investments. KCSI transferred to Stilwell KCSI's investments in Janus, Berger,
Nelson, DST and the Miscellaneous Corporations and certain other financial
services-related assets and Stilwell assumed all of KCSI's liabilities
associated with the assets transferred effective July 1, 1999
("Contribution"). For financial statement purposes, Stilwell accounted for
these transactions at historical cost.
On July 9, 1999, KCSI received a tax ruling from the Internal Revenue
Service ("IRS") to the effect that for United States federal income tax
purposes the planned separation of Stilwell from KCSI through a pro-rata
distribution of Stilwell common stock to KCSI stockholders (the "Distribution")
qualifies as a tax-free distribution under Section 355 of the Internal Revenue
Code of 1986, as amended.
Within these consolidated financial statements and accompanying notes,
historical transactions and events involving KCSI's financial services segment
are discussed as if Stilwell were the entity involved in the transaction or
event, unless otherwise indicated. In addition, intercompany transactions
between Stilwell and KCSI during the periods covered herein are reflected as
dividends to or transfers from KCSI (see Note 2).
Stilwell has 10,000, $.001 par value, Common shares authorized and 1,000
shares issued and outstanding.
NATURE OF OPERATIONS. Stilwell's principal operations are the management
of its investments in financial services companies. A summary of Stilwell's
principal operations/investments is as follows:
JANUS CAPITAL CORPORATION AND BERGER ASSOCIATES, INC. Janus and Berger
provide investment management, advisory, distribution and transfer agent
services primarily to U.S. based mutual funds, pension plans, and other
institutional and private account investors. Janus also offers mutual fund
products to international markets through the Janus World Funds plc ("Janus
World Funds"). As of June 30, 1999, Stilwell owned 83% and 100% of Janus and
Berger, respectively. At June 30, 1999, Stilwell's ownership in Janus is
subject to dilution upon vesting of Janus restricted stock held by various
Janus employees, which would reduce Stilwell's ownership to 82%. At June 30,
1999, Stilwell's ownership in Berger could be diluted to approximately 96.1% if
all of the outstanding Berger management options to acquire stock in Berger
were exercised.
The revenues and operating income of Janus and Berger are driven primarily
by growth in assets under management, and a decline in the U.S. and/or
international stock and/or bond markets or an increase in the rate of return of
alternative investments could negatively impact results. In addition, the
mutual fund industry, in general, faces significant competition as the number
of mutual funds continues to increase, marketing and distribution channels
become more creative and complex, and investors place greater emphasis on
published fund recommendations and investment category rankings.
NELSON MONEY MANAGERS PLC. Nelson, operating in the United Kingdom,
provides investment advice and investment management services directly to
individuals who are retired or are contemplating retirement. As of June 30,
1999, Stilwell owned 80% of Nelson.
Nelson revenues are earned based on an initial fee calculated as a
percentage of capital invested into each individual investment portfolio, as
well as from an annual fee based on the level of assets under management for
the ongoing management and administration of each investment portfolio.
Declines in international stock markets or fluctuations of the relative price
of the British pound versus the U.S. dollar could negatively affect the amount
of earnings reported for Nelson in the consolidated financial statements.
DST SYSTEMS, INC. DST, together with its subsidiaries and joint ventures,
provides sophisticated information processing and computer software services
and products to mutual funds, investment managers, communications industries
and other service industries through business units organized into three
operating segments: financial services, customer management and output
solutions. DST operates throughout the United States, with operations in
Kansas City, Missouri, Northern California and various locations on the East
Coast, among others, as well as internationally in Canada, Europe, Africa and
the Pacific Rim. DST has a single class of common stock which is publicly
traded on the New York Stock Exchange and the Chicago Stock Exchange.
Prior to November 1995, Stilwell owned all of the stock of DST. In
November 1995, a public offering reduced Stilwell's ownership interest in DST
to approximately 41%. In December 1998, a wholly-owned subsidiary of DST
merged with USCS International, Inc. ("USCS"). The merger, which was accounted
for by DST as a pooling of interests, reduced Stilwell's ownership of DST to
approximately 32%. Stilwell reports DST as an equity investment in the
consolidated financial statements. See Note 4.
The earnings of DST are dependent in part upon the further growth of
mutual fund and other industries, DST's ability to continue to adapt its
technology to meet clients' needs and demands for the latest technology and
various other factors including, but not limited to, reliance on processing
facilities; future international sales; continued equity in earnings from joint
ventures; and competition from other third party providers of similar services
and products as well as from in-house providers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION. The accompanying financial statements are
presented using the accrual basis of accounting. The financial position,
results of operations and cash flows of Stilwell reflect the combined accounts
of those entities, assets and liabilities which were contributed to Stilwell by
KCSI (as described above).
The financial statements include all majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
The accompanying financial statements were prepared by attributing the
historical data for the financial services segment of KCSI to Stilwell
utilizing accounting policies consistent with those applied to the preparation
of KCSI's historical financial statements. Since the financial services
business was operated as part of KCSI during the periods presented, such
financial information may not necessarily reflect the results of operations or
financial position of Stilwell or what the results of operations would have
been if Stilwell had been a separate, independent company during those periods.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Investment management fees are recognized as
services are provided. These revenues are generally determined in accordance
with contracts between Stilwell's subsidiaries and their customers based upon a
percentage of assets under management. Shareowner servicing fees and other
revenues are recognized as contractual obligations are fulfilled or as services
are provided.
CASH EQUIVALENTS. Short-term liquid investments with an initial maturity
of generally three months or less are considered cash equivalents.
INVESTMENTS. The equity method of accounting is used for all entities in
which Stilwell has significant influence but not more than a 50% voting
interest; the cost method of accounting is generally used for non-marketable
investments of less than 20%. Investments classified as "available for sale"
pursuant to Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("FAS 115"), are reported at
fair value, with unrealized gains and losses excluded from earnings and
reported, net of deferred income taxes, in accumulated other comprehensive
income. Investments classified as "trading" securities are reported at fair
value, with unrealized gains and losses included in earnings.
Investments in advised funds are comprised of shares of certain mutual
funds advised by Janus and Berger. These investments are generally used to
fund Janus and Berger operations and dividends. Realized gains and losses are
determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Ordinary maintenance and repairs are expensed as incurred. Improvements are
capitalized. Depreciation and amortization are recorded using straight line
and accelerated methods over the estimated useful life of the related assets
(or the lease term if shorter), generally three to seven years for furniture,
fixtures and equipment and three to twenty-one years for buildings and
leasehold improvements.
Stilwell adopted Statement of Financial Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("FAS 121"), effective January 1, 1996. This statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill, as well as for long-lived assets and
certain identifiable intangibles which are to be disposed of. If events or
changes in circumstances of a long-lived asset indicate that the carrying
amount of an asset may not be recoverable, Stilwell must estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest) is lower than the carrying amount of the asset, an impairment
loss must be recognized to the extent that the carrying amount of the asset
exceeds its fair value. In accordance with FAS 121, Stilwell periodically
evaluates the recoverability of its long-lived assets. The adoption of FAS 121
did not have a material effect on Stilwell's financial position or results of
operations.
SOFTWARE DEVELOPMENT AND MAINTENANCE. Purchased software is recorded at
cost and amortized over the estimated economic life.
In 1998, Stilwell adopted the guidance outlined in American Institute of
Certified Public Accountant's Statement of Position 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-
1"). SOP 98-1 requires that computer software costs incurred in the
preliminary project stage, as well as training and maintenance costs, be
expensed as incurred. This guidance also requires that direct and indirect
costs associated with the application development stage of internal use
software be capitalized until such time that the software is substantially
complete and ready for its intended use. Capitalized costs are to be amortized
on a straight line basis over the useful life of the software. The adoption of
this guidance did not have a material impact on Stilwell's results of
operations, financial position or cash flows.
MARKETING. Stilwell expenses all marketing and promotion costs as
incurred. Direct response advertising for which future economic benefits are
probable and specifically attributable to the advertising is not material.
Berger has marketing agreements with various related mutual funds pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("12b-1 Plan") pursuant to
which certain 12b-1 fees are collected. Under these agreements, which are
approved or renewed on an annual basis by the boards of directors of the
respective mutual funds, Berger must engage in activities that are intended to
result in sales of the shares in the funds. Any fees not spent must be
returned to the funds.
DEFERRED COMMISSIONS. Commissions paid to financial intermediaries on
sales of certain Janus World Funds shares ("B shares") are recorded as deferred
commissions in the accompanying consolidated financial statements. These
deferred commissions are amortized using the sum-of-the-years digits
methodology over four years, or when the B shares are redeemed, if earlier.
Early withdrawal charges received by Janus from redemption of the B shares
within four years of purchase reduce the unamortized deferred commissions
balance. The deferred commission balance at December 31, 1998 and associated
amortization expense for the year then ended were not material to Stilwell's
1998 results of operation, financial position or cash flows.
INCOME TAXES. Stilwell currently joins with KCSI and other members of the
KCSI affiliated group in filing a consolidated federal income tax return. The
consolidated federal income tax is allocated to Stilwell as if Stilwell filed a
separate consolidated federal income tax return, assuming the utilization of
tax-planning strategies consistent with those utilized by KCSI. Following the
Distribution, Stilwell will no longer be a member of the KCSI affiliated group
and, as a result, will discontinue filing a consolidated federal income tax
return with KCSI. (See Note 10 with respect to a Tax Disaffiliation Agreement
between KCSI and Stilwell.)
Deferred income tax assets and liabilities are determined based on the
differences between the financial statement and income tax bases of assets and
liabilities as measured by the enacted income tax rates which will be in effect
when these differences reverse. Deferred income tax expense is generally the
result of changes in the deferred tax assets and liabilities.
INTANGIBLE ASSETS. Intangible assets principally represent the excess of
cost over the fair value of net underlying assets of acquired companies using
purchase accounting and are amortized over periods ranging from 15 to 40 years
using the straight-line method. Stilwell periodically reviews the
recoverability of intangible assets by comparing the carrying value of the
associated intangible assets to their fair value. The determination of
possible impairment is primarily measured by reference to various valuation
techniques commonly used in the investment management industry. See Note 7
regarding the impairment of Berger goodwill as of December 31, 1997.
CHANGES OF INTEREST IN SUBSIDIARIES AND EQUITY INVESTEES. A change of
Stilwell's interest in a subsidiary or equity investee resulting from a
subsidiary's or equity investee's sale of its stock to parties other than
Stilwell is recorded as a gain or loss in Stilwell's statement of income in the
period that the change of interest occurs. A change of interest in a
subsidiary or equity investee resulting from a subsidiary's or equity
investee's purchase of its stock from parties other than Stilwell increases
Stilwell's ownership percentage of the subsidiary. Stilwell records this type
of transaction under the purchase method of accounting, whereby any excess of
fair market value over the net tangible and identifiable intangible assets is
recorded as goodwill. Gains recorded by Stilwell (included in the Other, net
component in the Statement of Income) for the six months ended June 30, 1998
and 1999 and for the years ended December 31, 1996 through 1998 were not
material.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Statement of Financial Accounting
Standards No. 107 "Disclosures About Fair Value of Financial Instruments" ("FAS
107") requires an entity to disclose the fair value of its financial
instruments. Stilwell's financial instruments include cash and cash
equivalents, investments in advised funds, accounts receivable and payable and
long-term debt.
The carrying value of Stilwell's cash equivalents and accounts receivable
and payable approximate their fair values due to their short-term nature. The
carrying value of Stilwell's investments designated as "available for sale" and
"trading" equals their fair value which is based upon quoted prices in active
markets. Stilwell approximates the fair value of long-term debt based upon
borrowing rates available at the reporting date for indebtedness with similar
terms and average maturities.
STOCK-BASED COMPENSATION. Stilwell accounts for stock options granted to
employees and non-employee directors using the intrinsic value method as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). In October 1995, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which permits
companies to use either the APB 25 intrinsic value method or the fair value
method as prescribed by FAS 123. Stilwell uses the APB 25 method and discloses
pro forma net income in the notes to the financial statements, as if it had
adopted the FAS 123 fair value method for grants after December 31, 1994. See
Note 12 for pro forma disclosure assuming that Stilwell would have had higher
compensation cost as a result of accounting for existing KCSI stock options
held by Stilwell employees under FAS 123.
CORPORATE ALLOCATIONS. Prior to the Contribution, KCSI provided certain
managerial, treasury, accounting, tax and legal services to Stilwell.
Additionally, certain other expenses were incurred by KCSI on behalf of
Stilwell (e.g., amortization of identifiable intangible assets and goodwill)
prior to the Contribution. An allocation of the estimated cost of these
services and expenses has been reflected in the accompanying financial
statements based on management's best estimate of financial services-related
assets and liabilities, capital structure and liquidity. In the opinion of
management, the costs and expenses allocated to Stilwell for these services
provided by KCSI are reasonable. These costs and expenses aggregated $16.7,
$18.6 and $20.9 million in 1996, 1997 and 1998, respectively, and $10.9 and
$11.0 million for the six months ended June 30, 1998 and 1999, respectively.
INTERCOMPANY TRANSACTIONS WITH KCSI. Intercompany transactions between
Stilwell and KCSI are reflected as dividends to or transfers from KCSI within
the consolidated financial statements. Amounts treated as net dividends are
recorded as a reduction to Retained Earnings and amounts treated as net
transfers from KCSI as an increase to the Net investment by Parent component
included in the Consolidated Balance Sheets. Generally, increases in the Net
Investment by Parent component result from the timing of cash requirements
throughout each year, primarily with respect to investing activities. Amounts
treated as net dividends to KCSI generally reflect the transfer to KCSI of
dividends received by Stilwell from subsidiaries, to the extent such amounts
were not required for investing, financing or operating needs.
INTERIM FINANCIAL INFORMATION (UNAUDITED). The interim consolidated
financial statements as of June 30, 1999 and for the six months ended June 30,
1998 and 1999 are unaudited. These unaudited interim consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Rule 10-01 of the SEC's
Regulation S-X. Accordingly, they do not include all of the information and
explanatory notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the accompanying
unaudited interim consolidated financial statements contain all of the
adjustments (consisting of normal interim closing procedures) necessary to
present fairly the financial position of Stilwell as of June 30, 1999 and its
results of operations and cash flows for the six months ended June 30, 1998 and
1999. The results of operations and cash flows for the six months ended June
30, 1999 are not necessarily indicative of the results that can be expected for
the entire fiscal year ending December 31, 1999.
EARNINGS PER SHARE. In February 1997, the FASB issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS") and requires the computation of EPS under two
methods: "basic" and "diluted." Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS is computed giving effect to
all dilutive potential common shares that were outstanding during the period.
Stilwell currently does not have any potentially dilutive securities that would
affect the denominator in the dilutive computation. The only adjustments that
could affect the numerator of Stilwell's diluted EPS computation include
potentially dilutive securities at Janus, Berger, Nelson and DST. These
adjustments totaled approximately $0.6, $0.6 and $2.3 million for the years
ended December 31, 1996, 1997 and 1998, respectively. The adjustments for the
six months ended June 30, 1998 and 1999 were $0.8 and $1.8 million,
respectively. See Note 3 for computation of pro forma EPS (unaudited)
disclosures in the accompanying financial statements to provide a basis for
comparison to future earnings per share. See Note 12 with regard to current
KCSI stock options which are expected to convert to Stilwell stock options upon
completion of the Distribution.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130. In June 1997, the
FASB issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for reporting
and disclosure of comprehensive income and its components in the financial
statements (the change in net assets of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources
including all changes in equity other than those resulting from investments by
and distributions to owners). The principal items comprising other
comprehensive income are the effects of Stilwell's and DST's investments which
are classified as "available for sale," and these items are reflected net of
deferred income taxes of $11.6, $16.7 and $16.2 million for 1996, 1997 and
1998, respectively, and $26.8 and $11.4 million for the six months ended June
30, 1998 and 1999, respectively. Stilwell adopted the provisions of FAS 130
effective January 1, 1998 and has retroactively reclassified the accompanying
financial statements for comparative purposes.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131. In 1998, Stilwell
adopted the provisions of Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). FAS 131 establishes standards for the manner in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to stockholders.
FAS 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. Management believes that
Stilwell operates in only one reportable segment and in only one reportable
geographic area. The adoption of FAS 131 did not have a significant impact on
Stilwell's financial statements.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 132. In 1998, Stilwell
adopted Statement of Financial Accounting Standards No. 132 "Employers'
Disclosure about Pensions and Other Postretirement Benefits - an amendment of
FASB Statements No. 87, 88, and 106" ("FAS 132"). FAS 132 establishes
standardized disclosure requirements for pension and other postretirement
benefit plans, requires additional information on changes in the benefit
obligations and fair values of plan assets, and eliminates certain disclosures
that are no longer useful. The standard does not change the measurement or
recognition of pension or postretirement benefit plans. The adoption of FAS
132 did not have a material impact on Stilwell's disclosures.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133. In June 1998, the
FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"), which establishes
accounting standards for derivative instruments, the derivative portion of
certain other contracts that have similar characteristics and for hedging
activities. In June 1999, the FASB issued an amendment to FAS 133 changing the
effective date of FAS 133 to fiscal quarters of fiscal years beginning after
June 15, 2000. Stilwell does not generally enter into transactions covered by
this statement. Stilwell does not expect that adoption of FAS 133 will have a
significant impact on Stilwell's financial statements.
EMERGING ISSUES TASK FORCE ISSUE NO. 96-16. In Issue No. 96-16, the
Emerging Issues Task Force ("EITF") of the FASB reached a consensus that
substantive "participating" minority rights which provide the minority
stockholder with the right to effectively control significant decisions in the
ordinary course of an investee's business could impact whether the majority
stockholder should consolidate the investee. Management has evaluated the
rights of the minority stockholders of its consolidated subsidiaries and
concluded that application of EITF 96-16 did not affect Stilwell's consolidated
financial statements.
NOTE 3 - PRO FORMA EARNINGS PER SHARE (UNAUDITED)
Stilwell intends to issue additional shares of Stilwell common stock to
KCSI pursuant to a stock split effected in the form of a stock dividend prior
to the Distribution to provide a sufficient number of shares for the
Distribution. In addition, the par value of the Stillwell common stock will be
changed to $0.01.
To provide a basis for comparison to future earnings per share, pro forma
computations of basic and diluted EPS for the year ended December 31, 1998 and
the six month periods ended June 30, 1998 and 1999 are included for
informational purposes.
The number of basic shares used for pro forma purposes was derived based
upon an assumed issuance of two shares of Stilwell common stock for every one
share of KCSI common stock. The number of shares of KCSI common stock used in
the computation was 110.45 million, based upon the total number of outstanding
shares of KCSI common stock as of June 30, 1999, resulting in a pro forma 220.9
million shares of Stilwell common stock.
The number of dilutive shares used in the pro forma computation was
derived based upon the total number of KCSI stock options assumed to be
exercised in connection with the determination of the dilutive number of
weighted average shares of KCSI common stock as of June 30, 1999. These
options to purchase KCSI common stock (3.99 million) were multiplied by two to
derive the options to purchase shares of Stilwell common stock that are assumed
to be exercised (7.98 million).
The number of basic and diluted shares derived in the computations
described above represent the denominator in the earnings per share
calculations required under FAS 128. As discussed in Note 2, for purposes of
deriving diluted EPS, adjustments to the numerator have also been factored into
the computation.
NOTE 4 - INVESTMENT IN DST SYSTEMS, INC.
DST MERGER. On December 21, 1998, DST and USCS announced the completion
of the merger of USCS with a wholly-owned DST subsidiary. Under the terms of
the merger, USCS became a wholly-owned subsidiary of DST. The merger,
accounted for as a pooling of interests by DST, expands DST's presence in the
output solutions and customer management software and services industries. DST
issued approximately 13.8 million shares of its common stock in the
transaction, reducing Stilwell's ownership interest from 41% to approximately
32%. Stilwell recorded a one-time pretax non-cash charge of approximately
$36.0 million ($23.2 million after-tax), reflecting Stilwell's reduced
ownership of DST and Stilwell's proportionate share of DST and USCS costs
incurred in the fourth quarter related to the merger. Stilwell accounts for
its investment in DST under the equity method.
CONTINUUM/CSC. In March 1996, The Continuum Company, Inc. ("Continuum"),
formerly an equity method investment of DST, announced the completion of its
merger with Hogan Systems, Inc., a provider of software to banks and financial
institutions, for shares of Continuum stock (the "Hogan Merger"). As a result
of this transaction, DST's ownership interest in Continuum was reduced to
approximately 23% and Stilwell recorded its proportionate share (approximately
$3.9 million after-tax) of a nonrecurring charge recorded by DST in connection
with the Hogan Merger.
On August 1, 1996, Continuum merged with Computer Sciences Corporation
("CSC") in a tax-free share exchange. In exchange for its ownership interest
in Continuum, DST received shares of common stock in CSC. As a result of the
transaction, Stilwell's earnings for the year ended December 31, 1996 include
Stilwell's $47.7 million after-tax share of the one-time gain recognized by DST
in connection with the merger. Continuum ceased to be an equity affiliate of
DST, thereby eliminating any future Continuum equity earnings or losses. DST
recognized equity losses in Continuum of $4.9 million for the first six months
of 1996.
SUMMARIZED FINANCIAL INFORMATION. Stilwell's investment in DST, together
with certain condensed DST financial information, is summarized as follows.
Note that for the years ended December 31, 1996 and 1997, information regarding
DST's financial condition and operating results has been restated to combine
the historical results of DST and USCS as a result of their merger in December
1998. Additionally, Stilwell's equity in DST net assets was computed for all
years presented using Stilwell's ownership percentage as of December 31, 1998.
Stilwell's percentage ownership of DST, carrying value of the DST investment
and the DST fair market value were not restated and represent Stilwell's
historical information.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
December 31, June 30,
--------------------------------- ----------
1996 1997 1998 1999
<S> <C> <C> <C> <C>
Percentage ownership 41% 41% 32% 32%
Carrying value $ 283.5 $ 345.3 $ 376.0 $ 422.2
Equity in DST net
assets 256.7 300.1 376.0 422.2
Fair market value (a) 633.7 865.0 1,156.7 1,275.2
FINANCIAL CONDITION:
Current assets $ 300.2 $ 345.3 $ 375.7 $ 396.9
Non-current assets 1,003.5 1,203.2 1,521.2 1,647.9
-------- -------- -------- -------
Total assets $1,303.7 $1,548.5 $1,896.9 $2,044.8
======== ======== ======== =======
Current liabilities $ 188.9 $ 212.0 $ 268.6 $ 226.8
Non-current liabilities 318.6 405.6 462.1 503.3
Stockholders' equity 796.2 930.9 1,166.2 1,314.7
-------- -------- -------- -------
Total liabilities
and stockholders'
equity $1,303.7 $1,548.5 $1,896.9 $2,044.8
======== ======== ======== ========
</TABLE>
For the year For the six months
ended December 31, ended June 30,
---------------------------- -------------------
1996 1997(b) 1998(c) 1998 1999
OPERATING RESULTS:
Revenues $844.0 $950.0 $1,096.1 $ 535.8 $ 592.4
Costs and expenses 765.8 823.1 976.6 457.8 491.1
Net income 177.8 79.4 71.6 47.4 67.0
(a) Based upon DST's closing price on the New York Stock Exchange.
(b) Significant decrease in net income in 1997 from 1996 is attributable to
the one-time gain recorded by DST as a result of the 1996 Continuum/CSC
merger discussed above.
(c) Net income includes $19.4 million, after tax, of DST/USCS fourth quarter
merger-related charges.
NOTE 5 - OTHER ACQUISITIONS, DISPOSITIONS AND SIGNIFICANT TRANSACTIONS
BERGER. During 1992, Stilwell acquired an 18% interest in Berger for $1.2
million. On October 14, 1994, pursuant to a Stock Purchase Agreement ("Berger
SPA"), Stilwell increased its ownership of Berger to approximately 80%. In
connection with this increase in ownership (which was accounted for as a
purchase), Stilwell made payments of $47.5 million in cash (resulting in the
recording of $44.0 million of intangible assets which are being amortized over
15 years) and agreed to make additional purchase price payments covering a
period ending no later than October 1999. Pursuant to the Berger SPA, Stilwell
is required to make additional purchase price payments of $3.0 million during
third quarter 1999. No additional payments will be made thereafter. Stilwell
made additional purchase price payments of $23.9 and $3.1 million in 1996 and
1997, respectively. Stilwell made no payments under the Berger SPA during
1998. These goodwill amounts are being amortized over 15 years.
As a result of various transactions during 1997, Stilwell increased its
ownership in Berger to 100%. In January and December 1997, Berger purchased,
for treasury, the common stock of minority stockholders. In December 1997,
Stilwell also acquired additional Berger shares from a minority stockholder
through the issuance of shares of KCSI common stock. The shares of KCSI common
stock are reflected as a contribution from KCSI to Stilwell in the accompanying
financial statements. These transactions resulted in approximately $17.8
million of goodwill, which is being amortized over 15 years. However, see
discussion of impairment of a portion of this goodwill in Note 7. In
connection with these transactions, Berger also granted options to acquire
shares of common stock of Berger to certain of its employees. At June 30,
1999, Stilwell's ownership would be diluted to approximately 96.1% if all of
the outstanding stock options had been exercised.
NELSON MONEY MANAGERS PLC. On April 20, 1998, Stilwell completed the
acquisition of 80% of Nelson, an investment adviser and manager based in the
United Kingdom. Nelson provides investment advice and investment management
services directly to individuals who are retired or contemplating retirement.
Nelson managed approximately $1.2 billion ((pound) 696 million) in assets as
of December 31, 1998. The acquisition, which was accounted for as a purchase,
was completed using a combination of cash, KCSI common stock and notes
payable. The total purchase price was approximately $33 million. The KCSI
common stock issued in the transaction has been reflected as a contribution
from KCSI to Stilwell in the accompanying financial statements.
The purchase price was in excess of the fair market value of the net
tangible and identifiable intangible assets received and this excess was
recorded as goodwill to be amortized over a period of 20 years. If the
acquisition of Nelson had been completed January 1, 1998, inclusion of Nelson's
results on a pro forma basis would not have been material to Stilwell's
consolidated results of operations for the year ended December 31, 1998.
NOTE 6 - SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for income taxes and interest is summarized as follows (in millions):
For the year For the six months
ended December 31, ended June 30,
----------------------------- ------------------------
1996 1997 1998 1998 1999
(unaudited)
Interest $ 4.1 $ 13.7 $ 7.9 $ 3.4 $ 0.9
Income taxes 120.0 64.5 82.0 38.9 52.3
As discussed in Note 5 during second quarter 1998, in connection with
Stilwell's acquisition of Nelson, KCSI issued approximately 67,000 shares of
KCSI common stock (valued at $3.2 million) to certain of the sellers of the
shares of Nelson. The use of these shares by Stilwell is reflected as a
capital contribution from KCSI to Stilwell in the accompanying consolidated
financial statements. Also, notes payable of $4.9 million were recorded as
part of the purchase price, payable by March 31, 2005, bearing interest at
seven percent.
Stilwell subsidiaries and affiliates hold various investments which are
accounted for as "available for sale" securities as defined in FAS 115.
Stilwell records its proportionate share of any unrealized gains or losses
related to these investments, net of deferred income taxes, in accumulated
other comprehensive income. Stockholder's equity increased $18.5, $25.9 and
$24.1 million in 1996, 1997 and 1998, respectively, and $42.9 and $15.9 million
for the six months ended June 30, 1998 and 1999, respectively, as a result of
unrealized gains related to these investments.
As discussed in Note 5, during 1997, Stilwell purchased a portion of the
Berger minority interest through the issuance of 330,000 shares of KCSI common
stock, valued at $10.1 million. The use of the KCSI shares by Stilwell is
reflected as a capital contribution from KCSI in the accompanying financial
statements.
NOTE 7 - OTHER BALANCE SHEET CAPTIONS
ACCOUNTS RECEIVABLE. Stilwell's accounts receivable balances do not
include any allowance for doubtful accounts nor bad debt expense as of and for
the years ended 1996 through 1998. The majority of the balances are amounts
owed from the investment companies for which Stilwell subsidiaries act as
investment adviser or sub-adviser (see Note 14).
OTHER CURRENT ASSETS. Other current assets are comprised of the following
(in millions):
December 31,
---------------------
1997 1998
Deferred income taxes $ 1.7 $ 2.1
Other 4.7 9.9
------- -------
Total $ 6.4 $ 12.0
======= =======
INVESTMENTS IN ADVISED FUNDS. Investments in advised funds, principally
in money market mutual funds, are summarized as follows (in millions):
December 31,
----------------------
1997 1998
AVAILABLE FOR SALE:
Cost basis $ 95.6 $ 140.8
Gross unrealized gains 2.0 5.4
-------- --------
97.6 146.2
-------- --------
TRADING:
Cost basis 2.1 3.2
Gross unrealized gains (losses) 0.7 (0.3)
-------- --------
2.8 2.9
-------- --------
Total $ 100.4 $ 149.1
======== =======
Gross realized gains (losses) were not material to Stilwell's consolidated
results of operations for the years ended 1996 through 1998.
Investments in advised funds are generally used by Janus and Berger to fund
operations and dividends. Pursuant to contractual agreements, Janus has
distributed at least 90% of its net earnings to its stockholders each year.
PROPERTY AND EQUIPMENT, NET. Property and equipment are summarized as
follows (in millions):
December 31,
-----------------------
1997 1998
Furniture, fixtures and
equipment $ 32.1 59.2
Buildings and leasehold
improvements 6.5 10.5
-------- -------
Subtotal 38.6 69.7
Less accumulated depreciation
and amortization (29.2) (32.3)
-------- -------
Net property and equipment $ 9.4 $ 37.4
======== =======
The above totals include assets under capital leases with a cost basis of
$1.4 million as of December 31, 1997. Accumulated amortization associated with
these capital leases totaled $1.4 million as of December 31, 1997. There were
no assets under capital lease as of December 31, 1998.
INTANGIBLES AND OTHER ASSETS. Intangibles and other assets are summarized as
follows (in millions):
December 31,
---------------------
1997 1998
Goodwill $ 56.4 $ 93.2
Identifiable intangible assets 58.9 58.9
Accumulated amortization (14.3) (22.9)
------- -------
Net 101.0 129.2
Employee loans 13.8 11.6
Other assets, net 6.1 6.2
------- -------
Total $ 120.9 $ 147.0
======== ========
Identifiable intangible assets include, among others, investment
advisory relationships and shareowner lists, as well as existing distribution
arrangements.
In connection with a review of its intangible and other assets, Stilwell
determined as of December 31, 1997 that the carrying value of the investment in
Berger, including associated identifiable intangible assets and goodwill,
exceeded its fair value (measured by reference to various valuation techniques
commonly used in the investment management industry) as a result of below-peer
performance and growth of the core Berger funds. Accordingly, Stilwell
recorded an impairment loss of $12.7 million, which is reflected as an other
operating expense in the accompanying financial statements. Additionally, a
$3.0 million allowance was recorded for a non-core investment reflecting
recoverability issues.
Amortization expense related to identifiable intangible assets, goodwill
and other assets aggregated $6.9, $8.1 and $8.8 million in 1996, 1997 and 1998,
respectively.
OTHER LIABILITIES. Other liabilities are summarized as follows (in
millions):
December 31,
-----------------------
1997 1998
Deferred compensation (See Note 12) $ 22.2 $ 20.5
Other 19.4 21.8
------- -------
Total $ 41.6 $ 42.3
======= ======
NOTE 8 - LONG-TERM DEBT - PARENT
Stilwell had $84.1 and $16.6 million of outstanding long-term indebtedness
to KCSI at December 31, 1997 and 1998, respectively. These amounts represent
indebtedness of Stilwell based upon the underlying assets associated with the
financial services businesses of KCSI. The indebtedness generally represents
borrowings in connection with KCSI's common stock repurchase program, Stilwell
acquisitions and operations of Stilwell Financial, Inc. Interest expense
related to the indebtedness was determined using the average level of Stilwell
debt under a reasonably blended KCSI interest rate, approximately seven
percent. Based on the nature of the borrowings (i.e. a variable line of credit
between Stilwell and KCSI), the carrying value of the debt approximates its
fair value.
NOTE 9 - LONG-TERM DEBT - THIRD PARTIES
Stilwell's outstanding indebtedness to third parties totaled $0.1 million
at December 31, 1997. All third party indebtedness had been paid in full as of
December 31, 1998.
In May 1998, KCSI established a $100 million 364-day senior unsecured
competitive advance/revolving credit facility (the "Credit Facility") that was
assumed by Stilwell effective July 1, 1999 for its use upon separation of
KCSI's two business segments. On May 14, 1999, KCSI renewed the Credit
Facility. The Credit Facility contains interest rates below prime and terms
which can be fixed up to the expiration date. Stilwell paid approximately $0.4
million in facility and arrangement fees for the year ended December 31, 1998.
At June 30, 1999, the full $100 million was available under the Credit
Facility. The Credit Facility can be increased to $300 million after the
Distribution. Stilwell, as a continuation of its practice of providing credit
facilities to its subsidiaries, contemplates assignment of a portion of the
financing available under the Credit Facility to Janus for use by Janus for
general corporate purposes, in which case the portion assigned would be
unavailable for use by Stilwell Financial, Inc.
The Credit Facility contains, among other provisions, various financial
covenants. Maximum utilization of Stilwell's Credit Facility may be restricted
as a result of such financial covenants.
Based upon borrowing rates available to Stilwell and its subsidiaries for
indebtedness with similar terms and average maturities, the fair value of long-
term debt - third parties was approximately $0.1 million as of December 31,
1997.
Stilwell has no future minimum lease payments due under capital lease
obligations.
NOTE 10 - INCOME TAXES
Stilwell's provisions for income taxes are summarized as follows (in millions):
December 31,
----------------------------------
1996 1997 1998
CURRENT:
Federal $ 48.4 $ 79.2 $ 100.2
State and local 6.8 12.2 15.9
------- ------- -------
Total current 55.2 91.4 116.1
------- ------- -------
DEFERRED:
Federal 2.4 (3.8) (10.0)
State and local 0.6 (0.6) (2.4)
------- ------- -------
Total deferred 3.0 (4.4) (12.4)
------- ------- -------
Total income tax expense $ 58.2 $ 87.0 $ 103.7
======= ======= =======
Stilwell's deferred income tax liabilities (assets) are summarized as follows
(in millions):
December 31,
-----------------------
1997 1998
INCOME TAX LIABILITIES:
Unconsolidated affiliates $ 136.0 $ 138.7
Other 6.3 7.0
------- -------
Gross deferred tax
liabilities 142.3 145.7
------- -------
INCOME TAX ASSETS:
Book reserves (9.7) (7.3)
Deferred compensation (15.9) (14.7)
Vacation (1.8) (1.7)
Deferred revenue (5.0) (3.5)
Other (4.6) (2.2)
------- -------
Gross deferred tax assets (37.0) (29.4)
------- -------
Net deferred income tax
liabilities $ 105.3 $ 116.3
====== ========
Stilwell's effective income tax rate differs from the statutory federal income
tax rate as follows (in millions):
December 31,
------------------------------------
1996 1997 1998
Statutory U.S. federal rate $ 73.0 $ 80.5 $ 101.3
State and local income taxes 7.4 11.6 13.5
Non-deductible goodwill 1.7 6.5 2.3
Equity in earnings of
unconsolidated affiliates (19.3) (6.8) (6.8)
Other (4.6) (4.8) (6.6)
------- ------- -------
Total income tax expense $ 58.2 $ 87.0 $ 103.7
======= ======= ========
Effective tax rate 27.9% 37.8% 35.8%
======= ======== ========
Beginning in 1993, Stilwell began providing deferred income taxes for
unremitted earnings of qualifying U.S. unconsolidated affiliates net of the 80%
dividends received deduction provided for under current tax law. As of
December 31, 1998, the cumulative amount of unremitted earnings qualifying for
this deduction aggregated $146.6 million. These amounts would become taxable
to Stilwell if distributed by the affiliates as dividends, in which case
Stilwell would be entitled to the dividends received deduction for 80% of the
dividends; alternatively, these earnings could be realized by the sale of the
affiliates' stock, which would give rise to tax at federal capital gains rate
and state ordinary income tax rates, to the extent the stock sales proceeds
exceeded Stilwell's income tax basis. Deferred income taxes provided on
unremitted earnings of unconsolidated affiliates aggregated $7.5 and $9.5
million as of December 31, 1997 and 1998, respectively.
The IRS has completed examinations of KCSI's consolidated federal income
tax returns for the years 1990-1992 and has proposed certain tax assessments
for these years. For years prior to 1988, the statute of limitations has
closed, and for 1988-1989, all issues raised by the IRS examinations have been
resolved, except for one refund claim related to DST. In addition, other
taxing authorities have also completed examinations principally through 1992,
and have proposed additional tax assessments for which Stilwell believes it has
adequate reserves accrued.
Inasmuch as most of these asserted tax deficiencies represent temporary
differences, subsequent payments of taxes are not expected to require
additional charges to income tax expense. In addition, accruals have been made
for interest (net of the related income tax benefit) for estimated settlement
of the proposed tax assessments. Thus, management believes that final
settlement of these matters will not have a material adverse effect on
Stilwell's consolidated results of operations, cash flows or financial
position.
As described in Notes 1 and 2, Stilwell will no longer join with KCSI in
filing a consolidated federal income tax return after the Distribution. As a
result, Stilwell's ability to reduce income taxes currently payable after the
Distribution will be determined primarily on the basis of the taxable income
and income taxes paid by Stilwell in its separate consolidated return.
Stilwell has entered into a Tax Disaffiliation Agreement with KCSI which
establishes, among other things, the procedures, rights and indemnities between
the two entities with respect to historical tax items. This agreement is not
expected to have a material impact on Stilwell's future results of operation,
financial position or each flows.
NOTE 11 - EMPLOYEE BENEFIT PLANS
Substantially all full-time employees of Stilwell participate in The
Employee Stock Ownership Plan of KCSI (the "ESOP") and KCSI's qualified 401(k)
plan (the "KCSI 401(k) Plan"). Employees of Stilwell Financial, Inc.
participate in KCSI's qualified profit sharing plan (the "KCSI Profit Sharing
Plan"). Janus and Berger employees participate in the qualified profit sharing
plans sponsored by each of those companies.
Contributions to the ESOP and KCSI Profit Sharing Plan are made at the
discretion of the KCSI Board of Directors in amounts not to exceed the maximum
allowable for income tax purposes. Stilwell matches a maximum of 3% of
employee compensation deferrals in the KSCI 401(k) Plan, subject to a maximum
allowable for income tax purposes. Contributions to the Janus and Berger
profit sharing plans are made at the discretion of the respective boards of
directors in amounts not to exceed the maximum allowable for income tax
purposes.
Expense related to the Stilwell participants in the qualified plans
aggregated $3.5, $4.6 and $5.7 million in 1996, 1997 and 1998, respectively.
NOTE 12 - STOCK PLANS
PRO FORMA DISCLOSURE. Under FAS 123, companies must either record
compensation expense based on the estimated grant date fair value of stock
options granted or disclose the impact on net income as if they had adopted the
fair value method (for grants subsequent to December 31, 1994). If Stilwell
had measured compensation cost for the KCSI stock options granted to its
employees and shares subscribed by its employees under the KCSI employee stock
purchase plan, as well as the Janus and Berger stock-based compensation plans
discussed below, under the fair value based method prescribed by FAS 123, net
income and earnings per share would have been as follows:
Year Ended December 31,
1996 1997 1998
---- ---- ----
Net income (in millions)
As reported $ 134.6 $ 118.0 $ 152.2
Pro forma 133.2 117.0 149.0
Earnings per Basic share:
As reported $ 134,600 $ 118,000 $ 152,200
Pro forma 133,200 117,000 149,000
Earnings per Diluted share:
As reported $ 134,000 $ 117,400 $ 149,900
Pro forma 132,600 116,400 146,700
For the years presented in these financial statements, there are no
outstanding stock options for Stilwell common stock. However, at the time of
the Distribution, in order to provide for the equitable adjustment of existing
KCSI stock options ("Options"), KCSI and Stilwell intend to substitute two
separately exercisable options - New KCSI Options and New Stilwell Options
(collectively, the "Substituted Options") - for the Options held by KCSI and
Stilwell employees, former KCSI employees and KCSI directors (including former
directors). Upon issuance of these Substituted Options, Stilwell will have
potentially dilutive securities for purposes of the diluted EPS computation.
KCSI STOCK OPTION PLANS. The table below summarizes KCSI outstanding
options held by Stilwell employees as of December 31, 1996, 1997 and 1998, and
changes during the years then ended. These options generally vest over periods
ranging from one to three years with a maximum exercise term of ten years. The
number of options and activity related thereto for the years ended December 31,
1996 through 1998 are not necessarily indicative of the number of options and
associated activity in the future.
<TABLE>
<CAPTION>
1996 1997 1998
----------------------- ----------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 6,489,564 $ 7.55 5,645,310 $ 8.87 4,794,527 $ 8.84
Granted 498,870 16.48 46,452 16.80 445,364 35.98
Exercised (1,341,234) 5.30 (882,187) 9.30 (467,257) 9.17
Expired/Canceled (1,890) 14.40 (15,048) 15.62 (4,408) 27.33
---------- --------- ---------
Outstanding at December 31 5,645,310 $ 8.87 4,794,527 $ 8.84 4,768,226 $ 11.33
========= ========= =========
Exercisable 4,724,550 $ 7.49 4,227,212 $ 7.87 4,172,257 $ 8.52
========= ========= =========
Weighted Average Fair
Value of Options granted
during the year $ 4.35 $ 4.18 $ 10.42
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes the information about KCSI stock options held by Stilwell employees that were
outstanding at December 31, 1998:
OUTSTANDING EXERCISABLE
------------------------------------------------------- ------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2 to $10 2,710,315 3.0 years $ 4.86 2,710,315 $ 4.86
$10 to $15 242,210 6.4 12.29 240,605 12.28
$15 to $20 1,374,337 7.2 15.97 1,221,337 15.90
$20 to $48 441,364 10.0 36.05 --
--------- ---------
$2 to $48 4,768,226 5.0 $ 11.33 4,172,257 $ 8.52
========= =========
</TABLE>
The fair value of KCSI stock options granted by KCSI to Stilwell employees
used to compute pro forma net income disclosures was estimated on the date of
grant using the Black-Scholes option-pricing model based on the following
weighted average assumptions used by KCSI:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Dividend yield .81% to .93% .62% to .82% .34% to .56%
Expected volatility 30% to 32% 24% to 30% 30% to 42%
Risk-free interest rate 5.27% to 6.42% 6.20% to 6.44% 4.74% to 5.64%
Expected life 3 years 3 years 3 to 5 years
</TABLE>
KCSI ESPP. KCSI sponsors an employee stock purchase plan ("ESPP") under
which substantially all full-time employees of Stilwell were granted the right
to subscribe to KCSI common stock at a per share price equal to the lesser of
85% of the KCSI stock price on the date of grant or the date that such shares
are purchased. The weighted average per share fair values of the stock
purchase rights granted to Stilwell employees were $3.56 and $10.76 in 1996 and
1998, respectively. KCSI did not sponsor an ESPP grant for 1997.
The fair value of ESPP purchase rights granted to Stilwell employees
used to compute pro forma net income disclosures were estimated on the date of
grant using the Black-Scholes option-pricing model based on the following
weighted average assumptions used by KCSI:
1996 1998
---- ----
Dividend yield 0.85% 0.95%
Expected volatility 30% 42%
Risk-free interest rate 5.50% 4.63%
Term 1 year 1 year
JANUS RESTRICTED STOCK. During 1998, Janus granted 125,900 restricted
shares of Janus' common stock to certain Janus employees pursuant to a
restricted stock agreement ("Stock Agreement"). The restricted stock was
recorded at fair market value (approximately $28.9 million) at the time of
grant as a separate component of Janus' stockholders' equity. The restricted
stock vests at the end of 10 years. The Stock Agreement also includes an
accelerated vesting provision whereby the normal vesting rate of 10% of the
shares in one year will be accelerated to 20% of the shares in one year if
certain specific investment performance goals are met (to be effective on
January 1st of the following year). Janus records compensation expense based
on the applicable vesting rate, which was 20% in 1998 based on attainment of
investment performance goals. In accordance with generally accepted accounting
principles, the impact of the Janus amortization charges in 1999 and beyond
will be reduced by gain recognition at Stilwell Financial, Inc., reflecting
Stilwell's reduced ownership of Janus upon vesting by the restricted
stockholders.
During 1999, Janus granted 33,000 shares of Janus common stock to certain
Janus employees pursuant to the Stock Agreement. The restricted stock was
recorded at fair market value (approximately $10.8 million) at the time of
grant as a separate component of Janus' stockholders' equity. Similar to the
1998 grant, the Stock Agreement includes an accelerated vesting provision
whereby the normal vesting rate of 10% of the shares in one year will be
accelerated to 20% of the shares in one year if certain specific investment
performance goals are met (to be effective on January 1st of the following
year). Janus records compensation expense based on the applicable vesting
rate, currently at 20% based on attainment of investment performance goals.
The shares made available for the restricted stock grant were obtained
through the purchase of 35,000 shares of Janus stock from an existing minority
owner. In connection with this transaction, Stilwell Financial, Inc. recorded
approximately $9.5 million of goodwill, which is being amortized over a period
of 15 years.
JANUS STOCK OPTION PLAN. During 1997, Janus adopted a stock option plan
to make available shares of Janus common stock for the grant of awards to Janus
employees. Awards under the plan were granted with an exercise price equal to
the fair value of the underlying common stock on the grant date, vested
immediately and were exercisable during an annual 30 day exercise period. The
options expired after 30 months.
A summary of stock option activity under the Janus stock option plan is as
follows:
1997 1998
---- ----
Janus Options outstanding at
January 1 -- 22,100
Granted 37,700
Exercised (15,300) (13,800)
Expired/Canceled (300) (200)
------- -------
Janus Options outstanding at
December 31 22,100 8,100
======= =======
During 1999, 8,000 options were exercised and the remaining 100 options
expired. Janus options may affect Stilwell's dilutive EPS computation (through
a reduced ownership percentage of Janus by Stilwell) if the average fair value
of the Janus stock exceeds the option price.
BERGER STOCK OPTION PLAN. During 1997, Berger adopted a stock option plan
which makes available shares of Berger common stock for the grant of awards to
Berger employees. Awards under the plan were granted with an exercise price
equal to the fair value of the underlying common stock on the grant date, vest
generally over periods ranging up to 10 years, and are exercisable for a period
of 10 years. Certain grants under the Berger stock option plan also include
accelerated vesting provisions based upon pre-established Berger performance
criteria.
A summary of stock option activity under the Berger stock option plan is
as follows:
1997 1998
---- ----
Berger Options outstanding at
January 1 -- 192,210
Granted 192,210 9,500
Expired/Canceled -- (69,660)
------- -------
Berger Options outstanding at
December 31 192,210 132,050
======= =======
Exercisable at December 31 127,450 89,290
======= =======
During second quarter 1999, 76,290 options were canceled, leaving 55,760
options outstanding at June 30, 1999.
Berger options may affect Stilwell's dilutive EPS computation (through a
reduced ownership percentage of Berger by Stilwell) if the average fair value
of the Berger stock exceeds the option price.
JANUS STOCK PURCHASES. In connection with a 1995 Janus minority group
restructuring transaction, Janus made 274,300 shares of its common stock
available for purchase by certain key Janus employees. These key employees
purchased the Janus shares at fair value and paid for these shares with a
combination of cash (20%) and full recourse loans (80%) from Stilwell which
bear interest at 8.25% and mature in equal annual installments over 10 years.
In 1997, Janus made available an additional 56,400 shares of its common
stock that had been reacquired from current and former employees for purchase
by certain key employees. 47,300 shares were purchased at fair value and paid
for through a combination of cash (10%) and full recourse loans (90%) from a
third party lending institution. The remaining 9,100 shares were purchased by
other employees at fair value for cash.
In connection with each of these Janus stock purchases, Janus entered into
incentive compensation agreements with the key employees under which each
employee would have the opportunity to earn bonuses (based upon pre-established
Janus performance measures) equal to the debt service requirements of the loans
referred to above. As of December 31, 1998, the employees participating in the
1995 stock purchases had earned 100% of the potential bonus which will be paid
out over the remaining maturities of the notes. As of December 31, 1998, the
employees participating in the 1997 stock purchases had earned approximately
37% of the potential bonus. Compensation expense related to these two bonus
plans aggregated $18.3, $13.2 and $2.7 million in 1996, 1997 and 1998,
respectively.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES. Stilwell rents office space and equipment under the
terms of various operating lease agreements. As of December 31, 1998, future
minimum rental commitments under non-cancelable operating leases aggregated (in
millions):
1999 $ 15.1
2000 10.2
2001 8.3
2002 7.8
2003 5.7
Thereafter 3.6
------
Total $ 50.7
======
Rent expense aggregated $8.4, $12.6 and $17.5 million in 1996, 1997 and 1998,
respectively.
Stilwell is committed for future telecommunications and data service
with minimum payments of $3.3 and $0.9 million in 1999 and 2000,
respectively.
MINORITY PURCHASE AGREEMENTS. A stock purchase agreement with two
minority stockholders of Janus, as amended (the "Janus Stock Purchase
Agreement") and certain restriction agreements with other Janus minority
stockholders contain, among other provisions, mandatory put rights whereby at
the election of such minority stockholders, KCSI would be required to
purchase the minority interests of such Janus minority stockholders at a
purchase price equal to fifteen times the net after-tax earnings over the
period indicated in the relevant agreement, or in some circumstances at a
purchase price as determined by an independent appraisal. These agreements
have not been assigned to Stilwell. However, pursuant to an intercompany
agreement between Stilwell and KCSI (see Note 16), Stilwell is obligated to
KCSI in the same manner that KCSI is obligated under such agreements and
Stilwell has the right to any benefits and assets received by KCSI under such
agreements. If all of the puts under such Janus minority stockholder
agreements were exercised, Stilwell would be required to pay KCSI (to
purchase the respective minority interests) approximately $467 million as of
June 30, 1999, compared to $220, $337 and $456 million at December 31, 1996,
1997 and 1998, respectively. Payment for the purchase of the respective
minority interests is to be made under the Janus Stock Purchase Agreement 30
days after receiving notification of exercise of the put rights. Under the
restriction agreements, payment for the purchase of the respective minority
interests is to be made 30 days after the later to occur of (i) receiving
notification of exercise of the put rights or (ii) determination of the
purchase price through the independent appraisal process.
The Janus Stock Purchase Agreement and certain stock purchase agreements
and restriction agreements with other minority stockholders also contain
provisions whereby upon the occurrence of a Change in Ownership (as defined
in such agreements) of KCSI (which will not be affiliated with Stilwell
following the Distribution), Stilwell may be required to purchase such
holders' Janus stock or, as to the two stockholders that are parties to the
Janus Stock Purchase Agreement, at such holders' option, to sell its stock of
Janus to such minority stockholders. The purchase price for such minority
holders' Janus stock would be equal to fifteen times the net after-tax
earnings over the period indicated in the relevant agreement, or in some
circumstances at a purchase price as determined by Janus' Stock Option
Committee. If Stilwell were required to purchase the holders' Janus stock,
Stilwell would be required to pay KCSI (to purchase the respective minority
interests) approximately $642 million as of June 30, 1999 (see additional
information in Note 15).
LITIGATION. From time to time Stilwell is involved in various legal
actions arising in the normal course of business. While the outcome of the
various legal proceedings involving Stilwell cannot be predicted with
certainty, it is the opinion of management (after consultation with legal
counsel) that the litigation reserves of Stilwell are adequate and that legal
actions involving Stilwell and ultimate resolution of these matters will not
be material to Stilwell's consolidated financial position, results of
operations or cash flows.
NOTE 14 - RELATED PARTY TRANSACTIONS
Stilwell and its subsidiaries incurred fees to DST for various
shareowner and portfolio accounting and recordkeeping services in the amount
of $5.4, $5.3 and $5.5 million in 1996, 1997 and 1998, respectively.
Stilwell and its subsidiaries earn fees from the various registered
investment companies for which Stilwell and its subsidiaries act as
investment adviser. Accounts receivable include amounts due from these
investment companies. Additionally, Janus earned sub-advisory fees from IDEX
Management, Inc. ("IDEX"), formerly a 50% joint venture prior to the
disposition of IDEX in second quarter 1998. Janus recognized an $8.8 million
pretax gain in connection with this disposition. Also, Berger receives fees
under l2b-1 plans from various mutual funds for which it acts as adviser.
The table below summarizes this related party activity as of and for the
years ended December 31 (in millions):
Accounts
Investment receivable
management and Sub-advisery from registered
shareowner fees from investment Berger 12b-1 Plan
servicing fees IDEX companies fees earned
------------ ------------ ------------ ------------------
1996 $ 261.8 $ 5.9 $ 29.0 $ 8.0
1997 403.0 7.1 41.6 7.6
1998 558.4 8.9 59.1 6.9
Stilwell's retained earnings include equity in the unremitted earnings of
its unconsolidated affiliates of $92.1, $114.8 and $137.1 million as of
December 31, 1996, 1997 and 1998, respectively.
Certain officers and directors of Janus and Berger are also officers,
directors and/or trustees for the various registered investment companies for
which Janus and Berger act as investment adviser.
NOTE 15 - CONTROL
SUBSIDIARIES AND AFFILIATES. In connection with its acquisition of an
interest in Janus, KCSI entered into the Janus Stock Purchase Agreement with
Thomas H. Bailey ("Mr. Bailey"), Chairman, President and Chief Executive
Officer of Janus and the holder of 12% of Janus common stock, which provides
that so long as Mr. Bailey is a holder of at least 5% of the shares of Janus
and continues to be employed as President of Janus, Mr. Bailey shall continue
to establish and implement policy with respect to the investment advisory and
portfolio management activity of Janus. In furtherance of such objective, such
agreement provides that in those circumstances KCSI will vote its shares of
Janus stock to elect directors of Janus, at least the majority of whom are
selected by Mr. Bailey, subject to KCSI's approval, which approval may not be
unreasonably withheld. The agreement also provides that any change in
management philosophy, style or approach with respect to investment advisory
and portfolio management policies of Janus shall be mutually agreed upon by
KCSI and Mr. Bailey.
Under the Janus Stock Purchase Agreement, upon the occurrence of a "Change
in Ownership" of KCSI, as defined in such agreement, KCSI may be required, at
such stockholders' option, to sell its stock of Janus to such minority
stockholders, or to purchase such holders' Janus stock, in either instance, at
a purchase price equal to fifteen times the net after-tax earnings per share of
Janus for the fiscal year ending immediately after the Change in Ownership, or
as otherwise negotiated between the parties. In addition, under certain stock
purchase agreements and restriction agreements with all other minority
stockholders, upon the occurrence of a Change in Ownership of KCSI, as defined
in such agreements, which has not been approved by KCSI's Board of Directors,
KCSI may be required, at such stockholders' option, to purchase such minority
stockholders' Janus stock at a purchase price equal to fifteen times the net
after-tax earnings over the period indicated in the relevant agreement, or in
some circumstances at a purchase price as determined by Janus' Stock Option
Committee. These agreements have not been assigned to Stilwell. However,
pursuant to the Intercompany Agreement, Stilwell is obligated to KCSI in the
same manner that KCSI is obligated under such agreements and Stilwell has the
right to any benefits and assets received by KCSI under such agreements.
Most of the revenues of Janus and Berger are derived pursuant to
investment advisory agreements with their respective funds. These investment
advisory agreements may be terminated without penalty by either party with
notice and will be terminated in the event of an "assignment" (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")). The
investment advisory agreements must be approved and renewed on an annual basis
by each fund's Board of Directors or Trustees or by an affirmative vote of a
majority of the outstanding voting securities of each of the funds and in
either case by vote of a majority of the Board of Directors or Trustees who are
not "interested persons" (as defined in the 1940 Act) of such funds.
Under the 1940 Act, certain changes in control of Janus or Berger may
constitute an "assignment" under the 1940 Act and result in termination of
their investment advisory agreements with their respective funds, requiring
approval of fund shareowners and other account holders to obtain new
agreements. The Distribution is not expected to result in a change of control
of Janus or Berger and therefore under the applicable rules of the U.S.
Securities and Exchange Commission would not constitute such an assignment.
EMPLOYEES. Stilwell Financial, Inc. and certain subsidiaries have entered
into agreements with employees whereby, upon defined circumstances constituting
a change in control of Stilwell or the subsidiary, certain stock options or
similar equity instruments become exercisable, certain benefit entitlements are
automatically funded and such employees are entitled to specified cash payments
upon termination of employment.
DEBT. The Credit Facility provides for default in the event of a
specified change in control of Stilwell or certain subsidiaries of Stilwell.
NOTE 16 - SUBSEQUENT EVENTS
INTERCOMPANY AGREEMENT WITH KCSI. Stilwell has entered into an
Intercompany Agreement with KCSI for the purpose of governing certain of the
ongoing relationships during a transitional period after the Distribution and
providing for an orderly transition of Stilwell to a separate company. The
Intercompany Agreement generally provides for certain indemnification rights,
insurance matters, access to records and information, certain transitional
support services and other matters relating to the Distribution. This
agreement is not expected to have a material impact on Stilwell's future
results of operation, financial position or cash flows.
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