UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
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.)
920 MAIN STREET, KANSAS CITY, MISSOURI 64105
(Address of principal executive offices)
816-218-2400
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 Amendment No. 4 to 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).
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
STILWELL FINANCIAL, INC.
April 28, 2000 By: /s/ Danny R. Carpenter
------------------------------------
Name: Danny R. Carpenter
Title: Vice President and Secretary
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1.1 Form of Delaware Certificate of Incorporation of Stilwell
Financial, Inc. as Amended and Restated on [ ], 2000 is attached
as Exhibit 3.1.1.
3.1.2 * Form of Certificate of Designation dated [ ], 2000
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 [ ], 2000 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.
8.1 * Internal Revenue Service Private Letter Ruling is attached as
Exhibit 8.1.
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.
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.
10.5.3 Assignment, Consent and Acceptance Agreement, dated as of August 11,
1999, by and among DST Systems, Inc. ("DST"), Kansas City Southern
Industries, Inc. and Stilwell Financial, Inc. which is attached as
Exhibit 4.15.2 to DST's Form 10-Q for the quarter ended June 30,
1999 (Commission File No. 1-14036) is hereby incorporated by
reference as Exhibit 10.5.3.
10.6.1 Amended 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 Amended 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 Amended 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 Amended 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.
10.7.6 * Assignment and Assumption Agreement and Fifth Amendment to Stock
Purchase Agreement, dated November 19, 1999, by and among Kansas
City Southern Industries, Inc., Stilwell Financial, Inc., Thomas H.
Bailey and Michael Stolper is attached as Exhibit 10.7.6.
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.
10.10* Stock Purchase Agreement, dated November 19, 1999, by and among
Kansas City Southern Industries, Inc., Stilwell Financial, Inc. and
Janus Capital Corporation, is attached as Exhibit 10.10.
10.11.1 364-day Competitive Advance and Revolving Credit Facility Agreement
dated as of January 11, 2000 among Kansas City Southern Industries,
Inc. and the lenders named therein, which is attached as Exhibit
10.20 to Kansas City Southern Industries, Inc.'s Form 10-K for the
year ended December 31, 1999 (Commission File No. 1-4717), is hereby
incorporated by reference as Exhibit 10.11.1.
10.11.2 Assignment, Assumption and Amendment Agreement dated as of January
11, 2000, among Kansas City Southern Industries, Inc., Stilwell
Financial, Inc. and The Chase Manhattan Bank, as agent for the
lenders named in the 364-day Competitive Advance and Revolving
Credit Facility Agreement, which is attached as Exhibit 10.21 to
Kansas City Southern Industries, Inc.'s Form 10-K for the year ended
December 31, 1999 (Commission File No. 1-4717), is hereby
incorporated by reference as Exhibit 10.11.2.
10.12 Form of Stilwell Financial, Inc. Employee Stock Purchase Plan is
attached as Exhibit 10.12.
10.13 Stilwell Financial, Inc. Employee Stock Ownership Plan is attached
as Exhibit 10.13.
10.14 Stilwell Financial, Inc. 401(k) and Profit Sharing Plan is attached
as Exhibit 10.14.
27 Financial Data Schedule is attached as Exhibit 27.
99.1 Stilwell Financial, Inc. Information Statement, as amended, dated
April 28, 2000 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, 1997, 1998 and 1999,
which are included in the DST Systems, Inc. Annual Report on Form
10-K for the year ended December 31, 1999 (Commission File No. 1-
14036) are incorporated by reference in this Information Statement.
99.4 Opinion Letter of Rothgerber Johnson & Lyons LLP dated April 20,
2000, which is attached as Exhibit 99.2 to the Form 10-K/A of Kansas
City Southern Industries, Inc. for the year ended December 31, 1999
(Commission File No. 1-4717), is hereby incorporated by reference as
Exhibit 99.4.
* Previously filed.
@ To be filed by amendment
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 2001 annual meeting of stockholders, the term of office
of the second class to expire at the conclusion of the 2002 annual meeting of
stockholders and the term of office of the third class to expire at the
conclusion of the 2003 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, or until his or her
earlier resignation or removal. 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
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,
EIGHTH 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 Voting Stock of the Corporation
outstanding, including repurchases of outstanding shares of Voting Stock of
the Corporation by the Corporation, which reduction increases the percentage
of outstanding shares of Voting 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 Voting Stock.
5. A Person shall be a "Beneficial Owner" of, "Beneficially Own,"
"Own Beneficially" and be deemed to have "Beneficial Ownership" of, any
Voting Stock, and such Voting Stock shall be deemed to be "Beneficially
Owned" by such Person as to 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 April 3, 2000; 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 April 3, 2000, 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 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 Voting 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), solely by reason of such
capacity of such trustee, shall be deemed, for any purposes hereof, to
Own Beneficially any Voting Stock held under any such plan.
6. For purposes of computing the percentage of Beneficial
Ownership of Voting Stock of a Person, the outstanding Voting 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 Voting
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 Voting Stock shall include only Voting
Stock then outstanding and shall not include any Voting 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 April 3, 2000.
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 April 3,
2000) 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 Chairman of the Board of Directors, the Chief Executive Officer
or the President of the Corporation and shall be called by the Chairman of
the Board of Directors, the Chief Executive Officer or the President 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 before a meeting 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 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, by stockholder action, 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 of the Corporation
(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 System
("NASDAQ") or any other system then in use, the Fair Market Value shall be
the highest closing sale price reported by NASDAQ or such other system 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 any securities to
be issued or transferred by the Corporation or any Subsidiary in any Business
Combination have, 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 April 3, 2000) 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 April 3,
2000 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:
A. 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 Article
FIFTH, paragraphs A., B., C., and E., Article ELEVENTH and this Article
TWELFTH; and FURTHER PROVIDED, HOWEVER, that
B. On and after 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 Articles FOURTH, FIFTH, paragraphs D. and F., SIXTH,
SEVENTH, EIGHTH, NINTH and TENTH.
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 [ ], [ ], 2000, 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: Landon H. Rowland
Its: President
ATTEST:
- ---------------------------------
By: Danny R. Carpenter
Its: Secretary
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of this ____ day of May, 2000,
by and between Stilwell Financial, Inc., a Delaware corporation ("Stilwell")
and Landon H. Rowland, an individual ("Executive") to be effective on the date
of the Spin-off Distribution (as defined below).
WHEREAS, the parties expect that all of the issued and outstanding stock
of Stilwell will be distributed (the "Spin-off 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
$___________. Such rate shall not be increased prior to January 1, 2003 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 years 2000, 2001, and 2002,
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 $________. 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 ____ (__) 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 _______(___) 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 Employee Stock Ownership
Plan and the Stilwell Section 401(k) with Profit Sharing Plan Portion 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.
(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.
(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 Section 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) and (ii) 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"
means 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 Securities
Exchange Act of 1934 (the "Exchange Act"), other than by Stilwell or any
Subsidiary (as defined below), or any employee benefit plan of Stilwell
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 Exchange Act) of 20% or more of the then-outstanding common
stock or the combined voting power of the then-outstanding voting
securities ("Voting Power") of Stilwell; PROVIDED, HOWEVER, that no
Change in 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 Stilwell 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 Stilwell; or
(ii) individuals who, as of the date of the Spin-off
Distribution, constitute the Stilwell Board (the "Incumbent Board") cease
for any reason to constitute at least 75% of the Stilwell Board; PROVIDED
that any individual who becomes a director after the Spin-off
Distribution whose election or nomination for election by the
stockholders of Stilwell 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 Stilwell (as such terms are used in Rule 14a-11 under the Exchange
Act) or "tender offer" (as such term is used in Section 14(d) of the
Exchange 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 Stilwell 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
Stilwell 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 Stilwell 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 Stilwell,
(B) a liquidation or dissolution of Stilwell, or
(C) the sale or other disposition of all or substantially
all of the assets of Stilwell in one transaction or a series of
related transactions; or
(iv) the sale or other disposition by Stilwell, directly or
indirectly, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, of any Significant
Subsidiary or any reduction in 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, "Subsidiary" shall mean any entity of which at
least 50% of the Voting Power is beneficially owned, directly or indirectly,
by Stilwell and "Significant Subsidiary" shall mean (A) any Subsidiary which
contributed 30% or more of the total combined revenues of Stilwell and all
Subsidiaries 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 Spin-off Distribution 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) _____% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) ______, 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 one or more of the
following:
(i) the assignment to the Executive of any duties which result
in a material adverse change in the Executive's position (including
status, offices, titles, and reporting requirements), authority, duties,
or other responsibilities with Stilwell, or any other action of Stilwell
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 Stilwell promptly after receipt of notice
thereof given by the Executive,
(ii) any relocation of the Executive of more than 40 miles
from the place where the Executive was located at the time of the Change
in Control;
(iii) a material reduction or elimination of any component of
the Executive's rate of compensation, including (x) base salary, (y) any
incentive payment or (z) benefits or prerequisites which the Executive
was receiving immediately prior to a Change in Control, or;
(iv) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
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 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:
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EXECUTIVE
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Landon Rowland
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of this ____ day of May, 2000, by
and between Stilwell Financial, Inc., a Delaware corporation ("Stilwell") and
Joseph D. Monello, an individual ("Executive") to be effective on the date of
the Spin-off Distribution (as defined below).
WHEREAS, the parties expect that all of the issued and outstanding stock
of Stilwell will be distributed (the "Spin-off 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 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 Chief Operating 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
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 $_________.
Such rate shall not be increased prior to January 1, 2003 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 period of July 1, 2000 through
December 31, 2002, 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 ______% 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 ____ (__) 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 ______(__) 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 Employee Stock Ownership
Plan and the Stilwell Section 401(k) with Profit Sharing Plan Portion 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 Section 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) and (ii) 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"
means 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 Securities
Exchange Act of 1934 (the "Exchange Act"), other than by Stilwell or any
Subsidiary (as defined below), or any employee benefit plan of Stilwell
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 Exchange Act) of 20% or more of the then-outstanding common
stock or the combined voting power of the then-outstanding voting
securities ("Voting Power") of Stilwell; PROVIDED, HOWEVER, that no
Change in 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 Stilwell 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 Stilwell; or
(ii) individuals who, as of the date of the Spin-off
Distribution, constitute the Stilwell Board (the "Incumbent Board") cease
for any reason to constitute at least 75% of the Stilwell Board; PROVIDED
that any individual who becomes a director after the Spin-off
Distribution whose election or nomination for election by the
stockholders of Stilwell 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 Stilwell (as such terms are used in Rule 14a-11 under the Exchange
Act) or "tender offer" (as such term is used in Section 14(d) of the
Exchange 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 Stilwell 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
Stilwell 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 Stilwell 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 Stilwell,
(B) a liquidation or dissolution of Stilwell, or
(C) the sale or other disposition of all or substantially
all of the assets of Stilwell in one transaction or a series of
related transactions; or
(iv) the sale or other disposition by Stilwell, directly or
indirectly, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, of any Significant
Subsidiary or any reduction in 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, "Subsidiary" shall mean any entity of which at
least 50% of the Voting Power is beneficially owned, directly or indirectly,
by Stilwell and "Significant Subsidiary" shall mean (A) any Subsidiary which
contributed 30% or more of the total combined revenues of Stilwell and all
Subsidiaries 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 Spin-off Distribution 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) ______% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) ________, 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 one or more of the
following:
(i) the assignment to the Executive of any duties which result
in a material adverse change in the Executive's position (including
status, offices, titles, and reporting requirements), authority, duties,
or other responsibilities with Stilwell, or any other action of Stilwell
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 Stilwell promptly after receipt of notice
thereof given by the Executive,
(ii) any relocation of the Executive of more than 40 miles
from the place where the Executive was located at the time of the Change
in Control;
(iii) a material reduction or elimination of any component of
the Executive's rate of compensation, including (x) base salary, (y) any
incentive payment or (z) benefits or prerequisites which the Executive
was receiving immediately prior to a Change in Control, or;
(iv) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
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
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of this ____ day of May, 2000,
by and between Stilwell Financial, Inc., a Delaware corporation ("Stilwell")
and Danny R. Carpenter, an individual ("Executive") to be effective on the
date of the Spin-off Distribution (as defined below).
WHEREAS, the parties expect that all of the issued and outstanding stock
of Stilwell will be distributed (the "Spin-off 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 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
$_________. Such rate shall not be increased prior to January 1, 2003 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 period of July 1, 2000
through December 31, 2002, 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 _____% 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 ____ (__) 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 ______(__) 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 Employee Stock Ownership
Plan and the Stilwell Section 401(k) with Profit Sharing Plan Portion 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 Section 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) and (ii) 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"
means 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 Securities
Exchange Act of 1934 (the "Exchange Act"), other than by Stilwell or any
Subsidiary (as defined below), or any employee benefit plan of Stilwell
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 Exchange Act) of 20% or more of the then-outstanding common
stock or the combined voting power of the then-outstanding voting
securities ("Voting Power") of Stilwell; PROVIDED, HOWEVER, that no
Change in 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 Stilwell 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 Stilwell; or
(ii) individuals who, as of the date of the Spin-off
Distribution, constitute the Stilwell Board (the "Incumbent Board") cease
for any reason to constitute at least 75% of the Stilwell Board; PROVIDED
that any individual who becomes a director after the Spin-off
Distribution whose election or nomination for election by the
stockholders of Stilwell 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 Stilwell (as such terms are used in Rule 14a-11 under the Exchange
Act) or "tender offer" (as such term is used in Section 14(d) of the
Exchange 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 Stilwell 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
Stilwell 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 Stilwell 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 Stilwell,
(B) a liquidation or dissolution of Stilwell, or
(C) the sale or other disposition of all or substantially
all of the assets of Stilwell in one transaction or a series of
related transactions; or
(iv) the sale or other disposition by Stilwell, directly or
indirectly, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, of any Significant
Subsidiary or any reduction in 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, "Subsidiary" shall mean any entity of which at
least 50% of the Voting Power is beneficially owned, directly or indirectly,
by Stilwell and "Significant Subsidiary" shall mean (A) any Subsidiary which
contributed 30% or more of the total combined revenues of Stilwell and all
Subsidiaries 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 Spin-off Distribution 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) _____% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) _____ 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 one or more of the
following:
(i) the assignment to the Executive of any duties which result
in a material adverse change in the Executive's position (including
status, offices, titles, and reporting requirements), authority, duties,
or other responsibilities with Stilwell, or any other action of Stilwell
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 Stilwell promptly after receipt of notice
thereof given by the Executive,
(ii) any relocation of the Executive of more than 40 miles
from the place where the Executive was located at the time of the Change
in Control;
(iii) a material reduction or elimination of any component of
the Executive's rate of compensation, including (x) base salary, (y) any
incentive payment or (z) benefits or prerequisites which the Executive
was receiving immediately prior to a Change in Control, or;
(iv) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
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 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
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Name:
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Title:
------------------------------
EXECUTIVE
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Danny R. Carpenter
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of this _____ day of May, 2000,
by and between Stilwell Financial, Inc., a Delaware corporation ("Stilwell")
and Anthony P. McCarthy, an individual ("Executive") to be effective on the
date of the Spin-off Distribution (as defined below).
WHEREAS, the parties expect that all of the issued and outstanding stock
of Stilwell will be distributed (the "Spin-off 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 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-Finance 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
$_________. Such rate shall not be increased prior to January 1, 2003 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 period of July 1, 2000
through December 31, 2002, 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 ____% 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 ____ (__) 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 ____ (__) 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 Employee Stock Ownership
Plan and the Stilwell Section 401(k) with Profit Sharing Plan Portion 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 Section 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) and (ii) 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"
means 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 Securities
Exchange Act of 1934 (the "Exchange Act"), other than by Stilwell or any
Subsidiary (as defined below), or any employee benefit plan of Stilwell
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 Exchange Act) of 20% or more of the then-outstanding common
stock or the combined voting power of the then-outstanding voting
securities ("Voting Power") of Stilwell; PROVIDED, HOWEVER, that no
Change in 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 Stilwell 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 Stilwell; or
(ii) individuals who, as of the date of the Spin-off
Distribution, constitute the Stilwell Board (the "Incumbent Board") cease
for any reason to constitute at least 75% of the Stilwell Board; PROVIDED
that any individual who becomes a director after the Spin-off
Distribution whose election or nomination for election by the
stockholders of Stilwell 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 Stilwell (as such terms are used in Rule 14a-11 under the Exchange
Act) or "tender offer" (as such term is used in Section 14(d) of the
Exchange 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 Stilwell 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
Stilwell 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 Stilwell 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 Stilwell,
(B) a liquidation or dissolution of Stilwell, or
(C) the sale or other disposition of all or substantially
all of the assets of Stilwell in one transaction or a series of
related transactions; or
(iv) the sale or other disposition by Stilwell, directly or
indirectly, whether by merger, consolidation, combination, lease,
exchange, spin-off, split-off, or other means, of any Significant
Subsidiary or any reduction in 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, "Subsidiary" shall mean any entity of which at
least 50% of the Voting Power is beneficially owned, directly or indirectly,
by Stilwell and "Significant Subsidiary" shall mean (A) any Subsidiary which
contributed 30% or more of the total combined revenues of Stilwell and all
Subsidiaries 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 Spin-off Distribution 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) _____% of his annual base salary
specified in Paragraph 7(a) multiplied by (ii) _____, 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 one or more of the
following:
(i) the assignment to the Executive of any duties which result
in a material adverse change in the Executive's position (including
status, offices, titles, and reporting requirements), authority, duties,
or other responsibilities with Stilwell, or any other action of Stilwell
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 Stilwell promptly after receipt of notice
thereof given by the Executive,
(ii) any relocation of the Executive of more than 40 miles
from the place where the Executive was located at the time of the Change
in Control;
(iii) a material reduction or elimination of any component of
the Executive's rate of compensation, including (x) base salary, (y) any
incentive payment or (z) benefits or prerequisites which the Executive
was receiving immediately prior to a Change in Control, or;
(iv) any failure by Stilwell to comply with any of the
provisions of Paragraph 7;
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 79 Beach Drive, Lake tapawingo, 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
STILWELL FINANCIAL INC.
EMPLOYEE STOCK PURCHASE PLAN
---------------
, 2000
1. PURPOSE
The purpose of this Employee Stock Purchase Plan is to encourage and
enable Eligible Employees of Stilwell Financial Inc. ("Stilwell") and certain
of its Subsidiaries and Affiliates to acquire proprietary interests in Stilwell
through the ownership of Common Stock in order to establish a closer
identification of their interests with those of Stilwell by providing them with
a more direct means of participating in its growth and earnings which, in turn,
will provide motivation for participating Employees to remain in the employ of
and to give greater effort on behalf of the Stilwell Group.
2. DEFINITIONS
The following words or terms, when used herein, shall have the following
respective meanings:
(a) "Plan" or "The Plan" shall mean and refer to this Stilwell Employee
Stock Purchase Plan.
(b) "Stilwell Group" shall mean and refer to Stilwell, and its
Subsidiaries and Affiliates collectively.
(c) "Stilwell" shall mean and refer to Stilwell Financial Inc.
(d) "Shares," "Stock" or "Common Stock" shall mean and refer to shares of
$0.01 par value Common Stock of Stilwell, which it is authorized by its
Certificate of Incorporation to issue.
(e) "Committee" or "The Committee" shall mean and refer to the Committee
appointed by the Board of Directors of Stilwell, to administer this Plan.
(f) "Eligible Employee" or "Employee" shall mean and refer to a person
regularly employed by Stilwell or those of its Subsidiary or Affiliated
Entities designated by the Stilwell Board of Directors on such date as shall be
designated by the Committee for any offering of Stock made pursuant to this
Plan; provided, however, persons whose customary employment is for only 20
hours or less per week or for not more than five months in any calendar year
shall not be an "Employee" or an "Eligible Employee" as those terms are used
herein.
(g) "Purchase Period" shall mean and refer to the number of calendar
months during which installment payments for Stock purchased under the Plan
shall be made.
(h) "Option" or "Options" shall mean and refer to the right or rights
granted to Eligible Employees to purchase Stilwell's Common Stock under an
offering made under this Plan pursuant to their elections to purchase.
(i) "Subscription Period" shall mean and refer to that period of time
prescribed in any offer of Stock under this Plan beginning on the first day
Employees may elect to purchase Shares and ending on the last day such
elections to purchase are authorized to be received and accepted.
(j) "Average Market Price" shall mean and refer to the mean of the high
and low prices for Stilwell Shares traded on the New York Stock Exchange.
(k) "Annual Pay" shall mean and refer to annual base rate of pay as
determined from the payroll records on such date as shall be designated by the
Committee for any offer of Stock made pursuant to this Plan.
(l) "Maximum Purchase Price" shall mean 85% of the Average Market Price on
the Date of Grant designated by the Board of Directors or the Committee under
an offering made under this Plan, or if no Shares were traded on that day, on
the last day prior thereto on which Shares were traded.
(m) "Outstanding Election" shall mean an election to purchase Stock in an
offering under the Plan, or that part of such an election, which has not been
canceled (including voluntary cancellation by the Employee and deemed
cancellations under Paragraphs 14 and 15) prior to the close of business on the
last business day of the Purchase Period.
(n) "Subsidiary," "Affiliate" or "Affiliated Entity" shall mean any
corporation (other than the employer corporation) in an unbroken chain of
corporations beginning with the employer corporation if, at the time of the
granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns Stock possessing 50% or more of the
total combined voting power of all classes of Stock in one of the other
corporations in such chain.
(o) "Active Service" shall mean and refer to the state of being paid for
services performed or paid while absent for sickness, vacation, holidays or
paid leave of absence, but shall not include termination or severance payments.
(p) "Date of Grant" shall mean the date designated by the Board of
Directors as the date Options are granted to Eligible Employees pursuant to an
offering made under this Plan.
3. SHARES RESERVED FOR PLAN
A total of 4,000,000 Shares of Stilwell's authorized and unissued $0.01
par value Common Stock are reserved for this Plan. The Shares so reserved may
be issued and sold pursuant to one or more offerings under the Plan. With
respect to any such offering, the Board of Directors or the Committee will
specify the number of Shares to be made available, the length of the
Subscription Period, the length of the Purchase Period, the Date of Grant and
such other terms and conditions not inconsistent with the Plan as may be
necessary or appropriate.
In the event of a subdivision or combination of Stilwell's Shares, the
maximum number of Shares which may thereafter be issued and sold under the Plan
and the number of Shares under elections to purchase at the time of such
subdivision or combination will be proportionately increased or decreased, the
terms relating to the price at which Shares under elections to purchase will be
sold will be appropriately adjusted, and such other action will be taken as in
the opinion of the Committee is appropriate under the circumstances. In the
case of reclassification or other changes in Stilwell's Shares, the Committee
will make appropriate adjustments.
4. ADMINISTRATION OF THE PLAN
This Plan shall be administered by a Committee appointed by the Board of
Directors, consisting of not less than three members of the Board who are not
eligible to participate in this Plan and one of whom shall be designated as
Chairman of the Committee. The Committee is vested with full authority to
make, administer and interpret such equitable rules and regulations regarding
this Plan or to make amendments to the Plan itself as it may deem advisable.
Its determinations as to the interpretation and operation of this Plan shall be
final and conclusive.
The Committee may act by a majority vote at a regular or special meeting
of the Committee or by decision reduced to writing and signed by a majority of
the Committee without holding a formal meeting. Whenever under this Plan an
action may be taken by the Board of Directors or the Committee, in the case of
inconsistent or contradictory actions, the action of the Board of Directors
shall prevail.
Vacancies in the membership of the Committee arising from death,
resignation or other inability to serve shall be filled by appointment by the
Board of Directors.
5. PARTICIPATION IN THE PLAN
Options to purchase Shares will be granted to Eligible Employees as
defined above; provided, however, the Board of Directors or the Committee may
determine, as to any offering of Common Stock made under this Plan, that the
offer will not be extended to highly compensated Employees within the meaning
of section 414(q) of the Internal Revenue Code of 1986, as amended.
6. EMPLOYEE'S ELECTION TO PURCHASE - GRANT OF OPTIONS
In order to participate in an offering under the Plan, an Eligible
Employee must elect to purchase Shares by signing a form provided by Stilwell
showing the number of Shares the Employee elects to purchase and delivering
it before the end of the Subscription Period for the offering to the chief
accounting officer of the Stilwell Group entity by whom he is employed or
other officer designated in the offer to receive and accept such elections.
Notice that an election to purchase Shares has become effective, that the
Employee has been granted an Option to purchase Shares and showing the number
of Shares which the Employee has elected to purchase under the Option
(subject to adjustment pursuant to Paragraph 7) shall be delivered to each
participating Employee.
7. NUMBER OF SHARES WHICH MAY BE PURCHASED
In each offering under the Plan, each Eligible Employee may elect to
purchase and shall be granted an Option to purchase up to a maximum number of
Shares, the total Maximum Purchase Price of which does not exceed such
percentage of such Employee's Annual Pay as specified by the Committee for the
Stock offering; provided, however, that no such Employee shall be granted an
Option to purchase less than 10 Shares in any offering under this Plan;
provided, further, that no Employee shall be granted an Option to purchase
Shares under this Plan if such Employee, immediately after such Option is
granted, owns or holds Options to purchase Stock possessing 5% or more of the
total combined voting power or value of all classes of Stock of Stilwell or of
any of its Subsidiaries; provided, further, no Employee may be granted an
Option to purchase Stock which permits his rights to purchase Stock under all
such Plans of Stilwell and any of its Subsidiaries to accrue at a rate which
exceeds $25,000 of fair market value of such Stock (determined at the time such
Option is granted) for each calendar year in which such Option is outstanding
at any time. Any Employee may elect to purchase less than the maximum number
of Shares which he is entitled to elect to purchase.
The number of Shares which an Eligible Employee elects to purchase in an
offering under the Plan may be reduced in the event the offering is
over-subscribed. No Option granted to an Eligible Employee in an offering
under the Plan shall permit such Employee to purchase Shares which, if added
together with the total number of Shares purchased by all other Employees in
such offering, would exceed the total number of Shares authorized for sale in
such offering. As of the close of business on the last business day of the
Purchase Period in an offering, the number of Shares which all Eligible
Employees have elected to purchase under Outstanding Elections shall be
counted. If the total number of Shares which all Eligible Employees have
elected to purchase under Outstanding Elections in the offering exceeds the
number of Shares authorized to be sold in the offering, the number of Shares
for which each such Outstanding Election is effective shall be reduced on a pro
rata basis, and the total number of Shares which may be purchased pursuant to
all such Outstanding Elections shall not exceed the total number of Shares
authorized for sale in such offering.
All Shares authorized to be sold in any offering under this Plan in excess
of the total number of Shares purchased by Eligible Employees in any such
offering shall continue to be reserved for this Plan and shall be available for
inclusion in any subsequent offering under this Plan.
8. PURCHASE PRICE
The purchase price per Share (except in case of a deemed cancellation of
election to purchase) will be 85% of the Average Market Price on the last
business day of the month in which the Purchase Period ends or, if no Shares
were traded on that day, on the last day prior thereto on which Shares were
traded; provided the purchase price per Share will not be more than the
Maximum Purchase Price; provided, further, the purchase price will in no
event be less than the par value of the Shares.
9. METHOD OF PAYMENT
Payment for Shares purchased pursuant to the Plan shall be made in
installments, with no right of prepayment. Each Employee electing to purchase
Shares shall authorize the withholding from his regular pay for each month
during the Purchase Period the sums which will produce at the end of the
Purchase Period an amount sufficient to accumulate the Maximum Purchase Price
per Share multiplied by the number of Shares the Employee elected to purchase
on the election form submitted by the Employee in accordance with Paragraph 6
of this Plan. Such deductions shall be in uniform monthly amounts in
conformity with his employer's payroll deduction schedule. In no event shall
an Employee be permitted to complete payment for or receive any Shares after 27
months from the Date of Grant of the Option to him pursuant to Paragraph 6.
10. INTEREST ON PAYMENTS
No interest shall be paid on sums withheld from an Employee's pay for
purchase of Shares under this Plan.
11. RIGHTS AS STOCKHOLDER
An Employee will become a stockholder with respect to Shares which are
purchased pursuant to Options granted under the Plan when such Shares are
transferred into the Employee's name on the books and records of the Company.
Ownership of Shares purchased under the Plan will be entered on the books and
records of the Company as soon as practicable after payment for the Shares has
been received in full by the Company. A certificate for Shares purchased under
the Plan will be issued as soon as practicable after an Employee becomes a
stockholder. An Employee will have no rights as a stockholder with respect to
Shares for which an election to purchase has been made under the Plan until
such Employee becomes a stockholder as provided above.
12. RIGHTS TO PURCHASE SHARES NOT TRANSFERABLE
An Employee's rights under his election to purchase Shares under this
Plan may not be sold, pledged, assigned, or transferred in any manner,
provided, that if an Employee's election to purchase is deemed to be canceled
due to his death, the Employee's estate or the person acquiring the
Employee's rights under the Plan by bequest, inheritance, intestacy or by
written designation filed by the Employee with the Company before death may
exercise the deceased Employee's rights under the Plan for 12 months after
such Employee's death, provided, that in no event may the Employee's estate
or such person exercise an Option under the Plan more than 27 months after
the Date of Grant. If an Employee's rights are sold, pledged, assigned, or
transferred in violation of this paragraph, the right to purchase Shares of
the Employee guilty of such violation shall terminate and the only right
remaining under such Employee's election to purchase will be to have paid
over to the person entitled thereto the amount then credited to the
Employee's account.
13. CANCELLATION OF ELECTION TO PURCHASE
An Employee who has elected to purchase Shares may cancel his election as
to any or all of such Shares by written notice of cancellation delivered to the
chief accounting officer of the Stilwell Group entity by whom he is employed or
other officer designated to accept such notice of cancellation, but such notice
of cancellation must be so delivered before the close of business on the last
business day of the Purchase Period. If an Employee cancels his election as to
only a part of the Shares, he shall continue to make the required installment
payment with respect to the number of Shares for which his election is not
canceled. With respect to the Shares for which he cancels his election, the
Employee shall receive in cash, as soon as practicable after delivery of the
notice of cancellation, the amount credited to his account with respect to such
Shares.
14. DEEMED CANCELLATIONS
(a) Events Constituting a Deemed Cancellation
(i) Leave of Absence, Lay-Off or Temporarily Out of Active Service
An Employee purchasing Stock under the Plan who is granted a leave
of absence, is laid off, or otherwise temporarily out of Active Service
during the Purchase Period may elect during such absence, for a period of
no longer than 90 days and not beyond the last day of the Purchase
Period, to make his installment payments in cash if payroll deductions
are not sufficient to cover the deduction.
If an Employee does not return to Active Service upon the expiration
of his leave of absence or lay-off or, in any event, within 90 days from
the date of his leaving Active Service, (unless the right to reemployment
with the corporation is guaranteed either by statute or contract) his
election to purchase shall be deemed to have been canceled on the 91st
day after such Employee's leaving Active Service.
(ii) Effect of Failure to Make Payments When Due
If in any payroll period, for any reason not set forth in Paragraph
14(a)(i), an Employee has no pay or his pay is insufficient (after other
authorized deductions) to permit deduction of his installment payment,
such payment may be made in cash at the time. In the event of
insufficient pay, notification requesting payment will be sent to the
participant at his last known address.
Subject to the above and other provisions of this Plan permitting
postponement, if an Employee fails to make any payment, his election to
purchase shall be deemed to have been canceled at the time such payment
was due.
(iii) Termination of Employment
If, before an Employee has completed payment for Shares under the
Plan, he resigns, is dismissed or transferred to a company other than
Stilwell or a Subsidiary of Stilwell, or if the entity by which he is
employed should cease to be a Subsidiary of Stilwell, his election to
purchase shall be deemed to have been canceled at that time; provided,
however, that the Committee in its sole discretion may in lieu thereof
specify that there shall be a "Substitution or Assumption" (and not a
deemed cancellation) of an election to purchase if the Committee
determines that a company or entity and Stilwell have made satisfactory
arrangements for such company or entity to substitute a new option for
the Option under such election to purchase, or to assume such Option
under such election to purchase, by reason of a transaction (A) that is a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation, as defined in Section 424(a)
of the United States Internal Revenue Code of 1986 and regulations
thereunder (including a spin-off, split-up or similar transaction); (B)
pursuant to which the excess of the aggregate fair market value of the
shares subject to the new option immediately after the Substitution or
Assumption over the aggregate option price of such shares is not more
than the excess of the aggregate fair market value of all Shares subject
to the Option immediately before the Substitution or Assumption over the
aggregate option price of such Shares; and (C) pursuant to which the new
option or the assumption of the Option does not give the Employee
additional benefits which he did not have under the Option.
(b) Terms and Conditions of a Deemed Cancellation
In the event that an Employee's election to purchase Shares is deemed to
be canceled due to a leave of absence, failure to make a payment when due or
termination of employment, each as defined above, the Company will notify the
Employee of such deemed cancellation by mailing notice to him at his last known
address. Once an Employee's election to purchase Shares is deemed to be
canceled the Employee may elect to (1) receive cash in the amount credited to
his account at the time the deemed cancellation becomes effective, or (2) apply
this amount to the purchase of as many Shares as the amount will purchase as of
the last day of the month in which the deemed cancellation is effective and
receive the balance of the account, if any, in cash. Such an election to
purchase Shares must be made within three months after notification by the
Company of the deemed cancellation, but not later than the last business day of
the Purchase Period nor more than three months after the effective date of the
deemed cancellation. Unless an election to obtain Shares is made within the
allowable time periods described above, such Employee's only right will be to
receive in cash the total amount credited to his account.
A deemed cancellation of an election to purchase Stock will become
effective at the close of business on the day the event causing the deemed
cancellation occurs, but in no event later than the last business day of the
Purchase Period. In the event an Employee elects to purchase Shares within the
allowable time periods described above, the purchase price per share shall be
the lesser of (1) 85% of the Average Market Price on the last business day of
the month in which the deemed cancellation is effective, or (2) the Maximum
Purchase Price, provided, that in no event will the purchase price be less than
the par value of the Shares.
(c) Terms and Conditions of a Substitution or Assumption
If the Committee determines under Section 14(a)(iii) of the Plan to
provide a Substitution or Assumption of Options granted hereunder, the Employee
shall have no further rights under this Plan and the Employee's rights, if any,
to his account or to purchase any property in lieu of Shares shall be governed
exclusively by the arrangements effecting such Substitution or Assumption
including any stock purchase plan of the company or entity substituting a new
option for an Option or assuming an existing Option.
15. DEATH OF A PARTICIPANT
If an Employee dies before he has completed payment for Shares under the
Plan, his election to purchase Shares shall be deemed to have been canceled on
the date of death. In this event the Company will notify the Employee's estate
or designated beneficiary(ies) of such deemed cancellation by mailing notice to
the last known address. Once an Employee's election to purchase Shares is
deemed to be canceled, the estate or designated beneficiary(ies) may elect to
(1) receive cash in the amount credited to his account at the time the deemed
cancellation becomes effective, or (2) apply this amount to the purchase of as
many Shares as the amount will purchase as of the last day of the month in
which the deemed cancellation is effective and receive the balance of the
account, if any, in cash. Such election must be made by the Employee's estate
or the designated beneficiary(ies) within 12 months after the Employee's death,
provided, that in no event may the Employee's estate or such person make the
election more than 27 months after the Date of Grant. Unless an election to
obtain Shares is made within the allowable time periods described above, the
only right will be to receive in cash the total amount credited to the account.
A deemed cancellation of an election to purchase Stock will become
effective at the close of business on the day the event causing the deemed
cancellation occurs, but in no event later than the last business day of the
Purchase Period. In the event an Employee's estate, or the designated
beneficiary(ies), elects to purchase Shares within the allowable time periods
described above, the purchase price per share shall be the lesser of (1) 85% of
the Average Market Price on the last business day of the month in which the
deemed cancellation is effective or (2) the Maximum Purchase Price, provided,
that in no event will the purchase price be less than the par value of the
Shares.
16. APPLICATION OF FUNDS
All funds received by Stilwell in payment for Shares purchased under this
Plan and held by Stilwell at any time may be used for any valid corporate
purpose.
17. COMMENCEMENT OF PLAN
This Plan shall commence on ______________, 2000, subject to the
occurrence of the distribution of Stilwell stock as contemplated pursuant to
that certain Form 10 and Information Statement filed preliminarily by Stilwell
with the Securities and Exchange Commission August 18, 1999, File No. 1-15253
18. GOVERNMENT APPROVALS OR CONSENTS; AMENDMENT
This Plan and any offering and sales to Employees under it are subject
to any governmental approvals or consents that may be or become applicable in
connection therewith. The Board of Directors or the Committee may terminate
the Plan at any time and may make such changes in the Plan and include such
terms in any offering under this Plan as may be necessary or desirable,
including, but not limited to, such changes as may be necessary or desirable,
in the opinion of counsel for Stilwell to comply with the rules or
regulations of any governmental authority, or to be eligible for tax benefits
under the United States Internal Revenue Code of 1986, as amended, or the
laws of any state.
STILWELL FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective October 1, 1999)
<PAGE>
STILWELL FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Article I. DEFINITIONS 2
1.01 "Plan" 2
1.02 "Employer" 2
1.03 "Trustee" 2
1.04 "Plan Administrator" 2
1.05 "Advisory Committee" 2
1.06 "Employee" 2
1.07 "Highly Compensated Employee" 3
1.08 "Participant" 4
1.09 "Beneficiary" 4
1.10 "Compensation" 4
1.11 "Account" 5
1.12 "Accrued Benefit" 5
1.13 "Nonforfeitable" 5
1.14 "Plan Year" 5
1.15 "Effective Date" 5
1.16 "Plan Entry Date" 5
1.17 "Accounting Date" 5
1.18 "Trust" 5
1.19 "Trust Fund" 6
1.20 "Nontransferable Annuity" 6
1.21 "ERISA" 6
1.22 "Code" 6
1.23 "Service" 6
1.24 "Hour of Service" 6
1.25 "Disability" 7
1.26 SERVICE FOR PREDECESSOR EMPLOYER. 8
1.27 RELATED EMPLOYERS. 8
1.28 LEASED EMPLOYEES. 8
1.29 DETERMINATION OF TOP HEAVY STATUS. 8
1.30 PLAN MAINTAINED BY MORE THAN ONE EMPLOYER. 10
1.31 "Disqualified Person" 10
1.32 "Employer Securities" 10
1.33 "Exempt Loan" 11
1.34 "Leveraged Employer Securities" 11
1.35 "Issuer" 11
Article II. EMPLOYEE PARTICIPANTS 11
2.01 ELIGIBILITY. 11
2.02 SERVICE - PARTICIPATION. 12
2.03 BREAK IN SERVICE - PARTICIPATION. 12
2.04 PARTICIPATION UPON REEMPLOYMENT. 12
Article III. EMPLOYER CONTRIBUTIONS AND FORFEITURES 12
3.01 AMOUNT. 12
3.02 CONTRIBUTION ALLOCATION. 13
3.03 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. 14
3.04 DEFINITIONS. 15
3.05 DETERMINATION OF CONTRIBUTION. 19
3.06 TIME OF PAYMENT OF CONTRIBUTION. 19
3.07 FORFEITURE ALLOCATION. 19
3.08 ACCRUAL OF BENEFIT. 19
Article IV. PARTICIPANT CONTRIBUTIONS 20
4.01 PARTICIPANT VOLUNTARY CONTRIBUTIONS. 20
4.02 PARTICIPANT ROLLOVER CONTRIBUTIONS. 20
Article V. TERMINATION OF SERVICE - PARTICIPANT VESTING 20
5.01 NORMAL RETIREMENT AGE. 20
5.02 PARTICIPANT DISABILITY OR DEATH. 20
5.03 VESTING SCHEDULE. 20
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED
PARTICIPANTS/RESTORATION OF FORFEITED ACCRUED BENEFIT. 21
5.05 [RESERVED] 22
5.06 YEAR OF SERVICE - VESTING. 22
5.07 BREAK IN SERVICE - VESTING. 22
5.08 INCLUDED YEARS OF SERVICE - VESTING. 22
5.09 FORFEITURE OCCURS. 22
Article VI. TIME AND METHOD OF PAYMENT OF BENEFITS 23
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. 23
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. 25
6.03 BENEFIT PAYMENT ELECTIONS. 27
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS. 28
6.05 SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS. 28
6.06 [Reserved] 29
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. 29
6.08 ROLLOVER DISTRIBUTIONS. 30
Article VII. EMPLOYER ADMINISTRATIVE PROVISIONS 30
7.01 INFORMATION TO COMMITTEE. 30
7.02 NO LIABILITY. 31
7.03 INDEMNITY OF COMMITTEE. 31
7.04 AMENDMENT TO VESTING SCHEDULE. 31
Article VIII. PARTICIPANT ADMINISTRATIVE PROVISIONS 31
8.01 BENEFICIARY DESIGNATION. 31
8.02 NO BENEFICIARY DESIGNATION. 32
8.03 PERSONAL DATA TO COMMITTEE. 32
8.04 ADDRESS FOR NOTIFICATION. 33
8.05 ASSIGNMENT OR ALIENATION. 33
8.06 NOTICE OF CHANGE IN TERMS. 33
8.07 LITIGATION AGAINST THE TRUST. 33
8.08 INFORMATION AVAILABLE. 33
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. 33
8.10 ESOP DIVERSIFICATION. 34
8.11 KCSI SHARES AND SHORT TERM FUND. 35
Article IX. ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANT'S
ACCOUNTS 36
9.01 MEMBERS' COMPENSATION, EXPENSES. 36
9.02 GENERAL. 36
9.03 FUNDING POLICY. 37
9.04 INDIVIDUAL ACCOUNTS. 37
9.05 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. 38
9.06 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. 38
9.07 UNCLAIMED ACCOUNT PROCEDURE. 39
9.08 TERM. 40
9.09 POWERS. 40
9.10 MANNER OF ACTION. 40
9.11 AUTHORIZED REPRESENTATIVE. 40
9.12 INTERESTED MEMBER. 40
9.13 INDIVIDUAL STATEMENT. 40
9.14 ACCOUNT CHARGED. 41
Article X. TRUSTEE POWERS AND DUTIES 41
10.01 TRUSTEE POWERS AND DUTIES 41
10.02 [RESERVED]. 41
10.03 INVESTMENT POWERS. 41
10.04 [RESERVED]. 43
10.05 [RESERVED]. 43
10.06 [RESERVED]. 43
10.07 [RESERVED]. 43
10.08 DISTRIBUTION OF TRUST FUND. 43
10.09 [RESERVED]. 43
10.10 [RESERVED]. 43
10.11 [RESERVED]. 43
10.12 [RESERVED]. 43
10.13 [RESERVED]. 43
10.14 [RESERVED]. 43
10.15 PARTICIPANT VOTING RIGHTS - EMPLOYER SECURITIES AND KCSI 44
SHARES
10.16 [RESERVED] 45
10.17 USE OF INDEPENDENT APPRAISER. 45
10.18 [RESERVED] 45
10.19 KCSI SHARES RESTRICTIONS. 45
Article XI. REPURCHASE OF EMPLOYER SECURITIES 45
11.01 PUT OPTION. 45
11.02 CONTINUATION OF PUT OPTION. 46
Article XII. MISCELLANEOUS 46
12.01 EVIDENCE. 46
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. 46
12.03 FIDUCIARIES NOT INSURERS. 47
12.04 WAIVER OF NOTICE. 47
12.05 SUCCESSORS. 47
12.06 WORD USAGE. 47
12.07 STATE LAW. 47
12.08 EMPLOYMENT NOT GUARANTEED. 47
12.09 ELECTRONIC MEDIA. 47
Article XIII. EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION 48
13.01 EXCLUSIVE BENEFIT. 48
13.02 AMENDMENT BY EMPLOYER. 48
13.03 DISCONTINUANCE. 49
13.04 FULL VESTING ON TERMINATION. 49
13.05 MERGER/DIRECT TRANSFER. 49
13.06 TERMINATION. 50
Article XIV. PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL 51
14.01 DEFINITIONS OF "CHANGE IN CONTROL". 51
14.02 PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL. 51
14.03 RIGHT TO AMEND ARTICLE XIV PRIOR TO CHANGE IN CONTROL. 52
<PAGE>
ALPHABETICAL LISTING OF DEFINITIONS
Plan Definition Reference
(Page Number)
Account 1.11 (5)
Accounting Date 1.17 (5)
Accrued Benefit 1.12 (5)
Advisory Committee 1.05 (2)
Affiliate 1.27 (8)
Annual Addition 3.04(a) (15)
Annuity Starting Date 6.01 (23)
Advisory Committee 1.05 (2)
Beneficial Owner 14.01 (51)
Beneficiary 1.09 (4)
Break in Service for Vesting Purposes 5.07 (22)
Cash-Out Distribution 5.04 (21)
Change in Control 14.01(b) (51)
Claimant 8.09 (33)
Code 1.22 (6)
Code Section 411(d)(6) Protected Benefits 13.02 (48)
Compensation 1.10 (4)
Compensation for Code Section 415 Purposes 3.04(b) (16)
Compensation for Top Heavy Purposes 1.29(c) (10)
Deemed Cash-Out Rule 5.04(C) (22)
Defined Contribution Plan 3.04(g) (17)
Defined Benefit Plan 3.04(h) (17)
Determination Date 1.29(g) (10)
Disability 1.25 (7)
Disqualified Person 1.31 (10)
Distribution Date 6.01 (23)
Distribution Valuation Date 6.01 (23)
Effective Date 1.15 (5)
Elective Contributions 1.10 (4)
Elective Transfer 13.05 (49)
Eligible Accrued Benefit 8.10 (34)
Eligible Portion 6.05 (28)
Employee 1.06 (2)
Employer 1.02 (2)
Employer for Code Section 415 Purposes 3.04(c) (16)
Employer for Top Heavy Purposes 1.29(f) (10)
Employer Securities 1.32 (10)
Employment Commencement Date 2.01 (11)
ERISA 1.21 (6)
Excess Amount 3.04(d) (16)
Exempt Loan 1.33 (11)
Exchange Act 14.01 (51)
Excluded Employee 2.01 (11)
5% Owner 1.07 (3)
Forfeiture Break in Service 5.08 (22)
Highly Compensated Employee 1.07 (3)
Hour of Service 1.24 (6)
Investment Manager 9.02(i) (37)
Issuer 1.35 (11)
Key Employee 1.29(a) (9)
Leased Employees 1.28 (8)
Leveraged Employer Securities 1.34 (11)
Limitation Year 3.04(e) (16)
Master trust 1.18(5)
Maximum Permissible Amount 3.01 (12)
Minimum Distribution Incidental Benefit (MDIB) 6.02(A) (25)
Non-Key Employee 1.29 (10)
Nonforfeitable 1.13 (5)
Nontransferable Annuity 1.20 (6)
Normal Retirement Age 5.01 (20)
Participant 1.08 (4)
Permissive Aggregation Group 1.29(e) (10)
Plan 1.01 (2)
Plan Administrator 1.04 (2)
Plan Entry Date 1.16 (5)
Plan Year 1.14 (5)
Qualified Domestic Relations Order 6.07 (29)
Related Employers 1.27 (8)
Required Aggregation Group 1.29(d) (10)
Required Beginning Date 6.01(B) (24)
Service 1.23 (6)
Top Heavy Minimum Allocation 3.02(B) (13)
Top Heavy Ratio 1.29 (8)
Sponsor 1.02 (2)
Trust 1.18 (5)
Trust Fund 1.19 (6)
Trustee 1.03 (2)
Years of Service 5.08 (22)
<PAGE>
STILWELL FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective October 1, 1999)
INTRODUCTION
Stilwell Financial, Inc. ("Stilwell") hereby establishes, effective as
of October 1, 1999 (the "Effective Date"), the Stilwell Financial, Inc.
Employee Stock Ownership Plan ("Plan") for the administration and
distribution of (i) accounts transferred to the Plan from the Kansas City
Southern Industries, Inc. Employee Stock Ownership Plan ("KCSI ESOP") on
behalf of current and former employees of Stilwell and its subsidiaries
(collectively, the "Stilwell Group") and (ii) contributions to be made by the
Employers that are members of the Stilwell Group for the purpose of providing
retirement benefits to eligible employees of the Stilwell Group.
This Plan is intended to be an employee stock ownership plan, and to
qualify as such under Section 4975(e)(7) of the Internal Revenue Code of 1986
and under Treasury Regulation Section 54.4975-11. The provisions of this
Plan shall apply to an Employee who is employed by an Employer on or after
the Effective Date, and to any other Employee who is employed by an Employer
before the Effective Date and whose Account is transferred from the KCSI ESOP
to this Plan. If a Participant whose Account is transferred from the KCSI
ESOP to this Plan as of the Effective Date terminated employment from his
last Employer prior to the Effective Date, the terms of this Plan shall
govern the maintenance and distribution of his Account on and after the
Effective Date, but in all other respects the benefits to which he is
entitled shall be determined under the terms of the KCSI ESOP as in effect on
the date of the Employee's termination of employment.
As of the Effective Date, the members of the Stilwell Group were members
of the controlled group of corporations (within the meaning of Code
Section 414(b)) that includes Kansas City Southern Industries, Inc. ("KCSI").
It is contemplated that as of a certain date (the "Spinoff Date"), all of the
shares of Stilwell held by KCSI will be distributed to the shareholders of
KCSI as a spinoff dividend (such transaction being referred to herein as the
"Spinoff") and the members of the Stilwell Group will thereby cease to be
members of the controlled group of corporations that includes KCSI.
Prior to the Effective Date, eligible employees of the Stilwell Group
("Stilwell Participants") participated in the KCSI ESOP. As of the Effective
Date, the KCSI ESOP was split into two separate plans: (1) an employee stock
ownership plan providing benefits to eligible employees of the Stilwell
Group, to which were transferred the assets of the KCSI ESOP allocable to
employees and former employees of the Stilwell Group, and which is known as
the Stilwell Financial, Inc. Employee Stock Ownership Plan ("Plan"); and
(2) an employee stock ownership plan providing benefits to employees of KCSI
and certain of its affiliates (exclusive of the Stilwell Group), which
continued to hold the assets of the KCSI ESOP allocable to employees and
former employees of KCSI and certain of its affiliates other than the
Stilwell Group, and which continued to be known as the Kansas City Southern
Industries, Inc. Employee Stock Ownership Plan ("KCSI ESOP").
Effective as of the Effective Date, employees of the Stilwell Group
ceased to be eligible to continue active participation in the KCSI ESOP.
Effective as of the Effective Date, the Plan was established by Stilwell as a
successor to the KCSI ESOP to provide retirement benefits for eligible
employees who continue employment with or become employed by the Stilwell
Group following the Effective Date.
As a result of the Spinoff, Participants' Accounts under the Plan will
hold both KCSI Shares and shares of common stock of Stilwell ("Stilwell
Shares") that will be received as dividends with respect to such KCSI Shares,
and will be Employer Securities within the meaning of Section 1.32.
Accordingly, Stilwell has determined that in order to provide Participants
with the opportunity to continue to hold the same economic investment
following the Spinoff as before and enhanced investment flexibility following
the Spinoff, the Plan shall provide for not only the holding of Stilwell
Shares, but also the holding of KCSI Shares and interests in a short-term
cash equivalent investment fund ("Short Term Fund") designated by the
Advisory Committee. As provided in Section 8.11, and subject to the
provisions thereof, following the Spinoff, Participants may elect to continue
holding KCSI Shares in their Accounts under the Plan, or may elect to sell
KCSI Shares and reinvest the proceeds in Stilwell Shares or in the Short Term
Fund. The continued holding of KCSI Shares following the Spinoff is limited
to those KCSI Shares that remain allocated to Participants' Accounts
immediately following the Spinoff. Accordingly, following the Spinoff no
future contributions to or earnings of the Plan, and no amounts transferred
from the Short Term Fund, may be invested in KCSI Shares. Cash dividends on
KCSI Shares received by the Plan following the Spinoff shall be invested in
Stilwell Shares.
DEFINITIONS
"Plan" means the retirement plan established by Stilwell as set forth
herein, designated as the "Stilwell Financial, Inc. Employee Stock Ownership
Plan." The Sponsor has designed this Plan to invest primarily in Employer
Securities.
"Employer" means Stilwell Financial, Inc. ("Stilwell" or the "Sponsor"),
or any other Employer who, with the written consent of Stilwell, adopts this
Plan.
"Trustee" means the Trustee under the Master Trust or any successor in
office who in writing accepts the position of Trustee.
"Plan Administrator" is Stilwell Financial, Inc. unless Stilwell
designates another person to hold the position of Plan Administrator. In
addition to its other duties, the Plan Administrator has full responsibility
for compliance with the reporting and disclosure rules under ERISA as
respects this Plan.
"Advisory Committee" means the Sponsor's Advisory Committee for the Plan
as from time to time constituted.
"Employee" means any employee of the Employer, excluding any Leased
Employee, and excluding any individual who performs services for an Employer
and (i) is working in a classification described as an independent contractor
(even if such person is subsequently determined to be a common-law employee
of the Employer), (ii) is paid, directly or indirectly, through an Employer's
accounts payable system, or (iii) performs such services pursuant to a
contract or agreement which provides that the person is an independent
contractor or consultant (even if such person is subsequently determined to
be a common-law employee of the Employer).
"Highly Compensated Employee" means, for any Plan Year, any individual
who (i) is an Employee described in subsection (a) or (b) below, or (ii) is a
former Employee described in subsection (c), below:
An Employee who at any time during the current Plan Year or the
preceding Plan Year is a more than five percent (5%) owner (or is
considered as owning more than five percent (5%) within the meaning of
Section 318 of the Code) ("5% Owner") of the Employer;
An Employee who (i) received Compensation during the preceding
Plan Year in excess of $80,000 (in 1996, as adjusted in accordance with
regulations and rulings under Section 414(q) of the Code), and (ii) if
the Advisory Committee elects by amendment of the Plan to apply this
clause (ii) to determine the Highly Compensated Employees for a Plan
Year, for this Plan and, except as otherwise permitted, consistently
for all plans of the Employer whose plan years begin in the same
calendar year as such preceding Plan Year, is in the group consisting
of the top twenty percent (20%) of the total number of persons employed
by the Employer when ranked on the basis of Compensation paid during
the preceding Plan Year, provided that, for purposes of determining the
total number of persons employed by the Employer, the following
Employees shall be excluded:
Employees who have not completed an aggregate of six (6)
months of service during the preceding Plan Year,
Employees who work less than seventeen and one-half (17-1/2)
hours per week for 50% or more of the total weeks worked by such
employees during the preceding Plan Year,
Employees who normally work during not more than six (6)
months during any year,
Employees who have not attained age 21 by the end of the
preceding Plan Year,
Employees who are nonresident aliens and who receive no
earned income (within the meaning of Section 911(d)(2) of the
Code) from the Employer which constitutes income during the
preceding Plan Year from sources within the United States (within
the meaning of Section 861(a)(3) of the Code), and
Except to the extent provided in regulations prescribed by
the Secretary of the Treasury, Employees who are members of a
collective bargaining unit represented by a collective bargaining
agent with which an Employer has or has had a bargaining
agreement.
For purposes of this Section 1.07, "Compensation" means
Compensation as defined in Section 1.10, and Compensation must include
Elective Contributions.
The Advisory Committee must make the determination of who is a
Highly Compensated Employee, including the determinations of the number
and identity of the top paid 20% group and the relevant Compensation,
consistent with Code Section 414(q) and regulations issued under that
Code section. The Employer may make a calendar year election to
determine the Highly Compensated Employees for the Plan Year, as
prescribed by Treasury regulations. Except as otherwise permitted, a
calendar year election must apply to all plans and arrangements of the
Employer.
The term "Highly Compensated Employee" also includes any former
Employee who separated from Service (or has a deemed Separation from
Service, as determined under Treasury regulations) prior to the Plan
Year, performs no Service for the Employer during the Plan Year, and
was a Highly Compensated Employee either for the separation year or for
any Plan Year ending on or after his 55th birthday.
"Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
"Beneficiary" is a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes
entitled to a benefit under the Plan remains a Beneficiary under the Plan
until the Trustee has fully distributed his benefit to him. A Beneficiary's
right to (and the Plan Administrator's, the Advisory Committee's or a
Trustee's duty to provide to the Beneficiary) information or data concerning
the Plan does not arise until he first becomes entitled to receive a benefit
under the Plan.
"Compensation" means a Participant's wages, salaries, fees for
professional service and other amounts received for personal services
actually rendered in the course of employment with the Employer maintaining
the Plan as defined in Code Section 3401(a) for purposes of income tax
withholding at the source but determined without regard to any rules that
limit remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Section 3401(a)(2)). Compensation includes Elective Contributions
made by the Employer on the Employee's behalf. "Elective Contributions" are
amounts excludible from the Employee's gross income under Code Sections 125,
402(a)(8), 402(h) or 403(b), and contributed by the Employer, at the
Employee's election, to a Code Section 401(k) arrangement, simplified
employee pension, cafeteria plan or tax-sheltered annuity. A Compensation
payment includes Compensation paid by the Employer to an Employee through
another person under the common paymaster provisions of Code Section 3121(s)
and 3306(p).
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.10, unless the Plan reference specifies a
modification to this definition. The Advisory Committee will take into
account only Compensation actually paid for the relevant period.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not
exceed the OBRA 93 annual compensation limit. The OBRA 93 annual
compensation limit is $150,000, as adjusted by the Commissioner for increases
in the cost of living in accordance with Code Section 401(a)(17)(B). The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA 93 annual compensation
limit will be multiplied by a fraction, the numerator of which is the number
of months in the determination period, and the denominator of which is 12.
If Compensation for any prior determination period is taken into account
in determining an Employee's benefits accruing in the current Plan Year, the
compensation for that prior determination period is subject to the OBRA 93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA 93 annual
compensation limit is $150,000.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA 93 annual compensation limit set forth in this
provision.
NONDISCRIMINATION. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.10, unless the Employer elects to
use an alternate nondiscriminatory definition, in accordance with the
requirements of Code Section 414(s) and the regulations issued under that
Code section. The Employer may elect to include all Elective Contributions
made by the Employer on behalf of the Employees. The Employer's election to
include Elective Contributions must be consistent and uniform with respect to
Employees of the Employer and all plans of the Employer for any particular
Plan Year. The Employer may make this election to include Elective
Contributions for nondiscrimination testing purposes, irrespective of whether
this Section 1.10 includes Elective Contributions in the general Compensation
definition applicable to the Plan.
"Account" means the separate account(s) which the Advisory Committee or
the Trustee maintains for a Participant under the Plan.
"Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and
Employee contributions, if any.
"Nonforfeitable" means a Participant's or Beneficiary's unconditional
claim, legally enforceable against the Plan, to the Participant's Accrued
Benefit.
"Plan Year" means the fiscal year of the Plan, a 12 consecutive month
period ending every December 31. For fiscal reporting purposes, the first
Plan Year of the Plan shall be the short Plan Year commencing on the
Effective Date and ending December 31, 1999.
"Effective Date" of this Plan is October 1, 1999.
"Plan Entry Date" means every January 1 and July 1.
"Accounting Date" is the last day of the Plan Year. Unless otherwise
specified in the Plan, the Advisory Committee shall make all Plan allocations
for a particular Plan Year as of the last Accounting Date of that Plan Year.
"Trust" means the Master Trust established pursuant to the Master Trust
Agreement between Stilwell and UMB Bank, N.A., effective as of October 1,
1999, and/or any other Trust that may be established under this Plan.
"Trust Fund" means all property of every kind held or acquired by the
Trustee under the Plan. A single Master Trust has been established for all
Employers participating under the Stilwell Financial, Inc. Employee Stock
Ownership Plan. However, the Trustee will maintain separate records of
account in order to reflect properly each Participant's Accrued Benefit
derived from each participating Employer.
"Nontransferable Annuity" means an annuity which by its terms provides
that it may not be sold, assigned, discounted, pledged as collateral for a
loan or security for the performance of an obligation or for any purpose to
any person other than the insurance company. If the Trustee distributes an
annuity contract, the contract must be a Nontransferable Annuity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Service" means any period of time the Employee is in the employ of the
Employer, including any period the Employee is on an unpaid leave of absence
authorized by the Employer under a uniform, nondiscriminatory policy
applicable to all Employees. Notwithstanding any provision of this Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service shall be provided in accordance with Section
414(u) of the Code. "Separation from Service" means a separation from
Service with the Employer maintaining this Plan.
"Hour of Service" means:
Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Advisory Committee credits
Hours of Service under this paragraph (a) to the Employee for the
computation period in which the Employee performs the duties,
irrespective of when paid;
Each Hour of Service for back pay, irrespective of mitigation of
damages, to which the Employer has agreed or for which the Employee has
received an award. The Advisory Committee credits Hours of Service
under this paragraph (b) to the Employee for the computation period(s)
to which the award or the agreement pertains rather than for the
computation period in which the award, agreement or payment is made;
and
Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties
during a computation period, such as leave of absence, vacation,
holiday, sick leave, illness, incapacity (including disability),
layoff, jury duty or military duty. The Advisory Committee will credit
no more than 501 Hours of Service under this paragraph (c) to an
Employee on account of any single continuous period during which the
Employee does not perform any duties (whether or not such period occurs
during a single computation period). The Advisory Committee credits
Hours of Service under this paragraph (c) in accordance with the rules
of paragraphs (b) and (c) of Labor Reg. Section 2530.200b-2, which the
Plan, by this reference, specifically incorporates in full within this
paragraph (c).
The Advisory Committee will not credit an Hour of Service under more
than one of the above paragraphs. A computation period for purposes of this
Section 1.24 is the Plan Year, Year of Service period, Break in Service
period or other period, as determined under the Plan provision for which the
Advisory Committee is measuring an Employee's Hours of Service.
The Employer will credit every Employee with Hours of Service on the
basis of the "actual" method. For purposes of the Plan, "actual" method
means the determination of Hours of Service from records of hours worked and
hours for which the Employer makes payment or for which payment is due from
the Employer. However, for an Employee who is paid on other than an hourly
basis, Hours of Service shall be credited according to the following
schedule, based on the payroll period of the Employee, for each payroll
period with respect to which he or she is paid or is entitled to payment of
compensation:
Payroll Period Hours of Service
-------------- ----------------
Daily 10
Weekly 45
Bi-Monthly 95
Monthly 190
Solely for purposes of determining whether the Employee incurs a Break
in Service under any provision of this Plan, the Advisory Committee must
credit Hours of Service during an Employee's unpaid absence period due to
maternity or paternity leave. The Advisory Committee considers an Employee
on maternity or paternity leave if the Employee's absence is due to the
Employee's pregnancy, the birth of the Employee's child, the placement with
the Employee of an adopted child, or the care of the Employee's child
immediately following the child's birth or placement. The Advisory Committee
credits Hours of Service under this paragraph on the basis of the number of
Hours of Service the Employee would receive if he were paid during the
absence period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours per day
during the absence period. The Advisory Committee will credit only the
number (not exceeding 501) of Hours of Service necessary to prevent an
Employee's Break in Service. The Advisory Committee credits all Hours of
Service described in this paragraph to the computation period in which the
absence period begins or, if the Employee does not need these Hours of
Service to prevent a Break in Service in the computation period in which his
absence period begins, the Advisory Committee credits these Hours of Service
to the immediately following computation period.
"Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for
an indefinite period which the Advisory Committee considers will be of long
continued duration. A Participant also is disabled if he incurs the
permanent loss or loss of use of a member or function of the body, or is
permanently disfigured, and incurs a Separation from Service. The Plan
considers a Participant disabled on the date the Advisory Committee
determines the Participant satisfies the definition of disability. The
Advisory Committee may require a Participant to submit to a physical
examination in order to confirm disability. The Advisory Committee will
apply the provisions of this Section 1.25 in a nondiscriminatory, consistent
and uniform manner.
SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan of
a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer.
RELATED EMPLOYERS. A related group is a controlled group of
corporations (as defined in Code Section 414(b)), trades or businesses
(whether or not incorporated) which are under common control (as defined in
Code Section 414(c)) or an affiliated service group (as defined in Code
Section 414(m) or in Code Section 414(o)). If the Employer is a member of a
related group, the term "Employer" includes, for the time period during which
the relation exists, the related group members for purposes of crediting
Hours of Service, determining Years of Service and Breaks in Service under
Articles II and V, applying the limitations on allocations in Article III,
applying the top heavy rules and the minimum allocation requirements of
Article III, the definitions of Employee, Highly Compensated Employee,
Compensation and Leased Employee, and for any other purpose required by the
applicable Code section or by a Plan provision. In addition, (i) the Plan
shall treat all service prior to the Spinoff Date that is credited with
respect to an Employee under the terms of the KCSI ESOP in effect prior to
the Effective Date as service with the Employer, and (ii) the Plan shall
treat service of an Employee on or after the Spinoff Date with an "affiliate"
of Stilwell during the time it is an "affiliate" as service with the
Employer. For purposes of this Section 1.27, the term "affiliate" means any
corporation, partnership, joint venture or other business entity with respect
to which twenty-five percent (25%) or more of the equity interests therein
are owned, directly or indirectly, by Stilwell or by any entity at least 80%
of the equity interests of which are owned by Stilwell. However, only an
Employer described in Section 1.02 may contribute to the Plan and only an
Employee employed by an Employer described in Section 1.02 is eligible to
participate in this Plan. For Plan allocation purposes, "Compensation" does
not include Compensation received from a related employer that is not
participating in this Plan.
LEASED EMPLOYEES. The Plan does not treat a Leased Employee as an
Employee of the Employer. A Leased Employee is an individual (who otherwise
is not an Employee of the Employer) who, pursuant to a leasing agreement
between the Employer and any other person, has performed services for the
Employer (or for the Employer and any persons related to the Employer within
the meaning of Code Section 144(a)(3)) on a substantially full time basis for
at least one year and who performs services under the primary direction or
control of the Employer. A Leased Employee who performs services for the
Employer pursuant to a contract or agreement which provides that the person
is a Leased Employee will not become eligible to participate in this Plan
merely by reason of a determination that the person is a common-law employee
of the Employer, unless and until the Employer changes the employment
classification of such person.
DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only qualified
plan maintained by the Employer, the Plan is top heavy for a Plan Year if the
top heavy ratio as of the Determination Date exceeds 60%. The top heavy
ratio is a fraction, the numerator of which is the sum of the present value
of Accrued Benefits of all Key Employees in the Plan as of the Determination
Date and the denominator of which is a similar sum determined for all
Employees in the Plan. The Advisory Committee must include in the top heavy
ratio, as part of the present value of Accrued Benefits, any contribution by
the Employer not made as of the Determination Date but includible under Code
Section 416 and the applicable Treasury regulations, and distributions made
within the Determination Period. The Advisory Committee must calculate the
top heavy ratio by disregarding the Accrued Benefit (and distributions, if
any, of the Accrued Benefit) of any Non-Key Employee who was formerly a Key
Employee, and by disregarding the Accrued Benefit (including distributions,
if any, of the Accrued Benefit) of an individual who has not received credit
for at least one Hour of Service with the Employer during the Determination
Period. The Advisory Committee must calculate the top heavy ratio, including
the extent to which it must take into account distributions, rollovers and
transfers, in accordance with Code Section 416 and the regulations under that
Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is
terminated, the Plan is top heavy only if it is part of the Required
Aggregation Group, and the top heavy ratio for the Required Aggregation Group
and for the Permissive Aggregation Group, if any, each exceeds 60%. The
Advisory Committee will calculate the top heavy ratio in the same manner as
required by the first paragraph of this Section 1.29, taking into account all
plans within the Aggregation Group. To the extent the Advisory Committee
must take into account distributions to a Participant, the Advisory Committee
must include distributions from a terminated plan which would have been part
of the Required Aggregation Group if it were in existence on the
Determination Date. The Advisory Committee will calculate the present value
of Accrued Benefits under defined benefit plans or simplified employee
pension plans included within the group in accordance with the terms of those
plans, Code Section 416 and the regulations under that Code section. If a
Participant in a defined benefit plan is a Non-Key Employee, the Advisory
Committee will determine his Accrued Benefit under the accrual method, if
any, which is applicable uniformly to all defined benefit plans maintained by
the Employer or, if there is no uniform method, in accordance with the
slowest accrual rate permitted under the fractional rule accrual method
described in Code Section 411(b)(1)(C). To calculate the present value of
benefits from a defined benefit plan, the Advisory Committee will use the
actuarial assumptions (interest and mortality only) prescribed by the defined
benefit plan(s) to value benefits for top heavy purposes. If an aggregated
plan does not have a valuation date coinciding with the Determination Date,
the Advisory Committee must value the Accrued Benefits in the aggregated plan
as of the most recent valuation date falling within the 12-month period
ending on the Determination Date, except as Code Section 416 and applicable
Treasury regulations require for the first and second plan year of a defined
benefit plan. The Advisory Committee will calculate the top-heavy ratio with
reference to the Determination Dates that fall within the same calendar year.
DEFINITIONS. For purposes of applying the provisions of this Section
1.29:
"Key Employee" means, as of any Determination Date, any Employee
or former Employee (or Beneficiary of such Employee) who, for any Plan
Year in the Determination Period: (i) has Compensation in excess of
50% of the dollar amount prescribed in Code Section 415(b)(1)(A)
(relating to defined benefit plans) and is an officer of the Employer;
(ii) has Compensation in excess of the dollar amount prescribed in Code
Section 415(c)(1)(A) (relating to defined contribution plans) and is
one of the Employees owning the ten largest interests in the Employer;
(iii) is a more than 5% owner of the Employer; or (iv) is a more than
1% owner of the Employer and has Compensation of more than $150,000.
The constructive ownership rules of Code Section 318 (or the principles
of that section, in the case of an unincorporated Employer) will apply
to determine ownership in the Employer. The number of officers taken
into account under clause (i) will not exceed the greater of 3 or 10%
of the total number (after application of the Code Section 414(q)(8)
exclusions) of Employees, but no more than 50 officers. The Advisory
Committee will make the determination of who is a Key Employee in
accordance with Code Section 416(i)(1) and the regulations under that
Code section.
"Non-Key Employee" is an Employee who does not meet the definition
of Key Employee.
"Compensation" means Compensation as determined under Section 1.07
(relating to the Highly Compensated Employee definition).
"Required Aggregation Group" means: (1) each qualified plan of
the Employer in which at least one Key Employee participates at any
time during the Determination Period; and (2) any other qualified plan
of the Employer which enables a plan described in clause (1) to meet
the requirements of Code Section 401(a)(4) or Code Section 410.
"Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if
such group would satisfy in the aggregate the requirements of Code
Section 401(a)(4) and Code Section 410. The Advisory Committee will
determine the Permissive Aggregation Group.
"Employer" means the Employer that adopts this Plan and any
related employers described in Section 1.27.
"Determination Date" for any Plan Year is the last Accounting Date
of the preceding Plan Year or, in the case of the first Plan Year of
the Plan, the last Accounting Date of that Plan Year. The
"Determination Period" is the 5-year period ending on the Determination
Date.
PLAN MAINTAINED BY MORE THAN ONE EMPLOYER. If more than one Employer
maintains this Plan, then for purposes of determining Service and Hours of
Service, the Advisory Committee will treat all Employers maintaining this
Plan as a single employer.
"Disqualified Person" has the meaning ascribed to that term under Code
Section 4975(e)(2).
"Employer Securities" means (i) prior to the Spinoff Date, voting common
stock issued by KCSI, or by a corporation which is a member of the same
controlled group of corporations, which is readily tradable on an established
securities market and (ii) on or after the Spinoff Date, voting common stock
issued by Stilwell, or by a corporation which is a member of the same
controlled group of corporations, which is readily tradable on an established
securities market. Noncallable preferred stock of KCSI (prior to the Spinoff
Date) or Stilwell (on or after the Spinoff Date) shall be treated as Employer
Securities if such stock is convertible at any time into voting common stock
issued by KCSI or Stilwell, as applicable, if such conversion is at a
conversion price which (as of the date of acquisition by the Plan) is
reasonable. Under regulations under Code Section 409(l), preferred stock
shall be treated as noncallable if after the call there will be a reasonable
opportunity for a conversion which meets the requirements of the preceding
sentence.
"Exempt Loan" means a loan made to this Plan by a Disqualified Person,
or a loan to this Plan which a Disqualified Person guarantees, provided the
loan satisfies the requirements of Treas. Reg. Section 54.4975-7(b).
"Leveraged Employer Securities" means Employer Securities acquired by
the Trust with the proceeds of an Exempt Loan and which satisfy the
definition of "qualifying employer securities" in Code Section 4975(e)(8)
with respect to the Plan to which the Exempt Loan was made.
"Issuer" means the corporation that issued the Employer Securities.
EMPLOYEE PARTICIPANTS
ELIGIBILITY. Each Employee (other than an Excluded Employee) becomes a
Participant in the Plan on the Plan Entry Date (if employed on that date)
coincident with or immediately following his Employment Commencement Date.
Each Employee who was a Participant in the KCSI ESOP on the day before the
Effective Date and whose Employer becomes an Employer under this Plan as of
the Effective Date continues as a Participant in the Plan on the Effective
Date. The term "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service for an Employer.
An Employee is an Excluded Employee if he is (a) a nonresident alien who
receives no earned income (within the meaning of Code Section 911(d)(2)) from
an Employer which constitutes income from sources within the United States
(within the meaning of Code Section 861(a)(3)), or (b) a member of a
collective bargaining unit, unless the collective bargaining agreement
provides otherwise. An Employee is a member of a collective bargaining unit
if he is included in a unit of employees covered by an agreement which the
Secretary of Labor finds to be a collective bargaining agreement between
employee representatives and one or more employers if there is evidence that
retirement benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers. The term "employee
representatives" does not include an organization more than one half the
members of which are owners, officers or executives of an Employer.
If a Participant has not incurred a Separation from Service but becomes
an Excluded Employee, then during the period such a Participant is an
Excluded Employee, the Advisory Committee will limit that Participant's
sharing in the allocation of Employer contributions and Participant
forfeitures, if any, under the Plan by disregarding his Compensation paid by
an Employer for services rendered in his capacity as an Excluded Employee.
However, during such period of exclusion, the Participant, without regard to
employment classification, continues to receive credit for vesting under
Article V for each included Year of Service and the Participant's Account
continues to share fully in Trust Fund allocations under Section 9.06.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification,
he will participate in the Plan immediately if he would have been a
Participant had he not been an Excluded Employee during his period of
Service. Furthermore, the Plan takes into account all of the Participant's
included years of Service with an Employer as an Excluded Employee for
purposes of vesting credit under Article V.
A Leased Employee who performs services for the Employer pursuant to a
contract or agreement which provides that the person is a Leased Employee
will not become eligible to participate in this Plan merely by reason of a
determination that the person is a common-law employee of the Employer,
unless and until the Employer changes the employment classification of such
person. If a Leased Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification,
he will participate in the Plan immediately if he has satisfied the
eligibility conditions of Section 2.01 and would have been a Participant had
he not been a Leased Employee during his period of Service. Furthermore, the
Plan takes into account all of the Participant's included Years of Service
with an Employer as a Leased Employee for purposes of vesting credit under
Article V.
SERVICE - PARTICIPATION. For purposes of an Employee's participation in
the Plan under Section 2.01, the Plan does not apply any minimum Hour of
Service requirement. The Plan does not require an Employee who terminates
employment to establish a new Employment Commencement Date if reemployed by
an Employer.
BREAK IN SERVICE - PARTICIPATION. For purposes of participation in the
Plan, the Plan does not apply any Break in Service rule.
PARTICIPATION UPON REEMPLOYMENT. A Participant whose employment
terminates reenters the Plan as a Participant on the date of his
reemployment. An Employee who satisfies the Plan's eligibility conditions
but who terminates employment prior to becoming a Participant becomes a
Participant in the Plan on the later of the Plan Entry Date on which he would
have entered the Plan had he not terminated employment or the date of his
reemployment. Any Employee who terminates employment prior to satisfying the
Plan's eligibility conditions becomes a Participant in accordance with the
provisions of Section 2.01.
EMPLOYER CONTRIBUTIONS AND FORFEITURES
AMOUNT. For each Plan Year, the Employer may contribute to the Trust an
amount which the Employer may from time to time deem advisable. The Employer
may not make a contribution to the Trust for any Plan Year to the extent the
contribution would exceed the Participants' "Maximum Permissible Amounts"
under Section 3.04.
The Employer contributes to this Plan on the condition its contribution
is not due to a mistake of fact and the Internal Revenue Service will not
disallow the deduction for its contribution. The Trustee, upon written
request from the Employer, must return to the Employer the amount of the
Employer contribution made by the Employer by mistake of fact or the amount
of the Employer's contribution disallowed as a deduction under Code Section
404. The Trustee will not return any portion of the Employer's contribution
under the provisions of this paragraph more than one year after:
The Employer made the contribution by mistake of fact; or
The disallowance of the contribution as a deduction, and then, only
to the extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer's contribution
returnable for any losses attributable to it. The Trustee may require the
Employer to furnish it whatever evidence the Trustee deems necessary to
enable the Trustee to confirm the amount the Employer has requested be
returned is properly returnable under ERISA.
The Employer may make its contribution in cash or in Employer Securities
as the Employer from time to time may determine. The Employer may make its
contribution of Employer Securities at fair market value determined at the
time of contribution.
CONTRIBUTION ALLOCATION.
METHOD OF ALLOCATION. Subject to Section 3.02(B) and any restoration
allocation required under Section 5.04, the Advisory Committee will allocate
and credit each annual Employer contribution (and Participant forfeitures, if
any) to the Account of each Participant in the Plan who satisfies the
conditions of Section 3.08, in the same ratio that each such Participant's
Compensation for the Plan Year (including, with respect to the Plan Year
ending December 31, 1999, Compensation received prior to the Effective Date
while participating in the KCSI ESOP) bears to the total Compensation of all
such Participants for the Plan Year.
Top Heavy Minimum Allocation.
MINIMUM ALLOCATION. If the Plan is top heavy in any Plan Year:
Each Non-Key Employee (as defined in Section 1.29) who is a
Participant in the Plan and is employed by the Employer on the
last day of the Plan Year will receive a top heavy minimum
allocation for that Plan Year, irrespective of whether he
satisfies the Hours of Service condition under Section 3.08(B);
and
The top heavy minimum allocation is the lesser of 3% of the
Non-Key Employee's Compensation for the Plan Year or the highest
contribution rate for the Plan Year made on behalf of any Key
Employee in the Plan (as defined in Section 1.29). However, if a
defined benefit plan maintained by the Employer which benefits a
Key Employee in the Plan depends on this Plan to satisfy the
antidiscrimination rules of Code Section 401(a)(4) or the
coverage rules of Code Section 410 (or another plan benefiting
the Key Employee so depends on such defined benefit plan), the
top heavy minimum allocation is 3% of the Non-Key Employee's
Compensation regardless of the contribution rate for the Key
Employees in the Plan.
For purposes of clause (b), "Compensation" means
Compensation as defined in Section 1.10, disregarding Elective
Contributions and any exclusions from Compensation. For purposes
of this Section 3.02(B), a Participant's contribution rate is the
sum of Employer contributions (not including Employer
contributions to Social Security) and forfeitures allocated to
the Participant's Account for the Plan Year under Sections 3.02
and 3.07 divided by his Compensation for the entire Plan Year.
However, a Non-Key Employee's contribution rate does not include
any Elective Contributions under a Code Section 401(k)
arrangement maintained by the Employer nor any Employer matching
contributions made by the Employer necessary to satisfy the
nondiscrimination requirements of Code Section 401(k) or of Code
Section 401(m). To determine a Participant's contribution rate,
the Advisory Committee must treat all qualified top heavy defined
contribution plans maintained by the Employer (or by any related
Employers described in Section 1.27) as a single plan.
METHOD OF COMPLIANCE. The Plan will satisfy the top-heavy
minimum allocation in accordance with this Section 3.02(B)(2).
The Advisory Committee first will allocate the Employer
contributions (and Participant forfeitures, if any) for the Plan
Year in accordance with the allocation formula under Section
3.02(A). The Employer then will contribute an additional amount
for the Account of any Participant in the Plan who is entitled
under this Section 3.02(B) to a top heavy minimum allocation and
whose contribution rate for the Plan Year is less than the top
heavy minimum allocation. The additional amount is the amount
necessary to increase the Participant's contribution rate to the
top-heavy minimum allocation. The Advisory Committee will
allocate the additional contribution to the Account of the
Participant on whose behalf the Employer makes the contribution.
LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount of
Annual Additions which the Advisory Committee may allocate under the Plan on
a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to
the Participant's Account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the Employer will reduce the
amount of its contribution so the Annual Additions for the Limitation Year
will equal the Maximum Permissible Amount. If an allocation of Employer
contributions, pursuant to Section 3.02, would result in an Excess Amount
(other than an Excess Amount resulting from the circumstances described in
Section 3.02(B)) to the Participant's Account, the Advisory Committee will
reallocate the Excess Amount to the remaining Participants in the Plan who
are eligible for an allocation of Employer contributions for the Plan Year in
which the Limitation Year ends. The Advisory Committee will make this
reallocation on the basis of the allocation method under the Plan as if the
Participant whose Account otherwise would receive the Excess Amount is not
eligible for an allocation of Employer contributions.
ESTIMATION OF COMPENSATION. Prior to the determination of a Participant's
actual Compensation for a Limitation Year, the Advisory Committee may
determine the Maximum Permissible Amount on the basis of the Participant's
estimated annual Compensation for such Limitation Year. The Advisory
Committee must make this determination on a reasonable and uniform basis for
all Participants in the Plan similarly situated. The Advisory Committee must
reduce any Employer contributions (including any allocation of forfeitures)
based on estimated annual Compensation by any Excess Amount carried over from
prior years. As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum
Permissible Amount for such Limitation Year on the basis of the Participant's
actual Compensation for such Limitation Year.
DISPOSITION OF EXCESS AMOUNT. If, pursuant to Section 3.03(A), or because of
the allocation of forfeitures, there is an Excess Amount with respect to a
Participant in the Plan for a Limitation Year, the Advisory Committee will
dispose of such Excess Amount as follows:
(a) The Advisory Committee will return any nondeductible
voluntary Employee contributions to the Participant to the extent that
the return would reduce the Excess Amount.
If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan covers the Participant at the end of the
Limitation Year, then the Advisory Committee will use the Excess
Amount(s) to reduce future Employer contributions (including any
allocation of forfeitures) under the Plan for the next Limitation Year
and for each succeeding Limitation Year, as is necessary, for the
Participant.
If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan does not cover the Participant at the end of the
Limitation Year, then the Advisory Committee will hold the Excess
Amount unallocated in a suspense account. The Advisory Committee will
apply the suspense account to reduce Employer contributions (including
allocation of forfeitures) for all remaining Participants in the Plan
in the next Limitation Year, and in each succeeding Limitation Year if
necessary.
Except as provided in paragraph (a), the Advisory Committee will
not distribute any Excess Amount(s) to Participants or to former
Participants.
MORE THAN ONE PLAN. If the Advisory Committee allocated an Excess Amount to
a Participant's Account on an allocation date of the Plan which coincides
with an allocation date of another defined contribution plan maintained by
the Employer, the Advisory Committee will attribute the Excess Amount
allocated as of such date first to the profit sharing plan component of the
Stilwell Financial, Inc. 401(k) and Profit Sharing Plan or the Janus Capital
Corporation Profit Sharing Plan, as applicable. If an Excess Amount remains,
it will then be attributed to this Plan and then, if necessary, to the 401(k)
plan component of the Stilwell Financial, Inc. 401(k) and Profit Sharing
Plan.
DEFINED BENEFIT PLAN LIMITATION. If the Participant presently participates,
or has ever participated, under a defined benefit plan maintained by the
Employer, then the sum of the defined benefit plan fraction and the defined
contribution plan fraction for the Participant for that Limitation Year must
not exceed 1.0. To the extent necessary to satisfy this limitation, the
Employer will reduce its contribution or allocation on behalf of the
Participant to the defined contribution plan under which the Participant
participates and then, if necessary, the Participant's projected annual
benefit under the defined benefit plan under which the Participant
participates.
DEFINITIONS. For purposes of Article III, the following terms
mean:
"Annual Addition" - The sum of the following amounts allocated in
the Plan on behalf of a Participant for a Limitation Year: (i) all
Employer contributions; (ii) all forfeitures; and (iii) all Employee
contributions. Except to the extent provided in Treasury Regulations,
Annual Additions include excess contributions described in Code Section
401(k), excess aggregate contributions described in Code Section 401(m)
and excess deferrals described in Code Section 402(g), irrespective of
whether the plan distributes or forfeits such excess amounts. Annual
Additions also include Excess Amounts reapplied to reduce Employer
contributions under Section 3.03. Amounts allocated after March 31,
1984, to an individual medical account (as defined in Code Section
415(l)(2)) included as part of a defined benefit plan maintained by the
Employer are Annual Additions. Furthermore, Annual Additions include
contributions paid or accrued after December 31, 1985, for taxable
years ending after December 31, 1985, attributable to post-retirement
medical benefits allocated to the separate account of a key employee
(as defined in Code Section 419A(d)(3)) under a welfare benefit fund
(as defined in Code Section 419(e)) maintained by the Employer, but
only for purposes of the dollar limitation applicable to the Maximum
Permissible Amount.
"Annual Additions" do not include any Employer contributions
applied by the Advisory Committee (not later than the due date,
including extensions, for filing the Employer's Federal income tax
return for that Plan Year) to pay interest on an Exempt Loan, and any
Leveraged Employer Securities the Advisory Committee allocates as
forfeitures; provided, however, the provisions of this sentence do not
apply in a Plan Year for which the Advisory Committee allocates more
than one-third (1/3) of the Employer contributions applied to pay
principal and interest on an Exempt Loan to Restricted Participants.
The Advisory Committee may reallocate the Employer contributions in
accordance with Section 3.03 to the Accounts of non-Restricted
Participants to the extent necessary in order to satisfy this special
limitation. For purposes of this Section 3.04, "Restricted
Participants" mean Participants in the Plan who are Highly Compensated
Employees within the meaning of Code Section 414(q).
"Compensation" - For purposes of applying the limitations of
Section 3.03, "Compensation" means Compensation as defined in Section
1.10, disregarding any exclusions from Compensation and disregarding
Elective Contributions with respect to Plan Years commencing before
January 1, 1998, but including Elective Contributions for Plan years
commencing after December 31, 1997.
"Employer" - The Employer that adopts this Plan and any related
employers described in Section 1.27. Solely for purposes of applying
the limitations of Section 3.03, the Advisory Committee will determine
related employers described in Section 1.27 by modifying Code Section
414(b) and (c) in accordance with Code Section 415(h).
"Excess Amount" - The excess of the Participant's Annual Additions
for the Limitation year over the Maximum Permissible Amount.
"Limitation Year" - The Plan Year. If the Employer amends the
Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for
which the Employer makes the amendment, creating a short Limitation
Year.
"Maximum Permissible Amount" - The lesser of (i) $30,000 or (ii)
25% of the Participant's Compensation for the Limitation Year. If
there is a short Limitation Year because of a change in Limitation
Year, the Advisory Committee will multiply the $30,000 limitation by
the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
"Defined contribution plan" - A retirement plan which provides for
an individual account for each participant and for benefits based
solely on the amount contributed to the participant's account, and any
income, expenses, gains and losses, and any forfeitures of accounts of
other participants which the plan may allocate to such participant's
account. The Advisory Committee must treat all defined contribution
plans (whether or not terminated) maintained by the Employer as a
single plan. For purposes of the limitations of Section 3.03, the
Advisory Committee will treat employee contributions made to a defined
benefit plan maintained by the Employer as a separate defined
contribution plan. The Advisory Committee also will treat as a defined
contribution plan an individual medical account (as defined in Code
Section 415(l)(2)) included as part of a defined benefit plan
maintained by the Employer and, for taxable years ending after December
31, 1985, a welfare benefit fund under Code Section 419(e) maintained
by the Employer to the extent there are post-retirement medical
benefits allocated to the separate account of a key employee (as
defined in Code Section 419A(d)(3)).
"Defined benefit plan" - A retirement plan which does not provide for
individual accounts for Employer contributions. The Advisory Committee
must treat all defined benefit plans (whether or not terminated)
maintained by the Employer as a single plan.
"Defined benefit plan fraction"
Projected annual benefit of the Participant under the
defined benefit plan(s)
---------------------------------------------
The lesser of (i) 125% (subject to the "100% limitation"
in paragraph (k)) of the dollar limitation in effect
under Code Section 415(b)(1)(A) for the Limitation Year,
or (ii) 140% of the Participant's average Compensation
for his high 3 consecutive Years of Service
To determine the denominator of this fraction, the Advisory
Committee will make any adjustment required under Code Section 415(b)
and will determine a Year of Service as a Plan Year in which the
Employee completed at least 1,000 Hours of Service. The "projected
annual benefit" is the annual retirement benefit (adjusted to an
actuarially equivalent straight life annuity if the plan expresses such
benefit in a form other than a straight life annuity or qualified joint
and survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his
normal retirement age (or current age, if later) as stated in the
defined benefit plan, his compensation continues at the same rate as in
effect in the Limitation Year under consideration until the date of his
normal retirement age and all other relevant factors used to determine
benefits under the defined benefit plan remain constant as of the
current Limitation Year for all future Limitation Years.
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in
one or more defined benefit plans maintained by an Employer which were
in existence on May 5, 1986, the dollar limitation used in the
denominator of this fraction will not be less than the Participant's
Current Accrued Benefit. A Participant's Current Accrued Benefit is
the sum of the annual benefits under such defined benefit plans which
the Participant had accrued as of the end of the 1986 Limitation Year
(the last Limitation Year beginning before January 1, 1987), determined
without regard to any change in the terms or conditions of the Plan
made after May 5, 1986, and without regard to any cost of living
adjustment occurring after May 5, 1986. This Current Accrued Benefit
rule applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Code Section 415 as in effect
at the end of the 1986 Limitation Year.
"Defined contribution plan fraction"
The sum, as of the close of the Limitation Year, of the
Annual Additions to the Participant's Account under the
defined contribution plan(s)
------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service
with the Employer: (i) 125% (subject to the
"100% limitation" in paragraph (k)) of the dollar
limitation in effect under Code Section 415(c)(1)(A) for the
Limitation Year (determined without regard to the
special dollar limitations for employee stock ownership
plans), or (ii) 35% of the Participant's Compensation
for the Limitation Year
For purposes of determining the defined contribution plan
fraction, the Advisory Committee will not recompute Annual Additions in
Limitation Years beginning prior to January 1, 1987, to treat all
Employee contributions as Annual Additions. If the Plan satisfied Code
Section 415 for Limitation Years beginning prior to January 1, 1987,
the Advisory Committee will redetermine the defined contribution plan
fraction and the defined benefit plan fraction as of the end of the
1986 Limitation Year, in accordance with this Section 3.04. If the sum
of the redetermined fractions exceeds 1.0, the Advisory Committee will
subtract permanently from the numerator of the defined contribution
plan fraction an amount equal to the product of (1) the excess of the
sum of the fractions over 1.0, times (2) the denominator of the defined
contribution plan fraction. In making the adjustment, the Advisory
Committee must disregard any accrued benefit under the defined benefit
plan which is in excess of the Current Accrued Benefit. This Plan
continues any transitional rules applicable to the determination of the
defined contribution plan fraction under the Employer's Plan as of the
end of the 1986 Limitation Year.
"100% limitation." If the 100% limitation applies, the Applicable
Advisory Committee must determine the denominator of the defined
benefit plan fraction and the denominator of the defined contribution
plan fraction by substituting 100% for 125%. The 100% limitation
applies only if: (i) the Plan's top heavy ratio exceeds 90%; or (ii)
the Plan's top heavy ratio is greater than 60%, and the Employer does
not provide extra minimum benefits which satisfy Code Section
416(h)(2).
DETERMINATION OF CONTRIBUTION. The Employer, from its records,
determines the amount of any contributions to be made by it to the Trust
under the terms of the Plan.
TIME OF PAYMENT OF CONTRIBUTION. An Employer may pay its contribution
for each Plan Year in one or more monthly installments without interest. An
Employer must make its contribution to the Trust within the time prescribed
by the Code or applicable Treasury regulations.
FORFEITURE ALLOCATION. The amount of a Participant's Accrued Benefit
forfeited under the Plan is a Participant forfeiture. Subject to any
restoration allocation required under Sections 5.04 or 9.07, the Advisory
Committee will allocate the forfeiture in accordance with Section 3.02, as an
Employer contribution for the Plan Year in which the forfeiture occurs, as if
the Participant forfeiture were an additional Employer contribution for that
Plan Year. The Advisory Committee will continue to hold the undistributed,
non-vested portion of a terminated Participant's Accrued Benefit in his
Account solely for his benefit until a forfeiture occurs at the time
specified in Section 5.09. Except as provided under Section 5.04, a
Participant will not share in the allocation of a forfeiture of any portion
of his Accrued Benefit. In making a forfeiture allocation under this Section
3.07, the Advisory Committee will base forfeitures of Employer Securities
upon the fair market value of the Employer Securities as of the Accounting
Date of the forfeitures.
ACCRUAL OF BENEFIT. The Advisory Committee will determine the accrual
of benefit (Employer contributions and Participant forfeitures) on the basis
of the Plan Year.
COMPENSATION TAKEN INTO ACCOUNT. In allocating an Employer contribution to a
Participant's account, the Advisory Committee, except for purposes of
determining the top heavy minimum contribution under Section 3.02(B), will
take into account only the Compensation determined for the portion of the
Plan Year in which the Employee actually is a Participant.
HOURS OF SERVICE REQUIREMENT. Subject to the top heavy minimum allocation
requirement of Section 3.02(B), the Advisory Committee will not allocate any
portion of an Employer contribution for a Plan Year to any Participant's
Account if the Participant does not complete a minimum of 1,000 Hours of
Service during the Plan Year, unless the Participant terminates employment
during the Plan Year because of death or disability or because of the
attainment of Normal Retirement Age in the current Plan Year or in a prior
Plan Year.
EMPLOYMENT REQUIREMENT. A Participant who, during a particular Plan Year,
completes the Hours of Service requirement under this Section 3.08 will share
in the allocation of Employer contributions and Participant forfeitures
without regard to whether he is employed by an Employer on the last day of
that Plan Year.
PARTICIPANT CONTRIBUTIONS
PARTICIPANT VOLUNTARY CONTRIBUTIONS. The Plan does not permit or
require Participant contributions.
PARTICIPANT ROLLOVER CONTRIBUTIONS. The Plan does not permit
Participant rollover contributions.
TERMINATION OF SERVICE - PARTICIPANT VESTING
NORMAL RETIREMENT AGE. A Participant's Normal Retirement Age is 65
years of age. A Participant who remains in the employ of an Employer after
attaining Normal Retirement Age will continue to participate in Employer
contributions. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by an Employer on or after that date).
PARTICIPANT DISABILITY OR DEATH. If a Participant's employment with an
Employer terminates as a result of death or disability, the Participant's
Accrued Benefit derived from Employer contributions will be 100%
Nonforfeitable.
VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02, for
each Year of Service, a Participant's Nonforfeitable percentage of his
Accrued Benefit derived from Employer contributions equals the percentage in
the following vesting schedule:
Percent of
Years of Service Nonforfeitable
With the Employer Accrued Benefit
----------------- ---------------
Less than 5 None
5 or more 100%
For any Plan Year in which the Plan is a top heavy Plan (as defined in
Section 1.29) the Advisory Committees will calculate a Participant's
Nonforfeitable percentage of his Accrued Benefit under the following
schedule:
Percent of
Years of Service Nonforfeitable
With the Employer Accrued Benefit
----------------- ---------------
Less than 2 None
2 20%
3 40%
4 60%
5 or more 100%
The Advisory Committee will apply the top-heavy schedule to Participants
who earn at least one Hour of Service after the top-heavy schedule becomes
effective. A shift between vesting schedules under this Section 5.03 is an
amendment to the vesting schedule and the Advisory Committee must apply the
rules of Section 7.04 accordingly. A shift to a new vesting schedule under
this Section 5.03 is effective on the first day of the Plan Year for which
the top-heavy status of the Plan changes.
CASH-OUT DISTRIBUTION TO PARTIALLY-VESTED PARTICIPANTS/ RESTORATION OF
FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a partially-vested
Participant receives a cash-out distribution from the Plan before he incurs a
Forfeiture Break in Service (as defined in Section 5.08), the cash-out
distribution will result in a forfeiture of the non-vested portion of the
Participant's Accrued Benefit derived from Employer contributions in the Plan
as of the last day of the Plan Year in which the cash-out distribution
occurs. See Section 5.09. A partially-vested Participant is a Participant
whose Nonforfeitable Percentage determined under Section 5.03 is less than
100%. A cash-out distribution is a distribution of the entire present value
of the Participant's Nonforfeitable Accrued Benefit.
RESTORATION AND CONDITIONS UPON RESTORATION. A partially vested
Participant who is reemployed by an Employer after receiving a cash-out
distribution of the Nonforfeitable percentage of his Accrued Benefit may
repay the Plan the amount of the cash-out distribution attributable to
Employer contributions, unless the Participant no longer has a right to
restoration under the requirements of this Section 5.04. If a partially-
vested Participant makes the cash-out distribution repayment, the Advisory
Committee, subject to the conditions of this paragraph (A), must restore his
Accrued Benefit attributable to Employer contributions in the Plan to the
same dollar amount as the dollar amount of his Accrued Benefit on the
Accounting Date, or other valuation date, immediately preceding the date of
the cash-out distribution, unadjusted for any gains or losses occurring
subsequent to that Accounting Date, or other valuation date. Restoration of
the Participant's Accrued Benefit includes restoration of all Code Section
411(d)(6) protected benefits with respect to that restored Accrued Benefit,
in accordance with applicable Treasury regulations. The Advisory Committee
will not restore a reemployed Participant's Accrued Benefit under this
paragraph if:
(1) 5 years have elapsed since the Participant's first
reemployment date following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in Service
(as defined in Section 5.08). This condition also applies if the Participant
makes repayment within the Plan Year in which he incurs the Forfeiture Break
in Service and that Forfeiture Break in Service would result in a complete
forfeiture of the amount the Advisory Committee otherwise would restore.
TIME AND METHOD OF RESTORATION. If neither of the two conditions preventing
restoration of the Participant's Accrued Benefit applies, the Advisory
Committee will restore the Participant's Accrued Benefit as of the Plan Year
Accounting Date coincident with or immediately following the repayment. To
restore the Participant's Accrued Benefit, the Advisory Committee, to the
extent necessary, will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the
Advisory Committee would otherwise allocate under Section 3.07;
(2) Second, the amount, if any, of the net income or gain for
the Plan for the Plan Year; and
(3) Third, the Employer contribution for the Plan Year to the
extent made under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Advisory Committee to make any required
restoration, the Employer must contribute, without regard to any requirement
or condition of Section 3.01, the additional amount necessary to enable the
Advisory Committee to make the required restoration. If, for a particular
Plan Year, the Advisory Committee must restore the Accrued Benefit of more
than one reemployed Participant, then the Advisory Committee will make the
restoration allocation(s) to each such Participant's Account in the same
proportion that a Participant's restored amount for the Plan Year bears to
the restored amount for the Plan Year of all reemployed Participants in the
Plan. The Advisory Committee will not take into account the allocation under
this Section 5.04 in applying the limitation on allocations under Section
3.03.
0% VESTED PARTICIPANT. The deemed cash-out rule applies to a 0% vested
Participant. A 0% vested Participant is a Participant whose Accrued Benefit
derived from Employer contributions is entirely forfeitable at the time of
his Separation from Service. Under the deemed cash-out rule, the Advisory
Committee will treat a 0% vested Participant as having received a cash-out
distribution on the last day of the Plan Year in which he separates from
Service. For purposes of applying the restoration provisions of this Section
5.04, the Applicable Advisory Committee will treat the 0% vested Participant
as repaying his cash-out "distribution" on the first date of his reemployment
with an Employer.
[RESERVED].
YEAR OF SERVICE - VESTING. For purposes of vesting under Section 5.03,
Year of Service means any Plan Year during which an Employee completes not
less than 1,000 Hours of Service, including Plan Years prior to the Effective
Date of the Plan.
BREAK IN SERVICE - VESTING. For purposes of this Article V, a
Participant incurs a "Break in Service" if during any Plan Year he does not
complete more than 500 Hours of Service.
INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining "Years
of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with an Employer. For the sole purpose of
determining a Participant's Nonforfeitable percentage of his Accrued Benefit
derived from Employer contributions which accrued for his benefit prior to a
Forfeiture Break in Service, the Plan disregards any Year of Service after
the Participant first incurs a Forfeiture Break in Service. The Participant
incurs a Forfeiture Break in Service when he incurs 5 consecutive Breaks in
Service.
FORFEITURE OCCURS. A Participant's forfeiture, if any, of his Accrued
Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
The last day of the Plan Year in which the Participant first incurs
a Forfeiture Break in Service; or
The last day of the Plan Year in which the Participant receives a
cash-out distribution.
The Advisory Committee determines the percentage of a Participant's
forfeiture, if any, under this Section 5.09 solely by reference to the
vesting schedule of Section 5.03. A Participant will not forfeit any portion
of his Accrued Benefit for any other reason or cause except as expressly
provided by this Section 5.09 or as provided under Section 9.07. Employer
Securities and KCSI Shares allocated to the Participant's Account under
Section 9.06 or 8.11 of the Plan must be forfeited only after other assets.
TIME AND METHOD OF PAYMENT OF BENEFITS
TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section 6.03,
the Participant or the Beneficiary elects in writing to a different time or
method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution
to the Participant, exceeds $5,000 and the Participant has not attained the
later of Normal Retirement Age or age 62. For all purposes of this Article
VI, the term "annuity starting date" means the first day of the first period
for which the Plan pays an amount as an annuity or in any other form. Unless
otherwise specified herein, (i) distributions under this Article VI shall be
made as of a distribution date, which shall be the fifteenth (15th) business
day following the end of a calendar quarter or as soon thereafter as
administratively practicable, and (ii) for purposes of making a distribution
as of a distribution date, a Participant's Account shall be valued as of the
distribution valuation date corresponding to such distribution date, which
shall be the tenth (10th) business day following the end of the calendar
quarter immediately preceding such distribution date or as soon thereafter as
administratively practicable.
TERMINATION OF EMPLOYMENT FOR A REASON OTHER THAN DEATH. For a
Participant who terminates employment with the Employer for a reason other
than death, the Advisory Committee will direct the Trustee to commence
distribution of the Participant's Accrued Benefit, as follows:
PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $5,000.
In a lump sum, on the first distribution date after the Participant's
Separation from Service occurs, but in no event later than the 60th day
following the close of the Plan Year in which the Participant attains
Normal Retirement Age. If the Participant has attained Normal
Retirement Age when he separates from Service, the distribution under
this paragraph will occur no later than the 60th day following the close
of the Plan Year in which the Participant's Separation from Service
occurs.
PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $5,000. In a
form and at the time elected by the Participant, pursuant to Section
6.03. In the absence of an election by the Participant, the Advisory
Committee will direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit in a lump sum on the 60th day following
the close of the Plan Year in which the latest of the following events
occurs: (a) the Participant attains Normal Retirement Age; (b) the
Participant attains age 62; or (c) the Participant separates from
Service.
DISABILITY. If the Participant terminates employment because of
Disability, in a lump sum, on the first distribution date after the
Participant terminates employment because of Disability, subject to the
notice and consent requirements of this Article VI and to the applicable
mandatory commencement dates described in Paragraph (1) or in Paragraph (2).
REQUIRED BEGINNING DATE. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or non-election), is later than the Participant's
Required Beginning Date, the Advisory Committee instead must direct the
Trustee to make distribution under this Section 6.01 on the Participant's
Required Beginning Date. A Participant's Required Beginning Date is the
April 1 of the calendar year following the later of (i) the calendar year in
which the Participant attains age 70-1/2 or (ii) the calendar year in which
the Participant separates from Service. However, clause (ii) of the
preceding sentence shall not apply if the Participant is a 5% owner (as
defined in Section 1.07(a)) with respect to the Plan Year ending in the
calendar year in which he attains age 70-1/2). A mandatory distribution at
the Participant's Required Beginning Date will be in lump sum unless the
Participant, pursuant to the provisions of this Article VI, makes a valid
election to receive an alternative form of payment.
DEATH OF THE PARTICIPANT. The Advisory Committee will direct the Trustee, in
accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death.
DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES NOT
EXCEED $5,000. The Advisory Committee must direct the Trustee to pay
the deceased Participant's Nonforfeitable Accrued Benefit in a single
cash sum, on the first distribution date following the Participant's
death or, if later, on the first distribution date following the date on
which the Advisory Committee receives notification of or otherwise
confirms the Participant's death.
DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS
$5,000. The Advisory Committee will direct the Trustee to pay the
deceased Participant's Nonforfeitable Accrued Benefit at the time and in
the form elected by the Participant or, if applicable by the
Beneficiary, as permitted under this Article VI. In the absence of an
election, the Advisory Committee will direct the Trustee to distribute
the Participant's undistributed Nonforfeitable Accrued Benefit in a lump
sum on the first distribution date following the date on which the
Participant's death occurs or, if later, on the first distribution date
following the date the Advisory Committee receives notification of or
otherwise confirms the Participant's death.
If the death benefit is payable to the Participant's surviving spouse in
full, the surviving spouse, in addition to the distribution options provided
in this Section 6.01(C), may elect distribution at any time or in any form
this Article VI would permit for a Participant.
METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to any restrictions
prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one, or any combination, of the following methods: (a) by
payment in a lump sum; or (b) by payment in monthly, quarterly or annual
installments over a fixed reasonable period of time, not exceeding the life
expectancy of the Participant, or the joint life and last survivor expectancy
of the Participant and his Beneficiary.
The distribution options permitted under this Section 6.02 are available
only if the present value of the Participant's Nonforfeitable Accrued
Benefit, at the time of the distribution to the Participant, exceeds $5,000.
To facilitate installment payments under this Article VI, at the election of
the Participant, the Advisory Committee may direct the Trustee to segregate
all or any part of the Participant's Accrued Benefit in a separate Account.
The Trustee will invest the Participant's segregated Account in Federally
insured interest bearing savings account(s) or time deposit(s) (or a
combination of both), or in other fixed income investments. A segregated
Account remains a part of the Trust, but it alone shares in any income it
earns, and it alone bears any expense or loss it incurs. A Participant or
Beneficiary may elect to receive an installment distribution in the form of a
Nontransferable Annuity Contract. Under an installment distribution, the
Participant or Beneficiary, at any time, may elect to accelerate the payment
of all, or any portion, of the Participant's unpaid Nonforfeitable Accrued
Benefit.
MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Advisory Committee
may not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of
the Required Beginning Date, does not satisfy the minimum distribution
requirements under Code Section 401(a)(9) and the applicable Treasury
regulations.
The minimum distribution for a calendar year for a Participant in the
Plan equals the Participant's Nonforfeitable Accrued Benefit in the Plan as
of the latest valuation date preceding the beginning of the calendar year
divided by the Participant's life expectancy or, if applicable, the joint and
last survivor expectancy of the Participant and his designated Beneficiary
(as determined under Article VIII, subject to the requirements of the Code
Section 401(a)(9) regulations). The Advisory Committee will increase the
Participant's Nonforfeitable Accrued Benefit in the Plan, as determined on
the relevant valuation date, for contributions or forfeitures allocated after
the valuation date and by December 31 of the valuation calendar year, and
will decrease the valuation by distributions made after the valuation date
and by December 31 of the valuation calendar year. For purposes of this
valuation, the Advisory Committee will treat any portion of the minimum
distribution for the first distribution calendar year made after the close of
that year as a distribution occurring in that first distribution calendar
year. In computing a minimum distribution, the Advisory Committee must use
the unisex life expectancy multiples under Treas. Reg. Section 1.72-9. The
Advisory Committee, only upon the Participant's written request, may compute
the minimum distribution for a calendar year subsequent to the first calendar
year for which the Plan requires a minimum distribution by redetermining the
applicable life expectancy. However, the Advisory Committee may not
redetermine the joint life and last survivor expectancy of the Participant
and a non-spouse designated Beneficiary in a manner which takes into account
any adjustment to a life expectancy other than the Participant's life
expectancy.
If the Participant's spouse is not his designated Beneficiary, a method
of payment to the Participant may not provide more than incidental benefits
to the Beneficiary. The Plan must satisfy the minimum distribution
incidental benefit ("MDIB") requirement in the Treasury regulations issued
under Code Section 401(a)(9) for distributions made on or after the
Participant's Required Beginning Date and before the Participant's death. To
satisfy the MDIB requirement, the Advisory Committee will compute the minimum
distribution required by this Section 6.02(A) by substituting the applicable
MDIB divisor for the applicable life expectancy factor, if the MDIB divisor
is a lesser number. Following the Participant's death, the Advisory
Committee will compute the minimum distribution required by this
Section 6.02(A) solely on the basis of the applicable life expectancy factor
and will disregard the MDIB factor. The Advisory Committee must determine
whether benefits to the Beneficiary are incidental as of the date the Trustee
is to commence payment of the retirement benefits to the Participant, or as
of any date the Trustee redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar year is due
by the Participant's Required Beginning Date. The minimum distribution for
each subsequent distribution calendar year, including the calendar year in
which the Participant's Required Beginning Date falls, is due by December 31
of that year. If the Participant receives distribution in the form of a
Nontransferable Annuity Contract, the distribution satisfies this Section
6.02(A) if the contract complies with the requirements of Code Section
401(a)(9) and the applicable Treasury regulations.
MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of
distribution to the Participant's Beneficiary must satisfy Code Section
401(a)(9) and the applicable Treasury regulations. If the Participant's
death occurs after his Required Beginning Date, the method of payment to the
Beneficiary must provide for completion of payment over a period which does
not exceed the payment period which had commenced for the Participant. If
the Participant's death occurs prior to his Required Beginning Date, the
method of payment to the Beneficiary, must provide for completion of payment
to the Beneficiary over a period not exceeding: (i) 5 years after the date
of the Participant's death; or (ii) if the Beneficiary is a designated
Beneficiary, the designated Beneficiary's life expectancy.
The Advisory Committee may not direct payment of a Participant's
Nonforfeitable Accrued Benefit in the Plan over a period described in clause
(ii) above unless the Trustee will commence payment to the designated
Beneficiary no later than the December 31 following the close of the calendar
year in which the Participant's death occurred or, if later, and the
designated Beneficiary is the Participant's surviving spouse, December 31 of
the calendar year in which the Participant would have attained age 70-1/2.
If the Trustee will make distribution in accordance with clause (ii), the
minimum distribution for a calendar year equals the Participant's
Nonforfeitable Accrued Benefit in the Plan as of the latest valuation date
preceding the beginning of the calendar year divided by the designated
Beneficiary's life expectancy.
The Advisory Committee must use the unisex life expectancy multiples
under Treas. Reg. Section 1.72-9 for purposes of applying this
Section 6.02(B). The Advisory Committee, only upon the written request of
the Participant or of the Participant's surviving spouse, may recalculate the
life expectancy of the Participant's surviving spouse not more frequently
than annually, but may not recalculate the life expectancy of a non-spouse
designated Beneficiary after the Trustee commences payment to the designated
Beneficiary. The Advisory Committee will apply this Section 6.02(B) by
treating any amount paid to the Participant's child, which becomes payable to
the Participant's surviving spouse upon the child's attaining the age of
majority, as paid to the Participant's surviving spouse. Upon the
Beneficiary's written request, the Advisory Committee must direct the Trustee
to accelerate payment of all, or any portion, of the Participant's unpaid
Accrued Benefit, as soon as administratively practicable following the
effective date of that request.
BENEFIT PAYMENT ELECTIONS. Not earlier than ninety (90) days before nor
later than thirty (30) days before the Participant's annuity starting date,
the Plan Administrator must provide a benefit notice to a Participant who is
eligible to make an election under this Section 6.03. The benefit notice
must explain the optional forms of benefit in the Plan, including the
material features and relative values of those options, and the Participant's
right to defer distribution until he attains the later of Normal Retirement
Age or age 62.
A distribution may commence less than 30 days after the benefit notice
is given, provided that:
the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and
the Participant, after receiving the notice, affirmatively elects a
distribution.
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit in accordance with that
election. Any election under this Section 6.03 is subject to the
requirements of Section 6.02. The Participant or Beneficiary must make an
election under this Section 6.03 by filing his election form with the
Advisory Committee at any time before the Trustee otherwise would commence to
pay a Participant's Accrued Benefit in accordance with the requirements of
Article VI.
(A) PARTICIPANT ELECTIONS AFTER TERMINATION OF EMPLOYMENT. If the
present value of a Participant's Nonforfeitable Accrued Benefit exceeds
$5,000, he may elect to have the Trustee commence distribution as of any
distribution date, but not earlier than the first distribution date after the
Participant's Separation from Service. The Participant may reconsider an
election at any time prior to the annuity starting date and elect to commence
distribution as of any other distribution date, but not earlier than the date
described in the first sentence of this Section 6.03(A). If the Participant
is partially vested in his Accrued Benefit, an election under this Section
6.03(A) to distribute prior to the Participant's incurring a Forfeiture Break
in Service (as defined in Section 5.08), must be in the form of a cash-out
distribution (as defined in Article V). A Participant may not receive a
cash-out distribution if, prior to the time the Trustee actually makes the
cash-out distribution, the Participant returns to employment with an
Employer.
PARTICIPANT ELECTIONS PRIOR TO TERMINATION OF EMPLOYMENT. During his
employment with an Employer, the Participant does not have any right to
commence distribution of his Nonforfeitable Accrued Benefit for any reason,
unless required by Section 6.01(B).
(C) DEATH BENEFIT ELECTIONS. If the present value of the deceased
Participant's Nonforfeitable Accrued Benefit exceeds $5,000, the
Participant's Beneficiary may elect to have the Trustee distribute the
Participant's Nonforfeitable Accrued Benefit in a form and within a period
permitted under Section 6.02. The Beneficiary's election is subject to any
restrictions designated in writing by the Participant and not revoked as of
his date of death.
ANNUITY DISTRIBUTIONS TO PARTICIPANTS. The joint and survivor annuity
requirements of the Code do not apply to this Plan. The Plan does not
provide any annuity distributions to Participants. A transfer agreement
described in Section 13.05 may not permit a plan which is subject to the
provisions of Code Section 417 to transfer assets to this Plan.
SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS. Unless the Participant
elects in writing to have the Trustee apply other distribution provisions of
the Plan, or unless other distribution provisions of the Plan require earlier
distribution of the Participant's Accrued Benefit attributable to Employer
Securities, the Trustee must distribute the Participant's vested Accrued
Benefit (the "Eligible Portion") no later than the time prescribed by this
Section 6.05, irrespective of any other provision of the Plan. The
distribution provisions of this Section 6.05 are subject to the consent and
form of distribution requirements of Articles V and VI of the Plan.
If the Participant separates from Service by reason of the
attainment of Normal Retirement Age, death, or disability, the Advisory
Committee will direct the Trustee to commence distribution of the
Eligible Portion not later than one year after the close of the Plan
Year in which that event occurs.
If the Participant separates from Service for any reason other than
by reason of the attainment of Normal Retirement Age, death or
disability, the Advisory Committee will direct the Trustee to commence
distribution of the Eligible Portion not later than one year after the
close of the fifth Plan Year following the Plan Year in which the
Participant separates from Service. If the Participant resumes
employment with an Employer on or before the last day of the fifth Plan
Year following the Plan Year of his Separation from Service, the
distribution provisions of this paragraph (b) do not apply.
For purposes of this Section 6.05, Employer Securities do not include
any Employer Securities acquired with the proceeds of an Exempt Loan until
the close of the Plan Year in which the borrower repays the Exempt Loan in
full.
Notwithstanding anything else in this Plan, unless the Participant
otherwise elects, the distribution of the Participant's Accrued Benefit will
be in substantially equal periodic payment (not less frequently than
annually) over a period not longer than the greater of:
Five years, or
In the case of a Participant with an Accrued Benefit in excess of
Five Hundred Thousand Dollars ($500,000) (or beginning January 1, 1990,
such larger amount as the Commissioner of Internal Revenue shall
prescribe), five (5) years plus one (1) additional year (not more than
five (5) additional years) for each One Hundred Thousand Dollars
($100,000) (or beginning January 1, 1990, such larger amount as the
Commissioner of Internal Revenue shall prescribe) or fraction thereof by
which such balance exceeds $500,000.
The foregoing provisions of this paragraph shall not be construed
so as to preclude the distribution of a Participant's Accrued Benefit in
the form of a single lump-sum payment.
[Reserved]
DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in
this Plan prevents the Trustee, in accordance with the direction of the
Advisory Committee, from complying with the provisions of a qualified
domestic relations order (as defined in Code Section 414(p)). This Plan
specifically permits distribution to an alternate payee under a qualified
domestic relations order on any distribution date of any Plan Year,
irrespective of whether the Participant has attained his earliest retirement
age (as defined under Code Section 414(p)) under the Plan. A distribution to
an alternate payee prior to the Participant's attainment of earliest
retirement age is available only if: (1) the order specifies distribution at
that time or permits an agreement between the Plan and the alternate payee to
authorize an earlier distribution; and (2) if the present value of the
alternate payee's benefits under the Plan exceeds $5,000, and the order
requires, the alternate payee consents to any distribution occurring prior to
the Participant's attainment of earliest retirement age. Nothing in this
Section 6.07 permits a Participant a right to receive distribution at a time
otherwise not permitted under the Plan nor does it permit the alternate payee
to receive a form of payment not permitted under the Plan.
The Plan Administrator must establish reasonable procedures to determine
the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator must determine the qualified
status of the order and must notify the Participant and each alternate payee,
in writing, of its determination. The Plan Administrator must provide notice
under this paragraph by mailing to the individual's address specified in the
domestic relations order, or in a manner consistent with Department of Labor
regulations. A qualified domestic relations order that, prior to the
Effective Date, had been determined to be qualified under the KCSI ESOP with
respect to the Accrued Benefit of a Stilwell Participant, shall continue to
be treated as a qualified domestic relations order under this Plan.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Plan Administrator is making its determination
of the qualified status of the domestic relations order, the Advisory
Committee must make a separate accounting of the amounts payable. If the
Plan Administrator determines the order is a qualified domestic relations
order within 18 months of the date amounts first are payable following
receipt of the order, the Advisory Committee will direct the Trustee to
distribute the payable amounts in accordance with the order. If the Plan
Administrator does not make its determination of the qualified status of the
order within the 18-month determination period, the Advisory Committee will
direct the Trustee to distribute the payable amounts in the manner the Plan
would distribute if the order did not exist and will apply the order
prospectively if the Plan Administrator later determines the order is a
qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, at the election of the alternate
payee(s), the Advisory Committee may direct the Trustee to invest any
partitioned amount in a segregated subaccount or separate account and to
invest the account in Federally insured, interest-bearing savings account(s)
or time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but it
alone shares in any income it earns, and it alone bears any expense or loss
it incurs. The Trustee will make any payments or distributions required
under this Section 6.07 by separate benefit checks or other separate
distribution to the alternate payee(s).
ROLLOVER DISTRIBUTIONS. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election under this
Section 6.08, a distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement plan specified
by the distributee in a direct rollover. For purposes of this Section 6.08,
the following definitions shall apply.
Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit
of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more;
any distribution to the extent such distribution is required under Code
Section 401(a)(9); and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Code Section 408(a), an
individual retirement annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible
rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement
annuity.
Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations order,
as defined in section 414(p) of the Code, are distributees with regard
to the interest of the spouse or former spouse.
Direct rollover: A direct rollover is a payment by the Plan to an
eligible retirement plan specified by the distributee.
EMPLOYER ADMINISTRATIVE PROVISIONS
INFORMATION TO COMMITTEE. The Employer must supply current information
to the Advisory Committee as to the name, date of birth, date of employment,
annual compensation, leaves of absence, Years of Service and date of
termination of employment of each Employee who is, or who will be eligible to
become, a Participant under the Plan, together with any other information
which the Advisory Committee considers necessary. The Employer's records as
to the current information the Employer furnishes to the Advisory Committee
are conclusive as to all persons.
NO LIABILITY. No Employer assumes any obligation or responsibility to
any of its Employees, Participants or Beneficiaries for any act of, or
failure to act, on the part of the Advisory Committee (unless the Employer is
the Advisory Committee), the Trustee or the Plan Administrator (unless the
Employer is the Plan Administrator).
INDEMNITY OF COMMITTEE. The Employer indemnifies and saves harmless the
Plan Administrator and the members of the Advisory Committee, and each of
them, from and against any and all loss resulting from liability to which the
Plan Administrator and the Advisory Committee, or the members of the Advisory
Committee, may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses
reasonably incurred in their defense, in case the Employer fails to provide
such defense. The indemnification provisions of this Section 7.03 do not
relieve the Plan Administrator or any member of the Advisory Committee from
any liability he may have under ERISA for breach of a fiduciary duty.
Furthermore, the Plan Administrator and the members of the Advisory Committee
and the Employer may execute a letter agreement further delineating the
indemnification agreement of this paragraph, provided the agreement must be
consistent with and must not violate ERISA. The indemnification provisions
of this paragraph extend to the Trustee solely to the extent provided by a
letter agreement executed by the Trustee and the Employer.
AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the right
to amend the vesting schedule of the Plan at any time, the Advisory Committee
will not apply the amended vesting schedule to reduce the Nonforfeitable
percentage of any Participant's Accrued Benefit derived from Employer
contributions (determined as of the later of the date the amendment is
adopted, or the date the amendment becomes effective) to a percentage less
than the Nonforfeitable percentage computed under the Plan prior to the
amendment.
If an Employer makes a permissible amendment to the vesting schedule,
each Participant having at least 3 Years of Service with an Employer may
elect to have the percentage of his Nonforfeitable Accrued Benefit computed
under the Plan without regard to the amendment. The Participant must file
his election with the Plan Administrator within sixty (60) days of the latest
of (a) the adoption of the amendment; (b) the effective date of the
amendment; or (c) his receipt of a copy of the amendment. The Plan
Administrator, as soon as practicable, must forward a true copy of any
amendment to the vesting schedule to each affected Participant, together with
an explanation of the effect of the amendment, the appropriate form upon
which the Participant may make an election to remain under the vesting
schedule provided under the Plan prior to the amendment and notice of the
time within which the Participant must make an election to remain under the
prior vesting schedule. For purposes of this Section 7.04, an amendment to
the vesting schedule includes any Plan amendment which directly or indirectly
affects the computation of the Nonforfeitable percentage of an Employee's
rights to his Employer derived Accrued Benefit.
PARTICIPANT ADMINISTRATIVE PROVISIONS
BENEFICIARY DESIGNATION. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively,
to whom the Trustee will pay his Accrued Benefit in the event of his death
and the Participant may designate the form and method of payment. The
Advisory Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Advisory
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant. A Beneficiary designation by a Stilwell
Participant that was valid under the KCSI ESOP immediately prior to the
Effective Date, shall continue to be valid under this Plan until revoked by
the Participant in accordance with this Section 8.01.
A married Participant's Beneficiary designation is not valid unless the
Participant's spouse consents, in writing, to the Beneficiary designation.
The spouse's consent must acknowledge the effect of that consent and a notary
public or the Plan Administrator (or his representative) must witness that
consent. The spousal consent requirements of this paragraph do not apply if:
(1) the Participant and his spouse are not married throughout the one-year
period ending on the date of the Participant's death; (2) the Participant's
spouse is the Participant's sole primary beneficiary; (3) the Participant's
spouse cannot be located; (4) the Participant is legally separated or has
been abandoned (within the meaning of State law) and the Participant has a
court order to that effect; or (5) other circumstances exist under which the
Secretary of the Treasury will excuse the consent requirement. If the
Participant's spouse is legally incompetent to give consent, the spouse's
legal guardian (even if the guardian is the Participant) may give consent.
NO BENEFICIARY DESIGNATION. If a Participant fails to name a
Beneficiary in accordance with Section 8.01, or if the Beneficiary named by a
Participant predeceases him, then the Trustee will pay the Participant's
Accrued Benefit in accordance with Section 6.02 in the following order of
priority to:
The Participant's surviving spouse;
The Participant's surviving children, including adopted children,
in equal shares;
The Participant's surviving parents, in equal shares; or
The legal representative of the estate of the Participant.
If the Beneficiary does not predecease the Participant, but dies prior
to the distribution of the Participant's entire Nonforfeitable Accrued
Benefit, the Trustee will pay the remaining Nonforfeitable Accrued Benefit to
the Beneficiary's estate unless the Participant's Beneficiary designation
provides otherwise. The Advisory Committee will direct the Trustee as to the
method and to whom the Trustee will make payment under this Section 8.02.
PERSONAL DATA TO COMMITTEE. Each Participant (and each Beneficiary of a
deceased Participant) must furnish to the Advisory Committee such evidence,
data or information as the Advisory Committee considers necessary or
desirable for the purpose of administering the Plan. The provisions of this
Plan are effective for the benefit of each Participant upon the condition
precedent that each Participant will furnish promptly full, true and complete
evidence, data and information when requested by the Advisory Committee,
provided the Advisory Committee advises each Participant of the effect of his
failure to comply with its request.
ADDRESS FOR NOTIFICATION. Each Participant (and each Beneficiary of a
deceased Participant) must file with the Advisory Committee from time to
time, in writing, his post office address and any change of post office
address. Any communication, statement or notice addressed to a Participant,
or Beneficiary, at his last post office address filed with the Advisory
Committee, or as shown on the records of an Employer, binds the Participant,
or Beneficiary, for all purposes of this Plan.
ASSIGNMENT OR ALIENATION. Subject to Code Section 414(p) relating to
qualified domestic relations orders, neither a Participant nor a Beneficiary
may anticipate, assign or alienate (either at law or in equity) any benefit
provided under the Plan, and the Trustee will not recognize any such
anticipation, assignment or alienation. Furthermore, a benefit under the
Plan is not subject to attachment, garnishment, levy, execution or other
legal or equitable process.
NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries in the Plan a summary description of any
material amendment to, or notice of discontinuance of, the Plan and all other
information required by ERISA to be furnished without charge.
LITIGATION AGAINST THE TRUST. A court of competent jurisdiction may
authorize any appropriate equitable relief to redress violations of ERISA or
to enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary
may examine copies of the Plan description, latest annual report, any
bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator
will maintain all of the items listed in this Section 8.08 in his office, or
in such other place or places as he may designate from time to time in order
to comply with the regulations issued under ERISA, for examination during
reasonable business hours. Upon the written request of a Participant or
Beneficiary the Plan Administrator will furnish him with a copy of any item
listed in this Section 8.08. The Plan Administrator may make a reasonable
charge to the requesting person for the copy so furnished.
APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Plan Administrator will
provide adequate notice in writing to any Participant or to any Beneficiary
("Claimant") whose claim for benefits under the Plan the Advisory Committee
has denied. The Plan Administrator's notice to the Claimant must set forth:
The specific reason for the denial;
Specific references to pertinent Plan provisions on which the
Advisory Committee based its denial;
A description of any additional material and information needed for
the Claimant to perfect his claim and an explanation of why the material
or information is needed; and
That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within 75
days after receipt of the Plan Administrator's notice of denial of
benefits. The Plan Administrator's notice must further advise the
Claimant that his failure to appeal the action to the Advisory Committee
in writing within the 75-day period will render the Advisory Committee's
determination final, binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Claimant, or his duly authorized representative, may review pertinent plan
documents. The Advisory Committee will reexamine all facts related to the
appeal and make a final determination as to whether the denial of benefits is
justified under the circumstances. The Advisory Committee must advise the
Claimant of its decision within sixty (60) days of the Claimant's written
request for review, unless special circumstances (such as a hearing) would
make the rendering of a decision within the sixty (60) day limit unfeasible,
but in no event may the Advisory Committee render a decision respecting a
denial for a claim for benefits later than 120 days after its receipt of a
request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the Claimant may forward his appeal.
ESOP DIVERSIFICATION. Except as provided in this Section 8.10 and in
Section 8.11, a Participant does not have the right to direct the Trustee
with respect to the investment or reinvestment of the assets comprising the
Participant's individual Account. Each Qualified Participant may direct the
Trustee as to the investment of 25% of the value of the Participant's Accrued
Benefit attributable to Employer Securities (the "Eligible Accrued Benefit"),
within 90 days after the Accounting Date of each Plan Year (to the extent a
direction amount exceeds the amount to which a prior direction under this
Section 8.10 applies) during the Participant's Qualified Election Period.
For the last Plan Year in the Participant's Qualified Election Period, the
Trustee will substitute "50%" for "25%" in the immediately preceding
sentence. The Qualified Participant must make his direction to the Trustee
in writing at such time and in such manner as the Advisory Committee shall
prescribe, the direction may be effective no later than 180 days after the
close of the Plan Year to which the direction applies, and the direction must
either (i) request distribution of the portion of the Qualified Participant's
Eligible Accrued Benefit covered by the election or (ii) if the Advisory
Committee has designated Investment Funds to be available under the Plan,
specify the Investment Fund or Funds from among those designated by the
Advisory Committee as available under the Plan. The Trustee will make a
distribution requested under this Section 8.10 within 90 days after the last
day of the period during which the Qualified Participant may make the
election.
For purpose of this Section 8.10, the following definitions apply:
"Qualified Participant" means a Participant who has attained age 55
and who has completed at least 10 years of participation in the Plan
(including, for this purpose, years of participation in the KCSI ESOP).
A "year of participation" means a Plan Year in which the Participant was
eligible for an allocation of Employer contributions, irrespective of
whether the Employer actually contributed to the Plan for that Plan
Year.
"Qualified Election Period" means the six (6) Plan Year period
beginning with the Plan Year in which the Participant first becomes a
Qualified Participant.
A Participant's right under this Section 8.10 to direct the investment
of his Account applies solely to Employer Securities acquired by the Plan
after December 31, 1986.
The Advisory Committee may designate Investment Funds to be available
for investment under this Section 8.10. The Advisory Committee may from time
to time designate additional Investment Funds, terminate the availability of
any Investment Fund or modify the investment characteristics of any
Investment Fund as it deems appropriate in its sole discretion. The Advisory
Committee shall prescribe the times and the manner in which Participant
investment elections may be made pursuant to this Section 8.10 or Section
8.11. The Advisory Committee may prescribe such limitations and restrictions
on the number, timing or frequency of investment elections and such other
rules and procedures as it may deem appropriate in its sole discretion.
KCSI SHARES AND SHORT TERM FUND.
KCSI SHARES. All of the KCSI Shares allocated to Participants' Accounts
shall, as soon as possible following the Spinoff Date as is consistent with
prudent investment standards as determined by the Trustee, be sold (or
exchanged for Stilwell Shares) and the sales proceeds reinvested in Stilwell
Shares; provided, however, that, at such time, in such manner and subject to
such restrictions regarding minimum share dispositions or holdings as the
Advisory Committee shall prescribe, a Participant may elect to have all or
any portion of the KCSI Shares allocated to his or her Account (1) continued
to be held in such Account as whole (but no fractional) KCSI Shares, (2) sold
and the sale proceeds reinvested in the Short Term Fund (as designated for
this purpose by the Advisory Committee) or (3) any combination of the
foregoing.
ON-GOING PARTICIPANT INVESTMENT DIRECTION. Following the Spinoff, each
Participant whose Account includes KCSI Shares or interests in the Short Term
Fund may elect, at such times, in such manner and subject to such
restrictions regarding minimum share dispositions or holdings as the Advisory
Committee shall prescribe, (1) to have all or any portion of such whole KCSI
Shares sold and the sale proceeds reinvested in (i) Stilwell Shares, (ii) the
Short Term Fund or (iii) any combination thereof, and (2) to have all or any
portion of such Short Term Fund interest sold and the sale proceeds
reinvested in Stilwell Shares.
KCSI DIVIDENDS. Cash dividends received by the Plan following the Spinoff
with respect to KCSI Shares held in a Participant's Account shall be invested
in Stilwell Shares and allocated to such Participant's Account.
FORFEITURE OF KCSI SHARES. If KCSI Shares held in a Participant's Account
are forfeited pursuant to Section 5.09 or 9.07, immediately prior to the
occurrence of such forfeiture, such KCSI Shares shall be sold, the sale
proceeds shall be reinvested in Stilwell Shares and such Stilwell Shares
shall be allocated in accordance with Section 3.07.
STILWELL SHARES. Such portion of a Participant's Account that is invested in
Stilwell Shares (whether pursuant to Section 8.11(A) or as a result of such
Participant's election pursuant to Section 8.11(B), the reinvestment of
dividends pursuant to Section 8.11(C) or the allocation of forfeitures
pursuant to Section 8.11(D)), shall remain invested in Stilwell Shares and
shall not be subject to investment direction by the Participant except to the
extent permitted by, and in accordance with the provisions of, Section 8.10.
DESIGNATED FIDUCIARY DISCRETION. Notwithstanding the foregoing provisions of
this Section 8.11, the rights of Participants either to continue to hold KCSI
Shares for investment in their Accounts or to direct that such KCSI Shares be
sold and the sale proceeds reinvested in Stilwell Shares or the Short Term
Fund, and the rights of Participants either to continue to hold interests in
the Short Term Fund in their Accounts or to direct that such Short Term Fund
interests be sold and the sale proceeds reinvested in Stilwell Shares, shall
be subject to a determination by the Designated Fiduciary (as defined below)
that the continued holding or the sale of KCSI Shares or Short Term Fund
interests, as the case may be, is appropriate in light of prudent investment
standards including, with respect to the holding of KCSI Shares or Short Term
Fund interests but not with respect to the acquisition or holding of Stilwell
Shares, considerations of diversification, and the Designated Fiduciary
shall have absolute discretion at any time to require either the sale or the
continued holding of all or any portion of the KCSI Shares or Short Term Fund
interests allocated to Participants' Accounts without regard to any election
or the failure to elect by a Participant with respect to such sale or
continued holding. In making the foregoing determinations, the Designated
Fiduciary shall take into account that the Plan is an employee stock
ownership plan which is designed to invest primarily in qualifying employer
securities. In considering any sales of KCSI Shares or Short Term Fund
interests in connection with the foregoing determinations (whether such sales
are to be made at the election of Participants or upon the determinations of
the Designated Fiduciary without regard to any election or failure to elect
by Participants) the Designated Fiduciary shall act in accordance with the
best interests of Participants to protect the value of Plan assets. The
"Designated Fiduciary" for purposes of carrying out the provisions of this
Section 8.11(F) shall be such person, persons or entity designated as such in
writing by the Advisory Committee or, in the absence of such designation, the
Advisory Committee shall be the Designated Fiduciary.
ADVISORY COMMITTEE -- DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS
MEMBERS' COMPENSATION, EXPENSES. Stilwell must appoint an Advisory
Committee to administer the Plan, the members of which may or may not be
Participants in the Plan, or which may be the Plan Administrator acting
alone. The members of the Advisory Committee will serve without compensation
for services as such, but the Employer will pay all expenses of the Advisory
Committee, including the expense for any bond required under ERISA.
GENERAL. The Advisory Committee, in its sole and absolute discretion,
shall have all powers necessary to discharge its duties under this Plan
including, without limitation, the following:
To select a Secretary, who need not be a member of the Advisory
Committee;
To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued Benefit in
the Plan and the Nonforfeitable percentage of each Participant's Accrued
Benefit in the Plan;
To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan provided the rules are not
inconsistent with the terms of this Plan;
To construe, interpret and enforce the terms of the Plan (including
making factual determinations) and the rules and regulations it adopts,
including interpretation of the Plan documents and documents related to
the Plan's operation, and its decisions shall be final and binding on
all interested persons;
To direct the Trustee as respects the crediting and distribution of
the Trust;
To review and render decisions respecting a claim for (or denial of
a claim for) a benefit under the Plan;
To furnish the Employer with information which the Employer may
require for tax or other purposes;
To engage the service of agents whom it may deem advisable to
assist it with the performance of its duties; and
To engage the services of an Investment Manager or Managers (as
defined in ERISA Section 3(38)), each of whom will have full power and
authority to manage, acquire or dispose (or direct the Trustee with
respect to acquisition or disposition) of any asset in the Plan under
its control.
The Advisory Committee must exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
FUNDING POLICY. The Advisory Committee will review, not less often than
annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs
so investment policy can be coordinated with Plan financial requirements.
INDIVIDUAL ACCOUNTS. The Trustee shall maintain a separate Account, or
multiple separate Accounts, in the name of each Participant in the Plan to
reflect the Participant's Accrued Benefit under the Plan. The Trustee must
maintain one Account designated as the Employer Securities Account to reflect
a Participant's interest in Employer Securities held by the Plan, and another
Account designated as the General Investments Account to reflect the
Participant's interest in the Plan attributable to assets other than Employer
Securities. If a Participant reenters the Plan subsequent to his having a
Forfeiture Break in Service (as defined in Section 5.08), the Trustee must
maintain separate Accounts for the Participant's pre-Forfeiture Break in
Service Accrued Benefit and separate Accounts for his post-Forfeiture Break
in Service Accrued Benefit unless the Participant's entire Accrued Benefit
under the Plan is 100% Nonforfeitable.
The Trustee shall make its allocations to the Accounts of the
Participants in the Plan in accordance with the provisions of Section 9.06.
The Trustee may and if directed by the Advisory Committee shall maintain a
temporary segregated investment Account in the name of a Participant to
prevent a distortion of income, gain or loss allocations under Section 9.06.
The Trustee shall maintain records of its activities.
VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each Participant's
Accrued Benefit consists of that portion of the net worth (at fair market
value) of the Plan which the net credit balance in his Accounts bears to the
total net credit balance in the Accounts of all Participants in the Plan.
For purposes of a distribution under the Plan, the value of a Participant's
Accrued Benefit is its value as of the valuation date immediately preceding
the date of the distribution. A Participant's Accrued Benefit shall not
include or be deemed to include, any Employer Security held in a suspense
account, as provided in Section 10.03(B).
ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. A "valuation date" under this
Plan is each Accounting Date and each interim valuation date determined by
the Sponsor. As of each valuation date the Trustee must adjust Accounts to
reflect net income, gain or loss since the last valuation date. The
valuation period is the period beginning the day after the last valuation
date and ending on the current valuation date.
EMPLOYER SECURITIES ACCOUNT. As of the Accounting Date of each Plan Year,
the Trustee first will reduce Employer Securities Accounts in the Plan for
any forfeitures arising under Section 5.09 and then will credit the Employer
Securities Account maintained for each Participant in the Plan with the
Participant's allocable share of Employer Securities (including fractional
shares) purchased and paid for by the Trust or contributed in kind to the
Trust, with any forfeitures of Employer Securities and with any stock
dividends on Employer Securities allocated to his Employer Securities
Account. The Trustee will allocate Employer Securities acquired with an
Exempt Loan under Section 10.03(B) in accordance with that Section. Except
as otherwise specifically provided in Section 10.03(B), the Trustee will base
allocations to the Participants' Accounts on dollar values expressed as
shares of Employer Securities or on the basis of actual shares where there is
a single class of Employer Securities. In making a forfeiture reduction
under this Section 9.06(A), the Trustee, to the extent possible, first must
forfeit from a Participant's General Investment Account before making a
forfeiture from his Employer Securities Account.
GENERAL INVESTMENT ACCOUNT.
TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply
to all Participant General Investment Accounts in the Plan other than
segregated investment Accounts. The Trustee first will adjust such
Participant General Investment Accounts, as those Accounts stood at the
beginning of the current valuation period, by reducing the Accounts for any
forfeitures arising under Section 5.09 or under Section 9.07, for amounts
charged during the valuation period to the Accounts in accordance with
Section 9.14 (relating to distributions) and for the amount of any such
General Investment Account which the Trustee has fully distributed since the
immediately preceding valuation date. The Trustee then, subject to the
restoration allocation requirements of Section 5.04 or of Section 9.07, will
allocate the net income, gain or loss pro rata to the adjusted Participant
General Investment Accounts in the Plan. The allocable net income, gain or
loss is the net income (or net loss), including the increase or decrease in
the fair market value of assets, since the last valuation date. In making
its allocations under this Section 9.06(B), the Trustee will exclude Employer
Securities allocated to Employer Securities Accounts, stock dividends on
allocated Employer Securities and interest paid by the Trust on an Exempt
Loan. The Trustee will include cash dividends on Employer Securities as
income (available for payment on an Exempt Loan to the extent such dividends
are attributable to Employer Securities acquired with the proceeds of an
Exempt Loan) except cash dividends which the Advisory Committee has directed
the Trustee to distribute in accordance with Section 10.08, or which the
Advisory Committee has directed the Trustee to use for the payment of
principal and/or interest on any Exempt Loan, or to use for the funding of a
benefit distribution in cash, in lieu of Employer Securities, to a
Participant pursuant to Section 10.08. If dividends on any Employer
Securities are used for the funding of such a benefit distribution in cash
pursuant to Section 10.08, then the Employer Securities which, but for such
benefit distribution in cash rather than Employer Securities, would have been
distributed to the Participant shall be allocated for the Plan Year in which
such cash benefit distribution occurred to the Accounts of Participants as if
such Employer Securities constituted earnings for such Plan Year.
SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account
receives all income it earns and bears all expense or loss it incurs. As of
the valuation date, the Trustee must reduce a segregated investment Account
for any forfeiture arising under Section 5.09 after the Trustee has made all
other allocations, changes or adjustments to the Account for the Plan Year.
ADDITIONAL RULES. An Excess Amount or suspense account described in
Article III does not share in the allocation of net income, gain or loss
described in this Section 9.06(B). The Trustee will allocate the Employer
contributions and Participant forfeitures, if any, in accordance with Article
III.
UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the
Trustee or the Advisory Committee to search for, or ascertain the whereabouts
of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI, the Advisory
Committee, by certified or registered mail addressed to his last known
address of record with the Advisory Committee or the Employer, must notify
the Participant, or Beneficiary, that he is entitled to a distribution under
this Plan. The notice must quote the provisions of this Section 9.07 and
otherwise must comply with the notice requirements of Article VI. If the
Participant, or Beneficiary, fails to claim his distributive share or make
his whereabouts known in writing to the Advisory Committee within 6 months
from the date of mailing of the notice, the Advisory Committee will treat the
Participant's or Beneficiary's unclaimed payable Accrued Benefit as forfeited
and will reallocate the unclaimed payable Accrued Benefit in accordance with
Section 3.07. Where the benefit is distributable to the Participant, the
forfeiture under this paragraph occurs as of the last day of the notice
period, if the Participant's Nonforfeitable Accrued Benefit does not exceed
$5,000, or as of the first day the benefit is distributable without the
Participant's consent, if the present value of the Participant's
Nonforfeitable Accrued Benefit exceeds $5,000. Where the benefit is
distributed to a Beneficiary, the forfeiture occurs on the date the notice
period ends except, if the Beneficiary is the Participant's spouse and the
Nonforfeitable Accrued Benefit payable to the spouse exceeds $5,000, the
forfeiture occurs as of the first day the benefit is distributable without
the spouse's consent. Pending forfeiture, the Advisory Committee, following
the expiration of the notice period, may direct the Trustee to segregate the
Nonforfeiture Accrued Benefit in the Plan in a segregated Account and to
invest that segregated Account in Federally insured interest bearing savings
accounts or time deposits (or in a combination of both), or in other fixed
income investments.
If a Participant or Beneficiary in the Plan who has incurred a
forfeiture of his Accrued Benefit in the Plan under the provisions of the
first paragraph of this Section 9.07 makes a claim, at any time, for the
forfeited Accrued Benefit, the Advisory Committee must restore such forfeited
Accrued Benefit to the same dollar amount as the dollar amount of the Accrued
Benefit forfeited, unadjusted for any gains or losses occurring subsequent to
the date of the forfeiture. The Advisory Committee will make the restoration
during the Plan Year in which the Participant or Beneficiary makes the claim,
first from the amount, if any, of Participant forfeitures the Advisory
Committee otherwise would allocate for the Plan Year in the Plan, then from
the amount, if any, of the Trust Fund net income or gain allocable to the
Plan for the Plan Year and then from the amount, or additional amount, that
the Employer contributes to enable the Advisory Committee to make the
required restoration. The Advisory Committee will direct the Trustee to
distribute the Participant's or Beneficiary's restored Accrued Benefit to him
not later than 60 days after the close of the Plan Year in which the Advisory
Committee restores the forfeited Accrued Benefit. The forfeiture provisions
of this Section 9.07 apply solely to the Participant's or the Beneficiary's
Accrued Benefit derived from Employer contributions.
TERM. Each member of the Advisory Committee serves until the
appointment of his successor.
POWERS. In case of a vacancy in the membership of the Advisory
Committee, the remaining members of the Advisory Committee may exercise any
and all of the powers, authority, duties and discretion conferred the such
Advisory Committee pending the filling of the vacancy.
MANNER OF ACTION. The decision of a majority of the members appointed
and qualified controls.
AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize any one
of its members, or its Secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters
or other documents. The Advisory Committee must evidence this authority by
an instrument signed by all its members and filed with the Trustee.
INTERESTED MEMBER. No member of the Advisory Committee may decide or
determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, except in exercising an
election available to that member in his capacity as a Participant, unless
the Plan Administrator is acting alone in the capacity of the Advisory
Committee.
INDIVIDUAL STATEMENT. As soon as practicable after the last Accounting
Date of each Plan Year, but within the time prescribed by ERISA and the
regulations under ERISA, the Plan Administrator will deliver to each
Participant (and to each Beneficiary) a statement reflecting the condition of
his Accrued Benefit in the Trust as of that date and such other information
ERISA requires be furnished the Participant or Beneficiary. No Participant,
except a member of the Advisory Committee, has the right to inspect the
records reflecting the Account of any other Participant.
ACCOUNT CHARGED. The Advisory Committee will charge all distributions
made to a Participant or to his Beneficiary from his Account against the
Account of the Participant when made.
TRUSTEE POWERS AND DUTIES
TRUSTEE POWERS AND DUTIES. In addition to the powers and duties set
forth in the Master Trust Agreement, the Trustee shall have the powers and
duties set forth in this Article X.
[RESERVED]
INVESTMENT POWERS.
[RESERVED]
EXEMPT LOAN. This Section 10.03(B) specifically authorizes the Trustee, at
the direction of the Advisory Committee, to enter into an Exempt Loan
transaction with respect to the Plan. The following terms and conditions
will apply to any Exempt Loan authorized by this Section 10.03(B).
The Trustee will use the proceeds of the loan within a reasonable
time after receipt only for any or all of the following purposes:
(i) to acquire Employer Securities, (ii) to repay such loan, or (iii) to
repay a prior Exempt Loan. Except as provided under Article XI, no
Employer Security acquired with the proceeds of an Exempt Loan may be
subject to a put, call or other option, or buy-sell or similar
arrangement while held by and when distributed from this Plan, whether
or not this Plan is then an employee stock ownership plan.
The interest rate of the loan may not be more than a reasonable
rate of interest.
Any collateral the Trustee pledges to the creditor must consist
only of the assets purchased by the borrowed funds and those assets the
Trust used as collateral on the prior Exempt Loan repaid with the
proceeds of the current Exempt Loan.
The creditor may have no recourse against the Trust under the loan
except with respect to such collateral given for the loan, contributions
(other than contributions of Employer Securities) made to the Trust to
meet its obligations under the loan, and earnings attributable to such
collateral and the investment of such contributions. The payment made
with respect to an Exempt Loan by the Plan during a Plan Year must not
exceed an amount equal to the sum of such contributions and earnings
received during or prior to the year less such payments in prior years.
The Advisory Committee and the Trustee must account separately for such
contributions and earnings in the books of account of the Plan until the
Trust repays the loan.
In the event of default upon the loan, the value of Plan assets
transferred in satisfaction of the loan must not exceed the amount of
the default, and if the lender is a Disqualified Person, the loan must
provide for transfer of Plan assets upon default only upon and to the
extent of the failure of the Plan to meet the payment schedule of the
loan.
The Trustee must add and maintain all assets acquired with the
proceeds of an Exempt Loan in a Suspense Account. In withdrawing assets
from the Suspense Account, the Trustee will apply the provisions of
Treas. Reg. Sections 54.4975-7(b)(8) and (15) as if all securities in
the Suspense Account were encumbered. Upon the payment of any portion
of the loan, the Trustee will effect the release of assets in the
Suspense Account from encumbrances. For each Plan Year during the
duration of the loan, the number of Employer Securities released must
equal the number of encumbered Employer Securities held immediately
before release for the current Plan Year multiplied by a fraction. The
numerator of the fraction is the amount of principal and interest paid
for the Plan Year. The denominator of the fraction is the sum of the
numerator plus the principal and interest to be paid for all future Plan
Years. The number of future Plan Years under the loan must be
definitely ascertainable and must be determined without taking into
account any possible extension or renewal periods. If the interest rate
under the loan is variable, the interest to be paid in future Plan Years
must be computed by using the interest rate applicable as of the end of
the Plan Year. If collateral includes more than one class of Employer
Securities, the number of Employer Securities of each class to be
released for a Plan Year must be determined by applying the same
fraction to each such class. The Advisory Committee will allocate
assets withdrawn from the Suspense Account to the Accounts of
Participants who otherwise share in the allocation of the Employer's
contribution for the Plan Year for which the Trustee has paid the
portion of the loan resulting in the release of the assets. The
Advisory Committee consistently will make this allocation as of each
Accounting Date on the basis of nonmonetary units, taking into account
the relative Compensation of all such Participants for such Plan Year.
Notwithstanding the foregoing provisions for the allocation of Employer
Securities withdrawn from the Suspense Account, if dividends on any
Employer Securities which are allocated to any Participant are used to
make any payment on an Exempt Loan, then Employer Securities with a fair
market value not less than the amount of such dividends shall be
allocated to the Account of such Participant for the Plan Year in which,
but for the use of the dividends to make a payment on the loan, such
dividends would have been allocated to the Account of such Participant.
Employer Securities acquired by the Trust must be accounted for in
accordance with the provisions of Treasury Regulation Section 54.4975-
11(d)(1), both while they are held in the Suspense Account and after
release therefrom.
The loan must be for a specific term and may not be payable at the
demand of any person except in the case of default.
Notwithstanding the fact this Plan ceases to be an employee stock
ownership plan, Employer Securities acquired with the proceeds of an
Exempt Loan will continue after the Trustee repays the loan to be
subject to the provisions of Treas. Reg. Section 54.4975-7(b)(4), (10),
(11) and (12) relating to put, call or other options and to buy-sell or
similar arrangements, except to the extent these regulations are
inconsistent with Code Section 409(h).
[RESERVED]
[RESERVED]
[RESERVED]
[RESERVED]
DISTRIBUTION OF TRUST FUND. In the absence of a contrary Participant
election, the Trustee shall, to the extent of the Employer Securities in a
Participant's Accounts, make all distributions of benefits to such
Participant under the Plan in Employer Securities. A Participant may,
however, elect to receive this distribution in cash based on the fair market
value of the Employer Securities as of the distribution valuation date
corresponding to the distribution date or in a combination of cash and
Employer Securities. The Trustee shall pay in cash any fractional security
share to which a Participant or his Beneficiary is entitled. Any remaining
balance in a Participant's Accounts shall be paid in cash, except that, at
the Participant's election, such balance shall be applied to provide whole
shares of Employer Securities for Participants in the Plan for distribution
at the then fair market value.
If the charter or bylaws of the Issuer of the Employer Securities
restrict ownership of substantially all shares of Employer Securities to
Employees and the Trust, as described in Code Section 409(h)(2), the Trustee
may make the distribution of a Participant's Accrued Benefit entirely in cash
without granting the Participant the right to demand distribution in shares
of Employer securities.
In addition to the distribution options set forth above, a Participant
may elect to receive a distribution in the form of such number (or any fewer
number) of whole KCSI Shares held in his or her Account as of the date of
distribution.
Notwithstanding the preceding provisions of this Section 10.08, the
Trustee, if directed in writing by the Advisory Committee, shall pay, in
cash, any cash dividends on Employer Securities allocated, or allocable to
Participants' Employer Securities Account in the Plan, irrespective of
whether a Participant is fully vested in his Employer Securities Account.
The Advisory Committee's direction shall state whether the Trustee is to pay
the cash dividend distributions currently, or within the ninety (90) day
period following the close of the Plan Year in which the Employer pays the
dividends to the Trust. The Advisory Committee may request the Employer to
pay dividends on Employer Securities directly to Participants in the Plan.
[RESERVED]
[RESERVED]
[RESERVED]
[RESERVED]
[RESERVED]
[RESERVED]
PARTICIPANT VOTING RIGHTS - EMPLOYER SECURITIES AND KCSI SHARES. Each
Participant (or the Beneficiary thereof) acting as a named fiduciary shall
have the right, with respect to Employer Securities, to direct the Trustee as
to the manner in which (a) to vote any stock allocated to his Employer
Securities Account as of the applicable record date of any shareholder
meeting in any matter put to a shareholder vote; and (b) to respond to a
tender offer, exchange offer or any other offer to purchase Employer
Securities allocated to the Participant's Employer Securities Account.
Before any meeting in which a shareholder vote is to be taken, the
Employer will deliver to the Trustee or its designee such quantities of proxy
soliciting materials as are necessary to solicit voting instructions from the
Participants. The Trustee or its designee will mail the proxy solicitation
materials (and any additional material made available to other shareholders
or otherwise deemed appropriate by the Trustee) to the Participants within a
reasonable time before the meeting. A reasonable deadline for the return of
such materials may be specified.
Shares will be voted as instructed by the Participants on each matter
brought before the meeting. Such participants are appointed as named
fiduciaries to direct the Trustee as to the voting of shares allocated to the
accounts of Participants who have not timely instructed the Trustee how to
vote them and any unallocated shares. Such shares will be voted in the same
proportions as the shares for which the Trustee has received timely
instructions. The Trustee may submit to the Employer one summary proxy for
the aggregate number of shares.
With regard to any tender offer, exchange offer or any other offer to
purchase Employer Securities, the Trustee or its designee will solicit such
instructions from Participants by distributing to each Participant such
information as is distributed to shareholders of the Employer, generally in
connection with any such offer, and any additional information the Trustee
deems appropriate in order for each Participant to give instructions. A
reasonable deadline for the return of such materials may be specified.
Shares will, in response to a tender offer, exchange offer or other
offer to purchase, be tendered, exchanged or sold as instructed by the
Participants. Fractional shares will be aggregated for purposes of
tendering, exchanging or selling shares, to the extent possible, to reflect
the instructions of the Participants. Such participants are appointed as
named fiduciaries to direct the Trustee as to the tender, exchange or sale of
shares allocated to an account of a Participant who has not timely instructed
the Trustee how to respond to such offer and any unallocated shares. Such
shares will be tendered, exchanged or sold in the same proportion as shares
for which the Trustee has received timely instructions.
For purposes of receiving, tabulating and transmitting instructions, the
Trustee will establish a procedure to insure that instructions received from
individual Participants regarding voting or responding to a tender offer,
exchange offer, or any other offer are held in confidence, and are not
divulged, released or otherwise utilized in a manner that, in the Trustee's
reasonable judgment, might influence the Participant's free exercise of the
rights set forth in this Section 10.15.
Voting, tender and exchange rights with respect to KCSI Shares held by
the Plan shall be exercised in the same manner as such rights are exercised
with respect to Employer Securities as described in this Section 10.15.
[RESERVED]
USE OF INDEPENDENT APPRAISER. All valuations of Employer Securities or
KCSI Shares acquired after December 31, 1986, which are not readily tradable
on an established securities market (within the meaning of Code Section
401(a)(28)(C)) with respect to activities carried on by the Plan shall be by
an independent appraiser. For purposes of the preceding sentence, the term
"independent appraiser" means any appraiser meeting requirements similar to
the requirements of the Treasury Regulations prescribed under Code Section
170(a)(1).
[RESERVED]
KCSI SHARES RESTRICTIONS. KCSI Shares transferred from the KCSI ESOP
that were Employer Securities acquired with the proceeds of an exempt loan
under the KCSI ESOP shall continue to be subject to the provisions of Treas.
Reg. Section 54.4975-7(b)(4), (10), (11) and (12) relating to put, call or
other options and to buy-sell or similar arrangements, except to the extent
such regulations are inconsistent with Section 409(h).
REPURCHASE OF EMPLOYER SECURITIES
PUT OPTION. Shares of Employer Securities distributed to a Participant
from the Trust shall be subject to a "put" option at the time of
distribution, provided that at such time the shares are either not readily
tradable on an established market within the meaning of Code Section 409(h)
or are subject to a trading limitation. The "put" option shall be
exercisable by the Participant or his Beneficiary, by the donees of either,
or by a person (including an estate or its distributee) to whom the Employer
Securities pass by reason of the Participant's or Beneficiary's death. The
"put" option shall provide that for a period of at least fifteen (15) months
after such shares are distributed, the holder of the option shall have the
right to cause the Employer, by notifying it in writing, to purchase such
shares at their fair market value, as determined by the Advisory Committee,
in accordance with Treasury Regulation Section 54.4975-11(d)(5) and Section
10.17 hereof. The Advisory Committee may give the Trustee the option to
assume the rights and obligations of the Employer at the time the "put"
option is exercised, insofar as the repurchase of Employer Securities is
concerned. The period during which the "put" option is exercisable shall not
include any period during which the holder is unable to exercise such "put"
option because the Employer is prohibited from honoring it by federal or
state law. If the Employer is prohibited from honoring the "put" option by
federal or state law, the holder shall be entitled to cause it to be honored,
consistent with such law, by an affiliate or shareholder of the Employer that
has substantial net worth and whose net worth is reasonably expected to
remain substantial. If shares of Employer Securities are readily tradable on
an established market on the date of distribution, but cease to be readily
tradable on an established market (as described above) within fifteen (15)
months after such date, the Employer Securities distributed shall be subject
to the "put" option described herein for the balance of the fifteen (15)
month period. The Employer shall give written notice to each shareholder
within ten (10) days of the date the Employer Securities cease to be readily
tradable on an established market or that the Employer Securities become
subject to a trading limitation that the Employer Securities are subject to
the "put" option for the remainder of the fifteen (15) month period. If the
Employer fails to give such notice to the shareholder within such ten (10)
day period, then the number of days between such tenth (10th) day and the
date on which the notice is actually given shall be added to the duration of
the fifteen (15) month period. The terms of payment for the purchase of such
shares of Employer Securities shall be as set forth in the "put" option and,
if the Employer Securities are distributed as part of a total distribution,
may be either in a lump sum or in installments, as determined by the Advisory
Committee. For purposes of the preceding sentence, the term "total
distribution" means the distribution within one taxable year to the
Participant of the balance to the credit of the Participant's Account. If
the "put" option is exercised with respect to Employer Securities
constituting part of an installment distribution to a Participant, the amount
to be paid for the Employer Securities shall be paid not later than thirty
(30) days after the date the "put" option is exercised.
An installment payment in connection with a "put" option shall:
provide for acceleration in the event of thirty (30) days' default
in the payment of interest or principal and shall permit prepayment of
the installment obligation in whole or in part at any time or times
without penalty;
be adequately secured and bear a reasonable rate of interest, both
as determined by the Advisory Committee;
require equal annual payments;
have a payment period not longer than five (5) years from the date
the "put" option is exercised;
require that any payments pursuant to the installment obligation
must be substantially equal and begin to be made no later than thirty
(30) days after the date the "put" option is exercised; and
satisfy the requirements of Treasury Regulation Section 54.4975-
7(b)(12), except to the extent this regulation is inconsistent with Code
Section 409(h).
CONTINUATION OF PUT OPTION. The "put" option provided for by Section
11.01 is nonterminable and shall continue to apply to shares of Employer
Securities distributed hereunder notwithstanding the repayment of any Exempt
Loan or any amendment to, or termination of, this Plan which causes the Plan
or a portion of the Plan to cease to be an employee stock ownership plan
within the meaning of Code Section 4975(e)(7).
MISCELLANEOUS
EVIDENCE. Anyone required to give evidence under the terms of the Plan
may do so by certificate, affidavit, document or other information which the
person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. Both
the Advisory Committee and the Trustee are fully protected in acting and
relying upon any evidence described under the immediately preceding sentence.
NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor Advisory
Committee has any obligation or responsibility with respect to any action
required by the Plan to be taken by an Employer, any Participant or eligible
Employee, or for the failure of any of the above persons to act or make any
payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution.
Neither the Trustee nor Advisory Committee needs to inquire into or be
responsible for any action or failure to act on the part of the others. Any
action required of Stilwell Financial, Inc. must be by its Board of
Directors, the Compensation and Organization Committee of such Board, or the
designees of such Board or Committee. Any action required of any other
corporate Employer must be by its Board of Directors or its designees.
FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee, the Plan
Administrator and the Employers in no way guarantee the Trust Fund from loss
or depreciation. The Employers do not guarantee the payment of any money
which may be or becomes due to any person from the Trust Fund. The liability
of the Advisory Committee and the Trustee to make any payment from the Trust
Fund at any time and all times is limited to the then available assets of the
Trust.
WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice.
SUCCESSORS. The Plan is binding upon all persons entitled to benefits
under the Plan, their respective heirs and legal representatives, upon the
Employer, its successors and assigns, and upon the Trustee and the Advisory
Committee and their successors.
WORD USAGE. Words used in the masculine also apply to the feminine
where applicable, and wherever the context of the Plan dictates, the plural
includes the singular and the singular includes the plural.
STATE LAW. Missouri law will determine all questions arising with
respect to the provisions of this Plan except to the extent Federal law
supersedes Missouri law.
EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with
respect to the establishment of the Trust, or any modification or amendment
to the Plan or Trust, or in the creation of any Account, or the payment of
any benefit, gives any Employee, Employee-Participant or any Beneficiary any
right to continue employment, any legal or equitable right against an
Employer, or Employee of an Employer or against the Trustee, or its agents or
employees, or against the Plan Administrator, except as expressly provided by
the Plan, the Trust, ERISA or by a separate agreement.
ELECTRONIC MEDIA. Under procedures authorized or approved by the
Advisory Committee, any form for any notice, election, designation, or
similar communication required or permitted for a Participant or Beneficiary
under this Plan (other than a designation of Beneficiary or spousal consent
thereto under Section 8.01) may be made available to such Participant or
Beneficiary through an electronic medium (including a computer network, WEB
site, e-mail or voice response system) which (i) affords the Participant or
Beneficiary a reasonable opportunity to obtain written confirmation, (ii) is
given under a system that is reasonably designed to preclude an individual
other than the Participant or Beneficiary from taking the action contemplated
by such communication, and (iii) provides the Participant or Beneficiary a
reasonable opportunity to review and to confirm, modify or rescind such
action. Any such communication to or from a Participant or Beneficiary
through such electronic medium shall be fully effective under this Plan for
all purposes and any copy or regeneration of such communication by such
electronic medium under its normal storage and retrieval parameters shall be
effective as a fully authentic executed writing for all purposes of this Plan
absent manifest error in the storage or retrieval process.
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
EXCLUSIVE BENEFIT. Except as provided under Article III, no Employer
has any beneficial interest in any asset of the Trust and no part of any
asset in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly; nor, prior to the satisfaction of all liabilities
with respect to the Participants and their Beneficiaries under the Plan, may
any part of the corpus or income of the Trust Fund, or any asset of the
Trust, be (at any time) used for, or diverted to, purposes other than the
exclusive benefit of the Participants or their Beneficiaries.
AMENDMENT BY EMPLOYER. Stilwell Financial, Inc., by duly adopted
resolution of its Board of Directors, or of the Compensation and Organization
Committee of its Board of Directors, has the right at any time and from time
to time:
To amend this Plan in any manner it deems necessary or advisable in
order to qualify (or maintain qualification of) this Plan and the Trust
created under it under the appropriate provisions of Code Section
401(a), or
To amend this Plan in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than
the part which is required to pay taxes and administration expenses) to be
used for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries or estates. No amendment may cause or
permit any portion of the Trust Fund to revert to or become a property of the
Employer. No amendment may be made which affects the rights, duties or
responsibilities of the Trustee or the Plan Administrator without the written
consent of the affected Trustee or the Plan Administrator. No amendment may
be made which affects the rights, duties or responsibilities of the Advisory
Committee without the written consent of the affected member of the Advisory
Committee.
CODE Section 411(D)(6) PROTECTED BENEFITS. An amendment (including the
adoption of this Plan as a restatement of an existing plan) may not decrease
a Participant's Accrued Benefit, except to the extent permitted under Code
Section 412(c)(8), and may not reduce or eliminate Code Section 411(d)(6)
protected benefits determined immediately prior to the adoption date (or, if
later, the effective date) of the amendment. An amendment reduces or
eliminates Code Section 411(d)(6) protected benefits if the amendment has the
effect of either (1) eliminating or reducing an early retirement benefit or a
retirement-type subsidy (as defined in Treasury regulations), or (2) except
as provided by Treasury regulations, eliminating an optional form of benefit.
The Advisory Committee must disregard an amendment to the extent application
of the amendment would fail to satisfy this paragraph. If the Advisory
Committee must disregard an amendment because the amendment would violate
clause (1) or clause (2), the Advisory Committee must maintain a schedule of
the early retirement option or other optional forms of benefit the Plan must
continue for the affected Participants.
All amendments must be made in writing. Each amendment must state the
date to which it is either retroactively or prospectively effective.
DISCONTINUANCE. Each Employer has the right, at any time, to suspend or
discontinue its contributions under the Plan. The Board of Directors of
Stilwell Financial, Inc., or the Compensation and Organization Committee
thereof, or any other duly authorized committee thereof, has the right to
terminate the Plan at any time. The Plan will terminate upon the first to
occur of the following:
The date terminated by action of the Board of Directors of Stilwell
Financial, Inc., or the Compensation and Organization Committee thereof,
or any other duly authorized committee thereof; or
The date Stilwell Financial, Inc. is judicially declared bankrupt
or insolvent, unless the proceeding authorized continued maintenance of
the Plan.
FULL VESTING ON TERMINATION. Upon either full or partial termination of
the Plan, or, if applicable, upon complete discontinuance of contributions to
the Plan, an affected Participant's right to his Accrued Benefit is 100%
Nonforfeitable, irrespective of the Nonforfeitable percentage which otherwise
would apply under Article V.
MERGER/DIRECT TRANSFER. The Plan may not be a party to any merger or
consolidation with another plan, or to a transfer of assets or liabilities to
another plan, unless immediately after the merger, consolidation or transfer,
the surviving Plan provides each Participant a benefit equal to or greater
than the benefit each Participant would have received had the Plan terminated
immediately before the merger or consolidation or transfer. The Advisory
Committee possesses the specific authority to enter into merger agreements or
direct transfer of assets agreements with the trustees of other retirement
plans described in Code Section 401(a), including an elective transfer, and
to accept the direct transfer of plan assets, or to transfer plan assets, as
a party to any such agreement.
The Advisory Committee may accept a direct transfer of plan assets on
behalf of an Employee prior to the date the Employee satisfies the Plan's
eligibility conditions. If the Advisory Committee accepts a direct transfer
of plan assets under this paragraph, the Advisory Committee must treat the
Employee as a Participant in the Plan for all purposes of the Plan except the
Employee is not a Participant in the Plan for purposes of sharing in Employer
contributions or Participant forfeitures under the Plan until he actually
becomes a Participant in the Plan.
The Advisory Committee may not consent to, or be a party to a merger,
consolidation or transfer of assets with a defined benefit plan, except with
respect to an elective transfer. The Trustee will hold, administer and
distribute the transferred assets as a part of the Trust Fund and the Trustee
must maintain a separate Employer contribution Account for the benefit of the
Employee on whose behalf the Advisory Committee accepted the transfer in
order to reflect the value of the transferred assets. Unless a transfer of
assets to this Plan is an elective transfer, the Plan will preserve all Code
Section 411(d)(6) protected benefits with respect to those transferred
assets, in the manner described in Section 13.02. A transfer is an elective
transfer if: (1) the transfer satisfies the first paragraph of this Section
13.05; (2) the transfer is voluntary, under a fully informed election by the
Participant; (3) the Participant has an alternative that retains his Code
Section 411(d)(6) protected benefits (including an option to leave his
benefit in the transferor plan, if that plan is not terminating); (4) the
transfer satisfies the applicable spousal consent requirements of the Code;
(5) the transferor plan satisfies the joint and survivor notice requirements
of the Code, if the Participant's transferred benefit is subject to those
requirements; (6) the Participant has a right to immediate distribution from
the transferor plan, in lieu of the elective transfer; (7) the transferred
benefit is at least the greater of the single sum distribution provided by
the transferor plan for which the Participant is eligible or the present
value of the Participant's accrued benefit under the transferor plan payable
at that plan's normal retirement age; (8) the Participant has a 100%
Nonforfeitable interest in the transferred benefit; and (9) the transfer
otherwise satisfies applicable Treasury regulations. An elective transfer
may occur between qualified plans of any type.
DISTRIBUTION RESTRICTIONS UNDER CODE Section 401(k). If the Plan
receives a direct transfer (by merger or otherwise) of Elective Contributions
(or amounts treated as Elective Contributions) under a Plan with a Code
Section 401(k) arrangement, the distribution restrictions of Code Section
401(k)(2) and (10) continue to apply to those transferred Elective
Contributions.
TERMINATION. Upon termination of the Plan, the distribution provisions
of Article VI remain operative, with the following exceptions:
if the present value of the Participant's Nonforfeitable Accrued
Benefit does not exceed $5,000, the Advisory Committee will direct the
Trustee to distribute the Participant's Nonforfeitable Accrued Benefit
to him in lump sum as soon as administratively practicable after the
Plan terminates; and
if the present value of the Participant's Nonforfeitable Accrued
Benefit exceeds $5,000 the Participant or the Beneficiary, in addition
to the distribution events permitted under Article VI, may elect to have
the Trustee commence distribution of his Nonforfeitable Accrued Benefit
as soon as administratively practicable after the Plan terminates.
To liquidate the Trust, the Advisory Committee will purchase a
deferred annuity contract for each Participant which protects the
Participant's distribution rights under the Plan, if the Participant's
Nonforfeitable Accrued Benefit exceeds $5,000 and the Participant does
not elect an immediate distribution pursuant to Paragraph (2). The
Trust will continue until the Trustee in accordance with the direction
of the Advisory Committee has distributed all of the benefits under the
Plan.
On each valuation date, the Advisory Committee will credit any part of a
Participant's Accrued Benefit retained in the Trust with its allocable share
of the Trust's income, expenses, gains and losses, both realized and
unrealized. Upon termination of the Plan, the amount, if any, in a suspense
account under such portion under Article III will revert to the Employer,
subject to the conditions of the Treasury regulations permitting such a
reversion. A resolution or amendment to freeze all future benefit accruals
but otherwise to continue maintenance of this Plan is not a termination for
purposes of this Section 13.06.
PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL
DEFINITION OF "CHANGE IN CONTROL". For purposes of this Plan, a "Change
in Control" shall be deemed to have occurred (1) prior to the Spinoff Date,
if there is a "Change in Control of KCSI" as such term is defined in the KCSI
ESOP as in effect prior to the Effective Date, and (2) on or after the
Spinoff Date, if:
for any reason at any time less than seventy-five percent (75%) of
the members of the Board of Directors of Stilwell Financial, Inc., a
Delaware corporation ("Stilwell"), shall be individuals who fall into
any of the following categories: (A) individuals who were members of
such Board on the Spinoff Date; 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 Board
then still in office who were members of such Board on the Spinoff Date;
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 Board then still in office who were
elected in the manner described in (A) or (B) above, or
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 after the Spinoff Date, according to a public announcement or
filing, without the prior approval of the Board of Directors of
Stilwell, the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Stilwell,
representing forty percent (40%) or more (calculated in accordance with
Rule 13d-3) of the combined voting power of Stilwell's then outstanding
voting securities (such "person" hereinafter referred to as a "Major
Stockholder of Stilwell"); or
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, or a
Major Stockholder of Stilwell shall have proposed any such transaction,
unless such merger, consolidation, dissolution, sale, lease, exchange or
disposition shall have been approved by at least seventy-five percent
(75%) of the members of the Board of Directors of Stilwell who are
individuals falling into any combination of the following categories:
(i) individuals who were members of such Board of Directors on the
Spinoff Date, (ii) individuals whose election, or nomination for
election by Stilwell's stockholders, was approved by at least seventy-
five percent (75%) of the members of the Board of Directors then still
in office who are members of the Board of Directors on the Spinoff Date,
or (iii) 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 Board then still in office who were
elected in the manner described in (i) or (ii) above.
PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL. Upon a Change in Control
as defined in Section 14.01, notwithstanding what is otherwise provided in
this Plan, the following provisions will supersede the indicated sections and
otherwise govern the operation of the Plan and Trust from that point forward:
"Section 5.03, Vesting Schedule" shall provide as follows:
5.03 VESTING SCHEDULE. A Participant's Accrued Benefit
derived from Employer contributions in the Plan shall be One Hundred
Percent (100%) Nonforfeitable at all times.
Except for the right to amend the Plan pursuant to Section 13.02 to
qualify or maintain the qualification of the Plan under the appropriate
provisions of Code Section 401(a), the Board of Directors of Stilwell
Financial, Inc., the Compensation and Organization Committee thereof, or
any other duly authorized officer or committee thereof, shall not
exercise its right to amend pursuant to Section 13.02(b), discontinue or
terminate pursuant to Section 13.03, or merge pursuant to Section 13.05,
the Plan without the prior written consent to such aforesaid action by
seventy-five percent (75%) of the Participants in the Plan on a per-
capita basis.
RIGHT TO AMEND ARTICLE XIV PRIOR TO CHANGE IN CONTROL. The Board of
Directors of Stilwell Financial, Inc., or any duly authorized committee
thereof, reserves the right to amend or eliminate this Article XIV prior to
the date of a Change in Control.
IN WITNESS WHEREOF, Stilwell Financial, Inc. has executed this Plan in
Kansas City, Missouri, as of this ______ day of _____________, 1999.
STILWELL FINANCIAL, INC.
By:
<PAGE>
POST-SPIN DRAFT
2/4/00
STILWELL FINANCIAL, INC.
401(k) AND PROFIT SHARING PLAN
(Effective _____________, 2000)
<PAGE>
STILWELL FINANCIAL, INC.
401(k) AND PROFIT SHARING PLAN
TABLE OF CONTENTS
-----------------
Article I. DEFINITIONS 2
1.01 "Plan" 2
1.02 "Employer" 2
1.03 "Trustee" 2
1.04 "Plan Administrator" 2
1.05 "Advisory Committee" 2
1.06 "Employee" 2
1.07 "Highly Compensated Employee" 2
1.08 "Participant" 4
1.09 "Beneficiary" 4
1.10 "Compensation" 4
1.11 "Account" 5
1.12 "Accrued Benefit" 5
1.13 "Nonforfeitable" 5
1.14 "Plan Year" 5
1.15 "Effective Date" 5
1.16 "Plan Entry Date" 5
1.17 "Accounting Date" 5
1.18 "Trust" 5
1.19 "Trust Fund" 5
1.20 "Nontransferable Annuity" 5
1.21 "ERISA" 6
1.22 "Code" 6
1.23 "Service" 6
1.24 "Hour of Service" 6
1.25 "Disability" 7
1.26 SERVICE FOR PREDECESSOR EMPLOYER. 7
1.27 RELATED EMPLOYERS. 7
1.28 LEASED EMPLOYEES. 8
1.29 DETERMINATION OF TOP HEAVY STATUS. 8
1.30 PLAN MAINTAINED BY MORE THAN ONE EMPLOYER. 10
Article II. EMPLOYEE PARTICIPANTS 10
2.01 ELIGIBILITY. 10
2.02 YEAR OF SERVICE - PARTICIPATION. 11
2.03 BREAK IN SERVICE - PARTICIPATION. 12
2.04 PARTICIPATION UPON REEMPLOYMENT. 12
Article III. EMPLOYER CONTRIBUTIONS AND FORFEITURES 12
3.01 AMOUNT. 12
3.02 DETERMINATION OF CONTRIBUTION. 13
3.03 TIME OF PAYMENT OF CONTRIBUTION. 13
3.04 CONTRIBUTION ALLOCATION. 14
3.05 FORFEITURE ALLOCATION. 16
3.06 ACCRUAL OF BENEFIT. 16
3.07 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. 17
3.08 DEFINITIONS - ARTICLE III. 19
Article IV. PARTICIPANT CONTRIBUTIONS 22
4.01 PARTICIPANT VOLUNTARY CONTRIBUTIONS. 22
4.02 PARTICIPANT VOLUNTARY CONTRIBUTIONS - SPECIAL DISCRIMINATION
TEST. (Reserved) 22
4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS. 22
4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY. 22
4.05 PARTICIPANT CONTRIBUTION -WITHDRAWAL/DISTRIBUTION. 23
4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. 23
Article V. TERMINATION OF SERVICE - PARTICIPANT VESTING 23
5.01 NORMAL RETIREMENT AGE. 23
5.02 PARTICIPANT DISABILITY OR DEATH. 23
5.03 VESTING SCHEDULE. 23
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED
PARTICIPANTS/RESTORATION OF FORFEITED ACCRUED BENEFIT. 24
5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. 26
5.06 YEAR OF SERVICE - VESTING. 26
5.07 BREAK IN SERVICE - VESTING. 26
5.08 INCLUDED YEARS OF SERVICE - VESTING. 26
5.09 FORFEITURE OCCURS. 26
Article VI. TIME AND METHOD OF PAYMENT OF BENEFITS 27
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. 27
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. 29
6.03 BENEFIT PAYMENT ELECTIONS. 31
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. 36
6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY.
[Reserved] 36
6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY.
[Reserved] 36
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. 36
6.08 ROLLOVER DISTRIBUTIONS. 37
Article VII. EMPLOYER ADMINISTRATIVE PROVISIONS 38
7.01 INFORMATION TO COMMITTEE. 38
7.02 NO LIABILITY. 38
7.03 INDEMNITY OF COMMITTEE. 38
7.04 EMPLOYER DIRECTION OF INVESTMENT. 39
7.05 AMENDMENT TO VESTING SCHEDULE. 39
Article VIII. PARTICIPANT ADMINISTRATIVE PROVISIONS 39
8.01 BENEFICIARY DESIGNATION. 39
8.02 NO BENEFICIARY DESIGNATION. 40
8.03 PERSONAL DATA TO COMMITTEE. 40
8.04 ADDRESS FOR NOTIFICATION. 40
8.05 ASSIGNMENT OR ALIENATION. 41
8.06 NOTICE OF CHANGE IN TERMS. 41
8.07 LITIGATION AGAINST THE TRUST. 41
8.08 INFORMATION AVAILABLE. 41
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. 41
Article IX. ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANT'S
ACCOUNTS 42
9.01 MEMBERS' COMPENSATION, EXPENSES. 42
9.02 TERM. 42
9.03 POWERS. 42
9.04 GENERAL. 42
9.05 FUNDING POLICY. 43
9.06 MANNER OF ACTION. 43
9.07 AUTHORIZED REPRESENTATIVE. 43
9.08 INTERESTED MEMBER. 44
9.09 INDIVIDUAL ACCOUNTS. 44
9.10 INDIVIDUAL STATEMENT. 44
9.11 ACCOUNT CHARGED. 44
9.12 UNCLAIMED ACCOUNT PROCEDURE. 44
9.13 INVESTMENT MANAGER. 45
Article X. [RESERVED] 45
Article XI. EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION 45
11.01 EXCLUSIVE BENEFIT. 45
11.02 AMENDMENT BY EMPLOYER. 45
11.03 DISCONTINUANCE. 46
11.04 FULL VESTING ON TERMINATION. 46
11.05 MERGER/DIRECT TRANSFER. 46
11.06 TERMINATION. 47
Article XII. PROVISIONS RELATING TO THE CODE SECTION 401(k) ARRANGEMENT 48
12.01 CODE SECTION 401(k) ARRANGEMENT. 48
12.02 DEFINITIONS. 49
12.03 ANNUAL ELECTIVE DEFERRAL LIMITATION. 51
12.04 ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. 52
12.05 NONDISCRIMINATION RULES FOR EMPLOYER MATCHING
CONTRIBUTIONS/EMPLOYEE CONTRIBUTIONS. 56
12.06 MULTIPLE USE LIMITATION. 59
Article XIII. MISCELLANEOUS 60
13.01 EVIDENCE. 60
13.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. 60
13.03 FIDUCIARIES NOT INSURERS. 60
13.04 WAIVER OF NOTICE. 60
13.05 SUCCESSORS. 60
13.06 WORD USAGE. 61
13.07 STATE LAW. 61
13.08 EMPLOYMENT NOT GUARANTEED. 61
Article XIV. [RESERVED] 61
Article XV. PARTICIPANT'S ACCOUNTS AND THEIR INVESTMENT 61
15.01 INDIVIDUAL ACCOUNTS. 61
15.02 INVESTMENT OF ACCOUNTS. 61
15.03 PARTICIPANT DIRECTED ACCOUNTS - INVESTMENT PERCENTAGES. 62
15.04 VALUATION OF PARTICIPANTS' ACCRUED BENEFITS. 62
15.05 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. 61
Article XVI. PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL 63
16.01 DEFINITIONS OF "CHANGE IN CONTROL". 63
16.02 PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL. 64
16.03 RIGHT TO AMEND ARTICLE XVI PRIOR TO CHANGE IN CONTROL. 65
<PAGE>
ALPHABETICAL LISTING OF DEFINITIONS
Plan Definition Reference
(Page Number)
Account 1.11(5)
Accounting Date 1.17(5)
Accrued Benefit 1.12(5)
Advisory Committee 1.05(2)
Annual Addition 3.08(a)(19)
Annuity Starting Date 6.01(27)
Beneficiary 1.09(4)
Break in Service for Vesting Purposes 5.07(26)
Cash-Out Distribution 5.04(24)
Code 1.22(6)
Code Section 411 (d)(6) Protected Benefits 11.02(45)
Compensation 1.10(4)
Compensation for Code Section 415 Purposes 3.08(b)(19)
Compensation for Top Heavy Purposes 1.29(c)(10)
Deemed Cash-Out Rule 5.04(C)(25)
Deferral Contributions Account 3.04(A)(14)
Defined Contribution Plan 3.08(g)(20)
Defined Benefit Plan 3.08(h)(20)
Determination Date 1.29(g)(10)
Disability 1.25(7)
Distribution Date 6.01(27)
Distribution Valuation Date 6.01(27)
Effective Date 1.15(5)
Elective Contributions 1.10(4)
Elective Transfer 11.05(46)
Employee 1.06(2)
Employer 1.02(2)
Employer for Code Section 415 Purposes 3.08(d)(19)
Employer for Top Heavy Purposes 1.29(f)(10)
Employment Commencement Date 2.01(10)
Employer Contributions Account 3.04(14)
ERISA 1.21(6)
Excess Amount 3.08(e)(19)
Forfeiture Break In Service 5.08(26)
Hardship 6.03(E)(34)
Highly Compensated Employee 1.07(2)
Hour of Service 1.24(6)
Investment Manager 9.04(i)(43); 9.13(45)
Key Employee 1.29(a)(9)
Leased Employees 1.28(8)
Limitation Year 3.08(f)(19)
Maximum Permissible Amount 3.08(c)(19)
Minimum Distribution Incidental Benefit (MDIB) 6.02(A)(30)
Non-Key Employee 1.29(b)(9)
Nonforfeitable 1.13(5)
Nontransferable Annuity 1.20(5)
Normal Retirement Age 5.01(23)
Participant 1.08(4)
Participating Employer 1.02(2)
Permissive Aggregation Group 1.29(e)(10)
Plan 1.01(2)
Plan Entry Date 1.16(5)
Plan Administrator 1.04(2)
Plan Year 1.14(5)
Qualified Domestic Relations Order 6.07(36)
Qualified Matching Contributions Account 3.04(14)
Qualified Nonelective Contributions Account 3.04(14)
Regular Matching Contributions Account 3.04(14)
Related Employers 1.27(7)
Required Aggregation Group 1.29(d)(10)
Required Beginning Date 6.01(B)(28)
Rollover Account 4.03(22)
Rollover Contributions 4.03(22)
Separation from Service 1.23(6)
Service 1.23(6)
Sponsor 1.02(2)
Top Heavy Minimum Allocation 3.04(B)(15)
Top Heavy Ratio 1.29(8)
Trust Fund 1.19(5)
Trust 1.18(5)
Trustee 1.03(2)
Year of Service for Eligibility Purposes 2.02(11)
Year of Service for Vesting Purposes 5.06(26)
<PAGE>
STILWELL FINANCIAL, INC.
401(K) AND PROFIT SHARING PLAN
(EFFECTIVE ____________, 2000)
INTRODUCTION
Stilwell Financial, Inc. ("Stilwell") hereby establishes, effective as
of [ ], 2000 (the "Effective Date"), the Stilwell Financial, Inc.
401(k) and Profit Sharing Plan ("Plan") for the administration and
distribution of (i) amounts transferred to the Plan from the Kansas City
Southern Industries, Inc. 401(k) Plan ("KCSI 401(k) Plan") and the Kansas
City Southern Industries, Inc. Profit Sharing Plan (the "KCSI Profit Sharing
Plan" and, together with the KCSI 401(k) Plan, the "KCSI Plans") on behalf of
current and former employees of Stilwell and its subsidiaries (collectively,
the "Stilwell Group") and (ii) contributions to be made by the Employers that
are members of the Stilwell Group for the purpose of providing retirement
benefits to eligible employees of the Stilwell Group. The provisions of this
Plan shall apply to an Employee who is employed by an Employer on or after
the Effective Date, and to any other Employee who is employed by an Employer
before the Effective Date and whose Account is transferred from either of the
KCSI Plans to this Plan. If a Participant whose Account is transferred from
either or both of the KCSI Plans to this Plan as of the Effective Date
terminated employment from his last Employer prior to the Effective Date, the
terms of this Plan shall govern the maintenance and distribution of his
Account on and after the Effective Date, but in all other respects the
benefits to which he is entitled shall be determined under the terms of the
KCSI 401(k) Plan or KCSI Profit Sharing Plan, as applicable, as in effect on
the date of the Employee's termination of employment.
Immediately prior to the Effective Date, the members of the Stilwell
Group were members of the controlled group of corporations (within the
meaning of Code Section 414(b)) that includes Kansas City Southern
Industries, Inc. ("KCSI"). As of the Effective Date, all of the shares of
Stilwell held by KCSI were distributed to the shareholders of KCSI as a
spinoff dividend (such transaction being referred to herein as the "Spinoff")
and the members of the Stilwell Group thereby ceased to be members of the
controlled group of corporations that includes KCSI.
Prior to the Effective Date, eligible employees of the Stilwell Group
("Stilwell Participants") participated in the KCSI Plans. As of the
Effective Date, the KCSI 401(k) Plan was split into two separate plans:
(1) a 401(k) plan, together with a profit sharing plan component, providing
benefits to eligible employees of the Stilwell Group, to which were
transferred the assets of the KCSI Plans allocable to employees and former
employees of the Stilwell Group, and which is known as the Stilwell
Financial, Inc. 401(k) and Profit Sharing Plan ("Plan"); and (2) a 401(k)
plan providing benefits to employees of KCSI and certain of its affiliates
other than the Stilwell Group, and which continued to be known as the Kansas
City Southern Industries, Inc. 401(k) Plan ("KCSI 401(k) Plan"). As of the
Effective Date, KCSI also continued to maintain the KCSI Profit Sharing Plan,
which continued to hold assets allocable to employees and former employees of
KCSI and certain of its affiliates other than the Stilwell Group.
Effective as of the Effective Date, employees of the Stilwell Group
ceased to be eligible to continue active participation in the KCSI Plans.
Effective as of the Effective Date, the Plan was established by Stilwell as a
successor to the KCSI Plans to provide retirement benefits for eligible
employees who continue employment with or become employed by the Stilwell
Group following the Effective Date.
ARTICLE I.
DEFINITIONS
"Plan" means the retirement plan established by Stilwell as set forth
herein, designated as the "Stilwell Financial, Inc. 401(k) and Profit Sharing
Plan."
"Employer" means Stilwell Financial, Inc. ("Stilwell" or the "Sponsor")
or any other employer (a "Participating Employer") who with the written
consent of Stilwell adopts this Plan.
"Trustee" means the Trustee under the Master Trust or any successor in
office who in writing accepts the position of Trustee.
"Plan Administrator" is Stilwell Financial, Inc. unless Stilwell
designates another person to hold the position of Plan Administrator. In
addition to its other duties, the Plan Administrator has full responsibility
for compliance with the reporting and disclosure rules under ERISA as
respects this Plan.
"Advisory Committee" means the Sponsor's Advisory Committee as from time
to time constituted.
"Employee" means any employee of an Employer, excluding any Leased
Employee, and excluding any individual who performs services for an Employer
and (i) is working in a classification described as an independent contractor
(even if such person is subsequently determined to be a common-law employee
of the Employer), (ii) is paid, directly or indirectly, through an Employer's
accounts payable system, or (iii) performs such services pursuant to a
contract or agreement which provides that the person is an independent
contractor or consultant (even if such person is subsequently determined to
be a common-law employee of the Employer).
"Highly Compensated Employee" means, for any Plan Year, any individual
who (i) is an Employee described in subsection (a) or (b) below, or (ii) is a
former Employee described in subsection (c), below:
An Employee who at any time during the current Plan Year or the
preceding Plan Year is a more than five percent (5%) owner (or is
considered as owning more than five percent (5%) within the meaning of
Section 318 of the Code) ("5% Owner") of the Employer;
An Employee who (i) received Compensation during the preceding Plan
Year in excess of $80,000 (in 1996, as adjusted in accordance with
regulations and rulings under Section 414(q) of the Code), and (ii) if
the Advisory Committee elects by amendment of the Plan to apply this
clause (ii) to determine the Highly Compensated Employees for a Plan
Year, for this Plan and, except as otherwise permitted, consistently for
all plans of the Employer whose plan years begin in the same calendar
year as such preceding Plan Year, is in the group consisting of the top
twenty percent (20%) of the total number of persons employed by the
Employer when ranked on the basis of Compensation paid during the
preceding Plan Year, provided that, for purposes of determining the
total number of persons employed by the Employer, the following
Employees shall be excluded:
Employees who have not completed an aggregate of six (6) months of
service during the preceding Plan Year,
Employees who work less than seventeen and one-half (17-1/2) hours
per week for 50% or more of the total weeks worked by such employees
during the preceding Plan Year,
Employees who normally work during not more than six (6) months
during any year,
Employees who have not attained age 21 by the end of the preceding
Plan Year,
Employees who are nonresident aliens and who receive no earned
income (within the meaning of Section 911(d)(2) of the Code) from the
Employer which constitutes income during the preceding Plan Year from
sources within the United States (within the meaning of Section
861(a)(3) of the Code), and
Except to the extent provided in regulations prescribed by the
Secretary of the Treasury, Employees who are members of a collective
bargaining unit represented by a collective bargaining agent with which
an Employer has or has had a bargaining agreement.
For purposes of this Section 1.07, "Compensation" means
Compensation as defined in Section 1.10 and Compensation must include
Elective Contributions.
The Advisory Committee must make the determination of who is a
Highly Compensated Employee, including the determinations of the number
and identity of the top paid 20% group and the relevant Compensation,
consistent with Code Section 414(q) and regulations issued under that
Code section. The Employer may make a calendar year election to
determine the Highly Compensated Employees for the Plan Year, as
prescribed by Treasury regulations. Except as otherwise permitted, a
calendar year election must apply to all plans and arrangements of the
Employer.
The term "Highly Compensated Employee" also includes any former
Employee who separated from Service (or has a deemed Separation from
Service, as determined under Treasury regulations) prior to the Plan
Year, performs no Service for the Employer during the Plan Year, and was
a Highly Compensated Employee either for the separation year or any Plan
Year ending on or after his 55th birthday.
"Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
"Beneficiary" is a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes
entitled to a benefit under the Plan remains a beneficiary under the Plan
until the Trustee has fully distributed his benefit to him. A Beneficiary's
right to (and the Plan Administrator's, the Advisory Committee's or a
Trustee's duty to provide to the Beneficiary) information or data concerning
the Plan does not arise until he first becomes entitled to receive a benefit
under the Plan.
"Compensation" means a Participant's wages, salaries, fees for
professional service and other amounts received for personal services
actually rendered in the course of employment with the Employer maintaining
the Plan as defined in Code Section 3401(a) for purposes of income tax
withholding at the source but determined without regard to any rules that
limit remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Section 3401(a)(2)). Compensation includes Elective Contributions
made by the Employer on the Employee's behalf. "Elective Contributions" are
amounts excludible from the Employee's gross income under Code Sections 125,
Section 402(a)(8), 402(h) or 403(b), and contributed by the Employer, at the
Employee's election, to a Code Section 401(k) arrangement, a simplified
employee pension, cafeteria plan or tax-sheltered annuity. A Compensation
payment includes Compensation paid by the Employer to an Employee through
another person under the common paymaster provisions of Code Sections 3121(s)
and 3306(p).
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.10, unless the Plan reference specifies a
modification to this definition. The Advisory Committee will take into
account only Compensation actually paid for the relevant period.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not
exceed the OBRA 93 annual compensation limit. The OBRA 93 annual
compensation limit is $150,000, as adjusted by the Commissioner for increases
in the cost of living in accordance with Code Section 401(a)(17)(B). The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA 93 annual compensation
limit will be multiplied by a fraction, the numerator of which is the number
of months in the determination period, and the denominator of which is 12.
If Compensation for any prior determination period is taken into account
in determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA 93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA 93 annual
compensation limit is $150,000.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA 93 annual compensation limit set forth in this
provision.
NONDISCRIMINATION. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.10, unless the Employer elects to
use an alternate nondiscriminatory definition, in accordance with the
requirements of Code Section 414(s) and the regulations issued under that
Code section. The Employer may elect to include all Elective Contributions
made by the Employer on behalf of the Employees. The Employer's election to
include Elective Contributions must be consistent and uniform with respect to
Employees and all plans of the Employer for any particular Plan Year. The
Employer may make this election to include Elective Contributions for
nondiscrimination testing purposes, irrespective of whether this Section 1.10
includes Elective Contributions in the general Compensation definition
applicable to the Plan.
"Account" means the separate account(s) which the Advisory Committee or
the Trustee maintains for a Participant under the Plan.
"Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and
Employee contributions, if any.
"Nonforfeitable" means a Participant's or Beneficiary's unconditional
claim, legally enforceable against the Plan, to the Participant's Accrued
Benefit.
"Plan Year" means the fiscal year of the Plan, a 12 consecutive month
period ending every December 31. For fiscal reporting purposes, the first
Plan Year of the Plan shall be the short Plan Year commencing on the
Effective Date and ending December 31, 2000.
"Effective Date" of this Plan is _____________, 2000.
"Plan Entry Date" means every January 1 and July 1.
"Accounting Date" is the last day of the Plan Year. Unless otherwise
specified in the Plan, the Advisory Committee will make all the Plan
allocations for a particular Plan Year as of the Accounting Date of that Plan
Year.
"Trust" means the Master Trust established pursuant to the Master Trust
Agreement between Stilwell and UMB Bank, N.A., effective as of October 1,
1999, and/or any other Trust that may be established under this Plan.
"Trust Fund" means all property of every kind held or acquired by the
Trustee under the Plan, other than incidental benefit insurance contracts. A
single Master Trust has been established for all Employers participating
under the Stilwell Financial, Inc. 401(k) and Profit Sharing Plan. However,
the Trustee shall maintain separate records of account in order to reflect
properly each Participant's Accrued Benefit derived from each Participating
Employer.
"Nontransferable Annuity" means an annuity which by its terms provides
that it may not be sold, assigned, discounted, pledged as collateral for a
loan or security for the performance of an obligation or for any purpose to
any person other than the insurance company. If the Trustee distributes an
annuity contract, the contract must be a Nontransferable Annuity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Service" means any period of time the Employee is in the employ of the
Employer, including any period the Employee is on an unpaid leave of absence
authorized by the Employer under a uniform, nondiscriminatory policy
applicable to all Employees. Notwithstanding any provision of this Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service shall be provided in accordance with Section
414(u) of the Code. "Separation from Service" means a separation from
Service with the Employer maintaining this Plan.
"Hour of Service" means:
Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Advisory Committee credits
Hours of Service under this paragraph (a) to the Employee for the
computation period in which the Employee performs the duties,
irrespective of when paid;
Each Hour of Service for back pay, irrespective of mitigation of
damages, to which the Employer has agreed or for which the Employee has
received an award. The Advisory Committee credits Hours of Service
under this paragraph (b) to the Employee for the computation period(s)
to which the award or the agreement pertains rather than for the
computation period in which the award, agreement or payment is made; and
Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties during
a computation period, such as leave of absence, vacation, holiday, sick
leave, illness, incapacity (including disability), layoff, jury duty or
military duty. The Advisory Committee will credit no more than 501
Hours of Service under this paragraph (c) to an Employee on account of
any single continuous period during which the Employee does not perform
any duties (whether or not such period occurs during a single
computation period). The Advisory Committee credits Hours of Service
under this paragraph (c) in accordance with the rules of paragraphs (b)
and (c) of Labor Reg. Section 2530.200b-2, which the Plan, by this
reference, specifically incorporates in full within this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more
than one of the above paragraphs. A computation period for purposes of this
Section 1.24 is the Plan Year, Year of Service period, Break in Service
period or other period, as determined under the Plan provision for which the
Advisory Committee is measuring an Employee's Hours of Service.
The Employer will credit every Employee with Hours of Service on the
basis of the "actual" method. For purposes of the Plan, "actual" method
means the determination of Hours of Service from records of hours worked and
hours for which the Employer makes payment or for which payment is due from
the Employer. However, for an Employee who is paid on other than an hourly
basis, Hours of Service shall be credited according to the following
schedule, based on the payroll period of the Employee, for each payroll
period with respect to which he or she is paid or is entitled to payment of
compensation:
Payroll Period Hours of Service
-------------- ----------------
Daily 10
Weekly 45
Bi-Monthly 95
Monthly 190
Solely for purposes of determining whether the Employee incurs a Break
in Service under any provision of this Plan, the Advisory Committee must
credit Hours of Service during an Employee's unpaid absence period due to
maternity or paternity leave. The Advisory Committee considers an Employee
on maternity or paternity leave if the Employee's absence is due to the
Employee's pregnancy, the birth of the Employee's child, the placement with
the Employee of an adopted child, or the care of the Employee's child
immediately following the child's birth or placement. The Advisory Committee
credits Hours of Service under this paragraph on the basis of the number of
Hours of Service the Employee would receive if he were paid during the
absence period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours per day
during the absence period. The Advisory Committee will credit only the
number (not exceeding 501) of Hours of Service necessary to prevent an
Employee's Break in Service. The Advisory Committee credits all Hours of
Service described in this paragraph to the computation period in which the
absence period begins or, if the Employee does not need these Hours of
Service to prevent a Break in Service in the computation period in which his
absence period begins, the Advisory Committee credits these Hours of Service
to the immediately following computation period.
"Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for
an indefinite period which the Advisory Committee considers will be of long
continued duration. A Participant also is disabled if he incurs the
permanent loss or loss of use of a member or function of the body, or is
permanently disfigured, and incurs a Separation from Service. The Plan
considers a Participant disabled on the date the Advisory Committee
determines the Participant satisfies the definition of disability. The
Advisory Committee may require a Participant to submit to a physical
examination in order to confirm disability. The Advisory Committee will
apply the provisions of this Section 1.25 in a nondiscriminatory, consistent
and uniform manner.
SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan of
a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer.
RELATED EMPLOYERS. A related group is a controlled group of
corporations (as defined in Code Section 414(b)), trades or businesses
(whether or not incorporated) which are under common control (as defined in
Code Section 414(c)) or an affiliated service group (as defined in Code
Section 414(m) or in Code Section 414(o)). If the Employer is a member of a
related group, the term "Employer" includes, for the time period during which
the relation exists, the related group members for purposes of crediting
Hours of Service, determining Years of Service and Breaks in Service under
Articles II and V, applying the limitations on allocations in Part 2 of
Article III, applying the top heavy rules and the minimum allocation
requirements of Article III, the definitions of Employee, Highly Compensated
Employee, Compensation and Leased Employee, and for any other purpose
required by the applicable Code section or by a Plan provision. In addition,
(i) the Plan shall treat all service prior to the Effective Date that is
credited with respect to an Employee under the terms of the KCSI Plans in
effect prior to the Effective Date as service with the Employer, and (ii) the
Plan shall treat service of an Employee on or after the Effective Date with
an "affiliate" of Stilwell during the time it is an "affiliate" as service
with the Employer. For purposes of the immediately preceding sentence, the
term "affiliate" means any corporation, partnership, joint venture or other
business entity with respect to which twenty-five percent (25%) or more of
the equity interests therein are owned, directly or indirectly, by Stilwell,
or by any entity at least 80% of the equity interests of which are owned by
Stilwell. However, only a Participating Employer described in Section 1.02
may contribute to the Plan and only an Employee employed by a Participating
Employer described in Section 1.02 is eligible to participate in this Plan.
For Plan allocation purposes, "Compensation" does not include compensation
received from a related employer that is not participating in this Plan.
LEASED EMPLOYEES. The Plan does not treat a Leased Employee as an
Employee of the Employer. A Leased Employee is an individual (who otherwise
is not an Employee of the Employer) who, pursuant to a leasing agreement
between the Employer and any other person, has performed services for the
Employer (or for the Employer and any persons related to the Employer within
the meaning of Code Section 144(a)(3)) on a substantially full time basis for
at least one year and who performs services under the primary direction or
control of the Employer. A Leased Employee who performs services for the
Employer pursuant to a contract or agreement which provides that the person
is a Leased Employee will not become eligible to participate in this Plan
merely by reason of a determination that the person is a common-law employee
of the Employer, unless and until the Employer changes the employment
classification of such person.
DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only qualified
plan maintained by the Employer, the Plan is top heavy for a Plan Year if the
top heavy ratio as of the Determination Date exceeds 60%. The top heavy
ratio is a fraction, the numerator of which is the sum of the present value
of Accrued Benefits of all Key Employees as of the Determination Date and the
denominator of which is a similar sum determined for all Employees. The
Advisory Committee must include in the top heavy ratio, as part of the
present value of Accrued Benefits, any contribution not made as of the
Determination Date but includible under Code Section 416 and the applicable
Treasury regulations, and distributions made within the Determination Period.
The Advisory Committee must calculate the top heavy ratio by disregarding the
Accrued Benefit (and distributions, if any, of the Accrued Benefit) of any
Non-Key Employee who was formerly a Key Employee, and by disregarding the
Accrued Benefit (including distributions, if any, of the Accrued Benefit) of
an individual who has not received credit for at least one Hour of Service
with the Employer during the Determination Period. The Advisory Committee
must calculate the top heavy ratio, including the extent to which it must
take into account distributions, rollovers and transfers, in accordance with
Code Section 416 and the regulations under that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is
terminated, this Plan is top heavy only if it is part of the Required
Aggregation Group, and the top heavy ratio for the Required Aggregation Group
and for the permissive Aggregation Group, if any, each exceeds 60%. The
Advisory Committee will calculate the top heavy ratio in the same manner as
required by the first paragraph of this Section 1.29, taking into account all
plans within the Aggregation Group. To the extent the Advisory Committee
must take into account distributions to a Participant, the Advisory Committee
must include distributions from a terminated plan which would have been part
of the Required Aggregation Group if it were in existence on the
Determination Date. The Advisory Committee will calculate the present value
of Accrued Benefits under defined benefit plans or simplified employee
pension plans included within the group in accordance with the terms of those
plans, Code Section 416 and the regulations under that Code section. If a
Participant in a defined benefit plan is a Non-Key Employee, the Advisory
Committee will determine his Accrued Benefit under the accrual method, if
any, which is applicable uniformly to all defined benefit plans maintained by
the Employer or, if there is no uniform method, in accordance with the
slowest accrual rate permitted under the fractional rule accrual method
described in Code Section 411(b)(1)(C). To calculate the present value of
benefits from a defined benefit plan, the Advisory Committee will use the
actuarial assumptions (interest and mortality only) prescribed by the defined
benefit plan(s) to value benefits for top heavy purposes. If an aggregated
plan does not have a valuation date coinciding with the Determination Date,
the Advisory Committee must value the Accrued Benefits in the aggregated plan
as of the most recent valuation date falling within the twelve-month period
ending on the Determination Date, except as Code Section 416 and applicable
Treasury regulations require for the first and second plan year of a defined
benefit plan. The Advisory Committee will calculate the top heavy ratio with
reference to the Determination Dates that fall within the same calendar year.
DEFINITIONS. For purposes of applying the provisions of this
Section 1.29:
"Key Employee" means, as of any Determination Date, any Employee or
former Employee (or Beneficiary of such Employee), who, for any Plan
Year in the Determination Period: (i) has Compensation in excess of 50%
of the dollar amount prescribed in Code Section 415(b)(1)(A) (relating
to defined benefit plans) and is an officer of the Employer; (ii) has
Compensation in excess of the dollar amount prescribed in
Code Section 415(c)(1)(A) (relating to defined contribution plans) and
is one of the Employees owning the ten largest interests in the
Employer; (iii) is a more than 5% owner of the Employer; or (iv) is a
more than 1% owner of the Employer and has compensation of more than
$150,000. The constructive ownership rules of Code Section 318 (or the
principles of that section, in the case of an unincorporated Employer)
will apply to determine ownership in the Employer. The number of
officers taken into account under clause (i) will not exceed the greater
of 3 or 10% of the total number (after application of the Code
Section 414(q)(8) exclusions) of Employees, but no more than 50
officers. The Advisory Committee will make the determination of who is
a Key Employee in accordance with Code Section 416(i)(1) and the
regulations under that Code section.
"Non-Key Employee" is an Employee who does not meet the definition
of Key Employee.
"Compensation" means Compensation as determined under Section 1.07
(relating to the Highly Compensated Employee definition).
"Required Aggregation Group" means: (1) each qualified plan of the
Employer in which at least one Key Employee participates at any time
during the Determination Period; and (2) any other qualified plan of the
Employer which enables a plan described in clause (1) to meet the
requirements of Code Section 401(a)(4) or Code Section 410.
"Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if
such group would satisfy in the aggregate the requirements of Code
Section 401(a)(4) and Code Section 410. The Advisory Committee will
determine the Permissive Aggregative Group.
"Employer" means the Employer that adopts this Plan and any related
employers described in Section 1.27.
"Determination Date" for any Plan Year is the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year of the
Plan, the Accounting Date of that Plan Year. The "Determination Period"
is the 5-year period ending on the Determination Date.
PLAN MAINTAINED BY MORE THAN ONE EMPLOYER. If more than one Employer
maintains this Plan, then for purposes of determining Service and Hours of
Service, the Advisory Committee will treat all Employers maintaining this
Plan as a single employer.
PLAN ALLOCATIONS. The Advisory Committee and the Trustee will account
separately for each Employer's contributions under the Plan. In this
respect, the Advisory Committee will allocate each Employer's contributions
to the Trustee for a Plan Year, in accordance with Article III, to the
Accounts of those Participants actually employed by that Employer during the
Plan Year. The Advisory Committee will attribute Participant forfeitures to
the Employer or Employers that actually employed the forfeited Participant in
the year of the forfeiture. For this purpose, Compensation will mean
Compensation paid during the Plan Year to those Participants actually
employed by that Employer during the Plan Year.
EMPLOYEE PARTICIPANTS
ELIGIBILITY. Each Employee (other than an Excluded Employee) becomes a
Participant in the Plan on the Plan Entry Date (if employed on that date)
coincident with or immediately following the later of his Employment
Commencement Date or the date he attains age 18. Each Employee who was a
Participant in the KCSI 401(k) Plan on the day before the Effective Date and
whose Employer becomes an Employer under this Plan as of the Effective Date
continues as a Participant in the Plan on the Effective Date for all purposes
other than sharing in Employer discretionary profit sharing contributions,
and each Employee who was a Participant in the KCSI Profit Sharing Plan on
the day before the Effective Date and whose Employer becomes an Employer
under this Plan as of the Effective Date continues as a Participant in the
Plan for purposes of sharing in Employer discretionary profit sharing
contributions. The term "Employment Commencement Date" means the date on
which the Employee first performs an Hour of Service for an Employer.
An Employee is an Excluded Employee if he is (a) a nonresident alien who
receives no earned income (within the meaning of Code Section 911(d)(2)) from
an Employer which constitutes income from sources within the United States
(within the meaning of Code Section 861(a)(3)), or (b) a member of a
collective bargaining unit, unless the collective bargaining agreement
provides otherwise. An Employee is a member of a collective bargaining unit
if he is included in a unit of employees covered by an agreement which the
Secretary of Labor finds to be a collective bargaining agreement between
employee representatives and one or more Employers if there is evidence that
retirement benefits were the subject of good faith bargaining between such
employee representatives and such Employer or Employers. The term "employee
representatives" does not include an organization more than one half the
members of which are owners, officers or executives of the Employer.
If a Participant has not incurred a Separation from Service but becomes
an Excluded Employee, then during the period such a Participant is an
Excluded Employee, the Advisory Committee will limit that Participant's
sharing in the allocation of Employer contributions and Participant
forfeitures, if any, under the Plan by disregarding his Compensation paid by
the Employer for services rendered in his capacity as an Excluded Employee.
However, during such period of exclusion, the Participant, without regard to
employment classification, continues to receive credit for vesting under
Article V for each included Year of Service and the Participant's Account
continues to share fully in Trust Fund allocations under Section 15.05.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification,
he will participate in the Plan immediately if he has satisfied the
eligibility conditions of Section 2.01 and would have been a Participant had
he not been an Excluded Employee during his period of Service. Furthermore,
the Plan takes into account all of the Participant's included Years of
Service with the Employer as an Excluded Employee for purposes of vesting
credit under Article V.
A Leased Employee who performs services for the Employer pursuant to a
contract or agreement which provides that the person is a Leased Employee
will not become eligible to participate in this Plan merely by reason of a
determination that the person is a common-law employee of the Employer,
unless and until the Employer changes the employment classification of such
person. If a Leased Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification,
he will participate in the Plan immediately if he has satisfied the
eligibility conditions of Section 2.01 and would have been a Participant had
he not been a Leased Employee during his period of Service. Furthermore, the
Plan takes into account all of the Participant's included Years of Service
with the Employer as a Leased Employee for purposes of vesting credit under
Article V.
YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's
participation in the Plan under Section 2.01, the Plan does not apply any
minimum Hour of Service requirement. The Plan does not require an Employee
who terminates employment to establish a new Employment Commencement Date if
re-employed by the Employer.
BREAK IN SERVICE - PARTICIPATION. For purposes of participation in the
Plan, the Plan does not apply any Break in Service rule.
PARTICIPATION UPON REEMPLOYMENT. A Participant whose employment
terminates reenters the Plan as a Participant on the date of his
reemployment. An Employee who satisfies the Plan's eligibility conditions
but who terminates employment prior to becoming a Participant becomes a
Participant in the Plan on the later of the Plan Entry Date on which he would
have entered the Plan had he not terminated employment or the date of his
reemployment. Any Employee who terminates employment prior to satisfying the
Plan's eligibility conditions becomes a Participant in accordance with the
provisions of Section 2.01.
EMPLOYER CONTRIBUTIONS AND FORFEITURES
PART 1. AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS:
-----------------------------------------------------
SECTIONS 3.01 THROUGH 3.06.
- --------------------------
AMOUNT.
------
CONTRIBUTION FORMULA. For each Plan Year, the Employer shall contribute
to the Trust the following amounts:
DEFERRAL CONTRIBUTIONS. The amount by which the Participants
have elected to reduce their Compensation (as defined in Section
1.10 after modification by Section 12.01) for the Plan Year under
their salary reduction agreements on file with the Advisory
Committee.
EMPLOYER MATCHING CONTRIBUTIONS. An amount equal to 100% of
each Participant's eligible contributions. The Employer will
determine the amount of its matching contributions by disregarding
Participants not entitled to an allocation of matching
contributions. The Employer, in its sole discretion, may designate
all or any portion of its matching contribution as a qualified
matching contribution at the time it makes the contribution.
DISCRETIONARY SAVINGS CONTRIBUTIONS. The additional amount
the Employer may from time to time deem advisable and designates as
a discretionary savings contribution. The Employer, in its sole
discretion, may further designate all or any portion of its
discretionary savings contribution as a qualified nonelective
contribution at the time it makes the contribution.
DISCRETIONARY PROFIT SHARING CONTRIBUTIONS. The additional
amount the Employer may from time to time deem advisable and
designates as a discretionary profit sharing contribution.
Participants in the Janus Capital Corporation Profit Sharing Plan
shall not share in Employer discretionary profit sharing
contributions under this Plan.
The Employer shall make its contribution under the Plan irrespective of
whether it has net profits. Although the Employer may contribute to this
Plan irrespective of whether it has net profits, the Employer intends this
plan to be a profit sharing plan for all purposes under the Code. The
Employer shall not make a contribution to the Trust for any Plan Year to the
extent the contribution would exceed the Participants' "Maximum Permissible
Amount" under Section 3.08.
ELIGIBLE CONTRIBUTIONS. Under the matching contribution formula, a
Participant's "eligible contributions" are the deferral contributions
allocated to the Participant not in excess of 3% of the Participant's
Compensation (as defined in Section 1.10 after modification by Section 12.01)
for the Plan Year. Eligible contributions do not include deferral
contributions that are excess deferrals under Section 12.03. For this
purpose: (a) excess deferrals relate first to deferral contributions for the
Plan Year not otherwise eligible for a matching contribution; and (b) if the
Plan Year is not a calendar year, the excess deferrals for a Plan Year are
the last deferrals made for a calendar year.
RETURN OF CONTRIBUTIONS. The Employer contributes to this Plan on the
condition its contribution is not due to a mistake of fact and the Internal
Revenue Service will not disallow the deduction for its contribution. The
Trustee, upon written request from the Employer, must return to the Employer
the amount of the Employer's contribution made by the Employer by mistake of
fact or the amount of the Employer's contribution disallowed as a deduction
under Code Section 404. The Trustee will not return any portion of the
Employer's contribution under the provisions of this paragraph more than one
year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then
only to the extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution
returnable for any losses attributable to it. The Trustee may require the
Employer to furnish it whatever evidence the Trustee deems necessary to
enable the Trustee to confirm the amount the Employer has requested be
returned is properly returnable under ERISA.
DETERMINATION OF CONTRIBUTION. The Employer, from its records,
determines the amount of any contributions to be made by it to the Trust
under the terms of the Plan.
TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its contribution
for each Plan Year in one or more installments without interest. The
Employer must make its contribution to the Trust within the time prescribed
by the Code or applicable Treasury regulations. The Employer must make
deferral contributions to the Trust, to the extent made pursuant to salary
reduction agreements, within an administratively reasonable period of time
after withholding the corresponding Compensation from the Participant. The
Employer also must make deferral contributions and qualified nonelective
contributions no later than the time prescribed by the Code or by Treasury
regulations. Deferral contributions are Employer contributions for all
purposes under this Plan, except to the extent the Code or Treasury
regulations prohibit the use of these contributions to satisfy the
qualification requirements of the Code.
CONTRIBUTION ALLOCATION.
-----------------------
METHOD OF ALLOCATION. To make allocations under the Plan, the Advisory
Committee must establish a Deferral Contributions Account, a Regular Matching
Contributions Account, a Qualified Matching Contributions Account, a
Qualified Nonelective Contributions Account, a Savings Contribution Account
and a Profit Sharing Contributions Account for each Participant.
DEFERRAL CONTRIBUTIONS. The Advisory Committee will allocate to each
Participant's Deferral Contributions Account the deferral contributions the
Employer makes to the Trust on behalf of the Participant. The Advisory
Committee will make this allocation as of each date during the Plan Year on
which such Participant is paid.
MATCHING CONTRIBUTIONS. The Employer, at the time of contribution, must
designate which portion, if any, of its matching contribution is allocable to
the Qualified Matching Contributions Accounts and which part, if any, is
allocable to the Regular Matching Contributions Accounts. The Advisory
Committee will allocate the matching contributions to the Regular Matching
Contributions Account of the Participant on whose behalf the Employer makes
that contribution as of the last day of the Plan Year; provided, however,
that the Advisory Committee will make tentative interim allocations of
matching contributions to the Regular Matching Contributions Account of the
Participant on whose behalf the Employer makes the contribution as of each
date during the Plan Year on which such Participant is paid, and shall make a
final allocation upon the earlier of the Participant's termination of
employment with the Employer or the last day of the Plan Year equal to the
amount of matching contribution required under Section 3.01(A) less any
interim allocations made to such Participant's Regular Matching Contributions
Account during the Plan Year.
To the extent the Employer makes qualified matching contributions, the
Advisory Committee will allocate the qualified matching contributions to the
Qualified Matching Contributions Account of the Participant on whose behalf
the Employer makes the contribution.
QUALIFIED NONELECTIVE CONTRIBUTIONS. If the Employer, at the time of
contribution, designates a contribution to be a qualified nonelective
contribution for the Plan Year, the Advisory Committee will allocate that
qualified nonelective contribution to the Qualified Nonelective Contributions
Account of each Participant in the same ratio that the Participant's
Compensation for the Plan Year bears to the total Compensation of all
Participants for the Plan Year.
DISCRETIONARY SAVINGS CONTRIBUTIONS. Subject to Section 3.04(B) and any
restoration allocation required under Section 5.04, the Advisory Committee
will allocate and credit each annual Employer discretionary savings
contribution if any, other than discretionary savings contributions which, at
the time of contribution, the Employer designates as qualified nonelective
contributions, to the Savings Contributions Account of each Participant in
the same ratio that each Participant's Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year.
DISCRETIONARY PROFIT SHARING CONTRIBUTIONS. Subject to Section 3.04(B)
and any restoration allocation required under Section 5.04, the Advisory
Committee will allocate and credit each annual Employer discretionary profit
sharing contribution, if any, to the Profit Sharing Contributions Account of
each Participant who is eligible to share in discretionary profit sharing
contributions and who satisfies the conditions of Section 3.06 in the same
ratio that each such Participant's Compensation for the Plan Year bears to
the total Compensation of all such Participants for the Plan Year. Each
Participant's Profit Sharing Contributions Account shall consist of two
sub-accounts, (i) the Participant's Pre-2000 Profit Sharing Contributions
Account, to which shall be credited discretionary profit sharing
contributions that are allocated with respect to Plan Years commencing before
January 1, 2000, together with earnings thereon, and (ii) the Participant's
Post-1999 Profit Sharing Contributions Account, to which shall be credited
discretionary profit sharing contributions that are allocated with respect to
Plan Years commencing after December 31, 1999, together with earnings
thereon.
TOP HEAVY MINIMUM ALLOCATION.
MINIMUM ALLOCATION. If the Plan is top heavy in any Plan Year:
(a) Each Non-Key Employee (as defined in Section 1.29) who is a
Participant and is employed by the Employer on the last day of the Plan
Year will receive a top heavy minimum allocation for that Plan Year and
(b) The top heavy minimum allocation is the lesser of 3% of the
Non-Key Employee's Compensation for the Plan Year or the highest
contribution rate for the Plan Year made on behalf of any Key Employee
(as defined in section 1.29). However, if a defined benefit plan
maintained by the Employer which benefits a Key Employee depends on this
Plan to satisfy the antidiscrimination rules of Code Section 401(a)(4)
or the coverage rules of Code Section 410 (or another plan benefiting
the Key Employee so depends on such defined benefit plan), the top heavy
minimum allocation is 3% of the Non-Key Employee's Compensation
regardless of the contribution rate for the Key Employees.
(c) For purposes of this Section 3.04(B), the term "Participant"
includes any employee otherwise eligible to participate in the Plan but
who is not a Participant because of his failure to make elective
deferrals under a Code Section 401(k) arrangement or because of his
failure to make mandatory employee contributions. For purposes of
clause (b), "Compensation" means Compensation as defined in
Section 1.10, disregarding Elective Contributions and any exclusions
from Compensation. For purposes of this Section 3.04(B), a
Participant's contribution rate is the sum of Employer contributions
(not including Employer contributions to Social Security) and
forfeitures allocated to the Participant's Account for the Plan Year
divided by his Compensation for the entire Plan Year. However, for Plan
Years beginning after December 31, 1988, a Non-Key Employee's
contribution rate does not include any Elective Contributions under a
Code Section 401(k) arrangement nor any Employer matching contributions
necessary to satisfy the nondiscrimination requirements of Code Section
401(k) or of Code Section 401(m). To determine a Participant's
contribution rate, the Advisory Committee must treat all qualified top
heavy defined contribution plans maintained by the Employer (or by any
related Employers described in Section 1.27) as a single Plan.
METHOD OF COMPLIANCE. The Plan will satisfy the top heavy minimum
allocation in accordance with this Section 3.04(B)(2). The Advisory
Committee first will allocate the Employer contributions (and
Participant forfeitures, if any) for the Plan Year in accordance with
the allocation formula under Section 3.04(A). The Employer then will
contribute an additional amount for the Account of any Participant who
is entitled under this Section 3.04(B) to a top heavy minimum allocation
and whose contribution rate for the Plan Year is less than the top heavy
minimum allocation. The additional amount is the amount necessary to
increase the Participant's contribution rate to the top heavy minimum
allocation. The Advisory Committee will allocate the additional
contribution to the Account of the Participant on whose behalf the
Employer makes the contribution.
FORFEITURE ALLOCATION. The amount of a Participant's Accrued Benefit
forfeited under the Plan is a Participant forfeiture. Subject to any
restoration allocation required under Section 5.04 or 9.12 and the special
forfeiture allocation for certain excess aggregate contributions described in
Section 12.05, the Advisory Committee will allocate (i) the amount of a
Participant's Regular Matching Contributions Account and Savings
Contributions Account forfeited under the Plan in accordance with
Section 3.04 to reduce the Employer matching contributions for the Plan Year
in which the forfeiture occurs and, if necessary, to reduce Employer matching
contributions in subsequent Plan Years, and (ii) the amount of a
Participant's Profit Sharing Contributions Account forfeited under the Plan
in accordance with Section 3.04, as an Employer discretionary profit sharing
contribution for the Plan Year in which the forfeiture occurs, as if the
Participant forfeiture were an additional Employer discretionary profit
sharing contribution for that Plan Year. The Advisory Committee will
continue to hold the undistributed, non-vested portion of a terminated
Participant's Accrued Benefit in his Account solely for his benefit until a
forfeiture occurs at the time specified in Section 5.09 or, if applicable,
until the time specified in Section 9.12. Except as provided under
Section 5.04, a Participant will not share in the allocation of a forfeiture
of any portion of his Accrued Benefit.
FORFEITURE OF CERTAIN MATCHING CONTRIBUTIONS. A Participant will
forfeit any matching contributions allocated with respect to excess
deferrals, excess contributions or excess aggregate contributions, as
determined under Article XII. The Advisory Committee will allocate these
forfeited amounts in accordance with this Section 3.05.
ACCRUAL OF BENEFIT. The Advisory Committee will determine the accrual
of benefit (Employer contributions and Participant forfeitures) on the basis
of the Plan Year, except as provided in Section 3.04.
COMPENSATION TAKEN INTO ACCOUNT. In allocating an Employer qualified
nonelective contribution or an Employer discretionary savings or profit
sharing contribution to a Participant's Account, the Advisory Committee,
except for purposes of determining the top heavy minimum contribution under
Section 3.04(B), will take into account only the Compensation determined for
the portion of the Plan Year in which the Employee is actually a Participant.
HOURS OF SERVICE REQUIREMENT. A Participant will share in the
allocation of Employer deferral contributions, matching contributions and
discretionary savings contributions, and Participant forfeitures thereof, if
any, for a Plan Year without regard to any Hours of Service requirement for
that Plan Year. Subject to the top-heavy minimum allocation requirement of
Section 3.04(B), a Participant will not share in the allocation of Employer
discretionary profit sharing contributions if the Participant does not
complete a minimum of 1,000 Hours of Service during the Plan Year, unless the
Participant terminates employment during the Plan Year because of death or
Disability or because of the attainment of Normal Retirement Age in the
current Plan Year or in a prior Plan Year.
EMPLOYMENT REQUIREMENT. A Participant will share in the allocation of
Employer contributions and Participant forfeitures, if any, for a Plan Year
without regard to whether he is employed by the Employer on the Accounting
Date of that Plan Year.
Part 2. LIMITATIONS ON ALLOCATION: SECTIONS 3.07 AND 3.08.
--------------------------------------------------
LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount of
Annual Additions which the Advisory Committee may allocate under this Plan on
a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to
the Participant's Account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the Employer will reduce the
amount of its contribution so the Annual Additions for the Limitation Year
will equal the Maximum Permissible Amount. If an allocation of Employer
contributions, pursuant to Section 3.04, would result in an Excess Amount
(other than an Excess Amount resulting from the circumstances described in
Section 3.07(B)) to the Participant's Account, the Advisory Committee will
reallocate the Excess Amount to the remaining Participants who are eligible
for an allocation of Employer contributions for the Plan Year in which the
Limitation Year ends. The Advisory Committee will make this reallocation on
the basis of the allocation method under the Plan as if the Participant whose
Account otherwise would receive the Excess Amount is not eligible for an
allocation of Employer contributions.
ESTIMATION OF COMPENSATION. Prior to the determination of the
Participant's actual Compensation for a Limitation Year, the Advisory
Committee may determine the Maximum Permissible Amount on the basis of the
Participant's estimated annual Compensation for such Limitation Year. The
Advisory Committee must make this determination on a reasonable and uniform
basis for all Participants similarly situated. The Advisory Committee must
reduce any Employer contributions (including any allocation of forfeitures)
based on estimated annual Compensation by any Excess Amount carried over from
prior years. As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum
Permissible Amount for such Limitation Year on the basis of the Participant's
actual Compensation for such Limitation Year.
DISPOSITION OF EXCESS AMOUNT. If, as a result of a reasonable error in
determining the amount of elective deferrals an Employee may make without
violating the limitations of Part 2 of Article III, an Excess Amount results,
the Advisory Committee will return the Excess Amount (as adjusted for
allocable income) attributable to the elective deferrals. The Advisory
Committee will make this distribution before making any of the corrective
distributions in the remaining paragraphs of this Section 3.07(B). The
Advisory Committee will disregard any elective deferrals returned under this
paragraph for purposes of Article XII.
If, because of a reasonable error in estimating Compensation, or because
of the allocation of forfeitures, there is an Excess Amount with respect to a
Participant for a Limitation Year, the Advisory Committee will dispose of
such Excess Amount as follows:
(a) The Advisory Committee will return any nondeductible voluntary
Employee contributions to the Participant to the extent that the return
would reduce the Excess Amount.
If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan covers the Participant at the end of the Limitation
Year, then the Advisory Committee will use the Excess Amount(s) to
reduce future Employer contributions (including any allocation of
forfeitures) under the Plan for the next Limitation Year and for each
succeeding Limitation Year, as is necessary, for the Participant.
If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan does not cover the Participant at the end of the
Limitation Year, then the Advisory Committee will hold the Excess Amount
unallocated in a suspense account. The Advisory Committee will apply
the suspense account to reduce Employer Contributions (including
allocation of forfeitures) for all remaining Participants in the next
Limitation Year, and in each succeeding Limitation Year if necessary.
Except as provided in paragraph (a), the Advisory Committee will
not distribute any Excess Amount(s) to Participants or to former
Participants.
(C) MORE THAN ONE PLAN. If the Advisory Committee allocated an Excess
Amount to a Participant's Account on an allocation date of this Plan which
coincides with an allocation date of another defined contribution plan
maintained by the Employer, the Advisory Committee will attribute the Excess
Amount allocated as of such date to the profit sharing plan component of this
Plan or, in the case of a Participant who does not participate in the profit
sharing plan component of this Plan but who participates in the Janus Capital
Corporation Profit Sharing Plan ("Janus Profit Sharing Plan"), then to the
Janus Profit Sharing Plan. If an Excess Amount remains, it will then be
attributed to the Stilwell Financial, Inc. Employee Stock Ownership Plan, and
then, if necessary, to the 401(k) plan component of this Plan.
DEFINED BENEFIT PLAN LIMITATION. If the Participant presently
participates, or has ever participated, under a defined benefit plan
maintained by the Employer, then the sum of the defined benefit plan fraction
and the defined contribution plan fraction for the Participant for that
Limitation Year must not exceed 1.0. To the extent necessary to satisfy this
limitation, the Employer will reduce its contribution or allocation on behalf
of the Participant to the defined contribution plan under which the
Participant participates and then, if necessary, the Participant's projected
annual benefit under the defined benefit plan under which the Participant
participates.
DEFINITIONS - ARTICLE III. For purposes of Article III, the following
terms mean:
"Annual Addition" - The sum of the following amounts allocated on
behalf of a Participant for a Limitation Year: (i) all Employer
contributions; (ii) all forfeitures; and (iii) all Employee
contributions. Except to the extent provided in Treasury Regulations,
Annual Additions include excess contributions described in Code Section
401(k), excess aggregate contributions described in Code Section 401(m)
and excess deferrals described in Code Section 402(g), irrespective of
whether the Plan distributes or forfeits such excess amounts. Annual
Additions also include Excess Amounts re-applied to reduce Employer
contributions under Section 3.07. Amounts allocated after March 31,
1984, to an individual medical account (as defined in Code Section
415(1)(2)) included as part of a defined benefit plan maintained by the
Employer are Annual Additions. Furthermore, Annual Additions include
contributions paid or accrued after December 31, 1985, for taxable years
ending after December 31, 1985, attributable to post-retirement medical
benefits allocated to the separate account of a key employee (as defined
in Code Section 419A(d)(3)) under a welfare benefit fund (as defined in
Code Section 419(e)) maintained by the Employer, but only for purposes
of the dollar limitation applicable to the Maximum Permissible Amount.
"Compensation" - For purposes of applying the limitations of Part 2
of this Article III, "Compensation" means Compensation as defined in
Section 1.10, disregarding any exclusions from Compensation and
disregarding Elective Contributions with respect to Plan Years
commencing before January 1, 1998, but including Elective Contributions
for Plan Years commencing after December 31, 1997.
"Maximum Permissible Amount" - The lesser of (i) $30,000, or
(ii) 25% of the Participant's Compensation for the Limitation Year. If
there is a short Limitation Year because of a change in Limitation Year,
the Advisory Committee will multiply the $30,000 (or adjusted)
limitation by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
"Employer" - The Employer that adopts this Plan and any related
employers described in Section 1.27. Solely for purposes of applying
the limitations of Part 2 of this Article III, the Advisory Committee
will determine related employers described in Section 1.27 by modifying
Code Section 414(b) and (c) in accordance with Code Section 415(h).
"Excess Amount" - The excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
"Limitation Year" - The Plan Year. If the Employer amends the
Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for
which the Employer makes the amendment, creating a short Limitation
Year.
"Defined contribution plan" - A retirement plan which provides for
an individual account for each participant and for benefits based solely
on the amount contributed to the participant's account, and any income,
expenses, gains and losses, and any forfeitures of accounts of other
participants which the plan may allocate to such participant's account.
The Advisory Committee must treat all defined contribution plans
(whether or not terminated) maintained by the Employer as a single plan.
For purposes of the limitations of part 2 of this Article III, the
Advisory Committee will treat employee contributions made to a defined
benefit plan maintained by the Employer as a separate defined
contribution plan. The Advisory Committee also will treat as a defined
contribution plan an individual medical account (as defined in Code
Sectopm 415(l)(2)) included as part of a defined benefit plan maintained
by the Employer and, for taxable years ending after December 31, 1985, a
welfare benefit fund under Code Section 419(e) maintained by the
Employer to the extent there are post-retirement medical benefits
allocated to the separate account of a key employee (as defined in Code
Section 419A(d)(3)).
"Defined benefit plan" - A retirement plan which does not provide
for individual accounts for Employer contributions. The Advisory
Committee must treat all defined benefit plans (whether or not
terminated) maintained by the Employer as a single plan.
"Defined benefit plan fraction"
Projected annual benefit of the Participant under the
defined benefit plan(s)
-----------------------------------------------
The lesser of (i) 125% (subject to the "100% limitation"
in paragraph (k)) of the dollar limitation in effect
under Code Section 415(b)(1)(A) for the Limitation Year,
or (ii) 140% of the Participant's average Compensation
for his high 3 consecutive Years of Service
To determine the denominator of this fraction, the Advisory
Committee will make any adjustment required under Code Section 415(b)
and will determine a Year of Service as a Plan Year in which the
Employee completed at least 1,000 Hours of Service. The "projected
annual benefit" is the annual retirement benefit (adjusted to an
actuarially equivalent straight life annuity if the plan expresses such
benefit in a form other than a straight life annuity or qualified joint
and survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his normal
retirement age (or current age, if later) as stated in the defined
benefit plan, his compensation continues at the same rate as in effect
in the Limitation Year under consideration until the date of his normal
retirement age and all other relevant factors used to determine benefits
under the defined benefit plan remain constant as of the current
Limitation Year for all future Limitation Years.
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in
one or more defined benefit plans maintained by the Employer which were
in existence on May 5, 1986, the dollar limitation used in the
denominator of this fraction will not be less than the Participant's
Current Accrued Benefit. A Participant's Current Accrued Benefit is the
sum of the annual benefits under such defined benefit plans which the
Participant had accrued as of the end of the 1986 Limitation Year (the
last Limitation Year beginning before January 1, 1987), determined
without regard to any change in the terms or conditions of the Plan made
after May 5, 1986, and without regard to any cost of living adjustment
occurring after May 5, 1986. This Current Accrued Benefit rule applies
only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 as in effect at the end
of the 1986 Limitation Year.
"Defined contribution plan fraction"
The sum, as of the close of the Limitation Year, of the
Annual Additions to the Participant's Account under the
defined contribution plan(s)
---------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service
with the Employer: (i) 125% (subject to the
"100% limitation" in paragraph (k)) of the dollar
limitation in effect under Code Section 415(c)(1)(A) for the
Limitation Year (determined without regard to the
special dollar limitations for employee stock ownership
plans), or (ii) 35% of the Participant's Compensation
for the Limitation Year
For purposes of determining the defined contribution plan fraction,
the Advisory Committee will not recompute Annual Additions in Limitation
Years beginning prior to January 1, 1987, to treat all Employee
contributions as Annual Additions. If the Plan satisfied Code Section
415 for Limitation Years beginning prior to January 1, 1987, the
Advisory Committee will redetermine the defined contribution plan
fraction and the defined benefit plan fraction as of the end of the 1986
Limitation Year in accordance with this Section 3.08. If the sum of the
redetermined fractions exceeds 1.0, the Advisory Committee will subtract
permanently from the numerator of the defined contribution plan fraction
an amount equal to the product of (1) the excess of the sum of the
fractions over 1.0, times (2) the denominator of the defined
contribution plan fraction. In making the adjustment, the Advisory
Committee must disregard any accrued benefit under the defined benefit
plan which is in excess of the Current Accrued Benefit. This Plan
continues any transitional rules applicable to the determination of the
defined contribution plan fraction under the Employer's Plan as of the
end of the 1986 Limitation Year.
"100% limitation." If the 100% limitation applies, the Advisory
Committee must determine the denominator of the defined benefit plan
fraction and the denominator of the defined contribution plan fraction
by substituting 100% for 125%. The 100% limitation applies only if:
(i) the Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top heavy
ratio is greater than 60%, and the Employer does not provide extra
minimum benefits which satisfy Code Section 416(h)(2).
PARTICIPANT CONTRIBUTIONS
PARTICIPANT VOLUNTARY CONTRIBUTIONS. The Plan does not permit or
require Participant nondeductible contributions.
PARTICIPANT VOLUNTARY CONTRIBUTIONS - SPECIAL DISCRIMINATION TEST.
(Reserved)
PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant, with the
Employer's written consent and after filing with the Trustee the form
prescribed by the Advisory Committee, may contribute cash or other property
to the Trust other than as a voluntary contribution if the contribution is a
"rollover contribution" which the Code permits an employee to transfer either
directly or indirectly from one qualified plan to another qualified plan.
Before accepting a rollover contribution, the Trustee may require an Employee
to furnish satisfactory evidence that the proposed transfer is in fact a
"rollover contribution" which the Code permits an employee to make to a
qualified plan. A rollover contribution is not an Annual Addition under
Part 2 of Article III.
The Advisory Committee must establish a Rollover Account for each
Participant making a rollover contribution, and allocate the rollover
contribution to the Rollover Account as of the date the rollover contribution
is received. Except as provided in the next following paragraph, the Trustee
will invest the rollover contribution as a part of the Trust Fund.
With respect to rollover contributions made to the KCSI Profit Sharing
Plan on or before December 31, 1995 and transferred to this Plan as of the
Effective Date, the Trustee will invest the rollover contribution in a
segregated investment Account for the Participant's sole benefit unless the
Trustee, in its sole discretion, agrees to invest the rollover contribution
as part of the Trust Fund. The Trustee will not have any investment
responsibility with respect to a Participant's segregated Rollover Account.
The Participant, however, from time to time, may direct the Trustee in
writing as to the investment of his segregated Rollover Account in property,
or property interests of any kind, real, personal or mixed; provided,
however, the Participant may not direct the Trustee to make loans to his
Employer. A Participant's segregated Rollover Account alone will bear any
extraordinary expenses resulting from investments made at the direction of
the Participant. As of the Accounting Date (or other valuation date) for
each Plan Year, the Advisory Committee will allocate and credit the net
income (or net loss) from a Participant's segregated Rollover Account solely
to that Account. The Trustee is not liable nor responsible for any loss
resulting to any Beneficiary, nor to any Participant, by reason of any sale
or investment made or other action taken pursuant to and in accordance with
the direction of the Participant. In all other respects, the Trustee will
hold, administer and distribute a rollover contribution in the same manner as
any Employer contribution made to the Trust.
PARTICIPANT CONTRIBUTION - FORFEITABILITY. A Participant's Accrued
Benefit is, at all times, one hundred percent (100%) Nonforfeitable to the
extent the value of his Accrued Benefit is derived from Participant
contributions made by him to the Trust for his own benefit.
PARTICIPANT CONTRIBUTION -WITHDRAWAL/DISTRIBUTION. A Participant, by
giving prior written notice to the Trustee, may withdraw all or any part of
the value of his Accrued Benefit derived from his Participant contributions
described in this Article IV; provided, however, that a Participant may not
withdraw any part of his Rollover Account attributable to a Participant
rollover contribution made by him to the Trust except as provided in
Section 6.03(F). A Participant may not exercise his right to withdraw the
value of his Accrued Benefit derived from his Participant contributions
(other than rollover contributions) more than once during any Plan Year. The
Trustee, in accordance with the direction of the Advisory Committee, will
distribute a Participant's unwithdrawn Accrued Benefit attributable to his
Participant contributions in accordance with the provisions of Article VI
applicable to the distribution of the Participant's Nonforfeitable Accrued
Benefit.
PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Advisory Committee must
maintain, or must direct the Trustee to maintain, a separate Account(s) in
the name of each Participant to reflect the Participant's Accrued Benefit
under the Plan derived from his Participant contributions. A Participant's
Accrued Benefit derived from his Participant contributions as of any
applicable date is the balance of his separate Participant contribution
Account(s).
TERMINATION OF SERVICE - PARTICIPANT VESTING
NORMAL RETIREMENT AGE. A Participant's Normal Retirement Age is
65 years of age. A Participant who remains in the employ of the Employer
after attainment of Normal Retirement Age will continue to participate in
Employer contributions. A Participant's Accrued Benefit derived from
Employer contributions is 100% Nonforfeitable upon and after his attaining
Normal Retirement Age (if employed by the Employer on or after that date).
PARTICIPANT DISABILITY OR DEATH. If a Participant's employment with the
Employer terminates as a result of death or disability, the Participant's
Accrued Benefit derived from Employer contributions will be 100%
Nonforfeitable.
VESTING SCHEDULE. A Participant's Deferral Contributions Account,
Qualified Matching Contributions Account, Qualified Nonelective Contributions
Account and Rollover Account will be one hundred percent (100%)
Nonforfeitable at all times. Except as provided in Sections 5.01 and 5.02,
for each Year of Service, a Participant's Nonforfeitable percentage of his
Regular Matching Contributions Account, Savings Contributions Account and
Profit Sharing Contributions Account equals the percentage in the following
vesting schedule:
Percent of
Years of Service Nonforfeitable
With the Employer Accrued Benefit
----------------- ---------------
Less than 3 None
3 25%
4 50%
5 100%
For any Plan Year for which the Plan is a top heavy Plan (as defined in
Section 1.29), the Advisory Committee will calculate a Participant's
Nonforfeitable Percentage of each of his Regular Matching Contributions
Account, Savings Contributions Account and Profit Sharing Contributions
Account under the following schedule:
Percent of
Years of Service Nonforfeitable
With the Employer Accrued Benefit
----------------- ---------------
Less than 2 . . . . . . . . . . . None
2 . . . . . . . . . . . . . . . . . 20%
3 . . . . . . . . . . . . . . . . 40%
4 . . . . . . . . . . . . . . . . . 60%
5 . . . . . . . . . . . . . . . . . 100%
The Advisory Committee will apply the top heavy schedule to Participants
who earn at least one Hour of Service after the top heavy schedule becomes
effective. A shift between vesting schedules under this Section 5.03 is an
amendment to the vesting schedule and the Advisory Committee must apply the
rules of Section 7.05 accordingly. A shift to a new vesting schedule under
this Section 5.03 is effective on the first day of the Plan Year for which
the top heavy status of the Plan changes.
CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION OF
FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a partially-vested
Participant receives a cash-out distribution before he incurs a Forfeiture
Break in Service (as defined in Section 5.08), the cash-out distribution will
result in an immediate forfeiture of the non-vested portion of the
Participant's Accrued Benefit derived from Employer contributions. See
Section 5.09. A partially-vested Participant is a Participant whose
Nonforfeitable Percentage determined under Section 5.03 is less than 100%. A
cash-out distribution is a distribution of the entire present value of the
Participant's Nonforfeitable Accrued Benefit.
RESTORATION AND CONDITIONS UPON RESTORATION. A partially-vested
Participant who is reemployed by the Employer after receiving a cash-out
distribution of the Nonforfeitable percentage of his Accrued Benefit may
repay the Trustee the amount of the cash-out distribution attributable to
Employer contributions, unless the Participant no longer has a right to
restoration under the requirements of this Section 5.04. If a partially-
vested Participant makes the cash-out distribution repayment, the Advisory
Committee, subject to the conditions of this paragraph (A), must restore his
Accrued Benefit attributable to Employer contributions to the same dollar
amount as the dollar amount of his Accrued Benefit on the Accounting Date, or
other valuation date, immediately preceding the date of the cash-out
distribution, unadjusted for any gains or losses occurring subsequent to that
Accounting Date, or other valuation date. Restoration of the Participant's
Accrued Benefit includes restoration of all Code Sectioin 411(d)(6) protected
benefits with respect to that restored Accrued Benefit, in accordance with
applicable Treasury regulations. The Advisory Committee will not restore a
reemployed Participant's Accrued Benefit under this paragraph if:
Five (5) years have elapsed since the Participant's first
reemployment date following the cash-out distribution; or
The Participant incurred a Forfeiture Break in Service (as defined
in Section 5.08). This condition also applies if the Participant makes
repayment within the Plan Year in which he incurs the Forfeiture Break
in Service and that Forfeiture Break in Service would result in a
complete forfeiture of the amount the Advisory Committee otherwise would
restore.
TIME AND METHOD OF RESTORATION. If neither of the two conditions
preventing restoration of the Participant's Accrued Benefit applies, the
Advisory Committee will restore the Participant's Accrued Benefit as of the
Plan Year Accounting Date coincident with or immediately following the
repayment. To restore the Participant's Accrued Benefit, the Advisory
Committee, to the extent necessary, will allocate to the Participant's
Account:
First, the amount, if any, of Participant forfeitures the Advisory
Committee would otherwise allocate under Section 3.05;
Second, the amount, if any, of the Trust Fund net income or gain
for the Plan Year; and
Third, the Employer savings contribution and Employer profit
sharing contribution for the Plan Year to the extent made under a
discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Advisory Committee to make the required
restoration, the Employer must contribute, without regard to any requirement
or condition of Section 3.01, the additional amount necessary to enable the
Advisory Committee to make the required restoration. If, for a particular
Plan Year, the Advisory Committee must restore the Accrued Benefit of more
than one reemployed Participant, then the Advisory Committee will make the
restoration allocation(s) to each such Participant's Account in the same
proportion that a Participant's restored amount for the Plan Year bears to
the restored amount for the Plan Year of all reemployed Participants. The
Advisory Committee will not take into account the allocation under this
Section 5.04 in applying the limitation on allocations under Part 2 of
Article III.
0% VESTED PARTICIPANT. The deemed cash-out rule applies to a 0% vested
Participant. A 0% vested Participant is a Participant whose Accrued Benefit
derived from Employer contributions is entirely forfeitable at the time of
his Separation from Service. Under the deemed cash-out rule, the Advisory
Committee will treat the 0% vested Participant as having received a cash-out
distribution on the date of the Participant's Separation from Service or, if
the Participant's Account is entitled to an allocation of Employer
contributions for the Plan Year in which he separates from Service, on the
last day of that Plan Year.
For purposes of applying the restoration provisions of this Section
5.04, the Advisory Committee will treat the 0% vested Participant as repaying
his cash-out "distribution" on the first date of his reemployment with the
Employer.
SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Advisory Committee
restores the Participant's Accrued Benefit, as described in Section 5.04, the
Trustee will invest the cash-out amount the Participant has repaid in a
segregated Account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated Account in Federally
insured interest bearing savings account(s) or time deposit(s) (or a
combination of both), or in other fixed income investments. Until commingled
with the balance of the Trust Fund on the date the Advisory Committee
restores the Participant's Accrued Benefit, the Participant's segregated
Account remains a part of the Trust, but it alone shares in any income it
earns and it alone bears any expense or loss it incurs. Unless the repayment
qualifies as a rollover contribution, the Advisory Committee will direct the
Trustee to repay to the Participant as soon as is administratively
practicable the full amount of the Participant's segregated Account if the
Advisory Committee determines either of the conditions of Sections 5.04(A)
prevents restoration as of the applicable Accounting Date, notwithstanding
the Participant's repayment.
YEAR OF SERVICE - VESTING. For purposes of vesting under Section 5.03,
Year of Service means any Plan Year during which an Employee completes not
less than 1,000 Hours of Service with the Employer.
BREAK IN SERVICE - VESTING. For purposes of this Article V, a
Participant incurs a "Break in Service" if during any Plan Year he does not
completed more than 500 Hours of Service with the Employer.
INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining "Years
of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer. For the sole purpose of
determining a Participant's Nonforfeitable percentage of his Accrued Benefit
derived from Employer contributions which accrued for his benefit prior to a
Forfeiture Break in Service, the Plan disregards any Year of Service after
the Participant first incurs a Forfeiture Break in Service. The Participant
incurs a Forfeiture Break in Service when he incurs 5 consecutive Breaks in
Service.
FORFEITURE OCCURS. A Participant's forfeiture, if any, of his Accrued
Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
The last day of the Plan Year in which the Participant first incurs
a Forfeiture Break in Service; or
The date the Participant receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's
Accrued Benefit forfeiture, if any, under this Section 5.09 solely by
reference to the vesting schedule of Section 5.03. A Participant will not
forfeit any portion of his Accrued Benefit for any other reason or cause
except as expressly provided by this Section 5.09 or as provided under
Section 9.12.
TIME AND METHOD OF PAYMENT OF BENEFITS
TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section 6.03,
the Participant or the Beneficiary elects in writing to a different time or
method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution
to the Participant, exceeds $5,000 and the Participant has not attained the
later of Normal Retirement Age or age 62. For all purposes of this
Article VI, the term "annuity starting date" means the first day of the first
period for which the Plan pays an amount as an annuity or in any other form.
Unless otherwise specified herein, (i) distributions under this Article VI,
other than from a Participant's Profit Sharing Contributions Account, shall
be made as of a distribution date, which shall be the fifteenth (15th)
business day following the end of a calendar quarter or as soon thereafter as
administratively practicable, and for purposes of making a distribution as of
a distribution date, other than from a Participant's Profit Sharing
Contributions Account, a Participant's Account shall be valued as of the
distribution valuation date corresponding to such distribution date, which
shall be the tenth (10th) business day following the end of the calendar
quarter immediately preceding such distribution date or as soon thereafter as
administratively practicable, (ii) distributions under this Article VI from a
Participant's Pre-2000 Profit Sharing Contributions Account shall be made as
of a distribution date, which shall be the fifteenth (15th) business day
following the end of a calendar quarter or as soon thereafter as
administratively practicable, and for purposes of making a distribution as of
a distribution date, a Participant's Pre-2000 Profit Sharing Contributions
Account shall be valued as of the distribution valuation date corresponding
to such distribution date, which shall be the last business day of the
calendar quarter immediately preceding such distribution date or as soon
thereafter as administratively practicable, and (iii) distributions under
this Article VI from a Participant's Post-1999 Profit Sharing Contributions
Account shall be made as of a distribution date, which shall be March 31 or
as soon thereafter as administratively practicable..
TERMINATION OF EMPLOYMENT FOR A REASON OTHER THAN DEATH. For a
Participant who terminates employment with the Employer for a reason other
than death, the Advisory Committee will direct the Trustee to commence
distribution of the Participant's Accrued Benefit, as follows:
PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $5,000.
In a lump sum, (i) with respect to distributions other than from a
Participant's Post-1999 Profit Sharing Contributions Account, on the
first distribution date after the Participant separates from service, or
(ii) with respect to distributions from a Participant's Post-1999 Profit
Sharing Contributions Account, on the first distribution date after the
close of the Plan Year in which the Participant's Separation from
Service occurs, but in no event later than the 60th day following the
close of the Plan Year in which the Participant attains Normal
Retirement Age. With respect to distributions from a Participant's
Post-1999 Profit Sharing Contributions Account, (i) if the Participant
has attained Normal Retirement Age when he separates from Service, the
distributions under this paragraph will occur no later than the 60th day
following the close of the Plan Year in which the Participant's
Separation from Service occurs, and (ii) in the case of a Participant
who separates from Service between January 1 and September 30, and who
has attained age 55 on or before the date of his Separation from
Service, the Participant may elect to have the Trustee commence
distributions as of the 30th day after the end of the calendar quarter in
which his Separation from Service occurs, or as soon as administratively
practicable thereafter.
PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $5,000.
In a form and at the time elected by the Participant, pursuant to
Section 6.03. In the absence of an election by the Participant, the
Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in a lump sum, on the 60th
day following the close of the Plan Year in which the later of the
following events occurs: (a) the Participant attains Normal Retirement
Age; or (b) the Participant separates from Service.
DISABILITY. If a Participant terminates employment because of
Disability, his Post-1999 Profit Sharing Contributions Account will be
distributed in a lump sum, on the first distribution date after the
close of the Plan Year in which the Participant terminates employment
because of Disability, subject to the notice and consent requirements of
this Article VI and to the applicable mandatory commencement dates
described in Paragraph (1) or in Paragraph (2).
REQUIRED BEGINNING DATE. If any distribution commencement date
described under Paragraph (A) of this Section 6.01, either by Plan provision
or by Participant election (or nonelection), is later than the Participant's
Required Beginning Date, the Advisory Committee instead must direct the
Trustee to make distribution under this Section 6.01 on the Participant's
Required Beginning Date. A Participant's Required Beginning Date is the
April 1 of the calendar year following the later of (i) the calendar year in
which the Participant attains age 70 1/2, or (ii) the calendar year in which
the Participant separates from Service. However, clause (ii) of the
preceding sentence shall not apply if the Participant is a 5% owner (as
defined in Section 1.07(a)) with respect to the Plan Year ending in the
calendar year in which he attains age 70 1/2. A mandatory distribution at
the Participant's Required Beginning Date will be in lump sum unless the
Participant, pursuant to the provisions of this Article VI, makes a valid
election to receive an alternative form of payment.
DEATH OF THE PARTICIPANT. The Advisory Committee will direct the
Trustee, in accordance with this Section 6.01(C), to distribute to the
Participant's Beneficiary the Participant's Nonforfeitable Accrued Benefit
remaining in the Trust at the time of the Participant's death. The Advisory
Committee will determine the death benefit by reducing the Participant's
Nonforfeitable Accrued Benefit by any security interest the Plan has against
that Nonforfeitable Accrued Benefit by reason of an outstanding Participant
loan.
DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES NOT
EXCEED $5,000. The Advisory Committee must direct the Trustee to pay
the deceased Participant's Nonforfeitable Accrued Benefit in a single
cash sum, (i) with respect to distributions other than from a
Participant's Post-1999 Profit Sharing Contributions Account, on the
first distribution date following the Participant's death or, if later,
the first distribution date following the date on which the Advisory
Committee receives notification of or otherwise confirms the
Participant's death, or (ii) with respect to distributions from a
Participant's Post-1999 Profit Sharing Contributions Account, as soon as
administratively practicable following the Participant's death or, if
later, the date on which the Advisory Committee receives notification of
or otherwise confirms the Participant's death.
DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS
$5,000. The Advisory Committee will direct the Trustee to pay the
deceased Participant's Nonforfeitable Accrued Benefit at the time and in
the form elected by the Participant or, if applicable by the
Beneficiary, as permitted under this Article VI. In the absence of an
election, the Advisory Committee will direct the Trustee to distribute
the Participant's undistributed Nonforfeitable Accrued Benefit in a lump
sum (i) with respect to distributions other than from a Participant's
Post-1999 Profit Sharing Contributions Account, on the first
distribution date following the date on which the Participant's death
occurs or, if later, the first distribution date following the date the
Advisory Committee receives notification of or otherwise confirms the
Participant's death, or (ii) with respect to distributions from a
Participant's Post-1999 Profit Sharing Contributions Account, on the
first distribution date following the close of the Plan Year in which
the Participant's death occurs or, if later, the first distribution date
following the date the Advisory Committee receives notification of or
otherwise confirms the Participant's death.
If the death benefit is payable to the Participant's surviving spouse in
full, the surviving spouse, in addition to the distribution options provided
in this Section 6.01(C), may elect distribution at any time or in any form
this Article VI would permit for a Participant.
METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to any restrictions
prescribed by Section 6.03, a distribution to a Participant or Beneficiary
shall be in the form of a lump sum payment; provided, however, that a
Participant or Beneficiary may elect distribution from the Participant's
Profit Sharing Contributions Account under one or any combination of the
following methods: (a) by payment in a lump sum; or (b) by payment in
monthly, quarterly or annual installments over a fixed reasonable period of
time, not exceeding the life expectancy of the Participant, or the joint life
and last survivor expectancy of the Participant and his Beneficiary.
The distribution options permitted under this Section 6.02 with respect
to a Participant's Profit Sharing Contributions Account are available only if
the present value of the Participant's Nonforfeitable Accrued Benefit, at the
time of the distribution to the Participant, exceeds $5,000. To facilitate
installment payments under this Article VI with respect to a Participant's
Profit Sharing Contributions Account, the Advisory Committee may direct the
Trustee to segregate all or any part of the Participant's Accrued Benefit
attributable to his Profit Sharing Contributions Account in a separate
Account. The Trustee will invest the Participant's segregated Account in
Federally insured interest bearing savings account(s) or time deposit(s) (or
a combination of both), or in other fixed income investments. A segregated
Account remains a part of the Trust, but it alone shares in any income it
earns, and it alone bears any expense or loss it incurs. A Participant or
Beneficiary may elect to receive an installment distribution from the
Participant's Profit Sharing Contributions Account in the form of a
Nontransferable Annuity Contract. Under an installment distribution, the
Participant or Beneficiary, at any time, may elect to accelerate the payment
of all, or any portion, of the Participant's unpaid Nonforfeitable Accrued
Benefit attributable to his Profit Sharing Contributions Account, subject to
the requirements of Section 6.04.
MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Advisory
Committee may not direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit, nor may the Participant elect to have the
Trustee distribute his Nonforfeitable Accrued Benefit, under a method of
payment which, as of the Required Beginning Date, does not satisfy the
minimum distribution requirements under Code Section 401(a)(9) and the
applicable Treasury regulations. The minimum distribution for a calendar
year equals the Participant's Nonforfeitable Accrued Benefit as of the latest
valuation date preceding the beginning of the calendar year divided by the
Participant's life expectancy or, if applicable, the joint and last survivor
expectancy of the Participant and his designated Beneficiary (as determined
under Article VIII, subject to the requirements of the Code Section 401(a)(9)
regulations). The Advisory Committee will increase the Participant's
Nonforfeitable Accrued Benefit, as determined on the relevant valuation date,
for contributions or forfeitures allocated after the valuation date and by
December 31 of the valuation calendar year, and will decrease the valuation
by distributions made after the valuation date and by December 31 of the
valuation calendar year. For purposes of this valuation, the Advisory
Committee will treat any portion of the minimum distribution for the first
distribution calendar year made after the close of that year as a
distribution occurring in that first distribution calendar year. In
computing a minimum distribution, the Advisory Committee must use the unisex
life expectancy multiples under Treas. Reg. Section 1.72-9. The Advisory
Committee, only upon the Participant's written request, may compute the
minimum distribution for a calendar year subsequent to the first calendar
year for which the Plan requires a minimum distribution by redetermining the
applicable life expectancy. However, the Advisory Committee may not
redetermine the joint life and last survivor expectancy of the Participant
and a non-spouse designated Beneficiary in a manner which takes into account
any adjustment to a life expectancy other than the Participant's life
expectancy.
If the Participant's spouse is not his designated Beneficiary, a method
of payment to the Participant may not provide more than incidental benefits
to the Beneficiary. For Plan Years beginning after December 31, 1988, the
Plan must satisfy the minimum distribution incidental benefit ("MDIB")
requirement in the Treasury regulations issued under Code Section 401(a)(9)
for distributions made on or after the Participant's Required Beginning Date
and before the Participant's death. To satisfy the MDIB requirement, the
Advisory Committee will compute the minimum distribution required by this
Section 6.02(A) by substituting the applicable MDIB divisor for the
applicable life expectancy factor, if the MDIB divisor is a lesser number.
Following the Participant's death, the Advisory Committee will compute the
minimum distribution required by this Section 6.02(A) solely on the basis of
the applicable life expectancy factor and will disregard the MDIB factor.
For Plan Years beginning prior to January 1, 1989, the Plan satisfies the
incidental benefits requirement if the distributions to the Participant
satisfied the MDIB requirement or if the present value of the retirement
benefits payable solely to the Participant is greater than 50% of the present
value of the total benefits payable to the Participant and his Beneficiaries.
The Advisory Committee must determine whether benefits to the Beneficiary are
incidental as of the date the Trustee is to commence payment of the
retirement benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar year is due
by the Participant's Required Beginning Date. The minimum distribution for
each subsequent distribution calendar year, including the calendar year in
which the Participant's Required Beginning Date falls, is due by December 31
of that year. If the Participant receives distribution in the form of a
Nontransferable Annuity Contract, the distribution satisfies this Section
6.02(A) if the contract complies with the requirements of Code Section
401(a)(9) and the applicable Treasury regulations.
MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of
distribution to the Participant's Beneficiary must satisfy Code Section
401(a)(9) and the applicable Treasury regulations. If the Participant's
death occurs after his Required Beginning Date, the method of payment to the
Beneficiary must provide for completion of payment over a period which does
not exceed the payment period which had commenced for the Participant. If
the Participant's death occurs prior to his Required Beginning Date, the
method of payment to the Beneficiary, must provide for completion of payment
to the Beneficiary over a period not exceeding: (i) 5 years after the date
of the Participant's death; or (ii) if the Beneficiary is a designated
Beneficiary, the designated Beneficiary's life expectancy. The Advisory
Committee may not direct payment of the Participant's Nonforfeitable Accrued
Benefit over a period described in clause (ii) unless the Trustee will
commence payment to the designated Beneficiary no later than the December 31
following the close of the calendar year in which the Participant's death
occurred or, if later, and the designated Beneficiary is the Participant's
surviving spouse, December 31 of the calendar year in which the Participant
would have attained age 70 1/2. If the Trustee will make distribution in
accordance with clause (ii), the minimum distribution for a calendar year
equals the Participant's Nonforfeitable Accrued Benefit as of the latest
valuation date preceding the beginning of the calendar year divided by the
designated Beneficiary's life expectancy. The Advisory Committee must use
the unisex life expectancy multiples under Treas. Reg. Section 1.72-9 for
purposes of applying this paragraph. The Advisory Committee, only upon the
written request of the Participant or of the Participant's surviving spouse,
may recalculate the life expectancy of the Participant's surviving spouse not
more frequently than annually but may not recalculate the life expectancy of
a non-spouse designated Beneficiary after the Trustee commenced payment to
the designated Beneficiary. The Advisory Committee will apply this paragraph
by treating any amount paid to the Participant's child, which becomes payable
to the Participant's surviving spouse upon the child's attaining the age of
majority, as paid to the Participant's surviving spouse. Upon the
Beneficiary's written request, the Advisory Committee must direct the Trustee
to accelerate payment of all, or any portion, of the Participant's unpaid
Accrued Benefit, as soon as administratively practicable following the
effective date of that request.
BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days before nor later
than 30 days before the Participant's annuity starting date, the Plan
Administrator must provide a benefit notice to a Participant who is eligible
to make an election under this Section 6.03. The benefit notice must explain
the optional forms of benefit in the Plan, including the material features
and relative values of those options, and the Participant's right to defer
distribution until he attains the later of Normal Retirement Age or age 62.
A distribution may commence less than 30 days after the benefit notice
is given, provided that:
the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and
the Participant, after receiving the notice, affirmatively elects a
distribution.
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit in accordance with that
election. Any election under this Section 6.03 is subject to the
requirements of Section 6.02. The Participant or Beneficiary must make an
election under this Section 6.03 by filing his election form with the
Advisory Committee at any time before the Trustee otherwise would commence to
pay a Participant's Accrued Benefit in accordance with the requirements of
Article VI.
(A) PARTICIPANT ELECTIONS AFTER TERMINATION OF EMPLOYMENT. If the
present value of a Participant's Nonforfeitable Accrued Benefit exceeds
$5,000, he may elect to have the Trustee commence distribution as of any
distribution date, but not earlier than the first distribution date after
(i) with respect to distributions other than from a Participant's Post-1999
Profit Sharing Contributions Account, the Participant's Separation from
Service, or (ii) with respect to distributions from a Participant's Post-1999
Profit Sharing Contributions Account, the close of the Plan Year in which the
Participant's Separation from Service occurs. The Participant may reconsider
an election at any time prior to the annuity starting date and elect to
commence distribution as of any other distribution date, but not earlier than
the date described in the first sentence of this Paragraph (A). With respect
to distributions from a Participant's Post-1999 Profit Sharing Contributions
Account, in the case of a Participant who separates from Service between
January 1 and September 30, and who has attained age 55 on or before the date
of his Separation from Service, the Participant, in addition to the benefit
payment elections provided for in the first two sentences of this
Paragraph (A), shall have the right to elect to have the Trustee commence
distributions as of the 30th day after the end of the calendar quarter in
which his Separation from Service occurs, or as soon as administratively
practicable thereafter. A Participant who has separated from Service may
elect distribution as of any distribution date following his attainment of
Normal Retirement Age, irrespective of the restrictions otherwise applicable
under this Section 6.03(A). If the Participant is partially-vested in his
Accrued Benefit, an election under this Paragraph (A) to distribute prior to
the Participant's incurring a Forfeiture Break in Service (as defined in
Section 5.08), must be in the form of a cash-out distribution (as defined in
Article V). A Participant may not receive a cash-out distribution if, prior
to the time the Trustee actually makes the cash out distribution, the
Participant returns to employment with the Employer.
PARTICIPANT ELECTIONS PRIOR TO TERMINATION OF EMPLOYMENT.
DISTRIBUTION. After a Participant (1) attains Normal Retirement
Age or (2) attains age 59-1/2 and has at least five Years of Service,
the Participant, until he retires, has a continuing election to receive
all or any portion of his Accrued Benefit attributable to his Regular
Matching Contributions Account, Employer Savings Contributions Account
and Rollover Account. After a Participant attains Normal Retirement
Age, the Participant, until he retires, has a continuing election to
receive all or any portion of his Accrued Benefit attributable to his
Profit Sharing Contributions Account. A Participant must make an
election under this Section 6.03(B)(1) on a form prescribed by the
Advisory Committee at any time during the Plan Year for which his
election is to be effective. In his written election, the Participant
must specify the percentage or dollar amount he wishes the Trustee to
distribute to him. The Participant's election relates solely to the
percentage or dollar amount specified in his election form and his right
to elect to receive an amount, if any, for a particular Plan Year
greater than the dollar amount or percentage specified in his election
form terminates on the Accounting Date. The Trustee must make a
distribution to a Participant in accordance with his election under this
Section 6.03(B)(1) within the 90-day period (or as soon as
administratively practicable) after the Participant files his written
election with the Trustee.
DIRECT ROLLOVER. For purposes of this Section 6.03(B)(2), the
terms "eligible retirement plan," "direct rollover" and "eligible
rollover distribution" shall have the meanings ascribed to them in
Section 6.08. Any Participant who has attained 59-1/2 and has at least
five Years of Service, until he retires, has a continuing election to
direct the Trustee to pay directly to an eligible retirement plan
specified by the Participant in a direct rollover all or any portion,
with a minimum portion of 20%, of his Nonforfeitable Accrued Benefit
attributable to his Profit Sharing Contributions Account, provided that
the payment is an eligible rollover distribution. A Participant may
make an election under this Section 6.03(B)(2) on a form prescribed by
the Advisory Committee at any time during the Plan Year for which his
election is to be effective. In his written election, the Participant
must specify the percentage or dollar amount he wishes the Trustee to
distribute. The Participant's election relates solely to the percentage
or dollar amount specified in his election form and his right to elect
to have directly rolled over an amount, if any, for a particular Plan
Year greater than the dollar amount or percentage specified in his
election form terminates on the Accounting Date. The Trustee must pay
the amount specified by the participant in a direct rollover in
accordance with the Participant's election under this paragraph within
the 90 day period (or as soon as administratively practicable) after the
Participant files his written election with the Trustee.
The Trustee will distribute the balance of the Participant's Accrued Benefit
not distributed under this Section 6.03(B) in accordance with the other
distribution provisions of this Plan.
DEATH BENEFIT ELECTIONS. If the present value of the deceased
Participant's Nonforfeitable Accrued Benefit exceeds $5,000, the
Participant's Beneficiary may elect to have the Trustee distribute the
Participant's Nonforfeitable Accrued Benefit in a form and within a period
permitted under Section 6.02. The Beneficiary's election is subject to any
restrictions designated in writing by the Participant and not revoked as of
his date of death.
TRANSITIONAL ELECTIONS. Notwithstanding the provisions of Section 6.01
and 6.02, if the Participant (or Beneficiary) signed a written distribution
designation prior to January 1, 1984 respecting his Accrued Benefit under a
KCSI Plan and such Accrued Benefit was transferred to this Plan as of the
Effective Date, the Advisory Committee must distribute the Participant's
Nonforfeitable Accrued Benefit in accordance with that designation. This
Section 6.03(D) does not apply to a pre-1984 distribution designation, and
the Advisory Committee will not comply with that designation if any of the
following applies: (1) the method of distribution would have disqualified
the KCSI Plan under Code Section 401(a)(9) as in effect on December 31, 1983;
(2) the Participant did not have an Accrued Benefit under the KCSI Plan as of
December 31, 1983; (3) the distribution designation does not specify the
timing and form of the distribution and the death Beneficiaries (in order of
priority); (4) the substitution of a Beneficiary modifies the payment period
of the distribution; or (5) the Participant (or Beneficiary) modifies or
revokes the distribution designation. In the event of a revocation, the Plan
must distribute, no later than December 31 of the calendar year following the
year of revocation, the amount which the Participant would have received
under Section 6.02(A) if the election had not been in effect or, if the
Beneficiary revokes the election, the amount which the Beneficiary would have
received under Section 6.02(B) if the election had not been in effect. The
Advisory Committee will apply this Section 6.03(D) to rollovers and transfers
in accordance with Part J of the Code Section 401(a)(9) regulations.
SPECIAL DISTRIBUTIONS RULES FOR DEFERRAL CONTRIBUTIONS ACCOUNT AND
QUALIFIED ACCOUNTS. The in-service distribution provisions in Section
6.03(B) will not apply to the Deferral Contributions Account, Qualified
Nonelective Contributions Account, and Qualified Matching Contributions
Account. Instead, the distribution provisions in this Section 6.03(E) will
apply to withdrawals from these Accounts by a Participant prior to his
Separation from Service. After the Participant's Separation from Service,
the provisions of this Article VI other than this Section 6.03(E) will apply
to the distribution of the Participant's entire Accrued Benefit. If the
Employer sells substantially all of the assets (within the meaning of Code
Section 409(d)(2)) used in a trade or business or sells a subsidiary (within
the meaning of Code Section 409(d)(3)), a Participant who continues
employment with the acquiring corporation is eligible for distribution from
these Accounts as if he has a Separation from Service, but for distributions
made after March 31, 1988, only if the distribution constitutes a lump sum
distribution, determined in a manner consistent with Code section 401(k)(10)
and the applicable Treasury regulations.
The Participant, until he retires, has a continuing election to receive
a distribution from his Deferral Contributions Account, Qualified Nonelective
Contributions Account, and Qualified Matching Contributions Account
if: (I) he has attained age 59-1/2; or (II) he incurs an immediate and heavy
financial hardship. The distribution event under clause (I) applies to all
or any portion of these Accounts. The distribution event under clause (II)
applies only to the elective deferrals allocated to the Participant's
Deferral Contributions Account plus any earnings on the Participant's
elective deferrals credited before January 1, 1989.
A hardship distribution, as described in clause (II), must be on account
of one or more of the following immediate and heavy financial
needs: (1) medical expenses described in Code Section 213(d) incurred by the
Participant, by the Participant's spouse, or any of the Participant's
dependents; (2) the purchase (excluding mortgage payments) of a principal
residence for the Participant; (3) the payment of post-secondary education
tuition, related educational fees, and room and board expenses, for the next
12 months for the Participant, for the Participant's spouse, or for any of
the Participant's dependents; or (4) to prevent the eviction of the
Participant from his principal residence or the foreclosure on the mortgage
of the Participant's principal residence. The Participant may make
application for a hardship distribution at any time; however, distributions
will occur at the end of the month, or as soon as administratively
practicable thereafter, for Participants who have made application by the
15th day of the month; distributions will occur at the end of the following
month, or as soon as administratively practicable thereafter, for
Participants who make application on or after the 16th day of the month.
RESTRICTIONS ON HARDSHIP DISTRIBUTION. The following restrictions apply
to a Participant's hardship distribution under this Section 6.03(E): (a) the
Participant may not make elective deferrals or employee contributions to the
Plan for the 12-month period following the date of his hardship distribution;
(b) the distribution may not exceed the amount of the immediate and heavy
financial need; (c) the Participant must have obtained all distributions
under this Section 6.03(E), other than hardship distributions, and all
nontaxable loans currently available under this Plan and all other qualified
plans maintained by the Employer; and (d) the Participant agrees to limit
elective deferrals under this Plan and under any other qualified plan
maintained by the Employer, for the Participant's taxable year immediately
following the taxable year of the hardship distribution under this Section
6.03(E), to the Section 402(g) limitation (as described in Section 12.03),
reduced by the amount of the Participant's elective deferrals made in the
taxable year of the hardship distribution.
PROCEDURE. A Participant must make an election under this Section
6.03(E) on a form prescribed by the Advisory Committee at any time during the
Plan Year for which his election is to be effective. In his written
election, the Participant must specify the percentage or dollar amount he
wishes the Trustee to distribute to him. The Participant's election relates
solely to the percentage or dollar amount specified in his election form and
his right to elect to receive an amount, if any, for a particular Plan Year
greater than the dollar amount or percentage specified in his election form
terminates on the Accounting Date. The Trustee must make a distribution to a
Participant in accordance with his election under this Section 6.03(E) within
the 90-day period (or as soon as administratively practicable) after the
Participant files his written election with the Trustee. The Trustee will
distribute the balance of the Participant's Accrued Benefit not distributed
pursuant to this election(s) in accordance with the other distribution
provisions of this Plan.
(F) SPECIAL DISTRIBUTION RULES FOR ROLLOVER ACCOUNT. The in-service
distribution provisions in Section 6.03(B) will not apply to the Rollover
Account. Instead, the distribution provisions in this Section 6.03(F) will
apply to withdrawals from that account by a Participant prior to his
Separation from Service. After the Participant's Separation from Service,
the provisions of this Article VI other than this Section 6.03(F) will apply
to the distribution of the Participant's entire Accrued Benefit.
The Participant, until he retires, has a continuing election to receive
a distribution from his Rollover Account if: (I) he has attained age 591/2; or
(II) he incurs an immediate and heavy financial hardship.
A hardship distribution, as described in clause (II), must be on account
of one or more of the following immediate and heavy financial
needs: (1) medical expenses described in Code Section 213(d) incurred by the
Participant, by the Participant's spouse, or any of the Participant's
dependents; (2) the purchase (excluding mortgage payments) of a principal
residence for the Participant; (3) the payment of post-secondary education
tuition, related educational fees, and room and board expenses, for the next
12 months for the Participant, for the Participant's spouse, or for any of
the Participant's dependents; or (4) to prevent the eviction of the
Participant from his principal residence or the foreclosure on the mortgage
of the Participant's principal residence. The Participant may make
application for a hardship distribution of his Rollover Account at any time;
however, distributions will occur at the end of the month, or as soon as
administratively practicable thereafter, for Participants who have made
application by the 15th day of the month; distributions will occur at the end
of the following month, or as soon as administratively practicable
thereafter, for Participants who make application on or after the 16th day of
the month.
ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The joint
and survivor annuity requirements do not apply to this Plan. The Plan does
not provide any annuity distributions to Participants nor to surviving
spouses. A transfer agreement described in Section 11.05 may not permit a
plan which is subject to the provisions of Code Section 417 to transfer
assets to this Plan, unless the transfer is an elective transfer, as
described in Section 11.05.
WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY. [Reserved]
------------------------------------------------------
WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. [Reserved]
------------------------------------------------
DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in
this Plan prevents the Trustee, in accordance with the direction of the
Advisory Committee, from complying with the provisions of a qualified
domestic relations order (as defined in Code Section 414(p)). This Plan
specifically permits distribution to an alternate payee under a qualified
domestic relations order (i) with respect to distributions other than from a
Participant's post-1999 Profit Sharing Contributions Account, on any
distribution date of any Plan Year, or (ii) with respect to distributions
from a Participant's Post-1999 Profit Sharing Contributions Account, as of
March 31, April 30, July 30 or October 30 of any Plan Year, irrespective of
whether the Participant has attained his earliest retirement age (as defined
under Code Section 414(p)) under the Plan. A distribution to an alternate
payee prior to the Participant's attainment of earliest retirement age is
available only if: (1) the order specifies distribution at that time or
permits an agreement between the Plan and the alternate payee to authorize an
earlier distribution; and (2) if the present value of the alternate payee's
benefits under the Plan exceeds $5,000, and the order requires, the alternate
payee consents to any distribution occurring prior to the Participant's
attainment of earliest retirement age. Nothing in this Section 6.07, other
than the dates specified above, permits a Participant a right to receive
distribution at a time otherwise not permitted under the Plan nor does it
permit the alternate payee to receive a form of payment not permitted under
the Plan.
The Plan Administrator must establish reasonable procedures to determine
the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator must determine the qualified
status of the order and must notify the Participant and each alternate payee,
in writing, of its determination. The Plan Administrator must provide notice
under this paragraph by mailing to the individual's address specified in the
domestic relations order, or in a manner consistent with Department of Labor
regulations. A qualified domestic relations order that, prior to the
Effective Date, had been determined to be qualified under a KCSI Plan with
respect to the Accrued Benefit of a Stilwell Participant under such KCSI
Plan, shall continue to be treated as a qualified domestic relations order
under this Plan with respect to the Accounts of the Stilwell Participant that
were transferred to this Plan from such KCSI Plan.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Plan Administrator is making its determination
of the qualified status of the domestic relations order, the Advisory
Committee must make a separate accounting of the amounts payable. If the
Plan Administrator determines the order is a qualified domestic relations
order within 18 months of the date amounts first are payable following
receipt of the order, the Advisory Committee will direct the Trustee to
distribute the payable amounts in accordance with the order. If the Plan
Administrator does not make its determination of the qualified status of the
order within the 18 month determination period, the Advisory Committee will
direct the Trustee to distribute the payable amounts in the manner the Plan
would distribute if the order did not exist and will apply the order
prospectively if the Plan Administrator later determines the order is a
qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Advisory Committee at the election of
an alternate payee may direct the Trustee to invest any partitioned amount in
a segregated subaccount or separate account and to invest the account in
Federally insured, interest-bearing savings account(s) or time deposit(s) (or
a combination of both), or in other fixed income investments. A segregated
subaccount remains a part of the Trust, but it alone shares in any income it
earns, and it alone bears any expense or loss it incurs. The Trustee will
make any payments or distributions required under this Section 6.07 by
separate benefit checks or other separate distribution to the alternate
payee(s).
ROLLOVER DISTRIBUTIONS. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner prescribed by
the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For purposes of this Section 6.08, the
following definitions shall apply.
ELIGIBLE ROLLOVER DISTRIBUTION: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit
of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more;
any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; and the portion of any distribution that
is not includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer
securities).
ELIGIBLE RETIREMENT PLAN: An eligible retirement plan is an
individual retirement account described in section 408(a) of the Code,
an individual retirement annuity described in section 408(b) of the
Code, an annuity plan described in 403(a) of the Code, or a qualified
trust described in section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
DISTRIBUTEE: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations order,
as defined in section 414(p) of the Code, are distributees with regard
to the interest of the spouse or former spouse.
DIRECT ROLLOVER: A direct rollover is a payment by the Plan to an
eligible retirement plan specified by the distributee.
EMPLOYER ADMINISTRATIVE PROVISIONS
INFORMATION TO COMMITTEE. The Employer must supply current information
to the Advisory Committee as to the name, date of birth, date of employment,
annual compensation, leaves of absence, Years of Service and date of
termination of employment of each Employee who is, or who will be eligible to
become, a Participant under the Plan, together with any other information
which the Advisory Committee considers necessary. The Employer's records as
to the current information the Employee furnishes to the Advisory Committee
are conclusive as to all persons.
NO LIABILITY. The Employer assumes no obligation or responsibility to
any of its Employees, Participants or Beneficiaries for any act of, or
failure to act, on the part of its Advisory Committee (unless the Employer is
the Advisory Committee), the Trustee or the Plan Administrator (unless the
Employer is the Plan Administrator).
INDEMNITY OF COMMITTEE. The Employer indemnifies and saves harmless the
Plan Administrator and the members of the Advisory Committee, and each of
them, from and against any and all loss resulting from liability to which the
Plan Administrator and the Advisory Committee, or the members of the Advisory
Committee, may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses
reasonably incurred in their defense, in case the Employer fails to provide
such defense. The indemnification provisions of this Section 7.03 do not
relieve the Plan Administrator or any Advisory Committee member from any
liability he may have under ERISA for breach of a fiduciary duty.
Furthermore, the Plan Administrator and the Advisory Committee members and
the Employer may execute a letter agreement further delineating the
indemnification agreement of this Section 7.03, provided the letter agreement
must be consistent with and must not violate ERISA. The indemnification
provisions of this Section 7.03 extend to the Trustee solely to the extent
provided by a letter agreement executed by the Trustee and the Employer.
EMPLOYER DIRECTION OF INVESTMENT. The Employer has the right to direct
the Trustee with respect to the investment and reinvestment of assets
comprising the Trust Fund only if the Trustee consents in writing to permit
such direction. If the Trustee consents to Employer direction of investment,
the Trustee and the Employer must execute a letter agreement as a part of
this Plan containing such conditions, limitations and other provisions they
deem appropriate before the Trustee will follow any Employer direction as
respects the investment or reinvestment of any part of the Trust Fund.
AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the right
to amend the vesting schedule at any time, the Advisory Committee will not
apply the amended vesting schedule to reduce the Nonforfeitable percentage of
any Participant's Accrued Benefit derived from Employer contributions
(determined as of the later of the date the Employer adopts the amendment, or
the date the amendment becomes effective) to a percentage less than the
Nonforfeitable percentage computed under the Plan without regard to the
amendment.
If the Employer makes a permissible amendment to the vesting schedule,
each Participant having at least 3 Years of Service with the Employer may
elect to have the percentage of his Nonforfeitable Accrued Benefit computed
under the Plan without regard to the amendment. The Participant must file
his election with the Plan Administrator within 60 days of the latest of
(a) the Employer's adoption of the amendment; (b) the effective date of the
amendment; or (c) his receipt of a copy of the amendment. The Plan
Administrator, as soon as practicable, must forward a true copy of any
amendment to the vesting schedule to each affected Participant, together with
an explanation of the effect of the amendment, the appropriate form upon
which the Participant may make an election to remain under the vesting
schedule provided under the Plan prior to the amendment and notice of the
time within which the Participant must make an election to remain under the
prior vesting schedule. For purposes of this Section 7.05, an amendment to
the vesting schedule includes any Plan amendment which directly or indirectly
affects the computation of the Nonforfeitable percentage of an Employee's
rights to his Employer derived Accrued Benefit.
PARTICIPANT ADMINISTRATIVE PROVISIONS
BENEFICIARY DESIGNATION. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively,
to whom the Trustee will pay his Accrued Benefit (including any life
insurance proceeds payable to the Participant's Account) in the event of his
death and the Participant may designate the form and method of payment. The
Advisory Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Advisory
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant. A Beneficiary designation by a Stilwell
Participant that was valid under a KCSI Plan immediately prior to the
Effective Date shall continue to be valid under this Plan as to the
Participant's Accounts transferred to the Plan from such KCSI Plan until
revoked by the Participant in accordance with this Section 8.01.
A married Participant's Beneficiary designation is not valid unless the
Participant's spouse consents, in writing, to the Beneficiary designation.
The spouse's consent must acknowledge the effect of that consent and a notary
public or the Plan Administrator (or his representative) must witness that
consent. The spousal consent requirements of this paragraph do not apply
if: (1) the Participant and his spouse are not married through the one-year
period ending on the date of the Participant's death; (2) the Participant's
spouse is the Participant's sole primary beneficiary; (3) the Plan
Administrator is not able to locate the Participant's spouse; (4) the
Participant is legally separated or has been abandoned (within the meaning of
State law) and the Participant has a court order to that effect; or (5) other
circumstances exist under which the Secretary of the Treasury will excuse the
consent requirement. If the Participant's spouse is legally incompetent to
give consent, the spouse's legal guardian (even if the guardian is the
Participant) may give consent.
NO BENEFICIARY DESIGNATION. If a Participant fails to name a
Beneficiary in accordance with Section 8.01, or if the Beneficiary named by a
Participant predeceased him, then the Trustee will pay the Participant's
Accrued Benefit in accordance with Section 6.02 in the following order of
priority to:
The Participant's surviving spouse;
The Participant's surviving children, including adopted children,
in equal shares;
The Participant's surviving parents, in equal shares; or
The legal representative of the estate of the Participant.
If the Beneficiary does not predecease the Participant, but dies prior
to the distribution of the Participant's entire Nonforfeitable Accrued
Benefit, the Trustee will pay the remaining Nonforfeitable Accrued Benefit to
the Beneficiary's estate unless the Participant's Beneficiary designation
provides otherwise. The Advisory Committee will direct the Trustee as to the
method and to whom the Trustee will make the payment under this Section 8.02.
PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary of a
deceased Participant must furnish to the Advisory Committee such evidence,
data or information as the Advisory Committee considers necessary or
desirable for the purpose of administering the Plan. The provisions of this
Plan are effective for the benefit of each Participant upon the condition
precedent that each Participant will furnish promptly full, true and complete
evidence, data and information when requested by the Advisory Committee,
provided the Advisory Committee advises each Participant of the effect of his
failure to comply with its request.
ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of a
deceased Participant must file with the Advisory Committee from time to time,
in writing, his post office address and any change of post office address.
Any communication, statement or notice addressed to a Participant, or
Beneficiary, at his last post office address filed with the Advisory
Committee, or as shown on the records of the Employer, binds the Participant,
or Beneficiary, for all purposes of this Plan.
ASSIGNMENT OR ALIENATION. Subject to Code Section 414(p) relating to
qualified domestic relations orders, neither a Participant nor a Beneficiary
may anticipate, assign or alienate (either at law or in equity) any benefit
provided under the Plan, and the Trustee will not recognize any such
anticipation, assignment or alienation. Furthermore, a benefit under the
Plan is not subject to attachment, garnishment, levy, execution or other
legal or equitable process.
NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries a summary description of any material
amendment to the Plan or notice of discontinuance of the Plan and all other
information required by ERISA to be furnished without charge.
LITIGATION AGAINST THE TRUST. A court of competent jurisdiction may
authorize any appropriate equitable relief to redress violations of ERISA or
to enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary
may examine copies of the Plan description, latest annual report, any
bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator
will maintain all of the items listed in this Section 8.08 in his office, or
in such other place or places as he may designate from time to time in order
to comply with the regulations issued under ERISA, for examination during
reasonable business hours. Upon the written request of a Participant or
Beneficiary the Plan Administrator will furnish him with a copy of any item
listed in this Section 8.08. The Plan Administrator may make a reasonable
charge to the requesting person for the copy so furnished.
APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Plan Administrator will
provide adequate notice in writing to any Participant or to any Beneficiary
("Claimant") whose claim for benefits under the Plan the Advisory Committee
has denied. The Plan Administrator's notice to the Claimant must set forth:
The specific reason for the denial;
Specific references to pertinent Plan provisions on which the
Advisory Committee based its denial;
A description of any additional material and information needed for
the Claimant to perfect his claim and an explanation of why the material
or information is needed; and
That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within
75 days after receipt of the Plan Administrator's notice of denial of
benefits. The Plan Administrator's notice must further advise the
Claimant that his failure to appeal the action to the Advisory Committee
in writing within the 75 day period will render the Advisory Committee's
determination final, binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, fees are pertinent. The
Claimant, or his duly authorized representative, may review pertinent plan
documents. The Advisory Committee will reexamine all facts related to the
appeal and make a final determination as to whether the denial of benefits is
justified under the circumstances. The Advisory Committee must advise the
Claimant of its decision within 60 days of the Claimant's written request for
review, unless special circumstances (such as a hearing) would make the
rendering of a decision within the 60 day limit unfeasible, but in no event
may the Advisory Committee render a decision respecting a denial for a claim
for benefits later than 120 days after its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the Claimant may forward his appeal.
ADVISORY COMMITTEE - DUTIES WITH RESPECT
TO PARTICIPANT'S ACCOUNTS
MEMBERS' COMPENSATION, EXPENSES. The Sponsor must appoint an Advisory
Committee to administer the Plan, the members of which may or may not be
Participants in the Plan, or which may be the Plan Administrator acting
alone. The members of the Advisory Committee will serve without compensation
for services as such, but the Employer will pay all expenses of the Advisory
Committee, including the expense for any bond required under ERISA.
TERM. Each member of the Advisory Committee serves until the
appointment of his successor.
POWERS. In case of a vacancy in the membership of the Advisory
Committee, the remaining members of the Advisory Committee may exercise any
and all of the powers, authority, duties and discretion conferred upon the
Advisory Committee pending the filling of the vacancy.
GENERAL. The Advisory Committee, in its sole and absolute discretion,
shall have all powers necessary to discharge its duties under this Plan
including, without limitation, the following:
To select a Secretary, who need not be a member of the Advisory
Committee;
To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued Benefit
and the Nonforfeitable percentage of each Participant's Accrued Benefit;
To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan provided the rules are
not inconsistent with the terms of this Plan;
To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan documents
and documents related to the Plan's operation, and its decisions shall
be final and binding on all interested persons;
To direct the Trustee as respects the crediting and distribution of
the Trust;
To review and render decisions respecting a claim for (or denial of
a claim for) a benefit under the Plan;
To furnish the Employer with information which the Employer may
require for tax or other purposes;
To engage the service of agents whom it may deem advisable to
assist it with the performance of its duties; and
(i) To engage the services of an Investment Manager or Managers
(as defined in ERISA Section 3(38)), each of whom will have full power
and authority to manage, acquire or dispose (or direct the Trustee with
respect to acquisition or disposition) of any Plan asset under its
control.
The Advisory Committee must exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
FUNDING POLICY. The Advisory Committee will review, not less often than
annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs
so investment policy can be coordinated with Plan financial requirements.
MANNER OF ACTION. The decision of a majority of the members appointed
and qualified controls.
AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize any
person, whether or not such person is a member of the Advisory Committee, to
sign on its behalf any notices, directions, applications, certificates,
consents, approvals, waivers, letters or other documents. The Advisory
Committee must evidence this authority by an instrument signed by all members
and filed with the Trustee.
INTERESTED MEMBER. No member of the Advisory Committee may decide or
determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, except in exercising an
election available to that member in his capacity as a Participant, unless
the Plan Administrator is acting alone in the capacity of the Advisory
Committee.
INDIVIDUAL ACCOUNTS. The Advisory Committee will maintain, or direct
the Trustee to maintain, a separate Account, or multiple Accounts, in the
name of each Participant to reflect the Participant's Accrued Benefit in
accordance with the provisions of Article XV hereof and shall give the
Trustee directions with respect to the investment of the Accounts of
Participants in accordance with the provisions of Article XV.
INDIVIDUAL STATEMENT. As soon as practicable after the Accounting Date
of each Plan Year, but within the time prescribed by ERISA and the
regulations under ERISA, the Plan Administrator will deliver to each
Participant (and to each Beneficiary) a statement reflecting the condition of
his Accrued Benefit in the Trust as of that date and such other information
ERISA requires be furnished the Participant or Beneficiary. No Participant,
except a member of the Advisory Committee, has the right to inspect the
records reflecting the Account of any other Participant.
ACCOUNT CHARGED. The Advisory Committee will charge all distributions
made to a Participant or to his Beneficiary from his Account against the
Account of the Participant when made.
UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the
Trustee or the Advisory Committee to search for, or ascertain the whereabouts
of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI, the Advisory
Committee, by certified or registered mail addressed to his last known
address of record with the Advisory Committee or the Employer, must notify
the Participant, or Beneficiary, that he is entitled to a distribution under
this Plan. The notice must quote the provisions of this Section 9.12 and
otherwise must comply with the notice requirements of Article VI. If the
Participant, or Beneficiary, fails to claim his distributive share or make
his whereabouts known in writing to the Advisory Committee within 6 months
from the date of mailing of the notice, the Advisory Committee will treat the
Participant's or Beneficiary's unclaimed payable Accrued Benefit as forfeited
and will reallocate the unclaimed payable Accrued Benefit in accordance with
Section 3.05. Where the benefit is distributable to the Participant, the
forfeiture under this paragraph occurs as of the last day of the notice
period, if the Participant's Nonforfeitable Accrued Benefit does not exceed
$5,000, or as of the first day the benefit is distributable without the
Participant's consent, if the present value of the Participant's
Nonforfeitable Accrued Benefit exceeds $5,000. Where the benefit is
distributable to a Beneficiary, the forfeiture occurs on the date the notice
period ends except, if the Beneficiary is the Participant's spouse and the
Nonforfeitable Accrued Benefit payable to the spouse exceeds $5,000, the
forfeiture occurs as of the first day the benefit is distributable without
the spouse's consent. Pending forfeiture, the Advisory Committee, following
the expiration of the notice period, may direct the Trustee to segregate the
Nonforfeitable Accrued Benefit in a segregated Account and to invest that
segregated Account in Federally insured interest bearing savings accounts or
time deposits (or in a combination of both), or in other fixed income
investments.
If a Participant or Beneficiary who has incurred a forfeiture of his
Accrued Benefit under the provisions of the first paragraph of this Section
9.12 makes a claim, at any time, for his forfeited Accrued Benefit, the
Advisory Committee must restore the Participant's or Beneficiary's forfeited
Accrued Benefit to the same dollar amount as the dollar amount of the Accrued
Benefit forfeited, unadjusted for any gains or losses occurring subsequent to
the date of the forfeiture. The Advisory Committee will make the restoration
during the Plan Year in which the Participant or Beneficiary makes the claim,
first from the amount, if any, of Participant forfeitures the Advisory
Committee otherwise would allocate for the Plan Year, then from the amount,
if any, of the Trust Fund net income or gain for the Plan Year and then from
the amount, or additional amount, the Employer contributes to enable the
Advisory Committee to make the required restoration. The Advisory Committee
will direct the Trustee to distribute the Participant's or Beneficiary's
restored Accrued Benefit to him no later than 60 days after the close of the
Plan Year in which the Advisory Committee restores the forfeited Accrued
Benefit. The forfeiture provisions of this Section 9.12 apply solely to the
Participant's or to the Beneficiary's Accrued Benefit derived from Employer
contributions.
INVESTMENT MANAGER. The Advisory Committee shall have the right, as
provided in Section 9.04(i), to appoint an Investment Manager for all or any
part of the assets of the Trust Fund as the Advisory Committee shall
designate, provided that any firm so appointed shall be and continue
qualified to act as such in accordance with ERISA. The Advisory Committee
may remove any Investment Manager at any time, and need not specify any cause
for such removal.
[RESERVED]
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
EXCLUSIVE BENEFIT. Except as provided under Article III, the Employer
has no beneficial interest in any asset of the Trust and no part of any asset
in the Trust may ever revert to or be repaid to an Employer, either directly
or indirectly; nor, prior to the satisfaction of all liabilities with respect
to the Participants and their Beneficiaries under the Plan, may any part of
the corpus or income of the Trust Fund, or any asset of the Trust, be (at any
time) used for, or diverted to, purposes other than the exclusive benefit of
the Participants or their Beneficiaries.
AMENDMENT BY EMPLOYER. Stilwell Financial, Inc., by duly adopted
resolution of its Board of Directors, or of the Compensation and Organization
Committee of its Board of Directors, has the right at any time and from time
to time:
To amend this Plan in any manner it deems necessary or advisable in
order to qualify (or maintain qualification of) this Plan and the Trust
created under it under the appropriate provisions of Code Section
401(a); or
To amend this Plan in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than
the part which is required to pay taxes and administration expenses) to be
used for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries or estates. No amendment may cause or
permit any portion of the Trust Fund to revert to or become a property of the
Employer. No amendment may be made which affects the rights, duties or
responsibilities of the Trustee, the Plan Administrator or the Advisory
Committee without the written consent of the affected Trustee, the Plan
Administrator or the affected member of the Advisory Committee.
CODE SECTION 411(D)(6) PROTECTED BENEFITS. An amendment (including the
adoption of this Plan as a restatement of an existing plan) may not decrease
a Participant's Accrued Benefit, except to the extent permitted under Code
Section 412(c)(8), and may not reduce or eliminate Code Section 411(d)(6)
protected benefits determined immediately prior to the adoption date (or, if
later, the effective date) of the amendment. An amendment reduces or
eliminates Code Section 411(d)(6) protected benefits if the amendment has the
effect of either (1) eliminating or reducing an early retirement benefit or a
retirement-type subsidy (as defined in Treasury regulations), or (2) except
as provided by Treasury regulations, eliminating an optional form of benefit.
The Advisory Committee must disregard an amendment to the extent application
of the amendment would fail to satisfy this paragraph. If the Advisory
Committee must disregard an amendment because the amendment would violate
clause (1) or clause (2), the Advisory Committee must maintain a schedule of
the early retirement option or other optional forms of benefit the Plan must
continue for the affected Participants.
All amendments must be made in writing. Each amendment must state the
date to which it is either retroactively or prospectively effective.
DISCONTINUANCE. Each Employer has the right, at any time, to suspend or
discontinue its contributions under the Plan. The Board of Directors of
Stilwell Financial, Inc., or the Compensation and Organization Committee
thereof, or any other duly authorized committee thereof, has the right to
terminate, at any time, this Plan and the Trust created under it. The Plan
will terminate upon the first to occur of the following:
The date terminated by action of the Board of Directors of Stilwell
Financial, Inc., or the Compensation and Organization Committee thereof,
or any other duly authorized committee thereof; or
The date Stilwell Financial, Inc. is judicially declared bankrupt
or insolvent, unless the proceeding authorized continued maintenance of
the Plan.
FULL VESTING ON TERMINATION. Upon either full or partial termination of
the Plan, or, if applicable, upon complete discontinuance of profit sharing
plan contributions to the Plan, an affected Participant's right to his
Accrued Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable
percentage which otherwise would apply under Article V.
MERGER/DIRECT TRANSFER. The Plan may not be a party to any merger or
consolidation with another plan, or to a transfer of assets or liabilities to
another plan, unless immediately after the merger, consolidation or transfer,
the surviving Plan provides each Participant a benefit equal to or greater
than the benefit each Participant would have received had the Plan terminated
immediately before the merger or consolidation or transfer. The Advisory
Committee possesses the specific authority to enter into merger agreements or
direct transfer of assets agreements with the trustees of other retirement
plans described in Code Section 401(a), including an elective transfer, and
to accept the direct transfer of plan assets, or to transfer plan assets, as
a party to any such agreement.
The Advisory Committee may accept a direct transfer of plan assets on
behalf of an Employee prior to the date the Employee satisfies the Plan's
eligibility conditions. If the Advisory Committee accepts a direct transfer
of plan assets, the Advisory Committee must treat the Employee as a
Participant for all purposes of the Plan except the Employee is not a
Participant for purposes of sharing in Employer contributions or Participant
forfeitures under the Plan until he actually becomes a Participant in the
Plan.
The Advisory Committee may not consent to, or be a party to a merger,
consolidation or transfer of assets with a defined benefit plan, except with
respect to an elective transfer. The Trustee will hold, administer and
distribute the transferred assets as a part of the Trust Fund and the Trustee
must maintain a separate Employer contribution Account for the benefit of the
Employee on whose behalf the Advisory Committee accepted the transfer in
order to reflect the value of the transferred assets. Unless a transfer of
assets to this Plan is an elective transfer, the Plan will preserve all Code
Section 411(d)(6) protected benefits with respect to those transferred
assets, in the manner described in Section 11.02. A transfer is an elective
transfer if: (1) the transfer satisfies the first paragraph of this
Section 11.05; (2) the transfer is voluntary, under a fully informed election
by the Participant; (3) the Participant has an alternative that retains his
Code Section 411(d)(6) protected benefits (including an option to leave his
benefit in the transferor plan, if that plan is not terminating); (4) the
transfer satisfies the applicable spousal consent requirements of the Code;
(5) the transferor plan satisfies the joint and survivor notice requirements
of the Code, if the Participant's transferred benefit is subject to those
requirements; (6) the Participant has a right to immediate distribution from
the transferor plan, in lieu of the elective transfer; (7) the transferred
benefit is at least the greater of the single sum distribution provided by
the transferor plan payable at that plan's normal retirement age; (8) the
Participant has a 100% Nonforfeitable interest in the transferred benefit;
and (9) the transfer otherwise satisfies applicable Treasury regulations. An
elective transfer may occur between qualified plans of any type.
DISTRIBUTION RESTRICTIONS UNDER CODE SECTION 401(K). If the Plan
receives a direct transfer (by merger or otherwise) of elective contributions
(or amounts treated as elective contributions) under a plan with a Code
Section 401(k) arrangement, the distribution restrictions of Code Sections
401(k)(2) and (10) continue to apply to those transferred elective
contributions.
TERMINATION. Upon termination of the Plan, the distribution provisions
of Article VI remain operative, with the following exceptions:
if the present value of the Participant's Nonforfeitable Accrued
Benefit does not exceed $5,000, the Advisory Committee will direct the
Trustee to distribute the Participant's Nonforfeitable Accrued Benefit
to him in lump sum as soon as administratively practicable after the
Plan terminates; and
if the present value of the Participant's Nonforfeitable Accrued
Benefit exceeds $5,000, the Participant or the Beneficiary, in addition
to the distribution events permitted under Article VI, may elect to have
the Trustee commence distribution of his Nonforfeitable Accrued Benefit
as soon as administratively practicable after the Plan terminates.
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable
Accrued Benefit exceeds $5,000 and the Participant does not elect an
immediate distribution pursuant to Paragraph (2). The Trust will continue
until the Trustee in accordance with the direction of the Advisory Committee
has distributed all of the benefits under the Plan.
On each valuation date, the Advisory Committee will credit any part of a
Participant's Accrued Benefit retained in the Trust with its proportionate
share of the Trust's income, expenses, gains and losses, both realized and
unrealized. Upon termination of the Plan, the amount, if any, in a suspense
account under Article III will revert to the Employer, subject to the
conditions of the Treasury regulations permitting such a reversion. A
resolution or amendment to freeze all future benefit accrual but otherwise to
continue maintenance of this Plan, is not a termination for purposes of this
Section 11.06.
Special Rule for Deferral Contributions Account. Notwithstanding the
provisions of this Section 11.06, the Participant may not receive a
distribution of the portion of his Nonforfeitable Accrued Benefit
attributable to elective contributions under a Code Section 401(k)
arrangement (or to amounts treated under the Code Section 401(k) arrangement
as elective contributions) pursuant to the termination of the Plan unless:
(a) the Participant otherwise is entitled to a distribution of that portion
of his Nonforfeitable Accrued Benefit; or (b) the Plan termination occurs
without the establishment of a successor plan. A plan is a successor plan
under clause (b) if (i) the plan is a defined contribution plan (other than
an ESOP) maintained by the Employer (or by a related employer); (ii) at least
2% of the Employees who were eligible under the Plan are or were eligible
under the successor plan at any time within the 24-month period ending after
the time of termination; and (iii) the successor plan is in existence at the
time of the termination of the Plan or within the period ending twelve (12)
months after the final distribution of assets of the Plan. A distribution
pursuant to clause (b), must be part of a lump sum distribution to the
Participant of his Nonforfeitable Accrued Benefit.
PROVISIONS RELATING TO THE CODE SECTION 401(k) ARRANGEMENT
CODE SECTION 401(k) ARRANGEMENT. The deferral contributions and related
Employer contributions described in Section 3.01(A) comprise a Code Section
401(k) arrangement. An Employee who is eligible to participate in the 401(k)
arrangement may file a salary reduction agreement with the Advisory
Committee. A salary reduction agreement must specify the amount of
Compensation or percentage of Compensation the Employee wishes to defer; for
which purpose "Compensation" shall be as defined in Section 1.10 but modified
to exclude income attributable to the grant or exercise of employee stock
options, the vesting of restricted property, and such similar items of
extraordinary or non-cash compensation as the Advisory Committee shall
prescribe. Any reference in this Section to "Compensation" is a reference to
such definition of "Compensation" as so modified. A salary reduction
agreement by a Stilwell Participant that was valid under the KCSI 401(k) Plan
immediately prior to the Effective Date shall continue to be valid under this
Plan until modified or revoked by the Participant in accordance with this
Section 12.01.
A salary reduction agreement executed by an eligible Employee shall be
effective as of the first day of the calendar quarter specified by the
Employee in such agreement; provided, however, that the agreement may not be
effective earlier than the following date which occurs last: (i) the
execution date of the Employee's salary reduction agreement; (ii) the
Employee's Plan Entry Date (or, in the case of a reemployed Employee, his
reparticipation date under Article II); or (iii) the effective date of the
Code Section 401(k) arrangement. The salary reduction agreement will apply
only to Compensation which is currently available to the Employee after the
effective date of the salary reduction agreement.
If the salary reduction agreement specifies the reduction amount as a
percentage of Compensation, the percentage may not be less than one percent
(1%) of Compensation and shall specify a reduction percentage equal to an
increment of one percent (1%). If the salary reduction agreement specifies
the reduction amount as a dollar amount of Compensation, the dollar amount
must equal an increment of $5. An Employee's deferral contributions for the
Plan Year may not exceed ten percent (10%) of his Compensation for the
portion of the Plan Year in which the Employee is actually a Participant.
Further, each individual deferral contribution may not exceed ten percent
(10%) of Compensation for the pay period for which such deferral contribution
is calculated. The Advisory Committee may from time to time specify a
maximum deferral percentage for Highly Compensated Employees that is less
than ten percent (10%). An Employee may modify his salary reduction
agreement, either to reduce or to increase the amount of deferral
contributions, as of the first day of any calendar quarter. The Employee
shall make this modification by filing a new salary reduction agreement with
the Advisory Committee. An Employee may revoke a salary reduction agreement
as of the first day of any calendar quarter. An Employee who revokes his
salary reduction agreement may file a new salary reduction agreement
effective as of the first day of the next calendar quarter.
DEFINITIONS.
"Highly Compensated Employee" means an Eligible Employee who
satisfies the definition in Section 1.07 of the Plan.
"Nonhighly Compensated Employee" means an eligible Employee who is
not a Highly Compensated Employee.
"Eligible Employee" means, for purposes of the ADP test described
in Section 12.04, an Employee who is eligible to make elective deferrals
for the Plan Year, irrespective of whether the Employer actually makes
deferral contributions on behalf of the Employee. For purposes of the
ACP test described in Section 12.05, an "Eligible Employee" means a
Participant who is eligible to receive an allocation of Employer
matching contributions (or would be eligible if he made the type of
contributions necessary to receive an allocation of matching
contributions) and a Participant who is eligible to make employee
contributions, irrespective of whether he actually makes employee
contributions. An Employee continues to be an Eligible Employee during
a period the Plan suspends the Employee's right to make elective
deferrals or nondeductible contributions following a hardship
distribution.
"Highly Compensated Group" means the group of Eligible Employees
who are Highly Compensated Employees for the Plan Year.
"Nonhighly Compensated Group" means the group of Eligible Employees
who are Nonhighly Compensated Employees for the Plan Year.
"Compensation" means, for purposes of any nondiscrimination test
required under this Article XII, Compensation as defined for
nondiscrimination purposes in the last paragraph of Section 1.10 of the
Plan. Compensation must include Compensation for the entire Plan Year,
irrespective of whether the Code Section 401(k) arrangement was in
effect for the entire Plan Year or whether the Employee begins, resumes
or ceases to be an Eligible Employee during the Plan Year.
"Deferral contributions" means the sum of the deferral
contributions the Employer contributes to the Trust on behalf of an
Eligible Employee, pursuant to Section 3.01.
"Elective deferrals" are the deferral contributions the Employer
contributes to the Trust at the election of an Eligible Employee. If
the Code Section 401(k) arrangement includes a cash or deferred feature,
any portion of a cash or deferred contribution contributed to the Trust
because of the Employee's failure to make a cash election is an elective
deferral, but any portion of a cash or deferred contribution over which
the Employee does not have a cash election is not an elective deferral.
Elective deferrals do not include amounts which have become currently
available to the Employee prior to the election nor amounts designated
as nondeductible employee contributions at the time of deferral or
contribution.
"Matching contributions" are contributions made by the Employer on
account of elective deferrals under a Code Section 401(k) arrangement or
on account of employee contributions. Matching contributions also
include Participant forfeitures allocated on account of such elective
deferrals or employee contributions.
"Nonelective contributions" are contributions made by the Employer
which are not subject to a deferral election by an Employee and which
are not matching contributions.
"Qualified matching contributions" are matching contributions which
are 100% Nonforfeitable at all times and which are subject to the
distribution restrictions described in paragraph (m). For purposes of
this definition, matching contributions are not 100% Nonforfeitable at
all times if the Employee has a 100% Nonforfeitable interest because of
his Years of Service taken into account under a vesting schedule.
"Qualified nonelective contributions" are nonelective
contributions which are 100% Nonforfeitable at all times and which are
subject to the distribution restrictions described in paragraph (m).
For purposes of this definition, nonelective contributions are not 100%
Nonforfeitable at all times if the Employee has a 100% Nonforfeitable
interest because of his Years of Service taken into account under a
vesting schedule. Any nonelective contributions allocated to a
Participant's Qualified Nonelective Contributions Account under the Plan
automatically satisfy the definition of qualified nonelective
contributions.
"Distribution restrictions" means the Employee may not receive a
distribution of the specified contributions (nor earnings on those
contributions) except in the event of (1) the Participant's death,
disability, termination of employment, attainment of age 59-1/2,
(2) financial hardship satisfying the requirements of Code Section
401(k) and the applicable Treasury regulations, (3) plan termination,
without establishment of a successor defined contribution plan (other
than an ESOP), (4) a sale of substantially all of the assets (within the
meaning of Code Sectioin 409(d)(2)) used in a trade or business, but
only to an employee who continues employment with the corporation
acquiring those assets, or (5) a sale by a corporation of its interest
in a subsidiary (within the meaning of Code Section 409(d)(3)), but only
to an employee who continues employment with the subsidiary.
A distribution on account of financial hardship, as described in clause
(2), may not include earnings on elective deferrals credited as of a
date later than December 31, 1988, and may not include qualified
matching contributions and qualified nonelective contributions, nor any
earnings on such contributions, irrespective of when credited. A
distribution described in clauses (3), (4) or (5), must be a lump sum
distribution, as required under Code Section 401(k)(10).
"Employee contributions" are contributions made by a Participant on
an after-tax basis, whether voluntary or mandatory, and designated, at
the time of contribution, as an employee (or nondeductible)
contribution. Elective deferrals and deferral contributions are not
employee contributions. Participant nondeductible contributions, made
pursuant to Section 4.01 of the Plan, are employee contributions.
ANNUAL ELECTIVE DEFERRAL LIMITATION.
ANNUAL ELECTIVE DEFERRAL LIMITATION. An Employee's elective deferrals
may not exceed the 402(g) limitation. The 402(g) limitation is the greater
of $7,000 or the adjusted amount determined by the Secretary of the Treasury.
If the Employer determines the Employee's elective deferrals to the Plan for
a calendar year would exceed the 402(g) limitation for the calendar year, the
Employer will not make any additional elective deferrals with respect to that
Employee for the remainder of that calendar year, paying in cash to the
Employee any amounts which would result in the Employee's elective deferrals
for the calendar year exceeding the 402(g) limitation. If the Advisory
Committee determines an Employee's elective deferrals already contributed to
the Plan for a calendar year exceed the 402(g) limitation, the Advisory
Committee will distribute the amount in excess of the 402(g) limitation (the
"excess deferral"), as adjusted for allocable income, no later than April 15
of the following calendar year. If the Advisory Committee distributes the
excess deferral by the appropriate April 15, it may make the distribution
irrespective of any other provision under this Plan or under the Code. The
Advisory Committee will reduce the amount of excess deferrals for a calendar
year distributable to the Employee by the amount of excess contributions (as
determined in Section 12.04), if any, previously distributed to the Employee
for the Plan Year beginning in that calendar year.
If an Employee participates in another plan under which he makes
elective deferrals pursuant to a Code Section 401(k) arrangement, elective
deferrals under a Simplified Employee Pension, or salary reduction
contributions to a tax-sheltered annuity, irrespective of whether the
Employer maintains the other plan, he may provide the Advisory Committee a
written claim for excess deferrals made for a calendar year. The Employee
must submit the claim no later than the March 1 following the close of the
particular calendar year and the claim must specify the amount of the
Employee's elective deferrals under this Plan which are excess deferrals. If
the Advisory Committee receives a timely claim, it will distribute the excess
deferral (as adjusted for allocable income) the Employee has assigned to this
Plan, in accordance with the distribution procedure described in the
immediately preceding paragraph.
ALLOCABLE INCOME. For purposes of making a distribution of excess
deferrals pursuant to this Section 12.03, allocable income means net income
or net loss allocable to the excess deferrals for the calendar year in which
the Employee made the excess deferral and for the "gap period" measured from
the beginning of the next calendar year to the date of the distribution. If
the distribution of the excess deferral occurs during the calendar year in
which the Employee made the excess deferral, the Advisory Committee will
treat as a "gap period" the period from the first day of that calendar year
to the date of the distribution. The Advisory Committee will determine
allocable income in the same manner as described in Section 12.04 for excess
contributions, except the numerator of the allocation fraction will be the
amount of the Employee's excess deferrals and the denominator of the
allocation fraction will be the Employee's Accrued Benefit attributable to
his elective deferrals.
ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. For each Plan Year, the
Advisory Committee must determine whether the Plan's Code Section 401(k)
arrangement satisfies one of the following ADP tests:
The average ADP for the Highly Compensated Group for such Plan Year
does not exceed 1.25 times the average ADP of the Nonhighly Compensated
Group for the preceding Plan Year; or
The average ADP for the Highly Compensated Group for such Plan Year
does not exceed the average ADP for the Nonhighly Compensated Group for
the preceding Plan Year by more than two percentage points (or the
lesser percentage permitted by the multiple use limitation in
Section 12.06) and the average ADP for the Highly Compensated Group for
such Plan Year is not more than twice the average ADP for the Nonhighly
Compensated Group for the preceding Plan Year.
If the Advisory Committee so elects, it may apply the limits set forth
in paragraphs (i) and (ii) of this Section by using the Average ADP of the
Nonhighly Compensated Group for the Plan Year for which the determination is
made rather than for the preceding Plan Year; provided that such election may
not be changed except as provided by the Secretary of the Treasury.
CALCULATION OF ADP. The average ADP for a group is the average of the
separate ADPs calculated for each Eligible Employee who is a member of that
group. An Eligible Employee's ADP for a Plan Year is the ratio of the
Eligible Employee's deferral contributions for the Plan Year to the
Employee's Compensation for the Plan Year. A Nonhighly Compensated
Employee's ADP does not include elective deferrals made to this Plan or to
any other Plan maintained by the Employer, to the extent such elective
deferrals exceed the Section 402(g) limitation described in Section 12.03.
The Advisory Committee may determine (in a manner consistent with
Treasury regulations) the ADPs of the Eligible Employees by taking into
account qualified nonelective contributions or qualified matching
contributions, or both, made to this Plan or to any other qualified Plan
maintained by the Employer. The Advisory Committee may not include qualified
nonelective contributions in the ADP test unless the allocation of
nonelective contributions is nondiscriminatory when the Advisory Committee
takes into account all nonelective contributions (including the qualified
nonelective contributions) and also when the Advisory Committee takes into
account only the nonelective contributions not used in either the ADP test
described in this Section 12.04 or the ACP test described in Section 12.05.
The Advisory Committee may not include in the ADP test any qualified
nonelective contributions or qualified matching contributions under another
qualified plan unless that plan has the same plan year as this Plan. The
Advisory Committee must maintain records to demonstrate compliance with the
ADP test, including the extent to which the Plan used qualified nonelective
contributions or qualified matching contributions to satisfy the test.
SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To determine
the ADP of any Highly Compensated Employee, the deferral contributions taken
into account must include any elective deferrals made by the Highly
Compensated Employee under any other Code Section 401(k) arrangement
maintained by the Employer, unless the elective deferrals are to an ESOP. If
the plans containing the Code Section 401(k) arrangements have different plan
years, the Advisory Committee will determine the combined deferral
contributions on the basis of the plan years ending in the same calendar
year.
AGGREGATION OF CERTAIN CODE SECTION 401(K) ARRANGEMENTS. If the
Employer treats two plans as a unit for coverage or nondiscrimination
purposes, the Employer must combine the Code Section 401(k) arrangements
under such plans to determine whether either plan satisfies the ADP test.
This aggregation rule applies to the ADP determination for all Eligible
Employees, irrespective of whether an Eligible Employee is a Highly
Compensated Employee or a Nonhighly Compensated Employee. An aggregation of
Code Section 401(k) arrangements under this paragraph does not apply to plans
which have different plan years and the Advisory Committee may not aggregate
an ESOP (or the ESOP portion of a plan) with a non-ESOP plan (or non-ESOP
portion of a plan).
CHARACTERIZATION OF EXCESS CONTRIBUTIONS. If, pursuant to this
Section 12.04, the Advisory Committee has elected to include qualified
matching contributions in the average ADP, the Advisory Committee will treat
excess contributions as attributable proportionately to deferral
contributions and to qualified matching contributions allocated on the basis
of those deferral contributions. If the total amount of a Highly Compensated
Employee's excess contributions for the Plan Year exceeds his deferral
contributions or qualified matching contributions for the Plan Years, the
Advisory Committee will treat the remaining portion of his excess
contributions as attributable to qualified nonelective contributions. The
Advisory Committee will reduce the amount of excess contributions for a Plan
Year distributable to a Highly Compensated Employee by the amount of excess
deferrals (as defined in Section 12.03), if any, previously distributed to
that Employee for the Employee's taxable year ending in that Plan Year.
DISTRIBUTION OF EXCESS CONTRIBUTIONS. If the Advisory Committee
determines the Plan fails to satisfy the ADP test for a Plan Year, it must
distribute the excess contributions, as adjusted for allocable income, during
the next Plan Year. However, the Employer will incur an excise tax equal to
10% of the amount of excess contributions for a Plan Year not distributed to
the appropriate Highly Compensated Employees during the first 2 1/2 months of
that next Plan Year. The excess contributions are the amount of deferral
contributions made by the Highly Compensated Employees which causes the Plan
to fail to satisfy the ADP test. The Advisory Committee will distribute to
each Highly Compensated Employee his respective share of the excess
contributions. The Advisory Committee will determine the respective shares
of excess contributions as follows:
The Advisory Committee shall first determine the dollar amount of
the reductions which would have to be made to the elective deferrals of
each Highly Compensated Employee who is a Participant for the Plan Year
in order for the average ADP of the Highly Compensated Group for the
Plan Year to satisfy Section 401(k)(3) of the Code. Such amount shall
be calculated by first determining the dollar amount by which the
deferred contributions of Highly Compensated Employees who have the
highest ADPs would have to be reduced until the first to occur of: (i)
such Employees' ADPs would equal the ADPs of the Highly Compensated
Employee or group of Highly Compensated Employees with the next highest
ADPs; or (ii) the average ADP of the Highly Compensated Group, as
recalculated after the reductions made under this Step 1, satisfies the
requirements of Section 401(k)(3) of the Code and this Section.
Then, unless the recalculated average ADP of the Highly Compensated
Group satisfies Section 401(k)(3) of the Code, the reduction process
shall be repeated by determining the amount of reductions which would
have to be made to the elective deferrals of the Highly Compensated
Employees who, after all prior reductions, would have the highest ADP
until the first to occur of: (iii) the ADP, after all prior reductions
under this Step 1, of each person in such group would equal the ADP of
the Highly Compensated Employee or group of Highly Compensated Employees
with the next highest ADP; or (iv) the average ADP of the Highly
Compensated Group, after the prior reductions, satisfies the
requirements of Code Section 401(k)(3) and this Section. This process
is repeated until the average ADP of the Highly Compensated Group, after
all reductions, satisfies the requirements of Code Section 401(k)(3) and
this Section.
Determine the total dollar amount of reductions to the elective
deferrals calculated under Step 1 ("Total Excess Deferrals").
----------------------
Reduce the elective deferrals of the Highly Compensated Employees
with the highest dollar amount of elective deferrals by the lesser of
the dollar amount which either (i) causes each such Highly Compensated
Employee's elective deferrals to equal the dollar amount of the elective
deferrals of the Highly Compensated Employee or group of Highly
Compensated Employees with the next highest dollar amount of elective
deferrals; or (ii) reduces the Highly Compensated Employees' elective
deferrals by the Total Excess Deferrals.
Then, unless the total amount of reductions made to Highly
Compensated Employees' elective deferrals under this Step 3 equals the
amount of the Total Excess Deferrals, the reduction process shall be
repeated by reducing the elective deferrals of the group of Highly
Compensated Employees with the highest dollar amount of elective
deferrals, after the prior reductions made in this Step 3, by the lesser
of the amount which either: (iii) causes such Highly Compensated
Employees' elective deferrals after prior reductions made in this Step 3
to equal the dollar amount of the elective deferrals of the Highly
Compensated Employees with the next highest dollar amount of elective
deferrals; or (iv) causes total reductions to equal the Total Excess
Deferrals. This process is repeated with each successive group of
Highly Compensated Employees with the highest dollar amount, after the
prior reductions, of elective deferrals until the total reductions made
under this Step 3 equal the Total Excess Deferrals.
A Participant's elective deferrals required to be reduced under this
Section shall be reduced in the following order: the Participant's unmatched
elective deferrals will be reduced first, and then, if necessary, matched
elective deferrals. Matching contributions made with respect to elective
deferrals so reduced (other than qualified matching contributions treated as
elective deferrals for purposes of this Section) shall be forfeited.
ALLOCABLE INCOME. To determine the amount of the corrective
distribution required under this Section 12.04, the Advisory Committee must
calculate the allocable income for the Plan Year in which the excess
contributions arose and for the "gap period" measured from the beginning of
the next Plan Year to the date of the distribution. "Allocable income" means
net income or net loss. To calculate allocable income for the Plan Year, the
Advisory Committee: (1) first will determine the net income or net loss for
the Plan Year on the Highly Compensated Employee's Accrued Benefit
attributable to deferral contributions; and (2) then will multiply this net
income or net loss by the following fraction:
Amount of the Highly Compensated Employee's excess contributions
----------------------------------------------------------------
Accrued Benefit attributable to deferral contributions
The Accrued Benefit attributable to deferral contributions includes the
Accrued Benefit attributable to qualified matching contributions and
qualified nonelective contributions taken into account in the ADP test for
the Plan Year or for any prior Plan Year. For purposes of the denominator of
the fraction, the Advisory Committee will calculate the Accrued Benefit
attributable to deferral contributions as of the last day of the Plan Year
(without regard to the net income or net loss for the Plan Year on that
Accrued Benefit).
To calculate allocable income for the "gap period," the Advisory
Committee will perform the same calculation as described in the preceding
paragraph, except in clause (1) the Advisory Committee will determine, as of
the last day of the month preceding the date of distribution, the net income
or net loss for the "gap period" and in clause (2) will calculate the Accrued
Benefit attributable to deferral contributions as of the day before the
distribution. If the Plan does not perform a valuation on the last day of
the month preceding the date of distribution, the Advisory Committee, in lieu
of the calculation described in this paragraph, will calculate allocable
income for each month in the "gap period" as equal to 10% of the allocable
income for the Plan Year. Under this alternate calculation, the Advisory
Committee will disregard the month in which the distribution occurs, if the
Plan makes the distribution no later than the 15th day of that month.
NONDISCRIMINATION RULES FOR EMPLOYER MATCHING CONTRIBUTIONS/EMPLOYEE
CONTRIBUTIONS. The Advisory Committee must determine whether the annual
Employer matching contributions (other than qualified matching contributions
used in the ADP test), if any, and the Employee contributions, if any,
satisfy one of the following average contribution percentage ("ACP") test:
The ACP for the Highly Compensated Group for such Plan Year does
not exceed 1.25 times the ACP of the Nonhighly Compensated Group for the
prior Plan Year; or
The ACP for the High Compensated Group for such Plan Year does not
exceed the ACP for the Nonhighly Compensated Group for the prior Plan
Year by more than two percentage points (or the lesser percentage
permitted by the multiple use limitation in Section 12.06) and the ACP
for the Highly Compensated Group for such Plan Year is not more than
twice the ACP for the Nonhighly Compensated Group for the prior Plan
Year.
If the Advisory Committee so elects, it may apply the limits set forth
in paragraphs (i) and (ii) of this Section by using the Average ACP of the
Nonhighly Compensated Group for the Plan Year for which the determination is
made rather than for the preceding Plan Year; provided that such election may
not be changed except as provided by the Secretary of the Treasury.
(A) CALCULATION OF ACP. The average contribution percentage for a
group is the average of the separate contribution percentages calculated for
each Eligible Employee who is a member of that group. An Eligible Employee's
contribution percentage for a Plan Year is the ratio of the Eligible
Employee's aggregate contributions for the Plan Year to the Employee's
Compensation for the Plan Year. "Aggregate contributions" are matching
contributions (other than qualified matching contributions used in the ADP
test) and employee contributions.
The Advisory Committee, in a manner consistent with Treasury
regulations, may determine the contribution percentages of the Eligible
Employees by taking into account qualified nonelective contributions (other
than qualified nonelective contributions used in the ADP test under Section
12.04) or elective deferrals, or both, made to this Plan or to any other
qualified Plan maintained by the Employer. The Advisory Committee may not
include qualified nonelective contributions in the ACP test unless the
allocation of nonelective contributions is nondiscriminatory when the
Advisory Committee takes into account all nonelective contributions
(including the qualified nonelective contributions) and also when the
Advisory Committee takes into account only the nonelective contributions not
used in either the ADP test described in Section 12.04 or the ACP test
described in Section 12.05 The Advisory Committee may not include elective
deferrals in the ACP test, unless the Plan which includes the elective
deferrals satisfies the ADP test both with and without the elective deferrals
included in this ACP test. For Plan Years beginning after December 31, 1989,
the Advisory Committee may not include in the ACP test any qualified
nonelective contributions or elective deferrals under another qualified plan
unless that plan has the same plan year as this Plan. The Advisory Committee
must maintain records to demonstrate compliance with the ACP Test, including
the extent to which the Plan used qualified nonelective contributions or
elective deferrals to satisfy the test.
SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To determine
the contribution percentage of any Highly Compensated Employee, the
aggregate contributions taken into account must include any matching
contributions (other than qualified matching contributions used in the ADP
test) and any employee contributions made on his behalf to any other plan
maintained by the Employer, unless the other plan is an ESOP. If the plans
have different plan years, the Advisory Committee will determine the combined
aggregate contributions on the basis of the plan years ending in the same
calendar year.
AGGREGATION OF CERTAIN PLANS. If the Employer treats two plans a unit
for coverage or nondiscrimination purposes, the Employer must combine the
plans to determine whether either plan satisfies the ACP test. This
aggregation rule applies to the contribution percentage determination for all
Eligible Employees, irrespective of whether an Eligible Employee is a Highly
Compensated Employee or a Nonhighly Compensated Employee. For Plan Years
beginning after December 31, 1989, an aggregation of plans under this
paragraph does not apply to plans which have different plan years and the
Advisory Committee may not aggregate an ESOP (or the ESOP portion of a plan)
with a non-ESOP plan (or non-ESOP portion of plan).
DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will determine excess aggregate contributions after determining excess
deferrals under Section 12.03 and excess contributions under Section 12.04.
If the Advisory Committee determines the Plan fails to satisfy the ACP test
for a Plan Year, it must distribute the excess aggregate contributions, as
adjusted for allocable income, during the next Plan Year. However, the
Employer will incur an excise tax equal to 10% of the amount of excess
aggregate contributions for a Plan Year not distributed to the appropriate
Highly Compensated Employees during the first 2 1/2 months of that next Plan
Year. The excess aggregate contributions are the amount of aggregate
contributions made by the Highly Compensated Employees which causes the Plan
to fail to satisfy the ACP test. The Advisory Committee will distribute to
each Highly Compensated Employee his respective share of the excess aggregate
contributions. The Advisory Committee will determine the respective shares
of excess aggregate contributions as follows:
The Advisory Committee shall first determine the dollar amount of
the reductions which would have to be made to the aggregate
contributions of each Highly Compensated Employee who is a Participant
for the Plan Year in order for the average ACP of the Highly Compensated
Group for the Plan Year to satisfy Section 401(m) of the Code. Such
amount shall be calculated by first determining the dollar amount by
which the aggregate contributions of Highly Compensated Employees who
have the highest ACPs would have to be reduced until the first to occur
of: (i) such Employees' ACPs would equal the ACPs of the Highly
Compensated Employee or group of Highly Compensated Employees with the
next highest ACPs; or (ii) the average ACP of the Highly Compensated
Group, as recalculated after the reductions made under this Step 1,
satisfies the requirements of Section 401(m) of the Code and this
Section.
Then, unless the recalculated average ACP of the Highly Compensated
Group satisfies Section 401(m) of the Code, the reduction process shall
be repeated by determining the amount of reductions which would have to
be made to the aggregate contributions of the Highly Compensated
Employees who, after all prior reductions, would have the highest ACP
until the first to occur of: (iii) the ACP, after all prior reductions
under this Step 1, of each person in such group would equal the ACP of
the Highly Compensated Employee or group of Highly Compensated Employees
with the next highest ACP; or (iv) the average ACP of the Highly
Compensated Group, after the prior reductions, satisfies the
requirements of Code Section 401(m) and this Section. This process is
repeated until the average ACP of the Highly Compensated Group, after
all reductions, satisfies the requirements of Code Section 401(m) and
this Section.
Determine the total dollar amount of reductions to the aggregate
contributions calculated under Step 1 ("Total Excess Contributions").
--------------------------
Reduce the aggregate contributions of the Highly Compensated
Employees with the highest dollar amount of aggregate contributions by
the lesser of the dollar amount which either (i) causes each such Highly
Compensated Employee's aggregate contributions to equal the dollar
amount of the aggregate contributions of the Highly Compensated Employee
or group of Highly Compensated Employees with the next highest dollar
amount of aggregate contributions; or (ii) reduces the Highly
Compensated Employees' aggregate contributions by the Total Excess
Contributions.
Then, unless the total amount of reductions made to Highly
Compensated Employees' aggregate contributions under this Step 3 equals
the amount of the Total Excess Contributions, the reduction process
shall be repeated by reducing the aggregate contributions of the group
of Highly Compensated Employees with the highest dollar amount of
aggregate contributions, after the prior reductions made in this Step 3,
by the lesser of the amount which either: (iii) causes such Highly
Compensated Employees' aggregate contributions after prior reductions
made in this Step 3 to equal the dollar amount of the aggregate
contributions of the Highly Compensated Employees with the next highest
dollar amount of aggregate contributions; or (iv) causes total
reductions to equal the Total Excess Deferrals. This process is
repeated with each successive group of Highly Compensated Employees with
the highest dollar amount, after the prior reductions, of aggregate
contributions until the total reductions made under this Step 3 equal
the Total Excess Contributions.
ALLOCABLE INCOME. To determine the amount of the corrective
distribution required under this Section 12.05, the Advisory Committee must
calculate the allocable income for the Plan Year in which the excess
aggregate contributions arose. "Allocable income" means net income or net
loss. The Advisory Committee will determine allocable income in the same
manner as described in Senior 12.04(F) for excess contributions.
CHARACTERIZATION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory
Committee will treat a Highly Compensated Employee's allocable share of
excess aggregate contributions in the following priority: (1) first as
attributable to his employee contributions which are voluntary contributions,
it any; (2) then as matching contributions allocable with respect to excess
contributions determined under the ADP test; (3) then on a pro rata basis to
matching contributions and to the deferral contributions relating to those
matching contributions which the Advisory Committee has included in the ACP
test; (4) then on a pro rata basis to employee contributions which are
mandatory contributions; and (5) last to qualified nonelective contributions
used in the ACP test. To the extent the Highly Compensated Employee's excess
aggregate contributions are attributable to matching contributions and he is
not 100% vested in his Accrued Benefit attributable to matching
contributions, the Advisory Committee will distribute only the vested portion
and forfeit the nonvested portion. The vested portion of the Highly
Compensated Employee's excess aggregate contributions attributable to
Employer matching contributions is the total amount of such excess aggregate
contributions (as adjusted for allocable income) multiplied by his vested
percentage (determined as of the last day of the Plan Year for which the
Employer made the matching contribution). The Plan will allocate forfeited
excess aggregate contributions to reduce Employer matching contributions for
the Plan Year in which the forfeiture occurs.
MULTIPLE USE LIMITATION. If at least one Highly Compensated Employee is
includible in the ADP test and in the ACP test, the sum of the Highly
Compensated Group's ADP and ACP may not exceed the multiple use limitation.
The multiple use limitation for a Plan Year is the sum of (i) and (ii):
125% of the greater of (a) the ADP of the Nonhighly Compensated
Group for the prior Plan Year under the Code Section 401(k) arrangement;
or (b) the ACP of the Nonhighly Compensated Group for the prior Plan
Year.
2% plus the lesser of (i)(a) or (i)(b), but not more than twice the
lesser of (i)(a) or (i)(b).
The Advisory Committee, in lieu of determining the multiple use
limitation as the sum (i) and (ii), may elect to determine the multiple
use limitation as the sum of (iii) and (iv):
125% of the lesser of: (a) the ADP of the Nonhighly Compensated
Group under the Code Section 401(k) arrangement for the prior Plan Year;
or (b) the ACP of the Nonhighly Compensated Group for the prior Plan
Year.
2% plus the greater of (iii)(a) or (iii)(b), but no more than twice
the greater of (iii)(a) or (iii)(b).
If the Advisory Committee so elects, it may apply the limits set forth
in paragraphs (i) and (ii) or (iii) and (iv) of this Section by using the
Average ADP and ACP of the Nonhighly Compensated Group for the Plan Year for
which the determination is made rather than for the preceding Plan Year;
provided that such election may not be changed except as provided by the
Secretary of the Treasury.
This Section 12.06 does not apply unless, prior to application of the
multiple use limitation, the ADP and ACP of the Highly Compensated Group for
the current Plan Year each exceeds 125% of the respective percentages for the
Nonhighly Compensated Group for the prior Plan Year (or, if the Advisory
Committee has made the election described in the previous paragraph, the
current Plan Year).
The Advisory Committee will determine whether the Plan satisfies the
multiple use limitation after applying the ADP test under Section 12.04 and
the ACP test under Section 12.05 and after making any corrective
distributions required by those Sections. If, after applying this Section
12.06, the Advisory Committee determines the Plan has failed to satisfy the
multiple use limitation, the Advisory Committee will correct the failure by
treating the excess amount as excess aggregate contributions under Section
12.05.
MISCELLANEOUS
EVIDENCE. Anyone required to give evidence under the terms of the Plan
may do so by certificate, affidavit, document or other information which the
person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. Both
the Advisory Committee and the Trustee are fully protected in acting and
relying upon any evidence described under the immediately preceding sentence.
NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor the
Advisory Committee has any obligation or responsibility with respect to any
action required by the Plan to be taken by an Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or
make any payment or contribution, or to otherwise provide any benefit
contemplated under this Plan. Furthermore, the Plan does not require the
Trustee or the Advisory Committee to collect any contribution required under
the Plan, or to determine the correctness of the amount of any Employer
contribution. Neither the Trustee nor the Advisory Committee need inquire
into or be responsible for any action or failure to act on the part of the
others. Any action required of Stilwell Financial, Inc. must be by its Board
of Directors, the Compensation and Organization Committee of such Board, or
the designees of such Board or Committee. Any action required of any other
corporate Employer must be by its Board of Directors or its designees.
FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee, the Plan
Administrator and the Employer in no way guarantee the Trust Fund from loss
or depreciation. The Employer does not guarantee the payment of any money
which may be or becomes due to any person from the Trust Fund. The liability
of the Advisory Committee and the Trustee to make any payment from the Trust
Fund at any time and all times is limited to the then available assets of the
Trust.
WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice.
SUCCESSORS. The Plan is binding upon all persons entitled to benefits
under the Plan, their respective heirs and legal representatives, upon the
Employer, its successors and assigns, and upon the Trustee and the Advisory
Committee and their successors.
WORD USAGE. Words used in the masculine also apply to the feminine
where applicable, and wherever the context of the Plan dictates, the plural
includes the singular and the singular includes the plural.
STATE LAW. Missouri law will determine all questions arising with
respect to the provisions of this Plan except to the extent Federal law
supersedes Missouri law.
EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with
respect to the establishment of the Trust, or any modification or amendment
to the Plan or Trust, or in the creation of any Account, or the payment of
any benefit, gives any Employee, Employee-Participant or any Beneficiary any
right to continue employment, any legal or equitable right against the
Employer, or Employee of the Employer, or against the Trustee, or its agents
or employees, or against the Plan Administrator, except as expressly provided
by the Plan, the Trust, ERISA or by a separate agreement.
[RESERVED]
PARTICIPANT'S ACCOUNTS AND THEIR INVESTMENT
INDIVIDUAL ACCOUNTS. The Advisory Committee shall maintain, or direct
the Trustee to maintain, a separate Account, or multiple Accounts, in the
name of each Participant to reflect the Participant's Accrued Benefit under
the Plan. Such Accounts shall include, but not be limited to, a Deferral
Contributions Account, a Qualified Nonelective Contributions Account, a
Matching Contributions Account, a Qualified Matching Contributions Account, a
Savings Contributions Account and, if applicable, a Profit Sharing
Contributions Account. Furthermore, if a Participant reenters the Plan
subsequent to his having a Forfeiture Break in Service, the Advisory
Committee, or the Trustee, shall maintain a separate Account for the
Participant's pre-Forfeiture Break in Service Accrued Benefit and a separate
Account for his post-Forfeiture Break in Service Accrued Benefit unless the
Participant's entire Accrued Benefit under the Plan is one hundred percent
(100%) Nonforfeitable. The Advisory Committee will make its allocations, or
request the Trustee to make its allocations, to the Accounts of the
Participants in accordance with the provisions of Section 15.05. The
Advisory Committee may direct the Trustee to maintain a temporary segregated
investment Account in the name of a Participant to prevent a distortion of
income, gain or loss allocations under Section 15.05. The Advisory Committee
shall maintain records of its activities.
A Participant's Accrued Benefit shall be segregated for separate
investment when and as so expressly provided under the Plan. Except where
the Plan expressly provides for such segregation, Participants' Accrued
Benefits shall be invested collectively.
INVESTMENT OF ACCOUNTS.
DIRECTED ACCOUNTS. Each Participant's Accounts other than his
Profit Sharing Contributions Account (the "Directed Accounts"), shall be
invested, in accordance with the individual election of the Participant,
in one or more investment vehicles designated by the Advisory Committee,
including designated pooled investment funds.
PROFIT SHARING CONTRIBUTIONS ACCOUNT. Each Participant's Profit
Sharing Contributions Account, if any, shall be invested as part of a
fund (the "Profit Sharing Trust Fund") managed by an Investment Manager
designated by the Advisory Committee.
PARTICIPANT DIRECTED ACCOUNTS - INVESTMENT PERCENTAGES. The Advisory
Committee from time to time shall establish procedures by which each
Participant may specify the percentage of his Directed Accounts, and the
percentage of future contributions to be made on his behalf, to be invested
in each of the available investment vehicles for Directed Accounts. The
investment percentage for each investment vehicle selected by the Participant
must be a multiple of 1%. The Participant's investment direction shall
remain in effect unless and until the Participant replaces the direction in
accordance with the established procedures. Contributions and Directed
Accounts with respect to which no affirmative Participant investment
direction has been made shall be invested in an investment vehicle selected
by the Advisory Committee and having as its primary objective the generation
of a high level of current income consistent with the preservation of capital
and a high degree of liquidity. The Trustee shall be responsible for
carrying out Participant investment direction.
VALUATION OF PARTICIPANTS' ACCRUED BENEFITS.
-------------------------------------------
DIRECTED ACCOUNTS. The value of each Participant's Accrued Benefit
attributable to his Directed Accounts shall consist of the value of such
Participant's Directed Account(s), including any segregated account
hereunder. For purposes of a distribution under the Plan, the value of
a Participant's Accrued Benefit attributable to his Directed Accounts
shall be its value as of the valuation date immediately preceding the
date of the distribution.
PROFIT SHARING CONTRIBUTIONS ACCOUNT. The value of each
Participant's Accrued Benefit attributable to his Profit Sharing
Contributions Account consists of that proportion of the net worth (at
fair market value) of the Profit Sharing Trust Fund which the net credit
balance in his Profit Sharing Contributions Account bears to the total
net credit balance in the Profit Sharing Contributions Accounts of all
Participants. For purposes of a distribution under the Plan, the value
of a Participant's Accrued Benefit attributable to his Profit Sharing
Contributions Account is its value as of the valuation date immediately
preceding the date of the distribution. Any distribution (other than a
distribution from a segregated Account) made to a Participant (or to his
Beneficiary) from his Profit Sharing Contributions Account more than 90
days after the most recent valuation date will include interest on the
amount of the distribution as an expense of the Trust Fund. The
interest accrues from such valuation date to the date of the
distribution at the rate of 5% per annum.
ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A "valuation
date" under this Plan is the last day of each calendar month and each interim
valuation date determined by the Sponsor. As of each valuation date the
Advisory Committee must adjust Accounts to reflect net income, gain or loss
since the last valuation date. The valuation period is the period beginning
the day after the last valuation date and ending on the current valuation
date.
TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply
to all Participants' Accounts other than segregated investment Accounts. The
Advisory Committee first will adjust the Participant Accounts, as those
Accounts stood at the beginning of the current valuation period, by reducing
the Accounts for any forfeitures arising under Section 5.09 or under
Section 9.12, for amounts charged during the valuation period to the Accounts
in accordance with Section 9.11 (relating to distributions) and for the
amount of any Account which the Trustee has fully distributed since the
immediately preceding valuation date. The Advisory Committee then, subject
to the restoration allocation requirements of Section 5.04 or of
Section 9.12, will allocate the net income, gain or loss for the current
valuation period for each of the Plan's investment vehicles (as specified by
the Advisory Committee pursuant to Section 15.02) pro rata to the
Participants having accounts in each respective investment vehicle as the
accounts stood at the beginning of the valuation period. Separate
allocations and adjustments shall be made with respect to each investment
vehicle. For each investment vehicle the allocable net income, gain or loss
is the net income (or net loss), including the increase or decrease in the
fair market value of assets, since the last valuation date.
SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account
receives all income it earns and bears all expenses or loss it incurs. As of
the valuation date, the Advisory Committee must reduce a segregated Account
for any forfeiture arising under Section 5.09 after the Advisory Committee
has made all other allocations, changes or adjustments to the Account for the
Plan Year.
ADDITIONAL RULES. An Excess Amount or suspense account described in
Part 2 of Article III does not share in the allocation of net income, gain or
loss described in this Section 15.05. This Section 15.05 applies solely to
the allocation of net income, gain or loss of the Trust. The Advisory
Committee will allocate the Employer contributions and Participant
forfeitures, if any, in accordance with Article III.
PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL
DEFINITIONS OF "CHANGE IN CONTROL". For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if:
for any reason at any time less than seventy-five percent (75%) of
the members of the Board of Directors of Stilwell Financial, Inc., a
Delaware corporation ("Stilwell"), shall be individuals who fall into
any of the following categories: (A) individuals who were members of
such Board on the Spinoff Date; (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 Board
then still in office who were members of such Board on the Spinoff Date;
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 Board then still in office who were
elected in the manner described in (A) or (B) above, or
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 after the Spinoff Date, according to a public announcement or
filing, without the prior approval of the Board of Directors of
Stilwell, the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Stilwell
representing forty percent (40%) or more (calculated in accordance with
Rule 13d-3) of the combined voting power of Stilwell's, then outstanding
voting securities (such "person" hereinafter referred to as a "Major
Stockholder of Stilwell"); or
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, or a
Major Stockholder of Stilwell shall have proposed any such transaction,
unless such merger, consolidation, dissolution, sale, lease, exchange or
disposition shall have been approved by at least seventy-five percent
(75%) of the members of the Board of Directors of Stilwell who are
individuals falling into any combination of the following categories:
(i) individuals who were members of such Board of Directors on the
Spinoff Date, (ii) individuals whose election, or nomination for
election by Stilwell's stockholders, was approved by at least seventy
-five percent (75%) of the members of the Board of Directors then still
in office who are members of the Board of Directors on the Spinoff Date,
or (iii) 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 Board then still in office who were
elected in the manner described in (i) or (ii) above.
PROVISIONS EFFECTIVE UPON CHANGE IN CONTROL. Upon a Change in Control
as defined in Section 16.01, notwithstanding what is otherwise provided in
this Plan, the following provisions will supersede the indicated sections and
otherwise govern the operation of the Plan from that point forward:
"Section 5.03, Vesting Schedule" shall provide as follows:
5.30 VESTING SCHEDULE. A Participant's Accrued Benefit
derived from Employer contributions shall be one hundred percent
(100%) Nonforfeitable at all times.
A new section numbered "8.10" and entitled "Participant Direction
of Investment" shall be added to provide as follows:
8.10 PARTICIPANT DIRECTION OF INVESTMENT. A Participant
shall have the right to direct the Trustee with respect to the
investment of reinvestment of the assets comprising the
Participant's individual Account only if the Trustee consents
in writing to permit such direction. If the Trustee does
consent to Participant direction of investment, the Trustee
and each Participant shall execute a letter agreement as a
part of this Plan containing such conditions, limitations and
other provisions they deem appropriate before the Trustee
shall follow any Participant direction as respects the
investment or reinvestment of any part of the Participant's
individual Account. The Trustee shall not be liable for any
loss, or by reason of any breach, resulting from a
Participant's direction of the investment of any part of his
individual Account.
Except for the right to amend the Plan pursuant to
Section 11.02(a), the Sponsor shall not exercise its right to amend
pursuant to Section 11.02(b), discontinue or terminate pursuant to
Section 11.03, or transfer assets of or merge, pursuant to
Section 11.05, the Plan without the prior written consent to such
aforesaid action by seventy-five percent (75%) of the Participants on a
per capita basis.
RIGHT TO AMEND ARTICLE XVI PRIOR TO CHANGE IN CONTROL. The Board of
Directors of Stilwell, or any duly authorized committee thereof, reserves the
right to amend or eliminate this Article XVI prior to the date of a Change in
Control.
IN WITNESS WHEREOF, Stilwell Financial, Inc. has executed this Plan in
Kansas City, Missouri as of this ____ day of ______________, 2000.
STILWELL FINANCIAL, INC.
By:______________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM Balance Sheets at December 31,
1999; Statements of operations for
the twelve months ended December 31,
1999; the Statements of Cash Flows
for twelve months ended December 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
AND THE NOTES THERETO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 324,100,000
<SECURITIES> 0
<RECEIVABLES> 157,700,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 525,000,000
<PP&E> 115,700,000
<DEPRECIATION> 45,300,000
<TOTAL-ASSETS> 1,231,500,000
<CURRENT-LIABILITIES> 162,500,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 814,600,000
<TOTAL-LIABILITY-AND-EQUITY> 1,231,500,000
<SALES> 0
<TOTAL-REVENUES> 1,212,300,000
<CGS> 0
<TOTAL-COSTS> 694,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,900,000
<INCOME-PRETAX> 586,500,000
<INCOME-TAX> 216,100,000
<INCOME-CONTINUING> 313,100,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313,100,000
<EPS-BASIC> 313,100
<EPS-DILUTED> 308,300
</TABLE>
PRELIMINARY COPY
SUBJECT TO COMPLETION OR AMENDMENT, DATED APRIL 28 2000 PRIVATE
INFORMATION STATEMENT
STILWELL FINANCIAL, INC.
Common Stock, par value $.01 per share
This information statement is being furnished by Kansas City Southern
Industries, Inc., a Delaware corporation ("KCSI"), in connection with the
distribution to holders of record of common stock of KCSI, on [________], 2000
of TWO SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, INCLUDING CERTAIN
ATTACHED PREFERRED STOCK PURCHASE RIGHTS OF STILWELL FIANCIAL, INC., A DELAWARE
CORPORATION ("STILWELL"), FOR EVERY ONE SHARE OF KCSI COMMON STOCK OUTSTANDING
ON THE RECORD DATE. 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. KCSI HAS RECEIVED A TAX RULING FROM THE INTERNAL
REVENUE SERVICE TO THE EFFECT THAT NO GAIN OR LOSS, FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES, WILL BE RECOGNIZED BY HOLDERS OF KCSI COMMON STOCK UPON
RECEIPT OF THE STILWELL COMMON STOCK IN THIS DISTRIBUTION.
Stilwell was formed by KCSI as a holding company for the group of
businesses and investments that comprise the financial services segment of
KCSI. Stilwell's principal subsidiary is Janus Capital Corporation, an
investment advisory company, which represented approximately 95% of the
revenues and approximately 91% of the net income of KCSI's financial services
segment for the year ended December 31, 1999. The following table presents
summary financial information for KCSI (excluding Stilwell) and Stilwell as of,
and for the year ended December 31, 1999.
STOCKHOLDERS' OPERATING NET
EQUITY ASSETS REVENUES INCOME INCOME
------------ ------ -------- --------- ------
(In Millions)
KCSI $ 468.5 $ 1,857.4 $ 601.4 $ 64.1 $ 10.2
Stilwell 814.6 1,231.5 1,212.3 518.3 313.1
-----------------------------------------------------------------
Total $ 1,283.1 $ 3,088.9 $ 1,813.7 $ 582.4 $ 323.3
=================================================================
Recently, there have been STRAINED RELATIONS BETWEEN STILWELL AND JANUS as
a result of a disagreement over whether there should be a separate spin-off of
Janus. See "Summary-Overview of Stilwell's Business and Strategy." Stillwell
does not believe that this disagreement will cause any key employees of Janus
to resign, but these employees are not subject to any noncompete agreements
that would preclude them from participating in a competing financial services
business. See "Risk Factors-Continuation of Strained Relations Between
Stilwell and Janus Management Could Have a Material Adverse Effect on
Stilwell." Stilwell may be required under certain agreements containing
mandatory put rights to purchase the interests in Janus owned by certain
minority stockholders at any time at the option of those holders at a fair
market value purchase price equal to fifteen times the net after-tax earnings
per share of Janus over the period indicated in the relevant agreement, or in
some circumstances as determined by an independent appraisal. IF STILWELL HAD
BEEN REQUIRED TO MAKE SUCH PURCHASE BASED ON THE VALUE OF THE STOCK AT A
FIFTEEN TIMES MULTIPLE AS OF MARCH 31, 2000, IT WOULD HAVE BEEN REQUIRED TO PAY
APPROXIMATELY $833 MILLION. Stilwell is also required under such agreements
and certain other agreements to purchase the interests in Janus owned by such
minority stockholders and other minority stockholders at the option of those
holders upon the occurrence of certain changes in ownership of KCSI or Stilwell
at a fair market value purchase price equal to fifteen times the net after-tax
earnings per share of Janus over the period indicated in the relevant agreement
or as otherwise negotiated between the parties or determined by Janus' Stock
Option Committee. IF STILWELL WERE REQUIRED TO MAKE SUCH PURCHASE BASED ON THE
VALUE OF THE STOCK AT A FIFTEEN TIMES MULTIPLE AS OF MARCH 31, 2000, IT WOULD
HAVE BEEN REQUIRED TO PAY APPROXIMATELY $1.14 BILLION (reduced by the amount
paid upon exercise of any mandatory put rights). As of March 31, 2000,
Stilwell had $200 million in credit facilities available, owned securities
with a market value in excess of $1.3 billion and had cash balances at the
Stilwell holding company level in excess of $148 million. To the extent that
these resources were insufficient to fund its purchase obligations, Stilwell
had access to the capital markets and, with respect to most of the shares to
be purchased, had 120 days to raise additional sums. See "Risk Factors-
Stilwell May Be Required to Purchase or Sell Janus Common Stock" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Minority Purchase Agreements."
The distribution of Stilwell common stock will be effective on [________,
2000], and it is expected that certificates representing Stilwell common stock
will be mailed within [____] days following the such 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."]
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER
THE MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" WHICH BEGINS ON
PAGE 18.
____________________
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 [___________], 2000.
<PAGE>
TABLE OF CONTENTS
Page
- ----
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Overview of the Distribution . . . . . . . . . . . . . . . . . . . . . 6
Overview of Stilwell's Business and Strategy . . . . . . . . . . . . . 11
Summary Financial and Operating Data . . . . . . . . . . . . . . . . . 16
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Background and Reasons for the Distribution. . . . . . . . . . . . . . 32
Manner of Effecting the Distribution . . . . . . . . . . . . . . . . . 36
Results of the Distribution. . . . . . . . . . . . . . . . . . . . . . 37
Differences in Rights of Stockholders Arising from Differences
Between the Certificates and Bylaws of Stilwell and KCSI. . . . . 37
Material Federal Income Tax Consequences . . . . . . . . . . . . . . . 38
Trading of Stilwell Common Stock . . . . . . . . . . . . . . . . . . . 40
Modification or Abandonment of the Distribution. . . . . . . . . . . . 41
Solvency and Surplus Opinion of Financial Advisor. . . . . . . . . . . 41
RELATIONSHIP BETWEEN KCSI AND STILWELL AFTER THE DISTRIBUTION . . . . . . 46
Intercompany Agreement . . . . . . . . . . . . . . . . . . . . . . . . 46
Tax Disaffiliation Agreement . . . . . . . . . . . . . . . . . . . . . 46
Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Description of the Credit Facilities . . . . . . . . . . . . . . . . 50
Need for Additional Financing. . . . . . . . . . . . . . . . . . . . . 51
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SELECTED FINANCIAL AND OPERATING DATA . . . . . . . . . . . . . . . . . . 54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . 57
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Stilwell Financial, Inc. . . . . . . . . . . . . . . . . . . . . . . . 85
Stilwell's Principal Subsidiaries and Equity Investments . . . . . . . 86
Janus Capital Corporation . . . . . . . . . . . . . . . . . . . 86
Berger LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Nelson Money Managers Plc . . . . . . . . . . . . . . . .. . . 101
DST Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . 102
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Stilwell Holding Company . . . . . . . . . . . . . . . . . . . . . . . 104
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Stilwell Business Strategy . . . . . . . . . . . . . . . . . . . . . . 104
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . 108
Composition of Stilwell's Board of Directors . . . . . . . . . . . . . 110
Committees of Stilwell's Board of Directors. . . . . . . . . . . . . . 110
Compensation of Stilwell's Directors . . . . . . . . . . . . . . . . . 111
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 111
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . 112
1999 Option/SAR Grants In Last Fiscal Year . . . . . . . . . . . . . . 115
1999 Aggregate Option Exercises and Year-End Option
Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Employment Agreements with the Named Executive Officers. . . . . . . . 117
Indemnification Agreements . . . . . . . . . . . . . . . . . . . . . . 120
Other Compensatory Plans and Arrangements. . . . . . . . . . . . . . . 121
PRINCIPAL STOCKHOLDERS AND STOCK OWNED BENEFICIALLY
BY STILWELL'S DIRECTORS AND CERTAIN EXECUTIVE OFFICERS. . . . . . . . . 125
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . 127
DESCRIPTION OF CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . 128
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Certain Antitakeover Effects . . . . . . . . . . . . . . . . . . . . . 129
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 134
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS INFORMATION STATEMENT (THE "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.
OVERVIEW OF THE DISTRIBUTION
Corporation Making the Kansas City Southern Industries, Inc., a
Distribution Delaware corporation.
Corporation and Business
Being Distributed Stilwell Financial, Inc., a Delaware corporation
and wholly-owned subsidiary of KCSI. Stilwell is
a holding company for the group of businesses
and investments that comprise the KCSI financial
services segment. These businesses, the most
significant of which is Janus Capital
Corporation ("Janus"), offer a variety of asset
management and related financial services to
registered investment companies, retail
investors, institutions and individuals. See
"Business."
Business to be Retained
By KCSI Rail transportation. Through its principal
subsidiaries and joint ventures, KCSI owns and
operates a rail network of approximately 6,000
miles of main and branch lines that link the key
commercial and industrial markets of the United
States and Mexico and, through a joint venture,
is participating in the rebuilding and operation
of the trans-isthmus railroad in Panama.
Primary Purpose of the
Distribution Separation of the financial services business,
to be owned solely by Stilwell, from the rail
transportation business, to be owned solely by
KCSI. The Distribution will allow each company
to (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."
Number of Shares of Two shares of common stock, par value $.01 per
Stilwell Common Stock share, including certain attached preferred
To Be Received by Each stock purchase rights (collectively, the
KCSI Stockholder "Stilwell Common Stock"), for every one share of
KCSI common stock ("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 to receive
Stilwell Common Stock. See "The Distribution-
Manner of Effecting the Distribution" and
"Description of Capital Stock-Stockholders'
Rights Plan."
Total Number of Shares to Will depend on the number of shares of KCSI
be Distributed Common Stock outstanding on the Record Date.
Based on the number of shares of KCSI Common
Stock outstanding as of March 31, 2000,
approximately 222,800,000 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.
KCSI's Board's Power The Distribution may be amended, modified
to Modify or Abandon 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 Shares No fractional shares of Stilwell Common Stock
will be distributed in the Distribution. See
"The Distribution-Manner of Effecting the
Distribution."
No Established Trading There has been no established trading market for
Market for Stilwell Stilwell Common Stock, although a "when-issued"
Common Stock 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."] See "The
Distribution-Trading of Stilwell Common Stock."
Interests of Stilwell Stilwell officers and directors who own
Officers and Directors shares of KCSI Common Stock on the Record Date
in the Distribution will receive shares of Stilwell common stock in
the same proportion as other KCSI stockholders
in the Distribution. Stilwell officers and
directors will also receive New Stilwell
Options (defined herein) for each KCSI non-
qualified stock option held on the record
date, in the same 2 to 1 proportion. See
"Relationship Between KCSI and Stilwell After
the Distribution - Employee Benefits." In
addition, Stilwell has entered into employment
agreements with certain of its officers. See
"Management - Employment Agreements with the
Named Executive Officers."
Record Date Close of business on [______] (the "Record
Date").
Distribution Date Certificates representing the shares of Stilwell
Common Stock will be delivered to the
Distribution Agent on [__________] (the
"Distribution Date") and the Distribution will be
effective on that date.
Date Certificates are to Certificates representing the shares of Stilwell
Be Mailed 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 Ruling Indicates KCSI has received a tax ruling (the "Tax
Distribution Will Be Ruling") from the Internal Revenue Service (the
Tax-Free "IRS") that states that for United States
federal income tax purposes, no gain
or loss will be recognized by KCSI
from the Distribution or by the holders of KCSI
Common Stock upon receipt of the Stilwell Common
Stock in the Distribution. See "The
Distribution-Material Federal Income Tax
Consequences."
KCSI and Stilwell Following the Distribution, KCSI and Stilwell
to be Operated as will be operated separately as independent
Separate Companies companies. They will continue to have a
limited relationship, including a common
director, during a transitional period.
See "The Distribution-Results of the
Distribution," "Relationship Between KCSI and
Stilwell After the Distribution," and "Certain
Relationships and Related Transactions."
Stilwell Anticipates To date, Stilwell has not declared or paid any
Paying Cash Dividends dividends on the Stilwell Common Stock, but
anticipates paying cash dividends following the
Distribution. The payment of dividends by
Stilwell is subject to the discretion of its
Board of Directors, and various factors may
prevent it from paying dividends. These factors
include 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 may consider relevant. As a
holding company, Stilwell's ability to pay
dividends is dependent on the dividends and
income it receives from its subsidiaries. At
the present time Stilwell's primary source of
cash is dividends received from Janus. Janus
represented approximately 95% of Stilwell's
revenues and approximately 91% of Stilwell's
net income for the year ended December 31,
1999 and for that year Stilwell received
$173.2 million in dividends from Janus. The
payment of dividends by Janus is subject to the
discretion of its Board of Directors.
Although Stilwell has a contractual obligation
to cause such payment, Thomas H. Bailey, the
Chief Executive Officer of Janus, has the
right to nominate a majority of that Board,
subject to certain conditions, and such
majority of directors may determine in
their discretion that Janus will not pay
dividends for any given year. See
"Risk Factors-Various Factors May Hinder the
Declaration and Payment of Dividends by Stilwell
Following the Distribution," "Dividend Policy,"
"Management's Discussion and Analysis of
Financial Condition and Results of Operations"
and Note 15 to the Stilwell consolidated
financial statements.
Risk Factors To Be Stockholders should carefully review the
Considered matters discussed in the section entitled "Risk
Factors" for a discussion of matters that should
be considered in owning Stilwell Common Stock.
Provisions Which May Have Provisions of Stilwell's certificate of
Antitakeover Effects incorporation and bylaws, certain agreements,
Stilwell's Stockholders' Rights Plan and
provisions of the Delaware General
Corporation Law and the Internal Revenue Code of
1986, as amended (the "Code"), may have the
effect of delaying, deterring or preventing a
change in control of Stilwell. See "Risk
Factors," "The Distribution-Material Federal
Income Tax Consequences" and "Description of
Capital Stock."
* * *
<PAGE>
OVERVIEW OF STILWELL'S BUSINESS AND STRATEGY
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 81.5% owned
subsidiary; Stilwell Management, Inc. ("SMI," formerly Berger Associates,
Inc.), a wholly-owned subsidiary; Berger LLC ("Berger"), of which SMI
owns 100% of Berger preferred limited liability company interests and
approximately 86% of the Berger regular limited liability company
interests; Nelson Money Managers Plc ("Nelson"), an 80% owned subsidiary;
DST Systems, Inc. ("DST"), an equity investment in which SMI 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 97% of assets under management at December 31, 1999 and 95%
of revenues and 91% of net income for the year ended December 31, 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 and
determined that the Distribution was the best way to accomplish a
separation of the two businesses. KCSI formed Stilwell as a holding
company for the group of businesses and investments that comprise KCSI's
financial services segment. In connection with the Distribution, KCSI
transferred to Stilwell KCSI's ownership interests 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.
Consistent with the prior philosophy of KCSI, Stilwell expects to
encourage autonomy by its subsidiaries in the operation of their
businesses. Stilwell has agreed that the management of Janus will
continue to operate the business of Janus of providing investment
advice and management services on the basis provided in a stock
purchase agreement with Thomas H. Bailey ("Mr. Bailey"), the Chief
Executive Officer of Janus, and another Janus stockholder (the "Janus
Stock Purchase Agreement"). Stilwell has agreed that Mr. Bailey will
continue to establish and implement policy with respect to the
investment advisory and portfolio management activity of Janus, and to
nominate a majority of the directors of Janus, on the basis provided in
that agreement. See Stilwell Financial, Inc., "Stilwell Business
Strategy" and "Business - Stilwell Business Strategy."
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, 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 consider in addition to the Distribution, a separate spin-off
of Janus. Members of the Janus Minority Group met with the KCSI Board of
Directors on June 23, 1999 and urged the Board to consider their separate
spin-off proposal.
After 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. In arriving at this
decision, KCSI's Board of Directors took into consideration a number of
factors, including that: (i) a favorable tax ruling on the
Distribution had been received from the Internal Revenue Service,
(ii) the presentation by the Janus Minority Group was not persuasive,
in the Board's view, as to the advantages of the alternative proposal
as compared to the Distribution, (iii) there was a lack of certainty
that a favorable tax ruling could be obtained in a timely manner, or at
all, with respect to the alternative proposal, and (iv) the
Distribution was more consistent with the strategic direction of
Stilwell. See "The Distribution-Background and Reasons for the
Distribution."
Recently, press reports have appeared in which certain Janus
employees have expressed objections to the Distribution and other
disagreements with Stilwell's structure and direction. Representatives
of Stilwell and of the Janus Minority Group have met and held discussions
regarding resolution of these disagreements and while not all
disagreements have been resolved, agreements have been made under which
Stilwell sold to Janus 192,408 shares of Janus common stock to be used to
provide long-term incentives to Janus personnel. In return, Janus agreed
not to grant phantom stock, stock appreciation rights, or similar rights,
for so long as Janus common stock is available for use under its Long-
Term Incentive Plan. The availability of Janus common stock for this
purpose will depend upon the number of such shares granted or sold from
time to time by Janus and upon the number acquired from holders by
voluntary sale or upon the death, retirement or termination of
employment of employees of Janus. In first quarter 2000, Janus made an
annual grant to Janus employees of 35,670 shares of Janus common stock,
but the number of shares awarded in future years may be more or less
than that amount. KCSI and Stilwell have also agreed to waive certain
rights of first refusal and options to purchase other outstanding shares
of Janus common stock so that such shares may be available for awards
under the Long-Term Incentive Plan. Finally, KCSI, Stilwell and Janus
have agreed to increase an intercompany credit line available to Janus
and to the assignment to Stilwell of the Janus Stock Purchase Agreement.
See "The Distribution-Background and Reasons for the Distribution."
STILWELL FINANCIAL, INC.
Stilwell 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 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 management does not have direct experience in mutual fund
investment advisory or portfolio management services and will rely on
its subsidiaries' managements to perform such functions. At Janus, Mr.
Bailey will continue to establish and implement policy with respect to
the investment advisory and portfolio management activity of that
subsidiary, and has the right to nominate a majority of the directors
of Janus, on the basis provided in the Janus Stock Purchase Agreement.
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, Janus World Funds Plc and
Janus Universal Funds (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
December 31, 1999, Janus had total assets under management of $249.5
billion, of which $200.0 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 95% of total assets under management for Janus and its
affiliates at December 31, 1999. At that date, funds advised by Janus
had more than 4.1 million shareowner accounts. For the five-year
period ended December 31, 1999, Janus' total assets under management
increased 990 percent. See "Business-Stilwell's Principal Subsidiaries
and Equity Investments-Janus Capital Corporation."
BERGER LLC
----------
Berger is the 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 and Private Accounts (as defined in "Business--
Stilwell's Principal Subsidiaries and Equity Investments-Berger LLC").
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 December 31,
1999, the Berger Complex (as defined in "Business--Stilwell's Principal
Subsidiaries and Equity Investments-Berger LLC") had total assets under
management of $6.6 billion. Of this amount, Berger managed $5.7 billion
in the Berger Advised Funds and $0.9 billion in the Berger Sub-Advised
Funds and Private Accounts; and B/B Isle managed less than $0.1 billion
in the B/B Isle Separate Accounts. As of December 31, 1999, funds
included in the Berger Complex had more than 241,000 shareowner accounts.
For the five-year period ended December 31, 1999, assets under management
in the Berger Complex increased by 120 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 December 31, 1999, Nelson
employed approximately 40 investment advisers and managed approximately
$1.3 billion ((Pound)844 million) in assets. At December 31, 1999,
Nelson managed assets for more than 13,500 individuals. For the five-
year period ended December 31, 1999, Nelson's total assets under
management increased by 125 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,
brokers and financial planners. DST's Customer Management segment
provides services and products to the video/broadband, direct broadcast
satellite, wireless and Internet-protocol telephony, Internet and utility
markets worldwide. 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. At Janus, Mr.
Bailey will continue to establish and implement policy with respect to
the investment advisory and portfolio management activity of that
subsidiary, and to nominate a majority of the directors of Janus, on
the basis provided in the Janus Stock Purchase Agreement.
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, 1999 was
derived from the audited consolidated financial statements of Stilwell.
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 December 31, 1999 (1,000 shares outstanding), pro forma
earnings per share information is presented for the year ended December 31,
1999. This pro forma information is presented for purposes of comparison 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
December 31, 1999. In addition, dilutive options were included based on the
number of dilutive KCSI stock options assumed to be exercised as of December
31, 1999 in connection with the determination of KCSI's diluted earnings per
share computations. Pro forma basic and diluted earnings per share reflect
adjustments for interest expense (at an assumed rate of 6.5%), net of income
taxes assumed to be incurred as if the assumption of $125 million of
indebtedness from KCSI had occurred as of January 1, 1999. See "Financing--
Description of the Credit Facilities."
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1995(i) 1996(ii) 1997 1998(iii) 1999
---- ---- ---- ---- ----
(Dollars in Millions, except per share data)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
- --------------
INCOME STATEMENT
DATA:
Revenues $236.7 $329.6 $485.1 $670.8 $1,212.3
Operating expenses 156.5 197.8 285.9 390.2 694.0
------ ------ ------ ------ --------
Operating Income 80.2 131.8 199.2 280.6 518.3
Equity in earnings
of unconsolidated
affiliates 29.6 68.6 24.9 25.8 46.7
Reduction in
ownership of DST -- -- -- (29.7) --
Gain on sale
of DST 296.3 -- -- -- --
Other, net 3.7 8.2 5.8 12.6 21.5
------ ------ ------ ------ --------
Pretax Income 409.8 208.6 229.9 289.3 586.5
Income tax
provision 181.3 58.2 87.0 103.7 216.1
Minority interest 10.5 15.8 24.9 33.4 57.3
------ ------ ------ ------ --------
Net Income $218.0 $134.6 $118.0 $152.2 $ 313.1
====== ====== ====== ====== ========
Per Share Data:
Weighted Average
Common shares
outstanding 1,000 1,000 1,000 1,000 1,000
Basic Earnings
per share $218,000 $134,600 $118,000 $152,200 $313,100
Diluted Earnings
per share 218,000 134,000 117,400 149,900 308,300
Pro Forma
Per Share Data:
Common shares
outstanding (in
thousands) 221,148
Basic Earnings per share $ 1.39
Diluted Common
shares outstanding
(in thousands) 229,416
Diluted Earnings per share $ 1.32
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets $475.2 $548.2 $672.6 $822.9 $1,231.5
Long term obligations:
Third Parties 0.4 0.1 -- -- --
KCSI -- 117.3 84.1 16.6 --
Cash dividends per
Common share n/a n/a n/a n/a n/a
OPERATING DATA:
- --------------
Total Assets Under
Management
(in billions) $ 34.5 $ 50.3 $ 71.6 $113.1 $257.4
Total Shareowner
Accounts
(in millions) 2.5 2.5 2.7 3.0 4.3
<FN>
<F1>
(i) 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.
<F2>
(ii) 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.
<F3>
(iii) 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 on January 23, 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 ownership interests
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 [May ___, 2000], 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 Stilwell 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.
Readers are strongly encouraged to consider the following risk factors when
evaluating any such forward-looking comments. Stilwell will not update any
forward-looking comments set forth in this Information Statement.
RISKS RELATED TO THE BUSINESS OF STILWELL FINANCIAL, INC.
A DECLINE IN THE PERFORMANCE OF THE SECURITIES MARKETS COULD ADVERSELY AFFECT
STILWELL'S REVENUES
The results of operations of Stilwell are affected by many economic
factors, including the performance of the U.S. securities markets. A decline in
the securities markets or certain segments of those markets, failure of the
securities markets or segments thereof to sustain their recent levels of
growth, or short-term volatility in the securities markets or segments thereof
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. 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. The growth rate of
Stilwell's subsidiaries and equity investments has varied from year to year,
and the high average growth rates sustained in the recent past may not
continue. In addition, in periods of slowing growth or declining revenues,
profits and profit margins are adversely affected because certain expenses
remain relatively fixed.
POOR INVESTMENT PERFORMANCE OF FUNDS MANAGED BY STILWELL'S SUBSIDIARIES COULD
ADVERSELY AFFECT STILWELL'S REVENUES
Success for Stilwell is dependent to a significant extent on the
investment performance of the mutual funds and other accounts (the "Funds")
managed by its subsidiaries, especially Janus. Failure of the Funds to perform
well could have an adverse effect on the revenues of Stilwell. 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.
STILWELL'S BUSINESS IS DEPENDENT ON INVESTMENT ADVISORY AGREEMENTS WHICH ARE
SUBJECT TO TERMINATION OR NON-RENEWAL
Most of the revenues of Janus and Berger are derived pursuant to
investment advisory agreements with their respectively managed Funds. Any
termination of or failure to renew a significant number of these agreements
could have a material adverse impact on Janus or Berger. These investment
advisory agreements may be terminated by either party with notice, are
terminated in the event of an "assignment" (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")), and must be approved and
renewed annually by the disinterested members of each fund's board of directors
or trustees, or its shareowners, as required by law.
Generally, any change in control of Janus or Berger would constitute an
"assignment" under the 1940 Act. The Distribution is not expected to result in
a change of control of Janus or Berger and therefore under the applicable rules
of the Securities and Exchange Commission would not constitute such an
assignment. Under certain circumstances a material reduction in the ownership
of Janus common stock by Mr. Bailey or his departure from Janus by removal,
death, or resignation could be a change of control, resulting in an assignment,
because he has contractual rights to nominate a majority of the directors of
Janus, on the basis provided in the Janus Stock Purchase Agreement. Under the
1940 Act, "control" is defined as "the power to exercise a controlling
influence over the management or policies of a company, unless such power is
solely the result of an official position with the company." The 1940 Act
establishes a presumption that any person who owns less than 25% of the
voting securities of a company does not control that company. Since Mr.
Bailey owns less than 25% of Janus, he is presumed to not control Janus. That
presumption can be rebutted by evidence but, under the 1940 Act, it continues
until the SEC issues an order determining that the presumption has been
rebutted. The SEC has issued such an order in the past with regard to a
holder of less than 25% of the voting securities of a company, but on facts
much different from Mr. Bailey's circumstances. The SEC has not issued such
an order with respect to Mr. Bailey and it is unclear whether it would do so.
If the SEC were to issue such an order, Mr. Bailey's departure from Janus, or
a material reduction in his ownership of Janus common stock, which eliminated
his director-nomination rights could be deemed a change in control of Janus.
Such a change in control would result, under the 1940 Act and under the
Investment Advisers Act of 1940 (the "Advisers Act"), in an assignment and
termination of Janus' investment advisory contracts, requiring approval of
fund shareowners and other advisory clients to obtain new agreements. See
"Risk Factors-Stilwell May Be Required to Purchase or Sell Janus Common Stock."
The Boards of Trustees or Directors of the Janus Advised Funds and of the funds
in the Berger Complex ("Trustees") 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 "Summary-Overview
of Stilwell's Business and Strategy-Stilwell Financial, Inc." and "Business."
ANY EVENT THAT NEGATIVELY AFFECTS THE U.S. MUTUAL FUND INDUSTRY COULD HAVE A
MATERIAL ADVERSE EFFECT ON STILWELL
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. 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.
STILWELL'S INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL
ADVERSE EFFECT ON ITS FUTURE SUCCESS
The loss of the services of one or more of Stilwell's key employees or its
failure to attract, retain and motivate qualified personnel could have a
material adverse impact on Stilwell's business, financial condition, results of
operations and future prospects. 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, retain and motivate 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 "Risk Factors-Continuation of Strained Relations Between
Stilwell and Janus Management Could Have a Material Adverse Effect on
Stilwell," "Management," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 15 to the Stilwell consolidated
financial statements.
INCREASED COMPETITION COULD REDUCE THE DEMAND FOR STILWELL'S PRODUCTS AND
SERVICES WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON STILWELL'S BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS PROSPECTS
Stilwell is subject to substantial and growing competition in all aspects
of its business. Such competition could reduce the demand for Stilwell's
products and services and could have a material adverse effect on Stilwell's
business, financial condition, results of operations and business prospects.
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."
STILWELL'S CREDIT FACILITIES IMPOSE RESTRICTIONS ON ITS ABILITY TO CONDUCT
BUSINESS AND MAY NOT BE SUFFICIENT TO SATISFY STILWELL'S CAPITAL AND OPERATING
REQUIREMENTS
Stilwell's credit facilities impose restrictions on its ability to conduct
business and may not be sufficient to satisfy Stilwell's capital and operating
requirements. These credit facilities contain covenants that, among other
things, restrict the ability of Stilwell to transfer assets, merge, incur debt
and create liens. In addition, the credit facilities require 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
facilities. In the event of any such default, lenders party to the credit
facilities could elect to declare all amounts borrowed under the credit
facilities, together with accrued interest and other fees, to be due and
payable. If any indebtedness under the credit facilities is accelerated,
Stilwell may not have sufficient assets to repay such indebtedness in full.
The timing of Stilwell's future capital requirements 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, has provided an
intercompany credit facility to Janus for use by Janus for general corporate
purposes, effectively reducing the amount of the credit facilities available
for Stilwell's other purposes. 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.
Based on financial information as of March 31, 2000, Stilwell would have the
ability to fund the purchase of stock required if all such put rights had been
exercised without, in management's judgment, causing a breach of any of
Stilwell's current credit facility restrictions. Stilwell has not obtained the
concurrence of its lenders with this judgment. There may not be any additional
capital 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."
STILWELL'S BUSINESS IS SUBJECT TO PERVASIVE REGULATION WITH ATTENDANT COSTS OF
COMPLIANCE AND SERIOUS CONSEQUENCES FOR VIOLATIONS
Virtually all aspects of Stilwell's business are subject to various laws
and regulations. 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.
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.
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. See "Business-Regulation."
STILWELL'S BUSINESS IS VULNERABLE TO SYSTEMS FAILURES WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON STILWELL'S BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Any delays or inaccuracies in securities pricing information or
information processing could give rise to claims against Janus, Berger, Nelson
or DST, which could have a material adverse effect on Stilwell's business,
financial condition and results of operations. Janus, Berger, Nelson and DST
are highly dependent on communications and information systems and on 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. Stilwell's
subsidiaries and equity investments may 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 and Stilwell's back-up procedures and capabilities may not be
adequate or sufficient to eliminate the risk of extended interruptions in
operations.
CERTAIN AGREEMENTS PROVIDE THE CHIEF EXECUTIVE OFFICER OF JANUS SUBSTANTIAL
INFLUENCE OVER THE INVESTMENT POLICIES OF JANUS
The Janus Stock Purchase Agreement with Mr. Bailey, the holder of 12% of
Janus common stock, 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 or
Chairman of the Board of Janus (or, if he does not serve as President, James
P. Craig, III serves as President and Chief Executive Officer or Co-Chief
Executive Officer with Mr. Bailey), he 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, so long as both the ownership threshold and officer
status conditions described above are satisfied, in those circumstances
Stilwell 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 Stilwell'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 Stilwell and Mr. Bailey. In addition,
Janus is party to employment and other 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 and
additional vesting of certain shares of Janus stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 15 to the Stilwell consolidated financial statements.
STILWELL'S BUSINESS IS SUBJECT TO INTERNATIONAL MARKET RISKS OF EVENTS WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON STILWELL'S BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 various risks of events which could have
a material adverse effect on Stilwell's business, financial condition and
results of operations. Such risks include 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. In addition, foreign
trading markets, particularly in some emerging market countries, are often
smaller, less liquid, less regulated and significantly more volatile.
RISKS RELATED TO THE DISTRIBUTION
STILWELL'S LACK OF OPERATING HISTORY AS A STAND-ALONE COMPANY MAKES IT
DIFFICULT TO PREDICT ITS FUTURE RESULTS
Stilwell was formed in 1998 as a holding company for the group of
businesses and investments that comprise 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 an intercompany agreement (the
"Intercompany Agreement") and a tax disaffiliation agreement (the "Tax
Disaffiliation Agreement") between KCSI and Stilwell. See "Relationship
Between KCSI and Stilwell After the Distribution," "Financing" and "Business."
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, results of operations and cash flows 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.
THERE HAS BEEN NO PRIOR MARKET FOR STILWELL COMMON STOCK AND IT IS IMPOSSIBLE
TO PREDICT THE PRICES AT WHICH THOSE SECURITIES MIGHT TRADE
There has been no established trading market for Stilwell Common Stock,
and there can be no reliable prediction as to the prices at which it will trade
after completion of the Distribution. 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. Trading in Stilwell Common Stock on a "when-issued" basis
exposes traders to a risk of loss if the Distribution does not occur. See "The
Distribution-Trading of Stilwell Common Stock." Based on Stilwell's
contribution to the net income of KCSI, Stilwell expects that the two shares
of its common stock to be distributed for each one share of KCSI common stock
may together trade initially in a range reflecting 90% to 95% of the market
price of KCSI common stock at the time of the Distribution. The closing
price on the New York Stock Exchange of KCSI common stock on May __, 2000,
was $___________. If the Distribution had occurred on that date, on this
basis Stilwell common stock could have been expected to trade in a range of
$________ to $_________ per share. However, this estimate does not take into
account other factors which influence the market price of securities,
including disaggregation values and other factors that may not be related to
Stilwell's net income. 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. See "The Distribution-
Trading of Stilwell Common Stock."
THE COMBINED POST-DISTRIBUTION MARKET VALUE OF KCSI COMMON STOCK AND STILWELL
COMMON STOCK MAY NOT EQUAL OR EXCEED THE PRE-DISTRIBUTION MARKET VALUE OF KCSI
COMMON STOCK
The combined market value of KCSI Common Stock and Stilwell Common Stock
immediately after the Distribution may not be equal to or greater than the
market value of KCSI Common Stock immediately prior to the Distribution. 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. See "The Distribution-Trading
of Stilwell Common Stock." The primary objective of the reverse stock split
is to attempt to move the trading price of KCSI common stock back into a
higher trading range since lower-priced stocks may be unattractive to some
investors.
SUBSTANTIAL SALES OF STILWELL COMMON STOCK FOLLOWING THE DISTRIBUTION OR THE
PERCEPTION THAT SUCH SALES MIGHT OCCUR COULD DEPRESS THE MARKET PRICE OF
STILWELL COMMON STOCK
Substantially all of the shares of Stilwell Common Stock issued in the
Distribution will be eligible for immediate resale in the public market. 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. Stilwell is unable to predict whether substantial amounts of Stilwell
Common Stock will be sold in the open market following the Distribution. See
"The Distribution-Trading of Stilwell Common Stock."
THE INTERCOMPANY AGREEMENT AND THE TAX DISAFFILIATION AGREEMENT CONTAIN
INDEMNIFICATION OBLIGATIONS OF KCSI AND STILWELL THAT KCSI OR STILWELL MAY NOT
BE ABLE TO SATISFY, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON KCSI OR
STILWELL
The Intercompany Agreement and the Tax Disaffiliation Agreement allocate
responsibility between KCSI and Stilwell for various liabilities and
obligations. However, the availability of such indemnities will depend upon
the future financial strength of KCSI and Stilwell. KCSI or Stilwell may not
be in a financial position to fund such indemnities if they should arise, which
could have a material adverse effect on KCSI or Stilwell. 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 Tax
Ruling request or any actions taken by KCSI or Stilwell that negatively impact
the Tax Ruling. See "Relationship Between KCSI and Stilwell after the
Distribution."
ACQUISITIONS, WHICH ARE PART OF STILWELL'S BUSINESS STRATEGY, INVOLVE INHERENT
RISKS WHICH COULD RESULT IN ADVERSE EFFECTS ON STILWELL'S OPERATING RESULTS AND
FINANCIAL CONDITION AND DILUTE THE HOLDINGS OF CURRENT STOCKHOLDERS
As part of its business strategy, Stilwell intends to consider
acquisitions of similar or complementary businesses. See "Business-Stilwell
Business Strategy." If Stilwell is not correct when it assesses the value,
strengths, weaknesses, liabilities and potential profitability of acquisition
candidates or if it is not successful in integrating the operations of the
acquired businesses, that could have a material adverse effect on Stilwell's
operating results and financial condition. 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. In addition, products, technologies or businesses of acquired
companies may not be effectively assimilated into Stilwell's business and
product offerings of the combined company may not have a positive effect on the
combined company's revenues or earnings. The combined company may also incur
significant expense to complete acquisitions and to support the acquired
products and businesses. Further, 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. Finally, Stilwell may not be
successful in identifying attractive acquisition candidates or completing
acquisitions on favorable terms.
ANTITAKEOVER PROVISIONS: PROVISIONS OF STILWELL'S GOVERNING DOCUMENTS, ITS
RIGHTS PLAN AND RESTRICTIONS RELATING TO THE TAX RULING COULD DELAY OR PREVENT
A CHANGE IN CONTROL OF STILWELL, THEREBY ENTRENCHING CURRENT MANAGEMENT AND
POSSIBLY DEPRESSING THE MARKET PRICE OF STILWELL COMMON STOCK
Provisions of Stilwell's Certificate and Bylaws, the Rights Plan and
restrictions relating to the Tax Ruling are antitakeover in nature and may
delay or make more difficult acquisitions or changes in control of Stilwell,
thereby entrenching current management and possibly depressing the market price
of Stilwell Common Stock. For example, Stilwell's Certificate and Bylaws
authorize blank series preferred stock, require a supermajority stockholder
vote for approval of certain types of business combinations, establish a
staggered Board of Directors and impose certain procedural and other
requirements for some corporate actions. Stilwell's Rights Plan could
significantly dilute the interest in Stilwell of persons seeking to acquire
control of Stilwell without prior approval of Stilwell's Board of Directors.
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 "Description of Capital Stock" and "The Distribution-Material
Federal Income Tax Consequences."
STILWELL HAS A SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED SHARES WHICH IF
ISSUED COULD DILUTE THE EQUITY INTERESTS OF EXISTING STILWELL STOCKHOLDERS AND
ADVERSELY AFFECT EARNINGS PER SHARE
If more shares of Stilwell Common Stock are issued following the
Distribution, the equity interests of existing Stilwell stockholders could be
diluted and the earnings per share of Stilwell Common Stock could be adversely
affected. Stilwell is authorized to issue one billion shares of Stilwell
Common Stock. Approximately 222,830,330 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.
VARIOUS FACTORS MAY HINDER THE DECLARATION AND PAYMENT OF DIVIDENDS BY STILWELL
FOLLOWING THE DISTRIBUTION
The payment of dividends by Stilwell is subject to the discretion of its
Board of Directors, and various factors may prevent it from paying dividends.
Such factors include Stilwell's financial position, its capital requirements
and liquidity, the existence of a stock repurchase program, any loan agreement
restrictions, state corporate law requirements, results of operations and such
other factors as Stilwell's Board of Directors may consider 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. At
the present time Stilwell's primary source of cash is dividends received from
Janus. In 1999, Stilwell received $173.2 million in dividends from Janus.
Additionally, for the year ended December 31, 1999, Janus represented 95% of
Stilwell revenues and 91% of Stilwell net income. The payment of dividends by
Janus is subject to the discretion of its Board of Directors. Although
Stilwell has a contractual obligation to cause such payment, Mr. Bailey has the
right to nominate a majority of that Board, on the basis provided in the Janus
Stock Purchase Agreement. Such majority of directors may determine in their
discretion that Janus will not pay dividends for any given year. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 15 to the Stilwell consolidated financial
statements.
CONTINUATION OF STRAINED RELATIONS BETWEEN STILWELL AND JANUS MANAGEMENT COULD
HAVE A MATERIAL ADVERSE EFFECT ON STILWELL
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." Although not expected, continuation of these
strained relations could result in the loss of key Janus employees and Janus
management which could have a material adverse effect on Stilwell. 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 hiring or soliciting employees to leave the employ of
Janus. It is also possible that the publicity surrounding the disagreements
between Stilwell and members of the Janus Minority Group could have an adverse
effect on Janus' business and on Stilwell's ability to attract or retain
qualified personnel. See "Risk Factors - Stilwell's Inability to Attract and
Retain Key Personnel Could Have a Material Adverse Effect on Its Future
Success," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 15 to the Stilwell consolidated financial
statements.
STILWELL MAY BE REQUIRED TO PURCHASE OR SELL JANUS COMMON STOCK
Under mandatory put rights contained in certain agreements, Stilwell may
be required to purchase the interests in Janus owned by certain minority
stockholders. Under the mandatory put rights, KCSI or Stilwell would be
required to purchase the interests of such stockholders at a fair market
value purchase price equal to fifteen times the net after-tax earnings over a
specified period, or in some circumstances as determined by an independent
appraisal. The purchase price will be determined by independent appraisal if
the appraisal process is elected by either the selling stockholder or
Stilwell, except that no appraisal process is applicable to shares held by
Mr. Bailey and by one other stockholder. The period used to calculate net
after-tax earnings per share is the fiscal year ended immediately prior to
the date that the put rights are exercised or the last four complete calendar
quarters ended immediately prior to the date that the put rights are
exercised. If Stilwell had been required to make such purchases based on the
value of the stock at a fifteen times multiple as of March 31, 2000, Stilwell
would have been required to pay approximately $833 million. Under these and
other agreements, Stilwell may be required to purchase the interests in Janus
owned by certain minority stockholders upon certain changes in ownership of
KCSI or Stilwell. If Stilwell had been required to make such purchases based
on the value of the stock at a fifteen times multiple as of March 31, 2000,
Stilwell would have been required to pay approximately $1.14 billion (reduced
by the amount paid upon exercise of any mandatory put rights). As of March 31,
2000, Stilwell had $200 million in credit facilities available, owned
securities with a market value in excess of $1.3 billion and had cash
balances at the Stilwell holding company level in excess of $148 million. To
the extent that these resources were insufficient to fund its purchase
obligations, Stilwell had access to the capital markets and, with respect to
shares purchased under the Janus Stock Purchase Agreement, had 120 days to
raise additional sums. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Minority Purchase Agreements." If such
purchases were to include a reduction in ownership of Janus common stock held
by Mr. Bailey, to below 5%, because this would terminate his director-
nomination rights under the Janus Stock Purchase Agreement, this might be
deemed to constitute a change of control which would result in an assignment
and termination of Janus' investment advisory agreements. See "Risk Factors-
Stilwell's Business is Dependent on Investment Advisory Agreements Which Are
Subject to Termination or Non-Renewal."
Under the Janus Stock Purchase Agreement, upon the occurrence of a Change
in Ownership (as defined below) of Stilwell, Stilwell may be required, at such
holders' option, to sell its stock of Janus to such minority stockholders, or
to purchase such holders' Janus stock. The purchase price in either instance is
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. Under other stock purchase agreements and
restriction agreements with other minority stockholders, upon the occurrence of
a Change in Ownership of KCSI or Stilwell, Stilwell may be required, at such
stockholders' option, to purchase such minority stockholders' Janus stock at a
fair market value purchase price equal to fifteen times the net after-tax
earnings over the period indicated in the relevant agreement, or in some
circumstances as determined by Janus' Stock Option Committee. The period used
to calculate net after-tax earnings per share is the fiscal year ended
immediately prior to the date that the put rights are exercised or the last
four complete calendar quarters ended immediately prior to the date that
notice of the Change in Ownership is given by KCSI or Stilwell. A Change in
Ownership of KCSI or Stilwell is deemed to occur if (i) a person or entity
without the prior approval of KCSI or Stilwell acquires a significant
percentage of stock with the intent to acquire control of KCSI or Stilwell or
(ii) upon certain changes in the composition of KCSI's or Stilwell's Board of
Directors. The Janus Stock Purchase Agreement and its amendments are filed as
exhibits to the Registration Statement on Form 10 to which this Information
Statement is an exhibit. The Janus Stock Purchase Agreement and certain, but
not all, of these other agreements have been assigned to Stilwell, and none of
the other agreements have been amended to change the reference to Change in
Ownership from KCSI 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Minority Purchase Agreements" and "Financing."
* * *
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 AN INDUCEMENT OR ENCOURAGEMENT TO BUY OR
SELL ANY SECURITIES OF KCSI OR STILWELL. THE INFORMATION CONTAINED IN THIS
INFORMATION STATEMENT IS 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>
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 what is
now an approximately 81.5% 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 would qualify 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's 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, without any prior consultation with KCSI management,
the Janus Minority Group delivered a proposal to the Chief Executive Officer
of KCSI suggesting that KCSI's Board of Directors consider an alternative to
the Distribution. The Janus Minority Group's proposal indicated, that while
they strongly supported the separation of KCSI's financial services
operations from its rail operations, they preferred that an additional,
separate spin-off of Janus be considered. The Janus Minority Group argued
that their alternative to the Distribution would enhance shareholder value,
better achieve the business purposes of the separation and be more
advantageous from a tax and accounting point of view. In response to their
suggestion that a meeting be held to discuss their proposal, a special
meeting of KCSI's Board of Directors was held on June 23, 1999. At that
meeting, KCSI's Board of Directors received a presentation from the Janus
Minority Group and their representatives regarding the details of the
alternative proposal.
KCSI's Board of Directors considered and discussed the information
presented by the Janus Minority Group and information provided by Stilwell
management regarding the advantages and disadvantages of the two methods of
achieving the separation. The principal advantages for an additional spin-off
of Janus cited by some members of the Janus Minority Group were that
Stilwell's stock, unlike that of Janus, would trade in the market at a
holding company discount and that a separate Janus spin-off would provide a
structure for better equity incentives to Janus employees. The Board
considered the presentation to them as contradictory on the question of a
holding company discount, as some information suggested Stilwell would not be
perceived as a holding company because of the large proportion of its
revenues being derived from Janus. In addition, the Board determined that
there was sufficient Janus stock available from Stilwell and from Mr. Bailey
to meet Janus' reasonable needs for equity incentives for several years.
Moreover, the Board believed that going forward with the spin-off of Stilwell
would not preclude later consideration of a spin-off or other restructuring
of Janus if that were to be found to be appropriate. Therefore, in the
absence of any compelling reason to change direction and experience further
delay in the long planned separation of KCSI's principal business segments,
KCSI's Board of Directors decided that the Distribution should go forward on
the basis originally contemplated and as set forth herein. In arriving at
this decision, KCSI's Board of Directors took into consideration a number of
factors, including that: (i) a favorable tax ruling on the Distribution had
been received from the Internal Revenue Service, (ii) the presentation by the
Janus Minority Group was not persuasive, in the Board's view, as to the
advantages of the alternative proposal as compared to the Distribution,
(iii) there was a lack of certainty that a favorable tax ruling could be
obtained in a timely manner, or at all, with respect to the alternative
proposal, and (iv) the Distribution was more consistent with the strategic
direction of Stilwell.
The determination by KCSI's Board that there was sufficient Janus stock
available from Stilwell and Mr. Bailey to meet Janus' reasonable needs for
equity incentives for several years was based on an understanding reached
between KCSI and Mr. Bailey on December 14, 1998 for KCSI to sell
approximately 100,000 shares of Janus stock and for Mr. Bailey to sell
approximately 50,000 shares of Janus stock to Janus. Prior to that date, Mr.
Bailey and Mr. James P. Craig, III stated that 300,000 shares would meet the
needs of Janus for equity incentives for a period of five to ten years and
Mr. Bailey proposed that KCSI sell 200,000 and that he sell 100,000, of the
shares needed. The understanding between KCSI and Mr. Bailey for a sale of
approximately 150,000 shares was never consummated; however, as part of an
effort to assure that additional shares of Janus stock would be available for
equity incentives for Janus employees and to resolve differences with the
Janus Minority Group, on November 19, 1999 Stilwell agreed to sell to Janus
192,408 shares of Janus common stock to be used to provide equity incentives.
The Janus Fund Trustees (William D. Stewart, Gary O. Loo, Dennis B.
Mullen, Martin H. Waldinger and James T. Rothe) expressed support on March
26, 1999 for the proposal of the Janus Minority Group, indicating that, based
on their discussions with members of that group, the Trustees believed the
proposal would provide superior equity ownership opportunities for key Janus
employees and could help assure continuity of management for the Janus Funds.
Stilwell management assured the Trustees of their support for equity
incentive arrangements for key Janus personnel, but believed these incentives
could be achieved without a separate spin-off of Janus. The Trustees have
continued to express their support for equity incentive arrangements for the
key Janus personnel, but have indicated that they intend to remain neutral
with respect to the particular proposals of Janus and Stilwell and other
disagreements between Stilwell and the Janus Minority Group. The Trustees
have strongly encouraged the parties to resolve their disagreements as soon
as possible so that they would not be a distraction to the management of the
Janus Funds.
KCSI's support for employee equity incentives at Janus started in 1984
when KCSI demonstrated its willingness to acquire a majority interest in
Janus and leave key employees, specifically Mr. Bailey and Mr. Jack R.
Thompson, as shareholders. KCSI fully supported share ownership by a broader
group of Janus employees in January, 1995, when KCSI waived the right to
purchase 526,819 shares sold by Mr. Bailey to 14 other employees of Janus and
to Janus. Since January, 1995, KCSI has given waivers or otherwise completed
transactions on eight occasions for the sale of a total of 256,700 additional
shares either to other employees of Janus or to Janus for use as equity
incentives. As a director of Janus, Mr. Landon H. Rowland (KCSI's Chairman,
President and Chief Executive Officer) has consistently voted in favor of
equity incentive programs for Janus employees involving the sale or grant of
Janus shares, or the grant of options to purchase Janus shares. In addition,
as described above, Stilwell sold to Janus 192,408 shares of Janus common
stock to be used for equity incentives for employees. At the same time,
Stilwell and KCSI agreed to waive all rights of first refusal, options to
purchase and other rights to purchase shares of Janus common stock contained
in various agreements with minority stockholders, subject to certain
conditions set forth in the waiver, in order that such shares could be
purchased by Janus and available for equity incentives.
Press reports have appeared in which certain Janus employees have
expressed objections to the Distribution and other disagreements with
Stilwell's structure and direction. Representatives of Stilwell and of the
Janus Minority Group have met and held discussions regarding resolution of
these disagreements and while not all disagreements have been resolved,
agreements have been made under which Stilwell sold to Janus 192,408 shares of
Janus common stock to be used to provide long-term incentives to Janus
personnel. In return, Janus agreed not to grant phantom stock, stock
appreciation rights, or similar rights, for so long as Janus common stock is
available for use under its Long-Term Incentive Plan. The availability of
Janus common stock for this purpose will depend upon the number of such
shares granted or sold from time to time by Janus and upon the number
acquired from holders by voluntary sale or upon the death, retirement or
termination of employment of employees of Janus. In first quarter 2000,
Janus made an annual grant to Janus employees of 35,670 shares of Janus
common stock, but the number of shares awarded in future years may be more or
less than that amount. KCSI and Stilwell have also agreed to waive certain
rights of first refusal and options to purchase other outstanding shares of
Janus common stock so that such shares may be available for awards under Janus'
Long-Term Incentive Plan. Finally, KCSI, Stilwell and Janus have agreed to
increase an intercompany credit line available to Janus and to the assignment
to Stilwell of the Janus Stock Purchase Agreement.
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 fluctuations 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.
This ratio was established because of the large contribution of Stilwell to the
earnings of KCSI. Given this factor, it was believed that the distribution
ratio should be more than 1 to 1 and that fractional shares should be avoided.
Using more shares than 2 for 1 might have had the effect of causing Stilwell
Common Stock to have a market price that would be too low on a per share basis
in the Board's view. The 2 for 1 distribution ratio was established in an
attempt to have Stilwell Common Stock trade at an initial trading range that
was slightly less than half of the trading price of KCSI Common Stock
immediately prior to the Distribution. Based on Stilwell's contribution to
the net income of KCSI, Stilwell expects that the two shares of its common
stock to be distributed for each one share of KCSI common stock may together
trade initially in a range reflecting 90% to 95% of the market price of KCSI
common stock at the time of the Distribution. The closing price on the New
York Stock Exchange of KCSI common stock on May __, 2000, was $___________.
If the Distribution had occurred on that date, on this basis Stilwell common
stock could have been expected to trade in a range of $________ to $_________
per share. However, this estimate does not take into account other factors
which influence the market price of securities, including disaggregation
values and other factors that may not be related to Stilwell's net income.
Neither KCSI nor Stilwell can predict the prices at which their securities may
trade as a result of the Distribution. See "Risk Factors-There Has Been No
Prior Market for Stilwell Common Stock and it is Impossible to Predict the
Prices at Which Those Securities Might Trade." 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 March 31,
2000 and the number of stockholders as of March 31, 2000, approximately
222,800,000 shares of Stilwell Common Stock will be distributed to
approximately 6,000 KCSI stockholders in the Distribution on a pro-rata basis
(including the holders of KCSI Common Stock through accounts in the KCSI ESOP,
the Stilwell ESOP, the DST ESOP and the KCSI Profit Sharing Plan). The total
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.
DIFFERENCES IN RIGHTS OF STOCKHOLDERS ARISING FROM DIFFERENCES BETWEEN THE
CERTIFICATES AND BYLAWS OF STILWELL AND KCSI
Following the Distribution, the rights of Stilwell's stockholders will
be governed by Stilwell's Certificate and Bylaws, which contain differences
from the certificate of incorporation and bylaws of KCSI, including the
following:
Stilwell's Certificate provides that the holders of Stilwell voting
stock are not able to cumulate votes for the election of directors, whereas,
pursuant to the KCSI Certificate, holders of KCSI voting stock are entitled,
in general, to cumulate votes for the election of directors.
Stilwell's Certificate requires a supermajority vote of at least 70% of
the then-outstanding shares of capital stock of Stilwell entitled to vote
generally in the election of directors (the "Voting Stock") to approve
certain transactions with a person or entity (or affiliate thereof) holding
more than 20% of the Voting Stock, including, but not limited to, a merger,
consolidation, disposition of Stilwell's assets, or adoption of a plan of
liquidation ("Certain Transactions"). Stilwell's Certificate also requires a
supermajority vote of at least 70% of the Voting Stock to approve an
amendment to the Stilwell Certificate provisions relating to, (a) the
directors' ability to set the number of directors within a prescribed range
and to fill vacancies on Stilwell's Board of Directors, (b) the existence of
a staggered board, (c) the removal of directors, (d) calling meetings of
Stilwell's stockholders, (e) prohibiting stockholder action by written
consent in lieu of a meeting and (f) the amendment of Stilwell's Certificate.
Additionally, on and after the date on which a person or entity (or affiliate
thereof) becomes the holder of more than 20% of Stilwell's Voting Stock,
Stilwell's Certificate requires a supermajority vote of at least 70% of
Stilwell's Voting Stock to approve (i) an amendment to the Stilwell Bylaws by
stockholder action, (ii) the removal of a director for cause, (iii) an
amendment to certain definitions contained in Stilwell's Certificate, or (iv)
an amendment to provisions of the Stilwell Certificate relating to (a) the
number, powers and preferences of Stilwell Common Stock and Stilwell
Preferred Stock, (b) stockholder nominations of directors and business to be
brought by stockholders, (c) amending the Stilwell Bylaws, (d) approving
Certain Transactions with a person or entity (or affiliate thereof) holding
more than 20% of the Voting Stock, (e) factors to be considered in evaluating
offers relating to tender offers, mergers, or the purchase or acquisition of
all or substantially all of the properties and assets of Stilwell, (f)
indemnification of officers, directors and others and (g) liability of
directors. KCSI's certificate of incorporation requires a supermajority vote
of at least 70% of the KCSI voting stock to approve (i) a merger or
consolidation with, or disposition of KCSI's assets to, a person or entity
(or affiliate thereof) holding more than 5% of KCSI's outstanding voting
stock, and (ii) an amendment to the KCSI certificate of incorporation
increasing the number of directors above 18, abolishing cumulative voting for
directors, abolishing the division of the board into three classes, or (iii)
to amend the super majority voting requirement for approval of a merger,
consolidation or disposition of assets of KCSI.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In July, 1999, KCSI received the Tax Ruling which states that for United
States federal income tax purposes, no gain or loss will be recognized by KCSI
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 factual representations and assumptions provided by KCSI.
Additionally, KCSI received a supplementary tax ruling from the IRS to the
effect that the assumption of $125 million of KCSI debt by Stilwell would have
no effect on the Tax Ruling. Assuming the accuracy of the factual
representations and assumptions provided by KCSI in connection with the Tax
Ruling request, neither KCSI nor the holders of KCSI Common Stock will have to
recognize taxable gain or loss as a result of the Distribution. 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. See "Risk Factors-The
Intercompany Agreement and the Tax Disaffiliation Agreement Contain
Indemnification Obligations of KCSI and Stilwell that KCSI or Stilwell May Not
be Able to Satisfy, Which Could Have a Material Adverse Effect on KCSI or
Stilwell." Finally, the discussion describes the material United States
federal tax consequences of certain ownership changes of KCSI or Stilwell after
the Distribution. 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 Common Stock and the shares of Stilwell
Common Stock received by such stockholder in proportion to the relative fair
market values of such stockholder's KCSI Common Stock and Stilwell Common
Stock.
(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 and accumulated earnings and profits for federal income
tax purposes (which current earnings and profits, if any, would 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 exceeded 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 were 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 AFTER THE DISTRIBUTION. 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 (or 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 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. None
of these trades, however, can be finally settled until after the Distribution
Date, when regular trading in the Stilwell Common Stock has begun. If the
Distribution does not occur, all when-issued trading will be null and void.
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, an active trading market in Stilwell Common Stock may not 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-There Has Been No Prior Market for Stilwell Common
Stock and it is Impossible to Predict the Prices at Which Those Securities
Might Trade."
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. The primary objective of the reverse stock split is to attempt
to move the trading price of KCSI common stock back into a higher trading
range since lower-priced stocks may be unattractive to some investors. 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-The Combined Post-Distribution Market Value of KCSI Common Stock and
Stilwell Common Stock May Not Equal or Exceed the Pre-Distribution Market Value
of KCSI Common Stock," "Risk Factors-Antitakeover Provisions: Provisions of
Stilwell's Governing Documents, its Rights Plan and Restrictions Relating to
the Tax Ruling Could Delay or Prevent a Change in Control of Stilwell, Thereby
Entrenching Current Management and Possibly Depressing the Market Price of
Stilwell Common Stock," 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 of 1933, as amended (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
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. Duff & Phelps is a nationally
recognized financial advisory firm active in the valuation of businesses and
securities and in rendering advisory services in connection with a variety of
corporate and securities matters. Duff and Phelps was retained, based on its
qualifications, expertise and reputation in providing such financial advice to
companies, by KCSI to provide certain opinions to KCSI's Board of Directors as
to the solvency and capitalization of KCSI following the Distribution.
Specifically, 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 and its affiliates have not provided
any financial advisory services to KCSI during the past two years, but Duff &
Phelps has been engaged to provide valuation services to Stilwell in connection
with Stilwell's stockholders' rights plan. Duff & Phelps has reported that it
does not own beneficially and has never owned beneficially any interest in
KCSI.
There were no limitations placed by KCSI on Duff & Phelps in conducting
its analysis or in issuing its opinion. Duff & Phelps' qualitative analysis
was based on discussions with senior management concerning the history, current
operations and future outlook of the remaining business of KCSI after the
Distribution - the rail transportation segment of KCSI - which primarily
includes The Kansas City Southern Railway Company ("KCSR"). Duff & Phelps also
toured representative operating facilities. The financial analysis was based
on historical financial statements for the rail transportation segment to the
extent available, as well as internal operating documents, including financial
projections. Duff & Phelps also reviewed documents relating to the
Distribution. Industry information and data on comparable companies used as
background for the analysis was obtained from regularly published sources.
The financial projections used by Duff & Phelps in their analysis were
prepared by and are the responsibility of the management of KCSI and KCSR,
and not the management of Stilwell. Those projections and the prospective
financial information set forth in the following tables are based upon
estimates and assumptions that, while presented with numerical specificity
and considered reasonable by KCSI and KCSR, are inherently subject to
significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the control of KCSI and KCSR. Actual
results will vary from those used and set forth in the tables, and those
variations may be material. PricewaterhouseCoopers has neither examined nor
compiled the accompanying prospective financial information nor the financial
projections from which it was derived and, accordingly, does not express an
opinion or any other form of assurance with respect thereto. The
PricewaterhouseCoopers report included in this Information Statement relates
only to Stilwell's historical financial information and does not extend to
any prospective financial information.
The following is a summary of the various analyses performed by Duff &
Phelps in arriving at the conclusions set forth in the opinion.
DISCOUNTED CASH FLOW ANALYSIS. Duff & Phelps reviewed KCSI's financial
performance data and other information to conduct a discounted cash flow
analysis. In performing this analysis, Duff & Phelps examined the projected
cash available to invest in the business and to service debt. In addition,
discount rates were determined using a combination of theoretical models.
Following is the financial ratio analysis produced by the discounted cash flow
analysis.
- -----------------------------------------------------------------------------
YEAR
Ratio 2000 2001 2002 2003 2004
- -----------------------------------------------------------------------------
EBITDA/Interest Expense 2.55x 2.64x 2.79x 3.12x 3.53x
Funded Debt/EBITDA 4.38x 3.92x 3.51x 3.11x 2.71x
EBITDA/Interest Expense 2.2x 0.6x 1.7x 1.8x 2.1x
+ Current Maturities
Funded Debt/Total Capital 53.7% 51.2% 47.9% 43.9% 39.3%
- -----------------------------------------------------------------------------
EBITDA = Earnings before interest, taxes, depreciation and amortization
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Duff & Phelps
compared certain financial and operating information and projected financial
performance data of KCSI with similar information and data of six publicly
traded railroad companies that Duff & Phelps deemed comparable to KCSI in terms
of qualitative and quantitative factors. No single company utilized in the
analysis of the railroad companies is identical to KCSI. Following is the list
of the comparable companies used in the analysis of KCSI.
- -----------------------------------------------------------------------------
Market Cap.(1) LTM Revenues LTM Revenue LTM EBITDA
Company (millions) (millions) Growth Margin,
Adj.(2)
- -----------------------------------------------------------------------------
Burlington Northern
Santa Fe Corp. $15,823 $ 8,983 1.7% 40.0%
Canadian National
Railway (3) 7,925 3,499 29.8 NA
CSX Corporation 13,143 10,574 4.6 27.0
Norfolk Southern
Corp. 15,686 4,752 11.7 36.4
Union Pacific Corp. 20,667 11,090 -0.4 35.0
Wisconsin Central
Transportation Corp. 980 358 5.0 41.0
KCSI NA $601 -2.9% 31.9%
(Transportation Segment)
- -----------------------------------------------------------------------------
LTM = latest twelve months as of September 30, 1999
EBITDA = earnings before interest, taxes, depreciation and amortization
(1) Market capitalization as of January 4, 2000
(2) Adds back rent expense related to operating leases
(3) Canadian National's LTM revenue is proforma to account for June 1999
acquisition of Illinois Central
Duff & Phelps compared each company's enterprise value (equity value plus
the value of debt and preferred stock, less cash) to EBITDA and revenues.
Following are the key valuation multiples of the comparable railroad companies.
- -----------------------------------------------------------------------------
Enterprise Value as a Multiple of Adj. Ent. Val./
Company LTM Projected LTM Adj. LTM
EBITDA EBITDA Revenues EBITDA(1)
- -----------------------------------------------------------------------------
Burlington Northern
Santa Fe Corp. 5.1x 4.8x 1.8x 6.0x
Canadian National
Railway (2) 6.1 5.3 2.3 NA
CSX Corporation 7.3 6.2 1.2 8.8
Norfolk Southern
Corp. 9.7 9.7 3.3 9.8
Union Pacific Corp. 6.5 5.5 1.9 7.3
Wisconsin Central 8.4 6.8 2.7 9.0
Transportation Corp.
Median 6.9x 5.8x 2.1x 8.8x
- -----------------------------------------------------------------------------
LTM = latest twelve months as of September 30, 1999
EBITDA = earnings before interest, taxes, depreciation and amortization
(1) Operating lease rent expense added back to EBITDA; debt grossed up
by capitalizing operating lease expense
(2) Financial performance for Canadian National is proforma to account
for June 1999 acquisition of Illinois Central
ANALYSIS OF INDUSTRY TRANSACTIONS. Duff & Phelps compared transactions
involving railroad companies that Duff & Phelps deemed comparable in terms of
qualitative and quantitative factors. Duff & Phelps noted that the most recent
announced transaction in the railroad industry, involving the proposed merger
of Burlington Northern Santa Fe Corp. and Canadian National Railway, did not
include a control premium.
Duff & Phelps used and relied on the information provided by and on behalf
of KCSI without independent verification thereof by Duff & Phelps. Duff &
Phelps assumed no responsibility for the accuracy or completeness of any
information provided by or on behalf of KCSI or any other information regarding
KCSI or the Distribution provided or otherwise made available to Duff & Phelps.
Duff & Phelps used generally accepted valuation and analytical techniques as
the basis for its opinions.
Duff & Phelps delivered such opinion on January 10, 2000, a copy of which
is included as an exhibit to the Registration Statement on Form 10 of which
this Information Statement is a part. 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-related individuals
who retire through December 31, 1999. 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, after December 31, 1999, Stilwell may request from KCSI
data tapes of historical financial and accounting records and information
applicable to Stilwell. The cost associated with the services to be provided
by KCSI will be a fixed dollar amount or percentage based on the estimated cost
to KCSI of providing such services. 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 will not exceed the amounts that would
have to be paid if such services 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-The Intercompany Agreement and the Tax Disaffiliation Agreement Contain
Indemnification Obligations of KCSI and Stilwell that KCSI and Stilwell May Not
be Able to Satisfy, Which Could Have a Material Adverse Effect on KCSI or
Stilwell."
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 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 16,000,000 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
trading price of Stilwell Common Stock to the total of the trading prices
of both KCSI Common Stock (excluding Stilwell) and Stilwell Common Stock.
For this purpose, the trading prices will be the closing prices of the
stocks on the New York Stock Exchange on the Distribution Date. 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 Stilwell 1998 Long Term Incentive Stock Plan (as amended and
restated effective August 11, 1999) ("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. Stilwell has adopted the Employee Stock Ownership Plan of
Stilwell (the "Stilwell ESOP") and, the Trustee has transferred the
Stilwell participant accounts to the Stilwell ESOP. The KCSI ESOP and the
Stilwell ESOP will participate in the Distribution. 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 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 FACILITIES
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. Management
has elected not to renew the Credit Facility upon expiration on May 13, 2000.
On January 11, 2000, KCSI arranged a new $200 million 364-day senior
unsecured competitive Advance/Revolving Credit Facility ("New Credit
Facility"). KCSI borrowed $125 million under this facility and used the
proceeds to retire other debt obligations. Stilwell has assumed the New Credit
Facility, including the $125 million borrowed thereunder, thereby reducing its
stockholders' equity. Upon such assumption, KCSI was released from all
obligations, and Stilwell became the sole obligor, under the New Credit
Facility. Stilwell may assign and delegate all or a portion of its rights and
obligations under the New Credit Facility to one or more of its domestic
subsidiaries. In March 2000, Stilwell repaid the $125 million borrowed under
the New Credit Facility.
Two borrowing options are available under the New Credit Facility: a
competitive advance option, which is uncommitted, and a committed revolving
credit option. Interest on the competitive advance option is based on rates
obtained from bids as selected by Stilwell in accordance with the lenders'
standard competitive auction procedures. Interest on the revolving credit
option accrues based on the type of loan (e.g., Eurodollar, Swingline, etc.),
with rates computed using LIBOR plus 0.35% per annum or, alternatively, the
highest of the prime rate, the Federal Funds Effective Rate plus 0.005% or the
Base Certificate of Deposit Rate plus 1%.
The New Credit Facility includes a facility fee of 0.15% per annum and a
utilization fee of 0.125% on the amount of outstanding loans under the New
Credit Facility for each day on which the aggregate utilization of the New
Credit Facility exceeds 33% of the aggregate commitments of the various
lenders.
The credit facilities include 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 facilities also contain 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. Based
on financial information as of March 31, 2000, Stilwell would have the ability
to fund the purchase of stock required if all such put rights had been
exercised without, in management's judgment, causing a breach of any of
Stilwell's current credit facility restrictions. See "Risk Factors-Stilwell
May be Required to Purchase or Sell Janus Common Stock." Stilwell has not
obtained the concurrence of its lenders with this judgment but the existence of
the Janus put rights was disclosed to those lenders at the time they provided
the existing credit facilities. In any event, if additional capital is needed
for operations or the honoring of the Janus put rights, management would not
necessarily rely on existing credit facilities but would likely seek to obtain
additional financing on substantially the same terms and conditions as existing
credit facilities.
The credit facilities contain customary events of default, including, but
not limited to, failure by Stilwell to satisfy its obligations under the credit
facilities, a change of control of Stilwell, events of bankruptcy, insolvency
and reorganization and other material indebtedness defaults by Stilwell. See
"Risk Factors-Stilwell's Credit Facilities Impose Restrictions on Stilwell's
Ability to Conduct Business and may not be Sufficient to Satisfy Stilwell's
Capital and Operating Requirements" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
NEED FOR ADDITIONAL FINANCING
The timing of Stilwell's future capital requirements 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, has provided an
intercompany credit facility to Janus for use by Janus for general corporate
purposes, effectively reducing the amount of the credit facilities available
for Stilwell's other purposes. 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. If all such Janus puts would have been exercised on April 1,
2000, the required payment would have been approximately $833 million. As of
March 31, 2000, Stilwell had $200 million in credit facilities available,
owned securities with a market value in excess of $1.3 billion and had cash
balances at the Stilwell holding company level in excess of $148 million. To
the extent that these resources would have been insufficient to fund its
purchase obligations, Stilwell had access to the capital markets and, with
respect to shares purchased under the Janus Stock Purchase Agreement, would
have had 120 days to raise additional sums. Stilwell intends to obtain any
additional financing for general corporate purposes on terms and conditions
substantially similar to the Credit Facility and New Credit Facility. There
may not be any required additional capital 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-Stilwell's Credit
Facilities Impose Restrictions on Stilwell's Ability to Conduct Business and
may not be Sufficient to Satisfy Stilwell's Capital and Operating Requirements"
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 December 31, 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.
December 31, 1999
Actual Pro Forma
------ ---------
(in millions)
Debt obligations(1) $ -- $ 125.0
-------- ---------
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;
(221,147,660 issued and outstanding,
as adjusted) (2) -- 2.2
Net investment by KCSI 106.8 --
Retained Earnings 598.9 473.9
Accumulated other comprehensive income 108.9 108.9
Additional paid-in capital -- 104.6
------ ------
Total Equity 814.6 689.6
------ ------
Total Capitalization $ 814.6 $814.6
======= ======
(1) On January 11, 2000, KCSI arranged a new $200 million 364-Day Senior
Unsecured Competitive Advance/Revolving Credit Facility which has been
assumed by Stilwell. Approximately $125 million was outstanding upon
assumption of the New Credit Facility. See "Financing-Description of
the Credit Facilities."
(2) Based on an assumed two shares of Stilwell Common Stock for every one
share of KCSI Common Stock. There were 110,573,830 shares of KCSI
Common Stock issued and outstanding at December 31, 1999. Excludes an
estimated 17,122,324 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
To date, Stilwell has not declared or paid any dividends on the Stilwell
Common Stock, but it anticipates paying cash dividends following the
Distribution. The payment of dividends by Stilwell is subject to the
discretion of its Board of Directors, and various factors may prevent it from
paying dividends. These factors include 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 may consider relevant. As a
holding company, Stilwell's ability to pay dividends is dependent on the
dividends and income it receives from its subsidiaries. At the present time
Stilwell's primary source of cash is dividends received from Janus. In 1999,
Stilwell received $173.2 million in dividends from Janus. Additionally, for
the year ended December 31, 1999, Janus represented 95% of Stilwell's revenues
and 91% of Stilwell's net income. The payment of dividends by Janus is subject
to the discretion of its Board of Directors. Although Stilwell has a
contractual obligation to cause such payment, Mr. Bailey has the right to
nominate a majority of that Board, on the basis provided in the Janus Stock
Purchase Agreement. Such majority of directors may determine in their
discretion that Janus will not pay dividends for any given year. See "Risk
Factors-Various Factors May Hinder the Declaration and Payment of Dividends by
Stilwell Following the Distribution," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 15 to the Stilwell
consolidated financial statements.
<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, 1999 was
derived from the audited consolidated financial statements of Stilwell.
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 December 31, 1999 (1,000 shares outstanding), pro forma earnings per
share information is presented for the year ended December 31, 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 December 31, 1999.
In addition, dilutive options were included based on the number of dilutive
KCSI stock options assumed to be exercised as of December 31, 1999 in
connection with the determination of KCSI's diluted earnings per share
computations. Pro forma basic and diluted earnings per share reflect
adjustments for interest expense (at an assumed rate of 6.5%), net of income
taxes assumed to be incurred as if the assumption of $125 million of
indebtedness from KCSI had occurred as of January 1, 1999. See "Financing-
Description of the Credit Facilities."
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 (i) 1996 (ii) 1997 1998 (iii) 1999
---- ---- ---- ---- ----
(Dollars in Millions, except per share data)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
- --------------
INCOME STATEMENT
DATA:
Revenues $236.7 $329.6 $485.1 $670.8 $1,212.3
Operating expenses 156.5 197.8 285.9 390.2 694.0
------ ------ ------ ------ --------
Operating Income 80.2 131.8 199.2 280.6 518.3
Equity in earnings
of unconsolidated
affiliates 29.6 68.6 24.9 25.8 46.7
Reduction in
ownership of DST -- -- -- (29.7) --
Gain on sale
of DST 296.3 -- -- -- --
Other, net 3.7 8.2 5.8 12.6 21.5
------ ------ ------ ------ --------
Pretax Income 409.8 208.6 229.9 289.3 586.5
Income tax
provision 181.3 58.2 87.0 103.7 216.1
Minority interest 10.5 15.8 24.9 33.4 57.3
------ ------ ------ ------ --------
Net Income $218.0 $134.6 $118.0 $152.2 $ 313.1
====== ====== ====== ====== ========
Per Share Data:
Weighted Average
Common shares
outstanding 1,000 1,000 1,000 1,000 1,000
Basic Earnings
per share $218,000 $134,600 $118,000 $152,200 $313,100
Diluted Earnings
per share 218,000 134,000 117,400 149,900 308,300
Pro Forma
Per Share Data:
Common shares
outstanding (in
thousands) 221,148
Basic Earnings per share $ 1.39
Diluted Common
shares outstanding
(in thousands) 229,416
Diluted Earnings per share $ 1.32
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets $475.2 $548.2 $672.6 $822.9 $1,231.5
Long term obligations:
Third Parties 0.4 0.1 -- -- --
KCSI -- 117.3 84.1 16.6 --
Cash dividends per
Common share n/a n/a n/a n/a n/a
OPERATING DATA:
- --------------
Total Assets Under
Management
(in billions) $ 34.5 $ 50.3 $ 71.6 $113.1 $257.4
Total Shareowner
Accounts
(in millions) 2.5 2.5 2.7 3.0 4.3
<FN>
<F1>
(i) 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.
<F2>
(ii) 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 Computer Sciences Corporation in a tax-free share exchange.
<F3>
(iii) 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 those factors identified in the
section of this Information Statement which identifies risk factors, which
are hereby incorporated by reference herein or by other factors which
Stilwell has not yet identified. 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 period 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. As
discussed below, the Company is in discussions with the Staff of the
Securities and Exchange Commission as to whether or not Janus Capital
Corporation should continue to be classified as a consolidated subsidiary for
financial reporting purposes. The outcome of these discussions could result
in the Company restating certain of its consolidated financial statements to
reflect Janus as a majority-owned unconsolidated subsidiary accounted for
under the equity method for financial reporting purposes. 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.
RESULTS OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
Consolidated operating results from 1997 to 1999 were affected by the
following significant developments.
SALE OF JANUS STOCK. In the first quarter of 2000, Stilwell sold to
Janus, for treasury, 192,408 shares of Janus common stock and such shares will
be available for awards under Janus' recently adopted Long Term Incentive Plan.
Janus has agreed that for so long as it has available shares of Janus common
stock for grant under that plan, it will not award phantom stock, stock
appreciation rights or similar rights. In first quarter 2000, Janus issued
35,670 shares of its stock to Janus employees as restricted stock. The sale of
shares by Stilwell and the reissuance of shares to Janus employees as
restricted stock resulted in an after-tax gain to Stilwell of approximately
$15.1 million and reduced Stilwell's ownership of Janus to approximately 81.5%.
See Note 16 to the Stilwell consolidated financial statements.
LITIGATION SETTLEMENT. In January 2000, Stilwell received approximately
$44 million in connection with the settlement of a legal dispute related to a
former equity investment. The settlement agreement resolves all outstanding
issues related to this former equity investment. In the first quarter of 2000,
Stilwell recognized an after-tax gain of approximately $26 million as a result
of this settlement.
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.
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.
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 81.5% owned subsidiary; Berger, of which SMI owns 100%
of the Berger preferred limited liability company interests and approximately
86% of the Berger regular limited liability company interests; Nelson, an 80%
owned subsidiary; DST, an equity investment in which SMI holds an approximate
32% interest; and the Miscellaneous Corporations. KCSI transferred to
Stilwell KCSI's ownership interests 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.
YEAR TO YEAR COMPARISONS
Stilwell's revenues, operating income and net income (with subsidiary
information exclusive of amortization and interest costs attributed to the
respective subsidiary) were as follows (in millions):
December 31,
1997 1998 (i) 1999
---- ---- ----
REVENUES:
Janus $450.1 $626.2 $1,155.3
SMI and Berger 34.9 33.5 40.0
Other 0.1 11.1 17.0
------ ------ --------
Total $485.1 $670.8 $1,212.3
====== ====== ========
OPERATING INCOME (LOSS):
Janus $226.6 $296.7 $ 539.5
SMI and Berger 3.8 4.9 2.9
Other (31.2) (21.0) (24.1)
------ ------ --------
Total $199.2 $280.6 $ 518.3
====== ====== ========
NET INCOME (LOSS):
Janus $119.9 $164.0 $ 284.1
SMI and Berger 2.7 3.9 4.4
Other (4.6) (15.7) 24.6
------ ------ --------
Total $118.0 $152.2 $ 313.1
====== ====== ========
(i) 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,
1997 1998 1999
---- ---- ----
JANUS
Janus Advised Funds
Janus Investment Funds (i) $48.7 $ 75.9 $171.8
Janus Aspen Series (ii) 3.3 6.2 17.4
Janus Money Market Funds 2.6 4.8 1.4
Janus World Funds Plc (iii) -- 0.1 9.4
----- ------ ------
Total Janus Advised Funds 54.6 87.0 200.0
Janus Sub-Advised Funds
and Private Accounts 13.2 21.3 49.5
----- ------ ------
Total Janus 67.8 108.3 249.5
----- ------ ------
BERGER
Berger Advised Funds 3.2 3.3 5.7
Berger Sub-Advised Funds and
Private Accounts 0.6 0.4 0.9
----- ------ ------
Total Berger 3.8 3.7 6.6
----- ------ ------
NELSON (iv) -- 1.1 1.3
----- ------ ------
Total Assets Under Management $71.6 $113.1 $257.4
===== ====== ======
(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.
(iv) Acquired in April 1998.
Stilwell reported 1999 net income of $313.1 million, an increase of 106%
compared to $152.2 million in 1998. Exclusive of the one-time charges
associated with the DST merger in 1998, net income was $137.7 million (79%)
higher than 1998. Revenues increased $541.5 million, or 81%, over 1998,
leading to higher operating income. Efforts to maintain costs consistent
with the level of revenues resulted in an operating margin of 43%, improved
over the 42% in 1998. Total assets under management increased $144.3 billion
(128%) during 1999, reaching $257.4 billion at December 31, 1999. Total
shareowner accounts exceeded 4.3 million as of December 31, 1999, a 43%
increase over 1998. Equity earnings from DST for the year ended December 31,
1999 increased 45% versus comparable 1998 (exclusive of fourth quarter
merger-related costs).
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
$42.8 million, or 32%, 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 $41.5 billion, or 58%, during 1998,
reaching $113.1 billion at December 31, 1998. Total shareowner accounts
exceeded three million as of December 31, 1998, a 12% increase over 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
1999
In 1999, assets under management increased 130.5% to $249.5 billion from
$108.3 billion, as a result of net sales of $56.3 billion and market
appreciation of $84.9 billion. Equity portfolios comprise 95% of all assets
under management at the end of 1999.
Excluding money market funds, 1999 net sales of Janus Investment Funds,
Janus Aspen Series and Janus World Funds were $42.2 billion and net sales of
the Janus Subadvised Funds and Private Accounts totaled $10.0 billion. Total
Janus shareowner accounts increased over 1.3 million, or 49%, to 4.1 million.
Investment management, shareholder servicing and fund administration
revenue increased $529.1 million, or 85% in 1999, to $1.2 billion as a result
of the increase in assets under management. Aggregate fee rates declined from
1997 to 1999.
Operating expenses increased 87% from $329.5 million to $615.8 million
in 1999 as a result of the significant increase in assets under management,
additional employees, facilities and other infrastructure-related costs.
Approximately 56% of Janus' 1999 operating expenses consist of variable costs
that generally increase or decrease with fluctuations in management fee
revenue. An additional 15% of operating expenses (principally advertising,
promotion, sponsorships, pension plan and other contributions) are
discretionary on a short-term basis.
The following highlights changes in key expenses in 1999 from 1998:
- - Employee compensation and benefits increased $144 million, or 91%,
primarily attributable to increased incentive and base compensation.
Additionally, Janus experienced significant overtime compensation,
which was required to manage the rapid growth in investor activity.
Incentive compensation increased due to the growth in management fee
revenue and achievement of investment and financial performance goals.
For the twelve months and thirty-six months ended December 31, 1999,
over 99% of assets under management were ranked within the first
quartile of investment performance as compared to their respective peer
groups and over 97% outperformed their respective index (as defined
pursuant to compensation agreements). Base compensation increased due
to a 68% increase in full-time employees from approximately 1,300 at
the end of 1998 to approximately 2,200 at December 31, 1999.
- - Fees paid to alliance and mutual fund supermarket increased $77 million,
or 124%, due principally to the growth in assets under management being
distributed through these channels. Such assets increased from $32.3
billion at December 31, 1998 to $82.4 billion at December 31, 1999.
- - Marketing, promotional and advertising expenditures increased 41% to
$56.9 million. Janus continued to promote brand awareness through
print, television and radio media channels.
- - Depreciation and amortization increased $9.8 million, or 141%, due to
continued infrastructure spending discussed below.
- - Sales commissions paid in 1999 related to sales of certain fund shares,
known as B shares, in Janus World Funds Plc. These payments increased
by $29.5 million to $31.7 million from $2.2 million in 1998.
Amortization of these payments amounted to $8.1 million and $154,000 in
1999 and 1988, respectively.
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 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 $2.6 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 $329.5 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. The levels of profitability sustained in the
recent past may not 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.
GENERAL
The growth in Janus' assets under management over the past several years
is a function of several factors including, among others: (i) market-leading,
exceptional investment performance for the one and three year periods and for
the life of fund for most mutual funds under management; (ii) strong equity
securities markets worldwide; (iii) a strong brand awareness; and (iv)
effective use of third party distribution channels for both retail and sub-
advised products.
Since 1996, Janus has introduced eight new domestic funds -- four in the
Janus Investment Funds and four in the Janus Aspen Series. Additionally, to
continue to achieve optimal results for investors, Janus closed two of its
most popular funds recently. With assets growing substantially during the
year, Janus Twenty Fund was closed in April 1999 and Janus Global Technology
Fund was closed in January 2000. In December 1999, Janus announced plans to
open Janus Strategic Value Fund, which opened in early 2000.
International, or offshore, operations increased assets under management
by $1.4 billion in 1999, due to $1.1 billion in net sales and $337 million in
market appreciation. Most of this growth was in the Janus World Funds which
is a group of offshore multiclass funds introduced in December 1998 modeled
after certain of the Janus Investment Funds and domiciled in Dublin, Ireland.
These operations incurred an operating loss of $7.8 million (before taxes).
Due to significant expansion currently underway, such operations are not
expected to generate a profit in 2000. The majority of Janus World Funds
sales were made into the funds' class B shares, which require Janus to
advance sales commissions to various financial intermediaries. Janus paid
$29.5 million in commissions during 1999. Amounts paid for commissions were
not material in 1998. Continued growth in these funds may impact liquidity
and cash resources. See "Results of Operations-Liquidity."
In 1999 and 1998, Janus invested more than $56 million and $37 million,
respectively, on infrastructure development 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. Net occupied lease space
increased by 251,000 square feet during 1999 to 686,000 square feet, with
commitments to occupy an additional 67,000 square feet by March 2000.
Infrastructure efforts in 1999 focused on the following:
- - Increases in shareholder servicing capacity. Over 170,000 square feet
was added in Denver and Austin to accommodate additional telephone
representatives and shareholder processing personnel. Additions to
telephone infrastructure were made during 1999 that allow for over
2,600 concurrent investor service calls to be received versus
approximately 1,600 at the start of 1999. Additionally, XpressLine,
Janus' automated call system, was expanded to handle 218,000 calls per
day and 35,000 calls per hour.
- - Continued development and enhancement of Janus' web site. In 1999,
features were added to allow investors to execute most transactions
(purchases, redemptions and exchanges) on-line, to access account
information on-line, to select the preferred method of statement
delivery (paper or electronic), to allow a Janus Investor Services
representative to access copies of shareholder statements to assist
with investor questions, and to provide information for institutional
relationships. Capacity was expanded to handle over 300,000 visits per
day. Janus intends to maintain a 100% web capacity reserve.
Infrastructure efforts in 1998 included the following:
- - 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 respective personal Janus home pages 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.
SMI AND BERGER
- --------------
1999
Berger reported 1999 net earnings of $4.4 million compared to $3.9
million in 1998, exclusive of $4.5 million in holding company amortization
charges attributed to the investment in Berger in 1999 and 1998. Total
assets under management held by the Berger funds as of December 31, 1999
increased to $6.6 billion, up 78% from the $3.7 billion as of December 31,
1998. This increase resulted from market appreciation of $2.3 billion and
net sales of $0.6 billion. Total Berger shareowner accounts decreased
approximately 13% during 1999, primarily within Berger funds introduced prior
to 1997 (e.g., Berger Growth Fund - formerly the Berger One Hundred Fund and
the Berger Growth & Income Fund, formerly the Berger One Hundred and One
Fund). In contrast, the number of accounts in the funds introduced since
1997 increased 56% year to year. These fluctuations in shareowner accounts
generally are indicative of recent performance compared to peer groups.
Due to the increased level of assets under management throughout 1999,
revenues increased approximately 19% compared to 1998. Berger's 1999
operating expenses increased approximately $8.5 million (30%) over 1998,
resulting in lower operating margins in 1999 versus 1998. This increase in
expenses was primarily due to higher salaries and wages costs in second and
third quarters associated with management realignment and a change in
corporate structure as discussed below. Without these reorganization costs,
margins improved approximately four percentage points. Higher costs also
occurred in third party distribution costs and investment performance-based
incentive compensation.
Berger recorded $2.3 million in equity earnings from its joint venture
investment, BBOI Worldwide LLC ("BBOI"), for the year ended December 31, 1999
compared to $1.5 million in 1998. This increase reflects continued growth in
BBOI assets under management, which totaled $943 million at December 31, 1999
versus $522 million at December 31, 1998 (including, in both years, private
accounts not reported in Berger's total assets under management). However, as
discussed previously, Berger and BIAM have entered into a plan to dissolve
BBOI in the first half of 2000.
1998
Berger reported 1998 net earnings of $3.9 million compared to $2.7 million
in 1997, exclusive of amortization charges attributed to Berger in both years.
Total assets under management held by the Berger Complex declined slightly to
$3.7 billion as of December 31, 1998. This decline was attributable to market
appreciation of $0.6 billion, more than offset by net redemptions of $0.7
billion. While total Berger shareowner accounts decreased approximately 13%
during 1998, primarily within the Berger Growth 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 (including, in both years, private accounts not
reported in Berger's total assets under management) $522 million at December
31, 1998 versus $161 million at December 31, 1997.
GENERAL
- -------
BERGER LLC FORMATION AND OWNERSHIP HISTORY. On September 30, 1999, Berger
Associates, Inc. ("BAI") assigned and transferred its operating assets and
business to its subsidiary, Berger LLC, a limited liability company. In
addition, BAI changed its name to Stilwell Management, Inc. ("SMI"). SMI
owns 100% of the preferred limited liability company interests and
approximately 86% of the regular limited liability company interests in
Berger. The remaining 14% of regular limited liability company interests
were issued to key SMI and Berger employees, resulting in a non-cash
compensation charge. Additionally, in late 1999 Stilwell contributed to SMI
the approximate 32% investment in DST.
Prior to the change in corporate form discussed above, the Company owned
100% of BAI. The Company increased its ownership in BAI to 100% during 1997
as a result of BAI's purchase, for treasury, of common stock from minority
shareholders and the acquisition by KCSI of additional BAI shares from a
minority shareholder through the issuance of 330,000 shares of KCSI common
stock. In connection with these transactions, BAI granted options to acquire
shares of its stock to certain employees. All of the outstanding options
were cancelled upon formation of Berger. This transaction resulted in
approximately $17.8 million of goodwill, which is being amortized over 15
years. However, the Company recorded a $12.7 million impairment of goodwill
associated with the investment in Berger. The Company determined that a
portion of the goodwill recorded in connection with the Berger investment was
not recoverable, primarily due to below-peer performance and growth of the
core Berger funds in 1996 and 1997.
The Company's 1994 acquisition of a controlling interest in BAI was
completed under a Stock Purchase Agreement ("BAI SPA") covering a five-year
period ending in October 1999. Pursuant to the BAI SPA, the Company was
required to make additional purchase price payments based upon BAI attaining
certain incremental levels of assets under management up to $10 billion by
October 1999. The Company paid $3.0 million under this BAI SPA in 1999. No
payments were made during 1998. In 1997, the Company made additional
payments of $3.1 million. These payments represent adjustments to the
purchase price and the resulting goodwill is being amortized over 15 years.
During the period from 1997 to 1999, Berger introduced six 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; the Berger Select Fund;
and, most recently, the Berger Information Technology Fund. These funds held
approximately $1.5 billion of assets under management at December 31, 1999,
more than three times the $493 million at December 31, 1998. The core Berger
funds (i.e., those introduced by Berger prior to 1997) gained more than $1.4
billion in assets under management during 1999, reversing these funds'
experience during 1998 and 1997.
In second quarter 1999, Berger appointed a new president and chief
executive officer and realigned the management of several of its advised
funds, including the Berger Growth Fund, the Berger Balanced Fund and the
Berger Select Fund. Berger believes these changes improve its opportunity for
growth in the future.
At December 31, 1999 and 1998, approximately 28.0% and 27.6%,
respectively, of Berger's total assets under management were generated
through mutual fund supermarkets and other third party distribution channels.
NELSON MONEY MANAGERS PLC
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 $1.3 billion
((Pound)844 million) in assets as of December 31, 1999. 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.
1999
For the year ended December 31, 1999, Nelson reported a net loss of $1.4
million compared to net income of $0.6 million for the period from
acquisition to December 31, 1998 (exclusive of holding company amortization
costs attributed to the investment in Nelson in both years). This decline
resulted from Nelson's efforts to expand its revenue base through the use of
its proprietary investment services in broader markets, as well as through
brand-awareness and marketing programs initiated late in second quarter 1999.
Revenues, which are earned based on a percentage of funds under management
together with a fee on the client's initial investment, were higher in 1999
compared to 1998 due to higher assets under management and inclusive of a
full year of Nelson revenues. Costs were higher in 1999, indicative of
Nelson's growth efforts. Specifically, increases occurred in salaries and
wages (reflecting growth in the number of employees), administration costs
(infrastructure and training efforts) and advertising costs.
1998
Nelson contributed $0.6 million to consolidated net income in 1998
(exclusive of the $1.3 million of holding company amortization charges
attributed to the investment in Nelson), reflecting the nine months of
results since being acquired by KCSI. Nelson revenues were $11.1 million for
the period from acquisition to year end 1998. 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
Equity earnings from DST totaled $44.4 million for 1999 versus $30.6
million in 1998 (exclusive of one-time fourth quarter merger-related
charges). Improvement in revenues, operating margins and DST's equity
earnings of unconsolidated affiliates contributed to this increase year to
year, as did the required capitalization of internal use software development
costs totaling approximately $20.9 million (DST's pretax total).
Consolidated DST revenues increased 9.8% over the prior year, reflecting
higher financial services and output solutions revenues. U.S. mutual fund
shareowner accounts processed increased to 56.4 million compared to 49.8
million as of December 31, 1998.
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.
INTEREST EXPENSE AND OTHER, NET
Fluctuations in interest expense from 1997 through 1999 reflect
declining average debt balances over the period. The effect on interest
resulting from these lower balances was partially offset by a modest increase
in charges on other interest-bearing balances during the three year period.
Interest expense in 1999 reflects this trend as the decline in debt-related
interest from 1998 exceeded the increase resulting from higher average
balances for other interest-bearing balances. Average debt balances in 1998
were lower than 1997 due to repayments of outstanding balances early in 1998;
accordingly, 1998 interest expense declined from 1997. Interest expense in
1997 reflected borrowings in connection with KCSI common stock repurchases.
Other, net for full year 1999 increased $17.1 million compared to 1998,
exclusive of the $8.8 million (pretax) gain on the sale of Janus' 50%
interest in IDEX Management, Inc. ("IDEX"). Janus continues as sub-advisor
to the five portfolios in the IDEX group of mutual funds it served prior to
the sale. This increase year-to-year resulted from the following: i)
realized gains by Janus and Berger on the sale of short-term investments; ii)
higher interest income resulting from an increase in cash; iii) an increase
in investment income; and iv) gains resulting from the issuance of Janus
shares to certain of its employees. Other, net increased in 1998 versus 1997
as a result of the gain on the sale of IDEX, partially offset by reduced 1998
other income recorded at the financial services holding company level
relating to a sales agreement with a former affiliate.
STILWELL TRENDS AND OUTLOOK
Future growth of Stilwell's revenues and operating income is 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>
Year Ended December 31,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by (used for):
Operating activities $147.4 $176.0 $358.2
Investing activities (15.4) (51.9) (45.2)
Financing activities (91.1) (95.3) (127.4)
------ ------ ------
Net increase (decrease) in cash
and cash equivalents 40.9 28.8 185.6
Cash and cash equivalents at beginning
of period 68.8 109.7 138.5
------ ------ ------
Cash and cash equivalents at end
of period $109.7 $138.5 $324.1
====== ====== ======
</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):
Year Ended December 31,
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Net income $118.0 $152.2 $313.1
Depreciation and amortization 13.1 16.8 35.4
Equity in undistributed earnings (24.7) (24.7) (46.4)
Reduction in ownership of DST -- 29.7 --
Asset impairment charges 15.7 -- --
Employee deferred compensation 8.7 3.8 5.2
Deferred income taxes (4.4) (12.4) 11.8
Minority interest in consolidated
earnings 24.9 33.4 57.3
Change in working capital items (4.2) (12.3) 10.4
Prepaid Commissions -- -- (29.5)
Other 0.3 (10.5) 0.9
------ ------ ------
Net operating cash flow $147.4 $176.0 $358.2
====== ====== ======
</TABLE>
Operating cash flows for the year ended December 31, 1999 exceeded 1998
by $182.2 million, primarily due to higher net income, partially offset by
deferred commission payments by Janus from sales of Janus World Fund shares.
Operating cash flows for the year ended December 31, 1998 increased by $28.6
million compared to 1997. This increase was attributable to higher ongoing
earnings in 1998, offset by various changes in working capital items.
INVESTING CASH FLOWS. Stilwell used investing cash for property
acquisitions of $5.8, $35.0 and $50.5 million in 1997, 1998 and 1999,
respectively. The significant increase in property acquisitions in 1998 and
1999 reflects the infrastructure enhancements at Janus. Investments in and
loans with affiliates totaled $12.0, $24.3 and $17.5 million during 1997,
1998 and 1999, respectively. The 1998 activity reflects the acquisition of
Nelson in April. The 1999 activity relates to repurchases of Janus common
stock by Janus, which resulted in additional goodwill associated with the
Stilwell Financial, Inc. investment in Janus. Net sales of investments in
advised funds in 1999 were $16.6 million compared to net purchases of $2.2
million in 1998 and $1.4 million in 1997.
FINANCING CASH FLOWS. For the years ended December 31, 1997, 1998 and
1999, the net activity with KCSI resulted in cash payments to KCSI of $73.7,
$55.1 and $89.3 million, respectively. Generally, these net outflows to KCSI
represent dividends received by Stilwell from Janus and Berger treated as
passed through to KCSI (after satisfaction of ongoing Stilwell operational
obligations), as well as repayments of indebtedness to KCSI. In 1998, the net
activity declined from 1997 reflecting the repayment of indebtedness to KCSI,
partially offset by amounts treated as transfers to Stilwell associated with
Stilwell's acquisition of 80% of Nelson.
During the period from 1997 to 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 and "Capital-Stilwell/KCSI Credit
Agreements" for information on the assumption by Stilwell of $125 million of
indebtedness in January 2000.
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 1997 to 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,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Debt due within one year $ 0.1 $ -- $ --
Long-term debt (third parties and KCSI) 84.1 16.6 --
------ ------ ------
Total debt (third parties and KCSI) 84.2 16.6
Stockholder's equity 348.3 540.2 814.6
------ ------ ------
Total debt plus equity $432.5 $556.8 $814.6
====== ====== ======
Total debt as a percent of
total debt plus equity 19.5% 3.0% 0.0%
====== ====== ======
</TABLE>
During the period from December 31, 1997 to 1999, 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 December 31, 1999, the full $100 million was available under the
Credit Facility. Management has elected to not renew the Credit Facility upon
its expiration on May 13, 2000.
On January 11, 2000, KCSI arranged a new $200 million 364-day senior
unsecured competitive Advance/Revolving Credit Facility ("New Credit
Facility"). KCSI borrowed $125 million under this facility and used the
proceeds to retire other debt obligations. Stilwell has assumed the New Credit
Facility, including the $125 million borrowed thereunder, thereby reducing its
stockholders' equity. Upon such assumption, KCSI was released from all
obligations, and Stilwell became the sole obligor, under the New Credit
Facility. Stilwell may assign and delegate all or a portion of its rights and
obligations under the New Credit Facility to one or more of its domestic
subsidiaries. In March 2000, Stilwell repaid the $125 million borrowed under
the New Credit Facility.
Two borrowing options are available under the New Credit Facility: a
competitive advance option, which is uncommitted, and a committed revolving
credit option. Interest on the competitive advance option is based on rates
obtained from bids as selected by Stilwell in accordance with the lenders'
standard competitive auction procedures. Interest on the revolving credit
option accrued based on the type of loan (e.g., Eurodollar, Swingline, etc.),
with rates computed using LIBOR plus 0.35% per annum or, alternatively, the
highest of the prime rate, the Federal Funds Effective Rate plus 0.005% or the
Base Certificate of Deposit Rate plus 1%.
Stilwell, as a continuation of its practice of providing credit facilities
to its subsidiaries, has provided an intercompany credit facility to Janus for
use by Janus for general corporate purposes, effectively reducing the amount of
the credit facilities available for Stilwell's other purposes. 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 and New Credit Facility.
The credit facilities contain a number of covenants, including various
financial covenants. With respect to the Credit Facility, Stilwell was in
compliance with these various provisions, including the financial covenants, as
of December 31, 1998 and 1999. Because of certain financial covenants
contained in the credit facilities, however, maximum utilization of Stilwell's
lines of credit may be restricted. Based on financial information as of March
31, 2000, Stilwell would have the ability to fund the purchase of stock
required if all such put rights had been exercised without, in management's
judgment, causing a breach of any of Stilwell's current credit facility
restrictions. See "Risk Factors-Stilwell May be Required to Purchase or Sell
Janus Common Stock." Stilwell has not obtained the concurrence of its lenders
with this judgment but the existence of the Janus put rights was disclosed to
those lenders at the time they provided the existing credit facilities. In any
event, if additional capital is needed for operations or the honoring of the
Janus put rights, management would not necessarily rely on existing credit
facilities but would likely seek to obtain additional financing on
substantially the same terms and conditions as existing credit facilities.
MINORITY PURCHASE AGREEMENTS. A stock purchase agreement with Thomas H.
Bailey ("Mr. Bailey"), Janus' Chairman, President and Chief Executive
Officer, and another Janus stockholder (the "Janus Stock Purchase Agreement")
and certain restriction agreements with other Janus minority stockholders
contain, among other provisions, mandatory put rights whereby under certain
circumstances, Stilwell would be required to purchase the minority interests
of such Janus minority stockholders at a fair market value purchase price
equal to fifteen times the net after-tax earnings over the period indicated
in the relevant agreement, or in some circumstances as determined by an
independent appraisal. The purchase price will be determined by independent
appraisal if the appraisal process is elected by either the selling
stockholder or Stilwell, except that no appraisal process is applicable to
shares held by Mr. Bailey and one other stockholder. Under the Janus Stock
Purchase Agreement, termination of Mr. Bailey's employment could require a
purchase and sale of the Janus common stock held by him. If other minority
holders terminated their employment, some or all of their shares also could
be subject to mandatory purchase and sale obligations. Certain other
minority holders who continue their employment also could exercise puts. If
all of the mandatory purchase and sale provisions and all the puts under such
Janus minority stockholder agreements were implemented, Stilwell would have
been required to pay approximately $833 million as of March 31, 2000,
compared to $789, $447 and $337 million at December 31, 1999, 1998 and 1997,
respectively. In the future these amounts may be higher or lower depending on
Janus' earnings, fair market value and the timing of the exercise. Payment
for the purchase of the respective minority interests is to be made under the
Janus Stock Purchase Agreement within 120 days after receiving notification
of exercise of the put rights. Under the restriction agreements with certain
other Janus minority stockholders, 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 or Stilwell, Stilwell may be required to purchase
such holders' Janus stock or, as to the stockholders that are parties to the
Janus Stock Purchase Agreement, at such holders' option, to sell its Janus
stock to such minority stockholders. The price for such purchase or sale
would be at a fair market value purchase price equal to fifteen times the net
after-tax earnings over the period indicated in the relevant agreement, or in
some circumstances as determined by Janus' Stock Option Committee or as
determined by an independent appraisal. If Stilwell had been required to
purchase the holders' Janus common stock after a Change in Ownership as of
March 31, 2000, the purchase price would have been approximately $1.14
billion (reduced by the amount paid upon exercise of any mandatory put
rights) (see additional information in Note 13 to the Stilwell consolidated
financial statements).
Stilwell would account for any such purchase as the acquisition of a
minority interest under Accounting Principles Board Opinion No. 16, Business
Combinations.
As of March 31, 2000, Stilwell had $200 million in credit facilities
available, owned securities with a market value in excess of $1.3 billion and
had cash balances at the Stilwell holding company level in excess of $148
million. To the extent that these resources would have been insufficient to
fund its purchase obligations, Stilwell had access to the capital markets
and, with respect to shares purchased under the Janus Stock Purchase
Agreement, had 120 days to raise additional sums.
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
cash in a money market or similar account.
Pursuant to the Janus Stock Purchase 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
plans have included, among others, repayment of indebtedness to KCSI, funding
in connection with KCSI's Common Stock repurchase program, and investments in
affiliates. Subsequent to December 31, 1999, Janus' Board of Directors
declared and Janus paid approximately $100 million in dividends, of which
approximately $17.9 million was paid to minority stockholders.
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
year ended December 31, 1999 totaled $29.5 million. As funding requirements
grow in future years, Janus expects to obtain a credit line either through
assignment of the New 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 during 2000.
OTHER
JANUS CAPITAL CORPORATION
The Janus Stock Purchase Agreement, as amended, provides that so long as
Mr. Bailey is a holder of at least 5% of the common stock of Janus and
continues to be employed as President or Chairman of the Board of Janus (or,
if he does not serve as President, James P. Craig, III serves as President
and Chief Executive Officer or Co-Chief Executive Officer with Mr. Bailey),
Mr. Bailey shall continue to establish and implement policy with respect to
the investment advisory and portfolio management activity of Janus. The
agreement also provides that, in furtherance of such objective, so long as
both the ownership threshold and officer status conditions described above
are satisfied, Stilwell will vote its shares of Janus common stock to elect
directors of Janus, at least the majority of whom are selected by Mr. Bailey,
subject to Stilwell's approval, which approval may not be unreasonably
withheld. The agreement further 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
Stilwell and Mr. Bailey.
Stilwell does not believe Mr. Bailey's rights under the Janus Stock
Purchase Agreement are "substantive," within the meaning of Issue 96-16 of
the Emerging Issue Task Force ("EITF 96-16") of the Financial Accounting
Standards Board, because Stilwell can terminate those rights at any time by
removing Mr. Bailey as an officer of Janus. Stilwell also believes that the
removal of Mr. Bailey would not result in significant harm to Stilwell based
on the factors discussed below. Colorado law provides that removal of an
officer of a Colorado corporation may be done directly by its stockholders if
the corporation's bylaws so provide. While Janus' bylaws contain no such
provision currently, Stilwell has the ability to cause Janus to amend its
bylaws to include such a provision. Under Colorado law, Stilwell could take
such action at an annual meeting of stockholders or make a demand for a
special meeting of stockholders. Janus is required to hold a special
stockholders' meeting upon demand from a holder of more than 10% of its
common stock and to give notice of the meeting to all stockholders. If
notice of the meeting is not given within 30 days of such a demand, the
District Court is empowered to summarily order the holding of the meeting.
As the holder of more than 80% of the common stock of Janus, Stilwell has the
requisite votes to compel a meeting and to obtain approval of the required
actions at such a meeting.
Stilwell has concluded, supported by an opinion of legal counsel, that
it could carry out the above steps to remove Mr. Bailey without breaching the
Janus Stock Purchase Agreement and that if Mr. Bailey were to challenge his
removal by instituting litigation, his sole remedy would be for damages and
not injunctive relief and that Stilwell would likely prevail in that
litigation.
Although Stilwell has the ability to remove Mr. Bailey, it has no
present plan or intention to do so, as he is one of the persons regarded as
most responsible for the success of Janus. The consequences of any removal
of Mr. Bailey would depend upon the timing and circumstances of such removal.
Mr. Bailey could be required to sell, and Stilwell could be required to
purchase, his Janus common stock, unless he were terminated for cause.
Certain other Janus minority stockholders would also be able, and, if they
terminated employment, required, to sell to Stilwell their shares of Janus
common stock. The amounts that Stilwell would be required to pay in the
event of such purchase and sale transactions could be material. See Note 13
to the Stilwell consolidated financial statements. Such removal would have
also resulted in acceleration of the vesting of a portion of the shares of
restricted Janus common stock held by other minority stockholders, having an
approximate aggregate value of $16.3 million as of December 31, 1999.
There may also be other consequences of removal that cannot be presently
identified or quantified. For example, Mr. Bailey's removal could result in
the loss of other valuable employees or clients of Janus. The likelihood of
occurrence and the effects of any such employee or client departures cannot
be predicted and may depend on the reasons for and circumstances of Mr.
Bailey's removal. However, Stilwell believes that Janus would be able in
such a situation to retain or attract talented employees because: (i) of
Janus' prominence; (ii) Janus' compensation scale is at the upper end of its
peer group; (iii) some or all of Mr. Bailey's repurchased Janus stock could
be then available for sale or grants to other employees; and (iv) many key
Janus employees must continue to be employed at Janus to become vested in
currently unvested restricted stock valued in the aggregate (after
considering additional vesting that would occur upon the termination of Mr.
Bailey) at approximately $36 million as of December 31, 1999. In addition,
notwithstanding any removal of Mr. Bailey, Stilwell would expect to continue
its practice of encouraging autonomy by its subsidiaries and their boards of
directors so that management of Janus would continue to have responsibility
for Janus' day-to-day operations and investment advisory and portfolio
management policies and, because it would continue that autonomy, Stilwell
would expect many current Janus employees to remain with Janus.
With respect to clients, Janus' investment advisory contracts with its
clients are terminable upon 60 days' notice and in the event of a change in
control of Janus. Under certain circumstances a material reduction in the
ownership of Janus common stock by Mr. Bailey or his departure from Janus by
removal, death, or resignation could be a change of control, resulting in an
assignment, because he has contractual rights to nominate a majority of the
directors of Janus, on the basis provided in the Janus Stock Purchase
Agreement. Under the 1940 Act, "control" is defined as "the power to exercise
a controlling influence over the management or policies of a company, unless
such power is solely the result of an official position with the company."
The 1940 Act establishes a presumption that any person who owns less than 25%
of the voting securities of a company does not control that company. Since
Mr. Bailey owns less than 25% of Janus, he is presumed to not control Janus.
That presumption can be rebutted by evidence but, under the 1940 Act, it
continues until the SEC issues an order determining that the presumption has
been rebutted. The SEC has issued such an order in the past with regard to a
holder of less than 25% of the voting securities of a company, but on facts
much different from Mr. Bailey's circumstances. The SEC has not issued such
an order with respect to Mr. Bailey and it is unclear whether it would do so.
If the SEC were to issue such an order, Mr. Bailey's departure from Janus, or
a material reduction in his ownership of Janus common stock, which eliminated
his director-nomination rights could be deemed a change in control of Janus.
Such a change in control would result, under the 1940 Act and under the
Advisers Act, in an assignment and termination of Janus' investment advisory
contracts, requiring approval of fund shareowners and other advisory clients
to obtain new agreements. However, in view of Janus' investment record,
Stilwell has concluded it is reasonable to expect that in such an event most
of Janus' clients would renew their investment advisory contracts, requiring
approval of fund shareowners and other advisory clients to obtain new
agreements. This conclusion is reached because (i) Janus relies on a team
approach to investment management and development of investment expertise,
(ii) Mr. Bailey has not served as a portfolio manager for any Janus fund for
several years, (iii) a succession plan exists under which Mr. James P. Craig,
III would succeed Mr. Bailey, and (iv) Janus should be able to continue to
attract talented portfolio managers. It is reasonable to expect that Janus'
clients' reaction will depend on the circumstances, including, for example,
how much of the Janus team remained in place and what investment advisory
alternatives were available.
The Janus Stock Purchase Agreement and other agreements provide for
rights of first refusal on the part of Janus minority stockholders, Janus and
Stilwell, with respect to certain sales of Janus stock. These agreements
also require Stilwell to purchase the shares of Janus minority stockholders
in certain circumstances. In addition, in the event of a Change in Ownership
of Stilwell, as defined in the Janus Stock Purchase Agreement, Stilwell may
be required to sell its stock of Janus to the stockholders who are parties to
such agreement or to purchase such holders' Janus stock. In the event Mr.
Bailey were terminated for any reason within one year following a Change in
Ownership, he would be entitled to a severance payment, amounting, at
December 31, 1999, to approximately $2 million. Purchase and sales
transactions under these agreements are to be made based upon a multiple of
the net earnings of Janus and/or other fair market value determinations, as
defined therein. See Note 13 to the Stilwell consolidated financial
statements.
Some Janus officers and directors serve as officers and/or directors of
certain of the registered investment companies to which Janus acts as
investment advisor.
Year 2000.
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.
CURRENT STATUS. Stilwell and its subsidiaries experienced no material year
2000 related issues when the date moved to January 1, 2000, nor have any
issues arisen as of the date of this Information Statement. Although this
initial transition to year 2000 occurred without adverse effects, there still
exists possible year 2000 issues for those applications, systems, processes
and system hardware which have yet to be used in live activities and
transactions. Stilwell continues to evaluate and pursue discussions with its
various customers, partners and vendors with respect to Year 2000 issues, and
all such parties may not be Year 2000 ready. While Stilwell cannot fully
determine its impact, the inability of its computer systems to operate
properly in year 2000 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.
GENERAL. 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).
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.
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 operated in the year 2000 and no material failures
or problems have arisen.
NON-IT SYSTEMS. All equipment that contains an internal clock or embedded
micro-processor has been analyzed for Year 2000 and replacement and upgrades of
this type of equipment is completed.
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 were 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.
Both Janus and Berger participated in various industry-wide efforts and
were required to periodically report to the SEC their progress with respect to
Year 2000 preparedness. Transactions and other activities have been
successfully performed in the year 2000 for certain third party entities.
Stilwell will continue to monitor its third party relationships for 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.
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 operate properly in the Year 2000. 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. 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. Stilwell has allocated substantial
resources to the Year 2000 project and believes that it is adequately staffed
by employees, consultants and contractors.
Based on work performed and information received, Stilwell believes its
key suppliers, customers and other significant third party relationships are
prepared for the Year 2000 in all material respects (or that acceptable
alternatives are available); however, management of Stilwell makes no
assurances that all such parties are Year 2000 compliant.
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 have identified
alternative plans in the event that the Year 2000 project is not completed on
a timely basis or otherwise does not meet anticipated needs. Stilwell has
made alternative arrangements in the event that critical suppliers,
customers, utility providers and other significant third parties are not Year
2000 ready.
YEAR 2000 COSTS. Through December 31, 1999, Stilwell has spent
approximately $13 million in connection with ensuring that all computer
programs are compatible with Year 2000 requirements. Stilwell anticipates
future spending of less than $1 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, and Janus' investment in Janus International (UK) Limited
("Janus UK"), 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 and Janus follow
the requirements outlined in Statement of Financial Accounting Standards No.
52 "Foreign Currency Translation", and related authoritative guidance.
Nelson's and Janus UK'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 the
respective companies. The translation of those companies' 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 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 December
31, 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.
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 $42.6, $39.5 and $63.8 million ($25.9, $24.3 and $38.4 million, net
of deferred income taxes) for the years ended December 31, 1997, 1998 and
1999, respectively.
MINORITY RIGHTS. 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. After evaluation of
the rights of the minority stockholders of its consolidated subsidiaries and
in particular the contractual rights of Mr. Bailey described in "Other-Janus
Capital Corporation," KCSI management concluded that application of EITF 96-
16 did not affect the Company's consolidated financial statements. This
conclusion with respect to Janus is currently under discussion with the Staff
of the SEC and, accordingly, is subject to change. If the consolidation of
Janus is discontinued, the Company will restate certain of its financial
statements. See Notes 13 and 15 to the Stilwell 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 Investment Advisers Act of 1940, as amended (the "Advisers Act"),
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
Department of Labor (the "DOL"), securities exchanges and the National
Association of Securities Dealers (the "NASD") and in the United Kingdom, the
Investment Management Regulatory Organization Limited ("IMRO"), the Personal
Investment Authority ("PIA") and the Financial Services Authority ("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 and 1999, 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 and Janus indirectly owns 100% of Janus UK. In connection with
these investments, 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 the
respective companies 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 and Janus UK each have earnings of $1,000 and using ownership
interests at December 31, 1998. The British pound is the functional currency.
Nelson Janus UK
------ --------
Assumed Earnings (Pound) 1,000 (Pound) 1,000
Exchange Rate (to U.S. $) 0.5 to 1 0.5 to 1
-------- --------
Converted U.S. Dollars $2,000 $2,000
Stilwell Ownership Percentage
of Nelson and Janus UK 80% 100%
-------- --------
Assumed Earnings $1,600 $2,000
Assumed 10% increase in
Exchange Rate 0.55 to 1 0.55 to 1
--------- ---------
Converted to U.S. Dollars $1,818 $1,818
Stilwell Ownership Percentage
of Nelson and Janus UK 80% 100%
--------- ---------
Assumed Earnings $1,454 $1,818
------ ------
Effect of 10% increase in
Exchange Rate $ (146) $ (182)
====== ======
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 with respect to its investment in Nelson 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 non-
money market 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 81.5% owned
subsidiary; Berger, of which SMI owns 100% of Berger preferred limited
liability company interests and approximately 86% of the Berger regular limited
liability company interests; Nelson, an 80% owned subsidiary; DST, an equity
investment in which SMI holds an approximately 32% interest, and the
Miscellaneous Corporations. Janus is the principal business of the financial
services segment of KCSI, representing 97% of assets under management at
December 31, 1999 and 95% of revenues and 91% of net income for the year
ended December 31, 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
ownership interests 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
management does not have direct experience in mutual fund investment advisory
or portfolio management services and will rely on it subsidiaries'
managements to perform such functions. At Janus, Mr. Bailey will continue to
establish and implement policy with respect to the investment advisory and
portfolio management activity of that subsidiary, and has the right to
nominate a majority of the directors of Janus, on the basis provided in the
Janus Stock Purchase Agreement.
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 December 31, 1999, Janus had total assets under management of
$249.5 billion, of which $200.0 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
95% of total assets under management for Janus and its affiliates at December
31, 1999. At that date, funds advised by Janus had more than 4.1 million
shareowner accounts. For the five-year period ended December 31, 1999, Janus'
total assets under management increased 990 percent.
Janus Management Corporation was formed in 1969 by Mr. 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 December 31, 1999.
Janus has four operating 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.
Janus Capital International, Ltd. ("Janus International"), is an investment
advisor registered with the SEC. Janus International also provides marketing
and client services for Janus World Funds outside of Europe. Janus UK, an
England and Wales company, is an investment advisor for certain non-U.S.
customers, including Janus World Funds, and is registered with the United
Kingdom's IMRO. Janus UK conducts securities trading from London and handles
marketing and client servicing for Janus World Funds in Europe.
The following table sets forth (in millions) 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>
Year Ended December 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Janus Advised Funds:
Beginning Assets $18,013.2 $24,633.7 $37,123.0 $ 54,572.2 $ 86,983.3
Net Sales 1,487.8 7,487.0 9,141.6 11,848.0 46,328.7
Appreciation 5,132.7 5,002.3 8,307.6 20,563.1 66,707.6
--------- --------- --------- --------- ----------
Ending Assets 24,633.7 37,123.0 54,572.2 86,983.3 200,019.6
--------- --------- --------- --------- ----------
Janus Sub-Advised Funds
and Private Accounts:
Beginning Assets 4,848.2 6,495.3 9,551.2 13,224.6 21,274.3
Net Sales (redemptions) (148.0) 1,812.4 1,576.1 1,529.3 10,037.9
Appreciation 1,795.1 1,243.5 2,097.3 6,520.4 18,182.0
--------- --------- -------- --------- ---------
Ending Assets 6,495.3 9,551.2 13,224.6 21,274.3 49,494.2
--------- --------- -------- --------- ---------
Total assets
under management $31,129.0 $46,674.2 $67,796.8 $108,257.6 $249,513.8
========= ========= ========= ========== ==========
</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, 1999,
Janus derived approximately $944 million in revenue from investment advisory
services, representing approximately 82% 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 (exclusive of Janus World
Funds, which has B share arrangements) 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 15 to the Stilwell consolidated
financial statements.
JANUS DISTRIBUTION SERVICES AND THIRD PARTY DISTRIBUTION
Pursuant to a distribution agreement, Janus Distributors acts as
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, 1998 and 1999, approximately 30% and 33%, 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 generally 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 proprietary work of Janus' own analysts, most 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 predominantly 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.
BERGER LLC
----------
Berger is an investment adviser registered with the SEC and serves as an
investment adviser to the Berger Growth Fund (formerly 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 (together
with the Berger/BIAM Funds described below, the "Berger Sub-Advised Funds and
Private Accounts"). Berger owns 50% of BBOI in a joint venture with BIAM.
Berger and BIAM have negotiated the dissolution of BBOI and the distribution of
BBOI's assets. The dissolution of BBOI is contingent upon approval of the
shareholders of the Berger/BIAM Funds. A meeting of the shareholders is
scheduled for May 5, 2000. 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"). Berger
expects to become the adviser and administrator to the Berger/BIAM Funds upon
dissolution of BBOI with BIAM serving as sub-adviser to such funds for a
period of five years. Moreover, BBOI acts as investment adviser to the BBOI
Sub-Advised Funds. BIAM is expected to become adviser to the BBOI Sub-
Advised Funds upon dissolution of BBOI. 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 and Private Accounts are collectively
referred to as the "Berger Funds." The Berger Advised Funds, Berger Sub-
Advised Funds, Berger/BIAM Funds, and B/B Isle Separate Accounts are
collectively referred to as the "Berger Complex." As of December 31, 1999,
the Berger Complex (as defined in "Business--Stilwell's Principal Subsidiaries
and Equity Investments-Berger LLC") had total assets under management of $6.6
billion. Of this amount, Berger managed $5.7 billion in the Berger Advised
Funds and $0.9 billion in the Berger Sub-Advised Funds and Private Accounts;
and B/B Isle managed less than $0.1 billion in the B/B Isle Separate Accounts.
As of December 31, 1999, funds included in the Berger Complex had more than
241,000 shareowner accounts. For the five-year period ended December 31, 1999,
assets under management in the Berger Complex increased by 120%. See
"Business-Stilwell's Principal Subsidiaries and Equity Investments-Berger LLC."
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 (renamed the Berger Growth Fund in 2000) 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 Berger LLC, and then changed its name to Stilwell Management,
Inc. ("SMI"). SMI owns 100% of the preferred limited liability company
interests and approximately 86% of the regular limited liability company
interests of Berger LLC. The remaining 14% of regular limited liability
company interests was issued to key SMI and Berger LLC employees, resulting
in a noncash compensation charge. SMI also 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 (in millions) beginning assets, the
changes during each period and ending assets for the Berger Advised Funds,
the Berger/BIAM Funds, and the Berger Sub-Advised Funds and Private Accounts.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997 1998 1999
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Berger Advised Funds:
Beginning assets $2,870.6 $3,134.1 $3,272.7 $3,178.8 $3,274.0
Net sales (redemptions) (340.3) (225.4) (559.9) (284.8) 463.5
Appreciation 603.8 364.0 466.0 380.0 1,966.1
-------- -------- -------- -------- --------
Ending assets 3,134.1 3,272.7 3,178.8 3,274.0 5,703.6
-------- -------- -------- -------- --------
Berger/BIAM Funds:
Beginning assets -- -- 38.6 127.4 209.8
Net sales -- 36.7 87.1 57.8 34.7
Appreciation -- 1.9 1.7 24.6 75.9
-------- -------- -------- -------- --------
Ending assets -- 38.6 127.4 209.8 320.4
-------- -------- -------- -------- --------
Berger Sub-Advised Funds and Private Accounts:
Beginning assets 118.9 188.0 342.2 487.4 200.3
Net sales (redemptions) 53.6 119.1 31.0 (444.4) 101.4
Appreciation 15.5 35.1 114.2 157.3 239.7
-------- -------- -------- -------- --------
Ending assets 188.0 342.2 487.4 200.3 541.4
-------- -------- -------- -------- --------
Total assets under
management $3,322.1 $3,653.5 $3,793.6 $3,684.1 $6,565.4
======== ======== ======== ======== ========
<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, 1999, Berger derived
approximately $28.6 million in revenue from investment advisory services
provided to the Berger Advised Funds, representing approximately 72% of total
revenue of Berger. 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 Berger 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 Berger 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. 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. Berger is paid certain fees by BBOI for its services.
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, 1998 and 1999, approximately 28% 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
predominantly 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
December 31, 1999, Nelson employed approximately 40 investment advisers and
managed approximately $1.3 billion ((Pound)844 million) in assets. At
December 31, 1999, Nelson managed assets for more than 13,500 individuals.
For the five-year period ended December 31, 1999, Nelson's total assets under
management increased by 125 percent. See "Business-Stilwell's Principal
Subsidiaries and Equity Investments-Nelson Money Managers Plc."
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.
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 the
video/broadband, direct broadcast satellite, wireless and Internet-protocol
telephony, Internet and utilities markets worldwide. 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 $1.3 billion at December 31, 1999, including shares of
Computer Sciences Corporation and State Street Corporation
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 from non-affiliates approximately 455,400 square feet of
office space in three facilities for investment, administrative, marketing,
information technology, and shareowner processing operations, and
approximately 52,700 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 an investor
service and data center in Austin, Texas and currently leases approximately
170,200 square feet at the facility. Janus also leases 4,200 square feet of
office space in Westport, Connecticut for development of the Janus World
Funds and 2,500 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 10,300 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
13,800 square feet in the following locations in the United Kingdom: London,
Lichfield, Bath, York, Durham and Stirling.
STILWELL HOLDING COMPANY
The Stilwell holding company leases approximately 12,500 square feet of
office space in Kansas City, Missouri from a non-affiliate for its corporate
functions.
EMPLOYEES
As of December 31, 1999, Janus had approximately 2,500 employees, Berger
had approximately 75 employees, Nelson had approximately 200 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. Consistent with the prior philosophy
of KCSI, Stilwell expects to encourage autonomy by its subsidiaries in
the operation of their businesses. Stilwell has agreed that the
management of Janus will continue to operate the business of Janus of
providing investment advice and management services, on the basis
provided in the Janus Stock Purchase Agreement. Stilwell has agreed
that Mr. Bailey will continue to establish and implement policy with
respect to the investment advisory and portfolio management activity of
Janus, and to nominate a majority of the directors of Janus, on the
basis provided in the Janus Stock Purchase Agreement. See Stilwell
Financial, Inc., "Stilwell Business Strategy" and "Business - Stilwell
Business Strategy."
COMPETITION
Stilwell is subject to substantial and growing competition in all
aspects of its business. Such competition could reduce the demand for
Stilwell's products and services and could have a material adverse effect on
Stilwell's business, financial condition, results of operations and business
prospects. 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. 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
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 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, Stilwell's
subsidiaries and equity investments may not be able to compete successfully
against current and future competitors. In addition, competitive pressures
faced by Stilwell's subsidiaries and equity investments may 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 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 2001 annual meeting of
stockholders, the initial term of the second class of directors ("Class II
Directors") will expire at the conclusion of the 2002 annual meeting of
stockholders and the initial term of the third class of directors ("Class III
Directors") will expire at the conclusion of the 2003 annual meeting of
stockholders. Commencing with the 2001 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 55 Vice President and Chief Operating Officer
Danny R. Carpenter 53 Vice President and Secretary
Anthony P. McCarthy 53 Vice President - Finance
Morton I. Sosland 74 Director
James E. Barnes 65 Director
Paul F. Balser 58 Director
Gwen E. Royle 39 Vice President - Legal
Douglas E. Nickerson 34 Vice President and Controller
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. 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.
PAUL F. BALSER (Class II Director) has been a director of KCSI since 1990.
He has been a Managing Partner of Generation Partners, L.P., New York, New
York, since August 1995. Generation Partners is an investment firm
specializing in privately negotiated equity and venture capital investments.
He was a Partner of Centre Partners, L.P., New York, New York, from September
1986 through July 1995, which also specialized in privately negotiated equity
and venture capital investments. Mr. Balser is also a director of the
Carbide/Graphite Group, Inc., Pittsburgh, Pennsylvania, and Scientific Games,
Inc., Atlanta, Georgia, as well as a number of private companies.
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 September 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.
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 2001 annual meeting of stockholders,
the initial term of the second class expires at the conclusion of the 2002
annual meeting of stockholders and the initial term of the third class
expires at the conclusion of the 2003 annual meeting of stockholders.
Commencing with the 2001 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 2001
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. The
members of the Executive Committee are James E. Barnes, Morton I. Sosland and
Landon H. Rowland.
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. The members of the
Audit Committee are Paul F. Balser, James E. Barnes and Morton I. Sosland.
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. The members of the Compensation Committee are Paul
F. Balser, James E. Barnes and Morton I. Sosland.
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
$500 for each committee meeting attended. Directors will also receive a
discretionary grant of options to purchase shares of Stilwell Common Stock on
an annual basis immediately following each annual meeting of Stilwell's
stockholders. To date, the Board of Directors of Stilwell has not taken any
action with respect to such discretionary grants of options.
EXECUTIVE COMPENSATION
Although Stilwell has entered into employment agreements with certain of
Stilwell's executive officers effective as of the Distribution Date, to date,
no compensation has been paid pursuant to such agreements and the executive
officers have received compensation pursuant to their existing employment
arrangements with KCSI. The information under this heading therefore
summarizes compensation paid by KCSI to the individual that is Stilwell's
Chief Executive Officer and individuals who, based upon employment and
compensation paid by KCSI during the fiscal year ended December 31, 1999, are
the four individuals initially expected to be the most highly compensated
executive officers of Stilwell. As a result, the compensation described
below does not reflect the compensation such executive officers will receive
following the Distribution. See "Management-Employment Agreements With the
Named Executive Officers." The principal positions listed below are those
that will be held by the executive officers in Stilwell following the
Distribution.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE*
Long Term
Annual Compensation Compensation Awards
------------------------------------------ --------------------
Securities
Other Annual Underlying All Other
Name and Principal Compensation Options/ Compensation
Position Year Salary($) Bonus($) ($) SARs(#)<6> ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Landon H. Rowland 1999 750,000 --- 46,067<F1> --- 105,490<F1>
Director; Chairman 1998 750,000 --- 53,877 6,138 26,632
of the Board, 1997 750,000 --- 57,900 --- 114,801
President and Chief
Executive Officer
Thomas H. Bailey 1999 900,000 1,000,000<F3> --- --- 121,128<F2
Chairman of the 1998 900,000 833,000 --- --- 109,000
Board, President 1997 900,000 675,000 --- --- 75,667
and Chief Executive
Officer of Janus
Joseph D. Monello 1999 600,000 --- --- --- 45,668<F3
Vice President and 1998 250,008 --- --- 65,000 43,754
Chief Operating 1997 250,008 --- --- --- 62,640
Officer
Danny R. Carpenter 1999 330,000 --- --- 980 17,815<F4>
Vice President 1998 190,008 --- --- 31,481 16,000
and Secretary 1997 190,008 --- --- --- 43,751
Anthony P. McCarthy 1999 180,000 --- --- --- _______<F5>
Vice President - 1998 110,004 --- --- 10,000 11,052
Finance 1997 110,004 --- --- --- 11,394
*Reflects compensation paid by KCSI.
<FN>
<F1>
Other Annual Compensation for Mr. Rowland includes premiums on disability insurance policy of $46,067. All
other compensation for Mr. Rowland for 1999 is comprised of: (i) contributions to his account under the
Stilwell ESOP of $6,400; (ii) interest on deferred directors' fees of $13,049; (iii) a contribution to his
account under KCSI's 401(k) plan of $4,800; (iv) a contribution to his account under KCSI's profit sharing
plan of $4,800; (v) premiums on group term life insurance of $4,941; and (vi) an amount paid out to him
pursuant to the KCSI Executive Plan of $71,500. As of December 31, 1999, Mr. Rowland held no shares of
restricted stock.
<F2>
The bonus for Mr. Bailey for 1999 was under a performance based incentive compensation plan approved by
stockholders in 1997. All other compensation for Mr. Bailey for 1999 is comprised of: (i) directors' fees
in the amount of $31,000 and $65,333, paid to Mr. Bailey in his capacity as director of Janus Capital
Corporation, Janus Investment Fund and the Janus Aspen Series, respectively; (ii) a contribution to his
account under the Stilwell ESOP of $6,400; (iii) a contribution to his account under KCSI's 401(k) plan of
$4,800; (iv) a contribution to his account under Janus' profit sharing plan of $4,800; and (v) premiums on
group term life insurance of $8,795 paid by Janus Capital Corporation. As of December 31, 1999, Mr. Bailey
held no shares of restricted stock.
<F3
All other compensation for Mr. Monello for 1999 is comprised of: (i) a contribution to his account under
the Stilwell ESOP of $6,400; (ii) a contribution to his account under KCSI's 401(k) plan of $4,800; (iii) a
contribution to his account under KCSI's profit sharing plan of $4,800; (iv) premiums on group term life
insurance of $1,917; and (v) an amount paid out to him under the KCSI Executive Plan of $27,754. As of
December 31, 1999, Mr. Monello held no shares of restricted stock.
<F4
All other compensation for Mr. Carpenter for 1999 is comprised of: (i) a contribution to his account under
the Stilwell ESOP of $6,400; (ii) a contribution to his account under KCSI's 401(k) plan of $4,800; (iii) a
contribution to his account under KCSI's profit sharing plan of $4,800; and (iv) premiums on group term
life insurance of $1,815. As of December 31, 1999, Mr. Carpenter held no shares of restricted stock.
<F5>
All other compensation for Mr. McCarthy for 1999 is comprised of: (i) a contribution to his account under
the Stilwell ESOP of $6,400; (ii) a contribution to his account under KCSI's 401(k) plan of $4,800; (iii) a
contribution to his account under KCSI's profit sharing plan of $4,800; and (iv) premiums on group term
life insurance of $962.76. As of December 31, 1999, Mr. McCarthy held no shares of restricted stock.
<F6>
All option award information relates to options to purchase shares of KCSI Common Stock. In connection
with the Distribution, all Options will remain outstanding with an adjusted exercise price and the holders
of the Options will be granted New Stilwell Options. As a result, the value of the options to purchase
Stilwell Common Stock will depend on the future value of Stilwell Common Stock. See "Relationship Between
KCSI and Stilwell After the Distribution-Employee Benefits" and "Management-Other Compensatory Plans and
Arrangements."
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION> 1999 OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------
Grant Date
Individual Grants Value
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/SARs Exercise Grant
Underlying Granted to or Base Date
Options/SARs Employees in Price Expiration Present
Name Granted (#) Fiscal Year<3> ($/Sh)<4> Date Value $<5>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Landon H. Rowland 0 N/A N/A N/A N/A
Thomas H. Bailey 100<1> * 44.00 01/25/09 1,447
Joseph D. Monello 0 N/A N/A N/A N/A
Danny R. Carpenter 980<2> * 44.00 01/25/09 14,181
Anthony P. McCarthy 0 N/A N/A N/A N/A
* Less than one percent of the total options granted.
<FN>
<F1>
The options were granted under the 1991 Plan. These options were granted on January 26,
1999 and became exercisable upon January 26, 2000. LSAR's were granted in tandem with
these options. All of the LSAR's 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. The options are subject to
voluntary tax withholding rights.
<F2>
The options were granted under the 1991 Plan in connection with KCSI's Executive Plan.
These options were granted on January 26, 1999 and were immediately exercisable. LSAR's
were granted in tandem with these options. All of the LSAR's 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. The
options are subject to voluntary tax withholding rights.
<F3>
Total options granted to eligible employees in 1999 were 490,716.
<F4>
Average of the high and low prices of the Common Stock on the date of grant as reported
on the NYSE.
<F5>
Valuation determined using Black-Scholes' option pricing model with the following
assumptions: market price of stock is equal to the exercise price of options; stock
volatility (based on 3-year monthly data) of 42.20%; annualized risk-free interest rate
of 4.6710%; option term (in years) 3; and stock's dividend yield of 0.36%.
</FN>
</TABLE>
<PAGE>
1999 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the aggregate
option exercises during 1999 by the executive officers and the number and value
of options held by such officers as of December 31, 1999 (the last trading day
of the year).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(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 Unexercisable<1>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Landon H. Rowland 0 N/A 2,769,138/0 182,179,057/0
Thomas H. Bailey 0 N/A 0/100 0/2,831
Joseph D. Monello 0 N/A 330,000/65,000 18,773,136/
1,950,000
Danny R. Carpenter 0 N/A 263,461/30,000 15,060,840/
900,000
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, 1999 (the
last trading day of 1999), respectively, times the number of options exercised or
held at year end.
</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. 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 $_________, which 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 2000, 2001 and 2002, 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 $________ for
purposes of cash compensation-based benefit plans.
The employment agreement provides for _________ (___) 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 will 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 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 (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 ____% of _______ 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, Monello and
McCarthy receive as compensation for their services an annual base salary at
the rate of $_______, $________ and $_________, respectively. Such salary
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, Mr. Carpenter, Mr. Monello and Mr. McCarthy
are not entitled to participate in any Stilwell incentive compensation plan
during the period of __________, 2000 through December 31, 2002, but all 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 for purposes of cash compensation based benefit plans is
fixed at ____%, ____%, and ____%, respectively, of their annual base
salaries. Although not addressed in their employment agreements, it is
anticipated that Messrs. Carpenter, Monello and McCarthy will participate in
Stilwell's incentive compensation program for the portion of 2000 for which
incentive compensation is not precluded by their employment agreements.
In conjunction with entering into the employment agreements with
Stilwell and in lieu of participation in any incentive compensation plans for
the period indicated, Messrs. Carpenter, Monello and McCarthy received a
grant of KCSI performance stock options for _______, _______ and _______
shares, respectively. Such options will become exercisable in three equal
installments if the price of the KCSI stock increases above the price at the
time of grant to certain target levels, computed on the basis of _____%
growth in the KCSI stock price, compounded annually, subject to the
substitution of Stilwell options at the time of the Distribution. At the
time of the Distribution, Stilwell options will be substituted for such KCSI
options in their entirety and the target stock price levels will be adjusted
to Stilwell stock prices.
In the event of termination without cause by Stilwell, Messrs.
Carpenter, Monello and McCarthy would be entitled to _______ 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 will 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 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 _____% for Mr. Carpenter and _____% for Mr. Monello of ______ times their
annual base salaries, and for Mr. McCarthy _____% of ______ 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 16,000,000 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
trading price of Stilwell Common Stock to the total of the trading prices of
both KCSI Common Stock (excluding Stilwell) and Stilwell Common Stock. For
this purpose, the trading prices will be the closing prices of the stocks on
the New York Stock Exchange on the Distribution Date. 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
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 eligible compensation (as defined in
the 401(k) Portion) 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 eligible 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 13 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 will appoint a Stilwell 401(k) Plan Advisory Committee (the
"Advisory Committee") to administer the Stilwell 401(k) Plan. Stilwell's
Board of Directors and Stilwell's Compensation 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 and the Stilwell ESOP will participate in the
Distribution. 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 and Stilwell's Compensation 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 [April 28], 2000, based upon
beneficial ownership of KCSI's Common Stock as of [April 28], 2000 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)
- ---- --------- ---------------
Amvescap, Plc and certain 18,329,200(2) ----%
affiliates
The TCW Group, Inc. 17,989,988(3) ----%
and certain affiliates
American Express Company 13,717,904(4)
and certain affiliates
Paul F. Balser 132,000(1)(5) *
Director
Thomas H. Bailey 58,936(5) *
Chairman of the Board,
President and Chief Executive
Officer of Janus
James E. Barnes 186,000(1)(6) *
Director
Danny R. Carpenter 642,632(1)(5) *
Vice President and Secretary
Anthony P. McCarthy 416,676(1)(5) *
Vice President - Finance
Joseph D. Monello 914,204(1)(5) *
Vice President and Chief
Operating Officer
Landon H. Rowland 6,946,344(1)(5) ----%
Chairman of the
Board, President and Chief Executive Officer
Morton I. Sosland 323,022(1)(6) *
Director
All Directors and Executive 9,619,816 ----%
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
[April 28], 2000 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. Balser, 132,000; Mr. Barnes, 168,000; Mr.
Carpenter, 589,636; Mr. McCarthy, 168,500; Mr. Monello, 790,000;
Mr. Rowland 5,465,290; Mr. Sosland, 12,000; and all directors and
executive officers as a group, 7,325,426. Certain directors and
executive officers disclaim beneficial ownership of 104,800 of these
shares.
(2) Based upon information in Schedule 13G filed February 4, 2000, the
address for Amvescap, Plc 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.
(3) Based upon information in Schedule 13G filed February 14, 2000. The
address for The TCW Group, Inc. is 865 South Figueroa Street, Los
Angeles, California 90017. 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) Based upon information in Schedule 13G filed February 8, 2000. The
address for American Express Company is American Express Tower, 200
Vesey Street, New York, New York 10285. 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.
(5) 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. Bailey owns 44,006 shares through the Stilwell ESOP; Mr.
Carpenter owns 17,260 shares through the Stilwell ESOP and 5,672 shares
held in a revocable trust of which he is the trustee; Mr. McCarthy owns
54,634 and 7,866 shares through the Stilwell ESOP and KCSI's Profit
Sharing Plan, respectively. Mr. Monello owns 68,924 shares through the
Stilwell ESOP; Mr. Rowland owns 123,688 and 960 shares through the
Stilwell ESOP and KCSI's Profit Sharing Plan, respectively; and all
directors and executive officers as a group own indirectly 562,674
shares.
(6) 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; Mr. Carpenter, 30,064 shares held by his wife
in a revocable trust of which she is the trustee; 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 176,000 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, 92,000 shares held
as co-trustee of certain testamentary trusts, and 12,000 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 March 31, 2000, it is anticipated that there will be approximately
222,800,000 shares of Stilwell Common Stock, par value $.01 per share, issued
and outstanding, held of record by approximately 6,000 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
Stockholders' 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-Antitakeover Provisions: Provisions
of Stilwell's Governing Documents, its Rights Plan and Restrictions Relating to
the Tax Ruling could Delay or Prevent a Change in Control of Stilwell, Thereby
Entrenching Current Management and Possibly Depressing the Market Price of
Stilwell Common Stock."
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 Chairman of the
Board of Directors, the Chief Executive Officer or the President 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 Chairman of the Board of Directors,
Chief Executive Officer or President.
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, if more than 30 days' notice is given to stockholders, not later
than the close of business on the 15th day following the day on which notice of
the date of the annual meeting was mailed or public disclosure was made,
whichever first occurs, and if less than 30 days' notice is given to
stockholders, then not later than the close of business on the 5th day
following the day on which notice of the date of the annual meeting was mailed
or public disclosure of the date of the meeting 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
the affirmative vote of the holders of at least 70% of the Voting Stock, voting
together as a single class, shall be required to amend, alter, change or repeal
certain provisions of the Certificate and 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 amend, alter, change or
repeal certain other provisions of the Certificate. See "DIFFERENCES IN
RIGHTS OF STOCKHOLDERS ARISING FROM DIFFERENCES BETWEEN THE CERTIFICATES AND
BYLAWS OF STILWELL AND KCSI." 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, by
stockholder action, 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 [________, 2000]. 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 [_________, 2000] (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 December 31, 1998 and 1999. . . . . . . F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1998 and 1999. . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999. . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Changes in Stockholder's Equity for the
years ended December 31, 1997, 1998 and 1999. . . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements. . . . . . . . . . . .F-11 to F-39
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 of DST Systems, Inc.,
together with the Report of Independent Accountants, (an approximately 32%
owned affiliate of Stilwell accounted for under the equity method) for the
years ended December 31, 1997, 1998 and 1999, which are included in the DST
Systems, Inc. Annual Report on Form 10-K for the year ended December 31, 1999
(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, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. 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 audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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 audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
March 16, 2000
<PAGE>
STILWELL FINANCIAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF KANSAS CITY SOUTHERN INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
Proforma
December 31, December 31
----------------------- ------------
1998 1999 1999
(Note 3)
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 138.5 $ 324.1 $ 324.1
Accounts receivable 76.6 155.7 155.7
Investments in advised funds 32.2 23.9 23.9
Other current assets 12.0 21.3 21.3
------- -------- --------
Total current assets 259.3 525.0 525.0
Investments held for
operating purposes 379.2 474.1 474.1
Property and equipment, net 37.4 70.4 70.4
Intangibles and other assets,
net 147.0 162.0 162.0
------- -------- --------
Total assets $ 822.9 $1,231.5 $1,231.5
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Debt due within one year
- third parties $ -- $ -- $ 125.0
Accounts and wages payable 21.7 43.4 43.4
Accrued compensation and
benefits 40.0 80.9 80.9
Federal income taxes payable
to Parent 3.6 22.3 22.3
Other accrued liabilities 5.8 15.9 15.9
------- -------- --------
Total current liabilities 71.1 162.5 287.5
Other liabilities:
Long-term debt - Parent 16.6 -- --
Deferred income taxes 118.4 151.8 151.8
Other liabilities 42.3 45.3 45.3
------- -------- --------
Total liabilities 248.4 359.6 484.6
------- -------- --------
Commitments and contingencies
(Notes 9, 10, 12, 13, 15) ------- -------- --------
Minority interest in consolidated
subsidiaries 34.3 57.3 57.3
------- -------- --------
STOCKHOLDER'S EQUITY
Net investment by Parent 106.8 106.8 106.8
Retained earnings 358.5 598.9 473.9
Accumulated other
comprehensive income 74.9 108.9 108.9
------- -------- --------
Total stockholder's equity 540.2 814.6 689.6
------- -------- --------
Total liabilities and
stockholder's equity $ 822.9 $1,231.5 $1,231.5
======= ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
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
December 31,
-----------------------------------------
1997 1998 1999
REVENUES:
Investment management
fees $ 389.3 $ 545.1 $ 992.8
Shareowner servicing
fees 81.1 108.9 191.4
Other 14.7 16.8 28.1
-------- -------- --------
Total 485.1 670.8 1,212.3
-------- -------- --------
OPERATING EXPENSES:
Compensation 118.0 167.8 316.5
Marketing and promotion 34.2 50.8 71.5
Alliance and third party
administrator fees 38.4 64.0 143.0
Depreciation and
amortization 13.1 16.8 35.4
Other 82.2 90.8 127.6
------- -------- --------
Total 285.9 390.2 694.0
------- -------- --------
OPERATING INCOME 199.2 280.6 518.3
Equity in earnings of
unconsolidated affiliates 24.9 25.8 46.7
Interest expense - Parent (10.4) (6.5) (5.9)
Reduction in ownership of
DST Systems, Inc. (29.7)
Other, net 16.2 19.1 27.4
-------- -------- --------
Pretax income 229.9 289.3 586.5
Income tax provision 87.0 103.7 216.1
Minority interest in
consolidated earnings 24.9 33.4 57.3
-------- -------- --------
NET INCOME $ 118.0 $ 152.2 $ 313.1
======== ======== =========
PER SHARE DATA
(Notes 1 and 2):
Weighted Average Common
shares outstanding 1,000 1,000 1,000
Basic Earnings per
share $118,000 $152,200 $313,100
Diluted Earnings
per share 117,400 149,900 308,300
Pro Forma Per Share Data
(Unaudited) (Notes 2 and 3):
Common shares outstanding
(in thousands) 221,148
Basic Earnings per share $ 1.39
Diluted Common shares outstanding
(in thousands) 229,416
Diluted Earnings per share $ 1.32
The accompanying notes are an integral part of these financial statements.
<PAGE>
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 December 31,
-------------------------------------
1997 1998 1999
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $ 118.0 $ 152.2 $ 313.1
Adjustments to net income:
Depreciation and
amortization 13.1 16.8 35.4
Deferred income taxes (4.4) (12.4) 11.8
Minority interest in
consolidated earnings 24.9 33.4 57.3
Equity in undistributed
earnings of unconsolidated
affiliates (24.7) (24.7) (46.4)
Asset impairment charges 15.7
Gain on sale of equity
investment (8.8)
Reduction in ownership of DST
Systems, Inc. 29.7
Employee deferred
compensation 8.7 3.8 5.2
Changes in working
capital items:
Accounts receivable (15.0) (21.3) (79.1)
Other current assets (3.3) (5.3) (1.0)
Accounts payable and
accrued compensation
and benefits payable 13.4 12.8 61.6
Federal income taxes
payable and other
accrued liabilities 0.7 1.5 28.9
Deferred commissions (29.5)
Other, net 0.3 (1.7) 0.9
-------- -------- --------
Net operating 147.4 176.0 358.2
-------- -------- -------
INVESTING ACTIVITIES:
Property acquisitions (5.8) (35.0) (50.5)
Investments in and loans
with affiliates (12.0) (24.3) (17.5)
Sale of investments in
advised funds 5.5 0.3 19.0
Purchase of investments
in advised funds (6.9) (2.5) (2.4)
Other, net 3.8 9.6 6.2
-------- -------- --------
Net investing (15.4) (51.9) (45.2)
-------- -------- --------
FINANCING ACTIVITIES:
Change in long-term
debt - Parent (33.2) (67.5) (16.6)
Repayment of long-term
debt - third parties (0.3) (6.6)
Amounts treated as
transfers from
(dividends to)
Parent, net (40.5) 12.4 (72.7)
Distributions to
minority interest (12.9) (32.8) (37.8)
Other, net (4.2) (0.8) (0.3)
-------- -------- --------
Net financing (91.1) (95.3) (127.4)
-------- -------- --------
CASH AND CASH EQUIVALENTS:
Net increase 40.9 28.8 185.6
At beginning of year 68.8 109.7 138.5
-------- -------- --------
At end of year $ 109.7 $ 138.5 $ 324.1
======= ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
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
---------- -------- ----------- --------
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 24.3
Less: Reclassification adjustment
for gains included in net
income (0.2)
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 313.1
Net unrealized gain on 38.4
investments
Less: reclassification
adjustment for gains
included in net income (4.4)
COMPREHENSIVE INCOME 347.1
Dividends to Parent,
net (72.7) (72.7)
------- ------- ------- -------
BALANCE AT December 31,
1999 $ 106.8 $ 598.9 $ 108.9 $ 814.6
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
<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 as of December 31, 1999 were: Janus Capital
Corporation ("Janus"), an approximate 82% owned subsidiary; Stilwell Management
Inc. ("SMI"), formerly Berger Associates, Inc. ("BAI"), a wholly-owned
subsidiary as of December 31, 1999; Berger LLC ("Berger"), of which SMI owns
100% of Berger preferred limited liability interest and approximately 86% of
Berger regular limited liability interests; Nelson Money Managers Plc
("Nelson"), an 80% owned subsidiary; DST Systems, Inc. ("DST"), an equity
investment in which SMI holds an approximate 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 97% of assets under management at December 31, 1999 and 95% of
revenues and 91% of the net income for the year ended December 31, 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 ownership interest 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. Additionally in February 2000, the Company received
a favorable supplementary tax ruling from the IRS to the effect that the
assumption of $125 million of KCSI indebtedness by Stilwell (in connection with
KCSI's January 2000 recapitalization) would have no effect on the previously
issued tax ruling.
On September 30, 1999, BAI assigned and transferred its operating assets
and business to Berger, a limited liability company. In addition, BAI
changed its name to SMI. The remaining 14% of Berger regular limited
liability company interests was issued to key SMI and Berger employees,
resulting in a noncash compensation charge.
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 LLC. 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").
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 primarily to
individuals who are retired or are contemplating retirement.
Nelson's 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,
offers information processing and software services and products through three
operating segments: financial services, customer management and output
solutions. Additionally, DST holds certain investments in equity securities,
financial interests and real estate holdings. 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, including investments in money market mutual
funds that are managed by Janus, are considered cash equivalents. Janus'
investments in its money market funds are generally used to fund operations and
pay dividends. Pursuant to contractual agreements between KCSI and certain
Janus minority stockholders, Janus has distributed at least 90% of its net
income to its stockholders each year.
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. Realized gains and losses are determined
using the first-in, first-out method.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
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 consolidated
subsidiaries; however, see Note 4 regarding impact on DST.
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. See Note 14.
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. Payments of deferred commissions during 1999 were $29.5 million and
associated amortization expense for the year then ended totaled $8.1 million.
Payment of deferred commissions and associated amortization expense 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 goodwill associated with the Berger investment 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 issuance of its stock is recorded as a gain
or loss in Stilwell's statement of income in the period that the change of
interest occurs. If an issuance of stock by the subsidiary or affiliate is
from treasury shares on which gains have been previously recognized, however,
Stilwell will record the gains directly to its equity and not include the gain
in net income. A change of interest in a subsidiary or equity investee
resulting from a subsidiary's or equity investee's purchase of its stock
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 year ended December
31, 1999 totaled $6.2 million. Gains during the year ended December 31, 1997
were not material. See Note 4 regarding reduction in amount of DST in 1998.
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 estimates 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 $18.6,
$20.9 and $20.1 million in 1997, 1998 and 1999, respectively.
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.
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 are recorded 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.
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, $2.3 and $4.8 million for the years
ended December 31, 1997, 1998 and 1999, 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 DST's investments which are classified
as "available for sale," as defined by FAS 115. The unrealized gain related to
these investments increased $42.6, $39.5 and $63.8 million ($25.9, $24.3 and
$38.4 million, net of deferred income taxes) for the years ended December 31,
1997, 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. 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 a 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. This conclusion with respect to Janus is currently under
discussion with the Staff of the Securities and Exchange Commission and,
accordingly, is subject to change. See Notes 13 and 15.
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 to be 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 Stilwell common stock will be
changed to $0.01.
Additionally, on January 11, 2000, KCSI arranged a new $200 million 364-
day senior unsecured Competitive Advance/Revolving Credit Facility ("New Credit
Facility"). KCSI borrowed $125 million under this facility and used the
proceeds to retire other debt obligations. Stilwell has assumed the New Credit
Facility, including the $125 million borrowed thereunder, thereby reducing its
stockholder's equity. See Note 16. Accordingly, for purposes of calculating
pro forma earnings per share, net income was reduced by the estimated after-tax
effect of interest expense assuming $125 million of indebtedness (at an
interest rate of 6.5%) was outstanding as of January 1, 1999.
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, 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 110,573,830, based upon the total number of outstanding
shares of KCSI common stock as of December 31, 1999, resulting in a pro forma
221,147,660 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 December 31, 1999. These
options to purchase KCSI common stock (4,134,027) were multiplied by two to
derive the options to purchase shares of Stilwell common stock that are assumed
to be exercised (8,268,054).
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.
SUMMARIZED FINANCIAL INFORMATION. Stilwell's investment in DST, together
with certain condensed DST financial information, is summarized as follows.
Note that for the year ended December 31, 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 1997
and 1998 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.
(DOLLARS IN MILLIONS)
December 31,
----------------------------------------------
1997 1998 1999
Percentage ownership 41% 32% 32%
Carrying value $ 345.3 $ 376.0 $ 470.2
Equity in DST net
assets 300.1 376.0 470.2
Fair market value (a) 865.0 1,156.7 1,547.7
FINANCIAL CONDITION:
Current assets $ 345.3 $ 375.8 $ 464.5
Non-current assets 1,203.2 1,521.2 1,861.8
-------- -------- --------
Total assets $1,548.5 $1,897.0 $2,326.3
======== ======== ========
Current liabilities $ 212.0 $ 268.6 $ 285.8
Non-current liabilities 405.6 462.2 576.9
Stockholders' equity 930.9 1,166.2 1,463.6
-------- -------- --------
Total liabilities
and stockholders'
equity $1,548.5 $1,897.0 $2,326.3
======== ======== ========
For the year ended December 31,
------------------------------------------
1997 1998(b) 1999(c)
OPERATING RESULTS:
Revenues $ 950.0 $1,096.1 $1,203.3
Costs and expenses 823.1 976.6 1,003.6
Net income 79.4 71.6 138.1
(a) Based upon DST's closing price on the New York Stock Exchange.
(b) Net income includes $19.4 million, after tax, of DST/USCS fourth quarter
merger-related charges.
(c) Effective January 1, 1999, DST adopted SOP 98-1. DST's net income for the
year ended December 31, 1999 was increased by $15.4 million as a result.
NOTE 5 - OTHER ACQUISITIONS, DISPOSITIONS AND SIGNIFICANT TRANSACTIONS
BAI. During 1992, Stilwell acquired an 18% interest in BAI for $1.2
million. On October 14, 1994, pursuant to a Stock Purchase Agreement ("BAI
SPA"), Stilwell increased its ownership of BAI 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. Stilwell made an additional purchase
price payment of $3.1 million in 1997. Stilwell made no payments under the BAI
SPA during 1998. Pursuant to the BAI SPA, Stilwell made additional purchase
price payments of $3.0 million during third quarter 1999. No additional
payments will be made thereafter. These goodwill amounts are being amortized
over 15 years.
As a result of various transactions during 1997, Stilwell increased its
ownership in BAI to 100%. In January and December 1997, BAI purchased, for
treasury, the common stock of minority stockholders. In December 1997,
Stilwell also acquired additional BAI shares from a minority stockholder
through the issuance of 330,000 shares of KCSI common stock valued at $10.1
million. 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, BAI also granted
options to acquire shares of its common stock to certain of its employees. All
of the outstanding options were cancelled upon formation of Berger (See Note
1).
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 primarily to individuals who are retired or contemplating retirement.
Nelson managed approximately (Pound) 844 million ($1.3 billion) in assets as of
December 31, 1999. 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 (to KCSI) for income taxes and interest is summarized as follows (in
millions):
For the year ended December 31,
-------------------------------------
1997 1998 1999
Interest $ 13.7 $ 7.9 $ 1.5
Income taxes 64.5 83.1 142.9
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.
NOTE 7 - OTHER BALANCE SHEET CAPTIONS
ACCOUNTS RECEIVABLE. Stilwell's accounts receivable balances do not
include any allowance for doubtful accounts nor has any bad debt expense been
recorded for the years ended 1997 through 1999. The majority of the balances
are amounts due 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,
-------------------------
1998 1999
Deferred commissions - current $ 0.7 $ 10.2
Deferred income taxes 2.1 0.4
Other 9.2 10.7
------- -------
Total $ 12.0 $ 21.3
======= =======
INVESTMENTS IN ADVISED FUNDS. Investments in advised funds are summarized
as follows (in millions):
December 31,
------------------------
1998 1999
AVAILABLE FOR SALE:
Cost basis $ 23.9 $ 22.2
Gross unrealized gains 5.4 2.0
Gross unrealized losses -- (0.3)
------- -------
29.3 23.9
------- -------
TRADING:
Cost basis 3.2 --
Gross unrealized losses (0.3) --
------- -------
2.9 --
------- -------
Total $ 32.2 $ 23.9
======= =======
Gross realized gains (losses) were not material to Stilwell's consolidated
results of operations for the years ended 1997 and 1998. Gross realized
gains totaled $5.3 million for the year ended December 31, 1999.
PROPERTY AND EQUIPMENT, NET. Property and equipment are summarized as
follows (in millions):
December 31,
-----------------------
1998 1999
Furniture, fixtures and
equipment $ 59.2 $ 89.1
Buildings and leasehold
improvements 10.5 26.6
------- -------
Subtotal 69.7 115.7
Less accumulated depreciation
and amortization (32.3) (45.3)
------- -------
Net property and equipment $ 37.4 $ 70.4
======== =======
INTANGIBLES AND OTHER ASSETS. Intangibles and other assets are summarized as
follows (in millions):
December 31,
------------------------
1998 1999
Goodwill $ 93.1 $ 110.1
Identifiable intangible assets 59.0 59.0
Accumulated amortization (22.9) (32.6)
------- -------
Net 129.2 136.5
Deferred Commissions 1.3 13.2
Employee loans 11.6 7.7
Other assets, net 4.9 4.6
------- -------
Total $ 147.0 $ 162.0
======= =======
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 $8.1, $8.8 and $17.8 million in 1997, 1998 and
1999, respectively.
OTHER LIABILITIES. Other liabilities are summarized as follows (in
millions):
December 31,
------------------------
1998 1999
Deferred compensation (See Note 12) $ 20.5 $ 22.7
Other 21.8 22.6
------- -------
Total $ 42.3 $ 45.3
======= =======
NOTE 8 - LONG-TERM DEBT - PARENT
Stilwell had $16.6 million of outstanding long-term indebtedness to KCSI
at December 31, 1998, which was repaid during 1999. This amount represents
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
All third party indebtedness had been paid in full as of December 31,
1998. Subsequent to Stilwell's acquisition of Nelson in April 1998, Nelson
repaid approximately $6.6 million in outstanding indebtedness.
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 $0.5
million in facility and arrangement fees for the year ended December 31, 1999.
At December 31, 1999, the full $100 million was available under the Credit
Facility.
On January 11, 2000 KCSI arranged a new $200 million 364-day senior
unsecured competitive Advance/Revolving Credit Facility ("New Credit
Facility"). KCSI borrowed $125 million under this facility and used the
proceeds to retire other debt obligations. Stilwell has assumed the New Credit
Facility, including the $125 million borrowed thereunder, thereby reducing its
stockholder's equity. Upon such assumption, KCSI was released from all
obligations, and Stilwell became the sole obligor, under the New Credit
Facility. Stilwell may assign and delegate all or a portion of its rights and
obligations under the New Credit Facility to one or more of its domestic
subsidiaries. Stilwell repaid the $125 million in first quarter 2000.
Two borrowing options are available under the New Credit Facility: a
competitive advance option, which is uncommitted, and a committed revolving
credit option. Interest on the competitive advance option is based on rates
obtained from bids as selected by Stilwell in accordance with the lender's
standard competitive auction procedures. Interest on the revolving credit
option accrued based on the type of loan (e.g., Eurodollar, Swingline, etc.),
with rates computed using LIBOR plus 0.35% per annum or, alternatively, the
highest of the prime rate, the Federal Funds Effective Rate plus 0.005% or the
Base Certificate of Deposit Rate plus 1%.
Stilwell, as a continuation of its practice of providing credit facilities
to its subsidiaries, has provided an intercompany credit facility to Janus for
use by Janus for general corporate purposes, effectively reducing the amount of
the credit facilities available for Stilwell's other purposes.
The credit facilities contain a number of covenants, including various
financial covenants. With respect to the Credit Facility, Stilwell was in
compliance with these various provisions, including the financial covenants, as
of December 31, 1998 and 1999. Because of certain financial covenants
contained in the credit facilities, however, maximum utilization of Stilwell's
lines of credit may be restricted. See Note 16.
NOTE 10 - INCOME TAXES
Stilwell's provision for income taxes is summarized as follows (in millions):
December 31,
------------------------------------
1997 1998 1999
CURRENT:
Federal $ 79.2 $ 100.2 $ 182.6
State and local 12.2 15.9 21.7
------- ------- -------
Total current 91.4 116.1 204.3
------- ------- -------
DEFERRED:
Federal (3.8) (10.0) 9.3
State and local (0.6) (2.4) 2.5
------- -------- -------
Total deferred (4.4) (12.4) 11.8
------- ------- -------
Total income tax expense $ 87.0 $ 103.7 $ 216.1
======= ======= =======
Stilwell's deferred income tax liabilities (assets) are summarized as follows
(in millions):
December 31,
-----------------------
1998 1999
INCOME TAX LIABILITIES:
Unconsolidated affiliates $ 138.7 $ 171.1
Deferred commissions -- 12.2
Other 7.0 --
------- -------
Gross deferred tax
liabilities 145.7 183.3
------- -------
INCOME TAX ASSETS:
Book reserves (7.3) (8.1)
Deferred compensation (14.7) (18.7)
Vacation (1.7) (0.9)
Deferred revenue (3.5) (1.8)
Other (2.2) (2.4)
------- -------
Gross deferred tax assets (29.4) (31.9)
------- -------
Net deferred income tax
liabilities $ 116.3 $ 151.4
======= =======
Based upon Stilwell's history of operating income and its expectation for the
future, management has determined that operating income of Stilwell will, more
likely than not, be sufficient to recognize fully the gross deferred tax assets
set forth above.
Stilwell's effective income tax rate differs from the statutory federal income
tax rate as follows (in millions):
December 31,
--------------------------------------
1997 1998 1999
Statutory U.S. federal rate $ 80.5 $ 101.3 $ 205.3
State and local income taxes 11.6 13.5 24.2
Non-deductible goodwill 6.5 2.3 2.5
Equity in earnings of
unconsolidated affiliates (6.8) (6.8) (12.4)
Other (4.8) (6.6) (3.5)
-------- -------- --------
Total income tax expense $ 87.0 $ 103.7 $ 216.1
======== ======== ========
Effective tax rate 37.8% 35.8% 36.8%
======== ======== ========
In connection with the initial public offering of DST in fourth quarter
1995, 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, 1999, the
cumulative amount of unremitted earnings qualifying for this deduction
aggregated $165.8 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 $9.7 and $13.3 million as of
December 31, 1998 and 1999, 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 operations,
financial position or cash 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 $4.6, $5.7 and $8.1 million in 1997, 1998 and 1999, 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,
1997 1998 1999
---- ---- ----
Net income (in millions)
As reported $ 118.0 $ 152.2 $ 313.1
Pro forma 117.0 149.0 310.1
Earnings per Basic share:
As reported $ 118,000 $ 152,200 $ 313,100
Pro forma 117,000 149,000 310,100
Earnings per Diluted share:
As reported $ 117,400 $ 149,900 $ 308,300
Pro forma 116,400 146,700 305,300
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, 1997, 1998 and 1999, 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,
1997 through 1999 are not necessarily indicative of the number of options and
associated activity in the future.
<TABLE>
<CAPTION>
1997 1998 1999
----------------------- -------------------- ----------------------
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 5,645,310 $ 8.87 4,794,527 $ 8.84 4,768,226 $11.33
Granted 46,452 16.80 445,364 35.98 356,142 49.40
Exercised (882,187) 9.30 (467,257) 9.17 (378,708) 12.28
Expired/Canceled (15,048) 15.62 (4,408) 27.33 (52,600) 43.70
--------- --------- ---------
Outstanding at December 31 4,794,527 $ 8.84 4,768,226 $ 11.33 4,693,060 $13.78
========= ========= =========
Exercisable 4,227,212 $ 7.87 4,172,257 $ 8.52 4,183,660 $ 9.64
========= ========= =========
Weighted Average Fair
Value of Options granted
during the year $ 4.18 $ 10.42 $ 16.53
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes the information about KCSI stock options held by Stilwell employees that were
outstanding at December 31, 1999:
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 2,544,815 1.9 years $ 4.72 2,544,815 $ 4.72
$10 to $15 184,605 5.2 12.62 184,605 12.62
$15 to $20 1,243,468 6.3 15.95 1,243,468 15.95
$20 to $64 720,172 9.4 42.36 210,772 29.22
--------- ---------
$2 to $64 4,693,060 4.4 $ 13.78 4,183,660 $ 9.64
========= =========
</TABLE>
<PAGE>
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:
1997 1998 1999
---- ---- ----
Dividend yield .62% to .82% .34% to .56% .25% to .36%
Expected volatility 24% to 30% 30% to 42% 42% to 43%
Risk-free interest rate 6.20% to 6.44% 4.74% to 5.64% 4.67% to 5.75%
Expected life 3 years 3 to 5 years 3 years
KCSI ESPP. KCSI periodically 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 value of
the stock purchase rights granted to Stilwell employees under the Eleventh
Offering of the ESPP was $10.76 in 1998. KCSI did not sponsor an ESPP grant
for 1997 and 1999.
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:
1998
----
Dividend yield 0.95%
Expected volatility 42%
Risk-free interest rate 4.63%
Term 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 vesting rate will be accelerated to
20% of the shares in any 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 and 1999 based on attainment of investment performance goals. The
impact of subsequent Janus amortization charges 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 vesting rate will be accelerated to 20% of the shares in any 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.
Because this 1999 issuance was from Janus' treasury shares on which
previous gains have been recognized, the Company will record any gain upon
vesting directly to stockholder's equity. See Note 2.
In first quarter 2000, Janus issued additional restricted stock. See Note
16.
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 1999
---- ---- ----
Janus Options outstanding at
January 1 -- 22,100 8,100
Granted 37,700
Exercised (15,300) (13,800) (8,000)
Expired/Canceled (300) (200) (100)
------- ------- -----
Janus Options outstanding at
December 31 22,100 8,100 --
======= ======= =====
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.
BAI STOCK OPTION PLAN. During 1997, BAI adopted a stock option plan which
makes available shares of BAI common stock for the grant of awards to BAI
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
generally over periods ranging up to 10 years, and were exercisable for a
period of 10 years. Certain grants under the BAI stock option plan also
included accelerated vesting provisions based upon pre-established BAI
performance criteria. BAI options would have affected Stilwell's dilutive EPS
computation (through a reduced ownership percentage of BAI by Stilwell) if the
average fair value of the BAI stock exceeded the option price.
A summary of stock option activity under the BAI stock option plan is as
follows:
1997 1998
---- ----
BAI Options outstanding at
January 1 -- 192,210
Granted 192,210 9,500
Expired/Canceled -- (69,660)
------- -------
BAI Options outstanding at
December 31 192,210 132,050
======= =======
Exercisable at December 31 127,450 89,290
======= =======
In connection with the formation of Berger, all options were cancelled.
See Note 1.
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, 1999, 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, 1999, the
employees participating in the 1997 stock purchases had earned over 99% of the
potential bonus. Compensation expense related to these two bonus plans
aggregated $13.2, $2.7 and $7.0 million in 1997, 1998 and 1999, 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, 1999, future
minimum rental commitments under non-cancelable operating leases aggregated (in
millions):
2000 $15.9
2001 16.0
2002 15.6
2003 13.3
2004 7.0
Thereafter 17.0
-----
Total $84.8
=====
Rent expense aggregated $12.6, $17.5 and $17.4 million in 1997, 1998 and
1999, respectively.
Stilwell is committed for future telecommunications and data service
with minimum payments of $2.5, $1.7 and $0.5 million in 2000, 2001 and 2002,
respectively.
MINORITY PURCHASE AGREEMENTS. A stock purchase agreement with Thomas H.
Bailey ("Mr. Bailey"), Janus' Chairman, President and Chief Executive
Officer, and another Janus stockholder (the "Janus Stock Purchase Agreement")
and certain restriction agreements with other Janus minority stockholders
contain, among other provisions, mandatory put rights whereby under certain
circumstances, KCSI would be required to purchase the minority interests of
such Janus minority stockholders at a fair market value purchase price equal
to fifteen times the net after-tax earnings over the period indicated in the
relevant agreement, or in some circumstances as determined by an independent
appraisal. Under the Stock Purchase Agreement, termination of Mr. Bailey's
employment could require a purchase and sale of the Janus common stock held
by him. If other minority holders terminated their employment, some or all of
their shares also could be subject to mandatory purchase and sale
obligations. Certain other minority holders who continue their employment
also could exercise puts. If all of the mandatory purchase and sale
provisions and all the puts under such Janus minority stockholder agreements
were implemented, KCSI would have been required to pay approximately $789
million as of December 31, 1999, compared to $447 and $337 million at
December 31, 1998 and 1997, respectively. In the future these amounts may be
higher or lower depending on Janus' earnings, fair market value and the
timing of the exercise. Payment for the purchase of the respective minority
interests is to be made under the Janus Stock Purchase Agreement within 120
days after receiving notification of exercise of the put rights. Under the
restriction agreements with certain other Janus minority stockholders,
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, KCSI may be required to purchase such holders'
Janus stock or, as to the 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 fair market value price for such purchase or
sale would be equal to fifteen times the net after-tax earnings over the
period indicated in the relevant agreement, in some circumstances as
determined by Janus' Stock Option Committee or as determined by an
independent appraisal. If KCSI had been required to purchase the holders'
Janus common stock after a Change in Ownership as of December 31, 1999, the
purchase price would have been approximately $899 million (see additional
information in Note 15).
KCSI would account for any such purchase as the acquisition of a
minority interest under Accounting Principles Board Opinion No. 16, Business
Combinations.
As of March 31, 2000, KCSI, through Stilwell, had $200 million in credit
facilities available, owned securities with a market value in excess of $ 1.3
billion and had cash balances at the Stilwell holding company level in excess
of $148 million. To the extent that these resources were insufficient to fund
its purchase obligations, KCSI had access to the capital markets and, with
respect to the Janus Stock Purchase Agreement, had 120 days to raise
additional sums.
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 $5.3, $5.5 and $7.3 million in 1997, 1998 and 1999, respectively.
Janus and Berger earn fees from the various registered investment
companies for which they act as investment adviser. Accounts receivable
include amounts due from these investment companies. Additionally, Janus
earned $7.1 and $8.9 million in 1997 and 1998, respectively, from 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 registered
investment companies for which it acts as adviser (See Note 2).
The table below summarizes this related party activity as of and for the
years ended December 31 (in millions):
Accounts
Investment receivable
management and from registered
shareowner investment Berger 12b-1 Plan
servicing fees companies fees earned
-------------- ---------------- -----------------
1997 $ 403.0 $ 41.6 $7.6
1998 558.4 59.1 6.9
1999 1,024.7 129.3 8.6
Stilwell's retained earnings include equity in the unremitted earnings of
its unconsolidated affiliates of $99.5, $112.5 and $154.3 million as of
December 31, 1997, 1998 and 1999, 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 1984 acquisition of
an 80% interest in Janus, KCSI entered into the Janus Stock Purchase
Agreement which, as amended, provides that so long as Mr. Bailey is a holder
of at least 5% of the common stock of Janus and continues to be employed as
President or Chairman of the Board of Janus (or, if he does not serve as
President, James P. Craig, III serves as President and Chief Executive
Officer or Co-Chief Executive Officer with Mr. Bailey), Mr. Bailey shall
continue to establish and implement policy with respect to the investment
advisory and portfolio management activity of Janus. The agreement also
provides that, in furtherance of such objective, so long as both the
ownership threshold and officer status conditions described above are
satisfied, KCSI will vote its shares of Janus common 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 further 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.
KCSI does not believe Mr. Bailey's rights under the Janus Stock Purchase
Agreement are "substantive," within the meaning of EITF 96-16, because KCSI
can terminate those rights at any time, by removing Mr. Bailey as an officer
of Janus. KCSI also believes that the removal of Mr. Bailey would not result
in significant harm to KCSI based on the factors discussed below. Colorado
law provides that removal of an officer of a Colorado corporation may be done
directly by its stockholders if the corporation's bylaws so provide. While
Janus' bylaws contain no such provision currently, KCSI has the ability to
cause Janus to amend its bylaws to include such a provision. Under Colorado
law, KCSI could take such action at an annual meeting of stockholders or make
a demand for a special meeting of stockholders. Janus is required to hold a
special stockholders' meeting upon demand from a holder of more than 10% of
its common stock and to give notice of the meeting to all stockholders. If
notice of the meeting is not given within 30 days of such a demand, the
District Court is empowered to summarily order the holding of the meeting.
As the holder of more than 80% of the common stock of Janus, KCSI has the
requisite votes to compel a meeting and to obtain approval of the required
actions at such a meeting.
KCSI has concluded, supported by an opinion of legal counsel, that it
could carry out the above steps to remove Mr. Bailey without breaching the
Janus Stock Purchase Agreement and that if Mr. Bailey were to challenge his
removal by instituting litigation, his sole remedy would be for damages and
not injunctive relief and that KCSI would likely prevail in that litigation.
Although KCSI has the ability to remove Mr. Bailey, it has no present
plan or intention to do so, as he is one of the persons regarded as most
responsible for the success of Janus. The consequences of any removal of Mr.
Bailey would depend upon the timing and circumstances of such removal. Mr.
Bailey could be required to sell, and KCSI could be required to purchase, his
Janus common stock, unless he were terminated for cause. Certain other Janus
minority stockholders would also be able, and, if they terminated employment,
required, to sell to KCSI their shares of Janus common stock. The amounts
that KCSI would be required to pay in the event of such purchase and sale
transactions could be material. See Note 13. Such removal would have also
resulted in acceleration of the vesting of a portion of the shares of
restricted Janus common stock held by other minority stockholders, having an
approximate aggregate value of $16.3 million as of December 31, 1999.
There may also be other consequences of removal that cannot be presently
identified or quantified. For example, Mr. Bailey's removal could result in
the loss of other valuable employees or clients of Janus. The likelihood of
occurrence and the effects of any such employee or client departures cannot
be predicted and may depend on the reasons for and circumstances of Mr.
Bailey's removal. However, KCSI believes that Janus would be able in such a
situation to retain or attract talented employees because: (i) of Janus'
prominence; (ii) Janus' compensation scale is at the upper end of its peer
group; (iii) some or all of Mr. Bailey's repurchased Janus stock could be
then available for sale or grants to other employees; and (iv) many key Janus
employees must continue to be employed at Janus to become vested in currently
unvested restricted stock valued in the aggregate (after considering
additional vesting that would occur upon the termination of Mr. Bailey) at
approximately $36 million as of December 31, 1999. In addition,
notwithstanding any removal of Mr. Bailey, KCSI would expect to continue its
practice of encouraging autonomy by its subsidiaries and their boards of
directors so that management of Janus will continue to have responsibility
for Janus' day-to-day operations and investment advisory and portfolio
management policies and, because it would continue that autonomy, KCSI would
expect many current Janus employees to remain with Janus.
With respect to clients, Janus' investment advisory contracts with its
clients are terminable upon 60 days' notice and in the event of a change in
control of Janus. Because of his rights under the Janus Stock Purchase
Agreement, Mr. Bailey's departure, whether by removal, resignation or death,
might be regarded as such a change in control. However, in view of Janus'
investment record, KCSI has concluded it is reasonable to expect that in such
an event most of Janus' clients would renew their investment advisory
contracts. This conclusion is reached because (i) Janus relies on a team
approach to investment management and development of investment expertise,
(ii) Mr. Bailey has not served as a portfolio manager for any Janus fund for
several years, (iii) a succession plan exists under which Mr. James P. Craig,
III would succeed Mr. Bailey, and (iv) Janus should be able to continue to
attract talented portfolio managers. It is reasonable to expect that Janus'
clients' reaction will depend on the circumstances, including, for example,
how much of the Janus team remains in place and what investment advisory
alternatives are available.
The Janus Stock Purchase Agreement and other agreements provide for
rights of first refusal on the part of Janus minority stockholders, Janus and
KCSI, with respect to certain sales of Janus stock. These agreements also
require KCSI to purchase the shares of Janus minority stockholders in certain
circumstances. In addition, in the event of a Change in Ownership of KCSI,
as defined in the Janus Stock Purchase Agreement, KCSI may be required to
sell its stock of Janus to the stockholders who are parties to such agreement
or to purchase such holders' Janus stock. In the event Mr. Bailey were
terminated for any reason within one year following a Change in Ownership, he
would be entitled to a severance payment, amounting, at December 31, 1999, to
approximately $2 million. Purchase and sale transactions under these
agreements are to be made based upon a multiple of the net earnings of Janus
or other fair market value determinations, as defined therein. See Note 13.
Generally, any change in control of Janus or Berger would constitute an
"assignment" under the 1940 Act. The Distribution is not expected to result in
a change of control of Janus or Berger and therefore under the applicable rules
of the Securities and Exchange Commission would not constitute such an
assignment. However, a material reduction in the ownership of Janus common
stock by Mr. Bailey may result in an assignment by virtue of certain provisions
in an agreement with him. The Boards of Trustees or Directors of the Janus
Advised Funds ("Trustees") generally may terminate the investment advisory
agreements upon written notice for any reason, including if they believe the
Distribution may adversely affect the funds.
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
NEW CREDIT FACILITY. KCSI has arranged a new $200 million 364-day senior
unsecured competitive Advance/Revolving Credit Facility ("New Credit
Facility"). KCSI borrowed $125 million under this facility and used the
proceeds to retire other debt obligations. Stilwell has assumed the New Credit
Facility, including the $125 million borrowed thereunder, thereby reducing its
stockholders' equity. Upon such assumption, KCSI was released from all
obligations, and Stilwell became the sole obligor, under the New Credit
Facility. Stilwell may assign and delegate all or a portion of its rights and
obligations under the New Credit Facility to one or more of its domestic
subsidiaries. Stilwell repaid the $125 million in March 2000.
Two borrowing options are available under the New Credit Facility: a
competitive advance option, which is uncommitted, and a committed revolving
credit option. Interest on the competitive advance option is based on rates
obtained from bids as selected by Stilwell in accordance with the lender's
standard competitive auction procedures. Interest on the revolving credit
option accrues based on the type of loan (e.g., Eurodollar, Swingline, etc.),
with rates computed using LIBOR plus 0.35% per annum or, alternatively, the
highest of the prime rate, the Federal Funds Effective Rate plus 0.005%, the
Base Certificate of Deposit Rate plus 1%.
The New Credit Facility includes a facility fee of 0.15% per annum and a
utilization fee of 0.125% on the amount of outstanding loans under the New
Credit Facility for each day on which the aggregate utilization of the New
Credit Facility exceeds 33% of the aggregate commitments of the various
lenders. Additionally, the New Credit Facility contains, among other
provisions, various financial covenants, which could restrict maximum
utilization of the New Credit Facility.
Additionally, management elected to not renew the May 14, 1999 364-Day
Credit Facility upon its expiration on May 13, 2000.
STILWELL SALE OF JANUS STOCK AND JANUS ISSUANCE OF RESTRICTED STOCK. In
the first quarter of 2000, Stilwell sold to Janus, for treasury, 192,408 shares
of Janus common stock and such shares will be available for awards under Janus'
recently adopted Long Term Incentive Plan. Janus has agreed that for so long
as it has available shares of Janus common stock for grant under that plan, it
will not award phantom stock, stock appreciation rights or similar rights. The
sale of those shares resulted in an after-tax gain of approximately $15.1
million and reduced Stilwell's ownership to approximately 81.5%.
Subsequent to the repurchase of these shares from Stilwell, Janus granted
35,670 restricted shares of its common stock to certain Janus employees
pursuant to a restricted stock agreement. The grant will be accounted for
similarly to previous restricted stock transactions for Janus. See Note 12.
This issuance reduced Stilwell's ownership percentage to slightly below 81.5%.
LITIGATION SETTLEMENT. In January 2000, Stilwell received approximately
$44 million in connection with the settlement of a legal dispute related to a
former equity investment. The settlement agreement resolves all outstanding
issues related to this former equity investment. In the first quarter of 2000,
Stilwell will recognize an after-tax gain of approximately $26 million as a
result of this settlement.
JANUS DIVIDEND PAYMENTS. Subsequent to December 31, 1999, Janus' Board of
Directors declared and Janus paid approximately $100 million in dividends, of
which approximately $17.9 million was paid to minority stockholders.
--------
