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File No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STILWELL FINANCIAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
43-1804048
(I.R.S. Employer Identification No.)
920 Main Street, 21st Floor
Kansas City, Missouri 64105
(816) 218-2400
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Stilwell Financial, Inc.
1998 Long Term Incentive Stock Plan
(Full Title of Plan)
Gwen E. Royle
Stilwell Financial, Inc.
920 Main Street, 21st Floor
Kansas City, Missouri 64105
(816) 218-2418
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Approximate date of commencement of proposed sale to the public: Upon the
distribution of registrant's outstanding common stock to the stockholders of
Kansas City Southern Industries, Inc. or as soon thereafter as this registration
statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------
Proposed Proposed
maximum maximum
Title of each class Amount to offering aggregate Amount of
of securities to be Amount to price per offering registration
registered be registered unit price fee
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 7,160,264 $4.20 $30,073,109 $7,940
par value $.01
per share
- --------------------------------------------------------------------------
</TABLE>
Pursuant to Rule 416, there are being registered such additional shares as may
be issuable pursuant to the antidilution provisions of the Plan. The shares of
common stock to which this Registration Statement relates are to be issued upon
exercise of options which will be granted for no consideration to certain
eligible persons who hold options for shares of common stock of Kansas City
Southern Industries, Inc., in connection with the distribution by Kansas City
Southern Industries, Inc. of at least 80% of the outstanding common stock of
Stilwell Financial, Inc.
Pursuant to Rule 457(h), based upon the book value of such shares of common
stock as of April 30, 2000 of $4.20 per share.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
7,160,264 SHARES
STILWELL FINANCIAL, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE
OFFERED AS SET FORTH IN THIS PROSPECTUS PURSUANT TO THE
STILWELL FINANCIAL, INC.
1998 LONG TERM INCENTIVE STOCK PLAN
-----------------------------------
This prospectus applies to shares of common stock of Stilwell Financial, Inc.
("Stilwell") to be issued upon exercise of the options granted under the 1998
Long Term Incentive Stock Plan (the "Plan") to eligible persons who hold options
for shares of common stock of Kansas City Southern Industries, Inc. ("KCSI"), in
connection with the distribution by KCSI of at least 80% of the outstanding
common stock of Stilwell as a result of which Stilwell will cease to be a
subsidiary of KCSI (the "Distribution").
[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."]
INVESTING IN THE COMMON STOCK OF STILWELL INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is _________, 2000
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TABLE OF CONTENTS
Page
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
What is the purpose of the Plan?. . . . . . . . . . . . . . . . . . . 14
Is the Plan subject to ERISA or Section 401(a) of the Internal
Revenue Code? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Overview of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 14
Who is eligible to participate in the Plan? . . . . . . . . . . . . . 14
What type of Awards may be granted under the Plan?. . . . . . . . . . 15
How do I know that I have been granted an Option, Substitute
Option or LSAR? . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
What is an Option?. . . . . . . . . . . . . . . . . . . . . . . . . . 15
What is a Substitute Option?. . . . . . . . . . . . . . . . . . . . . 15
What is the Option Price? . . . . . . . . . . . . . . . . . . . . . . 15
When may I exercise an Option?. . . . . . . . . . . . . . . . . . . . 16
How do I exercise an Option?. . . . . . . . . . . . . . . . . . . . . 16
What are Limited Stock Appreciation Rights? . . . . . . . . . . . . . 16
When may a Grantee exercise an LSAR?. . . . . . . . . . . . . . . . . 17
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . 17
Options and Substitute Options. . . . . . . . . . . . . . . . . . . . 17
LSARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Capital Gains and Losses. . . . . . . . . . . . . . . . . . . . . . . 18
Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Tax Consequences to Grantees Employed by U.S. Employers but
Working Abroad. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Certain Investment Considerations . . . . . . . . . . . . . . . . . . 19
Other Matters Relating to the Plan . . . . . . . . . . . . . . . . . . 19
When was the Plan adopted and when does it end? . . . . . . . . . . . 19
Who grants Options and LSARs and otherwise oversees the Plan? . . . . 19
May a Grantee transfer an Option or LSAR to another person? . . . . . 19
May the Plan or any Option or LSAR be changed or terminated?. . . . . 19
What happens to Options or LSARs if the Grantee no longer works
for Stilwell? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
What happens to Options or LSARs following a Change of Control
of Stilwell?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
What does Stilwell do with the money received from the exercise
of Options? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Are there any restrictions on the resale of the Shares of Common
Stock acquired upon the exercise of an Option?. . . . . . . . . . . . 22
How to Obtain Additional Information. . . . . . . . . . . . . . . . . 22
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 23
Incorporation of Certain Documents by Reference . . . . . . . . . . . . 24
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GENERAL INFORMATION
The Stilwell Financial, Inc. 1998 Long Term Incentive Stock Plan was
established by the Board of Directors of Stilwell and approved by the sole
stockholder of Stilwell, KCSI, and approved by the stockholders of KCSI at a
Special Meeting of Stockholders, on July 15, 1998, to be effective as of June 1,
1998. The Board of Stilwell amended and restated such plan effective as of
August 11, 1999 (as so amended and restated, the "Plan").
Stilwell was formed by KCSI as a holding company for the group of businesses
and investments that comprise the financial services segment of KCSI. The
primary entities comprising the financial services segment are Janus Capital
Corporation ("Janus"), an approximately 81.5% owned subsidiary; Berger LLC
("Berger"), of which Stilwell indirectly 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 Stilwell
indirectly holds an approximate 32% interest, and miscellaneous other
subsidiaries and equity investments. 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.
KCSI will effect the Distribution to holders of record of common stock of KCSI
on ___________, 2000 (the "Record Date") of two shares of Stilwell common stock,
including certain attached preferred stock purchase rights, for every one share
of KCSI common stock outstanding on the Record Date.
Options to purchase KCSI common stock are currently outstanding under 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 under this plan. As part of the Distribution, KCSI
and Stilwell plan to substitute options for KCSI non-qualified stock options
held by employees of Stilwell and its subsidiaries, current and former employees
of KCSI and its current and former subsidiaries and directors of KCSI and
Stilwell (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 ("KCSI Options") will remain outstanding with an adjusted
exercise price ("New KCSI Options"), and holders of the KCSI Options will
receive separately exercisable options to buy Stilwell common stock ("Substitute
Options"). Substitute Options for approximately 16,000,000 shares will be issued
to employees of Stilwell and its subsidiaries, current and former employees
of KCSI and its current and former subsidiaries 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 KCSI 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 date certificates representing the shares of Stilwell
common stock are delivered to the distribution agent (the "Distribution Date").
The other terms of the Substituted Options will be the same as for the KCSI
Options.
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The Substitute Options will be granted in the same proportion as the
distribution of Stilwell common stock in the Distribution; i.e., two Substitute
Options for each KCSI Option held. New KCSI Options and Substitute Options
which will be substituted for KCSI Options which were subject to time vesting
(under the KCSI Stock Option Plan, vesting means the KCSI Options become
exercisable; therefore, KCSI Options which time vest are KCSI Options which
become exercisable after the passage of a specified period of time) will vest at
the time the KCSI Options for which they were substituted would have vested.
The Plan will govern the Substitute Options.
The substitution of New KCSI Options and Substitute Options for KCSI Options
is provided for in an Intercompany Agreement between KCSI and Stilwell under
which (1) the New KCSI Options and Substitute Options will be established with
the exercise prices determined as described above based on an allocation of the
exercise price of the KCSI 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 Substitute Options, respectively.
This prospectus and the registration statement of which it forms a part relate
only to Substitute Options to eligible persons who hold options to purchase KCSI
common stock, other than those who have become employees or directors of
Stilwell or Stilwell's subsidiaries.
Stilwell was incorporated in Delaware on January 23, 1998 and, prior to the
Distribution, is a wholly-owned subsidiary of KCSI. Its principal executive
offices are located at 920 Main Street, 21st Floor, Kansas City, Missouri 64105,
and its telephone number is (816) 218-2400.
4
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RISK FACTORS
You should carefully consider and evaluate all of the information set forth in
this prospectus, including the risk factors listed below. This prospectus
contains forward-looking statements that involve risks and uncertainties. Such
forward-looking comments are based upon information currently available to
management and management's perception thereof as of the date of this
prospectus. 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 prospectus.
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.
5
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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 ("SEC") would not constitute such an
assignment. Under certain circumstances, a material reduction in the ownership
of Janus common stock by Thomas H. Bailey ("Mr. Bailey"), Chairman, President
and Chief Executive Officer of Janus and the holder of 12% of Janus common
stock, 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 select a majority of the directors of Janus, pursuant to the Janus Board
Selection Rights (as defined herein). 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 Janus Board Selection 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
Investment Fund, Janus Aspen Series and Janus World Funds plc and of the funds
for which Berger LLC acts as investment adviser ("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.
ANY EVENT THAT NEGATIVELY AFFECTS THE U.S. MUTUAL FUND INDUSTRY COULD HAVE A
MATERIAL ADVERSE EFFECT ON STILWELL.
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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 "--Continuation of strained relations between Stilwell and
Janus management could have a material adverse effect on Stilwell."
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
7
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business are relatively few, and Stilwell anticipates that Janus, Berger and
Nelson will face a growing number of competitors.
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.
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.
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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.
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 stock purchase agreement with Mr. Bailey and another Janus stockholder
(the "Janus Stock Purchase Agreement") 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 "Janus Board Selection
Rights"). 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.
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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. The historical financial information incorporated by reference
herein 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 incorporated
by reference herein does not reflect any changes that may occur in the financial
condition and operations of Stilwell as a result of the Distribution.
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. 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 $_________. If
the Distribution had occurred on that date, on this basis Stilwell common stock
could have been expected to trade in a range of
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$_______ 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.
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. 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.
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
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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 request for a Tax
Ruling (defined below) or any actions taken by KCSI or Stilwell that negatively
impact the tax ruling ("Tax Ruling") which KCSI received from the Internal
Revenue Service. The Tax Ruling 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.
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. 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, Stilwell's Stockholders'
Rights Plan (the "Rights Plan") and restrictions relating to the Tax Ruling are
antitakeover in nature and may delay or make more difficult the acquisition of
or changes in control of Stilwell, thereby entrenching current management and
possibly depressing the market price of Stilwell common stock. For example,
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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 Internal Revenue Code of 1986, as amended (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.
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 222,800,000 shares of Stilwell common stock will be distributed
and outstanding after the Distribution. 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 select a majority
of that Board, pursuant to the Janus Board Selection Rights. Such majority of
directors may determine in their discretion that Janus will not pay dividends
for any given year.
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. 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
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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 certain minority stockholders of Janus could have an adverse effect
on Janus' business and on Stilwell's ability to attract or retain qualified
personnel. See "--Stilwell's inability to attract and retain key personnel
could have a material adverse effect on its future success."
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 and had cash balances at the Stilwell holding
company level in excess of $147.5 million. The market value of Stilwell's 32%
investment in DST was approximately $1.38 billion using DST's closing price on
the New York Stock Exchange on May 22, 2000. Although Stilwell has no intention
of converting this investment into cash, management believes that, if cash were
needed to fund the purchase of Janus common stock from minority stockholders, it
could liquidate its investment in DST within 120 days and receive approximately
$826 million after taking into account payment of approximately $512 million in
federal and state income taxes under current statutory rates, underwriting
discounts and commissions estimated at $41 million and payment of associated
transaction costs, estimated at $900,000. To the extent that available credit
facilities, existing cash balances and proceeds from the liquidation of
Stilwell's investment in DST were insufficient to fund its purchase obligations,
Stilwell had access to the capital markets and, with respect to the Janus Stock
Purchase Agreement, had 120 days to raise additional sums. 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 Janus Board Selection
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 "--Stilwell's
business is
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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 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.
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SUMMARY OF THE PLAN
INTRODUCTION
- ------------
CAPITALIZED TERMS ARE USED IN THIS SUMMARY TO INDICATE THAT CERTAIN WORDS HAVE
SPECIFIC MEANINGS. THESE MEANINGS APPEAR IMMEDIATELY PRECEDING THE FIRST TIME
THE CAPITALIZED TERM APPEARS IN PARENTHESES, ARE CONTAINED IN THE "DEFINITION"
SECTION OF THE PLAN OR ARE CONTAINED IN THE SPECIFIC AWARD AGREEMENTS WHICH
EVIDENCE THE GRANTING OF AWARDS.
THIS SUMMARY IS NOT COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PLAN, ANY RULES ADOPTED BY THE COMMITTEE (AS DEFINED BELOW) AND APPLICABLE
AWARD AGREEMENTS.
WHAT IS THE PURPOSE OF THE PLAN?
The Plan authorizes the issuance of a variety of different Awards (defined
below); however, only two types are anticipated to be granted under the Plan --
nonqualified stock options ("Options") and limited stock appreciation rights
("LSARs"). Accordingly this summary relates to Options and LSARs. In addition
to these two basic types of Awards, the Plan authorizes the issuance of
Substitute Options in connection with the Distribution.
Stilwell adopted the Plan in order to allow selected employees, directors and
consultants of Stilwell and its Subsidiaries (as defined in the Plan) to acquire
or increase equity ownership in Stilwell, thereby strengthening their commitment
to the success of Stilwell and stimulating their efforts on behalf of Stilwell,
and to assist Stilwell and its Subsidiaries in attracting new employees,
directors and consultants and retaining existing employees, directors, and
consultants.
IS THE PLAN SUBJECT TO ERISA OR SECTION 401(A) OF THE INTERNAL REVENUE CODE?
Stilwell believes that the Plan is not subject to any provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"), and the Plan is not
qualified under Section 401(a) of the Code.
PRINCIPAL OFFICE AND TELEPHONE NUMBER. The principal executive office of
Stilwell is located at 920 Main Street, 21st Floor, Kansas City, Missouri
64105-2008; telephone: (816) 218-2400.
FUNDING OF THE PLAN. Benefits payable under the Plan to any person are paid
directly by Stilwell. Stilwell is not required to fund or otherwise segregate
assets to be used for payment of benefits under the Plan. It is intended to be
an unfunded plan.
OVERVIEW OF THE PLAN
- --------------------
WHO IS ELIGIBLE TO PARTICIPATE IN THE PLAN?
Any employee (including officers) or director of, or consultant to, Stilwell
or any Subsidiary (each an "Eligible Person") is eligible to receive
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an Option or LSAR under the Plan. Solely for purposes of granting Substitute
Options, any person who holds a KCSI Option as of the date that a Substitute
Option is granted is also an Eligible Person. An Eligible Person who receives
any such Award, as determined by the Committee, is referred to as a Grantee.
WHAT TYPE OF AWARDS MAY BE GRANTED UNDER THE PLAN?
Subject to the terms of the Plan, the Committee is authorized to grant
Options, Substitute Options, Incentive Stock Options, SARs, LSARs, Restricted
Shares, Performance Units, Performance Shares and Bonus Shares (collectively,
the "Awards"). The Committee may not grant Awards under the Plan relating, in
the aggregate, to more than 30,000,000 Shares. The Shares subject to Awards
under the Plan may be treasury or newly-issued Shares. This number is subject
to adjustment in certain circumstances. As of May 26, 2000, no Awards are
outstanding.
HOW DO I KNOW THAT I HAVE BEEN GRANTED AN OPTION, SUBSTITUTE OPTION OR LSAR?
Options, Substitute Options and LSARs granted under the Plan will be evidenced
by a written agreement between the Grantee and Stilwell (the "Award Agreement").
The Award Agreement will, together with the Plan, set forth the terms and
conditions of any Option, Substitute Option or LSAR. The Award Agreement does
not have to be the same for each Grantee.
WHAT IS AN OPTION?
A Grantee of an Option is entitled, subject to its terms, to buy a specified
number of Shares of Common Stock at a specified exercise price (the "Option
Price") during a specific period all as determined by the Committee in
accordance with the Plan and applicable law and upon terms and conditions set
forth in the relevant Award Agreement. As a result, a Grantee of an Option has
the potential to realize compensation equal to the spread between the Fair
Market Value of the Common Stock and the Option Price at the time the Grantee
exercises the Option.
WHAT IS A SUBSTITUTE OPTION?
A Substitute Option is an Award granted in connection with the Distribution,
and is associated with the number of KCSI Options held by a Grantee as of the
date that a Substitute Option is granted. A Substitute Option is intended to
preserve the economic value for the Grantee of a KCSI Option on the date of the
Distribution. A Grantee of a Substitute Option is entitled, subject to its
terms, to buy a specified number of Shares of Common Stock at the Option Price
during a specific period, all as determined by the Committee in accordance with
the Plan and applicable law and conditions set forth in the applicable Award
Agreement. The Substitute Options will be granted in addition to existing KCSI
Options, which will remain exercisable after the Distribution to the extent
specified in the Award Agreement, with an adjusted Option Price. The Option
Price and number of Substitute Options will be determined so that if a Grantee
of a KCSI Option and Substitute Option exercised both Options at the same time
immediately after the Distribution, that Grantee would have the same economic
value (spread between the Fair Market Value of the Common Stock and the Option
Price of the Substitute Option, and the Fair Market Value of KCSI common stock
and the Option Price of the KCSI Option at the time the Grantee exercises the
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Options) as she or he would have had if she or he had exercised the KCSI Option
immediately before the Distribution.
WHAT IS THE OPTION PRICE?
The Option Price of an Option or Substitute Option is the price per Share
specified in the Award Agreement that a Grantee will have to pay in order to buy
the Shares covered by his or her Option or Substitute Option. Under the terms
of the Plan, the Option Price generally is required to be at least equal to the
Fair Market Value of the Common Stock on the date the Committee grants the
Option. The Option Price of a Substitute Option may be less than the Fair
Market Value of the Common Stock on the date the Committee grants the Substitute
Option, to the extent necessary to preserve the Grantee's economic value in his
or her KCSI Option.
WHEN MAY I EXERCISE AN OPTION?
Any Option granted under the Plan will become exercisable upon the occurrence
of such conditions as the Committee determines in its discretion. For example,
an Award Agreement may condition the exercisability of an Option on the passage
of time or Stilwell's attainment of performance goals based on certain financial
measures, such as Company earnings (either in the aggregate or on a per-share
basis), net income (before or after taxes), operating income, cash flow,
earnings before or after either, or any combination of, taxes, interest or
depreciation and amortization, gross revenues, reductions in expense levels, net
economic value, market share, the Fair Market Value of the Shares or some
combination of conditions. Such conditions will be set forth in the relevant
Award Agreement. A Substitute Option will become exercisable and remain
exercisable under the same terms as the related KCSI Option.
Once exercisable, a Grantee may exercise the Option at any time until the
Option is terminated. An Option terminates on the earlier of: (1) the term
specified in the Award Agreement, (2) upon the occurrence of certain events
specified in the Award Agreement, or (3) 10 years after the grant date of the
Option.
HOW DO I EXERCISE AN OPTION?
The Grantee of an Option or Substitute Option may exercise the Option or
Substitute Option and acquire up to the total number of Shares subject to such
Option or Substitute Option by notifying Stilwell in writing of his or her
decision. The notice must specify the number of Shares a Grantee is electing to
purchase and must be accompanied by full payment of the Option Price for such
Shares and any applicable taxes (unless Stilwell, subject to applicable law,
allows deferral of such payment). The Grantee can obtain an acceptable form of
notice from Stilwell.
A Grantee may pay, subject to approval by the Committee, the Option Price by
any one or a combination of:
* cash, personal check or wire transfer;
* surrendering Shares (which are free and clear of all liens and either
have been held for at least six (6) months or were purchased in the
open market) or Restricted Shares (which have been held for at least
six (6) months) having a Fair Market Value on the date of exercise
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equal to the amount due;
* the proceeds from the sale of the Shares to be acquired upon exercise
if done in accordance with procedures approved by the Committee in
advance; or
* if approved by the Committee, in its sole discretion, a loan or guarantee
of a loan from Stilwell in an amount equal to all or any portion of the
exercise price of the Option.
As soon as practical after receipt of such payment, Stilwell will deliver to
the Grantee a certificate in his or her name representing the Shares purchased.
The Committee may, if it deems it appropriate to comply with applicable
securities laws or the requirements of any exchange upon which the Shares are
then listed, impose restrictions on the Shares acquired upon the exercise of an
Option or Substitute Option, including placing a legend on the certificate and
obtaining written representations from the Grantee.
WHAT ARE LIMITED STOCK APPRECIATION RIGHTS?
A Limited Stock Appreciation Right entitles a Grantee, subject to the terms of
the relevant Award Agreement, to a cash payment upon a Change of Control which
has not been approved by the Incumbent Board (defined below). The amount of the
cash payment is equal to the difference between (1) the greatest of the Fair
Market Value of the Common Stock on the date of the Change of Control, the
highest Fair Market Value of the Common Stock during the 180-day period
immediately preceding the Change of Control or such other valuation set forth in
the relevant Award Agreement, less (2) the Option Price of the Option related to
the LSAR.
The Incumbent Board consists of those persons who were members of the Board of
Directors of Stilwell as of the date of the Distribution, as well as persons who
subsequently become members of such Board and whose election or nomination to
the Board was approved by at least 75% of the Incumbent Board, as constituted or
existing immediately prior to such election or nomination.
WHEN MAY A GRANTEE EXERCISE AN LSAR?
Any LSAR granted under the Plan is automatically exercised upon a Change of
Control which has not been approved by the Incumbent Board. An LSAR terminates
upon the exercise, expiration, termination, forfeiture or cancellation of the
related Option. The exercise of an LSAR cancels the related Option.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
- ---------------------------------------
THE DISCUSSION BELOW IS A GENERAL SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX
CONSEQUENCES OF THE GRANT AND EXERCISE OF OPTIONS, SUBSTITUTE OPTIONS OR LSARS
UNDER THE PLAN AND ANY SUBSEQUENT DISPOSITION OF STOCK RECEIVED UPON EXERCISE OF
OPTIONS. THE DISCUSSION IS BASED ON THE U.S. FEDERAL INCOME TAX LAWS IN EFFECT
AS OF THE DATE OF THIS PROSPECTUS AND IS NOT INTENDED TO CONSTITUTE TAX ADVICE,
NOR DOES THIS DISCUSSION ADDRESS POSSIBLE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OR ESTATE OR GIFT TAX CONSEQUENCES. PARTICIPANTS SUBJECT TO THE
LAWS OF A FOREIGN JURISDICTION ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
THIS DISCUSSION DOES NOT ADDRESS ANY SPECIFIC INDIVIDUAL'S TAX SITUATION.
FURTHER, THE DESCRIPTION IS SUBJECT
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TO CHANGES IN LAW OR REGULATION, SOME OF WHICH MAY BE RETROACTIVE. PARTICIPANTS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
OPTIONS AND SUBSTITUTE OPTIONS
A Grantee who is granted an Option (the term "Option" shall include a
Substitute Option for purposes of this section) under the Plan generally will
not recognize taxable income at the time such Option is granted. Upon exercise
of an Option to acquire unrestricted shares, the Grantee will recognize taxable
compensation in an amount equal to the difference between the Fair Market Value
of the Shares on the date of exercise and the Option Price. Stilwell is
entitled to a deduction with respect to the exercise of an Option in the taxable
year within which a Grantee recognizes the corresponding compensation income.
A Grantee's basis in the Shares acquired for cash upon exercise of an Option
will be equal to the Option Price paid, plus the amount of ordinary income
recognized by the Grantee on such exercise. Upon a subsequent sale or exchange
of the Shares, a Grantee will realize long-term or short-term capital gain or
loss assuming the Shares are held as a capital asset, depending on how long the
Grantee holds the Shares. See "Capital Gains and Losses" below. The holding
period for purposes of determining whether the capital gain (or loss) is long-
term or short-term commences on the date the Option is exercised.
USE OF STOCK TO EXERCISE OPTIONS. A Grantee who pays the Option Price by
surrendering Shares already owned by the Grantee will not recognize gain or loss
with respect to the disposition of the Shares surrendered. The Grantee will
realize taxable income in an amount equal to the fair market value of the Shares
received on the date of exercise, less any cash paid in addition to the Shares
tendered. The Grantee will have a carryover basis in such number of Shares
received upon exercise as is equal to the number of Shares surrendered, and his
or her basis in the additional Shares received will be equal to the fair market
value of the Shares on the date of exercise of the Option. Upon a subsequent
sale or exchange of the Shares, a Grantee will realize long-term or short-term
capital gain or loss depending on how long the Grantee held the Shares, assuming
the Shares are held as a capital asset. See "Capital Gains and Losses" below.
The capital gains holding period for the additional Shares acquired commences on
the date the Option is exercised, while the holding period for the Shares
received equal to the number of Shares surrendered will include the period
during which the surrendered Shares were held.
LSARS
Generally, a Grantee of an LSAR will not realize any taxable federal income at
the time of grant. However, at the time an LSAR is automatically exercised, the
Grantee will recognize ordinary income in an amount equal to the cash benefit
received. Stilwell is entitled to a tax deduction in the same amount and in the
same year in which a Grantee recognizes ordinary income resulting from the
automatic exercise of an LSAR.
CAPITAL GAINS AND LOSSES
The Shares must be considered a capital asset for a Grantee to recognize
capital gain or loss on the disposition of the Shares. Capital gains and
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losses can be either short-term or long-term. A capital gain or loss will be a
long-term capital gain or loss if the Grantee holds the Shares for more than one
(1) year. Short term capital gains are currently taxed at ordinary income rates,
and the maximum federal income tax rate currently applicable to long-term
capital gains is generally 20%. A Grantee may be limited in his or her ability
to deduct any short-term or long-term capital losses in the year in which the
loss is incurred.
TAX WITHHOLDING
Compensation income recognized by the Grantee in connection with the exercise
of an Option, or LSAR, will be treated as wage compensation and will be subject
to federal income tax and Tier I and Tier II of Railroad Retirement Tax or FICA
withholding by Stilwell. There may be additional state income tax withholding.
Stilwell may require such withholding obligations, in whole or in part, to be
satisfied by:
* withholding from compensation, or from Shares or other payments, due to
the Grantee;
* the Grantee's directly paying Stilwell cash, or if permitted by the
Committee, Shares for which the Grantee has good title, free and clear of
all liens and encumbrances, and which the Grantee has held for at least
six months or has purchased on the open market; or
* any combination of the foregoing.
In order to satisfy required tax withholdings, the Grantee may, subject to the
terms of the Award Agreement and the approval of the Committee, elect in writing
to have Stilwell withhold Shares otherwise deliverable upon exercise of the
Award, having a Fair Market Value equal to: (1) the amount necessary to satisfy
the required tax withholding liability or (2) with the Committee's approval, a
greater amount, not to exceed the estimated total amount of such Grantee's tax
liability. The Grantee's election must be made by delivering a written
irrevocable election form to Stilwell.
TAX CONSEQUENCES TO GRANTEES EMPLOYED BY U.S. EMPLOYERS BUT WORKING ABROAD
Grantees who work outside the United States, but who are employed by Stilwell,
a subsidiary or an affiliate, may be taxed in the foreign country they work in,
in addition to the U.S. These tax consequences will be different depending upon
the laws of each foreign country. Please consult your tax advisor with respect
to your individual tax consequences in a foreign country.
CERTAIN INVESTMENT CONSIDERATIONS
The market price of Stilwell's Common Stock may vary widely. The Common Stock
that you acquire by exercise or payment of Awards granted under the Plan may
decrease or increase in value.
OTHER MATTERS RELATING TO THE PLAN
- ----------------------------------
WHEN WAS THE PLAN ADOPTED AND WHEN DOES IT END?
Stilwell originally adopted the Plan in 1998. The Plan was most recently
amended and restated effective August 11, 1999. The Plan will
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remain in effect until all Shares subject to it are acquired, unless previously
terminated by the Board of Directors of Stilwell (the "Board") in its
discretion.
WHO GRANTS OPTIONS AND LSARS AND OTHERWISE OVERSEES THE PLAN?
The Board has appointed the Compensation and Organization Committee (the
"Committee") to administer the Plan. Except as may be limited by law, the
certificate of incorporation or by-laws of Stilwell or the express provisions of
the Plan, the Committee has the full power and discretion: (1) to determine
when and to whom any Awards will be granted and the terms and conditions of each
Award; (2) to construe and interpret the Plan and make all determinations
necessary or advisable for administration of the Plan; (3) to determine the
terms and conditions of all Award Agreements (which need not be identical) and
to amend any such Award Agreement at any time (in certain instances only with
the consent of the Grantee), (4) to make, amend and rescind rules relating to
the Plan, including restrictions on the exercisability and nonforfeitability of
Awards upon the Grantee's termination of employment; (5) to cancel, with the
consent of the Grantee, outstanding Awards and grant substitute Awards; (6) to
accelerate the exercisability of, or to accelerate or waive any or all of the
terms and conditions applicable to, any Award or group of Awards for any reason
and at any time; (7) to extend the time during which any Award or group of
Awards may be exercised, except as otherwise limited by the Plan; (8) to make
any adjustments or modifications to Awards to Grantees working outside the
United States as are advisable to fulfill the purposes of the Plan or to comply
with local law; (9) to impose such additional terms and conditions upon the
grant, exercise or retention of Awards as the Committee may deem appropriate;
and (10) to take any other action with respect to any matters relating to the
Plan for which it is responsible.
From time to time, the Committee may adopt rules relating to the Plan or amend
or repeal any such rules. The determination of the Committee on all matters
relating to the Plan or any Award Agreement is final, conclusive and binding on
all Persons. No member of the Committee will be liable for any action or
determination made in good faith with respect to the Plan or any Award.
MAY A GRANTEE TRANSFER AN OPTION OR LSAR TO ANOTHER PERSON?
In general, the Plan does not allow a Grantee to transfer Options or LSARs
granted to him or her under the Plan to another person. There are certain
limited exceptions to this rule. Specifically, the Plan does allow a Grantee to
transfer an Option and any related LSAR granted under the Plan: (1) by will or
by the laws of descent or distribution or (2) pursuant to a qualified domestic
relations order. In addition, subject to terms and conditions established by
the Committee, a Grantee may transfer an Option and any related LSAR under the
Plan to a spouse, sibling, parent, child or grandchild, to a trust primarily for
the benefit of the Grantee or such relatives, or to a corporation or other
entity exclusively owned by the Grantee or by such relatives. The Committee has
adopted rules governing the transfer of Options. These rules are set forth in
the Statement of Policy and Procedures Regarding Transfer of Nonstatutory Stock
Options, a copy of which is available upon request.
MAY THE PLAN OR ANY OPTION OR LSAR BE CHANGED OR TERMINATED?
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The Board may alter, amend, suspend or terminate the Plan in whole or in part
at any time; provided, however, that no such change shall adversely affect in
any material way the rights of a Grantee under a previously granted Option or
LSAR if the Grantee has not consented. In addition, if Stilwell issues or
initiates a stock split, stock dividend or makes a similar change in the
structure of the outstanding capitalization of Stilwell or in the event of any
merger, consolidation, split-up, spin-off, reorganization or combination, or
repurchase or exchange of Shares or other rights to purchase Shares or other
securities of Stilwell, or other similar corporate transaction, the Committee
may adjust the number of Shares of Common Stock which may be available for
Options, the number and type of Shares subject to outstanding Awards, and the
exercise or grant price with respect to any Award as the Committee determines in
its discretion to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan.
In such a circumstance, the Committee may also make provision for a cash payment
in lieu of any Award.
The Committee may also change the terms of Options or LSARs in recognition of
unusual or nonrecurring events affecting Stilwell or the financial statements of
Stilwell or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided that
no such adjustment shall be authorized to the extent that such authority would
be inconsistent with satisfaction of the requirements of Section 162(m) of the
Code.
If, prior to a sale or merger of Stilwell, the Committee determines that the
grant or exercise of Options or LSARs would preclude the use of the pooling-of-
interests accounting methodology and that such preclusion would have a material
adverse effect on the sale or merger, the Committee may: (1) make any
adjustments in such Options or LSARs prior to the sale or merger that will
permit pooling after the sale or merger or (2) cause Stilwell to pay the
benefits attributable to the value of the Shares subject to such Options or
LSARs (including not only the spread between the Fair Market Value of the Shares
subject to the Options or LSARs and the applicable exercise price, but also the
additional value of such Options or LSARs in excess of the exercise price as
determined by the Committee) in the form of Shares if such payment would not
cause the transaction to remain or become ineligible for pooling. However, no
such adjustment may be made without the consent of the Grantee if the adjustment
would adversely affect in any material way any such Option or LSAR held by the
Grantee.
WHAT HAPPENS TO OPTIONS OR LSARS IF THE GRANTEE NO LONGER WORKS FOR STILWELL?
The effect of a Grantee's termination of employment with Stilwell on Options
and LSARs held by the Grantee is governed by the terms of the relevant Award
Agreement. In the absence of such provisions in the Award Agreement, however,
the following rules will govern the effect of the Grantee's termination of
employment on his or her Options or LSARs.
FOR CAUSE. In the absence of a specific provision in the Award Agreement, if
the employment of a Grantee is terminated for Cause, any unexercised Options or
LSARs shall terminate immediately. Termination for Cause (before a Change of
Control) means a termination based on any one or more of the following, as
determined by the Committee:
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* commission of a crime by the Grantee which resulted or is likely to result
in damage or injury to Stilwell or a Subsidiary;
* the material violation of written policies of Stilwell or a Subsidiary;
* the habitual neglect or failure by the Grantee in the performance of his
or her duties for Stilwell or a Subsidiary (but only if such neglect or
failure is not remedied within a reasonable remedial period after the
Grantee's receipt of written notice from Stilwell which describes such
neglect or failure in reasonable detail and specifies the remedial
period); or
* action or inaction by the Grantee in connection with his or her duties for
Stilwell or a Subsidiary resulting in material injury to Stilwell.
After a Change of Control, Termination for Cause means a termination based on
any one or more of the following, as determined in the good faith and reasonable
judgment of the Committee:
* the Grantee's conviction for committing an act of fraud, embezzlement,
theft, or any other act constituting a felony involving moral turpitude or
causing material damage or injury, financial or otherwise, to Stilwell;
* a demonstrably willful and deliberate act or failure to act which is
committed in bad faith, without reasonable belief that such action or
inaction is in the best interests of Stilwell, which causes material
damage or injury, financial or otherwise, to Stilwell (but only if such
action or inaction is not remedied within fifteen (15) business days of
the Grantee's receipt of written notice from Stilwell which describes the
act or inaction in reasonable detail); or
* the consistent gross neglect of duties or consistent wanton negligence by
the Grantee in the performance of the Grantee's duties (but only if such
neglect or negligence is not remedied within a reasonable remedial period
after the Grantee's receipt of written notice from Stilwell which
describes such neglect or negligence in reasonable detail and specifies
the remedial period).
ON ACCOUNT OF DEATH OR DISABILITY. In the absence of a specific provision in
the Award Agreement, if the employment of a Grantee is terminated because of
death or Disability, then any unexercised Option, whether or not exercisable on
the date of termination, may be exercised by the Grantee, or his or her personal
representative or beneficiary, at any time within the first twelve (12) months
(or until the end of the Option Term if it occurs first) following such
termination. Disability means, unless otherwise defined in the Award Agreement,
total disability as determined for purposes of the long-term disability plan of
Stilwell or any Subsidiary or other employer of the Grantee and disability shall
be deemed to occur for purposes of the Plan on the date such determination of
disability is made.
ON ACCOUNT OF RETIREMENT. If a Grantee terminates on account of Retirement,
any unexercised Option, whether or not exercisable on the date of termination,
may be exercised by the Grantee, or his or her personal representative or
beneficiary, at any time within the first (5) five years following such
termination (or until the end of the Option Term, if it occurs first) . For
this purpose, Retirement means termination of employment by the Grantee after
having: (1) attained age fifty-five (55) and completed ten (10) years of
service with Stilwell or (2) met such other requirements as may be specified by
the Committee.
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ANY OTHER REASON. In the absence of a specific provision in the Award
Agreement, if employment of a Grantee with Stilwell is terminated for any reason
not addressed above, any unexercised Option, to the extent exercisable
immediately prior to such termination, may be exercised within three (3) months
(or until the end of the Option Term, if it occurs first) from the date of such
termination by the Grantee or by his or her personal representative or
beneficiary.
WHAT HAPPENS TO OPTIONS OR LSARS FOLLOWING A CHANGE OF CONTROL OF STILWELL?
Except as otherwise provided in the relevant Award Agreement, if a Change of
Control occurs, then any unexercised Option, whether or not exercisable on the
date of such Change of Control, may be fully exercised. Any LSAR granted under
the Plan is automatically exercised upon a Change of Control which has not been
approved by the Incumbent Board and the related Option is canceled.
WHAT DOES STILWELL DO WITH THE MONEY RECEIVED FROM THE EXERCISE OF OPTIONS?
All funds received by Stilwell in payment for Company shares purchased under
the Plan may be used for any valid corporate purpose.
ARE THERE ANY RESTRICTIONS ON THE RESALE OF THE SHARES OF COMMON STOCK ACQUIRED
UPON THE EXERCISE OF AN OPTION?
All certificates for Shares delivered under the Plan pursuant to any Option
may be subject to such restrictions as the Committee may deem advisable,
including restrictions under applicable federal securities laws.
Shares acquired under the Plan are freely tradable unless held by an
"Affiliate," as defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), held by an executive officer subject to Section 16(b) of
the Securities Exchange Act of 1934, as amended ("Section 16(b)"), or the
Grantee is in possession of material inside information (trading by such a
Grantee would be deemed to be "Insider Trading"). The following summaries of
Rule 144, Section 16(b) and Insider Trading are not intended to be complete
descriptions.
Persons proposing to sell Shares acquired under the Plan should consult their
own legal counsel regarding compliance with applicable state and federal
securities laws.
RULE 144. Affiliates may not trade Shares without registration unless the
provisions of Rule 144 are met or another exemption is available for such trade.
In general, under Rule 144, as currently in effect, an Affiliate may sell within
any three (3) month period such number of Shares that does not exceed the
greater of (i) one percent (1%) of the then outstanding Shares or (ii) the
average weekly trading volume of the shares in the over-the-counter market
during the four (4) calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about Stilwell. Because of their
positions with Stilwell, officers of Stilwell may be deemed Affiliates for
purposes of Rule 144. The foregoing summary is not intended to be a complete
description of Rule 144.
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SECTION 16(B). In addition, certain executive officers of Stilwell are
subject to the provisions of Section 16(b), which provides for the disgorgement
of profits in connection with purchases and sales of securities occurring within
a six-month period. Section 16(b) is subject to a number of exceptions
depending on the circumstances.
INSIDER TRADING. A Grantee may not sell Shares acquired upon the exercise of
an Option in violation of Stilwell's Insider Trading Policy and applicable
securities laws prohibiting trading in securities by someone in possession of
material inside information. Stilwell's Insider Trading Policy, in part,
forbids any officer or employee of Stilwell or any subsidiary of Stilwell from
trading, either personally or on behalf of others, on material non-public
information concerning Stilwell or any subsidiary of Stilwell.
HOW TO OBTAIN ADDITIONAL INFORMATION
To obtain additional information about the Plan or its administrators, please
call the Corporate Secretary's Office at (816) 218-2400, extension 2408 or 2406.
You may also write to the Corporate Secretary at Stilwell Financial, Inc., 920
Main Street, Kansas City, Missouri 64105.
EXPERTS
The legality of the securities to be issued pursuant to the Plan will be
passed upon for Stilwell by Sonnenschein Nath & Rosenthal.
The financial statements of Stilwell as of December 31, 1999 and 1998 and for
the three years in the period ended December 31, 1999 incorporated in this
Prospectus by reference to Stilwell's Information Statement filed as Exhibit
99.1 to its Registration Statement on Form 10, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
Stilwell has filed a registration statement on Form S-3 to register the shares
of Stilwell common stock to be issued upon exercise of options granted under the
Plan to eligible persons who hold options for shares of common stock of KCSI, in
connection with the Distribution. This prospectus, which forms a part of the
registration statement, does not contain all of the information included in the
registration statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement or incorporated by reference herein are not necessarily
complete. With respect to such contract or other document filed as an exhibit
to the registration statement or so incorporated, we refer you to the copy of
the contract or document that has been filed or so incorporated, and each such
statement shall be deemed qualified in its entirety by such reference.
This registration statement and the exhibits thereto and any other materials
filed by Stilwell with the SEC may be read and copied at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the regional offices of the SEC at Citicorp Center, 500 West
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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. In addition, Stilwell
will provide, without charge, to each person, including any beneficial owner, to
whom this prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the information that has been incorporated by reference
in this prospectus (excluding unincorporated exhibits), but not delivered with
it. Such requests should be made to the Office of the Corporate Secretary,
Stilwell Financial, Inc., 920 Main Street, 21st Floor, Kansas City, Missouri
64105-2008, telephone: (816) 218-2400, extension 2408 or 2406.
After the Distribution, Stilwell will be required to comply with the reporting
requirements of the Securities Exchange Act of 1934, as amended (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.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Stilwell hereby incorporates by reference into this prospectus the following
documents filed with the Securities and Exchange Commission (the "Commission").
(a) Stilwell's Registration Statement on Form 10 dated May 26, 2000,
as amended ___________ (Commission File No. 001-15253).
(b) Stilwell's Information Statement filed as Exhibit 99.1 to its
Registration Statement on Form 10 dated May 26, 2000,
as amended ______________ (Commission File No. 001-15253).
(c) The section entitled "Description of Capital Stock" contained on
pages 128 to 134 of the Information Statement filed as Exhibit 99.1
to Stilwell's registration statement on Form 10 dated May 26,
2000, as amended ___________ (Commission File No. 001-15253).
All documents subsequently filed by Stilwell pursuant to Section 13(a), 13(c),
14 or 15(d) of the 1934 Act, prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold or which deregisters
all securities then remaining unsold, shall be deemed to be incorporated by
reference into this Registration Statement and to be part thereof from the date
of filing of those documents. Additional updating information with respect to
the securities and Plan covered herein may be provided in the future to
participants by means of appendices to this prospectus.
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PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are estimates of all expenses incurred or to be incurred by
Stilwell in connection with the issuance and distribution of Stilwell common
stock to be registered, other than underwriting discounts and commissions.
Registration fees $ 7,940
Photocopying and Printing 5,000*
Legal fees 15,000*
Accounting fees 10,000*
State blue sky fees and expenses 500*
---------
TOTAL $ 38,440
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") contains
detailed provisions on indemnification of directors and officers against
expenses, judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with legal proceedings. Section 102(b)(7) of
the DGCL permits a provision in the certificate of incorporation of each
corporation organized thereunder, such as Stilwell, that eliminates or limits,
with certain exceptions, the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Stilwell's Amended and Restated Certificate of Incorporation
("Certificate") 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's 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
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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.
Stilwell has entered into indemnification agreements with its officers and
directors effective as of the Distribution (the "Stilwell Indemnification
Agreements"). The Stilwell Indemnification Agreements contain substantially
identical provisions to the Certificate with respect to indemnification and
advancement of expenses. 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.
ITEM 16. EXHIBITS
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation, filed as
Exhibit 3.1.1 to Stilwell's Registration Statement on Form 10,
dated August 18, 1999, as amended May 26, 2000 and _________
(Commission File No. 001-15253) (the "Form 10 Registration
Statement"), is hereby incorporated by reference as Exhibit
3.1
3.2 Amended and Restated Bylaws, filed as Exhibit 3.1.2 to
Stilwell's Form 10 Registration Statement, is hereby
incorporated by reference as Exhibit 3.2
4.1 Stilwell Financial, Inc. 1998 Long Term Incentive Stock Plan
(as amended and restated effective as of August 11, 1999),
filed as Exhibit 10.8 to Stilwell's Form 10 Registration
Statement, is hereby incorporated by reference as Exhibit 4.1
5 Opinion of Sonnenschein Nath & Rosenthal as to the legality of
the securities being registered
8 Opinion of Sonnenschein Nath & Rosenthal as to the tax
consequences of the Plan
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23.1 Consent of Sonnenschein Nath & Rosenthal to use of opinion re:
legality (included in the opinion filed herewith as Exhibit 5)
23.2 Consent of Sonnenschein Nath & Rosenthal to use of tax opinion
(included in the opinion filed herewith as Exhibit 8)
23.3 Consent of PricewaterhouseCoopers LLP
24 Power of attorney (included on signature page)
ITEM 17. UNDERTAKINGS
(a) Rule 415 Offering. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such
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securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(h) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Kansas City, State of Missouri, on May 26, 2000.
STILWELL FINANCIAL, INC.
By: /s/ Landon H. Rowland
----------------------------------
Landon H. Rowland
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Landon H. Rowland, Joseph D.
Monello and Danny R. Carpenter, and each of them, as his true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and resubstitution, for and in his stead, in any and all
capacities, to sign on his behalf this Registration Statement on Form S-3 of the
Stilwell Financial, Inc. 1998 Long Term Incentive Stock Plan, and to execute any
amendments thereto (including post-effective amendments), and to
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file the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission and granting unto said
attorneys-in-fact and agents, and each of them, jointly and severally, the full
power and authority to do and perform each and every act and thing necessary or
advisable to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, jointly or severally, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Landon H. Rowland Director; Chairman of the Board, May 26, 2000
- ---------------------- President and Chief Executive
Landon H. Rowland Officer
(Principal Executive Officer)
/s/ Joseph D. Monello Director; Vice President and May 26, 2000
- ---------------------- Chief Operating Officer,
Joseph D. Monello (Principal Financial Officer)
/s/ Douglas E. Nickerson Vice President and Controller May 26, 2000
- ------------------------ (Principal Accounting Officer)
Douglas E. Nickerson
/s/ Danny R. Carpenter Director; Vice President and May 26, 2000
- ------------------------ Secretary
Danny R. Carpenter
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INDEX TO EXHIBITS
Exhibit No. Description
5 Opinion of Sonnenschein Nath & Rosenthal as to the legality
of the securities being registered
8 Opinion of Sonnenschein Nath & Rosenthal as to the tax
consequences of the Plan
23.3 Consent of PricewaterhouseCoopers LLP
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May 26, 2000
Stilwell Financial, Inc.
920 Main Street, 21st Floor
Kansas City, Missouri 64105
RE: REGISTRATION STATEMENT ON FORM S-3 (THE "REGISTRATION STATEMENT")
IN CONNECTION WITH THE REGISTRATION OF 6,640,274 SHARES (THE
"SHARES") OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON
STOCK") OF STILWELL FINANCIAL, INC. TO BE ISSUED UNDER THE STILWELL
FINANCIAL, INC. 1998 LONG TERM INCENTIVE STOCK PLAN (THE "PLAN")
Ladies and Gentlemen:
In connection with the preparation of the above-referenced Registration
Statement, which is being filed with the Securities and Exchange Commission (the
"Commission") on or about the date of this letter on behalf of Stilwell
Financial, Inc., a Delaware corporation (the "Corporation"), you have asked us
to provide you this opinion letter pursuant to Item 16 of Form S-3 and in
accordance with subsection (b)(5) of Item 601 of Regulation S-K promulgated by
the Commission.
In connection with this opinion, we have examined and relied upon, without
further investigation, the following in connection with rendering the opinions
expressed herein: (a) the Plan, including all amendments thereto; (b) the
Registration Statement, (c) the Corporation's Certificate of Incorporation, as
amended, certified by the Secretary of State of the State of Delaware to be true
and accurate, (d) the Corporation's Bylaws, (e) a copy of consent action of the
Corporation's board of directors authorizing the Plan and the issuance of the
Shares thereunder; and (f) such other documents, certificates, records, and oral
statements of public officials and the officers of the Corporation as we deemed
necessary for the purpose of rendering the opinions expressed herein.
In our examinations, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity, accuracy and
completeness of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed, or
photostatic copies or by facsimile or electronic mail, and the authenticity of
the originals from which such copies, facsimiles, or electronic transmissions
were made. In our examination of documents executed by persons, legal or
natural, other than the Corporation, we have assumed that such persons had the
power, corporate or otherwise, to enter into and perform all obligations
thereunder and that such documents are valid and binding.
Based upon and subject to our examination described herein and the
assumptions, exceptions, qualifications, and limitations set forth herein, we
are of the opinion that
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1. The Corporation is a duly organized and existing corporation under
the corporate laws of the State of Delaware;
2. The issued Shares of Common Stock of the Corporation have been duly
authorized and are validly issued, fully paid and nonassessable; and
3. All Shares of Common Stock covered by the Registration Statement
have been duly authorized, and, assuming (a) the Shares of Common
Stock so issuable will be duly authorized on the date of issuance,
(b) no change occurs in the applicable law or the pertinent facts,
and (c) they are issued in accordance with the terms of the Plan,
the Shares of Common Stock so issuable will be validly issued, fully
paid, and nonassessable. This opinion is limited to Shares that are
originally issued under the Plan.
This opinion letter is limited to the specific legal issues that it expressly
addresses, and no opinion may be inferred or implied beyond the matters
expressly set forth herein. We express no opinion as to the law of any
jurisdiction other than the General Corporation Law of the State of Delaware, as
amended. We are not admitted to the Delaware Bar. In expressing our opinions
set forth herein, we have reviewed and relied upon, without further
investigation, such laws as published in generally available sources.
We consent to the filing of this opinion letter, or a reproduction thereof, as
an exhibit to the Registration Statement. In giving such consent, however, we
are not admitting that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
or regulations promulgated by the Securities and Exchange Commission thereunder.
This opinion letter is rendered on the date set forth above, and we have no
continuing obligation hereunder to inform you of changes in the applicable law
or the facts after such date or facts of which we have become aware after the
date hereof, even though such changes or facts could affect our opinions
expressed herein.
Very truly yours,
SONNENSCHEIN NATH & ROSENTHAL
/s/ Sonnenschein Nath & Rosenthal
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May 26, 2000
Stilwell Financial, Inc.
920 Main Street, 21st Floor
Kansas City, Missouri 64105
RE: STILWELL FINANCIAL, INC.; FORM S-3; CERTAIN FEDERAL INCOME
CONSIDERATIONS
Ladies and Gentlemen:
The undersigned has prepared the section described as "Certain Federal Income
Tax Consequences, at pages 19 through 21 of the Prospectus included in the Form
S-3 Registration Statement (the "Registration Statement") for Stilwell
Financial, Inc. ("Stilwell") pertaining to the Stilwell Financial, Inc. 1998
Long Term Incentive Stock Plan (the "Plan"). Capitalized terms used in this
opinion have the meanings ascribed to them in the Registration Statement.
We have reviewed the Plan, as amended and restated effective as of August 11,
1999, and such other corporate records as we have deemed necessary for purposes
of this opinion. We have also made such investigations of law as we have deemed
necessary for purposes of this opinion.
Based on the foregoing, we are of the opinion that the section entitled
"Certain Federal Income Tax Consequences" accurately presents the material
federal income tax consequences associated with the grant and exercise of
Options and Substitute Options, the sale of shares acquired by the exercise of
Options and Substitute Options, and the grant and payment of LSARs under the
Plan.
The Registration Statement addresses only nonqualified or nonstatutory stock
options and LSARs, and not Incentive Stock Options, Bonus Shares, Performance
Shares or Restricted Shares which may be issued under the Plan. The discussion
of "Certain Federal Income Tax Consequences" likewise addresses only
nonqualified or nonstatutory stock options and LSARs. These same limitations
apply to this opinion.
The section entitled "Certain Federal Income Tax Consequences" does not
address possible state, local or foreign tax consequences, or estate or gift tax
consequences, or any specific individual tax situation. Further, the section
entitled "Certain Federal Income Tax Consequences" is limited to the federal
income tax law in effect on the date of the Registration Statement. These same
limitations apply to this opinion, and the undersigned assumes no obligation to
update such section to reflect changes of law or facts after the date hereof.
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This opinion is limited to the matters expressly set forth herein; no opinion
may be inferred or implied beyond the matters expressly stated herein.
The undersigned consents to the filing of this opinion as an exhibit to the
Registration Statement.
SONNENSCHEIN NATH & ROSENTHAL
/s/ Sonnenschein Nath & Rosenthal
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 16, 2000 relating to the
financial statements of Stilwell Financial, Inc., which appears in the
Information Statement which is filed as Exhibit 99.1 to Stilwell's Registration
Statement on Form 10 dated May 26, 2000. We also consent to the reference to us
under the heading "Experts" in this Registration Statement.
We also consent to the incorporation by reference in this Registration Statement
of our report dated February 29, 2000 relating to the financial statements of
DST Systems, Inc., which appears in the DST Systems, Inc. Annual Report on Form
10-K for the year ended December 31, 1999. The financial statements of DST
Systems, Inc. for the year ended December 31, 1999 together with our report
thereon have been incorporated by reference in the Information Statement
referred to above.
/s/ PricewaterhouseCoopers
Kansas City, Missouri
May 26, 2000
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