FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission File Number 1-4717
KANSAS CITY SOUTHERN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 44-0663509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)Identification No.)
114 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
(816) 556-0303
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
Common Stock, $.01 per share par value 43,501,845 Shares
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1994
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 1
Consolidated Condensed Balance Sheets -
September 30, 1994 and December 31, 1993 2
Consolidated Condensed Statements of Income -
Three and Nine Months Ended September 30, 1994 and 1993 3
Computation of Primary Earnings per Common Share 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 1.Legal Proceedings 18
Item 2.Changes in the Rights of the Company's Security Holders 18
Item 6.Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1994
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTRODUCTORY COMMENTS
The Consolidated Condensed Financial Statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the Registrant
believes that the disclosures are adequate to enable a reasonable
understanding of the information presented. It is suggested that these
Consolidated Condensed Financial Statements be read in conjunction with the
financial statements and the notes thereto included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
ASSETS
<S> <C> <C>
Current Assets:
Cash and equivalents $ 29.1 $ 6.6
Accounts receivable, net 216.2 194.7
Inventories 52.0 48.3
Other current assets 81.2 86.1
Total current assets 378.5 335.7
Investments (held for operating purposes) 210.1 174.5
Properties (net of $666.0 and $599.4 accumulated
depreciation and amortization, respectively) 1,359.3 1,192.6
Intangibles and Other Assets 174.5 214.2
Total assets $2,122.4 $1,917.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year $ 5 7.5 $ 63.5
Accounts and wages payable 91.9 70.9
Other accrued and current liabilities 144.6 154.0
Total current liabilities 294.0 288.4
Other Liabilities:
Long-term debt 855.5 776.2
Deferred income taxes 209.8 184.7
Other deferred credits and liabilities 99.8 99.1
Total other liabilities 1,165.1 1,060.0
Minority Interest 9.8 5.9
Stockholders' Equity:
Preferred stock 7.1 7.1
Common stock .4 30.9
Capital surplus 338.8 303.9
Retained earnings 516.7 439.0
Shares held in trust (200.0) (200.0)
ESOP deferred compensation (9.5) (18.2)
Total stockholders' equity 653.5 562.7
Total liabilities and stockholders' equity $2,122.4 $1,917.0
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Millions, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $273.4 $253.3 $805.7 $699.6
Costs and expenses 216.3 194.9 633.8 549.8
Operating Income 57.1 58.4 171.9 149.8
Equity in net earnings of
unconsolidated affiliates 6.8 2.3 17.9 9.2
Interest expense (15.2) (13.8) (39.7) (36.3)
Pretax income 48.7 46.9 150.1 122.7
Provision for taxes on income 18.4 21.1 56.1 49.3
Income before minority interest 30.3 25.8 94.0 73.4
Minority interest 1.7 2.5 6.0 6.5
Income before cumulative effect of
accounting changes 28.6 23.3 88.0 66.9
Cumulative effect of changes in
accounting for income taxes and
postretirement benefits,
net of taxes (6.5)
Net Income 28.6 23.3 88.0 60.4
Less-dividends on preferred stock .1 .1 .2 .2
Net Income Applicable to
Common Stockholders $ 28.5 $ 23.2 $ 87.8 $60.2
Computation of Primary Earnings per Common Share
Average Primary Common
Shares Outstanding
(in thousands) 45,092 44,977 45,112 44,695
Primary Earnings per Common Share:
Income before cumulative effect of
accounting changes $ .64 $ .52 $ 1.95 $1.49
Cumulative effect of
accounting changes (.14)
Total $ .64 $ .52 $ 1.95 $1.35
Cash Dividends Paid:
Per Common share $ .071/2 $ .071/2 $ .221/2 $ .221/2
Per Preferred share $ .25 $ .25 $ .75 $ .75
</TABLE>
See accompanying notes to consolidated condensed financial statements.<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1994 1993
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $88.0 $60.4
Adjustments to net income:
Depreciation and amortization 86.3 69.5
Deferred income taxes 31.4 22.6
Equity in undistributed earnings (17.6) (8.3)
Changes in working capital items:
Accounts receivable (20.7) (16.6)
Inventories (3.7) (13.3)
Other current assets 1.6 (38.4)
Accounts payable 23.3 (1.4)
Other accrued and current liabilities .8 30.0
Other, net (1.9) 13.7
Net 187.5 118.2
INVESTING ACTIVITIES:
Property acquisitions (216.2) (103.8)
Proceeds from disposal of property 15.7 10.9
Purchase of companies, net of cash acquired (1.0) (197.4)
Investment acquisitions (23.0) (8.7)
Proceeds from disposal of investments 4.5 3.9
Other, net 4.4 (7.7)
Net (215.6) (302.8)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 148.0 536.3
Repayment of long-term debt (70.4) (332.6)
Proceeds from stock plans 3.8 4.1
Stock repurchased (10.2) (7.4)
Cash dividends paid (10.0) (9.7)
Other, net (10.6) .6
Net 50.6 191.3
CASH AND EQUIVALENTS
Net increase 22.5 6.7
At beginning of year 6.6 15.4
At end of period $29.1 $22.1
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1994
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Registrant, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of normal
interim closing procedures) necessary to present fairly the financial position
of Kansas City Southern Industries, Inc. ("Registrant" or "KCSI") and its
subsidiary companies as of September 30, 1994 and December 31, 1993, the
results of operations for the three and nine months ended September 30, 1994
and 1993, and cash flows for the nine months ended September 30, 1994 and
1993.
2. The results of operations for the three and nine months ended September
30, 1994 and 1993 are not necessarily indicative of the results to be expected
for the full year 1994, nor the results experienced for the full year 1993.
3. The accompanying financial statements have been prepared consistent with
accounting principles described more fully in Note 1 of the Registrant's 1993
Annual Report to Stockholders.
4. The Registrant's inventories, $52.0 million at September 30, 1994 and
$48.3 million at December 31, 1993, principally represent material and
supplies related to rail transportation and DST's output processing
operations. Other components of inventories are immaterial.
5. Investments in unconsolidated affiliates and certain other investments
accounted for under the equity method of accounting include all entities in
which the Registrant or its subsidiaries have significant influence but not
more than 50% control. Investments in unconsolidated affiliates (joint
ventures) at September 30, 1994, include the equity interests of DST Systems,
Inc. ("DST") in Boston Financial Data Services, Inc. ("BFDS"), Investors
Fiduciary Trust Company ("IFTC"), The Continuum Company, Inc. ("Continuum"),
Argus Health Systems, Inc. ("Argus"), Midland Data Systems, Inc. and Midland
Loan Services, L.P.(collectively "Midland"), First of Michigan Capital
Corporation, and certain other venture operations plus the Registrant's
interests in other companies. Among other provisions, the joint venture
agreements contain "change of control" provisions affecting the rights of the
partners to acquire the other partners' equity interests in the event of
circumstances which would result in a change of control.
<PAGE>
Combined condensed financial information of unconsolidated affiliates is shown
below (dollars in millions):
Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Current assets $1,090.8 $1,047.7
Non-current assets 139.8 150.1
Assets $1,230.6 $1,197.8
Current liabilities $ 876.2 $ 856.8
Non-current liabilities 99.4 122.9
Equity of stockholders and partners 255.0 218.1
Liabilities and equity $1,230.6 $1,197.8
Investment in unconsolidated affiliates $ 162.6 $ 126.3
</TABLE>
Operating Results
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
IFTC $ 11.0 $ 13.2 $ 32.2 $ 37.9
All others 138.7 45.4 423.8 168.3
Total Revenues $ 149.7 $ 58.6 $ 456.0 $ 206.2
Costs and expenses:
IFTC $ 7.7 $ 10.5 $ 23.1 $ 31.1
All others 125.5 42.1 389.3 159.8
Total Costs and Expenses $ 133.2 $ 52.6 $ 412.4 $ 190.9
Net Income:
IFTC $ 3.3 $ 2.7 $ 9.1 $ 6.8
All others 13.2 3.3 34.5 8.5
Total Net Income $ 16.5 $ 6.0 $ 43.6 $ 15.3
Equity in Earnings:
IFTC $ 1.6 $ 1.3 $ 4.5 $ 3.4
All others 5.2 1.0 13.4 3.7
Total Equity in Earnings $ 6.8 $ 2.3 $ 17.9 $ 7.1
</TABLE>
<PAGE>
6. For purposes of the Statement of Cash Flows, the Registrant considers all
short-term investments with an original maturity of generally three months or
less to be cash equivalents. Other required supplementary disclosures follow:
a. Cash Flow Information (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1994 1993
<S> <C> <C>
Interest paid $55.8 $ 40.2
Income taxes paid 3.8 18.5
</TABLE>
b. Noncash Investing and Financing Activities:
In the first quarter of 1994, the Registrant issued approximately 235,000
shares of Common stock under the Seventh Offering of the Employees Stock
Purchase Plan. These shares, totalling a purchase price of approximately $4.4
million, were subscribed and paid for, through employee payroll deductions, in
1993.
During the first nine months of 1994 and 1993, the Registrant recorded
expenses of $3.2 million and $3.0 million, respectively, related to its
existing ESOP. These charges, which were non-cash in nature, had the effect
of decreasing retained earnings and ESOP deferred compensation with no overall
effect upon stockholders' equity.
The Registrant issued $200 million in debt securities in the first nine months
of 1993. As part of these transactions, the Registrant incurred $2.5 million
in discount and underwriting fees which were transferred directly to the
underwriters. These discount and underwriting fees represent non-cash
amounts, which will be amortized over the respective term of the indebtedness.
In the first nine months of 1993, the Registrant and DST completed several
transactions with respect to acquisitions and dispositions of businesses,
which are more fully described in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
7. In December 1993, the American Institute of Certified Public Accountants
issued Statement of Position No. 93-6 ("SOP 93-6") "Employers Accounting for
Employee Stock Ownership Plans", which became effective for fiscal years
beginning after December 15, 1993. The Registrant's ESOP shares are
grandfathered under the provisions of SOP 93-6 and accordingly, the
Registrant's accounting policies and procedures as described in the Annual
Report on Form 10-K for the year ended December 31, 1993 were not affected by
SOP 93-6. SOP 93-6 does, however, require additional disclosures regarding
the Registrant's ESOP plan as follows, (in millions at September 30, 1994):
Number of Common shares allocated to
plan participants 4.6
Cost of unallocated ESOP shares $11.1
8. On May 19, 1994, the Registrant amended its certificate of incorporation to
set a par value for the Common stock. The amendment established a par value
of $.01 per Common share, which had previously been no par, and had the effect
of reallocating amounts between categories within stockholders' equity but had
no overall effect upon the total amount of stockholders' equity.
9. On July 19, 1994, the Registrant announced that it had entered into a
letter of intent with Illinois Central Corporation ("IC") for acquisition of
the Registrant's Transportation Services operations by IC. On October 24,
1994, however, the Registrant and IC jointly announced that they mutually
agreed to terminate the Letter of Intent dated July 19, 1994. The Registrant
and IC were not able to reach a definitive agreement on a number of issues.
As a result of the mutual termination of the Letter of Intent and negotiations
with IC, the Registrant will continue to operate as it is currently structured
with its core Transportation and Financial Services businesses.
10. On July 19, 1994, the Registrant also announced that DST and Kemper
Financial Services, Inc. ("Kemper") had entered into a letter of intent for
the acquisition of their jointly owned affiliate IFTC by State Street Boston
Corporation ("State Street"). On September 27, 1994, the Registrant announced
that DST and Kemper entered into a definitive agreement with State Street for
the sale to State Street of IFTC Holdings, Inc., which wholly owns IFTC.
Upon closing of the IFTC transaction, which is subject to regulatory approvals
and other conditions, DST will receive approximately 2.8 million shares of
State Street common stock in a tax-free exchange (representing an approximate
4% ownership interest in State Street). DST recognized equity earnings from
IFTC of $4.8 million for the year ended December 31, 1993. Based upon the
initial transaction terms, DST anticipates recording a gain on sale of an
equity investment and after consideration of appropriate tax effects the net
gain was expected to be $15 million when the IFTC transaction is completed.
The actual gain recognized, however, is dependent upon the number of shares of
State Street stock to be received, the price of State Street stock and timing
of closing of the transaction, at which time the gain to be recorded could be
less than that stated above. Completion of the transaction is expected in
fourth quarter 1994 or first quarter 1995 depending upon the timing of
regulatory approval.
11. In third quarter 1994, the Registrant's Board of Directors authorized
redemption of the Common stock "Rights" issued pursuant to its Rights Plan in
1986. The Board action terminates the exercisability of such Rights and
resulted in a payment on September 20, 1994 of one and one-quarter cents
($.0125) per share to Common stockholders of record on August 26, 1994,
amounting to approximately $540,000 in the aggregate.
12.On October 14, 1994, the Registrant completed the acquisition of a
controlling interest in Berger Associates, Inc. ("Berger"). Berger is the
investment advisor of The Berger One Hundred Fund, The Berger One Hundred and
One Fund and The Berger Small Company Growth Fund, as well as to private and
other accounts, (collectively, "Berger Funds"). Berger currently has a total
of approximately $3 billion in assets under management. At closing, the
Registrant made the initial purchase payment of $32.7 million, in cash,
pursuant to a Stock Purchase Agreement, (the "Agreement"), after receipt of an
affirmative vote of the Berger Funds shareholders regarding the transaction.
The acquisition had previously been approved by both of the Boards of
Directors of the Registrant and Berger. The Agreement also provides for
additional purchase price payments contingent upon attaining certain levels of
assets under management as defined in the Agreement, of which $14.8 million in
cash was made in October 1994.
The acquisition, which will be accounted for as a purchase, increased the
Registrant's ownership in Berger from approximately 18% to over 80%.
Adjustments to appropriate asset and liability balances will be recorded based
upon an as yet uncompleted analysis of the fair market value of such assets
and liabilities. It is anticipated that the transaction will create
intangibles as the purchase price exceeds the fair value of underlying assets.
These intangible amounts will be amortized over their estimated economic life
based upon an as yet uncompleted economic life analysis. The financial
statements of Berger will be consolidated into the Registrant effective with
the closing of the transaction. Assuming the transaction had been completed
on January 1, 1994, the addition of Berger's revenues and net income,
including adjustments to reflect the effects of the acquisition, on a pro
forma basis, as of and for the nine months ended September 30, 1994, would
have had an immaterial effect on the consolidated results of the Registrant.
13. LITIGATION. The Registrant has had no significant changes in its
outstanding litigation from that previously reported in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 other than as
noted below.
SWEPCO Litigation
As was previously disclosed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, KCSR was a defendant in a lawsuit filed in
the District Court of Bowie County, Texas by Southwestern Electric Power
Company ("SWEPCO"). In that case, SWEPCO alleged that KCSR was required to
reduce SWEPCO's coal transportation rate due to changed circumstances
allegedly creating a "gross inequity" under the provisions of the coal
transportation contract existing among SWEPCO, KCSR and the Burlington
Northern Railroad. SWEPCO is KCSR's largest single customer. KCSR and SWEPCO
have settled this litigation and the case against KCSR has been dismissed.
This matter was concluded, as predicted, without material adverse effect on
the financial condition or future results of operations of the Registrant.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Kansas City Southern Industries, Inc. (the "Registrant") is a Delaware
corporation, organized in 1962, which engages in supervising the operations of
its subsidiaries and providing certain managerial, legal and financial
services to its subsidiaries.
The Registrant's business activities by industry segment and principal
subsidiary companies are:
Transportation Services - Operating a Class I Common Carrier Railroad
system through the Registrant's 100% owned subsidiary The Kansas City
Southern Railway Company and its affiliated trucking and other
subsidiaries ("KCSR") along with other subsidiaries supporting the
transportation segment.
Information & Transaction Processing - DST Systems, Inc., ("DST") a 100%
owned subsidiary, together with its subsidiaries and joint ventures
(principally The Continuum Company, Inc., Boston Financial Data Services,
Inc., Investors Fiduciary Trust Company, Argus Health Systems, Inc.,
Midland Data Services, Inc. and Midland Loan Services L.P.), designs,
maintains and operates proprietary on-line shareowner accounting and
record keeping data processing systems, primarily for mutual funds,
financial services institutions and insurance companies. In addition to
data processing, subsidiaries of DST also provide computer output
microfilm/microfiche, printing and graphic design services.
Financial Asset Management - Management of investments for mutual funds,
private and other accounts through Janus Capital Corporation ("Janus"),
an 81% owned subsidiary and Berger Associates, Inc. ("Berger") an over
80% owned subsidiary, effective with the October 14, 1994 acquisition of
a controlling interest in Berger.
Corporate and Other - Primarily general administrative and corporate
operations of the Registrant and other minor subsidiaries.
The information contained in this management's discussion and analysis of
financial condition and results of operations should be read in conjunction to
the notes to consolidated condensed financial statements included in this Form
10-Q.
Results of Operations
Segment revenues and operating income comparisons follow (dollars in
millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Transportation Services $130.3 $120.5 $377.0 $323.2
DST Systems, Inc. 98.8 90.2 297.4 254.2
Janus Capital Corp. 45.2 42.6 133.5 117.1
Eliminations, Corporate & Other (.9) -- (2.2) 5.1
Total $273.4 $253.3 $805.7 $699.6
Operating Income:
Transportation Services $ 34.2 $ 31.7 $ 93.6 $ 79.4
DST Systems, Inc. 5.4 7.5 27.0 23.9
Janus Capital Corp. 21.2 23.1 59.8 56.5
Eliminations, Corporate & Other (3.7) (3.9) (8.5) (10.0)
Total $ 57.1 $ 58.4 $171.9 $149.8
</TABLE>
The Registrant reported third quarter 1994 earnings of $28.6 million, (64
cents per share), a 23% increase over the $23.3 million, (52 cents per share)
earned in third quarter 1993. Third quarter 1993 earnings, however, included
additional income tax expense related to the 1993 federal income tax rate
increase of $3.4 million or 8 cents per share, related to deferred tax
amounts. Excluding these tax charges from prior year results, third quarter
1994 earnings improved 7% over comparable 1993. Third quarter 1994 earnings,
at 64 cents per share, represent the highest third quarter results in the
Registrant's history. Consolidated operating income declined slightly to
$57.1 million while revenues rose 8% to $273.4 million. Third quarter results
were also affected by an increase in earnings of unconsolidated affiliates and
higher interest expense on expanded debt levels and increased rates.
For the nine months ended September 30, 1994, earnings of $88 million or $1.95
per share increased 31% over income before accounting changes and 44% over
total per share earnings in comparable prior year. Year to date 1993 results
include a charge of $6.5 million (14 cents per share) related to the adoption
of Statement of Financial Accounting Standards Nos. 106 and 109 for
postretirement benefits and income taxes. Consolidated revenues for the first
nine months of 1994 rose to $805.7 million, while operating income rose 15% to
$171.9 million. Year to date results were also affected by higher
unconsolidated affiliate earnings primarily related to DST's equity in The
Continuum Company, Inc. ("Continuum"), which became a DST affiliate in late
1993 and increases in the federal income tax rate discussed above.
Third quarter and year to date 1994 periods also include non-cash acquisition
related intangible amortization expenses amounting to $2.7 million and $8
million, respectively, versus $1.7 million and $4 million, respectively in
third quarter and year to date 1993.
TRANSPORTATION SERVICES
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $130.3 $120.5 $377.0 $323.2
Costs and expenses 96.1 88.8 283.4 243.8
Operating income 34.2 31.7 93.6 79.4
Unconsolidated affiliates (.1) (.1) (.1) 1.9
Interest expense (12.0) (9.7) (32.6) (20.7)
Pretax income 22.1 21.9 60.9 60.6
Income taxes 9.0 12.4* 25.1 27.8*
Income before accounting changes $13.1 $ 9.5 $ 35.8 $ 32.8
</TABLE>
*Includes $4.0 million for federal income tax rate increases related to
deferred tax balances.
Transportation Services, comprised principally of KCSR, reported third quarter
earnings of $13.1 million, a 38% increase over third quarter 1993 on an 8%
increase in revenues and an 8% improvement in operating income. Third quarter
1993 results, however, included an additional income tax charge of $4 million
related to federal tax rate increases applicable to deferred tax amounts.
Excluding this charge from prior year results, third quarter 1994 earnings
declined slightly from comparable 1993.
KCSR (which includes MidSouth Corporation effective with the June 1993
acquisition) third quarter revenues rose 7% compared to 1993. General
commodity revenues showed improvement from higher carloadings in the chemicals
and petroleum products, metallic ores and food products areas along with
TOFC/COFC intermodal traffic, where carloadings rose 50% from third quarter
1993. The improvement in intermodal traffic is primarily attributable to
North/South traffic on the original KCSR route and the purchase of the Zacka
Junction, Texas intermodal facility from Santa Fe Railway in servicing the
Kansas City/Dallas traffic corridor. In mid-November 1994, KCSR plans
initiation of intermodal service in the Dallas/Atlanta, East/West traffic
corridor in conjunction with the Norfolk Southern Railway interchange at
Meridian, Mississippi. This intermodal traffic will utilize the MidSouth
track acquired in June 1993. Lower traffic levels were experienced primarily
in the farm products area, as weak export grain shipments continued 1994
trends, and pulp/paper products, which were somewhat affected by the Soo Line
strike, which is now ended. Unit coal revenues rose 9% in third quarter 1994,
even though overall unit coal tonnage declined including the absence of
shipments to a Monticello, Texas utilities electric generating plant ("Tumco")
served by KCSR (the Tumco plant shut down in late 1993 and is anticipated to
reopen in fourth quarter 1995). This revenue improvement is attributable to a
combination of length of haul and rates as certain electric generating plants
served by KCSR increased receipt of coal tonnage in third quarter 1994.
Excluding consideration of the Tumco plant previously discussed, unit coal
revenues, which tend to fluctuate from quarter to quarter, are expected to
equalize on an annual basis compared to prior year.
KCSR operating expenses increased in third quarter 1994 commensurate with
increased traffic levels, both general commodity and unit coal. Operating
income was also negatively affected by the acceleration of the track and
structure upgrading program related to the MidSouth property acquired in June
1993. Increased car hire expenses in third quarter 1994 were caused by higher
usage of intermodal rail equipment to handle improved TOFC/COFC traffic,
however, traffic congestion and severe weather conditions, which affected
operating expenses in the first half of 1994, eased in third quarter 1994.
Overall Transportation Services third quarter results also benefitted from
continued favorable operations of both Pabtex (petroleum coke and coal export
facility) and Southern Leasing Corporation on higher volumes. Transportation
results were also negatively affected in third quarter 1994 from increased
interest expense compared to prior year on a combination of higher
indebtedness and rates.
For the first nine months of 1994, Transportation Services contribution to
Registrant consolidated results improved 9% from prior year, however, year to
date 1993 results also include the additional income tax expense for federal
rate increases discussed above. Excluding this additional tax expense from
comparable 1993, Transportation Services results declined 3%. These lower
results are partially attributable to lost unit coal revenue from the Tumco
plant and absence of a one-time after tax gain of $1.3 million on sale of real
estate included in 1993 results.
<PAGE>
INFORMATION & TRANSACTION PROCESSING
DST SYSTEMS, INC.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $98.8 $90.2 $297.4 $254.2
Costs and expenses 93.4 82.7 270.4 230.3
Operating income 5.4 7.5 27.0 23.9
Unconsolidated affiliates 6.4 2.2 17.6 7.1
Interest expense (3.5) (2.7) (10.9) (8.0)
Pretax income 8.3 7.0 33.7 23.0
Income taxes 2.9 2.4 10.3 7.4
Minority interest (.8) (.2) (1.1) (.3)
Income before accounting changes $ 6.2 $ 4.8 $ 24.5 $ 15.9
</TABLE>
DST recorded third quarter 1994 earnings contribution to the Registrant's
consolidated earnings of $6.2 million, a 29% improvement over the $4.8 million
in third quarter 1993. Third quarter revenues rose 10% to $98.8 million as
DST's mutual fund shareowner accounts serviced reached a record 31.4 million
accounts at September 30, 1994, an increase of 12% over the 28 million
accounts at December 31, 1993. Overall mutual fund industry growth has caused
the increase in shareholder accounts serviced and resulted in higher mutual
fund processing and output services volumes. DST's output services
operations, Output Technologies, Inc. ("OTI") business volumes improved as OTI
printed page volume was 199 million in third quarter 1994 versus 167 million
in comparable prior year. DST operating income, however, declined 28% to $5.4
million in third quarter 1994. Improved earnings from unconsolidated
affiliates produced an improved contribution to Registrant consolidated
results.
DST's core business operations continued to experience improvements in both
revenue growth and operating margins in third quarter 1994. These operating
margin improvements were, however, decreased by lower results from DST's
developmental and international business units described in greater detail as
follows:
During 1993, DST began an expansion of certain of its product offerings and
geographic presence. It expanded its Portfolio Accounting product
offerings with the acquisitions of Clarke & Tilley, Ltd. ("Clarke &
Tilley", a United Kingdom entity) and Belvedere Financial Systems,
("Belvedere"). Clarke and Tilley develops and distributes investment
accounting software, primarily in Europe, South Africa and Australia.
Belvedere develops and markets a core investment accounting product (the
Global Portfolio System) that has potential applicability worldwide.
DST expanded its mutual fund product offerings with the 1993 acquisition of
Corfax Benefit Systems, Ltd. ("Corfax", a Canadian Company), and the
formation of Clarke & Tilley Data Services, Ltd. ("CTDS", a United Kingdom
entity). Corfax develops and distributes mutual fund shareowner
accounting software and provides pension administration processing
services. CTDS is developing a unit trust accounting system for the U.K.
unit trust and Luxembourg markets incorporating DST work management
technology.
Additionally, DST has expanded its marketing and product support activities
for its image-based work management product (Automated Work Distributor,
"AWD") internationally through both direct marketing efforts and The
Continuum Company, who distributes AWD to the insurance industry
marketplace. DST also formed DBS Systems Inc., a 60% owned subsidiary,
which is developing software to provide billing services for DirecTV, a
commercial direct broadcast satellite system.
These business units have invested in expanded product development and
marketing expenditures during the third quarter and year to date 1994 periods,
which have reduced DST operating margins for the third quarter 1994 as
compared to the third quarter of 1993. In addition, since a higher percentage
of revenues from these entities (except DBS and CTDS) is currently derived
from software licensing activities compared to other DST businesses, operating
results will be more affected by the level of software license activities.
Collectively, DST's developmental and international business units recorded
net losses of $3 million and $6.1 million on revenues of $8.8 million and
$24.1 million in third quarter and year to date 1994 periods, respectively,
versus net losses of $900,000 and $1.3 million on revenues of $5 million and
$5.6 million in third quarter and year to date 1993 periods, respectively. It
is anticipated that these operations will continue to experience losses into
1995 as development activities progress in establishing these new and expanded
product lines, however, results can be affected by the timing of software
licensing discussed above. Excluding these developmental and international
results from DST core business operations, DST's operating margins improved in
both third quarter and year to date 1994 periods compared to 1993.
Equity in DST's unconsolidated affiliates earnings improved in third quarter
1994 compared to prior year. These favorable results are due to the recording
of earnings from The Continuum Company, Inc., which became a DST affiliate in
late 1993, along with favorable third quarter operating results of Boston
Financial Data Services, Inc.; Argus Health Systems, Inc.; and Investors
Fiduciary Trust Company, all on increased business volumes.
For the first nine months of 1994, DST's earnings contribution to consolidated
Registrant results rose 54% to $24.5 million as revenues rose 17% to $297.4
million and operating income increased 13% to $27 million. Third quarter and
year to date 1994 revenues rose even without Vantage Computer Systems, Inc.
revenues, of $11.8 million and $32.6 million, respectively, which are included
in 1993 results.
FINANCIAL ASSET MANAGEMENT
JANUS CAPITAL CORP.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $ 45.2 $ 42.6 $133.5 $117.1
Costs and expenses 24.0 19.5 73.7 60.6
Operating income 21.2 23.1 59.8 56.5
Interest expense (.3) (.1) (1.1) (.4)
Pretax income 20.9 23.0 58.7 56.1
Income taxes 8.2 9.1 22.9 21.7
Minority interest 2.5 2.7 7.1 6.8
Income before accounting changes $ 10.2 $ 11.2 $ 28.7 $ 27.6
</TABLE>
Janus operations contributed $10.2 million to consolidated Registrant third
quarter results, a decline of 9% compared to the prior year, while revenues
rose 6% to $45.2 million. The Janus managed funds recorded net sales (fund
sales net of redemptions) for the nine month period ending September 30, 1994.
However the market decline in the first nine months of 1994 caused a reduction
in the value of assets under management, which, when combined with net sales,
resulted in assets under management of $22.6 billion on September 30, 1994, up
slightly from $22.2 billion at December 31, 1993. Total shareowner accounts
remained stable at 2 million at September 30, 1994. While Janus revenues rose
6% in third quarter 1994 on increased assets under management, operating
expenses also rose 23% (primarily related to marketing, promotional and system
expansion expenses) and resulted a decline in third quarter 1994 operating
income compared to prior year.
For the nine months ended September 30, 1994, Janus contributed $28.7 million
to Registrant consolidated results, 4% above the $27.6 million in prior year
as revenues rose 14% to $133.5 million.
ELIMINATIONS, CORPORATE & OTHER
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $ (.9) $ -- $(2.2) $ 5.1
Costs and expenses 2.8 3.9 6.3 15.1
Operating loss (3.7) (3.9) (8.5) (10.0)
Unconsolidated affiliates .5 .2 .4 .2
Interest income (expense) .6 (1.3) 4.9 (7.2)
Pretax income (loss) (2.6) (5.0) (3.2) (17.0)
Income tax (benefits) (1.7) (2.8) (2.2) (7.6)
Income (loss) before cumulative
effect of accounting changes (.9) (2.2) (1.0) (9.4)
Cumulative effect of accounting
changes, net of tax (6.5)
Net income (loss) $ (.9) $ (2.2) $(1.0) $(15.9)
</TABLE>
Eliminations, Corporate & Other results for both third quarter and year to
date 1994 periods were significantly improved over prior year periods
primarily as a result of the effect of elimination of intercompany interest
income and expense at the consolidated level as KCSI Holding Company has
allocated incurred indebtedness to subsidiary operations while overall KCSI
Holding Company operating expenses remained below prior year levels.
TRENDS AND OUTLOOK
The Registrant reported record earnings of 64 cents per share for third
quarter 1994. DST reported improved third quarter results while absorbing
developmental and international losses, Janus earnings remained stable in
volatile equity markets and in the face of multiple Federal Reserve interest
rate adjustments and Transportation Services continue to experience increased
traffic levels, challenges associated with the merger of the KCSR/MidSouth
rail systems and acceleration of the MidSouth roadway upgrading program.
A current outlook for the remainder of 1994 in the Registrant's three core
businesses is as follows; (a) Information & Transaction Processing - DST is
expected to continue growth trends exhibited throughout 1994. DST's growth
will depend upon growth in the domestic and U.K. mutual fund and insurance
markets, and domestic markets in pharmaceutical claims and other financial
services areas it serves, while DST plans to continue to absorb costs
associated with product development of its Belvedere, DBS and International
business units. (b) Financial Asset Management - Janus earnings and assets
under management have remained relatively stable during 1994, in spite of
volatile market conditions. Janus' growth will be largely dependent upon
prevailing financial market conditions. Berger operations join the KCSI
consolidated group of companies effective with the October 14, 1994
acquisition of a controlling interest in Berger by the Registrant. Berger
earnings are expected to have an immaterial effect to KCSI consolidated
results in fourth quarter 1994. (c) Transportation Services operations have
been or will continue to be affected by: - (i) KCSR/MidSouth rail
transportation operations may continue to experience temporary traffic
congestion, (associated with increased traffic levels and the roadway
improvement program) although congestion related difficulties have eased since
first quarter 1994, (ii) lost unit coal revenues associated with the Tumco
electric generating plant and (iii) in recent months, even though overall
carloadings are increasing, export grain carloadings have declined as a result
of the 1993 Midwest flooding, while domestic grain has remained stable.
Export grain traffic is expected to improve somewhat in fourth quarter 1994.
As previously discussed in the Notes to Consolidated Condensed Financial
Statements included with this Form 10-Q, DST and Kemper have entered into a
definitive agreement for the acquisition of their jointly owned affiliate
IFTC. Upon completion of the transaction, which is subject to regulatory
approvals, DST anticipates recognizing a net gain for financial reporting
purposes, and appropriate tax expense, including deferred tax amounts, which
is anticipated to produce an increased overall consolidated effective tax
rate. Completion of the transaction is expected in fourth quarter 1994 or
first quarter 1995 depending upon the timing of regulatory approval.
As disclosed in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, agreements between the Registrant and certain minority
stockholders, of the Registrant's 81% owned subsidiary Janus Capital
Corporation ("Janus"), contain among other provisions, mandatory stock
purchase provisions whereby under certain circumstances, KCSI would be
required to purchase the minority interest. The Registrant has been informed
that certain of these minority stockholders may desire to make effective these
mandatory stock purchase provisions for a portion of their ownership
interests.
Liquidity and Capital Resources
Summary cash flow data is as follows (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1994 1993
<S> <C> <C>
Cash flows provided by (used for):
Operating activities $ 187.5 $ 118.2
Investing activities (215.6) (302.8)
Financing activities 50.6 191.3
Net increase in cash and equivalents 22.5 6.7
Cash and equivalents at beginning of year 6.6 15.4
Cash and equivalents at end of period $ 29.1 $ 22.1
</TABLE>
During the first nine months of 1994, the Registrant's cash position improved
from $6.6 million at December 31, 1993 to $29.1 million at September 30, 1994.
The increased cash position was caused primarily by increased operating cash
flows and proceeds from long-term debt in excess of repayments but somewhat
offset by cash used for property and investment acquisitions. Operating cash
flows for the first nine months of 1994 of $187.5 million improved $69.3
million when compared to prior year. The improvement in operating cash flows
is attributable to increased earnings, higher depreciation and amortization,
increased deferred taxes and changes in working capital items.
During the first nine months of 1994 cash was invested in KCSR road property
additions, (related principally to KCSR/MidSouth capital improvement programs)
and growth related property additions at DST and Janus. Cash was also used
for investment acquisitions, principally DST purchases of additional Continuum
stock in first quarter 1994. Financing cash flows were generated through
issuance of long-term debt in excess of repayments. Debt proceeds were used
at KCSR for working capital, KCSR equipment and rolling stock, DST for working
capital and Continuum stock purchases and Southern Leasing for leasing
portfolio growth. Other cash was used for debt repayment and cash dividends
to stockholders. The Registrant also made principal payments totalling $9.6
million with respect to the Registrant's Employee Stock Ownership Plan
("ESOP") indebtedness in first quarter 1994.
Cash flow from operations are expected to increase during the remainder of
1994 from positive operating income, which has historically resulted in
favorable cash flows. Investing activities will continue to use significant
amounts of cash for KCSR's continuing roadway capital improvement program.
The Registrant anticipates that the KCSR/MidSouth roadway program will be
funded by KCSR operating cash flow. The KCSR/MidSouth roadway program is
expected to be completed at the end of 1994, accordingly, future years capital
expenditures are expected to decline from levels experienced in the last
several years. The MidSouth portion of the roadway program, which was
originally planned for completion in 1995 was accelerated during 1994 to
accommodate increasing traffic levels. The reduction in capital spending is
anticipated to provide additional cash flow for other uses such as debt
repayment. Investing cash flows will also be used for expansion of DST's
Winchester Data Center to meet continuing customer growth demands. The Data
Center expansion, which is currently under construction, is expected to
require approximately $23 million and is anticipated to be completed in the
latter half of 1995. In addition to operating cash flows, the Registrant has
available financing arrangements at subsidiary levels, remaining proceeds from
$350 million in various credit agreements, of which $42 million was unused and
available at September 30, 1994 and proceeds available with respect to the
Registrant's $200 million Medium Term Notes, of which $100 million were issued
at September 30, 1994. In early October, the Registrant entered into
additional credit agreements totalling $100 million, a portion of which was
used to finance the acquisition of a controlling interest in Berger
Associates, Inc., discussed earlier. The Registrant believes these positive
operating cash flows and available financing resources are sufficient to fund
working capital and other requirements for the remainder of 1994.
The Registrant's debt ratio (debt as a percent of total debt plus equity)
improved in the first nine months of 1994 from 59.9% at December 31, 1993 to
58.3% at September 30, 1994. While consolidated debt increased in the first
nine months of 1994, total equity also increased from a combination of net
income and a decrease in ESOP deferred compensation related to principal
payments on the Registrant's Employee Stock Ownership Plan indebtedness in
first quarter 1994 and resulted in a decline in the debt ratio. As a result
of the completion of the Berger acquisition and the possible mandatory stock
purchase of Janus minority stockholders, previously discussed, both of which
have or would require additional financing proceeds, it is anticipated that
the Registrant's debt ratio will increase in fourth quarter 1994.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part I, Item 1, Footnote 13 to the financial statements of this Form 10-Q is
hereby incorporated herein by reference.
Item 2. Changes in the Rights of the Company's Security Holders
In third quarter 1994, the Registrant's Board of Directors authorized
redemption of the Common stock "Rights" issued pursuant to its Rights Plan in
1986. The Board action terminates the exercisability of such Rights and
resulted in a payment on September 20, 1994 of one and one-quarter cents
($.0125) per share to Common stockholders of record on August 26, 1994,
amounting to approximately $540,000 in the aggregate.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10.1 - Acquisition Agreement dated September 27, 1994 among
State Street Boston Corporation, DST Systems, Inc. and Kemper Financial
Services, Inc.
Exhibit 27.1 - Financial Data Schedule
b) Reports on Form 8-K
The Registrant filed a Form 8-K dated July 19, 1994, under items 5 and 7
reporting (i) that the Registrant and Illinois Central Corporation ("IC")
entered into a letter of intent for the merger of the Registrant with and
into IC following a spin-off of the Registrant's non-transportation
operations and (ii) that the Registrant's wholly-owned subsidiary DST
Systems, Inc. ("DST") and Kemper Financial Services, Inc. ("Kemper")
entered into a letter of intent for the acquisition of their jointly owned
affiliate Investors Fiduciary Trust Company ("IFTC") by State Street Boston
Corporation ("State Street").
The Registrant filed a Form 8-K dated September 27, 1994 under items 5 and
7 reporting that DST together with Kemper entered into a definitive
agreement with State Street for the sale to State Street of IFTC Holdings,
Inc. ("Holdings"), which wholly owns IFTC, DST and Kemper each own 50% of
Holdings.
The Registrant filed a Form 8-K dated October 14, 1994 under items 5 and 7
reporting that the Registrant had completed the acquisition of Berger
Associates, Inc. and that the Registrant and Illinois Central Corporation
mutually agreed to terminate the Letter of Intent between them dated July
19, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacities indicated on
November 14, 1994.
Kansas City Southern Industries, Inc.
/s/ Joseph D. Monello
Joseph D. Monello
Vice President & Chief Financial Officer
(Principal Financial Officer)
/s/ Louis G. Van Horn
Louis G. Van Horn
Comptroller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE, SUBMITTED AS EXHIBIT 27.1 TO FORM 10-Q, CONTAINS
SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED
BALANCE SHEET AND STATEMENT OF INCOME OF KANSAS CITY SOUTHERN INDUSTRIES,
INC., COMMISSION FILE NUMBER 1-4717, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 29,100,000
<SECURITIES> 0
<RECEIVABLES> 216,200,000
<ALLOWANCES> 0
<INVENTORY> 52,000,000
<CURRENT-ASSETS> 378,500,000
<PP&E> 2,025,300,000
<DEPRECIATION> 666,000,000
<TOTAL-ASSETS> 2,122,400,000
<CURRENT-LIABILITIES> 294,000,000
<BONDS> 855,500,000
<COMMON> 400,000
0
7,100,000
<OTHER-SE> 646,000,000
<TOTAL-LIABILITY-AND-EQUITY> 2,122,400,000
<SALES> 0
<TOTAL-REVENUES> 805,700,000
<CGS> 0
<TOTAL-COSTS> 633,800,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,700,000
<INCOME-PRETAX> 150,100,000
<INCOME-TAX> 56,100,000
<INCOME-CONTINUING> 88,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,000,000
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 0
</TABLE>
ACQUISITION AGREEMENT
among
STATE STREET BOSTON CORPORATION
and
KEMPER FINANCIAL SERVICES, INC.
and
DST SYSTEMS, INC.
September 27, 1994
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE IEXCHANGE OF THE SHARES FOR STATE STREET STOCK
1.1. Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2. Acquisition Consideration . . . . . . . . . . . . . . . . . . .1
1.3. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.4. Transaction Agreements. . . . . . . . . . . . . . . . . . . . .2
ARTICLE IIREPRESENTATIONS AND WARRANTIES OF STATE STREET
2.1. Organization and Authority. . . . . . . . . . . . . . . . . . .3
2.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . . .3
2.3. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.4. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . .4
2.5. Investment Representation . . . . . . . . . . . . . . . . . . .4
2.6. State Street Stock. . . . . . . . . . . . . . . . . . . . . . .4
2.7. State Street Reports. . . . . . . . . . . . . . . . . . . . . .4
2.8. Financial Statements. . . . . . . . . . . . . . . . . . . . . .5
2.9. Absence of Material Adverse Changes . . . . . . . . . . . . . .5
2.10. Pooling. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.11. Accuracy of Representations and Warranties . . . . . . . . . .5
ARTICLE IIIREPRESENTATIONS OF STOCKHOLDERS
3.1.A. Organization and Authority. . . . . . . . . . . . . . . . . .6
3.2.A. Authorization . . . . . . . . . . . . . . . . . . . . . . . .6
3.3.A. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.4.A. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .7
3.5.A. Intentionally Omitted . . . . . . . . . . . . . . . . . . . .7
3.6.A. Investment Representation . . . . . . . . . . . . . . . . . .7
3.7.A. Retention of Business . . . . . . . . . . . . . . . . . . . .7
3.8.A. DST Related Receivables . . . . . . . . . . . . . . . . . . .7
3.9.A. Certain Business Transactions . . . . . . . . . . . . . . . .7
3.10.A. Accuracy of Representations and Warranties . . . . . . . . .7
3.11.A. JV Agreement . . . . . . . . . . . . . . . . . . . . . . . .8
3.1.B. Organization and Authority. . . . . . . . . . . . . . . . . .8
3.2.B. Authorization . . . . . . . . . . . . . . . . . . . . . . . .8
3.3.B. Title. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.4.B. Litigation . . . . . . . . . . . . . . . . . . . . . . . . .9
3.5.B. Intentionally Omitted. . . . . . . . . . . . . . . . . . . .9
3.6.B. Investment Representation. . . . . . . . . . . . . . . . . .9
3.7.B. Retention of Business. . . . . . . . . . . . . . . . . . . .9
3.8.B. Kemper Related Receivables . . . . . . . . . . . . . . . . .9
3.9.B. Certain Business Transactions. . . . . . . . . . . . . . . .9
3.10.B. Accuracy of Representations and Warranties. . . . . . . . 10
3.11.B. JV Agreement. . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IVREPRESENTATIONS OF THE STOCKHOLDERSREGARDING HOLDCO
AND IFTC
4.1. Organization and Authority . . . . . . . . . . . . . . . . . 10
4.2. No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. Capitalization of Holdco and IFTC. . . . . . . . . . . . . . 11
4.4. Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5. Pooling. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7. IFTC Organization, Authority and Authorization . . . . . . . 12
4.8. IFTC Deposits; Securities. . . . . . . . . . . . . . . . . . 12
4.9. Financial Statements . . . . . . . . . . . . . . . . . . . . 12
4.10. Books of Account. . . . . . . . . . . . . . . . . . . . . . 13
4.11. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.12. Absence of Material Adverse Changes . . . . . . . . . . . . 14
4.13. Properties and Insurance. . . . . . . . . . . . . . . . . . 14
4.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.15. Employees and Benefits. . . . . . . . . . . . . . . . . . . 17
4.16. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.17. No Defaults under Contracts or Agreements . . . . . . . . . 19
4.18. Compliance with Laws. . . . . . . . . . . . . . . . . . . . 19
4.19. Brokers and Finders . . . . . . . . . . . . . . . . . . . . 20
4.20. Regulatory Agreements . . . . . . . . . . . . . . . . . . . 20
4.21. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.22. Environmental Matters . . . . . . . . . . . . . . . . . . . 20
4.23. Absence of Certain Conditions . . . . . . . . . . . . . . . 21
4.24. Representations and Warranties Regarding Investment Company
Clients21
ARTICLE VCONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1. Conduct Prior to Closing . . . . . . . . . . . . . . . . . . 22
5.2. Consents and Approvals . . . . . . . . . . . . . . . . . . . 24
5.3. Actions Prior to the Closing . . . . . . . . . . . . . . . . 25
5.4. Control. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIADDITIONAL AGREEMENTS
6.1. Current Information. . . . . . . . . . . . . . . . . . . . . 26
6.2. Access, Information and Confidentiality. . . . . . . . . . . 26
6.4. Noncompetition . . . . . . . . . . . . . . . . . . . . . . . 28
6.5. Recommendation of IFTC . . . . . . . . . . . . . . . . . . . 30
6.6. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.7. Press Releases.. . . . . . . . . . . . . . . . . . . . . . . 32
6.8. Employee Benefits and Other Matters. . . . . . . . . . . . . 32
6.9. Effect of Investigations . . . . . . . . . . . . . . . . . . 33
6.10. Acquisition Proposals . . . . . . . . . . . . . . . . . . . 33
6.11. Director Resignations . . . . . . . . . . . . . . . . . . . 34
6.12. Notification of Certain Matters . . . . . . . . . . . . . . 34
6.13. Preservation of Relationships . . . . . . . . . . . . . . . 34
6.14. Change of Control . . . . . . . . . . . . . . . . . . . . . 34
6.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VIICONDITIONS
7.1. Conditions to Each Party's Obligation to Consummate the Closing35
7.2. Conditions to Obligation of State Street to Consummate the
Closing36
7.3. Conditions to Obligation of the Stockholders to Consummate the
Closing37
7.4. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VIIIINDEMNIFICATION AND REMEDIES
8.1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.2. Stockholders' Indemnification Covenants. . . . . . . . . . . 39
8.3. State Street's Indemnification Covenants . . . . . . . . . . 39
8.4. Tax Consequences of Indemnification Payments . . . . . . . . 40
8.5. Direct Claims. . . . . . . . . . . . . . . . . . . . . . . . 41
8.6. Intentionally Omitted. . . . . . . . . . . . . . . . . . . . 41
8.7. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . 41
8.8. Third Party Claims . . . . . . . . . . . . . . . . . . . . . 41
8.9. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.10. Limitations on Indemnification Obligations. . . . . . . . . 43
ARTICLE IXTERMINATION, AMENDMENT AND WAIVER
9.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . 45
9.2. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.3. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE XGENERAL PROVISIONS
10.1. Survival of Representations, Warranties and Agreements. . . 46
10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.3. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 48
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedules
2.2 Consents, Approvals, and Notifications
3.8A DST Related Receivables
3.8B Kemper Related Receivables
3.9A DST Related Agreements
3.9B Kemper Related Agreements
4.2 Conflicts
4.6 Litigation
4.8 IFTC Securities
4.9 Consolidated Financial Statements
4.12 Material Adverse Changes
4.13B Leases
4.13C Intellectual Property
4.13D Insurance
4.14 Taxes
4.15A Employment
4.15B Plan Disclosure
4.15C Pension Plans
4.15D Qualification
4.15E Contributions
4.15F Claims
4.15G Welfare Plans
4.16 Contracts
4.20 Regulatory Agreements
4.21 Dividends
4.22 Environmental Matters
4.23 Out of Balance Customer Accounts
4.24 Investment Company Clients
5.1 Securities
5.1.1(b) Scheduled Compensation
5.1.1(g) Business of IFTC
6.5A DST Investment Companies
6.5B Advisory Affiliates of DST
6.5C Kemper Investment Companies
6.13A Five-year Services
6.13B Three-year Services
7.2.8 Elements
<PAGE>
Exhibits
A. DST Agreement
B. Registration Rights Agreement
C. Form of Stockholder Legal Opinion
D. Form of Holdco and IFTC Legal Opinion
E. Lease
F-1 - F-2. Form of Amendments to Transfer Agency Agreement
G. Form Service Contract
H. Stockholder Tax Certificate
I. Form State Street Legal Opinion
J. State Street Tax Certificate
K. General Services Agreement
<PAGE>
ACQUISITION AGREEMENT
Agreement (the "Agreement") made as of the 27th day of September, 1994 by
and among State Street Boston Corporation, a Massachusetts corporation ("State
Street"), Kemper Financial Services, Inc., a Delaware corporation ("Kemper")
and DST Systems, Inc., a Missouri corporation ("DST"). (Kemper and DST are
referred to collectively herein as the "Stockholders").
Preliminary Statement
Each of the Stockholders owns 50% of the issued and outstanding shares of
common stock, $10.00 par value per share (the "Shares") of IFTC Holdings,
Inc., a Missouri corporation ("Holdco"), which, in turn, owns all of the
issued and outstanding shares of Investors Fiduciary Trust Company, a Missouri
trust company ("IFTC"), other than directors' qualifying shares.
State Street desires to acquire, and the Stockholders desire to exchange,
all of the Shares for shares of State Street common stock, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
EXCHANGE OF THE SHARES FOR STATE STREET STOCK
1.1. Exchange. Subject to and upon the terms and conditions of this
Agreement, at the closing of the transactions contemplated by Article I of
this Agreement (the "Closing"), the Stockholders shall sell, transfer, convey,
assign and deliver to State Street, and State Street shall purchase, acquire
and accept from the Stockholders, all of the Shares, free and clear of any
claims, liens, restrictions on transfer or voting or encumbrances with respect
thereto, in exchange for the Number of Shares (as defined below) of State
Street Stock (as defined below).
1.2. Acquisition Consideration.
(a) At the Closing, the Shares will be exchanged for that number of
shares at a value of $40.00 per share (such number of shares, subject to
adjustment as provided in Section 1.2(b) below, the "Number of Shares") of
State Street Common Stock, $1.00 par value per share ("State Street Stock")
equal to a valuation of $225 million (the "Acquisition Consideration"). The
Number of Shares initially shall be 5,625,000. One-half of the Number of
Shares shall be issued to each of Kemper and DST.
(b) The Number of Shares shall be adjusted (and rounded to the
nearest even share) as follows:
(i) If the average of the daily high and low prices for shares of
State Street Stock during the thirty NASDAQ National Market System
trading days ending on the fifth business day prior to the Closing
hereunder (the "Average Price"), multiplied by the Number of Shares,
results in an aggregate value which is less than the Acquisition
Consideration minus $10 million, the Number of Shares shall be increased
so that the product of the increased Number of Shares and the Average
Price is an amount equal to the Acquisition Consideration minus $10
million; or
(ii) If the Average Price multiplied by the Number of Shares
results in an aggregate value which is more than the Acquisition
Consideration plus $10 million, the Number of Shares shall be decreased
so that the product of the decreased Number of Shares and the Average
Price is an amount equal to the Acquisition Consideration plus $10
million;
provided, however, that in no event shall the Number of Shares be (i) greater
than the quotient of (A) the Acquisition Consideration minus $10 million and
(B) $36.00 or (ii) less than the quotient of (A) the Acquisition Consideration
plus $10 million and (B) $44.00.
(c) The per share prices set forth in Section 1.2(a) and (b) above
shall also be appropriately adjusted to reflect stock dividends or
distributions, stock splits or any similar events occurring between the
date of this Agreement and the Closing Date.
1.3. Closing. The Closing shall take place at the offices of Ropes &
Gray, One International Place, Boston, Massachusetts 02110, on such date
within five business days after the satisfaction or waiver of all conditions
precedent set forth in Article VII hereof as the parties may agree, or at such
other place, time or date as may be mutually agreed upon in writing by the
parties (the "Closing Date"). The transfer of the Shares by the Stockholders
to State Street shall be deemed to occur at 11:59 p.m., Central time, on the
Closing Date.
1.4. Transaction Agreements. At the Closing, the parties thereto will
execute and deliver (i) agreements (x) amending and restating each of the
Portfolio Accounting and Information System Remote Service Agreement dated as
of January 2, 1983 between IFTC and DST Securities, Inc. in the form set forth
as Exhibit A hereto (the "DST Agreement"); and (y) amending the Services
Agreement dated as of September 1, 1992, as amended by the First Amendment to
Services Agreement dated as of April 15, 1993 in the form set forth as
Exhibit F-1 ("Exhibit F-1") hereto and (ii) the Registration Rights Agreement
among State Street, Kemper and DST in the form set forth as Exhibit B hereto
(the "Registration Rights Agreement", and, together with the DST Agreement,
Exhibit F-3, and all other agreements executed pursuant to this Agreement, the
"Transaction Agreements").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STATE STREET
State Street represents and warrants to the Stockholders as follows:
2.1. Organization and Authority. State Street is a corporation duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and has full corporate power, right and
authority to own its properties and assets and to carry on its
business as it is now being conducted, to acquire the Shares and to enter
into, and carry out its obligations under, this Agreement and each agreement
contemplated to be executed in connection with this Agreement, including
without limitation, the Registration Rights Agreement. State Street is duly
registered as a bank holding company with the Board of Governors of the
Federal Reserve (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). State Street has all
governmental authorizations to own or lease its properties and assets and to
carry on its business as now being conducted. State Street Bank and Trust
Company, a Massachusetts chartered trust company ("SSBT"), is a direct,
wholly-owned, subsidiary of State Street.
2.2. Authorization. This Agreement has been, and the Registration
Rights Agreement when executed and delivered at Closing will be, duly
authorized, executed and delivered by State Street, and no further corporate
proceedings on the part of State Street are necessary to authorize this
Agreement and the transactions contemplated hereby, or will be necessary to
authorize the Registration Rights Agreement and the transactions contemplated
thereby. This Agreement is and, when executed and delivered the Registration
Rights Agreement will be, the legal, valid and binding obligations of State
Street, enforceable in accordance with their respective terms.
Neither the execution, delivery and performance of this Agreement or the
Registration Rights Agreement by State Street nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate, conflict with,
or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or the creation
of any lien, security interest, charge or encumbrance upon any of the
properties or assets of State Street under any of the terms, conditions or
provisions of the (x) charter documents or Bylaws of State Street, (y) any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which State Street is a party or by which
State Street may be bound, or to which State Street or the properties or
assets of State Street may be subject, or (ii) violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
State Street or to the properties or assets of State Street.
Except as provided in Schedule 2.2, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any regulatory
authority is necessary for the consummation of the transactions contemplated
by this Agreement or the Registration Rights Agreement (other than filings
required to be made with the SEC in order to effect the registration of State
Street Stock contemplated by the Registration Rights Agreement).
2.3. Litigation. As of the date of this Agreement, there is no action,
suit or proceeding pending against, or to the knowledge of State Street
threatened against or affecting, State Street or any of its properties before
any court or arbitrator or any governmental body, agency or official which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay
any of the transactions contemplated hereby or by the Transaction Agreements.
2.4. Brokers and Finders. Neither State Street nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
State Street in connection with this Agreement or the Transaction Agreements
or the transactions contemplated hereby or thereby, other than Goldman, Sachs
& Co., the fees and expenses of which will be paid by State Street. State
Street will be responsible for any such fees incurred by it or SSBT in
connection with the transactions contemplated hereby.
2.5. Investment Representation. State Street is acquiring the Shares
from the Stockholders for its own account and not with a view to, or for sale
in connection with, any distribution thereof, nor with any present intention
of distributing or selling the same in violation of the Securities Act of
1933, as amended (the "Securities Act"); and State Street has no present or
contemplated agreement, undertaking, arrangement, obligation or commitment
providing for the disposition thereof, other than the liquidating merger of
Holdco into State Street simultaneously with the Closing.
2.6. State Street Stock. The State Street Stock to be issued to the
Stockholders hereunder (i) has been duly authorized and reserved for issuance
and, when issued in accordance with this Agreement will be validly issued,
fully paid, non-assessable, free of pre-emptive rights, and not subject to any
restrictions on transfer (other than restrictions, if any, imposed by
applicable securities laws and this Agreement) or voting. The State Street
Stock is the only outstanding class of capital stock of State Street.
2.7. State Street Reports. State Street's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (the "1993 Form 10-K") and all
documents heretofore filed with the Securities and Exchange Commission (the
"SEC") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act") since the filing of the 1993 Form 10-K (collectively, the
"State Street Reports") were filed in a timely manner and, when they
were filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects to the
requirements of the Exchange Act, and the published rules and regulations
thereunder, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading. Each of State Street and SSBT has filed all reports,
registrations and statements, together with any amendments to be made with
respect thereto, that were required to be filed with the Federal Reserve
Board, and any other applicable federal, state, local or foreign authorities
(all such reports and statements are collectively referred to herein as the
"State Street Regulatory Reports"), except where a failure to file would not
have a Material Adverse Effect (as defined below) on State Street. As of
their respective dates, the State Street Regulatory Reports complied, in all
material respects, with the statutes, rules, regulations and orders enforced
or promulgated by the regulatory authority with which they were filed.
2.8. Financial Statements. The audited consolidated balance sheets of
State Street as of December 31, 1993 and 1992 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
three years ended December 31, 1993, 1992 and 1991, all as reported on by
Ernst & Young, and the unaudited consolidated balance sheet of State Street as
of June 30, 1994 and the related unaudited consolidated statements of income,
changes in stockholders' equity and cash flows for the six months ended June
30, 1994, which are included in the State Street Reports, have been prepared
in accordance with generally accepted accounting principles consistently
applied, and present fairly the consolidated financial position, results of
operations and cash flows of State Street at the dates and for the periods
stated therein.
2.9. Absence of Material Adverse Changes. Since December 31, 1993,
there has not been any material adverse change in the business, operations,
properties, assets, liabilities, or condition (financial or otherwise) (a
"Material Adverse Effect") of State Street.
2.10. Pooling. State Street was incorporated in 1970 and has never been
a subsidiary or division of another corporation nor been a part of an
acquisition which was later rescinded. Beginning June 24, 1992 (the
"Commencement Date"), and continuing through the date hereof, State Street had
no direct or indirect investment in Holdco or IFTC and no such transactions of
this type are planned prior to the Closing Date. The voting stock structure
of State Street Stock has not been altered or changed in the period beginning
at the Commencement Date and ending on the date hereof (other than exercises
of outstanding stock options and conversions of convertible notes and
issuances of directors' qualifying shares), and no such transactions of this
type are planned prior to the Closing Date. State Street has not had any
treasury stock transactions during the period beginning at the Commencement
Date and none are planned during the period between the Commencement Date and
the Closing Date. The transaction contemplated hereunder is to be effected
and completed at the Closing Date all as set forth in this Agreement. The
State Street Stock to be issued in the transaction contemplated hereunder is
authorized but unissued stock of State Street with rights identical to those
of the currently outstanding shares of State Street Stock.
2.11. Accuracy of Representations and Warranties. No representation or
warranty by State Street in this Agreement or the Schedules hereto (which are
an integral part hereof) is false or misleading in any material respect or
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein, in light of the circumstances in which
they were made, necessary to make the statements therein not misleading.
ARTICLE III
REPRESENTATIONS OF STOCKHOLDERS
A. DST represents and warrants to State Street that:
3.1.A. Organization and Authority. DST is a corporation duly organized,
validly existing and in good standing under the laws of the State of Missouri,
and has full corporate power, right and authority to own its properties and
assets and to carry on its business as it is now being conducted and to enter
into and carry out its obligations under this Agreement and the Transaction
Agreements.
3.2.A. Authorization. This Agreement has been, and the Transaction
Agreements when executed and delivered at Closing will be, duly authorized,
executed and delivered by DST and no further corporate proceedings on the part
of DST are necessary to authorize this Agreement and the transactions
contemplated hereby, or will be necessary to authorize the Transaction
Agreements and the transactions contemplated thereby. This Agreement is and,
when executed and delivered, each of the Transaction Agreements will be, the
legal, valid and binding obligation of DST, in accordance with their
respective terms.
Neither the execution, delivery and performance of this Agreement or the
Transaction Agreements by DST, nor the consummation of the transactions
contemplated hereby or thereby, will (i) violate, conflict with, or result in
a breach of any provisions of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of DST under any of the terms, conditions or provisions of (x) the
charter documents or Bylaws of DST, or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which DST is a party or by which DST may be bound or to which
DST or the properties or assets of DST may be subject or (ii) violate any
judgment, ruling order, writ, injunction, decree, statute, rule or regulation
applicable to DST or to the properties or assets of DST.
Except as set forth on Schedule 2.2, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any regulatory
authority is necessary for the consummation of the transactions contemplated
by this Agreement or the Transaction Agreements (other than filings required
to be made with the SEC in order to effect the registration of State Street
Stock contemplated by the Registration Rights Agreement).
3.3.A. Title. DST has good title to the 30,000 shares of Holdco owned
by it, free and clear of any claim, lien, restrictions on transfer (other than
restrictions imposed by the JV Agreement (as hereinafter defined) which
restrictions shall not be in effect as of the Closing) or voting, or
encumbrance or preemptive rights with respect thereto. The shares of Holdco
held by DST are fully paid, validly issued and non-assessable.
3.4.A. Litigation. As of the date of this Agreement, there is no
action, suit or proceeding pending against, or to the knowledge of DST
threatened against or affecting, DST or any Affiliates (as defined in Section
6.4) of DST or any of their respective properties before any court or
arbitrator or any governmental body, agency or official which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated hereby or by the Transaction Agreements.
3.5.A. Intentionally Omitted.
3.6.A. Investment Representation. DST is acquiring the shares of State
Street Stock for its own account and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same, and DST has no present or contemplated
agreement, undertaking, arrangement, obligation or commitment providing for
the distribution thereof, other than, in each case, distributions or sales in
compliance with the provisions of the Securities Act and the regulations
promulgated thereunder and the provisions of SEC Accounting Series Release No.
135 and the related amendments and interpretations thereto.
3.7.A. Retention of Business. Since May 31, 1994, neither DST nor its
Affiliates have solicited the institutional customers of IFTC to terminate
their relationship with IFTC or, by any systematic method, to transfer any
assets under custody from IFTC to any Stockholder or its Affiliates.
3.8.A. DST Related Receivables. Except as set forth on Schedule 3.8A
and for current amounts due arising in the ordinary course of business, there
are no amounts owing to Holdco or IFTC by DST or to DST by Holdco or IFTC and
no such amounts are shown as accounts receivable on the books and records of
Holdco and IFTC, respectively.
3.9.A. Certain Business Transactions. Schedule 3.9A sets forth all
agreements and relationships between IFTC and DST (the "DST Related
Agreements") material to the conduct of the business of IFTC. No services
provided by DST to IFTC other than the services provided pursuant to the DST
Related Agreements are required to conduct the business of IFTC.
3.10.A. Accuracy of Representations and Warranties. No representation
or warranty made by DST in this Agreement or the Schedules hereto (which are
an integral part hereof) is false or misleading in any material respect or
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein, in light of the circumstances in which
they were made, or necessary to make the statements therein not misleading.
3.11.A. JV Agreement. DST has delivered to State Street a true and
correct copy of the Amended and Restated Agreement dated December 23, 1991
between DST and Kemper, as in effect on the date hereof (the "JV Agreement").
All waivers required under the JV Agreement to allow the execution and
delivery of this Agreement, the Transaction Agreements and the consummation of
the transactions contemplated hereby or thereby have been obtained and are in
full force and effect.
B. Kemper represents and warrants to State Street that:
3.12.B. Organization and Authority. Kemper is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, and has full corporate power, right and authority to own its
properties and assets and to carry on its business as it is now being
conducted and to enter into and carry out its obligations under this Agreement
and the Registration Rights Agreement.
3.13.B. Authorization. This Agreement has been, and the Registration
Rights Agreement when executed and delivered at Closing will be, duly
authorized, executed and delivered by Kemper and no further corporate
proceedings on the part of Kemper are necessary to authorize this Agreement
and the transactions contemplated hereby, or will be necessary to authorize
the Registration Rights Agreement and the transactions contemplated thereby.
This Agreement is and, when executed and delivered, the Registration Rights
Agreement will be the legal, valid and binding obligation of Kemper,
enforceable in accordance with their respective terms.
Neither the execution, delivery and performance of this Agreement or the
Registration Rights Agreement by Kemper, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate, conflict with,
or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or the creation
of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Kemper under any of the terms, conditions or
provisions of (x) the charter documents or Bylaws of Kemper, or (y) any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Kemper is a party or by which Kemper may be
bound or to which Kemper or the properties or assets of Kemper may be subject
or (ii) violate any judgment, ruling order, writ, injunction, decree, statute,
rule or regulation applicable to Kemper or to the properties or assets of
Kemper.
Except as set forth on Schedule 2.2, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any regulatory
authority is necessary for the consummation of the transactions contemplated
by this Agreement or the Transaction Agreements (other than filings required
to be made with the SEC in order to effect the registration of State Street
Stock contemplated by the Registration Rights Agreement).
3.14.B. Title. Kemper has good title to the 30,000 shares of Holdco
owned by it, free and clear of any claim, lien, restrictions on transfer
(other than restrictions imposed by the JV Agreement which restrictions shall
not be in effect as of the Closing) or voting, or encumbrance or preemptive
rights with respect thereto. The shares of Holdco held by Kemper are fully
paid, validly issued and non-assessable.
3.15.B. Litigation. As of the date of this Agreement, there is no
action, suit or proceeding pending against, or to the knowledge of Kemper
threatened against or affecting, Kemper or any Affiliates of Kemper or any of
their respective properties before any court or arbitrator or any governmental
body, agency or official which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated hereby
or by the Registration Rights Agreement.
3.16.B. Intentionally Omitted.
3.17.B. Investment Representation. Kemper is acquiring the shares of
State Street Stock for its own account and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same and Kemper has no present or contemplated
agreement, undertaking, arrangement, obligation or commitment providing for
the distribution thereof, other than, in each case, distributions or
sales in compliance with the provisions of the Securities Act and the
regulations promulgated thereunder and the provisions of SEC Accounting Series
Release No. 135 and the related amendments and interpretations thereto.
3.18.B. Retention of Business. Since May 31, 1994, neither Kemper nor
its Affiliates have solicited the institutional customers of IFTC to terminate
their relationship with IFTC or, by any systematic method, to transfer any
assets under custody from IFTC to any Stockholder or its Affiliates.
3.19.B. Kemper Related Receivables. Except as set forth on Schedule
3.8B, and for current amounts due arising in the ordinary course of business,
there are no amounts owing to Holdco or IFTC by Kemper or to Kemper by Holdco
or IFTC and no such amounts are shown as accounts receivable on the books and
records of Holdco and IFTC, respectively.
3.20.B. Certain Business Transactions. Schedule 3.9B sets forth all
agreements and relationships between IFTC and Kemper (the "Kemper Related
Agreements") material to the conduct of the business of IFTC. No services
provided by Kemper to IFTC other than the services provided pursuant to the
Kemper Related Agreements are required to conduct the business of IFTC.
3.21.B. Accuracy of Representations and Warranties. No representation
or warranty made by Kemper in this Agreement or the Schedules hereto (which
are an integral part hereof) is false or misleading in any material respect or
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein, in light of the circumstances in which
they were made, or necessary to make the statements therein not misleading.
3.22.B. JV Agreement. Kemper has delivered to State Street a true and
correct copy of the JV Agreement. All waivers required under the JV Agreement
to allow the performance of this Agreement, the Registration Rights Agreement
and the consummation of the transactions contemplated hereby or thereby have
been obtained and are in full force and effect.
ARTICLE IV
REPRESENTATIONS OF THE STOCKHOLDERS
REGARDING HOLDCO AND IFTC
Each of the Stockholders represents and warrants, severally and jointly,
to State Street
as follows:
4.1. Organization and Authority. Holdco is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Missouri and has full corporate power, right and authority to own or lease
its properties and to carry on its business as it is now being conducted.
Holdco has all necessary governmental authorizations to own or lease its
properties and to carry on its business as now being conducted in all respects
material to the business, operations, properties, assets, liabilities, or
condition (financial or otherwise) of Holdco.
4.2. No Conflicts. Neither the performance of this Agreement or the
Transaction Agreements by Holdco and IFTC nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate, conflict with,
or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or the creation
of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Holdco or IFTC under any of the terms, conditions or
provisions of (x) the charter documents or Bylaws of Holdco or IFTC, or (y)
except as set forth on Schedule 4.2, any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation or to
which Holdco or IFTC is a party or by which Holdco or IFTC may be bound, or to
which Holdco or IFTC or the properties or assets of Holdco or IFTC may be
subject or (ii) assuming the completion of the items described on Schedule
2.2, violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Holdco or IFTC or to the properties or assets
of Holdco or IFTC.
4.3. Capitalization of Holdco and IFTC. The authorized capital stock of
Holdco consists of 60,000 shares of Common Stock, $10.00 par value per share,
all of which are validly issued and outstanding, fully paid and nonassessable,
free and clear of any claims, liens, restrictions on transfer (other than
restrictions imposed by the JV Agreement which restrictions, as of the
Closing, shall not be in effect) or voting or any other encumbrances or
pre-emptive rights with respect thereto. There are no other shares of capital
stock or other equity securities of Holdco outstanding and no outstanding
options, warrants, scrip, rights to subscribe to calls, commitments or
agreements of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of capital stock of Holdco.
The authorized capital stock of IFTC consists of 60,000 shares of Common
Stock, $10.00 par value per share (the "IFTC Stock"), all of which are validly
issued and outstanding, fully paid and nonassessable, free and clear of any
claims, liens, restrictions on transfer (other than restrictions imposed by
the JV Agreement or repurchase agreements related to the directors'
qualifying shares which restrictions, as of the Closing, shall not be in
effect) or voting or any other encumbrances or pre-emptive rights with respect
thereto. There are no other shares of capital stock or other equity
securities of IFTC outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls, commitments or agreements of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of capital stock of IFTC.
4.4. Title. Holdco has good title to all of the issued and outstanding
shares of IFTC Stock (other than directors' qualifying shares) free and clear
of any claims, liens, restrictions on transfer (other than restrictions
imposed by the JV Agreement which restrictions, as of the Closing, shall not
be in effect) or voting, encumbrances or preemptive rights. The IFTC Stock is
validly issued, fully paid and non-assessable. Upon consummation of the
transactions contemplated by this Agreement, State Street will have acquired
good title to the Shares and, indirectly, the IFTC Stock held by Holdco, free
and clear of any claims, liens, restrictions on transfer or voting or any
other encumbrances or pre-emptive rights with respect thereto, except such as
may be created by State Street. No unreleased mortgage, trust deed, chattel
mortgage, security agreement, financing statement or other instrument
encumbering any of the assets of Holdco or IFTC has been recorded, filed,
executed or delivered other than carriers', warehouseman's, materialman's and
mechanic's liens and other similar liens arising in the ordinary course of
business and which do not in the aggregate have a Material Adverse Effect
on Holdco or IFTC ("Permitted Encumbrances").
Each of Holdco and IFTC has good title to the shares of Common Stock,
$12.50 par value per share of UMB Financial Corporation (the "UMB Stock") held
by it, free and clear of any claims, liens, restrictions on transfer or voting
or any other encumbrances or pre-emptive rights with respect thereto. The UMB
Stock is classified for accounting and financial statement reporting purposes,
as set forth in Statement of Financial Accounting Standards No. 115, as
"securities available for sale" on the books and records of Holdco and IFTC,
respectively.
4.5. Pooling. Holdco is not and has never been a division or more than
50% subsidiary of any corporation nor been a part of an acquisition which was
later rescinded. IFTC is not and has never been a more than 50% subsidiary or
division of any corporation other than Holdco since January 1, 1990 nor been a
part of an acquisition which was later rescinded. Neither the voting stock
structure nor the ownership of shares of Holdco and IFTC has been altered or
changed in the period beginning at the Commencement Date and ending on the
date hereof (other than issuances and repurchases of directors' qualifying
shares), and no such transactions of this type are planned prior to the
Closing Date. Neither Holdco nor IFTC has had any treasury stock transactions
since the Commencement Date and none are planned during the period between the
Commencement Date and the Closing Date (other than issuances and repurchases
of directors' qualifying shares). Each Stockholder owns an equal number of
the outstanding shares of stock of Holdco and, at the Closing, shall receive
an equal number of shares of State Street Stock. Neither of the Stockholders
has entered into any agreement that would restrict such Stockholder's voting
rights with respect to the State Street Stock to be issued pursuant to this
Agreement. The transaction contemplated hereunder is to be effected and
completed at the Closing Date all as set forth in this Agreement.
4.6. Litigation. Except as set forth on Schedule 4.6, neither Holdco
nor IFTC is a party to any claim, action, suit, investigation or proceeding,
pending or to the knowledge of the Stockholders, threatened, nor is it subject
to any order, judgment or decree, which would have a Material Adverse Effect
on Holdco or IFTC.
4.7. IFTC Organization, Authority and Authorization. IFTC is a trust
company duly organized, validly existing and in good standing under the laws
of the State of Missouri. IFTC has the full power, right and authority to own
its properties and assets and to carry on its business as it is now being
conducted. IFTC is not required to qualify to do business in any state or
foreign jurisdiction where not already so qualified, except where a failure to
so qualify would not have a Material Adverse Effect on IFTC.
4.8. IFTC Deposits; Securities. The deposits of IFTC are insured by the
Federal Deposit Insurance Corporation ("FDIC"), to the extent provided by law.
Schedule 4.8 attached hereto sets forth all securities, (including partnership
interests) including the maturity dates thereof, other than securities held in
a fiduciary or trust or custodial capacity, owned by IFTC as of August 31,
1994 and there have been, as of the date of this Agreement, no material
changes in such information.
4.9. Financial Statements. The audited consolidated balance sheets of
Holdco as of December 31, 1993 and December 31, 1992, and the related
consolidated statements of income, changes in stockholders' equity and
statements of cash flows for the years ended December 31, 1993 and 1992, and
IFTC's audited balance sheet as of December 31, 1991 and the related
statements of income and retained earnings and statements of cash flows for
the year ended December 31, 1991, all as reported on by Ernst & Young (the
"Audited Financials"), and the unaudited consolidated statement of financial
condition of Holdco as of June 30, 1994 and the related unaudited consolidated
statements of income for the six-month period then ended (the "1994
Financials" and, collectively with the Audited Financials, the "Consolidated
Financial Statements"), have been prepared in accordance with generally
accepted accounting principles, consistently applied, and present fairly the
consolidated financial position, results of operations and cash flows of
Holdco (and the financial position, results of operations and cash flows of
IFTC as of and for the year ended December 31, 1991) at the dates, and for the
periods, stated therein (other than cash flows of Holdco for the
six months ended June 30, 1994). In the case of the 1994 Financials, all
adjustments, consisting only of normal recurring items (which are necessary
for a fair statement of the results of operations of Holdco for the six months
ended June 30, 1994), have been made. The Consolidated Financial Statements
are attached hereto as Schedule 4.9. The value of the investment securities
portfolio of Holdco and IFTC classified as available for sale in the
Consolidated Financial Statements, together with the net unrealized gain
(loss) on such portfolio included in stockholders equity was, in the judgment
of the management of Holdco
and IFTC, a fair reflection of the value of securities as of the date thereof
(i) under the
published standards of the applicable regulatory authorities and (ii) under
generally accepted accounting principles, and, as of the date hereof, no facts
have come to the attention of management of Holdco and IFTC which would cause
a material adverse change in the amount of such net unrealized gain (loss) for
the investment securities portfolio classified as available for sale in the
Consolidated Financial Statements. Since June 30, 1994, there has been no
adjustment included in the net unrealized gain (loss) included in the
stockholders equity that would reflect a permanent impairment of the value of
such securities. Between December 31, 1993 and the date hereof, neither
Holdco nor IFTC has incurred any obligation or liability (contingent or
otherwise) that is material, or that when combined with all similar
obligations or liabilities would be material, to Holdco or IFTC, other than
liabilities reflected on the 1994 Financials or arising in the ordinary course
of business since June 30, 1994 or reflected on Schedules 4.6, 4.12, 4.14,
4.20 or 4.23 to this Agreement.
4.10. Books of Account. The books of account of Holdco and IFTC are
each maintained, in all material respects, in compliance with all applicable
legal and accounting requirements.
4.11. Reports. Each of Holdco and IFTC has filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with (i) the FDIC, (ii)
the Missouri Division of Finance, and (iii) any applicable federal, state,
local or foreign authorities, (all such reports and statements are
collectively referred to herein as the "IFTC Reports"), except where a failure
to file would not have a Material Adverse Effect on Holdco or IFTC,
respectively. As of their respective dates, the IFTC Reports complied, in all
material respects, with the statutes, rules, regulations and orders enforced
or promulgated by the regulatory authority with which they were filed. To
the extent the IFTC Reports relate to taxes, this Section 4.11 shall not
apply, it being intended that the representation regarding taxes is set forth
in Section 4.14.
4.12. Absence of Material Adverse Changes. Except as set forth in
Schedule 4.12, since December 31, 1993, there has not been any Material
Adverse Effect on Holdco or IFTC.
4.13. Properties and Insurance.
(a) Except (i) as may be reflected in the 1994 Financials, (ii) for
any lien for current taxes and not yet delinquent, (iii) for pledges to
secure deposits of states, municipalities or fiduciary customers, and
(iv) for liens, security interests, claims, charges, options or other
encumbrances and imperfections to title as do not materially affect the
value of personal or real property reflected in the 1994 Financials or
acquired since June 30, 1994 and which do not, individually or in the
aggregate, materially interfere with or impair the present and continued
use of such property, Holdco or IFTC, as the case may be has good title,
free and clear of any liens, claims, charges, options or other
encumbrances, to all of the personal property reflected in the 1994
Financials, and all personal and real property acquired since the date
of the 1994 Financials other than, in each case, property disposed of in
the ordinary course of business.
(b) Schedule 4.13B attached hereto sets forth a list as of the date
hereof of all leases of real property, identifying separately each lease
(including lease amendments and subleases), to which Holdco or IFTC is a
party (collectively, the "Leases"). The Leases are in full force and
effect and neither Holdco nor IFTC has received a notice of default or
termination with respect to such Leases. There has not occurred any
event which has not been cured which would constitute a breach by Holdco
or IFTC of, or default by Holdco or IFTC in, the performance of any
covenant, agreement or condition contained in any Lease, the result of
which breach or default would materially interfere with or impair the
present and continued use of the property subject to such Lease. The
Leases constitute all the real property used in the conduct of the
current business of Holdco or IFTC. Neither Holdco nor IFTC owns any
real property.
(c) Schedule 4.13C attached hereto sets forth a list of all
registered trademarks and service marks and registered copyrights used
by IFTC in the conduct of its business the loss of the use of which,
individually or in the aggregate, would have a Material Adverse Effect
on Holdco or IFTC. There are no patents or patent applications owned by
IFTC. All of the foregoing are owned by or validly licensed to IFTC.
IFTC has not received a notice of any claim that any such trademark,
service mark, copyright, or patent is not valid or enforceable by its
purported owner, or infringes upon any trademark, service mark, trade
name, copyright, patent or intellectual property right of any third
party, except where such claims, individually or in the aggregate, would
not have a Material Adverse Effect on IFTC. IFTC owns, licenses or has
the contractual right to use all computer software currently used by it
and has the right to use such software without infringing upon the
intellectual property rights (including trade secrets rights) of the
party providing the software, or to the knowledge of Stockholders, any
third party, except where the failure to own or have the right to use
such software would not individually, or in the aggregate, have a
Material Adverse Effect on IFTC. Such computer software together with
other computer software validly licensed to IFTC constitutes all of the
computer software necessary to conduct its business in the manner
heretofore conducted. Schedule 4.13C sets forth all licenses of
intellectual property to which IFTC is a party, either as licensee or
licensor. Consummation of the transactions contemplated hereby will not
result in an impairment of the legal rights of IFTC to any of the
intellectual property rights or software referred to above, the effect
of which would have a Material Adverse Effect on IFTC.
(d) Schedule 4.13D attached hereto sets forth a list of all
insurance policies currently insuring Holdco or IFTC and the coverage
amounts, deductible amounts, expiration date, insurer, premium and
policy owner of such insurance policies. Neither Holdco nor IFTC nor,
to the knowledge of the Stockholders, any other policy owner, is in
default with respect to any such insurance policy.
4.14. Taxes.
(a) Except as set forth on Schedule 4.14, Holdco and IFTC (1) have
filed on a timely basis with the appropriate authorities all Tax Returns
of or which include Holdco or IFTC which are required to be filed on or
before the date of this Agreement, which Tax Returns are true, correct
and complete in all respects, (2) have paid on a timely basis to the
appropriate authorities all Taxes required to be paid on or before the
date of this Agreement, and (3) have timely and properly collected or
withheld, paid over and reported all Taxes required to have been
collected or withheld by it on or before the date of this Agreement.
(b) Except as set forth on Schedule 4.14, (1) no Taxing authority
has asserted in writing to Holdco and IFTC any adjustment that could
result in an additional Tax for which Holdco or IFTC is or may be
liable, (2) there is no pending audit, examination, investigation,
dispute, proceeding or claim for which Holdco or IFTC has received
notice (collectively, "Proceeding") relating to any Tax for which Holdco
or IFTC is or may be liable, (3) no statute of limitations with respect
to any Tax for which Holdco or IFTC is or may be liable has been waived
or extended, (4) the due date of any Tax Returns that Holdco or IFTC is
required to file has not been extended, (5) Holdco or IFTC is not party
to any tax sharing or tax allocation agreement, arrangement or
understanding, and (6) Holdco and IFTC have engaged in no deferred
intercompany transactions which would be taken into account as a result
of the transactions occurring at the Closing.
(c) Except as set forth on Schedule 4.14, neither Holdco nor IFTC is
a party to any contract, agreement, plan or arrangement that,
individually or collectively, could give rise to any payment that would
not be deductible by reason of Section 162(m)and 280G of the Code.
(d) For all taxable years beginning January 1, 1980 and ending on or
before December 31, 1991, IFTC filed separate federal income Tax
Returns. For its taxable year ended December 31, 1992, Holdco included
IFTC in its consolidated federal income Tax Return and its consolidated
Missouri income Tax Return. Except for such consolidated Missouri
income Tax Return, Holdco and IFTC have filed separate state, local or
foreign Tax Returns and separate federal employment and information Tax
Returns for reporting periods beginning after December 31, 1979 and
ending prior to the date of this Agreement (taking into account
extensions of time to file such returns). Except as set forth on
Schedule 4.14, IFTC (1) does not have and has not had any subsidiaries,
(2) after December 31, 1979, has not been a member of an affiliated
group filing a consolidated federal income Tax Return other than the
affiliated group consisting of Holdco and IFTC, and (3) is not liable
for the Taxes of any person other than Holdco under Treasury Regulation
1.1502-6 (or any similar provision of state, local, or foreign law) as a
transferee or successor, by contract or otherwise.
(e) The aggregate reserve for Taxes including deferred tax reserves
included in the net unrealized gain (loss) within stockholders equity
shown on the books and records of Holdco and IFTC is adequate to cover
the aggregate liability of Holdco and IFTC, for all Taxes arising with
respect to all periods prior to the date hereof. The aggregate reserve
for Taxes including deferred tax reserves included in the net unrealized
gain (loss) within stockholders equity shown on the books and records of
Holdco and IFTC at the Closing Date will be adequate to cover the
aggregate liability of Holdco and IFTC, for all Taxes arising with
respect to all periods between the date hereof and ending immediately
prior to the Closing.
(f) Intentionally Omitted.
(g) For purposes of this Agreement, a "Tax" shall mean any federal,
state, local, foreign, or other tax, fee, levy, assessment or other
governmental charge, including without limitation, any income,
franchise, gross receipts, property, sales, use, services, value added,
withholding, social security, estimated, accumulated earnings,
alternative or add-on minimum, transfer, license, privilege, payroll,
profits, capital stock, employment, unemployment, excise, severance,
stamp, occupancy, customs or occupation tax, and any interest, additions
to tax and penalties in connection therewith.
(h) For purposes of this Agreement, "Tax Returns" shall mean all
returns, amended returns, declarations, reports, estimates, information
returns and statements regarding Taxes which are or were filed or
required to be filed under applicable law, whether on a consolidated,
combined, unitary or separate basis.
4.15. Employees and Benefits.
(a) Litigation. Except as set forth on Schedule 4.15A there are no
current employment related litigation and claims pending or, to the
knowledge of the Stockholders, threatened against Holdco or IFTC.
Holdco and IFTC are in material compliance with applicable federal and
state, local or foreign laws, regulations, and orders respecting
employment and employment practices. There are no labor or collective
bargaining agreements, contracts or understandings with a labor union or
labor organization which are binding upon Holdco or IFTC. Neither
Holdco nor IFTC as of the date hereof has been notified that it is the
subject of a proceeding asserting it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization
as to wages and conditions of employment, nor to the knowledge of the
Stockholders as of the date hereof is any such proceeding threatened,
nor as of the date hereof is there any pending or, to the knowledge of
the Stockholders, threatened strike or other labor dispute by employees
of Holdco or IFTC, nor as of the date hereof are the Stockholders aware
of any activity involving any such employees seeking to certify a
collective bargaining unit or engaging in any other union organizational
activity, and each of the foregoing shall be true as of the Closing
Date. Except for IFTC Plans (as defined below) and employment,
consulting, retirement and severance agreements with individuals listed
on Schedule 4.15A (the "Individual Agreements") or as otherwise provided
on Schedule 4.15A, IFTC has no obligation, contingent or otherwise,
under any employment, consulting, retirement or severance agreements
which would require Holdco or IFTC to make annual payments or accruals
for any employee or former employee. Holdco has no employees.
(b) Plan Disclosure. Schedule 4.15B sets forth all Employee Plans
that are maintained or otherwise contributed to by IFTC for the benefit
of its employees or under which IFTC has or may have any material
liability (an "IFTC Plan"), as well as all plans, agreements, policies
and arrangements that would be IFTC Plans if the term "employee" were
construed to include outside directors, consultants or other independent
contractors who provide services to or for the benefit of IFTC.
Schedule 4.15B also designates each IFTC Plan (a "Holdco Plan") that is
sponsored or maintained or otherwise contributed to for the benefit of
the employees of IFTC by DST in addition to or in lieu of IFTC, or which
any entity other than IFTC is a participating employer. For purposes of
this Agreement, the term "Employee Plan" means any plan, program,
agreement, policy or arrangement (a "plan"), whether or not reduced to
writing, that is: (i) a welfare benefit plan (a "Welfare Plan") within
the meaning of Section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"); (ii) a pension benefit plan within
the meaning of Section 3(2) of ERISA; (iii) a stock bonus, stock
purchase, stock option, restricted stock, stock appreciation right or
similar equity-based plan; or (iv) any other deferred- compensation,
retirement, welfare-benefit, bonus, incentive or fringe-benefit plan.
With respect to each IFTC Plan, IFTC or Holdco has provided to State
Street accurate, current and complete copies of each of the following:
(1) where the plan has been reduced to writing, the plan document
together with all amendments; (2) where the plan has not been reduced to
writing, a written summary of all material plan terms; (3) where
applicable, copies of any trust agreements, custodial agreements,
insurance policies, administration agreements and similar agreements,
and investment management or investment advisory agreements; (4) copies
of any summary plan descriptions, employee handbooks or similar employee
communications; (5) in the case of any plan that is intended to be
qualified under Section 401(a) of the Code, a copy of the most recent
determination letter from the IRS and any related correspondence,
including a copy of the request for such determination; (6) in the case
of any plan for which Forms 5500 are required to be filed, a copy of the
three most recently filed Forms 5500, with schedules attached; and (7)
copies of any notices, letters or other correspondence from the Internal
Revenue Service or the Department of Labor within the past six calendar
years relating to an audit or penalty assessment.
(c) Pension Plans. Except as specified in Schedule 4.15C, neither
IFTC nor any corporation, trust, partnership or other entity that would
be considered as a single employer with IFTC under Section 4001(b)(1) of
ERISA or Sections 414(b), (c), (m) or (o) of the Code (a "Related
Entity") has ever maintained or been required to contribute to any
Employee Plan subject to Part 3 of Title I, or Title IV, of ERISA, or
Section 412 of the Code.
(d) Plan Qualification; Plan Administration; Certain Taxes and
Penalties. Except as set forth in Schedule 4.15D, (i) each IFTC Plan has
been established and administered in compliance with its terms and the
applicable provisions of ERISA and the Code in all material respects;
(ii) nothing has occurred to subject IFTC to an excise tax under Chapter
43 of the Code that would have a Material Adverse Effect on IFTC; (iii)
each IFTC Plan that is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter as to its
qualification or has an application for a favorable determination
pending before the IRS as to which all necessary steps to obtain such
favorable determination have been taken and as to which the Stockholders
have no knowledge that Holdco will not be able to so obtain; (iv) no
"prohibited transaction" has occurred with respect to any IFTC Plan that
would have a Material Adverse Effect on IFTC.
(e) All Contributions And Premiums Paid. Except as specified in
Schedule 4.15E, all required contributions to and premium payments or
assessments on account of each IFTC Plan have been made or, if not yet
due, are reflected as accruals on the books and records of IFTC.
(f) Claims. Schedule 4.15F sets forth each and every pending or, to
the knowledge of the Stockholders, threatened lawsuit, claim or other
controversy, involving or affecting IFTC or Holdco, relating to an IFTC
Plan, other than claims for benefits in the normal course.
(g) Retiree Benefits; Certain Welfare Plans. Except as described in
Schedule 4.15G and other than as required under Section 601 et seq. of
ERISA, no IFTC Plan that is a Welfare Plan provides benefits or coverage
following retirement or other termination of employment. Nothing has
occurred with respect to any Employee Plan described in Section 4980B of
the Code that could subject IFTC to a tax under Section 4980B of the
Code. No Welfare Plan is funded through or associated with a trust or
similar funding arrangement. No event has occurred that could result in
a loss of any deduction material to IFTC under Section 162(n) of the
Code.
4.16. Contracts. Except for contracts, commitments, plans, agreements
and licenses appearing on Schedule 4.16 or any other Schedule to this
Agreement, neither Holdco nor IFTC is on the date hereof a party to or subject
to:
(a) any contract or agreement or a series of related contracts or
agreements not fully performed for the purchase for its own account of
any commodity, material, services or equipment, including without
limitation fixed assets, for a price in excess of $100,000;
(b) any contract containing covenants limiting the freedom of Holdco
or IFTC to compete in any line of business or with any person or entity;
(c) any license agreement (as licensor or licensee) providing for
future payments in excess of $100,000 which by its terms does not
terminate or is not terminable without penalty by Holdco or IFTC upon
notice of 60 days or less;
(d) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money, by
Holdco or, except in the ordinary course of business, by IFTC; or
(e) any other contract or agreement or a series of related contracts
or agreements which creates future payment obligations of Holdco or
IFTC, in excess of $100,000 and which by its terms does not terminate or
is not terminable without penalty by Holdco or IFTC upon notice of 60
days or less, except contracts or agreements entered into by IFTC in the
ordinary course of business.
4.17. No Defaults under Contracts or Agreements. Neither IFTC nor
Holdco nor, to the knowledge of the Stockholders, any other party thereto, is
in default under any material lease, contract, mortgage, promissory note, deed
of trust, loan, guaranty or other agreement to which Holdco or IFTC is party,
except where such default would not interfere with or otherwise impair the
value to Holdco or IFTC of such lease, contract, mortgage, promissory note,
deed of trust, loan, guaranty or other agreement.
4.18. Compliance with Laws. Each of Holdco and IFTC has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as presently conducted in all material respects; such
permits, licenses, certificates of authority, registrations, orders and
approvals are in full force and effect in all material respects. The conduct
of its business by Holdco and IFTC does not violate or infringe, any
applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license or regulation now in effect in any material respect.
4.19. Brokers and Finders. Neither the Stockholders, Holdco, IFTC nor
any of their officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted,
directly or indirectly, for the Stockholders, Holdco or IFTC, in connection
with this Agreement, the Transaction Agreements or the transactions
contemplated hereby or thereby other than Kemper Securities, Inc., the fees
and expenses of which will be paid by Kemper. The Stockholders will be
responsible for any such fees incurred by the Stockholders, Holdco or IFTC in
connection with the transactions contemplated hereby.
4.20. Regulatory Agreements. Except as set forth in Schedule 4.20, IFTC
(a) is not a party to any assistance agreement, supervisory agreement,
memorandum of understanding, consent order, cease and desist order, or
condition of any regulatory order or decree or similar action (other than
exemptive orders) with or by, or has been required to adopt any board
resolution by the Federal Reserve Board, the FDIC or the Missouri Division of
Finance or (b) is a party to any material assistance agreement, supervisory
agreement, memorandum of understanding, consent order, cease and desist order,
or condition of any regulatory order or decree or similar action with or by
any other federal, state, local or foreign regulatory authority.
4.21. Dividends. Between the Commencement Date and the date hereof,
except as set forth on Schedule 4.21, IFTC has not declared or paid any
dividend or other distribution on capital stock to Holdco and Holdco has not
declared or paid any dividend or other distribution on capital stock to the
Stockholders.
4.22. Environmental Matters. Except as set forth on Schedule 4.22,
there is no legal, administrative, arbitral or other action, suit or
proceeding or, to the knowledge of the Stockholders, governmental
investigation of any nature seeking to impose, or that could result in the
imposition, on Holdco or IFTC of any liability arising under any local, state
or federal environmental statute, regulation or ordinance including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, pending or, to the knowledge of the
Stockholders, threatened against Holdco or IFTC, which liability could
reasonably be expected to have a Material Adverse Effect on Holdco or IFTC;
and neither Holdco nor IFTC is a party to or bound by any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
4.23. Absence of Certain Conditions. Except as set forth in Schedule
4.23, there exists no material "out of balance" or similar condition with
respect to any customer account maintained by IFTC.
4.24. Representations and Warranties Regarding Investment Company
Clients.
(a) Definition of Investment Company. As used in this Agreement,
the term "Investment Company" shall have the meaning provided in the
Investment Company Act of 1940, as amended (the "Investment Company
Act"), provided that for purposes of this Agreement the term Investment
Company shall include any series thereof and any person that would be an
investment company, as defined in that Act, but for the exemption
contained in Section 3(c)(1), Section 3(c)(3), Section 3(c)(11) or Rule
3a-7 of the Investment Company Act.
(b) Service Contracts and Investment Companies. Schedule 4.24 lists
(i) all of the Investment Companies to which IFTC provides services on
the date hereof (together with any such Investment Company for which
such services are to be provided after the date hereof pursuant to
binding contracts, "Investment Company Clients"), (ii) each contract or
agreement, and all amendments thereto, in effect on the date hereof
relating to IFTC's rendering of Custody Services (as defined in Section
6.4) to any person (together with any such contract or agreement entered
into after the date hereof, the "Service Contracts"); and (iii) the
assets under custody for each of the Investment Company Clients, at May
31, 1994. IFTC is in material compliance with the terms of each Service
Contract, is not currently in default under any of the material terms of
any Service Contract, and each Service Contract is in full force and
effect with respect to the Investment Company Client and IFTC and no
notice to terminate any such Service Contract has been received by IFTC.
Except as set forth in the Service Contracts, no consent to assignment
is required under the terms of any Service Contract as a result of the
transactions contemplated hereby; and, other than with respect to the
designated Service Contracts set forth on Schedule 4.24, no consent is
required under any Service Contract in order for SSBT to be named as
sub-custodian thereunder. True and correct copies of each Service
Contract, including a current fee schedule, have been made available to
State Street and there are no other terms oral or otherwise that modify
the terms of the Service Contracts so furnished in any way that would
materially and adversely affect the value to IFTC of such Service
Contract.
(c) Fiduciary Activities. Neither IFTC nor, to the knowledge of the
Stockholders, any director, officer or employee of IFTC, has committed
any material breach of trust with respect to any fiduciary account.
(d) Transfer Agent. IFTC is registered as a transfer agent under
the Exchange Act.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1. Conduct Prior to Closing.
5.1.1. The Stockholders hereby covenant and agree with State Street,
that, prior to the Closing, unless the prior written consent of State Street
shall have been obtained, and except as otherwise contemplated herein, the
Stockholders will cause each of Holdco and IFTC to operate its business, in
all material respects, only in the usual, regular and ordinary course and will
cause each of Holdco and IFTC to use its reasonable efforts to preserve intact
its business organization and assets and maintain its rights and franchises in
all respects material to the business, operations, property, assets,
liabilities, or condition (financial or otherwise) of Holdco and IFTC,
respectively; provided, that, Holdco and IFTC shall each consult with State
Street with respect to its investment policies prior to Closing. From the
date hereof until the Closing, each of the Stockholders covenants and agrees
that, except as otherwise provided in Schedule 2.2 or elsewhere in this
Agreement, it will not permit either Holdco or IFTC to do or agree or commit
to do, without the prior written consent of State Street, any of the
following:
(a) incur or assume obligations for borrowed money other than in
the ordinary course of business;
(b) other than in accordance with existing policies and scheduled
increases described on Schedule 5.1.1(b), (i) grant any increase in
compensation to its employees, or to its officers or directors; effect
any change in retirement benefits to any employee or officer (unless any
such change shall be required by applicable law); or (ii) enter into any
employment, severance or similar agreements or arrangements with any
director, officer or employee;
(c) purchase, redeem or otherwise acquire any shares of capital
stock of Holdco or IFTC, or declare or pay any dividend or distribution
other than, after consultation with State Street, a dividend of the UMB
Stock held by IFTC from IFTC to Holdco;
(d) purchase or otherwise acquire any substantial portion of the
assets, or any class of stock of any corporation, bank or business or
any foreign debt instruments for IFTC's own account (other than in
accordance with IFTC's investment policies after consultation with State
Street); merge into any other corporation or bank or permit any other
corporation or bank to merge into it or consolidate with any other
corporation or bank; liquidate, sell, dispose of, or encumber any assets
or acquire any assets, other than in the ordinary course of business; or
issue any share of its capital stock or permit any share of its capital
stock held in its treasury to become outstanding except in connection
with the issuance of directors qualifying shares as required by law
which shall be issued subject to repurchase agreements consistent with
past practice;
(e) issue or grant any option, warrant, conversion or stock
appreciation right in respect of the capital stock of Holdco or IFTC
Stock;
(f) propose or adopt any amendments to its charter or Bylaws;
(g) enter into any type of business materially different from the
business as it is conducted by Holdco or IFTC as of the date of this
Agreement (as described on Schedule 5.1.1(g) hereto) or create or
organize any new subsidiary of Holdco or IFTC or enter into or obtain a
financial interest in any joint venture or partnership;
(h) propose or adopt any material changes to the accounting
principles used by Holdco and IFTC except as required by generally
accepted accounting principles or regulatory requirements, and then only
upon notice to State Street;
(i) except on an arm's length basis in the ordinary course of
business enter into any agreement or transactions with the Stockholders
or any of their Affiliates (other than Affiliated Investment Companies)
or make any material amendment or modification to any such agreement,
except as contemplated by this Agreement or the Transaction Agreements;
(j) except, after consultation with State Street, for agreements
with new funds or series of Investment Companies that are IFTC Customers
where such new funds or series would be added to an existing Service
Contract or where such new funds or series would execute a new agreement
in substantially the same form as the existing Service Contract of such
Investment Company, enter into any Service Contract for the provision of
Custody Services which is not substantially in the form of Exhibit G
hereto; or
(k) agree or commit to do any of the foregoing.
5.1.2. Schedule 4.8 lists certain securities currently held by IFTC
and Holdco as of August 31, 1994. To the extent neither State Street nor SSBT
is or, following the Closing, IFTC will be, permitted under applicable law to
hold any of such securities, upon written request of State Street such
securities shall be disposed of in an orderly manner prior to the Closing.
Holdco shall provide to State Street in writing an update to Schedule 4.8,
including the cost and fair market value of such securities, at least
forty-five days prior to Closing and State Street shall give written notice to
the Stockholders at least twenty days prior to Closing as to which of those
securities, if any, must, pursuant to this Section 5.1.2, be disposed of prior
to Closing; provided that in the event the Closing does not occur, State
Street will reimburse IFTC promptly upon request for reasonable expenses and
losses incurred in connection with such disposition, unless the Closing does
not occur due to a breach of this Agreement by the Stockholders.
5.2. Consents and Approvals. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to cooperate with the others and
use all reasonable efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws, regulations and contractual arrangements to consummate and
make effective the transactions contemplated by this Agreement and the
Transaction Agreements, including, without limitation, using reasonable
efforts to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby and thereby. The Stockholders and State Street hereby
covenant and agree to take no action (a) which would render any of their
representations and warranties contained herein untrue at and as of the
Closing except as otherwise contemplated herein or (b) which would materially
and adversely affect the ability of any of them to satisfy any of the
conditions set forth in Article VII, including without limitation the ability
to obtain any necessary approvals of governmental authorities required for the
transactions contemplated hereby or by the Transaction Agreements or
materially increase the period of time necessary to obtain such approvals;
provided, however, that, prior to Closing, State Street will not seek to
prevent the Stockholders from taking any action, or causing IFTC to take any
action, that the Stockholders reasonably deem necessary to confirm that
neither the Federal Reserve Board, the FDIC nor the Missouri Division of
Finance will take any enforcement action against the Stockholders, Holdco,
IFTC or Conseco, Inc. with respect to, in the case of the Federal Reserve
Board, a loss of the exception provided in 12 U.S.C. 1841(c)(2)(I) or, in
the case of the FDIC, violations of the federal Change in Bank Control Act, or
in the case of the Missouri Division of Finance, violations of Missouri bank
regulatory law, in each case, arising out of the acquisition of the parent of
Kemper by Conseco, Inc. The Stockholders shall provide written notice to
State Street of any actions to be taken pursuant to the foregoing proviso at
least ten days prior to the taking of such action. In the event that such
action results in the inability of the Stockholders to satisfy any of the
conditions to Closing set forth in Article VII hereof, State Street may
terminate this Agreement in accordance with the provisions of Section 9.1
hereof. If State Street does not so elect to terminate, any such condition to
Closing shall be deemed to have been waived.
5.2.1. State Street, with the cooperation of Holdco, IFTC and the
Stockholders, shall prepare and file, provide advance copies to and
consult with the Stockholders regarding, all notices, applications,
correspondence, and other filings in connection with the approvals and
notifications set forth on Schedule 2.2 hereto. The Stockholders will provide
advance copies to and consult with State Street regarding all notices,
applications, correspondence and other filings made with bank regulatory
authorities relating to the exception provided in 12 U.S.C. 1841(c)(2)(I)
and issues under the federal Change in Bank Control Act or Missouri bank
regulatory law in each case arising out of the acquisition of the parent of
Kemper by Conseco, Inc.
5.2.2. To the extent that deposit or other accounts maintained by
IFTC pursuant to such Service Contract may not be transferred without the
consent or approval of another party thereto, upon the reasonable request of
State Street, the Stockholders shall cause IFTC to use all reasonable efforts
to obtain any such consent or to amend the agreement such that no consent is
required.
5.2.3. Prior to Closing, the Stockholders and IFTC, at the request
of and in cooperation with State Street, shall obtain all required consents to
the appointment of SSBT as sub-custodian under IFTC's existing Service
Contracts with the Affiliated Investment Companies.
5.3. Actions Prior to the Closing.
(a) Prior to the Closing, at State Street's request, IFTC will take
all actions necessary to comply with the provisions of applicable law and to
obtain the approvals set forth on Schedule 2.2.
(b) If any of the actions described in Section 5.3(a) are effected
prior to Closing and this Agreement is terminated in accordance with Article
IX hereof, State Street, Holdco and the Stockholders shall cooperate with each
other and use reasonable best efforts to reverse such changes and restore the
business of IFTC to its pre-existing form; provided that in the event the
Closing does not occur, State Street will reimburse promptly upon the request
of IFTC, reasonable expenses and losses incurred by IFTC in connection with
such actions, unless the Closing does not occur due to a breach of this
Agreement by the Stockholders.
(c) Prior to the Closing, each of (i) the Investment Advisory
Agreement dated as of January 1, 1994 between Kemper Asset Management Company
and IFTC, (ii) the Rate Risk Analyst Agreement dated as of June 1, 1993
between Smith Breeden Associates, Inc. ("Smith Breeden") and IFTC; and (iii)
the Fixed Income Portfolio Advisory Agreement dated as of June 1, 1993 between
Smith Breeden and IFTC shall be terminated, without cost to State Street,
Holdco or IFTC.
(d) At or prior to the Closing, the JV Agreement shall be terminated
without cost to State Street, Holdco or IFTC.
(e) Not more than 30 days prior to the Closing, (x) Holdco and IFTC
shall have billed the Stockholders and their Affiliates for all amounts due
and payable to Holdco or IFTC, and the Stockholders and their Affiliates shall
have billed Holdco and IFTC for all amounts due and payable to the
Stockholders and their Affiliates, and (y) immediately prior to the Closing,
no amounts shall be due and owing to Holdco or IFTC from the Stockholders or
their Affiliates, and no amounts shall be due and owing to either of the
Stockholders and their Affiliates from Holdco or IFTC, in each case other than
such amounts in the ordinary course of business and not more than 60 days
overdue.
5.4. Control. It is the intention of the parties that nothing contained
in this Agreement shall be construed to provide State Street with direct or
indirect control of IFTC under 12 U.S.C. 1841(c)(2)(I).
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Current Information. Unless restricted by law, during the period
from the date of this Agreement to the Closing, the Stockholders on the one
hand and State Street on the other hand will cause one or more of its
representatives to confer on a regular and frequent basis with representatives
of the other party with respect to the status of the ongoing operations of
IFTC and State Street. Each party will promptly notify the other party of any
material change in the normal course of its business or in the operation of
its properties and, to the extent permitted by applicable law, of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the
threat of material litigation involving such party which would, in any manner,
challenge, prevent, alter or materially delay any of the transactions
contemplated hereby or by the Transaction Agreements, and each party will keep
the other party fully informed with respect to such events. Each party will
also notify the other party of the status of regulatory applications and third
party consents related to the transactions contemplated hereby.
6.2. Access, Information and Confidentiality.
(a) The Stockholders shall ensure that upon reasonable notice, IFTC
shall afford to State Street and its representatives (including, without
limitation, officers and employees of State Street and their authorized
agents, counsel, accountants and other professionals retained) such
access during normal business hours throughout the period prior to the
Closing Date to its books, records (including, without limitation, tax
returns and appropriate work papers of independent auditors under normal
professional courtesy), properties, personnel, customers and to such
other information related to the transactions contemplated herein as
State Street may reasonably request, unless restricted by law.
(b) Upon reasonable notice, State Street shall provide to the
Stockholders and their representatives (including, without limitation,
officers and employees of the Stockholders and their authorized agents,
counsel, accountants and other professionals retained) such access
during normal business hours, throughout the period prior to Closing
Date to its personnel with respect to information related to the
transactions contemplated herein as the Stockholders may reasonably
request, unless restricted by law.
(c) Each party to this Agreement shall hold, and shall cause its
respective subsidiaries and their directors, officers, employees,
agents, consultants and advisors to hold, in strict confidence, unless
disclosure to a banking or other regulatory authority is necessary in
connection with any necessary regulatory approval or unless compelled
to disclose by judicial or administrative process or, in the written
opinion of its counsel, by other requirement of law or the applicable
requirements of any regulatory agency or relevant stock exchange, all
non-public records, books, contracts, instruments, computer data and
other data and information (collectively, "Information") concerning the
other parties or Holdco or IFTC (or, if required under a contract with a
third party, such third party) furnished it by such other party (or
Holdco or IFTC) or its representatives pursuant to this Agreement,
including without limitation the provisions of Section 6.12, (except to
the extent that such information can be shown to have been (a)
previously known by such party on a non-confidential basis, (b) in the
public domain through no fault of such party or (c) later lawfully
acquired from other sources by the party to which it was furnished or by
Holdco or IFTC), and none of the parties (nor Holdco or IFTC) shall
release or disclose such Information to any other person, except its
auditors, attorneys, financial advisors, bankers, other consultants and
advisors and, to the extent permitted above, to bank regulatory
authorities. In the event that a party to this Agreement becomes
compelled to disclose any Information in connection with any necessary
regulatory approval or by judicial or administrative process, such party
shall provide the party who provided such Information (the "Disclosing
Party"), with prompt prior written notice of such requirement so that
the Disclosing Party may seek a protective order or other appropriate
remedy and/or waive the terms of the Confidentiality and Nondisclosure
Agreement dated as of May 31, 1994, as amended, between State Street,
Holdco, the Stockholders and IFTC (as so amended, the "Confidentiality
Agreement"). In the event that such protective order, other remedy or
waiver is not obtained, only that portion of the Information which is
legally required to be disclosed shall be so disclosed. In addition,
all information furnished to State Street and its advisors,
representatives, directors and officers, and all analyses, compilations,
data, studies or other documents prepared by State Street or its
advisors or representatives containing or based in whole or in part on
any such furnished information or reflecting State Street's review of,
or interest in, IFTC (the "Evaluation Material") shall be used solely as
set forth and permitted by the Confidentiality Agreement. In the event
of the termination of this Agreement, State Street shall return or
destroy all Evaluation Material (including copies thereof) pursuant to
the terms of the Confidentiality Agreement and otherwise comply with the
erms and provisions of the Confidentiality Agreement. The terms and
provisions of the Confidentiality Agreement (except as they apply to
employees of IFTC) shall survive the Closing.
6.3. Intentionally Omitted.
6.4. Noncompetition.
(a) For a period of five years following the Closing Date, neither
of the Stockholders nor any of their Affiliates, (i) will solicit IFTC's
employees or will solicit any customer of IFTC who is a customer of IFTC as of
the date hereof or on the Closing Date or any customer of IFTC during such
five-year period (collectively, the "IFTC Customers")or seek to persuade any
such employee or customer to terminate their relationship with IFTC; (ii) will
provide services to any IFTC Customer of the type theretofore provided to such
IFTC Customer by IFTC, including without limitation Custody Services, or
provide Custody Services to any Affiliated Investment Company of either DST or
Kemper (as defined in Section 6.5), whether or not such Affiliated Investment
Company is a IFTC Customer; (iii) will assist any IFTC Customer in
internalizing a function previously received from IFTC (unless requested by
IFTC after the Closing); or (iv) will seek to merge, consolidate, transfer all
or substantially all the assets of any Affiliated Investment Company into any
entity that is not or does not become at the time of such transaction an IFTC
Customer, a customer of any Affiliate of IFTC or an Affiliated Investment
Company; provided that no violation of the covenant in 6.4(a)(iv) will occur
with respect to one transaction per annum for each Stockholder involving an
Affiliated Investment Company where the assets under custody to be lost by
IFTC are less than $100 million in each such transaction or a transaction of
the type referred to in Section 6.4(a)(iv) which is consented to by State
Street; and provided, further that this Section 6.4(a) shall not prevent (x)
the Stockholders and their Affiliates from engaging in the Reserved Business
or in offering or providing the Reserved Business to an IFTC Customer which
has terminated receiving such services from IFTC so long as such Stockholder
offering or providing such Reserved Business has not solicited or encouraged
(except as permitted by Section 6.5 hereof) such IFTC Customer to terminate
receiving such services from IFTC; or (y) DST from providing portfolio
accounting services to any person other than an IFTC Customer who receives
portfolio accounting services from IFTC as of the date hereof; or (z) DST from
providing portfolio accounting services to an IFTC Customer who receives
portfolio accounting services from IFTC as of the date hereof, if such IFTC
Customer has ceased receiving such services from IFTC and has used a provider
of such services other than DST or any affiliate of DST for at least one year
thereafter before DST agrees to provide such services to such IFTC Customer.
(b) Notwithstanding the provisions of Section 6.4(a), if, but only
if in connection with the exercise of its fiduciary duties to an Affiliated
Investment Company, a Stockholder or its Advisory Affiliate is not able to
comply with the provisions of Section 6.5(a) with respect to such Affiliated
Investment Company, such Stockholder or its Advisory Affiliate may, after
prior written notice to State Street, recommend that such Affiliated
Investment Company terminate its relationship with IFTC.
(c) If any of the restrictions set forth in Section 6.4(a) should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforcement of the remainder of such
restrictions and covenants shall not thereby be adversely affected. Each of
the Stockholders, and State Street agree that, if any provision of this
Section 6.4 should be adjudicated to be invalid or unenforceable, such
provision shall be deemed deleted herefrom with respect, and only with
respect, to the operation of such provision in the particular jurisdiction in
which such adjudication was made; provided, however, that to the extent any
such provision may be made valid and enforceable in such jurisdiction by
limitations on the scope of the activities, geographical area or time period
covered, the Stockholders and State Street agree that such provision instead
shall be deemed limited to the extent, and only to the extent, necessary to
make such provision enforceable to the fullest extent permissible under the
laws and public policies applied in such jurisdiction.
(d) For purposes of this Agreement:
"Affiliate" (unless the context otherwise requires) of any person
shall mean with respect to DST, Janus Capital Corporation and from such time
as DST or its Affiliates own at least 50% of Berger Associates, Inc., Berger
Associates, Inc. and, with respect to Kemper, DST, or State Street, any person
directly or indirectly controlling, controlled by or under common control with
such other person, except that none of Conseco, Inc. or its subsidiaries as of
the date hereof shall be an Affiliate of Kemper.
"Custody Services" shall mean the provision of safekeeping and/or
related services to institutional clients with respect to their cash,
securities or other assets, including but not limited to (i) custody and
safekeeping of assets, (ii) related settlement of securities transactions and
reporting thereof, (iii) related determination and collection of income on
securities, (iv) related cash disbursements and reporting cash transactions,
(v) maintenance of investment ledgers and position and income reports,
including account ledgers, statements of account, asset status lists and
investment reviews and (vi) all portfolio accounting services including but
not limited to the financial and tax recordkeeping related to, income,
disbursements, corporate actions, interest, dividends and expenses of
Investment Companies including but not limited to the calculation of total
assets, net assets, net asset value per share or unit, the preparation of
financial statements and related functions ("Fund Accounting Services");
provided, that, Custody Services provided to Investment Companies affiliated
with Kemper and Investment Companies affiliated with the Janus Capital
Corporation shall not include Fund Accounting Services; and provided, further
that Custody Services shall not include the provision of the services
("Services") described in the following clauses (A)-(D) by either of the
Stockholders or its Affiliates that is a broker-dealer registered as such with
the SEC: (A) securities or commodities accounts, (B) execution services of
any sort, (C) other than to Investment Companies, custodial and related
services customarily associated with the securities brokerage and clearing
businesses, including without limitation in each case all services of the type
currently provided by Kemper Clearing Corp., and (D) securities and
commodities quotation services and data processing, telecommunications and
related services of the type currently provided by Beta Systems, Inc.
"Reserved Business" shall mean the provision of (i) Transfer Agent
Services and Services to IFTC Customers and others, whether directly or
through subcontract arrangements and (ii) the TRAC-2000 or KemFlex systems
for retirement plan participant recordkeeping and compliance.
"Transfer Agent Services" shall mean any or all of the services,
functions or activities of a transfer agent, on a remote or a full-service
basis including but not limited to the functions of dividend disbursing agent,
registrar, and shareholder liaison functions, and (i) the maintenance,
updating and reporting of shareholder or equivalent ownership of shares, units
or partnership interests in such accounts, (ii) the preparation and input of
all orders for purchases, exchanges, redemptions and transfers of such shares,
units or partnership interests and any reconciliations, settlements and
mailings relating thereto, (iii) responding to inquiries from existing and
prospective shareholders, unitholders, partners, or broker-dealers, (iv)
reconciling all internal accounts, such as incoming cash and settlement wires,
(v) tax preparation, materials or reports for shareholders, unitholders or
partners, and reporting and compliance in connection therewith,(vi)
recordkeeping for shareholders, unitholders or partners in accordance with
applicable law, rules and regulations, (vii) workflow management, (viii)
activities relating to proxy solicitation and tabulation, (ix) escheatment
accounting and reporting, (x) fulfillment services, (xi) forms design, (xii)
printing and mailing, (xiii) bank account reconciliation, (xiv) blue sky
compliance, and (xv) exchange or conversion agent.
(e) Allocation of Purchase Price. For federal, state, and local
income tax purposes, State Street and the Stockholders hereby agree that no
portion of the Acquisition Consideration shall be allocated to the covenants
contained in Section 6.4 or Section 6.5 hereof.
6.5. Recommendation of IFTC.
(a) To the extent consistent with its fiduciary duties and other
applicable law, until the fifth anniversary of the Closing Date,
(i) with respect to the Investment Companies listed on Schedule
6.5A for which DST or any of its affiliates listed on Schedule 6.5B (the
"Advisory Affiliates") serves as investment advisor, DST or the
appropriate Advisory Affiliate shall recommend IFTC and use its
reasonable best efforts to ensure the continuation or appointment of
IFTC as the provider of Custody Services (including the provision of
Custody Services by a subcustodian appointed by IFTC) of such
Investment Company's assets; DST or the appropriate Advisory Affiliate
shall recommend IFTC as the provider of Custody Services (including the
provision of Custody Services by a subcustodian appointed by IFTC) to
each Investment Company which is a new start-up Affiliated Investment
Company (as hereinafter defined) created by an Advisory Affiliate after
the date of this Agreement; and
(ii) with respect to the Investment Companies listed on Schedule
6.5C for which Kemper serves as investment advisor, Kemper shall
recommend IFTC and use its reasonable best efforts to ensure the
continuation or appointment of IFTC as the provider of Custody Services
(including the provision of Custody Services by a subcustodian appointed
by IFTC) of such Investment Company's assets; and Kemper shall recommend
IFTC as the provider of Custody Services (including the provision of
Custody Services by a subcustodian appointed by IFTC) to each Investment
Company which becomes an Affiliated Investment Company after the date of
this Agreement.
An Affiliated Investment Company with respect to DST shall mean an Investment
Company having DST or an Advisory Affiliate as its investment advisor and a
distributor or principal underwriter of which is a principal underwriter of
one or more of the Investment Companies listed on Schedule 6.5A, and an
Affiliated Investment Company with respect to Kemper shall mean an Investment
Company having Kemper as its investment advisor, sponsor, or depositor and
Kemper or a subsidiary of Kemper as its distributor or principal underwriter.
(b) DST hereby agrees that it will not sell substantially all the
assets or stock or allow a merger of DST or any of DST's Advisory
Affiliates unless the transferee agrees in writing that for the
remaining balance of the five year period commencing with the Closing
Date, it will (i) not provide Custody Services to any Affiliated
Investment Company of the acquired DST Advisory Affiliate other than
services provided by such transferee at the time of such sale or merger;
(ii) not seek to merge, consolidate, or transfer all or substantially
all the assets of any Affiliated Investment Company if the result of
such transaction is that IFTC will no longer provide Custody Services to
such Affiliated Investment Company of DST or the acquired DST Advisory
Affiliate, as the case may be; and (iii) be bound by the provisions of
Section 6.5 as respects the Affiliated Investment Companies of the
acquired Advisory Affiliate existing at the time of such sale or merger.
(c) Kemper hereby agrees that it will not sell substantially all the
assets or stock or allow a merger of Kemper unless the transferee
agrees, in writing that for the remaining balance of the five year
period commencing with the Closing Date, it will (i) not provide Custody
Services to any Kemper Affiliated Investment Company other than services
provided by such transferee at the time of such sale or merger; (ii) not
seek to merge, consolidate, transfer all or substantially all the assets
of any Affiliated Investment Company if the result of such transaction
is that IFTC will no longer provide Custody Services to such Affiliated
Investment Company; and (iii) be bound by the provisions of Section 6.5
as respects the Kemper Affiliated Investment Companies existing at the
time of such sale or merger.
(d) The provisions of Section 6.5 shall only apply to Investment
Companies and series thereof registered under the Investment Company
Act.
(e) The provisions of Section 6.5 shall not apply to Custody
Services with respect to assets located outside of the United States and
cash items related thereto.
6.6. Expenses. The Stockholders, Holdco, IFTC and State Street each
shall pay their own expenses incident to preparing for, entering into and
carrying out this Agreement and the Transaction Agreements, including legal
and accounting fees and expenses.
6.7. Press Releases. State Street and the Stockholders will consult
with each other as to the form, substance and timing of any press release or
other public disclosure of matters related to this Agreement, the Transaction
Agreements or any of the transactions contemplated hereby or thereby and no
such press release or other public disclosure shall be made without the
consent of the other party, which shall not be unreasonably withheld or
delayed; provided, however, that either party may make such disclosures as are
required by law after making reasonable efforts in the circumstances to
consult in advance with the other party.
6.8. Employee Benefits and Other Matters.
(a) In General. Except as otherwise provided in this Agreement, or
as otherwise agreed by DST and State Street, each Holdco Plan shall
terminate as to IFTC and each employee employed by IFTC as of and after
the Closing, and neither State Street nor IFTC will thereafter have any
liability with respect thereto other than those liabilities reflected on
the Consolidated Financial Statements or, as to such liabilities
accruing after June 30, 1994, are accrued on the books and records of
Holdco and IFTC in the ordinary course of business the amount of which
accruals shall be paid to DST as promptly as practicable after such
Holdco Plan terminates as to IFTC.
(b) Future Benefits. To the extent State Street wishes to provide
employees of IFTC with benefits similar to those provided by IFTC as of
the Closing, State Street, at its own expense, may request the
Stockholders to use their reasonable best efforts to take any one or
more of the actions set forth in (i) and (ii) below, with respect to any
one or more Holdco Plan, and Stockholders shall comply, using their
reasonable best efforts, with such requests:
(i) Where benefits are provided through an insurance or
reinsurance contract or policy, HMO agreement, or similar
agreement, (A) to take all steps necessary to cause separate
insurance or reinsurance contracts or policies, HMO agreements, or
similar agreements to be established solely in the name of IFTC on
terms substantially similar to those in effect as of the Closing
Date, or, if State Street directs, (B) to take all steps necessary
in order for IFTC to continue to participate in any employee
benefit plan in which IFTC's employees currently participate for a
period specified by State Street at a cost that is substantially
similar to what IFTC and its employees would have paid had IFTC
remained a participant in such plan or that is otherwise mutually
agreed upon by State Street and DST.
(ii) Where benefits are provided through a Holdco Plan intended
to be qualified under Code section 401(a), to take all steps necessary
to transfer assets in respect of IFTC employees to be transferred to a
separate trust established by IFTC or State Street in a manner
consistent with the Code and ERISA at such time after the Closing as
State Street shall direct.
6.9. Effect of Investigations. No investigation by the parties hereto
made heretofore or hereafter, whether pursuant to this Agreement or otherwise,
shall affect the representations and warranties of the parties which are
contained herein and each such representation and warranty shall survive such
investigation.
6.10. Acquisition Proposals. Each of the Stockholders agrees that
neither it nor its Affiliates nor any of the respective officers and directors
of the Stockholders or any such Affiliates shall, and the Stockholders shall
direct and use their best efforts to cause their employees, agents and
representatives (including, without limitation, any investment banker,
attorney or accountant retained by any Stockholder and the directors, officers
and employees of IFTC and Holdco) not to, initiate, solicit or encourage,
directly or indirectly, any enquiries or the making of any proposal or offer
with respect to a merger, consolidation or similar transaction involving, or
any purchase of all or any significant portion of the assets or any equity
securities of, Holdco or IFTC (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
Each Stockholder will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and such Stockholder will
take the necessary steps to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 6.10, and such Stockholder will notify State Street immediately if
any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with either Stockholder.
6.11. Director Resignations. The Stockholders shall obtain the director
resignations referred to in Section 7.2.6.
6.12. Notification of Certain Matters. The Stockholders shall give
prompt notice to State Street of: (i) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by either of them or IFTC subsequent to the
date of this Agreement and prior to the Closing Date, under any material
contract; (ii) any event, transaction or incident which, had it existed or
occurred prior to the date of this Agreement, would have constituted a breach
of the representations and warranties of the Stockholders contained herein;
and (iii) any Material Adverse Effect on IFTC. To the extent a party
acknowledges in reasonable detail by notice to the other parties at least five
business days prior to the Closing its inability to satisfy the condition set
forth in Section 7.2.1 or 7.3.1, as the case may be, and thereafter if the
Closing occurs, then the party receiving such notice shall be deemed to have
waived its rights and claims, if any, with respect to such failure under this
Agreement.
6.13. Preservation of Relationships. State Street hereby agrees to make
available to or for the benefit of the Stockholders, either directly or
indirectly through one of its Affiliates, the same services, set forth on
Schedule 6.13A, provided by IFTC to or for the benefit of the Stockholders
during the six-month period ended June 30, 1994 for a period of five years
from the Closing Date. State Street also hereby agrees to make available, or
cause IFTC to make available, to the Stockholders, either directly or
indirectly, those services provided to or for the benefit of the Stockholders
which are set forth on Schedule 6.13B for a period of three years from the
Closing Date.
6.14. Change of Control. In the event of a change of control occurring
prior to the fifth anniversary of the Closing, such that any person or entity,
other than an entity which is a bank or a bank holding company or any
Affiliates thereof immediately prior to such change of control, controls more
than 50% of the State Street Stock, either Stockholder may terminate its
obligations under Sections 6.4 and 6.5 hereof, as such obligations relate to
its Affiliated Investment Companies, upon providing a notice to State Street
with respect to such termination.
6.15. Taxes.
(a) Holdco shall file consolidated federal income Tax Returns and
consolidated Missouri income Tax Returns including IFTC for the year
ended December 31, 1993, for the year ended December 31, 1994 (if the
Closing occurs after that date), and for the short year ending on the
Closing Date (whenever the Closing occurs), and Holdco and IFTC shall
each file all separate Tax Returns required to be filed by each of them
for any period; provided, however, that the Stockholders shall have no
liability for any failure of Holdco or IFTC to file any Tax Return whose
due date (including extensions) is after the Closing Date. Except to
the extent the regulations adopted by Treasury Decision 8560 require
otherwise, the income of Holdco and IFTC included in any Tax Return for
a period ending on the Closing Date shall be determined by closing the
books of Holdco and IFTC as of the end of the Closing Date. All Holdco
and IFTC federal and state income, bank franchise and earnings, Tax
Returns filed after the Closing for any periods ending on or prior to
the Closing Date shall be prepared by Ernst & Young and shall be
prepared consistent with past practice. No Tax Return or application
filed after the date of this Agreement and prior to Closing shall
change, or request any change in any method of accounting of IFTC unless
State Street consents in writing, which consent shall not be
unreasonably withheld.
(b) The Stockholders acknowledge that, immediately after the
Closing, State Street intends that Holdco will be merged into State
Street.
ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation to Consummate the Closing.
The respective obligations of each party to consummate the Closing shall be
subject to the fulfillment or waiver at or prior to the Closing of the
following conditions:
(a) The regulatory approvals set forth on Schedule 2.2 in connection
with the purchase contemplated by this Agreement, the Transaction
Agreements and the transactions contemplated hereby and thereby shall
have been obtained without any condition which would have a Material
Adverse Effect on State Street; all conditions required to be satisfied
prior to the Closing imposed by the terms of such approvals shall have
been satisfied; all waiting periods relating to such approvals shall
have expired; and all notifications to any regulatory authorities that
are required shall have been made.
(b) None of State Street, SSBT, the Stockholders, Holdco or IFTC
shall be subject to any order, decree or injunction of a court or agency
of competent jurisdiction which enjoins or prohibits the consummation of
the transactions contemplated by this Agreement or the Transaction
Agreements.
(c) The Transaction Agreements shall have been executed and
delivered by the parties thereto.
(d) The parties hereto shall each have received an opinion of its
counsel in form and substance reasonably satisfactory to it that the
transactions contemplated hereby will qualify as tax-free under Section
368 of the Code.
7.2. Conditions to Obligation of State Street to Consummate the Closing.
The obligations of State Street to consummate the Closing shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
additional conditions:
7.2.1. Representations and Warranties. The representations and
warranties of the Stockholders set forth in Articles III and IV hereof
shall be true and correct in all material respects (except for such
representations and warranties which are qualified by their terms by
reference to materiality or a Material Adverse Effect, which
representations and warranties as so qualified shall be true and correct
in all respects), as of the Closing, as if made at and as of the
Closing, and State Street shall have received a signed certificate which
is to the knowledge of a principal executive officer of each of the
Stockholders to that effect; provided, however, that it is understood
and agreed that no representation and warranty contained in Section 4.14
shall be considered untrue and incorrect unless such inaccuracy would
have a Material Adverse Effect on Holdco and IFTC taken as a whole.
7.2.2. Performance of Obligations. The Stockholders shall have
performed and complied in all material respects with all obligations required
to be performed or complied with by each of them under this Agreement and the
Transaction Agreements prior to the Closing, and State Street shall have
received a signed certificate which is to the knowledge of a principal
executive officer of each of the Stockholders to that effect.
7.2.3. Absence of Material Change. Other than events to which
State Street provides its consent resulting from obtaining the regulatory
approvals set forth on Schedule 2.2, there shall not have been a Material
Adverse Effect on Holdco or IFTC since December 31, 1993, and State Street
shall have received a signed certificate which is to the knowledge of a
principal executive officer of each of the Stockholders to that effect.
7.2.4. No Dividends or Distributions. Holdco shall not have made
any dividends or distributions to the Stockholders since March 31, 1994, and
State Street shall have received a signed certificate of a principal executive
officer of each of the Stockholders to that effect.
7.2.5. Customer Base. Between May 31, 1994 and the Closing, IFTC
Customers shall not have terminated, or given notice to terminate, Service
Contracts (other than with Affiliated Investment Companies) relating to
customer assets which represented assets under custody equal to
$13,041,416,695, provided, that in determining compliance with this condition,
assets under custody received from customers new to IFTC after May 31, 1994
may be used to offset losses of assets, under custody; and State Street shall
have received a signed certificate which is to the knowledge of a principal
executive officer of each of the Stockholders to that effect.
7.2.6. Resignations of Directors and Officers. The members of the
Board of Directors of Holdco and IFTC and the officers of Holdco shall have
delivered (i) resignations dated as of the Closing Date in form and substance
reasonably satisfactory to State Street and (ii) certificates representing
their shares of IFTC Stock, endorsed in blank.
7.2.7. Legal Opinions. State Street shall have received a legal
opinion dated the Closing, from counsel of the Stockholders, Holdco and IFTC
with respect to the transactions contemplated herein and in the Transaction
Agreements in substantially the forms as set forth in Exhibits C and D hereto.
7.2.8. Other Agreements. Each of (i) the Lease between IFTC and
DST, substantially in the form attached hereto as Exhibit E and (ii) the
amendment to the Service Agreements between Kemper and IFTC relating to the
provision by Kemper of Transfer Agent Services as an agent of IFTC,
substantially in the form attached hereto as F-2; (iii) sufficient
documentation in accordance with the terms described on Schedule 7.2.8
memorializing Kemper's obligations to IFTC with respect to the non resident
alien status of certain IFTC Customers as disclosed as item 9 on Schedule 4.14
shall have been executed and delivered by Kemper and IFTC in form and
substance reasonably satisfactory to State Street; and (iv) the General
Services Agreement between DST and IFTC in the form attached hereto as Exhibit
K.
7.2.9. Affiliated Investment Company. No Affiliated Investment
Company shall have terminated (nor shall notice to terminate have been
received with respect to) any agreement, understanding or relationship with
IFTC relating to the provision of portfolio accounting and custody services
currently provided by IFTC to such Affiliated Investment Company and either
internalized such function or entered into similar arrangements with another
provider of such services.
7.2.10. Tax Certificate. The Stockholders shall have executed and
delivered to State Street a certificate with respect to the transactions
contemplated hereby, dated as of the Closing Date, in substantially the form
set forth as Exhibit H hereto.
7.2.11. Intentionally Omitted.
7.2.12. United Missouri Bank. Since September 15, 1994, IFTC shall
not have taken any action to amend its existing contractual service
arrangements with United Missouri Bank, N.A. without the prior written consent
of State Street.
7.3. Conditions to Obligation of the Stockholders to Consummate the
Closing. The obligations of the Stockholders to consummate the Closing shall
be subject to the fulfillment or waiver at or prior to the Closing of the
following additional conditions:
7.3.1. Representation and Warranties. The representations and
warranties of State Street set forth in Article II hereof shall be true and
correct in all material respects (except for such representations and
warranties which are qualified by their terms by reference to materiality or a
Material Adverse Effect, which representations and warranties as so qualified
shall be true and correct in all respects) as of the Closing as though made at
and as of the Closing, except as otherwise consented to in writing by the
Stockholders and the Stockholders shall have received a signed certificate
which is to the knowledge of a principal executive officer of State Street and
is to that effect.
7.3.2. Performance of Obligations. State Street shall have
performed and complied in all material respects with all obligations required
to be performed or complied with by it under this Agreement and the
Transaction Agreements prior to the Closing, and the Stockholders shall have
received a signed certificate which is to the knowledge of a principal
executive officer of State Street and is to that effect.
7.3.3. Absence of Material Change. There shall not have been a
Material Adverse Effect on State Street since December 31, 1993, and the
Stockholders shall have received a signed certificate which is to the
knowledge of a principal executive officer of State Street and is to that
effect.
7.3.4. Legal Opinion. The Stockholders shall have received a legal
opinion dated the Closing from counsel to State Street, with respect to the
transactions contemplated herein and in substantially the form as set forth as
Exhibit I hereto.
7.3.5. Tax Certificate. State Street shall have executed and
delivered to Holdco and the Stockholders a certificate with respect to the
transactions contemplated hereby, dated as of the Closing Date, in
substantially the form set forth as Exhibit J hereto.
7.4. Best Efforts. From the date hereof until the Closing Date, each of
the parties agrees to take or use its reasonable best efforts to cause to be
taken all actions necessary to satisfy the conditions to the Closing set forth
in this Article VII; provided, however, that this Section 7.4 shall not be
deemed to require the Stockholders to remedy or dispose of any matters
disclosed by either of them pursuant to Section 6.12.
ARTICLE VIII
INDEMNIFICATION AND REMEDIES
8.1. General. From and after the Closing, the parties shall indemnify
each other as provided in this Article VIII. Notwithstanding anything to the
contrary in this Article VIII or elsewhere in this Agreement, the Stockholders
and State Street hereby each acknowledge that in the event of the breach by
the Stockholders or State Street or any of their Affiliates of any of the
covenants made by them in this Agreement, money damages would be an inadequate
remedy. Accordingly, without prejudice to the rights of the parties also to
seek indemnification or other remedies, the parties may seek, and the parties
acknowledge and covenant that neither they nor their Affiliates will contest
the propriety and availability of, injunctive or other equitable relief in any
proceeding which a party hereto may bring to enforce any covenant in this
Agreement on its express and explicit terms. No waiver of any breach of any
covenant in this Agreement shall be implied from any forbearance or failure of
a party to take action thereon.
8.2. Stockholders' Indemnification Covenants. The Stockholders shall
severally, with respect to each of their representations and warranties in
Article III hereof, and jointly and severally, with respect to all other
claims for indemnification hereunder, indemnify, save and keep State Street,
SSBT, their directors, officers and controlling persons, Holdco and IFTC
and their successors and assigns, harmless against and from all liabilities,
demands, claims, actions or causes of action, assessments, losses, fines,
penalties, costs (including reasonable attorneys' and expert witness fees),
damages and expenses, including, without limitation, those asserted by any
federal, state, local or foreign governmental entity, third party, or former
or present employee, (herein referred to collectively as "Losses"), sustained
or incurred by State Street, SSBT any such director, officer or controlling
person, Holdco, IFTC, or their respective successors or assigns to the extent
any such Loss arises out of or by virtue of
(i) any inaccuracy in a representation or warranty made by the
Stockholders to State Street herein (as such representation or
warranty would read if all qualifications as to materiality were
deleted from it); and
(ii) the breach or nonfulfillment of, or noncompliance with,
any covenant or agreement of the Stockholders (including those
covenants and agreements referring to their Affiliates) made by
the Stockholders herein.
8.3. State Street's Indemnification Covenants. State Street shall
indemnify, save and keep the Stockholders, their directors, officers and
controlling persons and their successors and assigns, harmless against and
from all Losses sustained or incurred by the Stockholders, any such director,
officer and controlling person or their successors or assigns, to the extent
such Loss arises out of or by virtue of
(i) any inaccuracy in a representation or warranty made by State
Street to the Stockholders herein (as such representation or
warranty would read if all qualifications as to materiality were
deleted from it); and
(ii) the breach or nonfulfillment of, or noncompliance with, any
covenant or agreement of State Street (including those covenants
and agreements referring to its Affiliates) made by State Street
herein.
Any payments made by State Street pursuant to this Section 8.3 as such
payments may be adjusted pursuant to Section 8.4 shall be made through the
issuance of shares of State Street Stock at a per share value equal to the
Acquisition Consideration divided by the Number of Shares. All shares of
State Street Stock issued to the Stockholders pursuant to this Section
8.3 shall be "Registrable Securities" as defined in the Registration Rights
Agreement.
8.4. Tax Consequences of Indemnification Payments.
(a) The amount of any indemnity payment required to be made pursuant to
Sections 8.2 or 8.3 hereof shall be adjusted as follows to make the
Indemnified Party whole on an after-tax basis:
(i) To the extent that an Indemnified Party will realize
any Tax benefit or will suffer any Tax detriment as a result of
(x) the payment or accrual of a Loss that is indemnified by the
Indemnifying Party pursuant to this Article VIII, or (y) the
receipt of an indemnity payment in connection therewith, the
amount of such indemnification payment shall be:
(A) increased by the sum of the net present values of all
Tax detriments that will be suffered by the Indemnified Party, and
(B) decreased by the sum of the net present values of all
Tax benefits that will be realized by the Indemnified Party.
(ii) In making determinations under Section 8.4(a)(i), the
following rules shall apply:
(A) The determination under Section 8.4(a)(i) shall be made
as of the due date (determined without regard to extensions) of
the federal income Tax Return of the Indemnified Party for the
year in which the Loss subject to indemnification under Sections
8.2 or 8.3 occurs;
(B) A Tax benefit realized or a Tax detriment suffered in a
particular tax year will be deemed to be realized or suffered for
purposes of this Section 8.4 on the due date (determined without
regard to extensions) of the federal income Tax Return of the
Indemnified Party for that year;
(C) Benefits and detriments will be discounted annually at
a discount rate equal to the Mid-Term Applicable Federal Rate
under Code Section 1274(d) on the date the Loss subject to
indemnification under Sections 8.2 or 8.3 was incurred.
(b) As soon as possible after a claim has been made under Sections 8.2 or
8.3, the Indemnified Party shall provide a notice (the "Notice") certified by
its independent auditors to the Indemnifying Party stating the adjustment, if
any, required under this Section 8.4 to the indemnification payment claimed
under Sections 8.2 or 8.3. The calculations set forth in the Notice shall be
presumed to be correct and binding on the parties absent manifest error.
(c) The Indemnified Party shall use all reasonable efforts to maximize
any Tax benefit or minimize any Tax detriment that might affect any indemnity
payment under this Article VIII.
(d) All indemnity payments made pursuant to this Article VIII not
resulting in a Tax detriment to the Indemnified Party under Section
8.4(a)(i)(A) shall be treated for Tax purposes as adjustments to the
Acquisition Consideration if paid by State Street and deemed to be a
contribution to capital if paid by the Stockholders.
8.5. Direct Claims. With respect to claims by the parties for
indemnification hereunder other than a Third Party Claim, the Indemnified
Party shall use reasonable efforts promptly to notify the Indemnifying Party
of such claims, but, subject to Section 8.10(a), failure of the Indemnified
Party so to give notice to the Indemnifying Party shall not affect the rights
of Indemnified Party to indemnification hereunder, except if (and then only to
the extent that) the Indemnifying Party incurs additional expenses or the
Indemnifying Party is actually prejudiced by reason of such failure to give
timely notice.
8.6. Intentionally Omitted.
8.7. Subrogation. The party against whom a claim for indemnification
has been asserted ("Indemnifying Party") shall not be entitled to require that
any action be brought against any other person before action is brought
against it hereunder by the party being indemnified hereunder ("Indemnified
Party") and the Indemnifying Party shall not be subrogated to any right of
action until it has paid in full or successfully defended against the claim
for which indemnification is sought and shall be subrogated to any such right
of action once it has been paid in full or successfully defended against the
claim for which indemnification is sought.
8.8. Third Party Claims. Forthwith following the receipt of notice of
a claim, action or proceeding brought by a third party, which a party claims
is subject to indemnification under this Article VIII (a "Third Party
Claim"), the party receiving the notice of the Third Party Claim shall notify
the other party of its existence. Subject to Section 8.10(a), the failure to
give such notice shall not affect the right of the Indemnified Party to
indemnity hereunder unless such failure has materially and adversely affected
the rights of the Indemnifying Party. Subject to the remaining provisions of
this Section 8.8, if an Indemnified Party is entitled to indemnification
against a Third Party Claim, the Indemnified Party shall have the right,
without prejudice to its right of indemnification hereunder, in its discretion
exercised in good faith and upon the advice of counsel, to defend against and
settle any litigation, at such time and upon such terms as the Indemnified
Party deems fair and reasonable, provided that at least ten (10) days prior to
any such settlement, written notice of its intention to settle is given to the
Indemnifying Party. As long as the Indemnified Party retains its right to
defend and (except as hereinafter provided) settle a Third Party Claim as
hereinabove provided, the Indemnified Party shall be reimbursed by the
Indemnifying Party for the reasonable attorneys' fees and other reasonable
expenses of defending the Third Party Claim which are incurred from time to
time, forthwith following the presentation to the Indemnifying Party of
itemized bills for said reasonable attorneys' fees and other reasonable
expenses. The Indemnified Party may also at any time, upon reasonable notice,
tender the defense of a Third Party Claim to the Indemnifying Party.
Notwithstanding the foregoing, if:
8.8.1. the defense of a Third Party Claim is so tendered and such
tender is accepted without qualification by the Indemnifying Party; or
8.8.2. within sixty (60) days after the date on which written
notice of a Third Party Claim has been given pursuant to this Section 8.8, the
Indemnifying Party shall acknowledge without qualification its indemnification
obligations as provided in this Section 8.8 in writing to the Indemnified
Party;
then the Indemnified Party shall not have the right to defend or settle such
Third Party Claim and the Indemnifying Party shall have the sole right to
contest, defend, litigate and settle the Third Party Claim, and all expenses
(including without limitation attorney's fees) incurred by the Indemnifying
Party in connection therewith shall be paid by the Indemnifying Party and
shall not be subject to the minimum dollar amount of $1,500,000 contained in
Sections 8.10(b) and (c) and the minimum dollar amount of $10,000 contained in
Section 8.10(d) hereof. All Claims settled by an Indemnifying Party in an
amount in excess of $22,500,000 shall require the consent of the Indemnified
Party. The Indemnified Party shall have the right to be represented by
counsel at its own expense in any such contest, defense, litigation or
settlement conducted by the Indemnifying Party provided that the Indemnified
Party shall be entitled to reimbursement therefor if the Indemnifying Party
shall lose its right to defend and settle as herein provided. Notwithstanding
the foregoing, the party defending and settling such Third Party Claim shall
lose its right to defend and settle the Third Party Claim if it shall fail to
contest responsibly under the facts and circumstances the Third Party Claim.
So long as the Indemnifying Party has not lost its right and/or obligation to
defend and settle as herein provided, the Indemnifying Party shall have the
exclusive right, in its discretion exercised in good faith, and upon the
advice of counsel, to settle any such matter, either before or after the
initiation of litigation, at such time and upon such terms as it deems fair
and reasonable, provided that at least ten (10) days prior to any such
settlement, written notice of its intention to settle shall be given to the
Indemnified Party. No failure by an Indemnifying Party to acknowledge in
writing its indemnification obligations under this Article VIII shall relieve
it of such obligations to the extent they exist.
At the request of the Indemnifying Party, the Indemnified Party shall
cooperate with
the Indemnifying Party in the defense of any Third Party Claim, including but
not limited to,
providing documents, personnel and related record research reasonably
necessary to defend
any such claim.
8.9. Insurance. Each Indemnified Party shall be obligated prior to
claiming any indemnification or reimbursement under this Agreement to use all
reasonable efforts to obtain any insurance proceeds available to such
Indemnified Party with regard to the applicable Claim, which insurance
proceeds shall be deducted from any losses to be claimed against an
Indemnifying Party hereunder.
8.10. Limitations on Indemnification Obligations.
(a) The parties hereto, their directors, officers and controlling
persons and assigns may not commence a claim for indemnification under this
Article VIII after the earlier of (x) the first anniversary of the Closing; or
(y) the issuance of the first independent audit report after the Closing,
covering Holdco and/or IFTC; provided, however, that claims made hereunder
within the applicable time period as provided in this Section 8.10 (a) shall
survive to the extent of such claim until such claim is finally determined
and, if applicable, paid.
(b) State Street, SSBT, their directors, officers or controlling
persons, IFTC and Holdco shall not be entitled to indemnification pursuant to
this Agreement by the Stockholders or their Affiliates, until the total amount
for which State Street, SSBT, their directors, officers or controlling
persons, IFTC and Holdco are entitled to indemnification exceeds, in the
aggregate, $1,500,000, and then only for amounts in excess of $1,500,000. The
total amount for which State Street, SSBT, their directors, officers or
controlling persons, IFTC and Holdco are entitled to indemnification shall not
exceed, in the aggregate, $22,500,000.
(c) The Stockholders, their directors or controlling persons shall
not be entitled to indemnification pursuant to this Agreement by State Street
or its Affiliates, until the total amount for which the Stockholders, their
directors, officers or controlling persons are entitled to indemnification
exceeds, in the aggregate, $1,500,000, and then only for amounts in excess of
$1,500,000. The total amount for which the Stockholders, their directors,
officers or controlling persons are entitled to indemnification shall not
exceed, in the aggregate, $22,500,000.
(d) No party to this Agreement shall be entitled to indemnification
for any
Loss unless such Loss, individually or as a part of a series of claims
arising from a
single occurrence, is greater than or equal to $10,000.
(e) Notwithstanding anything contained in this Article VIII, no
Indemnifying Party shall have any obligation to indemnify an Indemnified Party
for Losses in excess of the amounts permitted in respect of transactions
accounted for as a pooling under Accounting Principles Board Opinion No. 16
and interpretations thereof issued by the American Institute of Certified
Public Accountants on or prior to the date hereof as determined by State
Street's independent auditors.
(f) After the Closing, this Article VIII shall be the exclusive
remedy for any breach of representation, warranty, covenant or agreement other
than with respect to the representations and warranties contained in Sections
3.3A, 3.3B, the first three sentences of Section 4.4, and Section 4.14 and the
representations contained in the certificates furnished at Closing pursuant to
Sections 7.2.10 and 7.3.5 ("Nonexclusive Representations") and the covenants
and agreements contained in Sections 6.4 and 6.5; provided, that, nothing in
this Article VIII shall limit the remedies, at law or at equity, available to
any of the parties hereto with respect to Nonexclusive Representations or
breaches of Sections 6.4 and 6.5; provided, however, that notwithstanding the
foregoing , the remedy for breach of a representation and warranty contained
in Section 4.14 shall be limited by the dollar restrictions provided in
Sections 8.10(b), (c) and (d) in the same way indemnification payments are
limited by such provisions of Article VIII; and provided, further, however,
that in the event the period for claims under indemnification terminates prior
to the first anniversary of the Closing in accordance with Section 8.10 (a)
(y), this Article VIII shall not be the exclusive remedy for breaches of
representations and warranties other than Nonexclusive Representations for the
remainder of the period referred to in Section 8.10(a)(x), although the dollar
restrictions provided in Sections 8.10 (b), (c) and (d) shall continue to be
applicable to the remedy for breaches of representations and warranties other
than Nonexclusive Representations.
(g) Each of the minimum dollar requirement of $1,500,000 and the
maximum dollar limitation of $22,500,000 set forth in Sections 8.10 (b) and
(c) hereof and the minimum dollar requirement of $10,000 set forth in Section
8.10 (d) shall not be subject to the adjustments set forth in Section 8.4.
ARTCLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1. Termination.
9.1.1. Ability to Terminate. This Agreement may be terminated, by
written notice, at any time prior to the Closing:
(a) by mutual consent of the Stockholders and State Street; or
(b) by either State Street or the Stockholders at any time after
January 31, 1995, if the Closing shall not theretofore have occurred, unless
the failure to close by such date is due to the breach of any representation,
warranty, covenant or agreement in this Agreement by the party seeking to
terminate.
9.1.2. Effect of Termination. In the event of termination of this
Agreement by State Street pursuant to the right of State Street to terminate
this Agreement set forth in Section 5.2 of this Agreement, the Stockholders
shall pay to State Street an amount equal to State Street's out-of-pocket
expenses related to preparing for, entering into and carrying out this
Agreement and the Transaction Agreements, including legal and accounting fees
and expenses, not to exceed $2,000,000, within 15 days of notice to the
Stockholders by State Street of such termination. Any amount paid pursuant to
this section shall represent the liquidated damages of State Street related to
such termination.
9.2. Amendment. This Agreement and Schedules hereto may be amended by
mutual agreement of the parties hereto; provided, that this Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.3. Waiver. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is entitled to the benefits
thereof.
ARTICLE X
GENERAL PROVISIONS
10.1. Survival of Representations, Warranties and Agreements. The
agreements of the Stockholders and State Street contained in this Agreement or
in any instrument delivered by the Stockholders and State Street pursuant to
this Agreement shall survive the Closing until the first anniversary of the
Closing unless otherwise specified therein. The representations and
warranties set forth in Sections 3.3A, 3.3B, and 4.14, the first three
sentences of Section 4.4 or pursuant to the certificates furnished under
Sections 7.2.10 and 7.3.5 hereto shall survive until the expiration of the
statute of limitations applicable to the matters referred to therein plus
sixty days. All other representations and warranties contained in this
Agreement shall expire on the first anniversary of the Closing. In the event
of termination of this Agreement in accordance with its terms, the agreements
contained in or referred to in Sections 6.2 (c) and 6.6 shall survive such
termination. This Agreement shall take effect as an instrument under seal.
10.2. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly received (i) on the date
given if delivered personally or by cable, telegram, telex or telecopy or (ii)
on the date received if mailed by registered or certified mail (return receipt
requested), to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to State Street:
Mr. David A. Spina
State Street Boston Corporation
225 Franklin Street
Boston, Massachusetts 02110
Copies to:
Robert J. Malley, Esq.
State Street Boston Corporation
225 Franklin Street
Boston, Massachusetts 02110
and
Champe A. Fisher, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(b) if to Kemper:
Mr. Charles M. Kierscht
Kemper Financial Services, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
Copies to:
David Dierenfeldt, Esq.
Kemper Financial Services, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
and
William H. Rheiner, Esq.
Ballard Spahr Andrews & Ingersoll
1735 Market Street
Philadelphia, PA 19103-7599
(c) if to DST:
Mr. Thomas A. McDonnell
DST Systems, Inc.
1055 Broadway, 9th Floor
Kansas City, Missouri 64105
Copies to:
Robert C. Canfield, Esq.
DST Systems, Inc.
1055 Broadway, 9th Floor
Kansas City, Missouri 64105
and
Dennis R. Rilinger, Esq.
Watson & Marshall, L.C.
1010 Grand Ave., 5th Floor
Kansas City, Missouri 64106
10.3. Miscellaneous. This Agreement (including exhibits, documents and
instruments referred to herein (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; (b) is not intended to and shall not confer upon any person not a
party hereto any rights or remedies hereunder; (c) shall not be assigned other
than by operation of law, provided that between the date of this Agreement and
the Closing Date this Agreement shall not be assigned by operation of law
without the prior consent of the other party; and (d) shall be governed by and
construed in accordance with the domestic substantive laws of The Commonwealth
of Massachusetts, without giving effect to any choice or conflict of law
provision that would cause the application of the domestic substantive laws
of any other jurisdiction. This Agreement may be executed in two or more
counterparts which together shall constitute a single agreement. Each of the
Stockholders and State Street by their execution of this Agreement hereby
consent to service of process in any such proceeding in any manner permitted
by law, and agree that service of process by registered or certified mail,
return receipt requested, at their respective addresses specified in or
pursuant to Section 10.2 hereof is reasonably calculated to give actual
notice.
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<PAGE>
IN WITNESS WHEREOF, State Street, Kemper and DST have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first
written above.
STATE STREET BOSTON CORPORATION
By ___________________________
Title:
KEMPER FINANCIAL SERVICES, INC.
By ___________________________
Title:
DST SYSTEMS, INC.
By ___________________________
Title:
<PAGE>
IN WITNESS WHEREOF, State Street, Kemper and DST have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first
written above.
STATE STREET BOSTON CORPORATION
By /s/ David A. Spina
Title: Vice Chairman
KEMPER FINANCIAL SERVICES, INC.
By /s/ David F. Dierenfeldt
Title: Senior Vice President
DST SYSTEMS, INC.
By /s/ Kenneth V. Hager
Title: Vice President -
Chief Financial Officer
