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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [XX]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[XX] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
KANSIS CITY SOUTHERN INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[XX] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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LOGO
114 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105-1804
KANSAS CITY SOUTHERN INDUSTRIES, INC.
NOTICE AND PROXY STATEMENT
FOR
A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
JULY 15, 1998
YOUR VOTE IS IMPORTANT!
Please mark, date and sign the enclosed proxy card and promptly return it to
the Company in the enclosed envelope.
MAILING OF THIS NOTICE AND PROXY STATEMENT AND THE ACCOMPANYING PROXY CARD
COMMENCED ON OR ABOUT JUNE 9, 1998.
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KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105-1804
June 9, 1998
To Our Stockholders:
We invite you to attend the Special Meeting of Stockholders of Kansas
City Southern Industries, Inc., at the Kansas City Marriott Downtown Hotel,
200 West 12th Street, Kansas City, Missouri at 10:00 a.m., on July 15, 1998.
The Board of Directors is asking for your approval of an amendment of
KCSI's Certificate of Incorporation in order to effect a reverse stock split
to reduce the number of outstanding shares if the previously announced spin-
off of KCSI's financial asset management business is completed. It is
anticipated that the market price of KCSI's common stock will move lower
following the spin-off. A reduction in the number of outstanding shares is
designed to bring the market price of the stock into a higher trading range.
The reverse split would occur only in the event the spin-off is completed. The
accompanying Proxy Statement explains both the spin-off and the reverse stock
split. The Board is also asking your approval of certain other matters
described herein.
We urge you to read these proxy materials and to participate in the
Special Meeting either in person or by proxy. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON, PLEASE SIGN AND RETURN PROMPTLY THE ACCOMPANYING
PROXY CARD IN THE ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES WILL BE
REPRESENTED.
Sincerely,
LOGO
Landon H. Rowland
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105-1804
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
A Special Meeting of the Stockholders of Kansas City Southern
Industries, Inc., a Delaware corporation ("KCSI"), will be held at the Kansas
City Marriott Downtown Hotel, 200 West 12th Street, Kansas City, Missouri, at
10:00 a.m. on July 15, 1998, to consider and vote upon:
1. Approval of an amendment of KCSI's Certificate of Incorporation to
effect a reverse stock split (the reverse stock split would, when
effective, combine every two shares of KCSI common stock held by a
stockholder into one share of KCSI common stock; provided, that
the reverse split would be effected only if KCSI completes the
spin-off of its financial asset management business and certain
other conditions are satisfied as discussed in the attached Proxy
Statement);
2. Approval of the Berger Associates, Inc. Stock Option Plan;
3. Approval of the FAM Holdings, Inc. 1998 Long Term Incentive Stock
Plan (FAM Holdings, Inc. is the temporary name of a wholly owned
subsidiary of KCSI which was recently formed to hold KCSI's
financial asset management business); and
4. Approval of KCSI's Amended and Restated 1991 Stock Option and
Performance Award Plan.
Only stockholders of record at the close of business on May 22, 1998 are
entitled to notice of and to vote at this meeting or any adjournment thereof.
The list of stockholders entitled to vote at this meeting will be available
for inspection during normal business hours in the office of KCSI's Corporate
Secretary at least 10 days prior to the date of the meeting.
By Order of the Board of Directors,
LOGO
Richard P. Bruening
Vice President, General Counsel
and Corporate Secretary
The date of this Notice is June 9, 1998.
PLEASE DATE, SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD,
REGARDLESS OF THE NUMBER OF SHARES YOU MAY OWN AND WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES
IN PERSON IF REVOKED IN ACCORDANCE WITH THE PROCEDURES DESCRIBED IN THIS
NOTICE AND PROXY STATEMENT. PLEASE ALSO INDICATE ON YOUR PROXY CARD WHETHER
YOU PLAN TO ATTEND THE SPECIAL MEETING.
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KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 WEST 11TH STREET
KANSAS CITY, MISSOURI 64105-1804
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Information About the Special Meeting..................................... 1
Stock Owned Beneficially by Certain Large Stockholders, and KCSI's
Directors and Certain Executive Officers............................ 5
Proposal 1--Approval of an Amendment to KCSI's Certificate of
Incorporation to Effect a Reverse Stock Split................... 8
Proposal 2--Approval of The Berger Associates, Inc. Stock Option Plan..... 14
Proposal 3--Approval of the FAM Holdings, Inc. 1998 Long Term Incentive
Stock Plan.......................................................... 18
Proposal 4--Approval of KCSI's Amended and Restated 1991 Stock Option and
Performance Award Plan.......................................... 24
Federal Income Tax Consequences of Equity Incentive Plans................. 27
Management Compensation................................................... 29
Stockholder Proposals..................................................... 39
Appendix A--Form of Certificate of Amendment of Certificate of
Incorporation....................................................... A-1
Appendix B--Berger Associates, Inc. Stock Option Plan..................... B-1
Appendix C--FAM Holdings, Inc. 1998 Long Term Incentive Stock Plan........ C-1
Appendix D--Amended and Restated 1991 Stock Option and Performance Award
Plan................................................................ D-1
</TABLE>
<PAGE>
INFORMATION ABOUT THE SPECIAL MEETING
WHY WERE KCSI'S STOCKHOLDERS SENT THIS PROXY STATEMENT?
The Board of Directors of Kansas City Southern Industries, Inc., a
Delaware corporation ("KCSI"), is soliciting the proxies of KCSI's
stockholders for use at a Special Meeting of Stockholders and any adjournment
thereof (the "Special Meeting") that will be held at the Kansas City Marriott
Downtown Hotel, 200 West 12th Street, Kansas City, Missouri, at 10:00 a.m. on
July 15, 1998. The form of proxy is included in the envelope with this Proxy
Statement and was mailed to Stockholders on or about June 9, 1998.
Morrow & Co., Inc. has been retained to assist in soliciting proxies at
a cost not expected to exceed $8,000 plus expenses. Directors, officers and
employees of KCSI may also solicit proxy cards; however, such directors,
officers and employees have not been specifically employed and will not be
compensated for any such services. In addition, KCSI may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding this Proxy Statement and other soliciting materials to
such beneficial owners.
WHY HAS THE BOARD OF DIRECTORS CALLED THE SPECIAL MEETING OF STOCKHOLDERS?
The Board of Directors is asking KCSI's stockholders to approve the
following: (a) an amendment to KCSI's Certificate of Incorporation to effect a
reverse stock split to reduce the number of outstanding shares of KCSI $0.01
par value common stock (the "KCSI Common Stock"), if KCSI completes the
currently contemplated distribution of all or substantially all of the stock
of its wholly-owned financial asset management subsidiary (temporarily called
FAM Holdings, Inc.) to KCSI's stockholders as of a date yet to be determined
(the "Spin-off") and subject to certain other conditions discussed in the
Proposal below; (b) the Berger Associates, Inc. Stock Option Plan; (c) the FAM
Holdings, Inc. 1998 Long Term Incentive Stock Plan; and (d) KCSI's Amended and
Restated 1991 Stock Option and Performance Award Plan. None of these matters
is contingent upon the others. Stockholders do not have appraisal rights in
connection with any of these proposals. KCSI will pay for the Special Meeting,
including the cost of mailing the proxy materials and any supplemental
materials. Except for certain benefits that they may be awarded under the FAM
Holdings, Inc. 1998 Long Term Incentive Stock Plan and the KCSI Amended and
Restated 1991 Stock Option and Performance Award Plan, no director or officer
of KCSI or any of their associates has a substantial interest in any of the
matters submitted to the stockholders for approval.
WHO MAY ATTEND THE SPECIAL MEETING?
Only KCSI stockholders or their proxies and guests of KCSI may attend
the Special Meeting. Any stockholder or stockholder's representative who,
because of a disability, may need special assistance to allow him or her to
participate in the Special Meeting may request it by contacting the Corporate
Secretary's office at 114 West 11th Street, Kansas City, Missouri 64105, (816)
983-1237 by Monday, July 6, 1998.
WHICH STOCKHOLDERS MAY VOTE AT THE SPECIAL MEETING?
The holders of KCSI Common Stock and Preferred Stock, par value $25.00
per share (the "Preferred Stock") (collectively, the "Voting Stock"), are the
only KCSI stockholders that may vote on the proposals and will vote together
as a single class on each of the proposals. Each holder of Voting Stock is
entitled to cast one vote for each of the proposals for each share of Voting
Stock held on the Record Date (as defined below).
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Only the holders of Voting Stock of record at the close of business on
May 22, 1998 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. On the Record Date, KCSI had outstanding 242,170 shares of
Preferred Stock (which does not include 407,566 shares held in treasury) and
109,335,584 shares of KCSI Common Stock (which does not include 35,870,992
shares held in treasury) for a total of 109,577,754 shares eligible to be
voted at the Special Meeting.
HOW DOES KCSI DECIDE WHETHER ITS STOCKHOLDERS HAVE APPROVED ANY OF THE
PROPOSALS?
The approval of the first proposal (the amendment of KCSI's certificate
of incorporation) requires an affirmative vote by stockholders owning at least
a majority of the outstanding shares of Voting Stock entitled to vote at the
Special Meeting. The approval of the second, third and fourth proposals (the
Berger Associates, Inc. Stock Option Plan, the FAM Holdings, Inc. 1998 Long
Term Incentive Stock Plan, and KCSI's Amended and Restated 1991 Stock Option
and Performance Award Plan, respectively) requires stockholders owning at
least a majority of the shares that can be voted at the Special Meeting be
present at the Special Meeting and that a majority of such quorum must vote
FOR each proposal. If a stockholder is present at the Special Meeting, either
in person or by proxy, then his or her shares of Voting Stock entitled to vote
at the Special Meeting are counted for purposes of determining whether there
is a quorum even if the stockholder does not vote such shares.
Voting ceases when the Chairman of the Special Meeting closes the polls.
The votes are counted and certified by the inspectors appointed by the Board
of Directors. In determining whether a majority of the shares of Voting Stock
have been voted FOR the first proposal, the votes FOR the proposal are
measured against the outstanding shares of Voting Stock on the Record Date. In
determining whether a majority of a quorum of shares has been voted FOR the
second, third and fourth proposals, the votes FOR each proposal are measured
against the votes FOR and AGAINST each proposal plus the shares that ABSTAIN
from voting on each proposal. A stockholder may ABSTAIN from voting on any of
the proposals, which will have the effect of a vote AGAINST that proposal
because the shares for which the holders ABSTAIN from voting are not
considered to be votes cast FOR the proposal.
HOW ARE A STOCKHOLDER'S SHARES VOTED IF THE STOCKHOLDER SUBMITS A PROXY CARD?
A stockholder who returns a properly executed proxy card authorizes the
Proxy Committee to vote the shares of Voting Stock covered by the proxy card.
The Proxy Committee consists of the directors of KCSI whose names are listed
on the related proxy card. The Proxy Committee will vote the shares in
accordance with the instructions given by the stockholder executing such proxy
card. If a properly executed and unrevoked proxy card solicited through this
Proxy Statement does not specify how the shares are to be voted, the Proxy
Committee intends to vote such shares FOR each of the proposals. The proxy
card also gives the Proxy Committee discretionary authority to vote the shares
of Voting Stock covered by the proxy card on other matters that may come
before the Special Meeting and matters incidental to the conduct of the
Special Meeting. As of the date of this Proxy Statement, the Board of
Directors is not aware of any other matters that will be presented at the
Special Meeting.
A stockholder wishing to name as his or her proxy someone other than the
Proxy Committee designated on the proxy card may do so by crossing out the
names of the designated proxies and inserting the name of another person. In
that case, it will be necessary for the stockholder to sign the
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proxy card and deliver it to the person so named and for that person to be
present and vote at the Special Meeting. Proxy cards so marked should NOT be
mailed directly to KCSI.
WHAT IF A STOCKHOLDER HOLDS SHARES IN A BROKERAGE ACCOUNT?
The Voting Stock is traded on the New York Stock Exchange (the "NYSE").
Under the rules of the NYSE, member stockbrokers who hold shares of Voting
Stock in the broker's name for customers are required to ask those customers
for directions on how to vote those shares and to vote the shares as directed.
These brokers may also vote shares on certain proposals even if they have not
received directions. The NYSE will inform the brokers as to the proposals on
which the brokers may vote the undirected shares. Under the policies of the
NYSE, if KCSI's subsidiaries that are brokers do not receive directions, they
are entitled to vote only in the same proportion as the shares voted by all
other customers.
When a broker does not vote, it is referred to as a "broker non-vote"
(customer-directed abstentions are not broker non-votes). Broker non-votes
generally do not affect whether a quorum is present at the Special Meeting
because in most cases some of the shares held by the broker will be voted on
the proposals, and, therefore, all of the shares held by the broker are
considered present at the Special Meeting. Under applicable law, a broker non-
vote will have the same effect as a vote AGAINST the proposals.
WHAT IF A STOCKHOLDER PARTICIPATES IN KCSI'S DIVIDEND REINVESTMENT PLAN?
If a stockholder participates in KCSI's Dividend Reinvestment Plan (the
"DRIP"), the proxy card received by the stockholder will include both the
stockholder's shares (including fractional shares) of KCSI Common Stock held
in the DRIP and shares registered in the stockholder's name on the Record
Date.
HOW DO PARTICIPANTS IN KCSI'S OR DST SYSTEMS' EMPLOYEE STOCK OWNERSHIP PLANS
VOTE?
Each Participant in KCSI's and DST Systems, Inc.'s employee stock
ownership plans (the "ESOPs") is provided a voting instruction card
(accompanying the Proxy Statement mailed to them) to instruct the trustee how
to vote the shares of KCSI Common Stock held on behalf of such participant.
The trustee is required under the trust agreements to vote those shares in
accordance with the instructions received. If no voting instructions are
received, the trustee must vote such shares, as well as any shares that are
not allocated to participants' accounts, in the same proportions as the shares
for which voting instructions were received. THE VOTING INSTRUCTION CARD
SHOULD BE RETURNED TO THE TRUSTEE IN THE ENVELOPE PROVIDED AND SHOULD NOT BE
RETURNED TO KCSI OR DST SYSTEMS, INC. The mailing address of the trustee is
UMB Bank, N.A., Securities Transfer Division, P.O. Box 410064, Kansas City,
Missouri 64179-0013, Attention: Kansas City Southern Industries Employee Stock
Ownership Plan (for KCSI ESOP participants) or Attention: DST Systems, Inc.
Employee Stock Ownership Plan (for DST ESOP participants).
ARE THE VOTES OF PARTICIPANTS IN THE ESOPS CONFIDENTIAL?
Under the terms of the ESOPs trust agreements, the trustee is required
to establish procedures to ensure that the instructions received from
participants are held in confidence and not divulged,
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released or otherwise utilized in a manner that might influence the
participants' free exercise of their voting rights.
MAY A STOCKHOLDER REVOKE HIS OR HER PROXY OR VOTING INSTRUCTION CARD OR MAY
PARTICIPANTS IN THE ESOPS CHANGE THEIR VOTING INSTRUCTIONS?
A stockholder who holds his or her Voting Stock in his or her name may
revoke a previously submitted valid proxy card with a later-dated, valid proxy
or other written revocation delivered to the Corporate Secretary of KCSI at
any time before the polls for the Special Meeting are closed. A stockholder
who holds his or her Voting Stock in a brokerage account must contact the
broker and comply with the broker's procedures if he or she wants to revoke or
change the instructions that the stockholder returned to the broker.
Participants in either ESOP who wish to revoke their voting instruction card
will need to contact the trustee and follow its procedures. Attendance at the
Special Meeting without complying with these procedures will not have the
effect of revoking a previously delivered properly executed proxy or voting
instruction card.
(Remainder of page intentionally left blank.)
4
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STOCK OWNED BENEFICIALLY BY CERTAIN LARGE STOCKHOLDERS,
AND KCSI'S DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
The table below shows the beneficial ownership of KCSI's outstanding
KCSI Common Stock as of the Record Date (or at the time otherwise specified)
by: (i) beneficial owners of more than 5% of the outstanding KCSI Common Stock
that have publicly disclosed such ownership; (ii) the members of the Board of
Directors and certain executive officers; and (iii) all KCSI executive
officers and directors as a group. KCSI is not aware of any beneficial owner
of more than 5% of the Preferred Stock. No officer or director of KCSI owns
any equity securities of any subsidiary of KCSI except Thomas H. Bailey, who
owns 1,200,000 shares (or approximately 12%) of the outstanding common stock
of Janus Capital Corporation. Beneficial ownership generally is either the
sole or shared power to vote or dispose of the shares. KCSI is not aware of
any arrangement the operation of which would at a subsequent date result in a
change of control of KCSI.
<TABLE>
<CAPTION>
PERCENT
COMMON OF SHARES
NAME STOCK (1) OUTSTANDING (1)
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<S> <C> <C>
UMB Bank, N.A., as trustee 7,561,037 (2) 6.9%
of certain fiduciary accounts (2)
Amvescap, Inc. and certain affiliates 6,024,575 (3) 5.5%
A. Edward Allinson 80,460 (1)(4) *
Director
Thomas H. Bailey 28,740 (4) *
Chairman of the Board, President
and Chief Executive Officer of
Janus Capital Corporation
Paul F. Balser 60,000 (1) *
Director
James E. Barnes 87,000 (1)(5) *
Director
Danny R. Carpenter 286,507 (1)(4) *
Vice President - Finance
Michael G. Fitt 81,600 (1)(5) *
Director
Michael R. Haverty 947,012 (1)(4)(5) *
Director, Executive Vice President
James R. Jones 0 (6) *
Director
</TABLE>
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<TABLE>
<S> <C> <C>
Joseph D. Monello 500,308 (1)(4) *
Vice President and
Chief Financial Officer
Landon H. Rowland 3,545,304 (1)(4) 3.2%
Chairman of the Board,
President and Chief
Executive Officer
Jose F. Serrano 36,000 (1) *
Director
Morton I. Sosland 259,703 (1)(5) *
Director
All Directors and Executive 6,819,008 (1)(4) 6.0%
Officers as a Group (17 Persons)
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</TABLE>
* Less than 1% of the shares outstanding.
(1) Percentage ownership is based on the number of shares outstanding as of
the Record Date plus any Additional Shares (as defined below). The
holders may disclaim beneficial ownership of shares included under
certain circumstances. Except as noted, the holders have sole voting and
dispositive power over the shares. Under applicable law, shares that may
be acquired upon the exercise of options or other convertible securities
that are exercisable on the Record Date or will become exercisable
within 60 days of that date (the "Additional Shares") are considered
beneficially owned. Such Additional Shares included in the amounts shown
above are as follows: Mr. Allinson, 74,400; Mr. Balser, 60,000; Mr.
Barnes, 78,000; Mr. Carpenter, 261,000; Mr. Fitt, 72,000; Mr. Haverty,
885,000; Mr. Monello, 330,000; Mr. Rowland 2,763,000; Mr. Serrano
36,000; Mr. Sosland, 9,000; and all directors and executive officers as
a group, 5,153,390. Certain directors and executive officers disclaim
beneficial ownership of 180,700 of these shares. The list of executive
officers of KCSI is included in KCSI's Annual Report on Form 10-K for
the year ended December 31, 1997.
(2) Based on information reported in Amendment No. 11 to Schedule 13G, dated
April 27, 1998, jointly filed by UMB Financial Corporation ("UMBFC"),
its wholly-owned subsidiary UMB Bank, N.A. ("UMB") and The Employee
Stock Ownership Plan (the "KCSI ESOP"). UMB is the trustee of the KCSI
ESOP and the DST Systems, Inc. Employee Stock Ownership Plan (the "DST
ESOP"), which also holds some KCSI Common Stock. Shares reported as held
by UMB include the shares held as trustee of the KCSI ESOP and DST ESOP.
Voting and dispositive power over the shares that are allocated to these
ESOP's participant accounts are vested in the ESOP participants (they
have the right to direct the voting of all such allocated shares and the
tendering of such shares in response to offers to purchase). All shares
of KCSI Common Stock have been allocated to participants' accounts in
both ESOP's. However, any unallocated shares are to be voted by the
trustee in the same proportion as the allocated shares. Therefore, UMB,
the KCSI ESOP and the DST ESOP disclaim beneficial ownership of all
shares held in the KCSI ESOP and DST ESOP. The amount shown for UMB does
not include 347,656 shares held by UMB in custody accounts for which UMB
does not have voting or dispositive power. UMBFC reports that it does
not beneficially own any shares of KCSI Common Stock held by UMB in
various capacities because UMBFC is prohibited by law from directing
voting or disposition of such shares. The address for UMB is 1010 Grand
Boulevard, Kansas City, Missouri 64106.
(3) Based upon information in Amendment No. 1 to Schedule 13G filed February
12, 1998. The address for Amvescap, Inc. is 11 Devonshire Square, London
EC2M 4YR, England.
(4) Under applicable law, shares that are held indirectly also are
considered beneficially owned. Such shares included in the amounts shown
above are as follows: Mr. Allinson owns 2,400 shares in a Keogh plan;
Mr. Bailey owns 21,418 shares through the KCSI ESOP; Mr. Carpenter owns
8,268 shares through the KCSI ESOP; Mr. Haverty owns 3,416 shares
through the KCSI ESOP; Mr. Monello owns 33,671 shares through the KCSI
ESOP; Mr. Rowland owns 60,614 and 477 shares through the KCSI ESOP and
KCSI's Profit Sharing Plan, respectively; and all directors and
executive officers as a group own indirectly 249,623 KCSI ESOP shares.
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(5) Directors and executive officers also may be deemed to own beneficially
shares held in other capacities as follows: Mr. Barnes, 9,000 shares
held jointly with his wife; Mr. Fitt, 9,600 shares held in trust; Mr.
Haverty, 725 shares held by his children; and Mr. Sosland, 4,800 shares
held in trust over which he has sole voting and dispositive power as
trustee, 12,000 shares held by his wife and the following shares over
which he has shared voting and/or dispositive power but as to which
beneficial ownership is disclaimed, and 36,000 shares held by certain
companies of which he is a director, 111,900 shares held as co-trustee
of certain testamentary trusts, and 16,000 shares in a charitable
foundation of which he is a director. Mr. Sosland disclaims beneficial
ownership of all of these shares.
(6) Mr. Jones currently holds options to purchase 6,000 shares of KCSI
Common Stock, which options will become exercisable November 13, 1998.
(Remainder of page intentionally left blank.)
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PROPOSAL 1 - APPROVAL OF AN AMENDMENT TO KCSI'S CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
GENERAL INFORMATION
The Board of Directors is seeking stockholder approval of an amendment
(the "Amendment") to KCSI's certificate of incorporation to effect a reverse
stock split (the "Reverse Split Proposal") subject to the completion of the
Spin-off (as defined above) and certain other conditions discussed below. The
Reverse Split Proposal provides for the combination of the presently issued
and outstanding shares (the "pre-split shares") of KCSI Common Stock into a
smaller number of shares (the "post-split shares") of KCSI Common Stock.
Stockholders will receive cash in lieu of fractional post-split shares
resulting from the Reverse Stock Split (as defined below). The Amendment would
combine every two pre-split shares outstanding into one post-split share.
THERE IS NO OTHER CHANGE IN THE KCSI COMMON STOCK AS A RESULT OF THE REVERSE
STOCK SPLIT, AND EXCEPT FOR THE RECEIPT OF CASH IN LIEU OF FRACTIONAL SHARES,
THE REVERSE STOCK SPLIT WILL NOT AFFECT ANY STOCKHOLDER'S PROPORTIONATE EQUITY
INTEREST IN KCSI.
The Board of Directors expects that, if the Reverse Split Proposal is
approved by the stockholders at the Special Meeting, the Amendment will be
filed promptly after the date the Board of Directors sets as the record date
for the Spin-off. NOTWITHSTANDING APPROVAL OF THE REVERSE SPLIT PROPOSAL BY
THE STOCKHOLDERS OF KCSI, HOWEVER, THE BOARD OF DIRECTORS WILL NOT FILE THE
AMENDMENT IF THE SPIN-OFF IS NOT COMPLETED. IF THE SPIN-OFF IS COMPLETED, THE
BOARD MAY ELECT NOT TO FILE, OR TO DELAY THE FILING OF, THE AMENDMENT IF THE
BOARD OF DIRECTORS DETERMINES, BASED UPON ITS EVALUATION AT THE TIME, THAT NOT
FILING THE AMENDMENT OR A DELAY IN THE FILING OF THE AMENDMENT WOULD BE IN THE
BEST INTEREST OF KCSI OR ITS STOCKHOLDERS. Factors leading to such a
determination could include, without limitation, any possible adverse effect
on the KCSI Common Stock or future public offerings of the KCSI Common Stock.
As explained further under "Information About the Special Meeting,"
approval of this proposal requires the affirmative vote of a majority of the
outstanding shares of Voting Stock entitled to vote on this proposal.
REASONS FOR THE REVERSE SPLIT PROPOSAL
The Board of Directors has announced its intent to separate KCSI's
transportation and financial asset management businesses. The Board currently
anticipates accomplishing that separation through the Spin-off. The completion
of the Spin-off is subject to final approval of the Board of Directors and
such other conditions as the Board may set. On February 27, 1998, KCSI filed a
request for an Internal Revenue Service (the "IRS") ruling that the Spin-off
would be tax-free to both KCSI and its stockholders.
For the reasons discussed below, the Board of Directors believes that
the Reverse Stock Split is in the best interests of KCSI and its stockholders.
However, there can be no assurance that the Reverse Stock Split will produce
the desired consequences.
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The primary objective of the Reverse Stock Split following the Spin-off
is to attempt to move the KCSI Common Stock's trading price on the New York
Stock Exchange (the "NYSE") back into a higher trading range. It is expected
that the trading price of the KCSI Common Stock will be materially reduced as
a result of the Spin-off and that a low quoted market price per share may
discourage potential new investors, increase market price volatility and
decrease the liquidity of the KCSI Common Stock.
The Reverse Split Proposal also is motivated by the belief that the
potential post Spin-off per share price level of KCSI's Common Stock may
reduce the liquidity of the shares. Certain investors view lower-priced stock
as unattractive, although certain other investors may be attracted to low-
priced stock because of the greater trading volatility sometimes associated
with such securities. In addition, stockbrokers may not recommend lower-priced
shares because the lower potential commission makes the sale of low-priced
stocks economically unattractive to brokers.
THE AMENDMENT
The Board is seeking stockholder approval of an amendment that would
combine every two pre-split shares of KCSI Common Stock held by a stockholder
on the date of combination into one post-split share (the "Reverse Stock
Split"). Stockholders will be paid cash for fractional shares resulting from
the Reverse Stock Split. The rights of a holder of the KCSI Common Stock will
not be modified or amended in any way by the Reverse Stock Split, other than
the combination of outstanding shares as described herein and the payment of
cash for fractional shares. Excepting those instances in which cash is paid
for fractional shares, each stockholder will hold the same percentage of KCSI
Common Stock outstanding immediately following the Reverse Stock Split as he
or she held immediately prior to the Reverse Stock Split.
If approved by the stockholders of KCSI, the Reverse Stock Split will be
effected by an amendment to KCSI's Certificate of Incorporation substantially
in the form attached to this Proxy Statement as Appendix A and will become
effective upon the filing of such amendment with the Secretary of State of
Delaware or at such later time as provided for in such amendment (the
"Effective Time"). This discussion is qualified in its entirety by the full
text of such amendment, which is hereby incorporated by reference herein.
EFFECT OF THE REVERSE SPLIT PROPOSAL
The Reverse Stock Split will occur automatically at the Effective Time
without any further action on the part of stockholders of KCSI and without
regard to the date certificates representing shares of KCSI Common Stock prior
to the Reverse Stock Split are physically surrendered for new certificates.
The procedures to exchange certificates are explained below. Each stockholder
(other than participants in KCSI's Dividend Reinvestment Plan (the "DRIP")
which is discussed below) who owns at least two shares of KCSI Common Stock
will continue to own post-split shares of KCSI Common Stock and will continue
to share in the assets and future growth of KCSI as a stockholder. Such
interest will be represented by shares equal to as many pre-split shares of
KCSI Common Stock as a stockholder owned before the Reverse Stock Split
divided by two, subject to the adjustment for fractional shares described
herein.
Fractional share interests in KCSI Common Stock resulting from the
Reverse Stock Split (other than fractional shares held in the DRIP) will be
terminated at the Effective Time and such
9
<PAGE>
fractional share interests will have no right to share in the assets or future
growth of KCSI. Stockholders (other than DRIP participants) entitled to
receive a fractional share of KCSI Common Stock as a consequence of the
Reverse Stock Split will, instead, receive from KCSI a cash payment
("Fractional Share Payment") in U.S. dollars equal to the product of: (a) the
fractional share times the average of the daily average of the high and low
price per share of the KCSI Common Stock on the NYSE for the five trading days
immediately preceding the Effective Time; and (b) two (the fractional share
value is doubled in order to adjust the value to a post-split basis). The
Effective Time will be subsequent to the date on which the common stock of FAM
Holdings, Inc. begins trading separately from the KCSI Common Stock, and,
therefore, the valuation of the fractional shares will be based upon the
market price of KCSI's transportation business.
Effectuation of the Reverse Stock Split will not have an effect on
KCSI's operating results; however, the per share information and the average
number of shares outstanding as presented in previously issued consolidated
financial statements of and other publicly available information about KCSI
would be restated following the Effective Time to reflect the Reverse Stock
Split, and future net earnings or loss per share of KCSI Common Stock will be
proportionately adjusted.
KCSI currently is authorized under its certificate of incorporation to
issue 400,000,000 shares of KCSI Common Stock. The Reverse Split Proposal will
not increase or decrease the number of authorized shares of KCSI Common Stock;
however, one effect of the Reverse Stock Split will be to increase the number
of authorized but unissued shares of KCSI Common Stock, by reducing the number
of outstanding shares. A limited number of authorized but unissued shares
could prevent KCSI from responding to corporate needs or opportunities that
may arise from time to time. These might include financing transactions,
possible future acquisitions, employee benefits and other corporate purposes.
The increase in authorized but unissued shares will make more shares available
for such purposes.
KCSI had 109,335,584 shares of KCSI Common Stock outstanding on the
Record Date. The Reverse Stock Split will reduce those outstanding shares of
KCSI Common Stock to 54,667,792 (not taking into account fractional shares).
As of the Record Date, KCSI had approximately 6,124 record holders of
KCSI Common Stock and believes, based on information received from the
transfer agent and those brokerage firms that hold KCSI's securities in
custodial or "street" name, that such shares were beneficially owned by an
aggregate of approximately 27,000 beneficial owners. Based on estimated
stockholdings as of the Record Date, the Board of Directors estimates that,
after the Reverse Stock Split, KCSI will continue to have approximately the
same number of both record holders and beneficial owners.
The par value of the KCSI Common Stock will remain at $0.01 per share
following the Reverse Stock Split, and the number of shares of the KCSI Common
Stock outstanding will be reduced. As a consequence, the aggregate par value
of the outstanding KCSI Common Stock will be reduced, while the aggregate
capital in excess of par value attributable to the outstanding KCSI Common
Stock for statutory and accounting purposes will be correspondingly increased.
The Reverse Stock Split will not affect KCSI's retained earnings and
stockholders' equity will remain unchanged except for the effect of any
Fractional Share Payments.
10
<PAGE>
IMPACT ON OPTIONS, CONVERTIBLE SECURITIES, OTHER OUTSTANDING SECURITIES AND
THE DIVIDEND REINVESTMENT PLAN
KCSI has certain other securities either outstanding or reserved for
issuance that could be affected by the Reverse Stock Split. Those effects are
discussed below.
PREFERRED STOCK. KCSI had outstanding on the Record Date 242,170 shares
of Preferred Stock, par value $25 per share. The Preferred Stock is not
convertible into KCSI Common Stock. However, the Preferred Stock does have
voting rights. The Reverse Stock Split will result in an increase of the
percentage of votes attributable to the Preferred Stock in comparison to all
shares of Voting Stock from approximately 0.2% to 0.4%.
SERIES B CONVERTIBLE PREFERRED STOCK. KCSI had outstanding on the Record
Date one million shares of Series B Convertible Preferred Stock of the New
Series Preferred Stock, par value $1.00 per share ("Series B Preferred"),
which may, in certain instances, be converted into shares of KCSI Common Stock
at a ratio (the "Conversion Ratio") of 12 shares of KCSI Common Stock for
every share of Series B Preferred. The Conversion Ratio is subject to
adjustment in certain instances, including the Reverse Stock Split. Therefore,
the Series B Preferred would be convertible into six million shares of KCSI
Common Stock following the Reverse Stock Split not taking into account the
impact of the Spin-off.
EQUITY BASED INCENTIVE PLANS. KCSI has a number of plans under which
awards can be or have been made to officers and other employees that are
exercisable for (e.g., stock options), or whose value is based upon (e.g.,
stock appreciation rights), KCSI Common Stock. Assuming Proposal 4 herein is
approved, under the terms of the Amended KCSI 1991 Plan (as defined in
Proposal 4), the committee that administers it is authorized to make
adjustments in the number of shares of KCSI Common Stock covered by the awards
and the exercise price of such awards to prevent the enlargement or dilution
of the intended benefits under such plans. KCSI expects that the committee
will take action after the Effective Time to make such adjustments in
outstanding awards as the committee deems, in its discretion, appropriate to
take into account the Reverse Stock Split and/or the Spin-off.
THE DIVIDEND REINVESTMENT PLAN. A stockholder's shares of KCSI Common
Stock held in the DRIP will be adjusted to reflect the Reverse Stock Split by
reducing the shares held in the plan by one half. The Reverse Stock Split will
otherwise have no effect on the DRIP, and DRIP participants will not receive a
Fractional Share Payment.
EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
As soon as practicable after the Effective Time, transmittal forms will
be mailed to each holder of record of shares of KCSI Common Stock (both
certificated and uncertificated) to be used for surrendering and exchanging
such shares for the number of shares of KCSI Common Stock such stockholder is
entitled to receive as a consequence of the Reverse Stock Split. The
transmittal forms will be accompanied by instructions concerning other details
of the exchange. Upon receipt of such transmittal form, each stockholder
should surrender any certificates representing shares of KCSI Common Stock
prior to the Reverse Stock Split in accordance with the applicable
instructions. Each holder who surrenders certificates will receive new
certificates representing the whole number of shares of KCSI Common Stock that
he holds as a result of the Reverse Stock Split and any cash payable in lieu
of a fractional share. STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES
FOR EXCHANGE UNTIL THEY RECEIVE A TRANSMITTAL FORM.
11
<PAGE>
After the Effective Time, each certificate representing shares of KCSI
Common Stock outstanding prior to the Effective Time (an "old certificate")
will, until surrendered and exchanged as described above, be deemed, for all
corporate purposes, to evidence ownership of the whole number of shares of
KCSI Common Stock, and the right to receive from KCSI the amount of cash for
any fractional shares, into which the shares of KCSI Common Stock evidenced by
such certificate have been converted by the Reverse Stock Split, except that
the holder of such unexchanged certificates will not be entitled to receive
any distributions payable by KCSI after the Effective Time, until the old
certificates have been surrendered. Such distributions, if any, will be
accumulated and, at the time of surrender of the old certificates, all such
unpaid distributions will be paid without interest.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material federal income tax
consequences of the Reverse Stock Split. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
regulations thereunder, judicial decisions and administrative rulings and
practices, all in effect on the date hereof. Any of these authorities could be
repealed, overruled or modified at any time. Any such change could be
retroactive and, accordingly, could cause the tax consequences to vary
substantially from the consequences described herein. No ruling from the
Internal Revenue Service (the "IRS") with respect to the matters discussed
herein relating to the Reverse Stock Split has been requested, and there is no
assurance that the IRS would agree with the conclusions set forth in this
discussion.
This discussion may not address certain federal income tax consequences
that may be relevant to particular stockholders in light of their individual
circumstances or to certain types of stockholders (such as dealers in
securities, insurance companies, foreign individuals and entities, financial
institutions and tax-exempt entities) who may be subject to special treatment
under the federal income tax laws. This discussion also does not address any
tax consequences under state, local or foreign laws. This discussion deals
only with shares of KCSI Common Stock held as "capital assets" within the
meaning of Section 1221 of the Code.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT, INCLUDING THE
APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE
TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
KCSI will not recognize any gain or loss as a result of the Reverse
Stock Split. No gain or loss will be recognized by a stockholder who receives
only KCSI Common Stock upon the Reverse Stock Split. A stockholder who
receives cash in lieu of a fractional share of KCSI Common Stock generally
will recognize capital gain or loss on an amount equal to the difference
between the cash received and his or her basis in such fractional share of
KCSI Common Stock. For this purpose, a stockholder's basis in such fractional
share of KCSI Common Stock will be determined as if the stockholder actually
received such fractional share. Except as provided with respect to fractional
shares, the aggregate tax basis of the shares of KCSI Common Stock held by a
stockholder following the Reverse Stock Split will equal the stockholder's
aggregate basis in the KCSI Common Stock held immediately prior to the Reverse
Stock Split. The holding period of the shares of KCSI Common Stock held by a
stockholder following the Reverse Stock Split will include the holding period
of the shares of KCSI Common Stock held immediately prior to the Reverse Stock
Split. Stockholders should consult their tax advisors to determine the basis
and holding period of any particular shares of KCSI Common Stock held
following the Reverse Stock Split.
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<PAGE>
NYSE REQUIREMENTS
The Board of Directors believes the Reverse Stock Split will not affect
the KCSI Common Stock's listing on the NYSE. The KCSI Common Stock's continued
listing on the NYSE is subject to the maintenance of quantitative and non-
quantitative requirements, as set forth in the NYSE Listed Company Manual. In
particular, the NYSE requires that a company's common stock currently listed
on the NYSE meet each of the following standards to maintain its continued
listing: (a) the number of beneficial holders of 100 shares or more must be at
least 1,200; (b) at least 600,000 shares must be publicly held, with a market
value of at least $8 million; (c) the aggregate market value of the shares
outstanding, or the net tangible assets available to the KCSI Common Stock,
must be at least $12 million; (d) the average net income for the past three
years must be at least $600,000; and (e) compliance with certain corporate
governance requirements. The Board of Directors believes that KCSI and the
KCSI Common Stock will meet such requirements on the first full trading day
after KCSI gives the NYSE written notice that the Reverse Stock Split has
become effective. There can be no assurances, however, that factors beyond the
control of KCSI will not cause KCSI or the KCSI Common Stock to fail to meet
such requirements in the future.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE PROPOSED AMENDMENT TO KCSI'S
CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
(Remainder of page intentionally left blank.)
13
<PAGE>
PROPOSAL 2 - APPROVAL OF THE BERGER ASSOCIATES, INC. STOCK OPTION PLAN
EXPLANATION FOR SEEKING RE-APPROVAL BY STOCKHOLDERS
The Board of Directors asked for and received stockholder approval of
the Berger Associates, Inc. Stock Option Plan (the "Berger Plan") at the 1998
Annual Meeting of Stockholders held on April 30, 1998. The Board of Directors
of KCSI is asking stockholders to re-approve the Berger Associates, Inc. Stock
Option Plan because the Annual Meeting Proxy Statement and the related exhibit
indicated that the Berger Plan was effective January 13, 1998 and that awards
could not be granted after January 13, 2008. In fact, the Berger Plan was
effective on November 13, 1997 and, therefore, awards under the Berger Plan
cannot be issued after November 13, 2007. The description below and the
attached copy of the Berger Plan have been revised accordingly.
BACKGROUND
The KCSI Compensation Committee has approved a performance-based
incentive compensation plan for key employees of Berger Associates, Inc.
("Berger"), a KCSI subsidiary. The purpose of the Berger Plan is to provide a
means by which key employees of Berger and its subsidiaries can acquire and
maintain stock ownership, thereby strengthening their commitment to the
success of Berger and their desire to remain employed by Berger and its
subsidiaries. It is anticipated that the acquisition of such stock ownership
will stimulate the efforts of such employees on behalf of Berger, strengthen
their desire to continue in the service of Berger and encourage shareholder
and entrepreneurial perspectives through employee stock ownership. It is also
anticipated that the opportunity to obtain such stock ownership will prove
attractive to promising new key employees and will assist Berger in attracting
such employees. The effectiveness of the Berger Plan is not contingent upon
the completion of the Spin-off.
As explained further under "Information About the Special Meeting,"
approval of this proposal requires the affirmative vote of a majority of the
shares of Voting Stock present at the Annual Meeting that are entitled to vote
on the proposal, assuming a quorum.
Capitalized terms not defined in this Proposal have the meaning given
them in the Berger Plan, which is attached as Appendix B.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
An important concern of KCSI in approving the Berger Plan is to ensure
that any compensation paid under the Berger Plan is deductible for federal
income tax purposes. Under Section 162(m) of the Internal Revenue Code (the
"Code"), public companies and their subsidiaries cannot deduct compensation in
excess of $1 million paid to any of the executive officers named in the public
company's summary compensation table under compensation plans adopted after
February 1993 unless the compensation is "performance-based" as defined in
Section 162(m). Under Section 162(m), performance-based compensation is deemed
to arise from options if a committee of outside directors grants the options,
the plan limits the number of shares that may be granted to an eligible
participant, the compensation arises solely from the increase in value of the
underlying stock after the date of the grant of the option and the plan is
approved by stockholders of the public company. The Board is, therefore,
submitting the Berger Plan for stockholder approval.
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<PAGE>
The KCSI Board also is submitting this proposal concerning the Berger
Plan for stockholder approval in order to comply with Section 422 of the Code.
Section 422 requires stockholder approval of a plan under which incentive
stock options ("ISOs") may be issued in order to preserve the federal income
tax treatment of the ISOs.
SUMMARY OF THE BERGER ASSOCIATES, INC. STOCK OPTION PLAN
The principal provisions of the Berger Plan are summarized below. This
summary is not a complete description of all of the attached Berger Plan's
provisions. The Berger Plan was originally effective on November 13, 1997
following approval by the Board of Directors of Berger and the Berger Plan was
amended December 19, 1997 to take into account a recapitalization of Berger.
ADMINISTRATION. The Board of Directors of Berger or a committee
appointed by the Board of Directors of Berger (either is referred to herein as
the "Committee") will administer the Berger Plan and determine the recipients
("Grantees") of awards ("Awards"), the type or types of Awards to be granted
to each such Grantee, the term of such Awards, the consideration to be
received by Berger for such Awards, the number of shares of Berger common
stock (the "Berger Stock") subject to such Awards, and such other restrictions
and conditions on the exercise of an Award as the Committee may deem
appropriate. The Committee may not grant Awards under the Berger Plan after
November 13, 2007. The term of any Award granted under the Berger Plan may be
any length equal to or less than 10 years from the date of grant and may
extend beyond November 13, 2007. The Awards may terminate earlier than the end
of the term following the termination of a Grantee's employment with Berger or
its subsidiaries.
TYPES OF AWARDS. The Awards may be either incentive or non-qualified
options granted in consideration for the Grantee's service to Berger. The
Committee determines the exercise price of an Award. The Award exercise price
cannot be less than the fair market value of the Berger Stock on the Grant
Date. The Committee may impose such additional restrictions on the exercise of
an Award as the Committee may deem appropriate. Any ISOs also will be subject
to the applicable conditions under the Code. The Committee may allow an
Optionee to borrow funds from Berger or have Berger guarantee a loan to the
Optionee in order for the Optionee to exercise the Awards. A Grantee may not
transfer his or her Awards except by will or the laws of descent and
distribution or, to certain family members and related trusts or partnerships
with respect to which the Grantee or such family members are beneficiaries or
partners. An Optionee has no rights as a stockholder of Berger until the Award
has been exercised.
NUMBER OF SHARES. The Berger Plan makes available 300,000 shares of the
Berger Stock (representing approximately 18 percent of the outstanding Berger
Stock as of the date the Berger Plan was adopted) for such Awards. Awards that
are terminated prior to exercise and shares of Berger Stock received in
payment of the exercise price are added back to the total shares available.
The Committee may not grant an Award to any participant if that Award together
with all other Awards granted to such participant in any one calendar year
exceeds 100,000 shares. Notwithstanding the Committee's authority under the
Berger Plan, the Committee may not make any Award representing more than
40,000 shares of Berger Stock unless such Award is approved or ratified by
KCSI's Compensation and Organization Committee.
The Berger Stock currently is not publicly traded. Its fair market value
for purposes of the Berger Plan is determined by the Committee based on the
net earnings of Berger, or based on the proceeds to the selling shareholder(s)
upon an actual sale of more than 50 percent of the Berger Stock. The fair
market value of the Berger Stock was $50.28 per share in December 1997, based
upon the determination of the Committee at that time.
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<PAGE>
ELIGIBILITY. The Committee may grant Awards only to employees of Berger
and any of its subsidiaries. Berger and its subsidiaries currently have
approximately 85 employees who are eligible to participate in the Berger Plan.
As of the date of this Proxy Statement, non-qualified options to purchase
201,710 shares of the Berger Stock have been awarded to eleven current
employees, none of whom is an executive officer of KCSI. Options granted to
two of the Grantees are subject to approval of the Berger Plan by KCSI's
stockholders. No other Awards have been made under the Berger Plan.
POWER TO AMEND THE BERGER PLAN. The Board may amend, suspend or
discontinue the Berger Plan without stockholder approval, but no such action
that would adversely affect an outstanding Award can be made without such
Grantee's consent unless such amendment is required in order for the Berger
Plan to continue to comply with applicable law. In the case of changes
affecting the securities of Berger or certain other events, the Committee must
make certain adjustments in the Berger Plan or in Awards in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Berger Plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE BERGER PLAN
The federal income tax consequences of the Berger Plan to the
participants and Berger are discussed below under "Federal Income Tax
Consequences of Equity Incentive Plans."
(Remainder of page intentionally left blank.)
16
<PAGE>
NEW BERGER PLAN BENEFITS
The following is a summary of the Awards granted to the following
persons or groups during 1997.
<TABLE>
<CAPTION>
BERGER ASSOCIATES, INC. STOCK OPTION PLAN
NUMBER OF AWARDS
- -------------------------------------------------------------------------------
<S> <C>
Landon H. Rowland Not Eligible
Chairman of the Board,
President and Chief
Executive Officer
Michael R. Haverty Not Eligible
Director, Executive Vice President
Thomas H. Bailey Not Eligible
Chairman of the Board,
President and Chief Executive
Officer
of Janus Capital Corporation
Joseph D. Monello Not Eligible
Vice President and Chief Financial
Officer
Danny R. Carpenter Not Eligible
Vice President--Finance
Current Executive Officers Not Eligible
as a Group
Current Non-Employee Directors Not Eligible
as a Group
All Current Employees Other Than 192,210*
Executive Officers as a Group
- -------------------------------------------------------------------------------
</TABLE>
* The Awards to be granted under the Berger Plan are discretionary. This
amount represents Awards made under the Berger Plan during 1997. Certain
of these Awards are subject to stockholder approval of the Berger Plan
as explained above.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE BERGER ASSOCIATES, INC. STOCK OPTION PLAN
17
<PAGE>
PROPOSAL 3 - APPROVAL OF THE FAM HOLDINGS, INC. 1998 LONG TERM INCENTIVE STOCK
PLAN
BACKGROUND
The Board of Directors of FAM Holdings, Inc. ("FAM"), KCSI's wholly
owned subsidiary which was formed to hold KCSI's financial asset management
business, has adopted the FAM Holdings, Inc. 1998 Long Term Incentive Stock
Plan (the "FAM Incentive Plan" or "Plan") in anticipation of the Spin-off
Distribution (as defined in the FAM Incentive Plan, which is attached as
Appendix C) in order to have an equity incentive plan for its employees,
directors and consultants. The FAM Incentive Plan has been approved by the
Board of Directors of FAM and by KCSI, as the sole stockholder of FAM, subject
to the approval of KCSI's stockholders at the Special Meeting and final
approval by the KCSI Board of Directors of the Spin-off Distribution.
As explained further under "Information About the Special Meeting,"
approval of this proposal requires the affirmative vote of a majority of the
shares of Voting Stock present at the Annual Meeting that are entitled to vote
on the proposal, assuming a quorum.
Capitalized terms not defined in this Proposal have the meaning given
them in the FAM Incentive Plan.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
Approval of the FAM Incentive Plan is necessary to permit income
recognized in connection with stock options and other awards granted under the
FAM Incentive Plan to qualify as "performance based" compensation for purposes
of Section 162(m) of the Code ("Section 162(m)"). Under Section 162(m), FAM
will not be able to claim a federal income tax deduction on compensation in
excess of $1,000,000 in any year paid to its chief executive officer or any of
its four other most highly-compensated executive officers, unless the
compensation qualifies as "performance based" compensation. The "option
spread" (the excess of the fair market value of the option shares at the time
of exercise over the option exercise price) in connection with the exercise of
an option (other than an incentive stock option ("ISO")) or a stock
appreciation right is eligible to be considered as performance-based
compensation for purposes of Section 162(m). Other types of awards granted
under the FAM Incentive Plan that are contingent upon attainment of
performance goals also will qualify as performance-based compensation for
purposes of Section 162(m).
The KCSI Board also is submitting this proposal concerning the FAM
Incentive Plan for stockholder approval in order to comply with Section 422 of
the Code. Stock options are eligible to be treated as ISOs for federal income
tax purposes only if they are issued pursuant to a stockholder-approved plan.
See "Federal Income Tax Consequences of Equity Incentive Plans" below.
SUMMARY OF THE FAM INCENTIVE PLAN
The principal provisions of the FAM Incentive Plan are summarized below.
This summary is not a complete description of all of the attached FAM
Incentive Plan's provisions.
PURPOSE. The FAM Incentive Plan is intended to allow employees,
directors and consultants of FAM and its Subsidiaries to acquire or increase
their ownership of FAM Common Stock, thereby strengthening their commitment to
the success of FAM and stimulating their efforts on behalf of FAM, and to
assist FAM in attracting new employees, directors and consultants and
retaining existing ones.
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<PAGE>
The FAM Incentive Plan also is intended to optimize the profitability and
growth of FAM through incentives which are consistent with FAM's goals; to
provide an incentive for excellence in individual performance; and to promote
teamwork. The FAM Incentive Plan also is intended to treat current and former
employees and directors of KCSI who hold KCSI stock options at the time of the
Spin-off Distribution in a manner that is equivalent to how they would have
been treated if they had exercised their KCSI options and received FAM Common
Stock in connection with the Spin-off Distribution.
ADMINISTRATION. The FAM Incentive Plan will be administered by the Board
of Directors of FAM (the "FAM Board") or by a committee appointed by the FAM
Board (the "FAM Plan Committee"). (References below to the "FAM Plan
Committee" are references to the FAM Board, or FAM Plan Committee, as
applicable.) The FAM Plan Committee has the authority to select persons to
whom Awards (as defined below) are granted, to determine the types of Awards
(including Awards granted in conjunction with other Awards) and the number of
shares covered, to set the terms, conditions and provisions of such Awards
and, with the consent of the Grantee in most instances, to cancel or suspend
Awards. The FAM Plan Committee is authorized to construe and interpret the FAM
Incentive Plan, to establish, amend and rescind any rules relating to the FAM
Incentive Plan and to make all other determinations which may be necessary or
advisable for the administration of the FAM Incentive Plan. Additionally, if
at any time after the Spin-off Distribution the FAM Plan Committee determines
that an adjustment of the FAM Incentive Plan or outstanding Awards is
necessary to prevent enlargement or dilution of the intended benefits under
the FAM Incentive Plan following any change affecting the shares of FAM Common
Stock by reason of any dividend or other distribution to stockholders (whether
in cash, Shares, other securities or other property), stock split,
recapitalization, merger, consolidation, spin-off, combination or repurchase
or exchange of Shares or other corporate change, the FAM Plan Committee may
make such substitution or adjustment in the aggregate number or type of Shares
which may be distributed under the FAM Incentive Plan and in the number, type
and option price or other price of Shares subject to the outstanding Awards
granted under the FAM Incentive Plan, or may make provisions for a cash
payment or substitution of other property for such Shares, as the FAM Plan
Committee deems equitable or appropriate. No member of the FAM Plan Committee
is liable for any action or determination made in connection with the FAM
Incentive Plan or any Award thereunder.
ELIGIBILITY. All directors and employees of and consultants to FAM and
its subsidiaries (approximately 1,350 persons) will be eligible to receive
Awards under the FAM Incentive Plan. Any other person who holds a KCSI Option
(as defined below) is also eligible to receive KCSI Substitute Options (as
defined below) in connection with the Spin-off Distribution. See also "KCSI
Substitute Options" below.
POWER TO AMEND THE FAM INCENTIVE PLAN. The FAM Board may amend or
terminate the FAM Incentive Plan at any time without the approval of the
stockholders of FAM.
NUMBER OF SHARES. Subject to adjustment as described above, the number
of shares of FAM Common Stock available under the FAM Incentive Plan for
grants of Awards is 30 million. Approximately 18 million Shares (as of the
Record Date) will be covered by KCSI Substitute Options (discussed below)
leaving approximately 12 million Shares for other Awards to FAM employees,
directors and consultants. While the 30 million shares represents
approximately 13.7 percent of the FAM Common Stock expected to be outstanding
immediately following the Spin-off distribution, the 12 million shares
remaining available after grant of the KCSI Substitute Options represents only
5.5 percent of such shares of FAM Common Stock. Shares that are not issued
under an Award, or Shares
19
<PAGE>
(however acquired) that are used to pay the exercise price of an Award or are
withheld in connection with tax obligations arising from an Award, again
become available for an Award or increase the number of Shares available for
Awards. A Grantee may not receive in any calendar year total Awards (not
counting KCSI Substitute Options) covering more than the lesser of: (i) one
percent of the total Shares outstanding on a Grant Date; or (ii) 2 million
Shares. No determination of value of the FAM Common Stock has been made by the
FAM Board of Directors.
KCSI SUBSTITUTE OPTIONS. In connection with the Spin-off Distribution,
those persons who hold options to acquire KCSI Common Stock (the "KCSI
Options") immediately prior to the Spin-off Distribution will be granted
Options at the time of the Spin-off Distribution which are intended to
preserve the economic value of their KCSI Options (the "KCSI Substitute
Options"). The FAM Plan Committee is authorized under the terms of the FAM
Incentive Plan to set the exercise price of KCSI Substitute Options granted at
the time of the Spin-off Distribution at less than 100% of the Fair Market
Value of FAM Common Stock at that time to the extent necessary to achieve such
preservation of economic value. The exercise price of KCSI Options, assuming
the Amended KCSI 1991 Plan (as defined in Proposal 4) is approved by
stockholders, will also be adjusted to reflect the effects of the Spin-off
Distribution. See Proposal 4 below.
TYPES OF AWARDS. The FAM Incentive Plan permits the grant of any or all
of the following types of Awards to employees, directors and consultants of
FAM and its Subsidiaries: (i) stock options, including ISOs and options other
than ISOs ("non-qualified options"); (ii) stock appreciation rights ("SARs");
(iii) limited stock appreciation rights ("LSARs"); (iv) Restricted Shares; (v)
Performance Units and Performance Shares; and (vi) Bonus Shares.
STOCK OPTIONS. The exercise price per share of FAM Common Stock
purchasable under any Option will be determined by the FAM Plan Committee, but
generally cannot be less than 100% of the Fair Market Value of a share of FAM
Common Stock on the date the Option is granted. In certain instances, however,
the exercise price of an Option may be less than the Fair Market Value of a
Share on the Grant Date. The first is in connection with the grant of KCSI
Substitute Options as discussed above. Additionally, in connection with
Acquisitions by FAM, the FAM Plan Committee may grant Options ("Substitute
Options") with an exercise price less than the Fair Market Value of a Share on
the Grant Date, to persons who become eligible to participate in the FAM
Incentive Plan and who hold options ("Target Options") to purchase shares of
stock of the Acquired Entity or its affiliates immediately prior to such
Acquisition. The exercise price of the Substitute Options will be set at a
level which preserves the economic value of Target Options that are replaced.
The FAM Plan Committee shall determine the term of each Option (subject
to a maximum of 10 years), and the time or times when it may be exercised. The
grant and the terms of ISOs shall be restricted to the extent required for
qualification as ISOs by the Code. Options may be exercised following notice
to FAM by payment of the exercise price: (i) in cash, (ii) in certain
instances, in Shares (including, at the discretion of the FAM Plan Committee,
Restricted Shares) with a Fair Market Value equal to the exercise price of the
Option, (iii) pursuant to a "cashless exercise" through a broker-dealer under
an arrangement approved by the FAM Plan Committee, or (iv) at the discretion
of the FAM Plan Committee, with an interest-bearing promissory note or with a
third-party loan that is guaranteed by FAM.
STOCK APPRECIATION RIGHTS/LIMITED STOCK APPRECIATION RIGHTS. An SAR may
be granted free-standing or in tandem with the grant of Options. Upon exercise
of an SAR, the holder thereof is entitled to receive the excess of the Fair
Market Value of the Shares for which the SAR is exercised over the Strike
Price of the SAR, payable in cash or, at the discretion of the FAM Plan
Committee, in
20
<PAGE>
Shares with a Fair Market Value equal to the excess. The Strike Price (which,
in the case of free-standing SARs, shall not be less than 100% of the Fair
Market Value of the Shares on the Grant Date) and other provisions of the SAR
shall be determined by the FAM Plan Committee (except that the term of an SAR
may not exceed 10 years). An LSAR is an SAR that automatically is exercised
upon a Change of Control (defined below) which has not been approved by the
Incumbent Board.
RESTRICTED SHARES. Restricted Shares may not be disposed of by the
Grantee until certain restrictions established by the FAM Plan Committee
lapse. Restricted Shares may be awarded subject to payment of consideration or
without consideration other than the rendering of services or the payment of
any minimum amount required by law. The Grantee shall have, with respect to
Restricted Shares, all of the rights of a stockholder of FAM, including the
right to vote the Shares and the right to receive any distributions, unless
the FAM Plan Committee shall otherwise determine.
PERFORMANCE AWARDS. From time to time, the FAM Plan Committee may select
a period during which one or more performance criteria designated by the FAM
Plan Committee are measured for the purpose of determining the extent to which
a Performance Award has been earned. Performance goals may be determined by
the FAM Plan Committee in its discretion and may be based on Company-wide,
divisional, subsidiary or individual performance or a combination thereof.
Performance Awards may be in the form of Performance Shares (valued by
reference to Shares), or Performance Units (valued by reference to cash or
property other than Shares). Performance Awards may be paid in cash, Shares,
other property or a combination thereof. Grantees of Performance Awards are
not required to provide consideration other than the rendering of services and
any minimum exercise price required by applicable law.
BONUS SHARES. Bonus Shares can be awarded to a Grantee without cost and
without restrictions in recognition of past performance (whether determined by
reference to another employee benefit plan of FAM or otherwise) or as an
incentive to become an employee, director or consultant of FAM or a
Subsidiary.
CHANGE OF CONTROL. A Change of Control is deemed to occur in the event
of certain acquisitions of 20% or more of the outstanding FAM Common Stock,
certain mergers which result in FAM's stockholders owning less than 60% of the
surviving corporation, or certain changes of more than 25% of the membership
of the FAM Board. In the event of a Change of Control of FAM, Awards will
automatically become fully vested or fully exercisable, as applicable.
ELECTIVE SHARE WITHHOLDING. A Grantee may, subject to certain
conditions, elect to have FAM withhold a portion of the Shares that would
otherwise be issued to the Grantee under an Award to satisfy the Grantee's
income tax liabilities related to the Award.
OTHER. The FAM Incentive Plan will terminate when all shares of FAM
Common Stock subject to the Plan have been acquired unless earlier terminated
by the FAM Board. Awards, and any rights under an Award, may not be
transferred other than by will or intestate succession or, with the consent of
the FAM Plan Committee, to members of a Grantee's immediate family and related
trusts, partnerships and other entities with respect to which the Grantee or
such family members are owners or beneficiaries. The extent to which the
Grantee shall receive the benefits of an Award following Termination of
Affiliation will be determined in accordance with the provisions of the FAM
Incentive Plan and the Award Agreement, which benefits may extend beyond the
date of Termination of
21
<PAGE>
Affiliation. The FAM Plan Committee may permit or require a Grantee to defer
receipt of payment or delivery of Shares upon the exercise or vesting of an
Award.
FEDERAL INCOME TAX CONSEQUENCES OF THE FAM INCENTIVE PLAN
The federal income tax consequences of the FAM Incentive Plan to its
participants and FAM are discussed below under "Federal Income Tax
Consequences of Equity Incentive Plans."
NEW FAM INCENTIVE PLAN BENEFITS
No Awards have been made under the FAM Incentive Plan prior to the date
of this Proxy Statement. Grants under the FAM Incentive Plan will be made at
the discretion of the FAM Plan Committee. Such future grants have not yet been
determined and are subject to stockholder approval of the FAM Incentive Plan
at the Special Meeting.
In connection with the Spin-off Distribution, however, holders of KCSI
Options will be granted KCSI Substitute Options as discussed above. Assuming
that two shares of FAM Common Stock are distributed in the Spin-off
Distribution for every one share of KCSI Common Stock outstanding, then the
following persons and groups will receive the following KCSI Substitute
Options. If the number of shares of FAM Common Stock distributed in the Spin-
off Distribution is increased or decreased in relation to the outstanding
shares of KCSI Common Stock, then the amounts below will be adjusted
accordingly.
(Remainder of page intentionally left blank.)
22
<PAGE>
NEW FAM INCENTIVE PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
FAM HOLDINGS, INC.
1998 LONG TERM INCENTIVE STOCK PLAN
NUMBER OF AWARDS
- -------------------------------------------------------------------------
<S> <C>
Landon H. Rowland 5,538,276
Chairman of the Board,
President and Chief
Executive Officer
Michael R. Haverty 1,770,000
Director, Executive Vice President
Thomas H. Bailey 0
Chairman of the Board,
President and Chief Executive Offi-
cer
of Janus Capital Corporation
Joseph D. Monello 660,000
Vice President and Chief Financial
Officer
Danny R. Carpenter 524,962
Vice President--Finance
Current Executive Officers 9,735,308
as a Group
Current Non-Employee Directors 712,800
as a Group
All Current Optionees Other Than 7,825,172
Executive Officers and Non-Employee
Directors as a Group
</TABLE>
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE FAM HOLDINGS, INC.
1998 LONG TERM INCENTIVE STOCK PLAN
23
<PAGE>
PROPOSAL 4 - APPROVAL OF KCSI'S AMENDED AND RESTATED 1991 STOCK OPTION AND
PERFORMANCE AWARD PLAN
BACKGROUND
The amendment and restatement of KCSI's 1991 Stock Option and
Performance Award Plan (as so amended and restated, the "Amended KCSI 1991
Plan") has been approved by the Board of Directors of KCSI effective as of
July 15, 1998, subject to the approval of KCSI's shareholders at the Special
Meeting. The effectiveness of the Amended KCSI 1991 Plan is not dependent upon
the completion of the Spin-off Distribution.
The Amended KCSI 1991 Plan is intended to replace KCSI's 1991 Amended
and Restated Stock Option and Performance Award Plan (the "Existing KCSI 1991
Plan") and to combine into one plan all of KCSI's existing stock option plans
(collectively, the "Existing KCSI Plans"). In addition to the Existing KCSI
1991 Plan, the Existing KCSI Plans include KCSI's 1993 Directors' Stock Option
Plan (the "1993 Plan"), 1987 Stock Option Plan (as amended September 26, 1996)
(the "1987 Plan"), and 1983 Stock Option Plan (as amended September 26, 1996)
(the "1983 Plan").
As explained further under "Information About the Special Meeting,"
approval of this proposal requires the affirmative vote of a majority of the
shares of Voting Stock present at the Annual Meeting that are entitled to vote
on the proposal, assuming a quorum.
Capitalized terms not defined in this Proposal have the meaning given
them in the Amended KCSI 1991 Plan, which is attached as Appendix D.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
Approval of the Amended KCSI 1991 Plan is necessary to permit adjustment
of KCSI stock options to reflect the expected reduction in the market value of
KCSI Common Stock after the Spin-off Distribution. The aggregate "spread" (the
excess of the fair market value of KCSI Common Stock over the option exercise
price) is expected to be preserved by granting to each holder of a KCSI stock
option a new FAM stock option (the KCSI Substitute Options discussed in
Proposal 3 above) and by reducing the exercise price of the existing KCSI
stock option. In addition, approval of the Amended KCSI 1991 Plan will clarify
that persons who cease to be affiliated with KCSI as a result of the Spin-off
Distribution may continue to hold their KCSI stock options following the Spin-
off Distribution.
Approval of the KCSI 1991 Plan also is necessary to permit income
recognized in connection with stock options and other awards granted under the
plan to qualify as "performance based" compensation for purposes of Section
162(m). Under Section 162(m), KCSI will not be able to claim a federal income
tax deduction on compensation in excess of $1,000,000 in any year paid to its
chief executive officer or any of its four other most highly-compensated
executive officers, unless the compensation qualifies as "performance based"
compensation. The "option spread" (the excess of the fair market value of the
option shares at the time of exercise over the option exercise price) in
connection with the exercise of an option (other than an ISO) or a stock
appreciation right is eligible to be considered as performance-based
compensation for purposes of Section 162(m). Other types of awards granted
under the Amended KCSI 1991 Plan that are contingent upon attainment of
performance goals also will qualify as performance-based compensation for
purposes of Section 162(m).
24
<PAGE>
The KCSI Board also is submitting this proposal concerning the Amended
KCSI 1991 Plan for stockholder approval in order to comply with Section 422 of
the Code. Stock options are eligible to be treated as ISOs for federal income
tax purposes only if they are issued pursuant to a stockholder-approved plan.
See "Federal Income Tax Consequences of Equity Incentive Plans" below.
SUMMARY OF THE AMENDED KCSI 1991 PLAN
Except as summarized below, the principal provisions of the Amended KCSI
1991 Plan and the federal tax consequences of Awards granted under the Amended
KCSI 1991 Plan are identical in all significant respects to those of the FAM
Incentive Plan as described above under the caption "Proposal 3 - Approval of
the FAM Holdings, Inc. 1998 Long Term Incentive Stock Plan" except that
references to "FAM," the "FAM Incentive Plan" and the "FAM Plan Committee"
should be read as references to "KCSI," the "Amended KCSI 1991 Plan," and the
"KCSI Compensation Committee," respectively. This summary is not a complete
description of all of the attached Amended KCSI 1991 Plan's provisions.
NUMBER OF SHARES. The Amended 1991 KCSI Plan will not change the
aggregate number of shares of KCSI Common Stock presently available for
issuance under the Existing KCSI Plans. Subject to adjustment as described
below, the aggregate number of shares of KCSI Common Stock authorized for
issuance under the Amended KCSI 1991 Plan is the sum of: (i) 25.2 million
(which is the number of shares authorized for issuance under the Existing KCSI
1991 Plan) and (ii) the total number of shares subject to Awards granted under
the 1993 Plan, 1987 Plan and 1983 Plan that are outstanding as of July 15,
1998. As of the Record Date, 9,136,640 shares of KCSI Common Stock were
subject to outstanding Awards under the Existing KCSI Plans and 10,133,503
shares of KCSI Common Stock remained available for future awards under the
Existing KCSI Plans. Shares that are not issued under an Award, or Shares
(however acquired) that are used to pay the exercise price of an Award or are
withheld in connection with tax obligations arising from an Award, again
become available for an Award or increase the number of Shares available for
Awards. No person may receive under the Amended KCSI 1991 Plan in any calendar
year total Awards covering the greater of: (i) 1% of the total shares of KCSI
Common Stock outstanding when the Award is granted; or (ii) 1.3 million
Shares; provided, however, that in no case may Awards be granted to any one
person in any calendar year covering more than 2 million Shares. The closing
price of the KCSI Common Stock on June 4, 1998 was $43 5/8.
ELIGIBILITY. All directors, employees and consultants of KCSI and its
Subsidiaries (approximately 3,151 persons) will be eligible to participate in
the Amended 1991 KCSI Plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE AMENDED KCSI 1991 PLAN
The federal income tax consequences of the Amended KCSI 1991 Plan to its
participants and KCSI are discussed below under "Federal Income Tax
Consequences of Equity Incentive Plans."
AMENDED KCSI 1991 PLAN BENEFITS
As of the Record Date, stock options have been granted under the
Existing KCSI 1991 Plan to the following persons and groups as follows since
the inception of the Existing KCSI 1991 Plan: Landon H. Rowland (2,409,138
shares), Michael R. Haverty (885,000 shares), Thomas H. Bailey (none), Joseph
D. Monello (383,712 shares), Danny R. Carpenter (262,481 shares), all current
executive officers as a group (4,487,366 shares), all current non-employee
directors as a group
25
<PAGE>
(273,000 shares), and all current employees (other than executive officers) as
a group (4,264,107 shares). No other person has received 5% or more of the
options granted to date and no associate of any director or executive officer
of KCSI holds any options. Future Awards under the Amended KCSI 1991 Plan will
be made at the discretion of the KCSI Compensation Committee.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF KCSI'S
1991 STOCK OPTION AND PERFORMANCE AWARD PLAN
(Remainder of page intentionally left blank.)
26
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF EQUITY INCENTIVE PLANS
The following discussion relates to Proposals 2, 3 and 4. References to
Berger, FAM or KCSI relate to tax consequences arising under the Berger Plan,
the FAM Incentive Plan or the Amended KCSI 1991 Plan, respectively (any of
which, a "Plan").
KCSI understands that the federal income tax consequences generally
applicable to Awards under the Berger Plan, the FAM Incentive Plan and the
Amended KCSI 1991 Plan are as described below. The following discussion is
based on the federal income tax laws in effect as of the date of this Proxy
Statement and could be affected by future changes in the tax laws. The summary
is not intended to constitute tax advice and does not address, among other
things, possible state, local or foreign tax consequences.
A Grantee who is granted a non-qualified stock option under a Plan
generally will not recognize taxable income at the time the option is granted.
Upon exercise of the option, the Grantee generally will be taxed at ordinary
income tax rates on an amount equal to the difference between the fair market
value of the KCSI Common Stock or the FAM Common Stock, as applicable, on the
date of exercise and the option exercise price.
The company receiving the services of the Grantee of a non-qualified
stock option will receive a deduction with respect to the exercise of the
option in the taxable year within which the Grantee recognizes the
corresponding taxable income, subject to such company's compliance with tax
reporting requirements, and the reasonableness of the total compensation paid
to the Grantee in such taxable year. Upon subsequent disposition of the option
shares, the Grantee will realize long-term or short-term capital gain or loss
depending on the applicable holding period, provided the Grantee holds the
shares as a capital asset. A capital gain or loss is long-term if the Grantee
holds the stock for more than one year (more than 18 months to obtain the
current lowest capital gains rate) and short-term if the Grantee holds the
stock for one year or less.
If a Grantee exercises a non-qualified option with cash, the Grantee's
basis in the option shares received upon exercise will equal the option price
plus the amount of ordinary income recognized by the Grantee on such exercise.
If a Grantee exercises a non-qualified option with shares of common stock, the
Grantee (under current rulings by the Internal Revenue Service (the "IRS"))
will not recognize gain or loss with respect to the disposition of the shares
transferred in payment of the option price. The Grantee will have a carryover
basis in such number of shares received upon exercise as is equal to the
number of shares surrendered; the Grantee's basis in any additional shares
received will be equal to the amount of income the Grantee recognizes upon
exercise of the option.
A Grantee who is granted an incentive stock option under the Plan will
not recognize taxable income at the time the option is granted or at the time
the option is exercised. The Grantee's basis in the shares acquired for cash
upon exercise of an incentive stock option will be equal to the option price.
However, the exercise of an incentive stock option will be an adjustment item
for purposes of the alternative minimum tax.
If a Grantee disposes of shares acquired pursuant to the exercise of an
incentive stock option prior to meeting the required holding period (two years
from the date of grant or one year from the date the shares were transferred
to the Grantee), the difference between the fair market value of the shares at
the time of exercise (or the amount realized on disposition, if lower) and the
option price
27
<PAGE>
will be taxable to the Grantee as ordinary income, and will be deductible by
the company, receiving the services of the Grantee subject to the general
conditions noted above. The balance of any gain, or any loss on such
disposition, will be treated as capital gain or loss, provided the Grantee
holds the option shares as a capital asset. If a Grantee disposes of the
option shares after the required incentive stock option holding period, the
Grantee would realize capital gain or loss (provided the Grantee holds the
shares as a capital asset), and the company receiving the services of the
Grantee would not be entitled to any income tax deduction. A capital gain or
loss is long-term if the Grantee holds the stock for more than one year (more
than 18 months to obtain the current lowest capital gains rate) and short-term
if the Grantee holds the stock for one year or less.
Under current rulings by the IRS, if a Grantee exercises an incentive
stock option with stock, the Grantee will not recognize gain or loss with
respect to the shares of stock surrendered in payment of the option price
(unless the surrendered shares were received under an incentive or other
statutory stock option and surrendered before expiration of the statutory
holding period, in which event a disqualifying disposition will have
occurred). The Grantee will have a carryover basis in such number of shares
received upon exercise as is equal to the number of shares surrendered. The
Grantee's basis in any additional shares of stock received will be zero.
The grant of an SAR will create no tax consequences for a Grantee, FAM
or KCSI. Upon exercising an SAR, the Grantee must recognize ordinary income
equal to the difference between the strike price and the fair market value of
shares of common stock on the date of the exercise; the company receiving the
services of the Grantee of the SAR will be entitled to a deduction for the
same amount.
With respect to other Awards granted under the FAM Incentive Plan or the
Amended KCSI 1991 Plan that are settled either in cash or in stock or other
property that is either transferable or not subject to substantial risk of
forfeiture, the participant must recognize ordinary income equal to the cash
or the fair market value of shares or other property received, and the company
receiving the services of the Grantee of the Award will be entitled to a
deduction for the same amount. With respect to Awards that are settled in
stock or other property that is restricted as to transferability and subject
to substantial risk of forfeiture, the participant must recognize ordinary
income equal to the fair market value of the shares or other property received
at the first time the shares or other property become transferable or not
subject to substantial risk of forfeiture, whichever occurs earlier (or, if
earlier, upon the Grantee making an election under Section 83(b) of the
Internal Revenue Code (the "Code")), and the company receiving the services of
the Grantee of the Award will be entitled to a deduction for the same amount,
subject to possible limitation under Section 162(m) of the Code.
(Remainder of page intentionally left blank.)
28
<PAGE>
MANAGEMENT COMPENSATION
NOTE REGARDING SPIN-OFF
The following disclosures relate to KCSI for the fiscal year ended
December 31, 1997. Although FAM Holdings, Inc. was organized during 1997, to
date, the board of directors of FAM has not appointed any executive officers
and FAM has not taken any actions with regard to compensation matters. No
information concerning compensation matters related to FAM, therefore, is
available. Additionally, the Board anticipates the employment agreements of
the executive officers of KCSI will be revised following the Spin-off.
However, no action has been taken as of the date of this Proxy Statement.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain information concerning the
compensation earned by the Chief Executive Officer of KCSI and certain of the
most highly compensated executive officers for 1997 (based upon the total
salary and bonus for 1997).
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION OPTIONS/ COMPENSATION
POSITION YEAR SALARY ($) BONUS(1)($) ($) SARS (#) ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Landon H. Rowland 1997 750,000 -- 57,900(/2/) -- $ 114,801
Chairman of the Board, 1996 500,004 -- 52,252 459,000 88,816
President and Chief 1995 500,004 -- -- -- 187,702
Executive Officer
Michael R. Haverty 1997 500,004 -- -- -- $87,500(/3/)
Director, Executive Vice 1996 500,004 -- -- 135,000 66,191
President 1995(/3/) 310,486 -- -- 750,000 104,134
Thomas H. Bailey 1997 900,000 675,000 -- -- $75,667(/4/)
Chairman of the Board, 1996 585,000 400,000 -- -- 74,747
President and 1995 590,000 -- -- -- 69,244
Chief Executive Officer
of Janus Capital
Corporation
Joseph D. Monello 1997 250,008 -- -- -- $62,640(/5/)
Vice President and 1996 250,008 -- -- -- 63,637
Chief Financial Officer 1995 198,900 198,900 -- 315,000 31,282
Danny R. Carpenter 1997 190,008 -- -- -- $43,751(/6/)
Vice President--Finance 1996 190,008 -- -- -- 48,697
1995 154,500 154,500 -- 204,000 32,272
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The bonus for Messrs. Monello and Carpenter represented cash awards
under KCSI's incentive compensation program and the bonus for Mr. Bailey
for 1997 was under a performance-based incentive compensation plan
approved by stockholders in 1997.
(2) Other Annual Compensation for Mr. Rowland includes premiums on a
disability insurance policy of $53,877. All other compensation for Mr.
Rowland for 1997 is comprised of: (i) contributions to his account under
the KCSI ESOP of $6,400; (ii) interest on deferred director's fees of
$1,678; (iii) an estimated contribution to his account under KCSI's
401(k) plan of $4,800; (iv) an estimated contribution to his account
under KCSI's profit sharing plan of $4,800; (v) an amount estimated to
be credited to his account under the KCSI Executive Plan of $71,500; and
(vi) premiums on group term life insurance of $25,623. As of December
31, 1997, Mr. Rowland held no shares of restricted stock.
(3) Mr. Haverty has been employed by KCSI since May 1995. All other
compensation for Mr. Haverty for 1997 is comprised of: (i) a
contribution to his account under the KCSI ESOP of $6,400; (ii) an
estimated contribution to his account under KCSI's 401(k) plan of
$4,800; (iii) an estimated contribution to his account under KCSI's
profit sharing plan of $4,800; and (iv) an amount estimated to be
credited to his account under the KCSI Executive Plan of $71,500. As of
December 31, 1997, Mr. Haverty held no shares of restricted stock.
29
<PAGE>
(4) All other compensation for Mr. Bailey for 1997 is comprised of: (i)
directors' fees in the amount of $5,000 and $54,667, paid to Mr. Bailey
in his capacity as director of Janus Capital Corporation and Janus
Investment Fund and the Janus Aspen Series, respectively; (ii) a
contribution to his account under the KCSI ESOP of $6,400; (iii) an
estimated contribution to his account under KCSI's 401(k) plan of
$4,800; and (iv) an estimated contribution to his account under Janus'
profit sharing plan of $4,800. As of December 31, 1997, Mr. Bailey held
no shares of restricted stock.
(5) All other compensation for Mr. Monello for 1997 is comprised of: (i) a
contribution to his account under the KCSI ESOP of $6,400; (ii) an
estimated contribution to his account under KCSI's 401(k) plan of
$4,800; (iii) an estimated contribution to his account under KCSI's
profit sharing plan of $4,800; and (iv) an amount estimated to be
credited to his account under the KCSI Executive Plan of $27,751. As of
December 31, 1997, Mr. Monello held no shares of restricted stock.
(6) All other compensation for Mr. Carpenter for 1997 is comprised of: (i) a
contribution to his account under the KCSI ESOP of $6,400; (ii) an
estimated contribution to his account under KCSI's 401(k) plan of
$4,800; (iii) an estimated contribution to his account under KCSI's
profit sharing plan of $4,800; and (iv) an amount estimated to be
credited to his account under the KCSI Executive Plan of $17,251. As of
December 31, 1997, Mr. Carpenter held 3,000 shares of restricted stock,
which had a market value at that time of $93,186.
1997 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the aggregate
option exercises during 1997 by the named Executive Officers and the number
and value of options held by such officers as of December 31, 1997 (the last
trading day of the year).
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END
(#) ($)
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED(1) EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Landon H. Rowland -0- N/A 2,763,000/-0- 67,935,811/-0-
Michael R. Haverty -0- N/A 885,000/-0- 14,815,655/-0-
Thomas H. Bailey -0- N/A -0-/-0- N/A
Joseph D. Monello 42,000 1,131,593 471,000/-0- 8,493,447/-0-
Danny R. Carpenter -0- N/A 261,000/-0- 4,201,819/-0-
- -----------------------------------------------------------------------
</TABLE>
(1) The dollar value in columns (c) and (e) is calculated by determining the
difference between the fair market value of the securities underlying
the options and the exercise price of the options on the date of
exercise or December 31, 1997 (the last trading day of 1997),
respectively, times the number of options exercised or held at year end.
30
<PAGE>
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS
EMPLOYMENT AGREEMENTS WITH THE NAMED EXECUTIVE OFFICERS
Mr. Rowland. KCSI entered into an Amended and Restated Employment
Agreement with Mr. Rowland effective September 18, 1997, which provides for
Mr. Rowland's continued employment as President and Chief Executive Officer of
KCSI.
The Employment Agreement provides that Mr. Rowland is to serve at the
pleasure of KCSI's Board of Directors and does not contain a fixed term of
employment. Pursuant to the Employment Agreement, Mr. Rowland receives a fixed
annual base salary of $750,000, which is not to be increased prior to January
1, 2000 and is not to be reduced except by mutual agreement of KCSI and
Mr. Rowland or except as part of a general salary reduction program applicable
to all officers of KCSI. Mr. Rowland is not entitled to participate in any
KCSI incentive compensation plan for the years 1997, 1998 and 1999, but
continues to participate in other benefit plans or programs of KCSI generally
available to executive employees and is provided with certain disability
insurance coverage and life insurance payable to beneficiaries designated by
him. Under the Employment Agreement the value of Mr. Rowland's annual
compensation is fixed at $875,000 for purposes of cash compensation based
benefit plans.
The Employment Agreement provides for twenty-four (24) months of
severance pay at an annual rate equal to Mr. Rowland's base salary and for
certain health and life insurance benefits in the event of the termination of
his employment without cause, other than in connection with a change in
control of KCSI (as defined in the Employment Agreement), unless such benefits
are provided by another employer. In the year in which termination occurs, Mr.
Rowland shall remain eligible to receive benefits under the KCSI Incentive
Compensation Plan, if any, and the KCSI Executive Plan. After termination, Mr.
Rowland shall not be entitled to accrue or receive any benefits under any
other employee benefit plan, except he will be entitled to participate in the
KCSI Profit Sharing Plan, the KCSI Employee Stock Ownership Plan and the KCSI
401(k) Plan in the year of termination if he meets the requirements for
participation in such termination year.
As part of the Employment Agreement, Mr. Rowland has agreed not to use
or disclose any KCSI trade secret (as defined in the Employment Agreement)
after any termination of his employment and not to engage in, or manage, a
business in competition with any business conducted by KCSI or its
subsidiaries, in any country or jurisdiction in which KCSI or any of its
subsidiaries conduct business, for a period of three years following Mr.
Rowland's resignation or termination of his employment for cause or due to his
disability.
During the period of his employment under the Employment Agreement, Mr.
Rowland has agreed to retain ownership in himself or members of his immediate
family of at least a majority of the number of shares of (i) KCSI Common Stock
("Restricted Stock") awarded to Mr. Rowland in connection with his previous
employment agreement dated January 1, 1992 and (ii) KCSI Common Stock acquired
upon exercise of stock options granted on or after December 12, 1991 (other
than shares transferred to KCSI to pay the purchase price upon the exercise of
stock options or used to satisfy tax withholding requirements).
If there is a change of control of KCSI during the term of the
Employment Agreement, Mr. Rowland's employment, executive capacity, salary and
benefits would be continued for a three-year period at levels in effect on the
control change date (as defined in the Employment Agreement) at a
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rate not less than twelve times the highest monthly base salary paid or
payable to him in the twelve months prior to any change of control. During
such three-year period, Mr. Rowland would also be eligible to participate in
all benefit plans generally made available to executives of his level or to
the employees of KCSI generally, would be eligible to participate in any KCSI
incentive compensation plan, and would be entitled to immediately exercise all
outstanding stock options and receive a lump-sum cash payment equal to the
fair market value of all non-vested options. If the amounts payable during
this three-year period are discretionary, the benefits continued shall not be
less than the average annual amount for the three years prior to the change of
control and incentive compensation shall not be less than 75% of the maximum
amount which could have been paid to Mr. Rowland under the terms of the
incentive compensation plan. With respect to unfunded employer obligations
under the benefit plans, Mr. Rowland would be entitled to a discounted cash
payment of amounts to which he is entitled. Mr. Rowland's employment may be
terminated after the control change date, but where it is other than "for
cause" (as defined in the Employment Agreement) he would be entitled to
payment of his base salary through termination plus a discounted cash
severance payment equal to 175% of three times his annual base salary and
continuation or payment of benefits for a three-year period at levels in
effect on the control change date. Mr. Rowland also is permitted to resign
employment after a change of control upon "good reason" (as defined in the
Employment Agreement) and advance written notice, and to receive the same
payments and benefits as if his employment had been terminated by KCSI. Mr.
Rowland's Employment Agreement also provides for payments to him necessary to
relieve him of certain adverse federal income tax consequences if amounts
received under the Agreement involve "parachute payments" under Section 4999
of the Internal Revenue Code. In addition, upon a change of control of KCSI,
funds are to be placed in trust to secure the obligations to pay any legal
expenses of Mr. Rowland in connection with disputes arising with respect to
the Employment Agreement.
Messrs. Carpenter, Haverty and Monello. KCSI has entered into Amended
and Restated Employment Agreements with Messrs. Carpenter and Monello
effective September 18, 1997. In addition, KCSI and KCSR have entered into an
Amended and Restated Employment Agreement with Mr. Haverty also effective
September 18, 1997. These Employment Agreements provide, respectively, for Mr.
Carpenter's continued employment as Vice President - Finance, Mr. Haverty's
continued employment as President and Chief Executive Officer of KCSR and Mr.
Monello's continued employment as Vice President and Chief Financial Officer
of KCSI. KCSI also agreed to continue to cause Mr. Haverty to be elected and
retained as Executive Vice President of KCSI and Director of KCSR and to use
its best efforts to enable Mr. Haverty to continue to be elected as a director
of KCSI. The Employment Agreements are subject to termination under certain
circumstances.
Pursuant to his Employment Agreement, Mr. Haverty is to receive a base
salary of $500,000 per year that shall not be increased prior to January 1,
1999 and shall not be reduced except as agreed to by the parties or as part of
a general salary reduction by KCSR applicable to all officers of KCSR. During
1996, 1997 and 1998, Mr. Haverty is not entitled to participate in any KCSI or
KCSR incentive compensation plans, but is eligible to participate in other
benefit plans or programs generally available to executive employees of KCSR.
The Employment Agreement provides that the value of
Mr. Haverty's annual compensation is fixed at $875,000 for purposes of cash
compensation based benefit plans.
Pursuant to their Employment Agreements, Messrs. Carpenter and Monello
receive as compensation for their services an annual base salary at the rate
in effect on January 1, 1996. Such salary shall not be increased prior to
January 1, 1999 and shall not be reduced except as agreed to by the parties or
as part of a general salary reduction by KCSI applicable to all officers of
KCSI. Under
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the Employment Agreements, neither Mr. Carpenter nor Mr. Monello is entitled
to participate in any KCSI or KCSR incentive compensation plan during 1996,
1997 or 1998, but is eligible to participate in other benefit plans or
programs generally made available to executive employees of KCSI. The
Employment Agreements provide that the value of Messrs. Carpenter's and
Monello's annual compensation is fixed at 175% of their annual base salaries
for purposes of cash compensation based benefit plans.
In the event of termination without cause by KCSI, Messrs. Carpenter,
Haverty and Monello would be entitled to twelve months of severance pay at an
annual rate equal to their base salary and for reimbursement for the costs of
continuing or obtaining comparable health and life insurance benefits unless
such benefits are provided by another employer. In the year in which
termination occurs, Messrs. Carpenter, Haverty and Monello shall remain
eligible to receive benefits under the KCSI Incentive Compensation Plan, if
any, and the KCSI Executive Plan. After termination, the officers shall not be
entitled to accrue or receive benefits under any other employee benefit plan,
except the officers will be entitled to participate in the KCSI Profit Sharing
Plan, the KCSI Employee Stock Ownership Plan and the KCSI 401(k) Plan in the
year of termination if such officers meet the requirements for participation
in such termination year.
As part of their Employment Agreements, Messrs. Carpenter, Haverty and
Monello have agreed not to use or disclose any KCSI trade secret (as defined
in the Employment Agreements) after any termination of their employment and
shall, immediately upon termination of employment, return to KCSI or its
subsidiaries or affiliates any trade secrets in their possession which exist
in tangible form.
If there is a change of control of KCSI (as defined in the Employment
Agreements) during the term of the Employment Agreements, the officers'
employment, executive capacity, salary and benefits would be continued for a
three-year period at levels in effect on the control change date (as that term
is defined in the Employment Agreements). During the three-year period, salary
is to be paid at a rate not less than twelve times the highest monthly base
salary paid or payable to the officers by KCSI in the twelve months
immediately prior to any change of control. During the three-year period, the
officers also would be eligible to participate in all benefit plans generally
made available to executives of their level or to the employees of KCSI
generally, would be eligible to participate in any KCSI incentive compensation
plan and would be entitled to immediately exercise all outstanding stock
options and receive a lump-sum cash payment equal to the fair market value of
all non-vested options. If the amounts payable during this three-year period
are discretionary, the benefits continued shall not be less than the average
annual amount for the three years prior to the change of control and incentive
compensation shall not be less than 75% of the maximum amount which could have
been paid to the officers under the terms of the incentive compensation plan.
With respect to unfunded employer obligations under benefit plans, the
officers would be entitled to a discounted cash payment of amounts to which
they are entitled. The officers' employment may be terminated after the
control change date, but where it is other than "for cause" (as defined in the
Employment Agreements) they would be entitled to payment of their base salary
through termination plus a discounted cash severance payment equal to 175% of
three times their annual base salaries and continuation or payment of benefits
for a three-year period at levels in effect on the control change date. The
officers also are permitted to resign employment after a change of control
upon "good reason" (as that term is defined in the Employment Agreements) and
advance written notice, and to receive the same payments and benefits as if
their employment had been terminated. The Employment Agreements also provide
for payments to such officers necessary to relieve them of certain adverse
federal income tax consequences if amounts
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received under the Agreements involve "parachute payments" under Section 4999
of the Internal Revenue Code. In addition, upon a change of control of KCSI,
funds are to be placed in trust to secure the obligations to pay any legal
expense of the officers in connection with disputes arising with respect to
the Employment Agreements.
Mr. Bailey. Mr. Bailey has the right under an agreement to require KCSI
to purchase his shares of stock of Janus Capital Corporation at a price equal
to fifteen times the defined after-tax earnings per share of Janus Capital
Corporation for the year ended December 31, 1987, or if greater, the year
ended immediately prior to the date of his notice. Under that agreement, Mr.
Bailey also is entitled upon a termination of his employment within one year
of a defined change of ownership of KCSI to receive a payment equal to his
prior year's current and deferred compensation.
INDEMNIFICATION AGREEMENTS
In 1987, KCSI entered into Indemnification Agreements with its officers
and, as approved by KCSI's stockholders at the 1987 Annual Meeting, its
directors. Such agreements are intended to supplement KCSI's officer and
director liability insurance and to provide the officers and directors with
specific contractual assurance that the protection provided by KCSI's Bylaws
will continue to be available regardless of, among other things, an amendment
to the Bylaws or a change in management or control of KCSI. The
Indemnification Agreements provide for prompt indemnification "to the fullest
extent permitted by law" and for the prompt advancement of expenses, including
attorney's fees and all other costs and expenses incurred in connection with
any action, suit or proceeding in which the director or officer is a witness
or other participant, or to which the director or officer is a party, by
reason (in whole or in part) of service in certain capacities. Under the
Agreements, KCSI's determinations of indemnity are made by a committee of
disinterested directors unless a change of control of KCSI has occurred, in
which case the KCSI determination is made by special independent counsel. The
Indemnification Agreements also provide a mechanism to seek court relief if
indemnification or expense advances are denied or not received within periods
provided in the Indemnification Agreements. Indemnification and advancement of
expenses are also provided with respect to a court proceeding initiated for a
determination of rights under the Indemnification Agreements or of certain
other matters. KCSI has entered into such Indemnification Agreements with all
current directors and officers of KCSI.
CHANGE OF CONTROL ARRANGEMENTS
KCSI has established a series of trusts that are intended to secure the
rights of its officers, directors, employees, former employees and others (the
"Beneficiaries") under various contracts, benefit plans, agreements,
arrangements and commitments. The function of each trust is to receive
contributions from KCSI and, following a change of control of KCSI (as defined
by the trust), in the event that KCSI fails to honor certain obligations to a
Beneficiary, the trust shall distribute to the Beneficiary amounts accumulated
in such Beneficiary's trust account sufficient to discharge KCSI's obligation
as such amounts become due and payable. Most of the trusts require KCSI to be
solvent as a condition to making distributions, and certain trusts allow
distributions upon Board of Directors' approval prior to a change of control.
Trusts have been instituted with respect to the employment continuation
commitments under the KCSI Employment Agreements, the Executive Plan, the
Directors' Deferred Fee and Retirement Plans, the Indemnification Agreements,
Stock Option Plans, and KCSI's charitable contribution commitments in addition
to certain other agreements, commitments and arrangements. The trusts are
revocable until a change of control of KCSI and will terminate
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automatically if no such change of control occurs prior to December 31, 1998,
unless the trusts are extended prior to such date.
KCSR has established similar trusts relating to its employment
continuation commitments under the Employment Agreements, Directors' Deferred
Fee and Retirement Plans and incentive compensation arrangements, in addition
to certain other agreements, commitments and arrangements. KCSR also
established a similar trust with respect to its participation in the Executive
Plan. As with the KCSI trusts, distributions under the KCSR trust are tied to
failures by the respective companies to honor their obligations to their
respective Beneficiaries following a change of control of KCSI.
OTHER COMPENSATORY PLANS
KCSI and its subsidiaries maintain compensation plans for certain of
their officers and employees. The description of the plans set forth below is
of those plans under which the executives named in the Summary Compensation
Table would be eligible to receive benefits in excess of $100,000 if they were
to have retired from or terminated their employment with KCSI or its
subsidiaries on December 31, 1997.
THE EMPLOYEE STOCK OWNERSHIP PLAN
The Employee Stock Ownership Plan of Kansas City Southern Industries,
Inc. (the "KCSI ESOP") is designed to be a qualified employee stock ownership
plan under the Internal Revenue Code of 1986, as amended (the "Code").
Employees of KCSI and certain of its subsidiaries, including Janus Capital
Corporation, participate in the KCSI ESOP.
By its terms, the ESOP will continue until terminated. All employees of
KCSI and certain KCSI subsidiaries not subject to a collective bargaining
agreement become eligible to begin participation in the KCSI ESOP on January 1
or July 1 coincident with or immediately following commencement of their
employment. As of December 31, 1997, approximately 1,640 employees of KCSI and
certain of its subsidiaries, including all of KCSI's executive officers, were
eligible to participate in the KCSI ESOP.
The KCSI ESOP is designed to invest primarily in shares of KCSI Common
Stock. KCSI will provide funding for the ESOP through contributions in cash or
in shares of KCSI Common Stock as determined each year by the Board of
Directors. Participants may not make contributions to the ESOP. Contributions
will be limited by the maximum contribution limitations for qualified employee
stock ownership plans under the Code.
Allocations, if any, to participant accounts in the KCSI ESOP with
respect to any plan year are based upon each participant's proportionate share
of the total compensation paid during the plan year to all participants in the
KCSI ESOP, subject to maximum allocation limitations under the Code.
Forfeitures are similarly allocated. For this purpose, compensation includes
only compensation received during the period the individual was actually a
participant in the KCSI ESOP.
A participant with less than five years of service is not vested in
KCSI's contributions, forfeitures and earnings. However, a participant becomes
100% vested upon completion of five years of service. In addition, a
participant becomes 100% vested at retirement, death or disability.
Participants have been given credit for vesting purposes for years of service
rendered to KCSI or its subsidiaries prior to the establishment of the KCSI
ESOP.
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Each participant has the right to direct the trustee as to the manner in
which (a) to vote any KCSI stock allocated to his or her account in the KCSI
ESOP as of the applicable record date of any stockholder meeting on any
matters put to a stockholder vote, and (b) to respond with respect to a tender
offer, exchange offer or any other offer to purchase KCSI stock allocated to
the participant's account. The KCSI ESOP provides that shares allocated to the
accounts of participants who have not timely instructed the trustee how to
vote, tender, exchange or sell such shares, and any unallocated shares will be
voted, tendered, exchanged or sold in the same proportions as the shares for
which the trustee has received timely instructions.
Distributions of benefits under the KCSI ESOP will be made in connection
with a participant's death, disability, retirement or other termination of
employment. In addition, participants who have attained age fifty-five and
have at least ten years of participation in the KCSI ESOP have the option to
diversify the investment of a portion of their account balances by having the
trustee distribute a portion of their account balances. A participant in the
KCSI ESOP has the right to select whether payment of his or her benefit will
take the form of cash, whole shares of KCSI stock or a combination thereof. In
the event no election is made, the payment shall be made in KCSI stock. A
participant may further opt to receive payment in a lump sum, in installments
or in a combination thereof. In the event that the Board of Directors declares
a cash dividend on the KCSI Common Stock, at the discretion of the Advisory
Committee, dividends paid on the shares of KCSI Common Stock held by the KCSI
ESOP may be: (i) paid directly to participants on the basis of the number of
shares of KCSI Common Stock allocated to each participant's account; (ii)
retained by the KCSI ESOP; or (iii) used by the KCSI ESOP to pay interest or
principal on indebtedness incurred to acquire the shares on which the
dividends are paid.
Pursuant to the KCSI ESOP trust agreement, a trust fund has been
established to hold contributions thereto and the proceeds from investments
for the benefit of KCSI ESOP participants. The KCSI ESOP is administered by an
Advisory Committee appointed by KCSI's Board of Directors. The current members
of the Advisory Committee are officers and/or employees of KCSI or Janus. As
trustee, UMB Bank, N.A. has the power to invest the KCSI ESOP's funds, to sell
the securities and other properties of the KCSI ESOP, and to change the KCSI
ESOP's investments from time to time. The KCSI ESOP may be amended by KCSI's
Board of Directors or the Compensation and Organization Committee and such
amendment could increase the costs to KCSI, although it may not adversely
affect any person's accrued benefits under the KCSI ESOP.
As of the Record Date, the KCSI ESOP held 5,340,746 shares of KCSI's
Common Stock, all of which are allocated to participants' accounts. The shares
allocated to participants' accounts do not reflect allocations made subsequent
to December 31, 1997, that for purposes of the KCSI ESOP are allocated to
participants' accounts as of December 31, 1997. The KCSI ESOP borrowed funds
to purchase a number of the shares it holds, which borrowing was secured by
such shares and by a KCSI guaranty. The debt was fully repaid in August 1995.
The debt was paid through contributions by KCSI and participating subsidiaries
to the KCSI ESOP and a portion of the dividends paid on the KCSI ESOP shares.
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KCSI PROFIT SHARING PLAN
The Profit Sharing Plan is a qualified, non-contributory, defined
contribution plan. As of January 1, 1997, employees of KCSI and certain of its
subsidiaries who have met certain standards as to hours of service are
eligible to receive allocations under the Profit Sharing Plan. Contributions
to the Profit Sharing Plan are made at the discretion of the KCSI Board of
Directors in amounts not to exceed the maximum allowable deduction for federal
income tax purposes and certain allocation limits under the Internal Revenue
Code of 1986, as amended (the "Code"). No minimum contribution is required.
Subject to maximum allocations limitations under the Code, each participant is
allocated the same percentage of the total contribution as the participant's
compensation bears to the total compensation of all participants. Prior to
January 1, 1996, vesting occurred under the Profit Sharing Plan at the rate of
10% for each year of service for the first four years and thereafter at the
rate of 20% until the participant was fully vested. As of January 1, 1996, the
vesting schedule was changed to a rate of 25% at three years of service, 50%
at four years of service and 100% at five years of service. A participant's
interest also becomes fully vested at retirement, death or disability.
Distribution of benefits under the Profit Sharing Plan will be made in
connection with a participant's death, disability, retirement or other
termination of employment. A participant has the right to elect whether
payment of his or her benefits will be in a lump sum, in installments, or in a
combination thereof.
The assets of the Profit Sharing Plan are held in a trust fund by a
trustee appointed by the KCSI Board of Directors. The Profit Sharing Plan is
administered by an Advisory Committee appointed by KCSI's Board of Directors.
The current members of the Advisory Committee are officers and employees of
KCSI. The trustee has the responsibility for holding and investing Profit
Sharing Plan assets other than assets managed by an investment manager or
managers appointed by the Advisory Committee. The Profit Sharing Plan may be
amended by KCSI's Board of Directors and such amendment could increase the
cost of the Profit Sharing Plan to KCSI, although it may not adversely affect
any person's accrued benefits under the Profit Sharing Plan.
KCSI EXECUTIVE PLAN
Due to contribution limitations under the Code and ERISA and eligibility
requirements under KCSI's qualified plans, the Executive Plan provides
benefits in addition to the annual contributions permitted under qualified
plans of KCSI and certain subsidiary companies. The Executive Plan is a non-
qualified plan for participants who are certain employees and officers of KCSI
and certain subsidiary companies.
The benefit accrued on behalf of each participant in the Executive Plan
equals the amount which would have been contributed for such participant under
the various qualified plans without regard to statutory contribution
limitations or eligibility requirements, less the amount participants were
entitled to receive under such plans (assuming, with respect to KCSI's 401(k)
Plan, that the participant was entitled to receive the maximum matching
contribution). Each participant may elect to receive the annual benefit
available under the Executive Plan either in cash or through a grant of non-
qualified stock options to purchase shares of common stock of KCSI. For
purposes of the Executive Plan, compensation includes base compensation plus
cash incentive compensation; however, if KCSI and the participant have agreed
that the participant's compensation is a fixed amount for purposes of the
Executive Plan, such amount is deemed to be the participant's compensation.
The compensation of
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Mr. Rowland has been fixed at $875,000, and compensation for Messrs.
Carpenter, Monello and Haverty has been fixed at 175% of their annual base
salaries for the Executive Plan as provided in their Employment Agreements.
JANUS PROFIT SHARING PLAN
The Janus Profit Sharing Plan is a qualified, non-contributory, defined
contribution plan administered by Janus' Profit Sharing Advisory Committee.
Employees of Janus and certain of its subsidiaries who have completed one year
of service and meet certain standards as to hours of service are eligible to
receive allocations under the Janus Profit Sharing Plan. Effective as of
January 1, 1996, the requirement of one year of service was eliminated.
Contributions to the Janus Profit Sharing Plan are at the discretion of the
Board of Directors with no minimum contribution required. Each participant is
allocated the same percentage of the total contribution as the participant's
compensation bears to the total compensation of all participants. The Janus
Profit Sharing Plan provides for vesting at the rate of 25% after three years
of service, 50% after four years of service, and 100% after five years of
service. A participant's interest also becomes fully vested at retirement,
death or disability.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of KCSI or its subsidiaries do
not receive any fees or other compensation for service on the Board or its
committees. No fees were paid during 1997 to any director or officer of KCSI
for service on any board of directors of any subsidiary of KCSI other than
Janus Capital Corporation, which pays fees to Mr. Bailey. (Although Mr.
Rowland serves as a director of Janus Capital Corporation, he does not accept
any fees for such service.)
The Outside Directors (those directors who are not employees of KCSI or
its subsidiaries) are not paid any retainers for Board or committee
membership. The Outside Directors are paid $4,000 for each Board meeting if
attended in person or $2,000 for participation by telephone. The Outside
Directors are also paid $2,000 for each committee meeting if attended in
person or $1,000 for participation by telephone. The Chair of a committee
receives an extra $500 for each committee meeting. The Outside Directors also
are automatically granted options to buy 3,000 shares of KCSI Common Stock
immediately following each annual meeting of KCSI's stockholders. In addition,
a one-time grant of options to purchase 6,000 shares of KCSI Common Stock is
made when an Outside Director first joins the Board.
Directors of KCSI are (and directors of certain KCSI subsidiaries were)
permitted to defer receipt of directors' fees under unfunded directors'
deferred fee plans adopted by the respective Boards of Directors of each such
corporation, and either to receive interest on such fees until they have been
paid to them or, in the case of KCSI directors, in lieu of receiving interest,
to have earnings on their deferred fees determined pursuant to a formula based
on the performance of certain mutual funds advised by Janus Capital
Corporation. The rate of interest to be paid under the KCSI and KCSR plans is
set at the prime rate of a certain national bank on the last business day of
the calendar year less 1%. Distributions under the plans are allowed in
certain instances as approved by the respective Boards of Directors. The KCSI
and KCSR deferred fee plans also allow the respective directors to elect to
receive deferred amounts in installments payable over several years.
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STOCKHOLDER PROPOSALS
1999 ANNUAL MEETING PROXY STATEMENT
If a holder of KCSI Common Stock or Preferred Stock wishes to present a
proposal, other than the election of a director, in KCSI's Proxy Statement for
next year's annual meeting of stockholders, such proposal must be received by
KCSI on or before November 26, 1998. Such proposal must be made in accordance
with the applicable laws and rules of the Securities and Exchange Commission
and the interpretations thereof. Any such proposal should be sent to the
Corporate Secretary of KCSI at 114 West 11th Street, Kansas City, Missouri
64105-1804.
By Order of the Board of Directors,
Richard P. Bruening
Vice President, General Counsel
and Corporate Secretary
Kansas City, Missouri
June 9, 1998
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APPENDIX A
FORM OF CERTIFICATE OF
AMENDMENT OF CERTIFICATE OF INCORPORATION
OF KANSAS CITY SOUTHERN INDUSTRIES, INC.
[DATE]
Kansas City Southern Industries, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, as amended (the "DGCL"), DOES HEREBY CERTIFY:
FIRST, that at a meeting of the Board of Directors of the Corporation on
April 29, 1998, resolutions were duly adopted setting forth proposed
amendments of the Corporation's Certificate of Incorporation, declaring the
amendments to be advisable and directing that the proposed amendments be
considered at a special meeting of the stockholders of the Corporation. Said
amendments add the following paragraphs immediately following the first
paragraph of paragraph "FOURTH" of the Corporation's Certificate of
Incorporation, as amended and restated on April 17, 1998:
RESOLVED, this Corporation's Certificate of Incorporation be
amended (this "Amendment") so that every two outstanding shares of
this Corporation's Common Stock, par value $0.01 per share (the
"Common Stock"), be, upon the effectiveness of this Amendment,
combined into one share of Common Stock (the "Split Ratio");
provided, however, that fractional shares of Common Stock will not
be issued in connection with such combination, and each holder of
a fractional share of Common Stock shall receive in lieu thereof a
cash payment (the "Fractional Share Payment") from the Corporation
determined by multiplying two times such fractional share of
Common Stock by the average closing price per share of Common
Stock on the New York Stock Exchange for the five trading days
immediately preceding the effective date of this Amendment.
FURTHER RESOLVED, that certificates representing shares of
Common Stock outstanding prior to the effective date of this
Amendment be canceled as of such effective date and, upon
presentation of the canceled certificates to the Corporation, the
holders thereof shall be entitled to receive new certificates
representing the whole shares resulting from such combination
together with the Fractional Share Payment, which payment to be
made upon such other terms and conditions as the officers of the
Corporation, in their judgment, determine to be advisable and in
the best interests of the Corporation.
SECOND, that thereafter, pursuant to resolution of the Corporation's
Board of Directors, a special meeting of the stockholders of the Corporation
was duly called and held, upon notice, such notice describing such amendments,
in accordance with Section 222 of the DGCL at which meeting in excess of the
necessary number of shares as required by statute and the Corporation's
Certificate of Incorporation (including the necessary number of shares of each
class of stock, where class votes were required) were voted in favor of the
above amendments.
THIRD, that these amendments were duly adopted in accordance with the
provisions of Section 242 of the DGCL.
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FOURTH, that the capital of the Corporation shall not be reduced by
reason of said amendments.
FIFTH, that this Amendment shall be effective .*
IN WITNESS WHEREOF, Kansas City Southern Industries, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Richard P. Bruening, Senior Vice President and General Counsel, and Sherry K.
Cooper, its Assistant Secretary, as of the date first written above.
_____________________________________
Richard P. Bruening
Vice President, General Counsel and
Corporate Secretary
Attest:
[CORPORATE SEAL]
_____________________________________
Sherry K. Cooper
Assistant Secretary
* This will be completed at the time of filing as determined by the Board
of Directors or a committee thereof.
(Remainder of page intentionally left blank.)
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APPENDIX B
BERGER ASSOCIATES, INC.
STOCK OPTION PLAN
[The plan below includes the December 19, 1997 amendment to take into
account a recapitalization of Berger Associates, Inc. as further explained in
Proposal 2 above. The changed text is indicated by brackets below.]
THE PLAN. Berger Associates, Inc. (the "Company") hereby establishes the
Berger Associates, Inc. Stock Option Plan as set forth herein and as it may
from time to time be amended (the "Plan"), effective as of the date of
execution as set forth on the signature page hereof.
1. PURPOSE. The purpose of the Plan is to provide a means by which
key employees of the Company and its Subsidiaries can acquire and maintain
Stock ownership, thereby strengthening their commitment to the success of the
Company and their desire to remain employed by the Company and its
Subsidiaries. It is anticipated that the acquisition of such Stock ownership
will stimulate the efforts of such employees on behalf of the Company,
strengthen their desire to continue in the service of the Company and
encourage shareholder and entrepreneurial perspectives through employee stock
ownership. It is also anticipated that the opportunity to obtain such Stock
ownership will prove attractive to promising new key employees and will assist
the Company in attracting such employees.
2. DEFINITIONS. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by
such definitions, and the terms set forth below shall have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
(a) "Affiliate" means any corporation or other entity which directly
or through intervening entities owns more than 50% of the combined voting
power or value of all shares of stock of a corporation or more than 50% of the
capital and profits interest of an unincorporated entity, and any corporation
or other entity so owned by an Affiliate.
(b) "Award" means an option granted under the Plan.
(c) "Award Agreement" has the meaning specified in Section 4(b)(v).
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" (i) if the terms and conditions of the Grantee's
employment by the Company are governed by an employment contract that
addresses termination for cause and defines "cause" or "for cause" for such
purpose, "Cause" means "cause" or "for cause" as defined in such employment
contract, or (ii) in all other cases means (A) the continued failure of the
Grantee to perform his duties in a manner substantially consistent with the
manner prescribed by the Board or by an executive officer more senior to the
Grantee (other than any such failure resulting from his incapacity due to
physical or mental illness), (B) the engaging by the Grantee in misconduct
materially injurious to the Company, (C) any action or omission of the Grantee
which is a material violation of the Company's, Securities and Exchange
Commission's or other federal or state regulatory agency's standards of
conduct or ethical rules, or (D) commission by the Grantee of a felony or
other crime
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involving dishonesty or moral turpitude, whether or not such felony or other
crime was committed in connection with the Company's business.
(f) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of the
Code shall include references to successor provisions.
(g) "Committee" means the committee appointed pursuant to Section 4.
(h) "Company" has the meaning set forth in the introductory paragraph.
(i) "Disability" means, as relates to the exercise of an incentive
stock option after Termination of Employment, a disability within the meaning
of Section 22(e)(3) of the Code, and, for all other purposes, a mental or
physical condition which, in the opinion of the Committee, renders a Grantee
unable to perform the essential functions of his job with or without reasonable
accommodation, and which is expected to be permanent or for an indefinite
duration exceeding one year.
(j) "Effective Time" means the date of execution of the Plan as set
forth on the signature page hereof.
(k) "Fair Market Value" of a share of Stock as of any date means the
Fair Market Value determined by the Committee in good faith in accordance with
Appendix I.
(l) "Grant Date" means the date on which an Award shall be duly
granted, as determined in accordance with Section 6(a)(i).
(m) "Grantee" means an individual who has been granted an Award.
(n) "including" or "includes" means "including, without limitation," or
"includes, without limitation."
(o) "Optionee" means the Grantee or such other person who has been
assigned or who has succeeded pursuant to Section 6(c)(vii), Section 7, or
Section 12(c) to the Grantee's right to exercise an option.
(p) "Option Price" means the per share purchase price of Stock subject
to an option.
(q) "Permitted Transferee" means a person who is Grantee's spouse,
lineal ancestor, lineal descendant, a spouse of such ancestor or descendant, a
trust primarily for the benefit of Grantee or one or more of such persons, or a
partnership all the partners of which are Grantee or one or more of such
persons.
(r) "Plan" has the meaning set forth in the introductory paragraph.
(s) "Retirement" means a Termination of Employment for any reason other
than Cause, death or Disability at or after attaining age 65.
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(t) "Share Withholding" has the meaning set forth in Section 11(a).
(u) "Stock" means the common stock of the Company.
(v) "Subsidiary" means (i) with respect to incentive stock options, a
corporation as defined in Section 424(f) of the Code with the Company being
treated as the employer corporation for purposes of this definition, and (ii)
for all other purposes any entity in which the Company directly or through
intervening subsidiaries owns eighty percent (80%) or more of the total
combined voting power or value of all classes of stock or, in the case of an
unincorporated entity, an eighty percent (80%) or more interest in the capital
and profits.
(w) "Taxable Event" has the meaning set forth in Section 11(a).
(x) "Tax Date" means the date on which an Award is exercised as set
forth in Section 11(b).
(y) "Tendered Stock" has the meaning specified in Section 13.
(z) "10% Owner" means a person who owns stock (including stock treated
as owned under Section 424(d) of the Code) possessing more than 10% of the
total combined voting power of all classes of stock of the Company.
(aa) "Termination of Employment" occurs the first day an individual is
no longer employed by the Company or any of its Subsidiaries, including the
individual's continued employment by an entity that ceases to be an Affiliate
of the Company as determined by the Committee.
(ab) "Voting Power" means the combined voting power of the then-
outstanding securities of a corporation entitled to vote generally in the
election of directors.
3. SCOPE OF THE PLAN.
(a) An aggregate of [300,000] shares of Stock is hereby made available
and is reserved for delivery on account of the exercise of Awards. Such shares
may be treasury shares or newly issued shares, as may be determined from time
to time by the Board or the Committee. In order to assure that no Award would
result in the Company no longer being includable in a consolidated federal
income tax return with Kansas City Southern Industries, Inc. ("KCSI"), any of
the provisions herein to the contrary notwithstanding, no grant of Awards
hereunder shall be made which, when added to all prior Awards, or which, upon
exercise of such prior Awards and such Award, would result in KCSI ceasing to
own at least 80% of the Stock, or which would otherwise result in the Company
and KCSI ceasing to be members of an affiliated group as defined in Section
1504(a) of the Code; and any such Award, commencing with the most recently
granted Award, shall, to the extent it would have such result, be void and
unenforceable.
(b) If and to the extent (i) an Award shall expire or terminate for any
reason without having been exercised in full or shall be forfeited, without, in
either case, the Grantee having enjoyed any of the benefits of stock ownership,
or (ii) Stock is used to pay the Option Price for Stock subject to an option,
the shares of Stock associated with such Award or used to pay the Option Price
shall become available under subsection (a) for other Awards.
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(c) The aggregate number of shares of Stock that may be represented by
Awards made under this Plan to any single individual Grantee for any calendar
year during which this Plan is in effect shall not exceed [100,000] shares of
Stock.
4. ADMINISTRATION.
(a) The Plan shall be administered by a committee ("Committee") which
shall consist of one or more members, who shall be appointed by the Board, any
of whom may be removed by the Board with or without cause, and in the absence
of such appointment, the Board shall be the Committee. Membership on the
Committee shall be subject to such other limitations as the Board deems
appropriate.
(b) The Committee shall have full and final authority, in its
discretion, but subject to the express provisions of the Plan, as follows:
(i) to grant Awards, provided, however, that any Award
representing more than [40,000] shares of Stock shall be valid and
enforceable only if such Award has been authorized, approved or ratified
(before or after the making of the Award) by the Compensation Committee
of the KCSI Board of Directors;
(ii) to (A) determine when Awards may be granted and (B) to
impose such additional restrictions or conditions on the exercise of an
Award (including specifying vesting or performance requirements or other
criteria) as the Committee may deem appropriate;
(iii) to interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan;
(iv) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including rules with respect to the exercisability
and nonforfeitability of Awards upon the Termination of Employment of a
Grantee;
(v) to determine the terms and provisions and any restrictions
or conditions (including specifying any performance or other criteria as
the Committee deems appropriate, and imposing restrictions in addition
to the restrictions of Section 13 with respect to Stock acquired upon
exercise of an option, which restrictions may continue beyond the
Grantee's Termination of Employment) of the written agreements by which
all Awards shall be evidenced ("Award Agreements") which need not be
identical and, with the consent of the Grantee, to modify any such Award
Agreement at any time;
(vi) to accelerate the exercisability of, and to accelerate or
waive any or all of the restrictions and conditions applicable to, any
Award, or any group of Awards for any reason; and
(vii) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as are not
inconsistent with the Plan and as the Committee may, before or
concurrently with the grant thereof, deem appropriate.
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The determination of the Committee on all matters relating to the Plan or any
Award Agreement shall be conclusive and final. No member of the Committee shall
be liable for any action or determination made with respect to the Plan or any
Award.
5. ELIGIBILITY. Awards may be granted to any employee of the Company
or any of its Subsidiaries. In selecting the individuals to whom Awards may be
granted, as well as in determining the number of shares of Stock subject to,
and the other terms and conditions applicable to, each Award, the Committee
shall take into consideration such factors as it deems relevant in promoting
the purposes of the Plan.
6. CONDITIONS TO GRANTS.
(a) General Conditions.
(i)The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified by the Committee.
(ii)The term of each Award shall be such period as may be specified
by the Committee, in its sole discretion, in the Award Agreement; provided that
the term shall under no circumstances extend more than 10 years after the Grant
Date.
(iii)A Grantee may, if otherwise eligible, be granted additional
Awards in any combination.
(b) GRANT OF OPTIONS AND OPTION PRICE. No later than the Grant Date of
any option, the Committee shall determine the Option Price of such option. The
Option Price of an option shall not be less than 100% of the Fair Market Value
of the Stock on the Grant Date.
(c) GRANT OF INCENTIVE STOCK OPTIONS. At the time of the grant of any
option, the Committee may designate that such option shall be made subject to
additional restrictions to permit it to qualify as an "incentive stock option"
under the requirements of Section 422 of the Code. Any option designated as an
incentive stock option:
(i) shall have an Option Price of (A) not less than 100% of the
Fair Market Value of the Stock on the Grant Date or (B) in the case of a
10% Owner, not less than 110% of the Fair Market Value of the Stock on
the Grant Date;
(ii) shall be for a period of not more than 10 years (five years,
in the case of a 10% Owner) from the Grant Date, and shall be subject to
earlier termination as provided herein or in the applicable Award
Agreement;
(iii) shall not have an aggregate Fair Market Value (determined
for each incentive stock option at its Grant Date) of Stock with respect
to which incentive stock options are exercisable for the first time by
such Grantee during any calendar year (under the Plan and any other
employee stock option plan of the Grantee's employer or any parent or
Subsidiary thereof ("Other Plans")), determined in accordance with the
provisions of Section 422 of the Code, which exceeds $100,000 (the
"$100,000 Limit");
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(iv) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to all incentive stock
options previously granted under the Plan and any Other Plans ("Prior
Grants") and any incentive stock options under such grant (the "Current
Grant") which are exercisable for the first time during any calendar
year would exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant exercisable for the
first time by the Grantee during any calendar year which would,
when added to any portions of any Prior Grants first exercisable
in such year, be exercisable for the first time by the Grantee
during such calendar year with respect to Stock which would have
an aggregate Fair Market Value (determined as of the respective
Grant Date for such options) in excess of the $100,000 Limit
shall, notwithstanding the terms of the Current Grant, be
exercisable for the first time by the Grantee in the first
subsequent calendar year or years in which it could be exercisable
for the first time by the Grantee when added to all Prior Grants
without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under
subparagraph (A) during any calendar year commencing with the
calendar year in which it is first exercisable through and
including the last calendar year in which it may by its terms be
exercised, such portion of the Current Grant shall not be an
incentive stock option, but shall be exercisable as a separate
option at such date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company;
(vi) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the
incentive stock option under the circumstances described in Section
421(b) of the Code (relating to certain disqualifying dispositions),
within 10 days of such disposition; and
(vii) shall by its terms not be assignable or transferable other
than by will or the laws of descent and distribution and may be
exercised, during the Grantee's lifetime, only by the Grantee; provided,
however, that the Grantee may, in any manner specified by the Committee,
designate in writing a beneficiary who is a Permitted Transferee to
exercise his incentive stock option after the Grantee's death.
Notwithstanding the foregoing and Section 4(b)(v), the Committee may, without
the consent of the Grantee, at any time before the exercise of an option
(whether or not an incentive stock option), take any action necessary to
prevent such option from being treated as an incentive stock option.
7. NON-TRANSFERABILITY. Each Award granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution provided, however, that (i) a Grantee may in any manner specified
by the Committee designate in writing a beneficiary who is a Permitted
Transferee to exercise his Award after the Grantee's death, and (ii) a Grantee
may assign his Award to a Permitted Transferee.
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8. EXERCISE. Subject to Sections 4(b)(vi) and 13 and such terms and
conditions as the Committee may impose, each option shall be exercisable in one
or more installments commencing not earlier than the vesting date or dates
specified in the Award (and in no event earlier than the Grant Date of such
option).
Each option shall be exercised by delivery to the Company at the
principal place of business, to the attention of the Secretary, during normal
business hours, of written notice of intent to purchase a specific number of
shares of Stock subject to the option, together with a signed Restriction
Agreement in form attached as Appendix II. The Option Price of any shares of
Stock as to which an option shall be exercised shall be paid in full at the
time of the exercise. Payment may, at the election of the Grantee, be made in
any one or any combination of the following:
(i) cash;
(ii) with the prior approval of the Committee, by tendering Stock
valued at its Fair Market Value on the date of exercise; provided,
however, that if such shares of Stock were acquired by the person
exercising the Award from the Company or an Affiliate, the shares of
Stock shall have been held for at least six months; or
(iii) with the prior approval of the Committee, and to the extent
permitted by law, a note representing a loan in accordance with Section
9.
9. LOANS AND GUARANTEES. The Committee may, in its discretion:
(a) allow an Optionee to defer payment to the Company of all or any
portion of (i) the Option Price of an option and (ii) any taxes associated with
a benefit hereunder which is not a cash benefit at the time such benefit is so
taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Optionee, in an amount equal to all or any portion of such Option Price and any
related taxes.
Any such payment deferral by the Company pursuant to this Section 9 shall
be represented by a full recourse negotiable note of the Optionee, bearing
interest at a rate determined by the Committee not less than the applicable
federal rate in effect at the time the deferral is allowed, as determined and
published by the Secretary of the Treasury pursuant to Section 1274(d) of the
Code, secured by a pledge of the Stock acquired by exercise of the option, and
including such other terms and conditions not inconsistent with this Plan as
the Committee may determine. An Optionee shall not be entitled to defer the
payment of such Option Price or any related taxes unless the Optionee enters
into a binding obligation to pay the deferred amount.
10. MANDATORY WITHHOLDING TAXES.
(a) Whenever, under the Plan, shares of Stock are to be delivered upon
exercise of an Award, the Company shall be entitled to require as a condition
of delivery (i) that the Optionee remit an amount sufficient to satisfy all
federal, state, and local withholding tax requirements related thereto, (ii)
the withholding of such sums from compensation otherwise due to the Optionee or
from any shares of Stock due to the Optionee under the Plan or (iii) any
combination of the foregoing.
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(b) If any disqualifying disposition described in Section 6(c)(vi) is
made with respect to shares of Stock acquired under an incentive stock option
granted pursuant to the Plan, then the person making such disqualifying
disposition or election shall remit to the Company an amount sufficient to
satisfy all federal, state, and local withholding taxes thereby incurred;
provided that, in lieu of or in addition to the foregoing, the Company shall
have the right to withhold such sums from any payment whether of compensation
or otherwise due to the Grantee or Optionee or from any shares of Stock due to
the Grantee or Optionee under the Plan.
11. ELECTIVE SHARE WITHHOLDING.
(a) Subject to Section 11(b), a Grantee may elect the withholding
("Share Withholding") by the Company of a portion of the shares of Stock
otherwise deliverable to an Optionee upon the exercise of an Award (each a
"Taxable Event") having a Fair Market Value equal to the minimum amount
necessary to satisfy required federal, state, or local withholding tax
liability attributable to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to
the following restrictions:
(i) any Grantee's election shall be subject to the Committee's
right to revoke such election of Share Withholding by such Grantee at
any time before the Optionee exercises the Award;
(ii) the Grantee's election must be made on or before the date on
which the Award is exercised; and
(iii) the Grantee's election shall be irrevocable.
12. TERMINATION OF EMPLOYMENT.
(a) FOR ANY REASON OTHER THAN CAUSE, RETIREMENT, DEATH OR
DISABILITY. Except as otherwise provided by the Committee in the Award
Agreement, if a Grantee has a Termination of Employment for any reason other
than for Cause, Retirement, death or Disability, then any unexercised option,
to the extent exercisable immediately before the Grantee's Termination of
Employment, may be exercised in whole or in part, not later than three months
after such Termination of Employment (but only during the term of the option).
(b) FOR CAUSE. If a Grantee has a Termination of Employment for Cause,
any unexercised options shall terminate immediately upon the date of the
Grantee's Termination of Employment.
(c) FOR RETIREMENT, DEATH OR DISABILITY. Except as otherwise provided
in the Award Agreement, if a Grantee has a Termination of Employment on account
of the Grantee's Retirement, death or Disability, then any unexercised options
may be exercised, in whole or in part, within 175 days after such Termination
of Employment (but only during the term of the option) by the Grantee or, after
his or her death, by (A) his or her personal representative or by the person to
whom the option is transferred by will or the applicable laws of descent and
distribution, or (B) the Grantee's beneficiary designated in accordance with
Section 6(c)(vii) or 7.
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13. RESTRICTIONS ON STOCK. All shares of Stock delivered on account of
the exercise of Awards shall be subject to the restrictions set forth in
Appendix III; moreover, in addition to the restrictions set out in Appendix
III, if Stock bearing other restrictions ("Tendered Stock") is used to pay the
Option Price for Stock subject to an option, then the Committee may, but need
not, specify that a number of shares of Stock acquired on exercise of the
option equal to the number of shares of Tendered Stock shall, unless the
Committee provides otherwise, be subject to the same restrictions as the
Tendered Stock, determined as of the date of exercise of the option.
14. SECURITIES LAW MATTERS.
(a) If the Committee deems necessary to comply with the Securities Act
of 1933, the Committee may require a written investment intent representation
by the Optionee and may require that a restrictive legend be affixed to
certificates for shares of Stock.
(b) If, based upon the opinion of counsel for the Company, the
Committee determines that the exercise or nonforfeitability of, or delivery of
benefits pursuant to, any Award would violate any provision of (i) federal or
state securities laws or (ii) the listing requirements of any national
securities exchange applicable to the Company or any corporation of which the
Company is an affiliate as determined under such laws or requirements, then the
Committee may postpone any such exercise, nonforfeitability or delivery, as the
case may be, but the Company shall use its best efforts to cause such exercise,
nonforfeitability or delivery to comply with all such provisions at the
earliest practicable date.
15. FUNDING. Benefits payable under the Plan to any person shall be
paid directly by the Company. The Company shall not be required to fund, or
otherwise segregate assets to be used for payment of, benefits under the Plan.
16. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan nor the
granting of any Award shall be construed to (a) give any Grantee the right to
remain employed by the Company or any of its Subsidiaries or to any benefits
not specifically provided by the Plan or (b) in any manner modify the right of
the Company or any of its Subsidiaries to modify, amend, or terminate any of
its employee benefit plans.
17. RIGHTS AS A STOCKHOLDER. A Grantee or Optionee shall not, by reason
of any Award, have any right as a stockholder of the Company with respect to
the shares of Stock which may be deliverable upon exercise or payment of such
Award until such shares have been delivered to him.
18. NATURE OF PAYMENTS. Any and all grants or deliveries of shares of
Stock hereunder shall constitute special incentive payments to the Grantee and
shall not be taken into account in computing the amount of salary or
compensation of the Grantee for the purposes of determining any pension,
retirement, death or other benefits under (a) any pension, retirement, profit-
sharing, bonus, life insurance or other employee benefit plan of the Company or
any of its Subsidiaries or (b) any agreement between the Company or any
Subsidiary, on the one hand, and the Grantee, on the other hand, except as such
plan or agreement shall otherwise expressly provide.
19. SUBSTITUTION OF AWARDS. Upon or in anticipation of any
recapitalization, merger, consolidation, reorganization, liquidation,
dissolution or similar event (whether or not also described in Section 21) by
reason of which the Company or the Shares cease to exist:
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(a) if (i) any person offers to issue awards ("Replacement Awards") in
substitution of Awards under this Plan, (ii) in the determination of the
Committee the economic value of the Replacement Awards is equivalent to the
then-existing difference between the Option Price under an Award and the Fair
Market Value of the Stock subject to the Award, and (iii) in the determination
of the Committee the other terms and conditions of the Replacement Awards are
as similar as practicable under the circumstances to the outstanding Awards
under this Plan, then the Committee may determine that each outstanding Award
shall be cancelled and replaced by the Replacement Award; or
(b) the Committee may determine that any outstanding Award shall become
immediately exercisable in full or in such part as determined by the Committee;
or
(c) the Committee may determine that any outstanding Award that remains
outstanding as of the date of such event shall be cancelled and the Optionee
paid in cash an amount equal to the excess of (i) the highest price per share
(in cash or in other consideration valued at its Fair Market Value) paid to any
shareholder of the Company in connection with such event, over (ii) the Option
Price, multiplied by the number of shares subject to the option.
20. NON-UNIFORM DETERMINATIONS. Neither the Committee's nor the Board's
determinations under the Plan need be uniform and may be made by the Committee
or the Board selectively among persons who receive, or are eligible to receive,
Awards (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall be entitled, among other
things, to make non-uniform and selective determinations, to enter into non-
uniform and selective Award Agreements as to (a) the identity of the Grantees,
(b) the terms and provisions of Awards, and (c) the treatment, under Section
12, of terminations of employment. Notwithstanding the foregoing, the
Committee's interpretation of Plan provisions shall be uniform as to similarly
situated Grantees or Optionees.
21. ADJUSTMENTS. The Committee shall make equitable adjustment of:
(a) the aggregate numbers of shares of Stock specified in Sections 3(a)
and 3(c);
(b) the number of shares of Stock specified in Section 4(b)(i);
(c) the number of shares of Stock covered by an Award; and
(d) the Option Price,
to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, acquisition of property
or shares, separation, asset spin off, reorganization, stock rights offering,
liquidation or similar event of or by the Company. Any such adjustment made by
the Committee shall be final and binding upon the Grantee, any other Optionee,
the Company and all other interested persons.
22. AMENDMENT OF THE PLAN. The Board may from time to time in its
discretion amend or modify the Plan without the approval of the stockholders of
the Company; provided, however, that no such amendment shall be applied to
adversely affect any Award previously granted without the consent of the
Grantee unless such amendment is required to comply with applicable law
(including applicable tax and securities law requirements).
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23. REPURCHASE OF OPTIONS. In the event that KCSI or any other person
enters into an agreement to sell Stock of the Company owned by it to any person
(other than one or more Affiliates of the Company) who prior to that
transaction did not directly or indirectly own more than 50% of the Stock of
the Company and who after the transaction directly or indirectly will own more
than 50% of the Stock of the Company, the Company at its election by written
notice to any or all Optionees may repurchase any or all outstanding options at
a price equal to the difference of the Fair Market Value of the Stock subject
to the option minus the Option Price of such Stock. No option may be exercised
after delivery of such notice; and payment of such price shall fully discharge
and extinguish all obligations of the Company respecting such option.
24. TERMINATION OF THE PLAN. The Plan shall terminate on the tenth
(10th) anniversary of the Effective Time or at such earlier time as the Board
may determine. Any termination, whether in whole or in part, shall not affect
any Award then outstanding under the Plan.
25. NO ILLEGAL TRANSACTIONS. The Plan and all Awards granted pursuant
to it are subject to all laws and regulations of any governmental authority
which may be applicable thereto; and notwithstanding any provision of the Plan
or any Award, Optionees shall not be entitled to exercise Awards or receive the
benefits thereof and the Company shall not be obligated to deliver any Stock or
pay any benefits to an Optionee if such exercise, delivery, receipt or payment
of benefits would constitute a violation by the Optionee or the Company of any
provision of any such law or regulation.
26. CONTROLLING LAW. The law of the State of Delaware, except its law
with respect to choice of law, shall be controlling in all matters relating to
the Plan.
27. SEVERABILITY. If all or any part of the Plan is declared by any
court or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not declared
to be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will
give effect to the terms of such Section or part of a Section to the fullest
extent possible while remaining lawful and valid.
Executed this 13th day of November, 1997.
BERGER ASSOCIATES, INC.
/s/ Gerard M. Lavin, President
By: _________________________________
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APPENDIX I
FAIR MARKET VALUE
This Appendix I sets forth the definition of Fair Market Value that shall
apply to shares of Stock delivered with respect to Awards ("Option Stock")
under the Berger Associates, Inc. Stock Option Plan (the "Plan"). Terms used in
this Appendix I that are defined in the Plan shall have the meanings ascribed
to them in the Plan.
1. GENERAL. The Fair Market Value of a share of Stock as of a specified
date (the "determination date") shall equal 15 times the per share net after-
tax earnings of the Company for the four complete fiscal quarters preceding the
determination date. For this purpose, the Company's per share net earnings
shall be determined by the Committee in its sole discretion in accordance with
generally accepted accounting principles in effect for the applicable period
applied on a consistent basis, (a) excluding (1) adjustments for discontinued
operations, (2) the cumulative effect of changes in accounting principles, and
(3) extraordinary items; (b) on a fully diluted basis using methods and
assumptions which the Committee determines to be consistent with those used by
Kansas City Southern Industries, Inc. ("KCSI"), and (c) based upon the net
after-tax earnings of the Company for the four complete fiscal quarters
preceding the determination date.
2. CERTAIN TRANSACTIONS. Notwithstanding Section 1 above, in the event
that Kansas City Southern Industries, Inc. ("KCSI"), or any other person enters
into and consummates an agreement to sell Stock of the Company owned by it to
any person who prior to that transaction did not directly or indirectly own
more than 50% of the Stock of the Company and who after the transaction
directly or indirectly will own more than 50% of the Stock of the Company, the
Fair Market Value of a share of Stock as of the date of consummation shall be
the fair market value per share realized or to be realized by such selling
shareholder from such transaction.
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APPENDIX II
RESTRICTION AGREEMENT
In accordance with the terms of the Berger Associates, Inc. Stock Option
Plan (the "Plan"), the undersigned Grantee or Optionee exercising an option
under the Plan hereby agrees that the shares of Stock acquired by the exercise
of the option under the Plan shall be subject to the Stock Restrictions set
forth in Appendix III to the Plan, a copy of which is attached hereto.
-------------------------------------
Name (please print)
-------------------------------------
Signature
-------------------------------------
Date
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APPENDIX III
STOCK RESTRICTIONS
This Appendix III sets forth restrictions that shall apply to shares of
Stock delivered with respect to Awards ("Option Stock") under the Berger
Associates, Inc. Stock Option Plan (the "Plan"), which shall apply until such
date as a registration statement filed by the Company under the Securities Act
of 1933 registering the Stock shall have become effective and a public market
exists for the Stock through listing on a national securities exchange or being
regularly quoted for trading on the over-the-counter market. Terms used in this
Appendix III that are defined in the Plan shall have the meanings ascribed to
them in the Plan.
1. COMPANY/KCSI RIGHT OF FIRST REFUSAL. (a) In the event any holder of
Option Stock (a "Selling Stockholder") desires to sell, transfer, pledge, or
otherwise dispose of any or all of the shares of Option Stock owned by such
Selling Stockholder, the Selling Stockholder shall notify the Company in
writing prior to any such sale, transfer, pledge or other disposition. The
notice shall set forth the identity and mailing address of the prospective
purchaser or other transferee ("Prospective Purchaser"), the quantity and
description of the Option Stock proposed to be sold, the price per share to be
received therefor, the terms for payment of such price per share, and the
address of the Selling Stockholder to which the Company (or Kansas City
Southern Industries, Inc. ("KCSI")) may send notices to such Selling
Stockholder. Upon receipt of such notice the Company shall promptly send a copy
thereof to KCSI.
(b) The Company or, if KCSI desires to purchase the Option Stock, KCSI
(the "Purchaser") shall thereupon be entitled, for a period of the longer of
(i) 20 days after the date of receipt of such notice by the Company or (ii)
seven months after the date the Selling Stockholder acquired the Option Stock,
to purchase all (but not less than all) of the Option Stock that the Selling
Stockholder proposes to transfer. The price per share for the purchase shall be
the Fair Market Value per share and the terms of the purchase shall be
immediate full payment in cash; except that if the Selling Stockholder's notice
contains the price and terms of a bona fide offer, the price and terms of the
purchase may, at the option of the Purchaser, be either (i) the Fair Market
Value per share and immediate full payment in cash, or (ii) the price and terms
of the bona fide offer. The Purchaser may exercise this right of first refusal
by notice to the Selling Stockholder within the time prescribed by clause (i)
or (ii) of the first sentence of this subsection as applicable, accompanied by
a negotiable check (if at Fair Market Value) for the appropriate amount payable
to the Selling Stockholder or payment pursuant to the price and terms of the
bona fide offer.
2. COMPANY/KCSI CALL OPTION. (a) Either the Company or KCSI (a
"Purchaser") may, at any time on or after the later of (i) a Grantee's
Termination of Employment or (ii) six months after the date the Selling
Stockholder acquired the Option Stock, purchase from any holder of any Option
Stock acquired by or through the Grantee (a "Selling Stockholder") all, but not
less than all, of such Option Stock. Except as otherwise provided in subsection
(b), the price per share shall be the Fair Market Value per share and the terms
of the purchase shall be immediate full payment in cash. The Purchaser may
exercise this right of purchase by written notice to the Selling Stockholder
accompanied (i) if the Grantee's Termination of Employment occurred by reason
of Retirement, by notice of the Selling Stockholder's right to elect an
installment sale under subsection (b), and (ii) in all other cases by a
negotiable check for the appropriate amount payable to the Selling Stockholder.
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(b) Notwithstanding subsection (a), if the Grantee's Termination of
Employment occurred by reason of Retirement, then the Selling Stockholder may
irrevocably elect, by written notice to the Purchaser within 10 days after the
notice given by the Purchaser under subsection (a), that in lieu of a sale and
purchase under subsection (a), the sale and purchase be made in five annual
installments, the first of which shall occur on the date elected by the Selling
Stockholder not later than 10 days after the notice given by the Purchaser
under subsection (a), and the remaining sales and purchases on each annual
anniversary of that date. The number of Shares of Option Stock sold in each
installment shall be all of the Shares of Option Stock then owned by the
Selling Stockholder (including any Option Stock acquired at any time during the
installment period) divided by the number of installments (including the
current installment) remaining. The price per share of the purchase shall be
the Fair Market Value per share at the time of each installment and the terms
of the purchase shall be full payment in cash for such installment. A Selling
Stockholder shall as to the first and each subsequent installment provide
written notice to the Purchaser accompanied by a calculation of the number of
shares of Option Stock to be sold in the installment, a certificate or
certificates representing the Option Stock sold in the installment in
accordance herewith duly endorsed for transfer, and containing the address of
the Selling Stockholder to which the Purchaser may send the purchase price
required hereunder. Within 5 days of the Purchaser's receipt of such
certificates, the Purchaser shall send the Selling Stockholder a negotiable
check for the appropriate amount payable to the Selling Stockholder.
3. DELIVERY OF STOCK. Immediately upon the receipt of a negotiable check
for the purchase price from a Purchaser pursuant to Section 1 or 2, the Selling
Stockholder shall surrender to the Purchaser, by first class or certified mail
addressed to the Company as aforesaid, the certificate or certificates
representing the Option Stock sold in accordance herewith, duly endorsed for
transfer. If the certificate or certificates surrendered by the Selling
Stockholder represent a greater number of shares of Option Stock than have been
so sold, the Company shall promptly issue to the Selling Stockholder a new
certificate representing the shares of Option Stock not so sold.
4. OBLIGATIONS ON A CHANGE OF CONTROL SALE. If (i) the holders of Stock
representing a majority of the Stock on a fully diluted basis (collectively,
"Control Sellers" and each, individually, a "Control Seller") approve a sale of
the Company's outstanding Stock, or a merger or other business combination
involving the Company, or a sale of all or substantially all of the Company's
assets, and (ii) in the opinion of a nationally recognized investment bank
selected by the Control Sellers substantially the fair value of the Company is
being realized in such transaction (an "Approved Sale"), then each holder of
Option Stock (a "Non-Control Seller") shall consent to and raise no objections
against the Approved Sale, and if the Approved Sale is structured as a sale of
Stock, each Non-Control Seller shall, if requested by the Control Sellers, sell
(or otherwise transfer) the same proportion of his, her or its Stock as the
proportion of the Stock being transferred by the Control Sellers which are
being transferred by the Control Sellers in such transaction or related series
of transactions, on the terms and conditions received by the Control Sellers.
Each Non-Control Seller shall promptly take all actions reasonably necessary or
reasonably desirable (in the judgment of the Control Sellers) in connection
with the consummation of the Approved Sale. Without limiting the foregoing, (i)
if the Approved Sale is structured as a merger, consolidation or similar
transaction, each Non-Control Seller shall vote in favor of such transaction
and waive any dissenters' rights, appraisal rights or similar rights in
connection with such merger or consolidation, and (ii) if the Approved Sale is
structured as a sale or exchange of Shares, each Non-Control Seller shall sell
or exchange the Shares held by such Non-Control Seller on the terms and
conditions approved by the Control Sellers. The Company or the Control Sellers
shall notify the Non-Control Sellers in writing not less than ten days prior to
the proposed consummation of an Approved Sale; PROVIDED that such Non-Control
Seller
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agrees not to directly or indirectly (without the prior written consent of the
Company), disclose to any other Person (other than to such Non-Control Seller's
legal counsel in confidence, as otherwise necessary to protect such Non-Control
Seller's rights under this Appendix III or as otherwise required by law) any
information related to such potential sale of the Company.
5. RESTRICTION ON TRANSFER. No Grantee, Optionee, or other holder of
Option Stock may sell, transfer, pledge, or otherwise dispose of Option Stock
except as permitted by this Appendix III; except that the restrictions of this
Appendix III shall not apply to: (1) involuntary transfers of shares of Option
Stock by operation of law or otherwise, (2) transfer by gift, or in exchange
for a partnership interest, to a Permitted Transferee, provided the Permitted
Transferee shall agree in writing to take such Option Stock subject to, and to
be bound by, all the terms of the Plan including this Appendix III, (3) a
pledge of Option Stock in connection with a loan to enable the Grantee to
acquire Option Stock pursuant to Section 9 of the Plan, or (4) any sale of
Option Stock to the Company or KCSI on any terms negotiated between the Selling
Stockholder and the Purchaser, whether or not consistent with this Appendix
III. The restrictions of this Appendix III shall continue to apply to Option
Stock and the holder thereof following any transfer thereof, except that the
restrictions shall not apply to Option Stock sold to the Company or KCSI. Any
sale or transfer of Option Stock by any holder thereof in violation of the
restrictions of this Appendix III shall be void. The restrictions of this
Appendix III shall terminate on such date as a registration statement filed by
the Company under the Securities Act of 1933 registering the Stock shall have
become effective and a public market exists for the Stock through listing on a
national securities exchange or being regularly quoted for trading on the over-
the-counter market.
6. LEGEND. All certificates representing shares of Option Stock or other
Securities convertible or exchangeable for Option Stock which are held by any
person shall bear the following legend, in addition to any other legend
required by applicable law or otherwise:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH RESTRICTIONS UNDER THE TERMS OF A STOCK OPTION PLAN AND
A RESTRICTION AGREEMENT, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY
OF BERGER ASSOCIATES, INC.
7. FAILURE TO DELIVER SHARES. If a holder of Option Stock becomes
obligated to sell any shares of Option Stock to the Company or KCSI pursuant to
this Appendix III and fails to deliver such Option Stock in accordance with the
terms of this Appendix III, the Company or KCSI, as the case may be, may, at
its option, in addition to all other remedies it may have, send to such holder
the Fair Market Value for such shares as is herein specified. Thereupon, the
Company upon written notice to such holder (a) shall cancel on its books the
certificate or certificates representing the Option Stock to be sold and (b)
shall issue, in lieu thereof, in the name of the Company or KCSI, as the case
may be, a new certificate or certificates representing such Option Shares, and
thereupon all of such holder's rights in and to such Option Shares shall
terminate.
8. MISCELLANEOUS. (A) Amendments. This Appendix III may be amended by the
Company at any time in accordance with Section 22 of the Plan, except that it
may not be amended to impose greater restrictions on Option Stock received with
respect to Awards previously awarded without the consent of the Grantee to whom
the Option Stock was awarded.
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(B) Notice. Any notice, certificate for Option Stock, or other document
that this Appendix III requires or permits to be given or delivered to the
Company shall be properly given if sent by United States mail, first class
postage prepaid, properly addressed to the Company at:
Berger Associates, Inc.
210 University Boulevard
Denver, Colorado 80206
Attn: Corporate Secretary
or to such other address as the Company may specify, or delivered by hand to
the office of the Secretary of the Company during normal business hours.
(C) Further Execution. The Company, Grantees and Optionees shall execute
any additional documents or instruments necessary to carry out the purposes of
this Appendix III.
(D) Headings. The headings herein are solely for convenience and shall
not serve to modify or interpret the text of the Sections at the beginning of
which they appear.
Executed this day of , 1997.
Berger Associates, Inc.
By:
__________________________________
Gerard M. Lavin,
President
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APPENDIX C
FAM HOLDINGS, INC.
1998 LONG TERM INCENTIVE STOCK PLAN
ARTICLE 1. ESTABLISHMENT, EFFECTIVE DATE, OBJECTIVES AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. FAM Holdings, Inc., a Delaware
corporation (the "Company"), hereby establishes an incentive compensation plan
to be known as the "FAM Holdings, Inc. 1998 Long Term Incentive Stock Plan"
(the "Plan"). The Plan has been adopted by the Board of Directors of the
Company (the "Board") and approved by the sole stockholder of the Company,
Kansas City Southern Industries, Inc. ("KCSI"), and by the stockholders of
KCSI. The Plan shall be effective as of June 1, 1998 (the "Effective Date").
1.2 OBJECTIVES OF THE PLAN. The Plan is intended to allow employees,
directors and consultants of the Company and its Subsidiaries to acquire or
increase equity ownership in the Company, thereby strengthening their
commitment to the success of the Company and stimulating their efforts on
behalf of the Company, and to assist the Company and its Subsidiaries in
attracting new employees, directors and consultants and retaining existing
employees, directors and consultants. The Plan also is intended to optimize
the profitability and growth of the Company through incentives which are
consistent with the Company's goals; to provide employees, directors and
consultants with an incentive for excellence in individual performance; and to
promote teamwork among employees, directors and consultants.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective
Date and shall remain in effect, subject to the right of the Board to amend or
terminate the Plan at any time pursuant to Article 15 hereof, until all Shares
subject to it shall have been purchased or acquired according to the Plan's
provisions. However, in no event may an Incentive Stock Option be granted
under the Plan on or after the date 10 years following the earlier of (i) the
date the Plan was adopted and (ii) the date the Plan was approved by the
stockholders of the Company.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
2.1 "ARTICLE" means an Article of the Plan.
2.2 "AWARD" means Options (including Incentive Stock Options),
Restricted Shares, Bonus Shares, stock appreciation rights (SARs), limited
stock appreciation rights (LSARs), Performance Units or Performance Shares
granted under the Plan.
2.3 "AWARD AGREEMENT" means the written agreement by which an Award
shall be evidenced.
2.4 "BOARD" has the meaning set forth in Section 1.1.
2.5 "BONUS SHARES" means Shares that are awarded to a Grantee without
cost and without restrictions in recognition of past performance (whether
determined by reference to another
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employee benefit plan of the Company or otherwise) or as an incentive to
become an employee, director or consultant of the Company or a Subsidiary.
2.6 "CAUSE" means, unless otherwise defined in an Award Agreement,
(i) before the occurrence of a Change of Control, any one or
more of the following, as determined by the Committee:
(A) a Grantee's commission of a crime which, in the
judgment of the Committee, resulted or is likely to result in
damage or injury to the Company or a Subsidiary;
(B) the material violation by the Grantee of written
policies of the Company or a Subsidiary;
(C) the habitual neglect or failure by the Grantee in the
performance of his or her duties to the Company or a Subsidiary
(but only if such neglect or failure is not remedied within a
reasonable remedial period after Grantee's receipt of written
notice from the Company which describes such neglect or failure in
reasonable detail and specifies the remedial period); or
(D) action or inaction by the Grantee in connection with
his or her duties to the Company or a Subsidiary resulting, in the
judgment of the Committee, in material injury to the Company or a
Subsidiary; and
(ii) from and after the occurrence of a Change of Control, the
occurrence of any one or more of the following, as determined in the
good faith and reasonable judgment of the Committee:
(A) Grantee's conviction for committing an act of fraud,
embezzlement, theft, or any other act constituting a felony
involving moral turpitude or causing material damage or injury,
financial or otherwise, to the Company;
(B) a demonstrably willful and deliberate act or failure
to act which is committed in bad faith, without reasonable belief
that such action or inaction is in the best interests of the
Company, which causes material damage or injury, financial or
otherwise, to the Company (but only if such act or inaction is not
remedied within 15 business days of Grantee's receipt of written
notice from the Company which describes the act or inaction in
reasonable detail); or
(C) the consistent gross neglect of duties or consistent
wanton negligence by the Grantee in the performance of the
Grantee's duties (but only if such neglect or negligence is not
remedied within a reasonable remedial period after Grantee's
receipt of written notice from the Company which describes such
neglect or negligence in reasonable detail and specifies the
remedial period).
2.7 "CHANGE OF CONTROL" means, unless otherwise defined in an Award
Agreement, any one or more of the following:
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(i) the acquisition or holding by any person, entity or "group"
(within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act),
other than by the Company or any Subsidiary or any employee benefit plan
of the Company or a Subsidiary (and other than by KCSI prior to the
Spin-off Distribution), of beneficial ownership (within the meaning of
Rule 13d-3 under the 1934 Act) of 20% or more of the then-outstanding
Common Stock or the then-outstanding Voting Power of the Company;
provided, however, that no Change of Control shall occur solely by
reason of any such acquisition by a corporation with respect to which,
after such acquisition, more than 60% of both the then-outstanding
common shares and the then-outstanding Voting Power of such corporation
are then beneficially owned, directly or indirectly, by the persons who
were the beneficial owners of the then-outstanding Common Stock and
Voting Power of the Company immediately before such acquisition, in
substantially the same proportions as their respective ownership,
immediately before such acquisition, of the then-outstanding Common
Stock and Voting Power of the Company; or
(ii) individuals who, as of the date of the Spin-off
Distribution, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least 75% of the Board; provided that any
individual who becomes a director after the Effective Date whose
election or nomination for election by the Company's stockholders was
approved by at least 75% of the Incumbent Board (other than an election
or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened "election contest" relating to
the election of the directors of the Company (as such terms are used in
Rule 14a-11 under the 1934 Act) or "tender offer" (as such term is used
in Section 14(d) of the 1934 Act) or a proposed Extraordinary
Transaction (as defined below)) shall be deemed to be a member of the
Incumbent Board; or
(iii) approval by the stockholders of the Company of any one or
more of the following:
(A) a merger, reorganization, consolidation or similar
transaction (any of the foregoing, an "Extraordinary Transaction")
with respect to which persons who were the respective beneficial
owners of the then-outstanding Common Stock and Voting Power of
the Company immediately before such Extraordinary Transaction
would not, if such Extraordinary Transaction were to be
consummated immediately after such stockholder approval (but
otherwise in accordance with the terms presented in writing to the
stockholders of the Company for their approval), beneficially own,
directly or indirectly, more than 60% of both the then-outstanding
common shares and the then-outstanding Voting Power of the
corporation resulting from such Extraordinary Transaction, in
substantially the same proportions as their respective ownership,
immediately before such Extraordinary Transaction, of the then-
outstanding Common Stock and Voting Power of the Company,
(B) a liquidation or dissolution of the Company, or
(C) the sale or other disposition of all or substantially
all of the assets of the Company in one transaction or a series of
related transactions.
2.8 "CHANGE OF CONTROL VALUE" means the Fair Market Value of a Share
on the date of a Change of Control.
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2.9 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and regulations and rulings thereunder. References to a
particular section of the Code include references to successor provisions of
the Code or any successor code.
2.10 "COMMITTEE," "PLAN COMMITTEE" and "MANAGEMENT COMMITTEE" have the
meanings set forth in Article 3.
2.11 "COMMON STOCK" means the common stock, $.01 par value, of the
Company.
2.12 "COMPANY" has the meaning set forth in Section 1.1.
2.13 "COVERED EMPLOYEE" means a Grantee who, as of the date that the
value of an Award is recognizable as taxable income, is one of the group of
"covered employees," within the meaning of Code Section 162(m).
2.14 "DISABILITY" means, unless otherwise defined in an Award
Agreement, for purposes of the exercise of an Incentive Stock Option after
Termination of Affiliation, a disability within the meaning of Section
22(e)(3) of the Code, and for all other purposes, a mental or physical
condition which, in the judgment of the Committee, renders a Grantee unable to
perform any of the principal job responsibilities which such Grantee held or
the tasks to which such Grantee was assigned at the time the disability was
incurred, and which condition is expected to be permanent or for an indefinite
duration exceeding two years.
2.15 "DISQUALIFYING DISPOSITION" has the meaning set forth in Section
6.4.
2.16 "EFFECTIVE DATE" has the meaning set forth in Section 1.1.
2.17 "ELIGIBLE PERSON" means (i) any employee (including any officer)
of the Company or any Subsidiary, including any such employee who is on an
approved leave of absence, layoff, or has been subject to a disability which
does not qualify as a Disability, (ii) any director of the Company or any
Subsidiary and (iii) any person performing services for the Company or a
Subsidiary in the capacity of a consultant. Solely for purposes of granting
KCSI Substitute Options (as defined in Section 6.3), Eligible Person shall
also include any person who holds a KCSI Option (as defined in Section 6.3) as
of the date that a KCSI Substitute Option is granted.
2.18 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time. References to a particular section of the Exchange
Act include references to successor provisions.
2.19 "EXTRAORDINARY TRANSACTION" has the meaning set forth in Section
2.7.
2.20 "FAIR MARKET VALUE" means (A) with respect to any property other
than Shares, the fair market value of such property determined by such methods
or procedures as shall be established from time to time by the Committee, and
(B) with respect to Shares, unless otherwise determined by the Committee, as
of any date, (i) the average of the high and low trading prices on the date of
determination on the New York Stock Exchange (or, if no sale of Shares was
reported for such date, on the next preceding date on which a sale of Shares
was reported); (ii) if the Shares are not listed on the New York Stock
Exchange, the average of the high and low trading prices of the Shares on such
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other national exchange on which the Shares are principally traded or as
reported by the National Market System, or similar organization, or if no such
quotations are available, the average of the high bid and low asked quotations
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated or similar organizations; or (iii) in the event that there shall
be no public market for the Shares, the fair market value of the Shares as
determined by the Committee.
2.21 "FREESTANDING SAR" means an SAR that is granted independently of
any other Award.
2.22 "GOOD REASON" means, unless otherwise defined in an Award
Agreement, the occurrence after a Change of Control, without a Grantee's prior
written consent, of any one or more of the following:
(i) the assignment to the Grantee of any duties which result in
a material adverse change in the Grantee's position (including status,
offices, titles, and reporting requirements), authority, duties, or
other responsibilities with the Company, or any other action of the
Company which results in a material adverse change in such position,
authority, duties, or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Company promptly after
receipt of notice thereof given by the Grantee,
(ii) any relocation of the Grantee of more than 40 miles from the
place where the Grantee was located at the time of the Change of
Control, or
(iii) a material reduction or elimination of any component of the
Grantee's rate of compensation, including (x) base salary, (y) any
incentive payment or (z) benefits or perquisites which the Grantee was
receiving immediately prior to a Change of Control.
2.23 "GRANT DATE" has the meaning set forth in Section 5.2.
2.24 "GRANTEE" means an individual who has been granted an Award.
2.25 "INCENTIVE STOCK OPTION" means an option granted under Article 6
of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provisions thereto.
2.26 "INCLUDING" or "INCLUDES" means "including, without limitation,"
or "includes, without limitation," respectively.
2.27 "LSAR" means a limited stock appreciation right.
2.28 "MATURE SHARES" means Shares for which the holder thereof has good
title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.
2.29 "MINIMUM CONSIDERATION" means $.01 per Share or such other amount
that is from time to time considered to be capital for purposes of Section 154
of the Delaware General Corporation Law.
2.30 "OPTION" means an option granted under Article 6 of the Plan.
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2.31 "OPTION PRICE" means the price at which a Share may be purchased by
a Grantee pursuant to an Option.
2.32 "OPTION TERM" means the period beginning on the Grant Date of an
Option and ending on the expiration date of such Option, as specified in the
Award Agreement for such Option and as may, consistent with the provisions of
the Plan, be extended from time to time by the Committee prior to the
expiration date of such Option then in effect.
2.33 "OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Subsidiary.
2.34 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.35 "PERFORMANCE PERIOD" has the meaning set forth in Section 9.2.
2.36 "PERFORMANCE SHARE" or "PERFORMANCE UNIT" has the meaning set forth in
Article 9.
2.37 "PERIOD OF RESTRICTION" means the period during which the transfer
of Restricted Shares is limited in some way (the length of the period being
based on the passage of time, the achievement of performance goals, or upon
the occurrence of other events as determined by the Committee), and the Shares
are subject to a substantial risk of forfeiture, as provided in Article 8.
2.38 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.39 "PLAN" has the meaning set forth in Section 1.1.
2.40 "REQUIRED WITHHOLDING" has the meaning set forth in Article 16.
2.41 "RESTRICTED SHARES" means Shares that are subject to forfeiture if
the Grantee does not satisfy the conditions specified in the Award Agreement
applicable to such Shares.
2.42 "RETIREMENT" means, for any Grantee who is an employee, Termination
of Affiliation by the Grantee upon either (i) having both attained age fifty-
five (55) and completed at least ten (10) years of service with the Company or
a Subsidiary or (ii) meeting such other requirements as may be specified by
the Committee.
2.43 "RULE 16B-3" means Rule 16b-3 promulgated by the SEC under the
Exchange Act, as amended from time to time, together with any successor rule,
as in effect from time to time.
2.44 "SAR" means a stock appreciation right.
2.45 "SEC" means the United States Securities and Exchange Commission, or
any successor thereto.
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2.46 "SECTION" means, unless the context otherwise requires, a Section
of the Plan.
2.47 "SECTION 16 PERSON" means a person who is subject to potential
liability under Section 16(b) of the 1934 Act with respect to transactions
involving equity securities of the Company.
2.48 "SHARE" means a share of Common Stock.
2.49 "SPIN-OFF DISTRIBUTION" means the distribution by KCSI of at least
80% of the outstanding Shares, as a result of which the Company ceases to be a
subsidiary of KCSI.
2.50 "STRIKE PRICE" of any SAR shall equal, for any Tandem SAR (whether
such Tandem SAR is granted at the same time as or after the grant of the
related Option), the Option Price of such Option, or for any other SAR, 100%
of the Fair Market Value of a Share on the Grant Date of such SAR; provided
that the Committee may specify a higher Strike Price in the Award Agreement.
2.51 "SUBSIDIARY" means, for purposes of grants of Incentive Stock
Options, a corporation as defined in Section 424(f) of the Code (with the
Company being treated as the employer corporation for purposes of this
definition) and, for all other purposes, a United States or foreign
corporation with respect to which the Company owns, directly or indirectly,
50% (or such lesser percentage as the Committee may specify, which percentage
may be changed from time to time and may be different for different entities)
or more of the Voting Power of such corporation.
2.52 "TANDEM SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require cancellation of the right
to purchase a Share under the related Option (and when a Share is purchased
under the related Option, the Tandem SAR shall similarly be canceled).
2.53 "TERMINATION OF AFFILIATION" occurs on the first day on which an
individual is for any reason no longer providing services to the Company or
any Subsidiary in the capacity of an employee, director or consultant, or with
respect to an individual who is an employee or director of, or consultant to,
a corporation which is a Subsidiary, the first day on which such corporation
ceases to be a Subsidiary.
2.54 "10% OWNER" means a person who owns capital stock (including stock
treated as owned under Section 424(d) of the Code) possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company
or any Subsidiary.
2.55 "VOTING POWER" means the combined voting power of the then-
outstanding securities of a corporation entitled to vote generally in the
election of directors.
ARTICLE 3. ADMINISTRATION
3.1 COMMITTEE.
(a) Subject to Article 15, and to Section 3.2, the Plan shall be
administered by the Board, or a committee appointed by the Board to administer
the Plan ("Plan Committee"). To the extent the Board considers it desirable to
comply with or qualify under Rule 16b-3 or meet the Performance-Based
Exception, the Plan Committee shall consist of two or more directors of the
Company, all of
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whom qualify as "outside directors" as defined for purposes of the regulations
under Code Section 162(m) and "non-employee directors" within the meaning of
Rule 16b-3. The number of members of the Plan Committee shall from time to
time be increased or decreased, and shall be subject to such conditions, in
each case as the Board deems appropriate to permit transactions in Shares
pursuant to the Plan to satisfy such conditions of Rule 16b-3 and the
Performance-Based Exception as then in effect.
(b) The Board or the Plan Committee may appoint and delegate to
another committee ("Management Committee") any or all of the authority of the
Board or the Plan Committee, as applicable, with respect to Awards to Grantees
other than Grantees who are Section 16 Persons at the time any such delegated
authority is exercised.
(c) Any references herein to "Committee" are references to the Board,
or the Plan Committee or the Management Committee, as applicable.
3.2 POWERS OF COMMITTEE. Subject to the express provisions of the
Plan, the Committee has full and final authority and sole discretion as
follows:
(i) to determine when, to whom and in what types and amounts
Awards should be granted and the terms and conditions applicable to each
Award, including the benefit payable under any SAR, Performance Unit or
Performance Share, and whether or not specific Awards shall be granted
in connection with other specific Awards, and if so whether they shall
be exercisable cumulatively with, or alternatively to, such other
specific Awards;
(ii) to determine the amount, if any, that a Grantee shall pay
for Restricted Shares, whether to permit or require the payment of cash
dividends thereon to be deferred and the terms related thereto, when
Restricted Shares (including Restricted Shares acquired upon the
exercise of an Option) shall be forfeited and whether such shares shall
be held in escrow;
(iii) to construe and interpret the Plan and to make all
determinations necessary or advisable for the administration of the
Plan;
(iv) to make, amend, and rescind rules relating to the Plan,
including rules with respect to the exercisability and nonforfeitability
of Awards upon the Termination of Affiliation of a Grantee;
(v) to determine the terms and conditions of all Award
Agreements (which need not be identical) and, with the consent of the
Grantee, to amend any such Award Agreement at any time, among other
things, to permit transfers of such Awards to the extent permitted by
the Plan; provided that the consent of the Grantee shall not be required
for any amendment which (A) does not adversely affect the rights of the
Grantee, or (B) is necessary or advisable (as determined by the
Committee) to carry out the purpose of the Award as a result of any new
or change in existing applicable law;
(vi) to cancel, with the consent of the Grantee, outstanding
Awards and to grant new Awards in substitution therefor;
(vii) to accelerate the exercisability (including exercisability
within a period of less than six months after the Grant Date) of, and to
accelerate or waive any or all of the terms and
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conditions applicable to, any Award or any group of Awards for any
reason and at any time, including in connection with a Termination of
Affiliation;
(viii) subject to Sections 1.3 and 5.3, to extend the time during
which any Award or group of Awards may be exercised;
(ix) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are advisable to fulfill
the purposes of the Plan or to comply with applicable local law;
(x) to impose such additional terms and conditions upon the
grant, exercise or retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate, including
limiting the percentage of Awards which may from time to time be
exercised by a Grantee; and
(xi) to take any other action with respect to any matters
relating to the Plan for which it is responsible.
All determinations on all matters relating to the Plan or any Award
Agreement may be made in the sole and absolute discretion of the Committee,
and all such determinations of the Committee shall be final, conclusive and
binding on all Persons. No member of the Committee shall be liable for any
action or determination made with respect to the Plan or any Award.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2, the number of Shares hereby reserved for issuance
under the Plan shall be 30,000,000, and the number of Shares for which Awards
(other than KCSI Substitute Options, as defined in Section 6.3) may be granted
to any Grantee on any Grant Date, when aggregated with the number of Shares
for which Awards (other than KCSI Substitute Options) have previously been
granted to such Grantee in the same calendar year, shall not exceed one
percent (1%) of the total Shares outstanding as of such Grant Date; provided,
however, that the total number of Shares for which Awards (other than KCSI
Substitute Options) may be granted to any Grantee in any calendar year shall
not exceed 2,000,000. If any Shares subject to an Award granted hereunder are
forfeited or such Award otherwise terminates without the issuance of such
Shares or of other consideration in lieu of such Shares, the Shares subject to
such Award, to the extent of any such forfeiture or termination shall again be
available for grant under the Plan. If any Shares (whether subject to or
received pursuant to an Award granted hereunder, purchased on the open market,
or otherwise obtained) are withheld, applied as payment, or sold pursuant to
procedures approved by the Committee and the proceeds thereof applied as
payment in connection with the exercise of an Award or the withholding of
taxes related thereto, such Shares, to the extent of any such withholding or
payment, shall again be available or shall increase the number of Shares
available, as applicable, for grant under the Plan. The Committee may from
time to time determine the appropriate methodology for calculating the number
of Shares issued pursuant to the Plan. Shares issued pursuant to the Plan may
be treasury Shares or newly-issued Shares.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event that the Committee
determines that any dividend or other distribution (whether in the form of
cash, Shares, other securities, or other property), recapitalization, stock
split, reverse stock split, subdivision, consolidation or reduction of
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capital, reorganization, merger, scheme of arrangement, split-up, spin-off or
combination involving the Company or repurchase or exchange of Shares or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event that occurs at any time after the Spin-off
Distribution affects the Shares such that any adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and type of Shares (or other securities or property)
with respect to which Awards may be granted, (ii) the number and type of
Shares (or other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award or the substitution of other property for Shares subject to an
outstanding Award; provided, in each case that with respect to Awards of
Incentive Stock Options no such adjustment shall be authorized to the extent
that such adjustment would cause the Plan to violate Section 422(b)(1) of the
Code or any successor provision thereto; and provided further, that the number
of Shares subject to any Award denominated in Shares shall always be a whole
number.
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS
5.1 ELIGIBILITY. The Committee may grant Awards to any Eligible
Person, whether or not he or she has previously received an Award.
5.2 GRANT DATE. The Grant Date of an Award shall be the date on which
the Committee grants the Award or such later date as specified by the
Committee.
5.3 MAXIMUM TERM. The Option Term or other period during which an
Award may be outstanding shall under no circumstances extend more than 10
years after the Grant Date, and shall be subject to earlier termination as
herein provided; provided, however, that any deferral of a cash payment or of
the delivery of Shares that is permitted or required by the Committee pursuant
to Article 12 may, if so permitted or required by the Committee, extend more
than 10 years after the Grant Date of the Award to which the deferral relates.
5.4 AWARD AGREEMENT. To the extent not set forth in the Plan, the
terms and conditions of each Award (which need not be the same for each grant
or for each Grantee) shall be set forth in an Award Agreement.
5.5 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise or vesting
of an Award as it may deem advisable, including restrictions under applicable
federal securities laws.
5.6 TERMINATION OF AFFILIATION. Except as otherwise provided in an
Award Agreement, and subject to the provisions of Section 14.1, the extent to
which the Grantee shall have the right to exercise, vest in, or receive
payment in respect of an Award following Termination of Affiliation shall be
determined in accordance with the following provisions of this Section 5.6.
(a) FOR CAUSE. If a Grantee has a Termination of Affiliation for
Cause, (i) the Grantee's Restricted Shares that are forfeitable shall
thereupon be forfeited, subject to the provisions of Section 8.4 regarding
repayment of certain amounts to the Grantee; and (ii) any unexercised Option,
LSAR or SAR, and any Performance Share or Performance Unit with respect to
which the Performance Period
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has not ended as of the date of such Termination of Affiliation, shall
terminate effective immediately upon such Termination of Affiliation.
(b) ON ACCOUNT OF DEATH OR DISABILITY. If a Grantee has a Termination
of Affiliation on account of death or Disability, then:
(i) the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not exercisable on
the date of such Termination of Affiliation, may be exercised, in whole
or in part, within the first 12 months after such Termination of
Affiliation (but only during the Option Term) by the Grantee or, after
his or her death, by (A) his or her personal representative or the
person to whom the Option or SAR, as applicable, is transferred by will
or the applicable laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Article 11; and
(iii) the benefit payable with respect to any Performance Share or
Performance Unit with respect to which the Performance Period has not
ended as of the date of such Termination of Affiliation on account of
death or Disability shall be equal to the product of the Fair Market
Value of a Share as of the date of such Termination of Affiliation or
the value of the Performance Unit specified in the Award Agreement
(determined as of the date of such Termination of Affiliation), as
applicable, multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of
months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the
date of such Termination of Affiliation and the denominator of
which is the number of months (including as a whole month any
partial month) in the Performance Period; and
(2) a percentage determined by the Committee that would be
earned under the terms of the applicable Award Agreement assuming
that the rate at which the performance goals have been achieved as
of the date of such Termination of Affiliation would continue
until the end of the Performance Period, or, if the Committee
elects to compute the benefit after the end of the Performance
Period, the Performance Percentage, as determined by the
Committee, attained during the Performance Period.
(c) ON ACCOUNT OF RETIREMENT. If a Grantee has a Termination of
Affiliation on account of Retirement, then:
(i) the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not exercisable on
the date of such Termination of Affiliation, may be exercised, in whole
or in part, within the first five years after such Termination of
Affiliation (but only during the Option Term) by the Grantee or, after
his or her death, by (A) his or her personal representative or the
person to whom the Option or SAR, as applicable, is transferred by will
or the applicable laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Article 11; and
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(iii) the benefit payable with respect to any Performance Share or
Performance Unit with respect to which the Performance Period has not
ended as of the date of such Termination of Affiliation on account of
Retirement shall be equal to the product of the Fair Market Value of a
Share as of the date of such Termination of Affiliation or the value of
the Performance Unit specified in the Award Agreement (determined as of
the date of such Termination of Affiliation), as applicable, multiplied
successively by each of the following:
(1) a fraction, the numerator of which is the number of
months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the
date of such Termination of Affiliation and the denominator of
which is the number of months (including as a whole month any
partial month) in the Performance Period; and
(2) a percentage determined by the Committee that would be
earned under the terms of the applicable Award Agreement assuming
that the rate at which the performance goals have been achieved as
of the date of such Termination of Affiliation would continue
until the end of the Performance Period, or, if the Committee
elects to compute the benefit after the end of the Performance
Period, the Performance Percentage, as determined by the
Committee, attained during the Performance Period.
(d) ANY OTHER REASON. If a Grantee has a Termination of Affiliation
for any reason other than for Cause, death, Disability or Retirement, then:
(i) the Grantee's Restricted Shares, to the extent forfeitable
on the date of the Grantee's Termination of Affiliation, shall be
forfeited on such date;
(ii) any unexercised Option or SAR, to the extent exercisable
immediately before the Grantee's Termination of Affiliation, may be
exercised in whole or in part, not later than three months after such
Termination of Affiliation (but only during the Option Term) by the
Grantee or, after his or her death, by (A) his or her personal
representative or the person to whom the Option or SAR, as applicable,
is transferred by will or the applicable laws of descent and
distribution, or (B) the Grantee's beneficiary designated in accordance
with Article 11; and
(iii) any Performance Shares or Performance Units with respect to
which the Performance Period has not ended as of the date of such
Termination of Affiliation shall terminate immediately upon such
Termination of Affiliation.
5.7 NONTRANSFERABILITY OF AWARDS.
(a) Except as provided in Section 5.7(c) below, each Award, and each
right under any Award, shall be exercisable only by the Grantee during the
Grantee's lifetime, or, if permissible under applicable law, by the Grantee's
guardian or legal representative or by a transferee receiving such Award
pursuant to a qualified domestic relations order (a "QDRO") as defined in the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules thereunder.
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(b) Except as provided in Section 5.7(c) below, no Award (prior to the
time, if applicable, Shares are issued in respect of such Award), and no right
under any Award, may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Grantee otherwise than by will or by
the laws of descent and distribution (or in the case of Restricted Shares, to
the Company) or pursuant to a QDRO, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void
and unenforceable against the Company or any Subsidiary; provided, that the
designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
(c) To the extent and in the manner permitted by the Committee, and
subject to such terms, conditions, restrictions or limitations that may be
prescribed by the Committee, a Grantee may transfer an Award (other than an
Incentive Stock Option) to (i) a spouse, sibling, parent, child (including an
adopted child) or grandchild (any of which, an "Immediate Family Member") of
the Grantee; (ii) a trust, the primary beneficiaries of which consist
exclusively of the Grantee or Immediate Family Members of the Grantee; or
(iii) a corporation, partnership or similar entity, the owners of which
consist exclusively of the Grantee or Immediate Family Members of the Grantee.
5.8 CANCELLATION AND RESCISSION OF AWARDS. Unless the Award Agreement
specifies otherwise, the Committee may cancel, rescind, suspend, withhold, or
otherwise limit or restrict any unexercised Award at any time if the Grantee
is not in compliance with all applicable provisions of the Award Agreement and
the Plan or if the Grantee has a Termination of Affiliation for Cause.
5.9 LOANS AND GUARANTEES. The Committee may, subject to applicable
law, (i) allow a Grantee to defer payment to the Company of all or any portion
of the Option Price of an Option or the purchase price of Restricted Shares,
or (ii) cause the Company to loan to the Grantee, or guarantee a loan from a
third party to the Grantee, for all or any portion of the Option Price of an
Option or the purchase price of Restricted Shares or all or any portion of any
taxes associated with the exercise of, nonforfeitability of, or payment of
benefits in connection with, an Award. Any such payment deferral, loan or
guarantee by the Company shall be on such terms and conditions as the
Committee may determine.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to any Eligible Person in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee. Without in any manner limiting the generality of the foregoing, the
Committee may grant to any Eligible Person, or permit any Eligible Person to
elect to receive, an Option in lieu of or in substitution for any other
compensation (whether payable currently or on a deferred basis, and whether
payable under this Plan or otherwise) which such Eligible Person may be
eligible to receive from the Company or a Subsidiary.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the Option Term, the number of
shares to which the Option pertains, the time or times at which such Option
shall be exercisable and such other provisions as the Committee shall
determine.
6.3 OPTION PRICE. The Option Price of an Option under this Plan shall
be determined by the Committee, and shall be equal to or more than 100% of the
Fair Market Value of a Share on the
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Grant Date; provided, however, that any Option that is (i) granted to a
Grantee in connection with the Spin-off Distribution, (ii) associated with an
option to purchase shares of stock of KCSI ("KCSI Option") held by such
Grantee immediately prior to such Spin-off Distribution, and (iii) intended to
preserve for the Grantee the economic value of all or a portion of such KCSI
Option ("KCSI Substitute Option") may, to the extent necessary to achieve such
preservation of economic value, be granted with an Option Price that is less
than 100% of the Fair Market Value of a Share on the Grant Date; and provided,
further, that any Option that is (x) granted to a Grantee in connection with
the acquisition ("Acquisition"), however effected, by the Company of another
corporation or entity ("Acquired Entity") or the assets thereof, (y)
associated with an option to purchase shares of stock of the Acquired Entity
or an affiliate thereof ("Acquired Entity Option") held by such Grantee
immediately prior to such Acquisition, and (z) intended to preserve for the
Grantee the economic value of all or a portion of such Acquired Entity Option
("Substitute Option") may, to the extent necessary to achieve such
preservation of economic value, be granted with an Option Price that is less
than 100% of the Fair Market Value of a Share on the Grant Date.
6.4 GRANT OF INCENTIVE STOCK OPTIONS. At the time of the grant of any
Option, the Committee may designate that such Option shall be made subject to
additional restrictions to permit it to qualify as an "incentive stock option"
under the requirements of Section 422 of the Code. Any Option designated as an
Incentive Stock Option shall, to the extent required by Section 422 of the
Code:
(i) if granted to a 10% Owner, have an Option Price not less
than 110% of the Fair Market Value of a Share on its Grant Date;
(ii) be exercisable for a period of not more than 10 years (five
years in the case of an Incentive Stock Option granted to a 10% Owner)
from its Grant Date, and be subject to earlier termination as provided
herein or in the applicable Award Agreement;
(iii) not have an aggregate Fair Market Value (as of the Grant
Date of each Incentive Stock Option) of the Shares with respect to which
Incentive Stock Options (whether granted under the Plan or any other
stock option plan of the Grantee's employer or any parent or Subsidiary
thereof ("Other Plans")) are exercisable for the first time by such
Grantee during any calendar year, determined in accordance with the
provisions of Section 422 of the Code, which exceeds $100,000 (the
"$100,000 Limit");
(iv) if the aggregate Fair Market Value of the Shares (determined
on the Grant Date) with respect to the portion of such grant which is
exercisable for the first time during any calendar year ("Current
Grant") and all Incentive Stock Options previously granted under the
Plan and any Other Plans which are exercisable for the first time during
the same calendar year ("Prior Grants") would exceed the $100,000 Limit
be exercisable as follows:
(A) the portion of the Current Grant which would, when
added to any Prior Grants, be exercisable with respect to Shares
which would have an aggregate Fair Market Value (determined as of
the respective Grant Date for such options) in excess of the
$100,000 Limit shall, notwithstanding the terms of the Current
Grant, be exercisable for the first time by the Grantee in the
first subsequent calendar year or years in which it could be
exercisable for the first time by the Grantee when added to all
Prior Grants without exceeding the $100,000 Limit; and
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(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the
preceding provisions of this Section during any calendar year
commencing with the calendar year in which it is first exercisable
through and including the last calendar year in which it may by
its terms be exercised, such portion of the Current Grant shall
not be an Incentive Stock Option, but shall be exercisable as an
Option which is not an Incentive Stock Option at such date or
dates as are provided in the Current Grant;
(v) be granted within 10 years from the earlier of the date the
Plan is adopted or the date the Plan is approved by the stockholders of
the Company; and
(vi) by its terms not be assignable or transferable other than by
will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee; provided, however,
that the Grantee may, in any manner permitted by the Plan and specified
by the Committee, designate in writing a beneficiary to exercise his or
her Incentive Stock Option after the Grantee's death.
Any Option designated as an Incentive Stock Option shall also require
the Grantee to notify the Committee of any disposition of any Shares issued
pursuant to the exercise of the Incentive Stock Option under the circumstances
described in Section 421(b) of the Code (relating to certain disqualifying
dispositions) (any such circumstance, a "Disqualifying Disposition"), within
10 days of such Disqualifying Disposition.
Notwithstanding the foregoing and Section 3.2(v), the Committee may,
without the consent of the Grantee, at any time before the exercise of an
Option (whether or not an Incentive Stock Option), take any action necessary
to prevent such Option from being treated as an Incentive Stock Option.
6.5 PAYMENT. Options granted under this Article 6 shall be exercised
by the delivery of a written notice of exercise to the Company, setting forth
the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares made by any one or more of the
following means subject to the approval of the Committee:
(a) cash, personal check or wire transfer;
(b) Mature Shares, valued at their Fair Market Value on the date of
exercise;
(c) Restricted Shares held by the Grantee for at least six months
prior to the exercise of the Option, each such share valued at the Fair Market
Value of a Share on the date of exercise;
(d) subject to applicable law, pursuant to procedures approved by the
Committee, through the sale of the Shares acquired on exercise of the Option
through a broker-dealer to whom the Grantee has submitted an irrevocable
notice of exercise and irrevocable instructions to deliver promptly to the
Company the amount of sale or loan proceeds sufficient to pay for such Shares,
together with, if requested by the Company, the amount of federal, state,
local or foreign withholding taxes payable by Grantee by reason of such
exercise; or
(e) when permitted by the Committee, payment may also be made in
accordance with Section 5.9.
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If any Restricted Shares ("Tendered Restricted Shares") are used to pay the
Option Price, a number of Shares acquired on exercise of the Option equal to
the number of Tendered Restricted Shares shall be subject to the same
restrictions as the Tendered Restricted Shares, determined as of the date of
exercise of the Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan,
SARs may be granted to any Eligible Person at any time and from time to time
as shall be determined by the Committee. The Committee may grant Freestanding
SARs, Tandem SARs, or any combination thereof.
The Committee shall determine the number of SARs granted to each Grantee
(subject to Article 4), the Strike Price thereof, and, consistent with Section
7.2 and the other provisions of the Plan, the other terms and conditions
pertaining to such SARs.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or
part of the Shares subject to the related Award upon the surrender of the
right to exercise the equivalent portion of the related Award. A Tandem SAR
may be exercised only with respect to the Shares for which its related Award
is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR, (i) the Tandem SAR will expire no later than the
expiration of the underlying Option; (ii) the value of the payout with respect
to the Tandem SAR may be for no more than 100% of the difference between the
Option Price of the underlying Option and the Fair Market Value of the Shares
subject to the underlying Option at the time the Tandem SAR is exercised; and
(iii) the Tandem SAR may be exercised only when the Fair Market Value of the
Shares subject to the Option exceeds the Option Price of the Option.
7.3 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, the Grantee shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) the excess of the Fair Market Value of a Share on the date of
exercise over the Strike Price;
by
(b) the number of Shares with respect to which the SAR is exercised;
provided that the Committee may provide in the Award Agreement that the
benefit payable on exercise of an SAR shall not exceed such percentage of the
Fair Market Value of a Share on the Grant Date as the Committee shall specify.
As determined by the Committee, the payment upon SAR exercise may be in cash,
in Shares which have an aggregate Fair Market Value (as of the date of
exercise of the SAR) equal to the amount of the payment, or in some
combination thereof, as set forth in the Award Agreement.
7.4 GRANT OF LSARS. Subject to the terms and conditions of the Plan,
LSARs may be granted to any Eligible Person at any time and from time to time
as shall be determined by the
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Committee. Each LSAR shall be identified with a Share subject to an Option or
SAR held by the Grantee, which may include an Option or SAR previously granted
under the Plan. Upon the exercise, expiration, termination, forfeiture or
cancellation of the Option or SAR with which an LSAR is identified, such LSAR
shall terminate.
7.5 EXERCISE OF LSARS. Each LSAR shall automatically be exercised upon
a Change of Control which has not been approved by the Incumbent Board. The
exercise of an LSAR shall result in the cancellation of the Option or SAR with
which such LSAR is identified, to the extent of such exercise.
7.6 PAYMENT OF LSAR AMOUNT. Within 10 business days after the exercise
of an LSAR, the Company shall pay to the Grantee, in cash, an amount equal to
the difference between:
(a) the greatest of (i) the Change of Control Value, (ii) the Fair
Market Value of a Share on the date occurring during the 180-day period
immediately preceding the date of the Change of Control on which such Fair
Market Value is the greatest or (iii) such other valuation amount, if any, as
may be determined pursuant to the provisions of the applicable Award
Agreement;
minus
(b) either (i) in the case of an LSAR identified with an Option, the
Option Price of such Option or (ii) in the case of an LSAR identified with an
SAR, the Strike Price of such SAR.
ARTICLE 8. RESTRICTED SHARES
8.1 GRANT OF RESTRICTED SHARES. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant
Restricted Shares to any Eligible Person in such amounts as the Committee
shall determine.
8.2 AWARD AGREEMENT. Each grant of Restricted Shares shall be
evidenced by an Award Agreement that shall specify the Period(s) of
Restriction, the number of Restricted Shares granted, and such other
provisions as the Committee shall determine. The Committee may impose such
conditions and/or restrictions on any Restricted Shares granted pursuant to
the Plan as it may deem advisable, including restrictions based upon the
achievement of specific performance goals (Company-wide, divisional,
Subsidiary and/or individual), time-based restrictions on vesting, and/or
restrictions under applicable securities laws.
8.3 CONSIDERATION. The Committee shall determine the amount, if any,
that a Grantee shall pay for Restricted Shares, which shall be (except with
respect to Restricted Shares that are treasury shares) at least the Minimum
Consideration for each Restricted Share. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event no later than
10 business days after the Grant Date for such shares.
8.4 EFFECT OF FORFEITURE. If Restricted Shares are forfeited, and if
the Grantee was required to pay for such shares or acquired such Restricted
Shares upon the exercise of an Option, the Grantee shall be deemed to have
resold such Restricted Shares to the Company at a price equal to the lesser of
(x) the amount paid by the Grantee for such Restricted Shares, or (y) the Fair
Market Value of a Share on the date of such forfeiture. The Company shall pay
to the Grantee the required amount
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as soon as is administratively practical. Such Restricted Shares shall cease
to be outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of the Company, from and after the date of the event
causing the forfeiture, whether or not the Grantee accepts the Company's
tender of payment for such Restricted Shares.
8.5 ESCROW; LEGENDS. The Committee may provide that the certificates
for any Restricted Shares (x) shall be held (together with a stock power
executed in blank by the Grantee) in escrow by the Secretary of the Company
until such Restricted Shares become nonforfeitable or are forfeited and/or (y)
shall bear an appropriate legend restricting the transfer of such Restricted
Shares. If any Restricted Shares become nonforfeitable, the Company shall
cause certificates for such shares to be issued without such legend.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Subject to the
terms of the Plan, Performance Units or Performance Shares may be granted to
any Eligible Person in such amounts and upon such terms, and at any time and
from time to time, as shall be determined by the Committee.
9.2 VALUE/PERFORMANCE GOALS. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value
of a Share on the date of grant. The Committee shall set performance goals
which, depending on the extent to which they are met, will determine the
number or value of Performance Units or Performance Shares that will be paid
out to the Grantee. For purposes of this Article 9, the time period during
which the performance goals must be met shall be called a "Performance
Period."
9.3 EARNING OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Subject to
the terms of this Plan, after the applicable Performance Period has ended, the
holder of Performance Units or Performance Shares shall be entitled to receive
a payout based on the number and value of Performance Units or Performance
Shares earned by the Grantee over the Performance Period, to be determined as
a function of the extent to which the corresponding performance goals have
been achieved.
If a Grantee is promoted, demoted or transferred to a different business
unit of the Company during a Performance Period, then, to the extent the
Committee determines the performance goals or Performance Period are no longer
appropriate, the Committee may adjust, change or eliminate the performance
goals or the applicable Performance Period as it deems appropriate in order to
make them appropriate and comparable to the initial performance goals or
Performance Period.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE
SHARES. Payment of earned Performance Units or Performance Shares shall be made
in a lump sum following the close of the applicable Performance Period. The
Committee may pay earned Performance Units or Performance Shares in the form of
cash or in Shares (or in a combination thereof) which have an aggregate Fair
Market Value equal to the value of the earned Performance Units or Performance
Shares at the close of the applicable Performance Period. Such Shares may be
granted subject to any restrictions deemed appropriate by the Committee. The
form of payout of such Awards shall be set forth in the Award Agreement
pertaining to the grant of the Award.
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As determined by the Committee, a Grantee may be entitled to receive any
dividends declared with respect to Shares which have been earned in connection
with grants of Performance Units or Performance Shares but not yet distributed
to the Grantee. In addition, a Grantee may, as determined by the Committee, be
entitled to exercise his or her voting rights with respect to such Shares.
ARTICLE 10. BONUS SHARES
Subject to the terms of the Plan, the Committee may grant Bonus Shares
to any Eligible Person, in such amount and upon such terms and at any time and
from time to time as shall be determined by the Committee. The terms of such
Bonus Shares shall be set forth in the Award Agreement pertaining to the grant
of the Award.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Grantee under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke
all prior designations by the same Grantee, shall be in a form prescribed by
the Company, and will be effective only when filed by the Grantee in writing
with the Company during the Grantee's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Grantee's death shall be paid to
the Grantee's estate.
ARTICLE 12. DEFERRALS
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due by
virtue of the exercise of an Option or SAR, the lapse or waiver of
restrictions with respect to Restricted Shares, the satisfaction of any
requirements or goals with respect to Performance Units or Performance Shares,
or the grant of Bonus Shares. If any such deferral is required or permitted,
the Committee shall establish rules and procedures for such deferrals. Except
as otherwise provided in an Award Agreement, any payment or any Shares that
are subject to such deferral shall be made or delivered to the Grantee upon
the Grantee's Termination of Affiliation.
ARTICLE 13. RIGHTS OF EMPLOYEES/DIRECTORS/CONSULTANTS
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Grantee's employment,
directorship or consultancy at any time, nor confer upon any Grantee the right
to continue in the employ or as a director or consultant of the Company.
13.2 PARTICIPATION. No employee, director or consultant shall have the
right to be selected to receive an Award under the Plan or, having been so
selected, to be selected to receive a future Award.
ARTICLE 14. CHANGE OF CONTROL
14.1 CHANGE OF CONTROL. Except as otherwise provided in an Award
Agreement, if a Change of Control occurs, then:
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(i) the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not exercisable on
the date of such Change of Control, shall thereupon be fully exercisable
and may be exercised, in whole or in part; and
(iii) the Company shall immediately pay to the Grantee, with
respect to any Performance Share or Performance Unit with respect to
which the Performance Period has not ended as of the date of such Change
of Control, a cash payment equal to the product of (A) in the case of a
Performance Share, the Change of Control Value or (B) in the case of a
Performance Unit, the value of the Performance Unit specified in the
Award Agreement, as applicable, multiplied successively by each of the
following:
(1) a fraction, the numerator of which is the number of
whole and partial months that have elapsed between the beginning
of such Performance Period and the date of such Change of Control
and the denominator of which is the number of whole and partial
months in the Performance Period; and
(2) a percentage equal to a greater of (x) the target
percentage, if any, specified in the applicable Award Agreement or
(y) the maximum percentage, if any, that would be earned under the
terms of the applicable Award Agreement assuming that the rate at
which the performance goals have been achieved as of the date of
such Change of Control would continue until the end of the
Performance Period.
14.2 POOLING OF INTERESTS ACCOUNTING. If the Committee determines,
prior to a sale or merger of the Company that the Committee determines is
reasonably likely to occur, that the grant or exercise of Options, SARs or
LSARs would preclude the use of pooling of interests accounting ("pooling")
after the consummation of such sale or merger and that such preclusion of
pooling would have a material adverse effect on such sale or merger, the
Committee may (a) make any adjustments in such Options, SARs or LSARs prior to
the sale or merger that will permit pooling after the consummation of such
sale or merger or (b) cause the Company to pay the benefits attributable to
such Options, SARs or LSARs (including for this purpose not only the spread
between the then Fair Market Value of the Shares subject to such Options, SARs
or LSARs and the Option Price or Strike Price applicable thereto, but also the
additional value of such Options, SARs, or LSARs in excess of such spread, as
determined by the Committee) in the form of Shares if such payment would not
cause the transaction to remain or become ineligible for pooling; provided,
however, no such adjustment or payment may be made that would adversely affect
in any material way any such Options, SARs or LSARs without the consent of the
affected Grantee.
ARTICLE 15. AMENDMENT, MODIFICATION, AND TERMINATION
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms of
the Plan, the Board may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part without the approval of the
Company's stockholders.
15.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria
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included in, Awards in recognition of unusual or nonrecurring events
(including the events described in Section 4.2) affecting the Company or the
financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan; provided that no such adjustment shall be authorized to the extent that
such authority would be inconsistent with the Plan's meeting the requirements
of the Performance-Based Exception.
15.3 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of
the Plan to the contrary, no termination, amendment, or modification of the
Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the written consent of the Grantee of such Award.
ARTICLE 16. WITHHOLDING
16.1 WITHHOLDING
(a) MANDATORY TAX WITHHOLDING.
(1) Whenever, under the Plan, Shares are to be delivered upon
exercise or payment of an Award or upon Restricted Shares becoming
nonforfeitable, or any other event with respect to rights and benefits
hereunder, the Company shall be entitled to require (i) that the Grantee
remit an amount in cash, or if determined by the Committee, Mature
Shares, sufficient to satisfy all federal, state, local and foreign tax
withholding requirements related thereto ("Required Withholding"), (ii)
the withholding of such Required Withholding from compensation otherwise
due to the Grantee or from any Shares or other payment due to the Grantee
under the Plan or (iii) any combination of the foregoing.
(2) Any Grantee who makes a Disqualifying Disposition or an
election under Section 83(b) of the Code shall remit to the Company an
amount sufficient to satisfy all resulting Required Withholding; provided
that, in lieu of or in addition to the foregoing, the Company shall have
the right to withhold such Required Withholding from compensation
otherwise due to the Grantee or from any Shares or other payment due to
the Grantee under the Plan.
(b) ELECTIVE SHARE WITHHOLDING.
(1) Subject to subsection 16.1(b)(2), a Grantee may elect the
withholding ("Share Withholding") by the Company of a portion of the
Shares subject to an Award upon the exercise of such Award or upon
Restricted Shares becoming non-forfeitable or upon making an election
under Section 83(b) of the Code (each, a "Taxable Event") having a Fair
Market Value equal to (i) the minimum amount necessary to satisfy
Required Withholding liability attributable to the Taxable Event; or (ii)
with the Committee's prior approval, a greater amount, not to exceed the
estimated total amount of such Grantee's tax liability with respect to
the Taxable Event.
(2) Each Share Withholding election shall be subject to the
following conditions:
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(i) any Grantee's election shall be subject to the
Committee's discretion to revoke the Grantee's right to elect
Share Withholding at any time before the Grantee's election if the
Committee has reserved the right to do so in the Award Agreement;
(ii) the Grantee's election must be made before the date
(the "Tax Date") on which the amount of tax to be withheld is
determined; and
(iii) the Grantee's election shall be irrevocable.
16.2 NOTIFICATION UNDER CODE SECTION 83(B). If the Grantee, in
connection with the exercise of any Option, or the grant of Restricted Shares,
makes the election permitted under Section 83(b) of the Code to include in
such Grantee's gross income in the year of transfer the amounts specified in
Section 83(b) of the Code, then such Grantee shall notify the Company of such
election within 10 days of filing the notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant
to regulations issued under Section 83(b) of the Code. The Committee may, in
connection with the grant of an Award or at any time thereafter prior to such
an election being made, prohibit a Grantee from making the election described
above.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise of all or substantially all of
the business and/or assets of the Company.
ARTICLE 18. ADDITIONAL PROVISIONS
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or
part of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or stock
exchanges as may be required. Notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise, or receive benefits under,
any Award, and the Company shall not be obligated to deliver any Shares or
other benefits to a Grantee, if such exercise or delivery would constitute a
violation by the Grantee or the Company of any applicable law or regulation.
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18.4 SECURITIES LAW COMPLIANCE.
(a) If the Committee deems it necessary to comply with any applicable
securities law, or the requirements of any stock exchange upon which Shares
may be listed, the Committee may impose any restriction on Shares acquired
pursuant to Awards under the Plan as it may deem advisable. All certificates
for Shares delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the SEC, any stock exchange upon which Shares are then listed,
any applicable securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference to such
restrictions. If so requested by the Company, the Grantee shall make a written
representation to the Company that he or she will not sell or offer to sell
any Shares unless a registration statement shall be in effect with respect to
such Shares under the Securities Act of 1993, as amended, and any applicable
state securities law or unless he or she shall have furnished to the Company
evidence satisfactory to the Company that such registration is not required.
(b) If the Committee determines that the exercise or nonforfeitability
of, or delivery of benefits pursuant to, any Award would violate any
applicable provision of securities laws or the listing requirements of any
stock exchange upon which any of the Company's equity securities are listed,
then the Committee may postpone any such exercise, nonforfeitability or
delivery, as applicable, but the Company shall use all reasonable efforts to
cause such exercise, nonforfeitability or delivery to comply with all such
provisions at the earliest practicable date.
18.5 NO RIGHTS AS A STOCKHOLDER. A Grantee shall not have any rights as
a stockholder of the Company with respect to the Shares (other than Restricted
Shares) which may be deliverable upon exercise or payment of such Award until
such shares have been delivered to him or her. Restricted Shares, whether held
by a Grantee or in escrow by the Secretary of the Company, shall confer on the
Grantee all rights of a stockholder of the Company, except as otherwise
provided in the Plan or Award Agreement. At the time of a grant of Restricted
Shares, the Committee may require the payment of cash dividends thereon to be
deferred and, if the Committee so determines, reinvested in additional
Restricted Shares. Stock dividends and deferred cash dividends issued with
respect to Restricted Shares shall be subject to the same restrictions and
other terms as apply to the Restricted Shares with respect to which such
dividends are issued. The Committee may provide for payment of interest on
deferred cash dividends.
18.6 NATURE OF PAYMENTS. Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death or other benefit under (a) any pension, retirement, profit-
sharing, bonus, insurance or other employee benefit plan of the Company or any
Subsidiary or (b) any agreement between (i) the Company or any Subsidiary and
(ii) the Grantee, except as such plan or agreement shall otherwise expressly
provide.
18.7 PERFORMANCE MEASURES. Unless and until the Committee proposes for
stockholder vote and stockholders approve a change in the general performance
measures set forth in this Section 18.7, the performance measure(s) to be used
for purposes of such Awards shall be chosen from among the following:
(a) Earnings (either in the aggregate or on a per-share basis);
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(b) Net income (before or after taxes);
(c) Operating income;
(d) Cash flow;
(e) Return measures (including return on assets, equity, or sales);
(f) Earnings before or after either, or any combination of, taxes,
interest or depreciation and amortization;
(g) Gross revenues;
(h) Share price (including growth measures and stockholder return or
attainment by the Shares of a specified value for a specified period of time);
(i) Reductions in expense levels in each case, where applicable,
determined either on a Company-wide basis or in respect of any one or more
business units;
(j) Net economic value; or
(k) Market share.
Any of the foregoing performance measures may be applied, as determined
by the Committee, on the basis of the Company as a whole, or in respect of any
one or more Subsidiaries or divisions of the Company or any part of a
Subsidiary or division of the Company that is specified by the Committee.
The Committee may adjust the determinations of the degree of attainment
of the preestablished performance goals; provided, however, that Awards which
are designed to qualify for the Performance-Based Exception may not be
adjusted upward without the approval of the Company's stockholders (the
Committee may adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, and still qualify for the
Performance-Based Exception, the Committee shall have sole discretion to make
such changes without obtaining stockholder approval.
18.8 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware
other than its laws respecting choice of law.
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APPENDIX D
KANSAS CITY SOUTHERN INDUSTRIES, INC.
1991 AMENDED AND RESTATED STOCK OPTION
AND PERFORMANCE AWARD PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JULY 15, 1998)
ARTICLE 1. AMENDMENT AND RESTATEMENT, EFFECTIVE DATE, OBJECTIVES AND DURATION
1.1 AMENDMENT AND RESTATEMENT OF THE PLAN. Kansas City Southern
Industries, Inc., a Delaware corporation (the "Company"), hereby amends,
restates and combines the Kansas City Southern Industries, Inc. 1991 Amended
and Restated Stock Option and Performance Award Plan (as amended through
September 18, 1997), the Kansas City Southern Industries, Inc. 1993 Directors'
Stock Option Plan (the "1993 Plan"), the Kansas City Southern Industries, Inc.
1987 Stock Option Plan (as amended September 26, 1996) (the "1987 Plan") and
the Kansas City Southern Industries, Inc. 1983 Stock Option Plan (as amended
September 26, 1996) (the "1983 Plan"), as set forth herein, and as the same
may be amended from time to time (the "Plan"). The Plan, as so amended,
restated and combined, has been adopted by the Board of Directors of the
Company (the "Board") and approved by the stockholders of the Company, and
shall be effective as of July 15, 1998 (the "Effective Date").
1.2 OBJECTIVES OF THE PLAN. The Plan is intended to allow employees,
directors and consultants of the Company and its Subsidiaries to acquire or
increase equity ownership in the Company, thereby strengthening their
commitment to the success of the Company and stimulating their efforts on
behalf of the Company, and to assist the Company and its Subsidiaries in
attracting new employees, directors and consultants and retaining existing
employees, directors and consultants. The Plan also is intended to optimize
the profitability and growth of the Company through incentives which are
consistent with the Company's goals; to provide employees, directors and
consultants with an incentive for excellence in individual performance; and to
promote teamwork among employees, directors and consultants.
1.3 DURATION OF THE PLAN. The Plan shall remain in effect, subject to
the right of the Board to amend or terminate the Plan at any time pursuant to
Article 15 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an
Incentive Stock Option be granted under the Plan on or after the date 10 years
following the earlier of (i) the date the Plan was adopted and (ii) the date
the Plan was approved by the stockholders of the Company.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
2.1 "ARTICLE" means an Article of the Plan.
2.2 "AWARD" means Options (including Incentive Stock Options),
Restricted Shares, Bonus Shares, stock appreciation rights (SARs), limited
stock appreciation rights (LSARs), Performance Units or Performance Shares
granted under the Plan.
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2.3 "AWARD AGREEMENT" means the written agreement by which an Award
shall be evidenced.
2.4 "BOARD" has the meaning set forth in Section 1.1.
2.5 "BONUS SHARES" means Shares that are awarded to a Grantee without
cost and without restrictions in recognition of past performance (whether
determined by reference to another employee benefit plan of the Company or
otherwise) or as an incentive to become an employee, director or consultant of
the Company or a Subsidiary.
2.6 "CAUSE" means, unless otherwise defined in an Award Agreement,
(i) before the occurrence of a Change of Control, any one or
more of the following, as determined by the Committee:
(A) a Grantee's commission of a crime which, in the
judgment of the Committee, resulted or is likely to result in
damage or injury to the Company or a Subsidiary;
(B) the material violation by the Grantee of written
policies of the Company or a Subsidiary;
(C) the habitual neglect or failure by the Grantee in the
performance of his or her duties to the Company or a Subsidiary
(but only if such neglect or failure is not remedied within a
reasonable remedial period after Grantee's receipt of written
notice from the Company which describes such neglect or failure in
reasonable detail and specifies the remedial period); or
(D) action or inaction by the Grantee in connection with
his or her duties to the Company or a Subsidiary resulting, in the
judgment of the Committee, in material injury to the Company or a
Subsidiary; and
(ii) from and after the occurrence of a Change of Control, the
occurrence of any one or more of the following, as determined in the
good faith and reasonable judgment of the Committee:
(A) Grantee's conviction for committing an act of fraud,
embezzlement, theft, or any other act constituting a felony
involving moral turpitude or causing material damage or injury,
financial or otherwise, to the Company;
(B) a demonstrably willful and deliberate act or failure
to act which is committed in bad faith, without reasonable belief
that such action or inaction is in the best interests of the
Company, which causes material damage or injury, financial or
otherwise, to the Company (but only if such act or inaction is not
remedied within 15 business days of Grantee's receipt of written
notice from the Company which describes the act or inaction in
reasonable detail); or
(C) the consistent gross neglect of duties or consistent
wanton negligence by the Grantee in the performance of the
Grantee's duties (but only if such neglect or
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negligence is not remedied within a reasonable remedial period
after Grantee's receipt of written notice from the Company which
describes such neglect or negligence in reasonable detail and
specifies the remedial period).
2.7 "CHANGE OF CONTROL" means, unless otherwise defined in an Award
Agreement, any one or more of the following:
(i) the acquisition or holding by any person, entity or "group"
(within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act),
other than by the Company or any Subsidiary or any employee benefit plan
of the Company or a Subsidiary, of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) of 20% or more of the then-
outstanding Common Stock or the then-outstanding Voting Power of the
Company; provided, however, that no Change of Control shall occur solely
by reason of any such acquisition by a corporation with respect to
which, after such acquisition, more than 60% of both the then-
outstanding common shares and the then-outstanding Voting Power of such
corporation are then beneficially owned, directly or indirectly, by the
persons who were the beneficial owners of the then-outstanding Common
Stock and Voting Power of the Company immediately before such
acquisition, in substantially the same proportions as their respective
ownership, immediately before such acquisition, of the then-outstanding
Common Stock and Voting Power of the Company; or
(ii) individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least 75% of the Board; provided that any individual who becomes a
director after the Effective Date whose election or nomination for
election by the Company's stockholders was approved by at least 75% of
the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an
actual or threatened "election contest" relating to the election of the
directors of the Company (as such terms are used in Rule 14a-11 under
the 1934 Act) or "tender offer" (as such term is used in Section 14(d)
of the 1934 Act) or a proposed Extraordinary Transaction (as defined
below)) shall be deemed to be a member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of any one or
more of the following:
(A) a merger, reorganization, consolidation or similar
transaction (any of the foregoing, an "Extraordinary Transaction")
with respect to which persons who were the respective beneficial
owners of the then-outstanding Common Stock and Voting Power of
the Company immediately before such Extraordinary Transaction
would not, if such Extraordinary Transaction were to be
consummated immediately after such stockholder approval (but
otherwise in accordance with the terms presented in writing to the
stockholders of the Company for their approval), beneficially own,
directly or indirectly, more than 60% of both the then-outstanding
common shares and the then-outstanding Voting Power of the
corporation resulting from such Extraordinary Transaction, in
substantially the same proportions as their respective ownership,
immediately before such Extraordinary Transaction, of the then-
outstanding Common Stock and Voting Power of the Company,
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(B) a liquidation or dissolution of the Company, or
(C) the sale or other disposition of all or substantially
all of the assets of the Company in one transaction or a series of
related transactions.
2.8 "CHANGE OF CONTROL VALUE" means the Fair Market Value of a Share
on the date of a Change of Control.
2.9 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and regulations and rulings thereunder. References to a
particular section of the Code include references to successor provisions of
the Code or any successor code.
2.10 "COMMITTEE," "PLAN COMMITTEE" and "MANAGEMENT COMMITTEE" have the
meaning set forth in Article 3.
2.11 "COMMON STOCK" means the common stock, $.01 par value, of the
Company.
2.12 "COMPANY" has the meaning set forth in Section 1.1.
2.13 "COVERED EMPLOYEE" means a Grantee who, as of the date that the
value of an Award is recognizable as taxable income, is one of the group of
"covered employees," within the meaning of Code Section 162(m).
2.14 "DISABILITY" means, unless otherwise defined in an Award
Agreement, for purposes of the exercise of an Incentive Stock Option after
Termination of Affiliation, a disability within the meaning of Section
22(e)(3) of the Code, and for all other purposes, a mental or physical
condition which, in the judgment of the Committee, renders a Grantee unable to
perform any of the principal job responsibilities which such Grantee held or
the tasks to which such Grantee was assigned at the time the disability was
incurred, and which condition is expected to be permanent or for an indefinite
duration exceeding two years.
2.15 "DISQUALIFYING DISPOSITION" has the meaning set forth in Section
6.4.
2.16 "EFFECTIVE DATE" has the meaning set forth in Section 1.1.
2.17 "ELIGIBLE PERSON" means (i) any employee (including any officer)
of the Company or any Subsidiary, including any such employee who is on an
approved leave of absence, layoff, or has been subject to a disability which
does not qualify as a Disability, (ii) any director of the Company or any
Subsidiary and (iii) any person performing services for the Company or a
Subsidiary in the capacity of a consultant.
2.18 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time. References to a particular section of the Exchange
Act include references to successor provisions.
2.19 "EXTRAORDINARY TRANSACTION" has the meaning set forth in Section
2.7.
2.20 "FAIR MARKET VALUE" means (A) with respect to any property other
than Shares, the fair market value of such property determined by such methods
or procedures as shall be established
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from time to time by the Committee, and (B) with respect to Shares, unless
otherwise determined by the Committee, as of any date, (i) the average of the
high and low trading prices on the date of determination on the New York Stock
Exchange (or, if no sale of Shares was reported for such date, on the next
preceding date on which a sale of Shares was reported); (ii) if the Shares are
not listed on the New York Stock Exchange, the average of the high and low
trading prices of the Shares on such other national exchange on which the
Shares are principally traded or as reported by the National Market System, or
similar organization, or if no such quotations are available, the average of
the high bid and low asked quotations in the over-the-counter market as
reported by the National Quotation Bureau Incorporated or similar
organizations; or (iii) in the event that there shall be no public market for
the Shares, the fair market value of the Shares as determined by the
Committee.
2.21 "FREESTANDING SAR" means an SAR that is granted independently of
any other Award.
2.22 "GOOD REASON" means, unless otherwise defined in an Award
Agreement, the occurrence after a Change of Control, without a Grantee's prior
written consent, of any one or more of the following:
(i) the assignment to the Grantee of any duties which result in
a material adverse change in the Grantee's position (including status,
offices, titles, and reporting requirements), authority, duties, or
other responsibilities with the Company, or any other action of the
Company which results in a material adverse change in such position,
authority, duties, or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Company promptly after
receipt of notice thereof given by the Grantee,
(ii) any relocation of the Grantee of more than 40 miles from the
place where the Grantee was located at the time of the Change of
Control, or
(iii) a material reduction or elimination of any component of the
Grantee's rate of compensation, including (x) base salary, (y) any
incentive payment or (z) benefits or perquisites which the Grantee was
receiving immediately prior to a Change of Control.
2.23 "GRANT DATE" has the meaning set forth in Section 5.2.
2.24 "GRANTEE" means an individual who has been granted an Award.
2.25 "INCENTIVE STOCK OPTION" means an option granted under Article 6
of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provisions thereto.
2.26 "INCLUDING" or "INCLUDES" means "including, without limitation,"
or "includes, without limitation," respectively.
2.27 "LSAR" means a limited stock appreciation right.
2.28 "MATURE SHARES" means Shares for which the holder thereof has good
title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.
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2.29 "MINIMUM CONSIDERATION" means $.01 per Share or such other amount
that is from time to time considered to be capital for purposes of Section 154
of the Delaware General Corporation Law.
2.30 "OPTION" means an option granted under Article 6 of the Plan.
2.31 "OPTION PRICE" means the price at which a Share may be purchased
by a Grantee pursuant to an Option.
2.32 "OPTION TERM" means the period beginning on the Grant Date of an
Option and ending on the expiration date of such Option, as specified in the
Award Agreement for such Option and as may, consistent with the provisions of
the Plan, be extended from time to time by the Committee prior to the
expiration date of such Option then in effect.
2.33 "OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Subsidiary.
2.34 "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.35 "PERFORMANCE PERIOD" has the meaning set forth in Section 9.2.
2.36 "PERFORMANCE SHARE" or "PERFORMANCE UNIT" has the meaning set
forth in Article 9.
2.37 "PERIOD OF RESTRICTION" means the period during which the transfer
of Restricted Shares is limited in some way (the length of the period being
based on the passage of time, the achievement of performance goals, or upon
the occurrence of other events as determined by the Committee), and the Shares
are subject to a substantial risk of forfeiture, as provided in Article 8.
2.38 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.39 "PLAN" has the meaning set forth in Section 1.1.
2.40 "REQUIRED WITHHOLDING" has the meaning set forth in Article 16.
2.41 "RESTRICTED SHARES" means Shares that are subject to forfeiture if
the Grantee does not satisfy the conditions specified in the Award Agreement
applicable to such Shares.
2.42 "RETIREMENT" means for any Grantee who is an employee, Termination
of Affiliation by the Grantee upon either (i) having both attained age fifty-
five (55) and completed at least ten (10) years of service with the Company or
a Subsidiary or (ii) meeting such other requirements as may be specified by
the Committee.
2.43 "RULE 16B-3" means Rule 16b-3 promulgated by the SEC under the
Exchange Act, as amended from time to time, together with any successor rule,
as in effect from time to time.
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2.44 "SAR" means a stock appreciation right.
2.45 "SEC" means the United States Securities and Exchange Commission,
or any successor thereto.
2.46 "SECTION" means, unless the context otherwise requires, a Section
of the Plan.
2.47 "SECTION 16 PERSON" means a person who is subject to potential
liability under Section 16(b) of the 1934 Act with respect to transactions
involving equity securities of the Company.
2.48 "SHARE" means a share of Common Stock.
2.49 "STRIKE PRICE" of any SAR shall equal, for any Tandem SAR (whether
such Tandem SAR is granted at the same time as or after the grant of the
related Option), the Option Price of such Option, or for any other SAR, 100%
of the Fair Market Value of a Share on the Grant Date of such SAR; provided
that the Committee may specify a higher Strike Price in the Award Agreement.
2.50 "SUBSIDIARY" means, for purposes of grants of Incentive Stock
Options, a corporation as defined in Section 424(f) of the Code (with the
Company being treated as the employer corporation for purposes of this
definition) and, for all other purposes, a United States or foreign
corporation with respect to which the Company owns, directly or indirectly,
50% (or such lesser percentage as the Committee may specify, which percentage
may be changed from time to time and may be different for different entities)
or more of the Voting Power of such corporation.
2.51 "TANDEM SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require cancellation of the right
to purchase a Share under the related Option (and when a Share is purchased
under the related Option, the Tandem SAR shall similarly be canceled).
2.52 "TERMINATION OF AFFILIATION" occurs on the first day on which an
individual is for any reason no longer providing services to the Company or
any Subsidiary in the capacity of an employee, director or consultant, or with
respect to an individual who is an employee or director of, or consultant to,
a corporation which is a Subsidiary, the first day on which such corporation
ceases to be a Subsidiary.
2.53 "10% OWNER" means a person who owns capital stock (including stock
treated as owned under Section 424(d) of the Code) possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company
or any Subsidiary.
2.54 "VOTING POWER" means the combined voting power of the then-
outstanding securities of a corporation entitled to vote generally in the
election of directors.
ARTICLE 3. ADMINISTRATION
3.1 COMMITTEE.
(a) Subject to Article 15, and to Section 3.2, the Plan shall be
administered by the Board, or a committee appointed by the Board to administer
the Plan ("Plan Committee"). To the
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extent the Board considers it desirable to comply with or qualify under Rule
16b-3 or meet the Performance-Based Exception, the Plan Committee shall
consist of two or more directors of the Company, all of whom qualify as
"outside directors" as defined for purposes of the regulations under Code
Section 162(m) and "non-employee directors" within the meaning of Rule 16b-3.
The number of members of the Plan Committee shall from time to time be
increased or decreased, and shall be subject to such conditions, in each case
as the Board deems appropriate to permit transactions in Shares pursuant to
the Plan to satisfy such conditions of Rule 16b-3 and the Performance-Based
Exception as then in effect.
(b) The Board or the Plan Committee may appoint and delegate to
another committee ("Management Committee") any or all of the authority of the
Board or the Plan Committee, as applicable, with respect to Awards to Grantees
other than Grantees who are Section 16 Persons at the time any such delegated
authority is exercised.
(c) Any references herein to "Committee" are references to the Board,
or the Plan Committee or the Management Committee, as applicable.
3.2 POWERS OF COMMITTEE. Subject to the express provisions of the
Plan, the Committee has full and final authority and sole discretion as
follows:
(i) to determine when, to whom and in what types and amounts
Awards should be granted and the terms and conditions applicable to each
Award, including the benefit payable under any SAR, Performance Unit or
Performance Share, and whether or not specific Awards shall be granted
in connection with other specific Awards, and if so whether they shall
be exercisable cumulatively with, or alternatively to, such other
specific Awards;
(ii) to determine the amount, if any, that a Grantee shall pay
for Restricted Shares, whether to permit or require the payment of cash
dividends thereon to be deferred and the terms related thereto, when
Restricted Shares (including Restricted Shares acquired upon the
exercise of an Option) shall be forfeited and whether such shares shall
be held in escrow;
(iii) to construe and interpret the Plan and to make all
determinations necessary or advisable for the administration of the
Plan;
(iv) to make, amend, and rescind rules relating to the Plan,
including rules with respect to the exercisability and nonforfeitability
of Awards upon the Termination of Affiliation of a Grantee;
(v) to determine the terms and conditions of all Award
Agreements (which need not be identical) and, with the consent of the
Grantee, to amend any such Award Agreement at any time, among other
things, to permit transfers of such Awards to the extent permitted by
the Plan; provided that the consent of the Grantee shall not be required
for any amendment which (A) does not adversely affect the rights of the
Grantee, or (B) is necessary or advisable (as determined by the
Committee) to carry out the purpose of the Award as a result of any new
or change in existing applicable law;
(vi) to cancel, with the consent of the Grantee, outstanding
Awards and to grant new Awards in substitution therefor;
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(vii) to accelerate the exercisability (including exercisability
within a period of less than six months after the Grant Date) of, and to
accelerate or waive any or all of the terms and conditions applicable
to, any Award or any group of Awards for any reason and at any time,
including in connection with a Termination of Affiliation;
(viii) subject to Sections 1.3 and 5.3, to extend the time during
which any Award or group of Awards may be exercised;
(ix) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are advisable to fulfill
the purposes of the Plan or to comply with applicable local law;
(x) to impose such additional terms and conditions upon the
grant, exercise or retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate, including
limiting the percentage of Awards which may from time to time be
exercised by a Grantee; and
(xi) to take any other action with respect to any matters
relating to the Plan for which it is responsible.
All determinations on all matters relating to the Plan or any Award
Agreement may be made in the sole and absolute discretion of the Committee,
and all such determinations of the Committee shall be final, conclusive and
binding on all Persons. No member of the Committee shall be liable for any
action or determination made with respect to the Plan or any Award.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2, the number of Shares hereby reserved for issuance
under the Plan shall be equal to the sum of (i) 25,200,000 and (ii) the total
number of Shares subject to Awards granted under the 1993 Plan, 1987 Plan and
1983 Plan that are outstanding as of the Effective Date; and the number of
Shares for which Awards may be granted to any Grantee on any Grant Date, when
aggregated with the number of Shares for which Awards have previously been
granted to such Grantee in the same calendar year, shall not exceed the
greater of (i) one percent (1%) of the total Shares outstanding as of such
Grant Date or (ii) 1,300,000; provided, however, that the total number of
Shares for which Awards may be granted to any Grantee in any calendar year
shall not exceed 2,000,000. If any Shares subject to an Award granted
hereunder are forfeited or such Award otherwise terminates without the
issuance of such Shares or of other consideration in lieu of such Shares, the
Shares subject to such Award, to the extent of any such forfeiture or
termination shall again be available for grant under the Plan. If any Shares
(whether subject to or received pursuant to an Award granted hereunder,
purchased on the open market, or otherwise obtained) are withheld, applied as
payment, or sold pursuant to procedures approved by the Committee and the
proceeds thereof applied as payment in connection with the exercise of an
Award or the withholding of taxes related thereto, such Shares, to the extent
of any such withholding or payment, shall again be available or shall increase
the number of Shares available, as applicable, for grant under the Plan. The
Committee may from time to time determine the appropriate methodology for
calculating the number of Shares issued pursuant to the Plan. Shares issued
pursuant to the Plan may be treasury Shares or newly-issued Shares.
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4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event that the Committee
determines that any dividend or other distribution (whether in the form of
cash, Shares, other securities, or other property), recapitalization, stock
split, reverse stock split, subdivision, consolidation or reduction of
capital, reorganization, merger, scheme of arrangement, split-up, spin-off or
combination involving the Company or repurchase or exchange of Shares or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that any adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject
to outstanding Awards, and (iii) the grant or exercise price with respect to
any Award or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award or the substitution of other property for
Shares subject to an outstanding Award; provided, in each case that with
respect to Awards of Incentive Stock Options no such adjustment shall be
authorized to the extent that such adjustment would cause the Plan to violate
Section 422(b)(1) of the Code or any successor provision thereto; and provided
further, that the number of Shares subject to any Award denominated in Shares
shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS
5.1 ELIGIBILITY. The Committee may grant Awards to any Eligible
Person, whether or not he or she has previously received an Award.
5.2 GRANT DATE. The Grant Date of an Award shall be the date on which
the Committee grants the Award or such later date as specified by the
Committee.
5.3 MAXIMUM TERM. The Option Term or other period during which an
Award may be outstanding shall under no circumstances extend more than 10
years after the Grant Date, and shall be subject to earlier termination as
herein provided; provided, however, that any deferral of a cash payment or of
the delivery of Shares that is permitted or required by the Committee pursuant
to Article 12 may, if so permitted or required by the Committee, extend more
than 10 years after the Grant Date of the Award to which the deferral relates.
5.4 AWARD AGREEMENT. To the extent not set forth in the Plan, the
terms and conditions of each Award (which need not be the same for each grant
or for each Grantee) shall be set forth in an Award Agreement.
5.5 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise or vesting
of an Award as it may deem advisable, including restrictions under applicable
federal securities laws.
5.6 TERMINATION OF AFFILIATION. Except as otherwise provided in an
Award Agreement, and subject to the provisions of Section 14.1, the extent to
which the Grantee shall have the right to exercise, vest in, or receive
payment in respect of an Award following Termination of Affiliation shall be
determined in accordance with the following provisions of this Section 5.6.
(a) FOR CAUSE. If a Grantee has a Termination of Affiliation for
Cause, (i) the Grantee's Restricted Shares that are forfeitable shall
thereupon be forfeited, subject to the provisions
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of Section 8.4 regarding repayment of certain amounts to the Grantee; and (ii)
any unexercised Option, LSAR or SAR, and any Performance Share or Performance
Unit with respect to which the Performance Period has not ended as of the date
of such Termination of Affiliation, shall terminate effective immediately upon
such Termination of Affiliation.
(b) ON ACCOUNT OF DEATH OR DISABILITY. If a Grantee has a Termination
of Affiliation on account of death or Disability, then:
(i) the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not exercisable on
the date of such Termination of Affiliation, may be exercised, in whole
or in part, within the first 12 months after such Termination of
Affiliation (but only during the Option Term) by the Grantee or, after
his or her death, by (A) his or her personal representative or the
person to whom the Option or SAR, as applicable, is transferred by will
or the applicable laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Article 11; and
(iii) the benefit payable with respect to any Performance Share or
Performance Unit with respect to which the Performance Period has not
ended as of the date of such Termination of Affiliation on account of
death or Disability shall be equal to the product of the Fair Market
Value of a Share as of the date of such Termination of Affiliation or
the value of the Performance Unit specified in the Award Agreement
(determined as of the date of such Termination of Affiliation), as
applicable, multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of
months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the
date of such Termination of Affiliation and the denominator of
which is the number of months (including as a whole month any
partial month) in the Performance Period; and
(2) a percentage determined by the Committee that would be
earned under the terms of the applicable Award Agreement assuming
that the rate at which the performance goals have been achieved as
of the date of such Termination of Affiliation would continue
until the end of the Performance Period, or, if the Committee
elects to compute the benefit after the end of the Performance
Period, the Performance Percentage, as determined by the
Committee, attained during the Performance Period.
(c) ON ACCOUNT OF RETIREMENT. If a Grantee has a Termination of
Affiliation on account of Retirement, then:
(i) the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not exercisable on
the date of such Termination of Affiliation, may be exercised, in whole
or in part, within the first five years after such Termination of
Affiliation (but only during the Option Term) by the Grantee
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or, after his or her death, by (A) his or her personal representative or
the person to whom the Option or SAR, as applicable, is transferred by
will or the applicable laws of descent and distribution, or (B) the
Grantee's beneficiary designated in accordance with Article 11; and
(iii) the benefit payable with respect to any Performance Share or
Performance Unit with respect to which the Performance Period has not
ended as of the date of such Termination of Affiliation on account of
Retirement shall be equal to the product of the Fair Market Value of a
Share as of the date of such Termination of Affiliation or the value of
the Performance Unit specified in the Award Agreement (determined as of
the date of such Termination of Affiliation), as applicable, multiplied
successively by each of the following:
(1) a fraction, the numerator of which is the number of
months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the
date of such Termination of Affiliation and the denominator of
which is the number of months (including as a whole month any
partial month) in the Performance Period; and
(2) a percentage determined by the Committee that would be
earned under the terms of the applicable Award Agreement assuming
that the rate at which the performance goals have been achieved as
of the date of such Termination of Affiliation would continue
until the end of the Performance Period, or, if the Committee
elects to compute the benefit after the end of the Performance
Period, the Performance Percentage, as determined by the
Committee, attained during the Performance Period.
(d) ANY OTHER REASON. If a Grantee has a Termination of Affiliation
for any reason other than for Cause, death, Disability or Retirement, then:
(i) the Grantee's Restricted Shares, to the extent forfeitable
on the date of the Grantee's Termination of Affiliation, shall be
forfeited on such date;
(ii) any unexercised Option or SAR, to the extent exercisable
immediately before the Grantee's Termination of Affiliation, may be
exercised in whole or in part, not later than three months after such
Termination of Affiliation (but only during the Option Term) by the
Grantee or, after his or her death, by (A) his or her personal
representative or the person to whom the Option or SAR, as applicable,
is transferred by will or the applicable laws of descent and
distribution, or (B) the Grantee's beneficiary designated in accordance
with Article 11; and
(iii) any Performance Shares or Performance Units with respect to
which the Performance Period has not ended as of the date of such
Termination of Affiliation shall terminate immediately upon such
Termination of Affiliation.
5.7 NONTRANSFERABILITY OF AWARDS.
(a) Except as provided in Section 5.7(c) below, each Award, and each
right under any Award, shall be exercisable only by the Grantee during the
Grantee's lifetime, or, if permissible under applicable law, by the Grantee's
guardian or legal representative or by a transferee receiving
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such Award pursuant to a qualified domestic relations order (a "QDRO") as
defined in the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or the rules thereunder.
(b) Except as provided in Section 5.7(c) below, no Award (prior to the
time, if applicable, Shares are issued in respect of such Award), and no right
under any Award, may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Grantee otherwise than by will or by
the laws of descent and distribution (or in the case of Restricted Shares, to
the Company) or pursuant to a QDRO, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void
and unenforceable against the Company or any Subsidiary; provided, that the
designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
(c) To the extent and in the manner permitted by the Committee, and
subject to such terms, conditions, restrictions or limitations that may be
prescribed by the Committee, a Grantee may transfer an Award (other than an
Incentive Stock Option) to (i) a spouse, sibling, parent, child (including an
adopted child) or grandchild (any of which, an "Immediate Family Member") of
the Grantee; (ii) a trust, the primary beneficiaries of which consist
exclusively of the Grantee or Immediate Family Members of the Grantee; or
(iii) a corporation, partnership or similar entity, the owners of which
consist exclusively of the Grantee or Immediate Family Members of the Grantee.
5.8 CANCELLATION AND RESCISSION OF AWARDS. Unless the Award Agreement
specifies otherwise, the Committee may cancel, rescind, suspend, withhold, or
otherwise limit or restrict any unexercised Award at any time if the Grantee
is not in compliance with all applicable provisions of the Award Agreement and
the Plan or if the Grantee has a Termination of Affiliation for Cause.
5.9 LOANS AND GUARANTEES. The Committee may, subject to applicable
law, (i) allow a Grantee to defer payment to the Company of all or any portion
of the Option Price of an Option or the purchase price of Restricted Shares,
or (ii) cause the Company to loan to the Grantee, or guarantee a loan from a
third party to the Grantee, for all or any portion of the Option Price of an
Option or the purchase price of Restricted Shares or all or any portion of any
taxes associated with the exercise of, nonforfeitability of, or payment of
benefits in connection with, an Award. Any such payment deferral, loan or
guarantee by the Company shall be on such terms and conditions as the
Committee may determine.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to any Eligible Person in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee. Without in any manner limiting the generality of the foregoing, the
Committee may grant to any Eligible Person, or permit any Eligible Person to
elect to receive, an Option in lieu of or in substitution for any other
compensation (whether payable currently or on a deferred basis, and whether
payable under this Plan or otherwise) which such Eligible Person may be
eligible to receive from the Company or a Subsidiary.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the Option Term, the number of
shares to which the Option pertains, the time or times at which such Option
shall be exercisable and such other provisions as the Committee shall
determine.
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6.3 OPTION PRICE. The Option Price of an Option under this Plan shall
be determined by the Committee, and shall be equal to or more than 100% of the
Fair Market Value of a Share on the Grant Date; provided, however, that any
Option that is (x) granted to a Grantee in connection with the acquisition
("Acquisition"), however effected, by the Company of another corporation or
entity ("Acquired Entity") or the assets thereof, (y) associated with an
option to purchase shares of stock of the Acquired Entity or an affiliate
thereof ("Acquired Entity Option") held by such Grantee immediately prior to
such Acquisition, and (z) intended to preserve for the Grantee the economic
value of all or a portion of such Acquired Entity Option ("Substitute Option")
may, to the extent necessary to achieve such preservation of economic value,
be granted with an Option Price that is less than 100% of the Fair Market
Value of a Share on the Grant Date.
6.4 GRANT OF INCENTIVE STOCK OPTIONS. At the time of the grant of any
Option, the Committee may designate that such Option shall be made subject to
additional restrictions to permit it to qualify as an "incentive stock option"
under the requirements of Section 422 of the Code. Any Option designated as an
Incentive Stock Option shall, to the extent required by Section 422 of the
Code:
(i) if granted to a 10% Owner, have an Option Price not less
than 110% of the Fair Market Value of a Share on its Grant Date;
(ii) be exercisable for a period of not more than 10 years (five
years in the case of an Incentive Stock Option granted to a 10% Owner)
from its Grant Date, and be subject to earlier termination as provided
herein or in the applicable Award Agreement;
(iii) not have an aggregate Fair Market Value (as of the Grant
Date of each Incentive Stock Option) of the Shares with respect to which
Incentive Stock Options (whether granted under the Plan or any other
stock option plan of the Grantee's employer or any parent or Subsidiary
thereof ("Other Plans")) are exercisable for the first time by such
Grantee during any calendar year, determined in accordance with the
provisions of Section 422 of the Code, which exceeds $100,000 (the
"$100,000 Limit");
(iv) if the aggregate Fair Market Value of the Shares (determined
on the Grant Date) with respect to the portion of such grant which is
exercisable for the first time during any calendar year ("Current
Grant") and all Incentive Stock Options previously granted under the
Plan and any Other Plans which are exercisable for the first time during
the same calendar year ("Prior Grants") would exceed the $100,000 Limit
be exercisable as follows:
(A) the portion of the Current Grant which would, when
added to any Prior Grants, be exercisable with respect to Shares
which would have an aggregate Fair Market Value (determined as of
the respective Grant Date for such options) in excess of the
$100,000 Limit shall, notwithstanding the terms of the Current
Grant, be exercisable for the first time by the Grantee in the
first subsequent calendar year or years in which it could be
exercisable for the first time by the Grantee when added to all
Prior Grants without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the
preceding provisions of this Section during any calendar year
commencing with the calendar year in which it is first exercisable
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through and including the last calendar year in which it may by
its terms be exercised, such portion of the Current Grant shall
not be an Incentive Stock Option, but shall be exercisable as an
Option which is not an Incentive Stock Option at such date or
dates as are provided in the Current Grant;
(v) be granted within 10 years from the earlier of the date the
Plan is adopted or the date the Plan is approved by the stockholders of
the Company; and
(vi) by its terms not be assignable or transferable other than by
will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee; provided, however,
that the Grantee may, in any manner permitted by the Plan and specified
by the Committee, designate in writing a beneficiary to exercise his or
her Incentive Stock Option after the Grantee's death.
Any Option designated as an Incentive Stock Option shall also require
the Grantee to notify the Committee of any disposition of any Shares issued
pursuant to the exercise of the Incentive Stock Option under the circumstances
described in Section 421(b) of the Code (relating to certain disqualifying
dispositions) (any such circumstance, a "Disqualifying Disposition"), within
10 days of such Disqualifying Disposition.
Notwithstanding the foregoing and Section 3.2(v), the Committee may,
without the consent of the Grantee, at any time before the exercise of an
Option (whether or not an Incentive Stock Option), take any action necessary
to prevent such Option from being treated as an Incentive Stock Option.
6.5 PAYMENT. Options granted under this Article 6 shall be exercised
by the delivery of a written notice of exercise to the Company, setting forth
the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares made by any one or more of the
following means subject to the approval of the Committee:
(a) cash, personal check or wire transfer;
(b) Mature Shares, valued at their Fair Market Value on the date of
exercise;
(c) Restricted Shares held by the Grantee for at least six months
prior to the exercise of the Option, each such Share valued at the Fair Market
Value of a Share on the date of exercise;
(d) subject to applicable law, pursuant to procedures approved by the
Committee, through the sale of the Shares acquired on exercise of the Option
through a broker-dealer to whom the Grantee has submitted an irrevocable
notice of exercise and irrevocable instructions to deliver promptly to the
Company the amount of sale or loan proceeds sufficient to pay for such Shares,
together with, if requested by the Company, the amount of federal, state,
local or foreign withholding taxes payable by Grantee by reason of such
exercise; or
(e) when permitted by the Committee, payment may also be made in
accordance with Section 5.9.
If any Restricted Shares ("Tendered Restricted Shares") are used to pay the
Option Price, a number of Shares acquired on exercise of the Option equal to
the number of Tendered Restricted Shares shall
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be subject to the same restrictions as the Tendered Restricted Shares,
determined as of the date of exercise of the Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan,
SARs may be granted to any Eligible Person at any time and from time to time
as shall be determined by the Committee. The Committee may grant Freestanding
SARs, Tandem SARs, or any combination thereof.
The Committee shall determine the number of SARs granted to each Grantee
(subject to Article 4), the Strike Price thereof, and, consistent with Section
7.2 and the other provisions of the Plan, the other terms and conditions
pertaining to such SARs.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or
part of the Shares subject to the related Award upon the surrender of the
right to exercise the equivalent portion of the related Award. A Tandem SAR
may be exercised only with respect to the Shares for which its related Award
is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR, (i) the Tandem SAR will expire no later than the
expiration of the underlying Option; (ii) the value of the payout with respect
to the Tandem SAR may be for no more than 100% of the difference between the
Option Price of the underlying Option and the Fair Market Value of the Shares
subject to the underlying Option at the time the Tandem SAR is exercised; and
(iii) the Tandem SAR may be exercised only when the Fair Market Value of the
Shares subject to the Option exceeds the Option Price of the Option.
7.3 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, the Grantee shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) the excess of the Fair Market Value of a Share on the date of
exercise over the Strike Price;
by
(b) the number of Shares with respect to which the SAR is exercised;
provided that the Committee may provide in the Award Agreement that the
benefit payable on exercise of an SAR shall not exceed such percentage of the
Fair Market Value of a Share on the Grant Date as the Committee shall specify.
As determined by the Committee, the payment upon SAR exercise may be in cash,
in Shares which have an aggregate Fair Market Value (as of the date of
exercise of the SAR) equal to the amount of the payment, or in some
combination thereof, as set forth in the Award Agreement.
7.4 GRANT OF LSARS. Subject to the terms and conditions of the Plan,
LSARs may be granted to any Eligible Person at any time and from time to time
as shall be determined by the Committee. Each LSAR shall be identified with a
Share subject to an Option or SAR held by the Grantee, which may include an
Option or SAR previously granted under the Plan. Upon the exercise,
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expiration, termination, forfeiture or cancellation of the Option or SAR with
which an LSAR is identified, such LSAR shall terminate.
7.5 EXERCISE OF LSARS. Each LSAR shall automatically be exercised upon
a Change of Control which has not been approved by the Incumbent Board. The
exercise of an LSAR shall result in the cancellation of the Option or SAR with
which such LSAR is identified, to the extent of such exercise.
7.6 PAYMENT OF LSAR AMOUNT. Within 10 business days after the exercise
of an LSAR, the Company shall pay to the Grantee, in cash, an amount equal to
the difference between:
(a) the greatest of (i) the Change of Control Value, (ii) the Fair
Market Value of a Share on the date occurring during the 180-day period
immediately preceding the date of the Change of Control on which such Fair
Market Value is the greatest, or (iii) such other valuation amount, if any, as
may be determined pursuant to the provisions of the applicable Award
Agreement;
minus
(b) either (i) in the case of an LSAR identified with an Option, the
Option Price of such Option or (ii) in the case of an LSAR identified with an
SAR, the Strike Price of such SAR.
ARTICLE 8. RESTRICTED SHARES
8.1 GRANT OF RESTRICTED SHARES. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant
Restricted Shares to any Eligible Person in such amounts as the Committee
shall determine.
8.2 AWARD AGREEMENT. Each grant of Restricted Shares shall be
evidenced by an Award Agreement that shall specify the Period(s) of
Restriction, the number of Restricted Shares granted, and such other
provisions as the Committee shall determine. The Committee may impose such
conditions and/or restrictions on any Restricted Shares granted pursuant to
the Plan as it may deem advisable, including restrictions based upon the
achievement of specific performance goals (Company-wide, divisional,
Subsidiary and/or individual), time-based restrictions on vesting, and/or
restrictions under applicable securities laws.
8.3 CONSIDERATION. The Committee shall determine the amount, if any,
that a Grantee shall pay for Restricted Shares, which shall be (except with
respect to Restricted Shares that are treasury shares) at least the Minimum
Consideration for each Restricted Share. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event no later than
10 business days after the Grant Date for such shares.
8.4 EFFECT OF FORFEITURE. If Restricted Shares are forfeited, and if
the Grantee was required to pay for such shares or acquired such Restricted
Shares upon the exercise of an Option, the Grantee shall be deemed to have
resold such Restricted Shares to the Company at a price equal to the lesser of
(x) the amount paid by the Grantee for such Restricted Shares, or (y) the Fair
Market Value of a Share on the date of such forfeiture. The Company shall pay
to the Grantee the required amount
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as soon as is administratively practical. Such Restricted Shares shall cease
to be outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of the Company, from and after the date of the event
causing the forfeiture, whether or not the Grantee accepts the Company's
tender of payment for such Restricted Shares.
8.5 ESCROW; LEGENDS. The Committee may provide that the certificates
for any Restricted Shares (x) shall be held (together with a stock power
executed in blank by the Grantee) in escrow by the Secretary of the Company
until such Restricted Shares become nonforfeitable or are forfeited and/or (y)
shall bear an appropriate legend restricting the transfer of such Restricted
Shares. If any Restricted Shares become nonforfeitable, the Company shall
cause certificates for such shares to be issued without such legend.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Subject to the
terms of the Plan, Performance Units or Performance Shares may be granted to
any Eligible Person in such amounts and upon such terms, and at any time and
from time to time, as shall be determined by the Committee.
9.2 VALUE/PERFORMANCE GOALS. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value
of a Share on the date of grant. The Committee shall set performance goals
which, depending on the extent to which they are met, will determine the
number or value of Performance Units or Performance Shares that will be paid
out to the Grantee. For purposes of this Article 9, the time period during
which the performance goals must be met shall be called a "Performance
Period."
9.3 EARNING OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Subject to
the terms of this Plan, after the applicable Performance Period has ended, the
holder of Performance Units or Performance Shares shall be entitled to receive
a payout based on the number and value of Performance Units or Performance
Shares earned by the Grantee over the Performance Period, to be determined as
a function of the extent to which the corresponding performance goals have
been achieved.
If a Grantee is promoted, demoted or transferred to a different business
unit of the Company during a Performance Period, then, to the extent the
Committee determines the performance goals or Performance Period are no longer
appropriate, the Committee may adjust, change or eliminate the performance
goals or the applicable Performance Period as it deems appropriate in order to
make them appropriate and comparable to the initial performance goals or
Performance Period.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE
SHARES. Payment of earned Performance Units or Performance Shares shall be
made in a lump sum following the close of the applicable Performance Period.
The Committee may pay earned Performance Units or Performance Shares in the
form of cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned Performance Units
or Performance Shares at the close of the applicable Performance Period. Such
Shares may be granted subject to any restrictions deemed appropriate by the
Committee. The form of payout of such Awards shall be set forth in the Award
Agreement pertaining to the grant of the Award.
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As determined by the Committee, a Grantee may be entitled to receive any
dividends declared with respect to Shares which have been earned in connection
with grants of Performance Units or Performance Shares but not yet distributed
to the Grantee. In addition, a Grantee may, as determined by the Committee, be
entitled to exercise his or her voting rights with respect to such Shares.
ARTICLE 10. BONUS SHARES
Subject to the terms of the Plan, the Committee may grant Bonus Shares
to any Eligible Person, in such amount and upon such terms and at any time and
from time to time as shall be determined by the Committee. The terms of such
Bonus Shares shall be set forth in the Award Agreement pertaining to the grant
of the Award.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Grantee under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke
all prior designations by the same Grantee, shall be in a form prescribed by
the Company, and will be effective only when filed by the Grantee in writing
with the Company during the Grantee's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Grantee's death shall be paid to
the Grantee's estate.
ARTICLE 12. DEFERRALS
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due by
virtue of the exercise of an Option or SAR, the lapse or waiver of
restrictions with respect to Restricted Shares, the satisfaction of any
requirements or goals with respect to Performance Units or Performance Shares,
or the grant of Bonus Shares. If any such deferral is required or permitted,
the Committee shall establish rules and procedures for such deferrals. Except
as otherwise provided in an Award Agreement, any payment or any Shares that
are subject to such deferral shall be made or delivered to the Grantee upon
the Grantee's Termination of Affiliation.
ARTICLE 13. RIGHTS OF EMPLOYEES/DIRECTORS/CONSULTANTS
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Grantee's employment,
directorship or consultancy at any time, nor confer upon any Grantee the right
to continue in the employ or as a director or consultant of the Company.
13.2 PARTICIPATION. No employee, director or consultant shall have the
right to be selected to receive an Award under the Plan, or, having been so
selected, to be selected to receive a future Award.
ARTICLE 14. CHANGE OF CONTROL
14.1 CHANGE OF CONTROL. Except as otherwise provided in an Award
Agreement, if a Change of Control occurs, then:
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(i) the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not exercisable on
the date of such Change of Control, shall thereupon be fully exercisable
and may be exercised, in whole or in part; and
(iii) the Company shall immediately pay to the Grantee, with
respect to any Performance Share or Performance Unit with respect to
which the Performance Period has not ended as of the date of such Change
of Control, a cash payment equal to the product of (A) in the case of a
Performance Share, the Change of Control Value or (B) in the case of a
Performance Unit, the value of the Performance Unit specified in the
Award Agreement, as applicable, multiplied successively by each of the
following:
(1) a fraction, the numerator of which is the number of
whole and partial months that have elapsed between the beginning
of such Performance Period and the date of such Change of Control
and the denominator of which is the number of whole and partial
months in the Performance Period; and
(2) a percentage equal to a greater of (x) the target
percentage, if any, specified in the applicable Award Agreement or
(y) the maximum percentage, if any, that would be earned under the
terms of the applicable Award Agreement assuming that the rate at
which the performance goals have been achieved as of the date of
such Change of Control would continue until the end of the
Performance Period.
14.2 POOLING OF INTERESTS ACCOUNTING. If the Committee determines,
prior to a sale or merger of the Company that the Committee determines is
reasonably likely to occur, that the grant or exercise of Options, SARs or
LSARs would preclude the use of pooling of interests accounting ("pooling")
after the consummation of such sale or merger and that such preclusion of
pooling would have a material adverse effect on such sale or merger, the
Committee may (a) make any adjustments in such Options, SARs or LSARs prior to
the sale or merger that will permit pooling after the consummation of such
sale or merger or (b) cause the Company to pay the benefits attributable to
such Options, SARs or LSARs (including for this purpose not only the spread
between the then Fair Market Value of the Shares subject to such Options, SARs
or LSARs and the Option Price or Strike Price applicable thereto, but also the
additional value of such Options, SARs, or LSARs in excess of such spread, as
determined by the Committee) in the form of Shares if such payment would not
cause the transaction to remain or become ineligible for pooling; provided,
however, no such adjustment or payment may be made that would adversely affect
in any material way any such Options, SARs or LSARs without the consent of the
affected Grantee.
ARTICLE 15. AMENDMENT, MODIFICATION, AND TERMINATION
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms of
the Plan, the Board may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part without the approval of the
Company's stockholders.
15.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria
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included in, Awards in recognition of unusual or nonrecurring events
(including the events described in Section 4.2) affecting the Company or the
financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan; provided that no such adjustment shall be authorized to the extent that
such authority would be inconsistent with the Plan's meeting the requirements
of the Performance-Based Exception.
15.3 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of
the Plan to the contrary, no termination, amendment, or modification of the
Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the written consent of the Grantee of such Award.
ARTICLE 16. WITHHOLDING
16.1 WITHHOLDING
(a) MANDATORY TAX WITHHOLDING.
(1) Whenever, under the Plan, Shares are to be delivered upon
exercise or payment of an Award or upon Restricted Shares becoming
nonforfeitable, or any other event with respect to rights and benefits
hereunder, the Company shall be entitled to require (i) that the Grantee
remit an amount in cash, or if determined by the Committee, Mature
Shares, sufficient to satisfy all federal, state, local and foreign tax
withholding requirements related thereto ("Required Withholding"), (ii)
the withholding of such Required Withholding from compensation otherwise
due to the Grantee or from any Shares or other payment due to the Grantee
under the Plan or (iii) any combination of the foregoing.
(2) Any Grantee who makes a Disqualifying Disposition or an
election under Section 83(b) of the Code shall remit to the Company an
amount sufficient to satisfy all resulting Required Withholding; provided
that, in lieu of or in addition to the foregoing, the Company shall have
the right to withhold such Required Withholding from compensation
otherwise due to the Grantee or from any Shares or other payment due to
the Grantee under the Plan.
(b) ELECTIVE SHARE WITHHOLDING.
(1) Subject to subsection 16.1(b)(2), a Grantee may elect the
withholding ("Share Withholding") by the Company of a portion of the
Shares subject to an Award upon the exercise of such Award or upon
Restricted Shares becoming non-forfeitable or upon making an election
under Section 83(b) of the Code (each, a "Taxable Event") having a Fair
Market Value equal to (i) the minimum amount necessary to satisfy
Required Withholding liability attributable to the Taxable Event; or (ii)
with the Committee's prior approval, a greater amount, not to exceed the
estimated total amount of such Grantee's tax liability with respect to
the Taxable Event.
(2) Each Share Withholding election shall be subject to the
following conditions:
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(A) any Grantee's election shall be subject to the
Committee's discretion to revoke the Grantee's right to elect
Share Withholding at any time before the Grantee's election if the
Committee has reserved the right to do so in the Award Agreement;
(B) the Grantee's election must be made before the date
(the "Tax Date") on which the amount of tax to be withheld is
determined; and
(C) the Grantee's election shall be irrevocable.
16.2 NOTIFICATION UNDER CODE SECTION 83B. If the Grantee, in connection
with the exercise of any Option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such
Grantee's gross income in the year of transfer the amounts specified in
Section 83(b) of the Code, then such Grantee shall notify the Company of such
election within 10 days of filing the notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant
to regulations issued under Section 83(b) of the Code. The Committee may, in
connection with the grant of an Award or at any time thereafter prior to such
an election being made, prohibit a Grantee from making the election described
above.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise of all or substantially all of
the business and/or assets of the Company.
ARTICLE 18. ADDITIONAL PROVISIONS
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or
part of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or stock
exchanges as may be required. Notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise, or receive benefits under,
any Award, and the Company shall not be obligated to deliver any Shares or
other benefits to a Grantee, if such exercise or delivery would constitute a
violation by the Grantee or the Company of any applicable law or regulation.
18.4 SECURITIES LAW COMPLIANCE.
(a) If the Committee deems it necessary to comply with any applicable
securities law, or the requirements of any stock exchange upon which Shares
may be listed, the Committee may impose
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any restriction on Shares acquired pursuant to Awards under the Plan as it may
deem advisable. All certificates for Shares delivered under the Plan pursuant
to any Award or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations and other requirements of the SEC, any stock exchange upon
which Shares are then listed, any applicable securities law, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions. If so requested by the Company,
the Grantee shall make a written representation to the Company that he or she
will not sell or offer to sell any Shares unless a registration statement
shall be in effect with respect to such Shares under the Securities Act of
1993, as amended, and any applicable state securities law or unless he or she
shall have furnished to the Company evidence satisfactory to the Company that
such registration is not required.
(b) If the Committee determines that the exercise or nonforfeitability
of, or delivery of benefits pursuant to, any Award would violate any
applicable provision of securities laws or the listing requirements of any
stock exchange upon which any of the Company's equity securities are listed,
then the Committee may postpone any such exercise, nonforfeitability or
delivery, as applicable, but the Company shall use all reasonable efforts to
cause such exercise, nonforfeitability or delivery to comply with all such
provisions at the earliest practicable date.
18.5 NO RIGHTS AS A STOCKHOLDER. A Grantee shall not have any rights as
a stockholder of the Company with respect to the Shares (other than Restricted
Shares) which may be deliverable upon exercise or payment of such Award until
such shares have been delivered to him or her. Restricted Shares, whether held
by a Grantee or in escrow by the Secretary of the Company, shall confer on the
Grantee all rights of a stockholder of the Company, except as otherwise
provided in the Plan or Award Agreement. At the time of a grant of Restricted
Shares, the Committee may require the payment of cash dividends thereon to be
deferred and, if the Committee so determines, reinvested in additional
Restricted Shares. Stock dividends and deferred cash dividends issued with
respect to Restricted Shares shall be subject to the same restrictions and
other terms as apply to the Restricted Shares with respect to which such
dividends are issued. The Committee may provide for payment of interest on
deferred cash dividends.
18.6 NATURE OF PAYMENTS. Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death or other benefit under (a) any pension, retirement, profit-
sharing, bonus, insurance or other employee benefit plan of the Company or any
Subsidiary or (b) any agreement between (i) the Company or any Subsidiary and
(ii) the Grantee, except as such plan or agreement shall otherwise expressly
provide.
18.7 PERFORMANCE MEASURES. Unless and until the Committee proposes for
stockholder vote and stockholders approve a change in the general performance
measures set forth in this Section 18.7, the performance measure(s) to be used
for purposes of such Awards shall be chosen from among the following:
(a) Earnings (either in the aggregate or on a per-share basis);
(b) Net income (before or after taxes);
(c) Operating income;
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(d) Cash flow;
(e) Return measures (including return on assets, equity, or sales);
(f) Earnings before or after either, or any combination of, taxes,
interest or depreciation and amortization;
(g) Gross revenues;
(h) Share price (including growth measures and stockholder return or
attainment by the Shares of a specified value for a specified period of time);
(i) Reductions in expense levels in each case, where applicable,
determined either on a Company-wide basis or in respect of any one or more
business units;
(j) Net economic value; or
(k) Market share.
Any of the foregoing performance measures may be applied, as determined
by the Committee, on the basis of the Company as a whole, or in respect of any
one or more Subsidiaries or divisions of the Company or any part of a
Subsidiary or division of the Company that is specified by the Committee.
The Committee may adjust the determinations of the degree of attainment
of the preestablished performance goals; provided, however, that Awards which
are designed to qualify for the Performance-Based Exception may not be
adjusted upward without the approval of the Company's stockholders (the
Committee may adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, and still qualify for the
Performance-Based Exception, the Committee shall have sole discretion to make
such changes without obtaining stockholder approval.
18.8 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware
other than its laws respecting choice of law.
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Kansas City Southern Industries, Inc.
114 West 11th Street
Kansas City, Missouri 64105-1804
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Kansas City Southern Industries, Inc., at the Kansas City Marriott Downtown
Hotel, 200 West Twelfth Street, Kansas City, Missouri, at 10:00 a.m., on July
15, 1998.
The Board of Directors is asking for your approval of an amendment of
KCSI's Certificate of Incorporation in order to effect a reverse stock split
to reduce the number of outstanding shares if the previously announced spin-
off of KCSI's financial asset management business is completed. It is
anticipated that the market price of KCSI's common stock will move lower
following the spin-off. A reduction in the number of outstanding shares, is
designed to bring the market price of the stock into a higher trading range.
The reverse split would occur only in the event the spin-off is completed. The
accompanying Proxy Statement explains both the spin-off and the reverse stock
split. The Board is also asking your approval of certain other matters
described herein.
We urge you to read these proxy materials and to participate in the
Special Meeting either in person or by proxy. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON, PLEASE SIGN AND RETURN PROMPTLY THE ATTACHED
PROXY CARD IN THE ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES WILL BE
REPRESENTED.
Sincerely,
LOGO
Landon H. Rowland
Chairman of the Board, President and
Chief Executive Officer
PLEASE SEE REVERSE SIDE FOR PROPOSALS TO BE VOTED
(Date, sign and return promptly in the prepaid envelope enclosed)
(Tear Here)
KANSAS CITY SOUTHERN INDUSTRIES, INC. PROXY
This proxy confers discretionary authority as described and may be revoked
in the manner described in the Proxy Statement in connection with the Special
Meeting of Stockholders on July 15, 1998, receipt of which is hereby
acknowledged.
Signature ________________ Date , 1998
Signature ________________ Date , 1998
Please sign exactly as name(s) appear.
All joint owners should sign.
Executors, administrators, trustees,
guardians, attorneys-in-fact, and
officers of corporate stockholders
should indicate the capacity in which
they are signing. Please indicate
whether you plan to attend the Special
Meeting:[_] WILL ATTEND[_] WILL NOT
ATTEND
(Continued on other side)
Registration 1
Registration 2
Registration 3
Registration 4
Registration 5
Registration 6
Registration 7
<PAGE>
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
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^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
(Tear Here)
KANSAS CITY SOUTHERN INDUSTRIES, INC. PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. Landon H. Rowland, James E.
Barnes and Michael R. Haverty, or any one of them, are hereby authorized, with
full power of substitution, to vote the shares of stock of Kansas City
Southern Industries, Inc. entitled to be voted by the stockholder(s) signing
this proxy at the Special Meeting of Stockholders to be held on July 15, 1998,
or any adjournment thereof, as specified herein and in their discretion on all
other matters that are properly brought before the Special Meeting and matters
incidental to such meeting. IF NO CHOICE IS SPECIFIED, SUCH PROXIES WILL VOTE
"FOR" THE PROPOSALS.
1. Approval of an Amendment to 3. Approval of the FAM Holdings, Inc.
KCSI's Certificate of 1998 Long Term Incentive Stock Plan
Incorporation to Effect a
Reverse Stock Split
[_] FOR[_] AGAINST[_] ABSTAIN
4. Approval of KCSI's Amended and
[_] FOR[_] AGAINST[_] ABSTAIN Restated 1991 Stock Option and
Performance Award Plan
2. Approval of the Berger
Associates, Inc. Stock Option
Plan
[_] FOR[_] AGAINST[_] ABSTAIN
[_] FOR[_] AGAINST[_] ABSTAIN
<PAGE>
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
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Kansas City Southern Industries, Inc.
114 West 11th Street
Kansas City, Missouri 64105-1804
Dear KCSI ESOP Participant:
Enclosed is your voting instruction card in connection with the Special
Meeting of Stockholders of KCSI to be held on July 15, 1998, which instructs
UMB Bank, N.A. as Trustee of The Employee Stock Ownership Plan of Kansas City
Southern Industries, Inc. (the "KCSI ESOP"), how to vote the shares of KCSI
common stock allocated to your account under the KCSI ESOP.
Please DO NOT DELIVER THIS CARD TO THE COMPANY, as your vote is
confidential. Your card should be returned directly to the Trustee, UMB Bank,
N.A., Securities Transfer Division, P.O. Box 410064, Kansas City, Missouri
64179-0013, in the enclosed postage-paid return envelope at your earliest
convenience.
Thank you,
LOGO
Richard P. Bruening
Vice President, General Counsel &
Corporate Secretary
PLEASE SEE REVERSE SIDE FOR PROPOSALS TO BE VOTED
(Date, sign and return promptly in the prepaid envelope enclosed)
(Tear Here)
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE UNDER
THE EMPLOYEE STOCK OWNERSHIP PLAN OF KANSAS CITY SOUTHERN INDUSTRIES, INC.
Signature ________________ Date , 1998
PLEASE SIGN EXACTLY AS NAME
APPEARS.
(Continued on other side)
Registration 1
Registration 2
Registration 3
Registration 4
Registration 5
Registration 6
Registration 7
<PAGE>
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
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^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
(Tear Here)
THIS VOTING INSTRUCTION CARD IS SOLICITED BY THE TRUSTEE. I hereby direct that
the voting rights pertaining to shares of stock of Kansas City Southern
Industries, Inc. held by the Trustee and allocated to my account shall be
exercised at the Special Meeting of Stockholders to be held on July 15, 1998,
or any adjournment thereof, as specified hereon and in its discretion on all
other matters that are properly brought before the Special Meeting and matters
incidental to such meeting.
1. Approval of an Amendment to 3. Approval of the FAM Holdings, Inc.
KCSI's Certificate of 1998 Long Term Incentive Stock Plan
Incorporation to Effect a
Reverse Stock Split
[_] FOR[_] AGAINST[_] ABSTAIN
4. Approval of KCSI's Amended and
[_] FOR[_] AGAINST[_] ABSTAIN Restated 1991 Stock Option and
Performance Award Plan
2. Approval of the Berger
Associates, Inc. Stock Option
Plan
[_] FOR[_] AGAINST[_] ABSTAIN
IF THE VOTING INSTRUCTION CARD IS NOT
[_] FOR[_] AGAINST[_] ABSTAIN RETURNED, THE TRUSTEE MUST VOTE SUCH
SHARES IN THE SAME PROPORTIONS AS THE
SHARES FOR WHICH VOTING INSTRUCTION
CARDS WERE RECEIVED FROM THE PLAN
PARTICIPANTS.
<PAGE>
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Kansas City Southern Industries, Inc.
114 West 11th Street
Kansas City, Missouri 64105-1804
Dear KCSI Profit Sharing Plan Participant With Rollover Account Containing
KCSI Shares:
Enclosed is your voting instruction card in connection with the Special
Meeting of Stockholders of KCSI to be held on July 15, 1998, which instructs
UMB Bank, N.A. as Trustee of the KCSI Profit Sharing Plan, how to vote the
shares of KCSI Common Stock allocated to your profit sharing plan account as a
rollover contribution.
Please DO NOT DELIVER THIS CARD TO THE COMPANY, as your vote is
confidential. Your card should be returned directly to the Trustee, UMB Bank,
N.A., Securities Transfer Division, P.O. Box 410064, Kansas City, Missouri
64179-0013, in the enclosed postage-paid return envelope at your earliest
convenience.
Thank you,
LOGO
Richard P. Bruening
Vice President, General Counsel &
Corporate Secretary
PLEASE SEE REVERSE SIDE FOR PROPOSALS TO BE VOTED
(Date, sign and return promptly in the prepaid envelope enclosed)
(Tear Here)
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE UNDER
THE KANSAS CITY SOUTHERN INDUSTRIES, INC. PROFIT SHARING PLAN
Signature ________________ Date , 1998
PLEASE SIGN EXACTLY AS NAME
APPEARS.
(Continued on other side)
Registration 1
Registration 2
Registration 3
Registration 4
Registration 5
Registration 6
Registration 7
<PAGE>
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
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^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
(Tear Here)
THIS VOTING INSTRUCTION CARD IS SOLICITED BY THE TRUSTEE. I hereby direct that
the voting rights pertaining to shares of stock of Kansas City Southern
Industries, Inc. held by the Trustee and allocated to my account shall be
exercised at the Special Meeting of Stockholders to be held on July 15, 1998,
or any adjournment thereof, as specified hereon and in its discretion on all
other matters that are properly brought before the Special Meeting and matters
incidental to such meeting.
1. Approval of an Amendment to 3. Approval of the FAM Holdings, Inc.
KCSI's Certificate of 1998 Long Term Incentive Stock Plan
Incorporation to Effect a
Reverse Stock Split
[_] FOR[_] AGAINST[_] ABSTAIN
4. Approval of KCSI's Amended and
[_] FOR[_] AGAINST[_] ABSTAIN Restated 1991 Stock Option and
Performance Award Plan
2. Approval of the Berger
Associates, Inc. Stock Option
Plan
[_] FOR[_] AGAINST[_] ABSTAIN
IF THE VOTING INSTRUCTION CARD IS NOT
[_] FOR[_] AGAINST[_] ABSTAIN RETURNED, THE TRUSTEE MUST VOTE SUCH
SHARES IN THE SAME PROPORTIONS AS THE
SHARES FOR WHICH VOTING INSTRUCTION
CARDS WERE RECEIVED FROM THE PLAN
PARTICIPANTS.
<PAGE>
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Kansas City Southern Industries, Inc.
114 West 11th Street
Kansas City, Missouri 64105-1804
Dear DST ESOP Participant:
Enclosed is your voting instruction card in connection with the Special
Meeting of Stockholders of KCSI to be held on July 15, 1998, which instructs
UMB Bank, N.A. as Trustee of The Employee Stock Ownership Plan of DST Systems,
Inc. (the "DST ESOP"), how to vote the shares of Kansas City Southern
Industries, Inc. common stock allocated to your account in the DST ESOP.
Please DO NOT DELIVER THIS CARD TO THE COMPANY, as your vote is
confidential. Your card should be returned directly to the Trustee, UMB Bank,
N.A., Securities Transfer Division, P.O. Box 410064, Kansas City, Missouri
64179-0013, in the enclosed postage-paid return envelope at your earliest
convenience.
Thank you,
LOGO
Richard P. Bruening
Vice President, General Counsel &
Corporate Secretary
PLEASE SEE REVERSE SIDE FOR PROPOSALS TO BE VOTED
(Date, sign and return promptly in the prepaid envelope enclosed)
(Tear Here)
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE UNDER
THE EMPLOYEE STOCK OWNERSHIP PLAN OF DST SYSTEMS, INC.
Signature ________________ Date , 1998
PLEASE SIGN EXACTLY AS NAME
APPEARS.
(Continued on other side)
Registration 1
Registration 2
Registration 3
Registration 4
Registration 5
Registration 6
Registration 7
<PAGE>
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^ ^^
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
(Tear Here)
THIS VOTING INSTRUCTION CARD IS SOLICITED BY THE TRUSTEE. I hereby direct that
the voting rights pertaining to shares of stock of Kansas City Southern
Industries, Inc. held by the Trustee and allocated to my account shall be
exercised at the Special Meeting of Stockholders to be held on July 15, 1998,
or any adjournment thereof, as specified hereon and in its discretion on all
other matters that are properly brought before the Special Meeting and matters
incidental to such meeting.
1. Approval of an Amendment to 3. Approval of the FAM Holdings, Inc.
KCSI's Certificate of 1998 Long Term Incentive Stock Plan
Incorporation to Effect a
Reverse Stock Split
[_] FOR[_] AGAINST[_] ABSTAIN
4. Approval of KCSI's Amended and
[_] FOR[_] AGAINST[_] ABSTAIN Restated 1991 Stock Option and
Performance Award Plan
2. Approval of the Berger
Associates, Inc. Stock Option
Plan
[_] FOR[_] AGAINST[_] ABSTAIN
IF THE VOTING INSTRUCTION CARD IS NOT
[_] FOR[_] AGAINST[_] ABSTAIN RETURNED, THE TRUSTEE MUST VOTE SUCH
SHARES IN THE SAME PROPORTIONS AS THE
SHARES FOR WHICH VOTING INSTRUCTION
CARDS WERE RECEIVED FROM THE PLAN
PARTICIPANTS.
