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:
[XX] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or
240.14a-12
KANSAS CITY SOUTHERN INDUSTRIES, INC.
----------------------------------------------
(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:
2. Aggregate number of securities to which transaction
applies:
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):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] 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:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
[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
enclosed Proxy commenced on or about June _, 1998.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 West 11th Street
Kansas City, Missouri 64105-1804
June _, 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. The Board expects that
the market price of KCSI's common stock will move below the
desired trading range following the spin-off. By reducing the
number of outstanding shares, the Board of Directors is trying to
bring the market price of the stock into the desired trading
range. We would complete any reverse split only if we completed
the spin-off. 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,
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
ofIncorporation to effect a reverse stock split (to be
effected only if KCSI completes the spin-off of its
financial asset management business 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; 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,
Richard P. Bruening
Vice President, General Counsel
and Corporate Secretary
The date of this Notice is June _, 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.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 West 11th Street
Kansas City, Missouri 64105-1804
PROXY STATEMENT
TABLE OF CONTENTS
-----------------
Information About the Special Meeting . . . . . . . . . . . . . .
Stock Owned Beneficially by Certain Large Stockholders, and
KCSI's Directors and Certain Executive Officers . . . . . . . .
Proposal 1 - Approval of an Amendment to KCSI's
Certificate of Incorporation to Effect a
Reverse Stock Split . . . . . . . . . . . .
Proposal 2 - Approval of The Berger Associates, Inc. Stock
Option Plan . . . . . . . . . . . . . . . . .
Proposal 3 - Approval of the FAM Holdings, Inc. 1998 Long
Term Incentive Stock Plan . . . . . . . . . .
Proposal 4 - Approval of KCSI's Amended and Restated 1991
Stock Option and Performance Award Plan . . .
Federal Income Tax Consequences of Equity Incentive Plans . . . .
Management Compensation . . . . . . . . . . . . . . . . . . . . .
Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . .
Appendix A - Form of Certificate of Amendment . . . . . . . . .
Appendix B - Berger Associates Inc. Stock Option Plan . . . . .
Appendix C - FAM Holdings, Inc. 1998 Long Term Incentive
Stock Plan . . . . . . . . . . . . . . . . . . . .
Appendix D - Amended and Restated 1991 Stock Option Plan and
Performance Award Plan . . . . . . . . . . . . . .
<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, on Wednesday, July 15,
1998, at 10:00 a.m. The form of proxy was included in the
envelope with this Proxy Statement that was mailed to
Stockholders on or about June _, 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. They have not been specifically employed and will not be
compensated for any such services, however. 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's common stock, par value
$0.01 per share (the "KCSI Common Stock"), if KCSI completes the
distribution of the stock of its wholly-owned financial asset
management subsidiary to KCSI's stockholders (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 Stock Incentive Plan; and (d)
KCSI's Amended and Restated 1991 Stock Option and Performance
Award Plan. 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.
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 KCSI Common Stock and Preferred Stock, par value $25.00
per share (the "Preferred Stock"), (collectively, the "Voting
Stock") are KCSI's only outstanding securities 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).
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 Stock Incentive 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
have been voted FOR the second, third and fourth proposals, the
votes FOR the proposal are measured against the votes FOR and
AGAINST the proposal plus the shares that ABSTAIN from voting on
the 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?
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. That 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 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.
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 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,
Inc. (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 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 the 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 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 "ESOP's") 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 ESOP'S CONFIDENTIAL?
Under the terms of the ESOP's trust agreements, the trustee
is required to establish procedures to ensure that the
instructions received from participants are held in confidence
and not divulged, 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 INSTRUCTION CARD OR
MAY ESOP PARTICIPANTS 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 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.)
<PAGE>
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 is generally
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.
Percent
Common of
Name Stock (1) Outstanding (1)
---- --------- ---------------
UMB Bank, N.A., as trustee 7,561,037 (2) 6.9%
of certain fiduciary
accounts (2)
Amvescap, Inc. and certain 6,024,575 (3) 5.5%
affiliates
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
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)
------------------------------
* Less than 1% of the outstanding shares.
(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 188,700 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 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 are
also 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 shares.
(5) Directors and Executive Officers may also 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.)
<PAGE>
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
below) and certain other conditions. 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. 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 (AS DEFINED BELOW) 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 to determine which Stockholders will receive the
Shares to be distributed in 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 THEIR
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 STOCK SPLIT PROPOSAL
The Board of Directors has announced its intent to separate
KCSI's railroad transportation and financial asset management
businesses. The Board currently anticipates accomplishing that
separation by delivering all of the outstanding common stock of a
newly formed corporation that holds KCSI's financial asset
management business to holders of KCSI's Common Stock as of a
date yet to be determined (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 (as defined below) 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.
The Board of Directors primary purpose for 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 back
into a range that the Board of Directors believes to be
desirable.
The Board of Directors expects 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.
Since brokerage commissions on lower-priced stock generally
represent a higher percentage of the stock price than commissions
on higher-priced stock, a lower share price of the KCSI Common
Stock can result in individual stockholders paying transaction
costs which are a higher percentage of their total share value
than would be the case if the share price were higher. This
factor also may limit the willingness of institutions to purchase
the KCSI Common Stock if it is trading at a low share price.
The Board of Directors also believes 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 (the "Split Ratio") 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.
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 common stock
outstanding immediately following the Reverse Stock Split as he
or she did 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 in substantially the form attached to this Proxy
Statement as Appendix A and will become effective upon the filing
of the Amendment with the Secretary of State of Delaware or at
such later time as provided for in the Amendment (the "Effective
Time"). This discussion is qualified in its entirety by the full
text of the Amendment, which is hereby incorporated by reference
herein.
EFFECT OF THE REVERSE STOCK 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 that owns shares of KCSI Common Stock equal to at
least the Split Ratio 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 the Split Ratio, subject to the adjustment for
fractional shares described herein.
Fractional share interests in KCSI will be terminated at the
Effective Time and such fractional share interests will have no
right to share in the assets or future growth of KCSI.
Stockholders 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 in U.S. dollars equal
to the product of the fraction and the Split Ratio times the
average of the daily average of the high and low price per share
of the KCSI Common Stock on the New York Stock Exchange ("NYSE")
for the five trading days immediately preceding the Effective
Time ("Fractional Share Payment"). The Effective Time will be
subsequent to the date on which the common stock of the holding
company for KCSI's financial asset management business (currently
called 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 the
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
and other publicly available information of 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 the KCSI Common
Stock. The Reverse Stock Split will not increase or decrease the
number of authorized shares of KCSI Common Stock, however, one
effect of the Reverse Stock Split will 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 from time to time
arise. 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
22,700 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 payments for
fractional shares.
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 the Preferred Stock. The Preferred Stock is
not convertible into the 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 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 which may, in certain instances, be converted
into shares of KCSI Common Stock at a specified ratio (the
"Conversion Ratio"). The Conversion Ratio is subject to
adjustment in certain instances, including the Reverse Stock
Split. Therefore, the Series B Convertible Preferred Stock will
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 of securities that are exercisable for (e.g., stock
options), or their value is based upon (e.g., stock appreciation
rights), the KCSI Common Stock. Under the terms of those plans,
the committee that administers them 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 changes as the committee deems,
in its discretion, appropriate to take into account the Reverse
Stock Split and/or the Spin-off (assuming the Proposal 4 is
approved). In addition, KCSI has two plans in which only the
directors of KCSI participate and under which options to purchase
the KCSI Common Stock have been or will automatically be issued.
Those plans provide that in the case of certain changes in KCSI's
capital structure, including a reverse stock split, the number of
shares of KCSI Common Stock subject to the outstanding options
and available for grant, if any, and the purchase price of the
outstanding options are automatically adjusted in direct
proportion to the change in KCSI's capital structure.
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
affect the DRIP.
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 certificates for
shares of KCSI Common Stock to be used in forwarding such
certificates for surrender and exchange for certificates
representing 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 the 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.
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 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 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.
NYSE REQUIREMENTS
The Board of Directors believes the Reverse Stock Split will
not affect the KCSI Common Stock's listing on the New York Stock
Exchange. 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 $5 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 $8
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
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<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 has been, accordingly,
revised.
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 (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 the Company 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.
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, 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 generally arises 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.
The Board is also submitting this proposal concerning the
Berger Plan for stockholder approval in order to comply with
Section 422 of the Internal Revenue 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.
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.
THE BERGER ASSOCIATES, INC. STOCK OPTION PLAN
SUMMARY OF THE BERGER PLAN. The full Berger Plan is
attached as Appendix B to this Proxy Statement, and the following
summary is qualified by reference to it. Capitalized terms in
this summary not defined in this Proxy Statement have the meaning
set forth in the Berger Plan. The Berger Plan was originally
effective on November 13, 1997 following approval by the board of
directors of Berger Associates, Inc., and the Plan was amended
December 19, 1997 to take into account a recapitalization of
Berger Associates, Inc.
A Committee appointed by the Board of Directors of Berger
(the "Committee") will administer the Berger Plan and determine
the recipients of Awards, the type or types of Awards to be
granted to each such recipient, the term of such Awards, the
consideration to be received by Berger for such Awards, the
number of shares of Berger common stock (the "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.
The Awards may be either incentive or non-qualified options
granted in consideration for the Grantee's service to Berger.
The Berger Plan makes available 300,000 shares of the Stock
(representing approximately 18% 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 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 Stock unless such Award
is approved or ratified by KCSI's Compensation and Organization
Committee.
The Berger Stock is currently 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% of the Berger Stock. As of the end of the first
calendar quarter of 1998, the Committee determined that the fair
market value of Berger Stock was $____ per share.
The Committee may only grant Awards 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
Berger Stock have been awarded to eleven current employees, none
of which 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.
The Committee determines the exercise price of an Award.
The Award exercise price cannot be less than the Fair Market
Value of the 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 incentive stock options will
also 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 or, in the
case of non-qualified options, to or for the benefit of a family
relative. An Optionee has no rights as a stockholder of Berger
until the Award has been exercised.
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 the company are discussed below under
"Federal Income Tax Consequences of Equity Incentive Plans."
(Remainder of page intentionally left blank.)
<PAGE>
NEW BERGER PLAN BENEFITS
The following is a summary of the Awards granted to the
following persons or groups during 1997.
Name and Position Berger Associates, Inc. Stock Option Plan
Number of Awards
-----------------------------------------------------------------
Landon H. Rowland Not Eligible
Chairman of the Board,
President and Chief
Executive Officer
Michael R. Haverty Not Eligible
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 192,210*
Than Executive Officers as a Group
* The Awards to be granted under the Plan are discretionary.
This amount represents Awards made under the Plan during 1997.
Certain of these Awards are subject to stockholder approval of
the Plan as explained above.
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE BERGER ASSOCIATES, INC. STOCK OPTION PLAN
<PAGE>
PROPOSAL 3
APPROVAL OF THE FAM HOLDINGS, INC.
1998 LONG TERM INCENTIVE STOCK PLAN
The Board of Directors of FAM Holdings, Inc. ("FAM"), KCSI's
wholly owned subsidiary which holds KCSI's financial asset
management business, has adopted the FAM Holdings, Inc. 1998 Long
Term Incentive Plan (the "FAM Incentive Plan" or "Plan") in
anticipation of the Spin-Off Stock Distribution 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.
Capitalized terms not defined in this summary have the
meaning given them in Appendix C.
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 Plan to qualify as "performance based"
compensation for purposes of Section 162(m) of the Internal
Revenue 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)
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 Plan that are contingent
upon attainment of performance goals also will qualify as
performance-based compensation for purposes of Section 162(m).
The Board is also submitting this proposal concerning the
FAM Incentive Plan for stockholder approval in order to comply
with Section 422 of the Internal Revenue Code. Stock options are
eligible to be treated as incentive stock options ("ISOs") for
federal income tax purposes only if they are issued pursuant to a
stockholder-approved plan. See "Federal Income Tax Consequences
of the FAM Incentive Plan" below.
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.
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 such Plan's provisions. A copy of the FAM Incentive Plan
is attached hereto as Appendix C.
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. The FAM Incentive Plan is also intended to
optimize the profitability and growth of FAM; to provide an
incentive for excellence in individual performance; and to
promote teamwork. The FAM Incentive Plan is also intended to
treat current and former employees and directors of KCSI who hold
KCSI stock options at the time of the Spinoff 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 Spinoff 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
Incentive Plan Committee has the authority to select persons to
whom Awards 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 Incentive
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 Spinoff 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 stock dividend or split, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or
other corporate change, or any distribution to stockholders other
than cash dividends, the FAM Plan Committee may make such
substitution or adjustment in the aggregate number or class of
shares which may be distributed under the FAM Incentive Plan and
in the number, class and option price or other price of, or may
make provision for a cash payment or substitution of other
property for, Shares subject to the outstanding Awards granted
under the FAM Incentive Plan 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 new awards under the FAM Incentive Plan. Any
other person who holds a KCSI Option is also eligible to receive
KCSI Substitute Options (as defined below) in connection with the
Spinoff Distribution. See also "KCSI Substitute Options" below.
POWER TO AMEND 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 30,000,000 or
approximately 13.7 percent of the shares of FAM Common Stock
expected to be outstanding immediately after the Spinoff
Distribution. Approximately 18,000,000 Shares (as of the Record
Date) will be covered by KCSI Substitute Options (discussed
below) leaving approximately 12,000,000 Shares for other Awards
to FAM employees, directors and consultants. Shares that are not
issued under an Award, or Shares (however acquired) that are used
the pay the exercise price of an Award or are withheld in
connection with tax obligations in connection with 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 the lesser of one percent of the total Shares
outstanding on a Grant Date or 2,000,000 Shares.
KCSI SUBSTITUTE OPTIONS. In connection with the Spinoff
Distribution, those persons who hold options to acquire KCSI
Common Stock (the "KCSI Options") immediately prior to the
Spinoff Distribution will be granted Options at the time of the
Spinoff Distribution 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 Spinoff Distribution at a level 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 and
restated 1991 Plan is approved by stockholders, will also be
adjusted to reflect the effects of the Spinoff 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 ("Awards") to
employees, directors and consultants of FAM and its Subsidiaries:
(1) stock options, including incentive stock options ("ISOs") and
options other than ISOs ("non-qualified options"); (2) stock
appreciation rights ("SARs"); (3) limited stock appreciation
rights (LSARs); (4) Restricted Shares; (5) Performance Units and
Performance Shares; and (6) 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 two 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 the grant of Acquisitions by FAM, the FAM Plan
Committee may grant Options with an exercise price less than the
Fair Market Value of the Shares on the Grant Date to persons who
become eligible to participate in the FAM Incentive Plan of
options ("Target Options") to purchase shares of stock of the
Acquired Entity or its affiliates immediately prior to such
Acquisition in order to preserve the economic value of such
Target Options. 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 Internal Revenue 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 FAM, or (iv) at the discretion
of the FAM Plan Committee, in 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 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 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, 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
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 rights may extend beyond the date of
Termination of 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 the participants and FAM are discussed below under
"Federal Income Tax Consequences of Equity Incentive Plans."
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<PAGE>
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 Spinoff 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 Spinoff 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
Spinoff Distribution is increased or decreased in relation to the
outstanding shares of KCSI Common Stock, then the amounts below
will be accordingly adjusted.
Name and Position FAM Holdings, Inc.
1998 Long Term Incentive Plan
Number of Awards
-----------------------------------------------------------------
Landon H. Rowland 5,538,276
Chairman of the Board, President and Chief
Executive Officer
Michael R. Haverty 1,770,000
Executive Vice President
Thomas H. Bailey 0
Chairman of the Board, President and Chief
Executive Officer 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 as a Group 9,735,308
Current Non-Employee Directors as a Group 712,800
All Current Optionees Other Than Executive 7,825,172
Officers as a Group
YOUR BOARD RECOMMENDS THAT YOU VOTE
"FOR"
APPROVAL OF THE FAM HOLDINGS, INC.
1998 LONG TERM INCENTIVE STOCK PLAN
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<PAGE>
PROPOSAL 4
APPROVAL OF KCSI'S AMENDED AND RESTATED
1991 STOCK OPTION AND PERFORMANCE AWARD PLAN
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.
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.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
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").)
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. 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 permit persons who cease to be
affiliated with KCSI as a result of the Spin-off to continue to
hold their KCSI stock options which could otherwise expire after
the Spin-off.
Approval of the KCSI 1991 Plan is also 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) of the Internal
Revenue Code ("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 incentive stock option)
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).
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" and the "FAM Incentive Plan" should be
read as references to "KCSI" and the "Amended KCSI 1991 Plan",
respectively. This summary is not a complete description of all
of the provisions of the Amended KCSI 1991 Plan. A copy of the
Amended KCSI 1991 Plan is attached in Appendix D.
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 (i) 25,200,000 (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 9,989,503 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 in
connection with an Award, again become available 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)
1,300,000 Shares; provided, however, that in no case may awards
be granted to any one person in any calendar year for more than
2,000,000 shares of KCSI Common Stock.
ELIGIBILITY. All employees and consultants of KCSI and its
Subsidiaries (approximately 3,500 persons), as well as all
directors of KCSI, will be eligible to be participate in the
Amended 1991 KCSI Plan.
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 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 (273,000 shares), and all current employees (other than
executive officers) as a group (4,264,107 shares). No 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
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<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 consequence
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 law. 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 that granted 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 interpretations of the Internal Revenue
Service ("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 a
number of shares received upon exercise 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 will be taxable to the Grantee as
ordinary income, and will be deductible by the company that
issued the stock option, 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
company that issued tghe option 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 of 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 a number of shares
received upon exercise 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 or 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; FAM or KCSI 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 FAM or KCSI
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), and FAM or KCSI will be entitled to a deduction
for the same amount, subject to possible limitation under Section
162(m).
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<PAGE>
MANAGEMENT COMPENSATION
Note regarding Spin-off
The following disclosures relate to KCSI for 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 revising the
agreements of the executive officers of KCSI following the Spin-
off. However, no action has been taken as of the date of this
proxy statement.
COMPENSATION AND ORGANIZATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
INTRODUCTION
The Board of Directors believes that increasing the value of
KCSI to its stockholders is its most important objective. In
support of this objective, the Board charges the Compensation and
Organization Committee (the "Committee") with the responsibility
of designing compensation packages for KCSI's executives that
provide substantial incentives to increase stockholder value
while enabling KCSI to attract and retain exceptionally qualified
executives. So that this responsibility may be impartially
administered, the Board requires that the Committee consist of
directors who are not officers or employees of KCSI and who are
not eligible to participate in any discretionary part of the
compensation plans administered by the Committee. The Board
emphasizes its overall objective by also relating the outside
directors' compensation to stockholder value. To assist the
Committee with its responsibilities, the Committee utilizes the
expertise of independent compensation consultants.
The Committee seeks to align the interests of KCSI
executives with the Board's overall objective through a
compensation strategy that emphasizes long-term stock ownership
and closely links executive compensation with changes in
stockholders' value. In designing those compensation packages,
the Committee believes KCSI's compensation packages should
provide executives with market competitive base salaries and the
opportunity to earn additional compensation if stockholders
experience long-term increases in the value of their stock. The
Committee also believes that KCSI's executives should maintain a
significant equity interest in KCSI, but that KCSI should provide
such interest only after KCSI's stockholders have first
experienced an increase in the value of their investment.
Over the past several years, the Committee has been
implementing this strategy by restructuring the compensation
packages of KCSI's top executives (except Janus and Berger) as
follows.
Freezing base salaries for three to five years.
Eliminating participation in any annual cash incentive
program.
Providing stock-based incentives through awards of:
"Performance" stock options that require, for the recipient
to receive any benefits, sustained price increases in KCSI's
common stock or for the executives to remain with KCSI for an
extended period of time; and
Restricted stock, which is earned only if the executive
remains employed by KCSI for a prescribed period (use of this
type of grant has been limited to a select few executives).
Emphasizing long-term stock ownership through:
An agreement with the Chief Executive Officer that a
majority of the net after-tax value of any stock-based awards
(less any shares used to pay any exercise price) will be
maintained in the form of KCSI stock while the executive remains
employed by KCSI; and
The Committee's consideration of the retention of past
KCSI stock-based awards in determining the levels of future stock
-based grants.
In 1992, the Committee began implementing its compensation
strategy by restructuring the compensation packages of three
senior executives, including Mr. Rowland, and certain other
executives. Base salaries for these three executives were frozen
for five years, participation in the annual incentive program was
eliminated and awards of performance stock options and restricted
stock were made.
The Committee further implemented its compensation strategy,
effective January 1, 1996, by entering into compensation packages
modeled after the 1992 compensation packages with the twenty-
eight most senior executives of KCSI and KCSR. This group
includes all executive officers (other than Messrs. Rowland and
Bailey) identified as important to the long-term success of KCSI.
Base salaries were frozen for three years, participation in the
annual incentive program was eliminated and performance stock
options were awarded. The result is that a significant portion
of these compensation packages is based upon at-risk components.
The next section of this report details the compensation program
for these executives. No changes were made to this strategy in
1997.
COMPENSATION PACKAGE COMPONENTS
BASE SALARY. The Committee determines the level of base
salaries for all of the executives for whom the Committee has
responsibility based on competitive market practices as indicated
in surveys utilized by the Committee, individual contribution and
performance, level of responsibility, and experience. The
Committee did not give any specific weighing to any of these
factors and did not consider KCSI's corporate performance in
setting base salary levels.
The Committee targeted the 75th percentile of the observed
competitive market practice in setting base salary levels for the
executives whose compensation packages were restructured at the
end of 1995, but adjusted the salaries in light of the factors
mentioned above. The Committee chose such levels based on the
fact that for three years base salaries for these executives
would be frozen, such executives would not participate in any
cash-based annual incentive plans and such executives had a
higher risk (because of the use of the stock-based incentives) of
not being compensated than they would if they had participated in
the annual incentive program.
The compensation surveys used to determine competitive
market pay range focused on industrial companies, including both
transportation and non-transportation companies, having the same
level of revenues as KCSI and excluded companies in dissimilar
industries and financial services. Financial services businesses
were excluded because the executives were primarily responsible
for the other businesses of KCSI. These compensation surveys
include some of the companies comprising the Dow Jones
Transportation Average (the peer group used in the stock
performance graph below), as well as other companies in other
industries. The Committee believes using a broader sample of
companies better represents the market for executives than a more
narrow sample of transportation companies. Pay data from these
surveys are adjusted through regression analysis to estimate
compensation levels at companies similar in size to KCSI.
STOCK COMPENSATION. The key component of the Committee's
strategy is to make stock-based incentives a significant portion
of the executives' total compensation package, primarily through
performance stock options (grants of restricted stock were made
to a limited number of KCSI's senior executives in 1992 and 1993
and have not been awarded since). By using primarily performance
stock options, the Committee seeks to ensure that the executives
will be compensated only after KCSI's stockholders have
experienced a sustained increase in their investment and that any
such compensation is linked directly to such increases in KCSI's
stock price or if the executive remains with KCSI for an extended
period.
To determine how many options to grant in connection with
the 1995 restructured compensation packages, the Committee first
considered each individual's targeted total compensation over the
three-year period of the employment agreement, absent the
restructuring, using the compensation surveys mentioned above and
estimated potential earnings under KCSI's annual incentive
compensation plan. Targeted total incentive compensation was
approximately the total of the 75th percentile of the range of
potential short-term incentives foregone plus median long-term
incentive compensation shown in the observed market practices.
These amounts were then adjusted by the Committee to take into
account the individual's contribution and performance, level of
responsibility, experience and the extent to which previously
awarded stock incentives have been retained in the form of KCSI
stock. The Committee did not give any specific weighing to any
of these factors and did not consider KCSI's corporate
performance in determining total target compensation levels. An
option valuation model was utilized to calculate the risk-
adjusted value of each performance stock option to determine the
number of options to be awarded. Each executive's total option
grant value is intended to cover the entire period of the
compensation package and to approximate the value of a
competitive median long-term incentive opportunity plus the value
of the foregone annual cash incentive opportunity.
In addition, the Committee structured these options so that
there had to be substantial appreciation in the market price of
KCSI Common Stock in order for total compensation of the
executives to equal or exceed the estimated amount of total
compensation that they would have received under the prior
compensation structure. The performance stock options were
structured to reward the executives when KCSI's market value
reached certain predetermined levels and remained at or above
those levels for thirty consecutive trading days or if the
executive remained employed with KCSI over a prescribed period.
Each of these predetermined levels was established by assuming
appreciation in the market price for KCSI Common Stock from the
date of grant at a rate that was slightly above the average
historical return of the S&P 500 (see the footnotes to the
Performance Graph below). By structuring the option awards this
way, the executives would not be rewarded unless the stockholders
of KCSI first received an above average market return.
The compensation committee of the Board of Directors of
Janus Capital Corporation ("Janus"), with the aid of an
independent compensation consultant, set Mr. Bailey's base salary
and recommended incentive compensation for 1997. KCSI's
Compensation and Organization Committee approved the incentive
compensation.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Rowland's compensation package originally was
restructured in 1992 to link a significant portion of his total
compensation to changes in stockholder value. Mr. Rowland's base
salary was not adjusted since it was established in 1992 until
the Company entered into a new employment agreement with him
effective in January 1997.
Under Mr. Rowland's 1997 employment agreement, he receives a
fixed annual base salary of $750,000, which may not be increased
prior to January 1, 2000. In addition, Mr. Rowland is not
entitled to participate in any KCSI annual incentive compensation
plans for the years 1997, 1998 and 1999, but continues to
participate in other benefit plans or programs of KCSI generally
available to executive employees.
This compensation package is based upon the same
compensation strategy, and utilizes compensation surveys of the
same types of companies, used by the Committee for the other
twenty-eight executives of KCSI and KCSR discussed above. The
Committee set Mr. Rowland's new base salary in the upper quartile
of the observed base salary ranges indicated in the surveys
utilized. The Committee set his salary at that level in part
because he already has a significant level of equity interest in
KCSI, which based upon the surveys utilized is greater than a
vast majority of Mr. Rowland's peers. The Committee also
considered Mr. Rowland's agreement in his new employment
agreement that if his employment with KCSI is terminated, he
would not be involved with any business that competes with KCSI
or any of its subsidiaries. The Committee did not give special
weight to any of the factors considered and did not consider the
financial performance of KCSI or its subsidiaries.
Additionally, although Mr. Rowland has a significant level
of equity interest in KCSI, and as a result the Committee has
achieved its original stock ownership goals for Mr. Rowland, the
Committee wants to continue to increase his equity interest in
KCSI consistent with the Committee's compensation strategy. Mr.
Rowland was, therefore, also granted 459,000 performance stock
options in connection with this new compensation package. The
number of such options and their structure (except as indicated
below) was determined using the same methods used for the twenty-
eight other executives of KCSI and KCSR discussed above. The
Committee varied the structure of Mr. Rowland's performance
options, however, by setting the target stock prices (at which
point a portion of the options become exercisable) using an
assumed percentage rate of increase in the market price of KCSI
Common Stock that was higher than the rate used to calculate the
target prices for the performance options granted to the other
twenty-eight executives of KCSI and KCSR. The target stock
prices established in the stock option grants for Mr. Rowland and
the twenty-eight executives have been met. The grant is intended
to cover the three-year period during which Mr. Rowland does not
participate in any KCSI annual incentive compensation plan and is
designed to result in total compensation between the median and
75th percentile of the range of total compensation indicated in
the surveys.
Consistent with the Committee's overall goal of maintaining
Mr. Rowland's equity interest in KCSI, Mr. Rowland has also
agreed in his 1997 employment agreement that while he is employed
by KCSI he or members of his immediate family will retain
ownership of at least a majority of the shares of the restricted
stock awarded in connection with his 1992 employment agreement
and shares of stock acquired upon exercise of stock options
granted in connection with both his 1992 and 1997 employment
agreements (other than shares transferred to KCSI to pay the
exercise price of stock options or used to satisfy withholding
tax requirements in connection with such awards).
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits the
deduction for federal income tax purposes of compensation in
excess of $1 million paid by publicly held corporations to any of
the executive officers listed in the summary compensation table
unless it is "performance-based" or arises from a plan or
agreement in effect on or prior to February 17, 1993 that has not
been materially modified.
The Committee intends to qualify all compensation expense as
deductible for federal income tax purposes. The compensation
packages of the named officers (other than Mr. Bailey) were
comprised of base salary and stock compensation, and the highest
total base salary is within the $1 million limit. The stock
compensation awarded to those officers and Mr. Bailey's incentive
compensation package has the potential to result in total
compensation in excess of the $1 million limit of Section 162(m).
KCSI believes it is and has taken all steps necessary, including
requesting or obtaining stockholder approval, so that any
compensation expense that KCSI may incur as a result of awards
under its stock option and incentive compensation plans qualify
as performance-based compensation for purposes of Section 162(m)
so that any portion of this component of the executive
compensation packages will be deductible for federal income tax
purposes.
The Compensation and Organization Committee.
A. Edward Allinson
James E. Barnes, Chairman
Morton I. Sosland
(Remainder of page intentionally left blank)
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows the changes in value over the five
years ending December 31, 1997 of an assumed investment of $100
in: (i) KCSI's Common Stock; (ii) the stocks that comprise the
Dow Jones Transportation Average Index(1); and (iii) the stocks
that comprise the S&P 500 Index(2). The table following the
graph shows the value of those investments as of December 31 of
each of the years indicated. The value for the assumed
investments depicted on the graph and in the table has been
calculated assuming that cash dividends are reinvested at the end
of each quarter during the fiscal year paid.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
RELATIVE MARKET PERFORMANCE
TOTAL RETURN 1993-1997
[TO BE INSERTED]
Year Ended
December 31, 1992 1993 1994 1995 1996 1997
-----------------------------------------------------------------
KCSI Total $100 $211.93 $128.07 $191.19 $189.70 $404.17
Return
Dow Jones $100 $122.98 $103.48 $143.65 $164.98 $244.28
Transportation
Average Total
Return
S&P 500 Index $100 $110.08 $111.53 $153.45 $188.68 $251.64
Total Return
------------------------
(1) The Dow Jones Transportation Average is an index prepared by
Dow Jones & Co., Inc., an independent company.
(2) The S&P 500 is an index prepared by Standard and Poor's
Corporation, an independent company. The S&P 500 Index
reflects the change in weighted average market value for 500
companies whose shares are traded on the New York Stock
Exchange, American Stock Exchange and in the over-the-
counter market. Information concerning Standard and Poor's
Corporation and the S&P 500 Index is available on the
Internet at www.stockinfo.standardpoor.com.
<PAGE>
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain information
concerning the compensation earned by the Chief Executive Officer
of KCSI and certain of the most highly compensated executive
officers for 1997 (based upon the total salary and bonus for
1997).
<TABLE>
<CAPTION>
Long
Term
Annual Compensation Compensation
Awards
Name Securities
and Other Annual Underlying All Other
Principal Compensation Options/SARs Compensation
Position Year Salary($) Bonus <F1>($) ($) (#) ($)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Landon H. Rowland 1997 750,000 --- 57,900<F2> --- $114,801
Chairman of the 1996 500,004 --- 52,252 459,00 88,816
Board, President 1995 500,004 --- --- --- 187,702
and Chief Executive
Officer
Michael R. Haverty 1997 500,004 --- --- --- $ 87,500<F3>
Executive Vice 1996 500,004 --- --- 135,000 66,191
President 1995<F3> 310,486 --- --- 750,000 104,134
Thomas H. Bailey 1997 900,000 675,000 --- --- $ 75,667<F4>
Chairman of the 1996 585,000 400,000 --- --- 74,747
Board, President 1995 590,000 --- --- --- 69,244
and Chief Executive
Officer of Janus
Capital Corporation
Corporation
Joseph D. Monello 1997 250,008 --- --- --- $ 62,640<F5>
Vice President and 1996 250,008 --- --- --- 63,637
Chief Financial 1995 198,900 198,900 --- 315,000 31,282
Officer
Danny R. Carpenter 1997 190,008 --- --- --- $ 43,751<F6>
Vice President - 1996 190,008 --- --- --- 48,697
Finance 1995 154,500 154,500 --- 204,000 32,272
----------------------------------------------------------------------------------------------------
----------------------
<FN>
<F1> 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.
<F2> Other Annual Compensation for Mr. Rowland includes premiums
on 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; and
(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.
<F3> 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; and (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.
<F4> 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; and (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.
<F5> 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.
<F6> 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 $93,186.
</FN>
</TABLE>
<PAGE>
1997 AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information with respect to
the aggregate option exercises during 1997 by the named Executive
Officers and the number and value of options held by such
officers as of December 31, 1997 (the last trading day of the
year).
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End at FY-End
Acquired (#) ($)
on Value
Exercise Realized<F1> Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable<F1>
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Landon H. -0- N/A 2,763,000/-0- 67,935,811/-0-
Rowland
Michael R. -0- N/A 885,000/-0- 14,815,655/-0-
Haverty
Thomas H. -0- N/A -0-/-0- N/A
Bailey
Joseph D. 42,000 1,131,593 471,000/-0- 8,493,447/-0-
Monello
Danny R. -0- N/A 261,000/-0- 4,201,819/-0-
Carpenter
------------------
<FN>
<F1> The dollar value in columns (c) and (e) is calculated by
determining the difference between the fair market value of
the securities underlying the options and the exercise
price of the options on the date of exercise or December
31, 1997 (the last trading day of 1997), respectively,
times the number of options exercised or held at year end.
</FN>
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN
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) shares of KCSI 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 in 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 rate not less than twelve times
the highest monthly base salary paid or payable to him in the
twelve months prior to any change in control. During such three-
year period, Mr. Rowland would also be eligible to participate in
all benefit plans made generally 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 in control and incentive compensation
shall not be less than 75% of the maximum amount which could have
been paid to Mr. Rowland under the terms of the incentive
compensation plan. With respect to unfunded employer obligations
under the benefit plans, Mr. Rowland would be entitled to a
discounted cash payment of amounts to which he is entitled. Mr.
Rowland's employment may be terminated after the control change
date, but where it is other than "for cause" (as defined in the
Employment Agreement) he would be entitled to payment of his base
salary through termination plus a discounted cash severance
payment equal to 175% of three times his annual base salary and
continuation or payment of benefits for a three-year period at
levels in effect on the control change date. Mr. Rowland is also
permitted to resign employment after a change in control upon
"good reason" (as defined in the Employment Agreement) and
advance written notice, and to receive the same payments and
benefits as if his employment had been terminated by 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 in 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 & 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 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 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
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 officer meets the
requirements for participation in such termination year.
As part of the Employment Agreement, 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 in 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 in control.
During the three-year period, the officers also would be eligible
to participate in all benefit plans made generally 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 in control and
incentive compensation shall not be less than 75% of the maximum
amount which could have been paid to the officers under the terms
of the incentive compensation plan. With respect to unfunded
employer obligations under benefit plans, the officers would be
entitled to a discounted cash payment of amounts to which they
are entitled. The officers' employment may be terminated after
the control change date, but where it is other than "for cause"
(as defined in the Employment Agreements) they would be entitled
to payment of their base salary through termination plus 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 are also permitted to resign
employment after a change in control upon "good reason" (as that
term is defined in the Employment Agreements) and advance written
notice, and to receive the same payments and benefits as if their
employment had been terminated. The Employment Agreements also
provide for payments to such officers necessary to relieve them
of certain adverse federal income tax consequences if amounts
received under the Agreements involve "parachute payments" under
Section 4999 of the Internal Revenue Code. In addition, upon a
change in 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 is also entitled upon a termination of his
employment within one year of a defined change of ownership of
KCSI to receive a payment equal to his prior year's current and
deferred compensation.
INDEMNIFICATION AGREEMENTS
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 in control of KCSI has occurred, in which case
the KCSI determination is made by special independent counsel.
The Agreements also provide a mechanism to seek court relief if
indemnification or expense advances are denied or not received
within periods provided in the Agreement. Indemnification and
advancement of expenses are also provided with respect to a court
proceeding initiated for a determination of rights under the
agreement or of certain other matters. KCSI has entered into
such Indemnification Agreements with all current directors and
officers of KCSI.
CHANGE IN 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 in 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 Director's approval prior to a change in 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 in control of KCSI and will terminate
automatically if no such change in 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 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 in 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 (the "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 Code maximum allocation limitations. Forfeitures are
similarly allocated. For this purpose, compensation includes
only compensation received during the period the individual was
actually a participant in the 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 ESOP.
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 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 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 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 ESOP have the option to diversify the
investment 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 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 ESOP; or (iii) used by the ESOP to pay interest
or principal on indebtedness incurred to acquire the shares on
which the dividends are paid.
Pursuant to the ESOP trust agreement, a trust fund has been
established to hold contributions thereto and the proceeds from
investments for the benefit of 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 ESOP's funds,
to sell the securities and other properties of the ESOP, and to
change the 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 ESOP.
As of the Record Date, the 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 ESOP are allocated to participants' accounts
as of December 31, 1997. The 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 ESOP and a portion of the
dividends paid on the ESOP shares.
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 Code
maximum allocations limitations, 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 occurs 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 is 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 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 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 plan, such amount is deemed to be the
participant's compensation. The compensation of 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 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 are also 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.
<PAGE>
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 __, 1998
<PAGE>
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:
RESOLVED, this Corporation's Certificate of
Incorporation be amended (the "Amendment") so that
each outstanding share 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 for each two shares outstanding on the
date of combination (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 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 the 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
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.
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
Attest: Senior Vice President and General Counsel
[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.)
<PAGE>
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 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(e)(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.
(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" has the meaning set forth in
Section 11(b)(iii).
(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.
(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 determine (A) 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.
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");
(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.
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.
(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.
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:
(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).
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.
By: /s/ Gerard M. Lavin, President
-------------------------------
<PAGE>
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 Dela-
ware 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 is also
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 Op-
tions), Restricted Shares, Bonus Shares, stock appreciation
rights (SARs), limited stock appreciation rights (LSARs), Perfor-
mance Units or Performance Shares granted under the Plan.
2.3 "AWARD AGREEMENT" means the written agreement by which
an Award shall be evidenced.
2.4 "BOARD" has the meaning set forth in Section 1.1.
2.5 "BONUS SHARES" means Shares that are awarded to a
Grantee without cost and without restrictions in recognition of
past performance (whether determined by reference to another
employee benefit plan of the Company or otherwise) or as an
incentive to become an employee, director or consultant of the
Company or a Subsidiary.
2.6 "CAUSE" means, unless otherwise defined in an Award
Agreement,
(i) before the occurrence of a Change of Control, any
one or more of the following, as determined by the Committee:
(A) a Grantee's commission of a crime which, in
the judgment of the Committee, resulted or is likely to
result in damage or injury to the Company or a Subsidiary;
(B) the material violation by the Grantee of
written policies of the Company or a Subsidiary;
(C) the habitual neglect or failure by the Grant-
ee 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 connec-
tion 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 perfor-
mance 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 rea-
sonable detail and specifies the remedial period).
2.7 "CHANGE OF CONTROL" means, unless otherwise defined in
an Award Agreement, any one or more of the following:
(i) the acquisition or holding by any person, entity
or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of
the 1934 Act), other than by the Company or any Subsidiary or any
employee benefit plan of the Company or a Subsidiary (and other
than by KCSI prior to the Spinoff 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 Spinoff
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 respec-
tive 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 owner-
ship, immediately before such Extraordinary Transaction, of the
then-outstanding Common Stock and Voting Power of the Company,
(B) a liquidation or dissolution of the Company or
(C) the sale or other disposition of all or
substantially all of the assets of the Company in one transaction
or a series of related transactions.
2.8 "CHANGE OF CONTROL VALUE" means the Fair Market Value
of a Share on the date of a Change of Control.
2.9 "CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and regulations and rulings thereun-
der. 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 COMMIT-
TEE" 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 Disabil-
ity, (ii) any director of the Company or any Subsidiary and
(iii) any person performing services for the Company or a Subsid-
iary 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 proper-
ty determined by such methods or procedures as shall be estab-
lished 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 preced-
ing 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 organiza-
tion, 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 inde-
pendently 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 posi-
tion (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 insub-
stantial 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 compo-
nent 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 encum-
brances, and which such holder either (i) has held for at least
six months or (ii) has purchased on the open market.
2.29 "MINIMUM CONSIDERATION" means $.01 per Share or such
other amount that is from time to time considered to be capital
for purposes of Section 154 of the Delaware General Corporation
Law.
2.30 "OPTION" means an option granted under Article 6 of the
Plan.
2.31 "OPTION PRICE" means the price at which a Share may be
purchased by a Grantee pursuant to an Option.
2.32 "OPTION TERM" means the period beginning on the Grant
Date of an Option and ending on the expiration date of such
Option, as specified in the Award Agreement for such Option and
as may, consistent with the provisions of the Plan, be extended
from time to time by the Committee prior to the expiration date
of such Option then in effect.
2.33 "OUTSIDE DIRECTOR" means a member of the Board who is
not an employee of the Company or any Subsidiary.
2.34 "PERFORMANCE-BASED EXCEPTION" means the performance-
based exception from the tax deductibility limitations of Code
Section 162(m).
2.35 "PERFORMANCE PERIOD" has the meaning set forth in
Section 9.2.
2.36 "PERFORMANCE SHARE" or "PERFORMANCE UNIT" has the
meaning set forth in Article 9.
2.37 "PERIOD OF RESTRICTION" means the period during which
the transfer of Restricted Shares is limited in some way (the
length of the period being based on the passage of time, the
achievement of performance goals, or upon the occurrence of other
events as determined by the Committee), and the Shares are
subject to a substantial risk of forfeiture, as provided in
Article 8.
2.38 "PERSON" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d) thereof.
2.39 "PLAN" has the meaning set forth in Section 1.1.
2.40 "REQUIRED WITHHOLDING" has the meaning set forth in
Article 16.
2.41 "RESTRICTED SHARES" means Shares that are subject to
forfeiture if the Grantee does not satisfy the conditions speci-
fied in the Award Agreement applicable to such Shares.
2.42 "RETIREMENT" means for any Grantee who is an employee,
Termination of Affiliation by the Grantee upon either (i) having
both attained age fifty-five (55) and completed at least ten (10)
years of service with the Company or a Subsidiary or (ii) meeting
such other requirements as may be specified by the Committee.
2.43 "RULE 16B-3" means Rule 16b-3 promulgated by the SEC
under the Exchange Act, as amended from time to time, together
with any successor rule, as in effect from time to time.
2.44 "SAR" means a stock appreciation right.
2.45 "SEC" means the United States Securities and Exchange
Commission, or any successor thereto.
2.46 "SECTION" means, unless the context otherwise requires,
a Section of the Plan.
2.47 "SECTION 16 PERSON" means a person who is subject to
potential liability under Section 16(b) of the 1934 Act with
respect to transactions involving equity securities of the
Company.
2.48 "SHARE" means a share of Common Stock.
2.49 "SPINOFF 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 per-
centage 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 servic-
es to the Company or any Subsidiary in the capacity of an employ-
ee, 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 appoint-
ed by the Board to administer the Plan ("Plan Committee"). To
the extent the Board considers it desirable to comply with or
qualify under Rule 16b-3 or meet the Performance-Based Exception,
the Plan Committee shall consist of two or more directors of the
Company, all of whom qualify as "outside directors" as defined
for purposes of the regulations under Code Section 162(m) and
"non-employee directors" within the meaning of Rule 16b-3. The
number of members of the Plan Committee shall from time to time
be increased or decreased, and shall be subject to such condi-
tions, 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 applica-
ble, 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 referenc-
es to the Board, or the Plan Committee or the Management Commit-
tee, 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 specif-
ic Awards, and if so whether they shall be exercisable cumula-
tively 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 forfeit-
ed 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, out-
standing Awards and to grant new Awards in substitution therefor;
(vii) to accelerate the exercisability (including
exercisability within a period of less than six months after the
Grant Date) of, and to accelerate or waive any or all of the
terms and conditions applicable to, any Award or any group of
Awards for any reason and at any time, including in connection
with a Termination of Affiliation;
(viii) subject to Sections 1.3 and 5.3, to extend the
time during which any Award or group of Awards may be exercised;
(ix) to make such adjustments or modifications to
Awards to Grantees working outside the United States as are
advisable to fulfill the purposes of the Plan or to comply with
applicable local law;
(x) to impose such additional terms and conditions
upon the grant, exercise or retention of Awards as the Committee
may, before or concurrently with the grant thereof, deem appro-
priate, 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 discre-
tion of the Committee, and all such determinations of the Commit-
tee shall be final, conclusive and binding on all Persons. No
member of the Committee shall be liable for any action or deter-
mination 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 Substi-
tute 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 termi-
nates without the issuance of such Shares or of other consider-
ation 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 with-
held, 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 in-
crease the number of Shares available, as applicable, for grant
under the Plan. The Committee may from time to time determine
the appropriate methodology for calculating the number of Shares
issued pursuant to the Plan. Shares issued pursuant to the Plan
may be treasury Shares or newly-issued Shares.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event that
the Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split,
subdivision, consolidation or reduction of capital, reorganiza-
tion, 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 Spinoff 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 fur-
ther, that the number of Shares subject to any Award denominated
in Shares shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS
5.1 ELIGIBILITY. The Committee may grant Awards to any
Eligible Person, whether or not he or she has previously received
an Award.
5.2 GRANT DATE. The Grant Date of an Award shall be the
date on which the Committee grants the Award or such later date
as specified by the Committee.
5.3 MAXIMUM TERM. The Option Term or other period during
which an Award may be outstanding shall under no circumstances
extend more than 10 years after the Grant Date, and shall be
subject to earlier termination as herein provided; provided,
however, that any deferral of a cash payment or of the delivery
of Shares that is permitted or required by the Committee pursuant
to Article 12 may, if so permitted or required by the Committee,
extend more than 10 years after the Grant Date of the Award to
which the deferral relates.
5.4 AWARD AGREEMENT. To the extent not set forth in the
Plan, the terms and conditions of each Award (which need not be
the same for each grant or for each Grantee) shall be set forth
in an Award Agreement.
5.5 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee
may impose such restrictions on any Shares acquired pursuant to
the exercise or vesting of an Award as it may deem advisable,
including restrictions under applicable federal securities laws.
5.6 TERMINATION OF AFFILIATION. Except as otherwise
provided in an Award Agreement, and subject to the provisions of
Section 14.1, the extent to which the Grantee shall have the
right to exercise, vest in, or receive payment in respect of an
Award following Termination of Affiliation shall be determined in
accordance with the following provisions of this Section 5.6.
(a) FOR CAUSE. If a Grantee has a Termination of
Affiliation for Cause, (i) the Grantee's Restricted Shares that
are forfeitable shall thereupon be forfeited, subject to the
provisions of Section 8.4 regarding repayment of certain amounts
to the Grantee; and (ii) any unexercised Option, LSAR or SAR, and
any Performance Share or Performance Unit with respect to which
the Performance Period has not ended as of the date of such
Termination of Affiliation, shall terminate effective immediately
upon such Termination of Affiliation.
(b) ON ACCOUNT OF DEATH OR DISABILITY. If a Grantee
has a Termination of Affiliation on account of death or Disabili-
ty, 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 Termina-
tion 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 Affilia-
tion would continue until the end of the Performance Period, or,
if the Committee elects to compute the benefit after the end of
the Performance Period, the Performance Percentage, as determined
by the Committee, attained during the Performance Period.
(c) ON ACCOUNT OF RETIREMENT. If a Grantee has a
Termination of Affiliation on account of Retirement, then:
(i) the Grantee's Restricted Shares that were
forfeitable shall thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or
not exercisable on the date of such Termination of Affiliation,
may be exercised, in whole or in part, within the first five
years after such Termination of Affiliation (but only during the
Option Term) by the Grantee or, after his or her death, by (A)
his or her personal representative or the person to whom the
Option or SAR, as applicable, is transferred by will or the
applicable laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Article 11; and
(iii) the benefit payable with respect to any
Performance Share or Performance Unit with respect to which the
Performance Period has not ended as of the date of such Termina-
tion 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 Affilia-
tion 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 repre-
sentative or by a transferee receiving such Award pursuant to a
qualified domestic relations order (a "QDRO") as defined in the
Code or Title I of the Employee Retirement Income Security Act of
1974 as amended ("ERISA"), or the rules thereunder.
(b) Except as provided in section 5.7(c) below, no
Award (prior to the time, if applicable, Shares are issued in
respect of such Award), and no right under any Award, may be
assigned, alienated, pledged, attached, sold or otherwise trans-
ferred or encumbered by a Grantee otherwise than by will or by
the laws of descent and distribution (or in the case of Restrict-
ed 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 Immedi-
ate 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,
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 de-
ferred basis, and whether payable under this Plan or otherwise)
which such Eligible Person may be eligible to receive from the
Company or a Subsidiary.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced
by an Award Agreement that shall specify the Option Price, the
Option Term, the number of shares to which the Option pertains,
the time or times at which such Option shall be exercisable and
such other provisions as the Committee shall determine.
6.3 OPTION PRICE. The Option Price of an Option under this
Plan shall be determined by the Committee, and shall be equal to
or more than 100% of the Fair Market Value of a Share on the
Grant Date; provided, however, that any Option that is
(i) granted to a Grantee in connection with the Spinoff Distribu-
tion, (ii) associated with an option to purchase shares of stock
of KCSI ("KCSI Option") held by such Grantee immediately prior to
such Spinoff 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 acquisi-
tion ("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 Op-
tion") held by such Grantee immediately prior to such Acquisi-
tion, and (z) intended to preserve for the Grantee the economic
value of all or a portion of such Acquired Entity Option ("Sub-
stitute 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 exercis-
able 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 op-
tions) in excess of the $100,000 Limit shall, notwithstand-
ing the terms of the Current Grant, be exercisable for the
first time by the Grantee in the first subsequent calendar
year or years in which it could be exercisable for the first
time by the Grantee when added to all Prior Grants without
exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current
Grant, any portion of a Current Grant could not be exercised
under the preceding provisions of this Section during any
calendar year commencing with the calendar year in which it
is first exercisable through and including the last calendar
year in which it may by its terms be exercised, such portion
of the Current Grant shall not be an Incentive Stock Option,
but shall be exercisable as an Option which is not an Incen-
tive 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 disposi-
tion of any Shares issued pursuant to the exercise of the Incen-
tive Stock Option under the circumstances described in Sec-
tion 421(b) of the Code (relating to certain disqualifying
dispositions) (any such circumstance, a "Disqualifying Disposi-
tion"), 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 proce-
dures 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 irrevoca-
ble notice of exercise and irrevocable instructions to
deliver promptly to the Company the amount of sale or loan
proceeds sufficient to pay for such Shares, together with,
if requested by the Company, the amount of federal, state,
local or foreign withholding taxes payable by Grantee by
reason of such exercise; or
(e) when permitted by the Committee, payment may
also be made in accordance with Section 5.9.
If any Restricted Shares ("Tendered Restricted Shares") are used
to pay the Option Price, a number of Shares acquired on exercise
of the Option equal to the number of Tendered Restricted Shares
shall be subject to the same restrictions as the Tendered Re-
stricted Shares, determined as of the date of exercise of the
Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIA-
TION 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 exer-
cisable.
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, expira-
tion, 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 identi-
fied, 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 Peri-
od(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 for-
feited, and if the Grantee was required to pay for such shares or
acquired such Restricted Shares upon the exercise of an Option,
the Grantee shall be deemed to have resold such Restricted Shares
to the Company at a price equal to the lesser of (x) the amount
paid by the Grantee for such Restricted Shares, or (y) the Fair
Market Value of a Share on the date of such forfeiture. The
Company shall pay to the Grantee the required amount as soon as
is administratively practical. Such Restricted Shares shall cease
to be outstanding, and shall no longer confer on the Grantee
thereof any rights as a stockholder of the Company, from and
after the date of the event causing the forfeiture, whether or
not the Grantee accepts the Company's tender of payment for such
Restricted Shares.
8.5 ESCROW; LEGENDS. The Committee may provide that the
certificates for any Restricted Shares (x) shall be held (togeth-
er 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 Perfor-
mance 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, depend-
ing 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 Perfor-
mance 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 deter-
mined 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 perfor-
mance goals or Performance Period are no longer appropriate, the
Committee may adjust, change or eliminate the performance goals
or the applicable Performance Period as it deems appropriate in
order to make them appropriate and comparable to the initial
performance goals or Performance Period.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS AND
PERFORMANCE SHARES. Payment of earned Performance Units or
Performance Shares shall be made in a lump sum following the
close of the applicable Performance Period. The Committee may
pay earned Performance Units or Performance Shares in the form of
cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned
Performance Units or Performance Shares at the close of the
applicable Performance Period. Such Shares may be granted
subject to any restrictions deemed appropriate by the Committee.
The form of payout of such Awards shall be set forth in the Award
Agreement pertaining to the grant of the Award.
As determined by the Committee, a Grantee may be entitled to
receive any dividends declared with respect to Shares which have
been earned in connection with grants of Performance Units or
Performance Shares but not yet distributed to the Grantee. In
addition, a Grantee may, as determined by the Committee, be
entitled to exercise his or her voting rights with respect to
such Shares.
ARTICLE 10. BONUS SHARES
Subject to the terms of the Plan, the Committee may grant
Bonus Shares to any Eligible Person, in such amount and upon such
terms and at any time and from time to time as shall be deter-
mined 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 life-
time. 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 Re-
stricted 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 Agree-
ment, 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
this Plan, or, having been so selected, to be selected to receive
a future Award.
ARTICLE 14. CHANGE OF CONTROL
14.1 CHANGE OF CONTROL. Except as otherwise provided in an
Award Agreement, if a Change of Control occurs, then:
(i) the Grantee's Restricted Shares that were forfeit-
able shall thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not
exercisable on the date of such Change of Control, shall thereup-
on be fully exercisable and may be exercised, in whole or in
part; and
(iii) the Company shall immediately pay to the Grant-
ee, 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:
(a) 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
(b) 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 adjust-
ments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events
(including the events described in Section 4.2) affecting the
Company or the financial statements of the Company or of changes
in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available
under the Plan; provided that no such adjustment shall be autho-
rized 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 materi-
al 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 Dispo-
sition or an election under Section 83(b) of the Code
shall remit to the Company an amount sufficient to
satisfy all resulting Required Withholding; provided
that, in lieu of or in addition to the foregoing, the
Company shall have the right to withhold such Required
Withholding from compensation otherwise due to the
Grantee or from any Shares or other payment due to the
Grantee under the Plan.
(b) ELECTIVE SHARE WITHHOLDING.
(1) Subject to subsection 16.1(b)(2), a Grantee
may elect the withholding ("Share Withholding") by the
Company of a portion of the Shares subject to an Award
upon the exercise of such Award or upon Restricted
Shares becoming non-forfeitable or upon making an
election under Section 83(b) of the Code (each, a
"Taxable Event") having a Fair Market Value equal to
(i) the minimum amount necessary to satisfy Required
Withholding liability attributable to the Taxable
Event; or (ii) with the Committee's prior approval, a
greater amount, not to exceed the estimated total
amount of such Grantee's tax liability with respect to
the Taxable Event.
(2) Each Share Withholding election shall be
subject to the following conditions:
(i) any Grantee's election shall be subject
to the Committee's discretion to revoke the Grantee's right to
elect Share Withholding at any time before the Grantee's election
if the Committee has reserved the right to do so in the Award
Agreement;
(ii) the Grantee's election must be made
before the date (the "Tax Date") on which the amount of tax to be
withheld is determined; and
(iii) the Grantee's election shall be
irrevocable.
16.2 NOTIFICATION UNDER CODE SECTION 83(B). If the Grant-
ee, 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 appli-
cable laws, rules, and regulations, and to such approvals by any
governmental agencies or stock exchanges as may be required.
Notwithstanding any provision of the Plan or any Award, Grantees
shall not be entitled to exercise, or receive benefits under, any
Award, and the Company shall not be obligated to deliver any
Shares or other benefits to a Grantee, if such exercise or
delivery would constitute a violation by the Grantee or the
Company of any applicable law or regulation.
18.4 SECURITIES LAW COMPLIANCE.
(a) If the Committee deems it necessary to comply with
any applicable securities law, or the requirements of any stock
exchange upon which Shares may be listed, the Committee may
impose any restriction on Shares acquired pursuant to Awards
under the Plan as it may deem advisable. All certificates for
Shares delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under
the rules, regulations and other requirements of the SEC, any
stock exchange upon which Shares are then listed, any applicable
securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference
to such restrictions. If so requested by the Company, the
Grantee shall make a written representation to the Company that
he or she will not sell or offer to sell any Shares unless a
registration statement shall be in effect with respect to such
Shares under the Securities Act of 1993, as amended, and any
applicable state securities law or unless he or she shall have
furnished to the Company evidence satisfactory to the Company
that such registration is not required.
(b) If the Committee determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any
Award would violate any applicable provision of securities laws
or the listing requirements of any stock exchange upon which any
of the Company's equity securities are listed, then the Committee
may postpone any such exercise, nonforfeitability or delivery, as
applicable, but the Company shall use all reasonable efforts to
cause such exercise, nonforfeitability or delivery to comply with
all such provisions at the earliest practicable date.
18.5 NO RIGHTS AS A STOCKHOLDER. A Grantee shall not have
any rights as a stockholder of the Company with respect to the
Shares (other than Restricted Shares) which may be deliverable
upon exercise or payment of such Award until such shares have
been delivered to him or her. Restricted Shares, whether held by
a Grantee or in escrow by the Secretary of the Company, shall
confer on the Grantee all rights of a stockholder of the Company,
except as otherwise provided in the Plan or Award Agreement. At
the time of a grant of Restricted Shares, the Committee may
require the payment of cash dividends thereon to be deferred and,
if the Committee so determines, reinvested in additional Re-
stricted Shares. Stock dividends and deferred cash dividends
issued with respect to Restricted Shares shall be subject to the
same restrictions and other terms as apply to the Restricted
Shares with respect to which such dividends are issued. The
Committee may provide for payment of interest on deferred cash
dividends.
18.6 NATURE OF PAYMENTS. Awards shall be special incentive
payments to the Grantee and shall not be taken into account in
computing the amount of salary or compensation of the Grantee for
purposes of determining any pension, retirement, death or other
benefit under (a) any pension, retirement, profit-sharing, bonus,
insurance or other employee benefit plan of the Company or any
Subsidiary or (b) any agreement between (i) the Company or any
Subsidiary and (ii) the Grantee, except as such plan or agreement
shall otherwise expressly provide.
18.7 PERFORMANCE MEASURES. Unless and until the Committee
proposes for stockholder vote and stockholders approve a change
in the general performance measures set forth in this Section
18.7, the performance measure(s) to be used for purposes of such
Awards shall be chosen from among the following:
(a) Earnings (either in the aggregate or on a per-share
basis);
(b) Net income (before or after taxes);
(c) Operating income;
(d) Cash flow;
(e) Return measures (including return on assets, equity, or
sales);
(f) Earnings before or after either, or any combination of,
taxes, interest or depreciation and amortization;
(g) Gross revenues;
(h) Share price (including growth measures and stockholder
return or attainment by the Shares of a specified value
for a specified period of time);
(i) Reductions in expense levels in each case, where appli-
cable, 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 Excep-
tion, 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.
<PAGE>
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 "Compa-
ny"), hereby amends, restates and combines the Kansas City
Southern Industries, Inc. 1991 Amended and Restated Stock Option
and Performance Award Plan (as amended and restated September 26,
1996), 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, restat-
ed 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 "Effec-
tive 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 is also
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 Op-
tions), Restricted Shares, Bonus Shares, stock appreciation
rights (SARs), limited stock appreciation rights (LSARs), Perfor-
mance Units or Performance Shares granted under the Plan.
2.3 "AWARD AGREEMENT" means the written agreement by which an
Award shall be evidenced.
2.4 "BOARD" has the meaning set forth in Section 1.1.
2.5 "BONUS SHARES" means Shares that are awarded to a Grantee
without cost and without restrictions in recognition of past
performance (whether determined by reference to another employee
benefit plan of the Company or otherwise) or as an incentive to
become an employee, director or consultant of the Company or a
Subsidiary.
2.6 "CAUSE" means, unless otherwise defined in an Award
Agreement,
(i) before the occurrence of a Change of Control, any one
or more of the following, as determined by the Committee:
(A) a Grantee's commission of a crime which, in the
judgment of the Committee, resulted or is likely to result in
damage or injury to the Company or a Subsidiary;
(B) the material violation by the Grantee of written
policies of the Company or a Subsidiary;
(C) the habitual neglect or failure by the Grantee
in the performance of his or her duties to the Company or a
Subsidiary (but only if such neglect or failure is not reme-
died 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 result-
ing, 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 con-
sistent wanton negligence by the Grantee in the performance
of the Grantee's duties (but only if such neglect or negli-
gence 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 benefi-
cial 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, consti-
tute the Board (the "Incumbent Board") cease for any reason to
constitute at least 75% of the Board; provided that any individu-
al 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 respec-
tive 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 owner-
ship, 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 substan-
tially 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 thereun-
der. 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 COMMIT-
TEE" 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 Disabil-
ity, (ii) any director of the Company or any Subsidiary and
(iii) any person performing services for the Company or a Subsid-
iary 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 proper-
ty determined by such methods or procedures as shall be estab-
lished 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 preced-
ing 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 organiza-
tion, 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 require-
ments), 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, du-
ties, 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 compo-
nent 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 require-
ments 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 encum-
brances, and which such holder either (i) has held for at least
six months or (ii) has purchased on the open market.
2.29 "MINIMUM CONSIDERATION" means $.01 per Share or such
other amount that is from time to time considered to be capital
for purposes of Section 154 of the Delaware General Corporation
Law.
2.30 "OPTION" means an option granted under Article 6 of
the Plan.
2.31 "OPTION PRICE" means the price at which a Share may
be purchased by a Grantee pursuant to an Option.
2.32 "OPTION TERM" means the period beginning on the Grant
Date of an Option and ending on the expiration date of such
Option, as specified in the Award Agreement for such Option and
as may, consistent with the provisions of the Plan, be extended
from time to time by the Committee prior to the expiration date
of such Option then in effect.
2.33 "OUTSIDE DIRECTOR" means a member of the Board who is
not an employee of the Company or any Subsidiary.
2.34 "PERFORMANCE-BASED EXCEPTION" means the performance-
based exception from the tax deductibility limitations of Code
Section 162(m).
2.35 "PERFORMANCE PERIOD" has the meaning set forth in
Section 9.2.
2.36 "PERFORMANCE SHARE" or "PERFORMANCE UNIT" has the
meaning set forth in Article 9.
2.37 "PERIOD OF RESTRICTION" means the period during which
the transfer of Restricted Shares is limited in some way (the
length of the period being based on the passage of time, the
achievement of performance goals, or upon the occurrence of other
events as determined by the Committee), and the Shares are
subject to a substantial risk of forfeiture, as provided in
Article 8.
2.38 "PERSON" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d) thereof.
2.39 "PLAN" has the meaning set forth in Section 1.1.
2.40 "REQUIRED WITHHOLDING" has the meaning set forth in
Article 16.
2.41 "RESTRICTED SHARES" means Shares that are subject to
forfeiture if the Grantee does not satisfy the conditions speci-
fied in the Award Agreement applicable to such Shares.
2.42 "RETIREMENT" means for any Grantee who is an employ-
ee, Termination of Affiliation by the Grantee upon either
(i) having both attained age fifty-five (55) and completed at
least ten (10) years of service with the Company or a Subsidiary
or (ii) meeting such other requirements as may be specified by
the Committee.
2.43 "RULE 16B-3" means Rule 16b-3 promulgated by the SEC
under the Exchange Act, as amended from time to time, together
with any successor rule, as in effect from time to time.
2.44 "SAR" means a stock appreciation right.
2.45 "SEC" means the United States Securities and Exchange
Commission, or any successor thereto.
2.46 "SECTION" means, unless the context otherwise re-
quires, 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 Incen-
tive Stock Options, a corporation as defined in Section 424(f) of
the Code (with the Company being treated as the employer corpora-
tion for purposes of this definition) and, for all other purpos-
es, 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 connec-
tion 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 individu-
al who is an employee or director of, or consultant to, a corpo-
ration which is a Subsidiary, the first day on which such corpo-
ration 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
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 condi-
tions, 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 applica-
ble, 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 specif-
ic Awards, and if so whether they shall be exercisable cumula-
tively 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 forfeit-
ed 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, out-
standing Awards and to grant new Awards in substitution therefor;
(vii) to accelerate the exercisability (including
exercisability within a period of less than six months after the
Grant Date) of, and to accelerate or waive any or all of the
terms and conditions applicable to, any Award or any group of
Awards for any reason and at any time, including in connection
with a Termination of Affiliation;
(viii) subject to Sections 1.3 and 5.3, to extend the
time during which any Award or group of Awards may be exercised;
(ix) to make such adjustments or modifications to Awards
to Grantees working outside the United States as are advisable to
fulfill the purposes of the Plan or to comply with applicable
local law;
(x) to impose such additional terms and conditions upon
the grant, exercise or retention of Awards as the Committee may,
before or concurrently with the grant thereof, deem appropriate,
including limiting the percentage of Awards which may from time
to time be exercised by a Grantee; and
(xi) to take any other action with respect to any
matters relating to the Plan for which it is responsible.
All determinations on all matters relating to the Plan or any
Award Agreement may be made in the sole and absolute discretion
of the Committee, and all such determinations of the Committee
shall be final, conclusive and binding on all Persons. No member
of the Committee shall be liable for any action or determination
made with respect to the Plan or any Award.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to
adjustment as provided in Section 4.2, the number of Shares
hereby reserved for issuance under the Plan shall be 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 per-
cent (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 other-
wise terminates without the issuance of such Shares or of other
consideration in lieu of such Shares, the Shares subject to such
Award, to the extent of any such forfeiture or termination shall
again be available for grant under the Plan. If any Shares
(whether subject to or received pursuant to an Award granted
hereunder, purchased on the open market, or otherwise obtained)
are withheld, applied as payment, or sold pursuant to procedures
approved by the Committee and the proceeds thereof applied as
payment in connection with the exercise of an Award or the
withholding of taxes related thereto, such Shares, to the extent
of any such withholding or payment, shall again be available or
shall increase the number of Shares available, as applicable, for
grant under the Plan. The Committee may from time to time
determine the appropriate methodology for calculating the number
of Shares issued pursuant to the Plan. Shares issued pursuant to
the Plan may be treasury Shares or newly-issued Shares.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event that the
Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split,
subdivision, consolidation or reduction of capital, reorganiza-
tion, 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 outstand-
ing 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, includ-
ing 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 Affili-
ation for Cause, (i) the Grantee's Restricted Shares that are
forfeitable shall thereupon be forfeited, subject to the provi-
sions 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 Termina-
tion 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 denomi-
nator 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 Affilia-
tion 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 Termi-
nation of Affiliation on account of Retirement, then:
(i) the Grantee's Restricted Shares that were
forfeitable shall thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not
exercisable on the date of such Termination of Affiliation, may
be exercised, in whole or in part, within the first five years
after such Termination of Affiliation (but only during the Option
Term) by the Grantee or, after his or her death, by (A) his or
her personal representative or the person to whom the Option or
SAR, as applicable, is transferred by will or the applicable laws
of descent and distribution, or (B) the Grantee's beneficiary
designated in accordance with Article 11; and
(iii) the benefit payable with respect to any
Performance Share or Performance Unit with respect to which the
Performance Period has not ended as of the date of such Termina-
tion 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 denomi-
nator 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 Affilia-
tion 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, Disabili-
ty or Retirement, then:
(i) the Grantee's Restricted Shares, to the extent
forfeitable on the date of the Grantee's Termination of Affilia-
tion, 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 repre-
sentative or by a transferee receiving such Award pursuant to a
qualified domestic relations order (a "QDRO") as defined in the
Code or Title I of the Employee Retirement Income Security Act of
1974 as amended ("ERISA"), or the rules thereunder.
(b) Except as provided in section 5.7(c) below, no Award
(prior to the time, if applicable, Shares are issued in respect
of such Award), and no right under any Award, may be assigned,
alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Grantee otherwise than by will or by the laws of
descent and distribution (or in the case of Restricted Shares, to
the Company) or pursuant to a QDRO, and any such purported
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company
or any Subsidiary; provided, that the designation of a beneficia-
ry 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 Immedi-
ate 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,
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 de-
ferred basis, and whether payable under this Plan or otherwise)
which such Eligible Person may be eligible to receive from the
Company or a Subsidiary.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by
an Award Agreement that shall specify the Option Price, the
Option Term, the number of shares to which the Option pertains,
the time or times at which such Option shall be exercisable and
such other provisions as the Committee shall determine.
6.3 OPTION PRICE. The Option Price of an Option under this
Plan shall be determined by the Committee, and shall be equal to
or more than 100% of the Fair Market Value of a Share on the
Grant Date; provided, however, that any Option that is
(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 Op-
tion") held by such Grantee immediately prior to such Acquisi-
tion, and (z) intended to preserve for the Grantee the economic
value of all or a portion of such Acquired Entity Option ("Sub-
stitute 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 exercis-
able for the first time by such Grantee during any calendar year,
determined in accordance with the provisions of Section 422 of
the Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) if the aggregate Fair Market Value of the Shares
(determined on the Grant Date) with respect to the portion of
such grant which is exercisable for the first time during any
calendar year ("Current Grant") and all Incentive Stock Options
previously granted under the Plan and any Other Plans which are
exercisable for the first time during the same calendar year
("Prior Grants") would exceed the $100,000 Limit, be exercisable
as follows:
(A) the portion of the Current Grant which would,
when added to any Prior Grants, be exercisable with respect
to Shares which would have an aggregate Fair Market Value
(determined as of the respective Grant Date for such options)
in excess of the $100,000 Limit shall, notwithstanding the
terms of the Current Grant, be exercisable for the first time
by the Grantee in the first subsequent calendar year or years
in which it could be exercisable for the first time by the
Grantee when added to all Prior Grants without exceeding the
$100,000 Limit; and
(B) if, viewed as of the date of the Current Grant,
any portion of a Current Grant could not be exercised under
the preceding provisions of this Section during any calendar
year commencing with the calendar year in which it is first
exercisable through and including the last calendar year in
which it may by its terms be exercised, such portion of the
Current Grant shall not be an Incentive Stock Option, but
shall be exercisable as an Option which is not an Incentive
Stock Option at such date or dates as are provided in the
Current Grant;
(v) be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company; and
(vi) by its terms not be assignable or transferable
other than by will or the laws of descent and distribution and
may be exercised, during the Grantee's lifetime, only by the
Grantee; provided, however, that the Grantee may, in any manner
permitted by the Plan and specified by the Committee, designate
in writing a beneficiary to exercise his or her Incentive Stock
Option after the Grantee's death.
Any Option designated as an Incentive Stock Option shall also
require the Grantee to notify the Committee of any disposition of
any Shares issued pursuant to the exercise of the Incentive Stock
Option under the circumstances described in Section 421(b) of the
Code (relating to certain disqualifying dispositions) (any such
circumstance, a "Disqualifying Disposition"), within 10 days of
such Disqualifying Disposition.
Notwithstanding the foregoing and Section 3.2(v), the Commit-
tee 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 exer-
cise;
(d) subject to applicable law, pursuant to procedures
approved by the Committee, through the sale of the Shares ac-
quired on exercise of the Option through a broker-dealer to whom
the Grantee has submitted an irrevocable notice of exercise and
irrevocable instructions to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay for such
Shares, together with, if requested by the Company, the amount of
federal, state, local or foreign withholding taxes payable by
Grantee by reason of such exercise; or
(e) when permitted by the Committee, payment may also be
made in accordance with Section 5.9.
If any Restricted Shares ("Tendered Restricted Shares") are used
to pay the Option Price, a number of Shares acquired on exercise
of the Option equal to the number of Tendered Restricted Shares
shall be subject to the same restrictions as the Tendered Re-
stricted Shares, determined as of the date of exercise of the
Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIA-
TION 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 exer-
cisable.
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, expira-
tion, 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 identi-
fied, 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 occur-
ring 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 pursu-
ant to the provisions of the applicable Award Agree-
ment;
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 Peri-
od(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 forfeit-
ed, and if the Grantee was required to pay for such shares or
acquired such Restricted Shares upon the exercise of an Option,
the Grantee shall be deemed to have resold such Restricted Shares
to the Company at a price equal to the lesser of (x) the amount
paid by the Grantee for such Restricted Shares, or (y) the Fair
Market Value of a Share on the date of such forfeiture. The
Company shall pay to the Grantee the required amount as soon as
is administratively practical. Such Restricted Shares shall cease
to be outstanding, and shall no longer confer on the Grantee
thereof any rights as a stockholder of the Company, from and
after the date of the event causing the forfeiture, whether or
not the Grantee accepts the Company's tender of payment for such
Restricted Shares.
8.5 ESCROW; LEGENDS. The Committee may provide that the
certificates for any Restricted Shares (x) shall be held (togeth-
er 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 Perfor-
mance 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, depend-
ing 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 Perfor-
mance 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 deter-
mined 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 differ-
ent business unit of the Company during a Performance Period,
then, to the extent the Committee determines the performance
goals or Performance Period are no longer appropriate, the
Committee may adjust, change or eliminate the performance goals
or the applicable Performance Period as it deems appropriate in
order to make them appropriate and comparable to the initial
performance goals or Performance Period.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS AND
PERFORMANCE SHARES. Payment of earned Performance Units or
Performance Shares shall be made in a lump sum following the
close of the applicable Performance Period. The Committee may
pay earned Performance Units or Performance Shares in the form of
cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned
Performance Units or Performance Shares at the close of the
applicable Performance Period. Such Shares may be granted
subject to any restrictions deemed appropriate by the Committee.
The form of payout of such Awards shall be set forth in the Award
Agreement pertaining to the grant of the Award.
As determined by the Committee, a Grantee may be entitled to
receive any dividends declared with respect to Shares which have
been earned in connection with grants of Performance Units or
Performance Shares but not yet distributed to the Grantee. In
addition, a Grantee may, as determined by the Committee, be
entitled to exercise his or her voting rights with respect to
such Shares.
ARTICLE 10. BONUS SHARES
Subject to the terms of the Plan, the Committee may grant
Bonus Shares to any Eligible Person, in such amount and upon such
terms and at any time and from time to time as shall be deter-
mined 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 life-
time. 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 Re-
stricted 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 Agree-
ment, 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
this Plan, or, having been so selected, to be selected to receive
a future Award.
ARTICLE 14. CHANGE OF CONTROL
14.1 CHANGE OF CONTROL. Except as otherwise provided in
an Award Agreement, if a Change of Control occurs, then:
(i) the Grantee's Restricted Shares that were forfeit-
able shall thereupon become nonforfeitable;
(ii) any unexercised Option or SAR, whether or not
exercisable on the date of such Change of Control, shall thereup-
on 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:
(a) a fraction, the numerator of which is the number
of whole and partial months that have elapsed between the begin-
ning 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
(b) 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 adjust-
ments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events
(including the events described in Section 4.2) affecting the
Company or the financial statements of the Company or of changes
in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available
under the Plan; provided that no such adjustment shall be autho-
rized 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 materi-
al 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 deliv-
ered upon exercise or payment of an Award or upon Re-
stricted 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 Commit-
tee, Mature Shares, sufficient to satisfy all federal,
state, local and foreign tax withholding requirements
related thereto ("Required Withholding"), (ii) the with-
holding 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 Disposi-
tion 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 Compa-
ny 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 liabili-
ty attributable to the Taxable Event; or (ii) with the
Committee's prior approval, a greater amount, not to
exceed the estimated total amount of such Grantee's tax
liability with respect to the Taxable Event.
(2) Each Share Withholding election shall be subject
to the following conditions:
(i) any Grantee's election shall be subject to
the Committee's discretion to revoke the Grantee's right to elect
Share Withholding at any time before the Grantee's election if
the Committee has reserved the right to do so in the Award
Agreement;
(ii) the Grantee's election must be made
before the date (the "Tax Date") on which the amount of tax to be
withheld is determined; and
(iii) the Grantee's election shall be
irrevocable.
16.2 NOTIFICATION UNDER CODE SECTION 83(B). If the Grantee,
in connection with the exercise of any Option, or the grant of
Restricted Shares, makes the election permitted under Section
83(b) of the Code to include in such Grantee's gross income in
the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such
election within 10 days of filing the notice of the election with
the Internal Revenue Service, in addition to any filing and
notification required pursuant to regulations issued under
Section 83(b) of the Code. The Committee may, in connection with
the grant of an Award or at any time thereafter prior to such an
election being made, prohibit a Grantee from making the election
described above.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of
a direct or indirect purchase, merger, consolidation, or other-
wise 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 appli-
cable laws, rules, and regulations, and to such approvals by any
governmental agencies or stock exchanges as may be required.
Notwithstanding any provision of the Plan or any Award, Grantees
shall not be entitled to exercise, or receive benefits under, any
Award, and the Company shall not be obligated to deliver any
Shares or other benefits to a Grantee, if such exercise or
delivery would constitute a violation by the Grantee or the
Company of any applicable law or regulation.
18.4 SECURITIES LAW COMPLIANCE.
(a) If the Committee deems it necessary to comply with
any applicable securities law, or the requirements of any stock
exchange upon which Shares may be listed, the Committee may
impose any restriction on Shares acquired pursuant to Awards
under the Plan as it may deem advisable. All certificates for
Shares delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under
the rules, regulations and other requirements of the SEC, any
stock exchange upon which Shares are then listed, any applicable
securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference
to such restrictions. If so requested by the Company, the
Grantee shall make a written representation to the Company that
he or she will not sell or offer to sell any Shares unless a
registration statement shall be in effect with respect to such
Shares under the Securities Act of 1993, as amended, and any
applicable state securities law or unless he or she shall have
furnished to the Company evidence satisfactory to the Company
that such registration is not required.
(b) If the Committee determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any
Award would violate any applicable provision of securities laws
or the listing requirements of any stock exchange upon which any
of the Company's equity securities are listed, then the Committee
may postpone any such exercise, nonforfeitability or delivery, as
applicable, but the Company shall use all reasonable efforts to
cause such exercise, nonforfeitability or delivery to comply with
all such provisions at the earliest practicable date.
18.5 NO RIGHTS AS A STOCKHOLDER. A Grantee shall not have
any rights as a stockholder of the Company with respect to the
Shares (other than Restricted Shares) which may be deliverable
upon exercise or payment of such Award until such shares have
been delivered to him or her. Restricted Shares, whether held by
a Grantee or in escrow by the Secretary of the Company, shall
confer on the Grantee all rights of a stockholder of the Company,
except as otherwise provided in the Plan or Award Agreement. At
the time of a grant of Restricted Shares, the Committee may
require the payment of cash dividends thereon to be deferred and,
if the Committee so determines, reinvested in additional Re-
stricted 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 incen-
tive payments to the Grantee and shall not be taken into account
in computing the amount of salary or compensation of the Grantee
for purposes of determining any pension, retirement, death or
other benefit under (a) any pension, retirement, profit-sharing,
bonus, insurance or other employee benefit plan of the Company or
any Subsidiary or (b) any agreement between (i) the Company or
any Subsidiary and (ii) the Grantee, except as such plan or
agreement shall otherwise expressly provide.
18.7 PERFORMANCE MEASURES. Unless and until the Committee
proposes for stockholder vote and stockholders approve a change
in the general performance measures set forth in this Section
18.7, the performance measure(s) to be used for purposes of such
Awards shall be chosen from among the following:
(a) Earnings (either in the aggregate or on a per-share
basis);
(b) Net income (before or after taxes);
(c) Operating income;
(d) Cash flow;
(e) Return measures (including return on assets, equity, or
sales);
(f) Earnings before or after either, or any combination of,
taxes, interest or depreciation and amortization;
(g) Gross revenues;
(h) Share price (including growth measures and stockholder
return or attainment by the Shares of a specified value
for a specified period of time);
(i) Reductions in expense levels in each case, where
applicable, determined either on a Company-wide basis or
in respect of any one or more business units;
(j) Net economic value; or
(k) Market share.
Any of the foregoing performance measures may be applied, as
determined by the Committee, on the basis of the Company as a
whole, or in respect of any one or more Subsidiaries or divisions
of the Company or any part of a Subsidiary or division of the
Company that is specified by the Committee.
The Committee may adjust the determinations of the degree of
attainment of the preestablished performance goals; provided,
however, that Awards which are designed to qualify for the
Performance-Based Exception, may not be adjusted upward without
the approval of the Company's stockholders (the Committee may
adjust such Awards downward).
In the event that applicable tax and/or securities laws
change to permit Committee discretion to alter the governing
performance measures without obtaining stockholder approval of
such changes, and still qualify for the Performance-Based
Exception, the Committee shall have sole discretion to make such
changes without obtaining stockholder approval.
18.8 GOVERNING LAW. The Plan, and all agreements
hereunder, shall be construed in accordance with and governed by
the laws of the State of Delaware other than its laws respecting
choice of law.
<PAGE>
APPENDIX E
FORM OF PROXIES
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 West 11th Street
Kansas City, Missouri 64105-1804
June 5, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders of Kansas City Southern Industries, Inc., at
___________________________, Kansas City, Missouri, at 10:00
a.m., on July 15, 1998. The purpose of this meeting is set forth
in the accompanying Notice of Special Meeting and Proxy
Statement.
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. The Board expects that
the market price of KCSI's common stock will move below the
desired trading range following the spin-off. By reducing the
number of outstanding shares, the Board of Directors is trying to
bring the market price of the stock into the desired trading
range. We would complete any reverse split only if we completed
the spin-off. The attached 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 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,
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)
<PAGE>
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
dated June 5, 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)
<PAGE>
(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 vote for 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 before the Special
Meeting. IF NO CHOICE IS SPECIFIED, SUCH PROXIES WILL VOTE "FOR"
THE PROPOSAL.
1. Approval of an Amendment to KCSI's Certificate of
Incorporation to Effect a Reverse Stock Split
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of the Berger Associates, Inc. Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the FAM Holdings, Inc. 1998 Long Term Stock
Incentive Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of the amendment and restatement of KCSI's 1991
Stock Option and Performance Award Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 West 11th Street
Kansas City, Missouri 64105-1804
June 5, 1998
Dear KCSI ESOP Participant:
Enclosed is your voting instruction card to UMB Bank, N.A. as
Trustee for shares allocated to your account under the Employee
Stock Ownership Plan (ESOP).
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. The Board expects that
the market price of KCSI's common stock will move below the
desired trading range following the spin-off. By reducing the
number of outstanding shares, the Board of Directors is trying to
bring the market price of the stock into the desired trading
range. We would complete any reverse split only if we completed
the spin-off. The attached 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.
Please DO NOT DELIVER THIS CARD TO KCSI, 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.
If you have questions about the allocation of these shares,
you may call one of the following individuals for further
information:
KCSI employee contact: Jack Mock 816-983-1308
JANUS employee contact: Greg Fisher 303-336-4062
Thank you,
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)
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE
UNDER THE KANSAS CITY SOUTHERN INDUSTRIES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Signature _________________________ Date _________________, 1998
Please sign exactly as name appears.
(Continued on other side)
<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 their
discretion on all other matters that are properly brought before
the Special Meeting.
1. Approval of an Amendment to KCSI's Certificate of
Incorporation to Effect a Reverse Stock Split
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of the Berger Associates, Inc. Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the FAM Holdings, Inc. 1998 Long Term Stock
Incentive Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of KCSI's 1991 Stock Option and Performance Award
Plan as amended and restated in 1998
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IF THE VOTING INSTRUCTION CARD IS NOT 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>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 West 11th Street
Kansas City, Missouri 64105-1804
June 5, 1998
Dear DST ESOP Participant:
Enclosed is your voting instruction card to UMB Bank, N.A. as
Trustee for shares allocated to your account under the DST
Systems, Inc. Employee Stock Ownership Plan (ESOP).
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. The Board expects that
the market price of KCSI's common stock will move below the
desired trading range following the spin-off. By reducing the
number of outstanding shares, the Board of Directors is trying to
bring the market price of the stock into the desired trading
range. We would complete any reverse split only if we completed
the spin-off. The attached 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.
Please DO NOT DELIVER THIS CARD TO KCSI, 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.
If you have questions about the allocation of these shares,
you may call one of the following individuals for further
information:
Becky Bremerkamp 816-435-8609 or 800-438-2320
Tammy Vincent 816-435-8628 or 800-438-2320
Thank you,
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)
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS TO UMB BANK, N.A. AS TRUSTEE
UNDER THE DST SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Signature ___________________________ Date ________________, 1998
Please sign exactly as name appears.
(CONTINUED ON OTHER SIDE)
<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 their
discretion on all other matters that are properly brought before
the Special Meeting.
1. Approval of an Amendment to KCSI's Certificate of
Incorporation to Effect a Reverse Stock Split
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of the Berger Associates, Inc. Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the FAM Holdings, Inc. 1998 Long Term Stock
Incentive Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of the amendment and restatement of KCSI's 1991
Stock Option and Performance Award Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IF THE VOTING INSTRUCTION CARD IS NOT 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>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
114 West 11th Street
Kansas City, Missouri 64105-1804
June 5, 1998
Dear KCSI Profit Sharing Plan Participant With Rollover Account
Containing KCSI Shares:
Enclosed is your voting instruction card to UMB Bank, N.A.,
as Trustee for shares allocated to your profit sharing plan
account as a rollover contribution.
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. The Board expects that
the market price of KCSI's common stock will move below the
desired trading range following the spin-off. By reducing the
number of outstanding shares, the Board of Directors is trying to
bring the market price of the stock into the desired trading
range. We would complete any reverse split only if we completed
the spin-off. The attached 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.
Please DO NOT DELIVER THIS CARD TO KCSI, 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,
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.)
<PAGE>
(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.)
<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 their
discretion on all other matters that are properly brought before
the Special Meeting.
1. Approval of an Amendment to KCSI's Certificate of
Incorporation to Effect a Reverse Stock Split
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of the Berger Associates, Inc. Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the FAM Holdings, Inc. Long Term Incentive Stock
Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of the amendment and restatement of KCSI's 1991
Stock Option and Performance Award Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IF THE VOTING INSTRUCTION CARD IS NOT 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.
