United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________
Commission file number 1-14036
DST SYSTEMS, INC.
(Exact name of Company as specified in its charter)
Delaware 43-1581814
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
333 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code (816) 435-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $0.01 Per Share Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of the voting stock held by non-affiliates of the Company
as of February 28, 1997:
Common Stock, $.01 par value --$962,579,145
Number of shares outstanding of the Company's common stock
as of February 28, 1997:
Common Stock, $.01 par value -- 49,504,000
Documents incorporated by reference:
Portions of the following documents are incorporated herein by reference into
Part of the Form 10-K as indicated:
Part of Form 10-K into which
Document incorporated
- --------------------------------------------------------------------------------
Company's Definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders, which Part III will be filed no later than 120 days after December
31, 1996
- --------------------------------------------------------------------------------
<PAGE>
DST Systems, Inc.
1996 Form 10-K Annual Report
Table of Contents
Cautionary Statement With Respect To Forward-Looking Comments........ 2
Part I
Item 1. Business ............................................................ 2
Item 2. Properties.......................................................... 10
Item 3. Legal Proceedings................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................. 11
Executive Officers of the Company................................... 11
Part II
Item 5. Market for the Company's Common Stock and
Related Stockholder Matters......................................... 12
Item 6. Selected Consolidated Financial Data................................ 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 13
Item 8. Financial Statements and Supplementary Data......................... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................. 46
Part III
Item 10. Directors and Executive Officers of the Company.................... 46
Item 11. Executive Compensation............................................. 46
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 46
Item 13. Certain Relationships and Related Transactions..................... 46
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 47
Signatures......................................................... 53
DST(TM), OTI(TM), Securities Transfer System(TM), STS(TM), TA2000(R), Portfolio
Accounting System(TM), PAS(TM), Global Portfolio System(R), GPS(R),
OpenPerformance System(TM), OPS(TM), Enterprise Investment Management
System(TM), Integrated Pharmacy Network System(TM), IPNS(R), Automated Work
Distributor(TM), AWD(R), TRAC-2000(R), FAST2000(TM), FanMail(R), Vision Mutual
Fund Gateway(TM), EnCorr(R), PowerStore(R), Customer Service Workstation(R),
Financial Asset Builder(R) Financial Asset Network(R) referred to in this Report
are included among the Company's trademarks. DirecTV(TM) referred to in this
Report is a trademark of Hughes Electronics, Inc. Fund/Serv(TM) and
Networking(TM) referred to in this Report are trademarks of National Securities
Clearing Corporation. Windows NT(R) and Windows(R) referred to in this Report
are trademarks of Microsoft Corporation. OS/2(R) referred to in this Report is a
trademark of IBM Corporation.
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD LOOKING COMMENTS
The discussions set forth in this Annual Report on Form 10-K contain
forward-looking comments. Such comments are based upon the information currently
available to management of DST Systems, Inc. and its subsidiaries (collectively
"DST" or "the Company") and management's understanding thereof as of the date of
this report. Actual results of the Company's operations could materially differ
from those indicated in the forward-looking comments. The difference could be
caused by a number of factors including, but not limited to, those discussed in
a Current Report on Form 8-K dated March 22, 1996, which is hereby incorporated
by reference and has been filed with the United States Securities and Exchange
Commission (the "Commission"). That Current Report may be obtained by contacting
the Commission's public reference office. Readers are strongly encouraged to
obtain and consider the factors listed in the March 22, 1996, Current Report and
any amendments or modifications thereof when evaluating any forward-looking
comments concerning the Company.
PART I
Item 1. Business
This discussion of the Company's business should be read in conjunction with,
and is qualified by reference to, Management's Discussion and Analysis of the
Company's Financial Condition and Results of Operations ("MD&A") under Item 7
herein. In addition, pursuant to rule 12b-23 under the Securities Exchange Act
of 1934, as amended, the information set forth under the headings "Introduction"
and "Seasonality" in the MD&A and the geographic information included in Item 8,
Note 15 are incorporated herein by reference in partial response to this Item 1.
The Company was originally established in 1969. Through a reorganization in
August 1995, the Company is now a corporation organized in the State of
Delaware. The Company operates in one segment.
RECENT DEVELOPMENTS IN THE COMPANY'S BUSINESS
The major business developments of the Company and the Company's subsidiaries
for 1996 are as follows.
CSC/Continuum Merger
On August 1, 1996, The Continuum Company, Inc. ("Continuum") merged with
Computer Sciences Corporation ("CSC") in a tax-free share exchange accounted for
as a pooling-of-interests. Under the merger, CSC common stock was exchanged for
the common stock of Continuum at an exchange rate of 0.79 shares for each share
of Continuum stock. DST, which prior to the merger owned approximately 23% of
Continuum, received in the exchange approximately 4.3 million shares of CSC
common stock.
DST currently provides data processing operations for Continuum through DST's
Winchester Data Center. The Company has agreed with CSC to negotiate an
agreement that will allow Continuum to transfer data processing operations from
the Winchester Data Center to facilities of CSC. The Company believes that such
transfer will not occur until after 1997 and will not have a material impact on
the financial condition or results of operations of the Company. The Company
does not expect the merger to affect the Company's existing agreements with
Continuum for distribution of DST's Automated Work Distributor (AWD) work flow
management software to the insurance and banking industries.
Output Processing Expansion into International Markets
In January 1996, the Company's subsidiary, Output Technologies, Inc. ("Output
Technologies") acquired for $5.5 million, Xebec Imaging Services, Inc., a
Canadian company engaged in output processing.
COLD Marketing Right
During 1996, Output Technologies acquired for $2.9 million, a 15% equity
interest in PSI Technologies, Inc. ("PSI"), the developer of a Computer Output
to Laser Disk (COLD) software product for archiving documents. In conjunction
with the investment, Output Technologies acquired the exclusive right to market
a customized product using PSI's COLD software to the mutual fund industry.
<PAGE>
New Credit Agreements
During the third quarter of 1996, the Company replaced its $30 million bank line
of credit to finance working capital requirements and $15 million bank line of
credit to finance certain construction activities of the Company with a single
$50 million bank line of credit available through May 1997. Borrowings under the
facility are available at rates tied to the Eurodollar or federal funds rates.
In December 1996, the Company entered into an amended and restated five year
revolving credit facility of $105 million (increased to $125 million in February
1997) with a syndicate of U.S. and international banks. The facility replaced
the three year $150 million agreement entered into in May 1995. Borrowings under
the facility are available at rates tied to the Eurodollar, Prime, Base CD, or
federal funds rates.
NARRATIVE DESCRIPTION OF BUSINESS
The Company provides sophisticated information processing and computer software
services and products, primarily to mutual funds, insurance companies, banks and
other financial services organizations. Set forth below is information regarding
the Company's sources of revenue.
<TABLE>
<CAPTION>
Sources of Revenue
Years Ended December 31,
1994 1995 1996
----------------- ----------------- ------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
U. S. Revenues
Mutual Fund
Investment Management
Data Processing Services $ 190.8 47.5% $ 221.5 45.8% $ 257.8 44.4%
Output Services 53.8 13.4 60.2 12.4 77.7 13.4
-------- -------- -------- -------- -------- --------
244.6 60.9 281.7 58.2 335.5 57.8
Other Output Processing 73.3 18.3 81.4 16.8 90.5 15.6
Other 51.5 12.8 60.1 12.4 70.4 12.1
-------- -------- -------- -------- -------- --------
Total U.S. revenues 369.4 92.0 423.2 87.4 496.4 85.5
International revenues 32.3 8.0 60.9 12.6 84.4 14.5
-------- -------- ------- -------- -------- --------
Total Revenues $ 401.7 100.0% $ 484.1 100.0% $ 580.8 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
The Company's revenue growth is attributable to the growth of the mutual fund
industry and the implementation of the Company's business strategy. The primary
components of the Company's ongoing business strategy are: (i) enhancement of
the Company's technology base and development of new services and products to
strengthen its position as the leading provider of information processing
services to the United States mutual fund market; (ii) expansion into markets
where the Company can provide similar information processing and computer
software services and products; and (iii) formation of strategic alliances and
joint ventures with and acquisitions of established companies operating in the
Company's target markets, both in the United States and internationally.
The growing volume and complexity of transactions in the financial services
market and other markets have resulted in increasing demand for more
sophisticated systems to process information in a timely and accurate manner.
Computer technology has provided an effective means of addressing this demand,
but requires significant capital investment and expertise. As a result, many
organizations have relied on outside providers, such as the Company. The Company
expects the information processing needs of these organizations to continue to
grow in volume and complexity and believes that this will present the Company
with significant opportunities for its services and products.
<PAGE>
United States Mutual Fund and Investment Management
Most of the Company's mutual fund clients are "open-end" mutual fund companies,
which obtain funds for investment by making a continuous offering of their
shares. Purchases and sales (referred to as "redemptions") of open-end mutual
fund shares are effected between shareowners and the funds, rather than between
shareowners. These transactions are based on the net asset value of the mutual
funds on the date of purchase or redemption, which require that the assets of
the funds and the interests of their shareowners be valued daily. Accordingly,
the timely and accurate accounting and recordkeeping of shareowner and fund
investment activity is a critical function.
In addition, as investors have been attracted to the wide array of investment
products with increasingly specialized features offered by mutual funds, the
mutual fund market has seen a significant increase in the number of mutual fund
shareowner accounts, in the volume of transactions and in the complexity of the
recordkeeping. The Company has made significant investments in computer capacity
and systems to handle the increasing volumes, to maintain its leadership
position and to improve quality and productivity.
The Company typically enters into multi-year written agreements with its
clients. The Company has long-term relationships with its mutual fund clients
and most of the shareowner accounts serviced by the Company are at mutual fund
organizations that have been clients of the Company for more than five years.
Shareowner Accounting and Recordkeeping
The Company's proprietary applications system for mutual fund recordkeeping and
accounting, known as "TA2000," performs shareowner related functions for mutual
funds, including processing purchases, redemptions, exchanges and transfers of
shares; maintaining shareowner identification and share ownership records;
reconciling cash and share activity; calculating and disbursing commissions to
broker-dealers and other distributors; processing dividends; creating and
tabulating proxies; reporting sales; and providing information for printing of
shareowner transaction data and year end tax statements. The TA2000 system
processes all types of open-end funds, including money market funds and load and
no-load funds and performs many specialized tasks, such as asset allocation,
wrap fee calculations and processing shareowner activity for multiple class
funds. At December 31, 1996, the Company provided shareowner accounting
processing services data for approximately 41 million of the estimated 148
million U.S. mutual fund shareowner accounts.
The Company offers its TA2000 system on a "full service" basis and on a "remote
service" basis. Full service includes all necessary administrative and clerical
support to process and maintain shareowner records, answer telephone inquiries
from shareowners, broker-dealers and others and handle the TA2000 functions
described above. Remote clients have their own administrative and clerical staff
who access TA2000 at the Winchester Data Center using the Company's
telecommunications network.
Selection by a client of full or remote service is influenced by a number of
factors, including cost and level of desired control over interaction with fund
shareowners. To address clients' desires to control shareowner interaction, the
Company developed a partial remote service, which allows the clients' personnel
to handle customer telephone inquiries while the Company's personnel retain
transaction processing functions. This service was facilitated by the
implementation of AWD, which captures transaction images and makes them,
together with the status of the transactions, electronically available to the
personnel handling the telephone calls.
The Company derives revenues from its mutual fund shareowner accounting services
through fees charged for use of the Company's proprietary software systems,
clerical processing services and other related products. These fees are
generally charged on an account and number of funds basis for remote and partial
remote service and on an account, funds and transaction basis for full service.
The Company's policy is not to license the TA2000 system.
Retirement Plan Accounting and Recordkeeping
The Company's TRAC-2000 product provides recordkeeping and administration for
defined contribution plans, including 401(k), 403b and 457 plans, Simplified
Employee Pensions and profit sharing plans that invest in mutual
<PAGE>
funds, company stock, guaranteed investment contracts and other investment
products. TRAC-2000 interfaces directly with TA2000 thereby eliminating the
normal reconciliation problems which occur when different systems are used for
the participant recordkeeping and mutual fund shareowner accounting. TRAC-2000
is offered on a full service basis through Boston Financial Data Services, Inc.
("BFDS") and on a remote basis by the Company. The Company regards the
retirement plan market as a significant growth opportunity for its services and
products because (i) that market is relatively new and experiencing significant
expansion as more employers shift away from defined benefit programs; (ii)
mutual funds, because of their features, are increasingly popular selections for
investment by such plans; and (iii) each retirement plan participant normally
elects to use multiple mutual fund investment accounts.
Portfolio Accounting and Investment Management Products
DST offers products that support the portfolio accounting and investment
management functions of the financial services industry. These products comprise
the Enterprise Investment Management System and include the Portfolio Accounting
System (PAS), Global Portfolio System (GPS) and OpenPerformance System (OPS).
DST offers a complete solution to firms managing mutual funds, institutional
advisory accounts, or both.
PAS is an integrated fund accounting system that maintains accounting records
for mutual funds and unit investment trusts with domestic and international
assets, computes daily income and expense for each portfolio and calculates the
fund's daily net asset value (NAV) which appears in the financial media. The
multi-currency capabilities of PAS enable investment managers to account for the
growing number of foreign securities in their portfolios. As of December 31,
1996, PAS valued 2,074 portfolios with an aggregate market value of $650
billion.
GPS, designed for large investment management companies with advisory accounts,
is a rules-based, multi-currency transaction processing and portfolio accounting
system, with a Windows based graphical user interface (GUI) and a variety of
reporting alternatives. With its client server, relational database architecture
(Sybase or Oracle), GPS has seamless integration with OPS and can interface with
a wide range of third party systems offering trading, portfolio management and
custodian communication.
OPS is a multi-currency performance measurement and attribution system that
enables investment companies to calculate and evaluate the performance of their
portfolios against industry standard benchmarks while adhering to the
performance presentation standards of the Association for Investment Management
and Research (AIMR). OPS uses relational database architecture (Sybase or
Oracle), and offers multiple delivery options. OPS is available as a remote
product or for in house installation on UNIX or NT server platforms. OPS is
offered both on a fully integrated basis with the PAS and GPS products or on a
stand-alone basis.
Automated Workflow Management
The Company's Automated Work Distributor (AWD) system is an image-based,
intelligent workflow management and customer support system developed by the
Company's Advanced Technology Group. Introduced to enhance the Company's mutual
fund shareowner recordkeeping system, AWD captures transactions at their source
(such as paper, phone calls or faxes), converts them into electronic images,
stores them and electronically moves them to the appropriate work area and
person for processing. AWD integrates high-speed scanning, character
recognition, voice recognition, optical storage and automated correspondence to
automate work processes traditionally performed by hand. AWD also performs
statistical quality control sampling and provides productivity reporting for
each individual using the system.
AWD was designed to interface with a wide range of high volume application
processing systems. AWD utilizes a client server architecture that enables it to
operate on AS/400, Windows NT or UNIX servers utilizing either Windows or OS/2
client desktops. AWD interfaces with existing mainframe or other server lines of
business applications. AWD is primarily installed in investment management
companies, insurance companies and banks located in the United States, Canada,
United Kingdom, Europe, Australia, South Africa and Asia-Pacific.
<PAGE>
The Advanced Technology Group has developed a number of other products that can
be used with AWD. These products include, Customer Service Work Station, which
presents all available customer information at the telephone representative's
workstation; EnCorr, which automates the creation and printing of
correspondence; and PowerStore, which enables optical media access for
stand-alone PC's, client/servers and other computer platforms.
The Company derives AWD revenues from license fees based on the number of
workstations accessing the software, fees for customized installation and
programming services and annual maintenance fees.
Additional Mutual Fund Services and Products
In addition to its continual investment in TA2000, the Company develops products
to meet the changing service requirements and distribution channels of the
mutual fund market as well as the increasing regulatory requirements affecting
that market.
The Company maintains a high volume interface with Fund/Serv and Networking, two
systems developed by the National Securities Clearing Corporation for
broker-dealer distributed mutual funds. The Company has also developed systems
and communication infrastructure products that facilitate emerging forms of
mutual fund sales and distribution. One of these systems, FanMail, provides
independent financial planners with trade confirmations, account positions and
other data via public network access. As of December 31, 1996, approximately 70
mutual fund and variable annuity companies were participating in this service
with information being transmitted to an estimated 5,000 financial advisors. A
Windows based enhancement to FanMail called Vision Mutual Fund Gateway was
developed in August 1996, and provides real time inquiry capabilities for
broker-dealers and the financial planning community. Additionally, Financial
Asset Builder (FAB) enables bank distributors of mutual funds to customize
comparison analysis data and execute transactions.
The Company has designed another system, Financial Access Network (FAN) to
support emerging forms of electronic distribution for mutual funds. FAN enables
mutual fund companies to transmit mutual fund literature via the Internet to
shareowners and potential investors who visit their proprietary web page. In
addition, mutual fund shareowners can review their accounts and request mutual
fund transactions, such as purchases, redemptions and exchanges from personal
computers.
Revenues from these new services and products are based generally on the number
of transactions processed.
Winchester Data Center
The Winchester Data Center ("Winchester"), the Company's central computer
operations and data processing facility, is located in Kansas City, Missouri.
Winchester has a total of 161,000 square feet, of which 74,000 square feet is
computer room. The computer room houses mainframe computers with a combined
processing capacity of over 2,400 MIPS and direct access storage devices with an
aggregate storage capacity of nearly 13,000 gigabytes. In addition, Winchester
houses non-mainframe computers and peripheral equipment to support other
operations.
Winchester is staffed 24 hours a day, seven days a week and has a self-contained
power plant with mechanical and electrical systems that operate virtually
without interruption in the event of commercial power loss. Winchester also
utilized a fully redundant telecommunications network serving DST's clients. The
network, which serves more than 85,000 computer users, has redundant pathing and
software which provides for automatic rerouting of data transmission in the
event of carrier circuit failure. The Company has an agreement with a commercial
disaster recovery provider for computer processing in the event of a computer
failure at Winchester. The Company's data communications network is linked to
the disaster recovery provider's facility and network to enable client access to
the disaster recovery facility. The Company tests the disaster recovery process
on a regularly scheduled basis.
Output Processing
Output Technologies, Inc., a wholly owned subsidiary of the Company, performs
electronic printing, variable and selective insertion, pre-sorted mailing and
distribution of custom designed shareowner and other customer
<PAGE>
communications, including transaction confirmations, dividend checks, account
statements and year-end tax reports. Additionally, Output Technologies offers
telemarketing/fulfillment services, computer output archival services, graphic
design services and offset printing. Output Technologies has multiple locations
throughout the United States and Canada.
Output Technologies' strategy is to use technology to provide high volume
products and services of superior quality. Output Technologies' products enable
the Company to broaden its product offerings to its clients. Although Output
Technologies provides services to mutual fund and securities transfer clients of
the Company, significant revenues are derived from customers who are not
otherwise clients of DST.
During 1996, Output Technologies acquired for $2.9 million, a 15% interest in
PSI, the developer of a Computer Output to Laser Disk (COLD) software product
for archiving documents. In conjunction with the investment, Output Technologies
acquired the exclusive right to market a customized product using PSI's COLD
software to the mutual fund industry.
The revenues generated from Output Technologies' activities are generally
dependent on the volume of output transactions processed.
Securities Transfer Market
The Company's Securities Transfer System (STS) provides a wide array of
corporate stock and bond security holder recordkeeping services, including
maintaining ownership records, recording ownership changes, issuing
certificates, issuing and tabulating proxies, calculating and disbursing
dividends and interest, processing dividend reinvestments, tax reporting and
responding to shareowner inquiries through on-line data access. STS also
maintains shareowner activity for closed-end mutual funds and unit investment
trusts.
The primary users of the Company's securities transfer system are corporate
trustees and bank securities transfer agents. These agents must provide a wide
range of services at competitive prices to compete in the securities transfer
market. Because the securities transfer systems must be continuously upgraded
and are costly to maintain and improve, transfer agents often rely on outside
vendors, such as the Company, for these services. The Company allows its clients
to have access to a system which is continually enhanced to meet regulatory and
user requirements.
During 1995, BFDS merged its securities transfer business with the Bank of
Boston Corporation's securities transfer business, forming Boston EquiServe.
This joint venture created one of the largest securities transfer agents in the
United States, processing approximately 12 million accounts. Boston EquiServe
currently uses STS to process 4 million accounts, representing clients of State
Street Bank.
DST is currently developing a new securities transfer system to be used by
Boston EquiServe to process all of its accounts. The new system will be
initially implemented in 1997 and completed in 1999.
Argus
Argus Health Systems, Inc. ("Argus") is a 50% owned joint venture of the Company
and a privately held life insurance holding company. Argus provides managed care
pharmaceutical claim processing services using its proprietary computer
processing system, Integrated Pharmacy Network System ("IPNS"). IPNS is an
interactive, database managed processing system for administration of
prescription drug claims, pharmacy and member reimbursement and drug utilization
review. IPNS, which provides substantial flexibility to accommodate varying
provider requirements, allows point-of-sale monitoring and control of pharmacy
plan benefits with on-line benefit authorization and alerts dispensing
pharmacists to potential medication problems arising from such factors as
duplicate prescriptions, incorrect dosage and drug interactions.
The Company provides data processing, telecommunications and output services to
Argus and Argus operates IPNS at Winchester. Its primary clients are providers
of pharmacy benefit plans, including insurance companies, health maintenance
organizations, preferred provider organizations and other pharmacy benefit
managers.
Argus is currently developing a new claims processing system which will replace
IPNS. This system will be client/server based and will run at Winchester on
equipment owned by Argus.
Satellite Subscriber Management Services
DST owns 80% of DBS Systems Corporation ("DBS"), a developer and provider of
subscriber management software for the DirecTV satellite system, a product of
DirecTV, Inc., a Hughes Electronics company. DBS' software system manages
DirecTV satellite television subscriber-related activities, including billing
for DirecTV satellite television subscribers. Output Technologies performs the
electronic printing and mailing of subscriber invoices for DBS.
CSC/Continuum
The Company also provides data processing operations for Continuum. In
conjunction with the CSC/Continuum merger, the Company has agreed with CSC to
negotiate an agreement that will allow Continuum to transfer data processing
operations from Winchester to facilities of CSC. The Company believes that such
a transfer will not occur until after 1997 and will not have a material impact
on the Company. In addition, Continuum has the exclusive right to distribute the
Company's AWD product to life and property and casualty insurance companies
worldwide and a non-exclusive right in the banking industry. This agreement was
unaffected by the CSC/Continuum merger.
International Businesses
The Company also offers investment management and accounting software and
services for investment managers, shareowner accounting services, output
services and advanced technology products in selected international markets. The
Company has entered these markets primarily by affiliating with or acquiring
established companies.
DST International Limited ("DST International")
DST International, a United Kingdom company with subsidiaries in Australia,
South Africa and Hong Kong, offers multiple investment management and portfolio
accounting software products and services, primarily for use in the United
Kingdom, Europe, Australia, South Africa and Asia-Pacific. DST International
also markets the AWD product to markets outside the United States and Canada.
Corfax Benefit Systems Ltd.("Corfax")
Corfax, a Canadian company, provides shareowner accounting systems and services
and pension administration processing services in Canada with the Corfax Pension
System, as well as a retirement plan participant accounting system for Canadian
retirement plans.
Xebec Imaging Services, Inc. ("Xebec")
Output Technologies acquired Xebec in the first quarter of 1996. Xebec, located
principally in Toronto, provides computer output, archival and print/mail
services for various Canadian financial services companies.
CFDS Limited ("CFDS")
A Canadian subsidiary of BFDS, CFDS provides full-service processing to the
Canadian mutual fund industry using the Corfax system and full-service
processing for United States off-shore mutual funds using TA2000.
European Financial Data Services Limited ("EFDS")
A joint venture of DST and State Street Boston Corporation, EFDS is developing
FAST2000, a unit trust accounting system for the United Kingdom market. FAST2000
integrates the Company's workflow management and intelligent workstation
technology directly into the unit trust processing software. Additionally, EFDS
operates, through a wholly-owned subsidiary, a full-service processing business
for unit trusts and related products serving more than 300,000 unitholder
accounts in the United Kingdom.
<PAGE>
Marketing / Distribution
The Company's mutual fund systems and related services and products are marketed
to mutual fund management firms and to distributors of mutual fund shares, such
as banks, insurance companies, brokerage firms and third party administration
firms. Increasingly, such firms manage multiple mutual fund products to address
different investment objectives. Generally, mutual fund products are promoted
and distributed in fund groups, providing investors a variety of mutual fund
investments and the ability to exchange investments from one fund to another
within the group. This often means that a single service agent, such as the
Company, is used for all funds in the group.
The Company identifies potential users of its products and services and tailors
its marketing programs to focus on their needs. The Company's marketing efforts
include cross-selling the Company's wide range of services and products to its
existing clients. The Company's sales efforts are closely coordinated with its
joint venture and strategic alliance partners.
An important distribution channel for the Company's services and products is its
joint ventures. Boston Financial Data Services, Inc. ("BFDS")is a 50% owned
joint venture with State Street Boston Corporation ("State Street"), the parent
company of State Street Bank & Trust Company. BFDS combines use of the Company's
proprietary applications and output processing capabilities with the marketing
capabilities and custodial services of State Street to provide full service
shareowner accounting and recordkeeping services to U.S. mutual funds. BFDS also
offers remittance and proxy processing, class action administration services,
teleservicing and full service support for defined contribution plans using the
Company's TRAC-2000 system. In addition, Boston EquiServe, a 50% owned joint
venture between BFDS and Bank of Boston, uses the Company's Securities Transfer
System to service closed-end mutual funds and corporate stock transfer clients
of State Street Bank and Trust Company. BFDS is the Company's largest customer,
accounting for approximately 12% of the Company's revenues in 1996.
To enhance the distribution of AWD, the Company has granted rights to Continuum
to license AWD to the life and property/casualty insurance and banking
industries. This agreement was unaffected by the CSC/Continuum merger.
Sources of new business for the Company include (i) existing clients of the
Company, particularly with respect to complementary and new services and
products; (ii) companies relying on their in-house capabilities and not using
outside vendors; (iii) companies using competitors' systems and (iv) new
entrants into the markets served by the Company. The Company considers its
existing client base to be one of its best sources of new business.
Software Development and Maintenance
The Company continually upgrades and enhances its proprietary products and
services to meet the needs of its clients and the financial services industry.
The Company's Advanced Technology Group develops new products designed to
address emerging information processing needs of both existing and potential
markets. Operating costs include approximately $44.6 million, $59.1 million and
$82.1 million during the years ended December 31, 1994, 1995 and 1996,
respectively, for software development and enhancements to its to proprietary
systems and software products.
Competition
The Company believes that competition in the markets in which it operates is
based largely on quality of service, features offered including the ability to
handle rapidly changing transaction volumes, commitment to hardware capacity and
software development, and price. The Company believes there is significant
existing competition in its markets.
The Company's shareowner accounting systems compete not only with third-party
providers but also with in-house systems and broker-dealer firms distributing
mutual funds who retain the shareowner account processing. Financial
institutions competing with the Company may have an advantage because they can
take into consideration the value
<PAGE>
of their clients' funds on deposit in pricing their services. The Company's
ability to compete effectively is dependent on the availability of capital. Some
of the Company's competitors have greater resources and greater access to
capital than the Company and its affiliates.
The Company has significant competition with its portfolio accounting and
investment management systems. Principal competitors are third party software
service providers and those companies which license their products. The key
competitive factors in the investment management systems are the accuracy and
timeliness of processed information provided to customers, features and
adaptability of the software, level and quality of customer support, level of
software development expertise and overall price. The Company believes that it
competes effectively in the market by its on-going investment in its products
and the development of new products to meet the needs of the portfolio
accountants and investment managers.
The Company's automated workflow system competes with other data processing and
financial software vendors. Competitive factors include features and
adaptability of the software, level and quality of customer support, level of
software development expertise and overall price. The Company believes that it
can compete effectively in those markets the Company chooses to pursue.
The key competitive factors in output services of the Company are quality of
services, quality of customer support, ability to handle large volumes at month
and quarter ends and speed of production. The Company's principal competitors in
this business are local companies in the cities where the Company's printing
operations are located and several large national organizations. The Company
believes that it competes effectively with others in the market.
Employees
As of December 31, 1996, the Company and its majority owned subsidiaries
employed approximately 5,600 employees. In addition, 50%-owned unconsolidated
affiliates of the Company and its subsidiaries employed approximately 2,400
employees, including approximately 1,700 at BFDS.
Item 2. Properties
Properties
The following table provides certain summary information with respect to the
principal properties owned or leased by the Company:
<TABLE>
<CAPTION>
Location Use (1) Owned/Leased (2) Square Feet
- -------- ------- ---------------- -----------
<S> <C> <C> <C>
Kansas City, MO Data Center Owned 161,000
Kansas City, MO Office Space Owned 635,000
Kansas City, MO (3) Office Space Leased 690,000
Kansas City, MO Production Owned 1,112,000
Kansas City, MO Production Leased 172,000
East Hartford, CT Production Leased 75,000
Mt. Prospect, IL Production Leased 135,000
New York, NY Production Leased 27,000
Westwood, MA Production Leased 128,000
St. Louis, MO Production Leased 36,000
Cincinnati, OH Office Space Leased 23,000
Denver, CO Production Leased 97,000
Canada Office Space Leased 27,900
Canada Production Leased 83,000
Australia Office Space Leased 30,000
United Kingdom Office Space Leased 49,000
</TABLE>
(1) Property specified as being used for production in the above table
includes space used for storage and manufacturing and as warehouse
space.
(2) Excluded from the table are a number of surface parking lots in the
downtown Kansas City, Missouri area. The table also excludes nine
properties outside the Kansas City, Missouri metropolitan area having
an aggregate 95,183 square feet of office or production space, which
are each less than 20,000 square feet. In addition to the property
listed in the table and discussed above, the Company, through its
subsidiaries and joint ventures, leases space in the Netherlands,
Switzerland, Belgium, South Africa, Hong Kong, Singapore, Thailand and
New Zealand. The property listed in the table as owned by the Company
is subject to mortgage indebtedness in an aggregate amount of
approximately $36 million as of December 31, 1996.
(3) Includes 352,680 square feet master-leased by a wholly-owned subsidiary
of the Company, of which 145,069 square feet is subleased to the
Company or its other subsidiaries.
The discussion under "Winchester Data Center" in Item 1 hereto is hereby
incorporated by reference in partial response to this Item 2.
Item 3. Legal Proceedings
The Company and its subsidiaries are involved in various legal proceedings
arising in the normal course of their businesses. While the ultimate outcome of
these legal proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with legal counsel, that the final outcome in
such proceedings, in the aggregate, would not have a material adverse affect on
the consolidated financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted by the Company to security holders during the fourth
quarter of calendar year 1996.
Executive Officers of the Company
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to paragraph
(b) of Item 401 of Regulation S-K, the following list is included as an
unnumbered Item in Part I of this Annual Report on Form 10-K in lieu of being
included in the Company's Definitive Proxy Statement in connection with its
annual meeting of stockholders scheduled for May 13, 1997.
All executive officers are elected by and serve at the discretion of the
Company's Board of Directors. Certain of the executive officers have employment
agreements with the Company. There are no arrangements or understandings between
the executive officers and any other person pursuant to which he or she was or
is to be selected as an officer, except with respect to the executive officers
who have entered into employment agreements, which agreements designate the
position or positions to be held by the executive officer. None of the executive
officers are related to one another by family.
Thomas A. McDonnell, age 51, has served as director of the Company since 1971.
He has served as Chief Executive Officer of the Company since October 1984 and
as President of the Company since January 1973 (except for a 30 month period
from October 1984 to April 1987). He served as Treasurer of the Company from
February 1973 to August 1995 and as Vice Chairman of the Board from June 1984 to
September 1995. He served as Executive Vice President of Kansas City Southern
Industries ("KCSI") from February 1987 until October 1995 and as a director of
KCSI from 1983 until October 1995. He is a director of BHA Group, Inc., Cerner
Corporation, Computer Sciences Corporation, Euronet Services, Inc., Informix
Software, Inc., Janus Capital Corporation and Nellcor-Puritan Bennett
Corporation.
Thomas A. McCullough, age 54, is Executive Vice President of the Company. He has
served as a director of the Company since 1990 and as Executive Vice President
since April 1987. His responsibilities include full service mutual fund
processing, remote mutual fund client servicing, information systems, portfolio
accounting, securities transfer and product sales and marketing.
Robert C. Canfield, age 58, has served as Senior Vice President, General Counsel
and Secretary since August 1995 and as Senior Vice President--Law of the Company
from March 1992 to August 1995. Prior to joining the Company, he had been a
partner in the law firm of Watson, Ess, Marshall & Enggas since 1971.
Morton B. Comer, age 64, has served as Senior Vice President of the Company
since April 1991. He is responsible for the Company's full service mutual fund
processing and corporate support.
Kenneth V. Hager, age 46, has served as Vice President and Chief Financial
Officer of the Company since April 1988 and as Treasurer since August 1995. He
is responsible for the financial, internal audit and data security functions of
the Company.
James P. Horan, age 53, has served as Chief Information Officer of the Company
since July 1988. He is responsible for the Advanced Technology Group, AWD and
the Information Systems Division which includes mutual fund systems development
and support and remote mutual fund services.
John W. McBride, age 54, has served as Group Vice President of the Company since
1993 and as Vice President of the Company from December 1985 to May 1993. He is
responsible for the operations of the Company's Winchester Data Center.
Robert L. Tritt, age 41, has served as Group Vice President of the Company since
1989. He is responsible for the Company's remote mutual fund processing
operations.
Michael A. Waterford, age 54, has served as Group Vice President of the Company
since 1986 and as Vice President of the Company from February 1983 to December
1986. He is responsible for certain of the Company's development projects and
Year 2000 compliance.
J. Philip Kirk, Jr., age 59, has served as Vice President of the Company since
January 1988 and as Chairman of DST Realty, Inc. since July 1996. From March
1987 to July 1996, he became served as President of DST Realty, Inc.
Charles W. Schellhorn, age 48, served as President of the Company's subsidiary,
United Micrographics Systems, Inc. from 1988 to 1990 when it became a
subsidiary of Output Technologies, Inc. He has served as President of Output
Technologies, Inc. since 1990 and Chairman of the Board of Output Technologies,
Inc. since 1991.
J. Michael Winn, age 49, has served since June 1993 as Managing Director of DST
International Limited, a wholly-owned subsidiary of the Company. From February
1992 to June 1993, he was Managing Director of Clarke & Tilley Ltd. when it was
acquired by the Company.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The Company and Kansas City Southern Industries, Inc. ("KCSI") completed an
initial public offering of 25,300,000 shares (including underwriters'
over-allotment options) of the Company's common stock in the fourth quarter 1995
at an offering price of $21.00 per share. The Company's common stock trades
under the symbol "DST" on the New York Stock Exchange ("NYSE"). As of February
28, 1997, there were approximately 12,000 beneficial owners of the Company's
common stock .
No cash dividends have been paid since the initial public offering of common
stock and the Company intends to retain its earnings for use in its business and
therefore does not anticipate paying any cash dividends in the foreseeable
future. On May 8, 1995, prior to the initial public offering, the Company paid a
cash dividend of $150 million to KCSI. The declaration and payment of dividends
is at the discretion of the Board which, prior to the initial public offering,
was controlled by KCSI.
The information set forth in response to Item 201 of Regulation S-K in Part II
Item 8 Financial Statements and Supplementary Data at Note 16, Quarterly
Financial Data (Unaudited) ("Note 16") on page 44 of this Form 10-K is
incorporated by reference in partial response to this Item 5. The prices set
forth in Note 16 do not include commissions and do not necessarily represent
actual transactions. The closing price of the Company's common stock on December
31, 1996, was $31.38.
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data set forth in the following table have
been derived from the consolidated financial statements for the Company and
notes thereto. The consolidated statement of income data for the years ended
December 31, 1994, 1995 and 1996, and the consolidated balance sheet data for
December 31, 1995 and 1996, are derived from the consolidated financial
statements of the Company and the related notes thereto, which have been audited
by Price Waterhouse LLP, independent accountants and which are included in Item
8 elsewhere in this Form 10-K. The consolidated income statement data for the
years ended December 31, 1992 and 1993, and the consolidated balance sheet data
for December 31, 1992, 1993 and 1994, are derived from the consolidated
financial statements and notes thereto of the Company, which have also been
audited by Price Waterhouse LLP, but which are not contained herein. This data
should be read in conjunction with and is qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 in this Form 10-K and the Company's audited
consolidated financial statements, including the notes thereto and the
independent accountants report thereon and the other financial information
included in Item 8 in this Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- ----------
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 267.9 $ 341.2 $ 401.7 $ 484.1 $ 580.8
Income from operations 14.5 29.6 35.0 40.8 57.0
Interest expense (9.1) (10.9) (14.0) (22.0) (6.9)
Gains on sale of equity investments* - - - 44.9 223.4
Equity in earnings (losses) of unconsolidated affiliates 11.5 11.7 22.2 6.5 (4.0)
Income before income taxes and minority interests 20.1 31.7 46.6 73.8 273.6
Income from continuing operations* 15.3 22.8 33.4 27.7 167.2
Income from continuing operations
per common share** n/a n/a n/a n/a 3.35
Total assets 312.8 401.7 510.4 749.5 1,121.6
Long-term obligations $ 73.5 $ 146.0 $ 175.8 $ 52.5 $ 75.9
Cash dividends per common share** n/a n/a n/a n/a $ -
</TABLE>
* In the third quarter of 1996, the Company recognized a one-time gain on the
CSC/Continuum merger; see Note 4 to the consolidated financial statements.
**Because the initial public offering of the Company's common stock in the
fourth quarter of 1995, substantially changed the Company's capital structure,
earnings per share data for 1992-1995 have not been presented. Prior to the
initial public offering, the Company did pay certain dividends, which are
discussed above in response to Item 5 of this Annual Report on Form 10-K.
Since the initial public offering, no dividends have been paid on the
Company's common stock. As noted above in response to Item 5, the Company does
not anticipate paying any cash dividends in the foreseeable future.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Set forth below is Management's discussion and analysis of financial condition
and results of operations which should be read in conjunction with, and is
qualified by reference to, the Company's audited consolidated financial
statements and related notes thereto under Item 8 hereof and the description of
the Company's business under Item 1 hereof. The discussion below, as well as
other portions of this Annual Report on Form 10-K, may contain forward-looking
comments. Such comments are based upon the information currently available to
management of the Company and management's understanding thereof as of the date
of this report. Actual results of the Company's operations could materially
differ from those indicated in the forward-looking comments. The difference
could be caused by a number of factors including, but not limited to, those
discussed in a Current Report on Form 8-K dated March 22, 1996, which has been
filed with the United States Securities and Exchange Commission (the
"Commission"). That Current Report may be obtained by contacting the
Commission's public reference office. Readers are strongly encouraged to obtain
and consider the factors listed in the March 22, 1996, Current Report and any
amendments or modifications thereof when evaluating any forward-looking comments
concerning the Company.
Introduction
The Company provides sophisticated information processing and computer software
services and products, primarily to mutual funds, insurance providers, banks and
other financial services organizations.
The Company's revenues are generated from a variety of sources. The Company's
mutual fund, securities transfer and portfolio accounting processing revenues
are primarily dependent upon base or maintenance fees per account or portfolio.
Revenues from output services for printing and mailing of customer documents and
archival are dependent upon the volume of output transactions processed. The
Company provides data processing services to Argus and Continuum to process
their proprietary applications. Revenues from Argus and Continuum are primarily
based upon data center capacity that is utilized, which is significantly
influenced by each company's volume of transactions. The Company also licenses
its work management software and certain non-mainframe investment management and
portfolio accounting software and, outside the United States, licenses certain
mutual fund shareowner accounting systems and retirement accounting systems.
Revenues for software products which are licensed are primarily comprised of:
(i) license fees, (ii) consulting and development revenues which are based
primarily on time and materials billings and (iii) annual maintenance fees. The
license fee component of these revenues is not material to the Company as a
whole.
The Company derives part of its net income from its pro rata share in the
earnings (losses) of certain unconsolidated affiliates, primarily BFDS, Argus,
EFDS and prior to its merger with CSC discussed below, Continuum. BFDS provides
full-service transfer agency functions for mutual funds utilizing DST's
proprietary TA2000 system. BFDS also offers remittance and proxy processing,
class action administration services, teleservicing and full service support for
defined contribution plans, using the Company's TRAC2000 system. Argus provides
managed care pharmacy claim processing services to the health insurance industry
utilizing the Company's data center facilities. EFDS is developing a unit trust
accounting system for the United Kingdom market. Additionally, EFDS operates,
through a wholly-owned subsidiary, an administrative services business for unit
trust and related products which serves more than 300,000 unitholder accounts in
the United Kingdom.
Significant Events
Continuum
On August 1, 1996, Continuum merged with CSC in a tax-free share exchange and as
a result became a wholly-owned subsidiary of CSC. Under the merger, CSC common
stock was exchanged for the common stock of Continuum at an exchange rate of
0.79 shares for each share of Continuum stock. DST, which prior to the merger
owned approximately 23% of Continuum, received in the exchange approximately 4.3
million shares of CSC common stock with a value of $295 million based upon the
closing price of CSC common stock on August 1, 1996. DST recognized a one-time
gain after taxes and other expenses of $127.6 million or $2.56 per share. In
connection with the merger, the Company elected to make a one-time $13.7 million
ESOP contribution to provide funding for certain Continuum employee withdrawals
from DST's ESOP. DST's shares of CSC represent an approximate 6% interest in the
combined company. As a result, Continuum ceased to be an unconsolidated equity
affiliate of DST and under generally accepted accounting principles, no part of
Continuum or CSC future earnings will be recognized by DST. DST recognized
equity in earnings of Continuum of $5.0 million in 1994 and equity in losses of
Continuum of $1.1 million and $4.9 million in 1995 and 1996, respectively. The
Company's investment in CSC is accounted for as available-for-sale securities.
Although CSC does not currently pay cash dividends, DST will recognize dividend
income on any cash dividends received from CSC.
DST currently provides data processing operations for Continuum through DST's
Winchester Data Center. The Company has agreed with CSC to negotiate an
agreement that will allow Continuum to transfer data processing operations from
the Winchester Data Center to facilities of CSC. The Company believes that such
transfer will not occur until after 1997 and will not have a material impact on
the financial condition or results of operations of the Company. The Company
does not expect the merger to affect the Company's existing agreements with
Continuum for distribution of DST's AWD work flow management software to the
insurance and banking industries.
<PAGE>
Although DST has limited registration rights with respect to the sale of the CSC
stock DST owns, any dispositions of such stock may be restricted by securities
laws. DST has no present intention to dispose of such stock.
In March 1996, Continuum, a then 29% owned unconsolidated affiliate of the
Company, announced the completion of its merger with Hogan Systems, Inc. ("the
Hogan Merger"), a provider of software to banks and financial institutions, for
shares of Continuum stock. As a result of this merger, the Company's common
stock interest in Continuum was reduced from approximately 29% to approximately
23%. The Company recorded in March 1996 its estimated $9.4 million after tax
share of a non-recurring charge recorded by Continuum in connection with the
Hogan Merger.
In December 1995, Continuum acquired SOCS Groupe SA, a French insurance software
firm. The Company recorded in December 1995 its estimated $7.7 million after tax
share of a non-recurring charge in connection with this acquisition.
Stock Repurchase Program
In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management deems appropriate. All such purchases are made in
compliance with applicable SEC regulations. The Company has repurchased 400,000
shares as of December 31, 1996, for approximately $12.5 million.
Initial Public Offering
In the fourth quarter of 1995, the Company and Kansas City Southern Industries,
Inc. ("KCSI") completed an initial public offering ("the Offerings") of 25.3
million shares of the Company's common stock at an offering price of $21 per
share. Of the 25.3 million shares offered, 19,450,000 were sold by the Company
and 5,850,000 were sold by KCSI. The Company received net proceeds of
approximately $384.8 million which were used primarily to repay all debt to KCSI
and certain bank term notes. In conjunction with the Offerings, KCSI exchanged
4,253,508 shares of its DST common stock for 1,820,000 shares of KCSI stock held
by The Employee Stock Ownership Plan ("ESOP"). At December 31, 1996, KCSI owned
approximately 41% of the Company's outstanding common stock.
New Credit Agreements
In December 1996, the Company entered into an amended and restated five year
revolving credit facility of $105 million (increased to $125 million in February
1997) with a syndicate of U.S. and international banks. The facility replaced
the three year $150 million agreement entered into in May 1995. Borrowings under
the facility are available at rates based on the Eurodollar, Prime, Base CD, or
Federal Funds rates. A commitment fee of 0.085% per annum is required on the
total amount of the facility. An additional utilization fee of .050% is required
if the principal amount outstanding is greater than 50% of the total facility.
At December 31, 1996, borrowings of $30 million were outstanding.
During the third quarter of 1996, the Company replaced its $30 million bank line
of credit to finance working capital requirements and $15 million bank line of
credit to finance certain construction activities of the Company with a single
$50 million bank line of credit available through May 1997. Borrowings under the
facility are available at rates tied to the Eurodollar or federal funds rates. A
commitment fee of 0.125% per annum is required on the unused portion of the $50
million line of credit. At December 31, 1996, borrowings of $3.5 million were
outstanding.
KCSI Dividend
In May 1995, the Company paid a cash dividend of $150 million to KCSI ("KCSI
Dividend"), which was financed by the Company's revolving credit facilities.
<PAGE>
Output Processing Expansion
In January 1996, the Company's subsidiary, Output Technologies, acquired for
$5.5 million, Xebec Imaging Services, Inc. ("Xebec"), a Canadian company engaged
in output processing.
During 1996, Output Technologies acquired, for $2.9 million, a 15% interest in
PSI, the developer of a Computer Output to Laser Disk (COLD) software product
for archiving documents. In conjunction with the investment, Output Technologies
acquired the exclusive right to market a customized product using PSI's COLD
software to the mutual fund industry.
Kemper Agreements
In April 1995, the Company purchased substantially all of the assets and
business operations of Supervised Service Company, Inc. ("SSC"), a subsidiary of
Kemper Financial Services, Inc. ("Kemper"). The Company also acquired certain
assets, including computer software from Kemper. The total consideration for
these asset purchases was approximately $39.4 million. In addition, the Company
entered into long-term contracts with Kemper to provide mutual fund shareowner
system services and portfolio accounting system services for the Kemper Mutual
Funds including certain Kemper funds that had been previously processed by
Kemper. As a result of these transactions (the "Kemper Agreements"), the Company
continued to process the Kemper accounts already processed by the Company for
Kemper and began processing the additional accounts previously processed by
Kemper and SSC.
DST International Expansion
In February 1995, DST International purchased HiPortfolio Pty Ltd.
("HiPortfolio"), an Australian provider of portfolio accounting software and
services for $16.0 million. The acquisition was financed through borrowings from
KCSI.
IFTC Transaction
In January 1995, the Company received 2,986,111 shares of State Street Boston
Corporation common stock with a then-market value of $98.2 million in a tax-free
exchange for the Company's 50% interest in Investor's Fiduciary Trust Company (
the "IFTC Transaction"). The Company recognized a pretax gain of $43.6 million
and recorded deferred income taxes of $35.0 million resulting in a net after-tax
gain of $8.6 million on the transaction. As a result of the IFTC Transaction,
equity in IFTC's earnings is no longer included in the Company's results of
operations and dividends on State Street's common stock are recorded as other
income.
Midland Data Systems, Inc.
In August 1995, the Company sold its joint venture interests in Midland Data
Systems, Inc. ("MDS") and Midland Loan Services L.P. ("MLS") to KCSI.
The transaction did not result in a material net gain or loss to the Company.
<PAGE>
Results of Operations
The following table summarizes the Company's operating results for the years
ended December 31, (dollars in millions, except per share amounts).
<TABLE>
<CAPTION>
Operating Results 1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenues $ 401.7 $ 484.1 $ 580.8
Costs and expenses 313.2 373.6 431.6
Depreciation and amortization 53.5 69.7 78.5
Other expenses - - 13.7
Income from operations 35.0 40.8 57.0
Interest expense (14.0) (22.0) (6.9)
Other income, net 3.4 3.6 4.1
Gains on sale of equity investments - 44.9 223.4
Equity in earnings (losses) of unconsolidated affiliates 22.2 6.5 (4.0)
Income before income taxes and minority interests 46.6 73.8 273.6
Income taxes 14.3 46.1 105.9
Minority interests in income (losses) (1.1) - 0.5
Net income $ 33.4 $ 27.7 $ 167.2
Earnings per share n/a n/a $ 3.35
As a Percentage of Revenues
Revenues 100.0% 100.0% 100.0%
Costs and expenses 78.0 77.2 74.3
Depreciation and amortization 13.3 14.4 13.5
Other expenses - - 2.4
Income from operations 8.7 8.4 9.8
Interest expense (3.5) (4.5) (1.2)
Other income, net 0.9 0.7 0.7
Gains on sale of equity investments - 9.3 38.5
Equity in earnings (losses) of unconsolidated affiliates 5.5 1.3 (0.7)
Income before income taxes and minority interests 11.6 15.2 47.1
Income taxes 3.6 9.5 18.2
Minority interests in income (losses) (0.3) - 0.1
Net income 8.3% 5.7% 28.8%
</TABLE>
Year Ended December 31, 1996, Compared to Year Ended December 31, 1995
Revenues. Consolidated revenues increased 20% to $580.8 million in 1996
primarily due to increased U.S. mutual fund processing, AWD and subscriber
management revenues, higher domestic output volumes at Output Technologies and
the acquisition of Xebec in January 1996.
Total domestic revenues increased 17% to $496.4 million in 1996. Domestic mutual
fund processing revenues for 1996 increased 15% over the prior year as
shareowner accounts serviced increased 13% from 36.5 million at December 31,
1995, to 41.1 million at December 31, 1996. In the last quarter of 1996, two new
clients were added with approximately 700,000 accounts. Subsequent to year-end,
a client of BFDS internalized its processing causing a loss of approximately
900,000 accounts. Output Technologies' domestic revenues in 1996 increased 19%
over the prior year due to increased business volumes including a 32% increase
in pages printed. Domestic AWD product revenues for 1996 increased 42% over the
prior year primarily due to an increase in the number of AWD workstations
installed and increased royalties from workstations installed internationally.
Subscriber management revenues increased substantially over the prior year on
increases in the number of DirecTV(TM) satellite subscribers serviced by DBS
Systems Corp.
Revenues from international operations for the year increased 39%
to $84.4 million. The increase is primarily attributable to the addition of
$14.4 million in Canadian revenues resulting from the acquisition of Xebec by
Output Technologies in January 1996 and increased license and development
revenues from DST International.
Costs and expenses. Consolidated costs and expenses for 1996 increased 16% to
$431.6 million, primarily as a result of higher operating volumes, increased
costs of international operations partially offset by the absence in 1996 of
certain other costs that were incurred in 1995.
Domestic costs and expenses increased $37.5 million or 12% primarily due to
increased business volumes and increased compensation and staffing to support
mutual fund, Output Technologies and AWD products. In addition, the development
and partial implementation of a new manufacturing and administration system at
Output Technologies increased 1996 costs by $4.3 million. Partially offsetting
these increases were certain costs incurred in 1995 which did not recur in 1996,
including (i) an accrual of $7.3 million for a performance-based incentive
compensation program at an Output Technologies subsidiary, which was completed
as of December 31, 1995, and (ii) costs of approximately $3.0 million in
transition activities associated with the Kemper Agreements, which activities
were substantially concluded at December 31, 1995.
Costs and expenses from international businesses for the year increased $20.5
million or 35% due to the continued development of DST International's new
portfolio accounting system, GPS2000, increased staffing to support the
investment management and AWD businesses and the addition of $11.9 million of
costs and expenses from the operations of Xebec which was acquired in January
1996.
Depreciation and amortization. Depreciation and amortization increased $8.8
million, or 13%, for the year primarily because of increased operating
capacities at the Winchester Data Center and Output Technologies and increased
amortization expense related to the April 1995 Kemper Agreements.
Other expenses. In connection with the CSC/Continuum merger, the Company accrued
a one-time $13.7 million ESOP contribution which will provide funding for
certain Continuum employee withdrawals from the ESOP.
Interest expense. Interest expense decreased $15.0 million, or 68%, for the year
primarily from the retirement of debt with proceeds from the Company's initial
public offering in the fourth quarter of 1995. Additionally, the Company
capitalized $1.1 million of interest expense in 1996 related to certain
construction activities as compared to $1.6 million in the prior year.
Other income. Other income increased $0.5 million in 1996 due primarily to the
increased dividends received on shares of State Street stock held by the
Company.
Gains on sale of equity investments. The 1996 amount represents the Company's
gain on the CSC/Continuum merger. The 1995 amount includes the sales of the
Company's joint venture interests in IFTC to State Street and MDS and MLS to
KCSI.
Unconsolidated affiliates. Equity in earnings of unconsolidated affiliates
decreased $10.5 million in 1996 primarily as a result of the discontinuance of
recording equity in Continuum earnings beginning in third quarter 1996 and the
Company's $10.3 million share (before taxes) of a non-recurring charge recorded
by Continuum related to the Hogan Merger in the first quarter of 1996. Argus
recorded lower earnings as a result of increased development costs for a new
claims processing system and lower unit revenues. Increased costs were also
incurred at EFDS due to an acceleration of the delivery timetable for the
FAST2000 unit trust product, which is currently expected to be substantially
completed in 1998. 1995 also included $1.1 million of equity in earnings of
Midland joint ventures which were sold in August 1995.
Income taxes. 1996 income tax expense increased $59.7 million, or 129%,
primarily resulting from the Company's gain on the CSC/Continuum merger. The
Company recorded $82.1 million of income tax expense in 1996 as a result of the
Continuum/CSC merger to recognize the deferred tax liability on the difference
between the value of CSC stock received and the Company's tax basis in Continuum
less previous deferred taxes provided respecting Continuum and less the current
tax benefit of the ESOP contribution which will provide funding for certain
Continuum employee withdrawals from the ESOP. The Company recorded $35.0 million
of deferred income tax expense in the first quarter 1995 as a result of the IFTC
transaction to recognize the deferred tax liability on the difference between
the value of State Street stock received and the Company's tax basis in IFTC
less previous deferred taxes provided.
<PAGE>
Excluding the effects of the Continuum/CSC merger, ESOP contribution and the
effect of the one-time charge taken by Continuum in connection with the Hogan
Merger, the Company's effective tax rate for 1996 was approximately 33%. The
primary difference between the Company's effective tax rate and the combined
federal and state statutory rates is the result of deferred taxes being provided
for unremitted earnings of domestic unconsolidated affiliates net of the 80%
dividends received deduction provided under current tax law and certain tax
credits recognized by the Company in conjunction with the rehabilitation of
historic property that will be used as office space.
Net income. The Company's net income was $167.2 million, or $3.35 per share, as
compared to $27.6 million in 1995. If all Continuum related equity in earnings,
gains and charges previously discussed were eliminated, DST's net income for
1996 would have been $44.0 million, or $0.88 per share.
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Revenues. 1995 consolidated revenues increased 21% to $484.1 million primarily
due to increased mutual fund account processing, higher output volumes at
Output Technologies and growth in international businesses.
Total domestic revenues increased 15% to $423.2 million in 1995. Domestic mutual
fund processing revenues for 1995 increased 18% over the prior year as
shareowner accounts serviced increased 14% from 32.1 million at December 31,
1994, to 36.5 million at December 31, 1995. This growth was due to increases in
the number of shareowner accounts at existing clients, the addition of accounts
as a result of the Kemper Agreements and the addition of approximately one
million accounts from the addition of a new client in September 1995.
Output Technologies' revenues in 1995 increased 11% over the prior year due
primarily to a 17% increase in pages printed. Domestic portfolio accounting
revenues increased by 16% for the year as a result of growth in the number of
mutual fund portfolios serviced. Domestic AWD revenues increased 19% for the
year on an increase in workstations installed from 8,100 at December 31, 1994,
to 10,700 at December 31, 1995. Winchester Data Center usage revenues increased
17% for the year on higher Argus and Continuum processing revenues.
Revenues from international operations for 1995 increased 89% to $60.9 million
from increased license and development revenues from DST International Limited.
1995 revenues include $17.2 million from HiPortfolio, which was acquired in
February 1995.
Costs and expenses. 1995 consolidated costs and expenses increased 19% to $373.6
million, primarily as a result of higher operating volumes, increased costs of
international operations and certain other costs as described below.
1995 compensation and benefit expenses exclusive of international businesses
increased $20.4 million, or 13%, for the year due to increased staffing in
support of mutual fund, portfolio accounting and AWD products. Additionally, the
Company expanded its domestic facilities to accommodate increased output
capacities and mutual fund full-service processing operations, resulting in
increased domestic occupancy costs of $2.6 million for the year, or 15%.
Winchester Data Center leased equipment costs decreased $7.1 million, or 92%,
for the year due to the early termination in the fourth quarter of 1994 of
operating leases for three mainframe computers that were replaced with purchased
equipment. Costs and expenses from international business for the year increased
to $58.7 million, or 82%, due to the continued development of product offerings
and the addition of $15.7 million of costs and expenses from the operations of
HiPortfolio which was acquired in February 1995.
<PAGE>
Additionally, the Company incurred certain other cost increases in 1995
including (i) an accrual of $7.3 million for a performance-based incentive
compensation program at an Output Technologies subsidiary, which was completed
as of December 31, 1995, an increase of $5.6 million over 1994 and (ii)
incremental costs of approximately $3.0 million in transition activities
associated with the Kemper Agreements, which activities were substantially
concluded at December 31, 1995.
Depreciation and amortization. 1995 depreciation and amortization increased
$16.2 million, or 30%, due to the replacement of leased equipment with owned
equipment as described above, increased processing capacities at the Winchester
Data Center and increased amortization expense associated with the HiPortfolio
acquisition and Kemper Agreements.
Interest expense. 1995 interest expense increased $8.0 million, or 57%,
primarily due to borrowings to finance the Kemper Agreements, capital additions
and to pay the $150 million KCSI Dividend. Interest expense from borrowings to
finance the KCSI Dividend totaled $4.7 million in 1995. The Company repaid
approximately $382.1 million in debt in November 1995 with proceeds from the
Offerings.
Gains on sale of equity investments. 1995 includes the Company's gains from the
IFTC Transaction in January 1995 and sale of the Company's joint venture
interests in Midland Data Systems, Inc. and Midland Loan Services L.P. to KCSI
in August 1995, resulting in pretax gains of $44.9 million.
Unconsolidated affiliates. 1995 equity in earnings of unconsolidated affiliates
decreased $15.7 million, or 71%, reflecting the sale of the Company's joint
venture interest in IFTC in January 1995 and the Company's estimated $8.4
million share of a non-recurring charge recorded by Continuum related to its
December 1995 acquisition of SOCS Groupe, SA. Excluding the effects of the IFTC
Transaction and Continuum non-recurring charge, 1995 equity in earnings of
unconsolidated affiliates decreased $1.0 million, or 6.1%. Equity in earnings of
Continuum, Argus and BFDS, net of goodwill amortization and excluding
Continuum's non-recurring charge, increased 19.8% over 1994. 1995 equity in
earnings were decreased by $2.2 million over 1994 for losses in EFDS, formerly
known as Clarke & Tilley Data Services Limited, to reflect continuing system
development efforts for that venture. EFDS became an unconsolidated affiliate in
the fourth quarter 1994 as the Company reduced its ownership to 50%. The Company
consolidated results of EFDS for the first nine months of 1994.
Income taxes. 1995 income tax expense increased $31.8 million, or 222%,
primarily resulting from the Midland and IFTC transactions as previously
discussed. The Company recorded current income tax expense of $1.3 million in
1995 relating to the Midland transactions. The Company recorded $35.0 million of
deferred income tax expense in 1995 as a result of the IFTC transaction to
recognize the deferred tax liability on the difference between the value of
State Street stock received and the Company's tax basis in IFTC less previous
deferred taxes provided.
Net income. The Company's net income decreased $5.7 million, or 17%, from $33.4
million in 1994 to $27.7 million in 1995. Income from operations for the same
period increased $5.8 million, or 17%, from $35.0 million in 1994 to $40.8
million in 1995. The Company also recorded an after-tax gain of $8.6 million in
1995 associated with the IFTC transaction. The 1995 increase in income from
operations and the IFTC gain were offset by the absence of the Company's portion
of IFTC earnings ($6.4 million in 1994), a non-recurring charge of $8.4 million
related to Continuum's December 1995 acquisition of SOCS Groupe, SA and
increased interest expense on higher borrowings to finance acquisitions, capital
additions and the KCSI Dividend.
Liquidity and Capital Resources
The Company used internally generated funds and borrowings from third parties
and KCSI (through the date of the initial public offering on October 31, 1995)
to fund operating and investing activities. The Company's cash flow from
operating activities totaled $84.5 million, $51.7 million and $112.2 million for
the years ended December 31, 1994, 1995 and 1996, respectively. Significant
items affecting 1996 operating cash flows were a $17.0 million increase in
accounts receivable related to increased revenues, a $10.4 million payment for a
multi-year performance based incentive compensation program at an Output
Technologies subsidiary that was completed in 1995, and the receipt of an $8.0
million cash dividend from Argus. The Company does not expect Argus to pay any
further cash dividends in the foreseeable future. The Company uses its cash
available from operating activities, bank borrowings and vendor financing for
capital expenditures, equipment and software lease payments, systems
enhancements and system maintenance requirements of its business.
<PAGE>
Operating costs include software development and maintenance costs relating to
proprietary systems of approximately $44.6 million, $59.1 million and $82.1
million for the years ended December 31, 1994, 1995 and 1996, respectively.
During the years ended December 31, 1994, 1995 and 1996, the Company expended
approximately $99.5 million, $95.6 million and $78.7 million respectively, in
capital expenditures for equipment and facilities which includes amounts
directly paid by third-party lenders. Capital expenditures for 1994 and 1995
include approximately $59 million in facility additions and improvements related
to the expansion of the Winchester Data Center, which was substantially
completed in 1995. The Company incurred an additional $6.8 million and $21.0
million in mortgage indebtedness in 1994 and 1995 to finance, in part, these
capital additions. Future capital expenditures are expected to be funded
primarily by cash flows from operating activities, secured term notes or bank
lines of credit as required.
The Company expended approximately $23.0 million, $9.2 million and $23.3 million
primarily for investments in and advances to unconsolidated affiliates during
1994, 1995 and 1996, respectively. In addition, the Company expended $1.0
million, $53.3 million and $3.2 million, respectively, for acquisitions
previously described, net of cash acquired.
The Company paid dividends to KCSI of $6.2 million and $150.0 million in 1994
and 1995, respectively. The Company has not paid any dividends since the initial
public offering and does not expect to pay any cash dividends in the foreseeable
future.
In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management deems appropriate. The Company has purchased 400,000
shares as of December 31, 1996, for approximately $12.5 million.
During the third quarter of 1996, the Company replaced its $30 million bank line
of credit to finance working capital requirements and $15 million bank line of
credit to finance certain construction activities of the Company with a single
$50 million bank line of credit available through May 1997. In December 1996,
the Company also entered into an amended and restated five year revolving credit
facility of $105 million (increased to $125 million in February 1997) with a
syndicate of U.S. and international banks. The facility replaces the three year
$150 million agreement entered into in May 1995. Borrowings under these
facilities totaled $33.5 million at December 31, 1996.
The Company believes that its existing cash balances and other current assets,
together with cash provided by operating activities and, as necessary, the
Company's bank and revolving credit facilities, will be sufficient to meet the
Company's operating and debt service requirements and other current liabilities
for at least the next 12 months. Further, the Company believes that its longer
term liquidity and capital requirements will also be met through cash provided
by operating activities and bank credit facilities, as well as the Company's
five-year $125 million revolving credit facility described above.
Other
Seasonality. Generally, the Company does not have significant seasonal
fluctuations in its business operations. Processing and output volumes for
mutual fund customers are usually highest during the quarter ended March 31 due
primarily to processing year-end transactions and printing and mailing of year
end statements and tax forms during January. The Company has historically added
operating equipment in the last half of the year in preparation for processing
year-end transactions which has the effect of increasing costs for the second
half of the year. Revenues and operating results from individual license sales
depend heavily on the timing and size of the contract.
<PAGE>
Stock Options. In September 1995, the Company established the 1995 Stock Option
and Performance Award Plan which provides for the availability of 6,000,000
shares of the Company's common stock for the grant of awards to officers,
directors and other designated employees. The awards may take the form of an
option, stock appreciation right, limited right, performance share or unit,
dividend equivalent or any other right, interest or option relating to shares of
common stock granted under the plan. The option prices must be at least equal to
the fair market value of the underlying shares on the date of grant. The Company
issued 2,287,100 options in 1995 concurrent with the Offerings at an exercise
price per share equal to the initial public offering price. The Company granted
71,500 options in 1996 at an exercise prices equal to the fair market values of
the Company's stock at the dates of grants. The Financial Accounting Standards
Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), in October 1995. The statement allows companies to continue under the
current approach set forth in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") for recognizing
stock-based expense in the financial statements, but encourages companies to
adopt the new accounting method based on the estimated fair value of employee
stock options. Companies electing to retain the current method under APB 25 are
required to disclose proforma net income and earnings per share as if they had
adopted the fair value accounting method under SFAS 123 in the footnotes to the
financial statements. The Company has elected to disclose pro forma information
required by SFAS 123 rather than record compensation expense. Had compensation
cost been determined consistent with SFAS 123, the Company's net income would
have been $26.9 million in 1995, and net income and earnings per share would
have been $162.8 million and $3.26 per share, respectively in 1996. Because the
initial public offering of the Company's common stock substantially changed the
Company's capital structure, pro forma earnings per share for 1995 have not been
presented.
Unrealized gain on securities. The Company holds as an investment approximately
4.3 million shares of CSC common stock which were received in August 1996 in
connection with the CSC/Continuum merger at a then market value of approximately
$294.0 million. At December 31, 1996, these shares had an approximate market
value of $354.5 million. In addition, the market value of the approximately 3.0
million shares of State Street common stock held by the Company as an investment
increased from $134.4 million at December 31, 1995, to approximately $193.0
million at December 31, 1996. The $119.1 million unrealized gain in 1996 on the
Company's investments in these securities, net of deferred taxes of $46.5
million, has been recorded in stockholders' equity in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Long-lived assets. The Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"), in March 1995. The statement requires
that assets to be held and used, including certain identifiable intangibles and
goodwill related to those assets, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The Company reviews, on a quarterly basis, its
long-lived assets for possible impairment. In management's opinion, no such
impairment exists at December 31, 1996.
Foreign currency translation. The Company's foreign subsidiaries use the local
currency as the functional currency. The Company translates all assets and
liabilities at year-end exchange rates and income and expense accounts at
average rates during the year. Foreign currency fluctuations have historically
had an immaterial effect on the Company and the comparability of financial
information.
Year 2000. The approach of the year 2000 raises a general issue with hardware
and software on a world-wide basis concerning potential problems caused by date
comparisons and calculations across the century boundary. The Company has
established a project to perform an analysis of its products and services and
undertake any work necessary to ensure that they continue to operate correctly
across the century boundary. The expenses associated with this project will be
expensed as incurred. At this time, the Company is unable to determine if such
expenses will be material to the Company.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Management
To the Stockholders of DST Systems, Inc.
The accompanying consolidated financial statements of DST Systems, Inc. and its
subsidiaries were prepared by management in conformity with generally accepted
accounting principles. In preparing the financial statements, management has
made judgments and estimates based on currently available information. Other
financial information included in this annual report is consistent with that in
the consolidated financial statements.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and that its financial
records are reliable. Management monitors the system for compliance, and the
Company's internal auditors measure its effectiveness and recommend possible
improvements thereto.
Independent accountants provide an objective assessment of the degree to which
management meets its responsibility for fairness of financial reporting. They
regularly evaluate the system of internal accounting controls and perform such
tests and other procedures as they deem necessary to express an opinion on the
fairness of the consolidated financial statements.
The Board of Directors pursues its oversight role in the area of financial
reporting and internal accounting controls through its Audit Committee which is
composed solely of directors who are not officers or employees of the Company.
This committee meets regularly with the independent accountants, management and
internal auditors to discuss the scope and results of their work and their
comments on the adequacy of internal accounting controls and the quality of
external financial reporting.
Report of Independent Accountants
To the Stockholders and Board of Directors
of DST Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
DST Systems, Inc. and its subsidiaries at December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
Kansas City, Missouri
February 20, 1997
<PAGE>
<TABLE>
<CAPTION>
DST Systems, Inc.
Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
December 31,
1995 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 13,057 $ 8,279
Accounts receivable 117,134 138,622
Accounts receivable-related parties 19,180 15,472
Inventories 10,647 10,690
Other assets 28,500 28,232
-------------- --------------
188,518 201,295
Investments 251,677 620,437
Properties 247,014 243,989
Intangibles and other assets 62,311 55,867
-------------- --------------
Total assets $ 749,520 $ 1,121,588
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 31,822 $ 15,159
Accounts payable 47,208 44,944
Accrued compensation and benefits 30,017 33,276
Deferred revenues and gains 12,219 14,553
Other liabilities 11,937 17,772
-------------- --------------
133,203 125,704
Long-term debt 52,477 75,895
Deferred income taxes 50,734 180,853
Other liabilities 46,272 42,939
-------------- --------------
282,686 425,391
-------------- --------------
Commitments and contingencies (Note 14)
-------------- --------------
Minority interests 476 972
-------------- --------------
Stockholders' equity
Preferred stock, $0.01 par, 10,000,000 shares
authorized and unissued
Common stock, $0.01 par, 125,000,000 shares
authorized, 50,000,000 issued 500 500
Additional paid-in capital 408,807 408,807
Retained earnings 34,988 203,638
Treasury stock, 396,000 shares, at cost (12,345)
Net unrealized gain on investments 22,063 94,625
-------------- --------------
Total stockholders' equity 466,358 695,225
-------------- --------------
Total liabilities $ 749,520 $ 1,121,588
and stockholders' equity ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
DST Systems, Inc.
Consolidated Statement of Income
(dollars in thousands, except per share amounts)
For the Years Ended December 31,
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues $ 309,689 $ 380,187 $ 470,705
Revenues - related parties 92,047 103,944 110,103
--------------- --------------- ---------------
Total revenues 401,736 484,131 580,808
Costs and expenses 313,277 373,561 431,563
Depreciation and amortization 53,504 69,749 78,572
Other expense 13,700
--------------- --------------- ---------------
Income from operations 34,955 40,821 56,973
Interest expense (14,016) (21,964) (6,940)
Other income, net 3,475 3,627 4,176
Gains on sale of equity investments 44,895 223,438
Equity in earnings (losses) of unconsolidated
affiliates, net of income taxes 22,227 6,452 (4,028)
--------------- --------------- ---------------
Income before income taxes and minority interests 46,641 73,831 273,619
Income taxes 14,349 46,174 105,920
--------------- --------------- ---------------
Income before minority interests 32,292 27,657 167,699
Minority interests in income (losses) (1,139) 17 497
--------------- --------------- ---------------
Net income $ 33,431 $ 27,640 $ 167,202
=============== =============== ===============
Average common shares outstanding 49,871
Earnings per share $ 3.35
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
DST Systems, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(dollars in thousands)
$.01 Par $.01 Par Additional Net Unrealized Total
Preferred Common Paid-in Retained Treasury Gain (Loss) on Stockholders'
Stock Stock Capital Earnings Stock Investments Equity
----------- ----------- ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ $ 306 $ 24,214 $ 130,518 $ $ 2,144 $ 157,182
Net income 33,431 33,431
Dividends to KCSI (6,200) (6,200)
Unrealized loss on investments, net (3,779) (3,779)
Other (73) (73)
----------- ----------- ------------ ------------ ------------ -------------- --------------
Balance, December 31, 1994 306 24,214 157,676 (1,635) 180,561
Net income 27,640 27,640
Dividends to KCSI (150,000) (150,000)
Issuance of 19,450,000 shares of
common stock, net of issuance costs 194 384,593 384,787
Unrealized gain on investments, net 23,698 23,698
Other (328) (328)
----------- ----------- ------------ ------------ ------------ -------------- --------------
Balance, December 31, 1995 500 408,807 34,988 22,063 466,358
Net income 167,202 167,202
Purchase of 400,000 shares of
common stock (12,470) (12,470)
Unrealized gain on investments, net 72,562 72,562
Other 1,448 125 1,573
----------- ----------- ------------ ------------ ------------ -------------- --------------
Balance, December 31, 1996 $ $ 500 $ 408,807 $ 203,638 $ (12,345)$ 94,625 $ 695,225
=========== =========== ============ ============ ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
DST Systems, Inc.
Consolidated Statement of Cash Flows
(dollars in thousands)
For the Years Ended December 31,
1994 1995 1996
------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows - operating actvities:
Net income $ 33,431 $ 27,640 $ 167,202
------------- -------------- ---------------
Depreciation and amortization 53,358 69,749 78,572
Equity in (earnings) losses of unconsolidated affiliates (22,227) (6,452) 4,028
Cash dividends received from unconsolidated affiliates 554 853 8,000
Gains on sale of equity investments (44,895) (223,438)
Deferred taxes on gains on sale of equity investments 35,028 87,254
Changes in accounts receivable (13,050) (29,415) (16,995)
Changes in inventories 3,924 (1,465) (475)
Changes in other current assets (6,931) (4,638) 1,337
Changes in accounts payable and accrued liabilities 23,114 (2,383) 6,376
Other, net 12,371 7,646 342
------------- -------------- ---------------
Total adjustments to net income 51,113 24,028 (54,999)
------------- -------------- ---------------
Net 84,544 51,668 112,203
------------- -------------- ---------------
Cash flows - investing actvities:
Investment in and advances to unconsolidated affiliates (23,038) (9,150) (23,336)
Capital expenditures (72,300) (65,449) (73,935)
Payment for purchases of subsidiaries, net of cash acquired (1,033) (53,303) (3,183)
Other, net (1,068) 6,470 3,930
------------- -------------- ---------------
Net (97,439) (121,432) (96,524)
------------- -------------- ---------------
Cash flows - financing actvities:
Proceeds from issuance of common stock, net 384,787
Proceeds from issuance of long-term debt-KCSI 42,254 24,000
Proceeds from issuance of long-term debt-other 11,491 171,000
Principal payments on long-term debt (27,015) (342,083) (20,430)
Net increase (decrease) in short-term notes payable 5,469 (1,334) (11,999)
Net increase in revolving credit facilities 33,554
Dividends to KCSI (6,200) (150,000)
Common stock repurchased (12,470)
Other, net (12,850) (7,520) (9,112)
------------- -------------- ---------------
Net 13,149 78,850 (20,457)
------------- -------------- ---------------
Net increase (decrease) in cash 254 9,086 (4,778)
Cash at beginning of year 3,717 3,971 13,057
------------- -------------- ---------------
Cash at end of year $ 3,971 $ 13,057 $ 8,279
============= ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DST Systems, Inc.
Notes to Consolidated Financial Statements
1. Description of Business
DST Systems, Inc. (the "Company" or "DST") provides sophisticated information
processing and computer software services and products, primarily to mutual
funds, insurance providers, banks and other financial organizations. Its
software systems include TA2000 which provides shareowner accounting,
recordkeeping and marketing services to the U.S. mutual fund industry; a
securities transfer system offered primarily to banks; domestic and
international portfolio accounting and investment management systems offered to
fund accountants and managers of investment portfolios; and an image-based work
management system offered primarily to mutual funds, insurance companies and
other financial services businesses.
The Company also licenses its work management software and certain non-mainframe
investment management software and mutual fund shareowner accounting systems.
The Company distributes its services and products on a direct basis and through
various subsidiary and joint venture affiliates in the U.S., Canada, United
Kingdom, Europe, Australia, South Africa and Asia-Pacific.
The Company and Kansas City Southern Industries, Inc. ("KCSI") completed an
initial public offering ("the Offerings") in the fourth quarter of 1995 of 25.3
million shares of the Company's common stock. KCSI owned approximately 41% of
the Company's outstanding common stock at December 31, 1996.
2. Significant Accounting Policies
Principles of consolidation. The consolidated financial statements include all
majority-owned subsidiaries of DST. All significant intercompany balances and
transactions have been eliminated. Certain amounts in the prior years'
consolidated financial statements have been reclassified to conform to the
current year presentation.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition. Computer processing and output revenues are recognized upon
completion of the service provided. Software license fees, maintenance fees and
other ancillary fees are recognized as services are provided or delivered and
all customer obligations have been met. The Company generally does not have
customer obligations that extend past one year.
Costs and expenses. Costs and expenses include costs, excluding depreciation and
amortization, incurred by the Company to produce revenues. The Company believes
that the nature of its business as well as its organizational structure, in
which virtually all officers and associates have operational responsibilities,
does not allow for a meaningful segregation of selling, general and
administrative costs. These costs, which the Company believes to be immaterial,
are also included in costs and expenses. Substantially all depreciation and
amortization are directly associated with the production of revenues.
Software development and maintenance. Purchased software is recorded at cost and
is amortized over the estimated economic lives of five to ten years. Costs of
internally developed proprietary software, used for producing processing
revenues, are expensed as incurred. Costs of internally developed software, that
will be exclusively sold or licensed to third parties, have not been material
and have been expensed as incurred. A portion of the Company's development costs
is funded by customers through various programs, including product support and
shared-cost arrangements.
Operating costs include software development and maintenance costs relating to
internal proprietary systems of approximately $44.6 million, $59.1 million and
$82.1 million for the years ended December 31, 1994, 1995 and 1996,
respectively.
Cash equivalents. Short-term liquid investments with a maturity of three months
or less are considered cash equivalents. Due to the short-term nature of these
investments, carrying value approximates market value.
Inventories. Inventories are valued at the lower of cost or market. Cost is
determined on the specific identification or first-in, first-out basis.
Inventories are comprised of paper and envelope stocks.
Investments in securities. The equity method of accounting is used for all
entities in which the Company or its subsidiaries have at least 20% but not more
than 50% voting control interest or significant influence; the cost method of
accounting is used for investments of less than 20% voting control interest.
Investments classified as available-for-sale securities are reported at fair
value, with unrealized gains and losses excluded from earnings and recorded net
of deferred taxes directly to stockholders' equity as net unrealized holding
gains or losses.
Property and equipment. Property and equipment are recorded at cost with major
additions and improvements capitalized. Cost includes the net amount of interest
cost associated with significant capital additions. Capitalized interest was
$413,000, $1,565,000 and $1,135,000 for the years ended December 31, 1994, 1995
and 1996, respectively. Depreciation of buildings is recorded using the
straight-line method over 15 to 30 years. Equipment and furniture are
depreciated using straight-line and accelerated methods over the estimated
useful lives, principally 5 to 7 years. Leasehold improvements are depreciated
using the straight-line method over the term of the leases. The Company reviews,
on a quarterly basis, its property and equipment for possible impairment. In
management's opinion, no such impairment exists at December 31, 1996.
Intangibles. Goodwill resulting from the cost of investments in excess of the
underlying fair value of identifiable net assets acquired is amortized over
periods ranging from 7 to 20 years. On a quarterly basis, the Company reviews
the recoverability of goodwill. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from expected
future operating cash flows on an undiscounted basis. These analyses are
performed on an individual investment basis with the primary focus of the
analyses being the expected future cash flows from significant products of each
of the investments. In management's opinion, no such impairment exists at
December 31, 1996.
Income taxes. Deferred income tax effects of transactions reported in different
periods for financial reporting and income tax return purposes are recorded by
the liability method. This method gives consideration to the future tax
consequences of deferred income or expense items and immediately recognizes
changes in income tax laws upon enactment. The income statement effect is
generally derived from changes in deferred income taxes on the balance sheet.
Prior to 1993, the Company generally did not provide deferred income taxes for
unremitted earnings of certain investees accounted for under the equity method
in so much as those earnings have been and will continue to be reinvested.
Beginning in 1993, pursuant to the provisions of Statement of Financial
Accounting Standards 109 ("SFAS 109") (Note 10), the Company began providing
deferred taxes for unremitted earnings of domestic unconsolidated affiliates net
of the 80% dividends received deduction provided for under current tax law.
Through December 31, 1996, the cumulative amount of such unremitted earnings was
$29,803,000. These amounts would become taxable to the Company if distributed by
the affiliates as dividends, in which case the Company would be entitled to the
dividends received deduction for 80% of the dividends; alternatively, these
earnings could be realized by the sale of the affiliates' stock, which would
give rise to tax at federal capital gains rates and state ordinary income tax
rates, to the extent the stock sale proceeds exceeded the Company's tax basis.
Deferred taxes provided on unremitted earnings through December 31, 1995 and
1996, were $2,628,000 and $1,785,000, respectively. Determination of the amount
of unrecognized deferred tax liability related to investments in foreign
subsidiaries, including but not limited to unremitted earnings and cumulative
translation adjustments, is not practicable.
Foreign currency translation. The Company's foreign subsidiaries use the local
currency as the functional currency. The Company translates all assets and
liabilities at year end exchange rates and income and expense accounts at
average rates during the year. Translation adjustments are recorded in
stockholders' equity and were not material at December 31, 1995 and 1996.
<PAGE>
Earnings per share. Earnings per share is determined by dividing net income by
the weighted average number of common shares outstanding during the year. The
dilutive effect of stock options is not material. Because the Offerings
described in Note 11 have substantially changed the Company's capital structure,
earnings per share data for the years ended December 31, 1994 and 1995, have not
been presented.
Statement of Financial Accounting Standards No. 123. The Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), in October 1995. The new statement allows companies
to continue under the approach set forth in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for recognizing
stock-based compensation expense in the financial statements, but encourages
companies to adopt the new accounting method based on the estimated fair value
of employee stock options. Companies electing to retain the method under APB 25
are required to disclose proforma net income and earnings per share in the notes
to the financial statements, as if they had adopted the fair value accounting
method under SFAS 123. The Company has elected to retain the accounting approach
under APB 25, and has presented in Note 11 the required pro forma disclosures.
3. Major Customer
Boston Financial Data Services, Inc. (Note 7) is the Company's largest customer
representing 11%, 12% and 12% of consolidated revenues for the years ended
December 31, 1994, 1995 and 1996, respectively.
4. Acquisitions and Dispositions
Continuum
On August 1, 1996, The Continuum Company, Inc. ("Continuum") merged with
Computer Sciences Corporation ("CSC") in a tax-free share exchange accounted for
as a pooling-of-interests. Under the merger, CSC common stock was exchanged for
the common stock of Continuum at an exchange rate of 0.79 shares for each share
of Continuum stock. DST, which prior to the merger owned approximately 23% of
Continuum, received in the exchange approximately 4.3 million shares of CSC
common stock with a value of $295 million based upon the closing price of CSC
common stock on August 1, 1996. DST recognized a one-time gain after taxes and
other expenses of $127.6 million or $2.56 per share. DST's shares of CSC
represent an approximate 6% interest in the combined company. As a result,
Continuum ceased to be an unconsolidated equity affiliate of DST and under
generally accepted accounting principles, no part of Continuum or CSC future
earnings will be recognized by DST. DST recognized equity in earnings of
Continuum of $5.0 million in 1994 and equity in losses of Continuum of $1.1
million and $4.9 million in 1995 and 1996, respectively. The Company's
investment in CSC is accounted for as available-for-sale securities. Although
CSC does not currently pay cash dividends, DST will recognize dividend income on
any cash dividends received from CSC.
In March 1996, Continuum, a then 29% owned unconsolidated affiliate of the
Company, announced the completion of its merger with Hogan Systems, Inc., (the
"Hogan Merger") a provider of software to banks and financial institutions, for
shares of Continuum stock. As a result of this transaction, the Company's common
stock interest in Continuum was reduced from approximately 29% to approximately
23%. The Company recorded in March 1996 its estimated $9.4 million after tax
share of a non-recurring charge recorded by Continuum in connection with the
Hogan Merger.
In December 1995, Continuum acquired SOCS Groupe SA, a French insurance software
firm. The Company recorded in December 1995 its estimated $7.7 million after tax
share of a non-recurring charge in connection with this acquisition.
Other Acquisitions and Dispositions
During 1996, Output Technologies acquired for $2.9 million, a 15% interest in
PSI Technologies, Inc. ("PSI"), the developer of a Computer Output to Laser Disk
(COLD) software product for archiving documents. In conjunction with the
investment, Output Technologies acquired the exclusive right to market a
customized product using PSI's COLD software to the mutual fund industry.
<PAGE>
The Company has established its output services business in the Canadian market
with the $5.5 million acquisition of Xebec Imaging Services, Inc. which was
completed in January 1996.
The Company increased its ownership in DBS Systems Corporation ("DBS") to 80% in
December 1995 for $6.0 million. The Company had previously acquired 60% of DBS
for an aggregate amount of $3.0 million in May 1993, of which $0.7 million was
paid initially and the remaining $2.3 million was paid through December 31,
1994. The unamortized excess of the total purchase price over the net assets
acquired of $6.5 million is being amortized on a straight-line basis over 10
years. On a pro forma basis, the acquisition did not have a material impact on
the Company's historical results of operations or financial position.
In August 1995, the Company sold its joint venture interests in Midland Data
Systems, Inc. ("MDS") and Midland Loan Services L.P. ("MLS") to KCSI for
approximately $5.7 million. The transaction did not result in a material net
gain or loss to the Company. The Company recorded equity in income of MDS and
MLS of $1,707,000 and $1,053,000 for the years ended December 31, 1994 and 1995,
respectively.
In April 1995, the Company purchased substantially all of the assets and
business operations of Supervised Service Company, Inc. ("SSC"), a subsidiary of
Kemper Financial Services, Inc. ("Kemper") and the mutual fund shareowner
servicing system software owned by Kemper Services Company used to service
certain of the Kemper Mutual Funds as well as various third-party mutual funds.
In conjunction with and subject to the SSC transaction, DST also agreed to enter
into long-term contracts with Kemper to provide mutual fund shareowner systems
services and portfolio accounting systems services for the Kemper Mutual Funds.
Total consideration for these asset purchases was approximately $39.4 million
and was financed from the Company's revolving credit facilities. Of the total
consideration, the Company allocated $17.4 million to data processing software
and $22.0 million to intangible assets to be amortized over a seven-year life.
On a pro forma basis, the acquisition did not have a material impact on the
Company's historical results of operations or financial position.
In February 1995, the Company's wholly owned subsidiary, DST International
Limited ("DST International"), purchased HiPortfolio Pty Ltd. ("HiPortfolio"),
an Australian provider of portfolio accounting software and services for $16.0
million in cash. The acquisition was financed through borrowings from KCSI. On a
pro forma basis, the acquisition did not have a material impact on the Company's
historical results of operations or financial position.
On January 31, 1995, the Company closed the sale of its 50% interest in
Investors Fiduciary Trust Company ("IFTC") to State Street Boston Corporation
("State Street"). At closing, DST received 2,986,111 shares of State Street
common stock, in a tax-free exchange, with a then market value of $98.2 million.
DST recognized a pre-tax gain on the transaction of $43.6 million and deferred
taxes of $35.0 million resulting in a net book gain of $8.6 million. With the
closing of the transaction, IFTC ceased to be an unconsolidated equity affiliate
of the Company and no further equity in earnings of IFTC were recorded by the
Company. The Company recognized equity in earnings of IFTC of $6.4 million in
1994. The Company records income on dividends received from State Street. The
Company's investment in State Street is accounted for as available for sale
securities.
5. Accounts Receivable and Related Party Information
Accounts receivable information is as follows at December 31, (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Accounts receivable (including related parties) $ 103,442 $ 139,402 $ 157,251
Allowance for doubtful accounts (1,927) (3,088) (3,157)
----------- ----------- ----------
Accounts receivable, net $ 101,515 $ 136,314 $ 154,094
=========== =========== ==========
Doubtful account expense $ 2,663 $ 2,243 $ 2,761
=========== =========== ==========
</TABLE>
The Company has entered into various agreements with related parties to utilize
the Company's data processing facilities and its computer software systems. The
Company believes that the terms of the contracts with related parties are fair
to the Company and are no less favorable to the Company than those obtained from
unaffiliated parties.
Accounts receivable from unconsolidated affiliates aggregated $14,306,000,
$14,172,000 and $11,850,000 at December 31, 1994, 1995 and 1996, respectively.
Accounts receivable from other related parties aggregated $3,218,000, $5,009,000
and $3,622,000 at December 31, 1994, 1995 and 1996, respectively. Revenues
earned by the Company from unconsolidated affiliates aggregated $76,098,000,
$85,501,000 and $89,588,000 in 1994, 1995 and 1996, respectively, including
revenues from Continuum through July 1996. Revenues earned by the Company from
other related parties aggregated $15,949,000, $18,443,000 and $20,515,000 in
1994, 1995 and 1996, respectively.
6. Properties
Properties and related accumulated depreciation are as follows at December 31,
(in thousands):
<TABLE>
<CAPTION>
1995 1996
-------------- -------------
<S> <C> <C>
Land $ 9,464 $ 13,269
Buildings 71,932 92,482
Data processing equipment 178,493 193,399
Data processing software 89,601 87,261
Furniture, fixtures and other equipment 98,028 121,791
Leasehold improvements 12,843 22,370
Capitalized leases 6,389 6,103
Construction-in-progress 10,580 5,755
-------------- -------------
477,330 542,430
Less accumulated depreciation and amortization 230,316 298,441
-------------- -------------
Net properties $ 247,014 $ 243,989
============== =============
</TABLE>
Depreciation expense for the years ended 1994, 1995 and 1996 was $49,234,000,
$62,063,000 and $70,818,000, respectively.
7. Investments
Investments are as follows at December 31, (in thousands):
<TABLE>
<CAPTION>
1996
Ownership Carrying Value
Percentage 1995 1996
-------------- ----------- -----------
<S> <C> <C> <C>
Computer Sciences Corporation 6% $ $ 354,466
The Continuum Company, Inc. 0% 60,267
State Street Boston Corporation 4% 134,375 192,992
Boston Financial Data Services, Inc. 50% 20,599 26,032
European Financial Data Services Ltd. 50% 3,414 4,447
Argus Health Systems, Inc. 50% 13,896 6,140
First of Michigan Capital Corporation 26% 7,524 8,671
Euronet Services, Inc. 17% 593 1,167
Other 11,009 26,522
----------- -----------
$ 251,677 $ 620,437
=========== ===========
</TABLE>
Computer Sciences Corporation ("CSC") is a provider of outsourcing, system
integration, information technology, management consulting and other
professional services to industry and government. The Company's investment in
CSC is a result of the merger of CSC with The Continuum Company, Inc. on August
1, 1996, as described in Note 4. Continuum is an international software systems
and services provider specializing in the development and installation of
advanced computing software for life and property and casualty insurance,
annuities and other financial services products. The aggregate market value of
the Company's investment in CSC's common stock at December 31, 1996, was $354.5
million based on the closing price on the New York Stock Exchange.
State Street Boston Corporation is a leading provider of securities custody and
recordkeeping services to the mutual fund industry. State Street also provides
corporate banking services to New England middle market companies, as well as
specialized lending and international banking services. The aggregate market
value of the Company's investment in State Street's common stock at December 31,
1996, was $193.0 million based on the closing price on the New York Stock
Exchange. The Company received $1.5 million and $2.2 million in dividends from
State Street in 1995 and 1996, respectively which have been recorded in other
income.
Boston Financial Data Services, Inc. ("BFDS") is a corporate joint venture of
the Company and State Street Boston Corporation, the parent of State Street Bank
and Trust Company. BFDS performs shareowner accounting services for mutual fund
companies using TA2000 and retirement plan recordkeeping services using
TRAC2000. BFDS also performs remittance and proxy processing, teleservicing and
class action administration services.
European Financial Data Services Limited ("EFDS") is a United Kingdom joint
venture of DST and State Street. EFDS is developing FAST2000, a unit trust
accounting system for markets in the United Kingdom. FAST2000 integrates the
Company's workflow management system and intelligent workstation technology
directly into the unit trust processing software. Additionally, EFDS operates
through a wholly-owned subsidiary, an administrative services business for unit
trusts and related products.
Argus Health Systems, Inc. ("Argus") is a corporate joint venture of the Company
and a privately held life insurance holding company. Argus provides pharmacy
benefit plan processing services to the health care industry. Argus utilizes the
Company's data processing facility for its claims processing services. In
December 1996, the Company received a $9.5 million dividend from Argus, of which
$8.0 million was cash. The dividend was recorded as a reduction of the Company's
investment in Argus.
First of Michigan Capital Corporation ("First of Michigan") is a full service
retail securities brokerage firm serving primarily the state of Michigan. At
December 31, 1996, the Company had a 26% equity ownership. The aggregate market
value of the Company's investment in First of Michigan common stock, which is
traded on the Midwest Stock Exchange, was approximately $5.4 million at December
31, 1996. Management considers the decline in market value of its First of
Michigan holdings to be temporary and has not recorded a valuation allowance
related to this investment.
Euronet Services, Inc. operates an independent, non-bank owned automatic teller
machine network in Hungary and Poland as a service provider to banks and other
financial institutions. Euronet has filed a registration statement with the
Securities and Exchange Commission to sell 6.1 million shares in an initial
public offering ("IPO"). Pending the completion of the IPO and related
transactions, DST's ownership will be reduced to approximately 9.0%.
The Company's retained earnings include equity in the unremitted earnings of its
unconsolidated affiliates of $33,749,000 and $17,060,000 at December 31, 1995
and 1996, respectively.
<PAGE>
Equity in earnings (losses) of unconsolidated affiliates, net of income taxes
provided by the unconsolidated affiliate and related goodwill amortization is as
follows for the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Boston Financial Data Services, Inc. $ 5,088 $ 5,160 $ 5,420
Argus Health Systems, Inc. 3,632 4,144 1,743
The Continuum Company, Inc.* 5,055 (1,151) (4,891)
IFTC Holdings, Inc. 6,467
European Financial Data Services Limited (513) (2,705) (5,969)
Other 2,498 1,004 (331)
---------- ---------- ----------
$ 22,227 $ 6,452 $ (4,028)
========== ========== ==========
</TABLE>
*Through the period ended June 30, 1996.
Certain condensed financial information of the unconsolidated affiliates follows
(in thousands):
<TABLE>
<CAPTION>
For the Six
For the Years Ended Months Ended
December 31, June 30,
1994 1995 1996
------------ ------------ ---------------
<S> <C> <C> <C>
The Continuum Company, Inc.
Revenues $ 303,593 $ 388,625 $ 271,037
Costs and expenses 279,453 381,672 292,417
Net income (loss) 24,140 6,953 (21,380)
Current assets 150,872 218,800
Noncurrent assets 105,607 136,364
Current liabilities 122,965 168,909
Noncurrent liabilities 49,902 57,401
Stockholders' equity 83,612 128,854
For the Years Ended December 31,
1994 1995 1996
------------- ------------- -------------
Boston Financial Data Services, Inc.
Revenues $ 141,127 $ 158,452 $ 194,385
Costs and expenses 130,951 148,134 183,543
Net income 10,176 10,318 10,842
Current assets 42,441 55,080
Noncurrent assets 19,089 28,061
Current liabilities 16,223 26,374
Noncurrent liabilities 4,110 4,749
Stockholders' equity 41,197 52,018
For the Years Ended December 31,
1994 1995 1996
------------- ------------- -------------
Other unconsolidated affiliates (combined)
Revenues $ 196,178* $ 153,832** $ 129,577
Costs and expenses 174,649* 147,131** 136,742
Net income (loss) 21,529* 6,701* (7,165)
Current assets 149,738 115,237
Noncurrent assets 80,252 80,249
Current liabilities 106,311 82,336
Noncurrent liabilities 44,227 79,500
Partners' and stockholders' equity 79,452 33,650
</TABLE>
* Includes Investor's Fiduciary Trust Company in which was sold in 1995.
**Includes MDS and MLS for seven months ended July 31, 1995. MDS and MLS were
sold in 1995.
8. Intangibles and Other Assets
Intangibles and other assets include the following items at December 31, (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Intangibles $ 74,351 $ 75,340
Less: accumulated amortization 17,667 24,641
------------- -------------
Net 56,684 50,699
Other assets 5,627 5,168
------------- -------------
Total $ 62,311 $ 55,867
============= =============
</TABLE>
Intangibles exclude goodwill of $39,094,000 and $1,122,000 at December 31, 1995
and 1996, respectively, related to unconsolidated affiliates which is classified
as part of the investments in the unconsolidated affiliates. The decline from
1995 to 1996 was primarily attributable to the CSC/Continuum merger described in
Note 4. Amortization expense, including amortization related to goodwill
recorded in investments, totaled $4,270,000, $10,024,000 and $8,983,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
9. Long-Term Debt
The Company is obligated under notes and other indebtedness as follows at
December 31, (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------------- -------------
<S> <C> <C>
Short term notes $ 5,967 $
Secured notes payable 30,732 17,469
Revolving credit facilities 5,436 33,620
Mortgage notes 38,228 36,202
Other 3,936 3,763
--------------- --------------
84,299 91,054
Less debt due within one year 31,822 15,159
--------------- --------------
Long-term debt $ 52,477 $ 75,895
=============== ==============
</TABLE>
In December 1996, the Company entered into an amended and restated five year
revolving credit facility of $105 million (increased to $125 million in February
1997) with a syndicate of U.S. and international banks. The facility replaced
the three year $150 million agreement entered into in May 1995. Borrowings under
the facility are available at rates based on the Eurodollar, Prime, Base CD, or
Federal Funds rates. A commitment fee of 0.085% per annum is required on the
total amount of the facility. An additional utilization fee of .050% is required
if the principal amount outstanding is greater than 50% of the total facility.
Among other provisions, the agreement limits subsidiary indebtedness, sale of
assets and requires the Company to maintain certain coverage and leverage
ratios. At December 31, 1996, borrowings of $30 million were outstanding.
During the third quarter, the Company replaced its $30 million bank line of
credit to finance working capital requirements and $15 million bank line of
credit to finance certain construction activities of the Company with a single
$50 million bank line of credit available through May 1997. Borrowings under the
facility are available at rates tied to the Eurodollar or federal funds rates. A
commitment fee of 0.125% per annum is required on the unused portion of the $50
million line of credit. At December 31, 1996, borrowings of $3.5 million were
outstanding.
The secured notes payable primarily represent various notes which are secured by
data processing and production equipment and a note secured by the Company's
interest in a real estate partnership. Equipment notes are generally payable
over 24 to 60 month periods with interest rates from 5.5% to 8.0% at December
31, 1996.
The mortgage notes represent real estate borrowings due in installments with the
balance due at the end of the term. Interest rates are based on floating prime
or fixed and range from 8.25% to 10.0% at December 31, 1996.
<PAGE>
Future principal payments of indebtedness at December 31, 1996 are as follows
(in thousands):
1997 $ 15,159
1998 12,323
1999 4,373
2000 2,696
2001 32,832
Thereafter 23,671
--------
Total $ 91,054
========
Based upon the borrowing rates currently available to the Company and its
subsidiaries for indebtedness with similar terms and average maturities, the
fair value of debt was approximately $85.1 million and $91.7 million at December
31, 1995 and 1996, respectively.
10. Income Taxes
The Company and its consolidated domestic subsidiaries join in filing a
consolidated federal income tax return. Prior to the initial public offering on
October 31, 1995, the Company and its consolidated domestic subsidiaries were
included in the consolidated federal income tax return filed by KCSI and other
members of KCSI's group of consolidated domestic subsidiaries. For 1995, the
Company was included in the KCSI consolidated federal income tax return from
January 1, 1995, through October 31, 1995. The Company filed a separate return
for the period from November 1, 1995, to December 31, 1995. While a member of
the KCSI consolidated federal income tax return, the Company computed federal
income tax expense and current federal income taxes payable to KCSI using an
intercompany tax allocation policy. The federal income tax expense using this
policy was, in all material respects, in accordance with the separate return
method.
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is generally the result of changes in
the assets or liabilities for deferred taxes.
Prior to 1993, the Company did not provide deferred taxes for unremitted
earnings of certain investees accounted for under the equity method in so much
as those earnings have been and will continue to be reinvested. Beginning in
1993, pursuant to SFAS 109, the Company began providing deferred taxes for
unremitted earnings for unconsolidated affiliates net of the 80% dividends
received deduction provided under current tax law.
The following summarizes pretax income (loss) for the years ended December 31,
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Domestic $ 48,648 $ 79,027 $ 281,829
International (2,007) (5,196) (8,210)
-------------- -------------- --------------
Total $ 46,641 $ 73,831 $ 273,619
============== ============== ==============
</TABLE>
<PAGE>
Income tax expense consists of the following components for the years ended
December 31 are as follows, (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current
Federal $ 12,365 $ 11,149 $ 16,789
State and local 2,151 1,800 2,154
Foreign 785 652 469
------------- ------------- -------------
Total current 15,301 13,601 19,412
------------- ------------- -------------
Deferred
Federal (796) 28,304 72,842
State and local (168) 5,316 13,833
Foreign 12 (1,047) (167)
------------- ------------- -------------
Total deferred (952) 32,573 86,508
------------- ------------- -------------
Total income tax expense $ 14,349 $ 46,174 $ 105,920
============= ============= =============
</TABLE>
Differences between the Company's effective income tax rate and the U.S. federal
income tax statutory rate are as follows for the years ended December 31, (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Income tax expense using the
statutory rate in effect $ 16,324 $ 25,841 $ 95,767
Tax effect of:
State and local income taxes, net 1,289 4,626 10,391
Foreign income taxes, net 630 374 1,087
Losses of foreign unconsolidated affiliates 870 1,050 2,089
Earnings of domestic unconsolidated affiliates (6,412) (2,890) (1,274)
Sale of IFTC (Note 4) 16,118
Other 1,648 1,055 (2,140)
-------------- -------------- --------------
Total income tax expense $ 14,349 $ 46,174 $ 105,920
============== ============== ==============
Effective tax rate 30.8% 62.5% 38.7%
Statutory federal tax rate 35.0% 35.0% 35.0%
</TABLE>
<PAGE>
The federal and state deferred tax assets (liabilities) recorded on the
Consolidated Balance Sheet at December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Liabilities:
Investments in CSC and State Street $ (49,966) $ (189,784)
Unconsolidated affiliates and investments (4,890) (3,208)
------------ -------------
Gross deferred tax liabilities (54,856) (192,992)
------------ -------------
Assets:
Book reserves not currently deductible for tax 3,979 9,094
Deferred compensation and other employee benefits 2,480 2,948
Foreign operating loss carryforwards 1,429 998
Vacation accrual 1,218 1,366
Deferred gains 995 625
Depreciation and amortization 961 1,636
Domestic operating loss carryforwards 518
Other, net 410 399
------------ -------------
Gross deferred tax assets 11,990 17,066
------------ -------------
Deferred tax asset valuation allowance (382) (314)
------------ -------------
Net deferred tax liability $ (43,248) $ (176,240)
============ =============
</TABLE>
The Company had federal operating loss carryforwards from DBS of $1.3 million at
December 31, 1995, which were used to reduce taxable income in 1996.
Additionally, the Company had operating loss carryforwards related to certain
foreign operations of approximately $2.9 million at December 31, 1995, and $2.5
million at December 31, 1996. There is no assurance that certain loss
carryforwards will be utilized. Accordingly, the Company has recognized a
valuation allowance for the benefit of certain loss carryforwards of $0.4
million and $0.3 million at December 31, 1995 and 1996, respectively.
11. Stockholders' Equity
In August 1995, the Company was merged into a Delaware corporation. Upon
completion of the merger, the Company had 125 million shares of $.01 par value
common stock authorized of which 28.5 million shares were issued and outstanding
and held by its sole shareowner, KCSI. In addition, the Company is authorized to
issue 10 million shares of preferred stock, par value $.01 per share. No
preferred shares have been issued.
On October 31, 1995, in conjunction with and immediately prior to the Offerings,
the Company distributed to KCSI a stock dividend of 2,050,000 shares of common
stock. Appropriate share data has been retroactively restated in the
consolidated balance sheet to reflect the effect of the stock dividend and
merger into a Delaware corporation.
On October 31, 1995, the Company and KCSI completed an initial public offering
("the Offerings") of 22 million shares of the Company's common stock at an
offering price of $21 per share. Of the 22 million shares offered, 19,450,000
were sold by the Company and 2,550,000 were sold by KCSI. The Company received
net proceeds of approximately $384.8 million which were used to repay all debt
to KCSI and certain bank term notes. In conjunction with the Offerings, KCSI
exchanged 4,253,508 shares of its DST common stock for 1,820,000 shares of KCSI
stock held by The Employee Stock Ownership Plan. On November 6, 1995,
over-allotment options granted by KCSI to the underwriters totaling 3,300,000
shares of the Company's common stock were exercised in full. As a result of
these transactions and other transactions, KCSI owned approximately 41% of the
Company's outstanding common stock at December 31, 1996.
<PAGE>
In September 1995, the Company established the Stock Option and Performance
Award Plan which provides for the availability of 6,000,000 shares of the
Company's common stock for the grant of awards to officers, directors and other
designated employees. The awards may take the form of an option, stock
appreciation right, limited right, performance share or unit, dividend
equivalent, or any other right, interest or option relating to shares of common
stock granted under the plan. The option prices must be at least equal to the
fair market value of the underlying shares on the date of grant. Options become
exercisable and expire as determined by the Compensation Committee of the Board
of Directors at or subsequent to the date of grant.
A summary of stock option activity is presented in the table below:
<TABLE>
<CAPTION>
1995 1996
------------------------------- -------------------------------
Weighted Weighted
Number Average Number Average
of Shares Exercise Price of Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding at January 1 2,281,400 $21.00
Granted 2,287,100 $21.00 71,500 33.95
Exercised
Canceled 5,700 21.00 91,400 21.00
============== =============== =============== ==============
Outstanding at December 31 2,281,400 $21.00 2,261,500 $21.41
============== =============== =============== ==============
Exercisable at December 31 n/a 886,800 $21.11
Exercise Price Ranges:
- ----------------------
for all outstanding options $21.00 $21.00 - $35.56
for all exercisable options n/a $21.00 - $32.69
</TABLE>
Under SFAS 123, companies must either record compensation expense based on the
estimated grant date fair value of stock options granted or disclose the impact
on net income and earnings per share as if they had adopted the fair value
method in the footnotes to the financial statements. The Company has elected to
disclose pro forma information required by SFAS 123 rather than record
compensation expense. Had compensation cost been determined consistent with SFAS
123, the Company's net income would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C> <C>
Net income (000's): As reported $ 27,640 $ 167,202
Pro forma 26,931 162,787
Earnings per share: As reported n/a $3.35
Pro forma n/a $3.26
</TABLE>
The weighted average fair value of options granted was $7.10 and $11.64 for 1995
and 1996, respectively. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1995 and 1996, respectively:
expected option terms of 5.3 and 5.0 years, volatility of 22% and 23%, dividend
yield of 0% and risk-free interest rates of 5.9% and 6.3%. Given the limited
trading history of DST's common stock, the volatility factor was determined by
using the average of the volatility, calculated weekly over the three preceding
calendar years, of the stock of three peer companies.
In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to provide to employees under its stock award
program and to provide to option holders who exercise options. The Board of
Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management deems appropriate. All such purchases are in compliance
with applicable SEC regulations. The Company has purchased 400,000 shares as of
December 31, 1996, for approximately $12.5 million.
The Company entered into a Stockholder's Right Agreement (the "Rights Plan") in
1995. Each share of the Company's common stock held of record on October 18,
1995, (KCSI was then the sole stockholder) and all shares of common stock issued
in the Offerings received one Right. Each Right entitles their holder (other
than those held by an acquiring person or group) to purchase 1/1000th share of
preferred stock of the Company or in some circumstances, other securities of the
Company. In certain circumstances the Rights entitle their holders (other than
those held by an acquiring person or group) to purchase shares in a surviving
entity or its affiliates resulting from transactions in which the Company is not
the surviving entity or disposes of more than 50% of the Company's assets or
earnings power.
The Rights, which are automatically attached to common stock, are not
exercisable or transferable separately from shares of common stock until ten
days following the earlier of an announcement that a person or group has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of the Company's common stock, or ten days following
the commencement or announcement of an intention to make a tender offer or
exchange offer that would result in an acquiring person or group owning 15% or
more of the outstanding common stock, unless the Board of Directors sets a later
date in either event. KCSI is excluded from the definition of an acquiring
person under the Rights Plan unless there is a change in control of KCSI,
followed by acquisition of additional company common stock.
The Rights Plan is intended to encourage a potential acquiring person or group
to negotiate directly with the Board of Directors, but may have certain
anti-takeover effects. The Rights Plan could significantly dilute the interests
in the Company of an acquiring person or group. The Rights Plan may therefore
have the effect of delaying, deterring or preventing a change in control of the
Company.
On May 8, 1995, the Company paid a cash dividend of $150 million to KCSI, the
proceeds for which were obtained through the Company's long-term revolving
credit agreement described in Note 9.
Net unrealized gains on investments represents the Company's unrealized holding
gains on its investments in State Street and CSC. At December 31, 1995 and 1996,
the Company's unrealized gains were $22,063,000 and $94,625,000 respectively,
which were net of deferred taxes of $14,143,000 and $60,625,000, respectively.
12. Retirement Plans
Prior to the Offerings in 1995, the Company participated in the KCSI ESOP. In
connection with the Offerings, the KCSI ESOP was renamed The Employee Stock
Ownership Plan ("ESOP") and amended to consist of two portions: a KCSI portion
and a Company portion. The account balances in the ESOP attributable to Company
employees have become the Company portion of the ESOP. The Company portion
initially was invested in KCSI stock. Approximately one half of the value of the
account balances of Company employees at the time of the IPO were converted into
common stock of the Company through an exchange with KCSI of KCSI stock held by
the ESOP for shares of the Company's common stock.
For the years ended December 31, 1994, 1995 and 1996, ESOP expense was
$10,293,000, $11,021,000 and $13,700,000 respectively. In 1994 and 1995, such
amounts represent an allocated portion of the consolidated KCSI ESOP expense.
Interest incurred on ESOP indebtedness was $1.0 million and $0.4 million in 1994
and 1995, respectively; these amounts include an allocated portion of interest
expense on ESOP debt guaranteed by KCSI.
All ESOP indebtedness was retired in 1995.
The ESOP loan principal payments were accounted for as employee benefit expense
in the year of allocation to participants; interest payments were recorded as
interest expense using an accrual method.
The Company has a qualified profit sharing plan which covers all of its
employees following the completion of an eligibility period. Contributions to
the plan are made at the discretion of the Board of Directors, with the
limitation that the annual contribution may not exceed the maximum allowable
income tax deduction. Profit sharing expense was $37,000, $129,000 and
$2,686,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
The Company has a 401(k) plan which covers all of its employees following the
completion of an eligibility period. Contributions to the plan are made at the
discretion of the Board of Directors. No discretionary contributions were made
during 1994, 1995 or 1996.
<PAGE>
13. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the years ended December
31, (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid during the year $ 14,054 $ 25,307 $ 7,930
Income taxes paid during the year 11,027 15,892 21,098
</TABLE>
In December 1996, the Company received a $9.5 million dividend from Argus, $8.0
million of which was received in cash and $1.5 million of which was received in
the form of a note receivable.
In connection with the Offerings in 1995, the Company incurred underwriting
commissions of approximately $22.6 million which have been reflected in the net
proceeds from the Offerings.
The Company purchased mainframe computer equipment and other capital additions
in the amount of $27,192,000, $30,163,000 and $4,754,000 in 1994, 1995 and 1996,
respectively, through secured notes payable or vendor financed installment notes
which required no direct outlay of cash.
The Company acquired an additional 20% interest in DBS Systems, Inc. in December
1995 for a $6.0 million note payable which was paid in January 1996.
In 1994, the Company sold a building to an affiliate for $6.0 million, in
exchange for a $5.0 million note previously payable to the affiliate and $1.0
million cash.
14. Commitments and Contingencies
The Company leases facilities, data processing and other equipment under various
operating leases. Lease terms generally range from 1 to 25 years not including
options to extend the leases for various lengths of time. Rental expense was
$31,427,000, $26,810,000 and $33,732,000 for the years ended December 31, 1994,
1995 and 1996, respectively. Future minimum rentals for the non-cancelable term
of all operating leases are as follows (in thousands):
1997 $ 22,904
1998 18,606
1999 11,924
2000 6,965
2001 5,021
Thereafter 26,803
--------
$ 92,223
Certain leases have clauses that call for the annual rents to be increased
during the term of the lease. Such lease payments are expensed on a
straight-line basis.
The Company leases certain facilities from an unconsolidated affiliate and
incurred occupancy expenses of $3,360,000, $4,158,000 and $4,674,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
The Company has guaranteed certain bank loans, lease obligations, and other
financial obligations of affiliated companies. At December 31, 1996, the
guarantees total approximately $22.5 million.
The Company has also entered into agreements with co-participants in certain
joint venture subsidiaries whereby upon defined circumstances constituting a
change in control of either party to the venture, the other party has the right
to acquire, at a specified price, the entire interest in the joint venture.
<PAGE>
The Company has entered into agreements with minority stockholders of DBS
whereby each minority stockholder has the option to sell to the Company shares
of DBS stock. If the provisions of the agreements were exercised, the Company
would be required to purchase the respective minority interests at fair market
value, currently estimated at approximately $6 million.
The Company has entered into agreements with certain officers whereby upon
defined circumstances constituting a change in control of the Company, certain
benefit entitlements are automatically funded and such officers are entitled to
specific cash payments upon termination of employment.
The Company has also established trusts to provide for the funding of corporate
commitments and entitlements of Company officers, directors, employees and
others in the event of a change in control of the Company. Assets held in such
trusts at December 31, 1996, were not significant.
The Company is from time to time a party to litigation arising in the ordinary
course of its business. Currently, there are no claims outstanding that would
have a material adverse effect upon the consolidated results of operations or
financial condition of the Company.
<PAGE>
15. Geographic Information
Financial information by geographic region for the Company is presented below
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------------------------------------------------
United Europe
States Canada & Others Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 277,410 $ 9,106 $ 23,173 $ 309,689
Revenues - related parties 92,047 92,047
---------------- ---------------- ---------------- ----------------
Total $ 369,457 $ 9,106 $ 23,173 $ 401,736
================ ================ ================ ================
Income (loss) from operations $ 37,025 $ 1,151 $ (3,221) $ 34,955
Equity in earnings (losses ) of unconsolidated
affiliates, net of affiliate taxes 22,240 (13) 22,227
Year Ended December 31, 1995
----------------------------------------------------------------------
United Europe
States Canada & Others Total
---------------- ---------------- ---------------- ----------------
Revenues $ 319,294 $ 7,924 $ 52,969 $ 380,187
Revenues - related parties 103,944 103,944
---------------- ---------------- ---------------- ----------------
Total $ 423,238 $ 7,924 $ 52,969 $ 484,131
================ ================ ================ ================
Income (loss) from operations $ 42,689 $ (1,904) $ 36 $ 40,821
Equity in earnings (losses ) of unconsolidated
affiliates, net of affiliate taxes 9,822 (3,370) 6,452
Total assets 678,491 8,230 62,799 749,520
Year Ended December 31, 1996
----------------------------------------------------------------------
United Europe
States Canada & Others Total
---------------- ---------------- ---------------- ----------------
Revenues $ 389,964 $ 21,071 $ 59,670 $ 470,705
Revenues - related parties 106,471 3,632 110,103
---------------- ---------------- ---------------- ----------------
Total $ 496,435 $ 24,703 $ 59,670 $ 580,808
================ ================ ================ ================
Income (loss) from operations $ 58,635 $ 276 $ (1,938) $ 56,973
Equity in earnings (losses ) of unconsolidated
affiliates, net of affiliate taxes 4,106 (1,068) (7,066) (4,028)
Total assets 1,041,155 15,965 64,468 1,121,588
</TABLE>
<PAGE>
16. Quarterly Financial Data (Unaudited)
Because the Offerings and use of proceeds and the cash dividend paid to KCSI
described in Note 11 substantially changed the Company's capital structure in
1995, historical earnings per share data have not been presented for the year
ended December 31,1995. Quarterly financial data follows (dollars in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter 1995
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 112,266 $ 117,673 $ 121,740 $ 132,452 $ 484,131
Cost and expenses 85,218 92,256 93,486 102,601 373,561
Depreciation and amortization 14,082 16,690 18,568 20,409 69,749
------------- ------------- ------------- ------------ -------------
Income from operations 12,966 8,727 9,686 9,442 40,821
Interest expense (4,538) (6,103) (7,351) (3,972) (21,964)
Other income, net 486 1,093 1,092 956 3,627
Gain on sale of equity investment 43,610 (1) 1,285(2) 44,895
Equity in earnings (losses) of unconsolidated
affiliates, net of taxes 3,413 4,338 3,057 (4,356(3) 6,452
------------- ------------- ------------- ------------ -------------
Income before income taxes and minority interests 55,937 8,055 7,769 2,070 73,831
Income taxes 38,734 (1) 2,478 3,162 1,800 46,174
------------- ------------- ------------- ------------ -------------
Income before minority interests 17,203 5,577 4,607 270 27,657
Minority interests in income (losses) (51) (88) (24) 180 17
------------- ------------- ------------- ------------ -------------
Net income $ 17,254 $ 5,665 $ 4,631 $ 90 $ 27,640
============= ============= ============= ============ =============
Cash dividends (4) $ $ 150,000 $ $ $ 150,000
Common stock price ranges - High $ 30.50 $ 30.50
- Low $ 25.38 $ 25.38
</TABLE>
(1) Gain on sale of IFTC (Note 4)
(2) Gain on sale of MDS and MLS (Note 4)
(3) Includes one-time Continuum charge from SOCS acquisition (Note 4)
(4) Dividends paid to KCSI, the Company's sole stockholder prior to October
31, 1995. The Company does not anticipate paying any cash dividends in
the forseeable future.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter 1996
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 144,262 $ 143,216 $ 139,569 $ 153,761 $ 580,808
Cost and expenses 106,389 106,565 104,343 114,266 431,563
Depreciation and amortization 18,688 19,192 19,804 20,888 78,572
Other expenses 13,700 (6) 13,700
------------- ------------- ------------- ------------ -------------
Income from operations 19,185 17,459 1,722 18,607 56,973
Interest expense (2,102) (1,653) (1,356) (1,829) (6,940)
Other income, net 931 981 912 1,352 4,176
Gain on sale of equity investment 223,438 (6) 223,438
Equity in earnings of unconsolidated
affiliates, net of taxes (7,641)(5) 3,140 (45) 518 (4,028)
------------- ------------- ------------- ------------ -------------
Income before income taxes and minority interests 10,373 19,927 224,671 18,648 273,619
Income taxes 5,963 7,549 85,897 6,511 105,920
------------- ------------- ------------- ------------ -------------
Income before minority interests 4,410 12,378 138,774 12,137 167,699
Minority interests in income (losses) (7) 51 144 309 497
------------- ------------- ------------- ------------ -------------
Net income $ 4,417 $ 12,327 $ 138,630 $ 11,828 $ 167,202
============= ============= ============= ============ =============
Average shares outstanding 50,000 49,965 49,841 49,679 49,871
Earnings per share $ 0.09 $ 0.25 $ 2.78 $ 0.24 $ 3.3(7)
Common stock price ranges - High $ 34.88 $ 37.75 $ 32.75 $ 34.38 $ 37.75
- Low $ 27.38 $ 29.50 $ 25.63 $ 29.00 $ 25.63
</TABLE>
(5) Includes one-time Continuum charge from Hogan Merger (Note 4)
(6) Gain on CSC / Continuum Merger and related charges (Note 4)
(7) The accumulation of 1996's four quarters for earnings per share is greater
than the earnings per share for the year ended December 31, 1996 due to
repurchases of Company common stock throughout the year.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
The Company has incorporated by reference certain information in response or
partial response to the Items under this Part III of this Annual Report on Form
10-K pursuant to General Instruction G(3) of this Form 10-K and Rule 12b-23
under the Exchange Act. The Company's definitive proxy statement in connection
with its annual meeting of stockholders scheduled for May 13, 1997, (the
"Definitive Proxy Statement") will be filed with the Securities and Exchange
Commission no later than 120 days after December 31, 1996.
(a) Directors of the Company
The information set forth in response to Item 401 of Regulation S-K under the
heading "Proposal 1 - Election of Two Directors" and "The Board of Directors" in
the Company's Definitive Proxy Statement is hereby incorporated herein by
reference in partial response to this Item 10.
(b) Executive Officers of the Company
The information set forth in response to Item 401 of Regulation S-K under the
heading "Executive Officers of the Company" in Part I of this Form 10-K is
incorporated herein by reference in partial response to this Item 10.
The information set forth in response to Item 405 of Regulation S-K under the
heading "Other Matters--Compliance with Section 16(a) of the Securities Exchange
Act of 1934" in the Company's Definitive Proxy Statement is hereby incorporated
herein by reference in partial response to this Item 10.
Item 11. Executive Compensation
The information set forth in response to Item 402 of Regulation S-K under
"Executive Compensation" in the Company's Definitive Proxy Statement (other than
The Compensation Committee Report on Executive Compensation and the Stock
Performance Graph) is hereby incorporated herein by reference in response to
this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth in response to Item 403 of Regulation S-K under the
heading "Principal Stockholders and Stockholdings of Management" in the
Company's Definitive Proxy Statement is hereby incorporated herein by reference
in response to this Item 12.
The Company has no knowledge of any arrangement the operation of which may at a
subsequent date result in a change of control of the Company.
Item 13. Certain Relationships and Related Transactions
The information set forth in response to Item 404 of Regulation S-K under the
heading "Certain Transactions" in the Company's Definitive Proxy Statement is
hereby incorporated herein by reference in response to this Item 13.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report
(1) Consolidated Financial Statements
The consolidated financial statements and related notes, together with the
report of Price Waterhouse LLP dated February 20, 1997, appear in Part II Item 8
Financial Statements and Supplementary Data of this Form 10-K.
(2) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not applicable, insignificant
or the required information is shown in the consolidated financial statements or
notes thereto.
(3) List of Exhibits
(a) Exhibits
The Company has incorporated by reference herein certain exhibits as specified
below pursuant to Rule 12b-32 under the Exchange Act.
2. Plan of acquisition, reorganization, arrangement,
liquidation or succession
2.1 A plan and agreement of merger dated August 28, 1995, which
is attached as Exhibit 2.1 to the Company's registration
statement on Form S-1 dated September 1, 1995, as amended,
(Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 2.1.
3. Articles of Incorporation and by-laws
3.1 The Company's Amended Delaware Certificate of Incorporation,
which is attached as Exhibit 3.1 to the Company's
registration statement dated September 1, 1995, as restated
August 31, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 3.1.
3.2 The Company's Amended and Restated By-laws as adopted August
28, 1995, which are attached as Exhibit 3.2 to the Company's
registration statement on Form S-1 dated September 1, 1995,
as amended (Commission file no. 33-96526), are hereby
incorporated by reference as Exhibit 3.2.
4. Instruments defining the rights of security holders,
including indentures
4.1 The Registration Rights Agreement dated October 24, 1995,
between the Company and Kansas City Southern Industries,
Inc. ("KCSI"), which is attached as Exhibit 4.1 to the
Company's registration statement on Form S-1 dated September
1, 1995, as amended (Commission file no. 33-96526), is
hereby incorporated by reference as Exhibit 4.1.
4.2 The Certificate of Designations dated October 16, 1995,
establishing the Series A Preferred Stock of the Company,
which is attached as Exhibit 4.3 to the Company's
registration statement on Form S-1 dated September 1, 1995,
as amended (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 4.2.
4.3 The Summary of the preferred stock purchase rights set forth
in Form 8-A dated November 15, 1995, (Commission file no.
1-14036) and the related Rights Agreement dated as of
October 6, 1995, between the Company and State Street Bank
and Trust Company, as rights agent, which is attached as
Exhibit 4.4 to the Company's registration statement on Form
S-1 dated September 1, 1995, as amended (Commission file no.
33-96526), are hereby incorporated by reference as Exhibit
4.3.
4.4 The Registration Rights Agreement dated October 31, 1995,
between the Company and UMB Bank, N.A. as trustee of the
Company's Employee Stock Ownership Plan ("UMB") is attached
to the Company's annual report for the year ended December
31, 1995, (Commission file no. 1-14036) as Exhibit 4.4.
4.5 The Stock Exchange Agreement dated October 26, 1995, between
KCSI and UMB, which is attached as Exhibit 4.6 to the
Company's registration statement on Form S-1 dated September
1,1995, as amended (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 4.5.
4.6 The description of the Company's common stock set forth in
the Company's registration of the common stock on Form 8-A
declared effective October 31, 1995, (Commission file no
1-14036) is hereby incorporated by reference as Exhibit 4.6
4.7 Paragraphs fourth, fifth, sixth, seventh, tenth, eleventh
and twelfth of Exhibit 3.1 are hereby incorporated by
reference as Exhibit 4.7.
4.8 Article I, Sections 1, 2, 3 and 11 of Article II, Article V,
Article VIII, Article IX of Exhibit 3.2 are hereby
incorporated by reference as Exhibit 4.8.
9. Voting trust agreement
Not applicable.
10. Material contracts
10.1 The Registration Rights Agreement incorporated by reference
as Exhibit 4.1 hereto, is also hereby incorporated by
reference as Exhibit 10.1.
10.2 The Company's Executive Plan effective as of October 31,
1995, attached to the Company's annual report for the year
ended December 31, 1995, (Commission file no. 1-14036) is
hereby incorporated by reference as Exhibit 10.2.
10.3 The Company's 1995 Stock Option and Performance Award Plan,
effective September 1, 1995, which is attached as Exhibit
10.3 to the Company's registration statement on Form S-1
dated September 1, 1995, (Commission file no. 33-96526), is
hereby incorporated by reference as Exhibit 10.3.
10.4 The Tax Disaffiliation Agreement between the Company and
KCSI dated October 23, 1995, which is attached as Exhibit
10.4 to the Company's registration statement on Form S-1
dated September 1, 1995, (Commission file no. 33-96526), is
hereby incorporated by reference as Exhibit 10.4.
10.5 The Stock Purchase, Sale of Assets, Assignment and
Assumption Agreement dated August 30, 1995, among the
Company, DST Realty, Inc., Tolmak, Inc., Mulberry Western
Company and KCSI, which is attached as Exhibit 10.5 to the
Company's registration statement on Form S-1 dated September
1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.5.
10.6 The 1995 Restatement of the Company's Employee Stock
Ownership Plan and Trust Agreement attached to the Company's
annual report for the year ended December 31, 1995,
(Commission file no. 1-14036) is hereby incorporated by
reference as Exhibit 10.6.
10.7 The 1994 Restatement of the Company's Profit Sharing Plan
and trust Agreement and First Amendment to that Plan both
dated September 12, 1994 (the "1994 Profit Sharing Plan"),
which is attached as Exhibit 10.7 to the Company's
registration statement on Form S-1 dated September 1, 1995,
(Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 10.7.
10.7.1 The Second Amendment to the 1994 Profit Sharing Plan dated
October 31, 1995, attached to the Company's annual report
for the year ended December 31, 1995, (Commission file no.
1-14036) is hereby incorporated by reference as Exhibit
10.7.1.
10.8 The Employment Agreement among the Company, KCSI and Thomas
A. McDonnell, Amended and Restated as of March 18, 1993 and
October 9, 1995, which is attached as Exhibit 10.8 to the
Company's registration statement on Form S-1 dated September
1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.8.
10.8.1 The Employment Agreement between the Company and Thomas A.
McDonnell dated October 9, 1995, which is attached as
Exhibit 10.8.1 to the Company's registration statement on
Form S-1 dated September 1, 1995, (Commission file no.
33-96526), is hereby incorporated by reference as Exhibit
10.8.1.
10.9 The Employment Agreement between the Company, KCSI and
Thomas A. McCullough dated April 1, 1992, as amended October
9, 1995, which is attached as Exhibit 10.9 to the Company's
registration statement on Form S-1 dated September 1, 1995,
(Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 10.9.
10.10 The Employment Agreement between the Company, KCSI and James
P. Horan dated April 1, 1992, as amended October 9, 1995,
which is attached as Exhibit 10.10 to the Company's
registration statement on Form S-1 dated September 1, 1995,
(Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 10.10.
10.11 The Employment Agreement between the Company, KCSI and
Robert C. Canfield, dated April 1, 1992, as amended October
9, 1995, which is attached as Exhibit 10.11 to the Company's
registration statement on Form S-1 dated September 1, 1995,
(Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 10.11.
10.12 The Employment Agreement between the Company, KCSI and
Charles W. Schellhorn, dated April 1, 1992, as amended
October 9, 1995, which is attached to the Company's annual
report for the year ended December 31, 1996, (Commission
file no. 1-14036).
10.13 The Company's 1994 Restatement of its 401(K) Plan and Trust
Agreement dated September 12, 1994 (the "1994 401(K) Plan"),
which is attached as Exhibit 10.13 to the Company's
registration statement on Form S-1 dated September 1, 1995,
(Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 10.13.
10.13.1 The First Amendment dated June 1, 1995, to the Company's
1994 401(K) Plan, which is attached as Exhibit 10.13.1 to
the Company's registration statement on Form S-1 dated
September 1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.13.1.
10.13.2 The Second Amendment dated October 31, 1995, to the
Company's 1994 401(K) Plan attached to the Company's annual
report for the year ended December 31, 1995, (Commission
file no. 1-14036) is hereby incorporated by reference as
Exhibit 10.13.2.
10.14 The Agreement between State Street Boston Financial
Corporation and Data-Sys-Tance dated June 1, 1974, (the
"State Street Agreement") which is attached as Exhibit 10.14
to the Company's registration statement on Form S-1 dated
September 1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.14.
10.14.1 The Amendment to the State Street Agreement between the
Company and State Street, dated October 1, 1987, which is
attached as Exhibit 10.14.1 to the Company's registration
statement on Form S-1 dated September 1, 1995, (Commission
file no. 33-96526), is hereby incorporated by reference as
Exhibit 10.14.1.
10.15 The Data Processing Services Agreement between The Company
and The Continuum Company, Inc. dated October 1, 1993,
which is attached as Exhibit 10.15 to the Company's
registration statement on Form S-1 dated September 1, 1995,
(Commission file no. 33-96526), is hereby incorporated by
reference as Exhibit 10.15.
10.16 The Agreement among the Company, Financial Holding
Corporation, KCSI and Argus Health Systems,Inc. dated June
30, 1989, which is attached as Exhibit 10.16 to the
Company's registration statement on Form S-1 dated September
1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.16.
10.16.1 The Stock Transfer Restriction and Option Agreement between
the Company, Argus Health Systems, Inc. and Financial
Holding Corporation dated June 30, 1989, which is attached
as Exhibit 10.16.1 to the Company's registration statement
on Form S-1 dated September 1, 1995, (Commission file no.
33-96526), is hereby incorporated by reference as Exhibit
10.16.1.
10.17 The Five-Year Competitive Advance and Revolving Credit
Facility Agreement among the Company, the lenders named
therein, The Chase Manhattan Bank, N.A. as Documentation,
Syndication, and Administrative Agent dated December 30,
1996, which is attached to the Company's annual report for
the year ended December 31, 1996, (Commission file no.
1-14036).
10.18 The Master Lease Agreement between the Company and Irkan
Corp. dated December 30, 1987 for property at 1004 Baltimore
in Kansas City, Missouri which is attached as Exhibit 10.18
to the Company's registration statement on Form S-1 dated
September 1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.18.
10.18.1 The Master Lease Agreement between the Company and Irkan
Corp. dated December 30, 1987, for property at 127 West
Tenth Street in Kansas City, Missouri which is attached as
Exhibit 10.18.1 to the Company's registration statement on
Form S-1 dated September 1, 1995, (Commission file no.
33-96526), is hereby incorporated by reference as Exhibit
10.18.1.
10.18.2 The Lease Agreement dated February 24, 1988, between the
Company and Broadway Square Partners for property at 1055
Broadway in Kansas City, Missouri, which is attached as
Exhibit 10.18.2 to the Company's registration statement on
Form S-1 dated September 1, 1995, (Commission file no.
33-96526), is hereby incorporated by reference as Exhibit
10.18.2.
10.19 The Company's Directors' Deferred Fee Plan effective
September 1, 1995, which is attached as Exhibit 10.19 to the
Company's registration statement on Form S-1 dated September
1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.19.
10.20 The Trust Agreement between the Company as settlor and
United Missouri Bank of Kansas City, N.A. as Trustee dated
December 31, 1987, which is attached as Exhibit 10.20 to the
Company's registration statement on Form S-1 dated September
1, 1995, (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 10.20.
10.20.1 Trust Agreement by and between the Company as settlor and
United Missouri Bank of Kansas City, N.A., Trustee dated
June 30, 1989, for the benefit of James Horan, which is
attached as Exhibit 10.20.1 to the Company's registration
statement on Form S-1 dated September 1, 1995, (Commission
file no. 33-96526), is hereby incorporated by reference as
Exhibit 10.20.1.
<PAGE>
11. Statement re computation of per share earnings
Not applicable.
12. Statements re computation of ratios
Not applicable.
13. Annual report to security holders, Form 10-Q or quarterly report
to security holders
Not applicable.
16. Letter re change in certifying accountant
Not applicable.
18. Letter re change in accounting principles
Not applicable.
21. Subsidiaries of the Company
The list of the Company's subsidiaries, which is attached as Exhibit
21.1 to the Company's registration statement on Form S-1 dated
September 1, 1995, as amended (Commission file no. 33-96526), is hereby
incorporated by reference as Exhibit 21.
22. Published report regarding matters submitted to vote of
security holders
Not applicable.
23. Consents of experts and counsel
The consent dated March 18, 1997, of Price Waterhouse LLP to the
incorporation by reference of their report is attached hereto
as Exhibit 23.1.
24. Power of attorney
Not applicable.
27. Financial Data Schedule
A Financial Data Schedule prepared in accordance with Item 601 (c) of
Regulation S-K is attached hereto as Exhibit 27.1.
<PAGE>
99. Additional exhibits
Not applicable.
(b) Reports on Form 8-K during the last calendar quarter
The Company filed a Form 8-K dated October 23, 1996, under Item 5 of
such form, reporting the announcement of financial results for the
quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DST Systems, Inc.
By: /s/ Thomas A. McDonnell
------------------------------------------
Thomas A. McDonnell
President and Chief Executive Officer, Director
Dated: February 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
capacities indicated on February 27, 1997.
/s/ Thomas A. McDonnell /s/ A. Edward Allinson
------------------------- ----------------------------
Thomas A. McDonnell A. Edward Allinson
President and Chief Executive Officer, Director Director
/s/ Thomas A. McCullough /s/ Michael G. Fitt
------------------------- ----------------------------
Thomas A. McCullough Michael G. Fitt
Executive Vice President, Director Director
/s/ Kenneth V. Hager /s/ William C. Nelson
------------------------- -----------------------------
Kenneth V. Hager William C. Nelson
Vice President, Chief Financial Officer Director
and Treasurer
(Principal Financial Officer)
/s/ John J. Faucett /s/ M. Jeannine Strandjord
------------------------- -----------------------------
John J. Faucett M. Jeannine Strandjord
Controller (Principal Accounting Officer) Director
<PAGE>
DST Systems, Inc.,
1996 Form 10-K Annual Report
Index to Exhibits
Exhibit Number Document
10.12 The Employment Agreement between the Company, KCSI and Charles W.
Schellhorn.
10.17 The Five-Year Competitive Advance and Revolving Credit Facility
Agreement dated as of December 30, 1996.
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of this lst day of April,
1992, by and between DST Systems, Inc., a Missouri corporation ("DST") ,
Kansas City Southern Industries, Inc., a Delaware corporation ("KCSI") and
Charles W. Schellhorn, an individual ("Executive").
WHEREAS, Executive is now employed by a subsidiary of DST, which is
a wholly-owned subsidiary of KCSI, and DST, KCSI and
Executive desire for DST to continue to employ Executive on the terms and
conditions set forth in this Agreement and to provide an incentive to
Executive to remain in the employ of DST hereafter, particularly in the event
of any Change in Control of KCSI (as herein defined), thereby establishing and
preserving continuity of management of DST;
WHEREAS, simultaneously herewith KCSI has granted Executive stock
options to acquire shares of KCSI common stock, and KCSI desires to encourage
significant long-term ownership of KCSI common stock by Executive through the
grant of such options and the award of Restricted Stock as provided herein;
and
WHEREAS, Executive intends to retain ownership of a substantial
portion of the shares of KCSI common stock acquired as Restricted Stock or
through exercise of stock options granted on or after the date hereof, and
KCSI intends to make future awards under its equity participation programs to
executives who have retained ownership of a substantial portion of their
shares of KCSI common stock.
NOW, THEREFORE, in consideration of the grant of stock options to
Executive, the award of Restricted Stock as provided herein and the mutual
covenants and agreements herein contained, it is agreed by and between DST, KCSI
and Executive as follows:
1. Employment. DST hereby continues the employment of
Executive as the President of DST's subsidiary, Output Technologies, Inc., to
serve at the pleasure of the Board of Directors of DST (the "DST Board") and to
have such duties, powers and responsibilities as may be prescribed or delegated
from time to time by the President or other officer to whom Executive reports,
subject to the powers vested in the DST Board and in the stockholder of DST.
Executive shall faithfully perform his duties under this Agreement to the best
of his ability and shall devote substantially all of his working time and
efforts to the business and affairs of DST and its affiliates.
2. Compensation.
(a) Base Compensation. DST shall pay Executive as
compensation for his services hereunder an annual base salary at the rate in
effect at the time of execution of this Agreement, subject to adjustment from
time to time as agreed by the parties.
(b) Incentive Compensation. During the time that DST
continues to be a wholly-owned subsidiary of KCSI, DST shall include Executive
as a participant in the KCSI Incentive Compensation Plan under such terms as are
determined from time to time by the Board of Directors of KCSI (the "KCSI
Board") or the Compensation Committee or other appropriate committee of the KCSI
Board (the "Compensation Committee") and for such time as such plan shall
continue in existence. KCSI reserves the right to change, revoke or terminate
such plan at any time.
(c) Restricted Stock. As additional compensation for his
services hereunder, Executive has been awarded, as of the date hereof, two
thousand five hundred (2,500) shares of common stock (the "Restricted Stock") of
KCSI, without the payment of any further consideration therefor by Executive.
Commencing on the date hereof, Executive shall have all of the rights of a
stockholder with respect to the Restricted Stock, including with out limitation
rights to vote and to receive dividends and other distributions and adjustments
on such shares, and such shares shall be deemed to be outstanding, fully paid
and non-assessable shares subject to the following restrictions:
(i) In the event Executive's employment hereunder is
terminated for cause by DST (as defined in Paragraph 4(c)
below), or terminated voluntarily by Executive (other than
upon material breach by DST pursuant to Paragraph 4 (a)) prior to the
end of any period set forth below, all rights of Executive in and to
the number of shares of Restricted Stock set forth below corresponding
to the first end of period following such termination shall be
thereupon forfeited and Executive shall immediately upon such
termination transfer all such shares (or an equivalent number of other
shares of KCSI common stock) to KCSI without any payment or other
consideration to Executive:
3
End of Period Number of shares Forfeited
March 31, 1993 2,500
March 31, 1994 2,000
March 31, 1995 1,500
March 31, 1996 1,000
March 31, 1997 500
The termination of Executive's employment by reason of retirement with the
consent of the DST Board, death or disability shall not be considered a
voluntary termination of employment by Executive.
(ii) Executive shall not transfer any of the shares of
Restricted Stock which remain subject to forfeiture hereunder,
other than to KCSI, except with the prior approval of the KCSI
Board or Compensation Committee. In the event of termination of Executivels
employment by DST other than for cause or by reason of retirement with the
consent of the DST Board, death or disability, the Restricted Stock shall no
longer be subject to forfeiture hereunder.
(iii)The issuance of the Restricted Stock to Executive hereunder is
subject to any required federal, state and local withholding taxes, which
shall be paid in cash by Executive, and has not been registered under
federal or state securities laws. Executive represents that he is acquiring
the Restricted Stock for investment and not with a view to distribution
thereof.
(iv) Until they are no longer subject to forfeiture hereunder,
each certificate for shares of Restricted Stock
4
issued to Executive hereunder shall bear a legend, to the following effect:
"The shares represented hereby are subject to transfer
restrictions and forfeiture provisions under an Agreement dated April
1, 1992 on file at the offices of the Company. These shares may not be
offered, sold, pledged or otherwise transferred other than to the
Company, except in compliance with the provisions of such Agreement."
If any shares of Restricted Stock are transferred to KCSI to acquire
other shares of KCSI common stock, the foregoing legend shall apply to the
number of shares acquired as is equal to the number of shares of Restricted
Stock transferred to KCSI and shall be affixed to the appropriate stock
certificate or certificates. KCSI shall remove the foregoing legend at the
Executivels request with respect to certificates for any shares of Restricted
Stock which shall no longer be subject to forfeiture hereunder.
(v) Unless the shares of Restricted Stock are registered under the
Securities Act of 1933 and applicable state securities laws (which
registration may be performed by KCSI at its option) , each certificate for
shares of Restricted Stock issued to Executive hereunder shall bear a legend
as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 or under any state securities law.
These shares may not be offered, sold, pledged or otherwise
transferred, other than to the Company, in the absence of said
registration or the availability of an exemption therefrom. No offer,
sale, pledge or other transfer shall take place without submitting to
the Company evidence satisfactory to counsel for the Company to the
effect that such transaction does not violate the restrictions set
forth herein."
3 . Benefits. During the period of his employment hereunder, DST shall
provide Executive with coverage under such benefit plans and programs as are
made generally available to executives serving on the Management Committee of
DST, provided (a) DST shall have no obligation with respect to any plan or
program if Executive is not eligible for coverage thereunder, and (b) Executive
acknowledges that stock options and other stock and equity participation awards
are granted in the discretion of the KCSI Board or Compensation Committee and
that Executive has no right to receive stock options or other equity
participation awards or any particular number or level of stock options or other
awards. Executive acknowledges that all rights and benefits under benefit plans
and programs shall be governed by the official text of each such plan or program
and not by any summary or description thereof or any provision of this Agreement
and that DST is under no obligation to continue in effect or to fund any such
plan or program, except as provided in Paragraph 7 hereof. DST also shall
continue to reimburse Executive for ordinary and necessary travel and other
business expenses in accordance with policies and procedures established by DST.
4. Termination.
(a) Termination by executive. Executive may terminate this Agreement
and his employment hereunder by at least thirty (30) days advance written notice
to DST, except that in the event of any material breach of this Agreement by
DST, Executive may terminate 6 this Agreement and his employment hereunder
immediately upon notice to DST.
(b) Death or Disability. This Agreement and Executive's
employment hereunder shall terminate automatically on the death or disability of
Executive. For purposes of this Agreement, Executive shall be deemed to be
disabled if he is unable to engage in a significant portion of his normal duties
for DST by reason of any physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than six (6) months.
(C) Termination by DST For Cause. DST may terminate this
Agreement and Executivels employment "for cause" immediately upon notice to
Executive. For purposes of this Agreement, termination "for cause" shall mean
termination based upon any one or more of the following:
(i) Any material breach of this Agreement by Executive;
(ii) Executive's dishonesty involving DST, KCSI or any
subsidiary of DST or KCSI;
(iii)Gross negligence or willful misconduct in the
performance of Executive's duties as determined in good
faith by the DST Board;
(iv) Willful failure by Executive to follow reasonable
instructions of the President or other officer to whom
Executive reports concerning the operations or business
of DST or any subsidiary of DST;
(v) Executive's fraud or criminal activity; or
(vi) Embezzlement or misappropriation by Executive.
(d) Termination by DST Other Than For Cause.
(i) DST may terminate this Agreement and Executive's employment
other than for cause immediately upon notice to Executive, and in such event,
DST shall provide severance benefits to Executive in accordance with
Paragraph 4(d)(ii) below.
(ii) In the event of termination of Executive's employment under
Paragraph 4(d)(i), DST shall continue, for a period of twelve (12) months
following such termination, (A) to pay to Executive as severance pay a monthly
amount equal to one-twelfth (1/12th) of the annual base salary referenced in
Paragraph 2(a) above at the rate in effect immediately prior to termination,
and, (B) to reimburse Executive for the cost (including state and federal
income taxes payable with respect to this reimbursement) of obtaining coverage
comparable to the health and life insurance provided pursuant to this
Agreement, unless Executive is provided comparable coverage in connection with
other employment. The foregoing obligations of DST shall continue until the
end of the said twelve (12) month period notwithstanding the death or
disability of Executive during said period (except, in the event of death, the
obligation to reimburse Executive for the cost of life insurance shall not
continue). After termination of employment, Executive shall not be entitled
to accrue or receive benefits under the KCSI Executive Plan or the KCSI
Incentive Compensation Plan with respect to the severance pay provided herein,
notwithstanding that benefits under such plans then are still generally
available to executive employees of DST; contributions and benefits under
such plans with respect to the year of termination shall be based solely upon
compensation paid to Executive for periods prior to termination. In
the year of termination, Executive shall be entitled to participate
in the KCSI Profit Sharing Plan and the KCSI Employee Stock Ownership
Plan (if DST employees then still participate in such plans) only if
the Executive meets all requirements of such plans for participation
in such year.
5. Non-Disclosure. During the term of this Agreement and at all times
after any termination of this Agreement, Executive shall not, either directly or
indirectly, use or disclose any DST trade secret, except to the extent necessary
for Executive to perform his duties for DST while an employee. For purposes of
this Agreement, the term "DST trade secret" shall mean any information regarding
the business or activities of DST or any subsidiary or affiliate, including any
formula, pattern, compilation, program, device, method, technique, process,
customer list, technical information or other confidential or proprietary
information, that (a) derives independent economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
9
disclosure or use, and (b) is the subject of efforts of DST or its subsidiary or
affiliate that are reasonable under the circumstances to maintain its
secrecy. In the event of any breach of this Paragraph 5 by Executive, DST shall
be entitled to terminate any and all remaining severance benefits under
Paragraph 4 (d) (ii) above and shall be entitled to pursue such other legal and
equitable remedies as may be available.
6. Duties Upon termination; Survival.
(a) Duties. Upon termination of this Agreement by DST or
Executive for any reason, Executive shall immediately return to DST all DST
trade secrets which exist in tangible form and shall sign such written
resignations from all positions as an officer, director or member of any
committee or board of DST and all direct and indirect subsidiaries and
affiliates of DST as may be requested by DST and shall sign such other documents
and papers relating to Executive's employment, benefits and benefit plans as DST
may reasonably request.
(b) Survival. The provisions of Paragraphs 5 and 6(a) of this
Agreement shall survive any termination of this Agreement by DST or Executive,
and the provisions of Paragraph 4 (d) (ii) shall survive any termination of this
Agreement by DST under Paragraph 4(d)(i).
7. Continuation of Employment Upon Change in Control.
(a) Continuation of Employment. Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in Control of KCSI
(as defined in Paragraph 7(d)) at any time during
10
the term of this Agreement, Executive will remain in the employ of DST for a
period of an additional three years from the date of such Change in Control
of KCSI (the "Control Change Date"). In the event of a Change in Control
of KCSI, subject to the terms and conditions of this Paragraph 7, DST shall,
for the three year period (the "Three-Year Period") immediately following the
Control Change Date, continue to employ Executive at not less than the
executive capacity Executive held immediately prior to the Change in Control of
KCSI. During the Three-Year Period, DST shall continue to pay Executive salary
on the same basis, at the same intervals, and at a rate not less than that,
paid to Executive at the Control Change Date. Notwithstanding any other
provision of this Agreement to the contrary, the provisions of this Paragraph
7 shall apply only if at least eighty percent (80%) of the issued and
outstanding stock of all classes of DST is owned by KCSI on the Control Change
Date.
(b) Benefits. During the Three-Year Period, Executive shall be
entitled to participate, on the basis of his executive position, in each of the
following plans (together,the "Specified Benefits") in existence, and in
accordance with the terms thereof, at the Control Change Date:
(i) any incentive compensation plan;
(ii) any benefit plan, and trust fund associated
therewith, related to (A) life, health, dental, disability, or
accidental death and dismemberment insurance, (E) profit sharing,
thrift or deferred savings
11
(including deferred compensation, such as under Sec. 401(k) plans),
(C) retirement or pension benefits, (D) ERISA excess benefits and (E)
tax favored employee stock ownership (such as under ESOP, TRASOP,
TCESO or PAYSOP programs); and
(iii) any other benefit plans hereafter made
generally available to executives of Executive's level or to the
employees of DST generally.
In addition, all outstanding options held by Executive under any stock option
plan of KCSI or its affiliates shall become immediately exercisable, and all
shares of Restricted Stock shall no longer be subject to forfeiture under
Paragraph 2(c)(i) above, on the Control Change Date.
(c) Payment. With respect to any plan or agreement under
which Executive would be entitled at the Control Change Date to receive
Specified Benefits as a general obligation of DST which has not been
separately funded (including specifically, but not limited to, those referred
to under Paragraphs 7(b)(i) and 7 (b) (ii) (D) above) , Executive shall
receive within five (5) days after such date full payment in cash (discounted
to then present value on the basis of a rate of 7.5 percent per annum) of all
amounts to which he is then entitled thereunder.
(d) Change in Control of KCSI. For purposes of this
Agreement, a "Change in Control of KCSI" shall be deemed to have occurred if
(a) for any reason at any time less than seventy-five percent (75%) of the
members of the KCSI Board shall be individuals
12
who were members of the KCSI Board on the date of this Agreement or individuals
whose election, or nomination for election by KCSI's
stockholders, was approved by a vote of at least seventy-five percent (75%) of
the members of the KCSI Board then still in office who were members of the KCSI
Board on the date of this Agreement, or (b) any "Person" (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act")) shall have become, according to a public announcement or
filing, without the prior approval of the KCSI Board, the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of KCSI representing thirty percent (30%) (forty percent (40%)
with respect to Paragraph 7(c) hereof) or more (calculated in accordance with
Rule 13d-3) of the combined voting power of KCSI's then outstanding voting
securities (such "person" hereafter referred to as a "Major Stockholder") ; or
(c) the stockholders of KCSI shall have approved a merger, consolidation or
dissolution of KCSI or a sale, lease, exchange or disposition of all or
substantially all of KCSI's assets, or a Major Stockholder shall have proposed
any such transaction, unless any such merger, consolidation, dissolution, sale,
lease, exchange or disposition shall have been approved by a least seventy-five
percent (75%) of the members of the KCSI Board who were either (i) members of
the KCSI Board on the date of this Agreement or (ii) elected or nominated by at
least seventy-five percent (75%) of the members of the KCSI Board then still in
office who were members of the KCSI Board on the date of this Agreement.
13
(e) Termination After Control Change Date. Notwithstand-
ing any other provision of this Paragraph 7, at any time after the
Control Change Date, DST may, through its Board, terminate the employment of
Executive (the "Termination") , but within five (5) days of the Termination it
shall pay to Executive his full base salary through the Termination, to the
extent not theretofore paid, plus a lump sum amount (the "Special Severance
Payment") equal to the product (discounted to then present value on the basis of
a rate of 7.50% per annum) of his annual base salary specified in Paragraph 7(a)
hereof multiplied by the number of years and any portion thereof remaining in
the Three-Year Period (or if the balance of the Three-Year Period after
Termination is less than one year, for one year, [hereinafter called the
"Extended Period"]). Specified Benefits to which Executive was entitled
immediately prior to Termination shall continue until the end of the Three-Year
Period (or the Extended Period, if applicable) ; provided that: (a) if any plan
pursuant to which Specified Benefits are provided immediately prior to
Termination would not permit continued participation by Executive after
Te=ination, then DST shall pay to Executive within five (5) days after
Termination a lump sum payment equal to the amount of Specified Benefits
Executive would have received if Executive had been fully vested and a
continuing participant in such plan to the end of the Three-Year Period or the
Extended Period, if applicable; and (b) if Executive obtains new employment
following Termination, then following any waiting period applicable to
participation in any plan of the new employer,
14
Executive shall continue to be entitled to receive benefits pursuant to this
sentence only to the extent such benefits would exceed those available to
Executive under comparable plans of the Executivels new employer (but
Executive shall not be required to repay any amounts then already received by
him).
(f) Resignation After Control Change Date. In the event of a
Change in Control of KCSI, thereaf ter, upon good reason (as defined below),
Executive may, at any time during the Three-Year Period or the Extended
Period, in his sole discretion, on not less than thirty (30) days' written
notice to the Secretary of DST and effective at the end of such notice period,
resign his employment with DST (the "Resignation") . Within five (5) days of
such a Resignation, DST shall pay to Executive his full base salary through
the effective date of such Resignation, to the extent not theretofore paid,
plus a lump sum amount equal to the Special Severance Payment (computed as
provided in the first sentence of Paragraph 7(e), except that for purposes of
such computation all references to "Termination" shall be deemed to be
references to "Resignation") Upon Resignation of Executive, Specified Benefits
to which Executive was entitled immediately prior to Resignation shall
continue on the same terms and conditions as provided in Paragraph 7(e) in the
case of Termination (including equivalent payments provided for therein). For
purposes of this Agreement, Executive shall have "good reason" if there occurs
without his consent (a) a reduction in the character of the duties assigned to
Executive or in Executive's level of work responsibility or
15
conditions; (b) a reduction in Executive's base salary as in effect
immediately prior to the Control Change Date or as the same may
have been increased thereafter; (c) a failure by DST or its successor to (i)
continue any of the plans of the type referred to in Paragraph 7(b) which shall
have been in effect at the Control Change Date (including those providing for
Specified Benefits) or to continue Executive as a participant in any of such
plans on at least the basis in effect immediately prior to the Control Change
Date; or (ii) provide other plans under which at least equivalent compensation
and benefits are available and in which Executive continues to participate on a
basis at least equivalent to his participation in the DST plans in effect
immediately prior to the Control Change Date; or (iii) to make the payment
required under Paragraph 7 (c) (d) the relocation of the principal executive
offices of DST or its successor to a location outside the metropolitan area of
Kansas City, Missouri or requiring Executive to be based anywhere other than
DST's principal executive office, except for required travel on DST's business
to an extent substantially consistent with Executive's obligations immediately
prior to the Control Change Date; or (e) any breach by DST of this Agreement to
the extent not previously specified.
(g) Termination for Cause After Control Change Date.
Notwithstanding any other provision of this Paragraph 7, at any time after the
Control Change Date, Executive may be terminated by DST "for cause, without
notice and without any payment hereunder only if such termination is for an act
of dishonesty by Executive
16
constituting a felony under the laws of the State of Missouri which resulted
or was intended to result in gain or personal enrichment of Executive at DST's
expense.
(h) Gross-up Provision. If any portion of any payments
received by Executive from DST on or after the Control Change Date (whether
payable pursuant to the terms of this Agreement or any other plan, agreement
or arrangement with DST, its successors or any person whose actions result in
a Change of Control of KCSI), shall be subject to the tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, or any successor
statutory provision ("Parachute Payments"), DST shall pay to Executive, within
five (5) days of Executivels Termination or Resignation such additional
amounts as are necessary so that, after taking into account any tax imposed by
such Section 4999 or any successor statutory provision on any such Parachute
Payments (as well as any income tax or Section 4999 tax on payments made
pursuant to this sentence), Executive is in the same after-tax position that
Executive would have been in if such Section 4999 or any successor
statutory provision did not apply and no payments were made
pursuant to this sentence.
(i) Mitigation and Expenses.
(i) Other Employment. After the Control
Change Date, Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and except as expressly set forth herein no such other employment, if
17
obtained, or compensation or benefits payable in connection therewith
shall reduce any amounts or benefits to which Executive is entitled
hereunder.
(ii) Expenses. If any dispute should arise under
this Agreement after the Control Change Date involving an effort by
Executive to protect, enforce or secure rights or benefits claimed by
Executive hereunder, DST shall pay (promptly upon demand by Executive
accompanied by reasonable evidence of incurrence) all reasonable
expenses (including attorneys, fees) incurred by Executive in
connection with such dispute, without regard to whether Executive
prevails in such dispute except that Executive shall repay DST any
amounts so received if a court having jurisdiction shall make a
final, nonappealable determination that Executive acted frivolously
or in bad faith by such dispute. To assure Executive that adequate
funds will be made available to discharge DST's obligations set forth
in the preceding sentence, DST has established a trust and upon the
occurrence of a Change in Control of KCSI shall promptly deliver to
the trustee of such trust to hold in accordance with the terms and
conditions thereof that sum which the Board shall have determined is
reasonably sufficient for such purpose.
(j) Successors in Interest. The rights and obligations
of Executive and DST under this Paragraph 7 shall inure to the
18
benefit of and be binding in each and every respect upon the direct and
indirect successors and assigns of DST and Executive, regardless of the manner
in which such successors or assigns shall succeed to the interest of DST or
Executive hereunder, and this Paragraph 7 shall not be terminated by the
voluntary or involuntary dissolution of DST or by any merger or consolidation
or acquisition involving DST, or upon any transfer of all or substantially all
of DST's assets, or terminated otherwise than in accordance with its terms. In
the event of any such merger or consolidation or transfer of assets, the
provisions of this Paragraph 7 shall be binding upon and shall inure to the
benefit of the surviving corporation or the corporation or other person to
which such assets shall be transferred.
(k) Prevailing Provisions. On and after the Control Change
Date, the provisions of this Paragraph 7 shall control and take precedence
over any other provisions of this Agreement which are in conflict with or
address the same or a similar subject matter as the provisions of this
Paragraph 7.
8. Notice. Notices and all other communications to either
party pursuant to this Agreement shall be in writing and shall be deemed
to have been given when personally delivered, delivered by telecopy or
deposited in the United States mail by certified or registered mail, postage
prepaid, addressed, in the case of DST, to DST, 114 West 11th Street,
Kansas City, Missouri 64105, Attention: Secretary, or, in the case of the
Executive, to him at 6832 Linden,
19
Shawnee Mission, Kansas 66208, or to such other address as a party shall
designate by notice to the other party.
9. Amendment. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, waiver, modification
or discharge is agreed to in a writing signed by Executive and the President
of DST. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time.
10. Successors and Assigns; Assignment by Executive Prohibited.
The rights and obligations of DST under this Agreement shall
inure to the benefit of and shall be binding upon the successors
and assigns of DST. Except as provided in Paragraph 7 (j), neither this
Agreement nor any of the payments or benefits hereunder may be pledged, assigned
or transferred by Executive either in whole or in part in any manner, without
the prior written consent of DST.
11. Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
12. Controlling Law and Jurisdiction. The validity, inter-
pretation and performance of this Agreement shall be subject to and
20
construed under the laws of the State of Missouri, without regard to principles
of conflicts of law.
13. Entire Agreement. Addendum A attached to this Agreement
is incorporated herein and made a part hereof. This Agreement
(including Addendum A) constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect hereof, except this Agreement does not supersede any Officer
Indemnification Agreement between DST and Executive.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
DST SYSTEMS, INC.
By
/s/ Thomas A. McDonnell, President
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By
/s/ Landon H. Rowland, President
/s/ Charles W. Schellhorn
21
ADDENDUM A
The provisions of this Addendum are incorporated into and made a part
of the Employment Agreement dated as of April 1, 1992 (the "Agreement") by and
between DST Systems, Inc.("DST"), Kansas City Southern Industries, Inc.("KCSI")
and Charles W. Schellhorn ("Executive"). In the event of any conflict between
the provisions of this Addendum and provisions of the Agreement, the provisions
of this Addendum shall govern.
1. Non-Compete. During the term of employment by DST or
by any successor or affiliate of DST, and for a period of three (3) years
following the termination of such employment, Executive will not, directly or
indirectly, as an employer, employee, principal, agent, partner, stockholder
or otherwise:
(a) Engage, in any geographic or market area then served by United
Micrographics Systems, Inc. ("UMSI"), Phoenix Litho, Inc. ("PLI"),
Network Graphics, Inc. ("NGI") or Support Resources, Inc. ("SRI"),
all of which are direct or indirect subsidiaries of DST, in the
business of (i) production of computer output microfilm, (ii) laser
printing, (iii) electronic publishing, (iv) commercial printing,
(v) graphics design, (vi) presorting or mailing of documents or
materials or (vii) sale or rental of equipment and supplies which
are then sold or used by UMSI, PLI, NGI or SRI or which, if sold to
a customer or potential customer, would enable it to perform any of
the foregoing services for itself, or otherwise compete with UMSI,
PLI, NGI or SRI in any business or activity in which UMSI, PLI, NGI
or SRI is engaged at such time in any geographic or market area
then served by UMSI, PLI, NGI or SRI;
(b) With respect to any business or activity of the type described in
(a) above, solicit business from UMSIL PLI, NGI or SRI customers'
offices, outlets or other facilities located in geographic or
market areas served by UMSI, PLI, NGI or SRI at the time of such
termination of employment, or from the offices, outlets or other
facilities of prospective customers of UMSI, PLI, NGI or SRI
located in geographic or market areas in which UMSI, PLI, NGI or
SRI has made a proposal to a potential customer to do business at
the time of such termination of employment; or
(c) Offer employment to any employee of UMSI, PLI, NGI or SRI or entice
any such employee to leave the employ of UMSI, PLI, NGI or SRI.
2. Enforcement. Executive hereby expressly agrees that the restrictions
set forth in paragraph 1 of this Addendum are necessary for the protection of
DST, UMSI, PLI, NGI and SRI against irreparable harm and loss of goodwill and
business, and therefor, DST and Executive intend and agree, that upon failure or
refusal of Executive to comply with the provisions of such paragraph, DST, UMSI,
PLI, NGI and/or SRI shall be entitled to specifically enforce such provisions by
an action in a court of proper jurisdiction to require Executive to perform in
accordance with this Addendum. Nothing herein shall be construed as prohibiting
DST, UMSI, PLI, NGI or SRI from pursuing any other remedies available to them
for such breach or threatened breach, including setoff against any payment owed
to Executive hereunder or recovery of damages from the Executive.
Dated as of this lst day of April, 1992.
DST SYSTEMS, INC.
By
/s/Thomas A. McDonnell, President
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By
/s/Landon H. Rowland, President
/s/Charles W. Schellhorn
-2-
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT dated this 9th day of October, 1995 among DST SYSTEMS, INC.
("DST"), KANSAS CITY SOUTHERN INDUSTRIES, INC.("KCSI") and CHARLES W.
SCHELLHORN ("Executive"). WHEREAS, DST, KCSI and Executive are parties to that
certain Employment Agreement dated as of April 1, 1992 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement. NOW, THEREFORE, in
consideration of the premises, DST, KCSI, and the Executive hereby agree to
amend the Agreement as follows:
1. KCSI is hereby removed as, and shall no longer be a party to the
Agreement.
2. Section 2(b) of the Agreement is hereby amended so as to read as
follows: "(b) Incentive Compensation. DST shall
include Executive as a participant in the DST
Incentive Compensation Plan under such terms as are
determined from time to time by the Board of
Directors of DST (the "DST Board") or the
Compensation Committee or other appropriate committee
of the DST Board (the "Compensation Committee") and
for such time as such plan shall continue in
existence. DST reserves the right to change, revoke
or terminate such plan at any time."
3. Section 2(c)of the Agreement is hereby amended to add the following
subsection: "(vi) The reduction of KCSI's ownership of
DST by reason of the Public Offering (as defined
below) (A) shall not affect the forfeiture
schedule set forth in Section 2(c)(i) and
such schedule shall remain in effect according to the
terms of Section 2(c)(i) following the Public
Offering and (B) shall not affect Executive's
obligation to return any forfeited shares to KCSI."
4. The first sentence of Section 3 of the Agreement is hereby
amended to read as follows:
"During the period of his employment hereunder,
DST shall provide Executive with coverage under
such benefit plans and programs as are made
generally available to executives serving on the
Management Committee of DST, provided (A) DST shall
have no obligation with respect to any plan or
program if Executive is not eligible for coverage
thereunder, and (B) Executive acknowledges that
stock options and other stock and equity
participation awards are granted in the discretion
of the DST Board or Compensation Committee and that
Executive has no right to receive stock options or
other equity participation awards or any
particular number or level of stock options
or other awards."
5. The third and fourth sentences of Section 4(d)(ii) of the
Agreement are hereby amended to read as follows:
"After termination of employment, Executive shall not
be entitled to accrue or receive benefits under the
DST Executive Plan or the DST Incentive Compensation
Plan with respect to the severance pay provided
herein, notwithstanding that benefits under such
plans then are still generally available to executive
employees of DST; contributions and benefits under
such plans with respect to the year of termination
shall be based solely upon compensation paid to
Executive for periods prior to termination. In the
year of termination, Executive shall be entitled to
participate in the DST Profit Sharing Plan and the
KCSI Employee Stock Ownership Plan (if DST employees
then still participate in such plan) or any DST
Employee Stock Ownership Plan only if the Executive
meets all requirements of such plans for
participation in such year.
6. Section 7(a) of the Agreement is hereby amended to read as
follows:
"(a) Continuation of Employment. subject to
the terms and conditions of this Paragraph 7, in the
event of a Change in Control of DST (as defined in
Paragraph 7(d)) at any time during the term of this
Agreement, Executive will remain in the employ of DST
for a period of an additional three years from the
date of such Change in Control of DST (the "Control
Change Date"). In the event of a Change in Control of
DST, subject to the terms and conditions of this
Paragraph 7, DST shall, for the three year period
(the "Three-Year Period") immediately following the
Control Change Date, continue to employ Executive at
not less than the executive capacity Executive held
immediately prior to the Change in Control of DST.
During the Three-Year Period, DST shall continue to
pay Executive salary on the same basis, at the same
intervals, and at a rate not less than that, paid to
Executive at the Control Change Date."
7. The last sentence of Section 7(b) is hereby amended to read
as follows:
"In addition, all outstanding options held by
Executive under any stock option plan of KCSI or DST
or their affiliates shall become immediately
exercisable except that no stock option under any
stock option plan of KCSI shall become exercisable
before the first anniversary date of the granting of
the option, and all shares of Restricted Stock shall
no longer be subject to forfeiture under Paragraph
2(c)(i) above, on the Control Change Date."
8. Sections 7(d) and 7(f) are hereby amended so that all references to
"KCSI" and the "KCSI Board" in such Sections shall be changed to "DST" and the
"DST Board" respectively.
9. All existing stock option agreements between KCSI and Executive
hereby are amended, as necessary, to permit the options to become exercisable as
provided in Section 7 of this Amendment and so that all references to "KCSI" in
connection with a change in control are changed to "DST" and all references to
"Company" and "Board" in connection with a change of control shall be references
to DST and the DST Board respectively.
10. The effective date of this Amendment (the "Effective Date") shall
be the date of the public offering of DST common stock pursuant to the Form S-1
Registration Statement Number 33-96526 on file with the United States Securities
and Exchange Commission on the date hereof, as amended (the "Public Offering").
11. The Agreement shall remain in full force and effect, as amended by
this Amendment. Notwithstanding the fact that KCSI will no longer be a party to
the Agreement following the Effective Date, it shall continue to be bound by and
receive the benefits of the provisions of Sections 2, 7 and 9 of the Agreement
as amended hereby.
IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first above written.
DST SYSTEMS, INC.
By
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By
/s/CHARLES W. SCHELLHORN
Page
<PAGE>
Page
EXHIBIT A
AMENDED AND RESTATED
FIVE-YEAR
COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of December 30, 1996
among
DST SYSTEMS, INC.,
THE LENDERS NAMED HEREIN,
and
THE CHASE MANHATTAN BANK, as Syndication Agent and Administrative Agent
<PAGE>
Page
i
TABLE OF CONTENTS
<PAGE>
Page
iii
Article Section Page
I. DEFINITIONS
1.01 Defined Terms................................................. 1
1.02 Terms Generally.............................................. 10
II. THE CREDITS
2.01 Commitments.................................................. 11
2.02 Loans........................................................ 11
2.03 Competitive Bid Procedure.................................... 12
2.04 Standby Borrowing Procedure.................................. 14
2.05 Refinancings................................................. 15
2.06 Fees......................................................... 15
2.07 Repayment of Loans; Evidence of Debt......................... 15
2.08 Interest on Loans............................................ 16
2.09 Default Interest............................................. 16
2.10 Alternate Rate of Interest................................... 17
2.11 Termination, Reduction and Increase of Commitments........... 17
2.12 Prepayment................................................... 18
2.13 Reserve Requirements; Change in Circumstances................ 18
2.14 Change in Legality........................................... 19
2.15 Indemnity.................................................... 20
2.16 Pro Rata Treatment........................................... 20
2.17 Sharing of Setoffs........................................... 21
2.18 Payments..................................................... 21
2.19 Taxes........................................................ 21
2.20 Termination or Assignment of Commitments Under
Certain Circumstances........................................ 23
2.21 Lending Offices and Lender Certificates;
Survival of Indemnity........................................ 24
III. REPRESENTATIONS AND WARRANTIES
3.01 Corporate Existence and Standing............................. 24
3.02 Authorization and Validity................................... 24
3.03 No Conflict; Governmental Consent............................ 24
3.04 Compliance with Laws; Environmental and Safety
Matters...................................................... 25
3.05 Financial Statements......................................... 25
3.06 No Material Adverse Change................................... 25
3.07 Ownership of Properties...................................... 25
3.08 Subsidiaries................................................. 25
3.09 Litigation; Contingent Obligations........................... 25
3.10 Material Agreements.......................................... 26
3.11 Regulation U................................................. 26
3.12 Investment Company Act....................................... 26
3.13 Use of Proceeds.............................................. 26
3.14 Taxes........................................................ 26
3.15 Accuracy of Information...................................... 26
3.16 Employee Benefit Plans....................................... 26
3.17 No Undisclosed Dividend Restrictions......................... 27
IV. CONDITIONS OF LENDING
4.01 All Borrowings............................................... 27
4.02 Effectiveness................................................ 27
V. AFFIRMATIVE COVENANTS
5.01 Conduct of Business and Maintenance of Properties............ 28
5.02 Insurance.................................................... 28
5.03 Compliance with Laws and Taxes............................... 28
5.04 Financial Statements, Reports, etc........................... 28
5.05 Other Notices................................................ 29
5.06 Access to Properties and Inspections......................... 29
5.07 Use of Proceeds.............................................. 30
VI. NEGATIVE COVENANTS
6.01 Indebtedness................................................. 30
6.02 Liens........................................................ 31
6.03 Sale and Lease-Back Transactions............................. 32
6.04 Mergers, Consolidations and Transfers of Assets.............. 32
6.05 Transactions with Affiliates................................. 32
6.06 Certain Other Agreements..................................... 32
6.07 Certain Financial Covenants.................................. 33
6.08 Margin Stock................................................. 33
VII. EVENTS OF DEFAULT................................................. 33
VIII. THE AGENT......................................................... 35
IX. MISCELLANEOUS
9.01 Notices...................................................... 37
9.02 Survival of Agreement........................................ 37
9.03 Binding Effect............................................... 38
9.04 Successors and Assigns....................................... 38
9.05 Expenses; Indemnity.......................................... 40
9.06 Right of Setoff.............................................. 41
9.07 Applicable Law............................................... 41
9.08 Waivers; Amendment........................................... 41
9.09 Interest Rate Limitation..................................... 41
9.10 Entire Agreement............................................. 42
9.11 Waiver of Jury Trial......................................... 42
9.12 Severability................................................. 42
9.13 Counterparts................................................. 42
9.14 Headings..................................................... 42
9.15 Jurisdiction; Consent to Service of Process.................. 42
9.16 Confidentiality.............................................. 43
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.17 Dividend Restrictions
Schedule 6.01 Indebtedness
Schedule 6.02 Liens
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Compliance Certificate
Exhibit E Form of Confidentiality Agreement
<PAGE>
1
AMENDED AND RESTATED FIVE-YEAR COMPETITIVE
ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT dated
as of December 30, 1996, among DST SYSTEMS, INC., a
Delaware corporation (the "Borrower"), the lenders
listed in Schedule 2.01 (the "Lenders"), THE CHASE
MANHATTAN BANK, as documentation agent, syndication
agent, and administrative agent for the Lenders (in
such capacity, the "Agent").
<PAGE>
The Borrower has requested the Lenders and the Lenders,
pursuant to the First Amendment to the Existing Credit Agreement (such term and
each other capitalized term used but not otherwise defined herein having the
meaning assigned to it in Article I), have agreed to extend credit to enable the
Borrower to borrow on a standby revolving credit basis on and after the date
hereof and at any time and from time to time prior to the Maturity Date a
principal amount not in excess of $105,000,000 at any time outstanding. The
proceeds of such borrowings are to be used for general corporate purposes. The
Borrower has also requested the Lenders to provide a procedure pursuant to which
the Lenders may be invited to bid on an uncommitted basis on short-term
borrowings by the Borrower. The Lenders are willing to extend such credit to the
Borrower on the terms and subject to the conditions herein set forth.
Accordingly, the Borrower, the Lenders and the Agent agree as
follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement,
the following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Standby Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Adjusted LIBO Rate" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of
(a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person specified and in any case shall include, when used with respect to the
Borrower or any Subsidiary, any joint venture in which the Borrower or such
Subsidiary holds an equity interest.
"Agent's Fees" shall have the meaning assigned to such term
in Section 2.06(c).
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate
of interest per annum publicly announced from time to time by the Agent as its
prime rate in effect at its principal office in New York City; the Prime Rate is
not intended to be the lowest rate of interest charged by the Agent in
connection with extensions of credit to debtors; each change in the Prime Rate
shall be effective on the date such change is publicly announced as effective.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it. "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day of
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate
or both for any reason, including the inability or failure of the Agent to
obtain sufficient quotations in accordance with the terms thereof, the Alternate
Base Rate shall be determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"Assessment Rate" shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated
by the Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Agent to the Federal Deposit
Insurance Corporation (or any successor) for insurance by such Corporation (or
such successor) of time deposits made in dollars at the Agent's domestic
offices.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the Agent,
in the form of Exhibit C.
"Attributable Debt" shall mean, in connection with a Sale and
Leaseback Transaction, the present value (discounted in accordance with GAAP at
the debt rate implied in the lease) of the obligations of the Lessee for rental
payments during the term of the Lease.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrowing" shall mean a group of Loans of a single Type made
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on a
single date and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Capitalized Lease Obligations" of any person shall mean the
obligations of such person under any lease that would be capitalized on a
balance sheet of such person prepared in accordance with GAAP, and the amount of
such obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986.
A "Change in Control" shall be deemed to have occurred if (i)
at any time, less than 75% of the members of the board of directors of the
Borrower shall be individuals whose election, or nomination for election by the
Borrower's stockholders, was approved by a vote of at least 75% of the members
of the board then still in office who are members of the board on the date
hereof or (ii) at any time, any person, or any two or more persons acting as a
partnership, limited partnership, syndicate, or other group for the purpose of
acquiring, holding or disposing of securities of the Borrower, shall become,
according to public announcement or filing, the "beneficial owner" (as defined
in Rule 13d-3 issued under the Securities Exchange Act of 1934, as amended),
directly or indirectly, of securities of the Borrower representing 30% or more
(calculated in accordance with such Rule 13d-3) of the combined voting power of
the Borrower's then outstanding voting securities.
"Code" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the
commitment of such Lender hereunder as set forth in Schedule 2.01 hereto, as
such Lender's Commitment may be permanently terminated or reduced from time to
time pursuant to Section 2.11. The Commitments shall automatically and
permanently terminate on the Maturity Date if not terminated earlier pursuant to
Section 2.11.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a
notification made by the Borrower pursuant to Section 2.03(d) in the form of
Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid
made by a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar
Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of
interest offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant
to Section 2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted by the Borrower
under the bidding procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan from a Lender to the
Borrower pursuant to the bidding procedure described in Section 2.03.
Each Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate
Loan.
"Confidential Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated April 1995.
"Consolidated EBITDA" shall mean, for any period, the sum for
such period of (a) Consolidated Net Income, (b) Consolidated Interest Expense,
(c) provision for income taxes and (d) any amount which in the determination of
Consolidated Net Income has been deducted for depreciation expense or
amortization expense, in each case determined in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any period,
total interest expense of the Borrower and the Consolidated Subsidiaries on a
consolidated basis for such period, determined in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the net
income of the Borrower and the Consolidated Subsidiaries on a consolidated basis
for such period but without giving effect to any extraordinary gains and gains
from the sale of assets (other than in the ordinary course of business),
determined in accordance with GAAP.
"Consolidated Net Worth" shall mean, on any date the
stockholders' equity of the Borrower and the Consolidated Subsidiaries on such
date, computed and consolidated in accordance with GAAP.
"Consolidated Subsidiary" shall mean each Subsidiary the
financial statements of which shall be required to be consolidated with the
financial statements of the Borrower in accordance with GAAP.
"Consolidated Total Assets" shall mean the total assets of the
Borrower and the Consolidated Subsidiaries on a consolidated basis at any time,
determined in accordance with GAAP.
"Consolidated Total Indebtedness" shall mean at any date all
Indebtedness of the Borrower and the Consolidated Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any Subsidiary, are treated
as a single employer under Section 414(b) or 414(c) of the Code or, solely for
purposes of Section 302 of ERISA and Section 412 of the Code, are treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code.
"Coverage Ratio" shall mean the ratio of (a) Consolidated
EBITDA to (b) Consolidated Interest Expense.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United
States of America.
"Environmental Lien" shall mean a Lien in favor of any
governmental entity for (a) any liability under Federal or state environmental
laws or regulations (including, without limitation, RCRA and CERCLA) or (b)
damages arising from costs incurred by such governmental entity in response to a
release of a hazardous or toxic waste, substance or constituent, or other
substance into the environment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Existing Credit Agreement" shall mean the Three-Year
Competitive Advance and Revolving Credit Facility Agreement dated as of May 5,
1995, among the Borrower, the Lenders party thereto, The Chase Manhattan Bank
(as successor to Chemical Bank), as syndication agent, and The Chase Manhattan
Bank, as administrative agent.
"Eurodollar Borrowing" shall mean a Borrowing comprised
of Eurodollar Loans.
"Eurodollar Competitive Borrowing" shall mean a Borrowing
comprised of Eurodollar Competitive Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan
or Eurodollar Standby Loan.
"Eurodollar Standby Borrowing" shall mean a Borrowing
comprised of Eurodollar Standby Loans.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing
interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such
term in Article VII.
"Facility Fee" shall have the meaning assigned to such
term in Section 2.06(a).
"Fee Letter" shall mean the letter agreement dated as of
November 22, 1996 between the Borrower and the Agent.
"Fees" shall mean the Facility Fee, the Utilization Fee and
the Agent's Fees.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (expressed in the form of a
decimal to no more than four decimal places) specified by the Lender making such
Loan in its Competitive Bid.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of a person means any agreement by which such
person assumes, guarantees, endorses, contingently agrees to purchase or provide
funds for the payment of, or otherwise becomes liable upon, the obligation of
any other person, or agrees to maintain the net worth or working capital or
other financial condition of any other person or otherwise assures any creditor
of such other person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract and shall include, without
limitation, the contingent liability of such person in connection with any
application for a Letter of Credit. The term "Guarantee" used as a verb has a
corresponding meaning.
"Indebtedness" of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money, (b) all obligations of
such person evidenced by bonds, debentures, notes, acceptances, equipment trust
certificates or similar instruments, (c) all obligations of such person issued
or assumed as the deferred purchase price of property or services other than
accounts payable arising in the ordinary course of such person's business on
terms customary in the trade, (d) all obligations of such person, whether or not
assumed, secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien or payable
out of the proceeds or production from property owned or acquired by such
person, (e) Capitalized Lease Obligations of such person, (f) all Guarantees by
such person of Indebtedness of others and (g) any other obligations or
securities which such person is directly or indirectly obligated to repay,
redeem, retire, extinguish or repurchase (i) at a fixed or determinable date,
whether by operation of a sinking fund or otherwise, (ii) at the option of any
person other than the issuer thereof or (iii) upon the occurrence of a condition
not solely within the control of the issuer thereof or obligor thereon, such as
a redemption out of future earnings. The Indebtedness of any person shall
include the Indebtedness of any partnership in which such person is a general
partner.
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of the Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months' duration or a
Fixed Rate Loan with an Interest Period of more than 90 days' duration, each day
that would have been an Interest Payment Date for such Loan had successive
Interest Periods of three months' duration or 90 days duration, as the case may
be, been applicable to such Loan and, in addition, the date of any refinancing
or conversion of such Loan with or to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding day,
on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter,
as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on
the date of such Borrowing and ending on the date 90 days thereafter or, if
earlier, on the Maturity Date or the date of prepayment of such Borrowing and
(c) as to any Fixed Rate Borrowing, the period commencing on the date of such
Borrowing and ending on the date specified in the Competitive Bids in which the
offer to make the Fixed Rate Loans comprising such Borrowing were extended,
which shall not be earlier than seven days after the date of such Borrowing or
later than 360 days after the date of such Borrowing; provided, however, that if
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of Eurodollar Loans only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"Letter of Credit" of a person shall mean a letter of credit
or similar instrument that is issued upon the application of such person or upon
which such person is an account party or for which such person is in any way
liable.
"Leverage Ratio" shall mean the ratio of (a) Consolidated
Total Indebtedness to (b) the sum of Consolidated Total Indebtedness and
Consolidated Net Worth.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the rate at which dollar deposits
approximately equal in principal amount to (i) in the case of a Standby
Borrowing the Agent's portion of such Eurodollar Borrowing and (ii) in the case
of a Competitive Borrowing, a principal amount that would have been the Agent's
portion of such Competitive Borrowing had such Competitive Borrowing been a
Standby Borrowing, and for a maturity comparable to such Interest Period are
offered to the principal London office of the Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest
in or on such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan" shall mean a Competitive Loan or a Standby Loan,
whether made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan, as
permitted hereby.
"Loan Documents" shall mean this Agreement and the Fee Letter.
"Margin" shall mean, as to any Eurodollar Competitive Loan,
the margin (expressed as a percentage rate per annum in the form of a decimal to
no more than four decimal places) to be added to or subtracted from the LIBO
Rate in order to determine the interest rate applicable to such Loan, as
specified in the Competitive Bid relating to such Loan.
"Margin Stock" shall have the meaning given such term under
Regulation U.
"Maturity Date" shall mean December 19, 2001.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a Plan that is a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA as to which the
Borrower or any member of the Controlled Group may have any liability.
"Multiple Employer Plan" shall mean a Plan that is a
single-employer plan which has two or more contributing sponsors at least two of
whom are not under common control or who made contributions under such Plan
during the preceding five years.
"Obligations" shall mean all unpaid principal of and accrued
and unpaid interest on the Loans, all accrued and unpaid Fees and all other
obligations of the Borrower to the Lenders or to any Lender or the Agent arising
under the Loan Documents.
"OTI" shall mean Output Technologies, Inc., a Missouri
corporation.
"PBGC" shall mean the Pension Benefit Guarantee Corporation
referred to and defined in ERISA.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code as to which the Borrower or any member of the Controlled
Group may have any liability.
"RCRA" shall mean the Resources Conservation and Recovery Act,
as the same may be amended from time to time.
"Register" shall have the meaning given such term in
Section 9.04(d).
"Regulation D" shall mean Regulation D of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation G" shall mean Regulation G of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Reportable Event" shall mean any reportable event as defined
in Section 4043 of ERISA and the regulations issued under such Section with
respect to a Plan (other than a Multiemployer Plan), excluding, however, such
events as to which the PBGC by regulation or by technical update waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event; provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a reportable event regardless of the issuance of any waiver in accordance with
Section 412(d) of the Code.
"Required Lenders" shall mean, at any time, (a)(i) the Agent
and Lenders in the aggregate holding at least 50% of the Total Commitment or
(ii) for purposes of acceleration pursuant to clause (ii) of Article VII or if
the Total Commitment has been terminated, the Agent and Lenders in the aggregate
holding at least 50% of the aggregate unpaid principal amount of the Loans or
(b)(i) Lenders in the aggregate holding at least 66-2/3% of the Total Commitment
or (ii) for purposes of acceleration pursuant to clause (ii) of Article VII or
if the Total Commitment has been terminated, Lenders in the aggregate holding at
least 66-2/3% of the aggregate unpaid principal amount of the Loans.
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Sale and Leaseback Transaction" shall have the meaning
assigned to such term in Section 6.03.
"Significant Subsidiary" shall mean, on any date of
determination, each of (a) DST Realty, Inc., a Missouri corporation, (b) OTI,
and (c) any other Subsidiary the assets of which represent on such date more
than 10% of the consolidated total assets of the Borrower and the Consolidated
Subsidiaries determined in accordance with GAAP; provided that if on any date
the assets of Subsidiaries which on such date are not Significant Subsidiaries
(the "Nonsignificant Subsidiaries") represent in the aggregate more than 25% of
Consolidated Total Assets, the Borrower may designate by written notice to the
Agent one or more of such Nonsignificant Subsidiaries as Significant
Subsidiaries in order that the assets of the Nonsignificant Subsidiaries after
such designation do not represent in the aggregate more than 25% of Consolidated
Total Assets.
"S&P" shall mean Standard and Poor's Ratings Group.
"Specified Subsidiary" shall mean, at any time, a Subsidiary,
the total assets of which exceed at such time 3% of the total assets of the
Borrower and the Consolidated Subsidiaries, determined in accordance with GAAP.
"Standby Borrowing" shall mean a borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant
to Section 2.04 in the form of Exhibit A-5.
"Standby Loans" shall mean the revolving loans made by the
Lenders to the Borrower pursuant to Section 2.04. Each Standby Loan shall be a
Eurodollar Standby Loan or an ABR Loan.
"Statutory Reserves" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board and any other banking authority to which
the Agent is subject (a) with respect to the Base CD Rate (as such term is used
in the definition of "Alternate Base Rate"), for new negotiable nonpersonal time
deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency
Liabilities (as defined in Regulation D). Such reserve percentages shall include
any imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and to be subject to such reserve
requirements without benefits of or credit for proration, exemptions or offsets.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
"subsidiary" shall mean, with respect to any person, any
corporation, partnership, association or other business entity of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or more than 50% of the general
partnership interests are, at the time any determination is being made, owned,
controlled or held.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Total Commitment" shall mean at any time the aggregate amount
of the Lenders' Commitments, as in effect at such time.
"Transactions" shall have the meaning assigned to such term
in Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the Adjusted LIBO Rate, the LIBO Rate, the Alternate Base Rate and the
Fixed Rate.
"Unfunded Liabilities" shall mean, on any date of
determination, (a) in the case of Multiemployer Plans and Multiple Employer
Plans, the liability of the Borrower and the Subsidiaries if they were to incur
a complete withdrawal from each such plan and (b) in the case of all other
Plans, all "unfunded benefit liabilities" as defined in Section 4001(a)(18) of
ERISA .
"Utilization Fee" shall have the meaning assigned to such
term in Section 2.06(b).
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
however, that, for purposes of determining compliance with any covenant set
forth in Article VI, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
application used in preparing the Borrower's audited financial statements
referred to in Section 3.05. In the event that any change in GAAP materially
affects any provision of this Agreement, the parties hereto agree that, at the
request of the Borrower or the Required Lenders, they shall negotiate in good
faith in order to amend the affected provisions in such a way as will restore
the parties to their respective positions prior to such change, and, following
any such request, until such amendment becomes effective, the Borrower's
compliance with such provisions shall be determined on the basis of GAAP as in
effect immediately before such change in GAAP became effective.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make Standby Loans to the Borrower,
at any time and from time to time on and after the date hereof and until the
earlier of the Maturity Date and the termination of the Commitment of such
Lender, in an aggregate principal amount at any time outstanding not to exceed
such Lender's Commitment minus the amount by which the Competitive Loans
outstanding at such time shall be deemed to have used such Commitment pursuant
to Section 2.16, subject, however, to the conditions that (a) at no time shall
(i) the sum of (x) the outstanding aggregate principal amount of all Standby
Loans made by all Lenders plus (y) the outstanding aggregate principal amount of
all Competitive Loans made by all Lenders exceed (ii) the Total Commitment, and
(b) at all times the outstanding aggregate principal amount of all Standby Loans
made by each Lender shall equal the product of (i) the percentage which its
Commitment represents of the Total Commitment times (ii) the outstanding
aggregate principal amount of all Standby Loans made pursuant to Section 2.04.
Each Lender's Commitment is set forth opposite its respective name in Schedule
2.01. Such Commitments may be terminated or reduced from time to time pursuant
to Section 2.11.
Within the foregoing limits, the Borrower may borrow, pay or
prepay and reborrow hereunder, on and after the date hereof and prior to the
Maturity Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as
part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their Commitments; provided, however, that the failure of any
Lender to make any Standby Loan shall not in itself relieve any other Lender of
its obligation to lend hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). Each Competitive Loan shall be made
in accordance with the procedures set forth in Section 2.03. The Standby Loans
or Competitive Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans, in an aggregate principal amount which is an integral
multiple of $1,000,000 and not less than $5,000,000 and (ii) in the case of
Standby Loans, in an aggregate principal amount which is an integral multiple of
$1,000,000 and not less than $5,000,000 (or an aggregate principal amount equal
to the remaining balance of the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each
Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to repay
such Loan in accordance with the terms of this Agreement. Borrowings of more
than one Type may be outstanding at the same time; provided, however, that the
Borrower shall not be entitled to request any Borrowing which, if made, would
result in an aggregate of more than thirteen separate Standby Loans of any
Lender being outstanding hereunder at any one time. For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Loans.
(c) Subject to Section 2.05, each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Agent in New York, New York, not later than
12:00 noon, New York City time, and the Agent shall by 3:00 p.m., New York City
time, credit the amounts so received to the general deposit account of the
Borrower with the Agent or, if a Borrowing shall not occur on such date because
any condition precedent herein specified shall not have been met, return the
amounts so received to the respective Lenders. Competitive Loans shall be made
by the Lender or Lenders whose Competitive Bids therefor are accepted pursuant
to Section 2.03 in the amounts so accepted and Standby Loans shall be made by
the Lenders pro rata in accordance with Section 2.16. Unless the Agent shall
have received notice from a Lender prior to the date of any Borrowing that such
Lender will not make available to the Agent such Lender's portion of such
Borrowing, the Agent may assume that such Lender has made such portion available
to the Agent on the date of such Borrowing in accordance with this paragraph (c)
and the Agent may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have made such portion available to the Agent, such Lender and
the Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent at (i) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Effective Rate. If such Lender shall
repay to the Agent such corresponding amount, such amount shall constitute such
Lender's Loan as part of such Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.03. Competitive Bid Procedure. (a) In order to
request Competitive Bids, the Borrower shall hand deliver, telex or telecopy to
the Agent a duly completed Competitive Bid Request in the form of Exhibit A-1
hereto, to be received by the Agent (i) in the case of a Eurodollar Competitive
Borrowing, not later than 10:00 a.m., New York City time, four Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 10:00 a.m., New York City time, one Business Day
before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or
made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does
not conform substantially to the format of Exhibit A-1 may be rejected in the
Agent's sole discretion, and the Agent shall promptly notify the Borrower of
such rejection by telex or telecopier. Such request shall in each case refer to
this Agreement and specify (x) whether the Borrowing then being requested is to
be a Eurodollar Borrowing or a Fixed Rate Borrowing, (y) the date of such
Borrowing (which shall be a Business Day) and the aggregate principal amount
thereof which shall be in a minimum principal amount of $5,000,000 and in an
integral multiple of $1,000,000, and (z) the Interest Period with respect
thereto (which may not end after the Maturity Date). Promptly after its receipt
of a Competitive Bid Request that is not rejected as aforesaid, the Agent shall
invite by telecopier (in the form set forth in Exhibit A-2 hereto) the Lenders
to bid, on the terms and conditions of this Agreement, to make Competitive Loans
pursuant to the Competitive Bid Request.
(b) Each Lender may, in its sole discretion, make one or more
Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each
Competitive Bid by a Lender must be received by the Agent via telecopier, in the
form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive
Borrowing, not later than 9:30 a.m., New York City time, three Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 9:30 a.m., New York City time, on the day of a
proposed Competitive Borrowing. Multiple bids will be accepted by the Agent.
Competitive Bids that do not conform substantially to the format of Exhibit A-3
may be rejected by the Agent after conferring with, and upon the instruction of,
the Borrower, and the Agent shall notify the Lender making such nonconforming
bid of such rejection as soon as practicable. Each Competitive Bid shall refer
to this Agreement and specify (x) the principal amount (which shall be in a
minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000
and which may equal the entire principal amount of the Competitive Borrowing
requested by the Borrower) of the Competitive Loan or Loans that the Lender is
willing to make to the Borrower, (y) the Competitive Bid Rate or Rates at which
the Lender is prepared to make the Competitive Loan or Loans and (z) the
Interest Period and the last day thereof. If any Lender shall elect not to make
a Competitive Bid, such Lender shall so notify the Agent via telecopier (I) in
the case of Eurodollar Competitive Loans, not later than 9:30 a.m., New York
City time, three Business Days before a proposed Competitive Borrowing, and (II)
in the case of Fixed Rate Loans, not later than 9:30 a.m., New York City time,
on the day of a proposed Competitive Borrowing; provided, however, that failure
by any Lender to give such notice shall not cause such Lender to be obligated to
make any Competitive Loan as part of such Competitive Borrowing. A Competitive
Bid submitted by a Lender pursuant to this paragraph (b) shall be irrevocable.
(c) The Agent shall promptly notify the Borrower by telecopier
of all the Competitive Bids made, the Competitive Bid Rate and the principal
amount of each Competitive Loan in respect of which a Competitive Bid was made
and the identity of the Lender that made each bid. The Agent shall send a copy
of all Competitive Bids to the Borrower for its records as soon as practicable
after completion of the bidding process set forth in this Section 2.03.
(d) The Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d), accept or reject any
Competitive Bid referred to in paragraph (c) above. The Borrower shall notify
the Agent by telephone, confirmed by telecopier in the form of a Competitive Bid
Accept/Reject Letter, whether and to what extent it has decided to accept or
reject any of or all the bids referred to in paragraph (c) above, (x) in the
case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York
City time, three Business Days before a proposed Competitive Borrowing, and (y)
in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City
time, on the day of a proposed Competitive Borrowing; provided, however, that
(i) the failure by the Borrower to give such notice shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above, (ii) the Borrower
shall not accept a bid made at a particular Competitive Bid Rate if the Borrower
has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the
aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the principal amount specified in the Competitive Bid Request and shall
be in a minimum principal amount of $5,000,000, (iv) if the Borrower shall
accept a bid or bids made at a particular Competitive Bid Rate but the amount of
such bid or bids shall cause the total amount of bids to be accepted by the
Borrower to exceed the amount specified in the Competitive Bid Request, then the
Borrower shall accept a portion of such bid or bids in an amount equal to the
amount specified in the Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000; provided further,
however, that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to
integral multiples of $1,000,000 in a manner which shall be in the discretion of
the Borrower. A notice given by the Borrower pursuant to this paragraph (d)
shall be irrevocable.
(e) The Agent shall promptly notify each bidding Lender
whether or not its Competitive Bid has been accepted (and if so, in what amount
and at what Competitive Bid Rate) by telecopy sent by the Agent, and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
(f) A Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request.
(g) If the Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such bid directly to the Borrower one
quarter of an hour earlier than the latest time at which the other Lenders are
required to submit their bids to the Agent pursuant to paragraph (b) above.
(h) All Notices required by this Section 2.03 shall be
given in accordance with Section 9.01.
SECTION 2.04. Standby Borrowing Procedure. In order to request
a Standby Borrowing, the Borrower shall hand deliver or telecopy to the Agent in
the form of Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not
later than 10:30 a.m., New York City time, three Business Days before a proposed
borrowing and (b) in the case of an ABR Borrowing, not later than 10:30 a.m.,
New York City time, on the day of a proposed borrowing. No Fixed Rate Loan shall
be requested or made pursuant to a Standby Borrowing Request. Such notice shall
be irrevocable and shall in each case specify (i) whether the Borrowing then
being requested is to be a Eurodollar Standby Borrowing or an ABR Borrowing;
(ii) the date of such Standby Borrowing (which shall be a Business Day) and the
amount thereof; and (iii) if such Borrowing is to be a Eurodollar Standby
Borrowing, the Interest Period with respect thereto. If no election as to the
Type of Standby Borrowing is specified in any such notice, then the requested
Standby Borrowing shall be an ABR Borrowing. If no Interest Period with respect
to any Eurodollar Standby Borrowing is specified in any such notice, then the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. If the Borrower shall not have given notice in accordance with this
Section 2.04 of its election to refinance a Standby Borrowing prior to the end
of the Interest Period in effect for such Borrowing, then the Borrower shall
(unless such Borrowing is repaid at the end of such Interest Period) be deemed
to have given notice of an election to refinance such Borrowing with an ABR
Borrowing. The Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.04 and of each Lender's portion of the requested
Borrowing.
SECTION 2.05. Refinancings. The Borrower may refinance all or
any part of any Borrowing with a Borrowing of the same or a different Type made
pursuant to Section 2.03 or Section 2.04, subject to the conditions and
limitations set forth herein and elsewhere in this Agreement, including
refinancings of Competitive Borrowings with Standby Borrowings and Standby
Borrowings with Competitive Borrowings. Any Borrowing or part thereof so
refinanced shall be deemed to be repaid in accordance with Section 2.07 with the
proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to
the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Agent or by the Agent to the
Borrower pursuant to Section 2.02(c); provided, however, that (i) if the
principal amount extended by a Lender in a refinancing is greater than the
principal amount extended by such Lender in the Borrowing being refinanced, then
such Lender shall pay such difference to the Agent for distribution to the
Lenders described in (ii) below, (ii) if the principal amount extended by a
Lender in the Borrowing being refinanced is greater than the principal amount
being extended by such Lender in the refinancing, the Agent shall return the
difference to such Lender out of amounts received pursuant to (i) above, and
(iii) to the extent any Lender fails to pay the Agent amounts due from it
pursuant to (i) above, any Loan or portion thereof being refinanced with such
amounts shall not be deemed repaid in accordance with Section 2.07 and shall be
payable by the Borrower.
SECTION 2.06. Fees. (a) The Borrower agrees to pay to each
Lender, through the Agent, on each March 31, June 30, September 30 and December
31 and on the date on which the Commitment of such Lender shall be terminated as
provided herein, a facility fee (a "Facility Fee") at a rate per annum equal to
0.085% on the amount of the Commitment of such Lender, whether used or unused,
during the preceding quarter (or shorter period commencing with the date hereof
or ending with the Maturity Date or any date on which the Commitment of such
Lender shall be terminated). All Facility Fees shall be computed on the basis of
the actual number of days elapsed in a year of 360 days. The Facility Fee due to
each Lender shall commence to accrue on the date hereof and shall cease to
accrue on the earlier of the Maturity Date and the termination of the Commitment
of such Lender as provided herein.
(b) For any day on which the outstanding principal amount of
the Loans shall be greater than 50% of the Total Commitment under this
Agreement, the Borrower shall pay to each Lender a fee (the "Utilization Fee")
equal to 0.050% per annum (computed on the basis of the actual number of days
elapsed in a year of 360 days) on the amount of such Lender's outstanding Loans
on such day. The Utilization Fee, if any, in respect of any quarter shall be
paid in arrears to each Lender, through the Agent, on each March 31, June 30,
September 30 and December 31 and on the Maturity Date and in the event such
Lender's Commitment is terminated other than on one of the aforementioned
quarterly dates, then the Utilization Fee shall be paid on the next succeeding
quarterly date.
(c) The Borrower agrees to pay the Agent, for its own account,
the fees (the "Agent's Fees") at the times and in the amounts previously agreed
by the Borrower and the Agent.
(d) All Fees shall be paid on the dates due, in immediately
available funds, to the Agent for distribution, if and as appropriate, among the
Lenders. Once paid, none of the Fees shall be refundable under any circumstances
absent manifest error.
SECTION 2.07. Repayment of Loans; Evidence of Debt. The
outstanding principal balance of each Competitive Loan and Standby Loan shall be
payable on the last day of the Interest Period applicable to such Loan and on
the Maturity Date. Each Competitive Loan and each Standby Loan shall bear
interest from the date thereof on the outstanding principal balance thereof as
set forth in Section 2.08. Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement. The Agent shall maintain accounts in which it will record
(i) the amount of each Loan made hereunder, the Type of each Loan made and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Agent hereunder from
the Borrower and each Lender's share thereof. The entries made in the accounts
maintained pursuant to this Section 2.07 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Agent to maintain such accounts or any error therein shall not in any
manner (i) affect the obligations of the Borrower to repay the Loans in
accordance with their terms or (ii) cause the Borrower's obligations to be
greater than they would have been absent such failure or error.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions
of Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a year
of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar
Standby Loan, the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus 0.115%, and (ii) in the case of each Eurodollar Competitive Loan,
the LIBO Rate for the Interest Period in effect for such Borrowing plus the
Margin offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03. Interest on each Eurodollar Borrowing shall be payable
on each applicable Interest Payment Date. The Adjusted LIBO Rate and the LIBO
Rate for each Interest Period shall be determined by the Agent, and such
determination shall be conclusive absent manifest error. The Agent shall
promptly advise the Borrower and each Lender, as appropriate, of such
determination.
(b) Subject to the provisions of Section 2.09, the Loans
comprising each ABR Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as the case may
be, when determined by reference to the Prime Rate and over a year of 360 days
at all other times) at a rate per annum equal to the Alternate Base Rate.
Interest on each ABR Borrowing shall be payable on each applicable Interest
Payment Date. The Alternate Base Rate shall be determined by the Agent, and such
determination shall be conclusive absent manifest error. The Agent shall
promptly advise the Borrower and each Lender of such determination.
(c) Subject to the provisions of Section 2.09, each Fixed Rate
Loan shall bear interest at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the fixed rate
of interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03. Interest on each Fixed Rate Loan shall be payable on
the Interest Payment Dates applicable to such Loan except as otherwise provided
in this Agreement.
SECTION 2.09. Default Interest. If the Borrower shall default
in the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, the Borrower shall on demand from time to time from
the Agent pay interest, to the extent permitted by law, on such defaulted amount
up to (but not including) the date of actual payment (after as well as before
judgment) at a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 360 days) equal to the Alternate Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Agent shall have determined
that dollar deposits in the principal amounts of the Eurodollar Loans comprising
such Borrowing are not generally available in the London interbank market, or
that the rates at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to any Lender of making or maintaining
its Eurodollar Loan during such Interest Period, or that reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, the Agent shall,
as soon as practicable thereafter, give written or telecopy notice of such
determination to the Borrower and the Lenders. In the event of any such
determination, until the Agent shall have advised the Borrower and the Lenders
that the circumstances giving rise to such notice no longer exist, (i) any
request by the Borrower for a Eurodollar Competitive Borrowing pursuant to
Section 2.03 shall be of no force and effect and shall be denied by the Agent
and (ii) any request by the Borrower for a Eurodollar Standby Borrowing pursuant
to Section 2.04 shall be deemed to be a request for an ABR Borrowing. In the
event of any such determination, the Lenders shall negotiate with the Borrower,
at its request, as to the interest rate which the Loans comprising such an ABR
Borrowing shall bear; provided that such Loans shall bear interest as provided
in Section 2.08(b) pending the execution by the Borrower and the Lenders of a
written agreement providing for a different interest rate. Each determination by
the Agent hereunder shall be conclusive absent manifest error.
SECTION 2.11. Termination, Reduction and Increase of
Commitments. (a) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Agent, the Borrower may at any time in whole permanently
terminate, or from time to time in part permanently reduce, the Total
Commitment; provided, however, that (i) each partial reduction of the Total
Commitment shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $5,000,000 and (ii) no such termination or reduction shall
be made which would reduce the Total Commitment to an amount less than the
aggregate outstanding principal amount of the Competitive Loans.
(b) Each reduction in the Total Commitment hereunder shall be
made ratably among the Lenders in accordance with their respective Commitments.
The Borrower shall pay to the Agent for the account of the Lenders, on the date
of each termination or reduction, the Facility Fees on the amount of the
Commitments so terminated or reduced accrued through the date of such
termination or reduction.
(c) The Borrower may from time to time, by notice to the Agent
(which shall promptly deliver a copy to each of the Lenders), request that the
Total Commitment be increased by an amount that is not less than $5,000,000 and
will not result in the Total Commitment under this Agreement exceeding
$125,000,000. Each such notice shall set forth the requested amount of the
increase in the Total Commitment and the date on which such increase is to
become effective (which shall be not fewer than 20 days after the date of such
notice), and shall offer each Lender the opportunity to increase its Commitment
by its ratable share, based on the amounts of the Lenders' Commitments, of the
requested increase in the Total Commitment. Each Lender shall, by notice to the
Borrower and the Agent given not more than 10 Business Days after the date of
the Borrower's notice, either agree to increase its Commitment by all or a
portion of the offered amount or decline to increase its Commitment (and any
Lender that does not deliver such a notice within such period of 10 Business
Days shall be deemed to have declined to increase its Commitment). In the event
that, on the 10th Business Day after the Borrower shall have delivered a notice
pursuant to the first sentence of this paragraph, the Lenders shall have agreed
pursuant to the preceding sentence to increase their Commitments by an aggregate
amount less than the increase in the Total Commitment requested by the Borrower,
the Borrower shall have the right to arrange for one or more banks or other
financial institutions (any such bank or other financial institution being
called an "Augmenting Lender"), which may include any Lender, to extend
Commitments or increase their existing Commitments in an aggregate amount equal
to the unsubscribed amount, provided that each Augmenting Lender, if not already
a Lender hereunder, shall be subject to the approval of the Borrower and the
Agent (which approval shall not be unreasonably withheld) and shall execute all
such documentation as the Agent shall reasonably specify to evidence its status
as a Lender hereunder. If (and only if) Lenders (including Augmenting Lenders)
shall have agreed to increase their Commitments or to extend new Commitments in
an aggregate amount not less than $5,000,000, such increases and such new
Commitments shall become effective on the date specified in the notice delivered
by the Borrower pursuant to the first sentence of this paragraph.
Notwithstanding the foregoing, no increase in the Total Commitment (or in the
Commitment of any Lender) shall become effective under this paragraph unless, on
the date of such increase, the conditions set forth in paragraphs (b) and (c) of
Section 4.01 shall be satisfied (with all references in such paragraphs to a
Borrowing being deemed to be references to such increase) and the Agent shall
have received a certificate to that effect dated such date and executed by a
Financial Officer of the Borrower.
SECTION 2.12. Prepayment. (a) The Borrower shall have the
right at any time and from time to time to prepay any Standby Borrowing, in
whole or in part, upon giving written or telecopy notice (or telephone notice
promptly confirmed by written or telecopy notice) to the Agent: (i) before 10:00
a.m., New York City time, three Business Days prior to prepayment, in the case
of Eurodollar Loans, and (ii) before 10:00 a.m., New York City time, one
Business Day prior to prepayment, in the case of ABR Loans; provided, however,
that each partial prepayment shall be in an amount which is an integral multiple
of $1,000,000 and not less than $5,000,000. The Borrower shall not have the
right to prepay any Competitive Borrowing.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.11, the Borrower shall pay or prepay so much
of the Standby Borrowings as shall be necessary in order that the aggregate
principal amount of the Competitive Loans and Standby Loans outstanding will not
exceed the Total Commitment after giving effect to such termination or
reduction.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Borrower to prepay such
Borrowing (or portion thereof) by the amount stated therein on the date stated
therein. All prepayments under this Section 2.12 shall be subject to Section
2.15 but otherwise without premium or penalty. All prepayments under this
Section 2.12 shall be accompanied by accrued interest on the principal amount
being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan or Fixed Rate Loan made by such
Lender or any Fees or other amounts payable hereunder (other than changes in
respect of taxes imposed on the overall net income of such Lender by the
jurisdiction in which such Lender has its principal or applicable lending office
or by any political subdivision or taxing authority therein), or shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of or credit extended by
such Lender (except any such reserve requirement which is reflected in the
Adjusted LIBO Rate), or shall impose on such Lender or the London interbank
market any other condition affecting this Agreement or any Eurodollar Loan or
Fixed Rate Loan made by such Lender, and the result of any of the foregoing
shall be to increase the direct cost to such Lender of making or maintaining any
Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any sum received
or receivable by such Lender hereunder or (whether of principal, interest or
otherwise) by an amount reasonably deemed by such Lender to be material, then
the Borrower will pay to such Lender upon demand such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered. Notwithstanding the foregoing, no Lender shall be entitled
to request compensation under this paragraph with respect to any Competitive
Loan if it shall have been aware of the change giving rise to such request at
the time of submission of the Competitive Bid pursuant to which such Competitive
Loan shall have been made.
(b) If any Lender shall have determined that the applicability
of any law, rule, regulation or guideline adopted pursuant to or arising out of
the July 1988 report of the Basle Committee on Banking Regulations and
Supervisory Practices entitled "International Convergence of Capital Measurement
and Capital Standards", or the adoption after the date hereof of any other law,
rule, regulation or guideline regarding capital adequacy, or any change in any
of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender (or any lending office of such Lender) or any Lender's holding company
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Lender's capital
or on the capital of such Lender's holding company, if any, as a consequence of
this Agreement or the Loans made by such Lender pursuant hereto to a level below
that which such Lender or such Lender's holding company could have achieved but
for such applicability, adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount reasonably deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) Failure on the part of any Lender to demand compensation
for any increased costs or reduction in amounts received or receivable or
reduction in return on capital with respect to any period shall not constitute a
waiver of such Lender's right to demand compensation with respect to such period
or any other period. The protection of this Section shall be available to each
Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
SECTION 2.14. Change in Legality. (a) Notwithstanding any
other provision herein, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request by the Borrower for a Eurodollar Standby
Borrowing shall, as to such Lender only, be deemed a request for an ABR
Loan unless such declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it
be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, and
(x) all payments and prepayments of principal which would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans and (y) such Lender shall negotiate with
the Borrower, at its request, as to the interest rate which such ABR Loans shall
bear; provided that such Loans shall bear interest as provided in Section
2.08(b) pending the execution by the Borrower and such Lender of a written
agreement providing for a different interest rate.
(b) For purposes of this Section 2.14, a notice to the
Borrower by any Lender shall be effective as to each Eurodollar Loan, if lawful,
on the last day of the Interest Period currently applicable to such Eurodollar
Loan; in all other cases such notice shall be effective on the date of receipt
by the Borrower.
SECTION 2.15. Indemnity. The Borrower shall indemnify each
Lender against any loss or expense which such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the date of any
borrowing hereunder the applicable conditions set forth in Article IV, (b) any
failure by the Borrower to borrow or to refinance or continue any Loan
hereunder, for any reason other than a default by such Lender, after irrevocable
notice of such borrowing, refinancing or continuation has been given pursuant to
Section 2.03 or 2.04, (c) any payment, prepayment or conversion of a Eurodollar
Loan or Fixed Rate Loan required by any other provision of this Agreement or
otherwise made or deemed made on a date other than the last day of the Interest
Period applicable thereto, (d) any default in payment or prepayment of the
principal amount of any Loan or any part thereof or interest accrued thereon, as
and when due and payable (at the due date thereof, whether by scheduled
maturity, acceleration, irrevocable notice of prepayment or otherwise) or (e)
the occurrence of any Event of Default, including, in each such case, any loss
or reasonable expense sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to effect or
maintain such Loan or any part thereof as a Eurodollar Loan or Fixed Rate Loan.
Such loss or reasonable expense shall include an amount equal to the excess, if
any, as reasonably determined by such Lender, of (i) its cost of obtaining the
funds for the Loan being paid, prepaid, converted or not borrowed (assumed to be
the Adjusted LIBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of
interest applicable thereto) for the period from the date of such payment,
prepayment or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date of such failure) over (ii) the amount of
interest (as reasonably determined by such Lender) that would be realized by
such Lender in reemploying the funds so paid, prepaid or not borrowed for such
period or Interest Period, as the case may be.
SECTION 2.16. Pro Rata Treatment. Except as required under
Section 2.14, each Standby Borrowing, each payment or prepayment of principal of
any Standby Borrowing, each payment of interest on the Standby Loans, each
payment of the Facility Fees and Utilization Fees, each reduction of the
Commitments and each refinancing of any Borrowing with a Standby Borrowing of
any Type, shall be allocated pro rata among the Lenders in accordance with their
respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Standby Loans). Each payment of principal of any Competitive
Borrowing shall be allocated pro rata among the Lenders participating in such
Borrowing in accordance with the respective principal amounts of their
outstanding Competitive Loans comprising such Borrowing. Each payment of
interest on any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available Commitments
of the Lenders at any time, each outstanding Competitive Borrowing shall be
deemed to have utilized the Commitments of the Lenders (including those Lenders
which shall not have made Loans as part of such Competitive Borrowing) pro rata
in accordance with such respective Commitments. Each Lender agrees that in
computing such Lender's portion of any Borrowing to be made hereunder, the Agent
may, in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against the Borrower, or pursuant to, a secured claim under Section
506 of Title 11 of the United States Code or other security or interest arising
from, or in lieu of, such secured claim, received by such Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, or by any
other means, obtain payment (voluntary or involuntary) in respect of any Standby
Loan or Loans as a result of which the unpaid principal portion of the Standby
Loans shall be proportionately less than the unpaid principal portion of the
Standby Loans of any other Lender, it shall be deemed simultaneously to have
purchased from such other Lender at face value, and shall promptly pay to such
other Lender the purchase price for, a participation in the Standby Loans of
such other Lender, so that the aggregate unpaid principal amount of the Standby
Loans and participations in the Standby Loans held by each Lender shall be in
the same proportion to the aggregate unpaid principal amount of all Standby
Loans then outstanding as the principal amount of its Standby Loans prior to
such exercise of banker's lien, setoff or counterclaim or other event was to the
principal amount of all Standby Loans outstanding prior to such exercise of
banker's lien, setoff or counterclaim or other event; provided, however, that,
if any such purchase or purchases or adjustments shall be made pursuant to this
Section 2.17 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest. The Borrower expressly consents to the foregoing arrangements and
agrees that any Lender holding a participation in a Standby Loan deemed to have
been so purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the Borrower to such
Lender by reason thereof as fully as if such Lender had made a Standby Loan
directly to the Borrower in the amount of such participation.
SECTION 2.18. Payments. (a) The Borrower shall make each
payment (including principal of or interest on any Borrowing or any Fees or
other amounts) hereunder and under any other Loan Document not later than 12:00
(noon), New York City time, on the date when due in dollars to the Agent at its
offices at The Chase Manhattan Bank, 1 Chase Manhattan Plaza, 8th Floor, New
York, New York 10005, in immediately available funds.
(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.18, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the Agent's or any Lender's (or any transferee's or
assignee's, including a participation holder's (any such entity a "Transferee"))
net income and franchise taxes imposed on the Agent or any Lender (or
Transferee) by the United States or any jurisdiction under the laws of which it
is organized or in which its applicable lending office is located or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to the Lenders (or any Transferee) or
the Agent, (i) the sum payable shall be increased by the amount necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.19) such Lender (or Transferee) or
the Agent (as the case may be) shall receive an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee)
and the Agent for the full amount of Taxes and Other Taxes (including any Taxes
or Other Taxes imposed by any jurisdiction on amounts payable under this Section
2.19) paid by such Lender (or Transferee) or the Agent, as the case may be, and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 days after the date any
Lender (or Transferee) or the Agent, as the case may be, makes written demand
therefor. If a Lender (or Transferee) or the Agent shall become aware that it is
entitled to receive a refund in respect of Taxes or Other Taxes, it shall
promptly notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request by the Borrower, apply for such refund
at the Borrower's expense. If any Lender (or Transferee) or the Agent receives a
refund in respect of any Taxes or Other Taxes for which such Lender (or
Transferee) or the Agent has received payment from the Borrower hereunder it
shall promptly notify the Borrower of such refund and shall, within 30 days
after receipt of a request by the Borrower (or promptly upon receipt, if the
Borrower has requested application for such refund pursuant hereto), repay such
refund to the Borrower (but only to the extent of indemnity payments made, or
additional amounts paid, by the Borrower under this Section 2.19 with respect to
the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of such Lender (or Transferee) or the Agent and without interest;
provided that the Borrower, upon the request of such Lender (or Transferee) or
the Agent, agrees to return such refund (plus penalties, interest or other
charges) to such Lender (or Transferee) or the Agent in the event such Lender
(or Transferee) or the Agent is required to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Agent, the Borrower will furnish to the Agent, at its address
referred to in Section 9.01, the original or a certified copy of a receipt
issued by the appropriate Governmental Authority evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.19
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) Each Lender (or Transferee) which is organized outside the
United States shall deliver to the Borrower two copies of either Internal
Revenue Service Form 1001 or Form 4224, or, in the case of a Lender (or
Transferee) claiming exemption from U.S. Federal withholding tax under Section
871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a
Form W-8, or any subsequent versions thereof or successors thereto (and, if such
Non-U.S. Lender delivers a Form W-8, a certificate representing that such
Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not
a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Borrower and is not a controlled foreign corporation related to the
Borrower (within the meaning of Section 864(d)(4) of the Code)) properly
completed and duly executed by such Lender (or Transferee) establishing that
such payment is totally exempt from, or is eligible for a reduced rate of,
United States Federal withholding tax. Such forms shall be delivered by each
Lender organized outside the United States on or before the date it becomes a
party to this Agreement (or, in the case of a Transferee that is a participation
holder, on or before the date such participation holder becomes a Transferee
hereunder) and on or before the date, if any, such Lender changes its applicable
lending office by designating a different lending office (a "New Lending
Office"). In addition, each Lender organized outside the United States shall
deliver such forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Lender. Notwithstanding any other provision of this
Section 2.19(f), a Lender organized outside the United States shall not be
required to deliver any form pursuant to this Section 2.19(f) that it is not
legally able to deliver. Unless the Borrower and the Agent have received forms
or other documents satisfactory to them indicating that payments hereunder are
not subject to United States withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty, the Borrower or the Agent shall
withhold taxes from such payments at the applicable statutory rate in the case
of payments to or for any Lender (or Transferee) organized under the laws of a
jurisdiction outside the United States.
(g) The Borrower shall not be required to pay any additional
amounts to any Lender (or Transferee) in respect of United States Federal
withholding tax pursuant to paragraph (a) above to the extent that the
obligation to pay such additional amounts existed on the date such Lender (or
Transferee) became a party to this Agreement (or in the case of a Transferee
that is a participation holder, on the date such participation holder became a
Transferee hereunder) or would not have arisen but for a failure by such Lender
(or Transferee) to comply with the provisions of paragraph (f) above unless such
failure results from (i) a change in applicable law, regulation or official
interpretation thereof, (ii) an amendment, modification or revocation of any
applicable tax treaty or a change in official position regarding the application
or interpretation thereof, in each case after the date hereof (and, in the case
of a Transferee, after the date of assignment or transfer) or (iii) an
assignment, participation, transfer or designation made at the request of the
Borrower; provided, however, the Borrower shall be required to pay those amounts
to any Lender (or Transferee) that it was required to pay hereunder prior to the
failure of such Lender (or Transferee) to comply with the provisions of such
paragraph (f).
(h) Any Lender (or Transferee) claiming any additional amounts
payable pursuant to this Section 2.19 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or document
requested by the Borrower or to change the jurisdiction of its applicable
lending office if the making of such a filing or change would avoid the need for
or reduce the amount of any such additional amounts which may thereafter accrue
and would not, in the sole determination of such Lender, be otherwise
disadvantageous to such Lender (or Transferee).
SECTION 2.20. Termination or Assignment of Commitments Under
Certain Circumstances. In the event that any Lender shall fail to pay the Agent
amounts due it pursuant to Section 2.05(i) or any Lender shall have delivered a
notice or certificate pursuant to Section 2.13 or Section 2.14, or the Borrower
shall be required to make additional payments to any Lender under Section 2.19,
the Borrower shall have the right, at its own expense, upon notice to such
Lender and the Agent, to require such Lender to transfer and assign without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04) all its interests, rights and obligations under this Agreement to
another financial institution which shall assume such obligations; provided that
(i) no such termination or assignment shall conflict with any law, rule or
regulation or order of any Governmental Authority and (ii) the Borrower or the
assignee, as the case may be, shall pay to the affected Lender in immediately
available funds on the date of such termination or assignment the principal of
and interest accrued to the date of payment on the Loans made by it hereunder
and all other amounts accrued for its account or owed to it hereunder.
SECTION 2.21. Lending Offices and Lender Certificates;
Survival of Indemnity. To the extent reasonably possible, each Lender shall
designate an alternate lending office with respect to its Eurodollar Loans and
Fixed Rate Loans to reduce any liability of the Borrower to such Lender under
Section 2.13 or to avoid the unavailability of Eurodollar Loans under Section
2.10 or 2.14, so long as such designation is not disadvantageous to such Lender.
A good faith certificate of a Lender setting forth a reasonable basis of
computation and allocation of the amount due under Section 2.13 or 2.15 shall be
final, conclusive and binding on the Borrower in the absence of manifest error.
The amount specified in any such certificate shall be payable on demand after
receipt by the Borrower of such certificate. The obligations of the Borrower
under Sections 2.13 and 2.15 shall survive the payment of all amounts due under
any Loan Document and the termination of this Agreement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Lenders
that:
SECTION 3.01. Corporate Existence and Standing. Each of the
Borrower and the Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite authority to conduct its business in each
jurisdiction in which its business is conducted where the failure to so qualify
would have a material adverse effect on the Borrower or such Subsidiary.
SECTION 3.02. Authorization and Validity. The Borrower has the
corporate power and authority and legal right to execute and deliver the Loan
Documents and to perform its obligations thereunder (collectively, the
"Transactions"). The Transactions have been duly authorized by proper corporate
proceedings, and the Loan Documents constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting the enforcement of creditors' rights
generally.
SECTION 3.03. No Conflict; Governmental Consent. None of the
Transactions will violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any Subsidiary or the
Borrower's or any Subsidiary's articles or certificate of incorporation or
by-laws or the provisions of any indenture, instrument or agreement to which the
Borrower or any Subsidiary is a party or is subject, or by which it, or its
property, is bound, or conflict therewith or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the property of
the Borrower or any Subsidiary pursuant to the terms of any such indenture,
instrument or agreement. No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with the execution, delivery
and performance of, or the legality, validity, binding effect or enforceability
of, any of the Loan Documents.
SECTION 3.04. Compliance with Laws; Environmental and Safety
Matters. (a) The Borrower and the Subsidiaries have, to the best knowledge and
belief of the Borrower, complied in all material respects with all applicable
statutes, rules, regulations, orders and restrictions of any domestic or foreign
government or any instrumentality or agency thereof, having jurisdiction over
the conduct of their respective businesses or the ownership of their respective
properties.
(b) The Borrower and each Subsidiary has complied in all
material respects with all Federal, state, local and other statutes, ordinances,
orders, judgments, rulings and regulations relating to environmental pollution
or to environmental regulation or control or to employee health or safety.
Neither the Borrower nor any Subsidiary has received notice of any material
failure so to comply. The Borrower's and the Subsidiaries' facilities do not
manage any hazardous wastes, hazardous substances, hazardous materials, toxic
substances, toxic pollutants or substances similarly denominated, as those terms
or similar terms are used in the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Hazardous Materials Transportation Act, the Toxic Substance Control Act, the
Clean Air Act, the Clean Water Act or any other applicable law relating to
environmental pollution or employee health and safety, in violation in any
material respect of any law or any regulations promulgated pursuant thereto. The
Borrower is aware of no events, conditions or circumstances involving
environmental pollution or contamination or employee health or safety that could
reasonably be expected to result in material liability on the part of the
Borrower or any Subsidiary.
SECTION 3.05. Financial Statements. The Borrower has
heretofore furnished to the Lenders its (i) consolidated balance sheets,
statements of income, changes in stockholders' equity and cash flows as of and
for the fiscal year ended December 31, 1995, audited by and accompanied by the
opinion of Price Waterhouse LLP, independent public accountants, and (ii) its
unaudited consolidated balance sheets and statements of income as of and for the
fiscal quarters and the three-month period, six-month period and nine-month
period ended March 31, 1996, June 30, 1996 and September 30, 1996 certified by
its chief financial officer. Such financial statements present fairly the
financial condition and results of operations of the Borrower and its
consolidated subsidiaries as of such dates and for such periods. Such balance
sheets and the notes thereto disclose all material liabilities, direct or
contingent, of the Borrower and the Consolidated Subsidiaries as of the dates
thereof. Such financial statements were prepared in accordance with GAAP applied
on a consistent basis.
SECTION 3.06. No Material Adverse Change. No material adverse
change in the business, properties, financial condition, prospects or results of
operations of the Borrower and the Consolidated Subsidiaries has occurred since
December 31, 1995.
SECTION 3.07. Ownership of Properties. On the date hereof,
each of the Borrower and the Subsidiaries has good title, free of all Liens
(other than those permitted by Section 6.02), to all of the properties and
assets reflected in its financial statements as owned by it.
SECTION 3.08. Subsidiaries. Schedule 3.08 contains an accurate
list of all of the joint ventures and Subsidiaries of the Borrower on November
30, 1996, setting forth their respective jurisdictions of organization and the
percentage of their respective ownership interest held by the Borrower or other
Subsidiaries. All of the issued and outstanding shares of capital stock of such
Subsidiaries have been duly authorized and issued and are fully paid and
non-assessable.
SECTION 3.09. Litigation; Contingent Obligations. Except as
set forth in Schedule 3.09 or as disclosed in the Borrower's Annual Report on
Form 10-K for the year ended December 31, 1995 filed with the Securities and
Exchange Commission, (i) there is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the knowledge of any of
their officers, threatened against or affecting the Borrower or any Consolidated
Subsidiary that (A) is required to be disclosed in any filing with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, or (B) might materially adversely affect the business,
properties, financial condition, prospects or results of operations of the
Borrower or the ability of the Borrower to perform its obligations under the
Loan Documents and (ii) neither the Borrower nor any Consolidated Subsidiary has
any material contingent obligations.
SECTION 3.10. Material Agreements. Neither the Borrower nor
any Subsidiary is a party to any agreement or instrument or subject to any
charter or other corporate restriction materially and adversely affecting its
business, properties or assets, operations or condition (financial or
otherwise). Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in (a) any agreement to which it is a party, which default
might have a material adverse effect on the consolidated business, properties,
financial condition, prospects or results of operations of the Borrower and the
Consolidated Subsidiaries or (b) any agreement or instrument evidencing or
governing Indebtedness which default would allow the holders thereof to cause
such Indebtedness to become due prior to its stated maturity, result in any
mandatory repayment, prepayment or redemption thereof, or require that any offer
be made to effect any repurchase or redemption thereof.
SECTION 3.11. Regulation U. Margin Stock constitutes less than
25% of those assets of the Borrower and the Subsidiaries that are subject to any
limitation on sale, pledge, or other restriction hereunder.
SECTION 3.12. Investment Company Act. Neither the Borrower nor
any Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 3.13. Use of Proceeds. The Borrower will use
the proceeds of the Loans only for the purposes set forth in the recitals
to this Agreement.
SECTION 3.14. Taxes. The Borrower and the Significant
Subsidiaries have filed all United States federal tax returns and all other tax
returns which are required to be filed and have paid all taxes due pursuant to
said returns or pursuant to any assessment received by the Borrower or any
Consolidated Subsidiary, including without limitation all federal and state
withholding taxes and all taxes required to be paid pursuant to applicable law,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. No tax Liens have been filed, and no
claims are being asserted with respect to any such taxes (other than Liens and
claims which are being contested in good faith by appropriate proceedings). The
charges, accruals and reserves on the books of the Borrower and the Consolidated
Subsidiaries in respect of any taxes or other governmental charges are adequate.
SECTION 3.15. Accuracy of Information. No information, exhibit
or report furnished by the Borrower or any Subsidiary to the Agent or to any
Lender in connection with the negotiation of the Loan Documents contained any
material misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained therein not misleading.
SECTION 3.16. Employee Benefit Plans. The Unfunded Liabilities
of all Plans do not in the aggregate exceed $2,500,000. Each Plan complies in
all material respects with all applicable requirements of law and regulations,
no Reportable Event has occurred or is reasonably expected to occur with respect
to any Plan and neither the Borrower nor any other member of the Controlled
Group has (i) taken any steps to terminate any Plan, (ii) initiated any steps to
withdraw from any Plan or (iii) incurred any Withdrawal Liability.
SECTION 3.17. No Undisclosed Dividend Restrictions. Except as
set forth in Schedule 3.17 and except for limitations on the payment of
dividends under applicable law, none of the Subsidiaries is subject to any
agreement, amendment, covenant or understanding that directly or indirectly
(through the application of financial covenants or otherwise) prohibits the
ability of such entity to declare or pay dividends.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are
subject to the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. On the date of each
Borrowing, including each Borrowing in which Loans are refinanced with new
Loans as contemplated by Section 2.05:
(a) The Agent shall have received a notice of such Borrowing
as required by Section 2.03 or Section 2.04, as applicable.
(b) The representations and warranties set forth in Article
III hereof (except, in the case of a refinancing of a Standby Borrowing
with a new Standby Borrowing that does not increase the aggregate
principal amount of the Loans of any Lender outstanding, the
representations set forth in Sections 3.06 and 3.09(i)) shall be true
and correct on and as of the date of such Borrowing with the same
effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing, no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. Effectiveness. The effectiveness of this
Agreement and the obligations of the Lenders to make Loans hereunder are subject
to the satisfaction on the date hereof of the conditions set forth in Section 5
of the First Amendment to the Existing Credit Agreement.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender that, so
long as this Agreement shall remain in effect or the principal of or interest on
any Loan, any Fees or any other expenses or amounts payable under any Loan
Document shall be unpaid, unless the Required Lenders shall otherwise consent in
writing:
SECTION 5.01. Conduct of Business and Maintenance of
Properties. (a) The Borrower will, and will cause each Significant Subsidiary
to, carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducted and to
do all things necessary to remain duly incorporated, validly existing and in
good standing as a domestic corporation in its jurisdiction of incorporation and
maintain all requisite authority to conduct its business in each jurisdiction in
which its business is conducted.
(b) The Borrower will, and will cause each Significant
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
their properties material to the conduct of their business in good repair,
working order and condition, and make all necessary and proper repairs, renewals
and replacements so that their businesses carried on in connection therewith may
be properly conducted at all times.
SECTION 5.02. Insurance. The Borrower will, and will cause
each Consolidated Subsidiary to, maintain with financially sound and reputable
insurance companies insurance on all their property in such amounts and covering
such risks as is consistent with sound business practice and customary with
companies engaged in similar lines of business, and the Borrower will furnish to
any Lender upon request full information as to the insurance carried.
SECTION 5.03. Compliance with Laws and Taxes. (a) The Borrower
will, and will cause each Consolidated Subsidiary to, comply in all material
respects with all laws (including, without limitation, ERISA, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject.
(b) The Borrower will, and will cause each Significant
Subsidiary to, pay when due all taxes, assessments and governmental charges and
levies upon it or its income, profits or property, except those which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
SECTION 5.04. Financial Statements, Reports, etc. The Borrower
will maintain, for itself and each Consolidated Subsidiary, a system of
accounting established and administered in accordance with GAAP and will furnish
to the Agent and each Lender:
(a) within 105 days after the close of each of its fiscal
years, an unqualified (except for qualifications relating to changes in
accounting principles or practices reflecting changes in GAAP and
required or approved by the Borrower's independent certified public
accountants) audit report certified by independent certified public
accountants, of nationally recognized standing, prepared in accordance
with GAAP on a consolidated basis for itself and the Consolidated
Subsidiaries, including balance sheets as of the end of such period and
related statements of income and changes in stockholders' equity and
cash flows, accompanied by a certificate of said accountants that, in
the course of their examination necessary for their certification of
the foregoing, they have obtained no knowledge of any Default or Event
of Default, or if, in the opinion of such accountants, any Default or
Event of Default shall exist, stating the nature and status thereof;
(b) within 60 days after the close of each of the first three
quarterly periods of each of its fiscal years, for itself and the
Consolidated Subsidiaries, unaudited consolidated balance sheets as at
the close of each such period, consolidated statements of income and a
consolidated statement of cash flows for the period from the beginning
of such fiscal year to the end of such quarter, all certified by its
chief financial officer;
(c) together with the financial statements required hereunder,
a compliance certificate in substantially the form of Exhibit D signed
by its chief financial officer showing the calculations necessary to
determine compliance with this Agreement and stating that no Default or
Event of Default exists, or if any Default or Event of Default exists,
stating the nature and status thereof;
(d) as soon as possible and in any event within 10 days after
any Responsible Officer of the Borrower knows or has reason to know
that (i) any Reportable Event has occurred with respect to any Plan,
(ii) any Withdrawal Liability has been incurred with respect to any
Multiemployer Plan or (iii) the Borrower or any member of the
Controlled Group has received any notice concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is,
or is expected to be, insolvent or in reorganization within the meaning
of Title IV of ERISA, a statement, signed by the chief financial
officer of the Borrower, describing such Reportable Event, Withdrawal
Liability or notice and the action which the Borrower proposes to take
with respect thereto;
(e) as soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of (i) any notice or claim to the
effect that the Borrower or any Subsidiary is or may be liable to any
person as a result of the release by the Borrower, any of the
Subsidiaries, or any other person of any toxic or hazardous waste or
substance into the environment or that all or any of its properties is
subject to an Environmental Lien and (ii) any notice alleging any
violation of any Federal, state or local environmental, health or
safety law or regulation by the Borrower or any Subsidiary, which
would, in the case of either of the preceding clauses (i) and (ii),
have a material adverse effect upon the operations of the Borrower and
the Consolidated Subsidiaries, taken as a whole;
(f) promptly upon the furnishing thereof to the shareholders
of the Borrower, copies of all financial statements, reports and proxy
statements so furnished;
(g) promptly upon the filing thereof, copies of all
registration statements and annual, quarterly, monthly or other regular
reports which the Borrower or any Consolidated Subsidiary files with
the Securities and Exchange Commission or financial reports material to
the interests of the Lenders or to the ability of the Borrower to
perform its obligations under the Loan Documents; and
(h) such other information (including financial information)
as the Agent or any Lender may from time to time reasonably request.
SECTION 5.05. Other Notices. The Borrower will, and will cause
each Subsidiary to, give prompt notice in writing to the Lenders of the
occurrence of any Default or Event of Default and of any other development,
financial or otherwise, which might materially adversely affect its business,
properties or affairs or the ability of the Borrower to repay the Obligations.
SECTION 5.06. Access to Properties and Inspections. The
Borrower will, and will cause each Consolidated Subsidiary to, permit the Agent
and the Lenders to make reasonable inspections of the properties, corporate
books and financial records of the Borrower and each Consolidated Subsidiary, to
make reasonable examinations and copies of the books of accounts and other
financial records of the Borrower and each Consolidated Subsidiary, and to
discuss the affairs, finances and accounts of the Borrower and each Consolidated
Subsidiary with, and to be advised as to the same by, their respective officers
at such reasonable times and intervals as the Lenders may designate; provided
that (a) any inspection by any Lender shall be at such Lender's own expense and
(b) the Lenders shall coordinate the timing of their inspections through the
Agent.
SECTION 5.07. Use of Proceeds. The Borrower will, and will
cause each of the Subsidiaries to, use the proceeds of the Loans only for the
purposes set forth in the recitals to this Agreement. The Borrower will not, nor
will it permit any Subsidiary to, use any of the proceeds of the Loans (a) for
any purpose that entails a violation of, or that is inconsistent with, the
provisions of the Regulations of the Board including Regulation G, U or X or (b)
to make any acquisition for which the board of directors of the target company
has not given its consent or approval.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender and the
Agent that, so long as this Agreement shall remain in effect or the principal of
or interest on any Loan, any Fees or any other expenses or amounts payable under
any Loan Document shall be unpaid, unless the Required Lenders shall otherwise
consent in writing:
SECTION 6.01. Indebtedness. (a) The Borrower will not
permit any Subsidiary to incur, create or suffer to exist any Indebtedness,
except:
(i) Indebtedness (secured by Liens) existing on November 30,
1996 and described in Schedule 6.01;
(ii) Indebtedness of the Subsidiaries incurred to finance all
or a portion of the purchase price of assets acquired in the ordinary
course of their businesses which Indebtedness is secured solely by a
Lien on the assets being acquired provided that such Indebtedness would
not cause a Default or an Event of Default under any other Section of
this Agreement;
(iii) Attributable Debt permitted under Section 6.03;
(iv) other Indebtedness of the Subsidiaries not secured by any
Liens and incurred in the ordinary course of business and refinancings
thereof, in an aggregate principal amount at any one time outstanding
not to exceed the greater of $25,000,000 and 10% of Consolidated Net
Worth at such time, provided that such Indebtedness would not cause a
Default or an Event of Default under any other Section of this
Agreement; and
(v) Guarantees of the Obligations by any Subsidiary in favor
of the Agent and the Lenders as required under paragraph (c) below.
(b) The Borrower shall not incur, create or suffer to exist any
Indebtedness ("Subordinated Indebtedness") that by its terms is subordinated in
right of payment to any other indebtedness, unless the Obligations constitute
senior indebtedness that is entitled, to the satisfaction of the Required
Lenders, to the benefits of the subordination provisions of such Subordinated
Indebtedness.
(c) The Borrower will not permit (i) any Significant Subsidiary to
Guarantee any Indebtedness of the Borrower or (ii) any Significant Subsidiary to
Guarantee any Indebtedness Guaranteed by the Borrower, unless, in the case of
each of the preceding clauses (i) and (ii), prior thereto such Significant
Subsidiary shall have executed and delivered to the Agent, for the benefit of
the Lenders, an unconditional Guarantee with respect to the Obligations
satisfactory in form and substance to the Agent.
SECTION 6.02. Liens. The Borrower will not, nor will it permit
any Subsidiary to, create, incur, or suffer to exist any Environmental Lien
securing clean-up costs or fines in excess of $10,000,000 in aggregate principal
amount except for Environmental Liens that are being contested in good faith by
appropriate proceedings and the enforcement of which is stayed. The Borrower
shall at all times assure that any Liens on its assets (other than Liens
permitted under clauses (a) through (f) and those specified in clause (g) below)
shall be for the equal and ratable benefit of the Lenders and the Agent. The
Borrower will not, nor will it permit any Subsidiary to, create, incur, or
suffer to exist any other Lien in, of or on the property (now or hereafter
acquired), or on any income or revenues or rights in respect of any thereof, of
the Borrower or any Subsidiary, except:
(a) Liens for taxes, assessments or governmental charges or
levies on its property if the same shall not at the time be delinquent
or thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings;
(b) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary
course of business that secure payment of obligations not more than 60
days past due except for such Liens as are being contested in good
faith by appropriate proceedings;
(c) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(d) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character
and that do not in any material way affect the marketability of the
same or interfere with the use thereof in the business of the Borrower
or the Consolidated Subsidiaries;
(e) Liens existing on November 30, 1996 and described in
Schedule 6.02 hereto; provided that such Liens shall secure only those
obligations that they secure on the date hereof;
(f) Liens, granted on property or assets solely to secure
Indebtedness evidencing all or a portion of the purchase price of
property or assets or any refinancing thereof provided that such Lien
attaches only to the property or assets being acquired and that any
such refinancing does not increase the aggregate principal amount of
such Indebtedness but only to the extent that such Indebtedness would
not result in a Default or an Event of Default under any other Section
of this Agreement; and
(g) Liens, in addition to Liens permitted under the above
clauses (a) through (f), on property or assets having on the date of
determination an aggregate depreciated book value (determined in
accordance with GAAP) that, when taken together with the aggregate
amount of all Attributable Debt in connection with all Sale and
Leaseback Transactions of the Borrower and the Subsidiaries (other than
Sale and Leaseback Transactions consummated prior to the date hereof),
does not exceed the greater of $10,000,000 and 10% of Consolidated Net
Worth, so long as any such Liens on property or assets of the Borrower
(as opposed to assets solely of the Subsidiaries) shall also be for the
pari passu benefit of the Lenders as provided above; provided that any
such Liens on real property of the Borrower which shall be included in
the calculation above shall not be required to be for the pari passu
benefit of the Lenders.
SECTION 6.03. Sale and Lease-Back Transactions. The Borrower
will not, and will not permit any Subsidiary to, enter into any arrangement,
directly or indirectly, with any person whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property
which it intends to use for substantially the same purpose or purposes as the
property being sold or transferred (a "Sale and Leaseback Transaction");
provided that the Borrower or any Subsidiary may enter into any Sale and
Leaseback Transaction if (a) at the time of such Transaction no Default or Event
of Default shall have occurred and be continuing, (b) the proceeds from the sale
of the subject property shall be at least equal to its fair market value on the
date of such sale and (c) the aggregate amount of all Attributable Debt in
connection with all Sale and Leaseback Transactions of the Borrower and the
Subsidiaries (other than Sale and Leaseback Transactions consummated prior to
the date hereof), when taken together with the depreciated book value
(determined in accordance with GAAP) of all assets or property on which there
shall exist any Liens pursuant to Section 6.02(g), does not exceed the greater
of $10,000,000 and 10% of Consolidated Net Worth on any date of determination.
SECTION 6.04. Mergers, Consolidations and Transfers of Assets.
The Borrower will not, and will not permit any Subsidiary to, merge into or
consolidate with any other person, or permit any other person to merge into or
consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any substantial part of its
assets (whether now owned or hereafter acquired) or any capital stock of any
Subsidiary, except that (a) the Borrower and any Subsidiary may sell assets in
the ordinary course of business, and (b) if at the time thereof and immediately
after giving effect thereto no Event of Default or Default shall have occurred
and be continuing (i) any wholly owned Subsidiary may merge into the Borrower in
a transaction in which the Borrower is the surviving corporation, (ii) any
wholly owned Subsidiary may merge into or consolidate with any other wholly
owned Subsidiary in a transaction in which the surviving entity is a wholly
owned Subsidiary and no person other than the Borrower or a wholly owned
Subsidiary receives any consideration and (iii) the Borrower and the
Subsidiaries may sell, transfer, lease or dispose of any capital stock of any
Subsidiary or any assets out of the ordinary course of business having
depreciated book values (determined in accordance with GAAP) that in the
aggregate for all such capital stock or all such assets so disposed of during
the term of this Agreement do not exceed the greater of $10,000,000 and 10%of
Consolidated Net Worth on any date of determination to any other person.
SECTION 6.05. Transactions with Affiliates. The Borrower will
not, and will not permit any Subsidiary to, sell or transfer any property or
assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates (other than any
Subsidiary), except that (i) the Borrower or any Subsidiary may engage in any of
the foregoing transactions in the ordinary course of business at prices and on
terms and conditions which, taken as a whole, are not less favorable to the
Borrower or such Subsidiary than would prevail in an arm's-length transaction
with unrelated third parties.
SECTION 6.06. Certain Other Agreements. The Borrower will not,
and will not permit any Subsidiary to (i) be bound by or enter into any
agreement, amendment, covenant, understanding or revision to any agreement which
directly or indirectly (through the application of financial covenants or
otherwise) prohibits or restricts the ability of such Subsidiary to declare and
pay dividends or make any loans or advances or any other distribution to the
Borrower (except for limitations on the payment of dividends set forth in
Schedule 3.17 or imposed by applicable law); or (ii) be bound by or enter into
any agreement, indenture, contract, instrument, amendment or lease containing
any covenant restricting the incurrence of Indebtedness or governing the
Borrower's and the Subsidiaries' financial condition if such covenant is more
restrictive than the analogous provision of this Agreement unless (A) the
Borrower has delivered a copy of such document to the Agent not less than 10
Business Days prior to executing the same and (B) the Borrower enters into an
amendment to this Agreement to add the more restrictive covenant or to conform
the analogous provision of this Agreement to such more restrictive covenant.
SECTION 6.07. Certain Financial Covenants. The Borrower
will not:
(a) permit the ratio of Consolidated EBITDA to Consolidated
Interest Expense for any period of four consecutive fiscal quarters to be less
than 3.50 to 1.00;
(b) permit Consolidated Net Worth at any time to be less
than $350,000,000;
(c) permit the ratio of Consolidated Total Indebtedness
to the sum of Consolidated Total Indebtedness and Consolidated Net Worth to
exceed .45; or
(d) permit the assets of the Subsidiaries, other than the
Significant Subsidiaries, to represent in the aggregate at any time more than
25% of Consolidated Total Assets.
SECTION 6.08. Margin Stock. The Borrower will not, nor will it
permit any Subsidiary to, own or acquire Margin Stock such that at any time
Margin Stock of the Borrower and its Subsidiaries represents more than 25% of
the value of the assets of the Borrower and its Subsidiaries on a consolidated
basis that are subject to Section 6.02 or Section 6.04.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events
("Events of Default"):
(a) any representation or warranty made or deemed made by or
on behalf of the Borrower or any Subsidiary to the Lenders or the Agent
under or in connection with this Agreement, any Loan, or any
certificate or information delivered in connection with this Agreement
or any other Loan Document shall be materially false on the date as of
which made;
(b) nonpayment of principal of any Loan when due;
(c) nonpayment of interest upon any Loan or of any Fee or
other Obligations (other than an amount referred to in (b) above) under
any of the Loan Documents within five days after the same becomes due;
(d) the breach by the Borrower of any of the terms or
provisions of Section 5.07 or in Article VI;
(e) the breach by the Borrower (other than a breach which
constitutes an Event of Default under (a), (b), (c) or (d) above) of
any of the terms or provisions of this Agreement which is not remedied
within fifteen days after written notice from the Agent or any Lender;
(f) failure of the Borrower or any Subsidiary to pay any
Indebtedness in excess of $10,000,000 in aggregate principal amount
when due; or the default by the Borrower or any Subsidiary in the
performance of any term, provision or condition contained in any
agreement under which any Indebtedness in excess of $10,000,000 in
aggregate principal amount was created or is governed, the effect of
which is to permit the holder or holders of such Indebtedness to cause
such Indebtedness to become due prior to its stated maturity; or the
default by the Borrower or any Subsidiary in the performance of any
term, provision or condition contained in any agreement under which any
Indebtedness in excess of $10,000,000, in aggregate principal amount
was created or is governed, the effect of which is to cause the holder
or holders of such Indebtedness or a trustee or other representative of
such holders to cause such Indebtedness to become due prior to its
stated maturity; or any Indebtedness in excess of $10,000,000 of the
Borrower or any Subsidiary in aggregate principal amount shall be
declared to be due and payable or required to be prepaid (other than by
a regularly scheduled payment) prior to the stated maturity thereof;
(g) the Borrower or any Specified Subsidiary shall (i) have an
order for relief entered with respect to it under the Federal
Bankruptcy Code, (ii) not pay, or admit in writing its inability to
pay, its debts generally as they become due, (iii) make a general
assignment for the benefit of creditors, (iv) apply for, seek, consent
to, or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part
of its property, (v) institute any proceeding seeking an order for
relief under the Federal Bankruptcy Code or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, (vi) take any corporate action to authorize or effect any
of the foregoing actions set forth in this paragraph (g) or (vii) fail
to contest in good faith any appointment or proceeding described in the
following paragraph (h);
(h) without the application, approval or consent of the
Borrower or any Subsidiary, a receiver, trustee, examiner, liquidator
or similar official shall be appointed for the Borrower or any
Specified Subsidiary or any substantial part of its property, or a
proceeding described in clause (v) of the preceding paragraph (g) shall
be instituted against the Borrower or any Specified Subsidiary and such
appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of 60 consecutive days;
(i) any court, government or governmental agency shall
condemn, seize or otherwise appropriate, or take custody or control of
all of the property of the Borrower or any Subsidiary or an amount of
such property or assets having depreciated book values (determined in
accordance with GAAP) that in the aggregate for all properties and
assets so appropriated or taken during the term of this Agreement
exceed 10% of Consolidated Net Worth on any date of determination;
(j) the Borrower or any Subsidiary shall fail within 30 days
to pay, bond or otherwise discharge any judgment or order for the
payment of money in excess of $2,500,000 that is not stayed on appeal
or otherwise being appropriately contested in good faith;
(k) the Unfunded Liabilities of all Plans shall exceed in the
aggregate $2,500,000, or any Reportable Event shall occur in connection
with any Plan or any Withdrawal Liability in excess of $1,250,000 shall
be incurred with respect to any Multiemployer Plan or the Borrower or
any member of the Controlled Group has received any notice concerning
the imposition of Withdrawal Liability in excess of $1,250,000 or a
determination that a Multiemployer Plan with respect to which the
potential Withdrawal Liability of the Borrower or any member of the
Controlled Group would exceed $1,250,000 is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of
ERISA;
(l) a Change in Control shall have occurred; or
(m) the Borrower shall cease to own beneficially at
least 80% of the outstanding voting securities of OTI or
DST Realty, Inc.;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Agent, at the request of the Required Lenders,
shall, by notice to the Borrower, take either or both of the following actions,
at the same or different times: (i) terminate forthwith the Commitments and (ii)
declare the Loans then outstanding to be forthwith due and payable in whole or
in part, whereupon the principal of the Loans so declared to be due and payable,
together with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder and under any other Loan Document,
shall become forthwith due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding; and in any event with respect to the Borrower
described in paragraph (g) or (h) above, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrower accrued hereunder and under any other Loan Document, shall
automatically become due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document to the
contrary notwithstanding.
ARTICLE VIII. THE AGENT
In order to expedite the transactions contemplated by this
Agreement, The Chase Manhattan Bank is hereby appointed to act as Agent on
behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes the
Agent to take such actions on behalf of such Lender or holder and to exercise
such powers as are specifically delegated to the Agent by the terms and
provisions hereof and of the other Loan Documents, together with such actions
and powers as are reasonably incidental thereto. The Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (a) to
receive on behalf of the Lenders all payments of principal of and interest on
the Loans and all other amounts due to the Lenders hereunder, and promptly to
distribute to each Lender its proper share of each payment so received; (b) to
give notice on behalf of each of the Lenders to the Borrower of any Event of
Default specified in this Agreement of which the Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to distribute to each
Lender copies of all notices, financial statements and other materials delivered
by the Borrower pursuant to this Agreement as received by the Agent.
Neither the Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrower of any of the terms, conditions, covenants or agreements contained in
any Loan Document. The Agent shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or any other Loan Documents or other instruments or agreements. The
Agent shall in all cases be fully protected in acting, or refraining from
acting, in accordance with written instructions signed by the Required Lenders
and, except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. The
Agent shall, in the absence of knowledge to the contrary, be entitled to rely on
any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. Neither
the Agent nor any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other Lender or the Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The Agent
may execute any and all duties hereunder by or through agents or employees and
shall be entitled to rely upon the advice of legal counsel selected by it with
respect to all matters arising hereunder and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel.
The Lenders hereby acknowledge that the Agent shall be under
no duty to take any discretionary action permitted to be taken by it pursuant to
the provisions of this Agreement unless it shall be requested in writing to do
so by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent
as provided below, the Agent may resign at any time by notifying the Lenders and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right, after consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent which shall be a bank with an office in New York, New
York, having a combined capital and surplus of at least $50,000,000 or an
Affiliate of any such bank. Upon the acceptance of any appointment as Agent
hereunder by a successor bank, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After the Agent's resignation hereunder, the provisions of this Article and
Section 9.05 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, the Agent in
its individual capacity and not as Agent shall have the same rights and powers
as any other Lender and may exercise the same as though it were not the Agent,
and the Agent and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Agent.
Each Lender agrees (i) to reimburse the Agent, on demand, in
the amount of its pro rata share (based on its Commitment hereunder or, if the
Total Commitment shall be terminated, the percentage it holds of the aggregate
outstanding principal amount of the Loans) of any expenses incurred for the
benefit of the Lenders by the Agent, including counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders, which
shall not have been reimbursed by the Borrower and (ii) to indemnify and hold
harmless the Agent and any of its directors, officers, employees or agents, on
demand, in the amount of such pro rata share, from and against any and all
liabilities, taxes, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against it in its capacity as the
Agent or any of them in any way relating to or arising out of this Agreement or
any other Loan Document or any action taken or omitted by it or any of them
under this Agreement or any other Loan Document, to the extent the same shall
not have been reimbursed by the Borrower; provided that no Lender shall be
liable to the Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or wilful misconduct of the Agent or any of
its directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed or sent by graphic scanning or other
telegraphic communications equipment of the sending party, as follows:
(a) if to the Borrower, to it at 333 W. 11th St., Suite 500,
Kansas City, Missouri 64105, Attention of the Vice President and Chief
Financial Officer (Telecopy No. (816) 435-8630);
(b) if to the Agent, to it at The Chase Manhattan Bank, 1
Chase Manhattan Plaza, 8th Floor, New York, New York 10005,
Attention of Paulina Allen (Telecopy No. (212) 623-8979);
and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or other telegraphic communications equipment of the sender, or on the
date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 9.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by the Borrower herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans, regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any Fee or any other amount payable under
this Agreement or any other Loan Document is outstanding and unpaid and so long
as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have received copies hereof which, when taken together,
bear the signatures of each Lender, and thereafter shall be binding upon and
inure to the benefit of the Borrower, the Agent and each Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitment and the Standby Loans at the time owing to
it); provided, however, that (i) except in the case of an assignment to a Lender
or an Affiliate of such Lender, the Borrower and the Agent must give their prior
written consent to such assignment (which consent shall not be unreasonably
withheld), (ii) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Lender's rights and obligations under this
Agreement, (iii) the amount of the Commitment of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Agent) shall not be less
than $10,000,000 (and shall be an integral multiple of $1,000,000), (iv) the
parties to each such assignment shall execute and deliver to the Agent an
Assignment and Acceptance and a processing and recordation fee of $3,000 and (v)
the assignee, if it shall not be a Lender, shall deliver to the Agent an
Administrative Questionnaire. Upon acceptance and recording pursuant to
paragraph (e) of this Section 9.04, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, (A) the assignee thereunder shall be
a party hereto and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under this Agreement
and (B) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto (but shall
continue to be entitled to the benefits of Sections 2.13, 2.15, 2.19 and 9.05,
as well as to any Fees accrued for its account hereunder and not yet paid)).
Notwithstanding the foregoing, any Lender assigning its rights and obligations
under this Agreement may retain any Competitive Loans made by it outstanding at
such time, and in such case shall retain its rights hereunder in respect of any
Loans so retained until such Loans have been repaid in full in accordance with
this Agreement.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balances of its Standby Loans and
Competitive Loans, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto or the financial condition of
the Borrower or any Subsidiary or the performance or observance by the Borrower
or any Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.04 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Agent, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(d) The Agent shall maintain at one of its offices in The City
of New York a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the "Register"). The entries in the
Register shall be conclusive in the absence of manifest error and the Borrower,
the Agent and the Lenders may treat each person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the Borrower and
the Agent to such assignment, the Agent shall (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Lenders.
(f) Each Lender may without the consent of the Borrower or the
Agent sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided, however, that
(i) such Lender's obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.13, 2.15 and 2.19 to the same extent as if they were Lenders,
provided that the participating banks or other entities shall not be entitled to
receive any more than the selling Lender would have received had it not sold the
participation and (iv) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans and to approve any amendment, modification or waiver of any provision of
this Agreement (other than amendments, modifications or waivers decreasing any
fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Loans, extending any scheduled principal payment date
or date fixed for the payment of interest on the Loans or changing or extending
the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure of
information designated by the Borrower as confidential, each such proposed
assignee or participant shall execute a confidentiality agreement in the form of
Exhibit E hereto.
(h) Any Lender may at any time assign all or any portion of
its rights under this Agreement issued to it to a Federal Reserve Bank; provided
that no such assignment shall release a Lender from any of its obligations
hereunder. In order to facilitate such an assignment to a Federal Reserve Bank,
the Borrower, shall, at the request of the assigning Lender, duly execute and
deliver to the assigning Lender a promissory note or notes evidencing the Loans
made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its
rights or duties hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to
pay all reasonable out-of-pocket expenses incurred by the Agent in connection
with the preparation of this Agreement and the other Loan Documents or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby contemplated shall be
consummated) or incurred by the Agent or any Lender in connection with the
enforcement or protection of their rights in connection with this Agreement and
the other Loan Documents or in connection with the Loans made, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel
for the Agent, and, in connection with any such amendment, modification or
waiver or any such enforcement or protection, the fees, charges and
disbursements of any other counsel for the Agent or any Lender. The Borrower
further agrees that it shall indemnify the Lenders from and hold them harmless
against any documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or any of
the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, each Lender
and each of their respective directors, officers, employees and agents (each
such person being called an "Indemnitee") against, and to hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees, charges and disbursements, incurred
by or asserted against any Indemnitee arising out of, in any way connected with,
or as a result of (i) the execution or delivery of this Agreement or any other
Loan Document or any agreement or instrument contemplated thereby, the
performance by the parties thereto of their respective obligations thereunder or
the consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans or (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses (i) are determined by a court
of competent jurisdiction by final and nonappealable judgment to have resulted
from the negligence or wilful misconduct of such Indemnitee and (ii) have not,
in whole or in part, arisen out of or resulted from any act, or omission to act,
of the Borrower or any of its Affiliates.
(c) The provisions of this Section 9.05 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Agent or any Lender. All amounts due under this
Section 9.05 shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of
the Agent or any Lender in exercising any power or right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agent and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders; provided,
however, that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any Loan, or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender affected thereby, (ii) change or extend the
Commitment or decrease the Facility Fees or the Utilization Fee of any Lender
without the prior written consent of such Lender, or (iii) amend or modify the
provisions of Section 2.16, the provisions of this Section or the definition of
"Required Lenders", without the prior written consent of each Lender; provided
further that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Agent hereunder without the prior written consent of the
Agent. Each Lender shall be bound by any waiver, amendment or modification
authorized by this Section and any consent by any Lender pursuant to this
Section shall bind any person subsequently acquiring a Loan from it.
SECTION 9.09. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the applicable interest rate,
together with all fees and charges which are treated as interest under
applicable law (collectively the "Charges"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by such Lender in accordance with applicable law, the rate
of interest payable on the Loans made by such Lender, together with all Charges
payable to such Lender, shall be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other
Loan Documents constitute the entire contract between the parties relative to
the subject matter hereof. Any previous agreement among the parties with respect
to the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. Waiver of Jury Trial. Each party hereto hereby
waives, to the fullest extent permitted by applicable law, any right it may have
to a trial by jury in respect of any litigation directly or indirectly arising
out of, under or in connection with this Agreement or any of the other Loan
Documents. Each party hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other parties hereto have been
induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 9.11.
SECTION 9.12. Severability. In the event any one or more of
the provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.14. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a)
The Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Loan Documents against any other party or its properties in the
courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this agreement or the other
Loan Documents in any New York State or Federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.16. Confidentiality. (a) Each Lender agrees to keep
confidential and not to disclose (and to cause its officers, directors,
employees, agents, Affiliates and representatives to keep confidential and not
to disclose) all Information (as defined below), except that such Lender shall
be permitted to disclose Information (i) to such of its officers, directors,
employees, advisors, agents, Affiliates and representatives as need to know such
Information in connection with the servicing and protection of its interests in
respect of its Loans and Commitments, the Loan Documents and the Transactions;
(ii) to the extent required by applicable laws and regulations or by any
subpoena or similar legal process or requested by any Governmental Authority
having jurisdiction over such Lender; (iii) to the extent such Information (A)
becomes publicly available other than as a result of a breach by such Lender of
this Agreement, (B) is generated by such Lender or becomes available to such
Lender on a non-confidential basis from a source other than the Borrower or its
Affiliates or the Agent, or (C) was available to such Lender on a
non-confidential basis prior to its disclosure to such Lender by the Borrower or
its Affiliates or the Agent; (iv) as provided in Section 9.04(g); or (v) to the
extent the Borrower shall have consented to such disclosure in writing. As used
in this Section 9.16, "Information" shall mean the Confidential Memorandum and
any other confidential materials, documents and information relating to the
Borrower that the Borrower or any of its Affiliates may have furnished or made
available or may hereafter furnish or make available to the Agent or any Lender
in connection with this Agreement.
(b) Each Transferee shall be deemed, by accepting any
assignment or participation hereunder, to have agreed to be bound by this
Section 9.16.
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders
have caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
DST SYSTEMS, INC.,
by /s/Kenneth V. Hager
Name:Kenneth V. Hager
Title:Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent,
by /s/Timothy J. Storms
Name:Timothy J. Storms
Title:Managing Director
NATIONSBANK OF TEXAS, N.A.,
by/s/Jeff Susman
Name:Jeff Susman
Title:Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
by/s/Hiroaki Nakamura
Name:Hiroaki Nakamura
Title:Joint General Manager
THE LONG-TERM CREDIT BANK OF JAPAN, LTD
by/s/Armund J. Schoen, Jr.
Name:Armund J. Schoen, Jr.
Title:Deputy General Manager
UMB Bank, n.a.,
by/s/Douglas F. Page
Name:Douglas F. Page
Title:Executive Vice President
<PAGE>
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank
as Agent for the Lenders referred to below,
1 Chase Manhattan Plaza
8th Floor
New York, NY 10005
Attention: Paulina Allen
[Date]
Re: Five-Year Agreement Referred to Below
Dear Sirs:
The undersigned, DST Systems, Inc. (the "Borrower"), refers to
the Amended and Restated Five-Year Competitive Advance and Revolving Credit
Facility Agreement dated as of December 30, 1996 (as it may hereafter be
amended, modified, extended or restated from time to time, the "Credit
Agreement"), among the Borrower, the Lenders named therein and The Chase
Manhattan Bank, as Agent. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement. The Borrower hereby gives you notice pursuant to Section 2.03(a) of
the Credit Agreement that it requests a Competitive Borrowing under the Credit
Agreement, and in that connection sets forth below the terms on which such
Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day)
(B) Principal Amount of
Competitive Borrowing 1/
(C) Interest rate basis 2/
(D) Interest Period and the last
day thereof 3/
Upon acceptance of any or all of the Loans offered by the
Banks in response to this request, the Borrower shall be deemed to have
represented and warranted that the conditions to lending specified in Section
4.01(b) and (c) of the Credit Agreement have been satisfied.
Very truly yours,
DST SYSTEMS, INC.,
by
Title: [Responsible Officer]
<PAGE>
PAGE>
FORM OF NOTICE OF COMPETITIVE BID REQUEST
(Name of Bank] [Date]
[Address]
Attention:
Re: Five-Year Agreement Referred to Below
Dear Sirs:
Reference is made to the Amended and Restated Five-Year
Competitive Advance and Revolving Credit Facility Agreement dated as of December
30, 1996 (as it may hereafter be amended, modified, extended or restated from
time to time, the "Credit Agreement"), among DST Systems, Inc. (the "Borrower"),
the Lenders named therein and The Chase Manhattan Bank, as Agent. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Credit Agreement. The Borrower made a Competitive
Bid Request on , 19 , pursuant to Section 2.03(a) of the Credit Agreement, and
in that connection you are invited to submit a Competitive Bid by [Date]/[Time].
4/ Your Competitive Bid must comply with Section 2.03(b) of the Credit Agreement
and the terms set forth below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing
(B) Principal amount of
Competitive Borrowing
(C) Interest rate basis
(D) Interest Period and the last
day thereof
Very truly yours,
THE CHASE MANHATTAN BANK, as Agent,
by
Title:
<PAGE>
EXHIBIT A-3
<PAGE>
2
FORM OF COMPETITIVE BID
The Chase Manhattan Bank
as Agent for the Lenders referred
to below,
1 Chase Manhattan Plaza
8th Floor
New York, NY 10005
Attention: Paulina Allen
[Date]
Re: Five-Year Agreement Referred to Below
Dear Sirs:
The undersigned, [Name of Bank], refers to the Amended and
Restated Five-Year Competitive Advance and Revolving Credit Facility Agreement
dated as of December 30, 1996 (as it may hereafter be amended, modified,
extended or restated from time to time, the "Credit Agreement"), among DST
Systems, Inc. (the "Borrower"), the Lenders named therein and The Chase
Manhattan Bank, as Agent. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement. The undersigned hereby makes a Competitive Bid pursuant to Section
2.03(b) of the Credit Agreement, in response to the Competitive Bid Request made
by the Borrower on , 19 , and in that connection sets forth below the terms on
which such Competitive Bid is made:
(A) Principal Amount 5/
(B) Competitive Bid Rate 6/
(C) Interest Period and last
day thereof
The undersigned hereby confirms that it is prepared, subject
to the conditions set forth in the Credit Agreement, to extend credit to the
Borrower upon acceptance by the Borrower of this bid in accordance with Section
2.03(d) of the Credit Agreement.
Very truly yours,
[NAME OF BANK],
by
Title:
<PAGE>
EXHIBIT A-4
<PAGE>
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank
as Agent for the Lenders referred
to below,
1 Chase Manhattan Plaza
8th Floor
New York, NY 10005
Attention: Paulina Allen
Re: Five-Year Agreement Referred to Below
Dear Sirs:
The undersigned, DST Systems, Inc. (the "Borrower"), refers to
the Amended and Restated Five-Year Competitive Advance and Revolving Credit
Facility Agreement dated as of December 30, 1996 (as it may hereafter be
amended, modified, extended or restated from time to time, the "Credit
Agreement"), among the Borrower, the Lenders named therein and The Chase
Manhattan Bank, as Agent for the Lenders.
In accordance with Section 2.03(c) of the Credit Agreement, we
have received a summary of bids in connection with our Competitive Bid Request
dated ___________ and in accordance with Section 2.03(d) of the Credit
Agreement, we hereby accept the following bids for maturity on [date]:
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
We hereby reject the following bids:
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
The $ should be deposited in The Chase Manhattan Bank account number
[ ] on [date].
Very truly yours,
DST SYSTEMS, INC.,
by
Name:
Title:
<PAGE>
EXHIBIT A-5
<PAGE>
FORM OF STANDBY BORROWING REQUEST
The Chase Manhattan Bank
as Agent for the Lenders referred
to below,
1 Chase Manhattan Plaza
8th Floor
New York, NY 10005
Attention: Paulina Allen
[Date]
Re: Five-Year Agreement Referred to Below
Dear Sirs:
The undersigned, DST Systems, Inc. (the "Borrower"), refers to
the Amended and Restated Five-Year Competitive Advance and Revolving Credit
Facility Agreement dated as of December 30, 1996 (as it may hereafter be
amended, modified, extended or restated from time to time, the "Credit
Agreement"), among the Borrower, the Lenders named therein and The Chase
Manhattan Bank, as Agent. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement. The Borrower hereby gives you notice pursuant to Section 2.04 of the
Credit Agreement that it requests a Standby Borrowing under the Credit
Agreement, and in that connection sets forth below the terms on which such
Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day)
(B) Principal Amount of
Standby Borrowing 7/
(C) Interest rate basis 8/
(D) Interest Period and the last
day thereof 9/
Upon acceptance of any or all of the Loans made by the Lenders
in response to this request, the Borrower shall be deemed to have represented
and warranted that the conditions to lending specified in Section 4.01(b) and
(c) of the Credit Agreement have been satisfied.
Very truly yours,
DST SYSTEMS, INC.,
by
Title: [Responsible Officer]
<PAGE>
EXHIBIT B
The Chase Manhattan Bank
1 Chase Manhattan Plaza, 8th Floor
New York, NY 10005
212-623-9329
212-623-8979 (Fax)
Telex: 353008 ABSC NYK
ADMINISTRATIVE QUESTIONNAIRE
DST SYSTEMS, INC.
Please accurately complete the following information and return via FAX to the
attention of Paulina Allen at The Chase Manhattan Bank as soon as possible.
FAX Number: 212-623-8979
LEGAL NAME OF YOUR INSTITUTION TO APPEAR IN DOCUMENTATION:
GENERAL INFORMATION - DOMESTIC LENDING OFFICE:
Institution Name:
Street Address:
City, State, Zip Code:
GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:
Institution Name:
Street Address:
City, State, Zip Code:
CONTACTS/NOTIFICATION METHOD:
CREDIT CONTACTS:
Primary Contact:
Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
<PAGE>
Backup Contact:
Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
TAX WITHHOLDING:
Non Resident Alien __________ Y* __________ N
* Form 4224 Enclosed
Tax ID Number ___________________________________________
CONTACTS/NOTIFICATION METHOD:
ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact:
Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
BID LOAN NOTIFICATION:
Contact:
Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
PAYMENT INSTRUCTIONS:
Name of Bank where funds are to be transferred:
Routing Transit/ABA number of Bank where funds are to be transferred:
Name of Account, if applicable:
Account Number:
Additional Information:
MAILINGS:
Please specify who should receive financial information:
Name:
Street address:
City, State, Zip Code:
It is very important that all of the above information is accurately filled in
and returned promptly. If you have any questions, please call Paulina Allen at
212-623-8979.
<PAGE>
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Five-Year
Competitive Advance and Revolving Credit Facility Agreement dated as of December
30, 1996 (the "Credit Agreement"), among DST Systems, Inc., a Delaware
corporation (the "Borrower"), the lenders named therein (the "Lenders") and The
Chase Manhattan Bank, as agent for the Lenders (in such capacity, the "Agent").
Terms defined in the Credit Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to
the Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date set forth on the reverse
hereof, the interests set forth on the reverse hereof (the "Assigned Interest")
in the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the Effective Date and the Competitive Loans and
Standby Loans owing to the Assignor which are outstanding on the Effective Date.
Each of the Assignor and the Assignee hereby makes and agrees to be bound by all
the representations, warranties and agreements set forth in Section 9.04(c) of
the Credit Agreement, a copy of which has been received by each such party. From
and after the Effective Date (i) the Assignee shall be a party to and be bound
by the provisions of the Credit Agreement and, to the extent of the interests
assigned by this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to
the extent of the interests assigned by this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
2. This Assignment and Acceptance is being delivered to the
Agent together with (i) if the Assignee is organized under the laws of a
jurisdiction outside the United States, the forms specified in Section 2.19(f)
of the Credit Agreement, duly completed and executed by such Assignee, (ii) if
the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form of Exhibit B to the Credit Agreement
and (iii) a processing and recordation fee of $3,000.
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment):
<PAGE>
Percentage Assigned of
Facility/Commitment (set forth, to
Principal Amount assigned at least 8 decimals, as a
(and identifying information percentage of the Facility and the
as to individual Competitive aggregate Commitments of all
Facility Loans) Lenders thereunder)
Commitment Assigned:
$ %
Standby Loans:
Competitive Loans:
The terms set forth above and on the reverse side hereof are hereby agreed to:
Accepted */
, as Assignor THE CHASE MANHATTAN BANK, as agent
By: By:
Name: Name:
Title: Title:
, as Assignee DST SYSTEMS, INC.,
By: By:
Name: Name:
Title: Title:
- --------------------
*/ To be completed only if consents are required under Section 9.04(b).
<PAGE>
EXHIBIT D
[FORM OF]
COMPLIANCE CERTIFICATE
To: The Lenders party to the
Credit Agreement described below
This Compliance Certificate is furnished pursuant to the
Amended and Restated Five-Year Competitive Advance and Revolving Credit Facility
Agreement dated as of December 30, 1996 (the "Agreement"), among DST Systems,
Inc. (the "Borrower"), the Lenders party thereto and The Chase Manhattan Bank,
as Agent. Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings assigned to them in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected chief financial officer of
the Borrower;
2. I have reviewed the terms of the Agreement and I have made,
or have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower and the Subsidiaries during the
accounting period covered by the attached financial statements;
3. The form attached hereto sets forth financial data and
computations evidencing the Borrower's and the Subsidiaries' compliance with
certain covenants of the Agreement, all of which data and computations are true,
complete and correct; and
4. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or event which
constitutes a Default or an Event of Default during or at the end of the
accounting period covered by the attached financial statements or as of the date
of this Compliance Certificate, except as set forth below:
[Describe the exceptions by listing, in detail, the nature of
the condition or event, the period during which it has existed
and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event]
The foregoing certifications, together with the computations
required by the Credit Agreement attached hereto and the financial statements
delivered with this Compliance Certificate in support hereof, are made and
delivered this day of , 19.
Name:
Title:
<PAGE>
EXHIBIT E
<PAGE>
[Letterhead of Prospective Assignee or Participant]
[FORM OF]
CONFIDENTIALITY AGREEMENT
[Date]
The Chase Manhattan Bank
1 Chase Manhattan Plaza
8th Floor
New York, NY 10005
Attention: Paulina Allen
DST Systems, Inc.
Confidentiality Agreement
Dear Sirs:
In connection with our possible acquisition of an interest in
the credit facility (the "Facility") established by the Amended and Restated
Five-Year Competitive Advance and Revolving Credit Facility Agreement dated as
of December 30, 1996, among DST Systems, Inc. (the "Borrower"), the lenders
party thereto (the "Lenders") and The Chase Manhattan Bank, as Agent, you, the
Borrower or any Lender may furnish us with confidential documents, materials and
information (the "Information") relating to the Borrower.
We agree to keep confidential and not to disclose (and to
cause our officers, directors, employees, agents, Affiliates and representatives
to keep confidential and not to disclose) and, at the request of you or the
Borrower, promptly to return or destroy, the Information and all copies thereof,
extracts therefrom and analyses or other materials based thereon, except that we
shall be permitted to disclose Information (i) to such of our officers,
directors, employees, agents, Affiliates and representatives as need to know
such Information in connection with such acquisition; (ii) to the extent
required by applicable laws and regulations or by any subpoena or similar legal
process, or requested by any governmental agency or authority having
jurisdiction over us; (iii) to the extent such Information (A) becomes publicly
available other than as a result of a breach by us of this letter, (B) is
generated by us or becomes available to us on a nonconfidential basis from a
source other than you, the Borrower or any Lender or (C) was available to us on
a nonconfidential basis prior to its disclosure to us by you, the Borrower or
any Lender; or (iv) to the extent the Borrower shall have consented in writing
to such disclosure.
Notwithstanding anything to the contrary contained above, we
shall be entitled to retain all Information to use for the administration of our
interests and the protection of our rights under the Facility.
The Borrower shall be a third party beneficiary of this
Agreement.
Very truly yours,
[Name of potential participant/assignee]
by
Name:
Title:
<PAGE>
SCHEDULE 2.01
DST
Contact Person and Telephone
Name and Address of Lender Telecopy Numbers Commitment
The Chase Manhattan Bank Jon R. Hinard $35,000,000
Domestic and LIBOR Office: Fax: (312) 807-4077
Tel: (312) 807-4046
10 South La Salle Street, Suite 2300
Chicago, IL 60603
NationsBank of Texas, N.A. Perry B. Stephenson $25,000,000
Domestic and LIBOR Office: Tel: (214) 508-0913
Fax: (214) 508-0980
901 Main Street, 67th Floor
Dallas, TX 75202-3748
The Industrial Bank of Japan, Limited Steven Ryan $15,000,000
Domestic and LIBOR Office: Tel: (312) 855-6251
- -------------------------
Fax: (312) 855-8200
227 West Monroe, Suite 2600
Chicago, IL 60606
The Long-Term Credit Bank
of Japan, Ltd. Armund J. Schoen, Jr. $15,000,000
Domestic and LIBOR Office: Tel: (312) 704-5479
- -------------------------
Fax: (312) 704-8505
190 South La Salle Street, Suite 800
Chicago, IL 60603
UMB Bank, n.a. Douglas Page $15,000,000
Domestic and LIBOR Office: Tel: (816) 860-7103
- -------------------------
Fax: (816) 860-7143
1010 Grand Avenue
Kansas City, MO 64106
Total Commitment $105,000,000
<TABLE>
<CAPTION>
SCHEDULE 3.08
TO
AMENDED AND RESTATED
FIVE-YEAR COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of November 30, 1996
SUBSIDIARIES
- ----------------------------------------------------- ------------------------------------------------- -------------------
Name Owner Percent of Jurisdiction of
Ownership Ownership
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
<S> <C> <C> <C>
Belvedere Financial Systems, Inc. DST Systems, Inc. 100% Delaware
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
C&T Acquisition, Ltd. DST Systems, Inc. 100% United Kingdom
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DBS Systems Corporation DST Systems, Inc. 80% North Carolina
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST International Limited DST Systems, Inc. 100% United Kingdom
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST Clarke & Tilley Pty. Ltd. DST International Limited 100% Australia
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST International (South Africa) (Pty) Ltd. DST International Limited 100% South Africa
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST International (Singapore) Pte. Limited DST International Limited 100% Singapore
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST International Pty Limited DST International Limited 100% Australia
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST International (Hong Kong) Ltd. DST International Ltd. - Australia 99.9% Hong Kong
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Portfolio Management Software Limited DST International Ltd. - Australia 100% United Kingdom
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Portfolio Management Software (South DST International Ltd. - Australia 87.5% South Africa
Africa) (Proprietary) Limited
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST International (NZ) Limited DST International Limited 100% New Zealand
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
European Financial Data Services Limited DST International Limited 50% United Kingdom
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
EFDS U.K. European Financial Data Services Limited 100% United Kingdom
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
HiPortfolio Limited DST International Limited 100% United Kingdom
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST Realty, Inc. DST Systems, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Board of Trade Building, Inc. DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST Key West, Inc. DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
KW Beach Suites Limited Partnership DST Key West, Inc. Florida
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Eleventh Street Corridor Development Corporation DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
First President Corporation DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Hillside Properties Corporation DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Infra-Park, Inc. DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Name Owner Percent of Jurisdiction of
Ownership Ownership
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ---------------------------------------------------- -------------------------------------------------- -------------------
Jefferson Building Corporation DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Lewis Realty Corporation DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Midwest Realty Corporation DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
National Realty Partners, Inc. DST Realty, Inc. 100% Delaware
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Palmetto Development, Inc. DST Realty, Inc. 100% Delaware
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Ocean Lagoon Associates Palmetto Development, Inc. Virginia
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Winchester Business Center, Inc. DST Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST Securities, Inc. DST Systems, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST Systems International B.V. DST Systems, Inc. 100% Netherlands
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST Technologies, Inc. DST Systems, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies, Inc. DST Systems, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies Central Region, Inc. Output Technologies, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies Eastern Region, Inc. Output Technologies, Inc. 100% Delaware
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
MGI Output Technologies Incorporated Output Technologies Eastern Region, Inc. 100% New York
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies of Illinois, Inc. Output Technologies, Inc. 100% Illinois
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies SRI Group, Inc. Output Technologies, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies Phoenix Litho Output Technologies SRI Group, Inc. 100% Missouri
Group, Inc.
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies Summit Development Corporation Output Technologies, Inc.100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies Western Region, Inc. Output Technologies, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Output Technologies of California, Inc. Output Technologies Western Region, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
3192491 Canada Inc. Output Technologies, Inc. 100% Canada
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Xebec Imaging Services, Inc. 3192491 Canada Inc. 100% of Common Canada
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
VCS Systems, Inc. DST Systems, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
1026459 Ontario Inc. DST Systems, Inc. 100% Canada
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Corfax Benefit Systems Ltd. 1026459 Ontario Inc. 100% Canada
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Corfax Information Systems Ltd. Corfax Benefit Systems Ltd. 100% Canada
- ----------------------------------------------------- ------------------------------------------------- -------------------
<PAGE>
JOINT VENTURES
- ----------------------------------------------------- ------------------------------------------------- -------------------
Name Owner Percent of Jurisdiction of
Ownership Ownership
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Argus Health Systems, Inc. DST Systems, Inc. 50% Delaware
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Argus Computing, Inc. Argus Health Systems, Inc. 100% Delaware
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
National Center for Controlled Prescription Argus Health Systems, Inc. 100% Delaware
Monitoring, Inc.
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Rx Data, Inc. Argus Health Systems, Inc. 100% Delaware
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Boston Financial Data Services, Inc. DST Systems, Inc. 50% Massachusetts
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
CFDS Limited Boston Financial Data Services, Inc. 100% Canada
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
CFDS Investor Services Limited CFDS Limited 100% Canada
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
European Financial Data Services, S.A. Boston Financial Data Services, Inc. 100% Luxembourg
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
National Financial Data Services, Inc. Boston Financial Data Services, Inc. 100% Massachusetts
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Broadway Square Partners DST Realty, Inc. 50% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
MC Realty, Inc. DST Realty, Inc. 50% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
MC Real Estate Services, Inc. MC Realty, Inc. 100% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Talisman Services International B.V. DST Systems, Inc. 50% Netherlands
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Talisman Services Limited Talisman Services International B.V. 100% England
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
DST Systems International Belgium Talisman Services Limited 100% Belgium
S.A.
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Emfisys Limited Talisman Services Limited 100% England
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Talisman Services SARL Talisman Services International B.V. 100% Switzerland
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
Winchester Venture II DST Realty, Inc. 50% Missouri
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
- ----------------------------------------------------- ------------------------------------------------- -------------------
</TABLE>
SCHEDULE 3.09
TO
AMENDED AND RESTATED FIVE-YEAR
COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of December 30, 1996
LITIGATION; CONTINGENT OBLIGATIONS
On December 3, 1996, a Consolidated Subsidiary, Corfax Benefit Systems Ltd
("Corfax"), was served with a counterclaim in a suit earlier filed by Corfax
against Fiducie Desjardins Inc., Court File No. 96-CU-109132 pending in Ontario
Court (General Division). The amount of the counterclaim is CDN $5,285,000.
Corfax's counsel is currently reviewing the counterclaim. The Borrower does not
believe that the counterclaim when resolved will materially adversely affect the
business, properties, financial condition, prospects or results of operations of
Borrower or the ability of Borrower to perform its obligations under the Loan
Documents.
<PAGE>
SCHEDULE 3.17
TO
AMENDED AND RESTATED FIVE-YEAR
COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of December 30, 1996
DIVIDEND RESTRICTIONS
None
<PAGE>
1/ Not less than $5,000,000 (and in integral multiples $1,000,000) or
greater than the Total Commitment then available.
2/ Eurodollar Loan or Fixed Rate Loan.
3/ Which shall be subject to the definition of "Interest Period" and end
not later than the Maturity Date.
4/ The Competitive Bid must be received by the Agent (i) in the case of
Eurodollar Loans, not later than 9:30 a.m., New York City time, three Business
Days before a proposed Competitive Borrowing, and (ii) in the case of Fixed Rate
Loans, not later than 9:30 a.m., New York City time, on the Business Day of a
proposed Competitive Borrowing.
5/ Not less than $5,000,000 or greater than the requested Competitive
Borrowing and in integral multiples of $1,000,000. Multiple bids will be
accepted by the Agent.
6/ LIBO Rate + or - %, in the case of Eurodollar Loans or %, in the case
of Fixed Rate
-
Loans.
7/ Not less than $5,000,000 (and in integral multiples of $1,000,000) or
greater than the Total Commitment then available.
8/ Eurodollar Loan or ABR Loan.
9/ Which shall be subject to the definition of "Interest Period" and end
not later than the Maturity Date.
DST SYSTEMS, INC.
And Consolidated Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Original Indebtedness
Date Of Maturity Balance
Transaction Indebtedness Agreement Description Date 11/30/1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURED DEBT
DST SYSTEMS, INC
01/94 Boatmen's First National Bank- Term note Amdahl CPU-first lien 1/97 $708,821
12/94 IBM Credit Corp.- Term notes IBM CPU-first liens 12/97 13,340,664
01/94 Mercantile Bank- Term note EDP Equipment, first lien 1/97 806,662
06/90 Northwestern Mutual- Term note Winchester Data Center, first mortg5/05 23,815,569
Total DST Systems, Inc 38,671,716
DST REALTY, INC
10/94 Great Southern Life Real Estate, Centennial- first mort11/06 7,551,331
12/94 Great Southern Life Real Estate, 2450 Summit- first mor1/07e 2,449,112
12/95 Farm Bureau Real Estate, Skelly 12/05 1,888,600
04/90 Charter American Mortgage Real Estate, 2500 Summit- first mor6/99e 675,823
Total DST Realty, Inc 12,564,866
OUTPUT TECHNOLOGIES, INC
06/96 Xerox-St. Louis EDP Equipment, Capital Lease 10/99 129,998
04/94 Bell & Howell EDP Equipment, Capital Lease 11/96 3
01/95 Xerox Production Equipment, Capital Lease02/98 4,318
12/95 Gateway Production Equipment, Capital Lease12/98 44,045
10/88 Xerox EDP Equipment, Capital Lease 10/97 2
VARIOUS Capital Leases Capital Leases (Various) VARIOUS 4,410
Total Output Technologies, Inc 182,776
BELVEDERE FINANCIAL SYSTEMS, INC
04/89 Tucker Leasing Capital Lease 3/98 55,024
CORFAX BENEFIT SYSTEMS
05/88 Capital Lease Capital Lease 12/97 466,917
------------------
Total DST Consolidated Secured Indebtedness $51,941,299
==================
UNSECURED DEBT
DST
5/95 Chase Manhattan Unsecured promissory note 5/98 $30,000,000
1/94 Boatmen's First National Bank Line of Credit 08/97 19,154,000
DSTR
4/92 Key West Note - Striker Unsecured promissory note 81,225
DST INTERNATIONAL
6/93 Acquisition Debentures Unsecured promissory note 6/97 2,075,588
Acquisition Notes Unsecured promissory note 2/97 1,959,000
CORFAX
1/94 Royal Bank of Canada Short Term Note 12/96 329,489
------------------
Total Unsecured Debt $53,599,302
==================
OTHER INDEBTEDNESS
DST
12/95 20% of DBS Common Stock Put option by minority shareholdersOption of the $6,000,000
Held by minority shareholders minority
shareholders
Total Other Indebtedness $6,000,000
==================
TOTAL INDEBTEDNESS $111,540,601
==================
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8(No. 333-04197) of DST Systems, Inc. of our report
dated February 20, 1997 appearing on page 23 of this Form 10-K.
/s/Price Watehouse LLP
Price Waterhouse LLP
Kansas City, Missouri
March 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule, submitted as exhibit 27.1 to form 10-K, contains summary
financial information extracted from the consolidated condensed balance sheet
and statement of income of DST Systems, Inc., commission file number
1-14036, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000714603
<NAME> DST Systems, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 8,279
<SECURITIES> 0
<RECEIVABLES> 154,094
<ALLOWANCES> 0
<INVENTORY> 10,690
<CURRENT-ASSETS> 201,295
<PP&E> 542,430
<DEPRECIATION> 298,441
<TOTAL-ASSETS> 1,121,588
<CURRENT-LIABILITIES> 125,704
<BONDS> 75,895
0
0
<COMMON> 500
<OTHER-SE> 694,725
<TOTAL-LIABILITY-AND-EQUITY> 1,121,588
<SALES> 0
<TOTAL-REVENUES> 580,808
<CGS> 0
<TOTAL-COSTS> 510,135
<OTHER-EXPENSES> 13,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,940
<INCOME-PRETAX> 273,619
<INCOME-TAX> 105,920
<INCOME-CONTINUING> 167,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,202
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 0
</TABLE>
