AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998.
REGISTRATION NO. 333-43687
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DELAWARE 6211 51-0261715
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
6300 LAMAR AVENUE
OVERLAND PARK, KANSAS 66202
(913) 236-2000
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEITH A. TUCKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WADDELL & REED FINANCIAL, INC.
6300 LAMAR AVENUE
OVERLAND PARK, KANSAS 66202
(913) 236-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
ALAN J. BOGDANOW MATTHEW J. MALLOW
HUGHES & LUCE, L.L.P. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1717 MAIN STREET, SUITE 2800 919 THIRD AVENUE
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10022
(214) 939-5500 (212) 735-3000
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant to 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
EXPLANATORY NOTE
The Prospectus relating to the shares of Class A Common Stock to be used in connection with a United States and Canadian offering (the "U.S. Prospectus") is set forth following this page. The Prospectus to be used in a concurrent international offering (the "International Prospectus") will consist of the alternate page set forth following the U.S. Prospectus and the balance of the pages included in the U.S. Prospectus for which no alternate is provided. The U.S. Prospectus and the International Prospectus are identical except that they contain different front cover pages.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion)
Issued February 27, 1998
21,700,000 Shares
Waddell & Reed Financial, Inc.
CLASS A COMMON STOCK
OF THE 21,700,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED, 17,360,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND 4,340,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. ALL SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $20 AND $22 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF CLASS A COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK (COLLECTIVELY, THE "COMMON
STOCK"). SEE "DESCRIPTION OF CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE AND HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO FIVE VOTES PER SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. ALL OF THE CLASS B COMMON STOCK IS BENEFICIALLY OWNED BY TORCHMARK CORPORATION. SUBSTANTIALLY ALL OF THE NET PROCEEDS OF THE OFFERING WILL BE USED TO PREPAY OUTSTANDING INDEBTEDNESS TO TORCHMARK CORPORATION AND ONE OF ITS SUBSIDIARIES. SEE "USE OF PROCEEDS." ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME TO TIME BY THE BOARD OF DIRECTORS.
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL
NOTICE OF ISSUANCE, ON THE NEW YORK STOCK EXCHANGE UNDER THE TRADING SYMBOL
"WDR."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE $ A SHARE
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
-------- ---------------------- -----------
Per Share........................... $ $ $
Total(3)............................ $ $ $
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The Class A Common Stock is offered subject to prior sale, when, as, and if accepted by the Underwriters and, subject to approval of certain legal matters by Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, and to certain other conditions. It is expected that delivery of the Class A Common Stock will be made on or about , 1998 at the offices of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds.
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
, 1998
[MAP OF WADDELL & REED FINANCIAL OFFICES APPEARS HERE]
Map of the United States showing Division and District Offices in the Cities
and states listed: Mobile, Alabama; Anchorage and Wasilla, Alaska; Temple and
Tuscon, Arizona; Bentonville, Arkansas; Capitola, Costa Mesa, Fairfield,
Fullerton, Lodi, Napa (2), Oakland, Rancho Cucamon, Riverside, Sacramento, San
Diego, San Mateo, Santa Clara, Torrance and Woodland Hills, California;
Boulder, Colorado Springs, Denver, Fort Collins, Grand Junction, Greeley,
Littleton (2) and Pueblo, Colorado; Hamden, Connecticut; Clearwater,
Jacksonville, St. Petersburg, Tallahassee and Winter Park, Florida; Alpharetta
and Atlanta (3), Georgia; Davenport and Des Moines, Iowa; Boise, Coeur
D'Alene, Idaho Falls, Lewiston, Meridian, Mountain Home and Twin Falls, Idaho;
Countryside, Elgin, Evergreen Park, Homewood, Joliet, Lombard, Park Ridge,
Springfield and Sterling, Illinois; Indianapolis, Indiana; Dodge City, Garden
City, Great Bend, Hays, Hutchinson, Lawrence, Manhattan, Oakley, Overland
Park, Salina, Topeka and Wichita, Kansas; Fort Wright and Louisville
Kentucky; Braintree, Waltham and Weburn, Massachusetts; Burton, Grand Rapids,
Muskegon and Southfield, Michigan; Bloomington, Duluth, Edina, Plymouth,
Rochester, and St. Paul, Minnesota; Columbia, Creve Coeur, Joplin, Kansas City
(2) and Springfield, Missouri; Billings, Boulder, Bozeman, Great Falls,
Helena, Kalispell and Missoula, Montana; Charlotte, Raleigh and Winston-Salem,
North Carolina; Bismark, North Dakota; Grand Island, Kearney, Lincoln, Norfolk
and Omaha, Nebraska; Las Vegas and Reno, Nevada; Nashua and Portsmouth, New
Hampshire; Lawrenceville, New Jersey; Albuquerque, New Mexico; Albany (2) and
Rochester, New York; Cincinnati, Dublin and Willoughby, Ohio; Edmond, Lawton
and Tulsa, Oklahoma; Beaverton, Bend, Eugene, Medford, Portland and Salem,
Oregon; Allenton, Erie (2), Harrisburg, Langhorne, Monroeville, Philadelphia,
Pittsburgh and Wyomissing, Pennsylvania; Warwick, Rhode Island; Charleston and
Columbia, South Carolina; Rapid City and Sioux Falls, South Dakota; Memphis
and Nashville, Tennessee; Austin, Corpus Christi, Dallas, El Paso, Fort Worth,
Harlingen, Houston (2), McAllen and San Antonio, Texas; Ogden and Salt Lake
City, Utah; McLean, Richmond and Virginia Beach, Virginia; Bellevue,
Bellingham, College Place, Federal Way, Lynnwood, Pullman, Silverdale,
Spokane, Tacoma, Vancouver and Yakima, Washington; Brookfield and Madison,
Wisconsin; Casper, Cody and Rock Springs, Wyoming.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE CLASS A COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY WILL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................. 4
Risk Factors........................ 11
Special Note Regarding Forward-
Looking Information................ 16
Use of Proceeds..................... 16
Dividend Policy..................... 17
Dilution............................ 17
Capitalization...................... 18
Selected Financial and Operating
Data............................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................ 24
Management.......................... 42
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PAGE
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Certain Relationships and Related Transactions.................................. 56
Principal Stockholder........................................................... 60
Description of Capital Stock.................................................... 60
Shares Eligible for Future Sale................................................. 68
Certain United States Federal Tax Considerations for Non-United States Holders.. 69
Underwriters.................................................................... 71
Legal Matters................................................................... 74
Experts......................................................................... 74
Additional Information.......................................................... 74
Index to Consolidated Financial Statements...................................... F-1
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The Company intends to furnish to its stockholders annual reports containing audited consolidated financial statements and quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT THE CLASS A COMMON STOCK IN CONNECTION WITH THE OFFERING, AND MAY BID FOR AND PURCHASE THE SHARES OF CLASS A COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements (including notes) appearing elsewhere in this Prospectus. Unless otherwise indicated, the information contained in this Prospectus (i) gives effect to the transactions described below under "Background," which will have been consummated prior to or concurrently with the Offering, and (ii) assumes no exercise of the Underwriters' over-allotment option. Unless the context otherwise requires, (i) the "Company" and "Waddell & Reed" refer to Waddell & Reed Financial, Inc. and its subsidiaries and (ii) "Torchmark" refers to Torchmark Corporation and its subsidiaries other than the Company. References to "Common Stock" are to the Class A Common Stock and the Class B Common Stock of the Company.
THE COMPANY
OVERVIEW
Waddell & Reed, founded in 1937, is one of the oldest mutual fund complexes in the United States, having introduced the United family of funds in 1940. Waddell & Reed sells its investment products primarily to middle income Americans through a virtually exclusive sales force consisting, at December 31, 1997, of 2,160 financial advisers operating from 177 sales offices located throughout the United States. As of December 31, 1997, the Company had $23.4 billion of assets under management, of which $20.6 billion were mutual fund assets and the remainder were institutional accounts, and more than 563,000 mutual fund customers having an average account size of $33,200.
The Company is the exclusive underwriter and distributor of 36 mutual fund portfolios (the "Funds"), including 17 comprising the United Group of Mutual Funds (the "United Funds"), eight comprising the Waddell & Reed Funds, Inc. (the "W&R Funds"), and 11 comprising the TMK/United Funds, Inc. (the "TMK/United Funds"). The Company also distributes Torchmark underwritten variable annuities and life insurance products to its customers as part of its financial planning services. For the year ended December 31, 1997, the Company's financial adviser sales force sold $1.5 billion of mutual fund and variable products.
The Company's sales force competes primarily with small broker/dealers and independent financial advisers. The Company's customers generally reside in smaller metropolitan areas and rural communities. The Company conducts investment seminars throughout the United States and also develops individual financial plans for clients (over 40,000 plans in 1997) through one-on-one consultations with financial advisers, who emphasize long-term relationships with a client through continuing service, rather than a one-time sale. The Company believes that it benefits from a developing industry trend toward "assisted sales"--sales of mutual fund products through a sales person--driven by the array of options now available to investors and the need for financial planning advice that has resulted from the recent increase in the average household's financial assets. According to the Investment Company Institute, assisted sales for the year ended December 31, 1997 constituted 61.9% of the total dollar value of mutual fund sales, a figure that has grown from 54.9% for 1994.
The Company's investment philosophy and financial planning approach emphasize long-term savings. The Company's portfolio managers seek consistent long-term performance and downside protection in turbulent markets. As a result, the Company has developed a loyal customer base with clients maintaining their accounts for approximately 13 years on average as compared to six years for the mutual fund industry, according to the Investment Company Institute. This loyalty is also evidenced by a relatively low fund redemption rate for the five years ended December 31, 1997 of 7.6% for the Funds (other than money market funds), which is less than one-half of the industry average of 18.4% and a relatively high dividend reinvestment rate of 86.6% for the Funds (other than money market funds) for the same period versus 66.9% for the mutual fund industry. Approximately 45% of the Company's assets under management were in retirement accounts as of December 31, 1997.
The Company has a seasoned team of portfolio managers, having an average of 20 years industry experience and 14 years tenure with the Company. The five most senior portfolio managers have an average of 30 years industry experience and 26 years tenure with the Company. Portfolio managers usually were investment research analysts for a substantial length of time prior to acquiring money management assignments. The predominant style of the Company's investments is growth equity. As of December 31, 1997, approximately 78% of the Company's mutual fund assets under management were invested in equity funds and the remainder in fixed income and money market funds. This investment strategy emphasizes investment at attractive valuations in companies that the portfolio managers believe can produce above average growth in earnings.
BUSINESS STRATEGY
The Company's business strategy is outlined below.
. INCREASE NUMBER OF FINANCIAL ADVISERS: The Company intends to expand its distribution network by recruiting high quality candidates to be financial advisers. The Company's current objective is to increase the number of financial advisers by 10% per year. From December 31, 1996 to December 31, 1997, the number of financial advisers has increased from 2,010 to 2,160.
In 1994, the Company also began implementing a "bridge income" program, which provides newly recruited financial advisers with a source of earnings until they can develop the skills and client base necessary to earn a stable income from commissions. Financial advisers recruited in 1997 who participated in the bridge income program produced, on average, at two and a half times the rate of non-participants.
. CONTINUE TO INCREASE PERCENTAGE OF FULL-TIME FINANCIAL ADVISERS: Since 1993, the Company has emphasized increasing the proportion of its sales force that sells financial services products on a full-time basis. At December 31, 1997, the percentage of financial advisers whose annual production is the equivalent of investment product sales in excess of $900,000 per year, which the Company considers full-time ("Full-Time Advisers"), was 31% of the Company's total sales force, up from 18% at December 31, 1992. Over the same period, the annual investment product sales per Full-Time Adviser increased approximately 25% to a current annual rate of about $1.7 million.
. EXPAND GEOGRAPHIC SCOPE: The Company intends to pursue geographic expansion of its sales force. In larger communities it intends to establish new division offices with the facilities to accommodate up to 20 financial advisers, and in smaller communities or suburban areas it will open offices with facilities to accommodate a smaller group of advisers. While historically the Company has opened new offices in areas that were contiguous with existing offices, it now intends to select new locations based on expected growth opportunities. Consistent with its focus on retirement savings and planning, the Company expects to open new offices in Florida and Arizona, as well as smaller offices in other areas of the country, in 1998.
. ENHANCE MARKETING AND FINANCIAL PLANNING TOOLS: The Company expects to implement an improved financial planning package, which will allow its financial advisers to customize solutions to a client's savings, retirement income, estate planning, life insurance, and other personal financial planning needs. The Company has traditionally provided financial planning advice to its clients free of charge. The Company now intends to begin charging a fee, typically $250, for such services. The Company believes that its program of selling its improved financial plans for a fee will stimulate sales and result in a significantly higher average sale per plan. The Company expects to introduce the revised financial plan by the end of the first quarter of 1998.
. INVEST IN PORTFOLIO MANAGERS AND INVESTMENT ANALYSTS: The Company's objective is for its Fund families to achieve top quartile performance. The Company is also focused on building its industry and geographic expertise. To achieve this goal, the Company has begun to implement a plan to add several portfolio managers and investment analysts. The Company is implementing a new incentive compensation structure that relies on stock options and increases in cash compensation to bring total compensation for portfolio managers and investment analysts to a more market-competitive level.
. INVEST IN SYSTEMS AND TECHNOLOGY: In order to support its anticipated growth, the Company is engaged in projects to enhance its information systems. The Company will install a management system in all division offices that it believes will better enable division managers to monitor the activities of the individual financial advisers including the number of sales calls completed, the number of client contacts, and overall sales results. The Company has recently completed agreements to outsource the data processing components of its transfer agency activities to a third party provider by the fourth quarter of 1998. The Company has developed and is testing an intranet to be used by its financial advisers to obtain updated training materials, product information, and electronic interactive product illustrations. In addition, the Company expects that clients will have access to the intranet to obtain data related to their personal accounts once information security concerns are addressed.
. PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES TO EXPAND PRODUCT OFFERING AND DISTRIBUTION: The Company intends to selectively pursue acquisitions and alliances that will add new products or alternative distribution systems. The Company believes that it will be better positioned to pursue acquisitions as one of relatively few independent, public investment advisory and asset management companies. The Company has traditionally distributed its investment products only through its virtually exclusive financial adviser sales force. In the future, the Company may acquire another fund complex the products of which will likely not be marketed to the Company's existing customer base.
THE OFFERING
Class A Common Stock
Offered
United States Offering...... 17,360,000 shares
International Offering...... 4,340,000 shares
Total....................... 21,700,000 shares
Common Stock to be
outstanding after the
Offering
Class A Common Stock........ 29,675,000 shares(1)
Class B Common Stock........ 34,325,000 shares
Total....................... 64,000,000 shares(1)
Use of proceeds...............
Net proceeds (other than from any exercise
of the over-allotment option) to prepay
amounts outstanding under the Notes (as
defined below) payable to Torchmark, which
prior to the Offering will be prepaid to
the extent necessary so that the remaining
aggregate principal amount thereof equals
the greater of $428 million or the net
proceeds of the Offering (assuming no
exercise of the over-allotment option). Net
proceeds from any exercise of the over-
allotment option to be retained by the
Company for general corporate purposes to
the extent of $28.0 million, and the excess
over $28.0 million, if any, will be paid to
Torchmark as a dividend. See "Use of
Proceeds."
Dividend Policy............... The Company currently intends to pay
quarterly dividends of approximately $.1325
per share to holders of Class A Common
Stock and Class B Common Stock.
Voting Rights
Class A Common Stock........ 1 vote per share
Class B Common Stock........ 5 votes per share
NYSE Symbol................... "WDR"
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(1) Does not include options to purchase 2,372,300 shares of Class A Common Stock to be issued pursuant to compensation and benefit plans of the Company or 200,000 shares of Class A Common Stock to be restricted stock under the Company's compensation and benefit plans. See "Management-- Compensation, Benefits, and Retirement Plans." Also, does not include (i) options issuable in connection with conversion of options issued under Torchmark compensation and benefit plans and (ii) the conversion of 48,000 shares of restricted stock of Torchmark Corporation issued under Torchmark stock plans to Class A Common Stock at the time of consummation of the Offering. See "Management--Conversion of Torchmark Equity Compensation to Class A Common Stock of the Company."
BACKGROUND
From 1981 until the Offering, the Company has been a subsidiary of Torchmark, and was known as United Investors Management Company until it effected a name change in December 1997 to Waddell & Reed Financial, Inc. The Company is a holding company that conducts its business through its subsidiaries. One subsidiary, Waddell & Reed, Inc. ("W&R"), is a registered broker-dealer and registered investment adviser that acts primarily as the nationwide distributor and underwriter for the shares of mutual funds and distributor of insurance products issued primarily by United Investors Life Insurance Company ("UILIC"), a subsidiary of Torchmark. Another subsidiary, Waddell & Reed Investment Management Company ("WRIMCO"), is a registered investment adviser that provides investment management and advisory services to the Funds and to institutions and other private clients through a subcontract with another subsidiary of Torchmark. Finally, Waddell & Reed Services Company ("WRSCO") provides transfer agency and accounting services to the Funds and their shareholders.
The Company's outstanding capital stock currently consists solely of common stock, all of which is held by Torchmark. Prior to the consummation of the Offering, the Company will file an amended and restated certificate of incorporation (the "Certificate of Incorporation") that will convert all currently outstanding common stock into 7,975,000 shares of Class A Common Stock and 34,325,000 shares of Class B Common Stock, all of which will be held by Torchmark (the "Recapitalization").
After the consummation of the Offering, the Company will continue to be controlled by Torchmark, which will own more than 89% of the combined voting power of the Class A Common Stock and the Class B Common Stock of the Company. The holders of Class A Common Stock and Class B Common Stock have identical rights except that (i) holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled to five votes per share on all matters to be voted on by stockholders and (ii) holders of Class A Common Stock are not eligible to vote on any alteration or change in the powers, preferences, or special rights of the Class B Common Stock that would not adversely affect the rights of Class A Common Stock and vice versa. For example, holders of Class A Common Stock would not be entitled to vote on proposals to decrease the voting power of the Class B Common Stock, to decrease the right of Class B Common Stock to receive dividends, or to diminish the rights of the Class B Common Stock in liquidation, and vice versa. See "Risk Factors--Relationship with Torchmark"; "Risk Factors--Conflicts of Interest Between the Company and Torchmark"; and "Certain Relationships and Related Transactions--Relationship with Torchmark."
The Company, in keeping with Torchmark's strategy for its subsidiaries, paid virtually all of its earnings to Torchmark as dividends. Torchmark has advised the Company that, subject to certain conditions, it currently intends to divest its ownership interest in the Company by means of a special dividend to the stockholders of Torchmark Corporation of all of the Class A Common Stock and Class B Common Stock owned by Torchmark after the Offering (the "Spin-Off"). The purpose of the Spin-Off is to allow the Company to devote more of its earnings to support future growth, to allow the Company to set compensation and other policies on a separate basis from Torchmark, and to maximize the value of the Offering. See "Risk Factors--Uncertainty of Planned Spin-Off of the Company" and "Certain Relationships and Related Transactions--Relationship With Torchmark--Spin-Off."
As of the date of the Offering, the Company is indebted to Torchmark as a result of previous intercompany funding arrangements and from certain promissory notes issued to Torchmark as dividends (as defined below, the "Notes"). Prior to the Offering, the Company will prepay outstanding amounts remaining under the Notes to the extent necessary so that the remaining aggregate principal amount of the Notes equals the greater of $428 million or the net proceeds of the Offering. The net proceeds of the Offering will be used to prepay the Notes. See "Use of Proceeds" and "Certain Relationships and Related Transactions--Relationship with Torchmark--Intercompany Debt." If the net proceeds of the Offering (assuming no exercise of the Underwriters' over- allotment option) are less than the amount due under the Notes, the unpaid balance of the Notes will remain an obligation of the Company.
The Company formerly held all of the issued and outstanding capital stock of UILIC. The Company has declared and paid a dividend of all the capital stock of UILIC to Torchmark (the "UILIC Dividend"). See "Certain Relationships and Related Transactions--UILIC."
In connection with the Offering, the Company is either entering into or amending several agreements with Torchmark and its affiliates (the "Affiliate Agreements"), which will provide the basis for future relationships between the Company and Torchmark. See "Risk Factors--Relationship with Torchmark"; "Risk Factors-- Conflicts of Interest Between the Company and Torchmark"; and "Certain Relationships and Related Transactions--Relationship with Torchmark."
In order to address certain potential conflicts of interest that could affect the Company and its officers and directors, the Certificate of Incorporation of the Company contains provisions concerning the conduct of certain affairs of the Company as it may involve Torchmark and its affiliates and the Company and its affiliates. Persons acquiring the Common Stock will be deemed to have consented to these provisions. These provisions allocate corporate opportunities between the Company and Torchmark and specify the terms on which transactions between the Company and Torchmark will not be voidable notwithstanding the existence of common directors. For a detailed description of these provisions, see "Description of Capital Stock--Corporate Opportunity and Conflict of Interest Policies."
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following tables set forth summary historical financial and operating data for the five years ended December 31, 1997 as well as summary historical balance sheet data of the Company, as of December 31, 1997 and as adjusted to reflect the Offering and the application of the net proceeds therefrom and to reflect further repayment of certain affiliated indebtedness. See "Certain Relationships and Related Transactions." The information set forth should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements and the related notes included elsewhere in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Investment management
fees................... $ 64,208 $ 70,711 $ 85,289 $101,466 $117,784
Underwriting and
distribution fees...... 78,037 72,150 70,393 85,837 89,427
Shareholder service
fees................... 21,280 22,297 23,527 28,378 30,763
Investment and other
income................. 14,681 3,878 4,295 5,295 3,798
-------- -------- -------- -------- --------
Total revenue.......... 178,206 169,036 183,504 220,976 241,772
Goodwill
amortization(1)........ 1,332 2,903 2,903 2,903 2,903
Other expenses.......... 101,494 89,282 95,894 112,766 123,746
-------- -------- -------- -------- --------
Total expenses......... 102,826 92,185 98,797 115,669 126,649
-------- -------- -------- -------- --------
Income before interest
and income taxes...... 75,380 76,851 84,707 105,307 115,123
Interest income, net.... -- 1,915 3,886 3,886 24
-------- -------- -------- -------- --------
Income before income
taxes................. 75,380 78,766 88,593 109,193 115,147
Income taxes............ 28,873 31,140 35,092 42,493 44,855
-------- -------- -------- -------- --------
Income before effect of
change in accounting
principle............. 46,507 47,626 53,501 66,700 70,292
Cumulative effect of
change in accounting
principle.............. 4,125 -- -- -- --
-------- -------- -------- -------- --------
Net income............. $ 50,632 $ 47,626 $ 53,501 $ 66,700 $ 70,292
======== ======== ======== ======== ========
Pro forma net income per
share:
Basic and diluted(2).... $ 1.10
========
|
AS OF DECEMBER 31, 1997
--------------------------
AS
ACTUAL ADJUSTED
------------ ------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Current assets...................................... $130,132 116,534
Goodwill............................................ 98,831 98,831
Total assets........................................ 446,964 265,916
Total liabilities................................... 676,855 67,807
Total stockholder's equity.......................... (229,891) 198,109
|
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
OTHER OPERATING DATA:
Financial Advisers:
Full time(3)................ 546 487 505 634 660
Part time................... 2,141 1,770 1,830 1,376 1,500
-------- -------- -------- -------- --------
Totals..................... 2,687 2,257 2,335 2,010 2,160
Number of investors(4):
Mutual funds................ 499,400 517,600 537,100 522,600 563,800
Variable products........... 16,400 22,700 27,800 33,400 38,200
Average value per
investor(5):
Mutual funds................ $ 22,500 $ 21,600 $ 26,100 $ 28,500 $33,200
Variable products........... $ 33,700 $ 31,900 $ 39,600 $ 42,900 $49,600
Redemption rates of mutual
funds:
Mutual funds................ 7.55% 7.52% 7.64% 7.64% 7.61%
Industry average(6)......... 18.37% 21.27% 17.35% 16.95% 17.86%
Dividend reinvestment rate:
Mutual funds................ 84.9% 86.0% 86.8% 87.5% 87.7%
Industry average(6)......... 53.9% 65.8% 71.7% 72.6% 73.2%
Assets under management
(millions):
Mutual fund:
Equity funds............... $ 7,563 $ 8,174 $ 10,931 $ 12,990 $16,093
Fixed income funds......... 3,870 3,349 3,719 3,681 3,921
Money market funds......... 348 369 442 537 572
-------- -------- -------- -------- --------
Total mutual funds......... $ 11,781 $ 11,892 $ 15,092 $ 17,208 $20,586
Institutional(7)............ $ 2,659 $ 2,606 $ 3,397 $ 1,862 $ 2,831
|
RISK FACTORS
Prospective investors should carefully consider the following risk factors and cautionary statements before making an investment in the Class A Common Stock offered by this Prospectus, as well as the other information set forth in this Prospectus.
RELATIONSHIP WITH TORCHMARK
Torchmark currently owns all of the outstanding capital stock of the Company. See "Certain Relationships and Related Transactions." Upon completion of the Offering, Torchmark will beneficially own approximately 66.1% of the Company's outstanding Common Stock, representing approximately 89.3% of the combined voting power of all classes of voting stock of the Company. In addition, Torchmark and the Company will have a majority of their directors in common upon completion of the Offering and the Spin-Off. As long as Torchmark beneficially owns a majority of the combined voting power of the Common Stock, it will have the ability to elect all of the members of the Board of Directors and thereby to control the management and affairs of the Company, including any determinations with respect to acquisitions, dispositions, borrowings, issuances of Common Stock or other securities of the Company, and the declaration and payment of any dividends on the Common Stock. In addition, Torchmark will be able to determine the outcome of any matter submitted to a vote of the Company's stockholders for approval and will be able to cause or prevent a change in control of the Company. As a result of Torchmark's control of the Company, none of the Affiliate Agreements resulted from "arm's-length" negotiations, although the parties endeavored to implement market based agreements. There can be no assurance that the Company would not have received more favorable terms from an unaffiliated party. For a description of the Affiliate Agreements, see "Certain Relationships and Related Transactions-- Relationship with Torchmark."
CONFLICTS OF INTEREST BETWEEN THE COMPANY AND TORCHMARK
Conflicts of interest may arise between the Company and Torchmark in a number of areas relating to their past and ongoing relationships, including the nature, quality, and pricing of services rendered by the Company to Torchmark or by Torchmark to the Company, potential competitive business activities, shared marketing functions, tax and employee benefit matters, indemnity agreements, sales or distributions by Torchmark of all or any portion of its ownership interest in the Company, or Torchmark's ability to control the management and affairs of the Company. There can be no assurance that Torchmark and the Company will be able to resolve any potential conflict or that, if resolved, the Company would not receive more favorable resolution if it were dealing with an unaffiliated party. See "Description of Capital Stock--Certificate of Incorporation and Bylaw Provisions--Corporate Opportunity and Conflict of Interest Policies."
TORCHMARK'S ABILITY TO DISPOSE OF COMMON STOCK
If the Spin-Off does not occur, Torchmark could decide to sell or otherwise dispose of all or a portion of its Common Stock at some future date. See "-- Availability of Common Stock for Sale or Distribution." There can be no assurance that any holders of Class A Common Stock will be allowed to participate in any transfer by Torchmark of a controlling interest in the Company or will realize any premium with respect to their shares of Class A Common Stock.
DISPARATE VOTING RIGHTS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The holders of Class A Common Stock and Class B Common Stock have identical rights except that (i) holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled to five votes per share on all matters to be voted on by stockholders and (ii) holders of Class A Common Stock are not eligible to vote on any alteration of the powers, preferences, or special rights of the Class B Common Stock that would not adversely affect the Class A Common Stock and vice versa. For example, holders of Class A Common Stock would not be entitled to vote on proposals to decrease the voting power of the Class B Common Stock, to decrease the right of Class B Common Stock to receive dividends, or to diminish the rights of the Class B Common Stock in liquidation, and vice versa. The differential in the voting rights could,
however, adversely affect the value of the Class A Common Stock to the extent that investors or any potential future purchaser of the Company views the superior voting rights of the Class B Common Stock to have value. The existence of two separate classes of Common Stock could result in less liquidity for either class of Common Stock than if there were only one class of Common Stock.
UNCERTAINTY OF PLANNED SPIN-OFF OF THE COMPANY
Torchmark has advised the Company that, subject to certain conditions, Torchmark intends to divest its ownership interest in the Company in the Spin- Off by means of a special dividend to Torchmark Corporation shareholders of all of the Class A Common Stock and Class B Common Stock owned by Torchmark. Torchmark has advised the Company that it presently anticipates that the Spin- Off will occur in the fourth quarter of 1998. Among other things, the Spin-Off is conditioned on the receipt of a ruling by the Internal Revenue Service to the effect that the Spin-Off will qualify as a tax-free distribution under (S) 355 of the Internal Revenue Code of 1986, as amended (the "Code"). In connection therewith, it is a condition to the Offering that Liberty (as defined below), a wholly owned subsidiary of Torchmark (which, before the Offering owns more than 80% of the outstanding Common Stock and, after the Offering and the Recapitalization will own more than 80% of the voting power of the Common Stock) must control (within the meaning of (S)(S)355 and 368(c) of the Code) the Company. No assurance can be given that such conditions will be satisfied or waived, nor can any assurance be given that, in any event, the Spin-Off will occur or that Torchmark will not sell or retain its Common Stock. See "Certain Relationships and Related Transactions--Relationship with Torchmark--Public Offering and Separation Agreement."
REGULATORY RISKS OF PLANNED SPIN-OFF
The Company has been advised by counsel that the Spin-Off as presently contemplated should not result in an assignment of the Company's investment advisory agreements under the Investment Company Act of 1940, as amended (the "Investment Company Act") or the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act") and, therefore, that the Company should not be required under the Investment Company Act or the Investment Advisers Act to obtain the consent of mutual fund shareholders to new investment advisory agreements. Were the Company required to seek shareholder approval of new investment advisory agreements as a result of a change in circumstances or otherwise, seeking such approval would result in expenses to the Company, could result in a delay of the Spin-Off, and would expose the Company to the prospect of not obtaining the requisite approval.
RISK OF DECLINE IN SECURITIES MARKETS
The Company's results of operations are affected by certain economic factors, including the level of the securities markets. Favorable performance by the United States securities markets over the last five years has attracted a substantial increase in the investments in these markets and has benefited the Funds and the Company. A decline in the securities markets, failure of the securities markets to sustain their recent levels of growth, or short-term volatility in the securities markets could result in investors withdrawing from the markets or decreasing their rate of investment, either of which could adversely affect the Company. Because the revenues of the Company are, to a large extent, based on the value of assets under management, a decline in the value of these assets would adversely affect revenues of the Company. The Company's growth is dependent to a significant degree upon the ability of the Funds to attract and retain mutual fund assets, and, in an adverse economic environment, this may prove difficult. The Company's growth rate has varied from year to year, and there can be no assurance that the average growth rates sustained in the recent past will continue.
DEPENDENCE ON FUND PERFORMANCE
Success in the investment management and mutual fund businesses is dependent on the Funds' investment performance. Good performance stimulates sales of the Funds' shares and tends to keep redemptions low. Sales of Funds' shares generate higher management fees and distribution revenues (which are based on assets of the Funds). Good performance also attracts private institutional accounts to the Company. Conversely, relatively poor performance tends to result in decreased sales, increased redemptions of the Funds' shares, and the loss of
private institutional accounts, with corresponding decreases in revenues to the Company. Failure of the Funds to perform well could, therefore, have a material adverse effect on the Company.
TERMINATION OR FAILURE TO RENEW AGREEMENTS
A substantial majority of the Company's revenues are derived from investment management agreements with the Funds that, as required by law, are terminable on 60 days' notice. In addition, each such investment management agreement must be approved and renewed annually by the disinterested members of each Fund's board or its shareholders, as required by law. See "Business-- Investment Management Agreements." Any failure to renew or termination of a significant number of these agreements would have a material adverse effect on the Company.
The Company estimates that it will receive revenues for investment services provided to Torchmark equal to approximately 2.5% of the Company's total revenues in 1998. After the Offering, the Company will perform these services pursuant to an Investment Services Agreement which agreement is terminable by either party on 30 days notice. Additionally, the Company has the right to distribute variable annuities, life insurance products, and Medicare supplement and long term care insurance underwritten by a Torchmark subsidiary. These activities resulted in revenues constituting approximately 12.7% of the Company's total revenues for the year ended December 31, 1997. The agreements through which the Company has the right to distribute such products terminate on December 31, 1998. See "Certain Relationships and Related Transactions--Relationship with Torchmark--Services to WRAMCO" and "Certain Relationships and Related Transactions--Relationship with Torchmark-- Agent Agreements." There can be no assurance that these agreements will not be terminated, or if not terminated, that they will be renewed.
DIFFICULTY OF RETAINING AND RECRUITING KEY PERSONNEL AND SALES FORCE
The future success of the Company depends to a substantial degree on its ability to attract and retain qualified personnel to conduct its fund management and investment advisory business. The market for qualified fund managers, investment analysts, and financial advisers is extremely competitive and has grown more so in recent periods as the mutual fund management industry has experienced growth. The Company anticipates that it will be necessary for it to add fund managers and investment analysts, and it has adopted a strategy of which the Offering and Spin-Off are a significant part intended to attract and retain fund managers and investment analysts. See "Business--Business Strategy." There can be no assurance, however, that the Company will be successful in its efforts to recruit and retain the required personnel.
The Company is currently dependent on its sales force to sell its mutual fund and other investment products. The Company's future growth prospects will be directly affected by the quality and quantity of financial advisers it is able to successfully recruit and retain.
COMPETITION
The mutual fund distribution and service and investment management industries are intensely competitive and are undergoing substantial consolidations. Many organizations in these industries are attempting to market to and service the same clients as the Company, not only with mutual fund investments and services but with a wide range of other financial products and services. Many of the Company's competitors have more products and product lines, services, and may also have substantially greater assets under management and financial resources. Many larger mutual fund complexes have developed relationships with brokerage houses with large distribution networks, which may enable these fund complexes to reach broader client bases. See "Business--Competition."
AVAILABILITY OF COMMON STOCK FOR SALE OR DISTRIBUTION
Subject to applicable law, Torchmark will be free to sell any and all of the shares of Common Stock it owns after completion of the Offering. In addition, the Affiliate Agreements provide that Torchmark will have the right in certain circumstances to require the Company to use its best efforts to register for resale its shares of
Common Stock. See "Certain Relationships and Related Transactions-- Relationship with Torchmark--Public Offering and Separation Agreement." Each of Torchmark and the Company has, however, entered into a lock up agreement (the "Lock Up Agreement") providing that, subject to certain exceptions, they will not sell or otherwise dispose of any shares of Common Stock (other than the shares offered by this Prospectus or pursuant to employee stock benefit plans that exist on, or are described in this Prospectus to be implemented after, the date of this Prospectus) for a period of 180 days after the date of this Prospectus without the prior written consent of Morgan Stanley & Co. Incorporated, on behalf of the Underwriters. Torchmark will be permitted to sell in the public market limited amounts of such Common Stock without registration pursuant to Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the "Securities Act"), immediately after the shares of Common Stock owned by Torchmark are no longer subject to the Lock Up Agreement. Torchmark has also announced its intent, subject to certain conditions, to effect the Spin-Off. Torchmark will own approximately 66.1% of the outstanding Common Stock after the Offering. The Spin-Off as currently proposed could be effected without registration under the Securities Act and without regard to the limitations of Rule 144. It is also probable that holders of Class A Common Stock will experience dilution as a result of the conversion of Torchmark stock options and restricted stock to Class A Common Stock and related rights. See "Management--Conversion of Torchmark Equity Compensation to Class A Common Stock of the Company." No prediction can be made as to the effect, if any, that future sales or distributions of Class A Common Stock or Class B Common Stock by Torchmark, or the availability of Class A Common Stock and Class B Common Stock for future sale or distribution, will have on the market price of the Class A Common Stock prevailing from time to time. Sales or distributions of substantial amounts of Class A Common Stock or Class B Common Stock, or the perception that such sales or distributions could occur, could adversely affect prevailing market prices for the Class A Common Stock. See "Shares Eligible for Future Sale."
DIFFICULTY OF EXECUTING ACQUISITION STRATEGY
The Company has no history of finding, acquiring, or integrating other companies. There can be no assurance that the Company will find suitable acquisition candidates at acceptable prices, have sufficient capital resources to realize its acquisition strategy, be successful in entering into definitive agreements for desired acquisitions, or successfully integrate acquired companies into the Company, or that any such acquisitions, if consummated, will prove to be advantageous to the Company.
FUNDS AND INFORMATION IN POSSESSION OF ADVISERS
The Company's financial advisers handle a significant amount of funds and financial and personal information for investors in the Funds and purchasers of other investment and insurance products. Although the Company has implemented a system of controls to minimize the risk of fraudulent taking or misuse of such funds and information, there can be no assurance that such controls will be adequate or that such taking or misuse can be prevented. The Company could have liability in the event of such taking or misuse and could also be subject to regulatory sanctions. Although the Company believes that it is adequately insured against such risks, there can be no assurance that such insurance will be maintained or that it will be adequate to meet any future liability.
NO ASSURANCE OF DIVIDENDS; HOLDING COMPANY STRUCTURE
The Company's Board of Directors currently intends to declare quarterly dividends on both the Class A Common Stock and the Class B Common Stock. See "Dividend Policy." The declaration and payment of dividends by the Company are subject to the discretion of its Board of Directors. Any determination as to the payment of dividends, as well as the level of such dividends, will depend on, among other things, general economic and business conditions, the strategic plans of the Company, the Company's financial results and condition, contractual, legal, and regulatory restrictions on the payment of dividends by the Company or its subsidiaries, and such other factors as the Board of Directors of the Company may consider to be relevant. The Company is a holding company, and, as such, its ability to pay dividends is subject to the ability of the subsidiaries of the Company to provide cash to the Company. There can be no assurance that the initial quarterly dividend level will be maintained or that any dividends will be paid by the Company in any future period.
RISKS OF IMPLEMENTING NEW INFORMATION SYSTEMS
A number of the Company's key information technology systems were developed solely to handle the Company's particular information technology infrastructure. The Company is in the process of implementing new information technology and systems (internally and through outsourcing the data processing portion of its shareholder service functions) that it believes could facilitate the acquisition and integration of other mutual fund companies. See " --Difficulty of Executing Acquisition Strategy." There can be no assurance that the Company will be successful in implementing the new information technology and systems or that their implementation will be completed in a timely manner or within the Company's budget.
VOLATILITY OF STOCK PRICE
The market price for the Class A Common Stock may be highly volatile. The Company believes that factors such as announcements by the Company, or by its competitors, of quarterly variances in financial results could cause the market price of the Class A Common Stock to fluctuate substantially. In addition, the stock market may experience extreme price and volume fluctuations, which often are unrelated to the operating performance of specific companies. Market fluctuations or perceptions regarding the Company's industry, as well as general economic or political conditions, may adversely affect the market price of the Class A Common Stock.
ABSENCE OF A PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Class A Common Stock and there can be no assurance that an active trading market will develop or be sustained. The initial public offering price of the Class A Common Stock will be determined through negotiation among the Company, Torchmark, and the Underwriters and may not be indicative of the market price for the Class A Common Stock after the Offering. See "Underwriters."
YEAR 2000 RISKS
As the year 2000 approaches, an issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. The Company is in the process of modifying its systems and working with its software vendors to prepare the Company for the year 2000. In addition, the Company and the Funds have relationships with third parties that have computer systems that may not be year 2000 compliant. The Company estimates that its compliance activities will be completed no later than the first quarter of 1999. The remaining costs of this effort are estimated to be $1.7 million. To the extent the Company's or such third parties' systems are not fully year 2000 compliant, there can be no assurance that potential systems interruptions or the cost necessary to update software would not have a material adverse effect on the Company's business, financial condition, results of operations, or business prospects.
BUSINESS SUBJECT TO REGULATION
The Company's investment management business is subject to extensive regulation in the United States, primarily at the Federal level, including regulation by the Securities and Exchange Commission (the "Commission"). Changes in laws or regulations or in governmental policies could materially and adversely affect the business and operations of the Company. See "Business--Regulation."
POTENTIAL ANTI-TAKEOVER PROVISIONS
Under the Company's Certificate of Incorporation, the Board of Directors has the authority, without action by the Company's stockholders, to fix certain terms and issue shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"). Actions of the Board of Directors pursuant to this authority may have the effect of delaying, deterring, or preventing a change in control of the Company. Other provisions in the Certificate of Incorporation and in the Bylaws of the Company (the "Bylaws") impose procedural and other requirements that could make it more difficult to effect certain corporate actions, including replacing incumbent directors. In
addition, the Board of Directors of the Company is divided into three classes, each of which is to serve for a staggered three-year term after the initial classification and election, and, after Torchmark ceases to be the beneficial owner of an aggregate of at least a majority of the voting power of the Company, incumbent directors may not be removed without cause, all of which may make it more difficult for a third party to gain control of the Board of Directors. With certain exceptions, (S) 203 of the Delaware General Corporation Law (the "DGCL") imposes certain restrictions on mergers and other business combinations between the Company and any holder of 15% or more of the voting stock of the Company. Section 203 does not apply to Torchmark's interest in the Company. See "Description of Capital Stock--Certificate of Incorporation and Bylaw Provisions" and "Description of Capital Stock-- Business Combination Statute."
POTENTIAL ISSUANCE OF PREFERRED STOCK
Although the Board of Directors has no current intention of doing so, it could issue a series of preferred stock that could have powers, rights, or preferences superior to that of the Class A Common Stock or that could impede the completion of a merger, tender offer, or other takeover attempt. Such issuance of preferred stock could be effected without a vote of the holders of the Class A Common Stock even though some or a majority of the Company's stockholders might believe that such merger, tender offer or takeover is in their best interests and even if such transactions could result in stockholders receiving a premium for their stock over the then current market price of such stock. See "Description of Capital Stock--Preferred Stock."
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements under "Prospectus Summary"; "Risk Factors"; "Management's Discussion and Analysis of Financial Condition and Results of Operations"; "Business"; and elsewhere in this Prospectus constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance, or achievements of the Company, or industry results, to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those listed under "Risk Factors" and elsewhere in this Prospectus. As a result of the foregoing and other factors, no assurance can be given as to future results, levels of activity, or achievements, and neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares of Class A Common Stock in the Offering at an assumed public offering price of $21.00 per share, after deducting underwriting commissions and discounts and the estimated expenses of the Offering, are expected to be approximately $428 million. The Company intends to use the net proceeds from the Offering to repay the Notes.
The Notes comprise promissory notes payable to Torchmark, described below as the Torchmark Note, the Second Liberty Note, and the First Liberty Note. The Company is indebted to Torchmark Corporation and to Liberty National Life Insurance Company, a wholly owned subsidiary of Torchmark Corporation ("Liberty"), under the terms of two promissory notes dated November 22, 1997, in the original aggregate principal amounts of approximately $90 million payable to Torchmark Corporation (the "Torchmark Note") and of approximately $390 million payable to Liberty (the "Second Liberty Note"). The Torchmark Note and the Second Liberty Note each mature on November 25, 2002 and bear interest at an annual rate of 8%. The Torchmark Note and the Second Liberty Note were distributed by the Company as a dividend. In addition, the Company is indebted to Liberty under the terms of a promissory note dated December 31, 1996, in the original aggregate principal amount of approximately $124 million, that matures on May 1, 2000 and bears interest at an annual rate of 6% (the "First Liberty Note"). The First Liberty Note was issued in connection with an intercompany funding arrangement.
Prior to the Offering, the Company will prepay outstanding amounts remaining under the Notes to the extent necessary so that the remaining aggregate principal amount of the Notes equals the greater of $428 million or the net proceeds of the Offering (other than net proceeds from any exercise of the over-allotment option). See "Certain Relationships and Related Transactions-- Relationship with Torchmark--Intercompany Debt."
The net proceeds of the Offering (other than the net proceeds from any exercise of the over-allotment option) will be applied to prepay the outstanding amounts due under the Notes. If the proceeds of the Offering (assuming no exercise of the Underwriters' over-allotment option) are less than the amount due under the Notes, the unpaid balance of the Notes will remain an obligation of the Company. Net proceeds from the exercise of the over-allotment option will be retained by the Company for general corporate purposes to the extent of $28.0 million, and the excess over $28.0 million, if any, will be paid to Torchmark as a dividend.
DIVIDEND POLICY
The Company's Board of Directors currently intends to declare quarterly cash dividends on both the Class A Common Stock and the Class B Common Stock. The Class A Common Stock and the Class B Common Stock will share equally in any cash dividend, subject to any preferential rights of any outstanding Preferred Stock. The Company expects that the first quarterly dividend payment will be approximately $.1325 per share (an annual rate of approximately $.53), with the initial dividend to be declared and paid in the second quarter of 1998. The declaration and payment of dividends by the Company are subject to the discretion of its Board of Directors. Any determination as to the payment of dividends, including the level of dividends, will depend on, among other things, general economic and business conditions, the strategic plans of the Company, the Company's financial results and condition, contractual, legal, and regulatory restrictions on the payment of dividends by the Company or its subsidiaries, and such other factors as the Board of Directors of the Company may consider to be relevant. The Company is a holding company, and as such, its ability to pay dividends is subject to the ability of the subsidiaries of the Company to provide cash to the Company. Because the Company was a wholly owned subsidiary of Torchmark prior to the Offering, its historic dividend payments should not be considered relevant to its future dividend policy. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
DILUTION
As of December 31, 1997, the Company's net tangible book value was approximately $(229.9) million, or approximately $(7.77) per share of Common Stock (based on 42,300,000 Shares of Common Stock). Net tangible book value per share represents the total book value of the Company's tangible assets reduced by the amount of the Company's total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the Offering, the application of the net proceeds therefrom as described under "Use of Proceeds," and further repayment of the Notes as described in "Certain Relationships and Related Transactions--Relationship with Torchmark-- Intercompany Debt," the net tangible book value of the Common Stock as of December 31, 1997 would have been $1.55 per share. This represents an immediate increase in net tangible book value of $9.32 per share to the Company's existing stockholders and an immediate dilution in tangible book value of $19.45 per share to new investors purchasing shares of Class A Common Stock in the Offering at the initial public offering price. The following table illustrates the per share dilution in net tangible book value to new investors:
Assumed initial public offering price per share.............. $21.00
Net tangible book value per share at December 31, 1997..... $(7.77)
Increase in net tangible book value per share attributable
to the sale of Class A Common Stock in the Offering....... 9.32
------
Net tangible book value per share after giving effect to the
Offering and the repayment of the Notes..................... 1.55
------
Dilution in net tangible book value to the purchasers of
Class A Common Stock in the Offering........................ $19.45
======
|
CAPITALIZATION
The following table sets forth the capitalization of the Company as of December 31, 1997 (i) on a historical basis and (ii) as adjusted to reflect the Offering and the application of proceeds therefrom and the further repayment of the Notes. See "Certain Relationships and Related Transactions-- Relationship with Torchmark--Intercompany Debt" and Pro Forma Financial Statements. This table should be read in conjunction with the Consolidated Financial Statements and related notes and other financial and operating data appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
DECEMBER 31, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Long-Term Debt:
Notes................................................. $ 480,000 --
Stockholders' Equity:
Common Stock, $.01 par value; 42,300,000 shares issued
and outstanding...................................... 423 --
Class A Common Stock, $.01 par value, 150,000,000
shares authorized; 29,675,000 shares issued and
outstanding as adjusted(1)........................... -- 297
Class B Common Stock, $.01 par value, 100,000,000
shares authorized; 34,325,000 shares issued and
outstanding, as adjusted............................. -- 343
Additional paid-in capital............................ -- 197,125
Retained earnings..................................... -- --
Unrealized gain on available-for-sale securities...... 344 344
Dividends in excess of retained earnings and
additional paid-in capital........................... (230,658) --
--------- --------
Total Stockholders' Equity.......................... (229,891) 198,109
--------- --------
Total capitalization.............................. $ 250,109 $198,109
========= ========
|
SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth summary historical financial and operating data for the five years ended December 31, 1997, as well as summary historical balance sheet data of the Company as of the end of each of the last five years. The information set forth should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements and the related notes included elsewhere in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Investment management
fees...................... $64,208 $70,711 $85,289 $101,466 $117,784
Underwriting and
distribution fees......... 78,037 72,150 70,393 85,837 89,427
Shareholder service fees... 21,280 22,297 23,527 28,378 30,763
Investment and other
income.................... 14,681 3,878 4,295 5,295 3,798
------- ------- ------- -------- --------
Total revenue............. 178,206 169,036 183,504 220,976 241,772
Goodwill amortization(1)... 1,332 2,903 2,903 2,903 2,903
Other expenses............. 101,494 89,282 95,894 112,766 123,746
------- ------- ------- -------- --------
Total expenses............ 102,826 92,185 98,797 115,669 126,649
------- ------- ------- -------- --------
Income before interest and
income taxes............. 75,380 76,851 84,707 105,307 115,123
Interest income, net....... -- 1,915 3,886 3,886 24
------- ------- ------- -------- --------
Income before income
taxes.................... 75,380 78,766 88,593 109,193 115,147
Income taxes............... 28,873 31,140 35,092 42,493 44,855
------- ------- ------- -------- --------
Income before effect of
change in accounting
principle................ 46,507 47,626 53,501 66,700 70,292
Cumulative effect of change
in accounting principle... 4,125 -- -- -- --
------- ------- ------- -------- --------
Net income................ $50,632 $47,626 $53,501 $ 66,700 $ 70,292
======= ======= ======= ======== ========
Pro forma net income per
share basic and
diluted(2)................ $ 1.10
========
|
AS OF DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Current assets(3)........... $162,933 $121,412 $ 98,608 $110,139 $130,132
Goodwill.................... 110,443 107,540 104,637 101,734 98,831
Total assets(3)............. 301,568 303,144 283,287 429,278 446,964
Total liabilities(3)........ 58,574 80,852 65,081 196,723 676,855
Total stockholder's
equity(4).................. 242,994 222,292 218,206 232,555 (229,891)
|
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
OTHER OPERATING DATA:
Financial Advisers:
Full time(5)................ 546 487 505 634 660
Part time................... 2,141 1,770 1,830 1,376 1,500
-------- -------- -------- -------- --------
Totals..................... 2,687 2,257 2,335 2,010 2,160
Number of investors(6):
Mutual funds................ 499,400 517,600 537,100 522,600 563,800
Variable products........... 16,400 22,700 27,800 33,400 38,200
Average value per
investor(7):
Mutual funds................ $ 22,500 $ 21,600 $ 26,100 $ 28,500 $33,200
Variable products........... $ 33,700 $ 31,900 $ 39,600 $ 42,900 $49,600
Redemption rates of mutual
funds:
Mutual funds................ 7.55% 7.52% 7.64% 7.64% 7.61%
Industry average(8)......... 18.37% 21.27% 17.35% 16.95% 17.86%
Dividend reinvestment rate:
Mutual funds................ 84.9% 86.0% 86.8% 87.5% 87.7%
Industry average(8)......... 53.9% 65.8% 71.7% 72.6% 73.2%
Assets under management
(millions):
Mutual fund:
Equity funds............... $ 7,563 $ 8,174 $ 10,931 $ 12,990 $16,093
Fixed income funds......... 3,870 3,349 3,719 3,681 3,921
Money market funds......... 348 369 442 537 572
-------- -------- -------- -------- --------
Total mutual funds........ $ 11,781 $ 11,892 $ 15,092 $ 17,208 $20,586
Institutional(9)............ $ 2,659 $ 2,606 $ 3,397 $ 1,862 $ 2,831
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The revenues of the Company are largely dependent on the total value and composition of assets under management and, accordingly, fluctuations in financial markets and in the composition of assets under management have a substantial effect on revenues and results of operations. Investment management fees, the Company's most substantial source of revenue, are based on the amount of assets under management and are affected by sales levels, financial market conditions, redemptions, and the composition of assets. Equity-oriented portfolios generally have higher management fee rates than fixed-income portfolios. See "Business--Investment Management Agreements."
Underwriting and distribution revenues consist of sales charges and commissions derived from the sale of investment and insurance products and distribution fees earned from the W&R Funds for distributing their shares. The products sold have various sales charge structures, and the revenues received from the sale of products will vary based on the type and amount sold. The United Group of Funds have a front end load sales charge (sales charges are paid on purchase of fund shares) or no load sales charge (no sales charges are related to purchase of fund shares) while the W&R Funds have a contingent deferred sales charge (sales charges are paid upon redemption of fund shares within specified periods). Rule 12b-1 distribution and service fees earned for distributing shares of the W&R Funds are based upon a percentage of assets and fluctuate based on sales, redemptions, and financial market conditions. See "Business--Underwriting and Distribution." The Company earns a sales commission on insurance products sold pursuant to the Agent Agreements. See "Certain Relationships and Related Transactions--Relationship with Torchmark-- Agent Agreements."
Shareholder service fees include transfer agency fees, custodian fees for retirement plan accounts, and portfolio accounting fees. The transfer agency fees and custodian fees are primarily based on annual charges per account, and, therefore, are affected by the number of accounts opened and closed. Portfolio accounting fees are charged based on the amount of assets in the portfolio subject to a maximum per portfolio. These fees vary based on the number of portfolios and the value of the assets in each portfolio. See "Business--Service Agreements."
Other expenses consist of underwriting and distribution expenses, compensation and related cost expenses, general and administrative expenses, and depreciation and amortization, excluding goodwill. Underwriting and distribution expenses include sales commissions and related amounts paid to financial advisers, various expenses associated with product promotion, expenses associated with education and training of financial advisers, and other marketing costs. Distribution expenses, principally selling commissions, related to the W&R Funds are deferred and amortized over a period not exceeding ten years. Compensation and related costs reflect the compensation and benefits for investment management, shareholder service, and administrative personnel. The amount of goodwill at December 31, 1997 was $98.9 million, and amortization of goodwill is $2.9 million annually.
OPERATING RESULTS FOR 1997 AS COMPARED TO 1996
Investment management fees increased $16.3 million or 16% to $117.8 million for the year ended December 31, 1997 primarily as the result of strong financial markets. Average assets under management in 1997 were up $2.3 billion or 12% from 1996 to $21.3 billion. Assets under management were $23.4 billion at December 31, 1997 compared with $19.1 billion at December 31, 1996. Mutual fund assets increased $3.4 billion from $17.2 billion at December 31, 1996 to $20.6 billion at December 31, 1997. Institutional assets increased $.9 billion from $1.9 billion at December 31, 1996 to $2.8 billion at December 31, 1997. Market appreciation accounted for $3.3 billion of the increase with the remainder due to the nets inflow of assets. Growth in fee revenue exceeded the growth in average assets due to changes in the composition of assets. Mutual fund assets, which generally have a higher management fee rate than institutional accounts, constituted a greater percentage of total assets for 1997.
Underwriting and distribution fee revenue was $89.4 million for 1997, up $3.6 million or 4% compared with that of 1996. Commission revenue from front- load investment products increased $1.4 million from $67.0 million in 1996 to $68.4 million in 1997 primarily as a result of higher sales volumes. Distribution revenue, which consists primarily of Rule 12b-1 distribution fees from the W&R Funds, increased from $4.7 million in 1996 to $6.5 million in 1997 due to growth in assets. Commissions from the sale of other products (primarily insurance) were $14.1 million in 1996 and $14.5 million in 1997.
Shareholder servicing fees in 1997 were $30.8 million, a $2.4 million or 8% increase over that of 1996. Approximately 47% of this increase was attributable to a fee increase that was effective April 1, 1996 with the remainder due to the increase in number of shareholder accounts. At December 31, 1997, there were 1.38 million accounts, an increase of 5% from the 1.31 million accounts at December 31, 1996.
Other expenses increased from $112.8 million for 1996 to $123.7 million for 1997, an increase of 10%. Underwriting and distribution costs of $80.0 million in 1997 were $1.1 million or 1% higher than that of 1996. The increase was primarily the result of increased sales. Compensation and related costs of $26.6 million were up $4.7 million or 22% compared with those of 1996. The increase was attributable to additional expenses of $1.5 million related to staff additions and normal salary and fringe benefit changes, $1.3 million for incentive compensation and adjustments of $1.9 million to make total compensation more competitive within the market. General and administrative expenses were 15.8 million in 1997, a $5.6 million or 55% increase from that of 1996. The increase is attributable to $6.8 million of non-recurring expenses primarily related to the outsourcing of the data processing component of transfer agency activities and the discontinuation of internally developed systems. This increase was partially offset by lower expenses of $2.2 million in 1997 for year 2000 compliance as compared to 1996.
The Company has considered the effect of year 2000 on its computer systems and application software programs and has developed a plan to become year 2000 compliant. The Company estimates that its compliance activities will be completed no later than the first quarter of 1999. Costs to date approximate $2.4 million. The remaining costs of this effort are estimated to be $1.7 million.
Net interest income in 1997 declined $3.9 million from 1996 due to additional interest expense attributable to the Notes.
Income tax expense was $42.5 million and $44.9 million for 1996 and 1997, respectively, representing effective tax rates of 38.9% and 39.0%.
Net income increased from $66.7 for 1996 to $70.3 million for 1997, an increase of 5%.
OPERATING RESULTS FOR 1996 AS COMPARED TO 1995
Investment management fees increased $16.2 million or 19% to $101.5 million for the year ended December 31, 1996 primarily as the result of strong financial markets. Average assets under management in 1996 were up $2.3 billion or 14% from that of the year ended December 31, 1995 to $19.0 billion for 1996. Assets under management were $19.1 billion at December 31, 1996 compared with $18.5 billion at December 31, 1995. Mutual fund assets increased $2.1 billion from $15.1 billion at December 31, 1995 to $17.2 billion at December 31, 1996, while institutional assets declined from $3.4 billion at December 31, 1995 to $1.9 billion at December 31, 1996 due to the loss of certain accounts. Market appreciation of $1.8 billion in 1996 was substantially offset by institutional account redemptions. Growth in fee revenue exceeded the growth in average assets due to changes in the composition of assets. Mutual fund assets, which generally have a higher management fee rate than institutional accounts, constituted a greater percentage of total assets for 1996.
Underwriting and distribution fee revenue was $85.8 million for 1996, up $15.4 million or 22% compared with that of 1995. Commission revenue from front-load investment products increased $13.2 million from $53.8 million in 1995 to $67.0 million in 1996 primarily as a result of higher sales volumes. Distribution revenue, which consists primarily of Rule 12b-1 distribution fees from the W&R Funds, increased from $2.8 million in 1995 to $4.7 million in 1996 due to growth in assets. Commissions from the sale of other products (primarily insurance) were $13.8 million in 1995 and $14.1 million in 1996.
Shareholder servicing fees in 1996 were $28.4 million, a $4.9 million or 21% increase over that of 1995. Approximately 70% of this increase was attributable to a fee increase effective April 1, 1996 with the remainder due to the increase in number of shareholder accounts. At December 31, 1996, there were 1.31 million accounts, an increase of 7% from the 1.22 million accounts at December 31, 1995.
Other expenses increased from $95.9 million for 1995 to $112.8 million for 1996, an increase of 18%. Underwriting and distribution costs of $78.9 million in 1996 were $14.8 million or 23% higher than that of 1995. Most of the increase in underwriting and distribution costs was attributable to selling commissions and other costs associated with higher sales levels. Compensation and related costs of $21.9 million were up 3% over that of 1995 due primarily to an increase in the number of employees. General and administrative expenses were $10.2 million in 1996, a $1.6 million or 18% increase from that of 1995. This increase was primarily attributable to charges of approximately $2.3 million in 1996 for modifying systems applications for year 2000 compliance, partially offset by a $1.2 million one time franchise tax assessment that was paid in 1995.
Income tax expense was $35.1 million and $42.5 million for 1995 and 1996, respectively, representing effective tax rates of 39.6% and 38.9%.
Net income increased from $53.5 million for 1995 to $66.7 million for 1996, an increase of 25%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically generated cash flows in excess of the needs of its business plans. In keeping with Torchmark's strategy for subsidiaries, the Company historically paid virtually all of its earnings to Torchmark as dividends. Cash flow provided from the Company's operations was $62.3 million, $86.2 million, and $62.3 million for the years ended December 31, 1995, 1996, and 1997, respectively. The timing of tax payments of $14.9 million increased cash from operations for the year ended December 31, 1996, and reduced cash from the Company's operations in the same amount for the year ended December 31, 1997. Payments to affiliates for operating purposes in the amount of $5.9 million decreased cash from the Company's operations for the year ended December 31, 1997. Cash flows from investing activities generally include capital expenditures and the results of investment securities sales, purchases, and maturities. The Company is considering an expansion of its home office building, although no formal commitments have been entered into. The estimated capitalized cost of this proposed expansion is approximately $7.0 million. Except for this possible expansion the Company has no material commitments for capital expenditures.
Cash flows from financing activities include cash dividends to Torchmark, amounts paid or received from affiliates, and cash contributions from Torchmark. Historically, the Company has distributed its excess cash flow to Torchmark. The Company's Board of Directors currently intends to declare quarterly cash dividends on the Common Stock of approximately $34 million annually. The Company believes that its cash flows from operations will be sufficient to fund such dividends and its operations for at least the next two years. See "Dividend Policy."
RECENT ACCOUNTING DEVELOPMENTS
In 1997, FASB issued SFAS No. 130 ("Reporting Comprehensive Income") and SFAS No. 131 ("Disclosures about Segments of an Enterprise and Related Information"). These statements, which are effective for periods beginning after December 15, 1997, expand or modify disclosures. The Company does not expect implementation to have any significant effect on the Company's reported financial position, results of operations, or segment reporting.
SEASONALITY AND INFLATION
The Company does not believe its operations are subject to significant seasonal fluctuations. The Company does not believe that inflation has had a significant impact on operations.
BUSINESS
OVERVIEW
Waddell & Reed, founded in 1937, is one of the oldest mutual fund complexes in the United States, having introduced the United family of funds in 1940. Waddell & Reed sells its investment products primarily to middle income Americans through a virtually exclusive sales force. As of December 31, 1997, the Company had $23.4 billion of assets under management, of which $20.6 billion were mutual fund assets and the remainder institutional accounts and more than 563,000 customers holding an average mutual fund account of $33,200.
The Company is the exclusive underwriter and distributor of 36 mutual fund portfolios, including 17 comprising the United Funds, eight comprising the W&R Funds, and 11 comprising the TMK/United Funds. The Company also distributes Torchmark underwritten variable annuities and life insurance products to its customers as part of its financial planning services. The Company sells mutual fund products with a front end load (sales charges are paid upon purchase of fund shares), contingent deferred sales charge (sales charges are paid upon redemption within specified periods, see "Business--Underwriting and Distribution"), and mutual fund products with no load (no sales charges are related to purchase of fund shares). For the year ended December 31, 1997, the Company's financial adviser sales force sold $1.5 billion of mutual fund and variable products.
The traditional market for the Company has generally been professionals and working families with annual incomes between $40,000 and $100,000 who are saving for retirement. The Company believes that demographic trends and shifts in attitudes toward retirement savings will continue to support increased consumer demand for its products. According to U.S. Census Bureau projections, the number of Americans between the ages of 45 and 64 will grow from 53.7 million in 1996 to 71.1 million in 2005, making this "preretirement" age group the fastest growing segment of the U.S. population.
The Company distributes the Funds and other financial products through a financial adviser sales force that represents the Company on a virtually exclusive basis. At December 31, 1997, the Company's sales force consisted of 2,160 financial advisers and 121 division managers operating from 177 sales offices located throughout the United States. The Company believes, based on industry data, that its financial adviser sales force is currently one of the largest sales force in the United States selling primarily mutual funds. Currently, 43% of the Company's financial advisers have been with the Company for more than 5 years and 28% for more than 10 years.
The financial adviser industry is fragmented, consisting primarily of relatively small companies generally employing fewer than 100 investment professionals. The Company's sales force competes primarily with small broker/dealers and independent financial advisers. The Company's marketing efforts are currently focused on customers residing in smaller metropolitan areas and rural communities. The Company conducts investment seminars throughout the United States to reach a large number of potential clients. The Company also develops individual financial plans for clients (over 40,000 plans in 1997) through one-on-one consultations with financial advisers, who emphasize long-term relationships with a client through continuing service, rather than a one-time sale. The Company believes that it is well-positioned to benefit from a developing industry trend toward "assisted sales"--sales of mutual fund products through a sales person--driven by the array of options now available to investors and the need for financial planning advice that has resulted from the recent increase in the average household's financial assets. According to the Investment Company Institute, assisted sales for the year ended December 31, 1997 constituted 61.9% of the total dollar value of mutual fund sales, a figure that has grown from 54.9% for 1994.
The Company's investment philosophy and financial planning approach emphasize long-term savings. The Company's portfolio managers seek consistent long-term performance and downside protection in turbulent markets. As a result, the Company has developed a loyal customer base with clients maintaining their accounts for approximately 13 years on average as compared to six years for the mutual fund industry, according to the Investment Company Institute. This loyalty is evidenced by a relatively low fund redemption rate for the five years ended December 31, 1997 of 7.6% for the Funds (other than money market funds), which is less than one-half of the industry average of 18.4% and a relatively high dividend reinvestment rate of 86.6% for the Funds
(other than money market funds) for the same period versus 66.9% for the mutual fund industry. Approximately 45% of the Company's assets under management are in retirement accounts as of December 31, 1997. The historically low redemption and high reinvestment rates have provided a stable source of asset and revenue growth at a relatively low cost. The Company's success with these strategies has been demonstrated in turbulent markets, as, for example, in 1994, the last year in which the Standard & Poor's 500 Composite Stock Price Index declined, when the Company's net sales as a percentage of asset growth was more than three times better than that of the mutual fund industry.
The Company has a seasoned team of portfolio managers, having an average of 20 years industry experience and 14 years tenure with the Company. The five most senior portfolio managers have an average of 30 years industry experience and 26 years tenure with the Company. The Company maintains an internal equity and fixed income investment research staff that has substantial resources available to it including hundreds of meetings annually with company management both on and off site. In addition, the Company utilizes research provided by brokerage firms and independent outside consultants. Portfolio managers usually were investment research analysts for a substantial length of time prior to acquiring money management assignments. The predominant style of the Company's investments is growth equity. As of December 31, 1997 approximately 78% of the Company's mutual fund assets under management were invested in equity funds and the remainder in fixed income and money market funds. This investment strategy emphasizes investment at attractive valuations in companies that the portfolio managers believe can produce above average growth in earnings.
Waddell & Reed Financial, Inc. is a holding company that conducts its business through its subsidiaries, which are described briefly below. W&R, is a registered broker-dealer and registered investment adviser that acts primarily as the nationwide distributor and underwriter for the shares of mutual funds and distributor of insurance products issued primarily by UILIC. WRIMCO, is a registered investment adviser that provides investment management and advisory services to the Funds and to institutions and other private clients through a subcontract with another subsidiary of Torchmark. WRSCO provides transfer agency and accounting services to the Funds and their shareholders and to another subsidiary of Torchmark.
The executive office of the Company is located at 6300 Lamar Avenue, Overland Park, Kansas 66202, telephone number (913) 236-2000.
BUSINESS STRATEGY
The Company's business strategy is outlined below.
. INCREASE NUMBER OF FINANCIAL ADVISERS: The Company intends to expand its distribution network by recruiting high quality candidates to be financial advisers. In early 1994 the Company began to focus on increasing the number of financial advisers. The Company's current objective is to increase the number of financial advisers by 10% per year. The Company has hired additional experienced sales managers and reorganized its management and reporting lines and incentive structure. The Company has revised the compensation system for its 121 division managers by tying the majority of their potential income to the recruitment, retention, and training of the Company's financial advisers and proportionately less to their personal sales production. From December 31, 1996 to December 31, 1997, the number of financial advisers has increased from 2,010 to 2,160.
In 1994, the Company also began implementing a "bridge income" program, which provides newly recruited financial advisers with a source of earnings until they can develop the skills and client base necessary to earn a stable income from commissions. The Company believes this program, which currently provides qualifying individuals with $2,000 per month for up to six months, has been critical in increasing the number of new financial advisers, improving retention, and increasing average first-year sales production. Financial advisers recruited in 1997 who participated in the bridge income program produced, on average, at two and one half times the rate of non-participants.
. CONTINUE TO INCREASE PERCENTAGE OF FULL-TIME FINANCIAL ADVISERS: Since 1993, the Company has emphasized increasing the proportion of its sales force that sells financial services products on a full-
time basis and generally has not allowed the renewal of the securities licenses of financial advisers that fail to meet sales goals. The Company believes that these changes have enhanced productivity. At December 31, 1997, the percentage of Full-Time Advisers was 31% of the Company's total sales force, up from 18% at December 31, 1992. Over the same period, the annual investment product sales per Full-Time Adviser increased approximately 25% to a current annual rate of about $1.7 million. In addition, the overall annual investment product sales per adviser increased from $380,000 to $703,000, or 85%, over this same period as a result of both increasing the number and the productivity of Full-Time Advisers and of not renewing the licenses of advisers who do not meet sales goals.
. EXPAND GEOGRAPHIC SCOPE: The Company intends to pursue geographic expansion of its sales force with two related strategies. In larger communities it intends to establish new division offices with the facilities to accommodate up to 20 financial advisers, and in smaller communities or suburban areas it will open offices with facilities to accommodate a smaller group of advisers. While historically the Company has opened new offices in areas that were contiguous with existing offices, it now intends to select new locations based on expected growth opportunities. Consistent with its focus on retirement savings and planning, the Company expects to open new offices in Florida and Arizona, as well as smaller offices in other areas of the country, in 1998.
. ENHANCE MARKETING AND FINANCIAL PLANNING TOOLS: The Company expects to implement an improved financial planning package, which will allow its financial advisers to customize solutions to a client's savings, retirement income, estate planning, life insurance, and other personal financial planning needs. The Company has traditionally provided financial planning advice to its clients free of charge. The Company now intends to begin charging a fee, typically $250, for such services. The Company believes that its program of selling its improved financial plans for a fee will stimulate sales and result in a significantly higher average sale per plan. The Company expects to introduce the revised financial plan by the end of the first quarter of 1998.
The Company has also implemented formal training programs for its new financial advisers. The program consists of field office classes that address prospecting techniques, product knowledge, and sales presentation skills. Field sales management personnel, assisted by six regional sales training specialists who receive direction and support from the Company's headquarters, conduct the field office classes. During 1998, the Company intends to increase the number of regional sales training specialists from six to twelve. In addition, new advisers will attend a three day course conducted at the Company's headquarters intended to supplement and reinforce the field classes.
. INVEST IN PORTFOLIO MANAGERS AND INVESTMENT ANALYSTS: The Company's objective is for its Fund families to achieve top quartile performance. The Company is also focused on building its industry and geographic expertise. To achieve this goal, the Company has begun to implement a plan to add several portfolio managers and investment analysts. Through these additions, the Company intends to increase the depth of its investment management team and to increase the scope of its expertise. To assist in recruiting and retention, the Offering and Spin-Off will allow the Company to implement a new incentive compensation structure that relies on stock options and increases in cash compensation to bring total compensation for portfolio managers and investment analysts to a more market-competitive level. The Company believes that providing equity-based compensation as a significant component of income will be important in attracting new portfolio managers and investment analysts as well as retaining present staff.
. INVEST IN SYSTEMS AND TECHNOLOGY: In order to support its anticipated growth, the Company is engaged in projects to enhance its information systems. The Company will install a management system in all division offices that it believes will better enable division managers to monitor the activities of the individual financial advisers including the number of sales calls completed, the number of client contacts, and overall sales results. The Company has recently completed agreements to outsource a portion of its data processing components of its transfer agency activities to a third party provider by the fourth quarter of 1998. The Company expects that this arrangement will facilitate its
ability to introduce new products and enter new markets as well as enable the Company to improve its participant record-keeping services offered to sponsors of 403(b) and 401(k) plans. In addition, the Company expects to realize operating efficiencies with respect to its processing activities through the use of electronic imaging, which is a component of the third party system. The Company has developed and is testing an intranet to be used by its financial advisers to obtain updated training materials, product information, and electronic interactive product illustrations. In addition, the Company expects that clients will have access to the intranet to obtain data related to their personal accounts once information security concerns are addressed.
. PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES TO EXPAND PRODUCT OFFERING AND DISTRIBUTION: The Company intends to selectively pursue acquisitions and alliances that will add new products or alternative distribution systems. The Company believes that it will be better positioned to pursue acquisitions as one of relatively few independent, public investment advisory and asset management companies. The Company believes that potential investment management acquisition candidates may be more receptive to receiving publicly traded shares of the Company as opposed to stock in a company outside of the investment management industry. The Company has traditionally distributed its investment products only through its virtually exclusive financial adviser sales force. In the future, the Company may acquire another fund complex the products of which it can distribute outside its sales force. These mutual funds will likely not be marketed to the Company's existing customer base, thereby avoiding competing with the Company's existing sales force and cannibalizing the Company's current revenues. The Company may also pursue opportunities to establish strategic relationships with alternative distribution systems such as broker/dealers and banks or acquire independent financial planning companies.
MARKETING
The Company markets its mutual funds through a sales force that represents the Company on a virtually exclusive basis. As of December 31, 1997, the sales force comprised approximately 2,160 financial advisers of whom approximately 660 are Full-Time Advisers. The Company's financial advisers are located primarily in smaller metropolitan areas and rural communities. The sales force is organized into divisions that are supervised, as of December 31, 1997, by one of approximately 121 division managers who, in turn, report to eight regional vice presidents.
The Company has taken several steps to increase the productivity of its sales force. Since 1992, the Company has been implementing a policy of developing a full-time sales force and has not allowed the renewal of the securities licenses of financial advisers that fail to meet sales goals. This policy has resulted in the reduction of the number of part-time financial advisers (those having annual or annualized production of less than $900,000 of investment product sales) from 2,141 at December 31, 1993 to 1,500 at December 31, 1997. At the same time, the number of Full-Time Advisers increased from 546 at December 31, 1993 to 660 at December 31, 1997. Prior to 1993, division managers were engaged in personal sales production as well as sales management. In order to emphasize the importance of recruiting and developing a full-time sales force, the Company implemented a compensation system that ties compensation of division managers to the development of new financial advisers and to division sales rather than personal sales. Beginning in 1997, the Company initiated a program to encourage members of its financial adviser sales force to expand the range of financial services they can offer by registering under applicable state laws. A majority of the Company's financial advisers have completed such registration.
The Company began implementing a bridge income program in 1994 to provide a source of earnings to newly recruited financial advisers for a period of three months while they developed the skills and client base necessary to earn an income from commissions. The Company enhanced the program in 1997 by increasing the monthly amount and extending the period to six months based on the success of the program in improving the productivity of new recruits. In order to qualify for the bridge income program, advisers must, within 90 days, make five joint sales calls with the division manager, five calls with another adviser to gather data for a financial plan, and make one sale. Once on the bridge income program, the adviser receives $2,000 per month with earned
commissions up to $2,000 applied against the bridge income and commission in excess of $2,000 held in escrow until the adviser is off of the bridge income program.
The following tables set forth information about the Company's financial adviser sales force, product sales, and clients at the dates and for the periods indicated.
DECEMBER 31,
-----------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
Financial Advisers:
Full time(1).................................... 546 487 505 634 660
Part time....................................... 2,141 1,770 1,830 1,376 1,500
----- ----- ----- ----- -----
Totals........................................ 2,687 2,257 2,335 2,010 2,160
===== ===== ===== ===== =====
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YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
Mutual fund sales(2)............. $1,033.4 $ 988.3 $ 995.7 $1,252.2 $1,268.5
Total investment product
sales(3)........................ $1,239.2 $1,188.5 $1,187.6 $1,505.1 $1,518.3
Annualized life insurance premi-
ums............................. $ 7.4 $ 8.2 $ 9.5 $ 9.3 $ 8.3
Number of clients(4)............. 499,400 517,600 537,100 552,600 563,800
Number of mutual fund accounts
per client...................... 2.2 2.2 2.3 2.4 2.4
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The Company provides training and motivational programs for its sales force. Six sales training specialists provide a regular program of training for new recruits as well as advanced training for experienced financial advisers. Programs for new recruits focus on prospecting techniques, product knowledge, and sales skills. Field office classes provide guidance in identifying target markets, practical exercises to learn interview skills and data collection, instruction in basic financial planning software, and guidance in matching products with various investment objectives. Sales presentation skills are taught and practiced in the classroom environment as well as on joint sales calls with field sales management. The programs for experienced advisers focus on skills related to dealing with larger investment sums (such as IRA rollovers) and include training in the use of asset allocation and estate planning software. In addition, the Company takes top producers to retreats where headquarters staff and experienced sales personnel conduct workshop seminars covering such subjects as product features, financial planning, and the use of illustrative software packages. The Company intends to increase the number of programs made available to new recruits and experienced advisers by increasing the number of sales training specialists from six to twelve in 1998.
FUNDS AND ASSET MANAGEMENT
The Company serves as underwriter for, and investment adviser to, the United Funds, the W&R Funds, and the TMK/United Funds and distributes variable annuity products based on the TMK/United Funds. The Company's sales force also serves as distributor of insurance products such as single premium annuities and term and whole life insurance. The Company provides various administrative services to the Funds, including mutual fund transfer agency, accounting, and shareholder services.
The Company offers the Funds' shareholders a broad range of investment products designed to attract and retain clients with varying investment objectives. The predominant style of the Company's investments is growth equity. This investment strategy emphasizes investment at attractive valuations in companies that the portfolio managers believe can produce above average growth in earnings. The Company's United Funds rank in the top
10% of diversified mutual fund complexes for the year ended December 31, 1997, as measured by Lipper Analytical Services Corp. As of December 31, 1997, 78% of the assets under management in the Funds were invested in equity funds, 19% were invested in fixed income funds, and 3% were invested in money market funds. Fund shareholders are allowed to exchange funds within each group of funds as economic and market conditions and investor needs change at no additional cost. The Company periodically introduces new mutual funds designed to complement and expand its investment product offerings, respond to competitive developments in the financial marketplace, and meet the changing needs of clients. The Company's base of assets under management consists of a broad range of domestic and international stock, bond, and money market mutual funds that meet the varied needs and objectives of its individual and institutional investors. For summary information about each of the Funds, see "--Fund Summary" to this Prospectus.
The Company has a seasoned team of portfolio managers, having an average of 20 years industry experience and 14 years tenure with the Company. The five most senior portfolio managers have an average of 30 years industry experience and 26 years tenure with the Company. The Company maintains an internal equity and fixed income investment research staff that has substantial resources available to it including hundreds of meetings annually with company management both on and off site. In addition, the Company utilizes research provided by brokerage firms and independent outside consultants. Portfolio managers usually were analysts for a substantial length of time prior to acquiring money management assignments.
In addition to performing investment management services for the Funds, the Company acts as an investment adviser and portfolio manager for institutional and other private investors. The Company receives a fee that is generally based on a percentage of assets under management for its services as an investment adviser or portfolio manager. Assets under management for institutional and private accounts totaled approximately $2.8 billion at December 31, 1997. Investment management fees from institutional accounts were approximately $6.2 million, or approximately 5% of total investment management fees, for the year ended December 31, 1997.
The following table sets forth beginning assets and ending assets for the Company's Funds by type as well as transactions related thereto for the periods shown.
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- --------- --------- ---------
(DOLLARS IN MILLIONS)
MUTUAL FUNDS:
CHANGE IN UNITED AND W&R
FUNDS:
Equity funds:
Beginning assets........ $6,078.8 $7,187.9 $ 7,627.5 $10,047.2 $11,786.4
Net sales (1)......... 690.0 814.8 856.4 1,155.5 1,175.3
Reinvested Dividends &
Distributions........ 331.7 440.5 532.1 831.7 1,811.3
Redemptions........... (479.0) (503.1) (624.1) (785.8) (977.9)
Net exchanges in
(out)................ (32.9) 91.7 (43.6) (57.8) (120.7)
Dividends &
Distributions Paid... (353.6) (463.0) (558.3) (866.6) (1,889.0)
Net investment
income............... 90.6 94.1 109.0 110.0 112.2
Appreciation
(depreciation)....... 862.3 (35.4) 2,148.2 1,352.2 2,568.0
-------- -------- --------- --------- ---------
Ending Assets........... $7,187.9 $7,627.5 $10,047.2 $11,786.4 $14,465.6
======== ======== ========= ========= =========
Fixed income funds:
Beginning assets........ $3,249.1 $3,717.0 $ 3,200.1 $ 3,540.3 $ 3,487.6
Net sales (1)......... 380.5 216.8 205.9 198.7 244.1
Reinvested Dividends &
Distributions........ 260.9 210.1 208.1 219.7 220.3
Redemptions........... (281.4) (320.9) (317.1) (315.8) (316.4)
Net exchanges in
(out)................ (58.6) (195.1) (90.5) (132.9) (79.6)
Dividends &
Distributions Paid... (310.2) (249.7) (248.3) (260.1) (259.8)
Net investment
income............... 239.8 242.6 239.9 238.7 240.4
Appreciation
(depreciation)....... 236.9 (420.7) 342.2 (1.0) 161.4
-------- -------- --------- --------- ---------
Ending Assets........... $3,717.0 $3,200.1 $ 3,540.3 $ 3,487.6 $ 3,698.0
======== ======== ========= ========= =========
Money Market funds:
Beginning assets........ $ 393.3 $ 321.6 $ 338.6 $ 405.5 $ 499.5
Net sales............. 292.7 299.7 466.1 494.2 507.0
Reinvested Dividends &
Distributions........ 8.1 10.8 18.6 19.9 22.9
Redemptions........... (464.0) (396.9) (551.9) (610.8) (701.3)
Net exchanges in
(out)................ 91.5 103.4 134.1 190.7 200.3
Dividends &
Distributions Paid... (8.2) (11.0) (19.0) (20.6) (23.8)
Net investment
income............... 8.2 11.0 19.0 20.6 23.8
Appreciation
(depreciation)....... 0.0 0.0 0.0 0.0 0.0
-------- -------- --------- --------- ---------
Ending assets........... $ 321.6 $ 338.6 $ 405.5 $ 499.5 $ 528.4
======== ======== ========= ========= =========
VARIABLE PRODUCTS
TMK/UNITED FUNDS:
Beginning assets........ $ 302.3 $ 554.7 $ 725.3 $ 1,098.8 $ 1,434.5
Net sales............. 205.8 200.2 191.8 252.8 249.8
Reinvested Dividends &
Distributions........ 38.6 34.9 95.4 92.9 161.2
Redemptions........... (8.4) (26.9) (48.7) (75.1) (111.5)
Net exchanges in
(out)................ 0.0 0.0 0.0 0.0 0.0
Dividends &
Distributions Paid... (38.6) (34.9) (95.4) (92.9) (161.3)
Net investment
income............... 12.5 20.7 24.3 27.4 29.6
Appreciation
(depreciation)....... 42.5 (23.4) 206.1 130.6 291.2
-------- -------- --------- --------- ---------
Ending assets........... $ 554.7 $ 725.3 $ 1,098.8 $ 1,434.5 $ 1,893.5
======== ======== ========= ========= =========
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The following table sets forth assets under management, client accounts, and sales of the Funds by group as of the dates and for the periods shown.
DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
Mutual Fund
Assets Under Management:
United Funds.......... $ 11,102 $ 10,948 $ 13,574 $ 15,130 $ 17,847
TMK/United Funds...... 555 725 1,099 1,435 1,894
W&R Funds............. 124 219 419 643 845
---------- ---------- ---------- ---------- ----------
Totals.............. $ 11,781 $ 11,892 $ 15,092 $ 17,208 20,586
========== ========== ========== ========== ==========
Client accounts:
United Funds(1)....... 1,067,900 1,119,800 1,171,700 1,236,900 1,291,300
TMK/United Funds(2)... 16,400 22,700 27,800 33,400 38,200
W&R Funds(1).......... 17,700 30,500 48,400 69,100 84,900
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YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
Sales:
United Funds(3)............................ $ 939 $ 881 $ 838 $1,025 $1,093
TMK/United Funds........................... 206 200 192 253 250
W&R Funds.................................. 94 107 158 227 175
------ ------ ------ ------ ------
Totals (4)............................... $1,239 $1,188 $1,188 $1,505 $1,518
====== ====== ====== ====== ======
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INVESTMENT MANAGEMENT AGREEMENTS
The Company provides investment advisory and management services pursuant to an Investment Management Agreement with each Fund. While the specific terms of the Investment Management Agreements vary, the basic terms of the Investment Management Agreements are similar. The Investment Management Agreements provide that the Company renders overall management services to each of the Funds, subject to the oversight of each Fund's board of directors and in accordance with each Fund's fundamental investment objectives and policies. The Investment Management Agreements permit the Company to enter into separate agreements for shareholder services or accounting services with the respective Funds.
For the United Funds and TMK/United Funds, the total management fee for each Fund is the sum of (i) a fee computed on a Fund's net asset value as of the close of business on each business day at an annual rate specified in the respective Investment Management Agreements (the "Specific Fee") and (ii) a fee computed each day on the combined net asset values of all Funds in the group of Funds of which the particular Fund is a member (the "Group Fee"). For the Specific Fee for each Fund and the Group Fee for each group of Funds see "--Fund Summary."
The following table sets forth information with respect to the Company's mutual fund investment management fees for the periods shown.
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
Mutual Fund Investment Management
Fees:
Equity funds....................... $37,759 $45,145 $59,651 $74,199 $ 90,870
Fixed income funds................. 18,441 18,172 17,859 18,126 18,513
Money market funds................. 1,603 1,462 1,670 1,989 2,179
------- ------- ------- ------- --------
Total (1)...................... $57,803 $64,779 $79,180 $94,314 $111,562
======= ======= ======= ======= ========
As a percent of average assets:
Equity funds....................... .554% .566% .619% .618% .610%
Fixed income funds................. .504% .504% .501% .497% .492%
Money market funds................. .426% .423% .420% .414% .406%
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(1) Other advisory fees for the years ended December 31, 1993, 1994, 1995, 1996, and 1997 in the amounts of $6,405, $5,932, $6,109, $7,152, and $6,222, respectively are not reflected in this table. These fees fluctuate based on the amounts and composition of assets managed and the effect of performance based fees in some periods.
Each Fund's board of directors, including a majority of the directors who are not "interested persons," of the Fund or the Company within the meaning of the Investment Company Act, and its shareholders must have approved the Investment Management Agreement between the respective Fund and the Company. These agreements may continue in effect from year to year if specifically approved at least annually by (i) the Fund's board of directors, including a majority vote of the directors who are not parties to the agreements or "interested persons" of any such party, or (ii) the vote of the holders of a majority of the outstanding voting securities of the Fund and the vote of a majority of the Fund's directors who are not parties to the agreement or "interested persons" of any such party, each vote being cast in person at a meeting called for such purpose. Each agreement automatically terminates in the event of its "assignment" as defined in the Investment Company Act or the Investment Advisers Act and may be terminated without penalty by the Fund by giving the Company 60 days' written notice, if the termination has been approved by a majority of the Fund's directors or shareholders. The Offering will not and the Spin-Off should not constitute an "assignment" for the purposes of the Investment Company Act or the Investment Advisers Act. The Company may terminate an Investment Management Agreement without penalty on 120 days' written notice.
The Company receives fees for provision of investment advisory and management services to the Funds. See "--Fund Summary." The Company pays all of its own expenses incurred in performing investment advisory and management services for the Funds.
SERVICE AGREEMENTS
The Company provides various services to the Funds and their shareholders pursuant to a Shareholder Servicing Agreement with each Fund (except the TMK/United Funds) and an Accounting Services Agreement with each Fund. Pursuant to the Shareholder Servicing Agreements, the Company performs shareholder servicing functions, including the maintenance of shareholder accounts, the issuance, transfer, and redemption of shares, distribution of dividends and payment of redemptions, furnishing information related to the Fund, and handling shareholder inquiries. The Funds pay a monthly fee to the Company for such services. Pursuant to the Accounting Services Agreements, the Company provides the Funds with bookkeeping and accounting services and assistance, including maintenance of the Fund's records, pricing of the Fund's shares, and preparation of the prospectuses for existing shareholders, proxy statements, and certain reports. The Funds pay the Company a monthly fee for such services. A Fund's Shareholder Servicing Agreement or Accounting Services Agreement
may be adopted or amended with the approval of the Fund's directors. Each of the Shareholder Servicing Agreements and Accounting Services Agreements have terms of one year expiring on October 1, 1998. The following table sets forth the revenues received by the Company for accounting and shareholder services and number of shareholder accounts for the periods and at the dates indicated:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Transfer agent fees......... $ 15,277 $ 16,028 $ 16,906 $ 21,436 $ 23,951
Custodian fees.............. 4,767 4,958 5,179 5,352 5,123
Portfolio accounting
services................... 1,236 1,311 1,442 1,590 1,689
--------- --------- --------- --------- ---------
Totals.................... $ 21,280 $ 22,297 $ 23,527 $ 28,378 $ 30,763
========= ========= ========= ========= =========
DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
Number of Mutual Fund
Accounts................... 1,085,600 1,150,300 1,220,100 1,306,000 1,376,200
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UNDERWRITING AND DISTRIBUTION
The Company distributes the Funds pursuant to an Underwriting Agreement with each Fund (except TMK/United Funds). The Company distributes products relating to the TMK/United Funds under an Underwriting Agreement between the Company and Torchmark. Under each Underwriting Agreement with a Fund, the Company offers and sells the Fund's shares on a continual basis and pays the costs of sales literature and printing of prospectuses furnished to it by the Fund. The Company receives underwriting commissions for such services, a major portion of which is paid to financial advisers and sales managers of the Company. The Company charges a sales charge to clients upon purchase of shares in the United Funds, which are front-end load funds, which ranges from zero to 5.75% of the net asset value of the shares purchased. The sales charge for the United Funds typically declines as the net asset value of the account increases, and there is generally no sales charge for purchases over $2.0 million. In addition, investors may combine their purchases of these Funds' shares within the respective group of Funds to qualify for the reduced sales charge. Investors in the W&R Funds generally pay contingent deferred sales charges upon redemption of shares in W&R Funds of up to 3% of the net asset value of the redeemed shares if the shares are redeemed within two calendar years of their purchase, declining to zero if the shares are held for more than four calendar years. The following table sets forth the revenues received by the Company for underwriting commissions for distribution of the Funds for the periods indicated:
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Underwriting/distribution fees:
United Funds(1)....................... $49,444 $43,007 $39,802 $48,505 $50,134
TMK/United Funds(1)................... 15,169 14,692 14,032 18,452 18,240
W&R Funds(2).......................... 598 1,623 2,762 4,719 6,487
------- ------- ------- ------- -------
Totals (3).......................... $65,211 $59,322 $56,596 $71,676 $74,861
======= ======= ======= ======= =======
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The Underwriting Agreements are subject to approval annually by the directors of the respective Funds, including a majority of the directors who are not "interested persons" of the Funds or the Company within the meaning of the Investment Company Act, or "interested persons" of any such party and who have no direct or indirect financial interest in the operation of the Distribution and Service Plan (as described below), as applicable, of the Funds or any agreements relating thereto ("independent directors"), cast in person at a meeting called for the purpose of voting on such approval. Each agreement automatically terminates in the event of its assignment, as defined in the Investment Company Act, and either party may terminate the agreement without penalty upon 60 days' written notice.
Under a Distribution and Service Plan for Class A shares of the United Funds (except the money market fund) and under a Distribution and Service Plan for the Class B shares of the money market fund and the W&R Funds, each of which plans are adopted under Rule 12b-1 of the Investment Company Act, the Funds may pay the Company a fee for its costs and expenses in connection with the provision of personal service to shareholders of the Fund and maintenance of shareholder accounts and distribution costs and expenses under the Distribution and Service Plan. Each Distribution and Service Plan is subject to approval annually by the directors, including the independent directors, cast in person at a meeting called for the purpose of voting on such approval. The Fund may terminate the Plan at any time without penalty.
PROPERTIES
The Company operates from a 115,000 square foot facility that it owns, which is located in United Investors Park, a commercial development at 6300 Lamar Avenue, Overland Park, Kansas. The Company leases additional property as sales office space at approximately 177 locations. The Company believes that its properties are in good repair and adequate for their purposes.
EMPLOYEES
At December 31, 1997, the Company had 603 full-time employees. Its 2,160 financial advisers are independent contractors.
COMPETITION
The Company is subject to substantial competition in all aspects of its business. The Company competes with hundreds of other mutual fund management distribution and service companies that distribute their fund shares through a variety of methods including affiliated and unaffiliated sales forces, broker- dealers, and direct sales to the public of shares offered at low or no sales charge. Many larger mutual fund complexes have developed relationships with brokerage houses with large distribution networks, which may enable these fund complexes to reach broader client bases. The Company competes with firms offering similar services and products to those of the Company, such as American Express Financial Advisors Inc. and Edward D. Jones & Co. In addition, the Company competes with brokerage and investment banking firms, insurance companies, banks, and other financial institutions and businesses offering other financial products in all aspects of its business. Although no one company or group of companies dominates the mutual fund management and services industry, many are larger than the Company and have greater resources and offer a wider array of financial services and products. Competition is based on the methods of distribution of fund shares, the ability to develop investment products for certain segments of the market, the ability to meet the changing needs of investors, the ability to achieve superior investment management performance, the type and quality of shareholder services, and the success of sales promotion efforts. The Company believes that competition in the mutual fund industry will increase as a result of increased flexibility afforded to banks and other financial institutions to sponsor mutual funds and distribute mutual fund shares, and as a result of consolidation and acquisition activity within the industry. In addition, barriers to entry to the investment management business are relatively few, and the Company thus anticipates that it will face a growing number of competitors. Many of the Company's competitors in the mutual fund industry are larger, better known, have penetrated more markets than the Company, and have more resources than those of the Company.
The distribution of mutual fund products has undergone significant developments in recent years, which has increased the competitive environment in which the Company operates. These developments include growth in the number of mutual funds; introduction of service fees payable to broker-dealers that provide continual service to clients in connection with their mutual fund investments; and development of complex distribution systems with multiple classes of shares.
The Company's financial advisers compete primarily with small broker/dealers and independent financial advisers. The market for financial advice and planning is extremely fragmented, consisting primarily of relatively small companies with fewer than 100 investment professionals. Competition is based on sales techniques, personal relationships and skills, the quality of financial planning products and services, the quality of the financial and insurance products offered, and the quality of service. Competition in this area is intense and some of the financial advisers' competitors are larger, better known, and have more resources.
REGULATION
Virtually all aspects of the Company's businesses are subject to various Federal and state laws and regulations. These laws and regulations are primarily intended to protect investment advisory clients and shareholders of registered investment companies. Under such laws and regulations, agencies that regulate investment advisers and broker-dealers such as the Company have broad administrative powers, including the power to limit, restrict, or prohibit such an adviser or broker-dealer from carrying on its business in the event that it fails to comply with such laws and regulations. In such event, the possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations, censures, and fines. The Company believes that it is in substantial compliance with all material laws and regulations.
The business of the Company is subject to regulation at both the Federal and state level by the Commission and other regulatory bodies. Certain subsidiaries of the Company are registered with the Commission under the Investment Advisers Act and the Funds are registered with the Commission under the Investment Company Act and with various states under applicable state laws. A subsidiary of the Company is also registered as a broker-dealer with the Commission and is subject to regulation by the National Association of Securities Dealers, Inc. (the "NASD") and various states.
Certain subsidiaries of the Company are registered with the Commission under the Investment Advisers Act and, as such, are regulated by and subject to examination by the Commission. The Investment Advisers Act imposes numerous obligations on registered investment advisers including fiduciary duties, recordkeeping requirements, operational requirements, and disclosure obligations. The Commission is authorized to institute proceedings and impose sanctions for violations of the Investment Advisers Act, ranging from censure to termination of an investment adviser's registration. The failure of a registered subsidiary of the Company to comply with the requirements of the Commission could have a material adverse effect on the Company. The Company believes it is in substantial compliance with the requirements of the Investment Advisers Act and the regulations under the Investment Advisers Act.
The Company derives a large portion of its revenues from investment management agreements. Under the Investment Advisers Act, the Company's investment management agreements terminate automatically if assigned without the client's consent. Under the Investment Company Act, advisory agreements with registered investment companies such as the Funds terminate automatically upon assignment. The term "assignment" is broadly defined and includes direct assignments as well as assignments that may be deemed to occur, under certain circumstances, upon the transfer, directly or indirectly, of a controlling interest in the Company. The Offering will not and the Spin-Off should not constitute an assignment for these purposes. Accordingly, the Company does not intend to seek approvals of new investment advisory agreements from the shareholders of the registered investment companies it manages or other client consents in connection with these transactions. See "Risk Factors--Uncertainty of Planned Spin-Off of the Company."
A subsidiary of the Company is also a member of the Securities Investor Protection Corporation. In its capacity as a broker-dealer, the Company is required to maintain certain minimum net capital and cash reserves for the benefit of its customers, which may limit its ability to pay dividends. The Company's net capital, as defined, has consistently met or exceeded all minimum requirements. Various regulations cover certain investment strategies that may be used by the Funds for hedging purposes. To the extent that the Funds purchase futures contracts, the Funds are subject to the commodities and futures regulations of the Commodity Futures Trading Commission. Under the rules and regulations of the Commission promulgated pursuant to the Federal securities laws, the Company is subject to periodic examination by the Commission. The Company is also subject to periodic examination by the NASD. A subsidiary of the Company is registered under the Exchange Act as a transfer agent. The most recent examination of the Company and the Funds by the Commission was in 1997. The most recent examination of the Company by the NASD was February 1996.
LEGAL MATTERS
From time to time the Company is a defendant in various lawsuits in routine matters incidental to its business. The Company does not believe that the outcome of any current litigation will have a material effect on the financial condition of the Company.
FUND SUMMARY
For the United Funds and TMK/United Funds, the total management fee for each Fund is the sum of (i) a fee computed on a Fund's net asset value as of the close of business on each business day at an annual rate specified in the respective Investment Management Agreements (the "Specific Fee") and (ii) a fee computed each day on the combined net asset values of all Funds in the group of Funds of which the particular Fund is a member (the "Group Fee"). The Group Fee rate for the United Funds is computed each day on the basis of the combined net asset value of all of the United Funds at annual rates of .51% of the first $750 million of the United Funds' net asset values declining to .36% of the United Funds' net asset values in excess of $12 billion. The Group Fee rate for TMK/United Funds is computed each day on the basis of the combined net asset value of all the series at annual rates of .51% of the first $750 million of the TMK/United Funds' net asset value declining to .45% of the TMK/United Funds' net asset value in excess of $2.25 billion. For the series of W&R Funds, the total management fee is the Specific Fee computed daily on each series' net assets value at the annual rate shown in the table set forth below.
The following table sets forth, for each fund or portfolio within the Funds, the date that shares in such Fund were first offered to the public, the net assets of such Fund or portfolio as of December 31, 1997, a description of its investment objective, and the Specific Fee for each Fund.
NET ASSETS SPECIFIC FEE
FIRST AT DECEMBER 31, 1997 AS A FRACTION
FUND/PORTFOLIO NAME OFFERED (DOLLARS IN MILLIONS) INVESTMENT OBJECTIVE OF 1%
------------------- ------- --------------------- ------------------------- -------------
UNITED FUNDS
United Asset Strategy 1995 $ 28 Seeks high total return .30
Fund, Inc. over the long term by
allocating its assets
among stocks, bonds and
short-term instruments.
United Cash Management, 1979 $ 528 Seeks to maximize current None
Inc. income to the extent
consistent with stability
of principal by investing
in money market
instruments.
United Continental 1970 $ 577 Seeks to provide current .15
Income income to the extent that
Fund, Inc. market and economic
conditions permit with a
secondary objective of
seeking long-term
appreciation of capital.
United Bond Fund 1964 $ 529 Seeks to achieve a .03
reasonable return with
more emphasis on
preservation of capital.
United Income Fund 1940 $6,495 Seeks maintenance of .15
current income, subject
to market conditions with
a secondary goal of
capital growth.
United Accumulative Fund 1940 $1,599 Seeks capital growth, .15
with a secondary
objective of current
income.
|
NET ASSETS SPECIFIC FEE
FIRST AT DECEMBER 31, 1997 AS A FRACTION
FUND/PORTFOLIO NAME OFFERED (DOLLARS IN MILLIONS) INVESTMENT OBJECTIVE OF 1%
------------------- ------- --------------------- ------------------------- -------------
United Science and 1950 $1,067 Seeks long-term capital .20
Technology Fund growth through a
portfolio emphasizing
science and technology
securities.
United Gold & Government 1985 $ 18 Seeks high total return .30
Fund, Inc. through investing in
precious metals, mineral-
related securities and
gold, silver and platinum
during periods of actual
or expected inflation or
when the environment for
investments in precious
metals appears to be
favorable, and U.S.
Government securities
during periods of actual
or expected disinflation
or low inflation.
United Government 1982 $ 131 Seeks high current income None
Securities Fund, Inc. consistent with safety of
principal by investing
primarily in securities
issued or guaranteed by
the U.S. Government or
its agencies or
instrumentalities.
United High Income Fund, 1979 $1,076 Seeks a high level of .15
Inc. current income, with a
secondary objective of
seeking capital growth
when consistent with its
primary objective.
United High Income Fund 1986 $ 417 Seeks a high level of .15
II, Inc. current income, with a
secondary objective of
seeking capital growth
when consistent with its
primary objective.
United International 1970 $1,018 Seeks long-term capital .30
Growth Fund, Inc. appreciation, with a
secondary objective of
realization of income, by
investing in securities
issued by companies or
governments of any
nation.
United Municipal Bond 1976 $ 989 Seeks income that is not .03
Fund, Inc. subject to Federal income
taxation by investing
principally in tax-exempt
municipal bonds.
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NET ASSETS SPECIFIC FEE
FIRST AT DECEMBER 31, 1997 AS A FRACTION
FUND/PORTFOLIO NAME OFFERED (DOLLARS IN MILLIONS) INVESTMENT OBJECTIVE OF 1%
------------------- ------- --------------------- ------------------------- -------------
United Municipal High 1986 $ 491 Seeks a high level of .10
Income Fund, Inc. income that is not
subject to Federal income
taxation by investing
principally in medium and
lower quality tax-exempt
municipal bonds.
United New Concepts 1983 $ 674 Seeks capital growth by .35
Fund, Inc. investing in securities
issued by relatively new
or unseasoned companies,
companies in the early
stages of development or
smaller companies in new
and emerging industries
with above average
opportunity for growth.
United Retirement 1972 $ 769 Seeks the highest long- .15
Shares, Inc. term total return
consistent with
reasonable safety of
capital.
United Vanguard Fund, 1969 $1,441 Seeks capital .30
Inc. appreciation through
diversified holdings of
securities issued
primarily by companies
that have appreciation
possibilities and through
proper timing of
purchases and sales of
securities.
WADDELL & REED FUNDS,
INC.
Total Return Fund 1992 $ 417 Seeks current income and .71
capital growth by
investing primarily in
securities issued by
companies that have a
record of paying regular
dividends on common stock
or have the potential for
capital appreciation.
Growth Fund 1992 $ 269 Seeks capital .81
appreciation by investing
primarily in securities
issued by companies that
offer above-average
growth potential,
including relatively new
or unseasoned companies.
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NET ASSETS SPECIFIC FEE
FIRST AT DECEMBER 31, 1997 AS A FRACTION
FUND/PORTFOLIO NAME OFFERED (DOLLARS IN MILLIONS) INVESTMENT OBJECTIVE OF 1%
------------------- ------- --------------------- ------------------------- -------------
Limited-Term Bond Fund 1992 $ 19 Seeks a high level of .56
current income consistent
with preservation of
capital by investing
primarily in debt
securities of investment
grade, including U.S.
government securities,
and maintaining a dollar-
weighted average maturity
of the portfolio of two
to five years.
Municipal Bond Fund 1992 $ 40 Seeks income that is not .56
subject to Federal income
taxation by investing
primarily in municipal
bonds.
International Growth 1992 $ 71 Seeks long-term .81
Fund appreciation, with a
secondary goal of
realization of income, by
investing in securities
issued by companies or
governments of any
nation.
Asset Strategy Fund 1995 $ 17 Seeks high total return .81
over the long term by
allocating assets among
stocks, bonds and short-
term instruments.
Science and Technology 1997 $ 5 Seeks long-term capital .71
Fund growth through a
portfolio emphasizing
science and technology
securities.
High Income Fund 1997 $ 7 Seeks a high level of .66
current income, with a
secondary objective of
seeking capital growth
when consistent with its
primary objective.
TMK/UNITED FUNDS, INC.
Money Market Portfolio 1987 $ 43 Seeks maximum current None
income consistent with
stability of principal by
investing in money market
securities.
Bond Portfolio 1987 $100 Seeks current income with .03
an emphasis on
preservation of capital.
High Income Portfolio 1987 $120 Seeks high current .15
income, with a secondary
objective of capital
growth.
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NET ASSETS SPECIFIC FEE
FIRST AT DECEMBER 31, 1997 AS A FRACTION
FUND/PORTFOLIO NAME OFFERED (DOLLARS IN MILLIONS) INVESTMENT OBJECTIVE OF 1%
------------------- ------- --------------------- ------------------------- -------------
Growth Portfolio 1987 $639 Seeks capital growth with .20
current income as a
secondary objective.
Income Portfolio 1991 $637 Seeks maintenance of .20
current income, subject
to market conditions with
a secondary objective of
capital growth.
International Portfolio 1994 $115 Seeks long-term .30
appreciation of capital,
with current income as a
secondary objective by
investing principally in
securities issued by
companies or governments
of any nation.
Small Cap Portfolio 1994 $148 Seeks capital growth by .35
investing primarily in
securities issued by
relatively new or
unseasoned companies,
companies in their early
stages of development or
smaller companies
positioned in new and
emerging industries with
above average opportunity
for rapid growth.
Balanced Portfolio 1994 $ 68 Seeks current income with .10
a secondary objective of
long-term appreciation of
capital.
Limited-Term Bond 1994 $ 4 Seeks a high level of .05
Portfolio current income consistent
with preservation of
capital by investing
primarily in debt
securities of investment
grade and maintaining a
dollar weighted average
maturity of the portfolio
of two to five years.
Asset Strategy Portfolio 1995 $ 10 Seeks high total return .30
over the long term by
allocating its assets
among stocks, bonds and
short-term instruments.
Science and Technology 1997 $ 10 Seeks long-term capital .20
Portfolio growth by investing
primarily in science and
technology securities.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
As of the date of the Offering, the Company's directors and executive officers are expected to be, and their ages as of December 31, 1997 are, as follows:
NAME AGE POSITION
---- --- --------
David L. Boren.................... 56 Director
Joseph M. Farley.................. 70 Director
Louis T. Hagopian................. 72 Director
Robert L. Hechler................. 60 Executive Vice President, Chief Operating Officer, Director
Henry J. Herrmann................. 55 President, Chief Investment Officer, Treasurer, Director
Joseph L. Lanier, Jr.............. 65 Director
Harold T. McCormick............... 68 Director
Sharon K. Pappas.................. 38 Secretary
George J. Records................. 63 Director
R.K. Richey....................... 71 Director
Keith A. Tucker................... 52 Chairman of the Board and Chief Executive Officer, Director
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Set forth below is a description of the backgrounds of the executive officers and directors of the Company.
David L. Boren has been President of The University of Oklahoma, Norman, Oklahoma since November 1994, and prior thereto he served as United States Senator from Oklahoma, 1979-1994 and a member of the Senate Finance Committee. Mr. Boren is a director of Torchmark Corporation, Phillips Petroleum Corporation, AMR Corporation, and Texas Instruments, Inc. Mr. Boren's term on the Board of Directors of the Company expires in 2000.
Joseph M. Farley has been Of Counsel at Balch & Bingham, Attorneys and Counselors, Birmingham, Alabama since November 1992. Mr. Farley is a director of Torchmark Corporation. Mr. Farley's term on the Board of Directors of the Company expires in 2000.
Louis T. Hagopian has been owner of Meadowbrook Enterprises, Darien, Connecticut, an advertising and marketing consultancy, since January 1990 and is Vice Chairman, Partnership for a Drug-Free America, New York, New York. Mr. Hagopian is a director of Torchmark Corporation. Mr. Hagopian's term on the Board of Directors of the Company expires in 1999.
Robert L. Hechler has been President, Chief Executive Officer, and Treasurer of Waddell & Reed, Inc. since April 1993 and President of Waddell & Reed Services Company since January 1982. Mr. Hechler's term on the Board of Directors expires in 2000.
Henry J. Herrmann has been Vice President and Chief Investment Officer of the Company since April 1993, and prior thereto was Senior Vice President and Chief Investment Officer of the Company since March 1987. Mr. Herrmann's term on the Board of Directors of the Company expires in 2001.
Joseph L. Lanier, Jr. has been Chairman of the Board and Chief Executive Officer of Dan River Incorporated, Danville, Virginia, a textile manufacturer, since November 1989. Mr. Lanier is a director of Torchmark Corporation, Flowers Industries, Inc., Dimon Inc., and SunTrust Banks, Inc. Mr. Lanier's term on the Board of Directors of the Company expires in 2001.
Harold T. McCormick has served as Chairman and Chief Executive Officer of Bay Point Yacht & Country Club, Panama City, Florida since March 1988 and as Chairman, First Ireland Spirits Co., Ltd., Dublin, Ireland, since February 1996. Mr. McCormick is a director of Torchmark Corporation. Mr. McCormick's term on the Board of Directors of the Company expires in 2000.
Sharon K. Pappas has been Senior Vice President, Secretary, and General Counsel of Waddell & Reed, Inc. and Waddell & Reed Services Company since September 1994. Ms. Pappas was Assistant General Counsel of Waddell & Reed, Inc. and Waddell & Reed Services Company from January 1989 until September 1994.
George J. Records has served as Chairman of Midland Financial Co., Oklahoma City, Oklahoma, a bank and financial holding company for retail banking and mortgage operations, since 1982. Mr. Records is a director of Torchmark Corporation. Mr. Records' term on the Board of Directors of the Company expires in 1999.
R. K. Richey is Chairman of and Chief Executive Officer of Torchmark Corporation and is a director of Full House Resorts, Inc., Vesta Insurance Group, Inc., and of each of the United Funds, the W&R Funds, and the TMK/United Funds. Mr. Richey's term on the Board of Directors of the Company expires in 1999.
Keith A. Tucker is a director and Vice Chairman of Torchmark Corporation. He is a director of each of the United Funds, W&R Funds, and the TMK/United Funds. Mr. Tucker's term on the Board of Directors of the Company expires in 1999.
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes with the initial term of the first class expiring at the annual meeting of stockholders to be held in 1999 (four directors), the second class expiring at the annual meeting of stockholders to be held in 2000 (four directors), and the third class expiring at the annual meeting of stockholders to be held in 2001 (two directors). The Company intends to add two independent directors to the third class of directors as soon as practicable after the Offering.
The executive officers of the Company are elected annually and serve at the discretion of the Board of Directors.
After completion of the Offering, the Company intends to establish an Audit Committee and a Compensation Committee, each composed of at least two independent directors, an Executive Committee and a Nominating Committee. The Audit Committee will recommend the annual appointment of the Company's auditors, with whom the Audit Committee will review the scope of audit and non-audit assignments and related fees, accounting principles used by the Company in financial reporting, internal auditing procedures, and the adequacy of the Company's internal control procedures. The Compensation Committee will administer the Company's Plans (as defined below) and make recommendations to the Board of Directors regarding compensation for the Company's executive officers. In the absence of a meeting of the Board of Directors, the Executive Committee is empowered to exercise all the powers and authority of the Board of Directors in the management of the business affairs of the Company, except that the Executive Committee is not permitted to take any action that committees are expressly prohibited from taking under the terms of the Certificate of Incorporation, the Bylaws, or the laws of the State of Delaware. The Nominating Committee will review the qualifications of potential candidates for the Board of Directors, report its findings to the Board of Directors, and propose nominations for Board memberships for approval by the Board of Directors and submission to the stockholders of the Company for approval.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees receive no additional compensation for their services as a director. It is currently anticipated that non-employee directors (the "Non-Employee Directors") will receive an annual retainer and a fee for each board and committee meeting that they attend, the amounts of which will be determined in the future. The Company reimburses all directors of the Company for travel expenses incurred in attending meetings of the Board of Directors and its committees.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received by the persons who will be the Company's Chairman of the Board and Chief Executive Officer and the four other most highly paid executive officers of the Company (the "Named Executive Officers") for the Company's two most recent fiscal years. Mr. Tucker's compensation has been paid by Torchmark Corporation and Messrs. Herrmann, Hechler, Thompson, and Intagliata's compensation has been paid by the Company. Effective January 1, 1998, Mr. Tucker's compensation has been paid by the Company, and Mr. Tucker's compensation has been reflected in the financial statements included in the Prospectus as a Company expense for all periods presented.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
---------------------- -------------------------------------
SECURITIES UNDERLYING ALL OTHER
NAMES AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS/SARS(2) COMPENSATION(3)
---------------------------- ---- -------- -------- --------------------- ---------------
Keith A. Tucker......... 1997 $800,016 $ 0 386,892 $6,619
1996 $700,000 $ 0 130,000 $6,114
Henry J. Herrmann....... 1997 $420,000 $715,000 124,600 $4,800
1996 $420,000 $392,000 36,000 $4,500
Robert L. Hechler....... 1997 $300,000 $565,000 69,500 $4,800
1996 $300,000 $295,000 16,000 $4,500
Russell E. Thompson..... 1997 $364,000 $175,396 6,200 $4,800
1996 $350,000 $146,254 8,000 $4,500
Antonio Intagliata...... 1997 $235,000 $140,000 0 $4,800
1996 $235,000 $ 42,000 2,000 $4,500
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The following table provides information on grants of options in fiscal year 1997 to the Named Executive Officers to purchase shares of Torchmark Corporation common stock.
OPTIONS GRANTED DURING 1997
INDIVIDUAL GRANTS
---------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ----------------------------
NAME GRANTED(1) IN FISCAL YEAR(2) (PER SHARE) DATE 5% 10%
---- ---------- ----------------- ----------- ---------- ------------- --------------
Keith A. Tucker(3)...... 163,492 29.5% $25.875 01/31/08 $ 2,660,449 $ 6,742,095
223,400 45.2% $39.125 09/27/07 $5,496,872 $13,930,142
Henry J. Herrmann (3)... 124,600 25.2% $39.125 09/27/07 $ 3,065,847 $ 7,769,452
Robert L. Hechler (3)... 69,500 14.1% $39.125 09/27/07 $ 1,710,083 $ 4,333,683
Russell E. Thompson
(3).................... 6,200 1.3% $39.125 09/27/07 $ 152,554 $ 386,602
Antonio Intagliata (3).. 0 0% N/A N/A $ 0 $ 0
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The following table provides information on option exercises in 1997 by the Named Executive Officers and the value of each such Named Executive Officers' unexercised options to acquire common stock of Torchmark Corporation at December 31, 1997.
AGGREGATED OPTION EXERCISES DURING 1997 AND OPTION VALUES AT DECEMBER 31, 1997
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
NUMBER OF SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED VALUE ------------------------------ -------------------------
NAME ON EXERCISE (1) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- ---------- ------------- -------------- ----------- -------------
Keith A. Tucker......... 357,224 $7,068,164 388,400 393,492 $4,371,350 $6,967,588
Henry J. Herrmann....... 198,200 $4,204,512 166,100 58,000 $1,323,744 $1,074,250
Robert L. Hechler....... 127,622 $3,250,168 81,500 28,000 $ 458,844 $ 530,000
Russell E. Thompson..... 10,000 $ 221,250 10,200 12,000 $ 100,988 $ 220,500
Antonio Intagliata...... 0 $ 0 10,074 5,000 $ 239,676 $ 96,125
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COMPENSATION, BENEFITS, AND RETIREMENT PLANS
The Company intends to implement the following stock plans: The 1998 Stock Incentive Plan (the "Stock Incentive Plan"), The 1998 Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan"), and The 1998 Executive Deferred Compensation Stock Option Plan (the "Executive Deferral Plan") (collectively, the "Plans"). Terms not expressly defined in the descriptions of the Plans below have the same meaning as assigned to such terms in the Plans. Each Plan will be filed as an exhibit to the Registration Statement of which this Prospectus is a part.
Upon consummation of the Offering and after giving effect to the grants made in connection with the Offering referred to below, under the Plans the Company will have (on a fully diluted basis and assuming the exercise of all options granted to them and excluding shares of stock purchased outside of the Plans) reserved 16.3 million shares of Class A Common Stock, or approximately 25% of the outstanding Common Stock after the Offering, for issuance under the Plans, including (i) awarded options to purchase up to 1,069,200 shares of Class A Common Stock, approximately 1.7% of the outstanding Common Stock, to the Named Executive Officers; and (ii) issued 200,000 shares of restricted Class A Common Stock, less than 1% of the outstanding Common Stock, to the Named Executive Officers. In addition, 48,000 shares of restricted stock of Torchmark Corporation previously issued to Mr. Tucker pursuant to a Torchmark stock plan will be converted into Restricted Stock under the Stock Incentive Plan. See "--Conversion of Torchmark Equity Compensation to Class A Common Stock of the Company." The following is a brief summary of each of the Plans, which are qualified in their entirety by the Plans, copies of which will be filed as an exhibit to the Registration Statement of which the Prospectus is a part.
Stock Incentive Plan
The Stock Incentive Plan, covering 13,000,000 shares, will permit (i) the grant of options to purchase shares of Class A Common Stock intended to qualify as incentive stock options under (S) 422 of the Code ("Incentive Options"); (ii) the grant of options that do not so qualify ("Non-Qualified Options"); (iii) the issuance of Class A Common Stock that may be subject to certain restrictions ("Restricted Stock"); (iv) stock appreciation rights, which entitle the holder, upon exercise, to receive cash or shares of Class A Common Stock in value not to exceed the appreciation in value of Class A Common Stock since the date of grant (an "SAR"); and (v) deferred stock awards ("Deferred Stock Awards"), which entitle the recipient to receive shares at future dates without any payment in cash or property. The Stock Incentive Plan was designed and intended as a performance incentive for officers, employees, consultants, and other key persons performing services for the
Company to encourage such persons to acquire or increase a proprietary interest in the success and progress of the Company. In connection with the Offering, 2,372,300 options will be awarded under the Stock Incentive Plan, and the Company will issue an aggregate of 200,000 shares of Restricted Stock under the Stock Incentive Plan (excluding the conversion of Mr. Tucker's Torchmark restricted stock). These stock options will be initially exercisable at the initial public offering price, and such stock options and the restricted stock grants will generally vest in equal one-third increments on the second, third, and fourth anniversaries of the consummation of the Offering.
The Stock Incentive Plan is administered by the Compensation Committee (the "Compensation Committee"). All members of the Compensation Committee are "disinterested persons" as that term is defined under the rules promulgated by the Commission. On and after the date the Stock Incentive Plan becomes subject to (S) 162(m) of the Code, all members of the Compensation Committee will be "outside directors" as defined in (S) 162(m) of the Code and the regulations thereunder. The Compensation Committee has full power to select, from among the employees and other persons eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the Stock Incentive Plan. Persons eligible to participate in the Stock Incentive Plan will be those officers, employees, and other key persons, such as consultants, of the Company who are responsible for or contribute to the management, growth, or profitability of the Company, as selected from time to time by the Compensation Committee. SARs may be granted in conjunction with options, entitling the holder upon exercise to receive an amount in any combination of cash or unrestricted common stock of the Company (as determined by the Compensation Committee), not greater in value than the increase in the value of the shares covered by such right since the date of grant. Each SAR will terminate upon the termination of the related option.
Only employees of the Company may be granted Incentive Options. The option exercise price of each option will be determined by the Compensation Committee but may not be less than 100% of the fair market value of the Class A Common Stock on the date of grant in the case of Incentive Options and Non-Qualified Options.
The Stock Incentive Plan provides that automatic formula-based Non-Qualified Options for 6,000 shares will be awarded to non-employee directors on the date of consummation of the Offering with an exercise price equal to the offering price and 3,000 shares will be awarded to non-employee directors on the first day of each calendar year on which the Company's Class A Common Stock is traded on the New York Stock Exchange at 100% of the market value of the Class A Common Stock on that date. Additionally, non-employee directors may be granted non-formula based Non-Qualified Options at the discretion of the Compensation Committee, which may have an exercise price equal to the market value of the stock on the grant date or at a discount not to exceed 25% of the market value on the grant date.
The Compensation Committee may make Deferred Stock Awards under the Stock Incentive Plan. These non-transferable awards entitle the recipient to receive shares at a future date or dates without any payment in cash or property in one or more installments, as determined by the Compensation Committee. Receipt of deferred stock may be conditioned on such matters as the Compensation Committee determines, including continued employment or attainment of performance goals. Such rights will generally terminate upon the participant's termination of employment. Any deferral restrictions under a Deferred Stock Award may be accelerated or waived by the Compensation Committee at any time (including following termination of employment).
The Compensation Committee may also award shares of Restricted Stock to officers, other employees, and key persons of the Company. The conditions and restrictions applicable to the Restricted Stock may include the achievement of certain performance goals and continued employment with the Company through a specified restricted period. These conditions and restrictions, as well as the purchase price of shares of Restricted Stock, will be determined by the Compensation Committee. If the performance goals and other restrictions are not attained, the employees will forfeit their awards of Restricted Stock.
The Board of Directors may at any time amend or discontinue the Stock Incentive Plan and the Compensation Committee may at any time amend or cancel outstanding awards for the purpose of satisfying
changes in the law or for any other lawful purpose. No such action may be taken, however, that adversely affects any rights under outstanding awards without the holder's consent. Further, amendments to the Stock Incentive Plan will be subject to approval by the Company's stockholders if and to the extent required by the Code to preserve the qualified status of Incentive Options or to preserve tax deductibility of compensation earned under stock options and stock appreciation rights.
The Stock Incentive Plan provides that in the event of a "Change of Control" (as defined in the Stock Incentive Plan), unless otherwise determined by the Compensation Committee prior to such Change of Control or to the extent expressly provided by the Compensation Committee at or after the time of grant, or in the event of a "Potential Change of Control" (as defined in the Stock Incentive Plan), in each case occurring after the first anniversary of completion of the Offering, (i) all stock options and related SARs will become immediately excisable, (ii) the restrictions and deferral limitations applicable to outstanding Restricted Stock Awards and Deferred Stock Awards will lapse and the shares in question will fully vest, and (iii) the value of such options and awards, to the extent determined by the Compensation Committee, will be settled on the basis of the highest price paid (or offered) during the preceding 60-day period, as determined by the Compensation Committee. In the sole discretion of the Compensation Committee, such settlements may be made in cash or in stock, as is a necessary to effect the Change of Control. In addition, at any time prior to or after a Change of Control, the Compensation Committee may accelerate awards and waive conditions and restrictions on any awards to the extent it may determine appropriate. Generally, if an optionee's employment or consultant status with the Company or a director's status as an outside director terminates by reason of or within three months following a merger or other business combination resulting in a Change of Control, the Stock Incentive Plan provides that such optionee's stock options will terminate upon the latest of (i) six months and one day after the merger or business combination, (ii) ten business days following the expiration of the period during which publication of financial results covering at least thirty days of post-merger combined operations has occurred, and (iii) the expiration of the stated term of such stock option or director stock option.
Approximately 60 employees are currently eligible to participate in the Stock Incentive Plan.
Non-Employee Director Plan
The Non-Employee Director Plan will permit Non-Employee Directors to elect to defer on an annual basis all or a designated portion of their director compensation payable in 1998 or thereafter into the interest-bearing account of the Non-Employee Director Plan (the "Interest Account"). Such deferrals would be made subject to a one-time opportunity by the Non-Employee Director to convert that particular year's deferred director compensation into options, granted either at market value or at a designated discount not to exceed 25% of market value, to acquire Class A Common Stock. The Company's current Non- Employee Directors as well as any subsequently elected Non-Employee Directors constitute the class of persons eligible to participate in this plan. Up to 800,000 shares of Class A Common Stock are proposed to be reserved for issuance pursuant to the Non-Employee Director Plan.
On or before December 31 of each year, each Non-Employee Director will determine whether to receive all or a portion of his or her annual retainer and Board of Directors and committee meeting fees for the following calendar year in cash or to defer all or a portion (in 10% increments, but not less than 50%) of such Annual Compensation (as defined in the Non-Employee Director Plan) (assuming maximum attendance at scheduled Board of Directors and committee meetings) into an interest-bearing account in the Non-Employee Director Plan. In the case of a newly elected Non-Employee Director, such determination to defer compensation must be made within the 30-day period immediately following election to the Board of Directors. The determination to defer, if made, will be indicated upon a Primary Election Form, which will specify the percentage of compensation deferred and the basis for payment of the interest-bearing account balance (a lump sum or designated number of monthly payments not to exceed 120) to the Non-Employee Director upon the earliest of (i) December 31 of the fifth year after the year with respect to which the deferral was made; (ii) the first business day of the fourth month after such Non-Employee Director's death; or (iii) termination as a Non- Employee Director, for any reason other than by death.
At any time, but only once, during the calendar year immediately following the filing of a Primary Election Form, a participating Non-Employee Director may elect to convert the then current balance in his or her Interest Account for the calendar year to which such Primary Election Form relates into options to acquire Class A Common Stock. For example, if a Primary Election Form was filed in December 1997 deferring Annual Compensation to be earned in 1998, the Non-Employee Director may elect at any time during 1998 to convert such deferred amount plus accrued interest to the conversion election date into stock options. The irrevocable election to receive options as of this election date, which is made on a Secondary Election Form, will specify the percentage of such stock options to be granted at an exercise price of 100% of the Fair Market Value per Share on the Option Grant Date and the percentage of options to be granted at an exercise price of not less than 75% of the Fair Market Value per Share (with the discount of up to 25% to be determined by the Compensation Committee in its discretion). Non-Employee Directors may elect to receive discounted stock options, market value stock options, or a combination of both. To the extent that a Non-Employee Director chooses to receive discounted stock options, he or she will receive options on a smaller number of shares with a lower exercise price per share while a decision to receive market value options will result a larger number of shares subject to option with a higher exercise price per share.
Options granted pursuant to the Non-Employee Director Plan will be non- qualified stock options. Based upon the Non-Employee Director's decision as to the exercise price (discounted or market value) of the options to be received, the number of Shares subject to such option will be the whole number of Shares equal to (a) the dollar amount which the Non-Employee Director has elected to convert to options divided by (b) the per share value of an option on the Option Grant Date, as determined using an option valuation model selected by the Compensation Committee. Options are first exercisable, cumulatively, as to 10% of the Shares on each of the first through tenth anniversaries of the Option Grant Date. The term of the option will be as specified by the Compensation Committee but in no event may the period of time over which an option may be exercised exceed eleven years from the Option Grant Date. In no event will death, disability, retirement, other termination of directorship, or failure to be reelected as a director shorten the term of any outstanding option. Options may be subject to accelerated vesting and will be immediately exercisable upon the Non-Employee Director's death or Disability, a Change in Control of the Company as defined in the plan or the unanimous decision of the Compensation Committee to accelerate. Upon acceleration, an option remains exercisable for the remainder of its original term. Options may be exercised in whole or in part. Shares will be issued pursuant to the exercise of an option only upon receipt by the Company of payment in full of the aggregate purchase price for the Shares subject to the option or portion thereof being exercised. The Compensation Committee may determine the specific method of payment, including permitting "cashless exercises," and other terms and provisions of options in its sole discretion.
Options will not be assignable or transferable other than by will or by the laws of descent and distribution, except that the Compensation Committee may permit transfers that it, in its sole discretion, concludes do not result in accelerated taxation and that are otherwise appropriate and desirable taking into account any applicable securities laws.
Based upon current Federal tax laws, a Non-Employee Director will not recognize income upon the making of a proper and timely deferral to the Interest Account nor will income be recognized upon the conversion of such account balance to options. The Non-Employee Director will recognize income for purposes of Federal income tax when the amount in his or her Interest Account is paid out or immediately upon the exercise of the options, generally in an amount equal to the difference between the fair market value of the Common Stock on the date of exercise and the exercise price of the option. The Company generally will receive a corresponding tax deduction when the Non- Employee Director recognizes income subject to any applicable deductibility limitations of the Code.
The Non-Employee Director Plan will be administered by the Compensation Committee, which will have the authority to interpret and construe the Non- Employee Director Plan, make necessary rules and regulations to administer the plan, and designate persons as its agents who are neither members of the Compensation Committee or the Board of Directors to carry out administrative responsibilities under the Plan.
Adjustments will be made to the total number of Shares reserved for issuance under the Non-Employee Director Plan, the number of Shares covered by, and the exercise price of each outstanding option if the Company at any time changes the number of issued Shares through a stock dividend, stock split, recapitalization, reorganization, or other change in corporate structure affecting the Shares. The Compensation Committee will authorize the issuance, continuation, or assumption of outstanding options or provide for other equitable adjustments after changes in Shares resulting from any merger, consolidation, sale of assets, acquisition of property or stock, or similar occurrence in which the Company is the surviving or continuing corporation upon such terms and conditions as it deems necessary. In the case of an acquisition where the Company is not the surviving or continuing corporation and outstanding Shares are not converted into or exchanged for different securities, cash, or other property, a Non-Employee Director who holds an outstanding option will have the right then and during the remaining term of the option to receive the same acquisition consideration received by the Company's other shareholders.
The Board of Directors may amend, suspend, or terminate the Non-Employee Director Plan or any stock option award notice under the plan at any time, except that it may condition amendments or modifications on shareholder approval if necessary or advisable because of tax, securities, or other applicable laws, policies, or regulations. No amendment, modification, or termination will adversely affect any outstanding options or Interest Accounts without the consent of the participant.
Executive Deferral Plan
The Executive Deferral Plan will permit Eligible Executives to defer salary and bonus into interest-bearing accounts in the plan, subject to a one time opportunity to elect to convert within a designated time period any deferred salary for that year as well as a one time opportunity to elect within a designated time period to convert any deferred bonus for that calendar year into options to acquire Class A Common Stock. Such options may be granted with an exercise price of the fair market value of the stock or at a discount not to exceed 25% of its market value. The Eligible Executives will be determined from time to time by the Compensation Committee or its designee or by the Chairman of the Board. Currently, three persons have been designated as eligible to participate in the Executive Deferral Plan, and it is contemplated that the number of Eligible Executives will not in any case exceed 10 persons. Up to 2,500,000 shares of Class A Common Stock have been reserved for issuance pursuant to the Executive Deferral Plan.
On or before the last day of each calendar quarter, an Eligible Executive may elect to receive all or a portion of his or her salary for the next calendar quarter in cash or may irrevocably elect to defer all or a portion in 10% or $10,000 increments of next quarter's salary into an Interest Account for Salary under the Executive Deferral Plan by delivering a Primary Election Form for Salary to the plan administrator. Such Primary Election Form for Salary will specify the amount of Salary to be deferred into the interest- bearing account and the form and timing of the payout of deferred amounts, except that if an executive elects to defer Salary for more than one quarter in a calendar year, the form and timing of payout for each quarter's deferral must be identical.
At any time prior to December 31 of each year, an Eligible Executive may also elect to receive all or a portion of his or her bonus for the current calendar year in cash or may irrevocably elect to defer all or a portion (in 10% or $10,000 increments) of such current calendar year bonus into an Interest Account for Bonus under the Executive Deferral Plan by delivering a Primary Election Form for Bonus to the Plan administrator. Such Primary Election Form for Bonus will specify the amount of Annual Bonus to be deferred and the form and timing of payout of the deferred amount, except that if an executive elects to defer both Salary and Annual Bonus for a particular calendar year, the form and timing must be identical.
The Interest Accounts of an Eligible Executive will be segregated to reflect deferred compensation on a year-by-year basis and as to the type of compensation deferred (salary or bonus). Interest will be credited to such Interest Accounts at the rate determined from time to time by the Compensation Committee. Payment of the balances in an executive's Interest Accounts will be made as designated by the executive in a lump sum or in the number of approximately equal monthly installments not to exceed 120 which have been selected by the
executive. Such payments will begin on the earliest of (a) December 31 of the fifth year after the year with respect to which the deferral was made, (b) the first business day of the fourth month after the executive's death, or (c) termination as an employee of the Company for any reason other than by death.
At any time, but only once, during the twelve-month period following the end of the calendar year with respect to which an executive deferred Salary into the Executive Deferral Plan, such executive will have the right to convert his or her Interest Account for Salary for the previous year into options in Class A Common Stock by filing an irrevocable Secondary Election Form for Salary. Also, at any time, but only one time, during the twelve month period following the end of a calendar year with respect to which an executive has deferred Annual Bonus into the Plan, such executive will have the right to convert his or her Interest Account for Bonus for such previous year into options in Class A Common Stock by filing an irrevocable Secondary Election Form for Bonus. The filing of such Secondary Election Form for Salary or Secondary Election Form for Bonus will result in receipt by the executive of options as of the date of such filing. The Secondary Election Form will specify the percentage of options to be granted at an exercise price of 100% of the Fair Market Value per Share on the Option Grant Date and the percentage of options to be granted at an exercise price of not less than 75% of the Fair Market Value per Share on the Option Grant Date (with the discount of up to 25% to be determined by Compensation Committee in its discretion). An Eligible Executive may elect to receive market value stock options, discounted stock options or a combination of both. To the extent that an executive selects market value options, he or she will receive options on a larger number of shares with a higher exercise price than if discounted options on fewer shares with a lower exercise price were selected.
Options issued pursuant to the Executive Deferral Plan will be non-qualified
stock options. Based upon the Eligible Executive's decision as to the exercise
price (discounted or market value) of the options to be received, the number
of Shares subject to such option will be the whole number of Shares equal to
(i) the dollar amount that the executive has elected to convert to options
divided by (ii) the per share value of an option on the Option Grant Date, as
determined using an option valuation model selected by the Compensation
Committee. Options are first exercisable, cumulatively, as to 10% of the
Shares on each of the first through tenth anniversaries of the Option Grant
Date, except that any option held by a "Covered Employee," as defined in (S)
162(m) of the Code, will not be exercisable before the first day of the
calendar year immediately following the year in which the executive ceased to
be a Covered Employee. The term of the option will be as specified by the
Compensation Committee but in no event may the period of time over which an
option may be exercised exceed the longer of eleven years from the Option
Grant Date or the thirtieth day of the calendar year immediately following the
year in which the executive ceased to be a Covered Employee. In no event will
death, disability, retirement, or other termination of employment shorten the
term of any outstanding option. Options will be subject to accelerated vesting
and will be immediately exercisable upon the executive's death or disability,
a Change in Control, or the unanimous decision of the Compensation Committee
to accelerate. Upon acceleration, an option remains exercisable for the
remainder of its original term.
Options may be exercised in whole or in part. Shares will be issued pursuant to the exercise of an option only upon receipt by the Company of payment in full of the aggregate purchase price for the Shares subject to the option or portion thereof being exercised. The Compensation Committee may determine the specific method of payment, including permitting "cashless exercises," and other terms and provisions of options in its sole discretion.
Options will not be assignable or transferable other than by will or by the laws of descent and distribution, except that the Compensation Committee may permit transfers that it, in its sole discretion, concludes do not result in accelerated taxation and that are otherwise appropriate and desirable taking into account any applicable securities laws.
Based on current Federal tax laws, a participating executive will not recognize income upon the making of a proper and timely deferral to Interest Accounts nor will income be recognized upon the conversion of such account balances to options. The executive will recognize income for purposes of Federal income tax when the amounts in his or her Interest Accounts are paid out or immediately upon the exercise of the non-qualified
options, generally in an amount equal to the option spread on the date of exercise. The Company generally will receive a corresponding tax deduction when the executive recognizes income, subject to any applicable deductibility limitations of the Code.
The Executive Deferral Plan will be administered by the Compensation Committee, which will have the authority to interpret and construe the plan, make necessary rules and regulations to administer the Plan and designate persons as its agents who are neither members of the Compensation Committee or the Board of Directors to carry out administrative responsibilities under the Plan.
Adjustments will be made to the total number of Shares reserved for issuance under the Executive Deferral Plan, the number of Shares covered by and the exercise price of each outstanding option if the Company at any time changes the number of issued Shares through a stock dividend, stock split, recapitalization, reorganization, or other change in corporate structure affecting the Shares. The Compensation Committee will authorize the issuance, continuation or assumption of outstanding options or provide for other equitable adjustments after changes in the number of Shares resulting from any merger, consolidation, sale of assets, acquisition of property or stock, or similar occurrence in which the Company is the surviving or continuing corporation upon such terms and conditions as it deems necessary. In the case of an acquisition where the Company is not the surviving or continuing corporation and outstanding Shares are not converted into or exchanged for different securities, cash, or other property, a participating executive who holds an outstanding option will have the right then and during the remaining term of the option to receive the same acquisition consideration received by the Company's other shareholders.
The Board of Directors may amend, suspend, or terminate the Executive Deferral Plan or any Stock Option Award Notice under the Plan at any time, except that it may condition amendments or modifications on shareholder approval if necessary or advisable because of tax, securities, or other applicable laws, policies, or regulations. No amendment, modification, or termination will adversely affect any outstanding options or Interest Accounts without the consent of the participating executive.
Other Plans
Waddell & Reed Financial, Inc. Savings and Investment Plan (formerly the United Investors Management Company Savings and Investment Plan). This plan will be amended and restated, effective as of a date no sooner than the date of the Offering, to rename it the Waddell & Reed Financial, Inc. Savings and Investment Plan, bring it into compliance with recent legislative and regulatory changes, and change the investment options available to participants. Effective as of the same date as the adoption of this plan, assets and liabilities related to the following categories of current and former employees will be transferred from the plan to the Torchmark Corporation Savings and Investment Plan: (i) current and former employees of UILIC who have an account balance under this plan, (ii) current employees of WRAMCO employed in the marketing division; and (iii) former employees of the Company or one of its affiliates who are currently employed by Torchmark or its affiliates. Effective as of the same date, the Torchmark Corporation Savings and Investment Plan will also transfer to the Waddell & Reed Financial, Inc. Savings And Investment Plan assets and liabilities related to former employees of Torchmark or its affiliates who are currently employees of the Company. The Waddell & Reed Financial, Inc. Savings and Investment Plan is a tax-qualified, defined contribution plan that allows eligible employees of the Company to contribute up to 16% of compensation, as described below, on an after-tax basis. Employees of the Company are eligible to begin contributing to the plan after completing one year of service. The Company makes a matching contribution to the Plan, on behalf of each employee who elects to participate, equal to 50% of the participant's contributions up to the first 6% of compensation. The plan defines compensation as total compensation (including amounts deferred pursuant to a cafeteria plan under (S) 125 of the Code) less annual service awards and other non-cash prizes, deferred compensation, director's fees, expense reimbursements or allowances, and amounts in excess of $150,000 per year (as adjusted). Participants may invest their account balances in a Torchmark stock fund or one or more of 15 mutual funds that are sponsored by the Company and made available under the plan. Effective no sooner than the date of the Offering, participants may elect to invest their account balances in Class A Common Stock. Effective as of this same date, participants will be permitted
to make investment transfers out of the Torchmark stock fund but will not be permitted to make transfers into it. Cash dividends on stock held in the Torchmark stock fund will be reinvested in Torchmark common stock. The plan permits investment transfers to take place up to eight times per year. Transfers take effect during the valuation period that begins after the valuation period during which a change is requested. There are 24 semi-monthly valuation periods under the plan. Participants may receive in-service distributions from their accounts under the plan. Distributions are also available upon normal retirement (age 65), disability, death, or termination of employment before normal retirement age. Upon the occurrence of this latter event, only the vested portion of the matching contributions account is distributable. The vesting schedule is a graded six-year schedule, beginning at 20% at two years of service and increasing in 20% increments per year of service until six years of service have been completed.
Waddell & Reed Financial, Inc. Retirement Income Plan (formerly the United Investors Management Company Retirement Income Plan). This plan will be amended and restated, effective as of a date no sooner than the date of the Offering, to rename it the Waddell & Reed Financial, Inc. Retirement Income Plan and bring it into compliance with recent legislative and regulatory changes. Effective upon adoption of this plan, assets and liabilities related to the following categories of employees will be transferred to the Torchmark Corporation Pension Plan: (i) existing employees of WRAMCO employed in the marketing division and (ii) former employees of the Company who are currently employed by Torchmark or its affiliates. Effective as of the same date, the Torchmark Corporation Pension Plan will also transfer to the Waddell & Reed Financial, Inc. Retirement Income Plan assets and liabilities related to former employees of Torchmark or its affiliates who are currently employees of the Company. The plan is a tax-qualified, non-contributory pension plan that covers all eligible employees of the Company who are 21 years of age or older and have one or more years of credited service. The benefits under the plan are determined by multiplying the average of the participant's earnings in the five consecutive years in which they were highest during the last ten years before the participant's retirement by a percentage equal to 2% for each year of credited service up to 30 years and by 1% for each year of credited service for the next ten years and then reducing that result by a Social Security offset and by other benefits from certain other plans of the Company and Torchmark or its affiliates. Earnings for purposes of the plan do not include bonuses or commissions (other than for Regional Vice Presidents, and Division Managers), directors' fees, expense reimbursements, employer contributions to retirement plans, deferred compensation, or any amounts in excess of $150,000 per year (as adjusted). Benefits under the plan vest 100% after five years. Upon the participant's retirement, benefits under the plan are payable as an annuity or in a lump sum.
Waddell & Reed, Inc. Career Field Retirement Plan. Until January 1, 1973, Company employees participated in the Waddell & Reed, Inc. Career Field Retirement Plan. Under this plan, the Company contributed annually up to 10% of its profits less forfeitures, which were allocated to the participants on the basis of their compensation. Voluntary employee contributions were permitted under the plan but not required. Since January 1, 1973, no new participants have been admitted to the plan, and participants and the employer make no further contributions. All participants are fully vested. Upon the participant's retirement, termination of employment, disability, death, or reaching age 65, his account is used to purchase an annuity or is paid in a lump sum. Benefits paid under the plan do not offset benefits paid under any other pension plan.
Control Group Issues. Following the consummation of the Offering, the Company will continue to be a member of the Torchmark controlled group, within the meaning of (S) 414(b) of the Code, and will continue to be treated as a trade or business under common control with Torchmark, within the meaning of (S) 414(c) of the Code. All members of a controlled group or group of trades or businesses under common control are required to be treated as one employer for purposes of many of the Code's provisions relating to tax qualification, such as (S) 401 (nondiscrimination in benefits and various other nondiscrimination rules), (S) 410 (coverage rules), (S) 411 (benefit accrual and vesting rules), (S) 415 (maximum benefit rules), and (S) 416 (top-heavy rules). Application of these rules may require a change of benefits, coverage, or structure of the Company's qualified plans in order to maintain the qualified status of the plans.
Continuing Interrelationships with Torchmark. Both the Company's and Torchmark's qualified plans will continue to pay benefits to former employees of Torchmark who were entitled to benefits under the predecessor
plans maintained by the Company (except to the extent that assets and liabilities related to such benefits are spun off to other qualified plans of Torchmark). For example, employees of Torch Energy Advisors Incorporated who participated in the Company's plans prior to January 1, 1996, will continue to be entitled to receive benefit payments under the Company's tax-qualified plans.
CONVERSION OF TORCHMARK EQUITY COMPENSATION TO CLASS A COMMON STOCK OF THE COMPANY
As of February 2, 1998, there are outstanding options (the "Torchmark Options") to purchase 7,250,218 shares of common stock of Torchmark Corporation granted by Torchmark to officers, directors, and employees of Torchmark Corporation and its affiliates, including the Company, under various Torchmark Corporation stock compensation plans (the "Torchmark Plans"). It is currently anticipated that in connection with the Spin-Off existing Torchmark Options will be adjusted (the "Adjusted Torchmark Options") and the Company will provide for the issuance of options (the "Conversion Options") to purchase Class A Common Stock to the holders of outstanding Torchmark Options (except for options granted December 24, 1997). The Company and Torchmark will then provide (i) holders of Torchmark Options that are employees of the Company an election to receive either solely Conversion Options or a combination of Conversion Options and Adjusted Torchmark Options in a ratio that is reflective of the pro rata distribution of Class A Common Stock to Torchmark stockholders in the Spin-Off and (ii) holders of Torchmark Options who are employees of Torchmark an election to receive either solely Adjusted Torchmark Options or a combination of Conversion Options and Adjusted Torchmark Options in a ratio that is reflective of the pro rata distribution of Class A Common Stock to Torchmark stockholders in the Spin-Off. The number of options that the option holder will be entitled to receive and respective exercise prices will be determined so that (i) the ratio of the exercise price of each of the Conversion Options and the Adjusted Torchmark Options to the market value of their respective underlying common stock will not be less than the ratio of the exercise price of Torchmark Options to the underlying market value of the Torchmark Corporation common stock immediately prior to the Spin- Off and (ii) the aggregate intrinsic value of the Conversion Options and Adjusted Torchmark Options (the difference between the aggregate exercise price and aggregate market value of the underlying stock) will not exceed the aggregate intrinsic value inherent in Torchmark Options immediately prior to the Spin-Off. The Company and Torchmark reserve the right to adjust the foregoing procedures as it deems necessary in its sole discretion so that the purposes of the conversion are effected in a manner suitable to the Company and Torchmark. All other terms and conditions of the options issued in the conversions described above will be the same as the original options.
As of the date of the closing of the Offering, Messrs. Tucker, Herrmann, and Hechler will be able to elect to convert deferrals of bonus for 1997 under TMK Executive Deferral Plan into options to purchase Class A Common Stock at a formula price set forth in such plan. Also as of the date of the closing of the Offering, Messrs. Lanier, McCormick, and Records will be able to elect to convert Torchmark Options (covering an aggregate of approximately 30,586 shares of Torchmark common stock) received by them as a result of deferrals, and Mr. Hagopian will be entitled to convert the cash balance of his interest account ($48,000 principal amount, plus interest) of director compensation for 1998 under Torchmark's non-employee director plan into options to purchase Class A Common Stock. Such options to purchase Class A Common Stock will vest on the original schedule provided for in the Torchmark plans. The number of shares to be subject to such options and the exercise price for the options to purchase Class A Common Stock will be computed in a manner consistent with the conversions referred to above. Finally, as of the date of the closing of the Offering, 48,000 shares of restricted stock of Torchmark Corporation previously issued to Mr. Tucker pursuant to a Torchmark stock plan will be converted into a number of shares of Restricted Stock under the Stock Incentive Plan equal to 48,000 times the market value of the Torchmark Corporation common stock divided by the offering price of the Class A Common Stock. Such shares of Restricted Stock will vest on the original schedule, which provides for ratable vesting over four years from the date of grant.
As of the date of this Prospectus, it is not possible to determine how many shares of Class A Common Stock will be issued in the conversions described above. It is probable that holders of Class A Common Stock will experience dilution as a result of such conversions. Holders of Torchmark Options are not contractually bound to make either election outlined above.
Solely as an example of the potential dilution that could result to holders of Class A Common Stock, assuming that (i) the market value per share of Torchmark Corporation common stock is $42.00 (its closing price on the NYSE on February 11, 1997); (ii) the market value per share of the Class A Common Stock after giving effect to the Spin-Off is $21.00 (the mid-point in the range of the offering price set forth on the cover page of this Prospectus); and (iii) the market value per share of the Torchmark Corporation common stock after giving effect to the Spin-Off reflects the assumed value of the Class A Common Stock; and (iv) all persons eligible to receive Class A Common Stock options elect to receive the maximum available, then the conversions described above would result in the issuance of options to purchase approximately 4,618,663 shares of Class A Common Stock with an average exercise price of approximately $14.452 per share. The foregoing example is for purposes of illustration only, and represents only the Company's and Torchmark's present intentions. Actual results of the conversions described above could vary.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain arrangements between the Company and Torchmark. Although the Company believes that these arrangements embody terms and conditions no less favorable to the Company than could be obtained in negotiations between independent parties, these arrangements were established before the Offering and were not the subject of arm's-length negotiations. See "Risk Factors--Relationship with Torchmark" and "Risk Factors--Conflicts of Interest Between the Company and Torchmark."
RELATIONSHIP WITH TORCHMARK
Intercompany Debt. From 1981 until the Offering, the Company has been a subsidiary of Torchmark. The Company, in keeping with Torchmark's strategy for its subsidiaries, paid virtually all of its earnings to Torchmark as dividends. In November 1997, the Company paid Torchmark a dividend of unsecured promissory notes in the original aggregate principal amount of approximately $480 million that mature on November 25, 2002 and bear interest at an annual rate of 8%, of which approximately $390 million was payable to Liberty (the "Second Liberty Note") and approximately $90 million was payable to Torchmark Corporation (the "Torchmark Note"). The Torchmark Note and the Second Liberty Note are mandatorily prepayable from any capital raised from any public or private offering of debt or equity securities, including the Offering. The Torchmark Note and the Second Liberty Note were issued to permit Torchmark to withdraw the Company's surplus earnings plus a portion of Torchmark's capital investment in the Company.
The Company is also indebted to Liberty under the First Liberty Note, a promissory note dated December 23, 1996, originally in the aggregate principal amount of approximately $124 million, that matures on May 1, 2000 and bears interest at an annual rate of 6%. The First Liberty Note was issued in connection with an intercompany funding arrangement with Liberty and Torchmark Corporation.
The Torchmark Note, the First Liberty Note and the Second Liberty Note constitute the "Notes." Prior to the Offering, the Company will prepay the outstanding amounts remaining under the Notes to the extent necessary so that the remaining aggregate principal amount of the Notes equals the greater of $428 million or the net proceeds of the Offering. If the net proceeds of the Offering (assuming no exercise of the Underwriters' over-allotment option) are less than the amount of the Notes, the unpaid balance of the Notes will remain an obligation of the Company.
Spin-Off. From 1981 until the Offering, the Company has been a subsidiary of Torchmark. After the consummation of the Offering, the Company will continue to be controlled by Torchmark, which will own more than 80% of the combined voting power of the Class A Common Stock and the Class B Common Stock of the Company. The holders of Class A Common Stock and Class B Common Stock have identical rights except that (i) holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled to five votes per share on all matters to be voted on by stockholders and (ii) holders of Class A Common Stock are not eligible to vote on matters relating exclusively to Class B Common Stock and vice versa. Torchmark Corporation has advised the Company that, subject to certain conditions, Torchmark currently intends to divest its ownership interest in the Company by means of the Spin- Off. Torchmark has advised the Company that it expects to complete the Spin- Off in the last quarter of 1998. Conditions to the Spin-Off include the receipt by Torchmark of a ruling by the Internal Revenue Service to the effect that such dividend will qualify as a tax-free distribution under (S) 355 of the Code and receipt of necessary regulatory approvals to the Spin-Off and related transactions. There can be no assurance that such conditions will be fulfilled or waived by Torchmark, nor can there be any assurance that, in any event, the Spin-Off will occur or that Torchmark will not sell or otherwise dispose of its Class A Common Stock and Class B Common Stock. See "Risk Factors--Uncertainty of Planned Spin-Off of the Company."
Several purposes underlie the Spin-Off. Torchmark, in keeping with its strategy for its subsidiaries, has caused the Company to pay virtually all of its earnings to Torchmark as dividends. The Company desires to be able to devote substantially more of its earnings to support its future growth. In addition, the Company believes that its future growth would be enhanced if it is able to set compensation and other policies for its core business on a separate basis from Torchmark. Also, in keeping with the strategy of enhancing shareholder value,
Torchmark desires to access the capital markets and has determined that raising funds through the completion by the Company of a public offering of its Class A Common Stock will maximize value to Torchmark and its shareholders.
The following are summaries of the Affiliate Agreements. Reference should be made to the Affiliate Agreements themselves, which have been filed as exhibits to the Registration Statement of which this Prospectus is part.
Public Offering and Separation Agreement. The Company and Torchmark have agreed in principle to a public offering and separation agreement (the "Separation Agreement") setting forth the parties' agreements with respect to the Offering, the Spin-Off, and certain relationships of the parties prior to and following the Offering.
The Separation Agreement provides for certain conditions precedent to the parties obligation to consummate the Offering, including, that as of the date of the Offering, Liberty, a wholly owned subsidiary of Torchmark (which, before the Offering, owns more than 80% of the outstanding Common Stock and, after the Offering and the Recapitalization will own more than 80% of the voting power of the Common Stock) must control (within the meaning of (S)(S) 355 and 368(c) of the Code) the Company, all other conditions to permit the Spin-Off to qualify as a tax-free distribution to Torchmark and the shareholders of Torchmark, must, to the extent applicable as of the time of the Offering, be satisfied, and there must be no event or condition that is likely to cause any of the foregoing not to be satisfied as of the time of the Spin-Off. Among other conditions, the Board of Directors of Torchmark Corporation must also have determined that the terms of the Offering are acceptable to Torchmark. Subject to the satisfaction of certain conditions, Torchmark has agreed to effect the Spin-Off as promptly as practicable after October 1, 1998. The Company and Torchmark have agreed that the Board of Directors of Torchmark Corporation will have the sole discretion to determine whether to waive any stated condition. The Spin-Off is conditioned upon, among other things, the receipt of a private letter ruling from the Internal Revenue Service that the Spin-Off will qualify as a tax-free distribution for Federal income tax purposes under (S) 355 of the Code, which ruling must be in form and substance satisfactory to Torchmark in its sole discretion. The Spin-Off is also conditioned upon the absence of, since December 31, 1997, any material adverse change and Torchmark and the Company must have complied with all conditions set forth in the ruling with respect to the business or financial condition of Torchmark or any other event or development which the Board of Directors of Torchmark Corporation determines, in its sole discretion, makes the Spin-Off not in the best interest of Torchmark and its stockholders. The Company has agreed that if the Spin-Off does not occur on or before March 31, 1999, Torchmark will have the right at any time after such date but prior to March 31, 2002 to cause the Company to use its best efforts to register the shares of Class A Common Stock and Class B Common Stock held by Torchmark for resale under the Securities Act, subject to certain conditions and limitations. The Company has also agreed that if it files a registration statement for the sale of securities (except with respect to registration statements on Form S-4 or Form S-8 or another form available for registration of securities other than for sale to the public for cash) before December 31, 2002, Torchmark may, subject to certain conditions and limitations, include in such registration statement shares of Class A Common Stock and Class B Common Stock held by Torchmark.
Under the Separation Agreement, each of Torchmark Corporation and the Company will indemnify the other in the event of certain liabilities, including, liabilities arising under the Securities Act or the Exchange Act. Additionally, each of the Company and Torchmark Corporation have agreed to indemnify the other for certain liabilities relating to (i) their respective businesses, (ii) any individual employed by such company or its affiliates on the date the Offering is completed, except to the extent such person was acting solely as an officer, director, or employee of the other company or the other company's affiliates, or (iii) any authorized accountants, counsel, or other designated representative of the company or any of the company's affiliates, in each case, whether relating to or arising out of occurrences prior to, on, or after the date the Offering is completed. The Separation Agreement also provides that the Company will indemnify Torchmark for tax liabilities with respect to the Spin-Off that result from certain errors or omissions in written statements that the Company has furnished or will
furnish to Torchmark in connection with this Registration Statement or the private letter ruling request and related supplements to be filed with the Internal Revenue Service regarding the Spin-Off.
Torchmark and the Company have agreed to continue joint coverage under certain insurance policies following the Offering until the earlier of the renewal date of the relevant policies or the date of the Spin-Off.
The Company has agreed that between the date the Offering is completed and the date of the Spin-Off, the Company will not issue any shares of stock or enter into a binding obligation to do so if the effect would be that Torchmark would not control the Company within the meaning of (S) 355 and (S) 368(c) of the Code.
Tax Disaffiliation Agreement. The Company and Torchmark have entered into a tax disaffiliation agreement (the "Tax Disaffiliation Agreement") providing for the allocation of responsibility between the Company and its subsidiaries (the "Company Group") and Torchmark and its affiliates other than the Company and its subsidiaries (the "Torchmark Group") for (i) the filing of tax returns, (ii) tax liabilities for taxable periods, before and after the Offering, (iii) the conduct of tax audits and the handling of tax controversies, and (iv) various related matters. Under the Tax Disaffiliation Agreement, the Company will be responsible for, and will hold each member of the Torchmark Group harmless on an after tax basis against, any liability for taxes attributable to any member of the Company Group with respect to periods before and after the Offering other than tax liabilities, if any, with respect to the Offering (including the recognition of certain deferred intercompany gains at the close of the Offering), the Spin-Off, the distributions of the stock of WRAMCO by certain members of the Company Group and the Torchmark Group on September 30, 1997 (the "WRAMCO Spin-Off") and certain other transactions (collectively, the "Restructuring Transactions"). However, the Company will be responsible for any tax liability of the Company Group or the Torchmark Group with respect to a Restructuring Transaction caused by or resulting from a breach by any member of the Company Group of certain agreements made in the Tax Disaffiliation Agreement or certain of the representations, warranties, or agreements set forth in the private letter ruling request and supplements filed with the Internal Revenue Service with respect to the Spin-Off, but only to the extent that the Torchmark Group in the aggregate is liable for more taxes than it would have been had such breach not occurred. In the event that such tax liabilities with respect to a Restructuring Transaction were to become payable by the Company, such payment could have a material adverse effect on the Company. The Company will be entitled to any tax refund that is attributable to both an entity and a taxable year or period for which the Company has tax liability under the Tax Disaffiliation Agreement. No member of the Company Group may carry back any net operating loss from a tax period after the Offering to a tax period before the Offering. Members of the Company Group may carry back any credit or other tax attribute attributable to a member of the Company Group from a tax period after the Offering to a tax period before the Offering and receive a payment related to the associated tax benefit, unless such carry back results in a material detriment to any member of the Torchmark Group. Torchmark has full responsibility and discretion to file tax returns for periods during which the Company Group and the Torchmark Group are included in the same consolidated group for federal income tax purposes or the same consolidated, combined, or unitary returns for state, local, or foreign tax purposes.
Services to WRAMCO. In September 1997, the Company distributed all of the capital stock of WRAMCO to Torchmark by means of a dividend. WRAMCO provides investment advisory services to pension funds and to Torchmark. The Company effected the WRAMCO dividend, in part, to separate its pension fund marketing activities from its investment management and mutual fund distribution activities. Prior to the date of the Offering, the Company, through a wholly owned subsidiary, has provided advisory services to WRAMCO, to support WRAMCO's investment advisory services to pension funds and to Torchmark. Pursuant to an Investment Services Agreement, a subsidiary of the Company will continue to provide investment advisory services to WRAMCO to support WRAMCO's advisory services provided to its pension fund clients and to Torchmark. Such advisory services relating to Torchmark will be primarily limited to advice relating to the management of high yield portfolio accounts, emerging market accounts, and certain other types of accounts, and the advisory fee will be based on a percentage of net assets, with such percentage believed to approximate market. The agreement may be terminated by either party upon 30 days notice.
Prior to the Offering, the Company provided certain services to WRAMCO. Pursuant to a Services Agreement, the Company will continue to provide certain services to WRAMCO such as legal services. The Company will also continue to provide certain other services to WRAMCO, including, among others, data processing services and mail services pursuant to an oral agreement. The Company will receive payment for such services based on the costs actually incurred on a time and materials basis. The Company estimates that the aggregate revenues it will receive from its relationship with WRAMCO will constitute approximately 2.5% of the Company's total revenues in 1998.
Agent Agreements. The Company will continue to have the right to distribute variable annuities and life insurance products, Medicare supplement, and long term care insurance underwritten by Torchmark. The current General Agent Contract (relating to variable annuities and life insurance products) and the current Independent Agent Contract (relating to Medicare supplement and long term care insurance) between such parties entered into prior to the Offering will each be extended through December 31, 1998 on their current terms. Additionally, the Company will continue to serve as an Underwriter for Torchmark pursuant to a letter agreement which establishes a distribution arrangement and a Principal Underwriting Agreement, which terms will also be extended through December 31, 1998. Aggregate revenues under these agreements constitute approximately 12.7% of the Company's total revenue in 1997.
Partnership. As of December 31, 1997, TMK Income Properties, L.P. , a partnership in which Torchmark holds a majority interest, owed the Company approximately $1,426,136 pursuant to a promissory note bearing interest at a rate of 8% per annum with a maturity date of December 31, 2002. The Company intends to reduce the amount of the note by approximately $900,000 in consideration of certain real property the Company will receive and use for parking and future expansion. In addition, the Company will provide certain maintenance services pursuant to a Maintenance Agreement with TMK Income Properties, L.P., which services generated approximately $66,000 in revenues in 1997.
Any future material transactions between the Company and Torchmark and its affiliates will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties on an arm's-length basis and would be approved by a majority of the Company's independent and disinterested directors. The Company's Board of Directors will be advised in advance of any such proposed transactions that are material to the Company and will utilize such procedures in evaluating their terms and provisions as are appropriate in light of the Board's fiduciary duties under state law. Depending on the nature and size of the particular transaction, in any such review the Board may rely on management's knowledge, utilize outside experts or consultants, secure appraisals, refer to industry statistics or prices or take such other actions as are appropriate under the circumstances. The Certificate of Incorporation contains provisions that address certain potential conflicts of interest between Torchmark and the Company. See "Description of Capital Stock-- Certificate of Incorporation and Bylaw Provisions--Corporate Opportunity and Conflicts of Interest Policy."
UILIC
The Company formerly held all of the issued and outstanding capital stock of UILIC. The Company has declared and paid the UILIC Dividend. The Company effected the UILIC Dividend in order to divest itself of insurance operations to enable the Company to focus on its core business of investment management and distribution.
PRINCIPAL STOCKHOLDER
Before the Offering, all of the outstanding Common Stock will be owned by Torchmark. After the Recapitalization and consummation of the Offering, Torchmark will beneficially own approximately 27% of the Class A Common Stock (approximately 25% if the Underwriters' over-allotment option is exercised in full) and all of the Class B Common Stock then outstanding. Except as described above, the Company is not aware of any other person or group that will beneficially own more than 5% of the outstanding shares of Common Stock after the Offering.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 150,000,000 shares of Class A Common Stock, 100,000,000 shares of Class B Common Stock, and 5,000,000 shares of Preferred Stock. No Preferred Stock is outstanding as of the date of this Prospectus. Of the Class A Common Stock authorized, 29,675,000 shares will be outstanding upon consummation of the Offering; 7,975,000 held by Torchmark and 21,700,000 shares are being offered in the Offering (23,870,000 shares if the Underwriters' over-allotment option is exercised in full). 16,300,000 shares have been reserved for issuance pursuant to certain employee benefits plans. See "Management--Compensation, Benefits, and Retirement Plans." Of the 100,000,000 shares of Class B Common Stock authorized, 34,325,000 will be outstanding and held by Torchmark upon consummation of the Offering. The following summary description of the capital stock of the Company is qualified by reference to the Certificate of Incorporation and Bylaws of the Company, copies of which are filed as exhibits to the Registration Statement.
COMMON STOCK
Voting Rights. The holders of Class A Common Stock and Class B Common Stock have identical rights except that (i) holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled to five votes per share on all matters to be voted on by stockholders and (ii) holders of Class A Common Stock are not eligible to vote on any alteration or change in the powers, preferences, or special rights of the Class B Common Stock or vice versa. Holders of shares of Class A Common Stock and Class B Common Stock are not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of Class A Common Stock and Class B Common Stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any Preferred Stock. Except as otherwise provided by law, and subject to any voting rights granted to holders of any outstanding Preferred Stock, amendments to the Company's Certificate of Incorporation generally must be approved by a majority of the combined voting power of all Class A Common Stock and Class B Common Stock voting together as a single class. Amendments to the Company's Certificate of Incorporation that would alter or change the powers, preferences, or special rights of the Class A Common Stock or the Class B Common Stock so as to affect them adversely also must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class. Notwithstanding the foregoing, any amendment to the Company's Certificate of Incorporation to increase the authorized shares of any class or classes of stock will be deemed not to affect adversely the powers, preferences, or special rights of the Class A Common Stock or Class B Common Stock.
Dividends. Holders of Class A Common Stock and Class B Common Stock will receive an equal amount per share in any dividend declared by the Board of Directors, subject to any preferential rights of any outstanding Preferred Stock. Dividends consisting of shares of Class A Common Stock and Class B Common Stock may be paid only as follows: (i) shares of Class A Common Stock may be paid only to holders of Class A Common Stock and shares of Class B Common Stock may be paid only to holders of Class B Common Stock and (ii) shares will be paid proportionally with respect to each outstanding share of Class A Common Stock and Class B Common Stock.
Other Rights. On liquidation, dissolution, or winding up of the Company, after payment in full of the amounts required to be paid to holders of Preferred Stock, if any, all holders of Common Stock, regardless of class, are entitled to share ratably in any assets available for distribution to holders of shares of Common Stock. No shares of Common Stock are subject to redemption or have preemptive rights to purchase additional shares of Common Stock. Upon consummation of the Offering, all the outstanding shares of Class A Common Stock and Class B Common Stock will be validly issued, fully paid, and nonassessable.
PREFERRED STOCK
As of the date of this Prospectus, no shares of Preferred Stock are
outstanding. The Board of Directors may authorize the issuance of Preferred
Stock in one or more series and may determine, with respect to any such
series, the designations, powers, preferences, and rights of such series, and
its qualifications, limitations, and restrictions, including, without
limitation, (i) the designation of the series; (ii) the number of shares of
the series, which number the Board of Directors may thereafter (except where
otherwise provided in the designations for such series) increase or decrease
(but not below the number of shares of such series then outstanding); (iii)
whether dividends, if any, will be cumulative or noncumulative and the
dividend rate of the series; (iv) the conditions upon which and the dates at
which dividends, if any, will be payable, and the relation that such
dividends, if any, will bear to the dividends payable on any other class or
classes of stock; (v) the redemption rights and price or prices, if any, for
shares of the series; (vi) the terms and amounts of any sinking fund provided
for the purchase or redemption of shares of the series; (vii) the amounts
payable on and the preferences, if any, of shares of the series, in the event
of any voluntary or involuntary liquidation, dissolution, or winding up of the
affairs of the Company; (viii) whether the shares of the series will be
convertible into shares of any other class or series, or any other security,
of the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion price or prices
or rate or rates, any adjustments thereof, the date or dates as of which such
shares will be convertible and all other terms and conditions upon which such
conversion may be made; and (ix) the voting rights, if any, of the holders of
shares of such series.
The Company believes that the ability of the Board of Directors to issue one or more series of Preferred Stock will provide the Company with flexibility in structuring possible future financings and acquisitions and in meeting other corporate needs that might arise. The authorized shares of Preferred Stock will be available for issuance without further action by the Company's stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which the Company's securities may be listed or traded. The New York Stock Exchange, Inc. (the "NYSE") currently requires stockholder approval as a prerequisite to listing shares in several instances, including where the present or potential issuance of shares could result in an increase in the number of shares of common stock outstanding, or in the amount of voting securities outstanding, of at least 20%.
Although the Board of Directors has no current intention of doing so, it could issue a series of Preferred Stock that could, depending on the terms of such series, impede the completion of a merger, tender offer, or other takeover attempt. The Board of Directors will make any determination to issue such shares based on its judgment as to the best interests of the Company and its stockholders. The Board of Directors, in so acting, could issue Preferred Stock having terms that could discourage a potential acquirer from making, without first negotiating with the Board of Directors, an acquisition attempt through which such acquirer may be able to change the composition of the Board of Directors, including a tender offer or other transaction that some, or a majority, of the Company's stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then current market price of such stock.
BUSINESS COMBINATION STATUTE
As a corporation organized under the laws of the State of Delaware, the Company will be subject to (S) 203 of the DGCL, which restricts certain business combinations between the Company and an "interested stockholder" (in general, a stockholder owning 15% or more of the Company's outstanding voting stock) or its affiliates or associates for a period of three years following the time that the stockholder becomes an "interested stockholder." The restrictions do not apply if (i) prior to an interested stockholder becoming such, the Board of
Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in any person becoming an interested stockholder, such interested stockholder owns at least 85% of the voting stock of the Company outstanding at the time the transaction commenced (excluding shares owned by certain employee stock ownership plans and persons who are both directors and officers of the Company); or (iii) at or subsequent to the time an interested stockholder becomes such, the business combination is both approved by the Board of Directors and authorized at an annual or special meeting of the Company's stockholders, not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock not owned by the interested stockholder. Because Torchmark became an interested stockholder at a time when the restrictions did not apply, the restrictions will not apply to any business combination with Torchmark.
Under certain circumstances, (S) 203 of the DGCL makes it more difficult for a person who would be an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may elect to exclude a corporation from the restrictions imposed under (S) 203. The Certificate of Incorporation of the Company does not exclude the Company from the restrictions imposed under (S) 203 of the DGCL. It is anticipated that the provisions of (S) 203 of the DGCL may encourage companies interested in acquiring the Company to negotiate in advance with the Board of Directors, since the stockholder approval requirement would be avoided if a majority of the directors then in office approves, prior to the date on which a stockholder becomes an interested stockholder, either the business combination or the transaction that results in the stockholder becoming an interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary set forth below describes certain provisions of the Certificate of Incorporation and Bylaws. The summary is qualified in its entirety by reference to the provisions of the Certificate of Incorporation and Bylaws, copies of which will be filed as exhibits to the Registration Statement of which this Prospectus forms a part.
Certain of the provisions of the Certificate of Incorporation and Bylaws discussed below may have the effect, either alone or in combination with the provisions of (S) 203 discussed above, of making more difficult or discouraging a tender offer, proxy contest, or other takeover attempt that is opposed by the Board of Directors but that a stockholder might consider to be in such stockholder's best interest. Those provisions include (i) the classification of the Company's Board of Directors; (ii) restrictions on the rights of stockholders to remove or elect directors; and (iii) prohibitions against stockholders calling a special meeting of stockholders or acting by unanimous written consent in lieu of a meeting. In addition, the Certificate of Incorporation contains provisions relating to the allocation of certain corporate opportunities and resolution of certain potential conflicts of interest. See "--Corporate Opportunity and Conflict of Interest Policies."
Classified Board; Number of Directors; Removal; Filling Vacancies
The Certificate of Incorporation and Bylaws of the Company provide that the Board of Directors--except for directors who may be elected by the holders of Preferred Stock--will be divided into three classes of directors, initially with four directors in two of the classes and two directors in the third class. See "Management--Directors and Executive Officers." One class is to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, another class is to be originally elected for a term expiring at the annual meeting of stockholders to be held in 2000, and another class is to be originally elected for a term expiring at the annual meeting of stockholders to be held in 2001. Each director is to hold office until his or her successor is duly elected and qualified. Commencing with the 1999 annual meeting of stockholders, directors elected to succeed directors whose terms then expire will be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until such person's successor is duly elected and qualified.
The Certificate of Incorporation provides that, subject to any rights of holders of Preferred Stock to elect directors under specified circumstances, the number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by directors constituting a majority of the total number of directors that the Company would have if there were no vacancies on the Board of Directors (the "Whole Board"), with the Whole Board consisting of not more than 15 nor less than seven directors. The Certificate of Incorporation also provides that, subject to any rights of holders of Preferred Stock or any other series or class of stock, and unless the Board of Directors otherwise determines, any vacancies will be filled only by the affirmative vote of a majority of the remaining directors, even if less than a quorum. Accordingly, absent an amendment to the Certificate of Incorporation, the Board of Directors could prevent any stockholder from enlarging the Board of Directors and filling the new directorships with such stockholder's own nominees.
The Certificate of Incorporation and Bylaws of the Company provide that, subject to the rights of holders of Preferred Stock to elect directors under specified circumstances, effective as of the date on which Torchmark beneficially owns less than a majority of the Voting Stock (as defined below) (the "Trigger Date"), directors may be removed only for cause and only upon the affirmative vote of holders of at least 80% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors ("Voting Stock"), voting together as a single class. Before the Trigger Date, directors may be removed, without cause, with the affirmative vote of the holders of at least a majority of the voting power of the then outstanding Voting Stock, voting together as a single class.
The classification of directors will have the effect of making it more difficult for stockholders to change the composition of the Board of Directors. At least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of the Board of Directors. Such a delay may help ensure that the Company's directors, if confronted by a holder attempting to force a proxy contest, a tender or exchange offer, or an extraordinary corporate transaction, would have sufficient time to review the proposal as well as any available alternatives to the proposal and to act in what they believe to be the best interest of the stockholders. The classification provisions will apply to every election of directors, however, regardless of whether a change in the composition of the Board of Directors would be beneficial to the Company and its stockholders and whether or not a majority of the Company's stockholders believe that such a change would be desirable. The classification provisions could also have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. The classification of the Board of Directors could thus increase the likelihood that incumbent directors will retain their positions. In addition, because the classification provisions may discourage accumulations of large blocks of the Company's stock by purchasers whose objective is to take control of the Company and remove a majority of the Board of Directors, the classification of the Board of Directors could tend to reduce the likelihood of fluctuations in the market price of the Common Stock that might result from accumulations of large blocks. Accordingly, stockholders could be deprived of certain opportunities to sell their shares of Common Stock at a higher market price than might otherwise be the case.
No Stockholder Action By Written Consent; Special Meetings
The Certificate of Incorporation and Bylaws provide that, effective as of the Trigger Date, and subject to the rights of any holders of Preferred Stock to elect additional directors under specified circumstances, stockholder action can be taken only at an annual or special meeting of stockholders and stockholder action may not be taken by written consent in lieu of a meeting. The Bylaws provide that, subject to the rights of holders of any series of Preferred Stock to elect additional directors under specified circumstances, special meetings of stockholders can be called only by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board or the Chairman of the Board, except that prior to the Trigger Date, special meetings can also be called at the request of the holders of a majority of the voting power of the then outstanding Voting Stock. Effective as of the Trigger Date, stockholders will not be permitted to call a special meeting or to require that the Board of Directors call a special meeting of stockholders. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the business brought before the meeting pursuant to the notice of meeting given by the Company.
The provisions of the Certificate of Incorporation and Bylaws of the Company prohibiting stockholder action by written consent and permitting special meetings to be called only by the Chairman or at the request of a majority of the Whole Board may have the effect, after the Trigger Date, of delaying consideration of a stockholder proposal until the next annual meeting. The provisions would also prevent the holders of a majority of the voting power of the Voting Stock from unilaterally using the written consent procedure to take stockholder action. Moreover, a stockholder could not force stockholder consideration of a proposal over the opposition of the Chairman or a majority of the Whole Board by calling a special meeting of stockholders prior to the time such parties believe such consideration to be appropriate.
Liability of Directors; Indemnification
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) for paying a dividend or
approving a stock repurchase in violation of (S) 174 of the DGCL; or (iv) for
any transaction from which the director derived an improper personal benefit.
Any amendment or repeal of such provision will not adversely affect any right
or protection of a director existing under such provision for any act or
omission occurring prior to such amendment or repeal.
The Certificate of Incorporation provides that the Company will indemnify any person who was or is a party to any threatened, pending, or completed action, suit, or proceeding because he or she is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, partnership, or other enterprise. The Certificate of Incorporation provides that this indemnification will be from and against expenses, judgments, fines, and amounts paid in settlement by the indemnitee. However, this indemnification will only be provided if the indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company.
Corporate Opportunity and Conflict of Interest Policies
In order to address certain potential conflicts of interest between the Company and Torchmark, the Certificate of Incorporation contains provisions concerning the conduct of certain affairs of the Company as they may involve Torchmark and its subsidiaries (other than the Company and its subsidiaries) and their respective officers and directors, and the powers, rights, duties, and liabilities of the Company and its subsidiaries and their respective officers, directors, and stockholders in connection therewith. In general, these provisions recognize that the Company and Torchmark may engage in the same or similar business activities and lines of business and have an interest in the same areas of corporate opportunities and that the Company and Torchmark will continue to have contractual and business relations with each other (including service of officers and directors of Torchmark as directors of the Company). See "Management--Directors and Executive Officers."
For purposes of these provisions, the terms "Company" and "Torchmark" include their subsidiaries and other entities in which they respectively beneficially own, directly or indirectly, 50% or more of the outstanding voting securities or interests (except that "Torchmark" does not include the Company and its subsidiaries and such other entities), and, in the case of Torchmark, all successors to Torchmark by way of merger, consolidation, or sale of all or substantially all its assets.
The Certificate of Incorporation provides that any person purchasing or otherwise acquiring any interest in any shares of capital stock of the Company will be deemed to have notice of and to have consented to these provisions.
Before the Trigger Date, the affirmative vote of the holders of more than 80% of the outstanding Voting Stock, voting together as a single class, will be required to alter, amend, or repeal any of these conflict of interest or corporate opportunity provisions in a manner adverse to the interests of Torchmark. After the Trigger Date, the conflict of interest and corporate opportunity provisions will terminate.
Corporate Opportunity Policy. The Certificate of Incorporation provides that, except as Torchmark may otherwise agree in writing, Torchmark will have the right (i) to engage in the same or similar business activities or lines of business as the Company; (ii) to do business with any potential or actual client, customer, or supplier of the Company; and (iii) to employ or engage any officer or employee of the Company. Neither Torchmark nor any officer or director of Torchmark will be liable to the Company or its stockholders for breach of any fiduciary duty by reason of these activities.
If Torchmark acquires knowledge of a potential transaction or matter that may be a corporate opportunity for both Torchmark and the Company, Torchmark will have no duty to communicate that opportunity to the Company. Furthermore, Torchmark will not be liable to the Company or its stockholders because Torchmark pursues or acquires such corporate opportunity for itself, directs that corporate opportunity to another person or entity, or does not present that corporate opportunity to the Company.
If a director or officer of the Company who is also a director or officer of Torchmark acquires knowledge of a potential transaction or matter that may be a corporate opportunity for both the Company and Torchmark, the Certificate of Incorporation requires that the director or officer of the Company act in good faith in accordance with the following three-part policy, and a director or officer so acting will be deemed to have acted reasonably and in good faith and fully to have satisfied his or her duties of loyalty and fiduciary duties to the Company and its stockholders with respect to such opportunity.
First, a corporate opportunity offered to any person who is a director but not an officer of the Company and who is also an officer (whether or not a director) of Torchmark will belong to Torchmark, unless the opportunity is expressly offered to that person primarily in his or her capacity as a director of the Company, in which case the opportunity will belong to the Company.
Second, a corporate opportunity offered to any person who is an officer (whether or not a director) of the Company and who is also a director but not an officer of Torchmark will belong to the Company, unless the opportunity is expressly offered to that person primarily in his or her capacity as a director of Torchmark, in which case the opportunity will belong to Torchmark.
Third, a corporate opportunity offered to any other person who is either an officer of both the Company and Torchmark or a director of both the Company and Torchmark will belong to Torchmark or to the Company, as the case may be, if the opportunity is expressly offered to the person primarily in his or her capacity as an officer or director of Torchmark or of the Company, respectively. Otherwise, the opportunity will belong to Torchmark.
Under the Certificate of Incorporation, any corporate opportunity that belongs to Torchmark or to the Company pursuant to the foregoing policy will not be pursued by the other (or directed by the other to another person or entity) unless and until Torchmark or the Company, as the case may be, determines not to pursue the opportunity. If the party to whom the corporate opportunity belongs does not, however, within a reasonable period of time, begin to pursue, or thereafter continue to pursue, such opportunity diligently and in good faith, the other party may pursue such opportunity (or direct it to another person or entity).
A director or officer of the Company who acts in accordance with the foregoing three-part policy (i) will be deemed fully to have satisfied his or her fiduciary duties to the Company and its stockholders with respect to such corporate opportunity; (ii) will not be liable to the Company or its stockholders for any breach of fiduciary duty by reason of the fact that Torchmark pursues or acquires such opportunity for itself or directs such corporate opportunity to another person or entity or does not communicate information regarding such opportunity to the Company; (iii) will be deemed to have acted in good faith and in a manner he or she reasonably believes to be in the best interests of the Company; and (iv) will be deemed not to have breached his or her duty of loyalty to the Company or its stockholders and not to have derived an improper benefit therefrom.
Under the Certificate of Incorporation, "corporate opportunities"
potentially allocable to the Company consist of business opportunities that
(i) the Company is financially able to undertake; (ii) are, from their nature,
in the Company's line or lines of business and are of practical advantage to the Company; and (iii) are ones in which the Company has an interest or reasonable expectancy. In addition, "corporate opportunities" do not include transactions in which the Company or Torchmark is permitted to participate pursuant to any agreement between the Company and Torchmark that is in effect as of the time any equity security of the Company is held of record by any person other than Torchmark or subsequently entered into with the approval of the disinterested directors.
For purposes of these corporate-opportunity provisions, a director of the Company who is chairman of the Board of Directors (or a committee thereof) or chief executive officer will not be deemed to be an officer of the Company by reason of holding such position, unless such person is a full-time employee of the Company.
Conflict of Interests Policy. The Certificate of Incorporation provides that no contract, agreement, arrangement, or transaction between the Company and Torchmark or any customer or supplier or any entity in which a director of the Company has a financial interest (a "Related Entity"), or between the Company and one or more of the directors or officers of the Company, Torchmark, or any Related Entity; any amendment, modification, or termination thereof; or any waiver of any right thereunder, will be voidable solely because Torchmark or such customer or supplier, any Related Entity, or any one or more of the officers or directors of the Company, Torchmark, or any Related Entity are parties thereto, or solely because any such directors or officers are present at or participate in the meeting of the Board of Directors or committee thereof that authorizes the contract, agreement, arrangement, transaction, amendment, modification, termination, or waiver (each, a "Transaction") or solely because their votes are counted for such purpose, if the standard specified is satisfied. That standard will be satisfied, and Torchmark, the Related Entity, and the directors and officers of the Company, Torchmark, or the Related Entity (as applicable) will be deemed to have acted reasonably and in good faith (to the extent such standard is applicable to such person's conduct) and fully to have satisfied any duties of loyalty and fiduciary duties they may have to the Company and its stockholders with respect to such Transaction if any of the following four requirements are met:
(i) the material facts as to the relationship or interest and as to the Transaction are disclosed or known to the Board of Directors or the committee thereof that authorizes the Transaction, and the Board of Directors or such committee in good faith approves the Transaction by the affirmative vote of a majority of the disinterested directors on the Board of Directors or such committee, even if the disinterested directors are less than a quorum;
(ii) the material facts as to the relationship or interest and as to the Transaction are disclosed or known to the holders of Voting Stock entitled to vote thereon, and the Transaction is specifically approved by vote of the holders of a majority of the voting power of the then outstanding Voting Stock not owned by Torchmark or such Related Entity, voting together as a single class;
(iii) the Transaction is effected pursuant to guidelines that are in good faith approved by a majority of the disinterested directors on the Board of Directors or the applicable committee thereof or by vote of the holders of a majority of the then outstanding Voting Stock not owned by Torchmark or such Related Entity, voting together as a single class; or
(iv) the Transaction is fair to the Company as of the time it is approved by the Board of Directors, a committee thereof or the stockholders of the Company.
The Certificate of Incorporation also provides that any such Transaction authorized, approved, or effected, and each of such guidelines so authorized or approved, as described in (i), (ii), or (iii) above, will be deemed to be entirely fair to the Company and its stockholders, except that, if such authorization or approval is not obtained, or such Transaction is not so effected, no presumption will arise that such Transaction or guideline is not fair to the Company and its stockholders. In addition, the Certificate of Incorporation provides that Torchmark will not be liable to the Company or its stockholders for breach of any fiduciary duty that Torchmark may have as a stockholder of the Company by reason of the fact that Torchmark takes any action in connection with any transaction between Torchmark and the Company.
LISTING
The Class A Common Stock has been approved for listing, subject to official notice of issuance, on the NYSE under the trading symbol "WDR."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Before the Offering, there has been no market for the Common Stock of the Company. Future sales or distributions of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. Torchmark has advised the Company that it intends to effect the Spin-Off, subject to conditions. See "Certain Relationships and Related Transactions-- Relationship with Torchmark--Spin-Off."
Upon completion of the Offering, the Company will have 29,675,000 shares of Class A Common Stock issued and outstanding (31,845,000 Shares of Class A Common Stock if the Underwriters' over-allotment option is exercised in full) and 34,325,000 shares of Class B Common Stock issued and outstanding. All of the shares of Class A Common Stock to be sold in the Offering will be freely tradable without restrictions, or further registration under the Securities Act, except that shares purchased by an "affiliate" of the Company (as that term is defined in Rule 144 (an "Affiliate")) will be subject to the resale limitations of Rule 144. None of the outstanding shares of Common Stock owned by Torchmark has been registered under the Securities Act, and may be sold only pursuant to an effective registration statement under the Securities Act or in accordance with Rule 144 or another exemption from registration ("Restricted Shares").
The Restricted Shares will constitute "restricted securities" within the meaning of Rule 144 promulgated under the Securities Act and will be eligible for sale in the open market after the Offering subject to the Lock-Up Agreement and applicable requirements of Rule 144 described below. For as long as Torchmark is able to cause a majority of the Company's Board of Directors to be elected, it will be able to require the Company at any time to register under the Securities Act all or a portion of the Common Stock owned by it, in which event such shares could be sold publicly upon the effectiveness of any such registration without restriction. In addition, under the Affiliate Agreements, Torchmark will have the right to require the Company to use its best efforts to register for sale its shares of Common Stock and to include such shares of Common Stock in certain registration statements. See "Certain Relationships and Related Transactions--Relationship with Torchmark."
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed between the later of the date on which "restricted
shares" (as that phrase is defined in Rule 144) were acquired from the Company
and the date on which they were acquired from an Affiliate, then the holder of
such restricted shares (including an Affiliate) is entitled to sell a number
of shares within any three-month period that does not exceed the greater of
(i) one percent of the then outstanding shares of the Common Stock or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales, and the availability of current public information concerning the
Company. Because Torchmark will be deemed to have held its shares of Common
Stock for more than one year, Torchmark will be able to sell its shares of
Common Stock in the public markets without registration immediately upon
expiration of the Lock-Up Agreement, subject to the foregoing volume limits.
Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other requirements but without
regard to the one-year period. Under Rule 144(k), if a period of at least two
years has elapsed between the later of the date on which restricted shares
were acquired from the Company and the date on which they were acquired from
an Affiliate, a holder of such restricted shares who is not an Affiliate at
the time of the sale and has not been an Affiliate for at least three months
prior to the sale would be entitled to sell the shares immediately without
regard to the volume limitations and other conditions described above. The
foregoing description of Rule 144 is not intended to be complete, and Rule 144
in its entirety should be referred to.
Sales of significant amounts of the Class A Common Stock or Class B Common Stock, or the perception that such sales could occur, could have an adverse effect on the market price of the Class A Common Stock. Torchmark has advised the Company that, subject to certain conditions, it currently intends to divest its ownership of Common Stock by means of the Spin-Off. Torchmark will own more than 66% of the outstanding Common Stock after the Offering. The Spin-Off as currently proposed could be effected without registration under the Securities Act and without regard to the limitations of Rule 144. Each of the Company and Torchmark have agreed that during the period beginning on the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, it will not offer, sell, contract to sell, or otherwise dispose of any shares of Class A Common Stock or Class B Common Stock (other than pursuant to employee benefit plans existing, or on conversion or exchange of convertible or exchangeable securities outstanding, on the date of this Prospectus or as payment for acquisitions by the Company) without the prior written consent of Morgan Stanley & Co. Incorporated, except for the shares of Class A Common Stock offered in connection with the Offering. See "Underwriters."
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal
income and estate tax considerations with respect to the ownership and
disposition of Class A Common Stock applicable to Non-U.S. Holders. In
general, a "Non-U.S. Holder" is any holder other than (i) a citizen or
resident of the United States; (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or of
any state; (iii) an estate, the income of which is includable in gross income
for United States federal income tax purposes regardless of its source; or
(iv) a trust if (a) a court within the United States is able to exercise
primary supervision over the administration of the trust and (b) one or more
United States persons have the authority to control all substantial decisions
of the trust. This discussion is based on current law, which is subject to
change (possibly with retroactive effect), and is for general information
only. This discussion does not address all aspects of income and estate
taxation or any aspects of state, local or non-United States taxes, nor does
it consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder (including certain U.S. expatriates). ACCORDINGLY, PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL, AND NON-UNITED STATES INCOME AND OTHER TAX
CONSIDERATIONS OF HOLDING AND DISPOSING OF SHARES OF CLASS A COMMON STOCK.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are either
(i) effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States or (ii) if certain income tax treaties apply,
attributable to a permanent establishment in the United States maintained by
the Non-U.S. Holder. Dividends effectively connected with such a United States
trade or business or attributable to such a United States permanent
establishment generally will not be subject to United States withholding tax
if the Non-U.S. Holder files certain forms, including Internal Revenue Service
Form 4224, with the payor of the dividend, and generally will be subject to
United States federal income tax on a net income basis, in the same manner as
if the Non-U.S. Holder were a resident of the United States. A Non-U.S. Holder
that is a corporation may be subject to an additional branch profits tax at a
rate of 30% (or such lower rate as may be specified by an applicable income
tax treaty) on the repatriation from the United States of its "effectively
connected earnings and profits," subject to certain adjustments. To determine
the applicability of a tax treaty providing for a lower rate of withholding
under the currently effective Treasury Regulations (the "Current
Regulations"), dividends paid to an address in a foreign country are presumed
to be paid to a resident of that country absent knowledge to the contrary.
Under Treasury Regulations issued on October 6, 1997 (the "Final
Regulations"), generally effective for payments made after December 31, 1998,
a Non-U.S. Holder (including, in certain cases of Non-U.S. Holders that are
entities, the owner or owners of such entities) will be required to satisfy
certain certification requirements in order to claim a reduced rate of
withholding pursuant to an applicable income tax treaty.
GAIN OR SALE OR OTHER DISPOSITION OF CLASS A COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of such holder's shares of Class A Common Stock unless (i) the gain either is effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States or, if certain income tax treaties apply, is attributable to a permanent establishment in the United States maintained by
the Non-U.S. Holder (and, in either case, the branch profits tax discussed above may also apply if the Non-U.S. Holder is a corporation); (ii) the Non- U.S. Holder is an individual who holds shares of Class A Common Stock as a capital asset and is present in the United States for 183 days or more in the taxable year of disposition and certain other tests are met; or (iii) the Company is or has been a United States real property holding corporation (a "USRPHC") for United States Federal income tax purposes (which the Company does not believe that it has been, currently is, or will become) at any time within the shorter of the five-year period preceding such disposition or such Non-U.S. Holder's holding period. If the Company were or were to become a USRPHC at any time during this period, gains realized upon a disposition of Class A Common Stock by a Non-U.S. Holder that did not directly or indirectly own more than 5% of the Class A Common Stock during this period generally would not be subject to United States Federal income tax, provided that the Class A Common Stock is regularly traded on an established securities market.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is not a citizen or resident (as defined for United States Federal estate tax purposes) of the United States at the time of death will be includable in the individual's gross estate for United States Federal estate tax purposes unless an applicable estate tax treaty provides otherwise, and therefore may be subject to United States Federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING, AND OTHER REPORTING REQUIREMENTS
The Company must report annually to the Internal Revenue Service and to each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the Non-U.S. Holder resides or is established.
Under the Current Regulations, United States backup withholding tax (which generally is imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) and information reporting requirements (other than those discussed above under "Dividends") generally will not apply to dividends paid on Class A Common Stock to a Non-U.S. holder at an address outside the United States. Backup withholding and information reporting generally will apply, however, to dividends paid on shares of Class A Common Stock to a Non- U.S. Holder at an address in the United States, if such holder fails to establish an exemption or to provide certain other information to the payor.
Under the Current Regulations, the payment of proceeds from the disposition of Class A Common Stock to or through a United States office of a broker will be subject to information reporting and backup withholding unless the beneficial owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Holder or otherwise establishes an exemption. The payment of proceeds from the disposition of Class A Common Stock to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting except as noted below. In the case of proceeds from a disposition of Class A Common Stock paid to or through a non- U.S. office of a broker that is (i) a United States person; (ii) a "controlled foreign corporation" for United States Federal income tax purposes; or (iii) a foreign person 50% or more of whose gross income from certain periods is effectively connected with a United States trade or business, information reporting (but not backup withholding) will apply unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder (and the broker has no actual knowledge to the contrary).
Under the Final Regulations, the payment of dividends or the payment of proceeds from the disposition of Class A Common Stock to a Non-U.S. Holder may be subject to information reporting and backup withholding unless such recipient satisfies applicable certification requirements or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be refunded or credited against the Non-U.S. Holder's United States Federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner.
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the U.S. Underwriters named below for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as U.S. Representatives, and the International Underwriters named below for whom Morgan Stanley & Co. International Limited, Goldman Sachs International, and Merrill Lynch International are acting as International Representatives, have severally agreed to purchase, and the Company has agreed to sell to them, severally, the respective number of shares of Class A Common Stock set forth opposite the names of such Underwriters below:
NUMBER OF
NAME SHARES
---- ----------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................
Goldman, Sachs & Co. ..............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................
----------
Subtotal......................................................... 17,360,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited.........................
Goldman Sachs International........................................
Merrill Lynch International........................................
----------
Subtotal......................................................... 4,340,000
----------
Total.......................................................... 21,700,000
==========
|
The U.S. Underwriters and the International Underwriters, and the U.S. Representatives and the International Representatives are collectively referred to as the "Underwriters" and the "Representatives," respectively. The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Class A Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Class A Common Stock offered hereby (other than those covered by the U.S. Underwriters' over-allotment option described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions (i)
it is not purchasing any Shares (as defined below,) for the account of anyone
other than a United States or Canadian Person (as defined below) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions (i) it is not purchasing any Shares for the account of any United
States or Canadian person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
between the U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing, or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or
Canadian branch of a person who is otherwise not a United States or Canadian person. All shares of Class A Common Stock to be purchased by the Underwriters are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and International Underwriters of any number of Shares as may be mutually agreed. The per share price of any Shares so sold will be the public offering price set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any Shares, directly or indirectly, in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and has represented that any offer or sale of Shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any of the Shares a notice stating in substance that, by purchasing such Shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such Shares in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of Shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and that such dealer will deliver to any other dealer to whom it sells any of such Shares a notice containing substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has represented and agreed that (i) it has not offered or sold and, prior to the date six months after the closing date for the sale of the Shares to the International Underwriters, will not offer or sell, any Shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing, or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances that have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Shares in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the offering of the Shares to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise be lawfully issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has further represented that it has not offered or sold, and has agreed not to offer or sell, directly or indirectly, in Japan or to or for the account of any resident thereof, any of the Shares acquired in connection with the distribution contemplated hereby, except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law. Each International Underwriter has further agreed to send to any dealer who purchases from it any of the Shares a notice stating in substance that, by purchasing such Shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, any of such Shares, directly or indirectly, in Japan or to or for the account of any resident thereof except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law, and that such dealer will send to any other dealer to whom it sells any of such Shares a notice containing substantially the same statement as is contained in this sentence.
The Underwriters initially propose to offer part of the Shares directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in
excess of $ per share under the public offering price. Any Underwriter may allow, and such dealers may reallow, a concession not in excess of $ per share to other Underwriters or to certain dealers. After the initial offering of the Shares, the offering price and other selling terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of 2,170,000 additional shares of Class A Common Stock at the price to public set forth on the cover page hereof, less underwriting discounts and commissions. The U.S. Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A Common Stock offered hereby. To the extent such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Class A Common Stock as the number set forth next to such U.S. Underwriter's name in the preceding table bears to the total number of shares of Class A Common Stock set forth next to the names of all U.S. Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend for sales to discretionary accounts to exceed five percent of the aggregate number of shares of Class A Common Stock offered by them.
The Class A Common Stock has been approved for listing, subject to official notice of issuance, on the NYSE under the trading symbol "WDR."
Each of the Company and Torchmark and each of the directors and executive
officers of the Company has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of this Prospectus (the
"Lock-up Period"), (i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer, lend or dispose
of, directly or indirectly, any shares of Class A Common Stock or any
securities convertible into or exercisable or exchangeable for Class A Common
Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Class A Common Stock whether any such transaction described in clause (i)
or (ii) above is settled by delivery of Class A Common Stock, or such other
securities, in cash or otherwise. The restrictions described in this paragraph
do not apply to (x) the sale of Shares to the Underwriters, (y) the issuance
by the Company of shares of Class A Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date of
this Prospectus of which the Underwriters have been advised in writing, or (z)
transactions by any person other than the Company or Torchmark relating to
shares of Class A Common Stock or other securities acquired in open market
transactions after the completion of the Offering. The restrictions on the
Company and Torchmark are subject to exceptions for the issuance of Class A
Common Stock (A) pursuant to employee benefit plans and (B) as payment for
acquisitions by the Company, if all persons or entities receiving Shares
pursuant to this clause (B) agree to be subject to the restrictions in clauses
(i) and (ii) above for the remainder of the Lock-up Period.
In order to facilitate the Offering, the Underwriters may engage in transactions that stabilize, maintain, or otherwise affect the price of the Class A Common Stock. Specifically, the Underwriters may over-allot in connection with the Offering, creating a short position in the Class A Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Class A Common Stock, the Underwriters may bid for, and purchase, shares of Class A Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Class A Common Stock in the Offering, if the syndicate repurchases previously distributed Class A Common Stock in transactions to cover syndicate short positions, in stabilization transactions, or otherwise. Any of these activities may stabilize or maintain the market price of the Class A Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time.
From time to time, Morgan Stanley & Co. Incorporated has provided, and continues to provide, investment banking services to Torchmark Corporation and the Company.
Torchmark, the Company, and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
DIRECTED SHARE PROGRAM
At the request of the Company, the Underwriters have reserved for sale, at the initial public offering price, up to 1.25 million shares of the Class A Common Stock (that will be offered by this Prospectus) for directors, officers, employees, business associates, and related persons of the Company. The number of shares of Class A Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Class A Common Stock. The initial public offering price will be determined by negotiations between Torchmark and the Company on the one hand and the U.S. Representative on the other hand. Among the factors to be considered in determining the initial public offering price will be the future prospects of the Company and its industry in general, sales, earnings, and certain other financial operating information of the Company in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. The estimated initial public offering price range set forth on the cover page of this Prospectus is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be passed upon for the Company by Hughes & Luce, L.L.P., Dallas, Texas. Certain legal matters in connection with the sale of shares of Class A Common Stock in the Offering will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1996 and 1997, and for each of the years in the three-year period ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-1 (as amended from time to time and together with all exhibits and schedules thereto, the "Registration Statement") under the Securities Act with respect to the Class A Common Stock to be sold in the Offering. This Prospectus constitutes a part of the Registration Statement and does not contain all the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus as to the content of any contract or other document are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respect by such reference. For further information regarding the Company and the Class A Common Stock, reference is hereby made to the
Registration Statement, a copy of which may be obtained from the Commission at its principal office in Washington, D.C. upon payment of the fees prescribed by the Commission.
The Registration Statement, and the reports and other information to be filed by the Company with the Commission following the Offering in accordance with the Exchange Act, can be inspected and copied at the principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: 7 World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained from the Commission's website, http//www.sec.gov, and from the Public Reference Section of the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS OF WADDELL & REED FINANCIAL, INC. AND
SUBSIDIARY
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............. F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997..................................................... F-4
Consolidated Statements of Common Stockholder's Equity for the years
ended December 31, 1995, 1996 and 1997.................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Pro Forma Financial Statements........................................... F-18
|
When the transaction referred to in Note 1 has been consummated, we will be in a position to render the following report.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Waddell & Reed Financial, Inc.:
We have audited the accompanying consolidated balance sheets of Waddell & Reed Financial, Inc. and subsidiaries, a subsidiary of Torchmark Corporation, as of December 31, 1996 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Waddell & Reed Financial, Inc. and subsidiaries as of December 31, 1996 and 1997 and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
January 30, 1998
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
1996 1997
-------- --------
(IN THOUSANDS)
ASSETS
Assets:
Cash and cash equivalents (note 2)........................ $ 59,003 73,820
Investment securities, available-for-sale (note 3)........ 19,980 18,977
Receivables:
United Funds and W&R Funds.............................. 3,579 4,031
Customers and other..................................... 11,986 11,840
Due from affiliates (note 6).............................. 13,320 17,232
Deferred income taxes (note 8)............................ 120 1,241
Prepaid expenses and other current assets................. 2,151 2,991
-------- --------
Total current assets.................................... 110,139 130,132
Due from affiliates (note 6).............................. 171,153 175,450
Property and equipment, net (note 4)...................... 10,392 12,058
Investment in real estate, net (note 5)................... 17,092 --
Investment in real estate partnership (note 5)............ -- 17,544
Deferred sales commissions, net........................... 10,439 12,316
Goodwill (net of accumulated amortization of $14,575 and
$17,479)................................................. 101,734 98,831
Other assets.............................................. 8,329 633
-------- --------
Total assets............................................ $429,278 446,964
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable.......................................... $ 24,832 22,929
Due to affiliates (note 6)................................ 2,428 102,459
Accrued salesforce compensation........................... 9,007 8,666
Income taxes payable...................................... 18,249 3,314
Other current liabilities................................. 8,146 18,525
-------- --------
Total current liabilities............................... 62,662 155,893
-------- --------
Due to affiliates (note 6)................................ 124,133 509,186
Deferred income taxes (note 8)............................ 947 2,246
Accrued pensions and post-retirement costs (notes 9 and
10)...................................................... 7,938 9,530
Other liabilities......................................... 1,043 --
-------- --------
Total liabilities....................................... 196,723 676,855
-------- --------
Stockholders' equity (note 7):
Common stock ($.01 par value; 42,300,000 shares
authorized,
issued and outstanding).................................. 423 423
Additional paid-in capital................................ 231,968 --
Retained earnings......................................... -- --
Dividends in excess of retained earnings and additional
paid-in capital -- (230,658)
Unrealized gain on available-for-sale securities.......... 164 344
-------- --------
Total stockholders' equity.............................. 232,555 (229,891)
-------- --------
Commitments, contingencies and subsequent events (notes 14
and 15)
Total liabilities and stockholders' equity.................. $429,278 446,964
======== ========
|
See accompanying notes to consolidated financial statements.
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
------- ------- -------
(IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNT)
Revenue (note 6):
Investment management fees.......................... $85,289 101,466 117,784
Underwriting and distribution fees:
United Funds and W&R Funds......................... 44,126 55,059 58,815
Affiliates......................................... 26,267 30,778 30,612
Shareholder service fees............................ 23,527 28,378 30,763
Investment and other revenue........................ 4,295 5,295 3,798
------- ------- -------
Total revenue..................................... 183,504 220,976 241,772
------- ------- -------
Expenses:
Underwriting and distribution....................... 64,082 78,915 79,995
Compensation and related costs...................... 21,304 21,913 26,618
General and administrative (note 6)................. 8,594 10,180 15,826
Depreciation........................................ 1,914 1,758 1,307
Amortization of goodwill............................ 2,903 2,903 2,903
------- ------- -------
Total expenses.................................... 98,797 115,669 126,649
------- ------- -------
Income before interest and income taxes........... 84,707 105,307 115,123
Interest (note 6)
Income.............................................. 3,886 4,072 11,323
Expense............................................. -- (186) (11,299)
------- ------- -------
Income before income taxes........................ 88,593 109,193 115,147
Income taxes (note 8)................................. 35,092 42,493 44,855
------- ------- -------
Net income........................................ $53,501 66,700 70,292
======= ======= =======
Pro forma net income per share:
Basic and diluted................................... $ 1.10
=======
|
See accompanying notes to consolidated financial statements.
WADDELL & REED FINANCIAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
COMMON STOCK
-------------
DIVIDENDS IN
ADDITIONAL EXCESS OF
PAID-IN RETAINED RETAINED EARNINGS UNREALIZED TOTAL
CAPITAL EARNINGS AND ADDITIONAL GAIN (LOSS) ON STOCKHOLDER'S
SHARES AMOUNT (NOTE 7) (NOTE 7) PAID-IN CAPITAL INVESTMENT EQUITY (DEFICIT)
------ ------ ---------- -------- ----------------- -------------- ----------------
(IN THOUSANDS)
Balance at December 31,
1994................... 42,300 $423 193,377 29,158 -- (666) 222,292
Net income.............. -- -- -- 53,501 -- -- 53,501
Contributions from
parent................. -- -- 10,581 -- -- -- 10,581
Other distributions
(note 6)............... -- -- -- (69,098) -- -- (69,098)
Unrealized gain on
investment securities.. -- -- -- -- -- 930 930
------ ---- -------- ------- -------- ---- --------
Balance at December 31,
1995................... 42,300 423 203,958 13,561 -- 264 218,206
Net income.............. -- -- -- 66,700 -- -- 66,700
Contributions from
parent................. -- -- 121,358 -- -- -- 121,358
Other distributions
(note 6)............... -- -- (93,348) (70,261) -- -- (163,609)
Cash dividends to
parent................. -- -- -- (10,000) -- -- (10,000)
Unrealized loss on
investment securities.. -- -- -- -- -- (100) (100)
------ ---- -------- ------- -------- ---- --------
Balance at December 31,
1996................... 42,300 423 231,968 -- -- 164 232,555
Net income.............. -- -- -- 70,292 -- -- 70,292
Contributions from
parent................. -- -- 47,980 -- -- -- 47,980
Other distributions
(note 6)............... -- -- (279,948) (18,627) (230,658) -- (529,233)
Cash dividends to
parent................. -- -- (51,665) -- -- (51,665)
Unrealized gain on
investment securities.. -- -- -- -- -- 180 180
------ ---- -------- ------- -------- ---- --------
Balance at December 31,
1997................... 42,300 $423 -- -- (230,658) 344 (229,891)
====== ==== ======== ======= ======== ==== ========
|
See accompanying notes to consolidated financial statements.
WADDELL & REED FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997
------- -------- -------
(IN THOUSANDS)
Cash flows from operating activities:
Net income.................................. $53,501 66,700 70,292
Adjustments to reconcile net income to net
cash
provided by operating activities:
Depreciation and amortization............. 4,817 4,661 4,210
Gain on sale of investments............... (30) -- --
Loss on sale and retirement of fixed
assets................................... 59 311 65
Capital gains and dividends reinvested.... (60) (60) (78)
Deferred income taxes..................... (186) 827 27
Changes in assets and liabilities:
Receivables from funds.................. (1,606) 1,172 (452)
Other receivables....................... (1,836) 2,725 (1,195)
Due to/from affiliates--operating....... (660) 1,703 (4,217)
Other assets............................ (3,317) (9,913) (5,383)
Accounts payable........................ 7,488 (252) (1,883)
Other liabilities....................... 4,082 18,369 898
------- -------- -------
Net cash provided by operating activities..... 62,252 86,243 62,284
------- -------- ------- ---
Cash flows from investing activities:
Additions to investments.................... (917) (116) (40)
Proceeds from sales of investments.......... 1,201 -- 1
Proceeds from maturity of investments....... 1,440 1,355 1,260
Purchase of property and equipment.......... (1,428) (1,689) (3,218)
Investment in real estate................... (312) (298) --
Change in due to/from affiliates--
nonoperating............................... (60,040) (170,016) (37,888)
Other....................................... 25 18 50
------- -------- ------- ---
Net cash provided by (used in) investing
activities................................... (60,031) (170,746) (39,835)
------- -------- ------- ---
Cash flows from financing activities:
Cash dividends to parent.................... -- (10,000) (51,665)
Cash contributions from parent.............. 13,236 111,718 44,033
------- -------- ------- ---
Net cash provided by (used in) financing
activities................................... 13,236 101,718 (7,632)
------- -------- ------- ---
Net increase in cash and cash equivalents..... 15,457 17,215 14,817
Cash and cash equivalents at beginning of
period....................................... 26,331 41,788 59,003
------- -------- ------- ---
Cash and cash equivalents at end of period.... $41,788 59,003 73,820
======= ======== ======= ===
Cash paid for income taxes.................... $33,084 43,667 65,754
======= ======== ======= ===
|
See notes 5, 6 and 7 for noncash investing and financing activities.
See accompanying notes to consolidated financial statements.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Waddell & Reed Financial, Inc. is owned by Torchmark Corporation and Torchmark's subsidiary, Liberty National Life Insurance Company (Liberty). Torchmark and its subsidiaries, other than Waddell & Reed Financial, Inc., are referred to herein as "Torchmark." In December 1997, Waddell & Reed Financial, Inc.'s name was changed from United Investors Management Company to Waddell & Reed Financial, Inc. In the first quarter of 1998, the insurance operations of Waddell & Reed Financial, Inc., United Investors Life Insurance Company, were distributed to Torchmark. Waddell & Reed Financial, Inc.'s remaining subsidiary is Waddell & Reed Financial Services, Inc. and its subsidiaries (WRFS).
The accompanying financial statements include the accounts of Waddell & Reed Financial, Inc. and WRFS (the Company) for all periods presented (note 7). Amounts for UILIC have been excluded for all periods presented. All significant intercompany accounts and transactions are eliminated in consolidation.
Business
Through WRFS, the Company derives its revenue primarily from investment management, administration, distribution and related services provided to the United mutual funds and Waddell & Reed mutual funds (the Funds) and institutional accounts in the United States. The Funds and institutional accounts operate under various rules and regulations set forth by the Securities and Exchange Commission (SEC). Services to the Funds are provided under contracts that set forth the fees to be charged for these services. The majority of these contracts are subject to annual review and approval by each fund's Board of Directors/Trustees and stockholders. In 1997, the United Income Fund represented approximately 16% of total revenues. No other fund represented 10% or more of revenues. Company revenues are largely dependent on the total value and composition of assets under management, which include domestic and international equity and debt securities; accordingly, fluctuations in financial markets and composition of assets under management impact revenues and results of operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and short-term investments. The Company considers all highly liquid debt instruments with original maturities of ninety days or less to be cash equivalents.
Revenue Recognition
Investment advisory and administrative service fees are recognized when earned. Commission revenue and expenses (and related receivables and payables) resulting from securities transactions are recorded on the date on which the order to buy or sell securities is executed.
Advertising
Costs of advertising are expensed as incurred. Amounts charged to expense were not significant for the years ended December 31, 1995, 1996 and 1997.
Investments Securities and Investment in Affiliated Mutual Funds
All investments in debt securities and affiliated stock and fixed income mutual funds are classified as available-for-sale. As a result, these investments are recorded at fair value. Unrealized holding gains and losses, net of related tax effects, are excluded from earnings until realized and are reported as a separate component of stockholders' equity. Realized gains and losses are computed using the specific identification method for investment securities other than mutual funds. For mutual funds, realized gains and losses are computed using the average cost method.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by Statement of Financial Accounting Standards (SFAS) No. 105, consist primarily of investments in U. S. government and agency securities, municipal securities and affiliated money market and fixed income mutual funds and accounts receivable. Credit risk is believed to be minimal in that the U. S government and agency securities are backed by the full faith and credit of the U. S. government, municipal securities are backed by the full taxing power of the issuing municipality or revenues from a specific project, and the affiliated mutual funds have substantial net assets.
Property and Equipment
Property and equipment are carried at cost. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of net assets acquired, arose in connection with the acquisition of the Company by Torchmark. Amortization is on a straight-line basis over forty years. The Company assesses the recoverability of goodwill by determining whether the unamortized balance can be recovered through undiscounted future operating cash flows over its remaining life. Impairment, if any, is measured by the excess of the unamortized balance over discounted future operating cash flows.
Deferred Sales Commissions
The Company defers certain costs, principally selling commissions, that are paid to financial advisors in connection with the sale of certain shares of Waddell & Reed mutual funds (W&R Funds). These costs are amortized on a straight line basis over a period not exceeding ten years which approximates the historical life of shareholder investments. The Company recovers such costs through 12b-1 distribution fees, which are paid by the W&R Funds and a contingent deferred sales charge paid by stockholders who redeem their shares prior to completion of the required holding periods.
Income Taxes
The accounts of the Company are included in the consolidated federal income tax return of Torchmark. The Company's provision for income taxes has been made on the same basis as if the Company filed separate returns.
Disclosures About Fair Value of Financial Instruments
Given the nature of the Company's assets and liabilities, the Company believes the amounts in the financial statements approximate fair value.
Pro Forma Net Income Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which revised the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. SFAS No. 128 became effective for the Company's fiscal year ending December 31, 1997. Pro forma basic and diluted net income per share amounts have been presented under SFAS No. 128.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma basic and diluted net income per share has been computed by dividing net income, as adjusted to eliminate the after tax interest cost on the Torchmark Notes, by 64,000,000 shares (the average number of shares outstanding plus the number of shares, based on the mid-point of the offering price, whose proceeds would be used to pay the Torchmark and Liberty notes (note 6).) Diluted net income per share is the same as basic net income per share as there are no dilutive securities.
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Recent Accounting Developments
In 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. These statements, which are effective for periods beginning after December 15, 1997, expand or modify disclosures. The Company does not expect implementation to have any significant effect on the Company's reported financial position, results of operations or segment reporting.
(2) CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1996 and 1997 includes reserves of $15,028,000 and $14,943,000, respectively, for the benefit of customers in compliance with securities industry regulations and an investment of $4,344,000 and $325,000, respectively, in a money market fund for which the Company is principal underwriter and investment advisor. Substantially all such reserves are in excess of federal deposit insurance limits. The money market fund is uninsured.
(3) INVESTMENTS SECURITIES, AVAILABLE-FOR-SALE
Investments at December 31, 1996 and 1997 are as follows:
AMORTIZED UNREALIZED UNREALIZED FAIR
1996 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- ------
United States government-backed
mortgage securities............... $ 5,925 32 (17) 5,940
Municipal bonds maturing:
After five years but within ten
years........................... 11,760 276 (42) 11,994
After ten years.................. 1,196 12 -- 1,208
Affiliated mutual funds............ 833 9 (4) 838
-------- --- --- ------
$ 19,714 329 (63) 19,980
======== === === ======
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- ------
United States government-backed
mortgage securities............... $ 4,749 86 -- 4,835
Municipal bonds maturing:
Within five years................ 3,017 115 -- 3,132
After five years but within ten
years........................... 8,520 304 -- 8,824
After ten years.................. 1,186 3 (2) 1,187
Affiliated mutual funds............ 949 50 -- 999
-------- --- --- ------
$ 18,421 558 (2) 18,977
======== === === ======
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WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1996 and 1997 is as follows:
ESTIMATED
1996 1997 USEFUL LIVES
---------- ------------ ------------
(IN THOUSANDS)
Land.................................... $ 1,717 1,717 --
Building................................ 6,242 6,257 40 years
Furniture and fixtures.................. 5,719 5,862 3-10 years
Equipment and machinery................. 6,186 7,859 3-10 years
------- --------
Property and equipment, at cost......... 19,864 21,695
Less accumulated depreciation........... 9,472 9,637
------- --------
Property and equipment, net............. $10,392 12,058
======= ========
(5) INVESTMENT IN REAL ESTATE
A summary of investment in rental real estate at December 31, 1996 is as
follows:
ESTIMATED
1996 USEFUL LIVES
---------- ------------
(IN
THOUSANDS)
Land.................................... $ 7,784 --
Buildings............................... 10,771 40 years
-------
Rental real estate, at cost............. 18,555
Less accumulated depreciation........... 1,463
-------
Rental real estate, net................. $17,092
=======
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Rental income of $1,409,000, $1,682,000 and $0 for the years ended December 31, 1995, 1996 and 1997, respectively, is included in investment and other revenue. Depreciation expense for the years ended December 31, 1995, 1996 and 1997 was $367,000, $383,000 and $18,000, respectively.
Effective January 1, 1997, the Company contributed its investment in real estate, which is located adjacent to its offices in Overland Park, Kansas, to TMK Income Properties, L.P. (TMK) in exchange for a 14% limited partnership interest in TMK. TMK is a limited partnership with other Torchmark affiliates that was formed for the purpose of acquiring, developing and managing real property. The property was transferred to TMK at the Company's net book value as of December 31, 1996 in the amount of $11,961,000. Effective July 1, 1997, the Company contributed additional land and land improvements for an additional 5% interest in TMK. The land and improvements were transferred at the Company's net book value in the amount of $5,113,000.
(6) TRANSACTIONS WITH RELATED PARTIES
The Company serves as investment advisor to various affiliates of Torchmark and receives advisory fees for this service. Advisory fees, which are based on assets under management, amounted to $800,000, $1,037,000 and $1,241,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company earns commissions from Torchmark for marketing life and health insurance products and variable annuities. For the years ended December 31, 1995, 1996 and 1997, the commissions amounted to $26,267,000, $30,778,000 and $30,612,000 respectively. These commissions were earned under contracts which have been renewed for 1998 with substantially the same terms.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Torchmark performs certain administrative services for the Company. Charges for such services which are allocated based on a defined formula that allocates Torchmark's total costs for services provided based on each affiliate's assets and compensation expense as a percentage of the total affiliate assets and compensation expense. The Company believes the allocation results in a reasonable allocation to the Company of costs. These charges were $2,731,000, $2,189,000 and $2,008,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The current amounts due from affiliates at December 31, 1996 and 1997 include interest bearing notes from Torchmark, noninterest bearing advances for current operating expenses and commissions due from the sale of affiliates' products. At December 31, 1996 and 1997, the 5.5% demand notes amounted to $11,672,000 plus accrued interest. At December 31, 1996 and 1997, the noncurrent amounts due from affiliates include a $123,947,000 note receivable from Torchmark, plus $186,000 and $1,239,000, respectively, of accrued interest. The 6% note requires semiannual interest payments and matures May 1, 2000. Also included in the noncurrent portion is a $40,000,000 note receivable from Torchmark, due November, 1999 with interest at 8.1%. During 1995, 1996 and 1997, amounts due from Torchmark aggregating $69,098,000, $163,609,000 and $38,124,000, respectively, were forgiven and charged against stockholders' equity.
The current amounts due to affiliates at December 31, 1996 and 1997 include amounts due for administrative services. Included in the 1996 and 1997 noncurrent due to affiliates balance is a $123,947,000 note payable to Torchmark, plus $186,000 and $1,239,000, respectively, of accrued interest. The 6% note requires semiannual interest payments and matures May 1, 2000.
Effective September 1997, Waddell & Reed Asset Management Company (WRAMCO), a subsidiary of WRFS, was distributed to Torchmark at its net book value of $2,977,000. WRAMCO provides investment management services to institutional investors. Subsequent to the distribution date, WRFS provides advisory investment management services to WRAMCO and receives a fee based upon assets under management. The Company was paid $1,296,000 for investment advisory services provided subsequent to the distribution date. The accompanying financial statements include the amounts for WRAMCO. Subsequent to distribution, the Company operates under a subadvisory agreement with WRAMCO to provide approximately the same level of services as prior to the distribution.
On November 25, 1997, the Company declared a $480,000,000 dividend evidenced by two 8% promissory notes to Torchmark and Liberty. These notes are payable on or before November 25, 2002 and require semiannual interest payments. Notes aggregating $96,000,000 are due in 1998 and, accordingly, are classified in the current portion of due to affiliates. The remaining $384,000,000 of these notes is included in the long-term portion of due to affiliates. The notes are mandatorily prepayable from the capital raised by the Company from a public or private sale or offering of debt or equity securities.
(7) STOCKHOLDERS' EQUITY
As discussed in note 1, the consolidated financial statements include only amounts for the Company. Transactions involving former subsidiaries of Waddell & Reed Financial, Inc., and Torchmark are reflected as due to/due from affiliates. To the extent such transactions resulted in a gain or loss, such amounts are reflected in additional paid-in capital or retained earnings.
Retained earnings have been charged for dividends and other distributions to the Company's parent to the extent such retained earnings were sufficient. The excess has been charged to additional paid-in capital with the remainder classified as dividends in excess of retained earnings and additional paid-in capital.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The components of total income tax expense are as follows:
1995 1996 1997
-------- ------ ------
(IN THOUSANDS)
Currently payable:
Federal............................................ $ 31,449 36,197 38,939
State.............................................. 3,829 5,469 5,889
-------- ------ ------
35,278 41,666 44,828
Deferred taxes....................................... (186) 827 27
-------- ------ ------
$ 35,092 42,493 44,855
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The tax effect of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at December 31, 1996 and 1997 are as follows:
1996 1997
------- ------
(IN THOUSANDS)
Deferred tax liabilities:
Deferred sales commissions................................ $(3,967) (4,680)
Fixed assets.............................................. (418) (824)
Other..................................................... (458) (500)
------- ------
Total gross deferred liabilities............................ (4,843) (6,004)
------- ------
Deferred tax assets:
Benefit plans............................................. 3,050 3,557
Accrued expenses.......................................... 966 1,442
------- ------
Total gross deferred assets................................. 4,016 4,999
------- ------
Net deferred tax liability.................................. $ (827) (1,005)
======= ======
|
A valuation allowance for deferred tax assets was not necessary at December 31, 1996 and 1997.
The following table reconciles the statutory federal income tax rate to the Company's effective income tax rate:
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Statutory federal income tax rate.......................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits............ 2.9 3.1 3.3
Other items................................................ 1.7 .8 .7
---- ---- ----
Effective income tax rate.................................. 39.6% 38.9% 39.0%
==== ==== ====
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(9) RETIREMENT PLAN
The Company sponsors a noncontributory retirement plan which covers substantially all employees and, prior to 1996, the employees of former affiliates. As of December 31, 1995, former affiliates ceased participation in the plan. Benefits payable under the plan are based on employees' years of service and compensation during the final ten years of employment.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996 and 1997, the assumed discount rate, the rate at which the plan benefit obligations could be settled, was 7.5%. The estimated rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 4.5% for December 31, 1996 and 1997. The expected long-term rate of return on plan assets was 9.25% at December 31, 1996 and 1997.
The Company's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
All plan assets are commingled and available for distribution to all participating employees, and thus, net pension cost for 1995 includes the cost for the Company as well as affiliates.
Net pension cost for all companies for the years ended December 31, 1995, 1996 and 1997 included the following components:
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
Service cost--benefits earned during the period.... $2,365 1,304 1,511
Interest cost on projected benefit obligation...... 2,103 1,953 2,148
Actual return on plan assets....................... (3,626) (3,489) (4,102)
Net amortization and deferral...................... 2,078 1,679 1,987
------ ------ ------
Net periodic pension cost of all participating com-
panies............................................ $2,920 1,447 1,544
------ ------ ------
Company portion.................................... $1,648 1,447 1,544
====== ====== ======
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The following table sets forth the plan's funded status as of December 31, 1996 and 1997:
1996 1997
------- ------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefits.......................................... $17,715 20,693
Nonvested benefits....................................... 558 751
------- ------
Accumulated benefit obligation............................. 18,273 21,444
Increase in benefits due to future compensation increases.. 6,513 7,535
------- ------
Projected benefit obligation............................... 24,786 28,979
Estimated fair market value of plan assets................. 23,483 25,689
------- ------
Projected benefit obligation in excess of plan assets...... 1,303 3,290
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions........ 3,482 2,989
Unrecognized net transition obligation being recognized
over 21.6 years........................................... (114) (108)
Unrecognized prior service cost attributable to plan amend-
ments..................................................... (761) (717)
------- ------
Pension liability of all participating companies........... $ 3,910 5,454
======= ======
Company portion............................................ $ 6,711 8,299
======= ======
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As of December 31, 1995, former affiliates ceased participation in the plan, which resulted in a decrease in projected benefits of the Plan.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors an unfunded defined benefit postretirement medical plan that covers substantially all its employees. The plan is contributory with retiree contributions adjusted annually.
Net periodic postretirement benefit cost for the year ended December 31, 1995, 1996 and 1997 included the following components:
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Service cost-benefits attributed to service during the
year..................................................... $ 48 48 48
Interest cost on accumulated postretirement benefit obli-
gation................................................... 71 70 68
Amortization of unrecognized prior service cost........... (18) (18) (19)
---- --- ---
Net periodic postretirement benefit cost.................. $101 100 97
==== === ===
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The following table sets forth the plan's funded status as of December 31, 1996 and 1997:
1996 1997
------ -----
(IN
THOUSANDS)
Accumulated postretirement benefit obligation (APBO):
Retirees................................................... $ 356 405
Fully eligible active plan participants.................... 134 190
Other active plan participants............................. 382 547
------ -----
Total APBO................................................... 872 1,142
------ -----
Unrecognized prior service cost............................ 223 191
Actuarial experience....................................... 132 (102)
------ -----
Accumulated postretirement benefit obligation in excess of
plan assets................................................. $1,227 1,231
====== =====
|
The significant assumptions used in computing the APBO as of December 31, 1996 and 1997 are as follows:
1996 1997
----------------- -----------------
Assumed health care cost trend rate
used to measure the expected cost of
benefits covered by the plan:
Current year........................ 10% 9%
Thereafter.......................... Decrease annually Decrease annually
to 5.5% by 2018 to 5.5% by 2019
Discount rate......................... 7.5% 7.5%
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The health care cost trend rate assumption can effect the expenses and obligations. The effect of a 1% increase each year in the assumed health care cost trend rate on the aggregate of the service and interest cost components of net periodic postretirement benefit cost would be an increase of approximately $34,000 for the year ended December 31, 1997. The effect on the APBO as of December 31, 1997 would be an increase of approximately $217,000.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) SAVINGS AND INVESTMENT PLAN
The Company has a savings and investment plan covering substantially all employees. The plan provides for a matching corporate contribution of 50% of the employee's investment in mutual fund shares and/or Torchmark stock, not to exceed 3% of the employee's salary.
The charge to expense for this plan for the years ended December 31, 1995, 1996 and 1997 was $626,000, $641,000 and $716,000, respectively.
(12) EMPLOYEE STOCK OPTIONS
Under the provisions of the Torchmark Corporation 1987 Stock Incentive Plan (1987 Option Plan), certain employees and directors of the Company have been granted options to buy shares of Torchmark stock generally at the market value of the stock on the date of grant. The options are exercisable during a period of up to ten years and two days after grant. Employee stock options granted under the 1987 Option Plan generally vest one-half in two years and one-half in three years. Director grants generally vest in six months.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock- Based Compensation (SFAS No. 123), which was effective for the Company beginning January 1, 1996. SFAS No. 123 defines the "fair value method" of accounting for employee stock options. It also allows accounting for such options under the "intrinsic value method" in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations. If a company elects to use the intrinsic value method, pro forma disclosures of earnings and earnings per share are required as if the fair value method of accounting was applied. The effects of applying SFAS No. 123 in the pro forma disclosures are not necessarily indicative of future amounts because the pro forma disclosures do not take into account the amortization of the fair value of awards granted prior to 1995.
The Company has elected to account for stock options under the intrinsic value method. The fair value method requires use of the Black-Scholes option valuation model to value employee stock options. The Black-Scholes option valuation model was not developed for use in valuing employee stock options. Instead, this model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because Torchmark's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, it is management's opinion that the existing models do not provide a reliable measure of the fair value of its employee stock options. Under the intrinsic value method, compensation expense is only recognized if the exercise price of the employee stock option is less than the market price of the underlying stock on the date of grant. Accordingly, the Company has recognized no compensation expense for options granted in 1995, 1996 or 1997.
In accordance with SFAS No. 123, the fair value for Torchmark's employee stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1996 and 1997:
1996 1997
---- ----
Risk-free interest rate.......................................... 6.4% 6.4%
Dividend yield................................................... 3.7 1.7
Volatility factor................................................ 22.8 21.1
Weighted average expected life (in years)........................ 4.17 3.93
|
The weighted average fair values of an option granted during the years ended December 31, 1996 and 1997 were $4.93 and $8.36, respectively.
WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the purpose of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1996 1997
----------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Actual net income................................... $ 66,700 70,292
Pro forma net income................................ $ 65,958 68,022
----------- ----------
Proforma net income per share, as adjusted for SFAS
No. 123:
Basic and diluted................................. $ 1.06
==========
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A summary of stock option activity and related information for the years ended December 31, 1995, 1996 and 1997 follows:
1995 1996 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
Outstanding at beginning
of year................ 1,335,984 $16.21 1,596,642 $18.11 1,738,442 $19.54
Granted................. 373,600 21.69 277,600 24.88 688,292 35.98
Exercised............... (105,126) 6.72 (130,800) 13.49 (927,024) 17.68
Expired................. (7,816) 17.00 (5,000) 17.00 (3,020) 22.27
--------- ------ --------- ------ --------- ------
Outstanding at end of
year................... 1,596,642 $18.11 1,738,442 $19.54 1,496,690 $28.25
--------- ------ --------- ------ --------- ------
Exercisable at end of
year................... 660,934 $17.36 999,742 $17.48 868,798 $31.18
========= ====== ========= ====== ========= ======
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(13) UNIFORM CAPITAL RULE REQUIREMENTS
Waddell & Reed, Inc. (W&R), a subsidiary of the Company, is a registered broker-dealer and a member of the National Association of Securities Dealer, Inc. and therefore is subject to a requirement of the SEC's Uniform Net Capital Rule, requiring the maintenance of certain minimal capital levels. At December 31, 1997, W&R had net capital, as defined by the Uniform Capital Rule, of $7,745,000 which is $4,628,000 in excess of the required net capital.
(14) COMMITMENTS AND CONTINGENCIES
Rental Expense and Lease Commitments
The Company rents certain sales and other office space under long-term operating leases. Rent expense for the years ended December 31, 1995, 1996 and 1997, was $3,459,000, $3,824,000 and $4,397,000 respectively. Future minimum rental commitments under noncancelable operating leases are as follows:
(IN THOUSANDS)
--------------
Minimum remaining rental commitments years ended December
31:
1998..................................................... $ 2,589
1999..................................................... 1,612
2000..................................................... 961
2001..................................................... 330
2002..................................................... 85
-------
$ 5,577
=======
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WADDELL & REED FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New leases are expected to be executed as existing leases expire. Thus, future minimum lease commitments are not expected to be less than those in 1998.
Contingencies
From time to time, the Company is a party to various claims arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, it is unlikely that any adverse determination in one or more pending claims would have a material adverse effect on the Company's financial position or results of operations.
PRO FORMA FINANCIAL STATEMENTS
The following pro forma balance sheet reflects (1) payment of notes due from Torchmark with Torchmark Preferred Stock, (2) a prepayment of $124 million plus all outstanding interest on the Second Liberty Note and the First Liberty Note, in each case with Torchmark Preferred Stock, (3) the application of the net proceeds of the Offering to make a prepayment of $428 million on the Notes and, (4) prepayment of the remaining balance of the Notes and accrued interest with Torchmark Preferred Stock as if these transactions had occurred on December 31, 1997. The pro forma Consolidated Statement of Operations reflects the aforementioned transactions as if they had occurred on January 1, 1997.
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997
PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -------
(IN THOUSANDS)
ASSETS
Assets:
Cash and cash equivalents................... $ 73,820 73,820
Investment securities, available-for-sale 18,977 18,977
Receivables:
United funds and W&R funds................ 4,031 4,031
Customers and other....................... 11,840 11,840
Due from affiliates......................... 17,232 (13,598)(1) 3,634
Deferred income taxes....................... 1,241 1,241
Prepaid expenses and other current assets... 2,991 2,991
-------- -------
Total current assets...................... 130,132 116,534
Due from affiliates......................... 175,450 (175,450)(1) --
Torchmark Preferred Stock................... -- 189,048 (1) 8,000
(125,186)(2)
(55,862)(2)
Property and equipment, net................. 12,058 12,058
Investment in real estate, net.............. -- --
Investment in real estate partnership....... 17,544 17,544
Deferred sales commissions, net............. 12,316 12,316
Goodwill (net of accumulated amortization of
$14,575
and $17,479)............................... 98,831 98,831
Other assets................................ 633 633
-------- -------
Total assets.............................. $446,964 265,916
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable............................ $ 22,929 22,929
Due to affiliates........................... 102,459 (96,000)(3) 2,597
(3,862)(2)
Accrued sales force compensation............ 8,666 8,666
Income taxes payable........................ 3,314 3,314
Other current liabilities................... 18,525 18,525
-------- -------
Total current liabilities................. 155,893 56,031
Due to affiliates........................... 509,186 (332,000)(3)
(125,186)(2)
(52,000)(2) --
Deferred income taxes....................... 2,246 2,246
Accrued pensions and post-retirement costs.. 9,530 9,530
Other liabilities........................... -- --
-------- -------
Total liabilities......................... 676,855 67,807
-------- -------
Stockholders' equity (deficit):
Common stock ............................... 423 217 (3) 640
Additional paid-in capital.................. -- 197,125 (3) 197,125
Retained earnings........................... -- --
Dividends in excess of retained earnings and
additional
paid-in capital............................ (230,658) 230,658 (3) --
Unrealized gain on available-for-sale
securities................................. 344 344
-------- -------
Total Stockholders' equity (deficit)...... (229,891) 198,109
-------- -------
Total liabilities and Stockholders' equity.... $446,964 265,916
======== =======
|
(2) To reflect payment of the Notes and accrued interest, with Torchmark
Preferred Stock.
(3) To reflect proceeds from the Offering and the use of proceeds to pay the
remainder of the Notes.
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNT)
Revenue:
Investment management
fees..................... $117,784 117,784
Underwriting and
distribution fees:
United Funds and W&R
Funds.................. 58,815 58,815
Affiliates.............. 30,612 30,612
Shareholder service fees.. 30,763 30,763
Investment and other
revenue.................. 3,798 3,798
-------- -------
Total revenue........... 241,772 241,772
-------- -------
Expenses:
Underwriting and
distribution............. 79,995 79,995
Compensation and related
costs.................... 26,618 26,618
General and
administrative........... 15,826 15,826
Depreciation.............. 1,307 1,307
Amortization of goodwill.. 2,903 2,903
-------- -------
Total expenses.......... 126,649 126,649
-------- -------
Income before interest
and income taxes....... 115,123 115,123
Interest
Income.................... 11,323 (11,323)(1) --
Expense................... (11,299) 11,299 (2) --
-------- -------
Income before income
taxes.................. 115,147 115,123
Income taxes................ 44,855 (9)(2) 44,846
-------- ------- -------
Net income.............. $ 70,292 (15) 70,277
======== ======= =======
Pro forma net income per
share:
Basic and diluted......... $ 1.10
=======
|
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ International Prospectus Alternate Cover Page
PROSPECTUS (Subject to Completion)
Issued February 27, 1998
21,700,000 Shares
Waddell & Reed Financial, Inc.
CLASS A COMMON STOCK
----------
OF THE 21,700,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED, 4,340,000
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY
THE INTERNATIONAL UNDERWRITERS AND 17,360,000 SHARES ARE BEING OFFERED
|
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. ALL
SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE PER SHARE WILL BE BETWEEN $20 AND $22 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF CLASS A COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK (COLLECTIVELY, THE "COMMON STOCK"). SEE "DESCRIPTION OF CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE AND HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO FIVE VOTES PER SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. ALL OF THE CLASS B COMMON STOCK IS BENEFICIALLY OWNED BY TORCHMARK CORPORATION. SUBSTANTIALLY ALL OF THE NET PROCEEDS OF THE OFFERING WILL BE USED TO PREPAY OUTSTANDING INDEBTEDNESS TO TORCHMARK CORPORATION AND ONE OF ITS SUBSIDIARIES. SEE "USE OF PROCEEDS." ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME TO TIME BY THE BOARD OF DIRECTORS.
PRICE $ A SHARE
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
-------- ---------------------- -----------
Per Share........................... $ $ $
Total(3)............................ $ $ $
|
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
, 1998
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the estimated expenses to be incurred in connection with the Offering, all of which will be paid by the Company.
SEC registration fee.............................................. $ 177,728
NASD fee.......................................................... 30,500
NYSE listing fee.................................................. 210,600
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Printing and engraving............................................ *
Transfer Agent's fees............................................. *
Blue Sky fees and expenses (including counsel fees)............... *
Miscellaneous expenses............................................ *
---------
Total........................................................... $ *
=========
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that no director of the Company will be personally liable to the Company or any of its stockholders for monetary damages arising from the director's breach of fiduciary duty as a director, with certain limited expectations. See "Description of Capital Stock--Certificate of Incorporation and Bylaw Provisions--Liability of Directors; Indemnification" in the Prospectus.
Pursuant to the provisions of (S) 145 of the Delaware General Corporation Law, every Delaware corporation has the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee, or agent of any corporation, partnership, joint venture, trust, or other enterprise, against any and all expenses, judgments, fines, and amounts paid in settlement and reasonably incurred in connection with such action, suit, or proceeding. The power to indemnify applies only if such person acted in good faith and in a manner such person reasonably believed to be in the best interest, or not opposed to the best interest, of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense and settlement expenses and not to any satisfaction of a judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification will be made in the event of any adjudication of negligence or misconduct unless the court, in its discretion, believes that in light of all the circumstances indemnification should apply.
To the extent any of the persons referred to in the two immediately preceding paragraphs is successful in the defense of such actions, such person is entitled, pursuant to Section 145, to indemnification as described above.
The Company's Certificate of Incorporation and Bylaws provide for indemnification to officers and directors of the Company to the fullest extent permitted by the Delaware General Corporation Law. See "Description of Capital Stock--Certificate of Incorporation and Bylaw Provisions--Liability of Directors; Indemnification" in the Prospectus.
II-1
The form of Underwriting Agreement filed as Exhibit 1.1 contains agreements of indemnity between the Company and the Underwriters and controlling persons against certain civil liabilities, including liabilities under the Securities Act, or will contribute to payments which the Underwriters or any such controlling persons may be required to make in respect thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEMS 16. EXHIBITS
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1.1+ --Form of Underwriting Agreement
3.1** --Certificate of Incorporation of the Company
3.2** --Bylaws of the Company
4.1** --Specimen of Common Stock Certificate
4.2+ --Promissory Note of United Investors Management Company, payable to
Torchmark Corporation,
dated November 25, 1997
4.3+ --Promissory Note of United Investors Management Company, payable to
Liberty National Life
Insurance Company, dated November 25, 1997
4.4+ --Promissory Note of Waddell & Reed Financial Services, Inc., payable
to United Investors Management Company, dated December 23, 1996
4.5+ --Assignment by United Investors Management Company to Liberty
National Life Insurance Company, dated December 23, 1996
--Form of Opinion of Hughes & Luce, L.L.P. regarding legality of
5.1* securities being registered
10.1+ --Form of Public Offering and Separation Agreement between Torchmark
Corporation and Waddell
& Reed Financial, Inc.
10.2+ --Form of Tax Disaffiliation Agreement between Torchmark Corporation
and Waddell & Reed
Financial, Inc.
10.3** --Form of Investment Services Agreement between Waddell & Reed
Investment
Management Company and Waddell & Reed Asset Management Company.
10.4** --General Agent Contract, dated January 1, 1985, between United
Investors Life Insurance Company
and W&R Insurance Agency, Inc.
10.5** --Form of Amendment Extending General Agent Contract between United
Investors Life Insurance
Company and W & R Insurance Agency, Inc.
10.6** --Independent Agent Contract, dated June 25, 1997, between United
American Insurance Company,
W & R Insurance Agency, Inc., and affiliates identified therein.
10.7** --Form of Amendment Extending Independent Agent Contract between
United American Insurance
Company, W & R Insurance Agency, Inc., and affiliates identified
therein.
10.8** --Form of The 1998 Stock Incentive Plan.
10.9** --Form of The 1998 Non-Employee Director Stock Option Plan.
10.10** --Form of The 1998 Executive Deferred Compensation Stock Option Plan.
10.11* --Form of Waddell & Reed Financial, Inc. Savings and Investment Plan.
10.12* --Form of Waddell & Reed Financial, Inc. Retirement Income Plan.
10.13* --Form of Waddell & Reed, Inc. Career Field Retirement Plan.
10.14** --Form of Property Management Contract between United Investors Park
Owners Association and Waddell & Reed Property Management Division.
10.15** --Form of Amendment Extending Distribution Contract between United
Investors Life Insurance Company and TMK/United Funds, Inc.
10.16** --Distribution Contract, dated April 4, 1997, between United Investors
Life Insurance Company and TMK/United Funds, Inc.
10.17** --Form of Agreement Amending Principal Underwriting Agreement between
United Investors Life Insurance Company and Waddell & Reed, Inc.
10.18** --Principal Underwriting Agreement, dated May 1, 1990, between United
Investors Life Insurance Company and Waddell & Reed, Inc.
|
II-2
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.19** --Form of Services Agreement between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company.
10.20** --Form of Reciprocity Agreement between Torchmark Corporation and
Waddell & Reed Financial, Inc.
10.21** --Form of Administrative Services Agreement between Torchmark
Corporation and Waddell & Reed Financial, Inc.
21.1+ --Subsidiaries of the Registrant
23.1* --Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2** --Consent of KPMG Peat Marwick LLP
24.1+ --Powers of Attorney (appearing on Signature Page of Registration
Statement on Form S-1 filed
January 2, 1998, Registration No. 333-43687).
27.1+ --Financial Data Schedule
|
(b) Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable or because the information is included in the Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant by the Registrant pursuant to the underwriting agreements, the Company's Certificate of Incorporation, Bylaws, Delaware law or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OVERLAND PARK, STATE OF KANSAS, ON FEBRUARY 27, 1998.
Waddell & Reed Financial, Inc.
By: /s/ Ronald K. Richey
------------------------------
RONALD K. RICHEY CHAIRMAN OF THE
BOARD
|
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the February 27, 1998
------------------------------------ Board
RONALD K. RICHEY
President, Chief
/s/ Keith A. Tucker Executive Officer, February 27, 1998
------------------------------------ and Director
KEITH A. TUCKER (Principal
*ATTORNEY-IN-FACT Financial Officer)
* Vice-President, February 27, 1998
------------------------------------ Secretary, and
FRANCIS B. JACOBS, II Director
* Principal February 27, 1998
------------------------------------ Accounting Officer
MICHAEL D. STROHM
|
II-4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1.1+ --Form of Underwriting Agreement
3.1** --Certificate of Incorporation of the Company
3.2** --Bylaws of the Company
4.1** --Specimen of Common Stock Certificate
4.2+ --Promissory Note of United Investors Management Company, payable to
Torchmark Corporation, dated November 25, 1997
4.3+ --Promissory Note of United Investors Management Company, payable to
Liberty National Life Insurance Company, dated November 25, 1997
4.4+ --Promissory Note of Waddell & Reed Financial Services, Inc., payable
to United Investors Management Company, dated December 23, 1996
4.5+ --Assignment by United Investor Management Company to Liberty National
Life Insurance Company, dated December 23, 1996
5.1* --Form of Opinion of Hughes & Luce, L.L.P. regarding legality of
securities being registered
10.1+ --Form of Public Offering and Separation Agreement between Torchmark
Corporation and Waddell & Reed Financial, Inc.
10.2+ --Form of Tax Disaffiliation Agreement between Torchmark Corporation
and Waddell & Reed Financial, Inc.
10.3** --Form of Investment Services Agreement between Waddell & Reed
Investment Management Company and Waddell & Reed Asset Management
Company.
10.4** --General Agent Contract, dated January 1, 1985, between United
Investors Life Insurance Company and W&R Insurance Agency, Inc.
10.5** --Form of Amendment Extending General Agent Contract between United
Investors Life Insurance Company and W & R Insurance Agency, Inc.
10.6** --Independent Agent Contract, dated June 25, 1997, between United
American Insurance Company, W & R Insurance Agency, Inc., and
affiliates identified therein.
10.7** --Form of Amendment Extending Independent Agent Contract between
United American Insurance Company, W & R Insurance Agency, Inc., and
affiliates identified therein.
10.8** --Form of The 1998 Stock Incentive Plan.
10.9** --Form of The 1998 Non-Employee Director Stock Option Plan.
10.10** --Form of The 1998 Executive Deferred Compensation Stock Option Plan.
10.11* --Form of Waddell & Reed Financial, Inc. Savings and Investment Plan.
10.12* --Form of Waddell & Reed Financial, Inc. Retirement Income Plan.
10.13* --Form of Waddell & Reed, Inc. Career Field Retirement Plan.
10.14** --Form of Property Management Contract between United Investors Park
Owners Association and Waddell & Reed Property Management Division.
10.15** --Form of Amendment Extending Distribution Contract between United
Investors Life Insurance Company and TMK/United Funds, Inc.
10.16** --Distribution Contract, dated April 4, 1997, between United Investors
Life Insurance Company and TMK/United Funds, Inc.
10.17** --Form of Agreement Amending Principal Underwriting Agreement between
United Investors Life Insurance Company and Waddell & Reed, Inc.
10.18** --Principal Underwriting Agreement, dated May 1, 1990, between United
Investors Life Insurance Company and Waddell & Reed, Inc.
10.19** --Form of Services Agreement between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company.
10.20** --Form of Reciprocity Agreement between Torchmark Corporation and
Waddell & Reed Financial, Inc.
10.21** --Form of Administrative Services Agreement between Torchmark
Corporation and Waddell & Reed Financial, Inc.
21.1+ --Subsidiaries of the Registrant
23.1* --Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2** --Consent of KPMG Peat Marwick LLP
24.1+ --Powers of Attorney (appearing on Signature Page of Registration
Statement on Form S-1 filed January 2, 1998, Registration No. 333-
43687).
27.1+ --Financial Data Schedule
|
+Previously filed.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WADDELL & REED FINANCIAL, INC.
Waddell & Reed Financial, Inc., a corporation incorporated by the filing
of its original Certificate of Incorporation with the Secretary of State of the
State of Delaware on December 24, 1981, desiring to amend and restate its
Certificate of Incorporation, does hereby certify as follows:
1. Said Certificate of Incorporation is hereby amended and restated
so as to read as follows:
WADDELL & REED FINANCIAL, INC.
The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, in the City of Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware , 19801, in the County of New Castle. The name of the Corporation's registered agent at such address is Corporation Trust Company.
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
4.2 Common Stock.
------------
4.2.1 The Common Stock shall be divided into two classes as
follows:
|
A Class of one hundred fifty million (150,000,000) shares of Common Stock, having a par value of one cent ($.01) each, designated as "Class A Common Stock".
A Class of one hundred million (100,000,000) shares of Common Stock, having a par value of one cent ($.01) each, designated as "Class B Common Stock".
4.2.3 The holder of each outstanding share of Class A Common Stock shall be entitled to one vote in person or by proxy for each share on all matters upon which the stockholders of the Corporation are entitled to vote. The holder of each outstanding share of Class B Common Stock shall be entitled to five votes in person or by proxy for each share on all matters upon which stockholders of the Corporation are entitled to vote. Notwithstanding any other provision of this Certificate of Incorporation, holders of Class A Common Stock shall not be eligible to vote on any alteration or change in the powers, preferences, or special rights of the Class B Common Stock that would not adversely affect the rights of Class A Common Stock and holders of Class B Common Stock shall not be eligible to vote on any alteration or change in the powers, preferences or special rights of Class A Common Stock that would not adversely affect the rights of Class B Common Stock. Except as may be otherwise required by law or this Certificate of Incorporation, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class on all matters submitted to a vote of stockholders of the Corporation. Reference to a majority or other proportion of shares of Common Stock, Class A Common Stock or Class B Common Stock shall refer to such majority or other proportion of the votes to which such shares of Common Stock, Class A Common Stock or Class B Common Stock are entitled.
4.2.4 Authority is hereby expressly granted to the Board of Directors or any duly authorized committee thereof from time to time to issue any authorized but unissued shares of Common Stock for such consideration and on such terms as it may determine.
4.2.5 At any meeting of stockholders, the presence in person or by proxy of the holders of shares entitled to cast a majority of all the votes which could be cast at such meeting by the holders of all of the outstanding shares of stock of the Corporation entitled to vote on every matter that is to be voted on at such meeting shall constitute a quorum.
4.2.6 At every meeting of stockholders, the holders of Class A
Common Stock, and the holders of Class B Common Stock shall vote together
as a class, and their votes shall be counted and totaled together; and at
any meeting of stockholders duly called and held at which a quorum
(determined in accordance with the provisions of Section 4.2.5) is present,
(i) in all matters other than the election of directors, a majority of the
votes which could be cast at such meeting upon a given question and (ii) in
the case of the election of directors, a plurality of the votes which could
be cast at such meeting
upon such election, by such holders who are present in person or by proxy, shall be necessary, in addition to any vote or other action that may be expressly required by the provisions of this Certificate of Incorporation, the Bylaws of the Corporation, or by the law of the State of Delaware, to decide such question or election, and shall decide such question or election if no such additional vote or other action is so required.
4.2.7 Effective as of the Trigger Date, and subject to the rights of any holders of Preferred Stock to elect directors as provided in this Certificate of Incorporation, stockholder action can be taken only at an annual or special meeting of stockholders and stockholder action may not be taken by written consent in lieu of a meeting.
4.2.10 Each share of common stock of the Corporation
outstanding immediately prior to the creation of the classes of stock
created by this Article Fourth ("Old Common Stock"), which creation shall
be deemed to be the time when this Article Fourth shall become effective,
shall upon such creation be changed and reclassified into the following:
(a) the 188.197 shares of Old Common Stock held by Torchmark Corporation
shall become 7,960,700 shares of Class A Common Stock, and (b) the 811.803
shares of Old Common Stock held by Liberty National Life Insurance Company
shall become 14,300 shares of Class A Common Stock and 34,325,000 shares of
Class B Common Stock. Each certificate representing shares of Old Common
Stock shall thereafter represent such number of shares of Class A Common
Stock and Class B Common Stock set forth in the immediately preceding
sentence, and the Corporation shall issue to, or upon the order of,
Torchmark Corporation or Liberty National Life Insurance Company new
certificates representing said shares.
4.3.1 Authority is hereby expressly granted to the Board of Directors from time to time to issue Preferred Stock, for such consideration and on such terms as it may determine, as Preferred Stock of one or more series and in connection with the creation of any such series to fix by the resolution or resolutions providing for the issue of shares thereof the designation, powers and relative participating, optional, or other special rights of such series, and the qualifications, limitations, or restrictions thereof. Such authority of the Board of Directors with respect to each such series shall include, but not be limited to, the determination of the following:
(a) the distinctive designation of, and the number of shares comprising, such series, which number may be (except where otherwise provided by the Board of Directors in creating such series) increased or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors;
(b) the dividend rate or amount for such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends bear to the dividends payable on any other class or classes or any other series of any class or classes of stock, and whether such dividends shall be cumulative, and if so, from which date or dates for such series;
(c) whether or not the shares of such series shall be subject to redemption by the Corporation and the times, prices, and other terms and conditions of such redemption;
(d) whether or not the shares of such series shall be subject to the operation of a sinking fund or purchase fund to be applied to the redemption or purchase of such shares and if such a fund be established, the amount thereof and the terms and provisions relative to the application thereof;
(e) whether or not the shares of such series shall be convertible into or exchangeable for shares of any other class or classes, or of any other series of any class or classes, of stock of the Corporation and if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange;
(f) whether or not the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if they are to have such additional voting rights, the extent thereof;
(g) the rights of the shares of such series in the event of any liquidation, dissolution, or winding up of the Corporation or upon any distribution of its assets; and
(h) any other powers, preferences, and relative, participating, optional, or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof, to the full extent now or hereafter permitted by law and not inconsistent with the provisions hereof.
4.3.2 All shares of any one series of Preferred Stock shall be identical in all respects except as to the dates from which dividends thereon may be cumulative. All series of the Preferred Stock shall rank equally and be identical in all respects except as otherwise provided in the resolution or resolutions providing for the issue of any series of Preferred Stock.
4.3.3 Except as otherwise required by law or provided by a resolution or resolutions of the Board of Directors creating any series of Preferred Stock, the holders of Common Stock
shall have the exclusive power to vote; and the holders of Preferred Stock shall have no voting power whatsoever. Except as otherwise provided in such a resolution or resolutions, the number of authorized shares of the Preferred Stock may be increased or decreased by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote.
The Board of Directors is expressly authorized and empowered to make, alter and repeal the Bylaws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any Bylaws made by the Board of Directors.
No holder of Preferred Stock or Common Stock of the Corporation shall have any preemptive right as such holder (other than such right, if any, as the Board of Directors in its discretion may by resolution determine pursuant to this Article Seventh) to purchase, subscribe for or otherwise acquire any shares of stock of the Corporation of any class now or hereafter authorized, or any securities convertible into or exchangeable for any such shares, or any warrants or any instruments evidencing rights or options to subscribe for, purchase or otherwise acquire any such shares, whether such shares, securities, warrants or other instruments are now, or shall hereafter be, authorized, unissued or issued and thereafter acquired by the Corporation.
EIGHTH:
The directors of the Corporation shall be entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter become available under the General Corporation Law of Delaware. Without limiting the generality of the foregoing, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) for paying a dividend or approving a stock repurchase in violation of Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 8.1 shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification.
amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 8.2.2 hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.
NINTH:
9.1.1 In anticipation that the Corporation will cease to be an indirect, wholly-owned subsidiary of Torchmark Corporation, but that Torchmark Corporation will remain a substantial stockholder of the Corporation, and in anticipation that the Corporation and Torchmark Corporation may engage in the same areas of corporate opportunities, and in recognition of the benefits to be derived by the Corporation through its continued contractual, corporate and business relations with Torchmark Corporation (including possible service of officers and directors of Torchmark Corporation as officers and directors of the Corporation), the provisions of this Article Ninth are set forth to regulate and define the conduct of certain affairs of the Corporation as they may involve Torchmark Corporation and its officers and directors, and the powers, rights, duties and liabilities of the Corporation and its officers, directors and stockholders in connection therewith.
9.1.2 Torchmark Corporation shall have no duty to refrain from
(a) engaging in the same or similar activities or lines of business as the
Corporation, (b) doing business with any potential or actual client,
customer or supplier of the Corporation, or (c) employing or engaging any
officer or employee of the Corporation, and neither Torchmark Corporation
nor any officers or directors thereof (except as provided in 9.1.3 below)
shall be liable to the Corporation or its stockholders for breach of any
fiduciary duty by reason of any such activities of Torchmark Corporation.
In the event that Torchmark Corporation acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both
Torchmark Corporation and the Corporation, Torchmark Corporation shall have
no duty to communicate or offer such corporate opportunity to the
Corporation and shall not be liable to the Corporation or its stockholders
for breach of any fiduciary duty as a stockholder of the Corporation by
reason of the fact that Torchmark Corporation pursues or acquires such
corporate opportunity for itself, directs such corporate opportunity to
another person, or does not communicate information regarding such
corporate opportunity to the Corporation.
9.1.3 In the event that a director or officer of the Corporation who is also a director or officer of Torchmark Corporation acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both the Corporation and Torchmark Corporation, such director or officer of the Corporation shall have fully satisfied and fulfilled the fiduciary duty of such director or officer to the Corporation and its stockholders with respect to such corporate opportunity, if such director or officer acts in good faith in accordance with the following policy:
(a) a corporate opportunity offered to any person who is a director but not an officer of the Corporation and who is also an officer (whether or not a director) of Torchmark Corporation will belong to Torchmark Corporation unless the opportunity is expressly offered to that person primarily in his or her capacity as a director of the Corporation, in which case the opportunity will belong to the Corporation.
(b) a corporate opportunity offered to any person who is an officer (whether or not a director) of the Corporation and who is also a director but not an officer of Torchmark Corporation will belong to the Corporation, unless the opportunity is expressly offered to that person primarily in his or her capacity as a director of Torchmark Corporation, in which case the opportunity will belong to Torchmark Corporation.
(c) a corporate opportunity offered to any other person who is either an officer of both the Corporation and Torchmark Corporation or a director of both the Corporation and Torchmark Corporation will belong to Torchmark Corporation or to the Corporation, as the case may be, if the opportunity is expressly offered to the person primarily in his or her capacity as an officer or director of Torchmark Corporation or the Corporation, respectively. Otherwise, the opportunity will belong to Torchmark Corporation.
(d) any corporate opportunity that belongs to Torchmark Corporation or to the Corporation, pursuant to the foregoing policy will not be pursued by the other (or directed by the other to another person or entity) unless and until Torchmark Corporation or the Corporation, as the case may be, determines not to pursue the opportunity. If the party to whom the corporate opportunity belongs does not, however, within a reasonable period of time, begin to pursue, or thereafter continue to pursue, such opportunity diligently and in good faith, the other party may pursue each opportunity (or direct it to another person or entity).
(e) a director or officer of the Corporation who acts in accordance with the foregoing policy (i) will be deemed fully to have satisfied his or her fiduciary duties to the Corporation and its stockholders with respect to such corporate opportunity; (ii) will not be liable to the Corporation or its stockholders for any breach of fiduciary duty by reason of the fact that Torchmark Corporation pursues or acquires such opportunity for itself or directs such corporate opportunity to another person or entity or does not communicate information regarding such opportunity to the Corporation; (iii) will be deemed to have acted in good faith and in a manner he or she reasonably believes to be in the best interests of the Corporation; and (iv) will be deemed not to have breached his or her duty of loyalty to the Corporation or its stockholders and not to have derived an improper benefit therefrom.
9.1.5 For purposes of this Section 9.1, a director of the Corporation who is chairman of the Board of Directors (or a committee thereof) or chief executive officer will not be deemed to be an officer of the Corporation by reason of holding such position, unless such person is a full-time employee of the Corporation.
(a) the material facts as to the relationship or interest and as to the Transaction are disclosed or known to the Board of Directors or the committee thereof that authorizes the Transaction, and the Board of Directors or such committee in good faith approves the Transaction by the affirmative vote of a majority of the disinterested directors on the Board of Directors or such committee, even if the disinterested directors are less than a quorum;
(b) the material facts as to the relationship or interest and as to the Transaction are disclosed or known to the holders of voting stock entitled to vote thereon, and the Transaction is specifically approved by vote of the holders of a majority of the voting power of the outstanding voting stock not owned by Torchmark Corporation or such Related Entity, voting together as a single class;
(c) the Transaction is effected pursuant to guidelines that are in good faith approved by a majority of the disinterested directors on the Board of directors or the applicable committee thereof or by vote of the holders of a majority of
the voting power of the then outstanding voting stock not owned by Torchmark Corporation or such Related Entity, voting together as a single class; or
(d) the Transaction is fair to the Corporation as of the time it is approved by the Board of Directors, a committee thereof or the stockholders of the Corporation.
9.2.2 If the requirements of (a), (b), (c) or (d) of Section 9.2.1 are met, Torchmark Corporation, the Related Entity, and the directors and officers of the Corporation, Torchmark Corporation, or the Related Entity (as applicable) will be deemed to have acted reasonably and in good faith (to the extent such standard is applicable to such person's conduct) and fully to have satisfied any duties of loyalty and fiduciary duties they may have to the Corporation and its stockholders with respect to such transaction.
9.2.3 Any Transaction authorized, approved, or effected, and
each of such guidelines authorized or approved, as described in (a), (b) or
(c) of Section 9.2.1, will be deemed to be entirely fair to the Corporation
and its stockholders, except that, if such authorization or approval shall
not be obtained, or such Transaction shall not be so effected, no
presumption will arise that such Transaction or guideline is not fair to
the Corporation and its stockholders. Torchmark Corporation will not be
liable to the Corporation or its stockholders for breach of any fiduciary
duty that Torchmark Corporation may have by reason of the fact that
Torchmark Corporation takes any action in connection with any transaction
between Torchmark Corporation and the Corporation.
9.3 Any person purchasing or otherwise acquiring any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to this Article Ninth.
9.4 Before the Trigger Date, the affirmative vote of the holders of more than 80% of the outstanding voting stock, voting together as a single class, will be required to alter, amend, or repeal the corporate opportunity provisions contained in Section 9.1 or the conflict of interest policies contained in Section 9.2 in a manner adverse to the interests of Torchmark Corporation. After the Trigger Date this Article Ninth will terminate.
2. This Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 242, of the General Corporation Law of the State of Delaware and has been duly adopted in accordance with the provisions of the Certificate of Incorporation of the Corporation heretofore amended.
3. This Amended and Restated Certificate of Incorporation shall become effective at the time it is filed in the office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this instrument to be signed in its name by its Chairman and attested by its Secretary.
WADDELL & REED FINANCIAL, INC.
By:_______________________________
Name:
Title: Chairman of the Board
ATTESTED:
By:_______________________________
Name:
Title: Secretary
AMENDED AND RESTATED BYLAWS
OF
WADDELL & REED FINANCIAL, INC.
ARTICLE I. OFFICES
The registered office shall be established and maintained at the office of the Corporation Trust Company, in the City of Wilmington, in the County of New Castle, in the State of Delaware, and said corporation shall be the registered agent of this corporation in charge thereof.
The Corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. The principal place of business of the Corporation shall be in Overland Park, Kansas.
ARTICLE II. MEETINGS OF STOCKHOLDERS
Effective as of the Trigger Date (defined below) and subject to the rights of any holders of Preferred Stock to elect directors as provided in the Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special
Annual meetings of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting given by the Corporation, shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. In the event the Board of Directors fails to so determine the time, date and place of meeting, the annual meeting of stockholders shall be held at the principal executive offices of the Corporation in Kansas on the last Wednesday of April.
If the date of the annual meeting shall fall upon a legal holiday, the meeting shall be held on the next succeeding business day. At each annual meeting, the stockholders entitled to vote
shall elect members of a class of the Board of Directors, and they may transact such other corporate business as may properly come before the meeting.
In accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these Bylaws each holder of Class A Common Stock shall be entitled to one vote, in person or by proxy, per share and each holder of Class B Common Stock shall be entitled to five votes, in person or by proxy, per share. Holders of Class A Common Stock shall not be eligible to vote on any alteration or change in the powers, preferences, or special rights of the Class B Common Stock that would not adversely affect the rights of Class A Common Stock and holders of Class B Common Stock shall not be eligible to vote on any alteration or change in the powers, preferences or special rights of Class A Common Stock that would not adversely affect the rights of Class B Common Stock. No proxy shall be voted after eleven (11) months from its date unless such proxy provides for a longer period. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting shall be by ballot. All elections for directors shall be decided by a plurality vote; all other questions shall be decided by a majority vote except as otherwise provided by these Bylaws, the Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
A majority of the voting power of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at meetings of stockholders. In determining whether a quorum is present treasury shares shall not be counted. If less than a majority of the voting power of the outstanding shares are represented, a majority of the voting power of the shares so represented may adjourn the meeting from time to time without further notice, but until a quorum is secured no other business may be transacted. The stockholders present at a duly organized meeting may continue to transact business until an adjournment notwithstanding the withdrawal of enough stockholders to leave less than a quorum. At any duly organized meeting, except as otherwise provided by these Bylaws or in the Certificate of Incorporation, a vote of a majority of the voting power of the stock represented thereat shall decide any question brought before the meeting.
Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at such stockholder's address as it appears on the records of the Corporation, not less than ten nor more than sixty days before the date of the meeting. No business other than that stated in the notice shall be transacted at any special meeting or any annual meeting; provided, business not stated in
the notice of an annual meeting may be transacted at such annual meeting with the unanimous consent of all the stockholders entitled to vote thereat.
1. Calling of roll.
2. Proof of due notice of meeting.
3. Reading and disposal of any unapproved minutes.
4. Reports of officers and committees.
5. Election of directors.
6. Unfinished business.
7. New business.
8. Adjournment.
ARTICLE III. DIRECTORS
The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than seven nor more than 15 persons. Subject to any rights of holders of Preferred Stock to elect directors as provided in the Certificate of Incorporation, the exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. The Board of Directors shall be divided into three classes, designated as Class I, Class II and Class III.
Each class shall consist, initially of four Class I directors, four Class II directors and two Class III directors. Class I directors shall be elected initially for a one-year term, Class II directors initially for a two-year term and Class III directors initially for a three-year term. At each succeeding annual meeting of stockholders beginning in 1999, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to apportion the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. Directors need not be stockholders.
Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time of its receipt by the Chief Executive Officer or Secretary or at such other time as may be specified therein. The acceptance of a resignation shall not be necessary to make it effective.
Subject to the rights of the holders of any series of Preferred Stock then outstanding to elect directors as provided in the Certificate of Incorporation, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall, unless the Board of Directors otherwise determine, be filled by a majority vote of the directors then in office even if less than a quorum remain on the Board of Directors, or if all of the directors shall have been removed, by stockholders with a majority of the voting power of the outstanding shares of stock, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
If the office of any member of a committee or other officer becomes vacant, the directors in office, by a majority vote, may appoint any qualified person to fill such vacancy, who shall hold office for the unexpired term and until his successor shall be duly chosen.
Subject to the rights of holders of Preferred Stock to elect directors under specified circumstances, effective as of the Trigger Date, directors may be removed only for cause and only upon the affirmative vote of holders of at least 80% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class; provided, however, that prior to such date, directors may be removed, without cause, with the affirmative vote of the holders of at least a majority of the voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class.
If the holders of any series of Preferred Stock then outstanding are entitled to elect one or more directors, these provisions shall not apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that series and the
rights of the holders of such shares shall be as set out in the Certificate of Designations, Preferences and Rights for such shares.
The Board of Directors shall exercise all the powers of the Corporation except such as are by law, or by the Certificate of Incorporation of the Corporation or by these Bylaws conferred upon or reserved to the stockholders.
At each regular annual meeting of the Board of Directors, the directors may, by resolution or resolutions passed by a majority of the whole Board, designate directors to serve as members of the executive committee, the compensation committee, the finance committee, the nominating committee, and the audit committee until the next regular meeting of the Board of Directors and until their successors are duly designated. At any regular or special meeting of the Board of Directors, the directors may elect additional advisors for these committees. Such advisors may or may not be members of the Board of Directors and shall serve until the next annual meeting of the Board of Directors or for the period of time designated by the Board. The Board of Directors may from time to time provide for such other committees as may be deemed necessary and assign to such committees such authority and duties as are appropriate and allowed by Delaware law.
The directors may hold their annual meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may be fixed by resolution of the directors.
Regular meetings of the directors may be held without notice at such places and times as shall be determined from time to time by resolution of the directors.
Special meetings of the Board of Directors may be called by the Chief Executive Officer at any time or by the Secretary on the written request of any two directors upon at least twelve hours personal notice to each director. For purposes of this paragraph, personal notice shall be deemed given if telephonic notice is given to the business office of a director during normal business hours (8:00 a.m. to 5:00 p.m. in the respective time zone in which the director's office is located). Such special meetings shall be held at such place or places as may be determined by the Chief Executive Officer or the directors calling the meeting, and shall be stated in the notice of the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
A majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned.
Directors shall not receive any stated salary for their services as directors or as members of committees, except that by resolution of the Board of Directors, retainer fees, meeting fees, expenses of attendance at meetings and other benefits and payments may be authorized. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor.
Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board of Directors, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee.
Notwithstanding anything contained in these Bylaws to the contrary the shareholders may only amend or repeal, or adopt any provision inconsistent with this Article III, with the affirmative vote of the holders of at least 80% of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors.
ARTICLE IV. STANDING COMMITTEES
The executive committee of the Board of Directors shall consist of the chairman of the board, the president, and not less than three nor more than eight members elected by the directors from their own number. The chairman of this committee shall be selected by the Board of
Directors. The executive committee in the interim between meetings of the Board of Directors shall exercise all of the powers of the Board of Directors.
The compensation committee shall consist of not less than three nor more than eight members whose chairman shall also be named by the directors. The compensation committee shall prescribe the compensation of all officers having an annual compensation of one hundred fifty thousand dollars ($150,000) or more. The compensation of all other officers shall be determined by the Chief Executive Officer.
The audit committee shall consist of not less than three nor more than eight members elected by the directors from among their own number; provided, however, that a majority of the members of the committee shall be outside directors. The chairman of the committee shall also be selected by the Board of Directors. The audit committee shall recommend to the Board the firm to be employed by the Corporation as its external auditor; shall consult with the persons chosen to be the external auditors with regard to the plan of audit; shall review the fees of the external auditors for audit and non-audit services; shall review, in consultation with the external auditors, their report of audit, or proposed report of audit, and the accompanying management letter, if any; shall review with management and the external auditor before publication or issuance, the annual financial statement, and any annual reports to be filed with the Securities and Exchange Commission; shall consult with the external auditors (periodically, as appropriate, out of the presence of management) with regard to the adequacy of the internal auditing and general accounting functions of the Corporation; shall consult with the internal auditors (periodically, as
appropriate, out of the presence of management) with regard to cooperation of corporate divisions with the internal auditing and accounting departments and the adequacy of corporate systems of accounting and controls; shall serve as a communications liaison between the Board of Directors, the external auditors, and the internal auditors; and shall perform such other duties not inconsistent with the spirit and purpose of the committee as are delegated to it by the Board of Directors.
The Board of Directors may elect from its membership a finance committee of not less than three nor more than eight members elected by the directors from among their own number. The Chairman of the committee shall also be selected by the Board of Directors. The finance committee shall have special charge and control of all financial affairs of the Company. The principal functions and responsibilities of the finance committee are to: review and approve investment and loan policies; review and approve asset-liability management policies; monitor corporate financial results; recommend corporate financial actions, including dividends and capital financing. The finance committee shall make recommendations to the Board of Directors with respect to the terms and provisions of any issue of securities of the Company, including equity and debt securities, and shall serve as the pricing committee in connection with any such financing and shall authorize the execution of such underwriting agreements as may be necessary or desirable to effectuate such issue.
The nominating committee shall consist of all non-employee (outside) directors of the Company, with its chairman to be named by the Board of Directors. The nominating committee
shall meet periodically to review the qualifications of potential Board candidates from whatever source received; shall report its findings to the Board and propose nominations for Board membership for approval by the Board and for submission to stockholders for approval; and shall review and make recommendations to the Board, where appropriate, concerning the size of the Board and the frequency of meetings. The nominating committee shall have and exercise all such power as it shall deem necessary for the performance of its duties.
Meetings of the executive committee, the finance committee, the nominating committee, the compensation committee, and the audit committee shall be held on call of the chairman of the board or any committee member. Meetings may be held informally, by telephone, or by mail, and it is not necessary that members of the committee be physically present together in order for a meeting to be held. Two or more members of a committee shall constitute a quorum.
ARTICLE V. OFFICERS
The officers of the Corporation shall be a President, such Vice- Presidents as shall from time to time be deemed necessary, a Secretary, a Treasurer, and such other officers as may be deemed appropriate. A Chairman of the Board and a Vice Chairman of the Board may also be elected. All such officers shall be elected by the Board of Directors and shall hold office until their successors are elected and qualified. None of the officers of the Corporation need be directors. More than one office may be held by the same person.
In the event that there is a Chairman of the Board, he shall preside at all meetings of the Board of Directors and stockholders. He shall have and perform such duties as usually devolve upon his office and such other duties as are prescribed by the Bylaws and by the Board of Directors.
The Vice Chairman of the Board shall in the absence or inability to act of the Chairman of the Board preside at all meetings of the Board of Directors and stockholders, and exercise and discharge the responsibilities and duties of the Chairman of the Board. He shall have and perform such other duties as may be prescribed or assigned by the Board of Directors or the Chairman of the Board.
The President shall be the chief operating officer of the Corporation unless the Board of Directors elects a separate Chief Operating Officer, and shall perform such duties as usually devolve upon his office and such other duties as are prescribed by these Bylaws, by the Board of Directors, and by the Chairman. In the absence or inability to act of the Chairman of the Board and the Vice Chairman of the Board or if the offices of Chairman of the Board and Vice Chairman of the Board shall be vacant, the President shall have and exercise all the powers and duties of such office. If the Chairman of the Board, Vice Chairman of the Board or the President is absent from any meeting of the Board of Directors or stockholders where either was to have presided, the other directors shall elect one of their number to preside at the meeting.
The Vice Presidents shall perform such duties as may be assigned to them from time to time by these Bylaws, the Board of Directors, the Chairman of the Board, or the President.
The Treasurer shall have custody of all funds of the Corporation. The Treasurer shall have and perform such duties as are incident to the office of Treasurer and such other duties as may from time to time be assigned to him by the Board of Directors, the Chairman, or the President.
The Secretary shall keep minutes of all meetings of the stockholders and the Board of Directors unless otherwise directed by those bodies. The Secretary shall have custody of the corporate seal, and the Secretary or any Assistant Secretary shall affix the same to all instruments or papers requiring the seal of the Corporation. The Secretary, or in his absence, any Assistant Secretary, shall attend to the giving and serving of all notices of the Corporation. The Secretary shall perform all the duties incident to the office of Secretary, subject to the control of the Board of Directors, and shall do and perform such other duties as may from time to time be assigned by the Board of Directors, the Chairman, or the President.
The Board of Directors may appoint such other officers and agents as it may deem advisable, including, without limitation, a Chief Operating Officer, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
The Chairman of the Board shall serve as the chief executive officer of the Corporation. Subject to the control of the Board of Directors, the Chairman of the Board shall be vested with authority to act for the Corporation, and shall have general and active management of the business of the Corporation and such other general powers and duties of supervision and management as usually devolve upon such office and as may be prescribed from time to time by the Board of Directors.
The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting held after each annual meeting of stockholders. Each officer shall hold office at the pleasure of the Board of Directors until his death, resignation, retirement, or removal. Any officer may be elected by the Board of Directors at other than annual meetings to serve at the pleasure of the Board of Directors until the first meeting of the Board of Directors held after the annual meeting of stockholders next following his election.
ARTICLE VI. MISCELLANEOUS
A certificate of stock or certificates of stock, signed by the Chairman or Vice Chairman of the Board, or the President or Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, shall be adopted by the Board of Directors and shall be issued to each stockholder certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures may be facsimiles.
The Board of Directors may order a new certificate or certificates of stock to be issued in the place of any certificate or certificates of the Corporation alleged to have been lost or destroyed, but in every such case the owner of the lost certificate or certificates shall first cause to be given to the Corporation or its authorized agent a bond in such sum as said Board may direct, as indemnity against any loss that the Corporation may incur by reason of such replacement of the lost certificate or certificates; but the Board of Directors may, at their discretion refuse to replace any lost certificate of stock save upon the order of some court having jurisdiction in such matter and may cause such legend to be inscribed on the new certificate or certificates as in the Board's discretion may be necessary to prevent loss to the Corporation.
The shares of stock of the Corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the Corporation by the delivery thereof to the person in charge of the stock and transfer books, and ledgers, or to the authorized agent of the Corporation, by whom they shall be canceled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the stock and transfer books.
The Corporation may decline to register on its stock books transfers of stock standing in the name of infants, unless (a) the law of the state of which the infant is a resident relieves the Corporation of all liability therefor in case the infant or anyone acting for him thereafter elects to
rescind such transfer, or (b) a court having jurisdiction of the infant and the subject matter enters a valid decree authorizing such transfer.
No fractional part of a share of stock shall ever be issued by this Corporation.
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefore at any regular or special meeting, declare dividends upon the capital stock of the Corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any fund of the Corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or to serve as a fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the Corporation. The Corporation may
decline to pay cash dividends to infant stockholders except where full and valid release may be granted by the infant or under a decree of court of competent jurisdiction.
The corporate seal shall consist of two concentric circles between which shall be "WADDELL & REED FINANCIAL, INC." with a representation of the Corporate Logogram in the center.
The fiscal year of the corporation shall be the calendar year or such other period as shall be determined by resolution of the Board of Directors.
All checks, drafts or other orders for the payment off money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.
Whenever any notice is required by these Bylaws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at such person's address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the date of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the Corporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII. AMENDMENTS
Except as otherwise provided in Article III of these Bylaws, these Bylaws may be altered or repealed and Bylaws may be adopted at any annual meeting of the stockholders, or at any special meeting thereof if notice of the proposed alteration or repeal or Bylaw or Bylaws to be adopted is contained in the notice of such special meeting, by the affirmative vote of a majority of the voting power of the stock issued and outstanding and entitled to vote thereat, or without any stockholder action by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or at a special meeting of the Board of Directors, if notice of the proposed alteration or repeal, or Bylaw or Bylaws to be adopted, is contained in the notice of such special meeting.
[Front of Stock Certificate]
WDR
CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE
THIS CERTIFIES THAT
IS THE OWNER OF
THIS CERTIFICATE IS TRANSFERABLE
IN CHICAGO OR IN THE CITY OF NEW YORK
CUSIP 930059 10 0
INCORPORATED UNDER
THE LAWS OF THE
STATE OF DELAWARE
SEE REVERSE
FOR CERTAIN
DEFINITIONS
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Waddell & Reed Financial, Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to the provisions of the certificate of incorporation and by-laws of the Corporation, as amended, to all of which the holder, by acceptance hereof, assents.
This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
In Witness Whereof, the Corporation has caused this certificate to be signed
by its duly authorized officers and a facsimile seal of the Corporation to be
hereunto affixed.
Dated
TREASURER
CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[Back of Stock Certificate]
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
INVESTMENT SERVICES AGREEMENT
This Agreement made this ____ day of ________, 1998 (the "Effective Date") between Waddell & Reed Asset Management Company ("WRAMCO") and Waddell & Reed Investment Management Company ("WRIMCO").
WHEREAS, WRAMCO has entered into, and will enter into, investment management agreements with its clients to provide to each client certain investment management services;
WHEREAS, WRIMCO is an investment adviser registered under the Investment Advisers Act of 1940; and has been providing WRAMCO with various investment advisory services with respect to certain of its clients;
WHEREAS, although WRIMCO and WRAMCO have been direct or indirect wholly owned subsidiaries of Torchmark Corporation, because of the anticipated stock offering by Waddell & Reed Financial, Inc. and planned divestiture by Torchmark Corporation of its ownership interest in Waddell & Reed Financial, Inc., the intermediate indirect owner of WRIMCO's stock, it is anticipated that WRIMCO and WRAMCO will no longer ultimately have common ownership;
WHEREAS, WRAMCO desires to engage WRIMCO to continue to provide WRAMCO with various investment advisory services with respect to certain of its clients, WRIMCO is willing to continue to render such services, and the parties desire to reduce to writing the applicable terms and conditions.
NOW, THEREFORE, as of the Effective Date, the Parties agree as follows:
Subject to the instructions and supervision of WRAMCO, WRIMCO shall provide investment advisory services necessary to meet the investment objectives, limitations and such other requirements of clients of WRAMCO for which WRAMCO and WRIMCO determine WRIMCO will provide investment advisory services ("Clients"). In performing its duties under this Agreement, WRIMCO will comply with the requirements
of applicable law and the reasonable written instructions of WRAMCO. Subject to such limitations, WRIMCO shall have the authority to determine transactions and other actions for Accounts, and to place orders with or through such persons, brokers, dealers or futures commission merchants as WRIMCO shall select. While WRIMCO will give primary consideration to securing the most favorable price and efficient execution of transactions, WRIMCO may consider the financial responsibility, research and investment information and other services provided by brokers, dealers or futures commission merchants who may effect or be party to any such transaction or other transactions to which WRIMCO's other clients may be a party.
It is also understood that it is desirable for WRIMCO to have access to supplemental investment and market research and security and economic analysis provided by brokers or futures commission merchants who may execute brokerage transactions at a higher cost to Clients than may result when allocating brokerage to other brokers on the basis of seeking the lowest commission cost. It is understood that the services provided by such brokers or futures commission merchants may be useful to WRIMCO in connection with its services to other clients.
On occasions when WRIMCO deems the purchase or sale of a security or futures contract or other property to be in the best interest of a Client, as well as other clients, WRIMCO may, but shall be under no obligation to, aggregate the securities or futures contracts to be sold or purchased in order to obtain a more favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities or futures contracts so purchased or sold, as well as the expenses incurred in the transaction, will be made by WRIMCO in the manner WRIMCO considers to be equitable and consistent with its fiduciary obligations.
Clients of WRAMCO may direct that transactions for each such Client be effected by a particular broker-dealer specified by that Client. WRIMCO shall effect transactions in accordance with Client directions, subject to the limitations of applicable law and subject to any conditions imposed by a Client with respect to such transactions, notice of which has been given in writing to WRIMCO by WRAMCO. WRAMCO acknowledges that when WRIMCO follows a Client's direction with respect to the selection of a broker-dealer, WRIMCO may not be able to aggregate such Client's transactions with others and may not have any responsibility for the quality or cost of such broker-dealer's services, depending upon the Client's precise directions and conditions with respect to such transactions.
Each party represents that it shall notify the other if it no longer has the necessary registration under applicable securities, investment advisory or similar laws to carry out all of its duties hereunder.
Each party represents that there are no outstanding or anticipated legal actions or claims against it which could have a material adverse effect on it and which have not been disclosed to the other party and each party represents that it will give notice of any such actions or claims which may arise following the date hereof.
WRAMCO represents that it has full power and authority to manage the assets of each Client for which it will engage the services of WRIMCO, pursuant to this Agreement, and that WRIMCO shall be authorized to act on any instructions given to it by or on behalf of WRAMCO by any officer or employee of WRAMCO.
WRAMCO represents that it has or will provide a copy of Part II of Form ADV of WRIMCO and WRAMCO to Clients as required by laws, rules and regulations.
investments carry substantial risk and WRIMCO cannot predict or guarantee any particular results. WRIMCO shall not be responsible or liable for any loss incurred in connection with any act or omission of WRAMCO, any Client or any broker-dealer or third party.
(a) To WRAMCO: Waddell & Reed Asset Management Company 2001 Third Avenue South Birmingham, Alabama 35233 Attn: Michael J. Klyce
(b) To WRIMCO: Waddell & Reed Investment Management Company 6300 Lamar Avenue Overland Park, KS 66202 Attn: Lawrence J. Cipolla
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first above written.
Waddell & Reed Investment Management Company
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
Waddell & Reed Asset Management Company
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
COMPENSATION
WRAMCO shall compensate WRIMCO for its services hereunder at the annual rate of 21.5 basis points on average assets under management under this Agreement as specified further in the Agreement.
UNITED INVESTORS LIFE
2001 THIRD AVENUE SOUTH, P. O. Box 55926
BIRMINGHAM, ALABAMA 35255-5926
205-325-4300
GENERAL AGENT CONTRACT
This Contract made as of the 1st day of January, 1985, between United Investors Life Insurance Company, of Birmingham, Alabama, (hereinafter referred to as "UNITED" or "COMPANY" and W&R Insurance Agency, Inc. (or with respect to those states in which said corporation is not qualified, the W&R Insurance Agency of that state which is affiliated with Waddell & Reed, Inc. or Waddell & Reed, Inc. itself) of One Crown Center, 2400 Pershing Road, Kansas City, Missouri, (hereinafter referred to as "GENERAL AGENT" or "YOU").
UNITED and GENERAL AGENT mutually agree as follows:
1. APPOINTMENT AND RELATIONSHIP. Subject to compliance with the terms of this Contract, applicable laws and regulations, and such rules as UNITED may from time to time establish, GENERAL AGENT is authorized to solicit applications for insurance on behalf of UNITED, in all jurisdictions in which UNITED and GENERAL AGENT are authorized to engage in the business of insurance. The COMPANY retains the right to appoint other agents (Wholesale General Agents, General Agents, etc.) in all such jurisdictions. You shall be free to exercise your own judgment as to the method, time, manner, and place of carrying out your duties, responsibilities and obligations as a General Agent, it being expressly understood that your relationship to us shall be that of an independent contractor only, and nothing herein shall be construed to create the relationship of employer and employee.
2. APPOINTMENT OF AGENTS BY YOU--OBLIGATIONS OF GENERAL AGENT. As a GENERAL AGENT of the COMPANY, YOU after reasonable investigation of background, training, and methods of doing business, may submit agents (sometimes hereinafter referred to as "writing agents") to write business for the COMPANY through YOU. If any such individual shall be licensed with the COMPANY, YOU will be responsible for his/her acts and indemnify and hold the COMPANY harmless from any loss or expense on account of any unauthorized act of said agent.
3. COMMISSIONS. UNITED will allow YOU the commissions specified in the Commission Schedule attached hereto and all modifications thereof. GENERAL AGENT agrees to accept such commissions as compensation in full for all services performed and all expenses incurred. UNITED may at any time and from time to time modify the Commission Schedule by adding or deleting policy forms and changing the commission
rates applicable to its policy forms. Any modification relating to changes in payment of commissions shall be effective fifteen (15) days after written notice thereof is deposited in the United States mail, postage prepaid, addressed to the last known address of the GENERAL AGENT, unless otherwise agreed, and shall apply only with respect to applications taken after the effective date of such notice, unless otherwise agreed. All other modifications shall be in writing and effective upon receipt.
GENERAL AGENT shall be solely responsible for fixing amount and payment of commission or other compensation to agents writing business with UNITED through GENERAL AGENT, and in doing so, GENERAL AGENT may use the facilities and services of Waddell and Reed, Inc., or another affiliate for payroll accounting and disbursement purposes.
In addition to all rules, regulations, and conditions as set forth in the Commission Schedule, as it may be amended from time to time, commissions are subject to the following conditions:
A. Commissions are based on premiums received by the COMPANY and are not payable until the policy has been issued, delivered and accepted by the applicant.
B. Should UNITED, for any reason, refund any premium or portion thereof, all commissions paid or credited to YOU on the amount refunded shall be immediately due and payable to the COMPANY.
C. Commissions are payable semi-monthly.
D. If a life insurance policy shall lapse for nonpayment of premium, and if reinstatement shall occur more than 90 days after the premium due date, no further commissions on said policy shall accrue to YOU unless such reinstatement is accomplished by YOU and forwarded to the COMPANY by YOU. In this subparagraph D, "YOU" shall include a licensed agent under contract with UNITED submitting business through GENERAL AGENT. Reinstatement is considered to occur on the date COMPANY required forms, necessary back premiums and sufficient premiums to pay for the policy for at least one month in advance have been received at the Home Office.
4. COMMISSIONS ON REFUNDED PREMIUMS. UNITED will notify GENERAL AGENT of any refund of any premium or portion thereof. All commissions paid or credited by UNITED on the amount refunded shall be immediately due and payable to UNITED by withholding the amount from the commission payable with respect to future commissions payable to GENERAL AGENT. In the event of termination of this Agreement, the parties hereto shall agree on appropriate adjustments to account balances, based on circumstances at that time.
5. ASSIGNMENT. Neither this Contract nor any of its benefits shall be assigned without the prior written consent of the COMPANY.
6. LIMITATIONS ON AUTHORITY OF GENERAL AGENT. You are not authorized and have no authority to:
A. Make, alter, or discharge any contract for or on behalf of the COMPANY.
B. Endorse any check, draft or similar instrument payable to the COMPANY.
C. Modify, in writing or orally, any policy, application, receipt or other COMPANY supplied form.
D. Extend the time for payment of any premium.
E. Approve evidence of insurability.
F. Bind or otherwise commit the COMPANY to any risk.
G. Deliver a policy where the health of any proposed insured at the time of delivery is other than as stated in the application.
7. FUNDS HELD IN TRUST AND POLICY DELIVERY. Premiums may be accepted for a policy only in the form of a check, draft, or similar instrument made payable to the COMPANY. Such premiums shall be considered as trust funds, and shall be forwarded to UNITED immediately. Policies are to be delivered to applicants promptly, and all policies not delivered are to be returned to the COMPANY immediately.
8. REPLACEMENT. Replacement is presumed when the previous UNITED policy is lapsed or otherwise terminated within six (6) months before or after the date of the new policy. Unless modified by the Commission Schedule, first year commission on the new policy is payable only on any increase in the first year premium of that policy over the first year premium on the COMPANY's replaced policy.
10. VESTING OF COMMISSIONS. Subject to all provisions hereof, in the event of the termination of this Contract, YOU or your legal representative shall continue to receive commissions in accordance with the Commission Schedule in force on the date of the termination; provided, however, that if the commissions paid to YOU during any calendar year thereafter do not exceed $250.00, all commissions for subsequent years shall be forfeited, and this COMPANY shall not be required to make any further commission payments. If any commission check shall be less than $25.00, the COMPANY shall have the right to delay payment until such level is reached.
11. GENERAL AGENT agrees to hold UNITED harmless from any and all claims relating to commissions of writing agents paid to GENERAL AGENT.
12. GENERAL PROVISIONS.
A. The COMPANY, in its sole discretion, may decline to consider any application.
B. The COMPANY, in its sole discretion, may decline to license or renew the license of any agent.
13. TERMINATION OF CONTRACT.
A. This Contract may be terminated by either party at any time for any reason by providing 180 days' advance, written notice. Said 180-day period shall begin when notice is deposited in the United States mail, postage prepaid, sent to the last known address of the other party.
B. If GENERAL AGENT shall suffer loss of the authority to transact the business of insurance in any jurisdiction, the authority of the GENERAL AGENT to transact business in such jurisdiction under this Agreement shall also cease.
C. This Agreement shall automatically terminate upon the liquidation, bankruptcy, or dissolution of the GENERAL AGENT.
14. FORMER AGREEMENTS. The execution of this Agreement shall terminate and supersede, of the effective date hereof, all agreements heretofore made between the General Agent and the Company, covering the same subject matter without prejudice to the rights of either party, if any, provided by such agreement to exist after their termination.
UNITED INVESTORS LIFE INSURANCE COMPANY
By:__________________________________________
Signature
W & R INSURANCE COMPANY, INC.
By:__________________________________________
Signature
UNITED INVESTORS LIFE
2001 THIRD AVENUE SOUTH, P. O. Box 55926
BIRMINGHAM, ALABAMA 35255-5926
205-325-4300
JANUARY 1, 1985
GENERAL AGENT
COMMISSION SCHEDULE
________________________________________________________________________________________________________________________
TERM PRODUCTS
-------------
1st Policy 2nd-10th Policy 11th Policy
Year Years Year and Later
---------- --------------- --------------
VITALife ART 115% 7 1/2% 3%
VITALife Adjustable 130% 7 1/2% 3%
VITALife VII 115% 7 1/28** N/A
|
________________________________________________________________________________________________________________________
XLife 1 AND XLife 2 INTEREST SENSITIVE PRODUCTS*
------------------------------------------------
1st Policy 2nd-10th Policy 11th Policy
Year Years Year and Later
---------- --------------- --------------
XLife 1 140% 7 1/2% 3%
XLife 2 115% 7 1/2% 3%
|
________________________________________________________________________________________________________________________
VITALife III PLUS - A RE-ENTRY PRODUCT*
---------------------------------------
1st Policy 2nd Policy 3rd Policy
Year Year Year
---------- --------------- --------------
At Original Issue and
Re-Entry:
3 Pay Premium Mode - 115% of 1st year -0- -0-
reduced Premium Rate
All Other Premium
Modes 55% 15% 15%
|
In The Event Insured Does Not Qualify for Re-Entry:
. 4th, 7th, or 9th Policy Year Thru 10th Policy Year - 7 1/2%.
. 11th policy year and later - 3%.
SINGLE PREMIUM PRODUCTS
_____________________________________________________________________________________________________
AT POLICY ANNIVERSARY
FIRST YEAR YEARS 1 THROUGH 10
---------------------- ---------------------
SPLife - 1:
Option A 13% of single premium N/A
Option B N/A 12 1/2% of interest credited
on the unloaned accumulation
account during preceding
policy year.
SPLife - 2:
Option A 10 1/2% of single premium N/A
Option B N/A 7 1/2% of interest credited
on the unloaned accumulation
account during preceding
policy year.
|
____________________________________________________________________________________________________________________
OTHER PRODUCTS
--------------
1st Policy 2nd Policy 3rd Policy
Year Year Year
---------- ---------- ----------
Modified Premium Whole
Life (MPWL) 200% 0% See Paragraph 3.
Flexible Premium Annuity 5.28% 5.28% 5.28%
____________________________________________________________________________________________________________________
|
*POLICY FEES: Commissions are not payable on policy fees on these products.
1. General COMPANY Rules:
A. Except for special rules set forth above for Option B on SPLife-1 and SPLife-2, Commission rates are expressed as a percentage of premiums received by the COMPANY.
B. Except as noted in paragraph 8, below commissions are payable only when the policy has been issued, accepted by the applicant, and the premiums have been received by UNITED INVESTORS LIFE.
C. Commission rates on riders and supplementary benefits shall be the same as the rate for the base policy.
D. Commissions on the extra premium for substandard risks shall be at the same rate as if the policy were issued on a standard basis; however, no commissions shall be payable on temporary flat extra premium of five years or less.
E. UNITED INVESTORS LIFE reserves the right to adjust commissions on any specially designed product and with respect to any policy that is reinsured with allowances other than those currently in effect with the reinsuring company.
F. In the event an increasing option has been selected on VITALife Adjustable and premium is received by UNITED INVESTORS LIFE on the increased face amount, the COMPANY will pay the equivalent of a first year commission rate on that portion of the premium that is attributable to an increase in the face amount. Any such commission payment shall be considered as renewal commission for all other purposes.
2. COMPANY Rules Regarding VITALife III PLUS:
A. For commission purposes, re-entry is considered a new sale.
B. For purposes of renewal commissions, "Policy Years" are measured from the original policy date.
C. First year and renewal commissions, including first year commissions on re-entries, are vested for 10 years as measured from the original policy date.
3. COMPANY Rules Regarding MPWL:
A. Commissions on MPWL are payable on the base premium only except where the first year commissions exceeds the first year premium (base premium plus additional first year premium), payment of that portion of the commission that exceeds the first year premium will be deferred and will be paid during the second policy year.
B. Where the original primary writing agent is actively licensed with
UNITED renewal commissions on MPWL policies which are renewed into the
11th year are payable for the 11th year only and are payable at the
following rates depending upon the option selected by the insured:
MPWL = 200%, RT = 115%, and Whole Life = 115%. If a policy is
reassigned and a new MPWL application is submitted and approved for
standard issue, the normal lst year MPWL commission will be paid.
C. Replacement of a COMPANY policy that has been in force less than one year by an MPWL policy where:
(1) MPWL has a Smaller Face Amount - The normal first year commission on the earlier policy will be paid. No first year commission will be paid on the MPWL policy; however, 11th year renewal commissions will be paid as provided above.
(2) MPWL has an Equal Fact Amount - Same as number 3c.(1), above.
(3) MPWL has a Larger Face Amount - The normal first year commission on the earlier policy will be paid, plus a commission of 200% of the premium for the increase in face amount. Normal MPWL 11th year renewal commissions will be paid.
D. Replacement of COMPANY policy that has been in force more than one year by an MPWL policy where:
(1) MPWL has a Smaller Face Amount - No commissions are payable on the MPWL except 11th year commissions as provided above.
(2) MPWL has an Equal Face Amount - Same as number 3.D.(1), above.
(3) MPWL has a Larger Face Amount - Normal MPWL commissions payable, except first year commission payable only on the premium applicable to the increase in face amount of coverage.
4. If a policyholder elects the vanishing premium option on XLife 2, no commission is payable while such option is in force.
5. The COMPANY may in accordance with the terms of your General Agent Contract, at any time and from time to time modify this Commission Schedule.
6. REPLACEMENT OF AN EXISTING UNITED INVESTORS LIFE POLICY.
A. If the first year premium (less policy fee) is equal to or less than the first year premium of the policy being replaced, YOU will receive no first year commission. Renewal commissions will be as set forth above.
B. If the first year premium (less policy fee) is greater than the first year premium of the policy being replaced, YOU will receive a first year commission at the rate for the commission on the new policy form, on the increased premiums. Renewal commission will be set forth above.
7. CONVERSIONS.
A. If a VITA Life III PLUS policy form is being converted to an XLife 1 or XLife 2, only renewal commissions on the new policy will be paid.
B. Conversion of other term products to XLife-1 will be treated as replacement unless the total face amount of insurance in force with the COMPANY after conversion is equal to or greater than the term insurance coverage in effect with the COMPANY at any time within six months prior to conversion. If any remaining term insurance policy lapses within six months after conversion and a first year XLife-1 commission has been paid, the excess of the new first year commission over the renewal commission that would have been paid will be charged back.
C. If conversion does not fall within the exceptions set forth above, full first year and renewal commissions will be paid on the new policy.
8. COMMISSION ADVANCES.
A. If the General Agent pays advanced commission to the COMPANY'S licensed agents, the COMPANY shall advance to the General Agent semi- monthly the amount of the commission that the General Agent advances to said agents for the same semi-monthly period.
B. As first year premiums are received by UNITED, for policies on which advances have been made, commissions relating to that portion advanced which would otherwise be payable to the General Agent, shall be credited against such advances.
[UNITED INVESTORS LIFE / PAUL E. RUTLEDGE LETTERHEAD]
Memorandum to: Larry lady
Re: Commissions on New LifeTime Term Product
From: Paul Rutledge
Date: April 13, 1988
This memo is to confirm our discussion yesterday as to the commission rates for the above referenced product. As I understand it the following rates apply:
From W&R to
From UILIC ---------------------------
to W&R Specialist Sales Rep
---------- ---------- ---------
1st year 100% 50.0% 10.0%
years 2-10 10 2.5 2.5
years 11 & on 3
|
The split commissions shown are for sales by the insurance specialist to a United Funds account owner. The sales rep to whom the account is assigned receives the commission shown in the last column above. At the time we spoke you were not certain of the level of commission to be paid to W&R sales reps selling this product.
AMENDMENT EXTENDING GENERAL AGENT CONTRACT
This is an amendment ("Amendment") extending the General Agent Contract ("General Agent Contract") effective January 1, 1985 between UNITED INVESTORS LIFE INSURANCE COMPANY ("United") or ("Company"), and W&R INSURANCE AGENCY, INC. ("General Agent"), as follows:
1. Subparagraph A of Paragraph 13 of the General Agent Contract is amended to read as follows:
A. This Contract is effective from its Effective Date and, unless further extended by the parties, will terminate on the earlier of (i) December 31, 1998, or (ii) the date it may be terminated under Subparagraph B or C of this Paragraph 13.
2. In all other respects, the General Agent Contract is unchanged. The parties ratify and confirm the General Agent Contract as amended by this Amendment.
Executed this the ______ day of _______________, 1998.
UNITED INVESTORS LIFE
INSURANCE COMPANY
By:____________________________
Name:__________________________
Title:_________________________
W&R INSURANCE AGENCY, INC.
By:____________________________
Name:__________________________
Title:_________________________
UNITED AMERICAN INSURANCE COMPANY
INDEPENDENT AGENT CONTRACT
This Contract, and the Commission Schedule(s) attached hereto and made a part hereof for all purposes (collectively referred to as this Contract), made on this ___ day of __________________, 19___ by an between UNITED AMERICAN INSURANCE COMPANY (hereinafter referred to as Company), and ___________________ (hereinafter referred to as Agent) for the purpose of soliciting applications for life and health insurance.
INDEPENDENT CONTRACTOR
It is expressly agreed that the relationship intended by this Contract between Agent and Company shall be that of an Independent Contractor only, and that nothing contained herein shall be construed to create the relationship of employer and employee. This Contract or any benefit hereunder may not be assigned, transferred, or pledged by the Agent.
MANNER OF CONDUCTING BUSINESS
Agent's clientele may be developed by him by any lawful means. He shall select his own hours and workdays and is under no obligation to account to the Company for his time. Company may hold sales meetings to acquaint the Agent with new products and sales techniques for the benefit of the Agent. However attendance at sales meetings will be optional and at the expense of the Agent. Agent shall be free to exercise his own judgment as to the time, routine, place, method and manner he solicits insurance. Agent shall not solicit outside the jurisdiction for which he is licensed or contrary to the laws or insurance regulations of the states where he operates.
The Company may from time to time make available to the Agent supplies, leads, name lists, advertising matter and other material designed to assist Agent in soliciting business. All such material any other policyholder information, whether past, current or prospective, acquired by Agent shall remain the sole property of the Company, shall not be duplicated and shall be returned to the Company within five (5) days after the termination of this Contract.
EXPENSES
Agent shall be responsible for all expenses incurred in the production of insurance for the Company. Agent shall at his own expense furnish his own means of transportation, office or place of business, advertisements, form letters, letterheads, circulars, and any other relevant expenses incurred in the solicitation of insurance for the Company.
Agent shall be responsible to Company for all loss or damage arising from business done by and entrusted to him and shall indemnify and hold Company harmless from any and all expenses, costs, causes of action, loss or damages resulting from fraudulent or unauthorized acts or omissions of Agent and any sub-agent(s) under contract with Company and assigned to Agent.
POWERS, DUTIES & RESPONSIBILITIES
During the continuance of this Contract the Agent has the authority to:
A. Remit all applications for insurance to the Company for approval or rejection and to collect only the initial premium payments due on such applications.
B. Procure through sub-agent(s) or personally through the Company, applications for insurance written by the Company.
C. When authorized by the Company and subject to Company approval recruit, train, and supervise sub-agents.
D. Agent shall have the duty of properly representing Company and developing his territory with diligence and in an ethical manner, and the Agent agrees to conform to the rules, regulations, and practices of Company.
E. Agent shall be responsible to Company for all monies and securities received by him for Company and shall hold such in trust separate from all other funds and securities, and promptly remit same to Company.
F. Company reserves the right at any time to terminate the contract of any sub- agent appointed by Company and assigned to Agent.
G. The Agent shall not insert or authorize the insertion of any advertising matter bearing the Company's name in any publication, issue or distribute, or authorize the issuance or distribution of any circular or paper on behalf of the Company, without first submitting said advertising matter in writing to Company and receiving prior written approval of Company.
COMMISSIONS
Company agrees to pay to the Agent commissions on business written by Agent or any sub-agents assigned to him by the Company on premiums actually received and earned by the Company in accordance with the Commission Schedule(s) attached hereto. In the event Company shall, either during the continuance of this Contract or after its termination, refund premiums under any policy to an Insured, Agent shall immediately repay to Company the amount of any commission paid him or his sub-agent(s) on the premium so refunded.
A. All commissions shall be calculated only on premium actually received by the Company. Commissions will be calculated only on those premiums paid by or on behalf of the insured. No commissions shall be paid on interest, or on premium waived or commuted by reason of death, disability or exercise of policy options.
B. Company at any time while this Contract is in force or after its termination may set off against any claims by Agent for commission or other monies accruing to the account of the Agent under the terms of this Contract any debts, liabilities or obligations of the Agent to the Company. Agent further agrees that any indebtedness now or hereafter owing to the Company or its affiliates shall be secured by a first lien against the commissions or any other monies payable to Agent under this Contract and any other contract Agent may have with the Company or its affiliates.
C. All amounts owed to Company or its affiliates by Agent shall become due and payable immediately upon notice to the Agent.
D. Subject to the Company's right to set off as set forth in the Contract, the limitations and exceptions described below and the provisions of the Loan Agreement Section of this Contract payment of renewal commissions upon termination of this Contract will be vested unless one of the following conditions occurs:
(1) This Contract is terminated for cause or for any violations of any of
the provisions or agreements of the Contract.
(2) Any debit balance is not repaid within 120 days of contract
termination.
(3) In any calendar year following termination the amount of vested renewal
commissions paid under this Contract is less than $500.00.
E. At the option of the Company, payment of commissions will be held in abeyance for 120 days after termination to determine the existence of any sums due Company which are to be set off against commissions.
This Contract shall be terminated by the death of the Agent and all eligible renewal commissions shall be then vested and payable to the surviving spouse. If there is no surviving spouse then such renewal commissions shall be paid to the Executors or Administrators of the Agent's Estate.
The Company reserves the right to alter, increase, decrease, modify or withdraw the Commission Schedule and/or Loan Agreement Provisions of this Contract at any time. However, any change shall apply from and after the effective date of such change on business produced after that date.
LOAN AGREEMENT
If agent elects, Company may make periodic loans to Agent against future credited commissions on applications written and submitted to the Company by Agent or any Subagents assigned to Agent. Such loans shall be made in lieu of payment of credited commissions as provided in the Commission Schedule.
A. Such loan shall be a percentage of annualized insurance premium on production submitted on completed applications. The percentage loaned will be determined in the sole discretion of the Company.
B. Any loan proceeds shall be reduced by the amount of chargebacks to Agent's account from any source.
INDEBTEDNESS
Any indebtedness owed by the Agent to the Company shall be paid upon notice to the Agent. In addition to the provisions of paragraph Deportment all indebtedness of the Agent to Company shall be secured by a first lien on any commissions or renewal commissions due or to become due the Agent. The Company may at any time offset against all commissions accrued or to accrue to the Agent, any debt due from the Agent to the Company, whether now existing or hereafter arising. In the event any indebtedness is placed in the hands of a collection agent or attorney, or both, Company shall be entitled to recover reasonable collection and attorney's fees, unless either party pleads otherwise.
DEPORTMENT
Should the Agent at any time, either before or after termination of this Contract, wrongfully withhold any funds belonging to any applicant for insurance, a policyholder or the Company; or should the Agent induce any policyholder to lapse, relinquish or surrender a policy with the Company; or should the Agent be in default under, or fail to comply with any provision, covenant, representation or warranty contained in this Contract or any other Contract agreement, or in any document or instrument related thereto, between the Agent and the Company; or should the Agent fail to comply with any State insurance laws or regulations, or Federal laws or regulations under which he or it is licensed or is otherwise subject; then the Agent shall immediately forfeit his or its right to receive any commissions or any other compensation due or to become due, whether vested or otherwise, under this Contract or any other agreement with the Company.
ADDITIONAL PROVISIONS
This Contract is personal and not transferable. Any assignment, transfer, or sale of this Contract or any right to interest herein, without prior written consent of Company, shall not be valid or in any way binding upon Company.
The use of the masculine gender shall include the feminine gender and the use of the singular shall include the plural where appropriate.
This Contract takes effect on the date and year first above written.
TERMINATION
This Contract may be terminated at the will of either party hereto, for any reason or without cause, at any time upon actual notice, written or oral. Cancellation or loss of license shall automatically terminate this Contract.
IN WITNESS WHEREOF, this Contract has been signed by the parties hereto.
UNITED AMERICAN INSURANCE COMPANY
BY:______________________________
President
Re: Loan Agreement:
I hereby elect to receive loans when made available by the Company for:
[ ] Health
[ ] Life
[ ] I do not elect to receive loans from the Company.
____________________________ ______________________________ Date Signature of Agent |
UNITED AMERICAN INSURANCE COMPANY
INDEPENDENT AGENT
SCHEDULE OF COMMISSIONS
General Agent shall receive commissions provided below on business personally written by Agent or any Sub-Agent(s) assigned to Agent.
RENEWAL YEARS
FIRST YEAR YEARS PERCENT
----------- -------------- --------
LIFE
----
400-Series Final Expense/ 110% 2-5 20%
Joint Last Survivor 6 Plus 10%
21 Pay 110% All 10%
10-Year Renewable Term 80% All 10%
500-Series 90% All 10%
900-Series 80% All 10%
300-Series 7% -- --
Single Premium Lifestyle Annuity 6%++ -- --
|
++Subject to chargebacks for first year policy surrenders and benefit payments. No Commissions payable on flat extra premiums, premiums waived or premiums paid by automatic premium loan.
HEALTH ------ Individual Medicare Supplements* - First Time Applicants under age 66 40% All 20% (except Disability Medicare) - Applicants age 66 & over, 26% All 26% Disability Medicare CASH BENEFIT CANCER 75% All 20% Florida only 55% All 15% ALL OTHER HEALTH PLANS 60%+ All 15% |
LONG TERM CARE** Issue Ages 1st YEAR YRS 2 - 10 YRS 11+ ---------- -------- ---------- ------ 0-54 82% 10% 5% 55-64 77% 10% 5% 65-69 72% 10% 5% 70-74 67% 10% 5% 75-79 62% 10% 5% 80+ 57% 10% 5% |
* No commissions will be paid on any portion of the premium for the Part B deductible coverage, nor any portion of the service fee for the Automatic Claims Filing service. Renewal years commissions will not include any portion of rate increases.
**Commissions will not be paid on Long Term Care premium that is attributable to the Non-Forfeiture Option or the United American Partner's Program.
+ Plus registration fee (less $1 on monthly and quarterly modes).
Renewal years Commissions will not include any portion of rate increases.
The Company reserves the right to change the rates at any time. Other products may be made available in the future with commission rates to be set at such time. The Company in its sole discretion will determine which products will be available for sale and may withdraw any products at any time.
This commission schedule is subject to any change required by federal or state law or regulation.
UNITED AMERICAN INSURANCE COMPANY
FOR STATES LISTED BELOW
MO/MS/MT/NV/OH/OK/TN/WY
H98LTC
UNITED AMERICAN INSURANCE COMPANY
LONG TERM CARE
SCHEDULE OF COMMISSIONS
EFFECTIVE JANUARY 1, 1997
_________________________________________ | | | THIS IS AN ADDENDUM TO YOUR CONTRACT | | PLEASE KEEP THIS WITH YOUR CONTRACT | _________________________________________ |
___________________________________________________________________________________________
LTC COMMISSION (01, H20, H98- One Check)
___________________________________________________________________________________________
Issue Ages 1st YEAR YRS 2 - 10 YRS 11+
___________________________________________________________________________________________
0-54 82 10 5
55-64 77 10 5
65-69 72 10 5
70-74 67 10 5
75-79 62 10 5
80+ 57 10 5
___________________________________________________________________________________________
|
Commissions will not be paid on Long Term Care premium that is attributable to the Non-Forfeiture Option or the United American Partner's Program
Renewal years Commissions will not include any portion of rate increases.
The Company reserves the right to change the rates at any time. Other products may be made available in the future with commission rates to be set at such time. The Company in its sole discretion will determine which products will be available for sale and may withdraw any products at any time.
This commission schedule is subject to any change required by federal or state law or regulation.
UNITED AMERICAN INSURANCE COMPANY
__________________________________
President
Long Term Care (01,H20,H98 - One Check)
Eff. 11/01/96 - 010897 LTC01.add
|
UNITED AMERICAN INSURANCE COMPANY
HEALTH COMMISSION SCHEDULE
INDEPENDENT AGENT CONTRACT
Agent shall receive commissions provided below on business personally written by Agent or any Sub-Agent(s) assigned to Agent.
RENEWAL YEARS
FIRST YEAR YEARS PERCENT
----------- ------------- --------
Individual Medicare Supplements*
- First Time
Applicants under age 66 40% All 20%
(except Disability Medicare)
- Applicants age 66 & over, 26% All 26%
Disability Medicare
Cash Benefit Cancer 75% All 20%
Florida only 55% All 15%
Long Term Care 60% All 15%
All Other Health Plans 60%+ All 15%
|
* No commissions will be paid on any portion of the premium for the Part B deductible coverage, nor any portion of the service fee for the Automatic Claims Filing service or the United American Partners Program. Renewal years commissions will not include any portion of rate increases.
+ Plus registration fee (less $1 on monthly and quarterly modes).
The Company reserves the right to change the rates at any time. Other products may be made available in the future with commission rates to be set at such time. The Company in its sole discretion will determine which products will be available for sale and may withdraw any products at any time.
UNITED AMERICAN INSURANCE COMPANY
By: ___________________________________
President
HEALTH LEVEL STATES
FOR ALL STATES EXCEPT THE FOLLOWING STATE SPECIALS
CT/IN/KS/KY/ME/MA/MI/MN/NJ/OR/PA/TX/WA/WV/WY
AMENDMENT EXTENDING INDEPENDENT AGENT CONTRACT
This is an amendment ("Amendment") extending the Independent Agent Contract ("Independent Agent Contract") effective June 25, 1997 between UNITED AMERICAN INSURANCE COMPANY ("United") or ("Company"), and W&R INSURANCE AGENCY, INC. ("Independent Agent"), as follows:
1. The termination paragraph of the Independent Agent Contract is amended to read as follows:
A. This Contract is effective from its Effective Date and, unless further extended by the parties, will terminate December 31, 1998.
2. In all other respects, the Independent Agent Contract is unchanged. The parties ratify and confirm the Independent Agent Contract as amended by this Amendment.
Executed this the ______ day of _______________, 1998.
UNITED AMERICAN INSURANCE COMPANY
By:___________________________
Name:_________________________
Title:________________________
W&R INSURANCE AGENCY, INC.
By:___________________________
Name:_________________________
Title:________________________
WADDELL & REED FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan (the "Plan"). The purpose of the Plan is to enable Waddell & Reed Financial, Inc. (the "Company") and its Subsidiaries to attract and retain employees, directors and consultants who contribute to the Company's success by their ability, ingenuity and industry, and to enable such employees and directors to participate in the long-term success and growth of the Company through an equity interest in the Company.
For purposes of the Plan, the following terms shall be defined as set forth below:
a. "Affiliate" means (i) any corporation (other than a Subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a 10 percent beneficial ownership interest, and
(ii) the Company's parent company or former parent company.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a participant's willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company or any Subsidiary or Affiliate.
d. "Code" means the Internal Revenue Code of 1986, as amended, or any successor thereto.
e. "Committee" means the Compensation Committee of the Board. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board.
f. "Commission" means the Securities and Exchange Commission.
g. "Company" means Waddell & Reed Financial, Inc., a corporation organized under the laws of the State of Delaware (or any successor corporation).
h. "Deferred Stock" means an award made pursuant to Section 9 below of the right to receive Stock at the end of a specified deferral period.
i. "Director Stock Option" means any option to purchase shares of Stock granted pursuant to Section 6.
j. "Disability" means total and permanent disability as determined under the Company's long term disability program. With respect to Director Stock Options, "Disability" shall be determined as if the Director was covered under the Company's long term disability program.
k. "Early Retirement" means retirement from active employment with the Company, any Subsidiary, and any Affiliate pursuant to the early retirement provisions of the applicable tax-qualified Company pension plan.
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor thereto.
m. "Fair Market Value" means[, as of the date of the initial public offering, the initial public offering price for the stock, and thereafter] the closing price of the Stock on the New York Stock Exchange Composite Tape on the date in question.
n. "Incentive Stock Option" means any Stock Option intended to be and designated as an "incentive stock option" within the meaning of Section 422 of the Code.
o. "Immediate Family" means the children, grandchildren or spouse of any optionee.
p. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option.
q. "Normal Retirement" means retirement from active employment with the Company, any Subsidiary, and any Affiliate on or after the normal retirement date specified in the applicable tax-qualified Company pension plan.
r. "Plan" means this 1998 Stock Incentive Plan.
s. "Restricted Stock" means an award of shares of Stock that are subject to restrictions under Section 8.
t. "Retirement" means Normal or Early Retirement.
u. "Stock" means the Common Stock of the Company.
v. "Stock Appreciation Right" means a right granted under Section 7 below to surrender to the Company all or a portion of a Stock Option in exchange for an amount equal to the difference between (i) the Fair Market Value, as of the date such Stock Option or such portion thereof is surrendered, of the shares of Stock covered by such Stock Option or such portion thereof, and (ii) the aggregate exercise price of such Stock Option or such portion thereof.
w. "Stock Option" means any option to purchase shares of Stock granted to employees pursuant to Section 5.
x. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee which shall at all times
comply with any applicable requirements of Rule 16b-3 of the Exchange Act. All
members of the Committee shall also be "outside directors" within the meaning of
Section 162(m) of the Code.
The Committee shall have the power and authority to grant to eligible employees, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock Appreciation Rights; (iii) Restricted Stock or (iv) Deferred Stock.
In particular, the Committee shall have the authority:
(i) to select the consultants, officers and other key employees of the Company, its Subsidiaries, and its Affiliates to whom Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards or a combination of the foregoing from time to time will be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock, or a combination of the foregoing, are to be granted hereunder;
(iii) to determine the number of shares of Stock to be covered by each such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (other than Director Stock Options), including, but not limited to, any restriction on any Stock Option or other award and/or the shares of Stock relating thereto based on performance and/or such other factors as the Committee may determine, in its sole discretion, and any vesting acceleration features based on performance and/or such other factors as the Committee may determine, in its sole discretion;
(v) to determine whether, to what extent and under what circumstances Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of a participant, including providing for and determining the amount (if any) of deemed earnings on any deferred amount during any deferral period.
The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution under the Plan shall be [13,000,000].
If any shares of Stock that have been optioned cease to be subject to option, or if any shares subject to any Restricted Stock or Deferred Stock award granted hereunder are forfeited or such award otherwise terminates, such shares shall again be available for distribution in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, an equitable substitution or adjustment shall be made in
(i) the aggregate number of shares reserved for issuance under the Plan, (ii)
the number and option price of shares subject to outstanding Stock Options and
Director Stock Options granted under the Plan, (iii) the number of shares
subject to Restricted Stock or Deferred Stock awards granted under the Plan,
(iv) the aggregate number of shares available for issuance to any employee
pursuant to Section 4(a), and (v) the number of Director Stock Options to be
granted each year pursuant to Section 6, as may be determined to be appropriate
by the Committee, in its sole discretion, provided that the number of shares
subject to any award shall always be a whole number. Such adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
(a) Consultants, officers and other key employees of the Company, its Subsidiaries or its Affiliates (but excluding members of the Committee and any person who serves only as a director, except as provided in Section 6 below) who are responsible for or contribute to the management, growth and/or profitability of the business of the Company, its Subsidiaries, or its Affiliates are eligible to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards. Only employees of the Company and its Subsidiaries are eligible to be granted Incentive Stock Options.
Except as provided in Section 6, the optionees and participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares covered by each award or grant; provided, however, that no employee shall be granted Stock Options on more than [200,000] shares in any calendar year.
(b) Directors of the Company (other than directors who are also officers or employees of the Company, its Subsidiaries or its Affiliates) are eligible to receive Director Stock Options pursuant to Section 6 of the Plan.
SECTION 5. STOCK OPTIONS FOR EMPLOYEES.
Stock Options may be granted either alone or in addition to other awards granted under the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve, and the provisions of Stock Option awards need not be the same with respect to each optionee.
The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights) except that Incentive Stock Options shall not be granted to employees of an Affiliate. To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option.
Except as provided in Section 5(1), no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as to
disqualify either the Plan or any Incentive Stock Option under Section 422 of
the Code. Notwithstanding the foregoing, in the event an optionee voluntarily
disqualifies an option as an Incentive Stock Option within the meaning of
Section 422 of the Code, the Committee may, but shall not be obligated to, make
such additional grants, awards or bonuses as the Committee shall deem
appropriate, to reflect the tax savings to the Company which results from such
disqualification.
Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant but shall be not less than 100% of the Fair Market Value of the Stock on the date of the grant of the Stock Option.
(b) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Incentive Stock Option shall be exercisable more than ten years after the date such Incentive Stock Option is granted.
(c) Exercisability. Subject to paragraph (l) of this Section 5 with
respect to Incentive Stock Options, Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee, provided, however, that, except as provided in Section 5(f),
5(g), 5(h) or 13, no Stock Option shall be exercisable prior to six months from
the date of the granting of the option. Notwithstanding the limitations set
forth in the preceding sentence, the Committee may accelerate the exercisability
of any Stock Option, at any time in whole or in part, based on performance
and/or such other factors as the Committee may determine in its sole discretion.
(d) Method of Exercise. Stock Options may be exercised in whole or in part at any time during the option period, by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment in full of the purchase price, in cash, by check or such other instrument as may be acceptable to the Committee (including instruments providing for "cashless exercise"). As determined by the Committee, in its sole discretion, at or after grant, payment in full or in part may also be made in the form of unrestricted Stock already owned by the optionee or, in the case of the exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock subject to an award hereunder (based, in each case, on the Fair Market Value of the Stock on the date the option is exercised, as determined by the Committee). If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock or Deferred Stock, the shares received upon the exercise of such Stock Option shall be restricted or deferred, as the case may be, in accordance with the original term of the Restricted Stock award or Deferred Stock award in question, except that the Committee may direct that such restrictions or deferral provisions shall apply to only the number of such shares equal to the number of shares of Restricted Stock or Deferred Stock surrendered upon the exercise of such option. No shares of unrestricted Stock shall be issued until full payment therefor has been made. An optionee shall have the rights to dividends or other rights of a stockholder with respect to shares subject to the option when the optionee has given written notice of exercise and has paid in full for such shares.
(e) Transferability of Options. A Stock Option agreement may permit an optionee to transfer the Stock Option to members of his or her Immediate Family, to one or more trusts for the benefit of such Immediate Family members, or to one or more partnerships where such Immediate Family members are the only partners if (i) the agreement setting forth such Stock Option expressly provides that the Stock Option may be transferred only with the express written consent of the Committee, and (ii) the optionee does not receive any consideration in any form whatsoever for said transfer. Any Stock Option so transferred shall continue to be subject to the same terms and conditions in the hands of the transferee as were applicable to said Stock Option immediately prior to the transfer thereof.
Any Stock Option not (i) granted pursuant to any agreement expressly allowing the transfer of said Stock Option or (ii) amended expressly to permit its transfer shall not be transferable by the optionee otherwise than by will or by the laws of descent and distribution and such Stock Option thus shall be exercisable during the optionee's lifetime only by the optionee.
(f) Termination by Death. Unless otherwise determined by the Committee, if an optionee's employment with the Company, any Subsidiary, and any Affiliate terminates by reason of death (or if an optionee dies following termination of employment by reason of disability or Normal Retirement), any Stock Option shall become immediately exercisable and may thereafter be exercised by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, during the period ending on the expiration of the stated term of such Stock Option or the first anniversary of the optionee's death, whichever is later.
[(g) Termination by Reason of Disability. Unless otherwise determined by the Committee, if an optionee's employment with the Company, any Subsidiary and any Affiliate terminates by reason of Disability, any Stock Option held by such optionee shall be immediately exercisable and may thereafter be exercised during the period ending on the expiration of the stated term of such Stock Option. In the event of termination of employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.]
[(h) Termination by Reason of Retirement. Unless otherwise determined by the Committee, if an optionee's employment with the Company, any Subsidiary and any Affiliate terminates by reason of Normal Retirement, any Stock Option held by such optionee shall become immediately exercisable. A Stock Option held by an optionee whose employment has terminated by reason of Normal Retirement shall expire at the end of the stated term of such Stock Option, unless otherwise determined by the Committee.
If an optionee's employment with the Company, any Subsidiary and any Affiliate terminates by reason of Early Retirement, any Stock Option shall terminate three years from the date of such Early Retirement or upon the expiration of the stated term of the Stock Option, whichever is shorter, unless otherwise determined by the Committee. In the event of Early Retirement, there shall be no acceleration of vesting of the Stock Option unless otherwise determined by the Committee at or after grant, and said Stock Option may only be exercised to the extent it is or has become exercisable prior to termination of the Stock Option.
In the event of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised after the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.]
(i) Termination for Cause. If the optionee's employment with the Company, any Subsidiary and any Affiliate is terminated for Cause, the Stock Option shall immediately be forfeited to the Company upon the giving of notice of termination of employment.
(j) Other Termination. If the optionee's employment with the Company, any Subsidiary and any Affiliate is involuntarily terminated by the optionee's employer without Cause, the Stock Option shall terminate three months from the date of termination of employment or upon the expiration of the stated term of the Stock Option, whichever is shorter, unless otherwise determined by the Committee. If an optionee's employment with the Company, any Subsidiary and any Affiliate is voluntarily terminated for any reason, the Stock Option shall terminate one month from the date of termination of employment or upon the expiration of the stated term of the Stock Option, whichever is shorter. In the event of involuntary termination without Cause or voluntary termination for any reason, there shall be no acceleration of vesting of the Stock Option unless otherwise determined by the Committee and said Stock Option may only be exercised to the extent it is or has become exercisable prior to termination of the Stock Option.
(k) Termination upon Change of Control. Notwithstanding the provisions of Section 5(j) or the stated term of the Stock Option, if the optionee's employment with the Company, any Subsidiary and any Affiliate is involuntarily terminated by the optionee's employer without Cause by reason of or within three months after a merger or other business combination resulting in a "Change of Control" as defined in Section 13 of this Plan, the Stock Option shall terminate upon the later of six months and one day after such merger or business combination or ten business days following the expiration of the period during which publication of financial results covering at least thirty days of post-merger combined operations has occurred.
(l) Limit on Value of Incentive Stock Option First Exercisable Annually. The aggregate Fair Market Value (determined at the time of grant) of the Stock for which "incentive stock options" within the meaning of Section 422 of the Code are exercisable for the first time by an optionee during any calendar year under the Plan (and/or any other stock option plans of the Company, any Subsidiary and any Affiliate) shall not exceed $100,000. Notwithstanding the preceding sentence, the exercisability of such Stock Options may be accelerated by the Committee and shall be accelerated as provided in Sections 5(f), 5(g), 5(h), and 13, in which case Stock Options which exceed such $100,000 limit shall be treated as Non-Qualified Stock Options. For this purpose, options granted earliest shall be applied first to the $100,000 limit. In the event that only a portion of the options granted at the same time can be applied to the $100,000 limit, the Company shall issue separate share certificates for such number of shares as does not exceed the $100,000 limit, and shall designate such shares as ISO stock in its share transfer records.
SECTION 6. DIRECTOR STOCK OPTIONS.
Director Stock Options granted under the Plan shall be Non-Qualified Stock Options. Such Director Stock Options may be granted pursuant to a pre- established formula contained in the Plan or may, in the sole discretion of the entire Board of Directors, be granted as to such number of shares and upon such terms and conditions as shall be determined by said Board of Directors.
Director Stock Options granted under the Plan shall be evidenced by a written agreement in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions:
(a) Formula-based Director Stock Options. For 1998, 6,000 Director Stock Options shall be granted automatically to each member of the Board who is not an employee of the Company, its Subsidiaries or Affiliates ("Outside Director"). For each calendar year thereafter, 3,000 Director Stock Options shall be granted automatically on the first day of each calendar year on which Stock is publicly traded on the New York Stock Exchange to each Outside Director.
The option price per share of Stock purchasable under such Director Stock Option shall be 100% of the Fair Market Value of the Stock on the date of the grant of the Director Stock Option. Except as provided in Section 13, said Director Stock Options shall become exercisable in full six months from the date of the grant of the option and shall remain exercisable for a term of ten years and two days from the date such Director Stock Option is granted.
(b) Non-Formula Based Director Stock Options. Within its sole discretion, the entire Board may award Director Stock Options on a non-formula basis to all or such individual Outside Directors as it shall select. Such Director Stock Options may be awarded at such times and for such number of shares as the Board in its discretion determines. The price of such Director Stock Options may be fixed by the Board at a discount not to exceed 25% of the fair market value of the Stock on the date of grant or may be the fair market value of the Stock on the grant date. Such Director Stock Options shall become first exercisable and have an option term as determined by the Board in its discretion, provided however, that except as described in Section 13 and in paragraph (e) of this section, no such Director Stock Option shall be first exercisable until six months from the date of grant. All other terms and conditions of such Director Stock Options shall be as established by the Board in its sole discretion.
(c) Method of Exercise. Any Director Stock Option granted pursuant to the Plan may be exercised in whole or in part at any time during the option period, by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment in full of the purchase price, in cash, by check or such other instrument as may be acceptable to the Committee (including instruments providing for "cashless exercise"). Payment in full or in part may also be made in the form of unrestricted Stock already owned by the optionee (based on the Fair Market Value of the Stock on the date the option is exercised). No shares of unrestricted Stock shall be issued until full payment therefor has been made. An optionee shall have the rights to dividends or other rights of a stockholder with respect to shares subject to the option when the optionee has given written notice of exercise and has paid in full for such shares.
(d) Transferability of Options. No Director Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and all Director Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, and (ii) is otherwise
appropriate and desirable, taking into account any state or federal securities laws applicable to transferable options.
(e) Termination of Service. Upon an optionee's termination of status as an Outside Director with the Company for any reason, any Director Stock Options held by such optionee shall become immediately exercisable and may thereafter be exercised during the period ending on the expiration of the stated term of such Director Stock Options or the first anniversary of the optionee's death, whichever is later. Notwithstanding the foregoing sentence, if the optionee's status as an Outside Director terminates by reason of or within three months after a merger or other business combination resulting in a "Change of Control" as defined in Section 13 of this Plan, the Director Stock Option shall terminate upon the latest of (i) six months and one day after the merger or business combination, (ii) ten business days following the expiration of the period during which publication of financial results covering at least thirty days of post-merger combined operations has occurred, and (iii) the expiration of the stated term of such Director Stock Option.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Non-Qualified Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Incentive Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, except that, unless otherwise provided by the Committee at the time of grant, a Stock Appreciation Right granted with respect to less than the full number of shares covered by a related Stock Option shall only be reduced if and to the extent that the number of shares covered by the exercise or termination of the related Stock Option exceeds the number of shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance with paragraph (b) of this Section 7, by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in paragraph (b) of this Section 7. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and this
Section 7 of the Plan; provided, however, that any Stock
Appreciation Right granted subsequent to the grant of the related Stock Option shall not be exercisable during the first six months of the term of the Stock Appreciation Right, except that this additional limitation shall not apply in the event of death or Disability of the optionee prior to the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive up to, but not more than, an amount in cash or shares of Stock equal in value to the excess of the Fair Market Value of one share of Stock over the option price per share specified in the related Stock Option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under paragraph (e) of Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 of the Plan on the number of shares of Stock to be issued under the Plan.
(v) A Stock Appreciation Right granted in connection with an Incentive Stock Option may be exercised only if and when the market price of the Stock subject to the Incentive Stock Option exceeds the exercise price of such Stock Option.
(vi) In its sole discretion, the Committee may provide, at the time of grant of a Stock Appreciation Right under this Section 7, that such Stock Appreciation Right can be exercised only in the event of a "Change of Control" and/or a "Potential Change of Control" (as defined in Section 13 below).
(vii) The Committee, in its sole discretion, may also provide that in the event of a "Change of Control" and/or a "Potential Change of Control" (as defined in Section 13 below) the amount to be paid upon the exercise of a Stock Appreciation Right shall be based on the "Change of Control Price" (as defined in Section 13 below).
SECTION 8. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued either alone or in addition to other awards granted under the Plan. The Committee shall determine the officers and key employees of the Company and its Subsidiaries and Affiliates to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the price, if any, to be paid by the recipient of Restricted Stock (subject to Section 8(b) hereof), the time or times within which such awards may be subject to forfeiture, and all other conditions of the awards. The Committee may also condition the grant and/or vesting of Restricted Stock upon the attainment of specified performance goals, or such other criteria as the Committee may determine,
in its sole discretion. The provisions of Restricted Stock awards need not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of shares of Restricted Stock shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award (a "Restricted Stock Award Agreement"), has delivered a fully executed copy thereof to the Company, and has otherwise complied with the then applicable terms and conditions. Awards of Restricted Stock must be accepted within a period of 60 days (or such shorter period as the Committee may specify) after the award date by executing a Restricted Stock Award Agreement and paying the price specified in the Restricted Stock Award Agreement. Each participant who is awarded Restricted Stock shall be issued a stock certificate registered in the name of the participant in respect of such shares of Restricted Stock. The Committee shall specify that the certificate shall bear a legend, as provided in clause (i) below, and/or be held in custody by the Company, as provided in clause (ii) below.
(i) The certificate shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Waddell & Reed Financial, Inc. 1998 Stock Incentive Plan and a Restricted Stock Award Agreement entered into between the registered owner and Waddell & Reed Financial, Inc. Copies of such Plan and Agreement are on file in the offices of Waddell & Reed Financial, Inc., ___________________________, ______________________________."
(ii) The Committee shall require that the stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award, the participant shall have delivered a stock power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded pursuant to this Section 8 shall be subject to the following restrictions and conditions:
(i) Subject to the provisions of this Plan and the Restricted Stock Award Agreements, during such period as may be set by the Committee commencing on the grant date (the "Restriction Period"), the participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded under the Plan. The Committee may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, before or after the participant's termination of employment, based on performance and/or such other factors as the Committee may determine, in its sole discretion.
(ii) Except as provided in paragraph (c)(i) of this Section 8, the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the
Company, including the right to receive any dividends. Dividends paid in stock of the Company or stock received in connection with a stock split with respect to Restricted Stock shall be subject to the same restrictions as on such Restricted Stock. Certificates for shares of unrestricted Stock shall be delivered to the participant promptly after, and only after, the period of forfeiture shall expire without forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the Restricted Stock Award Agreement and this Section 8, upon termination of employment for any reason other than Normal Retirement or death during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant, and the participant shall only receive the amount, if any, paid by the participant for such forfeited Restricted Stock.
SECTION 9. DEFERRED STOCK AWARDS.
(a) Administration. Deferred Stock may be awarded either alone or in addition to other awards granted under the Plan. The Committee shall determine the officers and key employees of the Company, its Subsidiaries and Affiliates to whom, and the time or times at which, Deferred Stock shall be awarded, the number of shares of Deferred Stock to be awarded to any participant, the duration of the period (the "Deferral Period") during which, and the conditions under which, receipt of the Stock will be deferred, and the terms and conditions of the award in addition to those set forth in paragraph (b) of this Section 9. The Committee may also condition the grant and/or vesting of Deferred Stock upon the attainment of specified performance goals, or such other criteria as the Committee shall determine, in its sole discretion. The provisions of Deferred Stock awards need not be the same with respect to each recipient.
(b) Terms and Conditions. The shares of Deferred Stock awarded pursuant to this Section 9 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award agreement, Deferred Stock awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. At the expiration of the Deferral Period (or Elective Deferral Period, (as defined below) where applicable), share certificates shall be delivered to the participant, or his legal representative, in a number equal to the shares covered by the Deferred Stock award.
(ii) At the time of the award, the Committee may, in its sole discretion, determine that amounts equal to any dividends declared during the Deferral Period (or Elective Deferral Period) with respect to the number of shares covered by a Deferred Stock award will be: (a) paid to the participant currently; (b) deferred and deemed to be reinvested; or (c) that such participant has no rights with respect thereto.
(iii) Subject to the provisions of the award agreement and this Section 9, upon termination of employment for any reason during the Deferral Period for a given award, the Deferred Stock in question shall be forfeited by the participant.
(iv) Based on performance and/or such other criteria as the Committee may determine, the Committee may, at or after grant (including after the participant's termination of employment), accelerate the vesting of all or any part of any Deferred Stock award and/or waive the deferral limitations for all or any part of such award.
(v) A participant may elect to defer further receipt of the award for a specified period or until a specified event (the "Elective Deferral Period"), subject in each case to the Committee's approval and to such terms as are determined by the Committee, all in its sole discretion. Subject to any exceptions adopted by the Committee, such election must generally be made at least six months prior to completion of the Deferral Period for a Deferred Stock award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms of, a Deferred Stock award agreement executed by the Company and the participant.
SECTION 10. LOAN PROVISIONS.
With the consent of the Committee, the Company may make, or arrange for, a loan or loans to an employee with respect to the exercise of any Stock Option granted under the Plan and/or with respect to the payment of the purchase price, if any, of any Restricted Stock awarded hereunder. The Committee shall have full authority to decide whether to make a loan or loans hereunder and to determine the amount, term and provisions of any such loan or loans, including the interest rate to be charged in respect of any such loan or loans, whether the loan or loans are to be with or without recourse against the borrower, the terms on which the loan is to be repaid and the conditions, if any, under which the loan or loans may be forgiven.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made which would impair the right of an optionee or participant under a Stock Option, Director Stock Option, Stock Appreciation Right, Restricted Stock or Deferred Stock award theretofore granted, without the optionee's or participant's consent.
Amendments may be made without stockholder approval except as required to satisfy Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, stock exchange listing requirements, or other regulatory requirements.
The Committee may amend the terms of any award or option (other than Director Stock Options) theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any holder without his consent. The Committee may also substitute new Stock Options for previously granted Stock Options including options granted under other plans applicable to the participant and previously granted Stock Options having higher option prices.
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a participant or optionee by the Company, nothing set forth herein shall give any such participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.
SECTION 13. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall apply in the event of a "Change of Control" or "Potential Change of Control," as defined in this Section 13, that occurs more than twelve months after the date of the Company's initial public offering:
(a) In the event of a "Change of Control" as defined in paragraph
(b) of this Section 13, [unless otherwise determined by the Committee in writing
at or after grant, but prior to the occurrence of such Change of Control, or,]
if and to the extent so determined by the Committee in writing at or after grant
(subject to any right of approval expressly reserved by the Committee at the
time of such determination) in the event of a "Potential Change of Control," as
defined in paragraph (c) of this Section 13:
(i) any Stock Appreciation Rights and any Stock Options awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested;
(ii) the restrictions and deferral limitations applicable to any Restricted Stock and Deferred Stock awards under the Plan shall lapse and such shares and awards shall be deemed fully vested; and
(iii) the value of all outstanding Stock Options, Director
Stock Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock
Awards, shall, to the extent determined by the Committee at or after grant, be
settled on the basis of the "Change of Control Price" (as defined in paragraph
(d) of this Section 13) as of the date the Change of Control occurs or Potential
Change of Control is determined to have occurred, or such other date as the
Committee may determine prior to the Change of Control or Potential Change of
Control. In the sole discretion of the Committee, such settlements may be made
in cash or in stock, as shall be necessary to effect the desired accounting
treatment for the transaction resulting in the Change of Control. In addition,
any Stock Option, Director Stock Option, and Stock Appreciation Right which has
been outstanding for less than six months shall be settled solely in stock.
(b) For purposes of paragraph (a) of this Section 13, a "Change of Control" means the happening of any of the following:
(i) when any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company or a Subsidiary or any Company employee benefit plan), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the Company required to be described pursuant to the requirements of 6(e) of Schedule 14A of Regulation 14A of the Commission under the Exchange Act;
(iii) when, during any period of two consecutive years during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board cease, for any reason other than death, to constitute at least a majority thereof, unless each director who was not a director at the beginning of such period was elected by, or on the recommendation of, at least two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise.
(c) For purposes of paragraph (a) of this Section 13, a "Potential Change of Control" means the happening of any of the following:
(i) the entering into an agreement by the Company, the consummation of which would result in a Change of Control of the Company as defined in paragraph (b) of this Section 13; or
(ii) the acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan) of securities of the Company representing 5 percent or more of the combined voting power of the Company's outstanding securities and the adoption by the Board of Directors of a resolution to the effect that a Potential Change of Control of the Company has occurred for purposes of this Plan.
(d) For purposes of this Section 13, "Change of Control Price" means the highest price per share paid in any transaction reported on the New York Stock Exchange Composite Tape, or paid or offered in any transaction related to a potential or actual Change of Control of the Company at any time during the preceding sixty day period as determined by the Committee, except that (i) in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, such price shall be based only on transactions reported for the date on which the Committee decides to cashout such options, and (ii) in the case of Director Stock Options, the sixty day period shall be the period immediately prior to the Change of Control.
SECTION 14. LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 13 above or any other provision of
this Plan or any other agreement, arrangement or plan, in no event shall the
Company pay or be obligated to pay any Plan participant an amount which would be
an Excess Parachute Payment except as provided in Section 14(f) below and except
as the Committee specifically provides otherwise in the participant's grant
agreement. For purposes of this Agreement, the term "Excess Parachute Payment"
shall mean any payment or any portion thereof which would be an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code, and
would result in the imposition of an excise tax under Section 4999 of the Code,
in the opinion of tax counsel selected by the Company, ("Tax Counsel"). In the
event it is determined that an Excess Parachute Payment would result if the full
acceleration of vesting and exercisability provided in Section 13 above were
made (when added to any other payments or benefits contingent on a change of
control under any other agreement, arrangement or plan), the payments due under
Section 13(a) shall be reduced to the minimum extent necessary to prevent an
Excess Parachute Payment; then, if necessary to prevent an Excess Parachute
Payment, benefits or payments under any other plan, agreement or arrangement
shall be reduced. If it is established pursuant to a final determination of a
court or an Internal Revenue Service administrative appeals proceeding that,
notwithstanding the good faith of the participant and the Company in applying
the terms of this Section 14(a), a payment (or portion thereof) made is an
Excess Parachute Payment, then, the Company shall pay to the participant an
additional amount in cash (a "Gross-Up Payment") equal to the amount necessary
to cause the amount of the aggregate after-tax compensation and benefits
received by the participant hereunder (after payment of the excise tax under
Section 4999 of the Code with respect to any Excess Parachute Payment, and any
state and federal income taxes with respect to the Gross-Up Payment) to be equal
to the aggregate after-tax compensation and benefits he would have received as
if Sections 280G and 4999 of the Code had not been enacted.
(b) Subject to the provisions of Section 14(c), the amount of any Gross-Up Payment and the assumptions to be utilized in arriving at such amount, shall be determined by a nationally recognized certified public accounting firm designated by the Company (the "Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to Section 14(a), shall be paid by the Company to the participant within five (5) days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and participant.
(c) Participant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by Company of a Gross-Up Payment. Such notification shall be given no later than ten (10) business days after participant is informed in writing of such claim and shall apprise the Company of the nature of the claim and the date of requested payment. Participant shall not pay the claim prior to the expiration of the thirty (30) day period following the date on which it gives
notice to the Company. If the Company notifies participant in writing prior to the expiration of the period that it desires to contest such claim, participant shall:
(i) give the Company any information reasonably requested by the Company relating to such claim;
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to participant;
(iii) cooperate with the Company in good faith in order to effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating to such claim.
(d) In the event that the Company exhausts its remedies pursuant to Section 14(c) and participant thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Gross-Up Payment required and such payment shall be promptly paid by the Company to or for the benefit of participant.
(e) If, after the receipt of participant of an amount advanced by the Company pursuant to Section 14(c), participant becomes entitled to receive any refund with respect to such claim, participant shall promptly after receiving such refund pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by participant of an amount advanced by the
Company pursuant to Section 14(c), a determination is made that participant shall not be entitled to any refund with respect to such claim and the Company does not notify participant in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in
Section 14(a) shall not apply to a participant if in the opinion of Tax Counsel
or the Accounting Firm (i) the total amounts payable to the participant
hereunder and under any other agreement, arrangement or plan as a result of a
change of control (calculated without regard to the limitation of Section
14(a)), reduced by the amount of excise tax imposed on the participant under
Code Section 4999 with respect to all such amounts and reduced by the state and
federal income taxes on amounts paid in excess of the limitation set forth in
Section 14(a), would exceed (ii) such total amounts payable after application of
the limitation of Section 14(a). No Gross-Up Payment shall be made in such case.
SECTION 15. GENERAL PROVISIONS.
(a) All certificates for shares of Stock delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(b) Nothing set forth in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee or director of the Company, any Subsidiary or any Affiliate, any right to continued employment (or, in the case of a director, continued retention as a director) with the Company, a Subsidiary or an Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company, a Subsidiary or an Affiliate to terminate the employment of any of its employees at any time.
(c) Each participant shall, no later than the date as of which the value of an award first becomes includible in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee, in its sole discretion, regarding payment of, any Federal, FICA, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements.
The Committee may permit or require, in its sole discretion, participants to elect to satisfy their Federal, and where applicable, FICA, state and local tax withholding obligations with respect to all awards other than Stock Options which have related Stock Appreciation Rights by the
reduction, in an amount necessary to pay all said withholding tax obligations, of the number of shares of Stock or amount of cash otherwise issuable or payable to said participants in respect of an award. The Company and, where applicable, its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes owed hereunder by a participant from any payment of any kind otherwise due to said participant.
(d) At the time of grant or purchase, the Committee may provide in
connection with any grant or purchase made under this Plan that the shares of
Stock received as a result of such grant or purchase shall be subject to a right
of first refusal, pursuant to which the participant shall be required to offer
to the Company any shares that the participant wishes to sell, with the price
being the then Fair Market Value of the Stock, subject to the provisions of
Section 13 hereof and to such other terms and conditions as the Committee may
specify at the time of grant.
(e) No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.
SECTION 16. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is approved by a majority vote of the Company's stockholders.
SECTION 17. TERM OF PLAN.
No Stock Option, Director Stock Option, Stock Appreciation Right, Restricted Stock award or Deferred Stock award shall be granted pursuant to the Plan on or after ______, 2008, but awards theretofore granted may extend beyond that date.
WADDELL & REED FINANCIAL, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE 1
Purpose of the Plan
Section 1.1. Purpose. The purpose of the 1998 Non-Employee Director Stock Option Plan is to attract and retain highly qualified and capable Non- Employee Directors and to promote the long-term growth of Waddell & Reed Financial, Inc. by providing a vehicle for Non-Employee Directors to increase their proprietary interest in Waddell & Reed Financial, Inc. The Plan will be effective for Annual Compensation payable in 1998 or thereafter.
ARTICLE 2
DEFINITIONS
Section 2.1. Unless the context clearly indicates otherwise, the following terms shall have the following meanings:
"Acquisition" has the meaning assigned such term in Section 9.3 hereof.
"Acquisition Consideration" has the meaning assigned such term in
Section 9.3 hereof.
"Annual Compensation" means the annual cash retainer and meeting fees payable by the Company to a Non-Employee Director for services as a director (and, if applicable, as the member or chairman of a committee of the Board) of the Company, as such amount may be changed from time to time. For purposes of an election to receive Options under the Plan in lieu of Annual Compensation, meeting fees will be deemed to be earned at the beginning of the year for all scheduled meetings during the year, whether or not the Optionee later attends such meetings.
"Beneficiary" means any person or persons designated by a Participant, in accordance with procedures established by the Committee or Plan Administrator, to receive benefits hereunder in the event of the Participant's death. If any Participant shall fail to designate a Beneficiary or shall designate a Beneficiary who shall fail to survive the Participant, the Beneficiary shall be the Participant's surviving spouse, or, if none, the Participant's surviving descendants (who shall take per stirpes) and if there are no surviving descendants, the Beneficiary shall be the Participant's estate.
"Board" means the Board of Directors of the Company.
"Business Day" means a day on which the New York Stock Exchange or any national securities exchange or over-the-counter market on which the Shares are traded is open for business.
"Change in Control" means any of the following that occurs more than twelve months after the Company's initial public offering:
(i) when any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a subsidiary thereof or any Company employee benefit plan), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the Company that is required to be described pursuant to the requirements of Item 6(e) of Schedule 14A of Regulation 14A of the Securities and Exchange Commission under the Exchange Act;
(iii) when, during any period of two consecutive years during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board, cease for any reason other than death to constitute at least a majority thereof, unless each director who was not a director at the beginning of such period was elected by, or on the recommendation of, at least two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary thereof through the purchase of assets, by merger, or otherwise.
"Committee" means the Compensation Committee of the Board.
"Company" means Waddell & Reed Financial, Inc., a Delaware corporation.
"Disability" means total and permanent disability as determined under the Company's long term disability program, whether or not the Optionee is covered under such program. If no such program is in effect, the Disability of a Participant shall be determined in good faith by the Board (excluding the Participant).
"Election Date" means the date established by the Plan as the date by which a Participant must submit a valid Primary Election Form to the Plan Administrator in order to participate in the Plan for a calendar year. For each calendar year, the Election Date is December 31 of the preceding calendar year; provided, however, that the Election Date for a newly eligible Participant shall be the 30th day following the date on which such individual becomes a Non- Employee Director.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any given date, the closing price of the Stock on such date on the New York Stock Exchange Composite Tape.
"Interest Account" means the account established by the Company for each Participant for Annual Compensation deferred pursuant to the Plan and which shall be credited with interest on the last day of each calendar quarter (or such other day as determined by the Plan Administrator). The maintenance of individual Interest Accounts is for bookkeeping purposes only.
"Non-Employee Director" means a director of the Company who is not an employee of the Company or of any subsidiary (as determined by the Committee).
"Option" means an option to purchase Shares awarded under Article 6.
"Option Grant Date" means the date upon which an Option is granted to a Non-Employee Director pursuant to Article 6.
"Optionee" means a Non-Employee Director of the Company to whom an Option has been granted or, in the event of such Non-Employee Director's death prior to the expiration of an Option, such Non-Employee Director's Beneficiary.
"Participant" means any Non-Employee Director who is participating in the Plan.
"Plan" means the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Option Plan.
"Plan Administrator" means the Committee or its delegee of administrative duties under the Plan pursuant to Section 3.2.
"Primary Election Form" means a form, substantially in the form attached hereto as Exhibit A, pursuant to which a Non-Employee Director elects to defer Annual Compensation under the Plan.
"Secondary Election Form" means a form, substantially in the form attached hereto as Exhibit B, pursuant to which a Non-Employee Director elects to convert previously deferred compensation to Options pursuant to Section 6.1 of the Plan.
"Shares" means shares of the common stock of the Company.
"Stock Option Award Notice" means a written award notice to a Non- Employee Director from the Company evidencing an Option.
ARTICLE 3
ADMINISTRATION OF THE PLAN
Section 3.1. Administrator of the Plan. The Plan shall be administered by the Committee.
Section 3.2. Authority of Committee. The Committee shall have full power and authority to: (i) interpret and construe the Plan and adopt such rules and regulations as it shall deem
necessary and advisable to implement and administer the Plan, and (ii) designate persons other than members of the Committee or the Board to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, such determinations to be made in accordance with the Committee's best business judgment as to the best interests of the Company and its stockholders and in accordance with the purposes of the Plan. The Committee may delegate administrative duties under the Plan to one or more agents as it shall deem necessary or advisable.
Section 3.3. Effect of Committee Determinations. No member of the Committee or the Board or the Plan Administrator shall be personally liable for any action or determination made in good faith with respect to the Plan or any Option or to any settlement of any dispute between a Non-Employee Director and the Company. Any decision or action taken by the Committee or the Board with respect to an Option or the administration or interpretation of the Plan shall be conclusive and binding upon all persons.
ARTICLE 4
PARTICIPATION
Section 4.1. Election to Participate. Each Non-Employee Director is automatically eligible to participate in the Plan. A Non-Employee Director may participate in the Plan for a calendar year by delivering a properly completed and signed Primary Election Form to the Plan Administrator on or before the Election Date. The Non-Employee Director's participation in the Plan will be effective as of the first day of the calendar year beginning after the Plan Administrator receives the Non-Employee Director's Primary Election Form, or, in the case of a newly eligible Participant, on the first day of the calendar month beginning after the Plan Administrator receives such Non-Employee Director's Primary Election Form. A Participant shall not be entitled to any benefit hereunder unless such Participant has properly completed a Primary Election Form and deferred the receipt of his or her Annual Compensation pursuant to the Plan.
Section 4.2. Irrevocable Election. A Participant may not revoke or change his or her Primary Election Form for a calendar year; provided, however, that a Participant may, by filing a Secondary Election Form with the Plan Administrator within the period provided in the Plan, subsequently elect to convert the balance in his or her Interest Account to Options in accordance with Article 6.
Section 4.3. No Right to Continue as a Director. Nothing contained in the Plan shall be deemed to give any Non-Employee Director the right to be retained as a director of the Company.
ARTICLE 5
PLAN BENEFITS
Section 5.1. Deferred Annual Compensation. A Non-Employee Director may elect to defer up to 100% of his or her Annual Compensation (in 10% increments but not less than 50%) to his or her Interest Account and/or by conversion to Options in accordance with the terms of the Plan. For bookkeeping purposes, the amount of the Annual Compensation which a Non-
Employee Director elects to defer pursuant to the Plan shall be transferred to and held in individual Interest Accounts (in annual designations) pending distribution in cash or the conversion to Options, if applicable, pursuant to Article 6.
Section 5.2. Time of Election of Deferral. A Non-Employee Director who wishes to defer Annual Compensation for a calendar year must irrevocably elect to do so on or prior to the Election Date for such calendar year, by delivering a valid Primary Election Form to the Plan Administrator. The Primary Election Form shall indicate: (1) the percentage of Annual Compensation to be deferred, and (2) the form and timing of payout of deferred amounts.
Section 5.3. Interest Accounts. Amounts in a Participant's Interest Account will be credited with interest as of the last day of each calendar quarter (or such other day as determined by the Plan Administrator, which, in the case of amounts converted to Options under the Plan, shall be the date of such conversion) at the rate set from time to time by the Committee to be applicable to the Interest Accounts of all Participants under the Plan. To the extent required for bookkeeping purposes, a Participant's Interest Accounts will be segregated to reflect deferred Annual Compensation on a year-by-year basis. For example, a 1997 Interest Account, a 1998 Interest Account, and so on. Within a reasonable time after the end of each calendar year, the Plan Administrator shall report in writing to each Participant the amount held in his or her Interest Accounts at the end of the year.
Section 5.4. Responsibility for Investment Choices. Each Participant is solely responsible for any decision to defer Annual Compensation into his or her Interest Account or convert Annual Compensation to Options under the Plan and accepts all investment risks entailed by such decision, including the risk of loss and a decrease in the value of the amounts he or she elects to defer.
Section 5.5. Form of Payment.
(a) Payment Commencement Date. Payment of the balances in a Participant's Interest Accounts shall commence on the earliest to occur of (a) December 31 of the fifth year after the year with respect to which the deferral was made, (b) the first Business Day of the fourth month after the Participant's death, or (c) the Participant's termination as a Non-Employee Director other than by reason of death.
(b) Optional Forms of Payment. Distributions from a Participant's Interest Accounts may be paid to the Participant either in a lump sum or in a number of approximately equal monthly installments designated by the Participant on his or her Primary Election Form. Such monthly installments may be for any number of months up to 120 months; provided, however, that in the event of the Participant's death during the payout period, the remaining balance shall be payable to the Participant's Beneficiary in a lump sum on the first Business Day of the fourth month after the Participant's death. If a Participant elects to receive a distribution of his or her Interest Accounts in installments, the Plan Administrator may purchase an annuity from an insurance company which annuity will pay the Participant the desired annual installments. If the Plan Administrator purchases an annuity contract, the Eligible Executive will have no further
rights to receive payments from the Company or the Plan with respect to the amounts subject to the annuity. If the Plan Administrator does not purchase an annuity contract, the value of the Interest Accounts remaining unpaid shall continue to receive allocations of return as provided in Section 5.3. If the Participant fails to designate a payment method in the Participant's Primary Election Form, the Participant's Account shall be distributed in a lump sum.
(c) Irrevocable Elections. A Participant may elect a different payment form for each year's Annual Compensation deferred under the Plan. The payment form elected or deemed elected on the Participant's Primary Election Form shall be irrevocable.
(d) Acceleration of Payment. If a Participant elects an installment distribution and the value of such installment payment elected by the Participant would result in a distribution of less than $3,000 per year, the Plan Administrator may accelerate payment of the Participant's benefits over a lesser number of whole years so that the annual amount distributed is at least $3,000. If payment of the Participant's benefits over a five year period will not provide annual distributions of at least $3,000, the Participant's Account shall be paid in a lump sum.
(e) Effect of Competition. Notwithstanding the Primary Election Form or any provision set forth herein, the entire balance of a Participant's Interest Accounts shall be paid immediately to the Participant a lump sum in the event the Participant ceases to be a Non-Employee Director and becomes a proprietor, officer, partner, employee or otherwise becomes affiliated with any business that is in competition with the Company or an affiliated company, or becomes employed by any governmental agency having jurisdiction over the activities of the Company or an affiliated company.
(f) Effect of Adverse Determination. Notwithstanding the Primary Election Form or any provision set forth herein, if the Internal Revenue Service determines, for any reason, that all or any portion of the amounts credited under this Plan is currently includable in the taxable income of any Participant, then the amounts so determined to be includable in income shall be distributed in a lump sum to such Participant as soon as practicable.
(g) Payment to Beneficiary. Upon the Participant's death, all unpaid amounts held in the Participant's Account shall be paid to the Participant's Beneficiary in a lump sum on the first Business Day of the fourth month following the Participant's death.
Section 5.6. Financial Hardship. The Plan Administrator may, in its sole discretion, accelerate the making of payment to a Participant of an amount reasonably necessary to handle a severe financial hardship of a sudden and unexpected nature due to causes not within the control of the Participant. All financial hardship distributions shall be made in cash in a lump sum. Such payments will be made on a first-in, first-out basis so that the oldest Annual Compensation deferred under the Plan shall be deemed distributed first in a financial hardship.
Section 5.7. Payment to Minors and Incapacitated Persons. In the event that any amount is payable to a minor or to any person who, in the judgment of the Plan Administrator, is incapable of making proper disposition thereof, such payment shall be made for the benefit of such
minor or such person in any of the following ways as the Plan Administrator, in its sole discretion, shall determine:
(a) By payment to the legal representative of such minor or such person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the benefit of such minor or such person. The Plan Administrator shall make such payments without the necessary intervention of any guardian or like fiduciary, and without any obligation to require bond or to see to the further application of such payment. Any payment so made shall be in complete discharge of the Plan's obligation to the Participant and his or her Beneficiaries.
Section 5.8. Application for Benefits. The Plan Administrator may require a Participant or Beneficiary to complete and file certain forms as a condition precedent to receiving the payment of benefits. The Plan Administrator may rely upon all such information given to it, including the Participant's current mailing address. It is the responsibility of all persons interested in receiving a distribution pursuant to the Plan to keep the Plan Administrator informed of their current mailing addresses.
Section 5.9. Designation of Beneficiary. Each Participant from time to time may designate any person or persons (who may be designated contingently or successively and who may be an entity other than a natural person) as his or her Beneficiary or Beneficiaries to whom the Participant's Account is to be paid if the Participant dies before receipt of all such benefits. Each Beneficiary designation shall be on the form prescribed by the Plan Administrator and will be effective only when filed with the Plan Administrator during the Participant's lifetime. Each Beneficiary designation filed with the Plan Administrator will cancel all Beneficiary designations previously filed with the Plan Administrator. The revocation of a Beneficiary designation, no matter how effected, shall not require the consent of any designated Beneficiary.
ARTICLE 6
ELECTIVE OPTIONS
Each Non-Employee Director shall be granted Options subject to the following terms and conditions:
Section 6.1. Election to Receive Options. At any time, but only one time, during the calendar year immediately following the filing of a Primary Election Form under Article 5, a Participant shall have the right to convert into Options pursuant to this Article 6 the then-current balance (as of the date of such election to receive Options) in his or her Interest Account for the calendar year to which the Primary Election Form relates. For example, if a Primary Election Form is filed in December 1998 to defer Annual Compensation to be earned in 1999, the director may elect at any time in 1999 to convert such deferred amount to Options. To make such election, the Participant must file with the Plan Administrator a written irrevocable Secondary Election Form to receive Options as of the date of the election (the "Option Grant Date"). The
exercise price per Share under each Option granted pursuant to this Article 6 shall, at the election of the Optionee as indicated on the Secondary Election Form, be either 100% of the Fair Market Value per Share on the Option Grant Date or a lesser percentage (but not less than 75%) of the Fair Market Value per Share on the Option Grant Date, such lesser percentage to be determined by the Committee from time to time. Such Secondary Election Form shall indicate the percentage of such Options to be granted at each Exercise Price, which choice may affect the number of Options to be received pursuant to Section 6.2.
Section 6.2. Number and Terms of Options. The number of Shares subject to an Option granted pursuant to this Article 6 shall be the number of whole Shares equal to A divided by B, where:
A = the dollar amount which the Non-Employee Director has elected pursuant to Section 6.1 to convert to Options; and
B = the per share value of an Option on the Option Grant Date, as determined by the Committee using an option valuation model selected by the Committee in its discretion (such value to be expressed as a percentage of the Fair Market Value per Share on the Option Grant Date).
In determining the number of Shares subject to an Option, (i) the Committee may designate the assumptions to be used in the selected option valuation model, and (ii) any fraction of a Share will be rounded up to the next whole number of Shares.
Section 6.3. Exercise of Options. All Options shall be fully
nonforfeitable, but shall be exercisable only at the time provided in this
Section 6.3 and Section 6.4 below. Each Option shall be first exercisable,
cumulatively, as to 10% commencing on the each of the first through tenth
anniversaries of the Option Grant Date. An Optionee's death, Disability,
retirement or other termination of directorship or failure to be reelected as a
director shall not shorten the term of any outstanding Option. In no event shall
the period of time over which the Option may be exercised exceed eleven years
from the Option Grant Date. An Option, or portion thereof, may be exercised in
whole or in part only with respect to whole Shares. Shares shall be issued to
the Optionee pursuant to the exercise of an Option only upon receipt by the
Company from the Optionee of payment in full in cash of the aggregate purchase
price for the Shares subject to the Option or portion thereof being exercised.
Section 6.4. Accelerated Exercisability. Notwithstanding the normal exercisability schedule set forth in Section 6.3 hereof, any and all outstanding Options shall become immediately exercisable upon the first to occur of (i) the death of the Optionee, (ii) the Disability of the Optionee, (iii) the occurrence of a Change in Control, or (iv) the unanimous determination by the Committee that a particular Option or Options shall become fully exercisable. Upon acceleration, an Option will remain exercisable for the remainder of its original term.
Section 6.5. Stock Option Award Notice. Each Option granted under the Plan shall be evidenced by a Stock Option Award Notice which shall be executed by an authorized officer of
the Company. Such Award Notice shall contain provisions regarding (a) the number of Shares that may be issued upon exercise of the Option, (b) the exercise price per Share of the Option and the means of payment therefor, (c) the term of the Option, and (d) such other terms and conditions not inconsistent with the Plan as may be determined from time to time by the Committee.
Section 6.6. Transferability of Options. No Option shall be assignable or transferable by the Optionee other than by will or the laws of descent and distribution; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, and (ii) is otherwise appropriate and desirable, taking into account any state or federal securities laws applicable to transferable Options.
ARTICLE 7
SHARES SUBJECT TO THE PLAN
Section 7.1. Shares Subject to the Plan. Subject to adjustment as provided in Article 9, the aggregate number of Shares which may be acquired upon the exercise of Options shall not exceed 800,000 Shares. Shares acquired upon exercise of Options may be newly issued Shares or previously issued and reacquired Shares, and there are hereby reserved for issuance under the Plan 800,000 Shares. To the extent that Shares subject to an outstanding Option are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such Option or by reason of the delivery of Shares to pay all or a portion of the exercise price of such Option, then such Shares shall again be available under the Plan.
ARTICLE 8
AMENDMENT AND TERMINATION
Section 8.1. Amendment, Suspension or Early Termination. The Board may amend, suspend or terminate the Plan or any Stock Option Award Notice at any time; provided, however, that the Board may condition any amendment or modification on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations, and no such amendment, modification or termination shall adversely affect any outstanding Options or Interest Accounts without the consent of the Participant.
ARTICLE 9
ADJUSTMENT PROVISIONS
Section 9.1. Change in Corporate Structure Affecting Shares. If the Company shall at any time change the number of issued Shares without new consideration to the Company (such as by stock dividend, stock split, recapitalization, reorganization, exchange of shares, liquidation, combination or other change in corporate structure affecting the Shares) or make a distribution of cash or property which has a substantial impact on the value of issued Shares, the total number of Shares reserved for issuance under the Plan shall be appropriately adjusted and the number of
Shares covered by each outstanding Option and the exercise price per Share under each outstanding Option and the number of shares underlying Options shall be adjusted so that the aggregate consideration payable to the Company and the value of each such Option shall not be changed.
Section 9.2. Certain Reorganizations. Notwithstanding any other provision of the Plan, and without affecting the number of Shares reserved or available hereunder, the Committee shall authorize the issuance, continuation or assumption of outstanding Options or provide for other equitable adjustments after changes in the Shares resulting from any merger, consolidation, sale of assets, acquisition of property or stock, recapitalization, reorganization or similar occurrence in which the Company is the continuing or surviving corporation, upon such terms and conditions as it may deem necessary to preserve Optionees' rights under the Plan.
Section 9.3. Acquisitions. In the case of any sale of assets, merger, consolidation or combination of the Company with or into another corporation other than a transaction in which the Company is the continuing or surviving corporation and which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof (an "Acquisition"), any Optionee who holds an outstanding Option shall have the right (subject to the provisions of the Plan and any limitation applicable to the Option) thereafter and during the term of the Option, to receive upon exercise thereof the Acquisition Consideration (as defined below) receivable upon the Acquisition by a holder of the number of Shares which would have been obtained upon exercise of the Option or portion thereof, as the case may be, immediately prior to the Acquisition. The term "Acquisition Consideration" shall mean the kind and amount of shares of the surviving or new corporation, cash, securities, evidence of indebtedness, other property or any combination thereof receivable in respect of one Share of the Company upon consummation of an Acquisition.
ARTICLE 10
MISCELLANEOUS
Section 10.1. Withholding. If any Option granted under the Plan is or becomes subject to any withholding requirement, the Committee may require the Optionee to remit such withholding as a condition to exercising the Option or any portion thereof.
Section 10.2. Compliance with SEC Regulations. All grants and exercises of Options under the Plan shall be executed in accordance with any applicable requirements of Section 16 of the Exchange Act, as amended and any regulations promulgated thereunder, to the extent applicable. To the extent that any of the provisions contained herein do not conform with Rule 16b-3 of the Exchange Act or any amendments thereto or any successor regulation, then the Committee may make such modifications so as to conform the Plan and any Options granted thereunder to the Rule's requirements.
Section 10.3. Validity. In the event that any provision of the Plan or any related Stock Option Award Notice is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan or any related Stock Option Award Notice.
Section 10.4. Inurement of Rights and Obligations. The rights and obligations under the Plan and any related agreements shall inure to the benefit of, and shall be binding upon the Company, its successors and assigns, and the Non-Employee Directors and their beneficiaries.
Section 10.5. Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.
Section 10.6. Governing Law. The Plan shall be construed, governed and enforced in accordance with the law of Delaware, except as such laws are preempted by applicable federal law.
EXHIBIT A
PRIMARY ELECTION FORM
[FOR CALENDAR YEAR 1999]
ELECTION TO DEFER DIRECTOR COMPENSATION PURSUANT TO THE
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Option Plan (the "Plan") with respect to the undersigned's annual cash retainer and meeting fees payable to the undersigned by Waddell & Reed Financial, Inc. (the "Company") for services as a director (and, if applicable, as a member or chairman of a committee of the Board of Directors) of the Company during the calendar year identified above ("Next Year's Annual Compensation"). Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to defer into my Interest Account under the Plan __% [indicate any percentage from 50% to 100%, in 10% increments] of my Next Year's Annual Compensation until the earliest of (a) December 31 of the fifth year after the year identified above, (b) the first Business Day of the fourth month after my death, or (c) my termination as a director of the Company for any reason other than my death (the "Payment Date"); subject to, however, my ability under the Plan to make a one-time election at any time during the calendar year identified above, to be effective on the date such subsequent election is received by the Plan administrator, to convert the balance on such date in my Interest Account for such year to Options to purchase common stock of the Company in accordance with the terms and provisions of the Plan. Any amount remaining in my Interest Account on the Payment Date will be paid to me or my Beneficiary [please check ONE box] [ ] in cash in a lump sum on the Payment Date, or [ ] in approximately equal installments over ____ months [up to 120 months] beginning on the Payment Date; provided, however, that in the event of my death during such payout period, the remaining balance shall be payable to my Beneficiary in a lump sum on the first Business Day of the fourth month after my death.
Executed this ____ day of December, 1998.
EXHIBIT B
SECONDARY ELECTION FORM
[FOR CALENDAR YEAR 1999]
ELECTION TO RECEIVE STOCK OPTIONS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Option Plan (the "Plan") with respect to the conversion to Options of the balance in the undersigned's Interest Account under the Plan for the year identified above. Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to convert, as of the date hereof, the balance in my Interest Account under the Plan for the year identified above to Options to purchase common stock of the Company in accordance with the terms and provisions of the Plan.
I further elect that [please fill in the following blanks]:
__% of such Options will be granted at an exercise price of __% of the Fair Market Value of the Company's common stock on the date of grant, and
__% of such Options will be granted at an exercise price of 100% of the Fair Market Value of the Company's common stock on the date of grant.
Executed this ____ day of _________, 1999.
WADDELL & REED FINANCIAL, INC.
1998 EXECUTIVE DEFERRED COMPENSATION STOCK OPTION PLAN
ARTICLE 1. PURPOSE OF THE PLAN.
Section 1.1. Purpose. The purpose of the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Option Plan is to promote the long-term growth of Waddell & Reed Financial, Inc. by providing a vehicle for Eligible Executives to increase their proprietary interest in Waddell & Reed Financial, Inc. and to attract and retain highly qualified and capable Eligible Executives.
ARTICLE 2. DEFINITIONS.
Section 2.1. Unless the context clearly indicates otherwise, the following terms shall have the following meanings:
"Acquisition" has the meaning assigned such term in Section 9.3 hereof.
"Acquisition Consideration" has the meaning assigned such term in
Section 9.3 hereof.
"Annual Bonus" means the annual cash bonus payable by the Company to an Eligible Executive for services to the Company or any of its affiliates, as such amount may be determined from year to year.
"Beneficiary" means any person or persons designated by a Participant, in accordance with procedures established by the Committee or Plan Administrator, to receive benefits hereunder in the event of the Participant's death. If any Participant shall fail to designate a Beneficiary or shall designate a Beneficiary who shall fail to survive the Participant, the Beneficiary shall be the Participant's surviving spouse, or, if none, the Participant's surviving descendants (who shall take per stirpes) and if there are no surviving descendants, the Beneficiary shall be the Participant's estate.
"Board" means the Board of Directors of the Company.
"Bonus Deferral Election Date" means the date established by the Plan as the date by which a Participant must submit a valid Primary Election Form for Bonus to the Plan Administrator in order to defer Annual Bonus under the Plan for a calendar year. For each calendar year, the Bonus Deferral Election Date is December 31 of the calendar year for which the Bonus is to be earned.
"Business Day" shall mean a day on which the New York Stock Exchange or any national securities exchange or over-the-counter market on which the Shares are traded is open for business.
"Change in Control" means any of the following that occurs more than twelve months after the date of the Company's initial public offering:
(i) when any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a subsidiary thereof or any Company employee benefit plan), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities;
(ii) the occurrence of any transaction or event relating to the Company that is required to be described pursuant to the requirements of Item 6(e) of Schedule 14A of Regulation 14A of the Securities and Exchange Commission under the Exchange Act;
(iii) when, during any period of two consecutive years during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board, cease for any reason other than death to constitute at least a majority thereof, unless each director who was not a director at the beginning of such period was elected by, or on the recommendation of, at least two-thirds of the directors at the beginning of such period; or
(iv) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary thereof through the purchase of assets, by merger, or otherwise.
"Committee" means the Compensation Committee of the Board.
"Company" means Waddell & Reed Financial, Inc., a Delaware corporation.
"Covered Employee" means an individual defined in Section 162(m)(3) of the Internal Revenue Code of 1986, as amended, with respect to the Company.
"Disability" means total and permanent disability as determined under the Company's long term disability program, whether or not the Optionee is covered under such program. If no such program is in effect, the Disability of a Participant shall be determined in good faith by the Board (excluding the Participant).
"Eligible Executive" means an executive officer of the Company or any of its affiliates, as such officers may be selected by the Chairman of the Board of Directors or the Committee or its designee from year to year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any given date, the closing price of the Stock on such date on the New York Stock Exchange Composite Tape.
"Interest Account" means the Interest Account for Bonus and/or the Interest Account for Salary, as the context requires. The maintenance of individual Interest Accounts is for bookkeeping purposes only.
"Interest Account for Bonus" means the account established by the Company for each Participant for Annual Bonus deferred pursuant to the Plan and which shall be credited with interest on the last day of each calendar quarter (or such other day as determined by the Plan Administrator).
"Interest Account for Salary" means the account established by the Company for each Participant for Salary deferred pursuant to the Plan and which shall be credited with interest on the last day of each calendar quarter (or such other day as determined by the Plan Administrator).
"Option" means an option to purchase Shares awarded under Article 6. Options granted under the Plan are not incentive stock options within the meaning of Section 422 of the Internal Revenue Code.
"Option Grant Date" means the date upon which an Option is granted to an Eligible Executive pursuant to Article 6.
"Optionee" means an Eligible Executive of the Company to whom an Option has been granted or, in the event of such Eligible Executive's death prior to the expiration of an Option, such Eligible Executive's Beneficiary.
"Participant" means any Eligible Executive who is participating in the Plan.
"Plan" means the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Option Plan.
"Plan Administrator" means the Committee or its delegee of administrative duties under the Plan pursuant to Section 3.2.
"Primary Election Form" means a Primary Election Form for Salary and/or a Primary Election Form for Bonus, as the context requires.
"Primary Election Form for Bonus" means a form, substantially in the form attached hereto as Exhibit B, pursuant to which an Eligible Executive elects to defer Bonus under the Plan.
"Primary Election Form for Salary" means a form, substantially in the form attached hereto as Exhibit A, pursuant to which an Eligible Executive elects to defer Salary under the Plan.
"Salary" means the salary payable by the Company to an Eligible Executive for services to the Company or any of its affiliates, as such amount may be changed from time to time.
"Salary Deferral Election Date" means the date established by the Plan as the date by which a Participant must submit a valid Primary Election Form for Salary to the Plan Administrator in order to defer Salary under the Plan for a calendar quarter. For each calendar quarter, the Salary Deferral Election Date is the last day of the preceding calendar quarter.
"Secondary Election Form" means a Secondary Election Form for Salary and/or a Secondary Election Form for Bonus, as the context requires.
"Secondary Election Form for Bonus" means a form, substantially in the
form attached hereto as Exhibit D, pursuant to which an Eligible Executive
elects to convert previously deferred Annual Bonus to Options pursuant to
Section 6.1 of the Plan.
"Secondary Election Form for Salary" means a form, substantially in the form attached hereto as Exhibit C, pursuant to which an Eligible Executive elects to convert previously deferred Salary to Options pursuant to Section 6.1 of the Plan.
"Shares" means shares of the common stock of the Company.
"Stock Option Award Notice" means a written award notice to an Eligible Executive from the Company evidencing an Option.
ARTICLE 3. ADMINISTRATION OF THE PLAN.
Section 3.1. Administrator of the Plan. The Plan shall be administered by the Committee.
Section 3.2. Authority of Committee. The Committee shall have full power and authority to: (i) interpret and construe the Plan and adopt such rules and regulations as it shall deem necessary and advisable to implement and administer the Plan, and (ii) designate persons other than members of the Committee or the Board to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, such determinations to be made in accordance with the Committee's best business judgment as to the best interests of the Company and its stockholders and in accordance with the purposes of the Plan. The Committee may delegate administrative duties under the Plan to one or more agents as it shall deem necessary or advisable.
Section 3.3. Effect of Committee Determinations. No member of the Committee or the Board or the Plan Administrator shall be personally liable for any action or determination made in good faith with respect to the Plan or any Option or to any settlement of any dispute between an Eligible Executive and the Company. Any decision or action taken by the Committee or the Board with respect to an Option or the administration or interpretation of the Plan shall be conclusive and binding upon all persons.
ARTICLE 4. PARTICIPATION.
Section 4.1. Election to Participate. The Chairman of the Board or the Committee or its designee shall designate each year those executives who shall be Eligible Executives for the coming year. An Eligible Executive may participate in the Plan by delivering to the Plan Administrator a properly completed and signed (i) Primary Election Form for Salary on or before the Salary Deferral Election Date, and/or (ii) Primary Election Form for Bonus on or before the Bonus Deferral Election Date. An Eligible Executive's participation in the Plan will be effective (i) as of the first day of the calendar quarter beginning after the Plan Administrator receives the Eligible Executive's Primary Election Form for Salary, or (ii) as of the first day of the year for which an Annual Bonus is earned, in the case of an Eligible Executive's Primary Election Form for Bonus. A Participant shall not be entitled to any benefit hereunder unless such Participant has properly completed a Primary Election Form and deferred the receipt of his or her Annual Bonus and/or Salary pursuant to the Plan.
Section 4.2. Irrevocable Election. A Participant may not revoke or change his or her Primary Election Form; provided, however, that a Participant may, by filing a Secondary Election Form with the Plan Administrator within the period provided in the Plan, subsequently elect to convert the balance in his or her Interest Account to Options in accordance with Article 6.
Section 4.3. No Right to Continue as an Employee. Nothing contained in the Plan shall be deemed to give any Eligible Executive the right to be retained as an employee of the Company or any of its affiliates.
ARTICLE 5. PLAN BENEFITS.
Section 5.1. Deferred Annual Bonus or Salary. An Eligible Executive may elect to defer up to 100% (in increments of 10% or $10,000) of his or her Annual Bonus and/or Salary to his or her Interest Account, and/or by conversion to Options in accordance with the terms of the Plan. For bookkeeping purposes, the amount of the Annual Bonus and/or Salary which an Eligible Executive elects to defer pursuant to the Plan shall be transferred to and held in individual Interest Accounts (in annual designations) pending distribution in cash or the conversion to Options, if applicable, pursuant to Article 6.
Section 5.2. Time of Election of Deferral. An Eligible Executive who wishes to defer Salary for a calendar quarter must irrevocably elect to do so on or prior to the Salary Deferral Election Date for such calendar quarter, by delivering a valid Primary Election Form for Salary to the Plan Administrator. The Primary Election Form for Salary shall indicate: (1) the percentage of Salary to be deferred, and (2) the form and timing of payout of deferred amounts; provided, however, that if a Participant elects to defer Salary for more than one quarter during a particular calendar year, the form and timing of payout for each quarter's deferral shall be identical. An Eligible Executive who wishes to defer Annual Bonus for a calendar year must irrevocably elect to do so on or prior to the Bonus Deferral Election Date for such calendar year, by delivering a valid Primary Election Form for Bonus to the Plan Administrator. The Primary Election Form for Bonus shall indicate: (1) the percentage of Annual Bonus to be deferred, and (2) the form and
timing of payout of deferred amounts; provided, however, that if a Participant elects to defer both Salary and Annual Bonus for a particular calendar year, the form and timing of payout for each shall be identical.
Section 5.3. Interest Accounts. Amounts in a Participant's Interest Account will be credited with interest as of the last day of each calendar quarter (or such other day as determined by the Plan Administrator, which, in the case of amounts converted to Options under the Plan, shall be the date of such conversion) at the rate set from time to time by the Committee to be applicable to the Interest Accounts of all Participants under the Plan. To the extent required for bookkeeping purposes, a Participant's Interest Accounts will be segregated to reflect deferred compensation on a year-by-year basis and on the basis of the type of compensation deferred. For example, a 1998 Interest Account for Bonus, a 1998 Interest Account for Salary, a 1999 Interest Account for Bonus, a 1999 Interest Account for Salary, and so on. Within a reasonable time after the end of each calendar year, the Plan Administrator shall report in writing to each Participant the amount held in his or her Interest Accounts at the end of the year.
Section 5.4. Responsibility for Investment Choices. Each Participant is solely responsible for any decision to defer Annual Bonus and/or Salary into his or her Interest Account or convert Annual Bonus and/or Salary to Options under the Plan and accepts all investment risks entailed by such decision, including the risk of loss and a decrease in the value of the amounts he or she elects to defer.
Section 5.5. Form of Payment.
(a) Payment Commencement Date. Payment of the balances in a Participant's Interest Accounts shall commence on the earliest to occur of (a) December 31 of the fifth year after the year with respect to which the deferral was made, (b) the first Business Day of the fourth month after the Participant's death, or (c) the Participant's termination as an employee of the Company or any of its subsidiaries or affiliates, other than by reason of death.
(b) Optional Forms of Payment. Distributions from a
Participant's Interest Accounts may be paid to the Participant either in a lump
sum or in a number of approximately equal monthly installments designated by the
Participant on his or her Primary Election Form. Such monthly installments may
be for any number of months up to 120 months; provided, however, that in the
event of the Participant's death during the payout period, the remaining balance
shall be payable to the Participant's Beneficiary in a lump sum on the first
Business Day of the fourth month after the Participant's death. If a Participant
elects to receive a distribution of his or her Interest Accounts in
installments, the Plan Administrator may purchase an annuity from an insurance
company which annuity will pay the Participant the desired annual installments.
If the Plan Administrator purchases an annuity contract, the Eligible Executive
will have no further rights to receive payments from the Company or the Plan
with respect to the amounts subject to the annuity. If the Plan Administrator
does not purchase an annuity contract, the value of the Interest Accounts
remaining unpaid shall continue to receive allocations of return as provided in
Section 5.3. If the Participant fails to designate a payment method in the
Participant's Primary Election Form, the Participant's Account shall be
distributed in a lump sum.
(c) Irrevocable Elections. A Participant may elect a different payment form for each year's compensation deferred under the Plan; provided, however, that if a Participant elects to defer Salary for more than one quarter during a particular calendar year, or if a Participant elects to defer Salary and Annual Bonus for a particular calendar year, the form and timing of payout for each such deferral shall be identical. The payment form elected or deemed elected on the Participant's Primary Election Form shall be irrevocable.
(d) Acceleration of Payment. If a Participant elects an installment distribution and the value of such installment payment elected by the Participant would result in a distribution of less than $3,000 per year, the Plan Administrator may accelerate payment of the Participant's benefits over a lesser number of whole years so that the annual amount distributed is at least $3,000. If payment of the Participant's benefits over a five year period will not provide annual distributions of at least $3,000, the Participant's Account shall be paid in a lump sum.
(e) Effect of Competition. Notwithstanding the Primary Election Form or any provision set forth herein, the entire balance of a Participant's Interest Accounts shall be paid immediately to the Participant a lump sum in the event the Participant ceases to be an employee of the Company or any of its subsidiaries or affiliates and becomes a proprietor, officer, partner, employee or otherwise becomes affiliated with any business that is in competition with the Company or an affiliated company, or becomes employed by any governmental agency having jurisdiction over the activities of the Company or an affiliated company.
(f) Effect of Adverse Determination. Notwithstanding the Primary Election Form or any provision set forth herein, if the Internal Revenue Service determines, for any reason, that all or any portion of the amounts credited under this Plan is currently includable in the taxable income of any Participant, then the amounts so determined to be includable in income shall be distributed in a lump sum to such Participant as soon as practicable.
(g) Payment to Beneficiary. Upon the Participant's death, all unpaid amounts held in the Participant's Account shall be paid to the Participant's Beneficiary in a lump sum on the first Business Day of the fourth month following the Participant's death.
Section 5.6. Financial Hardship. The Plan Administrator may, in its sole discretion, accelerate the making of payment to a Participant of an amount reasonably necessary to handle a severe financial hardship of a sudden and unexpected nature due to causes not within the control of the Participant. All financial hardship distributions shall be made in cash in a lump sum. Such payments will be made on a first-in, first-out basis so that the oldest compensation deferred under the Plan shall be deemed distributed first in a financial hardship.
Section 5.7. Payment to Minors and Incapacitated Persons. In the event that any amount is payable to a minor or to any person who, in the judgment of the Plan Administrator, is incapable of making proper disposition thereof, such payment shall be made for the benefit of such minor or such person in any of the following ways as the Plan Administrator, in its sole discretion, shall determine:
(a) By payment to the legal representative of such minor or such person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the benefit of such minor or such person. The Plan Administrator shall make such payments without the necessary intervention of any guardian or like fiduciary, and without any obligation to require bond or to see to the further application of such payment. Any payment so made shall be in complete discharge of the Plan's obligation to the Participant and his or her Beneficiaries.
Section 5.8. Application for Benefits. The Plan Administrator may require a Participant or Beneficiary to complete and file certain forms as a condition precedent to receiving the payment of benefits. The Plan Administrator may rely upon all such information given to it, including the Participant's current mailing address. It is the responsibility of all persons interested in receiving a distribution pursuant to the Plan to keep the Plan Administrator informed of their current mailing addresses.
Section 5.9. Designation of Beneficiary. Each Participant from time to time may designate any person or persons (who may be designated contingently or successively and who may be an entity other than a natural person) as his or her Beneficiary or Beneficiaries to whom the Participant's Account is to be paid if the Participant dies before receipt of all such benefits. Each Beneficiary designation shall be on the form prescribed by the Plan Administrator and will be effective only when filed with the Plan Administrator during the Participant's lifetime. Each Beneficiary designation filed with the Plan Administrator will cancel all Beneficiary designations previously filed with the Plan Administrator. The revocation of a Beneficiary designation, no matter how effected, shall not require the consent of any designated Beneficiary.
ARTICLE 6. ELECTIVE OPTIONS.
Each Eligible Executive shall be granted Options subject to the following terms and conditions:
Section 6.1. Election to Receive Options.
(a) Options Converted from Deferred Salary. At any time, but
only one time, during the twelve-month period following the end of a calendar
year with respect to which a Participant deferred Salary into the Plan, the
Participant shall have the right to convert some or all of his or her Interest
Account for Salary for such previous year into Options pursuant to this Article
6. To make such election, the Participant must file with the Plan Administrator
a written irrevocable Secondary Election Form for Salary to receive Options as
of the date of the filing of such Secondary Election Form (the "Option Grant
Date").
(b) Options Converted from Deferred Bonus. At any time, but only one time, during the twelve-month period following the end of a calendar year with respect to which a
Participant deferred Annual Bonus into the Plan, the Participant shall have the right to convert some or all of his or her Interest Account for Bonus for such previous year into Options pursuant to this Article 6. To make such election, the Participant must file with the Plan Administrator a written irrevocable Secondary Election Form for Bonus to receive Options as of the date of the filing of such Secondary Election Form (the "Option Grant Date").
(c) Exercise Price of Options. The exercise price per Share under each Option granted pursuant to this Article 6 shall, at the election of the Optionee as indicated on the Secondary Election Form, be either 100% of the Fair Market Value per Share on the Option Grant Date, or a lesser percentage (but not less than 75%) of the Fair Market Value per Share on the Option Grant Date, such lesser percentage to be determined by the Committee from time to time. Such Secondary Election Form shall indicate the percentage of such Options to be granted at each Exercise Price, which choice may affect the number of Options to be received pursuant to Section 6.2.
Section 6.2. Number and Terms of Options. The number of Shares subject to an Option granted pursuant to this Article 6 shall be the number of whole Shares equal to A divided by B, where:
A = the dollar amount which the Eligible Executive has elected pursuant to Section 6.1 to convert to Options; and
B = the per share value of an Option on the Option Grant Date, as determined by the Committee using the Black Scholes option valuation model or another recognized option valuation model selected by the Committee in its discretion (such value to be expressed as a percentage of the Fair Market Value per Share on the Option Grant Date).
In determining the number of Shares subject to an Option, (i) the Committee may designate the assumptions to be used in the selected option valuation model, and (ii) any fraction of a Share will be rounded up to the next whole number of Shares.
Section 6.3. Exercise of Options. Each Option shall be first exercisable, cumulatively, as to 10% commencing on the each of the first through tenth anniversaries of the Option Grant Date; provided, however, that any Option held by a Covered Employee shall not be exercisable before the first day of the calendar year immediately following the year in which the Optionee ceased to be a Covered Employee. An Optionee's death, Disability, retirement or other termination of employment shall not shorten the term of any outstanding Option. In no event shall the period of time over which the Option may be exercised exceed the longer of (i) eleven years from the Option Grant Date, or (ii) the thirtieth (30th) day of the calendar year immediately following the year in which an Optionee ceased to be a Covered Employee. An Option, or portion thereof, may be exercised in whole or in part only with respect to whole Shares. Shares shall be issued to the Optionee pursuant to the exercise of an Option only upon receipt by the Company from the Optionee of payment in full in cash of the aggregate purchase price for the Shares subject to the Option or portion thereof being exercised.
Section 6.4. Accelerated Vesting. Notwithstanding the normal vesting schedule set forth in Section 6.3 hereof, any and all outstanding Options shall become immediately exercisable upon the first to occur of (i) the death of the Optionee, (ii) the Disability of the Optionee, (iii) the occurrence of a Change in Control, or (iv) the unanimous determination by the Committee that a particular Option or Options shall become fully exercisable. Upon acceleration, an Option will remain exercisable for the remainder of its original term.
Section 6.5. Stock Option Award Notice. Each Option granted under the Plan shall be evidenced by a Stock Option Award Notice which shall be executed by an authorized officer of the Company. Such Award Notice shall contain provisions regarding (a) the number of Shares that may be issued upon exercise of the Option, (b) the exercise price per Share of the Option and the means of payment therefor, (c) the term of the Option, and (d) such other terms and conditions not inconsistent with the Plan as may be determined from time to time by the Committee.
Section 6.6. Transferability of Options. No Option shall be assignable or transferable by the Optionee other than by will or the laws of descent and distribution; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, and (ii) is otherwise appropriate and desirable, taking into account any state or federal securities laws applicable to transferable Options.
ARTICLE 7. SHARES SUBJECT TO THE PLAN.
Section 7.1. Shares Subject to the Plan. Subject to adjustment as provided in Article 9, the aggregate number of Shares which may be acquired upon the exercise of Options shall not exceed 2,500,000 Shares. Shares acquired upon exercise of Options may be newly issued Shares or previously issued and reacquired Shares, and there are hereby reserved for issuance under the Plan 2,500,000 Shares. To the extent that Shares subject to an outstanding Option are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such Option or by reason of the delivery of Shares to pay all or a portion of the exercise price of such Option, then such Shares shall again be available under the Plan.
ARTICLE 8. AMENDMENT AND TERMINATION.
Section 8.1. Amendment, Suspension or Early Termination. The Board may amend, suspend or terminate the Plan or any Stock Option Award Notice at any time; provided, however, that the Board may condition any amendment or modification on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations, and no such amendment, modification or termination shall adversely affect any outstanding Options or Interest Accounts without the consent of the Participant.
ARTICLE 9. ADJUSTMENT PROVISIONS.
Section 9.1. Change in Corporate Structure Affecting Shares. If the Company shall at any time change the number of issued Shares without new consideration to the Company (such as by stock dividend, stock split, recapitalization, reorganization, exchange of shares, liquidation, combination or other change in corporate structure affecting the Shares) or make a distribution of cash or property which has a substantial impact on the value of issued Shares, the total number of Shares reserved for issuance under the Plan shall be appropriately adjusted and the number of Shares covered by each outstanding Option and the exercise price per Share under each outstanding Option and the number of shares underlying Options shall be adjusted so that the aggregate consideration payable to the Company and the value of each such Option shall not be changed.
Section 9.2. Certain Reorganizations. Notwithstanding any other provision of the Plan, and without affecting the number of Shares reserved or available hereunder, the Committee shall authorize the issuance, continuation or assumption of outstanding Options or provide for other equitable adjustments after changes in the Shares resulting from any merger, consolidation, sale of assets, acquisition of property or stock, recapitalization, reorganization or similar occurrence in which the Company is the continuing or surviving corporation, upon such terms and conditions as it may deem necessary to preserve Optionees' rights under the Plan.
Section 9.3. Acquisitions. In the case of any sale of assets, merger, consolidation or combination of the Company with or into another corporation other than a transaction in which the Company is the continuing or surviving corporation and which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof (an "Acquisition"), any Optionee who holds an outstanding Option shall have the right (subject to the provisions of the Plan and any limitation applicable to the Option) thereafter and during the term of the Option, to receive upon exercise thereof the Acquisition Consideration (as defined below) receivable upon the Acquisition by a holder of the number of Shares which would have been obtained upon exercise of the Option or portion thereof, as the case may be, immediately prior to the Acquisition. The term "Acquisition Consideration" shall mean the kind and amount of shares of the surviving or new corporation, cash, securities, evidence of indebtedness, other property or any combination thereof receivable in respect of one Share of the Company upon consummation of an Acquisition.
ARTICLE 10. MISCELLANEOUS.
Section 10.1. Withholding. If any Option granted under the Plan is or becomes subject to any withholding requirement, the Committee may require the Optionee to remit such withholding as a condition to exercising the Option or any portion thereof.
Section 10.2. Compliance with SEC Regulations. All grants and exercises of Options under the Plan shall be executed in accordance with any applicable requirements of Section 16 of the Exchange Act, as amended and any regulations promulgated thereunder, to the extent applicable. To the extent that any of the provisions contained herein do not conform with Rule
16b-3 of the Exchange Act or any amendments thereto or any successor regulation, then the Committee may make such modifications so as to conform the Plan and any Options granted thereunder to the Rule's requirements.
Section 10.3. Validity. In the event that any provision of the Plan or any related Stock Option Award Notice is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan or any related Stock Option Award Notice.
Section 10.4. Inurement of Rights and Obligations. The rights and obligations under the Plan and any related agreements shall inure to the benefit of, and shall be binding upon the Company, its successors and assigns, and the Eligible Executives and their beneficiaries.
Section 10.5. Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.
Section 10.6. Governing Law. The Plan shall be construed, governed and enforced in accordance with the law of Delaware, except as such laws are preempted by applicable federal law.
ARTICLE 11. LIMITATIONS ON PAYMENTS.
(a) Notwithstanding Section 6.3 above or any other provision of this Plan or any other agreement, arrangement or plan, in no event shall the Company pay or be obligated to pay any Plan Participant an amount which would be an Excess Parachute Payment except as provided in Section 11(f) below and except as the Committee specifically provides otherwise in the Participant's grant agreement. For purposes of this Agreement, the term "Excess Parachute Payment" shall mean any payment or any portion thereof which would be an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code, and would result in the imposition of an excise tax under Section 4999 of the Code, in the opinion of tax counsel selected by the Company ("Tax Counsel"). In the event it is determined that an Excess Parachute Payment would result if the full acceleration of exercisability provided in Section 6.3 above were made (when added to any other payments or benefits contingent on a change of control under any other agreement, arrangement or plan), the acceleration under Section 6.3 shall be reduced to the minimum extent necessary to prevent an Excess Parachute Payment; then, if necessary to prevent an Excess Parachute Payment, benefits or payments under any other plan, agreement or arrangement shall be reduced. If it is established pursuant to a final determination of a court or an Internal Revenue Service administrative appeals proceeding that, notwithstanding the good faith of the Participant and the Company in applying the terms of this Section, a payment (or portion thereof) made is an Excess Parachute Payment, then, the Company shall pay to the Participant an additional amount in cash (a "Gross-Up Payment") equal to the amount necessary to cause the amount of the aggregate after-tax compensation and benefits received by the Participant hereunder (after payment of the excise tax under Section 4999 of the Code with respect to any Excess Parachute Payment, and any state and federal income taxes with respect to the Gross-Up
Payment) to be equal to the aggregate after-tax compensation and benefits he would have received as if Sections 280G and 4999 of the Code had not been enacted.
(b) Subject to the provisions of Subsection (c) below, the amount of any Gross-Up Payment and the assumptions to be utilized in arriving at such amount, shall be determined by a nationally recognized certified public accounting firm designated by the Company (the "Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to Subsection (a) above, shall be paid by the Company to the Participant within five (5) days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and Participant.
(c) Participant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by Company of a Gross-Up Payment. Such notification shall be given no later than ten (10) business days after Participant is informed in writing of such claim and shall apprise the Company of the nature of the claim and the date of requested payment. Participant shall not pay the claim prior to the expiration of the thirty (30) day period following the date on which it gives notice to the Company. If the Company notifies Participant in writing prior to the expiration of the period that it desires to contest such claim, Participant shall:
(i) give the Company any information reasonably requested by the Company relating to such claim;
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to Participant;
(iii) cooperate with the Company in good faith in order to effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating to such claim.
(d) In the event that the Company exhausts its remedies pursuant to Subsection (c) above, and Participant thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Gross- Up Payment required and such payment shall be promptly paid by the Company to or for the benefit of Participant.
(e) If, after the receipt by Participant of an amount advanced by the Company pursuant to Subsection (c) above, Participant becomes entitled to receive any refund with respect to such claim, Participant shall promptly after receiving such refund pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Participant of an amount advanced by the Company pursuant to Subsection (c) above, a determination is made that Participant shall not be entitled to any refund with respect to such claim and the Company does not notify Participant in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
(f) Notwithstanding the foregoing, the limitation set forth in Subsection (a) above shall not apply to a Participant if in the opinion of Tax Counsel or the Accounting Firm (i) the total amounts payable to the Participant hereunder and under any other agreement, arrangement or plan as a result of a change of control (calculated without regard to the limitation of Subsection (a) above), reduced by the amount of excise tax imposed on the Participant under Code Section 4999 with respect to all such amounts and reduced by the state and federal income taxes on amounts paid in excess of the limitation set forth in Subsection (a) above , would exceed (ii) such total amounts payable after application of the limitation of Subsection (a) above. No Gross-Up Payment shall be made in such case.
EXHIBIT A
PRIMARY ELECTION FORM FOR SALARY
FOR THE [___________ QUARTER OF 1998]
ELECTION TO DEFER SALARY PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE
DEFERRED COMPENSATION STOCK OPTION PLAN
The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Option Plan (the "Plan") with respect to the undersigned's salary as an executive officer of Waddell & Reed Financial, Inc. (the "Company") or its subsidiaries and affiliates to be earned by the undersigned during the calendar quarter identified above ("Next Quarter's Salary"). Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to defer into my Interest Account for Salary under the Plan for the year identified above, __% [indicate any percentage up to 100%, in 10% increments] or $________ [indicate any dollar amount in increments of $10,000] of my Next Quarter's Salary until the earliest of (a) December 31 of the fifth year after the year identified above, (b) the first Business Day of the fourth month after my death, or (b) my termination as an employee of the Company or any of its subsidiaries or affiliates for any reason other than my death (the "Payment Date"); subject to, however, my ability under the Plan to make a one-time election at any time during the twelve-month period following the end of the year identified above, to be effective on the date such subsequent election is received by the Plan Administrator, to convert some or all of the balance in my Interest Account for Salary for such year to Options to purchase common stock of the Company in accordance with the terms and provisions of the Plan. Any amount remaining in my Interest Account for Salary on the Payment Date will be paid to me or my Beneficiary as follows:
if I have previously filed a Primary Election Form for Bonus or a Primary Election Form for Salary for the year identified above, then in the same manner as indicated on such form, or
if I have not previously filed a Primary Election Form for Bonus or a Primary Election Form for Salary for such year, then [please check ONE box] [ ] in cash in a lump sum on the Payment Date, or [ ] in approximately equal installments over ____ months [up to 120 months] beginning on the Payment Date; provided, however, that in the event of my death during such payout period, the remaining balance shall be payable to my Beneficiary in a lump sum on the first Business Day of the fourth month after my death.
Executed this ____ day of ________, 1998.
EXHIBIT B
PRIMARY ELECTION FORM FOR BONUS
FOR [CALENDAR YEAR 1998]
ELECTION TO DEFER BONUS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE DEFERRED COMPENSATION STOCK
OPTION PLAN
The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Option Plan (the "Plan") with respect to the undersigned's bonus as an executive officer of Waddell & Reed Financial, Inc. (the "Company") or its subsidiaries and affiliates to be earned by the undersigned during the calendar year identified above ("Current Year Bonus"). Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to defer into my Interest Account for Bonus under the Plan for the year identified above, __% [indicate any percentage up to 100%, in 10% increments] or $_________ [indicate any dollar amount in increments of $10,000] of my Current Year Bonus, if any, until the earliest of (a) December 31 of the fifth year after the year identified above, (b) the first Business Day of the fourth month after my death, or (c) my termination as an employee of the Company or any of its subsidiaries or affiliates for any reason other than my death (the "Payment Date"); subject to, however, my ability under the Plan to make a one-time election at any time during the twelve-month period following the end of the year identified above, to be effective on the date such subsequent election is received by the Plan Administrator, to convert some or all of the balance in my Interest Account for Bonus for such year to Options to purchase common stock of the Company in accordance with the terms and provisions of the Plan. Any amount remaining in my Interest Account for Bonus on the Payment Date will be paid to me or my Beneficiary as follows:
if I have filed a Primary Election Form for Salary for the year identified above, then in the same manner as indicated on such form, or
if I have not filed a Primary Election Form for Salary for such year,
then [please check ONE box] [ ] in cash in a lump sum on the Payment Date, or
[ ] in approximately equal installments over ____ months [up to 120 months]
beginning on the Payment Date; provided, however, that in the event of my death
during such payout period, the remaining balance shall be payable to my
Beneficiary in a lump sum on the first Business Day of the fourth month after my
death.
Executed this ____ day of ________, 1998.
EXHIBIT C
SECONDARY ELECTION FORM FOR SALARY
[FOR CALENDAR YEAR 1998]
ELECTION TO RECEIVE STOCK OPTIONS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE
DEFERRED COMPENSATION STOCK OPTION PLAN
The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Option Plan (the "Plan") with respect to the conversion to Options of the balance in the undersigned's Interest Account for Salary under the Plan for the year identified above. Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to convert, as of the date hereof, __%
[indicate any percentage up to 100%, in 10% increments] of the balance in my
Interest Account for Salary under the Plan for the year identified above to
Options to purchase common stock of the Company in accordance with the terms and
provisions of the Plan.
I further elect that [please fill in the following blanks]:
__% of such Options will be granted at an exercise price of __% of the Fair Market Value of the Company's common stock on the date of grant, and
__% of such Options will be granted at an exercise price of 100% of the Fair Market Value of the Company's common stock on the date of grant.
Executed this ____ day of ________, 1999.
EXHIBIT D
SECONDARY ELECTION FORM FOR BONUS
[FOR CALENDAR YEAR 1998]
ELECTION TO RECEIVE STOCK OPTIONS PURSUANT TO THE
WADDELL & REED FINANCIAL, INC. 1998 EXECUTIVE
DEFERRED COMPENSATION STOCK OPTION PLAN
The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Option Plan (the "Plan") with respect to the conversion to Options of the balance in the undersigned's Interest Account for Bonus under the Plan for the year identified above. Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.
I hereby irrevocably elect to convert, as of the date hereof, __%
[indicate any percentage up to 100%, in 10% increments] of the balance in my
Interest Account for Bonus under the Plan for the year identified above to
Options to purchase common stock of the Company in accordance with the terms and
provisions of the Plan.
I further elect that [please fill in the following blanks]:
__% of such Options will be granted at an exercise price of __% of the Fair Market Value of the Company's common stock on the date of grant, and
__% of such Options will be granted at an exercise price of 100% of the Fair Market Value of the Company's common stock on the date of grant.
Executed this ____ day of ________, 1999.
between
UNITED INVESTORS PARK OWNERS ASSOCIATION,
a Kansas not-for-profit corporation
and
WADDELL & REED PROPERTY MANAGEMENT DIVISION,
a division of Waddell & Reed Financial, Inc., a Delaware corporation
March 1, 1998
TABLE OF CONTENTS
Page
----
1. Engagement of Manager.................................. 1
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2. Term................................................... 1
----
2.1 Automatic Extension............................... 1
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2.2 Termination For Cause............................. 2
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2.3 Termination Without Cause......................... 2
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2.4 Procedure on Termination.......................... 2
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2.4.1............................................. 3
2.4.2............................................. 3
2.4.3............................................. 3
2.4.4............................................. 3
2.5 Termination Rights................................ 3
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3. Manager's Duties....................................... 4
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3.1 Annual Budget.................................. 4
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3.3 Personnel Employment........................... 4
--------------------
3.4 Service Contracts.............................. 4
-----------------
3.5 Purchases...................................... 5
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3.6 Maintenance.................................... 5
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3.6.1.......................................... 5
3.6.1.1........................................ 5
3.6.1.3........................................ 5
3.6.1.4........................................ 5
3.6.1.5........................................ 6
3.6.1.6........................................ 6
3.6.1.7........................................ 6
3.6.1.8........................................ 6
3.6.1.9........................................ 6
3.6.1.10....................................... 6
3.6.1.11....................................... 6
3.6.1.12....................................... 6
3.6.1.13....................................... 6
3.7 Owner's Right to Terminate/Appoint Manager..... 6
------------------------------------------
3.7.1.......................................... 6
3.7.2.......................................... 7
3.8 Legal Compliance............................... 7
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3.9 Bank Account................................... 7
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3.10 Collections.................................... 7
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3.11 Compliance with Contracts...................... 7
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4. Accounting and Distribution of Moneys.................. 8
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4.1 Monthly Statements.............................. 8
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4.2 Annual Statements............................... 8
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4.3 Other Reports................................... 8
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4.4 Payment of Funds to Owner....................... 8
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5. Compensation of Manager................................ 8
-----------------------
5.1 Management Fee.................................. 9
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6. Insurance.............................................. 9
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6.1 Fidelity Coverage............................... 10
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7. Owner's Right to Inspect............................... 10
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8. Indemnification........................................ 10
---------------
9. Miscellaneous.......................................... 10
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9.1 Notices........................................... 10
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9.2 Assignment........................................ 11
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9.3 Construction...................................... 11
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9.4 Entire Agreement.................................. 11
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9.5 Binding Effect.................................... 12
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9.6 Governing Law..................................... 12
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EXECUTION BY OWNER.......................................... 12
EXECUTION BY MANAGER........................................ 12
Exhibit "A" Property
Exhibit "B" Personnel and Salaries
Exhibit "C" Voluntary Encumbrances
Exhibit "D" Management Fees
Exhibit "E" Affiliate
Exhibit "F" Grounds
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THIS AGREEMENT is made effective the 1st day of March, 1998, between United Investors Park Owners Association, Inc., a Kansas not-for-profit corporation (the "Owner") and Waddell & Reed Property Management Division, a division of Waddell & Reed Financial, Inc., a Delaware corporation (the "Manager").
W I T N E S S E T H :
WHEREAS, the Owner is an association whose members consist solely of owners of property located in United Investors Park (the "Members"), all as more particularly described on Exhibit "A" attached hereto (the "Property");
WHEREAS, the Manager is experienced in the operation, management and supervision of office buildings and other commercial real estate; and
WHEREAS, the Owner desires to obtain the services of the Manager and the Manager desires to make its services available to the Owner to manage the Common Areas of the Property on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the Owner and the Manager agree as follows:
termination of all or any portion of this Agreement, the Manager will:
2.4.1 Deliver to the Owner all records and files in the possession of the Manager pertaining to the management, maintenance, operation, leasing, marketing and use of each of the Property included in the termination notice, together with any other personal property of the Owner in the possession of the Manager;
2.4.2 Render final statements to the Owner for all collections and expenses resulting from the management and operation of each of the Property included in the termination notice since the last monthly financial statements, prepared in accordance with this Agreement;
2.4.3 Deliver to the Owner for each parcel of the Property included in the termination notice: (a) a complete inventory of all tangible personal property on site at each such Property on the termination date; (b) a schedule of all contracts, conditional sale contracts, other agreements (the "Property Contracts") and any other intangible personal property rights used in, or affecting, the operation, management or maintenance of such Property (collectively the "Intangible Property"); and (c) a schedule, which includes an explanation in reasonable detail, that identifies: (i) any deficiencies in the Intangible Property; and (ii) any liability or obligation that will affect such Property after the termination date and that the Manager requests that the Owner specifically assume; and
2.4.4 With respect to each of the Property included in the termination notice: (a) deliver to the Owner the original of all Property Contracts and any other license, permit, authorization or certificate existing in connection with such Property (the "Permits"); and (b) on request of the Owner, and to the extent assignable, assign all Property Contracts, the Permits, and any other Intangible Property relating to the operation, maintenance, leasing and marketing of such Property, to those parties as the Owner directs in writing.
pursuance of the foregoing, the Manager will perform the following services:
Annual Budget, the Manager will negotiate and enter into contracts in the name of and at the expense of the Owner for janitorial, maintenance, landscaping, security, water, electricity, gas, fuel, oil, telephone, vermin extermination, trash removal and other services required to operate, maintain and manage the Common Areas of the Property. Any proposed service contracts containing a duration in excess of twelve (12) months must be approved in advance, in writing by Owner.
3.6.1 The Manager shall perform the following functions:
3.6.1.1 the Common Area Maintenance;
3.6.1.2 the calculation of the cost of Common Area Maintenance;
3.6.1.3 the calculation and rendition to the Members of
statements for the appropriate part of the Common Area
Maintenance Obligation;
3.6.1.4 the collection of the Common Area Maintenance Charges
and the disbursement thereof to pay the cost of Common
Area Maintenance, as provided for in The Declaration of
5
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Protective Covenants and Restrictions of United
Investors Park Owners' Association dated March 6, 1996,
as amended, which is hereby incorporated by reference
as if fully set forth again;
3.6.1.5 the maintenance of income and expense records;
3.6.1.6 the preparation and submission to Owner of a
recommended budget;
3.6.1.7 the preparation and submission to Owner of monthly
receipt and expenditure records;
3.6.1.8 the selection of personnel to maintain the Common Areas
and Common Facilities;
3.6.1.9 the preparation and filing of governmental returns and
instruments;
3.6.1.10 the negotiation and execution of contracts for services
to the Common Areas and Common Facilities;
3.6.1.11 the maintenance of appropriate insurance coverage;
3.6.1.12 the collection and removal of trash and rubbish for
both Owners and Common Area; and
3.6.1.13 all other general duties and responsibilities fairly
related to the foregoing functions and the duties and
responsibilities of the Association set forth in
Articles 10 and 11 of this Declarations of Protective
Covenants and Restrictions of United Investors Park
Owners' Association, as amended.
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3.7.1 Elect to terminate the employment of the Manger or any independent
contractor engaged by the Manager to perform Common Area Maintenance
6
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as set forth in paragraphs 3.6.1 and 3.6.2 herein, in which
Event Owner shall have the right to appoint a new Manager; or
3.7.2 Enter upon the Parcel and perform such Common Area
Maintenance as set forth in paragraphs 3.6.1 and 3.6.2
herein.
3.8 Legal Compliance. The Manager will use its best efforts to take such
----------------
action as might be necessary to comply with all statutes,
ordinances, laws, rules, regulations and orders affecting or issued
in connection with the Common Areas of the Property by any
governmental authority having jurisdiction thereof and will secure
and maintain any and all appropriate licenses and permits with
respect thereto; such compliance shall include, without limitation,
compliance with all applicable provisions of The Americans With
Disabilities Act of 1990, as amended, and similar laws.
3.9 Bank Account. The Manager will establish and maintain, on behalf of
------------
the Owner, a separate bank account or bank accounts (the "Bank
Accounts") in such number as may, from time to time, be approved by
the Owner and in a manner to indicate the custodial nature thereof
on deposit with banking institutions approved, from time to time by
the Owner, with withdrawal therefrom to be by signature of either
the Manager or the Owner or such other individual as the Owner might
designate. The Manager will deposit therein all monies furnished by
the Owner as working funds and all monies collected and received
from the operation of the Property, including Maintenance Charge
fees collected from tenants of the Property. The Manager will pay
therefrom all amounts authorized by this Agreement, including the
Management Fee and commissions described in Paragraph 5 hereof, and
any other charges or items of expense which the Owner directs to be
paid in writing.
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Property to comply with all of the terms, conditions and obligations contained in any lease or other agreement executed by or on behalf of the Owner which relates to the Common Areas of the Property. The Owner will notify the Manager in writing of the existence of any such lease or other agreement, but the Manager will be deemed to have notice of any such document prepared or negotiated by the Manager. Manager and Owner acknowledge that only those parcels of the Property identified on Exhibit "C" attached hereto are currently subject to a mortgage lien or similar voluntary encumbrance (the "Mortgages"), all as more particularly described on Exhibit "C"; Owner agrees to amend Exhibit "C", from time to time, in the event any change in the preceding status of the Property occurs. Owner represents to the Manager that except as specifically described on Exhibit "C", as amended, none of the Mortgages imposes any obligation on the Manager beyond the scope of the Manager's duties under this Agreement.
any cause of action which either might have against the other on account of any loss or damage which is insured against, to the extent of such insurance, under any insurance policy which names either the Manager or the Owner as a named or additional insured.
Owner: United Investors Park Owners' Association
Attention: Marge Bass
6300 Lamar Avenue
Overland Park, Kansas 66202-4247
Telephone: (913) 236-1400
Fax: (913) 236-1909
Manager: Waddell & Reed Property Management Division
Waddell & Reed Financial, Inc.
Attention: Bill Howey
6300 Lamar Avenue
Overland Park, Kansas 66202
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Telephone: (913) 236-1902 Fax: (913) 236-1909
or to such other address as is designated from time to time in writing by those entitled to receive notice. Any notice so addressed or mailed shall be deemed given five (5) days after deposit in the United States mail, and if telecopied or delivered by hand, shall be deemed given when delivered, and if delivered by overnight courier, shall be deemed to be given on the business day immediately following the day on the day on which it was sent or delivered.
IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement effective as of the date first above written.
UNITED INVESTORS PARK
OWNERS' ASSOCIATION,
a Kansas not-for-profit corporation
By: ______________________________
Its: ______________________________
("Owner")
WADDELL & REED
PROPERTY MANAGEMENT DIVISION,
a division of Waddell & Reed Financial, Inc.,
a Delaware corporation
By: ______________________________
Its: ______________________________
("Manager")
EXHIBIT "A"
===================================================================================================================
LEGAL DESCRIPTION: COMMONLY KNOWN AS: PART/PARCELS:
===================================================================================================================
1. All of Lots 3, 4, 5, 6, and United Investors Park Includes the Common Areas and, Common
7, UNITED INVESTORS PARK, Facilities, and Grounds of the Property,
SECOND PLAT, a subdivision of 6300 Lamar Avenue as defined hereinabove and in
land now in Overland Park, Overland Park, Kansas 66202 Exhibit "F".
Johnson County, Kansas,
according to the recorded plat
thereof.
============================================================================================================================
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EXHIBIT "B"
===================================================================================================================
APPROXIMATE ANNUAL
PROPERTY: PERSONNEL BASE SALARY/BURDEN
===================================================================================================================
1. The Common Areas and Common Property Manager $47,000.00
Facilities of all of Lots 3, 4, 5,
6, and 7, UNITED INVESTORS PARK,
SECOND PLAT, a subdivision of land
now in Overland Park, Johnson
County, Kansas, according to the
recorded plat thereof.
===================================================================================================================
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EXHIBIT "C"
Budget $163,000.00
EXHIBIT "D"
===============================================================================================================================
PROPERTY MANAGEMENT FEE COMMENT
===============================================================================================================================
1. The Common Areas and Common Five percent (5%) All Management Fees will be paid in
Facilities of All of Lots 2, 3, arrears.
4, 5, 6, and 7, UNITED
INVESTORS PARK, SECOND PLAT, a
subdivision of land now in
Overland Park, Johnson County,
Kansas, according to the
recorded plat thereof.
===============================================================================================================================
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EXHIBIT "E"
The term "Affiliate" means: (i) any individual, corporation, association, partnership, joint venture, trust, estate, limited liability company or other entity (hereafter "Person") who directly or indirectly owns, controls or holds power to vote 20% or greater of the outstanding voting securities of Owner ("Corporate Parent"); (ii) any Person in whom Owner directly or indirectly owns, controls or holds the power to vote 20% or greater of that Person's outstanding voting securities; (iii) any Person in whom a Corporate Parent directly or indirectly owns, controls or holds the power to vote 20% or greater of that Person's outstanding voting securities; (iv) any Person who directly or indirectly owns or controls 20% or greater of the income interests of Owner who is not a corporation (a "Parent Entity"); (v) any Person who is not a corporation and in whom (x) Owner directly or indirectly owns or controls 20% or greater of the income interests of that Person, and (y) that Owner also directly or indirectly owns, controls or holds not less than 20% of the management authority over the affairs of that Person; and (vi) any Person who is not a corporation and in whom (x) a Parent Entity directly or indirectly owns or controls 20% or greater of the income interests of that Person, and (y) that Parent Entity also directly or indirectly owns, controls or holds not less than 20% of the management authority over the affairs of that Person. For purposes of this definition of Affiliate, "Owner" shall mean United Investors Park Owners' Association, a Kansas not-for-profit corporation, and its successors and assigns.
EXHIBIT "F"
The Grounds, as used hereinabove, shall consist of the Common Areas and Common Facilities, as more fully described below.
AGREEMENT AMENDING DISTRIBUTION CONTRACT
This Agreement, dated the ___ day of March, 1998, by and between TMK/United Funds, Inc.(the "Fund") and United Investors Life Insurance Company ("UILIC");
WHEREAS, the Fund and UILIC desire to amend the Distribution Contract to provide for termination thereof as of December 31, 1998, unless the Fund and UILIC determine in writing signed by both the Fund and UILIC to extend it for an additional period of time;
NOW, THEREFORE, the Fund and UILIC agree as follows:
1. The Distribution Contract be, and it hereby is, amended to provided that it terminates as of the close of business on December 31, 1998, unless extended to a later date in writing by the Fund and UILIC.
2. Section 1 of the Distribution Contract terminates on the termination date. All other provisions of the Distribution Contract will survive termination only for purposes of the shares sold or issued under the Distribution Agreement on or prior to the termination date, except that Section 7 will survive termination of the Distribution Contract for all purposes.
3. All notices, instructions, reports and other documents contemplated by this Agreement or the Distribution Agreement will be deemed duly given when in writing and either delivered to the addresses below or sent by first class mail, facsimile or courier addressed as follows:
To: United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: James L. Sedgwick
To: TMK/United Funds, Inc.
6300 Lamar Avenue
Overland Park, KS 66202
Attn: General Counsel
4. This Agreement may be executed in counterparts, each of which shall be deemed an original.
5. This Agreement will be governed by the laws of the State of Kansas.
IN WITNESS WHEREOF, the Fund and UILIC have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first above written.
TMK/United Funds, Inc.
By:___________________________
Name and Title:_________________
United Investors Life Insurance Company
By:___________________________
Name and Title:_________________
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
VARIABLE ACCOUNTS
Distribution Contract
TMK/United Funds, Inc. (hereinafter TMK) is a Maryland corporation registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (the "Act") as a management class, open-end, diversified investment company. It offers its shares exclusively to insurance companies as the investment vehicles for variable life and variable annuity policies. TMK has authorized eleven classes of shares each of which is a separate fund (Portfolio) being: Money Market Portfolio, Bond Portfolio, High Income Portfolio, Growth Portfolio, Income Portfolio, International Portfolio, Small Cap Portfolio, Balanced Portfolio, Limited-Term Bond Portfolio, Asset Strategy Portfolio and Science and Technology Portfolio.
You have advised TMK that you are sponsoring two variable accounts, United Investors Life Variable Account and United Investors Annuity Variable Account, each of which is an investment company organized and registered with the Securities and Exchange Commission as a unit investment trust under the Act (hereinafter collectively, the Trust). You advised that you wish to arrange for the acquisition of TMK's shares as the exclusive funding medium for each of the Trusts. TMK agrees to make the shares of its eleven Portfolios available to you for said purposes subject to the following terms and conditions:
1. TMK will sell its shares directly to you and on request redeem its shares at the time and prices specified in its then current prospectus and statement of additional information (SAI) for the purposes of funding the investment divisions of the two Trusts as is more particularly set forth in the Trusts' then current prospectuses.
2. (a) Payment for shares in investable funds shall be due on issuance of shares.
(b) TMK will make payment on redemption of its shares as stated in its prospectus and SAI.
(c) Purchases and redemptions of shares of the same Portfolio on the same day may be netted so as to result in a single purchase or single redemption for the day.
(d) Shares of one Portfolio may be exchanged for shares of another Portfolio by redemption of shares of a particular Portfolio and the immediate purchase of shares of the other Portfolio. On your request, TMK will effect such exchanges by transfer of monies from one Portfolio to the other as appropriate.
(e) All dividends and capital gains distributions shall be reinvested in additional shares.
3. TMK will furnish you with adequate number of copies of its annual and semiannual reports to shareholders and TMK's proxy material for shareholder meetings as you may request for furnishing to the policyowners and will reimburse you for your expenses in mailing the reports and proxy materials to the policyowners including return postage with respect to the voting of proxy cards. With TMK's prior consent, you may include additional items in the mailing of TMK's reports to shareholders provided any extra costs are paid by you.
4. You shall vote the shares held by the policyholders as set forth in the Trust's prospectuses and any SAI's.
5. TMK will furnish you with a copy of its current prospectus and SAI and all amendments thereto. You shall print and reproduce at your expense such copies thereof as you may desire with respect to the distribution of interests in the Trusts. You may use TMK's shareholder reports in the distribution process. Copies of the reports will be furnished for such purpose as you request at your expense.
6. The foregoing, notwithstanding, TMK shall not engage directly or indirectly in financing any activity which is primarily intended to result in the sale of its shares issued by it.
7. Indemnification
A. TMK agrees with you for your benefit and each person, if any, who controls you within the meaning of Section 15 of the Securities Act of 1933 (the "Securities Act") and each and all and any of them, to indemnify and hold you harmless and any such controlling person from and against any and all losses, claims, damages or liabilities, joint or several, to which you, they or any of them may become subject under the Securities Act, under any other statute, at common law or otherwise, and to reimburse you and such controlling persons, if any, for any legal or other expenses (including the cost of any investigation and preparation) reasonably incurred by you, them or any of them in connection with any litigation whether or not resulting in any liability, insofar as such losses, claims, damages, liabilities or litigation arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any prospectus or any amendment thereof or supplement thereto or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided, however, that this indemnity agreement shall not apply to amounts paid in settlement of any such litigation if such settlement is effected without the consent of TMK or to any such losses, claims, damages, liabilities or litigation arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus or any amendment thereof or supplement thereto, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which statement or omission was made in reliance upon information furnished in writing to TMK by you for inclusion in any registration statement or any prospectus or any amendment thereof or supplement thereto. You and each such controlling person shall promptly, after the complaint shall have been served upon you or such controlling person in any litigation against you or such controlling person in respect of which indemnity may be sought from TMK on account of its agreement contained in this paragraph, notify TMK in writing of the commencement thereof. Your omission or such controlling person so to notify TMK of any such litigation shall relieve TMK from any liability which it may have to you or such controlling person on account of the indemnity agreement contained in this paragraph but shall not relieve TMK from any liability which it may have to you or controlling person otherwise than on account of the indemnity agreement contained in this paragraph. In case any such litigation shall be brought against you or any such controlling person and you or such controlling person shall notify TMK of the commencement thereof, TMK shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own expense but such defense shall be conducted by counsel of good standing and satisfactory to you or such controlling person or persons, defendant or defendants in the litigation. The indemnity agreement of TMK contained in this paragraph shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any such controlling person and shall survive any delivery of shares of TMK. TMK agrees to notify you promptly of the commencement of any litigation or proceeding against it or any of its officers or directors of which it may be advised in connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding TMK's agreement in the foregoing, insofar as it constitutes a basis for reimbursement by TMK for liabilities (other than payment by TMK of expenses incurred or paid in the successful defense of any action, suit or proceeding) arising under the Securities Act, shall not extend to the extent of any interest therein of any person who is deemed to be an underwriter or a partner or controlling person of an underwriter within the meaning of Section 15 of the Securities Act or who, at the date of this Agreement, is a director of TMK, except to the extent that an interest of such character shall have been determined by a court of appropriate jurisdiction the question of whether or not such interest is against public policy as expressed in the Securities Act.
C. You agree to indemnify and hold harmless TMK and its directors and such officers as shall have signed any registration statement from and against any and all losses, claims, damages or liabilities, joint or several, to which TMK or such directors or officers may become subject under the Securities Act, under any other statute, at common law or otherwise, and will reimburse TMK or such directors or officers for any legal or other expenses (including the cost of any investigation and preparation) reasonably incurred by it or them or any of them in connection with any litigation, damages, liabilities or litigation arise out of, or are based upon, any untrue statement or alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, which statement or omission was made in reliance upon information furnished in writing to TMK by you for inclusion in any registration statement or any prospectus, or any amendment thereof or supplement thereto, or which statement was made in, or the alleged omission was from, any advertising or sales literature (including any reports to shareholders used as such) which relate to TMK.
You shall not be liable for amounts paid in settlement of any such litigation if such settlement was effected without its consent. TMK and its directors and such officers, defendant or defendants, in any such litigation shall, promptly after the complaint shall have been served upon TMK or any such director or officer in any litigation against TMK or any such director or officer in respect of which indemnity may be sought from TMK on account of its agreement contained in this paragraph, notify you in writing of the commencement thereof. The omission of TMK or such director or officer so to notify you of any such litigation shall relieve you from any liability which it may have to TMK or such director or officer on account of the indemnity agreement contained in this paragraph, but shall not relieve you from any liability which it may have to TMK or such director or officer otherwise than on account of the indemnity agreement contained in this paragraph. In case any such litigation shall be brought against TMK or any such officer or director and notice of the commencement thereof shall have been given to you, you shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own expense, but such defense shall be conducted by counsel of good standing and satisfactory to TMK. The indemnity agreement of TMK contained in this paragraph shall remain operative and in full force and effect regardless of any investigation made by or on behalf of TMK and shall survive any delivery of shares of TMK. You agree to notify TMK promptly of the commencement of any litigation or proceeding against you or any of your officers or directors or against any such controlling person of which you may be advised, in connection with the issue and sale of TMK.
D. Notwithstanding any provision contained in this Agreement, no party hereto and no person or persons in control of any party hereto shall be protected against any liability to TMK or its security holders, including beneficial owners or its security to which they would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of their duties or by reason of their reckless disregard of their obligations and duties under this Agreement.
8. TMK will make shares available and otherwise carry out the terms of this Agreement until the Trusts are terminated; provided, however, it will have no obligation to issuance of shares other than for purposes of exchange among Portfolios and reinvestment of dividends and distribution, should the registration of the Trust securities under the Securities Act of 1933 terminate. TMK agrees to use its best efforts to keep an adequate number of shares at all times authorized, but it will not be required to issue its shares if all TMK shares be issued and outstanding. TMK will be relieved of responsibility hereunder for issuing shares by reason of any governmental
rule, regulation or order or order of court of any competent jurisdiction or when for reasons beyond its control, it is unable to issue such shares.
If the foregoing is in accordance with your understanding of our Agreement, please execute your acceptance hereof on the duplicates hereto enclosed for that purpose and return one copy to TMK/United Funds, Inc., whereupon this shall become a binding Agreement between you and TMK/United Funds, Inc.
TMK/United Funds, Inc.
By: /s/ Sharon K. Pappas
--------------------------------
Sharon K. Pappas, Vice President
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Accepted this 4th day of April, 1997.
United Investors Life Insurance Company
By: /s/ James L/ Sedgwick
------------------------------
James L. Sedgwick, President
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AGREEMENT AMENDING PRINCIPAL UNDERWRITING AGREEMENT
This Agreement, dated the ___ day of March, 1998, by and between United Investors Life Insurance Company ("UILIC") and Waddell & Reed, Inc. ("W&R");
WHEREAS, the UILIC and W&R desire to amend the Underwriting Agreement to provide for termination thereof as of December 31, 1998, unless UILIC and W&R determine to extend it for an additional period of time;
NOW, THEREFORE, UILIC and W&R agree as follows:
1. The Underwriting Agreement be, and it hereby is, amended to provide that it terminates as of the close of business on December 31, 1998, unless extended to a later date in writing by UILIC and W&R.
2. The provisions of the Underwriting Agreement will survive termination as described therein.
3. All notices, instructions, reports and other documents contemplated by this Agreement or the Underwriting Agreement will be deemed duly given when in writing and either delivered to the addresses below or sent by first class mail, facsimile or courier addressed as follows:
To: United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: James L. Sedgwick
To: Waddell & Reed, Inc.
6300 Lamar Avenue
Overland Park, KS 66202
Attn: General Counsel
4. This Agreement may be executed in counterparts, each of which shall be deemed an original.
5. This Agreement will be governed by the laws of the State of Kansas.
IN WITNESS WHEREOF, W&R and UILIC have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first written above.
UNITED INVESTORS LIFE INSURANCE COMPANY
By:_______________________________________
Name and Title:_____________________________
WADDELL & REED, INC.
By:_______________________________________
Name and Title:_____________________________
PRINCIPAL UNDERWRITING AGREEMENT
AGREEMENT dated May 1, 1990, by and between United Investors Life Insurance Company("United Investors"), a Missouri corporation, on its own behalf and on behalf of United Investors Annuity Variable Account ("Variable Account"), and Waddell & Reed, Inc. ("W&R"), a Missouri corporation.
WITNESSETH:
WHEREAS, Variable Account is a segregated asset account established and maintained by United Investors pursuant to the laws of the State of Missouri for certain deferred variable annuity policies to be issued by United Investors (the "Policies"), under which income, gains, and losses, whether or not realized, from assets allocated to such account, will be, in accordance with the Policies, credited to or charged against such account without regard to other income, gains, or losses of United Investors; and
WHEREAS, United Investors has registered Variable Account as a unit investment trust under the Investment Company Act of 1940 ("the Investment Company Act"); and
WHEREAS, W&R has registered as a broker-dealer under the Securities Exchange Act of 1934 (the "Exchange Act") and is a member firm of the National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, United Investors has registered the Policies under the Securities Act of 1933 (the "Securities Act") and proposes to issue and sell the Policies through W&R acting as its principal underwriter.
NOW, THEREFORE, United Investors and W&R hereby mutually agree to as follows:
1. Underwriter.
(a) United Investors grants to W&R the right, during the term of this Agreement, subject to the registration requirements of the Securities Act and the Investment Company Act and the provisions of the Exchange Act, to be the distributor and principal underwriter of the Policies. W&R agrees to use its best efforts to distribute the Policies, and to undertake to provide sales services relative to the Policies and otherwise to perform all duties and functions necessary and proper for the distribution of the Policies.
(b) To the extent necessary to offer the Policies, W&R shall be duly registered or otherwise qualified under the securities laws of any state or other jurisdiction. Any sales representatives of W&R soliciting applications for the Policies shall by duly and appropriately licensed, registered or otherwise qualified for the sale of such Policies under the federal securities laws, any applicable insurance laws and securities laws of each state or other jurisdiction in which such policies may lawfully be sold and in which United Investors is licensed to sell Policies. Such direct sales representatives of W&R shall be independent contractors. W&R shall be responsible for the training, supervision, and control of its representatives for the purposes of NASD Rules of Fair Practice and federal and state securities law requirements applicable in connection with the
offering and sale of the Policies. In this connection, W&R shall retain
written supervisory procedures in compliance with NASD Rules of Fair Practice,
Section 27, Paragraph 2177.
(c) W&R agrees to offer the Polices for sale accordance with the prospectus therefor filed with the Securities and Exchange Commission ("Commission") then in effect. W&R is not authorized to give any information or to make any representations concerning the Policies other than those contained in such current prospectus or in such sales literature as may be authorized by United Investors.
(d) All purchase payments made or other monies payable under the Policies shall be paid or remitted by or on behalf of Policyowners directly to United Investors or its designated servicing agent and shall become the exclusive property of United Investors. United Investors will retain all such payments and monies except to the extent such payments and monies are allocated to the Variable Account.
2. Sales Agreement.
(a) W&R is hereby authorized to enter into separate written agreements, on such terms and conditions as W&R may determine to be not inconsistent with this Agreement, with broker-dealers registered as such under the Exchange Act which agree to participate in the distribution of the Policies and to use their best efforts to solicit applications for the Policies.
(b) It is understood and agreed to by United Investors and W&R that United Investors may from time to time propose that the Policies be distributed through broker-dealers other than W&R. In such circumstances, W&R will agree to enter into a sales agreement with another broker-dealer, subject to W&R's reasonable satisfaction, through its customary review, with such other broker-dealer's credentials and practices. W&R agrees that, if reasonably satisfied with the credentials and practices of such other broker-dealer, a sales agreement will not be withheld. If W&R withholds a sales agreement without substantiating its reasons for doing so, United Investors may terminate this agreement by giving W&R thirty (30) days written notice, notwithstanding any other provision of this Agreement.
(c) All such sales agreements shall provide that each broker-dealer will assume full responsibility for continued compliance by itself and its representatives with applicable federal and state securities laws and state insurance laws, and shall be in such form and contain such other provisions as United Investors may from time to time require. Such broker-dealer shall assume any legal responsibility of United Investors for the acts, commissions, defalcations of such representatives insofar as they relate to the sale of the Policies. Such broker-dealers and their representatives soliciting applications for the Policies shall be duly and appropriately licensed, registered, or otherwise qualified for the sale of such Policies under the federal securities laws, any applicable insurance and securities laws of each state or other jurisdiction in which such Policies may be lawfully sold and in which United Investors is licensed to sell the Policies. Each such organization shall be both registered as a broker-dealer under the Exchange Act and a member of the NASD, or if not so registered or not such a member, then the representatives of such organization soliciting applications for Policies shall be registered representatives of a registered broker-dealer and NASD member which is an affiliate of such organization and which maintains full responsibility for the training, supervision, and control of the representatives selling the Policies.
(d) Applications for the Policies solicited by such organizations through their representatives shall be forwarded to United Investors. All payments for Policies shall be made by check or money order payable to "United Investors Life Insurance Company" and remitted promptly by such organizations to United Investors as agent for W&R. United Investors may also accepts wire transfers via Federal Funds to an account designated by United Investors. All broker- dealers who agree to participate in the distribution of the Policies shall act as independent contractors and nothing herein contained shall constitute such broker-dealers or their agents or employees as employees of United Investors or W&R in connection with the sale of the Policies.
3. Compensation.
(a) For the sales services rendered by W&R and its sales representatives and the continuing obligations spelled out herein, United Investors shall pay W&R the commissions set forth in Schedule A to this Agreement, which Schedule may be hereafter amended from time to time by mutual agreement of United Investors and W&R.
(b) For Policies sold under sales agreements that W&R enters into with other broker-dealers pursuant to paragraph 2, above, United Investors shall pay W&R the commissions which are set forth in Schedule B to this Agreement, which Schedule may be hereafter amended from time to time by mutual agreement of United Investors and W&R.
4. Administrative Services.
United Investors agrees to maintain all required books of account and related financial records on behalf of W&R. All such books of account and records shall be maintained and preserved pursuant to Rules 17a-3 and 17a-4 under the Exchange Act (or the corresponding provisions of any future applicable federal securities laws or regulations). In addition, United Investors will maintain records of all sales commissions paid to sales representatives of W&R in connection with the sale of the Policies. All such books and records shall be maintained by United Investors on behalf of and as agent for W&R whose property they are and shall remain for all purposes, and shall at all times be subject to reasonable periodic, special, or other examination by the Commission and all other regulatory bodies having jurisdiction. United Investors also agrees to send to W&R's customers all required confirmations of customer transactions.
5. Reports.
W&R shall have the responsibility for maintaining the records of sales representatives licensed, registered, and otherwise qualified to sell the Policies and for furnishing periodic reports thereof to United Investors.
6. Regulation.
(a) This Agreement shall be subject to the provisions of the Investment Company Act and the Exchange Act and the rules, regulations, and rulings thereunder and of the NASD, from time to time in effect, including such exemptions from the Investment Company Act as the Commission may grant, and the terms hereof shall be interpreted and construed in accordance therewith. Without limiting the generality of the foregoing, the term "assigned" shall not include any transactions exempted from section 15(b)(2) of the Investment Company Act.
(b) W&R shall submit to all regulatory and administrative bodies having jurisdiction over the present and future operations of United Investors or Variable Account any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws or regulations. Without limiting the generality of the foregoing, W&R shall furnish the State of Missouri Secretary of State and/or the Director of Insurance with any information or reports which the Secretary of State and/or the Director of Insurance may request in order to ascertain whether the variable life operations of United Investors are being conducted in a manner consistent with any other applicable law or regulations.
7. Suitability.
United Investors and W&R each wish to ensure that the Policies distributed by W&R will be issued to purchasers for whom the Policy will be suitable. W&R shall take reasonable steps to ensure that the various sales representatives appointed by it shall not make recommendations to an applicant to purchase a Policy in the absence of reasonable grounds to believe that the purchase of the Policy is suitable for such applicant. While not limited to the following, a determination of suitability shall be based on information furnished to a sales representative after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives and financial situation and needs. W&R will require that the applicant complete the Confidential Owner's Information and Suitability sections of the application for the Policy.
8. Prospectuses and Promotional Material.
United Investors shall furnish W&R with copies of all prospectuses, financial statements, and other documents and materials which W&R reasonably requests for use in connection with the distribution of the Policies. United Investors shall have responsibility for the preparation, filing, and printing of all required prospectuses and/or registration statements in connection with the Policies, and the payment of all related expenses. W&R and United Investors shall cooperate fully in designing, drafting, and reviewing sales promotion materials, and with respect to the preparation of individual sales proposals related to the sale of the Policies. W&R shall not use any such materials not provided or approved by United Investors.
9. Investigation and Proceedings.
(a) W&R and United Investors agree to cooperate fully in any insurance regulatory investigation or proceeding or judicial proceeding arising in connection with the Policies distributed under this Agreement. W&R and United Investors further agree to cooperate fully in any securities regulatory inspection, inquiry, investigation or proceeding or any judicial proceeding with respect to United Investors, W&R their affiliates and their representatives to the extent that such inspection, inquiry, investigation or proceeding is in connection with Policies distributed under this Agreement. Without limiting the foregoing:
(i) W&R will be notified promptly of any customer complaint or notice of any regulatory inspection, inquiry, investigation or proceeding or judicial proceeding received by United Investors with respect to W&R or any representative or which may affect United Investors' issuance of any Policies marketed under this Agreement; and
(ii) W&R will promptly notify United Investors of any customer complaint or notice of any regulatory inspection, inquiry, investigation or judicial proceeding received by W&R or any representative with respect to United Investors or its affiliates in
connection with any Policies distributed under this Agreement or any activity in connection with any Policies.
(b) In the case of a customer complaint, W&R and United Investors will cooperate in investigating such complaint and shall arrive at a mutually satisfactory response.
10. Exclusivity.
The services of W&R and United Investors under this Agreement are not deemed to be exclusive and W&R and United Investors shall be free to render similar services to others, including, without implied limitation, such other separate investment accounts as are now or hereafter established by United Investors, W&R or any affiliate of W&R so long as the services of W&R and United Investors hereunder are not impaired or interfered with thereby.
11. Benefit.
This Agreement shall inure to the benefit of and be binding upon the successors of the parties hereto.
12. Liability.
Neither party hereto shall be liable to the other for any action taken or omitted by it, or any of its officers, agents or employees, in performing their responsibilities under this Agreement in good faith and without gross negligence, willful misfeasance or reckless disregard of such responsibilities.
13. Notice.
All notices and other communications provided for hereunder shall be in writing and shall be delivered by hand or mailed first class, postage prepaid, addressed as follows:
(a) If to United Investors:
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attention: James L. Sedgwick, Esq.
(b) If to W&R:
Waddell & Reed, Inc.
Post Office box 418343
Kansas City, Missouri 64141-9343
Attention: Rodney O. McWhinney, Esq.
or to such other address as United Investors or W&R shall designate by written notice to the other.
14. Amendment.
This Agreement may be amended from time to time by the mutual agreement and consent of the parties hereto.
15. Severability.
If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
16. Termination.
This Agreement shall be effective upon its execution. It may be terminated at any time by either party hereto on 60 days' written notice to the other party hereto, without the payment of any penalty. Upon termination of this Agreement, all authorizations, rights and obligations shall cease except (i) the obligation to settle accounts hereunder, issued pursuant to applications received by United Investors prior to termination and (ii) the agreements contained in paragraph 9 hereof.
17. Applicable Law.
This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Missouri.
18. Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall be deemed an instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
(seal)
Attest: UNITED INVESTORS LIFE
INSURANCE COMPANY
By: /s/John H. Livingston By: /s/James L. Sedgwick
-------------------------- ----------------------------------
John H. Livingston James L. Sedgwick
Assistant Secretary Secretary
(seal)
Attest: WADDELL & REED, INC.
By: /s/David R. Burford By: /s/Rodney O. McWhinney
--------------------------- ----------------------------------
David R. Burford Rodney O. McWhinney
Assistant Secretary Senior Vice President
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SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is made effective as of the __ day of _____________, 1998 (the "Effective Date"), by and between WADDELL & REED INVESTMENT MANAGEMENT COMPANY ("WRIMCO") and WADDELL & REED ASSET MANAGEMENT COMPANY ("WRAMCO").
WHEREAS, WRIMCO is involved in operations and services involving certain institutional accounts and has specific expertise in this area; and
WHEREAS, WRAMCO is the investment adviser to institutional accounts and certain other accredited investors and WRIMCO is the subadviser with respect to certain of those accounts (the portion of those accounts for which WRIMCO serves as subadviser pursuant to the Investment Services Agreement, dated __________, 1998, as amended from time to time ("Investment Services Agreement") are hereinafter referred to as the "Accounts");
WHEREAS, WRAMCO desires that WRIMCO assist with certain of WRAMCO's duties primarily with respect to client servicing and accounting for the Accounts, and with respect to certain recordkeeping and regulatory filing requirements;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, WRIMCO and WRAMCO agree as follows:
a. WRIMCO shall assist WRAMCO with the taking and processing of transactions in securities, including without limitation, purchase and sale of securities and other products; purchase, sale and exercise of subscription, conversion and other rights, warrants and options; and taking or abstaining from taking any action with respect to any corporate action such as reorganizations, consolidations, mergers, dissolutions, recapitalizations, refinancing and any other plan or change affecting any property relating to the Accounts;
b. WRIMCO shall assist WRAMCO in establishing, preparing and maintaining books and records relating to the Accounts and WRAMCO's business, including, but not limited to, Account balance, performance and transaction information as deemed necessary and
appropriate by WRIMCO, as reasonably requested by WRAMCO, and as required by applicable laws, rules and regulations;
c. WRIMCO shall assist WRAMCO in computing and causing to be prepared and delivered clients and other appropriate entities such as regulatory entities standard and reasonable supplemental documentation regarding Accounts and WRAMCO's business, including, without limitation, any quarterly and annual reports, sales material, regulatory filings and such information as is otherwise required by applicable laws, rules and regulations;
d. WRIMCO shall assist WRAMCO in reconciling Account balances;
e. WRIMCO shall assist WRAMCO in processing and responding to correspondence and other contact from or on behalf of clients; and
f. WRIMCO shall prepare and deliver invoices or other appropriate documentation of amounts owing to WRAMCO by clients and/or Accounts.
To WRAMCO: Waddell & Reed Asset Management Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: Michael J. Klyce
To WRIMCO: Waddell & Reed Investment Management Company
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6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Lawrence J. Cipolla
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IN WITNESS WHEREOF, the parties have executed this Agreement to become effective as of the Effective Date.
WADDELL & REED INVESTMENT MANAGEMENT COMPANY
By:__________________________________________________ Henry J. Herrmann, President
Attest:
By:________________________________
Sharon K. Pappas, Secretary
WADDELL & REED ASSET MANAGEMENT COMPANY
By:________________________________________________
Name and Title:______________________________________
Attest:
By:______________________________
_______________, Secretary
RECIPROCITY AGREEMENT
BY AND BETWEEN
TORCHMARK CORPORATION AND
WADDELL & REED FINANCIAL, INC.,
ON BEHALF OF THE
TORCHMARK CORPORATION PENSION PLAN,
THE WADDELL & REED FINANCIAL, INC. RETIREMENT INCOME PLAN, THE TORCHMARK CORPORATION SAVINGS AND INVESTMENT PLAN, AND THE WADDELL & REED FINANCIAL, INC. SAVINGS AND INVESTMENT PLAN
Recitals:
Waddell & Reed Financial, Inc. and its affiliates (collectively, "W&R Financial") employ individuals who were formerly employed by Torchmark Corporation and its affiliates (collectively, "Torchmark") and who accrued benefits under the Torchmark Corporation Pension Plan (the "Torchmark Pension Plan") and the Torchmark Corporation Savings and Investment Plan (the "Torchmark Thrift Plan").
Torchmark employs individuals who were formerly employed by Waddell & Reed Financial or its predecessor, Waddell & Reed, Inc. and its affiliates (collectively, "W&R") and who accrued benefits under the Waddell & Reed Financial, Inc. Retirement Income Plan (the "W&R Financial Pension Plan") and the Waddell & Reed Financial, Inc. Savings and Investment Plan (the "W&R Financial Thrift Plan").
In connection with the initial public offering of Class A common stock of W&R Financial, the parties hereto desire for the plans identified herein to transfer certain assets and liabilities among and between said plans.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The W&R Financial Thrift Plan shall transfer to the Torchmark Thrift Plan assets and liabilities related to the following classes of employees:
(a) Existing and former employees of United Investors Life Insurance Company;
(b) Existing sales persons of Waddell & Reed Asset Management Company; and,
(c) Former employees of W&R or W&R Financial who are current employees of Torchmark.
2. The Torchmark Thrift Plan shall transfer to the W&R Financial Thrift Plan assets and liabilities related to the following classes of employees:
(a) Former employees of Torchmark who are current employees of W&R Financial.
3. The W&R Financial Pension Plan shall transfer to the Torchmark Pension Plan assets and liabilities related to the following classes of employees:
(a) Existing sales persons of Waddell & Reed Asset Management Company; and,
(b) Former employees of United Investors Real Estate Company.
4. The Torchmark Pension Plan shall transfer to the W&R Financial Pension Plan assets and liabilities related to the following classes of employees:
(a) Former employees of Torchmark who are current employees of W&R Financial; and,
(b) Former employees of Torch Energy Advisors Incorporated.
5. The transfers of assets and liabilities provided for herein shall take place no sooner than the filing of appropriate Forms 5310-A with the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation unless a regulatory exemption for the filing of such forms exists.
6. The parties hereto may amend this agreement at any time pursuant to a writing signed by both parties.
DONE as of this the __ day of __________, 1998.
Torchmark Corporation, as sponsor and plan
administrator of the Torchmark Corporation Pension
Plan and the Torchmark Corporation Savings and
Investment Plan
ATTEST: By:_______________________________________
Its:___________________________________
________________________________
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Waddell & Reed Financial, Inc., as sponsor and
plan administrator of the Waddell & Reed
Financial, Inc. Retirement Income Plan and the
Waddell & Reed Financial, Inc. Savings and
Investment Plan
ATTEST: By:_______________________________________
Its:___________________________________
________________________________
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ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made, executed and entered into this ___ day of __________, 1998, by and between Torchmark Corporation, a Delaware corporation having its principal offices in Birmingham, Alabama ("Torchmark") and Waddell & Reed Financial, Inc., a Delaware corporation having its principal offices in Overland Park, Kansas ("W&R"), for the purpose of rendering administrative and investment services for the Torchmark Corporation Savings and Investment Plan and the Liberty National Life Insurance Company 401(k) Plan (collectively, the "Plans").
W&R or one of its affiliates shall perform applicable recordkeeping and investment services, in accordance with all applicable federal, state and local laws and regulations and the provisions of the latest executed Plan document, as specified below:
(a) allocate earnings, including dividends, if any, and losses for (1)
various mutual funds in the United Group of mutual funds (the "Funds")
offered as investments under the Plan, (2) Torchmark Common Stock, and
(3) W&R Class A Common Stock;
(b) issue buy and sell orders, as appropriate, to the purchasing agent for W&R Class A Common Stock according to the participants' direction and dividend allocation;
(c) issue buy and sell orders, as appropriate, to the purchasing agent for Torchmark Common Stock according to the participants' directions and dividend allocation,
(d) purchase shares of the Funds for participants' accounts according to the participants' direction;
(e) determine asset values for the Funds held by the Plan;
(f) calculate participant account balances on a periodic basis;
(g) transfer plan assets among the various Funds as directed by Plan participants;
(h) perform periodic valuations no less frequently than semi-monthly;
(i) invest and credit participant and employer contributions to the appropriate investment fund, including Torchmark Common Stock, under the Plan.
(j) provide investment numbers to the trustees of the Plans and to Torchmark for wiring of contributions;
(k) balance the recordkeeping system used in the administration of the Plans, as needed, to the shareholder recordkeeping system after each investment;
(l) prepare a monthly mutual fund confirmation for the trustees of the Plans;
(m) prepare letters for the trustees of the Plans to use, as needed and as requested, regarding mutual fund redemptions, stock redemptions, forfeitures, and stock buys and sells;
(n) prepare spreadsheets for stock pricing calculation each investment for input of net asset values based on information provided by Torchmark related to the current periods stock transactions;
(o) calculate and input dividend rates on Torchmark stock and W&R stock, as necessary; and,
(p) check all test results when changes are made to the Plans' systems.
(a) W&R shall provide the services described in paragraph 1 above based on information furnished by Torchmark.
(b) Torchmark shall provide W&R with all information relative to employee data which is necessary for performance of the services agreed upon herein.
In consideration of the performance of services described herein, Torchmark shall pay a quarterly fee, payable within 30 days after the end of each calendar quarter, in the amount of two dollars and fifty cents ($2.50) per participant per quarter (which is the equivalent of ten dollars ($10.00) per participant per year) to W&R for the services described herein. Any additional services which are requested by Torchmark and agreed to by W&R shall be provided for a separately agreed upon fee. The foregoing shall not preclude W&R from receiving, in addition to the compensation specified herein, management fees and other expense fees listed in the prospectuses for the Funds.
The Torchmark Board of Directors may include officers and directors of W&R. W&R may, nevertheless, deal freely with Torchmark, and no contract or transaction shall be invalidated or in any way affected by reason of those facts, even though the vote of the directors(s) or the action of the
officer(s) who are officers or directors of W&R shall have been necessary to obligate Torchmark in such contract or transaction. Neither W&R nor any officer or director thereof shall be liable to Torchmark or to any shareholder or creditor thereof or to any other person by reason of such contract or transaction or for any loss resulting therefrom or for any profit derived therefrom, provided that it was reasonable to believe that such contract or transaction was, at the time at which it was entered into, a reasonable one to have been entered into and on terms that, at such time, were fair. Nothing contained in this paragraph 5, however, shall validate, authorize or apply to any act prohibited by applicable law or shall protect any director or officer of Torchmark or any director or officer of W&R against any liability to Torchmark or its shareholders to which he would otherwise be subject by reason of bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office or under this Agreement.
(a) Either W&R or Torchmark may elect to terminate this Agreement on 30 days' written notice. Unless terminated by such notice, this Agreement shall continue from month to month and year to year.
(b) Each provision of this Agreement is severable from all other provisions of this Agreement and, if one or more of the provisions of this Agreement shall be declared invalid, the remaining provisions of this, Agreement, nevertheless, remain in full force and effect.
(c) All written notices provided for in this Agreement shall be deemed given when mailed postage prepaid to the address of the respective party as listed above, unless otherwise provided in an Amendment to this Agreement.
(d) This Agreement will be governed by and construed in accordance with the laws of the State of Kansas.
(e) Torchmark shall not assign or otherwise transfer this Agreement or any rights hereunder without the prior written permission of W&R.
(f) This Agreement constitutes the entire agreement between the parties with respect to the subject matter. This Agreement may be executed in one or more counterparts, each of which shall constitute but a single document. No modification or waiver of or to any provision of this Agreement shall be valid unless in writing and signed by all the parties hereto.
(g) This Agreement will become effective as of the Effective Date when signed by duly authorized representatives of both parties and will continue in effect until terminated.
IN WITNESS WHEREOF, the parties hereto, each acting under due and proper authority, have caused this Agreement to be executed by their respective signatures.
TORCHMARK CORPORATION
ATTEST: BY:_______________________________________
Its:___________________________________
________________________________
WADDELL & REED FINANCIAL, INC.
ATTEST: BY:_______________________________________
Its:___________________________________
________________________________
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Waddell & Reed Financial, Inc.
We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 27, 1998