FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
INFORMATION STATEMENT
MARCH 31, 2001
INTRODUCTION
This Information Statement is furnished to the shareholders (the
"Shareholders") of Federated Investors, Inc. ("Federated") by the Board of
Directors ("Board") in connection with the Annual Meeting of the Shareholders to
be held on Wednesday, April 25, 2001 at the Westin Convention Center Pittsburgh
(formerly called the "Doubletree Hotel"), Allegheny Grand Ballroom, Third Floor,
1000 Penn Avenue, Pittsburgh, Pennsylvania, at 10:00 a.m. local time. Action
will be taken at the Annual Meeting for the election of directors and any other
business that properly comes before the meeting.
Federated has shares of both its Class A Common Stock, no par value per
share (the "Class A Common Stock") and its Class B Common Stock, no par value
per share (the "Class B Common Stock") issued and outstanding. The Class B
Common Stock is listed on the New York Stock Exchange under the symbol FII.
Except under certain limited circumstances, the entire voting power of Federated
is vested in the holders of the outstanding shares of the Class A Common Stock.
All of the outstanding shares of Class A Common Stock are held by a Voting
Shares Irrevocable Trust, dated May 31, 1989 (the "Voting Trust"), and will be
voted in person at the Annual Meeting. Accordingly, Federated is not soliciting
proxies for the Annual Meeting, but is providing this Information Statement to
its Shareholders in accordance with Regulation ss.240.14c-2 of the Securities
Exchange Act of 1934 (the "Exchange Act").
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement is being mailed to the Shareholders on or about
March 31, 2001. Federated's 2000 Annual Report to Shareholders accompanies this
Information Statement.
VOTING SECURITIES
Only holders of record of Class A Common Stock at the close of business on
March 19, 2001 ("Record Date") will be entitled to vote at the Annual Meeting or
any adjournment or adjournments thereof. On that date, 9,000 shares of Class A
Common Stock were outstanding, all of which were held by the Voting Trust, the
three trustees of which are John F. Donahue, his wife, and his son J.
Christopher Donahue, for the benefit of the members of the family of John F.
Donahue.
The presence of the holder of the Class A Common Stock, constituting all of
the votes that all Shareholders are entitled to cast in the election of
directors, will constitute a quorum for the transaction of business at the
Annual Meeting. Under the terms of the Voting Trust, the trustees are authorized
to vote shares owned by the Voting Trust, and as a result, all of the
outstanding shares of Class A Common Stock will be voted in person at the Annual
Meeting. The Voting Trust is entitled to cast one vote per share of Class A
Common Stock for the election of directors. Directors will be elected by a
plurality of the votes cast. Cumulative voting is not allowed. The trustees of
the Voting Trust have advised that they intend to vote in favor of all the
directors nominated by the Board.
BOARD OF DIRECTORS AND ELECTION OF DIRECTORS
The Board currently consists of ten members. Under Federated's bylaws,
directors are elected at each annual meeting and each director holds office
until the expiration of the term of one year for which he or she was selected
and until a successor is selected and qualified.
The Board has nominated John F. Donahue, J. Christopher Donahue, Arthur L.
Cherry, Thomas R. Donahue, Michael J. Farrell, John B. Fisher, James F. Getz,
Eugene F. Maloney, John W. McGonigle, James L. Murdy, and Edward G. O'Connor for
election as directors. All of the nominees for director, except for Mr.
O'Connor, have previously served as members of the Board.
JOHN F. DONAHUE Mr. John F. Donahue was Chairman and Chief
Age 76 Executive Officer of Federated and a trustee of
Federated Investors, a Delaware business trust (the
"Trust") prior to the May 1998 merger of the Trust
into Federated, its wholly-owned subsidiary (the
"Merger"), and has continued as Chairman of
Federated following the consummation of the Merger.
He served as President of Federated from 1989 until
1993 and was a founder of the predecessor to
Federated. Mr. Donahue is Chairman or President and
a director or trustee of the investment companies
managed by subsidiaries of Federated. Mr. Donahue
is the father of J. Christopher Donahue and Thomas
R. Donahue, each of whom serves as an executive
officer and director of Federated.
J. CHRISTOPHER DONAHUE Mr. J. Christopher Donahue was a trustee of the
Age 51 Trust from 1989 until the Merger and has been a
director of Federated since the consummation of
the Merger. He served as President and Chief
Operating Officer of Federated from 1993 until
April 1998, when he became President and Chief
Executive Officer. Prior to 1993, he served as
Vice President of Federated. He is President or
Executive Vice President of the investment
companies managed by subsidiaries of Federated
and a director, trustee, officer or managing
general partner of the investment companies. Mr.
Donahue is the son of John F. Donahue and the
brother of Thomas R. Donahue.
ARTHUR L. CHERRY Mr. Arthur L. Cherry was a trustee of the Trust
Age 47 from 1997 until the Merger and has been a director
of Federated since the consummation of the Merger.
He is the President and Chief Executive Officer of
Federated Services Company, a wholly-owned
subsidiary of Federated. Prior to joining Federated
in January 1997, he was a managing partner of AT&T
Solutions, former president of Scudder Services
Corporation, and a managing director of Scudder,
Stevens & Clark.
THOMAS R. DONAHUE Mr. Thomas R. Donahue was a trustee of the Trust
Age 42 from 1995 until the Merger and has been a director
of Federated since the consummation of the
Merger. He has been Vice President of Federated
since 1993 and currently serves as Vice President,
Treasurer and Chief Financial Officer. Prior to
joining Federated, Mr. Donahue was in the venture
capital business, and from 1983 to 1987 was
employed by PNC Bank in its Investment Banking
Division. Mr. Donahue is the son of John F.
Donahue and the brother of J. Christopher Donahue.
MICHAEL J. FARRELL Mr. Michael J. Farrell was elected to the Board in
Age 51 August 1998. He is currently the President of
Farrell & Co., a merchant banking firm
specializing in heavy manufacturing companies. He
has also served in executive capacities for MK
Rail Corporation, Motor Coil Manufacturing Co. and
Season-All Industries. Mr. Farrell is a Certified
Public Accountant. Mr. Farrell currently serves
as a director of C-Cor.net Corp.
JOHN B. FISHER Mr. John B. Fisher has been a director of
Age 44 Federated since the consummation of the Merger.
He is President-Institutional Sales Division of
Federated Securities Corp., a wholly-owned
subsidiary of Federated, and is responsible for the
distribution of Federated's products and services
to investment advisors, insurance companies,
retirement plans and corporations.
JAMES F. GETZ Mr. James F. Getz has been a director of Federated
Age 54 since the consummation of the Merger. He serves
as President - Retail Sales Division of Federated
Securities Corp., a wholly-owned subsidiary of
Federated and is responsible for the marketing and
sales efforts in the trust and broker/dealer
markets. Mr. Getz is a Chartered Financial
Analyst.
EUGENE F. MALONEY Mr. Eugene F. Maloney was a trustee of the Trust
Age 56 from 1989 until the Merger and has continued as a
director of Federated since the consummation of the
Merger. He serves as a Vice President of Federated,
and provides certain legal, technical and
management expertise to Federated's sales
divisions, including regulatory and legal
requirements relating to a bank's use of mutual
funds in both trust and commercial environments.
JOHN W. MCGONIGLE Mr. John W. McGonigle was a trustee of the Trust
Age 62 from 1989 until the Merger and has been a director
of Federated since the consummation of the
Merger. Mr. McGonigle has served as Secretary of
Federated since 1989. He served as Vice President
of Federated from 1989 until August 1995, when he
became Executive Vice President. Mr. McGonigle
acted as General Counsel of Federated until 1998
when he became the Chief Legal Officer.
Mr. McGonigle is Executive Vice President and
Secretary of the investment companies managed by
subsidiaries of Federated.
JAMES L. MURDY Mr. James L. Murdy was elected to the Board in
Age 62 August 1998. He is currently Director and
Executive Vice President of Allegheny Technologies
Incorporated, a diversified manufacturing
corporation, and, prior to becoming Executive Vice
President, served as Executive Vice President and
Chief Financial Officer of Allegheny Ludlum
Corporation. Mr. Murdy is a Certified Public
Accountant.
EDWARD G. O'CONNOR Since 2000, Mr. Edward G. O'Connor has served as
Age 60 Senior Counsel to the litigation department of the
law firm Eckhert, Seamans, Cherin & Mellot LLC
("Eckhert Seamans"). From 1973 to 1999, Mr.
O'Connor was a Member of Eckhert, Seamans. Mr.
O'Connor's legal practice focuses primarily on
products liability and commercial litigation.
MEETINGS AND COMMITTEES OF THE BOARD
In 2000, the Board met on six occasions. The Board has an Audit Committee
and a Compensation Committee. The Board does not have a Nominating Committee.
AUDIT COMMITTEE
The Audit Committee currently consists of Michael J. Farrell and James L.
Murdy, neither of who is an officer or employee (or former officer or employee)
of Federated. Mr. Murdy is Chairman of the Audit Committee. The Board has
adopted a written charter for the Audit Committee, a copy of which is attached
as Appendix A. The members of the Audit Committee are "Independent", as defined
by the Listing Standards of the New York Stock Exchange. The Audit Committee is
responsible for assisting the Board in fulfilling its statutory and fiduciary
responsibilities for the audit function of Federated and in monitoring its
accounting and financial reporting practices; determining that Federated has
adequate administrative, operational and internal accounting controls and that
Federated is operating in accordance with its prescribed procedures and codes of
conduct; determining that Federated has in place policies and procedures to
enable it to comply with applicable laws and regulations and that such
compliance is occurring; and providing general oversight for the internal and
external audit function. Its functions include recommending to the Board the
appointment of independent auditors and reviewing with the internal auditors and
the independent auditors their annual audit plans and monitoring their progress
during the year. In discharging its responsibilities, the Audit Committee is
entitled to rely upon the reports, findings and representations of Federated's
auditors, legal counsel and responsible officers. In 2000, the Audit Committee
met on five occasions.
AUDIT COMMITTEE REPORT
The Audit Committee (the "Committee") oversees Federated's financial
reporting process on behalf of the Board of Directors (the "Board"). Management
has the primary responsibility for the financial statements and the reporting
process including the systems of internal controls. In fulfilling its oversight
responsibilities, the Committee reviewed and discussed the audited financial
statements in the Annual Report with management including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity and completeness of
disclosures in the financial statements.
The Committee discussed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of Federated's accounting principles as
applied to the financial statements and such other matters as are required to be
discussed with the Committee under generally accepted auditing standards. In
addition, the Committee has received and discussed with the independent auditors
the written disclosures required by the Independence Standards Board Standard
No. 1 relating to the auditors' independence from management and Federated. The
Committee has considered whether the provisions of non-audit services by the
independent auditors is compatible with maintaining the independent auditors'
independence.
The Committee discussed with Federated's internal and independent auditors
the overall scope and plans for their respective audits. The Committee meets
with the internal and independent auditors, with and without management present,
to discuss the results of their examinations, their evaluations of Federated's
internal controls, and the overall quality of Federated's financial reporting.
In reliance on the reviews and discussions referred to above, the committee
recommended to the Board (and the Board has approved) that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended
December 31, 2000, for filing with the Securities and Exchange Commission. The
committee also recommended to the Board the selection of Federated's independent
auditors.
Respectfully Submitted:
James L. Murdy, Audit Committee Chairman
Michael J. Farrell, Audit Committee Member
COMPENSATION COMMITTEE
The Compensation Committee currently consists of Michael J. Farrell, James
L. Murdy and J. Christopher Donahue as a non-voting member. Mr. Donahue is the
President and Chief Executive Officer of Federated. Mr. Farrell is Chairman of
the Compensation Committee. This committee recommends compensation levels of
senior management, works with senior management on benefit and compensation
programs for Federated employees and monitors local and national compensation
trends to ensure Federated's compensation program is competitive within the
mutual fund industry. In 2000, the Compensation Committee met on two occasions.
The bonus awards for the year ended December 31, 1999 and the base compensation
levels for 2000 were established by the Compensation Committee.
COMPENSATION OF DIRECTORS
Members of the Board who are also employees of Federated do not receive
cash compensation for their services as directors. Members of the Board who are
not employees receive (i) $15,000 per year, payable in quarterly installments,
(ii) options to purchase 7,500 shares of Class B Common Stock upon initial
election to the Board, which are subject to a three-year vesting schedule, (iii)
2,250 options to purchase shares of Class B Common Stock annually, which vest
immediately upon grant, and (iv) $1,000 annually as compensation for Committee
Chairmanship. According to Federated's Stock Incentive Plan, all of the vested
options granted to outside directors are immediately exercisable and may be
exercised for a period of ten years from the date of the grant, provided that,
in the event of the death or disability of the outside director, the options may
only be exercised within twelve months after the death or disability and, in the
event that the outside director's service to Federated is terminated for any
reason other than death or disability, the options may only be exercised for a
period of thirty days after the date of such termination of services.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the years ended
December 31, 1998, December 31, 1999 and December 31, 2000 for Federated's Chief
Executive Officer and for the four other most highly compensated executive
officers of Federated (the "Named Executive Officers").
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
Other Securities
Name and Annual Restricted Underlying
Compensation Salary Bonus Compensation Stock Awards Options/SARs All Other
Principal Position(s) Year ($) ($)(1) ($)(2) ($) (#)(3) ($)(4)
John F. Donahue 2000 1,700,000 1,000,000 90,746 --- --- 10,502
Chairman 1999 1,680,000 900,000 86,139 --- --- 10,874
1998 1,650,000 900,000 --- --- --- 10,439
J. Christopher Donahue 2000 900,000 591,346 51,055 --- 531,100 35,096
President and Chief 1999 890,000 513,482 --- --- 47,700 17,674
Executive Officer 1998 860,000 408,784 --- --- 46,200 18,810
Arthur L. Cherry 2000 680,000 543,933 --- --- 528,620 8,312
President, Federated 1999 660,000 403,354 --- --- 36,900 8,309
Services Company 1998 630,000 294,156 --- --- 483,300 8,099
James F. Getz 2000 400,000 709,615 56,580 --- 437,320 8,242
President, Retail Sales 1999 390,000 579,244 --- --- 53,400 8,465
Division of Federated 1998 365,000 469,300 --- --- 52,500 7,915
Securities Corp.
Thomas R. Donahue 2000 680,000 484,930 --- --- 425,500 23,405
Vice President and 1999 660,000 387,364 --- --- 35,400 14,314
Chief Financial Officer 1998 640,000 268,196 --- --- 30,300 14,505
(1) The amounts set forth in this column for 2000 do not include amounts which
were earned by the Named Executive Officers in 2000 but which the Named
Executive Officers chose to forego pursuant to a program under which such
Named Executive Officers elected to acquire options to purchase shares of
Class B Common Stock in lieu of cash compensation. These options were
awarded to the Named Executive Officers as a portion of their respective
performance bonuses in January 2001. Based on the fair market value of the
options to purchase Class B Common Stock, determined by using the
Black-Scholes valuation methodology, Messrs. J. Christopher Donahue,
Cherry, Getz, and Thomas R. Donahue elected to forego $408,654, $376,067,
$490,385, and $335,070, respectively, in cash bonus awards in favor of
options
The amounts set forth in this column for 1999 do not include amounts which
were earned by the Named Executive Officers in 1999 but which the Named
Executive Officers chose to forego pursuant to a program under which such
Named Executive Officers elected to acquire options to purchase shares of
Class B Common Stock in lieu of cash compensation. These options were
awarded to the Named Executive Officers as a portion of their respective
performance bonuses in January 2000. Based on the fair market value of the
options to purchase Class B Common Stock, determined by using the
Black-Scholes valuation methodology, Messrs. J. Christopher Donahue,
Cherry, Getz, and Thomas R. Donahue elected to forego $286,518, $221,646,
$320,756, and $212,636, respectively, in cash bonus awards in favor of
options.
The amounts set forth in this column for 1998 do not include amounts which
were earned by the Named Executive Officers in 1998 but which the Named
Executive Officers chose to forego pursuant to a program under which such
Named Executive Officers elected to acquire options to purchase shares of
Class B Common Stock in lieu of cash compensation. These options were
awarded to the Named Executive Officers as a portion of their respective
performance bonuses in January 1999. Based on the fair market value of the
options to purchase Class B Common Stock, determined by using the
Black-Scholes valuation methodology, Messrs. J. Christopher Donahue,
Cherry, Getz, and Thomas R. Donahue elected to forego $216,216, $155,844,
$245,700, and $141,804 respectively, in cash bonus awards in favor of
options.
(2) Includes $39,525 attributable to Mr. John F. Donahue and $21,200
attributable to Mr. Getz for use of the corporate jet respectively. Also
includes $14,606 attributable to Mr. Getz for use of a company car.
(3) Securities reported in this column for 2000 consist of shares of Class B
Common Stock subject to options acquired in January 2001, by the Named
Executive Officers in lieu of a portion of their respective 2000 earned
cash bonus awards, in the following amounts: Mr. J. Christopher Donahue,
31,100 shares; Mr. Cherry, 28,620 shares; Mr. Getz, 37,320 shares; and Mr.
Thomas R. Donahue, 25,500 shares. All such options are currently
exercisable. Securities reported in this column for 2000 also consist of
shares of Class B Common Stock subject to options acquired in July 2000
(the "July 2000 options"), in the following amounts: Mr. J. Christopher
Donahue, 500,000 shares; Mr. Cherry, 500,000 shares; Mr. Getz, 400,000
shares; and Mr. Thomas R. Donahue, 400,000 shares. None of the July 2000
options were exercisable as of the fiscal year end.
Share totals in this column for 1999 and 1998 reflect the results of
Federated's 3 for 2 stock split, which was declared on June 22, 2000.
Securities reported in this column for 1999 consist of shares of Class B
Common Stock subject to options acquired in January 2000, by the Named
Executive Officers in lieu of a portion of their respective 1999 earned
cash bonus awards. All such options are currently exercisable.
Securities reported in this column for 1998 consist of shares of Class B
Common Stock subject to options acquired in January 1999, by the Named
Executive Officers in lieu of a portion of their respective 1998 earned
cash bonus awards, in the following amounts: Mr. J. Christopher Donahue,
46,200 shares; Mr. Cherry, 33,300 shares; Mr. Getz, 52,500 shares; and Mr.
Thomas R. Donahue, 30,300 shares. All such options are currently
exercisable. Securities reported in this column with respect to Mr. Cherry
for 1998 also consist of 450,000 Class B Common Stock subject to options
which are currently exercisable.
(4) Includes matching contributions under Federated's 401(k) Plan of $6,400 in
2000 for each of Mr. John F. Donahue, Mr. J. Christopher Donahue, Mr.
Cherry, Mr. Getz, and Mr. Thomas R. Donahue. Also included is the present
value of the economic benefit to the executive in 2000 of the corporate
premiums paid to purchase split dollar life insurance contracts of $21,084
for Mr. J. Christopher Donahue and of $9,251 for Mr. Thomas R. Donahue. In
addition, Federated paid premiums for life, accidental death, and long term
disability insurance with respect to Mr. John F. Donahue of $4,102, Mr. J.
Christopher Donahue of $7,612, Mr. Cherry of $1,912, Mr. Getz of $1,842,
and Mr. Thomas R. Donahue of $7,754 in 2000. The split dollar life
insurance contract for Mr. John F. Donahue is fully paid, and Federated is
entitled to recover all of the premiums paid by it through the cash
surrender value of such policy.
Includes matching contributions under Federated's 401(k) Plan of $6,400 in
1999 for each of Mr. John F. Donahue, Mr. J. Christopher Donahue, Mr.
Cherry, Mr. Getz, and Mr. Thomas R. Donahue. Also included is the present
value of the economic benefit to the executive in 1999 of the corporate
premiums paid to purchase split dollar life insurance contracts of $3,860
for Mr. J. Christopher Donahue and of $330 for Mr. Thomas R. Donahue. In
addition, Federated paid premiums for life, accidental death, and long term
disability insurance with respect to Mr. John F. Donahue of $4,474, Mr. J.
Christopher Donahue of $7,414, Mr. Cherry of $1,909, Mr. Getz of $2,065,
and Mr. Thomas R. Donahue of $7,584 in 1999. The split dollar life
insurance contract for Mr. John F. Donahue is fully paid, and Federated is
entitled to recover all of the premiums paid by it through the cash
surrender value of such policy.
Includes matching contributions under Federated's 401(k) Plan of $6,400 in
1998 for each of Mr. John F. Donahue, Mr. J. Christopher Donahue, Mr.
Cherry, Mr. Getz, and Mr. Thomas R. Donahue. Also included is the present
value of the economic benefit to the executive in 1998 of the corporate
premiums paid to purchase split dollar life insurance contracts of $5,656
for Mr. J. Christopher Donahue and of $1,351 for Mr. Thomas R. Donahue. In
addition, Federated paid premiums for life, accidental death, and long term
disability insurance with respect to Mr. John F. Donahue of $4,039, Mr. J.
Christopher Donahue of $6,754, Mr. Cherry of $1,699, Mr. Getz of $1,515,
and Mr. Thomas R. Donahue of $6,754 in 1998. OPTION GRANTS IN LAST YEAR
The table below sets forth information with respect to stock options
granted to the Named Executive Officers in 2000. The options listed below are
included in the Summary Compensation Table.
NUMBER % OF
OF TOTAL
SECURITIES OPTIONS GRANT DATE
UNDERLYING GRANTED EXERCISE EXPIRATION PRESENT
NAME OPTIONS TO PRICE DATE VALUE
GRANTED EMPLOYEES ($/SH) ($)(3)
(1)(2) IN YEAR
- ---------------------- ---------- ----------- ---------- ----------- -----------
J. Christopher 100,000 1.8 24.8750 6/30/2011 1,329,000
Donahue
100,000 1.8 27.5000 6/30/2011 1,259,000
100,000 1.8 30.0000 6/30/2011 1,197,000
100,000 1.8 32.5000 6/30/2011 1,140,000
100,000 1.8 35.0000 6/30/2011 1,086,000
31,100 0.5 29.8125 1/22/2011 408,654
Arthur L. Cherry 100,000 1.8 24.8750 12/31/2010 1,302,000
100,000 1.8 27.5000 12/31/2010 1,230,000
100,000 1.8 30.0000 12/31/2010 1,167,000
100,000 1.8 32.5000 12/31/2010 1,108,000
100,000 1.8 35.0000 12/31/2010 1,054,000
28,620 0.5 29.8125 1/22/2011 376,067
James F. Getz 80,000 1.4 24.8750 6/30/2011 1,063,200
80,000 1.4 27.5000 6/30/2011 1,007,200
80,000 1.4 30.0000 6/30/2011 957,600
80,000 1.4 32.5000 6/30/2011 912,000
80,000 1.4 35.0000 6/30/2011 868,800
37,320 0.7 29.8125 1/22/2011 490,385
Thomas R. Donahue 80,000 1.4 24.8750 6/30/2011 1,063,200
80,000 1.4 27.5000 6/30/2011 1,007,200
80,000 1.4 30.0000 6/30/2011 957,600
80,000 1.4 32.5000 6/30/2011 912,000
80,000 1.4 35.0000 6/30/2011 868,800
25,500 0.4 29.8125 1/22/2011 335,070
- ----------------------
(1) Securities reported in this column include shares of Class B Common Stock
subject to options acquired in January 2001, by the Named Executive
Officers in lieu of a portion of their respective 2000 earned cash bonus
awards, which are currently exercisable in the following amounts: Mr. J.
Christopher Donahue, 31,100 shares; Mr. Cherry, 28,620 shares; Mr. Getz,
37,320 shares; and Mr. Thomas R. Donahue, 25,500 shares. All other Class B
Common Stock option awards listed above are not currently exercisable.
(2) Securities reported in this column do not reflect shares of Class B Common
Stock subject to options acquired in January 2000, by the Named Executive
Officers in lieu of a portion of their respective 1999 earned cash bonus
awards, which are currently exercisable, in the following amounts: Mr. J.
Christopher Donahue, 47,700 shares; Mr. Cherry, 36,900 shares; Mr. Getz,
53,400 shares; and Mr. Thomas R. Donahue, 35,400 shares.
(3) The Grant Date Present Value for the options acquired by the Named
Executive was calculated using the Black-Scholes option pricing model. The
Black-Scholes value was calculated using the following assumptions; an
expected volatility ranging from 30% to 31%, a risk-free rate of return
ranging from 5.34% to 6.22%, a dividend yield ranging from .50% to .56% and
an expected time to exercise ranging from eight years to 10.75 years.
AGGREGATED OPTION/SAR EXERCISES
AND FISCAL YEAR-END OPTION/SAR VALUES
The table below sets forth information with respect to stock options held
by the Named Executive Officers in 2000.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
SHARES VALUE AT FY-END FY-END ($)(2)
NAME ACQUIRED REALIZED (#)(1)
ON ($) EXERCISABLE/
EXERCISE EXERCISABLE/ UNEXERCISABLE
(#) UNEXERCISABLE
- ----------------------- ----------- --------- --------------- -------------------
J. Christopher Donahue --- --- 93,900/500,000 1,561,952/587,500
Arthur L. Cherry --- --- 520,200/590,000 11,482,164/2,848,750
James F. Getz --- --- 105,900/490,000 1,762,140/2,731,250
Thomas R. Donahue --- --- 65,700/490,000 1,089,914/2,731,250
- -----------------------
(1) Securities reported in this column do not include shares of Class B Common
Stock subject to options acquired by the Named Executive Officers in 2001
in lieu of a portion of their respective cash bonus awards for 2000 in the
following amounts: Mr. J. Christopher Donahue, 31,100 shares; Mr. Cherry,
28,620 shares; Mr. Getz, 37,320 shares; and Mr. Thomas R. Donahue, 25,500
shares. All such options are currently exercisable.
(2) The "value of unexercised in-the-money options" is calculated by
subtracting the exercise price from $29.125, which was the closing sales
price of a share of Class B Common Stock on the New York Stock Exchange on
December 29, 2000.
EMPLOYMENT AGREEMENTS
Federated has entered into employment contracts with the following Named
Executive Officers:
ARTHUR L. CHERRY. Pursuant to a January 16, 1997 agreement, Federated is
obligated to provide Mr. Cherry with (i) a base salary, (ii) an opportunity to
earn a bonus and (iii) certain other benefits, including health and severance
pay benefits, among others. Mr. Cherry agrees not to compete with Federated for
a period of six months following the termination of his employment by Federated,
unless such termination occurs more than three years following the sale of 51%
or greater of Federated's Class A Common Stock to a non-family member of the
current holders of the Class A Common Stock. Furthermore, Mr. Cherry agrees not
to solicit employees of Federated for any other organization or to employ any
employee of Federated for a period of three years following the termination of
his employment with Federated.
JAMES F. GETZ. Pursuant to a December 22, 1993 agreement, Federated is
obligated to provide Mr. Getz with an annual base salary and certain other
benefits. Upon the termination of his employment with Federated, Mr. Getz agrees
not to compete with Federated for a period of two years. In addition, Mr. Getz
agrees not to solicit or employ any of the employees of Federated following the
termination of his employment by Federated.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") consists of two
voting members, Federated's independent directors and one non-voting member, the
Chief Executive Officer. In 2000, the Committee established the 2000 salaries
and the 1999 bonuses for the Chief Executive Officer. In January 2001, the
Committee established the 2000 bonuses for the executive officers as well as
their salaries for 2001.
Federated's compensation program for executive officers (including the
Chief Executive Officer) consists primarily of salary and annual incentive
bonuses based upon the individual's and Federated's performance. Compensation of
the Named Executive Officers is determined by the Committee with bonus awards
made under the Executive Annual Incentive Compensation Plan (the "Compensation
Plan") and the Stock Incentive Plan (the "Stock Plan"). Consistent with
compensation practices generally applied in the investment management business,
base salaries in many areas of responsibility are intended to form a competitive
percentage of total cash compensation with a significant portion of compensation
intended to be derived from payments made under the Compensation Plan and the
Stock Plan, provided, of course, that the performance goals are met. As a
general matter, the size of the pool available for such bonus payments under the
Compensation Plan is 7.5% of operating profits of Federated, which consists of
annual total revenues less distributions to minority interests and less total
expenses excluding amortization of intangibles and debt expenses.
In determining the appropriate level of compensation, the Committee
acknowledges that the investment management business is highly competitive and
that experienced professionals have significant career mobility. Its members
believe that the ability to attract, retain, and provide appropriate incentives
for highly qualified and experienced personnel is critical to maintain
Federated's competitive position in the investment management business, and
thereby provide for the future success of Federated. The Committee believes that
competitive levels of cash compensation, together with equity and other
incentive programs that are consistent with stockholder interests, are necessary
for the motivation and retention of Federated's professional personnel.
Federated's compensation programs are keyed to achievement, as determined by the
Committee, of short and long-term performance goals.
The Committee believes that the opportunity to earn incentive compensation
motivates employees and ties their success to that of Federated. The payment of
incentive compensation in the form of stock of Federated further aligns the
interests of the management of Federated with those of its stockholders and
encourages them to focus on the long range growth and development of Federated.
The Committee is continuing to review this part of the compensation program. In
2000, ten of the senior executives chose to have a portion of their cash bonus
paid in options on Class B Common Stock of Federated. Options on 200,000 shares
of Class B Common Stock were awarded pursuant to this election at an exercise
price equal to the market price on the day the options were granted. In
addition, options on 2,700,000 shares of Class B Common Stock were awarded to
senior executives including the Chief Executive Officer at an exercise price
equal to the market price on the day the options were granted for the initial
twenty percent of the options awarded with the exercise price increasing
incrementally for each additional twenty percent .
In determining the awards for 2000 the Committee considered a variety of
factors, including that Federated had achieved record revenues, earnings and
earnings per share for the year. The Committee considered the performance of
Federated's stock as compared to the indices set forth in the performance graph
included in this Information Statement and investment performance and financial
performance on a comparative basis with other public companies in the investment
management business. Marketing and sales effectiveness and product performance
were also reviewed. The Committee took into consideration Federated's historical
compensation policies as well as industry compensation trends. In its review of
compensation, and, in particular, in determining the amount and form of actual
awards for the Chief Executive Officer and the other executive officers, the
Committee considered amounts paid to executive officers in prior years as
salary, bonus and other compensation, Federated's overall performance during the
prior periods, and its future objectives and challenges. Although the Committee
considered a number of different individual and corporate performance factors,
no specific weighting was given to any such factor.
The Committee has determined that Mr. J. Christopher Donahue will
participate in the Compensation Plan. Bonuses paid to Mr. J. Christopher Donahue
depend upon both his performance and that of Federated. The Committee has also
taken into consideration the responsibilities of operating as a public company.
The Committee's goal is to maintain compensation programs which are
competitive within the investment management business. The Committee believes
that 2000 compensation levels disclosed in this Information Statement are
reasonable and appropriate in light of Federated's strong performance.
Executive officers also participate in a combined 401(k)/Profit Sharing
Plan and are entitled to receive medical, life and disability insurance coverage
and other corporate benefits available to most employees of Federated.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code, as amended, which limits the
deductibility by Federated of certain executive compensation for federal income
tax purposes, did not apply to Federated in the year ended December 31, 2000.
This is due to the application of the private to public exception, which limits
the application of Section 162(m) for the first three years following the
calendar year in which the IPO takes place, provided (i) the compensation plans
or arrangements in existence were disclosed in the prospectus accompanying the
IPO, (ii) the plan or arrangement does not expire or undergo material
modification or (iii) all stock allocated under the plan has been issued.
Federated will endeavor to comply with Section 162(m) in the future to take
advantage of potential tax benefits. However, Federated may make awards that do
not comply with Section 162(m) if it believes that the compensation awards
granted were commensurate with the performance of the covered employees and were
necessary and appropriate to meet competitive requirements even if such
compensation exceeded the deductibility limits of Section 162(m).
Respectfully Submitted:
Compensation Committee
Michael J. Farrell, Chairman
James L. Murdy
J. Christopher Donahue (non-voting)
COMPARATIVE STOCK PERFORMANCE
The following performance graph compares the total stockholder return of an
investment in Federated's Class B Common Stock to that of the Russell 1000 (R)
Index and to a Peer Group Index of publicly-traded asset management firms for
the period commencing with May 13, 1998, the date on which the Class B Common
Stock was first registered under Section 12 of the Exchange Act and ending on
December 31, 2000. The graph assumes that the value of the investment in
Federated's Class B Common Stock and each index was $100 on May 13, 1998. Total
return includes reinvestment of all dividends. The Russell 1000 (R) Index
measures the performance of the 1,000 largest U.S. companies based on total
market capitalization. Federated is included in this index. Peer Group returns
are weighted by the market capitalization of each firm at the beginning of each
measurement period. The historical information set forth below is not
necessarily indicative of future performance. Federated does not make or endorse
any predictions as to future stock performance.
[a chart has been omitted which visually depicts the information included
in the table below]
5/13/98 12/31/98 12/31/99 12/31/00
------- -------- -------- --------
Federated 100 95.77 107.00 234.51
Russell 1000(R) 100 109.38 130.67 119.12
Peer Group*, ** 100 74.10 79.72 111.18
* The following companies are included in the Peer Group:
Franklin Resources, Inc. Liberty Financial Companies, Inc.
T. Rowe Price Associates, Inc. Phoenix Investment Partners, Ltd.
Waddell & Reed Financial, Inc. The John Nuveen Company
Eaton Vance Corp. Affiliated Managers Group, Inc.
** United Asset Management Corp. and The Pioneer Group, Inc. were included
in the graph and calculations appearing in last year's Information Statement,
dated March 31, 2000, but are excluded from this year's graph and calculations
due to acquisition by other entities and subsequent de-listing of their
respective shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 2000, no director of Federated served as an executive officer of or
beneficially owned of record in excess of a 10% equity interest in (i) any
business or professional entity which made during 2000 or proposes to make
during the current year, payments to Federated for property or services in
excess of five percent of Federated's consolidated gross revenues for 2000 or in
excess of five percent of the other entity's consolidated gross revenues for the
last year, (ii) any business or professional entity to which Federated made
during 2000 or proposes to make during the current year payments for property or
services in excess of five percent of Federated's consolidated gross revenues
for 2000 or in excess of the other entity's consolidated gross revenues for its
last year, or (iii) any business or professional entity to which Federated was
indebted to at the end of 2000 in an aggregate amount in excess of five percent
of Federated's total consolidated assets at the end of 2000.
None of the current directors of Federated was, during 2000: (i) a member
of, or counsel to, any law firm that Federated retained during 2000 or proposes
to retain during the current year, or (ii) a partner or executive officer of any
investment banking firm that performed services for Federated during 2000 or
that Federated proposes to have perform services for Federated during the
current year. In 2000, Mr. Edward G. O'Connor, a nominee for director, served as
senior counsel to the litigation department of Eckhert, Seamans. Federated
retained Eckhert Seamans in 2000 to provide Federated with limited legal
services relating almost exclusively to intellectual property matters. In 2000,
Eckhert, Seamans received $25,132 for the legal services rendered to Federated.
Federated is not aware of any other relationships between any of the directors
nominated for election to the Board at the Annual Meeting that are similar in
nature and scope to those relationships discussed above. If elected, it is
anticipated that Mr. O'Connor would be considered "Independent," as defined by
the Listing Standards of the New York Stock Exchange and would serve on
Federated's Audit Committee.
SECURITY OWNERSHIP
CLASS A COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Federated's Class A Common Stock by each person who is known by
Federated to own beneficially more than 5% of the outstanding shares of Class A
Common Stock as of February 28, 2001.
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS
Voting Shares Irrevocable Trust
dated May 31, 1989 9,000 100.0%
c/o The Beechwood Company
Suite 718, Bigelow Corporate Center
Pittsburgh, Pennsylvania 15219
(1) Reflects the results of Federated's 3 for 2 stock split which was declared
on June 22, 2000.
All of the outstanding shares of Class A Common Stock are held by the
Voting Trust, the trustees of which are John F. Donahue, his wife, and his son
J. Christopher Donahue for the benefit of members of the family of John F.
Donahue. Under the terms of the Voting Trust, the trustees are authorized to
vote shares held by the Voting Trust and the trustees additionally may sell,
transfer or otherwise dispose of shares owned by the Voting Trust. The entire
voting power of Federated is vested in the holder of the outstanding shares of
Class A Common Stock, except as otherwise provided in the Restated Articles of
Incorporation of Federated or as required by applicable law.
CLASS B COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Federated's Class B Common Stock as of February 28, 2001 by (i)
each of the current and newly nominated Directors of Federated, (ii) Named
Executive Officers of Federated, and (iii) all Executive Officers and current
and newly nominated Directors of Federated as a group.
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED (1)(2)(3) CLASS
- ----------------------------------------- ----------------- -----------------
John F. Donahue (4) 13,283,481 11.2%
J. Christopher Donahue (5) 6,944,693 5.8
John W. McGonigle (6) 6,126,064 5.2
Thomas R. Donahue (7) 3,266,177 2.8
Arthur L. Cherry (8) 1,335,762 1.1
.
James F. Getz (9) 1,076,955 *
John B. Fisher (10) 444,640 *
Eugene F. Maloney (11) 160,535 *
Michael J. Farrell (12) 39,750 *
James L. Murdy (13) 14,250 *
Edward G. O'Connor 600 *
- -----------------------------------------
All Executive Officers and current and 34,286,767 28.9%
newly nominated Directors as a Group
(14 persons)
- -----------------------------------------
* Less than 1%.
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Unless
stated below, each such person has sole voting and investment power
with respect to all such shares.
(2) Reflects the results of Federated's 3 for 2 stock split, which was
declared on June 22, 2000.
(3) Does not include 560,954 shares of Class B Common Stock allocated to
the accounts of directors and executive officers who are participants
in the 401(k)/ Profit Sharing Plan.
(4) Includes 6,948,757 shares owned by The Beechwood Company, a limited
partnership of which AWOL, Inc. is the general partner; Mr. John F.
Donahue is a shareholder of AWOL, Inc. (Mr. Donahue disclaims
beneficial ownership of approximately 3,474,379 shares owned by The
Beechwood Company); 4,558,338 shares owned by Comax Partners Limited
Partnership, a limited partnership of which Comax, Inc. is general
partner; Mr. Donahue is the sole shareholder of Comax, Inc. (Mr.
Donahue disclaims beneficial ownership of substantially all of the
4,558,338 shares owned by Comax Partners Limited Partnership); 838,573
shares by owned Shamrock Properties, Inc., a corporation of which Mr.
Donahue is the sole shareholder; 612,000 shares owned by Richmond
Farms Realty Trust, a Pennsylvania business trust, of which Mr.
Donahue is a shareholder (Mr. Donahue disclaims beneficial ownership
of substantially all of the 612,000 shares owned by Richmond Farms
Realty Trust); and 314,355 shares owned by Bay Road Partners, a
Pennsylvania limited partnership, of which AWOL, Inc. is the general
partner.
(5) Includes 4,725,647 shares owned jointly with Mrs. J. Christopher
Donahue; includes 1,264,626 shares for which Mr. J. Christopher
Donahue has the power to sell, transfer or otherwise dispose under
powers of attorney; includes 266,920 shares for which Mr. J.
Christopher Donahue is a custodian of shares under the Uniform
Transfer for Minors Act (Mr. J. Christopher Donahue disclaims
beneficial ownership of all of the 266,920 shares for which he acts as
custodian); and includes 125,000 stock options which are currently
exercisable.
(6) Includes 6,076,824 shares owned by Fairview Partners, L.P. a limited
partnership of which 713 Investment Corporation is the sole general
partner; Mr. McGonigle is a shareholder of 713 Investment Corporation;
includes 29,787 currently exercisable stock options held by 713
Investment Company, L.P., a limited partnership of which 713
Investment Corporation is the sole general partner; includes 19,453
currently exercisable stock options held in a trust for the benefit of
certain descendants.
(7) Includes 1,653,868 shares of which Mr. Thomas R. Donahue is a
custodian of shares under the Uniform Trust for Minors Act (Mr. Thomas
R. Donahue disclaims beneficial ownership of all of the 1,653,868
shares for which he acts as custodian); 209,069 shares owned jointly
by Mr. and Mrs. Thomas R. Donahue; 916,050 shares owned by Maxfund
Partners, L.P., a limited partnership, of which Maxfund, Inc. is the
general partner; Mr. T. Donahue is a shareholder of Maxfund, Inc.; and
includes 91,200 stock options which are currently exercisable.
(8) Includes 74,064 shares owned by or on behalf of Mr. Cherry's children;
includes 693,243 shares owned jointly by Mr. and Mrs. Cherry; includes
19,635 shares owned by Mrs. Cherry; and includes 548,820 stock options
which are currently exercisable.
(9) Includes 143,220 stock options which are currently exercisable.
(10) Includes 67,500 shares held by Rosewood Limited Partnership, a limited
partnership of which Mr. Fisher is a general partner; and includes
54,640 stock options which are currently exercisable.
(11) Includes 36,000 shares owned by Mrs. Maloney, and 7,000 stock options
which are currently exercisable.
(12) Includes 9,750 stock options which are currently exercisable.
(13) Includes 9,750 stock options which are currently exercisable.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, Federated's directors, its
executive officers and any persons beneficially owning more than ten percent of
Federated's Class A Common Stock and Class B Common Stock are required to report
their ownership of Federated's Class A and Class B Common Stock and any changes
in that ownership to the Commission and to the New York Stock Exchange. Specific
due dates for these reports have been established and Federated is required to
report in this Information Statement any failure to file by these dates. All of
these filing requirements were satisfied. In making these statements, Federated
has relied on copies of the reports that its officers, directors and beneficial
owners of more than ten percent of Federated's Class A or Class B Common Stock
have filed with the Commission.
INDEPENDENT AUDITORS
Ernst & Young LLP has served as the independent auditors for 2000 and
continues to serve as independent auditors for Federated. Representatives of
Ernst & Young will be present at the Annual Meeting, will have an opportunity to
make a statement if they desire to do so, and will be available to respond to
appropriate questions.
The following fees were paid to the independent auditors for the audit of
the Company's financial statements for the fiscal year ended December 31, 2000,
the review of the financial statements in the Company's Forms 10Q for the fiscal
year 2000 and other services rendered to the Company:
AUDIT FEES: $351,000
- ----------
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: $0
- ------------------------------------------------------------
ALL OTHER FEES: $978,045
- --------------
SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Rule 14a-8 of the Exchange Act contains the procedures for including
certain shareholder proposals in Federated's Information Statement and related
materials. Shareholders entitled to vote may submit a shareholder proposal
pursuant to Rule 14a-8 for the year 2002 Annual Meeting of Shareholders of
Federated prior to December 1, 2001. Except under certain limited circumstances,
the holders of Class B Common Stock are not entitled to vote their shares. Any
shareholder proposals should be addressed to the Secretary of Federated,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
AUDIT COMMITTEE CHARTER
The Board of Directors shall appoint annually the Audit Committee (the
"Committee") which shall have the responsibility and authority as described
below. Members of the Committee shall serve at the will of the Board of
Directors.
COMPOSITION
The Committee shall be comprised of not less than two directors until June
14, 2001 and after such date the Committee shall be comprised of not less than
three members, each of which shall be an independent director for purposes of
the New York Stock Exchange, independent of management and operating executives
and free from any relationships that might in the opinion of the Board of
Directors interfere with their exercise of independent judgment or be considered
to be a conflict of interest. All Committee members shall be financially
literate, or become financially literate within a reasonable period of time
after appointment to the Committee and at least one member shall have accounting
or related financial management expertise.
RESPONSIBILITY
Responsibilities of the Committee shall be to:
1. Provide assistance to the Board of Directors in fulfilling its
statutory and fiduciary responsibilities relating to the Company's
financial statements and the financial reporting process, the systems
of internal accounting and financial controls, the internal audit
function and the annual independent audit of the Company's financial
statements.
2. Annually review and assess the adequacy of the Audit Committee
Charter.
3. Recognizing that the independent auditors are ultimately accountable
to the Board of Directors and the Committee, as representatives of the
Company's shareholders, the Committee and the Board of Directors shall
have the ultimate authority and responsibility to select, evaluate and
where appropriate, replace the independent auditors.
4 The Committee shall discuss with the independent auditors their
independence from management and the Company including any disclosed
relationships or services that may impact the objectivity and
independence of the independent auditors and ensure that the
independent auditors submit on a periodic basis the written
disclosures required by the Independence Standards Board. The
Committee shall recommend to the Board of Directors that it take
appropriate action in response to the auditors' report to satisfy
itself of the independent auditor's independence.
5. Review with the independent auditors and the Company's financial
management the Company's administrative, operational and internal
accounting controls and its prescribed fiscal procedures.
6. Serve as an independent and objective party in the review of the
financial information presented by management for distribution to
shareholders and the general public.
FUNCTIONS
The functions of the Committee shall be to:
1. Investigate any matter or activity, brought to the attention of the
Committee involving financial accounting, reporting, conflict of
interest and internal controls of the Company.
2. Review the scope, general extent and adequacy of staffing pursuant to
the annual audit plan and other activities of the independent
auditors.
3. Provide oversight of the internal and external audit efforts regarding
the effectiveness of the accounting and financial controls, policies
and procedures, and the effectiveness of the Company's business
policies and practices through a review of reports by, and at regular
meetings independently with, the internal and external auditors and
accountants and with management, as appropriate.
4. Review the audit plan of the internal audit function and monitor
progress of the internal audit plan.
5. Review with management and the independent auditors upon completion of
the annual audit the financial statements and related SEC reports for
their adequacy and compliance with generally accepted accounting,
reporting and disclosure principles, including their judgment about
the quality, not just acceptability, of accounting principles, the
reasonableness of significant judgments, and the clarity of the
disclosures in the financial statements
MEETING
The Committee shall hold at least three meetings each year and others as
deemed necessary by its chairperson. A report of all Committee meetings will be
made to the Board of Directors.
Date Adopted: April 26, 2000
[GRAPHIC OMITTED]
SKU# 1746-IS01
G02596-01 (3/01)