SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-14818
FEDERATED INVESTORS, INC.
(Exact name of registrant as specified in its charter)
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25-1111467
Pennsylvania
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(I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
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Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of principal executive offices, including zip code)
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Securities registered pursuant to Section 12(b) of the Act:
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Class B Common Stock, no par value New York Stock Exchange
(Title of each class) (Name of each exchange on which
registered)
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the Class B Common Stock held by
non-affiliates of the registrant as of March 15, 2002 was approximately $2,802
million, based on the last reported sales price of $34.02 as reported by the New
York Stock Exchange. For purposes of this calculation, the registrant has deemed
all of its executive officers and directors to be affiliates, but has made no
determination as to whether any other persons are "affiliates" within the
meaning of Rule 12b-2 under the Securities Exchange Act of 1934. The number of
shares of Class B Common Stock outstanding on March 15, 2002, was 114,700,871
shares.
Documents incorporated by reference:
Selected portions of the 2001 Financial Annual Report to Shareholders -
Part I, Part II and Part IV of this Report.
Selected portions of the 2002 Information Statement - Part III of this
Report. Part I
ITEM 1 - BUSINESS
Overview
Federated Investors, Inc. and its consolidated subsidiaries (collectively,
"Federated") is a leading provider of investment management and related
financial services. Federated sponsors, markets and provides investment
advisory, distribution and administrative services primarily to mutual funds in
both domestic and international markets. Total assets under management at
December 31, 2001, were $179.7 billion, primarily in funds managed, distributed
and administered by Federated and in other non-fund products (collectively
"Managed Assets"), of which $6.4 billion were in separately managed accounts.
Managed Assets at December 31, 2001, increased $40.1 billion over the prior
year.
Federated provided investment advisory services to 139 funds at December
31, 2001. These funds are offered through banks, broker/dealers and other
financial intermediaries who use them to meet the needs of their customers;
these customers include retail investors, corporations, and retirement plans.
Federated also provides mutual fund administrative services to its managed funds
and to funds sponsored by third parties, where Federated also acts as fund
distributor. Federated provided these services for $44.7 billion of assets in
funds sponsored by third parties, primarily banks ("Administered Assets"), as of
December 31, 2001. In addition, Federated provides other services related to
mutual funds including trade execution and clearing and retirement plan
recordkeeping.
Total Managed Assets for each of the past three years were as follows:
Managed Assets Growth Rate
------------------
(Dollars in millions) As of December 31, 3 Yr.
-----------------------------
2001 CAGR* 2001
2000 1999
------------------------------ ------------------
Money Market Funds/
Cash Equivalents $135,092 $98,797 $83,299 21% 37%
Equity Funds 20,760 20,641 20,941 10% 1%
Fixed-Income Funds 17,378 14,268 15,857 2% 22%
Separate Accounts 6,457 5,878 4,723 36% 10%
------------------------------
Total Managed Assets $179,687 $139,584 $124,820 17% 29%
==============================
*Compound Annual Growth Rate
Average Managed Assets for the past three years were as follows:
Average Managed Assets Growth Rate
------------------
(Dollars in millions) Year ended December 31, 3 Yr.
------------------------------
------------------------------
2001 CAGR* 2001
2000 1999
------------------------------ ------------------
Money Market Funds/
Cash Equivalents $117,784 $86,406 $79,253 36% 19%
Equity Funds 20,682 22,107 17,531 15% (6%)
Fixed-Income Funds 15,859 14,713 16,680 0% 8%
Separate Accounts 6,268 5,168 4,109 39% 21%
------------------------------
Total Average Managed $160,593 $128,394 $117,573 17% 25%
Assets
==============================
* Compound Annual Growth Rate
Federated's revenues from investment advisory, related administrative and
other service fees provided under agreements with the funds and other entities,
and other income over the last three years were as follows (certain amounts
previously reported have been reclassified to conform with the current year's
presentation):
Revenue
(Dollars in thousands) Growth Rate
-----------------------
Year ended December 31, 3 Yr.
-------------------------------
2001 2000 1999 CAGR* 2001
------------------------------------------------------
Investment Advisory $422,980 $380,234 $324,923 15% 11%
Fees, net
Administrative 130,364 109,870 104,381 10% 19%
Service Fees, net
Other Service Fees, 161,180 166,356 147,700 9% (3%)
net
Other Income, net 1,253 24,308 24,094 (60%) (95%)
-------------------------------
Total Revenue $715,777 $680,768 $601,098 11% 5%
===============================
* Compound Annual Growth Rate
Business Strategy
Federated pursues a multi-faceted business strategy having three broad
objectives:
-To be widely recognized as a world-class investment management company
that offers highly competitive performance and disciplined risk management
across a broad spectrum of products.
-To profitably expand market penetration by increasing its assets under
management in each market where it chooses to apply its substantial distribution
resources.
-To profitably expand its customer relationships by providing high-quality
services designed to support the growth of Managed and Administered Assets.
Federated offers a wide range of products, including equity, fixed-income
and money market investments designed to meet the needs of investors with
varying investment objectives. Federated has structured its investment process
to meet the requirements of fiduciaries and others who use Federated's products
to meet the needs of their customers. Fiduciaries typically have stringent
demands related to portfolio composition, risk and investment performance.
Federated is one of the largest U.S. managers of money market fund assets,
with $135.1 billion in assets under management at December 31, 2001. Federated
has developed expertise in managing cash for institutions, which typically have
stringent requirements for regulatory compliance, relative safety, liquidity and
competitive yields. Federated has managed money market funds for over 25 years
and began selling money market fund products to institutions in 1974. Federated
also manages retail money market fund products which are typically distributed
through broker/dealers. Federated manages money market fund assets in the
following asset classes: prime corporate ($60.8 billion), government ($55.7
billion) and tax-free ($18.6 billion).
In recent years, Federated has emphasized growth of its equity business as
an important component of its strategy and has broadened its range of equity
products. Equity assets are managed across a wide range of styles including
large cap value ($6.3 billion), small-mid cap growth ($4.1 billion), equity
income ($3.7 billion), mid-large cap growth ($3.3 billion) and
international/global ($1.9 billion). Federated also manages assets in equity
index funds ($2.5 billion) and balanced and asset allocation funds ($1.0
billion). These asset allocation funds may include fixed-income assets.
Federated's fixed-income assets are managed in a wide range of sectors
including multi-sector ($5.9 billion), mortgage-backed ($4.6 billion),
high-yield ($4.3 billion), municipal ($2.3 billion), corporate ($2.1 billion),
U.S. government ($1.5 billion) and international/global ($1.1 billion).
Federated's fixed-income funds offer fiduciaries and others a broad range of
highly defined products designed to meet many of their investment needs and
requirements.
Federated uses a team of portfolio managers led by a senior portfolio
manager for each fund. Federated's investment research process combines
disciplined quantitative screening along with rigorous fundamental analysis to
identify attractive securities. Portfolios are continually reevaluated with
respect to valuation, price and earnings estimate momentum, company
fundamentals, market factors, economic conditions and risk controls in order to
achieve specific investment objectives.
Federated's distribution strategy is to provide products geared to
financial intermediaries, primarily banks, broker/dealers and investment
advisers, and directly to institutions such as corporations and government
entities. Through substantial investments in distribution for more than 20
years, Federated has developed selling relationships with more than 5,000
institutions and sells its products directly to another 500 corporations and
government entities. Federated uses its trained sales force of more than 180
representatives and managers across the United States to add new customer
relationships and strengthen and expand existing relationships.
Investment Products and Markets
Federated's investment products are distributed in four principal markets:
the trust market, the broker/dealer market, the institutional market and the
international market. The following chart shows Federated Managed Assets by
market for the dates indicated (certain amounts previously reported have been
reclassified to conform with the current year's presentation):
Managed Assets by Market Growth Rate
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(Dollars in millions) As of December 31, 3 Yr.
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2001 2000 1999 CAGR* 2001
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Trust Market $96,568 $71,955 $63,073 18% 34%
Broker/Dealer Market 46,592 43,462 40,769 10% 7%
Institutional Market 27,531 17,808 16,349 25% 55%
International Market 1,367 1,356 1,104 1%
n/a
Other Markets 7,629 5,003 3,525 30% 52%
-----------------------------
Total Managed Assets $179,687 $139,584 $124,820 17% 29%
=============================
*Compound Annual Growth Rate
Trust Market. Federated pioneered the concept of providing cash management
to bank trust departments through mutual funds over 25 years ago. In addition,
Federated initiated a strategy to provide a broad range of equity and
fixed-income funds, termed MultiTrust(TM), to meet the evolving needs of bank
trust departments. Federated's bank trust customers invest the assets subject to
their control, or upon direction from their customers, in one or more funds
managed by Federated. Federated employs a dedicated sales force backed by a
staff of support personnel to offer its products and services in the trust
market. In addition to bank trust departments, Federated provides services to
bank capital markets (institutional brokerages within banks) and to other
institutional customers as part of the trust market.
Money market funds contain the majority of Federated's Managed Assets in
the trust market. In allocating investments across various asset classes,
investors typically maintain a portion of their portfolios in cash or cash
equivalents, including money market funds, irrespective of trends in bond or
stock prices. Federated also offers an extensive menu of equity and fixed-income
mutual funds structured for use in the trust market. As of December 31, 2001,
Managed Assets in the trust market were comprised of $86.2 billion in money
market funds and cash equivalents, $6.2 billion in fixed-income funds and $4.2
billion in equity funds.
Broker/Dealer Market. Federated distributes its products in this market
through a large, diversified group of approximately 2,000 national, regional,
independent, and bank broker/dealers. Federated maintains a sales staff
dedicated to this market, with a separate group focused on the bank
broker/dealers. Broker/dealers use Federated's products to meet the needs of
their customers, who are typically retail investors. Federated offers products
with a variety of commission structures that enable brokers to offer their
customers a choice of pricing options. Federated also offers money market mutual
funds as cash management products designed for use in the broker/dealer market.
As of December 31, 2001, Managed Assets in the broker/dealer market were
comprised of $28.5 billion in money market funds, $10.5 billion in equity funds,
$7.2 billion in fixed-income funds and $0.4 billion in separate accounts.
Institutional Market. Federated maintains a dedicated sales staff to focus
on the distribution of its products to a wide variety of users: investment
advisers, corporations, corporate and public pension funds, insurance companies,
government entities, foundations, endowments, hospitals, and non-Federated
investment companies. As of December 31, 2001, Managed Assets in the
institutional market were comprised of $18.7 billion in money market funds, $3.3
billion in separate accounts, $2.8 billion in equity funds and $2.7 billion in
fixed-income funds.
International Market. Federated continues to broaden distribution to areas
outside of the U.S. Federated partnered with LVM-Versicherungen (LVM), a large
German insurance company, to create a joint-venture company named Federated
Asset Management GmbH ("Federated GmbH"), to exclusively manage, distribute and
market a family of mutual funds to insurance clients of LVM, as well as pursue
institutional separate accounts. Federated GmbH sponsors six retail funds
(Federated Unit Trust) for distribution in German speaking countries in Europe.
As of December 31, 2001, Managed Assets in these funds and in separate accounts
totaled $0.2 billion and $1.2 billion, respectively.
Other Markets. Other markets primarily includes affinity group assets from
a historical arrangement with a large affinity group to provide a money market
fund for its members and miscellaneous assets which resulted from earlier
marketing efforts and acquisitions which resulted in the management of retail
assets. Managed Assets in these categories totaled $6.6 billion as of December
31, 2001. Other markets also includes assets invested in three separate
collateralized bond obligation (CBO) products for which Federated acts as the
investment adviser. These products package Federated's investment management
expertise into an alternative product structure and offer another source of
investment advisory fee revenue. As of December 31, 2001, Managed Assets in
Federated's CBOs totaled $1.0 billion. Federated plans to continue to seek
opportunities to manage CBOs and other alternative products.
Federated continues to look for new alliances and opportunities to enhance
shareholder value through acquisitions. In 2001, Federated completed two
acquisitions. In the second quarter, Federated acquired substantially all of the
business of Edgemont Asset Management Corporation, the former adviser of the
Kaufmann Fund. As a result of the acquisition, the $3.2 billion Kaufmann Fund
was reorganized into the Federated Kaufmann Fund. In the fourth quarter, assets
of three mutual funds previously advised by Rightime Econometrics, Inc.,
totaling approximately $148.0 million, were merged into Federated Capital
Appreciation Fund in connection with an agreement between Federated, Lincoln
Investment Planning, Inc. and Rightime Econometrics, Inc.
Federated's principal source of revenue is investment advisory fees earned
by various subsidiaries and affiliates pursuant to investment advisory contracts
with the funds. These subsidiaries and affiliates are registered as investment
advisers under the Investment Advisers Act of 1940 (the "Advisers Act").
Investment advisers are compensated for their services in the form of investment
advisory fees based upon the average daily net assets of the fund.
Federated provided investment advisory services to 139 funds as of December
31, 2001. The funds sponsored by Federated are domiciled in the U.S., with the
exception of Federated International Funds Plc and Federated Unit Trust, which
are domiciled in Dublin, Ireland. Each of Federated's U.S.-domiciled funds (with
the exception of a collective investment trust) is registered under the
Investment Company Act of 1940 ("Investment Company Act") and under applicable
federal and state laws. Each of the funds enters into an advisory agreement. The
advisory agreements are subject to annual approval by the fund directors or
trustees, including a majority of the directors who are not "interested persons"
of the funds or Federated as defined under the Investment Company Act. Advisory
agreements are subject to periodic review by the directors or trustees of the
respective funds and amendments to such agreements must be approved by the fund
shareholders. A significant portion of Federated's revenue is derived from these
advisory agreements which generally are terminable upon 60 days notice.
Of these 139 funds, Federated's investment advisory subsidiaries managed 52
money market funds (and cash equivalents) totaling $135.1 billion in assets, 47
fixed-income funds with $17.4 billion in assets and 40 equity funds with $20.8
billion in assets. Appendix "A" hereto lists all of these funds, including asset
levels and date of inception.
Federated also serves as investment adviser to pension and other employee
benefit plans, corporations, trusts, foundations, endowments, mutual funds
sponsored by third parties, and other investors. These separate accounts totaled
$6.4 billion in assets under management as of December 31, 2001. Fees for
separate accounts are typically based on the value of assets under management
pursuant to investment advisory agreements that may be terminated at any time.
Federated also provides a broad range of services to support the operation,
administration, and distribution of Federated-sponsored funds. These services,
for which Federated receives fees pursuant to administrative agreements with the
funds, include legal support and regulatory compliance, audit, fund financial
services, transfer agency services, and shareholder servicing and support.
Federated also offers these services to institutions seeking to outsource all or
part of their mutual fund service and distribution functions. Through various
subsidiaries, Federated provides its experience and expertise in these areas to
expand its relationships with key financial intermediaries, primarily banks, who
sponsor proprietary mutual funds. Federated receives fees from these
bank-sponsored funds for providing fund services.
The following chart shows period-end and average Administered Assets for
the past three years:
Administered Assets As of and for the year ended Growth
(Dollars in millions) December 31, Rate
----------------------------- ----------
2001 2001
2000 1999
----------------------------- ----------
Period End Administered Assets $44,684 $39,732 $41,234 12%
Average Administered Assets 41,982 41,966 35,079 0%
In addition, certain funds sponsored by Federated have adopted distribution
plans that, subject to applicable law, provide for payment to Federated for the
reimbursement of marketing expenses, including sales commissions paid to
broker/dealers. These distribution plans are implemented through a distribution
agreement between Federated and each respective fund. Although the specific
terms of each such agreement vary, the basic terms of the agreements are
similar. Pursuant to the agreements, Federated acts as underwriter for the funds
and distributes shares of the funds through unaffiliated dealers. Each
distribution plan and agreement is initially approved by the directors or
trustees of the respective fund and is reviewed for approval annually.
Federated also provides retirement plan recordkeeping services and trade
execution and settlement services through its various subsidiaries.
Competition
The mutual fund industry is highly competitive. According to the Investment
Company Institute, at the end of 2001, there were over 8,300 registered open-end
investment companies, of varying sizes and investment policies, whose shares are
currently being offered to the public both on a load and no-load basis. In
addition to competition from other mutual fund managers and investment advisers,
Federated and the mutual fund industry compete with investment alternatives
offered by insurance companies, commercial banks, broker/dealers and other
financial institutions.
Competition for sales of mutual fund shares is influenced by various
factors including investment performance in terms of attaining the stated
objectives of the particular funds and in terms of fund yields and total
returns, advertising and sales promotional efforts, and type and quality of
services.
Changes in the mix of customers for mutual fund distribution and
administrative services are expected to continue. Competition for fund
administration services is extremely high. In addition to competing with other
service providers, banks sponsoring mutual funds may choose to internalize
certain service functions. Consolidation within the banking industry also
impacts the fund administration business as merging bank funds typically choose
a single fund administration provider. Due to the relatively lower revenues,
changes in the amount of Administered Assets generally have less impact on
Federated's results of operations than changes in the amount of Managed Assets.
Regulatory Matters
Substantially all aspects of Federated's business are subject to federal
and state regulation and to the extent operations take place outside the United
States, they are subject to the regulations of foreign countries. Depending upon
the nature of any non-compliance, the results could include the suspension or
revocation of licenses or registration, including broker/dealer licenses and
registrations and transfer agent registrations, as well as the imposition of
civil fines and penalties and in certain limited circumstances, prohibition from
acting as an adviser to registered investment companies. Federated's advisory
companies are registered with the Securities and Exchange Commission (the
"Commission") under the Investment Advisers Act of 1940 and with certain states.
All of the mutual funds managed, distributed, and administered by Federated are
registered with the Commission under the Investment Company Act of 1940. Certain
wholly owned subsidiaries of Federated are registered as broker/dealers with the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and with various states and are members of the National Association of
Securities Dealers (the "NASD"). Their activities are regulated by the
Commission, the NASD, and the various states in which they are registered. These
subsidiaries are required to meet capital requirements established by the
Commission pursuant to the Exchange Act. Two other subsidiaries are registered
with the Commission as transfer agents. Federated Investors Trust Company is
regulated by the State of New Jersey. Federated believes that it and its
subsidiaries are in substantial compliance with all applicable laws and
regulations. Amendments to current laws and regulations or newly promulgated
laws and regulations governing Federated's operations could have a material
adverse impact on Federated.
The federal, state and foreign laws and regulations applicable to most
aspects of Federated's business are primarily intended to benefit or protect
Federated's customers and the funds' shareholders and generally grant
supervisory agencies and bodies broad administrative powers, including the power
to limit or restrict Federated 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 broker/dealer licenses and registrations and transfer agent
registrations, censure and fines.
Employees
At December 31, 2001, Federated employed 1,829 persons. Federated considers
its relationships with its employees to be satisfactory.
Forward-Looking Information
This Annual Report on Form 10-K and the 2001 Financial Annual Report to
Shareholders contain certain "forward- looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements involve
certain known and unknown risks, uncertainties and other factors, including
among others, those discussed under the caption "Risk Factors and Cautionary
Statements" below, that could cause actual results, levels of activity,
performance, or achievements of Federated, 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. Many of
these factors may be more likely to occur as a result of the ongoing threat of
terrorism. Federated cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and should be
read in conjunction with the risk disclosure below. Federated will not undertake
and specifically declines any obligation to release publicly the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or reflect the occurrence of
anticipated or unanticipated events. As a result of the foregoing, and other
factors, no assurance can be given as to future results, levels of activity,
performance, or achievements of Federated, and neither Federated nor any other
person assumes responsibility for the accuracy or completeness of such
statements.
Risk Factors and Cautionary Statements
Potential Adverse Effects of Increased Competition in the Investment
Management Business. The investment management business is highly competitive.
Federated competes in the distribution of mutual funds with other independent
fund management companies, national and regional broker/dealers, commercial
banks, insurance companies, and other institutions. Many of these competitors
have substantially greater resources and brand recognition than Federated.
Competition is based on various factors, including business reputation, the
investment performance of funds managed or administered by Federated, quality of
service, the strength and continuity of management and selling relationships,
marketing and distribution services offered, the range of products offered, and
fees charged. See "Business--Competition."
Many of Federated's fund products are designed for use by institutions such
as banks, insurance companies and other corporations. A large portion of
Federated's Managed Assets, particularly money market and fixed-income Managed
Assets, are held by institutional investors. Because most institutional mutual
funds are sold without sales commissions at either the time of purchase or the
time of redemption, institutional investors may be more inclined to move their
assets among various institutional funds than investors in retail mutual funds.
Of Federated's 139 managed funds, 95 are sold without sales commission.
Institutions are sensitive to fund investment performance, consistent adherence
to investment objectives, quality of service and pricing. Federated believes
that competitive pressures in the institutional fund market are increasing as a
result of (i) the entry of well-known managers from the retail investment
industry and of low-fee investment managers, (ii) mergers and consolidation
occurring in the banking industry, (iii) increased offering of proprietary funds
by institutional investors such as banks, and (iv) regulatory changes affecting
banks and other financial service firms.
A significant portion of Federated's revenue is derived from providing
mutual funds to its trust market, comprising over 1,400 banks and other
financial institutions. Future profitability of Federated will be affected by
its ability to retain its share of this market, and could also be adversely
affected by the general consolidation which is occurring in the banking industry
as well as recent regulatory changes. In addition, bank consolidation trends
could not only cause changes in Federated's customer mix, but could also affect
the scope of services provided and fees received by Federated, depending upon
the degree to which banks internalize administrative functions attendant to
proprietary mutual funds.
Potential Adverse Effects of a Decline in Securities Markets. Changes in
economic or market conditions may adversely affect the profitability and
performance of and demand for Federated's investment products and services. The
ability of Federated to compete and grow is dependent, in part, on the relative
attractiveness of the types of investment products Federated offers and its
investment philosophies and market strategies under prevailing market
conditions. A significant portion of Federated's revenue is derived from
investment advisory fees, which are based on the value of Managed Assets and
vary with the type of asset being managed, with higher fees generally earned on
equity and fixed-income funds than on money market funds. Consequently,
significant fluctuations in the prices of securities held by, or the level of
redemptions from, the funds advised by Federated may affect materially the
amount of Managed Assets and thus Federated's revenue, profitability and ability
to grow. Substantially all of Federated's Managed Assets are in open-end funds,
which permit investors to redeem their investment at any time.
Potential Adverse Affects on Money Market Funds Resulting From Increases in
Interest Rates. Approximately 41% of Federated's revenue in 2001 was from
managed money market funds. Assets in these funds are largely from institutional
investors. In a period of rapidly rising interest rates, institutional investors
may redeem shares in money market funds to invest directly in market issues
offering higher yields. These redemptions would reduce Managed Assets, thereby
reducing Federated's advisory fee revenue. As a result of Federal Reserve Bank
easings, interest rates reached historic lows in 2001. Federated has been
actively diversifying its products to expand its Managed Assets in equity mutual
funds which may be less sensitive to interest rate increases. There can be no
assurance that Federated will continue to be successful in these diversification
efforts.
Adverse Effects of Poor Fund Performance. Success in the investment
management and mutual fund business is largely dependent on the funds'
investment performance relative to market conditions and performance of
competing funds. Good performance generally assists sales of the funds' shares
and tends to lessen redemptions. Sales of funds generate additional revenues
(which are largely based on assets of the funds). Good performance also attracts
private institutional accounts to Federated. 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 Federated. Failure of the funds to
perform well could, therefore, have a material adverse effect on Federated.
Adverse Effects of Termination or Failure to Renew Fund Agreements on
Federated's Revenues and Profitability. A substantial majority of Federated'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 each
fund's board, including disinterested members of the board, or its shareholders,
as required by law. Generally, Federated's administrative servicing agreements
with bank proprietary fund customers have an initial term of three years with a
provision for automatic renewal unless notice is otherwise given and provide for
termination for cause. Failure to renew or termination of a significant number
of these agreements could have a material adverse impact on Federated. In
addition, as required by the Investment Company Act, each investment advisory
agreement with a mutual fund automatically terminates upon its "assignment,"
although new investment advisory agreements may be approved by the mutual fund's
directors or trustees and shareholders. A sale of a sufficient number of shares
of Federated's voting securities to transfer control of Federated could be
deemed an "assignment" in certain circumstances. An assignment, actual or
constructive, will trigger these termination provisions and may adversely affect
Federated's ability to realize the value of these assets.
Potential Adverse Effects of Changes in Laws and Regulations on Federated's
Investment Management Business. Federated's investment management business is
subject to extensive regulation in the United States primarily at the Federal
level, including regulations by the Commission particularly under the Investment
Company Act and the Advisers Act as well as the rules of the NASD and all
states. Federated is also affected by the regulations governing banks and other
financial institutions and, to the extent operations take place outside the
United States, by foreign regulations. Changes in laws or regulations or in
governmental policies could materially and adversely affect the business and
operations of Federated.
No Assurance of Successful Future Acquisitions. Federated's business
strategy contemplates the acquisition of other investment management companies
as well as investment assets. There can be no assurance that Federated 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 Federated, or that any such acquisitions, if
consummated, will prove to be advantageous to Federated.
Systems and Technology Risks. Federated utilizes software and related
technologies throughout its businesses including both proprietary systems as
well as those provided by outside vendors. Unanticipated issues could occur and
it is not possible to predict with certainty all of the adverse effects that
could result from a failure of a third party to address computer system
problems. Accordingly, there can be no assurance that potential system
interruptions or the cost necessary to rectify the problems would not have a
material adverse effect on Federated's business, financial condition, results of
operations or business prospects.
ITEM 2 - PROPERTIES
Federated's facilities are concentrated in Pittsburgh, Pennsylvania where
it leases space sufficient to meet its operating needs. Federated's headquarters
are located in the Federated Investors Tower, where Federated occupies
approximately 345,000 square feet. Federated leases approximately 100,000 square
feet at the Pittsburgh Office and Research Park and an aggregate of 20,000
square feet at other locations in Pittsburgh. Federated also leases
approximately 51,000 square feet of office space for a portion of its servicing
business in Rockland, Massachusetts. Federated maintains office space in Dublin,
Ireland, and Frankfurt, Germany, where administrative offices for offshore funds
and other international initiatives are maintained; in New York, New York, where
Federated Global Investment Management Corp. and InvestLink Technologies, Inc.
conduct their business; and in Gibbsboro, New Jersey, where Federated Investors
Trust Company is located. Additional offices in Wilmington, Delaware are
subleased by Federated.
ITEM 3 - LEGAL PROCEEDINGS
There is currently no pending litigation of a material nature involving
Federated.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The information required by this Item is contained in Federated's 2001
Financial Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Notes to Consolidated Financial Statements" and is incorporated herein by
reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this Item is contained in Federated's 2001
Financial Annual Report to Shareholders under the caption "Selected Consolidated
Financial Data" and is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is contained in Federated's 2001
Financial Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is contained in Federated's 2001
Financial Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The information required by this Item is contained in Federated's 2001
Financial Annual Report to Shareholders under the captions "Report of Ernst &
Young LLP, Independent Auditors," "Consolidated Balance Sheets," "Consolidated
Statements of Income," "Consolidated Statements of Changes in Shareholders'
Equity," "Consolidated Statements of Cash Flows," and "Notes to Consolidated
Financial Statements" and is incorporated herein by reference.
ITEM 9 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item (other than the information set forth
below) will be contained in Federated's Information Statement for its 2002
Annual Meeting of Shareholders under the captions "Board of Directors and
Election of Directors" and "Security Ownership - Section 16(a) Beneficial
Ownership Reporting Compliance," and is incorporated herein by reference.
Executive Officers
The following table sets forth certain information regarding the executive
officers of Federated as of March 31, 2002:
Name Position Age
- ---- -------- ---
John F. Donahue Chairman and Director 77
J. Christopher Donahue President, Chief Executive Officer and Director 52
Arthur L. Cherry President and Chief Executive Officer, 48
Federated Services Company and Director
William D. Dawson III Executive Vice President and Chief Investment 53
Officer - U.S. Fixed Income of Federated
Advisory Companies*
Thomas R. Donahue Vice President, Treasurer, Chief Financial 43
Officer and Director
John B. Fisher President - Institutional Sales Division of 45
Federated Securities
Corp. and Director
Henry A. Frantzen Executive Vice President and Chief Investment 59
Officer - Global
Equity and Fixed Income of Federated Advisory
Companies*
James F. Getz President -- Retail Sales Division of 55
Federated Securities Corp.
and Director
J. Thomas Madden Executive Vice President and Chief Investment 56
Officer - Domestic Equity, High Yield and
Asset Allocation of Federated
Advisory Companies*
Eugene F. Maloney Vice President and Director 57
Denis McAuley III Vice President and Principal Accounting Officer 55
John W. McGonigle Executive Vice President, Chief Legal Officer, 63
Secretary and Director
Keith M. Schappert President and Chief Executive Officer of 51
Federated Advisory Companies*
*Federated Advisory Companies include the following subsidiaries of
Federated: Federated Global Investment Management Corp., Passport Research
Limited, Federated Investment Counseling and Federated Investment Management
Company.
Mr. John F. Donahue was a founder of Federated and was Chairman and Chief
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"). Mr. Donahue has continued
to serve as Chairman following the consummation of the Merger. He served as
President from 1989 until 1993. 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.
Mr. J. Christopher Donahue was a trustee of the Trust from 1989 until the
consummation of the Merger and has been a director of Federated since the
consummation of the Merger. He served as President and Chief Operating Officer
from 1993 until April 1998, when he became President and Chief Executive
Officer. Prior to 1993, he served as Vice President. He is President or
Executive Vice President of the investment companies managed by subsidiaries of
Federated and a director, trustee or managing general partner of some of the
investment companies. Mr. Donahue is the son of John F. Donahue and the brother
of Thomas R. Donahue.
Mr. Arthur L. Cherry was a trustee of the Trust 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, he was a
managing partner of AT&T Solutions, former president of Scudder Services
Corporation and a managing director of Scudder, Stevens & Clark.
Mr. William D. Dawson III serves as Executive Vice President and Chief
Investment Officer - U.S. Fixed Income of Federated Advisory Companies. He has
served as a portfolio manager and held various other positions in the advisory
companies. He is responsible for the investment policy and management of
domestic fixed-income funds. Mr. Dawson is a Chartered Financial Analyst.
Mr. Thomas R. Donahue was a trustee of the Trust from 1995 until the
consummation of the Merger and has been a director of Federated since the
consummation of the Merger. He has been Vice President 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.
Mr. John B. Fisher has been a director of 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 advisers,
insurance companies, retirement plans and corporations.
Mr. Henry A. Frantzen serves as Executive Vice President and Chief
Investment Officer - Global Equity and Fixed Income of Federated Advisory
Companies. Mr. Frantzen is primarily responsible for the management of global
equity and fixed-income funds. Prior to joining Federated, Mr. Frantzen was
Managing Director of International Equities for Brown Brothers Harriman
Investment Management Ltd. and Manager and International Equity Chief Investment
Officer for Brown Brothers Harriman and Co. from 1992 to 1995. Prior thereto Mr.
Frantzen served in executive capacities for various investment management
companies, including Oppenheimer Management Corp., Yamaichi Capital Management
and CREF.
Mr. James F. Getz has been a director of Federated 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.
Mr. J. Thomas Madden serves as Executive Vice President and Chief
Investment Officer - Domestic Equity, High Yield and Asset Allocation of
Federated Advisory Companies. Mr. Madden oversees the portfolio management in
the domestic equity, high yield and asset allocation areas. Mr. Madden is a
Chartered Financial Analyst.
Mr. Eugene F. Maloney was a trustee of the Trust from 1989 until the
consummation of 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.
Mr. Denis McAuley III serves as Vice President and Principal Accounting
Officer of Federated and as Senior Vice President, Treasurer or Assistant
Treasurer for various subsidiaries of Federated. Mr. McAuley is a Certified
Public Accountant.
Mr. John W. McGonigle was a trustee of the Trust from 1989 until the
consummation of the Merger and has been a director 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 was President and Chief Executive
Officer of Federated Investors Management Company until 1999. He is Chairman of
Federated International Management Limited. Mr. McGonigle was 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.
Mr. Keith M. Schappert became President and Chief Executive Officer of the
Federated Advisory Companies on February 4, 2002. Prior to joining Federated, he
spent 28 years with J.P. Morgan, most recently in the position of President of
J.P. Morgan Fleming Asset Management, Inc. Prior to J.P. Morgan's merger with
Chase Manhattan Corp., Mr. Schappert was President and Chief Executive Officer
of J.P. Morgan Asset Management Services.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item is contained in Federated's
Information Statement for the 2002 Annual Meeting of Shareholders under the
captions "Board of Directors and Election of Directors" and "Executive
Compensation" and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in Federated's
Information Statement for the 2002 Annual Meeting of Shareholders under the
caption "Security Ownership" and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
The information required by this Item is contained in Federated's 2001
Financial Annual Report to Shareholders under the captions "Report of Ernst &
Young LLP, Independent Auditors," "Consolidated Balance Sheets," "Consolidated
Statements of Income," "Consolidated Statements of Changes in Shareholders'
Equity," "Consolidated Statements of Cash Flows," and "Notes to Consolidated
Financial Statements" and is incorporated herein by reference.
(a)(2) Financial Statement Schedules:
Schedules for which provisions are made in the applicable accounting
regulations of the United States Securities and Exchange Commission have been
omitted because such schedules are not required under the related instructions
or are inapplicable or because the information required is included in the
Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits:
The following exhibits are filed or incorporated as part of this report:
Exhibit
Number Description
2.01 Agreement and Plan of Merger, dated as of February 20, 1998,
between Federated Investors and Federated (incorporated by
reference to Exhibit 2.01 to the Registration Statement on Form S-1
(File No. 333-48405))
2.02 Asset Purchase Agreement dated as of October 20, 2000, by and among
Federated Investors, Inc., Edgemont Asset Management Corporation,
Lawrence Auriana and Hans P. Utsch (incorporated by reference to
Exhibit 2.1 of Amendment No. 2 to the Current Report on Form 8-K
dated April 20, 2001, filed with the Securities and Exchange
Commission on July 3, 2001 (File No. 001-14818))
2.03 Amendment No. 1, dated April 11, 2001, to the Asset Purchase
Agreement dated as of October 20, 2000, by and among Federated
Investors, Inc., Edgemont Asset Management Corporation, Lawrence
Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.1
of Amendment No. 2 to the Current Report on Form 8-K dated April
20, 2001, filed with the Securities and Exchange Commission on July
3, 2001 (File No. 001-14818))
3.01 Restated Articles of Incorporation of Federated (incorporated by
reference to Exhibit 3.01 to the Registration Statement on Form S-1
(File No. 333-48405))
3.02 Restated By-Laws of Federated (incorporated by reference to Exhibit
3.02 to the Registration Statement on Form S-1 (File No. 333-48405))
4.01 Form of Class A Common Stock certificate (incorporated by reference
to Exhibit 4.01 to the Registration Statement on Form S-1 (File No.
333-48405))
4.02 Form of Class B Common Stock certificate (incorporated by reference
to Exhibit 4.02 to the Registration Statement on Form S-1 (File No.
333-48405))
4.05 Shareholder Rights Agreement, dated August 1, 1989, between
Federated and The Standard Fire Insurance Company, as amended
January 31, 1996 (incorporated by reference to Exhibit 4.06 to the
Registration Statement on Form S-1 (File No. 333-48405))
9.01 Voting Shares Irrevocable Trust dated May 31, 1989 (incorporated by
reference to Exhibit 9.01 to the Registration Statement on Form S-1
(File No. 333-48405))
10.06 Federated Program Master Agreement, dated as of October 24, 1997,
among Federated, Federated Funding 1997-1, Inc., Federated
Management Company, Federated Securities Corp., Wilmington Trust
Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and
Bankers Trust Company (incorporated by reference to Exhibit 4.09 to
the Registration Statement on Form S-1 (File No. 333-48405))
10.07 Federated Investors, Inc. Employee Stock Purchase Plan, amended as
of July 20, 1999 (incorporated by reference to Exhibit 10.2 of the
June 30, 1999 Quarterly Report on Form 10-Q (File No. 001-14818))
10.08 Federated Investors Program Initial Purchase Agreement, dated as of
October 24, 1997, between Federated Funding 1997-1, Inc. and
Wilmington Trust Company, solely as Trustee of the PLT Finance
Trust 1997-1 (incorporated by reference to Exhibit 4.10 to the
Registration Statement on Form S-1 (File No. 333-48405))
10.09 Federated Investors Program Revolving Purchase Agreement, dated as
of October 24, 1997, between Federated Funding 1997-1, Inc. and
PLT Finance, L.P. (incorporated by reference to Exhibit 4.11 to the
Registration Statement on Form S-1 (File No. 333-48405))
10.10 Federated Investors Program Fee Agreement, dated as October 24,
1997, between Federated Investors and PLT Finance, L.P.
(incorporated by reference to Exhibit 4.12 to the Registration
Statement on Form S-1 (File No. 333-48405))
10.11 Schedule X to Federated Program Master Agreement, dated as of
October 24, 1997, among Federated, Federated Funding 1997-1, Inc.,
Federated Investors Management Company, Federated Securities Corp.,
Wilmington Trust Company, PLT Finance, L.P., Putnam, Lovell &
Thornton Inc. and Bankers Trust Company (incorporated by reference
to Exhibit 4.13 to the Registration Statement on Form S-1 (File No.
333-48405))
10.12 Stock Incentive Plan, as amended as of July 20, 1999 (incorporated
by reference to Exhibit 10.3 to the June 30, 1999 Quarterly Report
on Form 10-Q (File No. 001-14818))
10.13 Executive Annual Incentive Plan (incorporated by reference to
Exhibit 10.02 to the Registration Statement on Form S-1 (File No.
333-48405))
10.14 Form of Bonus Stock Option Agreement (incorporated by reference to
Exhibit 10.13 of the Form 10-K for the fiscal year ended December
31, 1998 (File No. 001-14818))
10.15 Federated Investors Tower Lease dated January 1, 1993 (incorporated
by reference to Exhibit 10.03 to the Registration Statement on Form
S-1 (File No. 333-48405))
10.16 Federated Investors Tower Lease dated February 1, 1994
(incorporated by reference to Exhibit 10.04 to the Registration
Statement on Form S-1 (File No. 333-48405))
10.18 Employment Agreement, dated January 16, 1997, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.06 to the Registration Statement on Form S-1 (File No.
333-48405))
10.19 Employment Agreement, dated December 28, 1990, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.08 to the Registration Statement on Form S-1 (File No.
333-48405))
10.20 Employment Agreement, dated December 22, 1993, between Federated
Securities Corp. and an executive officer (incorporated by
reference to Exhibit 10.09 to the Registration Statement on Form
S-1 (File No. 333-48405))
10.21 Employment Agreement, dated March 17, 1995, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.07 to the Registration Statement on Form S-1 (File No.
333-48405))
10.22 Edgewood Services, Inc. Discretionary Line of Credit Demand Note,
dated as of March 28, 2000 (incorporated by reference to Exhibit
10.1 to the March 31, 2000 Quarterly Report on Form 10-Q (File No.
001-14818))
10.23 Federated Investors, Inc. Guaranty and Suretyship Agreement, dated
as of March 28, 2000 (incorporated by reference to Exhibit 10.2 to
the March 31, 2000 Quarterly Report on Form 10-Q (File No.
001-14818))
10.26 Purchase and Sale Agreement, dated as of December 21, 2000, among
Federated Investors Management Company, Federated Securities Corp.,
Federated Funding 1997-1, Inc., Federated Investors, Inc.,
Citibank, N.A., and Citicorp North America, Inc. Company
(incorporated by reference to Exhibit 10.26 of the Annual Report on
Form 10-K for the year ended December 31, 2000 (File No.
001-14818))
10.27 Amendment No. 2 to the Federated Investors Program Documents dated
as of December 21, 2000, among Federated Investors, Inc., Federated
Funding 1997-1, Inc., Federated Investors Management Company,
Federated Securities Corp., Wilmington Trust Company, Putnam Lovell
Finance L.P., Putnam Lovell Securities Inc., and Bankers Trust
Company (incorporated by reference to Exhibit 10.27 of the Annual
Report on Form 10-K for the year ended December 31, 2000 (File No.
001-14818))
10.29 Second Amended and Restated Credit Agreement, dated as of January
22, 2002, by and among Federated Investors, Inc., the banks set
forth therein and PNC Bank, National Association (Filed herewith)
10.30 Federated Investors, Inc. Stock Incentive Plan, amended as of
January 29, 2002 (Filed herewith)
10.31 Federated Investors, Inc. Annual Incentive Plan, dated January 29,
2002 (Filed herewith)
13.01 Selected Portions of 2001 Financial Annual Report to Shareholders
(Filed herewith)
21.01 Subsidiaries of the Registrant (Filed herewith)
23.01 Consent of Ernst & Young LLP (Filed herewith)
(b) Reports on Form 8-K:
Form 8-K filed on January 15, 2002
(c) Exhibits:
See (a)(3) above.
(d) Financial Statement Schedules:
See (a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FEDERATED INVESTORS, INC.
By: /s/ J. Christopher Donahue
--------------------------------------
J. Christopher Donahue
President and Chief Executive Officer
Date: March 20, 2002
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ John F. Donahue Chairman and Director March 20, 2002
- -------------------------
John F. Donahue
/s/ J. Christopher Donahue President, Chief Executive March 20, 2002
Officer
- -------------------------
J. Christopher Donahue and Director (Principal
Executive Officer)
/s/ Arthur L. Cherry Director March 20, 2002
- -------------------------
Arthur L. Cherry
/s/ Thomas R. Donahue Chief Financial Officer and March 20, 2002
Director
- -------------------------
Thomas R. Donahue
/s/ Michael J. Farrell Director March 20, 2002
- -------------------------
Michael J. Farrell
/s/ John B. Fisher Director March 20, 2002
- -------------------------
John B. Fisher
Signature Title Date
/s/ James F. Getz Director March 20, 2002
- -------------------------
James F. Getz
/s/ Eugene F. Maloney Director March 20, 2002
- -------------------------
- -------------------------
Eugene F. Maloney
/s/ Denis McAuley III Principal Accounting Officer March 20, 2002
- -------------------------
Denis McAuley III
/s/ John W. McGonigle Director March 20, 2002
- -------------------------
John W. McGonigle
/s/ James L. Murdy Director March 20, 2002
- -------------------------
James L. Murdy
/s/ Edward G. O'Connor Director March 20, 2002
- -------------------------
Edward G. O'Connor
EXHIBIT INDEX
Exhibit
Number Description
10.29 Second Amended and Restated Credit Agreement, dated as of January
22, 2002, by and among Federated Investors, Inc., the banks set
forth therein and PNC Bank, National Association
10.30 Federated Investors, Inc. Stock Incentive Plan, amended as of
January 29, 2002
10.31 Federated Investors, Inc. Annual Incentive Plan, dated January 29,
2002
13.01 Selected Portions of 2001 Financial Annual Report to Shareholders
21.01 Subsidiaries of the Registrant
23.01 Consent of Ernst & Young LLP
APPENDIX A
FEDERATED FUNDS
<table>
<caption>
Number
of
Share
Classes Assets as Fund
Fund Name as Fund Category of 12/31/01 Load Effective
of Date
12/31/01
<s> <c> <c> <c> <c> <c>
EQUITY FUNDS:
FEDERATED AGGRESSIVE GROWTH FUND 3 Equity Fund - 216,341,710 Y 11/18/1996
Growth
FEDERATED AMERICAN LEADERS FUND 4 Equity Fund - 3,311,952,295 Y 2/26/1969
INC. Growth and Income
FEDERATED AMERICAN LEADERS FUND II 1 Equity Fund - 455,980,397 N 12/15/1993
Growth and Income
FEDERATED ASIA PACIFIC GROWTH FUND 3 International/Global 20,076,094 Y 1/31/1996
FEDERATED CAPITAL APPRECIATION FUND 3 Equity Fund - 1,348,858,188 Y 11/14/1995
Growth
FEDERATED COMMUNICATIONS 3 Equity Fund - 230,287,538 Y 9/13/1999
TECHNOLOGY FUND Growth
FEDERATED EMERGING MARKETS FUND 3 International/Global 46,451,436 Y 1/31/1996
FEDERATED EQUITY INCOME FUND INC. 4 Equity 2,268,193,116 Y 12/30/1986
FEDERATED EQUITY INCOME FUND II 1 Equity 91,987,590 N 12/16/1996
FEDERATED EUROPEAN GROWTH FUND 3 International/Global 42,911,235 Y 1/31/1996
FEDERATED GLOBAL EQUITY INCOME FUND 3 International/Global 40,056,523 Y 3/8/1998
FEDERATED GLOBAL FINANCIAL 3 International/Global 60,385,137 Y 8/24/1998
SERVICES FUND
FEDERATED GROWTH STRATEGIES FUND 3 Equity Fund - 1,006,841,565 Y 8/23/1984
Growth
FEDERATED GROWTH STRATEGIES FUND II 1 Equity Fund - 96,011,111 N 9/30/1995
Growth
FEDERATED INTERNATIONAL EQUITY 1 International 250,725 N 3/21/1997
COMMINGLED TRUST Equity Fund
FEDERATED INTERNATIONAL EQUITY FUND 3 International 466,972,828 Y 8/17/1984
Equity Fund
FEDERATED INTERNATIONAL EQUITY 1 International 62,079,084 N 4/4/1995
FUND II Equity Fund
FEDERATED INTERNATIONAL SMALL 3 International/Global 526,450,827 Y 1/31/1996
COMPANY FUND
FEDERATED INTERNATIONAL SMALL 1 International/Global 3,495,931 N 6/21/2000
COMPANY FUND II
FEDERATED KAUFMANN FUND 4 Equity Fund - 3,637,223,102 Y 4/23/2001
Growth
FEDERATED LARGE CAP GROWTH FUND 3 Equity Fund - 494,235,283 Y 12/23/1998
Growth
FEDERATED LARGE CAP GROWTH FUND II 1 Equity Fund - 7,055,099 N 6/21/2000
Growth
FEDERATED MANAGED GROWTH PORTFOLIO 2 Asset Allocation 126,563,213 N 3/11/1994
Fund
FEDERATED MANAGED CONSERVATIVE 2 Asset Allocation 155,500,644 N 3/11/1994
GROWTH PORTFOLIO Fund
FEDERATED MANAGED MODERATE GROWTH 2 Asset Allocation 196,757,342 N 3/11/1994
PORTFOLIO Fund
FEDERATED MARKET OPPORTUNITY FUND 3 Equity Fund - 111,271,045 Y 12/4/2000
Growth and Income
FEDERATED MAX-CAP FUND 3 Equity Fund - 2,026,414,136 N 7/2/1990
Growth and
Income/Index
FEDERATED MID-CAP FUND 1 Equity Fund - 373,308,648 N 7/7/1992
Growth and
Income/Index
FEDERATED MINI-CAP FUND 2 Equity Fund - 115,700,468 N 7/7/1992
Growth and
Income/Index
FEDERATED NEW ECONOMY FUND 3 Equity Fund - 30,913,638 Y 8/30/2000
Growth
FEDERATED KAUFMANN SMALL CAP FUND 3 Equity Fund - 241,836,514 Y 9/13/1995
Growth
FEDERATED SMALL CAP STRATEGIES 1 Equity Fund - 6,767,200 N 5/21/1999
FUND II Growth
FEDERATED STOCK AND BOND FUND INC. 3 Balanced 277,842,479 N 10/31/1984
FEDERATED STOCK TRUST 1 Equity Fund - 1,605,842,184 N 3/31/1982
Growth and Income
FEDERATED UTILITY FUND INC. 4 Equity Fund - 729,000,359 Y 5/29/1987
Domestic Utility
FEDERATED UTILITY FUND II 1 Equity Fund - 138,405,288 N 12/15/1993
Domestic Utility
FEDERATED WORLD UTILITY FUND 3 International 82,113,194 Y 4/12/1994
Equity Fund
LVM EUROPA-AKTIEN 1 International/Global 38,512,037 Y 1/26/2000
LVM INTER-AKTIEN 1 International/Global 34,706,917 Y 1/26/2000
LVM PROFUTUR 1 International/Global 34,027,831 Y 1/26/2000
-----------
Total Equity Funds 20,759,579,951
-----------
Number
of
Share Fund
Classes Effective
Fund Name as Fund Category Assets as Load Date
of of 12/31/01
12/31/01
FIXED INCOME FUNDS:
CAPITAL PRESERVATION FUND 1 Short-Term 771,031,932 N 8/1/1988
Corporate Bond Fund
- High Grade
FEDERATED ARMS FUND 2 Adjustable Rate 331,787,371 N 12/3/1985
Mortgage-Backed Fund
FEDERATED BOND FUND 4 Long Corporate Bond 975,669,691 Y 6/27/1995
Fund - High Grade
FEDERATED CALIFORNIA MUNICIPAL 2 Municipal Bond Fund 78,385,231 Y 11/24/1992
INCOME FUND
FEDERATED FUND FOR U.S. GOVERNMENT 3 Mortgage Backed 1,173,911,729 Y 10/6/1969
SECURITIES INC Fund
FEDERATED FUND FOR U.S. GOVERNMENT 1 Mortgage Backed 299,499,418 N 12/15/1993
SECURITIES II Fund
FEDERATED GNMA TRUST 2 Mortgage Backed 862,261,218 N 3/23/1982
Fund
FEDERATED GOVERNMENT INCOME 4 Mortgage Backed 1,061,584,465 Y 8/2/1996
SECURITIES INC. Fund
FEDERATED GOVERNMENT ULTRASHORT 2 Government Bond 442,379,783 N 9/29/1999
FUND Fund
FEDERATED HIGH INCOME ADVANTAGE 1 High Yield Fund 41,722,376 Y 9/20/1993
FUND
FEDERATED HIGH INCOME BOND FUND 3 High Yield Fund 1,683,014,018 Y 11/30/1977
INC.
FEDERATED HIGH INCOME BOND FUND II 2 High Yield Fund 237,418,943 N 12/15/1993
FEDERATED HIGH YIELD TRUST 1 High Yield Fund 535,922,177 N 8/23/1984
FEDERATED INCOME TRUST 2 Mortgage Backed 635,973,086 N 3/30/1982
Fund
FEDERATED INTERMEDIATE INCOME FUND 2 General Investment 342,934,188 N 12/8/1993
Grade
FEDERATED INTERMEDIATE MUNICIPAL 1 Municipal Bond Fund 168,023,086 N 12/26/1985
TRUST
FEDERATED INTERNATIONAL BOND FUND 3 International Bond 64,264,486 Y 5/15/1991
Fund
FEDERATED INTERNATIONAL HIGH 3 International Bond 95,845,463 Y 9/9/1996
INCOME FUND Fund
FEDERATED LIMITED DURATION FUND 2 Mortgage Backed 134,411,086 N 9/16/1996
Fund
FEDERATED LIMITED DURATION 2 Government Bond 92,717,084 Y 3/2/1992
GOVERNMENT FUND Fund
FEDERATED LIMITED TERM FUND 2 Short-Term 411,493,412 Y 12/24/1991
Corporate Bond Fund
- High Grade
FEDERATED LIMITED TERM MUNICIPAL 2 Municipal Bond Fund 145,172,400 Y 8/31/1993
FUND
FEDERATED MANAGED INCOME PORTFOLIO 2 Asset Allocation 98,433,441 N 3/11/1994
Fund
FEDERATED MICHIGAN INTERMEDIATE 1 Municipal Bond Fund 107,213,165 Y 9/9/1991
MUNICIPAL TRUST
FEDERATED MORTGAGE FUND 2 US Government Int. 198,871,367 N 6/30/1998
Muni. Bond
FEDERATED MUNICIPAL OPPORTUNITIES 4 Municipal Bond Fund 396,726,668 Y 5/3/1996
FUND INC.
FEDERATED MUNICIPAL SECURITIES 3 Municipal Bond Fund 530,379,574 N 10/4/1976
FUND INC.
FEDERATED MUNICIPAL ULTRASHORT FUND 2 Municipal Bond Fund 234,561,428 N 10/23/2000
FEDERATED NEW YORK MUNICIPAL 1 Municipal Bond Fund 22,350,382 Y 11/24/1992
INCOME FUND
FEDERATED NORTH CAROLINA MUNICIPAL 1 Municipal Bond Fund 47,135,200 Y 6/4/1999
INCOME FUND
FEDERATED OHIO MUNICIPAL INCOME 1 Municipal Bond Fund 81,377,777 Y 10/10/1990
FUND
FEDERATED PENNSYLVANIA MUNICIPAL 2 Municipal Bond Fund 244,194,377 Y 10/10/1990
INCOME FUND
FEDERATED QUALITY BOND FUND II 1 Short-Term 286,804,722 N 4/21/1999
Corporate Bond Fund
- High Grade
FEDERATED SHORT-TERM INCOME FUND 2 Short-Term 246,424,389 N 7/1/1986
Corporate Bond Fund
- High Grade
FEDERATED SHORT-TERM MUNICIPAL 2 Municipal Bond Fund 222,331,491 N 8/20/1981
TRUST
FEDERATED STRATEGIC INCOME FUND 4 Balanced 807,256,248 Y 4/5/1994
FEDERATED TOTAL RETURN BOND FUND II 1 Mortgage Backed 7,465,793 N 5/21/1999
Fund
FEDERATED TOTAL RETURN BOND FUND 3 Mortgage Backed 27,558,206 N 8/16/2001
(A,B,C) Fund
FEDERATED TOTAL RETURN BOND FUND 2 Mortgage Backed 539,288,490 N 1/19/1994
(IS,SS) Fund
FEDERATED TOTAL RETURN GOVERNMENT 2 Government Bond 112,453,614 N 9/13/1995
BOND FUND Fund
FEDERATED U.S.GOVERNMENT BOND FUND 1 Mortgage Backed 92,885,592 N 12/2/1985
Fund
FEDERATED ULTRASHORT BOND FUND 2 US Government ST 1,224,021,952 N 10/27/1998
FEDERATED US GOVERNMENT SECURITIES 3 Government Bond 489,005,558 N 3/15/1984
FUND: 1-3 YEARS Fund
FEDERATED US GOVERNMENT SECURITIES 2 Government Bond 663,591,582 N 2/18/1983
FUND: 2-5 YEARS Fund
Number
of
Share
Classes Assets as Fund
Fund Name as Fund Category of 12/31/01 Load Effective
of Date
12/31/01
LVM EURO-KURZLAUFER 1 International/Global 31,908,760 Y 1/26/2000
LVM EURO-RENTEN 1 International/Global 43,117,112 Y 1/26/2000
LVM INTER-RENTEN 1 International/Global 37,732,937 Y 1/26/2000
-----------
Total Fixed Income Funds 17,378,512,468
-----------
-----------
Total Non-Money Market Funds 38,138,092,419
-----------
MONEY MARKET FUNDS:
ALABAMA MUNICIPAL CASH TRUST 1 Municipal Money 272,831,455 N 12/1/1993
Market
ARIZONA MUNICIPAL CASH TRUST 1 Municipal Money 86,098,348 N 5/30/1998
Market
AUTOMATED CASH MANAGEMENT TRUST 2 Prime Money Market 4,649,770,431 N 9/19/1996
Fund
AUTOMATED GOVERNMENT CASH RESERVES 1 Government Money 869,413,860 N 2/2/1990
Market Fund
AUTOMATED GOVERNMENT MONEY TRUST 1 Government Money 1,766,986,758 N 6/1/1982
Market Fund
AUTOMATED TREASURY CASH RESERVES 1 Government Money 281,777,032 N 8/5/1991
Market Fund
CALIFORNIA MUNICIPAL CASH TRUST 3 Municipal Money 1,004,332,535 N 2/29/1996
Market
CONNECTICUT MUNICIPAL CASH TRUST 1 Municipal Money 321,628,109 N 11/1/1989
Market
EDWARD D. JONES DAILY PASSPORT 2 Government Money 11,524,190,714N 5/9/1980
CASH TRUST Market Fund
FEDERATED MASTER TRUST 1 Prime Money Market 285,341,846 N 12/16/1977
Fund
FEDERATED PRIME MONEY FUND II 1 Prime Money Market 206,146,630 N 12/15/1993
Fund
FEDERATED SHORT-TERM EURO FUND 2 Prime Money Market 34,606,635 N 11/9/1999
Fund
FEDERATED SHORT-TERM U.S. 1 Government Money 263,881,481 N 4/16/1987
GOVERNMENT TRUST Market Fund
FEDERATED SHORT-TERM U.S. PRIME 2 Government Money 2,127,052,526 N 9/20/1993
FUND Market Fund
FEDERATED SHORT-TERM U.S.GOVT 4 Government Money 1,428,713,269 N 1/18/1991
SECURITIES FUND Market Fund
FEDERATED SHORT-TERM U.S.TREASURY 1 Government Money 1,050,149,126 N 4/16/1992
SECURITIES FUND Market Fund
FEDERATED TAX-FREE TRUST 1 Municipal Money 575,267,137 N 3/6/1979
Market
FLORIDA MUNICIPAL CASH TRUST 2 Municipal Money 1,238,828,032 N 11/16/1995
Market
GEORGIA MUNICIPAL CASH TRUST 1 Municipal Money 458,066,337 N 8/14/1995
Market
GOVERNMENT CASH SERIES 1 Government Money 843,750,486 N 8/15/1989
Market Fund
GOVERNMENT OBLIGATIONS FUND 2 Government Money 11,003,526,102N 12/11/1989
Market Fund
GOVERNMENT OBLIGATIONS TAX MANAGED 2 Government Money 5,712,921,440 N 5/7/1995
FUND Market Fund
LIBERTY U.S. GOVERNMENT MONEY 2 Government Money 663,339,457 N 6/6/1980
MARKET TRUST Market Fund
LIQUID CASH TRUST 1 Government Money 325,642,672 N 12/12/1980
Market Fund
MARYLAND MUNICIPAL CASH TRUST 1 Municipal Money 104,690,139 N 5/4/1994
Market
MASSACHUSETTS MUNICIPAL CASH TRUST 2 Municipal Money 887,513,885 N 2/22/1993
Market
MICHIGAN MUNICIPAL CASH TRUST 3 Municipal Money 317,829,113 N 2/29/1996
Market
MINNESOTA MUNICIPAL CASH TRUST 2 Municipal Money 607,167,563 N 12/31/1990
Market
MONEY MARKET MANAGEMENT INC. 1 Prime Money Market 81,750,833 N 2/25/1993
Fund
MONEY MARKET TRUST 1 Prime Money Market 338,143,036 N 10/13/1978
Fund
MUNICIPAL CASH SERIES 1 Municipal Money 594,730,338 N 8/15/1989
Market
MUNICIPAL CASH SERIES II 1 Municipal Money 523,244,941 N 1/25/1991
Market
MUNICIPAL OBLIGATIONS FUND 3 Municipal Money 961,559,424 N 2/5/1993
Market
NEW JERSEY MUNICIPAL CASH TRUST 2 Municipal Money 249,155,086 N 12/10/1990
Market
NEW YORK MUNICIPAL CASH TRUST 2 Municipal Money 1,230,496,165 N 5/30/1994
Market
NORTH CAROLINA MUNICIPAL CASH TRUST 1 Municipal Money 401,395,119 N 12/1/1993
Market
OHIO MUNICIPAL CASH TRUST 3 Municipal Money 297,481,007 N 3/26/1991
Market
PENNSYLVANIA MUNICIPAL CASH TRUST 3 Municipal Money 561,278,831 N 12/21/1990
Market
PRIME CASH OBLIGATIONS FUND 3 Prime Money Market 13,076,495,801N 2/5/1993
Fund
PRIME CASH SERIES 1 Prime Money Market 6,214,274,640 N 8/15/1989
Fund
PRIME OBLIGATIONS FUND 2 Prime Money Market 23,539,580,274N 7/5/1994
Fund
PRIME VALUE OBLIGATIONS FUND 3 Prime Money Market 10,244,581,963N 2/5/1993
Fund
TAX-FREE INSTRUMENTS TRUST 2 Municipal Money 2,442,120,739 N 12/21/1982
Market
TAX-FREE OBLIGATIONS FUND 2 Municipal Money 5,102,897,055 N 12/11/1989
Market
TREASURY CASH SERIES 1 Government Money 696,597,242 N 2/5/1990
Market Fund
TREASURY CASH SERIES II 1 Government Money 428,862,229 N 1/25/1991
Market Fund
TREASURY OBLIGATIONS FUND 3 Government Money 13,796,260,037N 4/14/1997
Market Fund
TRUST FOR GOVERNMENT CASH RESERVES 1 Government Money 255,980,031 N 3/30/1989
Market Fund
TRUST FOR SHORT-TERM U.S. 1 Government Money 524,008,702 N 12/29/1975
GOVERNMENT SECURITIES Market Fund
Number
of
Share
Classes Assets as Fund
Fund Name as Fund Category of 12/31/01 Load Effective
of Date
12/31/01
TRUST FOR U.S. TREASURY OBLIGATIONS 1 Government Money 871,654,620 N 11/8/1979
Market Fund
U.S. TREASURY CASH RESERVES 2 Government Money 3,270,654,257 N 5/14/1991
Market Fund
VIRGINIA MUNICIPAL CASH TRUST 2 Municipal Money 322,715,041 N 8/30/1993
Market
-----------
Total Money Market Funds 134,937,380,529
-----------
------ -----------
MANAGED FUND TOTAL 274 173,075,472,948
------ -----------
Other Managed Assets* 6,611,533,905
-----------
-----------
TOTAL MANAGED ASSETS 179,687,006,853
===========
</table>
Summary:
Total Number of Load Funds: 44
Total Number of No-Load Funds: 95
Total Number of Funds: 139
*Other Managed Assets include Separate Account and Repo
Assets
$150,000,000 Revolving Credit
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of January 22, 2002
by and among
FEDERATED INVESTORS, INC.
and
THE BANKS SET FORTH HEREIN
and
PNC BANK, NATIONAL ASSOCIATION, as Agent
1. CERTAIN DEFINITIONS....................................................1
1.1 Certain Definitions..............................................1
1.2 Construction....................................................15
1.3 Accounting Principles...........................................16
2. REVOLVING CREDIT AND SWING LOAN FACILITIES............................16
2.1 The Commitments.................................................16
2.2 Nature of the Banks' and the Borrower's Obligations.............17
2.3 Fees............................................................17
2.4 Permanent Reductions of Commitments.............................18
2.5 [Intentionally omitted].........................................18
2.6 Loan Requests...................................................18
2.7 Making Loans....................................................19
2.8 Borrowings to Repay Swing Loans.................................19
2.9 Notes...........................................................20
2.10 Letter of Credit Subfacility....................................20
2.11 Use of Proceeds.................................................24
2.12 Option of Borrower to Term-Out the Revolving Credit Loans upon
Revolving Credit Expiration Date..............................24
2.13 Extension by Banks of the Revolving Credit Expiration Date......24
3. [Intentionally Omitted]...............................................26
4. INTEREST RATES........................................................26
4.1 Interest Rate Options...........................................26
4.2 Euro-Rate Interest Periods......................................27
4.3 Interest After Default..........................................27
4.4 Euro-Rate Unascertainable.......................................28
4.5 Selection of Interest Rate Options..............................29
5. PAYMENTS..............................................................29
5.1 Payments........................................................29
5.2 Pro Rata Treatment of the Banks.................................30
5.3 Interest Payment Dates..........................................30
5.4 Voluntary Prepayments...........................................30
5.5 Additional Compensation in Certain Circumstances................31
5.6 Settlement Date Procedures......................................33
6. REPRESENTATIONS AND WARRANTIES........................................33
6.1 Representations and Warranties..................................33
6.2 Updates to Schedules............................................38
7. CONDITIONS OF LENDING.................................................39
7.1 Closing Date....................................................39
7.2 Each Additional Loan............................................41
8. COVENANTS.............................................................41
8.1 Affirmative Covenants...........................................41
8.2 Negative Covenants..............................................43
8.3 Reporting Requirements..........................................50
9. DEFAULT...............................................................53
9.1 Events of Default...............................................53
9.2 Consequences of Event of Default................................54
10. THE AGENT.............................................................56
10.1 Appointment.....................................................56
10.2 Delegation of Duties............................................56
10.3 Nature of Duties; Independent Credit Investigation..............57
10.4 Actions in Discretion of the Agent; Instructions from the Banks.57
10.5 Reimbursement and Indemnification of the Agent by the Borrower..57
10.6 Exculpatory Provisions..........................................58
10.7 Reimbursement and Indemnification of the Agent by the Banks.....58
10.8 Reliance by the Agent...........................................59
10.9 Notice of Default...............................................59
10.10 Notices.........................................................59
10.11 PNC Bank, National Association and the Banks in Their Individual
Capacities......................................................59
10.12 Holders of Notes................................................60
10.13 Equalization of the Banks.......................................60
10.14 Successor Agent.................................................60
10.15 The Agent's Fee.................................................61
10.16 Calculations....................................................61
10.17 Beneficiaries...................................................61
11. MISCELLANEOUS.........................................................61
11.1 Modifications, Amendments or Waivers............................61
11.2 No Implied Waivers; Cumulative Remedies; Writing Required.......62
11.3 Reimbursement and Indemnification of the Banks by the
Borrower; Taxes..............................................62
11.4 Holidays........................................................63
11.5 Funding by Branch, Subsidiary or Affiliate......................63
11.6 Notices.........................................................64
11.7 Severability....................................................65
11.8 Governing Law...................................................65
11.9 Prior Understanding.............................................65
11.10 Duration; Survival..............................................65
11.11 Successors and Assigns..........................................66
11.12 Confidentiality.................................................67
11.13 Counterparts....................................................67
11.14 The Agent's or the Bank's Consent...............................67
11.15 Exceptions......................................................67
11.16 Consent to Jurisdiction; Waiver of Jury Trial...................67
11.17 Limitation of Liability.........................................68
11.18 Tax Withholding Clause..........................................68
SCHEDULES
Schedule 1.1(a) - Commitments of the Banks
Schedule 6.1(c) - Subsidiaries of the Borrower
Schedule 6.1(s) - Insurance
Schedule 6.1(u) - Material Contracts
Schedule 8.2(e) - Existing Indebtedness and Liens
Schedule 8.2(h) - Loans and Investments
Schedule 11.6 - Notice Information
EXHIBITS
Exhibit A - Form of Assignment and Assumption Agreement
Exhibit B - Form of Guaranty and Suretyship Agreement
Exhibit C - Form of Intercompany Subordination Agreement
Exhibit D - Form of Revolving Credit Note
Exhibit E - Form of Swing Note
Exhibit F-1 - Form of Revolving Credit Loan Request
Exhibit F-2 - Form of Swing Loan Request
Exhibit G - Requirements of Opinion of Counsel
Exhibit H - Form of Opinion of Counsel (regarding New Subsidiaries)
Exhibit I - Form of Compliance Certificate
Exhibit J - Form of Confidentiality Agreement
66
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is dated as of January
22, 2002, and is made by and among FEDERATED INVESTORS, INC., a Pennsylvania
corporation (the "Borrower"), the BANKS (as hereinafter defined) and PNC BANK,
NATIONAL ASSOCIATION in its capacity as agent for the Banks under this Agreement
(hereinafter referred to in such capacity as the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower has requested the Agent and the Banks to amend and
restate the Amended and Restated Credit Agreement, (the "Existing Credit
Agreement") dated as of January 23, 2001 among the Borrower, the Banks set forth
therein and the Agent, to provide to the Borrower a $150,000,000 revolving
credit facility (the "Revolving Credit Facility"); and
WHEREAS, the Revolving Credit Facility shall be used for general business
purposes, including acquisitions; and
WHEREAS, the Agent and the Banks are willing to amend and restate the
Existing Credit Agreement upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, amend and restate the Existing Credit Agreement as follows:
CERTAIN DEFINITIONS
Certain Definitions.
In addition to words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
Affiliate as to any person shall mean any other person (i) which directly
or indirectly controls, is controlled by, or is under common control with such
person, (ii) which beneficially owns or holds five percent (5%) or more of any
class of the voting stock of such person, or (iii) fifty percent (50%) or more
of the voting stock (or in the case of a person which is not a corporation,
fifty percent (50%) or more of the equity interest) of which is beneficially
owned or held, directly or indirectly, by such person.
Agent shall mean PNC Bank, National Association and its successors.
Agent's Fee shall have the meaning specified in Section 10.15.
Agreeing Banks shall have the meaning specified in Section 2.13(a).
Agreement shall mean this Second Amended and Restated Credit Agreement, as
amended and restated herein and as the same may be further supplemented,
amended, restated or modified from time to time, including all schedules and
exhibits.
Assignment and Assumption Agreement shall mean an Assignment and Assumption
Agreement by and among a Purchasing Bank, the Transferor Bank and the Agent in
the form of Exhibit A.
Audited Statements shall have the meaning specified in Section 6.1(i).
Authorized Officer shall mean those persons designated by written notice to
the Agent from the Borrower, authorized to execute notices, reports and other
documents required hereunder. The Borrower may amend such list of persons from
time to time by giving written notice of such amendment to the Agent.
Banks shall mean the financial institutions named on Schedule 1.1(a) and
their respective successors and assigns as permitted hereunder, each of which is
referred to herein as a Bank.
Base Rate shall mean the greater of (i) the interest rate per annum
announced from time to time by the Agent at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus one-half
percent (0.50%) per annum.
Base Rate Option shall mean the Interest Rate Option set forth in Section
4.1(a).
Base Rate Portion shall mean the portion of the Loans bearing interest at
any time under the Base Rate Option.
Benefit Arrangement shall mean at any time an "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, which is neither a Defined Benefit
Pension Plan nor a Multiemployer Plan, but which is maintained, sponsored or
otherwise contributed to, by any member of the ERISA Group. Thus, a Benefit
Arrangement includes, e.g., an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA, a money purchase pension plan, a funded
deferred profit-sharing plan and an ESOP.
Borrower shall mean Federated Investors, Inc., a Pennsylvania corporation.
Borrowing Date shall mean with respect to any Loan, the date for the making
thereof or the renewal or conversion thereof to the same or a different Interest
Rate Option, which shall be a Business Day, as specified in the relevant Loan
Request.
Borrowing Tranche shall mean, with respect to the Euro-Rate Portion, Loans
to which a Euro-Rate Option applies by reason of the selection of, conversion to
or renewal of such Interest Rate Option on the same day and having the same
Euro-Rate Interest Period, and, with respect to the Base Rate Portion, Loans to
which the Base Rate Option or PNC Quoted Rate Option applies by reason of the
selection of or conversion to such Interest Rate Options.
Business Day shall mean (i) with respect to matters relating to the
Euro-Rate Option, a day on which banks in the London interbank market are
dealing in U.S. Dollar deposits and on which commercial banks are open for
domestic and international business in Pittsburgh, Pennsylvania and New York,
New York and (ii) with respect to any other matter, a day on which commercial
banks are open for business in Pittsburgh, Pennsylvania and New York, New York.
Class A Shares shall mean the Class A Common Stock of the Borrower.
Class B Shares shall mean the Class B Common Stock of the Borrower.
Closing Date shall mean January 22, 2002.
COBRA Violation shall mean a failure by any of the Companies to comply with
group health plan continuation coverage requirements of Sections 601 et seq. of
ERISA.
Commitment shall mean, as to any Bank, its Revolving Credit Commitment, and
Commitments shall mean the Revolving Credit Commitments of all of the Banks.
Common Shares shall mean the Class A Shares and Class B Shares.
Companies shall mean the Borrower and its Subsidiaries.
Consolidated EBITDA for each fiscal quarter for the four (4) fiscal
quarters then ended shall mean (i) the sum of net income, depreciation,
amortization, other non-cash charges to net income (excluding any non-cash
charges which require an accrual or reserve for cash charges for any future
period), interest expense and income tax expense minus (ii) non-cash credits to
net income, in each case of the Borrower and its Consolidated Subsidiaries for
such period determined in accordance with GAAP; provided that if the Borrower
and Consolidated Subsidiaries shall make one or more acquisitions of the capital
stock of any Person or all or substantially all of the assets of any Person
permitted by Section 8.2(j) during such period, Consolidated EBITDA for such
period shall be adjusted on a pro forma basis in a manner satisfactory to the
Agent to give effect to all such acquisitions as if they had occurred at the
beginning of such period.
Consolidated Subsidiaries shall mean and include those subsidiaries or
other entities whose accounts are consolidated with the accounts of the Borrower
in accordance with GAAP provided that for the purpose of calculating the
financial ratios in Sections 8.2(a)-(c) the impact of the consolidation of any
Special Purpose Subsidiary or entity to which Designated Assets are sold or
assigned by a Special Purpose Subsidiary, in either case pursuant to the Master
Agreement, the Purchase and Sale Agreement or any similar agreement or program
and in accordance with Section 8.2(k)(i), shall be excluded.
Control or control shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, including the power to elect a majority of the directors or trustees
of a corporation or trust, as the case may be.
Controlled Group shall mean (i) the controlled group of corporations as
defined in Section 1563 of the Internal Revenue Code and regulations thereunder,
and (ii) the group of trades or businesses under common control as defined in
Section 414(c) of the Internal Revenue Code and regulations thereunder, in the
case of either clause (i) or (ii), of which the Borrower or any Subsidiary is a
part or may become a part.
Defined Benefit Pension Plan shall mean at any time an employee pension
benefit plan (including a Multiple Employer Plan but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and either (i) is
maintained by any member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding five (5) years been
maintained by any entity which was at such time a member of the ERISA Group for
employees of any entity which was at such time a member of the ERISA Group.
Designated Assets shall mean the right to receive deferred sales charges,
including 12b-1 and contingent deferred sales charges, and any comparable fees
from a Fund relating to the sale of Fund shares or sales of other interest in or
obligations of Funds and the maintenance of customer accounts, including
shareholder servicing fees.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of
the United States of America.
Domestic Subsidiaries shall mean any Subsidiary of the Borrower that is
organized or incorporated under the Laws of any state or commonwealth in the
United States of America.
Environmental Complaint shall mean any written complaint setting forth a
cause of action for personal or property damage or equitable relief arising
under any Environmental Law, an order, notice of violation, citation, request
for information issued pursuant to any Environmental Laws by an Official Body, a
subpoena or other written notice of any type relating to, arising out of, or
issued pursuant to any Environmental Law.
Environmental Laws shall mean all federal, state, local or foreign laws and
regulations, including permits, orders, judgments, consent decrees issued, or
entered into, pursuant thereto, relating to pollution or protection of human
health or the environment.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all members of a
Controlled Group.
ESOP shall mean an employee stock ownership plan.
Euro-Rate shall mean with respect to the Loans comprising any Borrowing
Tranche to which the Euro-Rate Option applies for any Euro-Rate Interest Period,
the interest rate per annum determined by the Agent by dividing (the resulting
quotient rounded upward, if necessary, to the nearest 1/100 of 1% per annum) (i)
the rate of interest determined by the Agent in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the average of the London interbank offered rates for U.S. Dollars quoted by the
British Bankers' Association as set forth on Dow Jones Markets Service (formerly
known as Telerate) (or appropriate successor or, if British Bankers' Association
or its successor ceases to provide such quotes, a comparable replacement
determined by the Agent) display page 3750 (or such other display page on the
Dow Jones Market Service system as may replace display page 3750) two (2)
Business Days prior to the first day of such Euro-Rate Interest Period for an
amount comparable to such borrowing and having a borrowing date and a maturity
comparable to such Euro-Rate Interest Period by (ii) a number equal to 1.00
minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by
the following formula:
Euro-Rate = Average of London Interbank offered rates quoted
by BBA as shown on Dow Jones Markets Service display
page 3750 or appropriate successor
1.00 - Euro-Rate Reserve Percentage
Euro-Rate Interest Periods shall have the meaning specified in Section 4.2.
Euro-Rate Option shall mean the Interest Rate Option set forth in Section
4.1(b).
Euro-Rate Portion shall mean the portion of the Revolving Credit Loans
bearing interest at any time under the Euro-Rate Option.
Euro-Rate Reserve Percentage shall mean the maximum percentage (expressed
as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the
Agent (which determination shall be conclusive absent manifest error) which is
in effect during any relevant period (or, if more than one such percentage shall
be applicable, the daily average of such percentages for those days in such
period during which any such percentages shall be so applicable), as prescribed
by the Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in the Federal
Reserve System.
Event of Default shall mean any of the Events of Default described in
Section 9.1.
Existing Credit Agreement shall have the meaning given to such term in the
first recital clause.
Facility Fee shall have the meaning specified in Section 2.3(a).
Federal Funds Effective Rate for any day shall mean the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
Federated Bank shall mean Federated Investors Trust Company, a state
chartered bank under the laws of New Jersey.
Foreign Subsidiaries shall mean any Subsidiary of the Borrower that is not
a Domestic Subsidiary.
Fund Fees shall mean the management, administrative, shareholder
services, 12b-1, back-end and other similar fees contractually due any of the
Companies.
Funds shall mean the mutual funds, collateralized bond obligation vehicles,
collateralized mortgage obligation vehicles, investment conduits or other
entities for which any of the Companies serves as an advisor, an administrator,
a distributor, as servicer, a transfer agent, a portfolio or fund accountant, or
a clearing servicer.
GAAP shall mean generally accepted accounting principles as are in effect
from time to time, subject to the provisions of Section 1.3, and applied on a
consistent basis (except for changes in application in which the Borrower's
independent certified public accountants concur) both as to classification of
items and amounts.
Governmental Acts shall have the meaning given to such term in Section
2.10(h).
Guarantors shall mean the Borrower and certain of its Subsidiaries who are
signatories to the Guaranty Agreement as indicated in Exhibit B.
Guaranty of any person shall mean any obligation of such person
guaranteeing or in effect guaranteeing any liability or obligation of any other
person in any manner, whether directly or indirectly, including any agreement to
indemnify or hold harmless any other person, any performance bond or other
suretyship arrangement and any other form of assurance against loss, except
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business.
Guaranty Agreement shall mean that certain Guaranty and Suretyship
Agreement of even date herewith in the form of Exhibit B executed and delivered
by the Guarantors to the Agent for the benefit of the Banks, as amended,
restated or supplemented from time to time in accordance with the terms thereof.
Historical Statements shall have the meaning specified in Section 6.1(i).
Indebtedness shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate protection device, (iv) any other transaction
(including forward sale or purchase agreements, capitalized leases and
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such person to finance its operations or capital
requirements (but not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a promissory note
or other evidence of indebtedness and which are not more than thirty (30) days
past due), or (v) any Guaranty of Indebtedness for borrowed money.
Intercompany Subordination Agreement shall mean the Intercompany
Subordination Agreement of even date herewith in the form of Exhibit C executed
and delivered by the Companies to the Agent for the benefit of the Banks, as
amended, restated or supplemented from time to time in accordance with the terms
thereof.
Interest Payment Date shall mean each date specified for the payment of
interest in Section 5.3.
Interest Rate Option shall mean the Euro-Rate Option, the Base Rate Option
or the PNC Quoted Rate Option.
Interim Statements shall have the meaning specified in Section 6.1(i).
Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the
same may be amended or supplemented from time to time, and any successor statute
of similar import, and the rules and regulations thereunder, as from time to
time in effect.
Investlink shall mean Investlink Technologies, Inc., an indirect Subsidiary
of the Borrower.
Investment Company Act shall mean the Investment Company Act of 1940, as
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
IRS shall mean the Internal Revenue Service.
Labor Contracts shall have the meaning specified in Section 6.1(u).
Law shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Letter of Credit shall have the meaning assigned to that term in Section
2.10(a).
Letter of Credit Fee shall have the meaning assigned to that term in
Section 2.10(c).
Letter of Credit Fronting Fee shall have the meaning assigned to that term
in Section 2.10(c).
Letter of Credit Outstandings shall mean at any time the sum of (i) the
aggregate undrawn face amount of outstanding Letters of Credit and (ii) the
aggregate amount of all unpaid and outstanding Reimbursement Obligations.
Leverage Ratio shall mean the ratio of Total Indebtedness to Consolidated
EBITDA.
Lien shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
Limited Investments shall mean the following: (i) investments or
contributions by a Loan Party directly or indirectly in the capital stock of or
other payments (except in connection with transactions for fair value in the
ordinary course of business, including usual and customary service and occupancy
contracts) to any of the Special Purpose Subsidiaries, (ii) loans by a Loan
Party directly or indirectly to any of the Special Purpose Subsidiaries, (iii)
guarantees by a Loan Party directly or indirectly of the obligations of any of
the Special Purpose Subsidiaries, or (iv) other obligations, contingent or
otherwise, of the Loan Parties to or for the benefit of any of the Special
Purpose Subsidiaries.
Loan Parties shall mean the Guarantors and the Companies.
Loan Request shall mean a Revolving Credit or Swing Loan Request made in
accordance with Section 2.6(a) or 2.6(b) respectively, or, with respect to a
Revolving Credit Loan, a request to select, convert to or renew a Euro-Rate
Option in accordance with Section 4.2.
Loans shall mean collectively and Loan shall mean separately all Revolving
Credit Loans, Swing Loans and Term Loans or any Revolving Credit Loan, Swing
Loan or Term Loan.
Master Agreement shall mean the Federated Investors Program Master
Agreement dated as of October 24, 1997, among Federated Investors, Federated
Funding 1997-1, Inc., Federated Investors Management Company, Federated
Securities Corp., the Owner Trustee of the PLT Finance Trust 1997-1, PLT
Finance, L.P., Putnam, Lovell & Thorton Inc., and Bankers Trust Company, as
amended or replaced from time to time as permitted under this Agreement.
Material Adverse Change shall mean any set of circumstances or events which
(i) has or could reasonably be expected to have any material adverse effect
whatsoever upon the validity or enforceability of this Agreement or any other
Senior Loan Document, (ii) is or could reasonably be expected to be material and
adverse to the business, properties, assets, financial condition, results of
operations or prospects of the Companies, (iii) impairs materially or could
reasonably be expected to impair materially the ability of any of the Companies
to pay punctually its Indebtedness or perform any other obligations in
connection with its Indebtedness, or (iv) impairs materially or could reasonably
be expected to impair materially the ability of the Agent or any of the Banks,
to the extent permitted, to enforce their legal remedies pursuant to this
Agreement or any other Senior Loan Document.
Month, with respect to a Euro-Rate Interest Period, shall mean the interval
between the days in consecutive calendar months numerically corresponding to the
first day of such Euro-Rate Interest Period. Any Euro-Rate Interest Period which
begins on the last Business Day of a calendar month for which there is no
numerically corresponding Business Day in the subsequent calendar month shall
end on the last Business Day of such subsequent month.
Multiemployer Plan shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower, any Subsidiary of the Borrower or any member of the ERISA
Group is then making or accruing an obligation to make contributions or, within
the preceding five (5) plan years, has made or had an obligation to make such
contributions.
Multiple Employer Plan shall mean a Defined Benefit Pension Plan which has
two (2) or more contributing sponsors (including the Borrower or any member of
the ERISA Group) at least two (2) of whom are not under common control, as such
a plan is described in Sections 4063 and 4064 of ERISA.
Non-Agreeing Banks shall have the meaning specified in Section 2.13(a).
Notes shall mean the Revolving Credit Notes, the Term Notes and the Swing
Note.
Official Body shall mean any national, federal, state, local or other
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
Passport shall mean Passport Research Ltd., an indirect Subsidiary of the
Borrower.
PBGC shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor.
Permitted Investments shall mean:
investments made under usual and customary terms in the ordinary course of
business in or relating to the establishment or maintenance of the Funds;
direct obligations of the United States of America or any agency or
instrumentality thereof or obligations backed by the full faith and credit of
the United States of America, maturing in sixty (60) months or less from the
date of acquisition;
(iii).commercial paper maturing in one hundred eighty (180) days or less
rated not lower than A-1 by Standard & Poor's Corporation or P-1 by Moody's
Investors Service on the date of acquisition;
(iv)..demand deposits, time deposits or certificates of deposit maturing
within five (5) years in commercial banks whose obligations are rated A-1, P-1
or the equivalent or better by Standard & Poor's Corporation or Moody's
Investors Service on the date of acquisition;
(v)...corporate obligations rated A or better by Standard & Poor's
Corporation or Moody's Investors Service on the date of acquisition, maturing in
sixty (60) months or less from the date of acquisition;
(vi)..repurchase agreements and reverse repurchase agreements maturing
within one (1) year and entered into with commercial banks or investment banking
firms of recognized standing with respect to any investment permitted under
clauses (i) through (v) above;
(vii).any interest rate protection instrument reasonably acceptable to the
Agent;
(viii) any Fund (A) for which any of the Companies serves as an investment
advisor or (B) for which none of the Companies serves as an investment advisor,
provided that the aggregate investment in Funds governed by clause (B) shall not
exceed $20,000,000 at any one time; and
(ix)..nominal investments in any money market funds under $25,000 in the
aggregate and any other money market fund with minimum investment amounts of not
less than $250,000.
Permitted Liens shall mean:
(i)...Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business and which are not yet due and payable;
(ii)..pledges or deposits made in the ordinary course of business to secure
payment of workmen's compensation, or to participate in any fund in connection
with workmen's compensation, unemployment insurance, old-age pensions or other
social security programs;
(iii).Liens of mechanics, materialmen, warehousemen, carriers, or other
like liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable and Liens of landlords securing obligations to
pay lease payments that are not yet due and payable or in default;
(iv)..(A) good-faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of the aggregate amount
due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the ordinary course of
business; and (B) Liens granted to surety companies, or to financial
institutions to secure standby letters of credit issued by such institutions to
surety companies, as an inducement for such surety companies to issue or
maintain existing surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(v)...encumbrances consisting of zoning restrictions, easements or other
restrictions on the use of real property, none of which materially impairs the
use of such property or the value thereof, and none of which is violated in any
material respect by existing or proposed structures or land use;
(vi)..Intentionally omitted;
(vii).any Lien existing on the date of this Agreement and described on
Schedule 8.2(e), provided, that the principal amount secured thereby as of the
Closing Date is not hereafter increased and no additional assets become subject
to such Lien;
(viii) operating leases;
(ix)..capital leases made under usual and customary terms in the ordinary
course of business and Purchase Money Security Interests, in each case as and to
the extent permitted in Section 8.2(e)(iii); and
(x)...the following, (A) if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final judgment is entered and such judgment is discharged
within thirty (30) days of entry, and in either case they do not result in a
Material Adverse Change:
(1) claims or Liens for taxes, assessments or charges due and payable and
subject to interest or penalty, provided that each of the Companies maintains
such reserves or other appropriate provisions as shall be required by GAAP and
pays all such taxes, assessments or charges forthwith upon the commencement of
proceedings to foreclose any such Lien;
(2) claims, Liens or encumbrances upon, and defects of title to, real or
personal property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the merits;
(3) claims or Liens of mechanics, materialmen, warehousemen, carriers, or
other statutory nonconsensual Liens; or
(4) Liens of governmental entities arising under federal or state
environmental laws.
Person or person shall mean any individual, corporation, partnership,
limited liability company, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political subdivision
or agency thereof, or any other entity.
PNC shall mean PNC Bank, National Association and its successors and
assigns.
PNC Quoted Rate Option shall mean the Interest Rate Option set forth in
Section 4.1(b-1).
Potential Default shall mean any event or condition which with notice,
passage of time or a determination by the Agent, all the Banks or the Required
Banks, or any combination of the foregoing, as the case may be, would constitute
an Event of Default.
Preferred Shares shall mean the Preferred Stock of the Borrower.
Principal Office shall mean the main banking office of the Agent in
Pittsburgh, Pennsylvania.
Prohibited Transaction shall mean any prohibited transaction as defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United States
Department of Labor.
Purchase and Sale Agreement shall mean the Purchase and Sale Agreement
dated as of December 21, 2000 by and among Federated Investors Management
Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated
Investors, Inc., Citibank, N.A., and Citicorp North America, Inc.
Purchase Money Security Interest shall mean Liens upon tangible personal
property securing loans to any Loan Party or Subsidiary of a Loan Party or
deferred payments by such Loan Party or Subsidiary for the purchase of such
tangible personal property.
Purchasing Bank shall mean a Bank which becomes a party to this Agreement
by executing an Assignment and Assumption Agreement.
Ratable Share shall mean the proportion that a Bank's Commitment bears to
the Commitments of all the Banks.
Regulation U shall mean Regulation U, T or X as promulgated by the Board of
Governors of the Federal Reserve System, as amended from time to time.
Reimbursement Obligations shall have the meaning given to such term in
Section 2.10(d)(i).
Reportable Event shall mean (i) a reportable event described in Section
4043 of ERISA and regulations thereunder with respect to a Defined Benefit
Pension Plan, (ii) a withdrawal by a substantial employer from a Defined Benefit
Pension Plan to which more than one employer contributes, as referred to in
Section 4063(b) of ERISA, or (iii) a cessation of operations at a facility
causing more than twenty percent (20%) of plan participants to be separated from
employment, as referred to in Section 4062(f) of ERISA.
Required Banks shall mean (i) if there are no Loans outstanding, Banks
whose Commitments aggregate at least 51% of the total Commitments of all Banks,
or (ii) if there are Loans outstanding, Banks, the total principal amount of
whose Loans outstanding aggregate at least 51% of the total principal amount of
the Loans outstanding hereunder as of the immediately preceding Settlement Date.
Restricted Stock shall mean the Class B Shares issued under and in
accordance with the Federated Investors Employee Restricted Stock Plan.
Revolving Credit Commitment shall mean, as to any Bank at any time, the
amount initially set forth opposite its name on Schedule 1.1(a) in the column
labeled "Amount of Commitment for Revolving Credit Loans" and thereafter on
Schedule I to the most recent Assignment and Assumption Agreement, and Revolving
Credit Commitments shall mean the aggregate Revolving Credit Commitments of all
of the Banks.
Revolving Credit Expiration Date shall mean the date 364 days after the
Closing Date or such later date as determined pursuant to Section 2.13(a).
Revolving Credit Facility shall have the meaning given to such term in the
first recital clause.
Revolving Credit Loan Request shall mean a request for Revolving Credit
Loans made in accordance with Section 2.6(a).
Revolving Credit Loans shall mean collectively all, and Revolving Credit
Loan shall mean separately any, of the revolving credit loans made by the Banks
or one of the Banks to the Borrower pursuant to Section 2.1(a).
Revolving Credit Notes shall mean collectively all, and Revolving Credit
Note shall mean separately any, of the Revolving Credit Notes of the Borrower in
the form of Exhibit D, evidencing the Revolving Credit Loans, together with all
amendments, restatements, extensions, renewals, replacements, refinancings or
refundings thereof in whole or in part.
Revolving Facility Usage shall mean at any time the sum of the Revolving
Credit Loans and Swing Loans outstanding and the Letter of Credit Outstandings.
Section 12b-1 Plan shall mean a plan of distribution adopted by a mutual
fund pursuant to Rule 12b-1 of the Investment Company Act.
Senior Loan Documents shall mean this Agreement, the Notes, the
Intercompany Subordination Agreement, the Guaranty Agreement and any other
instruments, certificates, powers of attorney or documents delivered or
contemplated to be delivered thereunder or in connection herewith, as the same
may be supplemented or amended from time to time in accordance herewith, and
Senior Loan Document shall mean any of the Senior Loan Documents.
Settlement Date shall mean the second Business Day of each month and the
third Wednesday of each month (if such day is a Business Day and if not, the
next succeeding Business Day) and any other Business Day on which the Agent
elects to effect settlement pursuant to Section 5.6.
Shareholder Rights Agreement shall mean the Shareholder Rights Agreement
dated August 1, 1989 among Standard Fire, the Borrower and the persons executing
a letter substantially in the form of Exhibit A thereto, as amended through the
Closing Date and as the same may be further amended from time to time in
accordance herewith.
Solvent shall mean, with respect to any person on a particular date, that
on such date (i) the fair value of the property of such person is greater than
the total amount of liabilities, including contingent liabilities, of such
person, (ii) the present fair salable value of the assets of such person is not
less than the amount that will be required to pay the probable liability of such
person on its debts as they become absolute and matured, (iii) such person is
able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal course
of business, (iv) such person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such person's ability to pay as such
debts and liabilities mature, and (v) such person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such person's property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability.
Special Purpose Subsidiary shall mean any corporation, business trust or
other entity formed by the Borrower to engage in the limited activities
permitted by Section 8.2(p)(i) and shall be an indirect wholly owned subsidiary
of the Borrower, provided, that if the Special Purpose Subsidiary is organized
under the law of a foreign jurisdiction which requires that residents of such
foreign jurisdiction maintain a certain level of ownership interest in such
Special Purpose Subsidiary, then a wholly owned Subsidiary of the Borrower shall
own a number of outstanding shares of such Special Purpose Subsidiary that is
not less than the greater of (i) 51% of the outstanding shares of such Special
Purpose Subsidiary, and (ii) the number of outstanding shares of such Special
Purpose Subsidiary required pursuant to the law of such foreign jurisdiction.
Subsidiary of any person at any time shall mean (i) any corporation or
trust of which fifty percent (50%) or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such person or one or
more of such person's Subsidiaries, or any partnership of which such person is a
general partner or of which fifty percent (50%) or more of the partnership
interests is at the time directly or indirectly owned by such person or one or
more of such person's Subsidiaries, and (ii) any corporation, trust, partnership
or other entity which is controlled or capable of being controlled by such
person or one or more of such person's Subsidiaries. For the purposes of this
Agreement, none of the Special Purpose Subsidiaries or the Funds shall be
considered a "Subsidiary" of the Borrower. For the purposes of this Agreement,
the term "wholly owned Subsidiaries" shall include (x) all Subsidiaries of which
all of the outstanding shares of capital stock or beneficial interest of such
Subsidiary are owned by the Borrower or another wholly owned Subsidiary of the
Borrower, or (v) foreign Subsidiaries where the law of the applicable foreign
jurisdiction requires that residents of such foreign jurisdiction maintain a
certain level of ownership interest in such Subsidiary and the Borrower or
another wholly owned Subsidiary of the Borrower owns not less than the greater
of (a) 51% of the outstanding shares of capital stock or beneficial interests of
such Subsidiary and (b) the number of outstanding shares of capital stock or
beneficial interests of such Subsidiary required pursuant to the law of such
foreign jurisdiction are owned by the Borrower or another wholly owned
Subsidiary of the Borrower.
Subsidiary Shares shall have the meaning specified in Section 6.1(c).
Supermajority Banks shall have the meaning specified in Section 2.13(a).
Swing Loan Commitment shall mean PNC's commitment to make Swing Loans to
the Borrower pursuant to Section 2.1(b) in an aggregate principal amount up to
$20,000,000.
Swing Loan Request shall mean a request for Swing Loans made in accordance
with Section 2.6(b).
Swing Loans shall mean collectively and Swing Loan shall mean separately
all swing loans or any swing loan made by PNC to the Borrower pursuant to
Section 2.1(b).
Swing Note shall mean the Swing Note of the Borrower in the form of Exhibit
E, evidencing the Swing Loans, together with all amendments, extensions,
renewals, restatements, refinancings or refundings thereof in whole or in part.
Term Loans shall mean collectively and Term Loan shall mean separately all
term loans or any term loan made by the Banks or one of the Banks pursuant to
Section 2.12.
Term Note shall have the meaning specified in Section 2.12.
Term-Out Option shall have the meaning specified in Section 2.12.
Total Indebtedness shall mean, for any fiscal quarter for the fiscal
quarter then ended, all Indebtedness of the Borrower and its Consolidated
Subsidiaries.
Transferor Bank shall mean the selling Bank pursuant to an Assignment and
Assumption Agreement.
Usage Fee shall have the meaning specified in Section 2.3(b).
Construction.
Unless the context of this Agreement otherwise clearly requires, references
to the plural include the singular, the singular the plural, and the part the
whole, "or" has the inclusive meaning represented by the phrase "and/or," and
"including" has the meaning represented by the phrase "including without
limitation." References in this Agreement to "determination" of or by the Agent
or the Banks shall be deemed to include good-faith estimates by the Agent or the
Banks (in the case of quantitative determinations) and good-faith beliefs by the
Agent or the Banks (in the case of qualitative determinations). Whenever the
Agent or the Banks are granted the right herein to act in its or their sole
discretion or to grant or withhold consent, such right shall be exercised in
good faith. The words "hereof," "herein," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. The section headings and other headings contained in this
Agreement and the Table of Contents preceding this Agreement are for reference
purposes only and shall not control or affect the construction of this Agreement
or the interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified.
Accounting Principles.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP provided that for the purpose of determining
compliance with Section 8.2(e) and (f), the impact of the incurrence of
indebtedness or creation of liens in connection with the sale or transfer of
Designated Assets as described and permitted under Section 8.2(k)(i) shall be
excluded. If one or more changes in GAAP after the date of this Agreement are
required to be applied to then existing transactions, and either a violation of
one or more provisions hereof shall have occurred which would not have occurred
if no change in accounting principles had taken place or a violation of one or
more of the provisions hereof shall not occur which would have occurred if no
change in accounting principles had taken place:
the parties agree that any such violation shall not be considered to
constitute an Event of Default for a period of thirty (30) days;
the parties agree in such event to negotiate in good faith to attempt to
draft an amendment of this Agreement satisfactory to the Required Banks which
shall approximate to the extent possible the economic effect of the original
provisions hereof after taking into account such change or changes in GAAP; and
if the parties are unable to negotiate such an amendment satisfactory to
the Required Banks within thirty (30) days, then as used in this Agreement
"GAAP" shall mean generally accepted accounting principles as in effect prior to
such change.
REVOLVING CREDIT AND SWING LOAN FACILITIES
The Commitments.
Revolving Credit Commitments. Subject to the terms and conditions hereof
and relying upon the representations and warranties herein set forth, each Bank
severally agrees to make Revolving Credit Loans to the Borrower at any time or
from time to time on or after the date hereof to, but not including, the
Revolving Credit Expiration Date in an aggregate principal amount not to exceed,
at any one time such Bank's Revolving Credit Commitment minus such Bank's
Ratable Share of the Letter of Credit Outstandings. Within such limits of time
and amount and subject to the other provisions of this Agreement, the Borrower
may borrow, repay and reborrow pursuant to this Section 2.1(a).
Swing Loan Commitment. Subject to the terms and conditions hereof and
relying upon the representations and warranties herein set forth, and in order
to facilitate loans and repayments between Settlement Dates, PNC may make, at
its option, cancelable at any time for any reason whatsoever, swing loans (the
"Swing Loans") to the Borrower at any time or from time to time after the date
hereof to, but not including, the Revolving Credit Expiration Date in an
aggregate principal amount up to $20,000,000 (the "Swing Loan Commitment"),
provided that the aggregate principal amount of PNC's Swing Loans and the
Revolving Credit Loans of all the Banks at any one time outstanding shall not
exceed the Revolving Credit Commitments of all the Banks. Within such limits of
time and amount and subject to the other provisions of this Agreement, the
Borrower may borrow, repay and reborrow pursuant to this Section 2.1(b).
Nature of the Banks' and the Borrower's Obligations.
----------------------------------------------------
Each Bank shall be obligated to participate in each request for Revolving
Credit Loans pursuant to Section 2.6 in accordance with its Ratable Share. The
aggregate of each Bank's Revolving Credit Loans outstanding hereunder to the
Borrower at any time shall never exceed its Revolving Credit Commitment minus
its Ratable Share of the Letter of Credit Outstandings at such time. The
obligations of each Bank hereunder are several. The failure of any Bank to
perform its obligations hereunder shall not affect the obligations of the
Borrower to any other party nor shall any other party be liable for the failure
of such Bank to perform its obligations hereunder. The Banks shall have no
obligation to make Revolving Credit Loans hereunder on or after the Revolving
Credit Expiration Date.
Fees.
Facility Fees.
Accruing from the Closing Date until the Revolving Credit Expiration Date,
the Borrower agrees to pay to the Agent for the account of each Bank, as
consideration for such Bank's Revolving Credit Commitment hereunder, a facility
fee (the "Facility Fee") equal to a percentage per annum (computed on the basis
of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal
to 0.10% of such Bank's Revolving Credit Commitment as the same may be
constituted from time to time.
All Facility Fees shall be payable in arrears on the second Business Day of
each April, July, October and January after the date hereof and on the Revolving
Credit Expiration Date or upon acceleration of the Notes.
Usage Fees. Accruing from the Closing Date until the Revolving Credit
Expiration Date, the Borrower agrees to pay to the Agent for the account of each
Bank, as consideration for such Bank's Revolving Credit Commitment hereunder, a
usage fee (the "Usage Fee") equal to a percentage per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed)
equal to 0.125% of the daily amount of the Revolving Facility Usage for each day
that the Revolving Facility Usage exceeds fifty percent (50%) of the Revolving
Credit Commitments (for purposes of this computation, PNC's Swing Loans shall be
deemed to be borrowed amounts under its Revolving Credit Commitment and Letter
of Credit Outstandings shall be deemed to be borrowed amounts under each Bank's
Revolving Credit Commitments in accordance with its Ratable Share). All Usage
Fees shall be payable in arrears on the second Business Day of each April, July,
October and January after the date hereof and on the Revolving Credit Expiration
Date or upon acceleration of the Notes.
Permanent Reductions of Commitments.
Voluntary Reductions. The Borrower shall be permitted, without premium or
penalty, at any time upon five (5) Business Day's notice to the Agent, to reduce
permanently the Revolving Credit Commitments in an aggregate amount of not less
than $5,000,000 and in integral multiples of $1,000,000 for amounts in excess of
$5,000,000, and each Bank's Revolving Credit Commitments shall be reduced in
accordance with its Ratable Share; provided, however, the principal amount of
all Revolving Credit Loans outstanding at any time shall not be permitted to
exceed the Revolving Credit Commitments of all the Banks at such time.
Effect of Reductions. After each such reduction, the Facility Fee and the
Usage Fee shall be calculated upon the Revolving Credit Commitments of the Banks
as so reduced, and the amount of the reduction of the Revolving Credit
Commitments may not be reinstated.
[Intentionally omitted]
Loan Requests.
Revolving Credit Loan Requests. Except as otherwise provided herein, the
Borrower may from time to time prior to the Revolving Credit Expiration Date
request the Banks to make Revolving Credit Loans, or renew or convert the
Interest Rate Option applicable to existing Revolving Credit Loans, by the
delivery to the Agent, not later than 2:00 p.m. Pittsburgh time (i) three (3)
Business Days prior to the proposed Borrowing Date with respect to the making of
Revolving Credit Loans to which the Euro-Rate Option applies or the conversion
to or the renewal of the Euro-Rate Option for any Revolving Credit Loans; and
(ii) not later than 11:00 a.m. Pittsburgh time on the proposed Borrowing Date
with respect to the making of a Revolving Credit Loan to which the Base Rate
Option applies or the last day of the preceding Euro-Rate Interest Period with
respect to the conversion to the Base Rate Option for any Revolving Credit Loan,
of a duly completed request therefor substantially in the form of Exhibit F-1 or
a request by telephone immediately confirmed in writing by letter, facsimile or
telex (each, a "Revolving Credit Loan Request"), it being understood that the
Agent may rely on the authority of any person making such a telephonic request
without the necessity of receipt of such written confirmation. Each Revolving
Credit Loan Request shall be irrevocable and shall specify (i) the proposed
Borrowing Date; (ii) the aggregate principal amount of the proposed Revolving
Credit Loans comprising the Borrowing Tranche, which shall be in integral
multiples of $50,000 and not less than $5,000,000 for Revolving Credit Loans to
which the Euro-Rate Option applies and not less than the lesser of $1,000,000 or
the maximum amount available under the Revolving Credit Commitments for
Revolving Credit Loans to which the Base Rate Option applies; (iii) whether the
Euro-Rate Option or the Base Rate Option shall apply to the proposed Revolving
Credit Loans comprising the Borrowing Tranche; and (iv) in the case of Revolving
Credit Loans to which the Euro-Rate Option applies, an appropriate Euro-Rate
Interest Period for the proposed Revolving Credit Loans comprising the Borrowing
Tranche. If no such notice is given at least three (3) Business Days prior to
the expiration of any Euro-Rate Interest Period for any Revolving Credit Loan or
portion thereof, the Borrower shall be deemed to have converted such Revolving
Credit Loan or portion thereof to the Base Rate Option commencing upon the last
day of that Euro-Rate Interest Period.
Swing Loan Requests. Except as otherwise provided herein, the Borrower may
from time to time prior to the Revolving Credit Expiration Date request PNC to
make Swing Loans by delivery to PNC not later than 3:00 p.m. Pittsburgh time on
the proposed Borrowing Date of a duly completed request therefor substantially
in the form of Exhibit F-2 or a request by telephone immediately confirmed in
writing by letter, facsimile or telex (each, a "Swing Loan Request"), it being
understood that the Agent may rely on the authority of any person making such a
telephonic request without the necessity of receipt of such written
confirmation. Each Swing Loan Request shall be irrevocable and shall specify (i)
the proposed Borrowing Date (ii) whether the Base Rate Option or the PNC Quoted
Rate Option shall apply and (iii) the principal amount of such Swing Loan, which
shall not be less than $100,000. PNC shall use reasonable efforts to inform the
Borrower by 12:00 noon (Pittsburgh time) on each Business Day as to what the PNC
Quoted Rate Option is on such Business Day. If PNC has not informed the Borrower
as to the PNC Quoted Rate Option available on any Business Day, the Borrower may
also telephone PNC on any Business Day to request PNC to provide the Borrower
with the PNC Quoted Rate Option available on such Business Day, and PNC shall
promptly respond to such request. If the Borrower elects the PNC Quoted Rate
Option to apply with respect to any Swing Loan, such PNC Quoted Rate Option will
be in effect until 3:00 p.m. (Pittsburgh time) on the following Business Day.
Making Loans.
Revolving Credit Loans. The Agent shall, promptly after receipt by it of a
Revolving Credit Loan Request pursuant to Section 2.6(a), notify the Banks of
its receipt of such Revolving Credit Loan Request specifying: (i) the proposed
Borrowing Date and the time and method of disbursement of such Revolving Credit
Loan; (ii) the amount and type of such Revolving Credit Loan and the applicable
Euro-Rate Interest Period (if any); and (iii) the apportionment among the Banks
of the Revolving Credit Loans as determined by the Agent in accordance with
Section 2.2. Each Bank shall remit the principal amount of each Revolving Credit
Loan to the Agent such that the Agent is able to, and the Agent shall, to the
extent the Banks have made funds available to it for such purpose, fund such
Revolving Credit Loan to the Borrower in U.S. Dollars and immediately available
funds at the Principal Office prior to 3:00 p.m. Pittsburgh time on the
Borrowing Date; provided that if any Bank fails to remit such funds to the Agent
in a timely manner the Agent may elect in its sole discretion to fund with its
own funds the Revolving Credit Loan of such Bank on the Borrowing Date;
provided, further, that such funding by the Agent shall not be deemed to
increase the Revolving Credit Commitment of the Agent or to reduce the Revolving
Credit Commitment of such Bank.
Swing Loans. So long as PNC elects to make Swing Loans, PNC shall, after
receipt by it of a Swing Loan Request pursuant to Section 2.6(b), fund such
Swing Loan to the Borrower in U.S. Dollars and immediately available funds at
the Principal Office prior to 5:00 p.m. Pittsburgh time on the Borrowing Date;
provided that after PNC receives notice of default as set forth in Section 10.9,
PNC shall not make any Swing Loans.
Borrowings to Repay Swing Loans.
PNC may at its option, exercisable at any time for any reason whatsoever,
demand repayment of the Swing Loans, and each Bank shall make a Revolving Credit
Loan in an amount equal to such Bank's Ratable Share of the aggregate principal
amount of the outstanding Swing Loans plus, if PNC so requests, accrued interest
thereon, provided that no Bank shall be obligated in any event to make Revolving
Credit Loans in excess of its Revolving Credit Commitment minus its Ratable
Share of the Letter of Credit Outstandings. Revolving Credit Loans made pursuant
to the preceding sentence shall bear interest at the Base Rate Option and shall
be deemed to have been properly requested in accordance with Section 2.6(a)
without regard to any of the requirements of that provision. PNC shall provide
notice to the Banks (which may be telephonic or written notice by letter,
facsimile or telex) that such Revolving Credit Loans are to be made under this
Section 2.8 and of the apportionment among the Banks, and the Banks shall be
unconditionally obligated to fund such Revolving Credit Loans (whether or not
the conditions specified in Section 7.2 are then satisfied) by the time PNC so
requests, which shall not be earlier than 3:00 p.m. Pittsburgh time on the
Business Day next succeeding the date the Banks receive such notice from PNC.
Notes.
Revolving Credit Notes. The obligation of the Borrower to repay the
aggregate unpaid principal amount of the Revolving Credit Loans made to it by
each Bank together with interest thereon shall be evidenced by a promissory note
of the Borrower dated the Closing Date in the form of Exhibit D payable to the
order of each Bank in a face amount equal to the Revolving Credit Commitment of
such Bank. The Revolving Credit Notes shall be payable in full on the Revolving
Credit Expiration Date or earlier acceleration of the Notes.
Swing Note. The obligation of the Borrower to repay the unpaid principal
amount of the Swing Loans made to it by PNC together with interest thereon shall
be evidenced by a demand promissory note of the Borrower dated the Closing Date
in the form of Exhibit E payable to the order of PNC in a face amount equal to
the Swing Loan Commitment.
Letter of Credit Subfacility.
Issuance of Letters of Credit. The Borrower may request the issuance of a
letter of credit (each a "Letter of Credit") on behalf of itself or another
Company by delivering to the Agent a completed application and agreement for
letters of credit in such form as the Agent may specify from time to time by no
later than 10:00 a.m. Pittsburgh time at least three (3) Business Days, or such
shorter period as may be agreed to by the Agent, in advance of the proposed date
of issuance. Subject to the terms and conditions hereof and in reliance on the
agreements of the other Banks set forth in this Section 2.10, the Agent will
issue a Letter of Credit, provided that each Letter of Credit shall (A) have a
maximum maturity of three hundred sixty-four (364) days from the date of
issuance, (B) in the event that the Letter of Credit shall have an expiration
date later than the Revolving Credit Expiration Date, the Borrower shall provide
to the Agent with respect to any such Letter of Credit no later than five (5)
Business Days prior to the Revolving Credit Expiration Date either (i) cash
collateral for deposit in a non-interest bearing account with the Agent an
amount equal to the maximum amount available to be drawn on such Letter of
Credit and the Borrower pledges to the Agent and the Banks a security interest
in all such cash as security for the Letter of Credit Outstandings, or (ii) a
replacement letter of credit, provided, further, that in no event shall (i) the
Letter of Credit Outstandings exceed, at any one time, $25,000,000, or (ii) the
Revolving Facility Usage exceed, at any one time, the Revolving Credit
Commitments.
Participations. Immediately upon issuance of each Letter of Credit, and
without further action, each Bank shall be deemed to, and hereby agrees that it
shall, have irrevocably purchased for such Bank's own account and risk from the
Agent an individual participation interest in such Letter of Credit and drawings
thereunder in an amount equal to such Bank's Ratable Share of the maximum amount
which is or at any time may become available to be drawn thereunder and each
such Bank shall be responsible to reimburse the Agent immediately for its
Ratable Share of any disbursement under any Letter of Credit which has not been
reimbursed by the Borrower in accordance with Section 2.10(d).
Letter of Credit Fees. The Borrower shall pay (i) to the Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") equal to forty
(40) basis points per annum (computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed), which fee shall be computed on the
daily average Letter of Credit Outstandings and shall be payable quarterly in
arrears commencing with the second Business Day of each April, July, October and
January following issuance of each Letter of Credit and on the Revolving Credit
Expiration Date, and (ii) to the Agent for its own account a fee (the "Letter of
Credit Fronting Fee") equal to 0.125% per annum (computed on the basis of a year
of 365 or 366 days, as the case may be, and actual days elapsed), which fee
shall be computed on the daily average Letter of Credit Outstandings and shall
be payable quarterly in arrears commencing on the Closing Date and thereafter on
the second Business Day of each April, July, October and January. The Borrower
shall also pay to the Agent for the Agent's sole account the Agent's then in
effect customary fees and administrative expenses payable with respect to the
Letters of Credit as the Agent may generally charge or incur from time to time
in connection with the issuance, maintenance, modification (if any), assignment
or transfer (if any), negotiation, and administration of Letters of Credit.
Disbursements, Reimbursement.
- ----------------------------
The Borrower shall be obligated immediately to reimburse the Agent for all
amounts which the Agent is required to advance pursuant to the Letters of Credit
(collectively, the "Reimbursement Obligations"). Such amounts advanced shall
become, at the time the amounts are advanced, Revolving Credit Loans from the
Banks. Such Revolving Credit Loans shall bear interest at the rate applicable
under the Base Rate Option unless the Borrower elects to have a different
Interest Rate Option apply to such Revolving Credit Loans pursuant to and in
accordance with the provisions contained in Section 4.1.
The Agent will notify (A) the Borrower of each demand or presentment for
payment or other drawing under each Letter of Credit, and (B) the Banks of the
amount required to be advanced pursuant to the Letters of Credit. Before 10:00
a.m. (Pittsburgh time) on the date of any advance the Agent is required to make
pursuant to the Letters of Credit, each Bank shall make available such Bank's
Ratable Share of such advance in immediately available funds to the Agent.
Documentation. The Borrower agrees to be bound by the terms of the Agent's
application and agreement for Letters of Credit and the Agent's written
regulations and customary practices relating to Letters of Credit, though such
interpretation may be different from the Borrower's own. In the event of a
conflict between such application or agreement and this Agreement, this
Agreement shall govern. It is understood and agreed that, except in the case of
gross negligence or willful misconduct, the Agent shall not be liable for any
error, negligence and/or mistakes, whether of omission or commission, in
following any Company's instructions or those contained in the Letters of Credit
or any modifications, amendments or supplements thereto.
Determinations to Honor Drawing Requests. In determining whether to honor
any request for drawing under any Letter of Credit by the beneficiary thereof,
the Agent shall be responsible only to determine that the documents and
certificates required to be delivered under such Letter of Credit have been
delivered and that they comply on their face with the requirements of such
Letter of Credit.
Nature of Participation and Reimbursement Obligations. The obligation of
the Banks to participate in Letters of Credit pursuant to Section 2.10(b) and
the obligation of the Banks pursuant to Section 2.10(d) to fund Revolving Credit
Loans upon a draw under a Letter of Credit and the obligations of the Borrower
to reimburse the Agent upon a draw under a Letter of Credit pursuant to Section
2.10 shall be absolute, unconditional and irrevocable and shall be performed
strictly in accordance with the terms of such Sections under all circumstances,
including the following circumstances:
the failure of any Company or any other Person to comply with the
conditions set forth in Sections 2.1, 2.6, 2.7 or 7.2 or as otherwise set forth
in this Agreement for the making of a Revolving Credit Loan, it being
acknowledged that such conditions are not required for the making of a Revolving
Credit Loan under Section 2.10(d);
any lack of validity or enforceability of any Letter of Credit;
the existence of any claim, set-off, defense or other right which any
Company or any Bank may have at any time against a beneficiary or any transferee
of any Letter of Credit (or any Person for whom any such transferee may be
acting), the Agent or other bank or any other Person or, whether in connection
with this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between any Company or
Subsidiaries of a Company and the beneficiary for which any Letter of Credit was
procured);
any draft, demand, certificate or other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
payment by the Agent under any Letter of Credit against presentation of a
demand, draft or certificate or other document which does not comply with the
terms of such Letter of Credit;
any adverse change in the business, operations, properties, assets,
condition (financial or otherwise) or prospects of any Company or Subsidiaries
of any Company;
any breach of this Agreement or any other Senior Loan Document by any party
thereto;
any other circumstance or happening whatsoever, whether or not similar to
any of the foregoing;
the fact that an Event of Default or a Potential Default shall have
occurred and be continuing; or
the Revolving Credit Expiration Date shall have passed or this Agreement or
the Revolving Credit Commitments hereunder shall have been terminated (in which
case the Borrower shall be required to immediately reimburse the Agent and the
Banks for the amount of any drawing funded by the Banks).
Indemnity. In addition to amounts payable as provided in Section 10.5, the
Borrower hereby agrees to protect, indemnify, pay and save harmless the Agent
from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Agent may incur or be subject to as a consequence, direct or indirect, of (i)
the issuance of any Letter of Credit, other than as a result of (A) the gross
negligence or willful misconduct of the Agent as determined by a final judgment
of a court of competent jurisdiction or (B) subject to the following clause
(ii), the wrongful dishonor by the Agent of a proper demand for payment made
under any Letter of Credit or (ii) the failure of the Agent to honor a drawing
under any such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "Governmental
Acts").
Liability for Acts and Omissions. As between the Borrower and the Agent,
the Borrower assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Agent shall not be
responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for an issuance of any such Letter of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) failure
of the beneficiary of any such Letter of Credit to comply fully with any
conditions required in order to draw upon such Letter of Credit; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of the Agent, including any
Governmental Acts, and none of the above shall affect or impair, or prevent the
vesting of, any of the Agent's rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by the Agent under or in
connection with the Letters of Credit issued by it or any documents and
certificates delivered thereunder, if taken or omitted in good-faith, shall not
put the Agent under any resulting liability to the Borrower.
Use of Proceeds.
The proceeds of the Revolving Credit Loans shall be used for lawful
purposes in accordance with the second recital clause above.
Option of Borrower to Term-Out the Revolving Credit Loans upon Revolving
Credit Expiration Date.
The Borrower may elect, by written request which shall be delivered ten
(10) days prior to the Revolving Credit Expiration Date, to repay all amounts or
a portion thereof of principal outstanding under the Revolving Credit Loans due
and payable on the Revolving Credit Expiration Date in four (4) equal quarterly
installments which such installments shall be made on the second Business Day of
each April, July, October and January following the Revolving Credit Expiration
Date (the "Term-Out Option"). If the Borrower elects the Term-Out Option, it
shall deliver to each Bank, on or before the Revolving Credit Expiration Date a
term note for its Ratable Share and setting forth such obligation of the
Borrower (the "Term Note"). Additionally, the Borrower hereby agrees to execute
such amendments and modifications to the Senior Loan Documents, prior to the
Revolving Credit Expiration Date, as Agent shall reasonably request to evidence
and govern the Term Loan; provided that no amendments or modifications to the
Senior Loan Documents shall be made with respect to any covenants of the
Borrower or to the rate of interest under any Interest Rate Option.
Extension by Banks of the Revolving Credit Expiration Date.
Requests; Approval by All Banks or Required Banks; Optional Conversion to Term
Loans for Non-Agreeing Banks
No earlier than sixty (60) days and no later than forty-five (45) days
prior to the then applicable Revolving Credit Expiration Date, the Borrower may
request a 364-day extension of the Revolving Credit Expiration Date by written
notice to the Agent. Agent shall promptly notify the Banks of such request. No
later than thirty (30) days prior to the then applicable Revolving Credit
Expiration Date, each Bank shall respond to the Agent in writing as to whether
or not it agrees to the Borrower's request for such extension; provided,
however, that the failure of any Bank to respond within such time period shall
not in any manner constitute an agreement by such Bank to extend the Revolving
Credit Expiration Date.
If all Banks elect to extend the then applicable Revolving Credit
Expiration Date, the Agent shall so notify the Banks and the Borrower promptly,
but in no event earlier than thirty (30) days prior to the then applicable
Revolving Credit Expiration Date, that such Revolving Credit Expiration Date
shall be extended for an additional period of 364 days. Borrower hereby agrees
to execute such amendments and modifications to the Senior Loan Documents, prior
to the extension of the Revolving Credit Expiration Date, as Agent shall
reasonably request to evidence and govern the extension of such date.
In the event that Banks with at least eighty percent (80%) of the
Commitments (the "Supermajority Banks"), but less than all of the Banks, shall
agree to an extension of the Revolving Credit Expiration Date in accordance with
this Section 2.13(a)(iii), the Agent shall so notify the Banks and the Borrower
promptly, but in no event earlier than thirty (30) days prior to the then
applicable Revolving Credit Expiration Date, and: (i) the Revolving Credit
Commitments of those Banks not agreeing to an extension of the Revolving Credit
Expiration Date (the "Non-Agreeing Banks") shall be terminated on the Revolving
Credit Expiration Date (without giving effect to the extension thereof) and all
Loans owing to the Non-Agreeing Banks together with all interest thereon and
costs and expenses related thereto shall be due and payable on such Revolving
Credit Expiration Date except to the extent that (A) the Borrower shall
substitute for such Non-Agreeing Bank another financial institution pursuant to
a duly executed Assignment and Assumption Agreement and in accordance with the
terms and conditions of Section 11.11 (except that such financial institution
shall only be assigned the Revolving Credit Loan and Revolving Credit Commitment
of such Non-Agreeing Bank) or (B) Borrower has elected, by written notice
received by the Agent no later than ten (10) days prior to the Revolving Credit
Expiration Date, to convert all or any portion of the Loans of the Non-Agreeing
Banks to Term Loans in accordance with Section 2.12 and, to the extent that less
than the full aggregate amount of Loans of the Banks are to be so converted,
then the Borrower shall convert each and every Non-Agreeing Bank's Loans on a
pro rata basis, (ii) the Revolving Credit Commitments of the Banks agreeing to
an extension of the Revolving Credit Expiration Date (the "Agreeing Banks")
shall be extended for an additional period of 364 days, and (iii) none of the
Agreeing Banks shall be required to increase its Revolving Credit Commitment.
The Borrower hereby agrees to execute such amendments and modifications to the
Senior Loan Documents, prior to any extension of the Revolving Credit Expiration
Date, as Agent shall reasonably request to evidence and govern the extension of
such date and the Term Loans, if any, arising under this Section 2.13.
Failure of Supermajority Banks to Extend; Optional Conversion to Term Loan.
In the event that less than the Supermajority Banks shall agree to an
extension of the Revolving Credit Expiration Date in accordance with Section
2.13(a)(iii), the Agent shall promptly so notify the Borrower and the Banks, the
Revolving Credit Commitments shall be terminated on the Revolving Credit
Expiration Date, and all Loans, together with all interest thereon and costs and
expenses related thereto, shall be due and payable on the Revolving Credit
Expiration Date, unless the Borrower has elected, by written notice received by
the Agent no later than ten (10) days prior to the Revolving Credit Expiration
Date (which notice Agent shall promptly forward to the Banks), to convert all or
a portion of the Loans outstanding on the Revolving Credit Expiration Date to
Term Loans in accordance with Section 2.12. Any failure of the Agent or any Bank
to notify any party hereto that the Revolving Credit Expiration Date will not be
extended shall not constitute a commitment or agreement of any nature to extend
such date.
[Intentionally Omitted]
INTEREST RATES
Interest Rate Options.
The Borrower shall pay interest in respect of the outstanding unpaid
principal amount of the Loans as selected from one (1) of the three (3) Interest
Rate Options set forth below, it being understood that subject to the provisions
of this Agreement, the Borrower may select different Interest Rate Options and
different Euro-Rate Interest Periods to apply simultaneously to the Loans
comprising different Borrowing Tranches and may convert to or renew one or more
Interest Rate Options with respect to all or any portion of the Loans comprising
any Borrowing Tranche; provided that there shall not be at any one time
outstanding more than seven (7) Borrowing Tranches in the aggregate among all
the Loans accruing interest at the Euro-Rate Option, provided, further, that
only the Base Rate Option or the PNC Quoted Rate Option shall be applicable with
respect to Swing Loans, provided, further, that the PNC Quoted Rate Option shall
not be applicable with respect to any Loans other than the Swing Loans. The
Agent's determination of a rate of interest and any change therein shall in the
absence of manifest error be conclusive and binding upon all parties hereto. If
at any time the designated rate applicable to any Loan made by the Bank exceeds
such Bank's highest lawful rate, the rate of interest on such Bank's Loan shall
be limited to such Bank's highest lawful rate; provided, that the portion of
interest which exceeds the amount such Bank can lawfully receive and, thus, is
not paid to such Bank shall be due and payable upon the following Interest
Payment Date(s) to the extent lawfully permissible.
Base Rate Option: A fluctuating rate per annum (computed on the basis of a
year of (i) 365 or 366 days, as the case may be, and actual days elapsed, for
Loans based on the Agent's prime rate or (ii) 360 days and actual days elapsed,
for Loans based on the Federal Funds Effective Rate) equal to the Base Rate,
such interest rate to change automatically from time to time effective as of the
effective date of each change in the Base Rate.
Euro-Rate Option: A rate per annum (computed on a basis of a year of 360
days and actual days elapsed) equal to (i) the Euro-Rate plus forty (40) basis
points, or (ii) after election by the Borrower of the Term-Out Option, the
Euro-Rate plus, if the initial principal amount of the Term Loans is equal to or
greater than $75,000,000, seventy-five (75) basis points and, if the initial
principal amount of the Term Loans is less than $75,000,000, sixty-two and
one-half (62-1/2%) basis points (which, in either case, includes all fees
charged in connection with the Term Loans under this Agreement except the
Agent's Fee). The Euro-Rate shall be adjusted automatically with respect to any
Euro-Rate Portion outstanding on the effective date of any change in the
Euro-Rate Reserve Percentage notwithstanding that such effective date occurs
during a Euro-Rate Interest Period. The Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive.
(b-1).PNC Quoted Rate Option: A fixed rate per annum computed on the basis
of a year of 365 or 366 days, as the case may be, equal to such interest rate as
offered by PNC pursuant to Section 2.6(b) hereof, such interest rate to remain
in effect from the time the PNC Quoted Rate Option is elected until 3:00 p.m.
(Pittsburgh time) on the following Business Day.
Rate Quotations. The Borrower may call the Agent on or before the date on
which a Loan Request is to be delivered to receive an indication of the rates
then in effect, but it is acknowledged that such indication shall not be binding
on the Agent or the Banks nor affect the rate of interest which thereafter is
actually in effect when the election is made.
Euro-Rate Interest Periods.
At any time when the Borrower shall select, convert to or renew the
Euro-Rate Option to apply to any Revolving Credit Loan, the Borrower shall
notify the Agent thereof at least three (3) Business Days prior to the effective
date of such Euro-Rate Option by delivering a Loan Request. The notice shall
select a Euro-Rate interest period during which such Interest Rate Option shall
apply, such periods to be one (1), two (2), three (3) or six (6) months (the
"Euro-Rate Interest Periods"); provided that:
any Euro-Rate Interest Period which would otherwise end on a date which is
not a Business Day shall be extended to the next succeeding Business Day unless
such Business Day falls in the next calendar month, in which case such Euro-Rate
Interest Period shall end on the next preceding Business Day;
any Euro-Rate Interest Period which begins on the last Business Day of a
calendar month for which there is no numerically corresponding Business Day in
the subsequent calendar month during which such Interest Period is to end shall
end on the last Business Day of such subsequent month;
the Euro-Rate Portion for each Euro-Rate Interest Period shall be in
integral multiples of $50,000 and not less than $5,000,000;
the Borrower shall not select, convert to or renew a Euro-Rate Interest
Period for any portion of the Revolving Credit Loans that would end after the
Revolving Credit Expiration Date; and
in the case of the renewal of the Euro-Rate Option at the end of a
Euro-Rate Interest Period, the first day of the new Euro-Rate Interest Period
shall be the last day of the preceding Euro-Rate Interest Period, without
duplication in payment of interest for such day.
Interest After Default.
To the extent permitted by Law, upon the occurrence and during the
continuance of an Event of Default, after any principal of or interest on any
Loan or any fee or other amounts hereunder shall have become due and payable by
its terms or by acceleration, declaration or otherwise, and after expiration of
any applicable grace period, such principal, interest, fee or other amount shall
bear interest for each day thereafter until paid in full (before and after
judgment) at a rate per annum which shall be equal to two percent (2%) above the
rate of interest otherwise applicable with respect to such amount or two percent
(2%) above the Base Rate Option if no rate of interest is otherwise applicable,
payable on demand. The Borrower acknowledges that such increased interest rate
reflects, among other things, the fact that such Loans or other amounts have
become a substantially greater risk given their default status and that the
Banks are entitled to additional compensation for such risk.
Euro-Rate Unascertainable.
If on any date on which a Euro-Rate would otherwise be determined, the
Agent shall have determined (which determination shall be conclusive absent
manifest error) that:
adequate and reasonable means do not exist for ascertaining such Euro-Rate,
or
a contingency has occurred which materially and adversely affects the
London interbank market,
at any time any Bank shall have determined (which determination shall be
conclusive absent manifest error) that:
the making, maintenance or funding of any Loan to which the Euro-Rate
Option applies has been made impracticable or unlawful by compliance by such
Bank in good faith with any Law or any interpretation or application thereof by
any Official Body or with any request or directive of any such Official Body
(whether or not having the force of Law),
the Euro-Rate Option will not adequately and fairly reflect the cost to
such Bank of the establishment or maintenance of any Loan, or if any Bank
determines after making all reasonable efforts that deposits of the relevant
amount in Dollars for the relevant Euro-Rate Interest Period for a Loan to which
the Euro-Rate Option applies are not available to such Bank in the London
interbank market, then, in the case of any event specified in subsection (a)
above, the Agent shall promptly so notify the Banks and the Borrower thereof,
and in the case of an event specified in subsection (b) above, such Bank shall
promptly so notify the Agent and attach a certificate to such notice as to the
specific circumstances of such notice and the Agent shall promptly send copies
of such notice and certificate to the other Banks and the Borrower. Upon such
date as shall be specified in such notice (which shall not be earlier than the
date such notice is given) the obligation of (A) the Banks in the case of such
notice given by the Agent, or (B) such Bank in the case of such notice given by
such Bank, to allow the Borrower to select, convert to or renew the Euro-Rate
Option shall be suspended until the Agent shall have later notified the
Borrower, or such Bank shall have later notified the Agent, of the Agent's or
such Bank's, as the case may be, determination (which determination shall be
conclusive absent manifest error) that the circumstances giving rise to such
previous determination no longer exist. If at any time the Agent makes a
determination under subsection (a) of this Section 4.4 or any Bank notifies the
Agent of a determination under subsection (b) of this Section 4.4 and, in either
case, the Borrower has previously notified the Agent of its selection of,
conversion to or renewal of the Euro-Rate Option and such Euro-Rate Option has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to such Loans. If any Bank notifies the Agent of a
determination under subsection (b) of this Section 4.4, the Borrower shall,
subject to the Borrower's indemnification obligations under Section 5.5(b), as
to any Loan of the Bank to which the Euro-Rate Option applies, on the date
specified in such notice either convert such Loan to the Base Rate Option
otherwise available with respect to such Loan or prepay such Loan in accordance
with Section 5.4. Absent due notice from the Borrower of conversion or
prepayment, such Loan shall automatically be converted to the Base Rate Option
otherwise available with respect to such Loan upon such specified date.
Selection of Interest Rate Options.
If the Borrower fails to select a Euro-Rate Interest Period in accordance
with the provisions of Section 4.2 in the case of renewal of the Euro-Rate
Portion, the Borrower shall be deemed to have converted such Loan or option
thereof to the Base Rate Option otherwise available with respect to such Loans,
commencing upon the last day of that Euro-Rate Interest Period. If an Event of
Default shall occur and be continuing, the Agent shall limit the Borrower to the
Base Rate Option hereunder; provided, however, that, unless the Loans have been
accelerated hereunder, such limitation with respect to the Euro-Rate Portion
shall not be effective until the expiration of any applicable Euro-Rate Interest
Period.
If the Borrower fails to select an Interest Rate Option in accordance with
the provisions of Section 4.1 for any Swing Loan to which the PNC Quoted Rate
applies before the PNC Quoted Rate Option expires, the Borrower shall be deemed
to have converted such loan to the Base Rate Option otherwise available with
respect to such Swing Loan, commencing immediately upon the expiration of the
PNC Quoted Rate Option.
PAYMENTS
Payments.
All payments and prepayments to be made in respect of principal, interest,
Facility Fees, Usage Fees, Letter of Credit Fees, Letter of Credit Fronting
Fees, Agent's Fees or other amounts due from the Borrower hereunder shall be
payable prior to 11:00 a.m. Pittsburgh time (or 3:00 p.m. Pittsburgh time, in
the event payments are to be made using the proceeds of Loans to be made on such
date), on the date when due without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by the Borrower, and without
set-off, counterclaim or other deduction of any nature, and an action therefor
shall immediately accrue. Such payments shall be made to the Agent at the
Principal Office for the account of PNC with respect to the Swing Loans and the
ratable accounts of the Banks with respect to the Revolving Credit Loans in U.S.
Dollars and in immediately available funds, and the Agent shall promptly
distribute such amounts to the Banks in immediately available funds, subject to
the provisions of Section 5.6; provided that in the event payments are received
by 11:00 a.m. Pittsburgh time by the Agent with respect to the Revolving Credit
Loans on the Settlement Date and such payments are not distributed to the Banks
on the same day received by the Agent, the Agent shall pay the Banks the Federal
Funds Effective Rate with respect to the amount of such payments for each day
held by the Agent and not distributed to the Banks. The Agent's and each Bank's
statement of account, ledger or other relevant record shall, in the absence of
manifest error, be conclusive as the statement of the amount of principal of and
interest on the Loans and other amounts owing under this Agreement and shall be
deemed an "account stated."
Pro Rata Treatment of the Banks.
Each borrowing, and each selection of, conversion to or renewal of any
Interest Rate Option and each payment or prepayment by the Borrower with respect
to principal, interest, Facility Fees, Usage Fees, Letter of Credit Fees, Letter
of Credit Fronting Fees or other fees (except for the Agent's Fees and the fees
set forth in the second sentence of Section 2.10(c)) or amounts due from the
Borrower hereunder to the Banks with respect to the Revolving Credit Loans,
shall (except as provided in Section 4.4(b), 5.4 or 5.5) be made in proportion
to the Revolving Credit Loans outstanding from each Bank and, if no Revolving
Credit Loans are then outstanding, in proportion to the Ratable Share of each
Bank.
Interest Payment Dates.
Interest on Loans to which the Base Rate Option or the PNC Quoted Rate
Option applies shall be due and payable in arrears on the second Business Day of
each April, July, October and January after the date hereof and on the Revolving
Credit Expiration Date (with respect to Revolving Credit Loans) and upon any
earlier acceleration of the Notes. Interest on the Euro-Rate Portion shall be
due and payable on the last day of each Euro-Rate Interest Period and, if any
such Euro-Rate Interest Period is longer than three (3) months, also on the
second Business Day after the end of the third month during such period and on
the Revolving Credit Expiration Date (with respect to Revolving Credit Loans)
and upon any earlier acceleration of the Notes.
Voluntary Prepayments.
The Borrower shall have the right at its option from time to time to prepay
the Loans in whole or part without premium or penalty (except as provided in
sub-section (b) below or in Section 5.5):
at any time with respect to any Swing Loan or any other Loan to which the
Base Rate Option applies;
on the last day of the applicable Euro-Rate Interest Period with respect to
Revolving Credit Loans to which the Euro-Rate Option applies; and
on the date specified in a notice by any Bank pursuant to Section 4.4(b)
with respect to any Revolving Credit Loan to which the Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans, it shall
provide a prepayment notice to the Agent at least one (1) Business Day prior to
the date of prepayment of Revolving Credit Loans or no later than 3:00 p.m.
Pittsburgh time on the date of prepayment of Swing Loans setting forth the
following information:
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made; and
(y) the total principal amount of such prepayment, which shall not be
less than $100,000 for any Swing Loan or $1,000,000 for any
Revolving Credit Loan.
All prepayment notices shall be irrevocable. The principal amount of the
Loans to which the Euro-Rate Option applies for which a prepayment notice is
given, together with interest on such principal amount and any related fees
shall be due and payable on the date specified in such prepayment notice as the
date on which the proposed prepayment is to be made. The principal amount of the
Loans to which the Base Rate Option applies for which a prepayment notice is
given shall be due and payable on the date specified in such prepayment notice
as the date on which the proposed prepayment is made; but interest on such
principal amount and any related fees shall be due and payable on the next
scheduled Interest Payment Date. All prepayments permitted pursuant to this
Section 5.4(a) shall be applied to the unpaid installments of principal of the
Loans in the inverse order of scheduled maturities. Unless otherwise specified
by the Borrower with respect to prepayments of the Euro-Rate Portion permitted
under Section 5.4(a)(ii) or (iii) above, all prepayments shall be applied first
to the Base Rate Portion and then to the Euro-Rate Portion, subject to Section
5.5(b).
In the event any Bank (i) gives notice under Section 4.4(b) or Section
5.5(a), (ii) does not fund Loans because the making of such Loans would
contravene any Law applicable to such Bank pursuant to Section 7.2, (iii) does
not approve any action as to which consent of the Required Banks is requested by
the Borrower and obtained hereunder, or (iv) becomes subject to the control of
an Official Body (other than normal and customary supervision), then the
Borrower shall have the right at its option, with the consent of the Agent,
which shall not be unreasonably withheld, to prepay the Loans of such Bank in
whole together with all interest accrued thereon, within ninety (90) days after
(w) receipt of such Bank's notice under Section 4.4(b) or 5.5(a), (x) the date
such Bank has failed to fund Loans pursuant to Section 7.2 because the making of
such Loans would contravene Law applicable to such Bank, (y) the date of
obtaining the consent which such Bank has not approved, or (z) the date such
Bank became subject to the control of an Official Body, as applicable; provided
that the Borrower shall also pay to such Bank at the time of such prepayment any
amounts required under Section 5.4(a) and Section 5.5 and any accrued interest
due on such amount and any related fees; provided, however, that the Revolving
Credit Commitment of such Bank shall be provided by one or more of the remaining
Banks or a replacement bank acceptable to the Agent and the Borrower in the
exercise of their reasonable discretion; provided, further, the remaining Banks
shall have no obligation hereunder to increase their Revolving Credit
Commitments. Notwithstanding the foregoing, the Agent may only be replaced in
accordance with Section 10.14 and the Agent must at all times be a Bank
hereunder.
Additional Compensation in Certain Circumstances.
Increased Costs or Reduced Return Resulting from Taxes, Reserves, Capital
Adequacy Requirements, Expenses, etc. If any Law, guideline or interpretation or
any change in any Law, guideline or interpretation or application thereof by any
Official Body charged with the interpretation or administration thereof or
compliance with any request or directive (whether or not having the force of
Law) of any central bank or other Official Body:
subjects any Bank to any tax or changes the basis of taxation with respect
to this Agreement, the Notes, the Loans or payments by the Borrower of
principal, interest, Facility Fees, Usage Fees, Letter of Credit Fees, Letter of
Credit Fronting Fees, Agent's Fees or other amounts due from the Borrower
hereunder or under the Notes (except for taxes on the overall net income of such
Bank),
imposes, modifies or deems applicable any reserve, special deposit or
similar requirement against credits or commitments to extend credit extended by,
or assets (funded or contingent) of, deposits with or for the account of, or
other acquisitions of funds by, any Bank, or
imposes, modifies or deems applicable any capital adequacy or similar
requirement (A) against assets (funded or contingent) of, or credits or
commitments to extend credit extended by, any Bank, or (B) otherwise applicable
to the obligations of any Bank under this Agreement, and the result of any of
the foregoing is to increase the cost to, reduce the income receivable by, or
impose any expense (including loss of margin) upon any Bank with respect to this
Agreement, the Notes or the making, maintenance or funding of any part of the
Loans (or, in the case of any capital adequacy or similar requirement, to have
the effect of reducing the rate of return on the capital of any Bank or any
Bank's parent, taking into consideration the customary policies of any Bank or
any Bank's parent with respect to capital adequacy) by an amount which such Bank
in its sole discretion deems to be material, such Bank shall from time to time
notify in writing the Borrower and the Agent of the amount determined in good
faith (using any averaging and attribution methods employed in good faith) by
such Bank (which determination shall be conclusive, absent manifest error) to be
necessary to compensate such Bank for such increase in cost, reduction of income
or additional expense. Such notice shall set forth in reasonable detail the
basis for such determination. Such amount shall be due and payable by the
Borrower to such Bank ten (10) Business Days after such notice is given.
Indemnity. In addition to the compensation required by subsection (a) of
this Section 5.5, the Borrower shall indemnify each Bank against all
liabilities, losses or expenses (including loss of margin and any loss or
expense incurred in liquidating or employing deposits from third parties,
including any loss or expense incurred in connection with funds acquired by a
Bank to fund or maintain Loans subject to the Euro-Rate Option) which such Bank
sustains or incurs hereunder, including:
payment, prepayment, conversion or renewal of any Loan to which the
Euro-Rate Option applies on a day other than the last day of the corresponding
Euro-Rate Interest Period (whether or not such payment, prepayment, conversion
or renewal is mandatory, voluntary or automatic and whether or not such payment
or prepayment is then due);
attempt by the Borrower to revoke (expressly, by later inconsistent notices
or otherwise) in whole or part any notice relating to Loan Requests under
Section 2.6 or voluntary prepayments under Section 5.4; or
default by the Borrower in the performance or observance of any covenant or
condition contained in this Agreement or any other Senior Loan Document,
including any failure of the Borrower to pay when due (by acceleration or
otherwise) any principal, interest, Facility Fees, Usage Fees, Letter of Credit
Fees, Letter of Credit Fronting Fees, Agent's Fees or any other amount due
hereunder.
Notwithstanding the foregoing, nothing in the foregoing Section 5.5(b)(i),
(ii) or (iii) shall be construed to permit the Borrower to engage in any action
otherwise prohibited hereunder. If any Bank sustains or incurs any such loss or
expense, it shall from time to time notify the Borrower of the amount determined
in good faith by such Bank (which determination shall be conclusive absent
manifest error and may include such assumptions, allocations of costs and
expenses and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify such Bank for such loss or expense.
Such notice shall set forth in writing in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
Settlement Date Procedures.
In order to minimize the transfer of funds between the Banks and the Agent,
the Borrower may borrow, repay and reborrow Swing Loans and PNC may make Swing
Loans as provided in Section 2.1(b) during the period between Settlement Dates.
Not later than 12:00 p.m. Pittsburgh time on each Settlement Date, the Agent
shall notify each Bank of its Ratable Share of the Loans (including both the
Swing Loans made by the Agent and the Revolving Credit Loans made by the Banks).
Prior to 3:00 p.m. Pittsburgh time on such Settlement Date, each Bank shall pay
to the Agent the amount equal to the positive difference, if any, between its
Ratable Share of the Revolving Credit Loans and Swing Loans and its Revolving
Credit Loans, and the Agent shall pay to each Bank its Ratable Share of all
payments made by the Borrower to the Agent with respect to the Revolving Credit
Loans. The Agent shall also effect settlement in accordance with the foregoing
sentence on the proposed Borrowing Dates for Revolving Credit Loans and may at
its option effect settlement on any other Business Day. These settlement
procedures are established solely as a matter of administrative convenience, and
nothing contained in this Section 5.6 shall relieve the Banks of their
obligations to fund Revolving Credit Loans on dates other than a Settlement Date
pursuant to Section 2.8. The Agent may at any time at its option for any reason
whatsoever require each Bank to pay immediately to the Agent such Bank's Ratable
Share of the outstanding Revolving Credit Loans and Swing Loan; provided the
principal amount of such Bank's Revolving Credit Loans shall not exceed its
Revolving Credit Commitment minus its Ratable Share of the Letter of Credit
Outstanding; provided, further, nothing in this Section 5.6 shall require the
Banks to fund any Revolving Credit Loan bearing interest at the Euro-Rate on a
date other than in accordance with Section 2.7(a).
REPRESENTATIONS AND WARRANTIES
Representations and Warranties.
The Borrower represents and warrants to the Agent and each of the Banks
that:
Organization and Qualification. The Borrower is a corporation, duly
organized, validly existing and in good standing under the laws of Pennsylvania;
each Subsidiary of the Borrower is duly organized in the form of organization
stated on Schedule 6.1(c) and is validly existing and in good standing under the
laws of its jurisdiction of organization; each Company has the lawful power to
own or lease its properties and to engage in the business it presently conducts
or proposes to conduct; and each Company is duly licensed or qualified and in
good standing in each jurisdiction wherein the property owned or leased by it or
the nature of the business transacted by it or both makes such licensing or
qualification necessary.
Capitalization and Ownership. The authorized shares of capital stock of the
Borrower consist of 100,000,000 Preferred Shares, none of which is issued and
outstanding, 20,000 Class A Common Shares of which 9,000 shares are issued and
outstanding and, as of the close of business on January 15, 2002, 900,000,000
Class B Common Shares, of which 129,505,456 shares are issued and 115,360,941
shares are outstanding. All issued and outstanding shares have been validly
issued and are fully paid and nonassessable.
Subsidiaries. Schedule 6.1(c) sets forth the name of each of the Borrower's
Subsidiaries, the form and jurisdiction of organization of each, the owner(s) of
its authorized capital stock, and the percentage of issued and the outstanding
shares or interests (referred to herein as the "Subsidiary Shares") of each.
Each Company has good and marketable title to all of the Subsidiary Shares it
purports to own, free and clear in each case of any Lien. All Subsidiary Shares
have been validly issued and are fully paid and nonassessable. There are no
options, warrants or other rights outstanding to purchase any such shares.
Power and Authority. The Borrower has full power to enter into, execute,
deliver and carry out this Agreement and the other Senior Loan Documents to
which it is a party, to incur the Indebtedness contemplated by the Senior Loan
Documents and to perform its obligations under the Senior Loan Documents to
which it is a party and all such actions have been duly authorized by all
necessary proceedings on its part.
Validity and Binding Effect. Each of this Agreement, the Revolving Credit
Notes, the Swing Note, the Guaranty Agreement and the Intercompany Subordination
Agreement has been and each other Senior Loan Document, when duly executed and
delivered by the Loan Parties which are parties thereto, will have been duly and
validly executed and delivered by the Loan Parties. Each of this Agreement, the
Revolving Credit Notes, the Swing Note and the Intercompany Subordination
Agreement constitutes and each other Senior Loan Document when duly executed and
delivered by the Loan Parties pursuant to the provisions hereof or thereof will
constitute, legal, valid and binding obligations of the Loan Parties,
enforceable against them in accordance with their respective terms, except to
the extent that enforceability of any of the foregoing Senior Loan Documents may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar Laws affecting the enforceability of creditors' rights generally or
limiting the right of specific performance.
No Conflict. Neither the execution and delivery of this Agreement or the
other Senior Loan Documents by the Loan Parties nor the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof or thereof by them will conflict with, constitute a default
under or result in any breach of the terms and conditions of the declaration of
trust, articles of incorporation, bylaws, partnership agreement or equivalent
documents of any Loan Party or of any Law or of any material agreement,
instrument, order, writ, judgment, injunction or decree to which any Loan Party
is a party or by which it is bound or to which it is subject, or will result in
the creation or enforcement of any Lien whatsoever upon any property (now or
hereafter acquired) of any Loan Party.
Litigation. There are no actions, suits, proceedings or investigations
pending or, to the knowledge of the Borrower, threatened against any of the
Companies at law or in equity before any Official Body which individually or in
the aggregate may result in any Material Adverse Change. None of the Companies
is in violation of any order, writ, injunction or any decree of any Official
Body which may result in any Material Adverse Change.
Title to Properties. Each of the Companies has good and marketable title to
or valid leasehold interest in all properties, assets and other rights which it
purports to own or lease or which are reflected as owned or leased on its books
and records, free and clear of all liens and encumbrances except Permitted
Liens, and subject to the terms and conditions of the applicable leases. The
tangible and intangible personal property relating to facilities and computers
of the Companies (including the leases, computer software and aircraft) are held
by one or more wholly owned Guarantors. All leases of property are in full force
and effect and, except as set forth on Schedule 6.1(m), such leases do not
require any consent to consummate the transactions contemplated hereby.
Financial Statements. The Borrower has delivered to the Agent copies of the
audited consolidated financial statements for the Borrower and its Consolidated
Subsidiaries for fiscal year 2000 (the "Audited Statements"). In addition, the
Borrower has delivered to the Agent copies of the unaudited interim financial
statements for the Borrower and its Consolidated Subsidiaries for and as of the
end of the fiscal quarter ended September 30, 2001 (the "Interim Statements")
(the Audited and Interim Statements being collectively referred to as the
"Historical Statements"). The Historical Statements are correct and complete and
fairly represent the consolidated financial condition of the Borrower and its
Consolidated Subsidiaries as of their dates and the consolidated results of
operations for the fiscal periods then ended and have been prepared in
accordance with GAAP consistently applied, subject (in the case of the Interim
Statements) to normal year-end audit adjustments. None of the Companies has any
significant liabilities, contingent or otherwise, or material forward or
long-term commitments that are not disclosed in the Historical Statements or in
the notes thereto, and except as disclosed therein there are no unrealized or
anticipated losses from any commitments of any of the Companies which may cause
a Material Adverse Change. Since December 31, 2000, there has been no Material
Adverse Change.
Margin Stock. None of the Companies engages or intends to engage
principally, or as one of its important activities, in the business of extending
credit for the purpose, immediately, incidentally or ultimately, of purchasing
or carrying margin stock (within the meaning of Regulation U). No part of the
proceeds of any Loan has been or will be used, immediately, incidentally or
ultimately, to purchase or carry any margin stock (except investments in Funds
in accordance with ordinary business operations), or to extend credit to others
for the purpose of purchasing or carrying any margin stock or to refund
Indebtedness originally incurred for such purpose, or for any purpose which
entails a violation of or which is inconsistent with the provisions of the
regulations of the Board of Governors of the Federal Reserve System. None of the
Companies holds or intends to hold margin stock (including shares in the Funds)
such that the aggregate current market value (as defined in Regulation U) of all
such margin stock exceeds twenty-five percent (25%) of the value (as determined
by any reasonable method) of the consolidated assets of the Companies.
Full Disclosure. Neither this Agreement nor any Senior Loan Document, nor
any certificate, statement, agreement or other documents furnished to the Agent
or any Bank in connection herewith or therewith contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which they were made, not misleading. There is no fact known to any of the
Companies which materially adversely affects the business, property, assets,
financial condition or results of operations of the Companies taken as a whole,
which has not been set forth in this Agreement or in the other agreements,
documents, certificates and statements furnished in writing to the Agent and the
Banks prior to or at the date hereof in connection with the transactions
contemplated hereby.
Taxes. All federal, state, local and other tax returns required to have
been filed with respect to the Companies have been filed, and payment or
adequate provision has been made for the payment of all taxes, fees, assessments
and other governmental charges which have or may become due pursuant to said
returns or to assessments received except to the extent that such taxes, fees,
assessments and other charges are being contested in good faith by appropriate
proceedings diligently conducted and for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made. There are no agreements or waivers extending the statutory period of
limitations applicable to any federal income tax return of the Companies for any
period except with respect to the federal income tax return of the Companies for
1996 for which the associated statutory period of limitations was extended until
June 30, 2002.
Consents and Approvals. No consent, approval, exemption, order or
authorization of, or a registration or filing with, any Official Body or any
other person is required by any Law or any agreement in connection with the
execution, delivery and carrying out of this Agreement and the other Senior Loan
Documents by the Loan Parties, except for consents which shall have been
obtained on or prior to the Closing Date.
No Event of Default; Compliance with Interests. No event has occurred and
is continuing and no condition exists or will exist after giving effect to the
borrowings to be made on the Closing Date under the Senior Loan Documents which
constitutes an Event of Default or Potential Default. None of the Companies is
in violation of (i) any term of any declaration of trust, charter, instrument,
bylaw, similar or other organizational or governing document or (ii) any
agreement or instrument to which it is a party or by which it or any of its
properties may be subject or bound where such violation would constitute a
Material Adverse Change.
Patents, Licenses, Franchises, etc. The Companies own or possess all the
material patents, trademarks, service marks, tradenames, copyrights, licenses,
registrations, franchises, permits and rights necessary to own and operate their
respective properties and to carry on their respective businesses as presently
conducted and planned to be conducted by the Companies, without known conflict
with the rights of others.
[Intentionally Omitted.]
---------------------
Proceeds. The Borrower will use the proceeds of the Loans only for lawful
purposes in accordance with the second recital clause and not in contravention
of any applicable Law, including the Investment Company Act, or any other
provision hereof.
[Intentionally Omitted.]
---------------------
Insurance. Schedule 6.1(s) lists all insurance policies and other bonds to
which any of the Companies is a party, all of which are valid and in full force
and effect. No notice has been given or material claim made and no ground exists
to cancel or avoid any of such policies or bonds or to reduce the coverage
provided thereby. Such policies and bonds provide adequate coverage from
reputable and financially sound insurers in amounts sufficient to insure the
assets and risks of the Companies in accordance with prudent business practice
in the industry of the Companies.
Compliance with Laws. The Companies have complied in all respects with all
applicable Laws, including federal and state securities laws and Section 17(a)
of the Investment Company Act, in all jurisdictions in which any of the
Companies is presently or will be doing business except where the failure to do
so would not constitute a Material Adverse Change.
Material Contracts. Schedule 6.1(u) lists all material contracts relating
to the business operations of the Companies, which are required to be included
under applicable Securities and Exchange Commission regulations, including, to
the extent required under such regulations, all employee benefit plans,
employment agreements, collective bargaining agreements and labor contracts (the
"Labor Contracts"), all investment advisory contracts, investment counseling
contracts, Section 12b-1 Plans, distribution agreements, and administrative
service agreements and all leases and other contracts for $1,000,000 or more
entered into in the ordinary course of business. All material contracts of each
of the Companies are valid, binding and enforceable upon each of the parties
thereto in accordance with their respective terms, and there is no default
thereunder with respect to any of the Companies and, to the Borrower's
knowledge, with respect to parties other than the Companies.
Investment Companies. None of the Companies is an "investment company"
registered or required to be registered under the Investment Company Act or
under the "control" of an "investment company" as such terms are defined in the
Investment Company Act and none of them shall become such an "investment
company" or under such "control." Each Fund that constitutes an "investment
company" is in compliance in all material respects with all requirements
applicable to an "investment company" under the Investment Company Act.
Solvency. Each of the Companies is, and after consummation of this
Agreement and the other Senior Loan Documents and giving effect to all
Indebtedness incurred hereby and thereby and the Liens granted by the Companies
in connection herewith will be, Solvent, as determined as of the Closing Date.
Benefit Arrangements.
--------------------
Neither the Borrower nor any member of the ERISA Group sponsors, maintains
or otherwise contributes to, or has within the preceding five (5) year period
sponsored, maintained or otherwise contributed to, a Defined Benefit Pension
Plan or a Multiemployer Plan.
The Borrower and each member of the ERISA Group are in compliance in all
material respects with any applicable provisions of ERISA with respect to all
Benefit Arrangements. There has been no Prohibited Transaction with respect to
any Benefit Arrangement, or COBRA Violation, which could result in any material
liability of the Borrower or any other member of the ERISA Group. With respect
to each Benefit Arrangement that is a defined contribution plan, the Borrower
and each member of the ERISA Group (A) have fulfilled in all material respects
their obligations under the minimum funding standards of ERISA, if applicable,
or contractual obligations to contribute to such plans, and (B) have not had
asserted against them any penalty for failure to fulfill the minimum funding
requirements of ERISA.
To the extent that any Benefit Arrangement is insured, the Borrower and all
members of the ERISA Group have paid when due all premiums required to be paid
for all periods through and including the Closing Date. To the extent that any
Benefit Arrangement is funded other than with insurance, the Borrower and all
members of the ERISA Group have made when due all contributions required to be
paid for all periods through and including the Closing Date.
Employment Matters. Each of the Companies is in compliance with the Labor
Contracts and all applicable federal, state and local labor and employment Laws,
including those related to equal employment opportunity and affirmative action,
labor relations, minimum wage, overtime, child labor, medical insurance
continuation, worker adjustment and relocation notices, immigration controls and
worker and unemployment compensation, where the failure to comply would
constitute a Material Adverse Change. There are no outstanding grievances,
arbitration awards or appeals therefrom arising out of the Labor Contracts or
current or threatened strikes, picketing, handbilling or other work stoppages or
slowdowns at facilities of the Companies which in any case would constitute a
Material Adverse Change.
Environmental Matters. The Companies are in material compliance with all
applicable Environmental Laws and have not received any Environmental Complaint
from any Official Body or private person alleging that any of the Companies is a
potentially responsible party, and the Borrower has no reason to believe that
such an Environmental Complaint might be received.
Existing Business. The Companies are currently engaged in the mutual fund,
investment advisory, retirement plan servicing and financial services business.
Updates to Schedules.
Should any of the information or disclosures provided on any of the
Schedules attached hereto become outdated or incorrect in any material respect,
the Borrower shall promptly provide the Agent in writing with such revisions or
updates to such Schedule as may be necessary or appropriate to update or correct
the same; provided, unless any such Schedules have become outdated or incorrect
in any material and adverse respect, the Borrower may provide such revisions or
updates on a quarterly basis at the same time as the Borrower delivers its
quarterly compliance certificate in accordance with Section 8.3(d); provided,
further, that no Schedule that has become outdated or incorrect in any material
and adverse respect shall be deemed to have been amended, modified or superseded
by any such correction or update, nor shall any breach of warranty or
representation resulting from the inaccuracy or incompleteness of any such
Schedule be deemed to have been cured thereby.
CONDITIONS OF LENDING
The obligation of each Bank to make Loans hereunder is subject to the
performance by the Borrower of its obligations to be performed hereunder at or
prior to making of any such Loans and to the satisfaction of the following
further conditions:
Closing Date.
On the Closing Date:
The representations and warranties of the Borrower contained in Article 6
shall be true and accurate on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which relate solely to an earlier date or
time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein), and the Borrower shall have
performed and complied with all covenants and conditions hereof; no Event of
Default or Potential Default under this Agreement shall have occurred and be
continuing or shall exist; and there shall be delivered to the Agent for the
benefit of each Bank a certificate of the Borrower, dated the Closing Date and
signed by the Chief Executive Officer, President, Chief Financial Officer,
Treasurer or Principal Accounting Officer of the Borrower, to both such effects.
There shall be delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Secretary or an Assistant
Secretary of each of the Companies, certifying as appropriate as to:
all action taken by such Company in connection with this Agreement and the
other Senior Loan Documents to which it is a party, as applicable;
the names of the officer or officers authorized to sign this Agreement and
the other Senior Loan Documents to which such Company is a party and the true
signatures of such officer or officers and, in the case of the Borrower,
specifying the Authorized Officers who are authorized to act on behalf of the
Borrower for purposes of this Agreement and the true signatures of such
officers, on which the Agent and each Bank may conclusively rely; and
copies of its organizational documents, including its declaration of trust
or articles of incorporation and bylaws or partnership agreement, as applicable,
as in effect on the Closing Date certified by the appropriate state official
where such documents are filed in a state office (or confirmation that there
have been no changes in the organizational documents since the ones delivered in
connection with the Existing Credit Agreement), together with certificates from
the appropriate state officials as to the continued existence and good standing
of each of the Companies in each state where organized or qualified to do
business, provided such certifications of state officials shall not be required
for Federated Asset Management GmbH, Federated International Holdings, BV,
Federated International - Europe GmbH and Federated International Management,
Ltd.
The Revolving Credit Notes, the Swing Note, the Guaranty Agreement and the
Intercompany Subordination Agreement shall have been duly executed and delivered
to the Agent for the benefit of the Banks.
There shall be delivered to the Agent, for the benefit of each Bank, a
legal opinion of outside counsel reasonably acceptable to the Agent and its
counsel (who may rely on the opinions of such other counsel as may be acceptable
to the Agent), dated the Closing Date and in form and substance satisfactory to
the Agent and its counsel addressing the matters set forth in Exhibit G.
All legal details and proceedings in connection with the transactions
contemplated by this Agreement and the other Senior Loan Documents shall be in
form and substance satisfactory to the Banks and counsel for the Banks, and the
Banks shall have received all such other counterpart originals or certified or
other copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Banks and said counsel,
as the Banks or said counsel may reasonably request.
The Borrower shall pay or cause to be paid, to the extent not previously
paid (i) to the Agent for its own account, all fees payable on or before the
Closing Date as set forth in that certain letter dated January 2, 2002 and the
costs and expenses for which the Agent is entitled to be reimbursed, (ii) to the
Agent, for the account of the Banks (as defined in the Existing Credit
Agreement), all accrued interest (if any) and any other fees and expenses
accrued pursuant to the Existing Credit Agreement and (iii) to the Agent for the
account of the Banks all fees accrued through the Closing Date and the costs and
expenses for which the Banks are entitled to be reimbursed pursuant to this
Agreement.
All material consents required to effectuate the transactions contemplated
by the Senior Loan Documents shall have been obtained.
There shall be no Material Adverse Change in the Historical Statements
previously delivered to the Agent since the date of their preparation; since
December 31, 2000, there shall be no Material Adverse Change; and there shall be
delivered to the Agent, for the benefit of each Bank, a certificate dated the
Closing Date and signed by the Chief Executive Officer, President, Chief
Financial Officer, Treasurer or Principal Accounting Officer of the Borrower to
each such effect.
The making of the Loans shall not contravene any Law applicable to the
Borrower or any of the Banks, and the Banks and the Agent shall have received
all such certificates and documents in relation thereto as the Banks and the
Agent and their respective counsel shall have reasonably requested.
No action, proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain damages in
respect of this Agreement or the consummation of the transactions contemplated
hereby or which, in the Agent's sole discretion, would make it inadvisable to
consummate the transactions contemplated by this Agreement or any of the other
Senior Loan Documents.
The Borrower shall deliver evidence acceptable to the Agent that adequate
insurance in compliance with Section 8.1(c) is in full force and effect and that
all premiums then due thereon have been paid, together with a certified copy of
the Borrower's casualty insurance policy or policies evidencing coverage
satisfactory to the Agent, with an additional insured endorsement in form and
substance satisfactory to the Agent and its counsel naming the Agent as
additional insured for the benefit of the Banks.
Each Additional Loan.
At the time of making any Loans (including conversions, renewals or terming
out of existing Loans) or issuing, extending, amending or renewing any Letters
of Credit other than Loans made or Letters of Credit issued on the Closing Date
hereunder and after giving effect to the proposed borrowings: the
representations and warranties contained in Article 6 and any certificates
delivered by any of the Companies after the Closing Date shall be true on and as
of the date of such additional Loan or additional, extended, amended or renewed
Letter of Credit with the same effect as though such representations, warranties
and certifications had been made on and as of such date (except representations,
warranties and certifications which expressly relate solely to an earlier date
or time, which representations, warranties and certifications shall be true and
correct on and as of the specific dates or times referred to therein or made),
and the Borrower shall have performed and complied with all covenants and
conditions hereof; no Event of Default or Potential Default shall have occurred
and be continuing or shall exist; the making of the Loans shall not contravene
any Law applicable to the Borrower or any of the Banks; and the Borrower shall
have delivered to the Agent a duly executed and completed Loan Request or
application for a Letter of Credit as the case may be.
COVENANTS
Affirmative Covenants.
The Borrower covenants and agrees that until payment in full of the Loans
and interest thereon, satisfaction of all of the Borrower's other obligations
hereunder and termination of the Revolving Credit Commitments and the Swing Loan
Commitment, it shall, unless otherwise consented to in writing by the Required
Banks, comply at all times with the following affirmative covenants:
Preservation of Existence, etc. The Borrower shall maintain, and shall
cause each of its Subsidiaries to maintain, its existence and its license or
qualification and good standing in each jurisdiction in which its ownership or
lease of property or the nature of its business makes such license or
qualification necessary, except as otherwise permitted in Section 8.2(j).
Payment of Liabilities, Including Taxes, etc. The Borrower shall pay and
discharge, and shall cause each of its Subsidiaries to pay and discharge, all
liabilities to which it is subject or which are asserted against it, promptly as
and when the same shall become due and payable, including all taxes, assessments
and governmental charges upon it or any of its properties, assets, income or
profits, prior to the date on which penalties attach thereto, except to the
extent that such liabilities, including taxes, assessments or charges, are being
contested in good faith and by appropriate and lawful proceedings diligently
conducted and for which such reserve or other appropriate provisions, if any, as
shall be required by GAAP shall have been made, but only to the extent that
failure to discharge any such liabilities would not result in a Material Adverse
Change; provided that the Borrower and each of its Subsidiaries will pay all
such liabilities forthwith upon the commencement of proceedings to foreclose any
Lien which may have attached as security therefor.
Maintenance of Insurance. The Loan Parties shall maintain and shall cause
each of its Subsidiaries to maintain, with financially sound and reputable
insurers, public liability and property damage insurance with respect to its
business and properties and the business and properties of its Subsidiaries
against loss or damage of the kinds customarily carried or maintained by Persons
of established reputation engaged in similar businesses and in amounts
acceptable to Agent and will deliver evidence thereof to Agent. The Loan Parties
shall cause, pursuant to endorsements and assignments in form and substance
reasonably satisfactory to Agent, Agent, for the benefit of Agent and Banks, to
be named as additional insured in the case of all liability insurance.
Maintenance of Properties and Leases. The Borrower shall maintain, and
shall cause each of its Subsidiaries to maintain, in good repair, working order
and condition (ordinary wear and tear excepted) in accordance with the general
practice of other businesses of similar character and size, all of those
properties useful or necessary to its business, and from time to time the
Borrower shall make, and shall cause each Subsidiary to make, all appropriate
repairs, renewals or replacements thereof.
Visitation Rights. The Borrower shall permit, and shall cause each of its
Subsidiaries to permit, any of the officers or authorized employees or
representatives of any of the Banks to visit and inspect any of its properties
and to examine and make excerpts from its books and records and discuss its
business affairs, finances and accounts with its officers, all in such
reasonable detail and at such reasonable times and as often as any of the Banks
may reasonably request, subject to the provisions of Section 11.12, provided
that, unless an Event of Default or Potential Default has occurred and is
continuing, each Bank shall provide the Borrower and the Agent with reasonable
notice prior to any visit or inspection. In the event any Bank desires to visit
or inspect any of the Companies as permitted in the preceding sentence, such
Bank shall make a reasonable effort to conduct such visit or inspection
contemporaneously with any visit or inspection to be performed by the Agent.
Keeping of Records and Books of Account. The Borrower shall maintain and
keep, and shall cause each of its Subsidiaries to maintain and keep, proper
books of record and account which enable the Borrower and its Subsidiaries to
issue financial statements in accordance with GAAP and as otherwise required by
applicable Laws of any Official Body having jurisdiction over the Borrower or
any Subsidiary, and in which full, true and correct entries shall be made in all
material respects of all its dealings and business and financial affairs.
Maintenance of Patents, Trademarks, etc. The Borrower shall maintain, and
shall cause each of its Subsidiaries to maintain, in full force and effect, all
patents, trademarks, tradenames, copyrights, licenses, franchises, permits and
other authorizations necessary for the ownership and operation of its properties
and business if the failure so to maintain the same would constitute a Material
Adverse Change.
Benefit Arrangements. The Borrower shall, and shall cause each member of
the ERISA Group to, comply with ERISA, the Internal Revenue Code and other
applicable Laws applicable to Benefit Arrangements except where such failure,
alone or in conjunction with any other failure, would not result in a Material
Adverse Change. Without limiting the generality of the foregoing, the Borrower
shall cause Benefit Arrangements which are defined contribution plans maintained
by the Borrower or any member of the ERISA Group to be funded in accordance with
the minimum funding requirements of ERISA and shall make, and cause each member
of the ERISA Group to make, in a timely manner, all contributions due to Benefit
Arrangements.
Compliance with Laws. The Borrower shall comply, and shall cause each of
its Subsidiaries to comply, with all applicable Laws, including all
Environmental Laws, in all respects, including the Investment Company Act,
provided that it shall not be deemed to be a violation of this Section 8.1(i) as
the result of any failure to comply with any Law if such failure to comply would
not result in fines, penalties, other similar liabilities or injunctive relief
which in the aggregate would constitute a Material Adverse Change.
Ownership of Subsidiaries. Except (i) with respect to Passport, Investlink
and Federated Asset Management GmbH in each of which at least 50% ownership is
maintained, and (ii) as permitted pursuant to Section 8.2(k) or, with respect to
Subsidiaries created or acquired in the future, Section 8.2(h)(iii), the
Borrower shall keep and maintain 100% ownership and control of each of its
Subsidiaries.
Use of Proceeds. The Borrower will use the proceeds of the Loans only for
lawful purposes in accordance with the second recital clause and such uses shall
not contravene any applicable Law, including the Investment Company Act, or any
other provision hereof.
New Subsidiaries. The Borrower shall cause each Subsidiary created or
acquired by any of the Companies after the date hereof to enter into the
Intercompany Subordination Agreement and (other than Foreign Subsidiaries or
less than wholly-owned Subsidiaries over which the Borrower does not maintain
control as permitted by Section 8.2(h)(iii)(B)) the Guaranty Agreement and shall
cause to be delivered a legal opinion of such outside counsel reasonably
acceptable to the Agent and its counsel in form and substance satisfactory to
the Agent and its counsel as to the matters set forth on Exhibit H.
Negative Covenants.
The Borrower covenants and agrees that until payment in full of the Loans
and interest thereon, satisfaction of all of the Borrower's other obligations
hereunder and termination of the Revolving Credit Commitments and the Swing Loan
Commitment, it shall, unless otherwise consented to in writing by the Required
Banks, comply with the following negative covenants:
Minimum Consolidated EBITDA. The Borrower shall not permit Consolidated
EBITDA as of the end of each fiscal quarter for the four (4) fiscal quarters
then ended to be less than $200,000,000.
Minimum Interest Coverage Ratio. The Borrower shall not permit the ratio of
Consolidated EBITDA to consolidated interest expense of the Borrower and its
Consolidated Subsidiaries as of the end of each fiscal quarter for the four (4)
fiscal quarters then ended to be less than 4.0 to 1.0.
Maximum Leverage Ratio . The Borrower shall not permit the Leverage Ratio
as of the end of each fiscal quarter beginning with the fiscal quarter ended
December 31, 2001 to exceed 2.0 to 1.0.
Intentionally omitted.
---------------------
Indebtedness. The Borrower shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
Indebtedness under the Senior Loan Documents;
Intentionally omitted;
Indebtedness pursuant to capitalized leases made under usual and customary
terms in the ordinary course of business and Indebtedness secured solely by
Purchase Money Security Interests not exceeding in the case of any Indebtedness
under this clause (iii) at any one time in the aggregate $30,000,000;
existing Indebtedness as set forth on Schedule 8.2(e) (including any
extensions or renewals thereof, provided there is no increase in the principal
amount thereof as of the Closing Date unless otherwise specified on Schedule
8.2(e));
intercompany Indebtedness which is subordinated to the Loans pursuant to
the Intercompany Subordination Agreement,
any short-term Indebtedness under securities clearing arrangements secured
by or for which marketable securities and related cash balances with customary
loan-to-value ratios are available to repay such Indebtedness;
unsecured Indebtedness assumed in connection with an acquisition permitted
by Section 8.2(j)(iii);
unsecured Indebtedness (in addition to Indebtedness permitted above or
below) not to exceed at any one time in the aggregate $25,000,000; or
unsecured Indebtedness (in addition to Indebtedness permitted above) in an
aggregate principal amount not to exceed at any time $200,000,000 in the
aggregate; provided that (i) such Indebtedness is subordinated to the
Indebtedness in favor of the Agent and the Banks under this Agreement and the
Notes; (ii) the terms and provisions of such Indebtedness are no more
restrictive than the terms and provisions of this Agreement as determined by the
Agent in its reasonable discretion; and (iii) without the prior written consent
of the Required Banks, no payments of principal on such Indebtedness shall be
permitted during the term of this Agreement.
Liens. The Borrower shall not, and shall not permit any of its Subsidiaries
to, at any time create, incur, assume or suffer to exist any Lien on any of its
property or assets, tangible or intangible, now owned or hereafter acquired, or
agree to become liable to do so, except Permitted Liens.
Guaranties. The Borrower shall not, and shall not permit any of its
Subsidiaries to, at any time directly or indirectly, become or be liable in
respect of any Guaranty, or assume, guaranty, become surety for, endorse or
otherwise agree, become or remain directly or contingently liable upon or with
respect to any obligation or liability of any other person, except (i) pursuant
to the Guaranty Agreement and (ii) the guarantee by the Companies of obligations
of the Subsidiaries of the Borrower (other than any Subsidiary which is not
wholly owned) to third parties, which obligations are incurred in the ordinary
course of such Subsidiaries' business consistent with industry practice and not
otherwise forbidden by this Agreement; provided that, except for Limited
Investments, in no event shall the Borrower or its Subsidiaries become or be
liable in respect of any Guaranty, or assume, guarantee, become surety for,
endorse or otherwise agree, become or remain directly or contingently liable
upon or with respect to any obligation or liability of the Special Purpose
Subsidiaries.
Loans and Investments. The Borrower shall not, and shall not permit any of
its Subsidiaries to, at any time make or suffer to remain outstanding any loan
or advance to, or purchase, acquire or own any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) in, or any other
investment or interest in, or make any capital contribution to, any other
person, or agree, become or remain liable to do any of the foregoing, except:
loans and investments as set forth on Schedule 8.2(h) (including any
extensions or renewals thereof, provided there is no increase in the principal
amount thereof as of the Closing Date unless otherwise specified on Schedule
8.2(h));
investments in wholly owned Subsidiaries existing on the date hereof and
wholly owned Subsidiaries hereafter created or acquired, provided the Borrower
and each of its Subsidiaries shall comply with the requirements of Section
8.1(l);
investments in (A) Subsidiaries, which are less than wholly owned, but over
which the Borrower maintains control, and (B) corporate entities in which the
Borrower does not maintain control but for which none of the Companies has any
liability greater than its initial investment in such entity and where the
activities in which such entity engages are consistent with the activities set
forth in Section 6.1(aa), provided, that the investments permitted by clause (B)
of this Section 8.2(h)(iii) shall not exceed $50,000,000;
intercompany loans which are subordinated to the Loans pursuant to the
Intercompany Subordination Agreement,
trade credit extended, and loans and advances extended to subcontractors or
suppliers, under usual and customary terms in the ordinary course of business;
advances to employees to meet expenses incurred by such employees in the
ordinary course of business;
Permitted Investments;
loans, advances and investments in Subsidiaries existing on the date
hereof; and
Limited Investments in the Special Purpose Subsidiaries so long as the
Limited Investments in all Special Purpose Subsidiaries do not exceed $500,000
in the aggregate.
Dividends and Related Distributions. The Borrower shall not make or pay, or
agree to become or remain liable to make or pay, any dividend or other
distribution of any nature (whether in cash, property, securities or otherwise)
on account of or in respect of any shares of the capital stock of the Borrower
(including the Preferred Shares and the Common Shares), or on account of the
purchase, redemption, retirement or acquisition of any shares of the capital
stock (or warrants, options or rights therefor) of the Borrower, nor permit any
such action to be taken indirectly by any of its Subsidiaries, except:
[intentionally omitted];
in addition to repurchases of Class B Shares permitted pursuant to Section
8.2(i)(iv) below, so long as no Event of Default or Potential Default has
occurred and is continuing, the Borrower may repurchase not in excess of (a)
from and after January 1, 2001 through the term of the Agreement, primarily on a
public stock exchange and in accordance with any stock repurchase plan
authorized by the Borrower's Board of Directors from time to time, up to
$125,000,000 of Class B Shares, and (b) during the term of this Agreement,
$5,000,000 of Restricted Stock;
any Subsidiary which is less than wholly owned may make distributions as
permitted under its organizational documents; and
during the Borrower's fiscal year 2002 and thereafter, so long as (A) no
Event of Default or Potential Default has occurred and is continuing, and (B)
the Borrower is in compliance with Section 8.2(a), in the case of both clauses
(A) and (B) after giving effect to any such dividend or stock repurchase
payment, the Borrower may (1) make dividend payments with respect to the Common
Shares and in an amount not to exceed, and (2) in addition to repurchases of
Class B Shares permitted pursuant to Section 8.2(i)(ii) above, repurchase Class
B Shares for an amount not to exceed, in any fiscal year on a cumulative basis
for clauses (1) and (2), 50% of any net income (or minus 100% of any net loss)
of the Borrower and its Subsidiaries from January 1, 2000 through the date of
payment.
Liquidations, Mergers, Consolidations and Acquisitions. The Borrower shall
not, and shall not permit any of its Subsidiaries to, dissolve or liquidate or
wind-up its affairs, or become a party to any merger or consolidation, or
acquire by purchase, lease or otherwise all or substantially all of the assets
or capital stock of any other person, except:
[Intentionally omitted];
any Guarantor (other than the Borrower) may liquidate into, merge or
consolidate with a wholly owned Guarantor (other than the Borrower) and any
wholly owned Subsidiary which is not a Guarantor may liquidate into, merge or
consolidate with a wholly owned Subsidiary (so long as if the entity into which
any wholly-owned Subsidiary which is not a Guarantor is liquidating, merging or
consolidating is a Guarantor, it continues to be a Guarantor after the
liquidation, merger or consolidation); and
the Borrower or another Consolidated Subsidiary may effect an acquisition
of the capital stock or assets (tangible or intangible) of another person or
persons, so long as (A) such person is a company which engages in the mutual
fund, investment advisory, retirement plan servicing or financial services
business or a business related or ancillary to any of the foregoing, (B) if such
person is a public company, the acquisition is not hostile and (C) after giving
effect to such acquisition, no Event of Default or Potential Default shall exist
or be continuing and ten (10) days after the consummation of such acquisition,
the Borrower shall have provided to the Agent and the Banks pro forma financial
statements for the Borrower and the Consolidated Subsidiaries, after giving
effect to such acquisition, demonstrating such compliance.
Dispositions of Assets or Subsidiaries. The Borrower shall not, and shall
not permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or
otherwise transfer or dispose of, voluntarily or involuntarily, any of its
properties or assets, tangible or intangible (including sale, assignment,
discount or other disposition of accounts, contract rights, chattel paper,
equipment or general intangibles with or without recourse or of capital stock,
shares of beneficial interest or partnership interests of a Subsidiary), except:
any sale, transfer or lease of assets by the Borrower or any wholly owned
Subsidiary to the Borrower or any other wholly owned Guarantor and any sale or
transfer of Designated Assets by a Subsidiary of the Borrower to another
Subsidiary of the Borrower followed by an immediate transfer to a Special
Purpose Subsidiary, in connection with a securitization or other receivables
sale transaction so long as such transaction is non-recourse to any of the
Companies or any Special Purpose Subsidiary (except for customary recourse
provisions, including recourse to the Designated Assets being sold or
transferred);
any sale, transfer or lease of assets which are no longer necessary or
required in the conduct of the Borrower's or any Subsidiary's business resulting
in after-tax proceeds (net of reasonable and customary expenses in connection
with such sale, transfer or lease) not exceeding in the aggregate $10,000,000 in
any fiscal year;
any sale, transfer or lease of assets in the ordinary course of business
which are replaced by substitute assets;
any sale or transfer of all of the capital stock or substantially all of
the assets of one or more Subsidiaries of the Borrower so long as, in any fiscal
year, (A) the assets of such sold or transferred Subsidiaries do not exceed 5%
of the total assets of the Borrower and the Consolidated Subsidiaries or (B) no
more than 5% of Consolidated EBITDA is attributable to such sold or transferred
Subsidiaries, in the case of clause (A), determined as of the most recent fiscal
quarter ending prior to such disposition and, in the case of clause (B),
determined as of the most recent four (4) fiscal quarters ending prior to such
disposition; and
any sale, transfer or lease of assets, other than those specifically
excepted pursuant to clauses (i) through (iv) above, which is approved by the
Required Banks.
The Agent is expressly authorized by the Banks to release any Guarantor
from the Guaranty Agreement and any Subsidiary of the Borrower from the
Intercompany Subordination Agreement if (A) its capital stock or substantially
all of the assets are sold or transferred in accordance with Section 8.2(k)(iv)
or (v) above or (B) it is liquidated in accordance with Section 8.2(j)(ii).
Self-Dealing. The Borrower shall not, and shall not permit any of its
Subsidiaries to, enter into or carry out any transaction (including purchasing
property or services from or selling property or services to any Affiliate or
other person), except upon arm's-length terms and conditions and in accordance
with all applicable Law (including the Investment Company Act) provided that the
foregoing requirements regarding arms-length terms and conditions shall not be
applicable to transactions (i) permitted in the Shareholder Rights Agreement or
(ii) between or among the Borrower or any Subsidiaries over which the Borrower
maintains control.
Benefit Arrangements. The Borrower shall not, and shall not permit any of
its Subsidiaries or member of the ERISA Group to:
fail to satisfy the minimum funding requirements of ERISA and the Internal
Revenue Code with respect to any Benefit Arrangement which is a money purchase
pension plan;
request a minimum funding waiver from the IRS with respect to any Benefit
Arrangement which is a money purchase pension plan;
engage in a Prohibited Transaction with any Benefit Arrangement which,
alone or in conjunction with any other circumstances or set of circumstances
resulting in liability under ERISA, would constitute a Material Adverse Change;
commit a COBRA Violation which would constitute a Material Adverse Change;
fail to give any and all notices and make all disclosures and governmental
filings required under ERISA or the Internal Revenue Code, where such failure is
likely to result in a Material Adverse Change; or
adopt a Defined Benefit Pension Plan or adopt, or otherwise agree to
contribute to, a Multiemployer Plan or a Multiple Employer Plan, provided that
members of the Controlled Group other than the Companies may incur obligations
under Defined Benefit Pension Plans so long as the total "benefit liabilities"
as defined in Section 4001(a)(16) of ERISA under such Defined Benefit Pension
Plans do not at any time exceed $1,000,000.
[Intentionally omitted]
[Intentionally omitted]
Continuation of or Change in Business. The enterprises represented by the
Companies taken as a whole shall continue to engage in their respective
businesses substantially as conducted and operated by the Companies during the
present fiscal year, and the Borrower shall not permit any material change in
such businesses (i.e., the mutual fund, investment advisory, retirement plan
servicing and financial services business, and the business of Federated Bank,
as such businesses now exist or may exist in the future), either directly or
indirectly (including by means of loans and investments), and any change must be
in accordance with all applicable Law (including the Investment Company Act);
provided, that
the only activities in which the Special Purpose Subsidiaries shall be
permitted to engage are to finance broker commissions with respect to the sale
of proprietary or private label mutual funds administered or distributed by the
Companies and to hold stock of other Special Purpose Subsidiaries, provided
the Special Purpose Subsidiaries shall not enter into any agreements which
permit any cross-defaults with any of the Senior Loan Documents and
the Limited Investments in the Special Purpose Subsidiaries by the
Companies are not greater than $500,000 in the aggregate; and
the Borrower, FII Holdings, Inc. and Federated Services Company shall not
become registered as investment advisers or broker-dealers.
[Intentionally omitted]
---------------------
[Intentionally omitted]
---------------------
Changes in Other Documents. The Borrower shall not amend or modify any
provisions of the Shareholder Rights Agreement, its organizational documents
(including Articles of Incorporation and Bylaws) or any related agreement,
document or instrument, without providing at least fifteen (15) Business Days'
prior written notice to the Agent and, in the event such change would be adverse
to the Banks as determined by the Agent in its sole discretion, obtaining the
prior written consent of the Required Banks. Notwithstanding the foregoing, the
Borrower may exercise its right to unilaterally terminate the Shareholder Rights
Agreement, without providing any prior written notice or obtaining any prior
written consent but the Borrower shall notify the Agent at such time of any
termination.
Intercompany Transactions. The Borrower shall not permit there to be any
restriction on the dividends payable by its Subsidiaries except as otherwise
required by Law or this Agreement. The Borrower shall not permit there to be any
intercompany debt owing by the Borrower to its Subsidiaries unless such debt is
subordinated to the Loans pursuant to the Intercompany Subordination Agreement.
Except as permitted in Section 8.2(h), no existing business or assets of the
Companies shall be transferred or otherwise diverted to or used for the benefit
of Subsidiaries which are not wholly owned.
Change in Ownership. The Borrower shall not permit any change in the
ownership of the Class A Shares except transfers of the Class A Shares may be
made among the officers, directors and employees of the Borrower and its
Subsidiaries and their respective family and affiliates.
[Intentionally omitted]
---------------------
Fiscal Year and Accounting Methods. The Borrower shall not, and shall not
permit any of its Subsidiaries to, (i) change its fiscal year from the twelve
(12) month period beginning January 1 and ending December 31 or (ii) change from
the accrual method of accounting.
Reporting Requirements.
The Borrower covenants and agrees that until payment in full of the Loans
and interest thereon, satisfaction of all of the Borrower's other obligations
hereunder and termination of the Revolving Credit Commitments and the Swing Loan
Commitment, it will furnish or cause to be furnished to the Agent and each of
the Banks:
[Intentionally omitted]
---------------------
Quarterly Financial Statements. As soon as available and in any event
within forty-five (45) days after the end of the first three (3) fiscal quarters
in each fiscal year, its operations report, including, at a minimum,
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries consisting of a consolidated balance sheet as of the end of such
fiscal quarter and related consolidated statement of operations, retained
earnings and cash flows for the fiscal quarter then ended and the fiscal year
through that date, all in reasonable detail and certified (subject to normal
year-end audit adjustments) by the Chief Executive Officer, President, Chief
Financial Officer, Treasurer or Principal Accounting Officer of the Borrower as
having been prepared in accordance with GAAP, consistently applied, and setting
forth in comparative form the respective financial statements for the
corresponding date and periods in the previous fiscal year.
Annual Financial Statements. As soon as available and in any event within
ninety (90) days after the end of each fiscal year of the Borrower, financial
statements of the Borrower and its Consolidated Subsidiaries consisting of
consolidated and consolidating balance sheets as of the end of such fiscal year,
and related consolidated and consolidating statement of operations, consolidated
stockholders' equity, consolidated statement of retained earnings and
consolidated statement of cash flow for the fiscal year then ended, all in
reasonable detail and setting forth in comparative form the financial statements
as of the end of and for the preceding fiscal year, and (in the case of the
consolidated financial statements only) certified by Ernst & Young LLP or
another independent certified public accountant of nationally recognized
standing satisfactory to the Required Banks. Notwithstanding the foregoing, the
consolidating statements described in the foregoing sentence shall only be
required if requested by the Agent. The certificate or report of accountants
shall be free of qualifications (other than (A) any consistency qualification,
or (B) any qualification relating to an inconsistency with GAAP, that may result
from a change in the method used to prepare Borrower's financial statements as
to which such accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of the
Borrower under any of the Senior Loan Documents, together with a letter of such
accountants substantially to the effect that based upon their ordinary and
customary examination of the affairs of the Borrower, performed in connection
with the preparation of such consolidated financial statements, and in
accordance with generally accepted auditing standards, they are not aware of the
existence of any condition or event which constitutes or would, upon notice or
lapse of time, or both, constitute an Event of Default or, if they are aware of
such condition or event, stating the nature thereof and confirming the
Borrower's calculations with respect to the certificate to be delivered pursuant
to Section 8.3(d) with respect to such financial statements.
Certificate of the Borrower. Concurrently with the financial statements of
the Borrower furnished to the Agent and to the Banks pursuant to Sections 8.3(b)
and 8.3(c), a certificate of the Borrower signed by the Chief Executive Officer,
President, Chief Financial Officer, Treasurer or Principal Accounting Officer of
the Borrower, in the form of Exhibit I, to the effect that, except as described
pursuant to Section 8.3(e), (i) the representations and warranties of the
Borrower contained in Article 6 and any certifications delivered by any of the
Companies after the Closing Date are true on and as of the date of such
certificate with the same effect as though such representations, warranties and
certifications had been made on and as of such date (except representations,
warranties and certifications which expressly relate solely to an earlier date
or time) and the Borrower has performed and complied with all covenants and
conditions hereof, (ii) no Event of Default or Potential Default exists and is
continuing on the date of such certificate and (iii) containing calculations in
sufficient detail to demonstrate the Leverage Ratio and compliance as of the
date of the financial statements with the covenants contained in Section 8.1(l)
and Sections 8.2(a), (b), (c), (h), (i), (j), (k) and (u).
Notice of Default. Promptly after the Borrower has learned of the
occurrence of an Event of Default, Potential Default or Material Adverse Change,
a certificate signed by the Borrower's Chief Executive Officer, President, Chief
Financial Officer, Treasurer or Principal Accounting Officer setting forth the
details of such Event of Default, Potential Default or Material Adverse Change
and the action which the Borrower proposes to take with respect thereto.
Notice of Litigation. Promptly after the commencement thereof, notice of
all actions, suits, proceedings or investigations before or by any Official Body
or any other person against any of the Companies or any of the Funds, involves a
claim or series of claims of $5,000,000 or more or which if adversely determined
would constitute a Material Adverse Change.
Certain Events. Written notice to the Agent of (i) any sale or other
transfer of assets as permitted under subsections (i), (ii), (iii) or (iv) of
Section 8.2(k), (ii) any merger, acquisition, consolidation or liquidation
permitted under Section 8.2(j), (iii) any change in the ownership or management
of the Borrower permitted under Section 8.2(u), (iv) the creation or acquisition
of any new Subsidiaries or investment in any other corporate entity, such notice
to be delivered to the Agent within five (5) Business Days after occurrence of
such event or consummation of such transaction(s), and in the case of the
creation or acquisition of a new Subsidiary or investment in any other corporate
entity, accompanied by the items specified in Section 8.1 to be delivered within
thirty (30) calendar days after the creation or acquisition of a new Subsidiary
or investment in any other corporate entity, and (v) any amendment to the
declaration of trust, certificate or articles of incorporation, bylaws,
partnership agreement or other organizational documents of any of the Companies
or the use by any of the Companies of any fictitious name, it being understood
that any such amendments require at least ten (10) Business Days' prior notice
to the Agent and may in some cases, including any amendment to the Articles of
Incorporation of the Borrower which the Agent has determined would be adverse to
the Banks pursuant to Section 8.2(s), require the prior written consent of the
Required Banks.
Other Notices, Reports and Information. Promptly upon their becoming
available to the Borrower, (i) any material and adverse reports including
management letters submitted to any of the Companies by independent accountants
in connection with any annual, interim or special audit, (ii) any reports or
notices distributed by any of the Companies to its shareholders and not filed
with the Securities and Exchange Commission, on a date no later than the date
supplied to the shareholders, (iii) upon request, periodic reports filed by any
of the Companies with the Securities and Exchange Commission, (iv) periodic
reports of examination by the Securities and Exchange Commission or the National
Association of Securities Dealers, Inc. of any of the Companies which could
reasonably be expected to result in a Material Adverse Change and any responses
thereto, (v) any Revenue Agent's Report and accompanying Statement of Income Tax
Examination Changes and any notice of assessment or deficiency by the IRS which
could reasonably be expected to result in a Material Adverse Change, and (vi)
such other reports and information as the Banks may from time to time reasonably
request. The Borrower shall also notify the Banks promptly of the enactment of
any legislation or adoption of any Law which may result in a Material Adverse
Change.
Notices Regarding Benefit Arrangements. Promptly upon becoming aware of the
occurrence thereof, notice (including the nature of the event and, when known,
any action taken or threatened by the IRS with respect thereto) of any
Prohibited Transaction which could subject the Borrower or any member of the
ERISA Group to a civil penalty assessed pursuant to Section 502(i) of ERISA or a
tax imposed by Section 4975 of the Internal Revenue Code in connection with any
Defined Benefit Pension Plan, Benefit Arrangement or any trust created
thereunder.
Financial Statements Regarding the Special Purpose Subsidiaries. Upon the
request of the Agent, at the same time that the Borrower provides the quarterly
financial statements required under Section 8.3(b) for the Borrower and its
Consolidated Subsidiaries, it shall also provide quarterly financial statements
of the type required by Section 8.3(b) for the Special Purpose Subsidiaries.
Upon the request of the Agent, at the same time that the Borrower provides the
annual financial statements required under Section 8.3(c) for the Borrower and
its Consolidated Subsidiaries, it shall also provide consolidated and
consolidating annual financial statements, of the type required by Section
8.3(c), for the Borrower, its Consolidated Subsidiaries and the Special Purpose
Subsidiaries.
Notices Regarding Special Purpose Subsidiaries. Within five (5) Business
Days after the creation of any new Special Purpose Subsidiary, the Borrower
shall provide written notice to the Agent of the creation of any new Special
Purpose Subsidiary, accompanied by the declaration of trust, certificate or
articles of incorporation, bylaws or other organizational documents of the new
Special Purpose Subsidiary.
DEFAULT
Events of Default.
An Event of Default shall mean the occurrence or existence of any one or
more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):
The Borrower shall (i) fail to pay any principal of any Loan (including
scheduled installments, mandatory prepayments or the payment due at maturity) or
(ii) fail to pay any interest on any Loan or any other amount owing thereunder
or hereunder within five (5) Business Days after such interest or other amount
becomes due in accordance with the terms thereof or hereof; or
Any representation or warranty made at any time by the Borrower herein or
by the Borrower or any other Loan Party in any other Senior Loan Document, or in
any certificate, other instrument or statement furnished pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading in
any material respect as of the time it was made or furnished; or
The Borrower shall default in the observance or performance of any
covenant, condition or provision hereof or of any other Senior Loan Document and
such default shall continue unremedied for a period of fifteen (15) Business
Days after written notice thereof is given to the Borrower by the Agent at the
request of any Bank (such grace period to be applicable only in the event such
default can be remedied by corrective action of the Borrower as determined by
the Agent in its sole discretion); provided no grace period shall apply to
defaults in the observance or performance of Sections 8.2(a),(b),(c), (i), (j),
(k), (p), (u) or Section 8.3(e); or
The Borrower or any other Loan Party shall default in the observance or
performance of any covenant, condition or provision hereof or of any other
Senior Loan Document and such default shall continue unremedied for a period of
fifteen (15) Business Days after the Borrower or any other Loan Party becomes
aware of the occurrence thereof (such grace period to be applicable only in the
event such default can be remedied by corrective action of the Borrower or any
other Loan Party as determined by the Agent in its sole discretion); provided no
grace period shall apply to defaults in the observance or performance of
Sections 8.2(a), (b), (c), (i), (j), (k), (p), (u) or Section 8.3(e); or
A default or event of default shall occur at any time under the terms of
any Indebtedness (if any) of any of the Companies (other than under this
Agreement and the Notes), or all or any part of such Indebtedness shall not be
paid when due, and such default or event of default or non-payment continues
unremedied for fifteen (15) Business Days after any of the Companies becomes
aware thereof; provided no grace period hereunder shall apply in any event where
such default, event of default or nonpayment permits the holder of any such
Indebtedness of the Companies to accelerate such Indebtedness; or
Any final judgment(s) for the payment of money in excess of $10,000,000 in
the aggregate shall be entered against any of the Companies by a court having
jurisdiction in the premises, which judgment(s) are not discharged, vacated,
bonded or stayed pending appeal within a period of thirty (30) days from the
date of entry; or
Any of the Senior Loan Documents shall cease to be legal, valid and binding
agreements enforceable against any Loan Party executing the same or such Loan
Party's heirs, representatives, successors and assigns (as permitted under the
Senior Loan Documents) in accordance with the respective terms thereof or shall
in any way be terminated (except in accordance with its terms) or become or be
declared ineffective or inoperative or shall in any way be challenged or
contested by any Loan Party or cease to give or provide the rights, titles,
interests, remedies, powers or privileges intended to be created thereby; or
Within a period of twelve (12) consecutive calendar months, individuals who
were directors of the Borrower on the first day of such period shall cease to
constitute a majority of the board of directors of the Borrower other than as a
result of death, voluntary resignation or retirement.
A proceeding shall have been instituted in a court having jurisdiction in
the premises seeking a decree or order for relief in respect of any of the
Companies in an involuntary case under any applicable bankruptcy, insolvency,
reorganization or other similar Law now or hereafter in effect, or a receiver,
liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar
official) of any of the Companies shall have been appointed (pursuant to a
proceeding or otherwise) or for any substantial part of its property, or for the
winding-up or liquidation of its affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of thirty (30) consecutive
days or such court shall enter a decree or order granting any of the relief
sought in such proceeding; or
Any of the Companies shall commence a voluntary case under any applicable
bankruptcy, insolvency, reorganization or other similar Law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such Law, or shall consent to the appointment or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or other similar official) of itself or for any substantial part of its
property (other than voluntary liquidations permitted under Section 8.2(j)) or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any action in
furtherance of any of the foregoing.
Consequences of Event of Default.
If an Event of Default specified under subsections (a) through (h) of
Section 9.1 shall occur and be continuing, no Bank shall have any further
obligation to make Loans hereunder and the Agent, upon the request of the
Required Banks, shall by written notice to the Borrower take any or all of the
following actions: (i) terminate the Commitments, (ii) declare the unpaid
principal amount of the Notes then outstanding and all interest accrued thereon,
any unpaid fees and all other Indebtedness (including the stated amount of all
outstanding Letters of Credit of the Borrower to the Banks hereunder and
thereunder to be forthwith due and payable, and the same shall thereupon become
and be immediately due and payable to the Agent for the benefit of each Bank,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, and (iii) require the Borrower to, and Borrower
shall thereupon, deposit in a non-interest bearing account with the Agent, as
cash collateral for its obligations under the Senior Loan Documents, an amount
equal to the maximum amount currently or at any time thereafter available to be
drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to
the Agent and the Banks, and grants to the Agent and the Banks a security
interest in, all such cash as security for such obligations, provided that upon
the earlier of (x) the curing of all existing Events of Default to the
satisfaction of the Required Banks and (y) payment in full of the Loans,
satisfaction of all of the Borrower's other obligations hereunder and
termination of the Commitments, the Agent shall return such cash collateral to
the Borrower; and
If an Event of Default specified under subsections (i) or (j) of Section
9.1 shall occur, the Banks shall have no further obligation to make Loans
hereunder, the Commitments shall without any further action terminate and the
unpaid principal amount of the Notes then outstanding and all interest accrued
thereon, any unpaid fees and all other Indebtedness (including the stated amount
of all outstanding Letters of Credit) of the Borrower to the Banks hereunder and
thereunder shall be immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived; and
In case an Event of Default shall occur and be continuing, any Bank to whom
any obligation is owed by the Borrower hereunder or under any other Senior Loan
Document or any participant of such Bank which has agreed in writing to be bound
by the provisions of Section 10.14 and any branch, subsidiary or affiliate of
such Bank or participant anywhere in the world shall have the right, in addition
to all other rights and remedies available to it, without notice to the
Borrower, to set off against and apply to the then unpaid balance of all the
Loans and all other obligations of the Borrower hereunder or under any other
Senior Loan Document any debt owing to, and any other funds held in any manner
for the account of, the Borrower by such Bank or participant or by such branch,
subsidiary or affiliate, including all funds in all deposit accounts (whether
time or demand, general or special, provisionally credited or finally credited,
or otherwise) now or hereafter maintained by the Borrower for its own account
(but not including funds held in custodian or trust accounts) with such Bank or
participant or such branch, subsidiary or affiliate. Such right shall exist
whether or not any Bank or the Agent shall have made any demand under this
Agreement or any other Senior Loan Document, whether or not such debt owing to
or funds held for the account of the Borrower is or are matured or unmatured and
regardless of the existence or adequacy of any collateral, guaranty or any other
security, right or remedy available to any Bank or the Agent; and
In case an Event of Default shall occur and be continuing, and whether or
not the Agent shall have accelerated the maturity of the Loans of the Borrower
pursuant to any of the foregoing provisions of this Section 9.2, the Agent on
behalf of the Banks may proceed to protect and enforce its rights by suit in
equity, action at law and/or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Agreement or
the Notes, including as permitted by applicable Law the obtaining of the ex
parte appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Agent on behalf of the Banks; and
From and after the date on which the Agent has taken any action pursuant to
this Section 9.2 and until all obligations of the Borrower hereunder have been
paid in full, any and all payments or other collections received hereunder or
under other Senior Loan Documents shall be applied as follows:
first, to reimburse the Agent and the Banks for out-of-pocket costs,
expenses and disbursements, including reasonable attorneys' fees and legal
expenses, incurred by the Agent or the Banks in connection with collection of
any obligations of the Borrower under any of the Senior Loan Documents;
second, to the repayment of all Indebtedness then due and unpaid of the
Borrower to the Banks incurred under this Agreement or any of the Senior Loan
Documents, whether of principal, interest, fees, expenses or otherwise, in such
manner as the Agent may determine in its discretion, subject to the provisions
of Section 5.2; and
the balance, if any, as required by Law.
In addition to all of the rights and remedies contained in this Agreement
or in any of the other Senior Loan Documents, the Agent shall have all of the
rights and remedies under applicable Law, all of which rights and remedies shall
be cumulative and non-exclusive, to the extent permitted by Law. The Agent may,
and upon the request of the Required Banks shall, exercise all post-default
rights granted to the Agent and the Banks under the Senior Loan Documents or
applicable Law.
THE AGENT
Appointment.
Each Bank hereby irrevocably designates, appoints and authorizes PNC to act
as Agent for such Bank under this Agreement to execute and deliver or accept on
behalf of each of the Banks the other Senior Loan Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Note by the acceptance of a Note
shall be deemed irrevocably to authorize, the Agent to take such action on
behalf of such Bank and such holder under the provisions of this Agreement and
the other Senior Loan Documents and any other instruments and agreements
referred to herein, and to exercise such powers and to perform such duties
hereunder as are specifically delegated to or required of the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. PNC
agrees to act as the Agent on behalf of the Banks to the extent provided in this
Agreement.
Delegation of Duties.
The Agent may perform any of its duties hereunder by or through agents or
employees (provided such delegation is exercised with reasonable care and does
not constitute a relinquishment of its duties as Agent) and, subject to Sections
10.5, 10.6 and 10.7, shall be entitled to engage and pay for the advice or
services of any attorneys, accountants or other experts concerning all matters
pertaining to its duties hereunder and to rely upon any advice so obtained,
provided reasonable care is used in the selection of the foregoing experts.
Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those expressly
set forth in this Agreement and the other Senior Loan Documents and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities
shall be read into this Agreement or shall otherwise exist. The duties of the
Agent shall be mechanical and administrative in nature and shall include the
duty to provide to each Bank an executed original of such Bank's Revolving
Credit Note and an executed original of this Agreement and a copy of the other
Senior Loan Documents; the Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Each Bank expressly acknowledges (i) that the Agent
has not made any representations or warranties to it and that no act by the
Agent hereafter taken, including any review of the affairs of the Borrower or
any Subsidiary of the Borrower, shall be deemed to constitute any representation
or warranty by the Agent to any Bank; (ii) that it has made and will continue to
make, without reliance upon the Agent, its own independent investigation of the
financial condition and affairs and its own appraisal of the creditworthiness of
the Borrower in connection with this Agreement and the making and continuance of
the Loans hereunder; and (iii) except as expressly provided herein, that the
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Bank with any credit or other information with respect
thereto, whether coming into its possession before the making of any Loan or at
any time or times thereafter.
Actions in Discretion of the Agent; Instructions from the Banks.
----------------------------------------------------------------
The Agent agrees, upon the written request of the Required Banks, to take
or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, provided that the Agent shall not
be required to take any action which exposes the Agent to legal liability or
which is contrary to this Agreement or any other Senior Loan Document or
applicable Law. In the absence of a request by the Required Banks, the Agent
shall have authority, in its sole discretion, to take or not to take any such
action, unless this Agreement specifically requires the consent of the Required
Banks or all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
10.6. Subject to the provisions of Section 10.6, no Bank shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.
Reimbursement and Indemnification of the Agent by the Borrower.
---------------------------------------------------------------
The Borrower unconditionally agrees to pay or reimburse the Agent and save
the Agent harmless against (i) liability for the payment of all reasonable and
necessary out-of-pocket costs, expenses and disbursements for which
reimbursement is customarily obtained, including fees and expenses of counsel
and consultants, incurred by the Agent (a) in connection with the development,
negotiation, preparation, printing, execution, administration, interpretation
and performance of this Agreement and the other Senior Loan Documents, (b)
relating to any requested amendments, waivers or consents pursuant to the
provisions hereof, (c) in connection with the enforcement of this Agreement or
any other Senior Loan Document or collection of amounts due hereunder or
thereunder or the proof and allowability of any claim arising under this
Agreement or any other Senior Loan Document, whether in bankruptcy or
receivership proceedings or otherwise, and (d) in any workout or restructuring
or in connection with the protection, preservation, exercise or enforcement of
any of the terms hereof or of any rights hereunder or under any other Senior
Loan Document or in connection with any foreclosure, collection or bankruptcy
proceedings, and (ii) all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent, in its capacity as such, in any way relating to or arising out of this
Agreement or any other Senior Loan Document or any action taken or omitted by
the Agent hereunder or thereunder; provided that the Borrower shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (a) if
the same results from the Agent's gross negligence or willful misconduct, or (b)
if the Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense, or (c) if the same results
from a compromise or settlement agreement entered into without the consent of
the Borrower which consent shall not be unreasonably withheld.
Exculpatory Provisions.
Neither the Agent nor any of its directors, officers, employees, agents or
affiliates shall (i) be liable to any Bank for any action taken or omitted to be
taken by it or them hereunder, or in connection herewith, including pursuant to
any other Senior Loan Document, unless caused by its or their own gross
negligence or willful misconduct, (ii) be responsible in any manner to any of
the Banks for the effectiveness, enforceability, genuineness, validity or the
due execution of this Agreement or any other Senior Loan Document or for any
recital, representation, warranty, document, certificate, report or statement
herein or made or furnished under or in connection with this Agreement or any
other Senior Loan Document, or (iii) be under any obligation to any of the Banks
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions hereof or thereof on the part of the Borrower or
any Subsidiary of the Borrower, or the financial condition of the Borrower or
any Subsidiary of the Borrower, or the existence or possible existence of any
Event of Default or Potential Default. Neither the Agent nor any Bank nor any of
their respective directors, officers, employees, agents, attorneys or affiliates
shall be liable to the Borrower or any other Loan Party for consequential
damages resulting from any breach of contract, tort or other wrong in connection
with the negotiation, documentation or administration of the Senior Loan
Documents or the collection of the Loans.
Reimbursement and Indemnification of the Agent by the Banks.
------------------------------------------------------------
Each Bank agrees to reimburse and indemnify the Agent (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrower
to do so) in proportion to its Ratable Share from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Senior Loan
Document or any action taken or omitted by the Agent hereunder or thereunder,
provided that no such reimbursement shall be required with respect to expenses
incurred by the Agent during the time period through the Closing Date and no
Bank shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
(i) if the same relates to or arises out of the Agent's gross negligence or
willful misconduct, or (ii) if such Bank was not given notice of the subject
claim and the opportunity to participate in the defense thereof, at its expense,
or (iii) if the same results from a compromise and settlement agreement entered
into without the consent of the Required Banks, which consent shall not be
unreasonably withheld.
Reliance by the Agent.
The Agent shall be entitled to rely upon any writing, telegram, telex or
teletype message, facsimile, resolution, notice, consent, certificate, letter,
cablegram, statement, order or other document or conversation by telephone or
otherwise believed by it to be genuine and correct and to have been signed, sent
or made by the proper person or persons, and upon the advice and opinions of
counsel and other professional advisers selected by the Agent. The Agent shall
be fully justified in failing or refusing to take any action hereunder unless it
shall first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the occurrence
of any Potential Default or Event of Default unless the Agent has received
written notice from a Bank or the Borrower referring to this Agreement,
specifically describing such Potential Default or Event of Default and stating
that such notice is a "notice of default."
Notices.
The Agent shall promptly send to each Bank a copy of all notices received
from the Borrower and/or any other Loan Party pursuant to the provisions of this
Agreement or any other Senior Loan Document upon receipt thereof. The Agent
shall promptly notify the Borrower and the other Banks of each change in the
Base Rate and the effective date thereof.
PNC Bank, National Association and the Banks in Their Individual Capacities.
----------------------------------------------------------------------------
With respect to its Commitments and the Loans made by it, the Agent shall
have the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not the Agent, and the term "Banks" shall, unless the
context otherwise indicates, include the Agent in its individual capacity. PNC
and its affiliates and each of the Banks and their respective affiliates may,
without liability to account, except as prohibited herein, make loans to, accept
deposits from, discount drafts for, act as trustee under indentures of, and
generally engage in any kind of banking or trust business with, the Borrower and
its shareholders, any Subsidiary of the Borrower and their respective
Affiliates, in the case of the Agent, as though it were not acting as Agent
hereunder and in the case of each Bank, as though such Bank were not a Bank
hereunder.
Holders of Notes.
The Agent may deem and treat any payee of any Note as the owner thereof for
all purposes hereof unless and until written notice of the assignment or
transfer thereof shall have been filed with the Agent. Any request, authority or
consent of any person who at the time of making such request or giving such
authority or consent is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
Equalization of the Banks.
The Banks and the holders of any participations in any Notes agree among
themselves that, with respect to all amounts received by any Bank or any such
holder for application on any obligation hereunder or under any Note or under
any such participation, whether received by voluntary payment, by realization
upon security, by the exercise of the right of set-off or banker's lien, by
counterclaim or by any other non-pro rata source, equitable adjustment will be
made in the manner stated in the following sentence so that, in effect, all such
excess amounts will be shared ratably among the Banks and such holders in
proportion to their interests in payments under the Notes, except as otherwise
provided in Sections 4.4(b), 5.4 or 5.5. The Banks or any such holder receiving
any such amount shall purchase for cash from each of the other Banks an interest
in such Bank's Loans in such amount as shall result in a ratable participation
by the Banks and each such holder in the aggregate unpaid amount under the
Notes, provided that if all or any portion of such excess amount is thereafter
recovered from the Bank or the holder making such purchase, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
together with interest or other amounts, if any, required by Law (including
court order) to be paid by the Bank or the holder making such purchase.
Successor Agent.
The Agent (i) may resign as Agent with the consent of the Borrower, such
consent not to be unreasonably withheld or (ii) shall resign if such resignation
is requested by the Required Banks or required by Section 5.4(b), in either case
(i) or (ii) by giving not less than thirty (30) days' prior written notice to
the Borrower and the Banks. If the Agent shall resign under this Agreement, then
either (a) the Required Banks shall appoint from among the Banks a successor
agent for the Banks, subject to the consent of such successor agent by the
Borrower, such consent not to be unreasonably withheld, or (b) if a successor
agent shall not be so appointed and approved within the thirty (30) day period
following the Agent's notice to the Banks of its resignation, then the Agent
shall appoint, with the consent of the Borrower, such consent not to be
unreasonably withheld, a successor agent who shall serve as Agent until such
time as the Required Banks appoint, and the Borrower consents, which consent
shall not be unreasonably withheld, to the appointment of, a successor agent;
provided, the consent of the Borrower shall not be required pursuant to clause
(a) or (b) above upon the occurrence and during the continuance of an Event of
Default or Potential Default. Upon its appointment pursuant to either clause (a)
or (b) above, such successor agent shall succeed to the rights, powers and
duties of the Agent and the term "Agent" shall mean such successor agent,
effective upon its appointment, and the former Agent's rights, powers and duties
as Agent shall be terminated without any other or further act or deed on the
part of such former Agent or any of the parties to this Agreement. After the
resignation of any Agent hereunder, the provisions of this Article 10 shall
inure to the benefit of such former Agent, and such former Agent shall not by
reason of such resignation be deemed to be released from liability for any
actions taken or not taken by it while it was an Agent under this Agreement.
The Agent's Fee.
The Borrower shall pay to the Agent an annual fee (the "Agent's Fee"),
payable annually in advance on the Closing Date and on each anniversary of the
Closing Date (if extended pursuant to Section 2.13) and, if the Borrower elects
the Term-Out Option, on the Revolving Credit Expiration Date, as set forth in
that certain letter dated January 2, 2002 between the Borrower and the Agent.
Calculations.
In the absence of gross negligence or willful misconduct, the Agent shall
not be liable for any error in computing the amount payable to any Bank whether
in respect of the Loans, fees or any other amounts due to the Banks under this
Agreement. In the event an error in computing any amount payable to any Bank is
made, the Agent, the Borrower and each affected Bank shall, forthwith upon
discovery of such error, make such adjustments as shall be required to correct
such error, and any compensation therefor will be calculated at the Federal
Funds Effective Rate.
Beneficiaries.
Except as set forth in Sections 10.5, 10.14, 10.15 and 10.16, the
provisions of this Article 10 are solely for the benefit of the Agent and the
Banks, and the Borrower or any other Loan Party shall not have any rights to
rely on or enforce any of the provisions hereof. In performing its functions and
duties under this Agreement, the Agent shall act solely as agent of the Banks
and does not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for the Borrower or any other
Loan Party.
MISCELLANEOUS
Modifications, Amendments or Waivers.
-------------------------------------
With the written consent of the Required Banks, the Agent, acting on behalf
of all the Banks, and the Borrower may from time to time enter into written
agreements amending or changing any provision of this Agreement or any other
Senior Loan Document or the rights of the Banks, the Borrower or the other Loan
Parties hereunder or thereunder, or may grant written waivers or consents to a
departure from the due performance of the obligations of the Borrower or the
other Loan Parties hereunder or thereunder. Any such agreement, waiver or
consent made with such written consent shall be effective to bind all the Banks;
provided that without the written consent of all the Banks, no such agreement,
waiver or consent may be made which will:
increase the amount of the Revolving Credit Commitment or any Term Loan of
any Bank hereunder;
reduce the scheduled principal payments of any Loan, reduce the rate of
interest borne by any Loan, or reduce any fees payable to any Bank hereunder;
whether or not any Loans are outstanding, extend the time for payment of
principal or interest of any Loan or any fees payable to any Bank hereunder;
except as permitted under Section 8.2(k), release any Guarantor from the
Guaranty Agreement; or
amend Sections 8.2(k), 10.6 or this Section 11.1, alter any provision
hereof regarding the pro rata treatment of the Banks hereunder, change the
definition of Required Banks, or change any requirement providing for the Banks
or the Required Banks to authorize the taking of any action hereunder.
No Implied Waivers; Cumulative Remedies; Writing Required.
----------------------------------------------------------
No course of dealing and no delay or failure of the Agent or any Bank in
exercising any right, power, remedy or privilege under this Agreement or any
other Senior Loan Document shall affect any other or future exercise thereof or
operate as a waiver thereof; nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such a right, power,
remedy or privilege preclude any further exercise thereof or of any other right,
power, remedy or privilege. The rights and remedies of the Agent and the Banks
under this Agreement and the other Senior Loan Documents are cumulative and not
exclusive of any rights or remedies which they would otherwise have. Any waiver,
permit, consent or approval of any kind or character on the part of any Bank of
any breach or default under this Agreement or any such waiver of any provision
or condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
Reimbursement and Indemnification of the Banks by the Borrower; Taxes.
----------------------------------------------------------------------
The Borrower agrees unconditionally upon demand to pay or reimburse to each
Bank and to save such Bank harmless against (i) liability for the payment of all
reasonable and necessary out-of-pocket costs, expenses and disbursements for
which reimbursement is customarily obtained, including fees and expenses of
counsel for each Bank incurred by such Bank (a) after the date of the closing of
the syndication hereunder, in connection with the administration and
interpretation of this Agreement and other instruments and documents to be
delivered hereunder, (b) relating to any amendments, waivers or consents
pursuant to the provisions hereof, (c) in connection with the enforcement of
this Agreement or any other Senior Loan Document, or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim arising under
this Agreement or any other Senior Loan Document, whether in bankruptcy or
receivership proceedings or otherwise, and (d) in any workout, restructuring or
in connection with the protection, preservation, exercise or enforcement of any
of the terms hereof or of any rights hereunder or under any other Senior Loan
Document or in connection with any foreclosure, collection or bankruptcy
proceedings, and (ii) all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against such
Bank, in its capacity as such, in any way relating to or arising out of this
Agreement or any other Senior Loan Document or any action taken or omitted by
such Bank hereunder or thereunder; provided that the Borrower shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (a) if
the same results from such Bank's gross negligence or willful misconduct, or (b)
if the Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense, or (c) if the same results
from a compromise or settlement agreement entered into without the consent of
the Borrower, which consent shall not be unreasonably withheld. The Banks will
attempt to minimize the fees and expenses of legal counsel for the Banks by
considering the usage of one law firm to represent the Banks and the Agent where
appropriate. The Borrower agrees unconditionally to pay all stamp, document,
transfer, recording or filing taxes or fees and similar impositions now or
hereafter determined by the Agent or any Bank to be payable in connection with
this Agreement or any other Senior Loan Document, and the Borrower agrees
unconditionally to save the Agent and the Banks harmless from and against any
and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such taxes, fees or
impositions.
Holidays.
Whenever any payment or action to be made or taken hereunder shall be
stated to be due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day (except as provided in
Section 4.2(a) with respect to Euro-Rate Interest Periods), and such extension
of time shall be included in computing interest or fees, if any, in connection
with such payment or action.
Funding by Branch, Subsidiary or Affiliate.
Notional Funding. Each Bank shall have the right from time to time, without
notice to the Borrower, to deem any branch, subsidiary or affiliate (which for
the purposes of this Section 11.5 shall mean any corporation or association
which is directly or indirectly controlled by or is under direct or indirect
common control with any corporation or association which directly or indirectly
controls such Bank) of such Bank to have made, maintained or funded any Loan to
which the Euro-Rate Option applies at any time, provided that immediately
following (on the assumption that a payment was then due from the Borrower to
such other office) and as a result of such change the Borrower would not be
under any greater financial obligation pursuant to Section 5.5 than it would
have been in the absence of such change. Notional funding offices may be
selected by each Bank without regard to the Bank's actual methods of making,
maintaining or funding the Loans or any sources of funding actually used by or
available to such Bank.
Actual Funding. Each Bank shall have the right from time to time to make or
maintain any Loan by arranging for a branch, subsidiary or affiliate of such
Bank to make or maintain such Loan subject to the last sentence of this Section
11.5(b). If any Bank causes a branch, subsidiary or affiliate to make or
maintain any part of the Loans hereunder, all terms and conditions of this
Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Loans to the same extent as if such Loan were
made or maintained by such Bank but in no event shall any Bank's use of such a
branch, subsidiary or affiliate to make or maintain any part of the Loans
hereunder cause such Bank or such branch, subsidiary or affiliate to incur any
cost or expenses payable by the Borrower hereunder or require the Borrower to
pay any other compensation to any Bank (including any expenses incurred or
payable pursuant to Section 5.5) which would otherwise not be incurred.
Notices.
Any notice, request, demand, direction or other communication to be given
to or made upon any party hereto under any provision of this Agreement and any
financial report to be given pursuant to Section 8.3 hereof (each, for purposes
of this Section 11.6 only, a "Notice") shall be given or made by telephone or in
writing (which includes by means of electronic transmission (i.e., "e-mail") or
facsimile transmission or by setting forth such Notice on a site on the World
Wide Web (a "Website Posting") if Notice of such Website Posting (including the
information necessary to access such site) has previously been delivered to the
applicable parties hereto by another means set forth in this Section 11.6) in
accordance with this Section 11.6, provided, that any financial report to be
given pursuant to Section 8.3 hereof shall be made in writing. Any such Notice
must be delivered to the applicable parties hereto at the addresses and numbers
set forth under their respective names on Schedule 11.6 hereof or in accordance
with any subsequent unrevoked Notice from any such party that is given in
accordance with this Section 11.6. Any Notice shall be effective: In the case of
hand-delivery, when delivered;
If given by mail, four days after such Notice is deposited with the United
States Postal Service, with first-class postage prepaid, return receipt
requested;
In the case of a telephonic Notice, when a party is contacted by telephone,
if delivery of such telephonic Notice is confirmed no later than the next
Business Day by hand delivery, a facsimile or electronic transmission, a Website
Posting or an overnight courier delivery of a confirmatory Notice (received at
or before noon on such next Business Day);
In the case of a facsimile transmission, when sent to the applicable
party's facsimile machine's telephone number, if the party sending such Notice
receives confirmation of the delivery thereof from its own facsimile machine;
In the case of electronic transmission, when actually received;
In the case of a Website Posting, upon delivery of a Notice of such posting
(including the information necessary to access such site) by another means set
forth in this Section 11.6; and
If given by any other means (including by overnight courier), when actually
received.
Any Bank giving a Notice to a Loan Party shall concurrently send a copy
thereof to the Agent, and the Agent shall promptly notify the other Banks of its
receipt of such Notice.
Severability.
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
Governing Law.
Each Letter of Credit and Section 2.10 shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, as the same may be revised or amended
from time to time, and to the extent not inconsistent therewith the internal
laws of the Commonwealth of Pennsylvania without regard to its conflict of laws
principles and the balance of this Agreement shall be deemed to be a contract
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
Prior Understanding.
This Agreement supersedes all prior understandings and agreements, whether
written or oral, between the parties hereto and thereto relating to the
transactions provided for herein and therein, including any prior
confidentiality agreements and commitments.
Duration; Survival.
All representations and warranties of the Borrower contained herein or made
in connection herewith shall survive the making of the Loans and shall not be
waived by the execution and delivery of this Agreement, any investigation by the
Agent or the Banks, the making of the Loans, or payment in full of the Loans.
All covenants and agreements of the Borrower contained in Sections 8.1, 8.2 and
8.3 shall continue in full force and effect from and after the date hereof so
long as the Borrower may borrow hereunder and until payment of all amounts due
hereunder and termination of the Revolving Credit Commitments and the Swing Loan
Commitment. All covenants and agreements of the Borrower contained herein
relating to the payment of principal, interest, premiums, additional
compensation or expenses and indemnification, including those set forth in the
Notes, Article 5 and Sections 10.5 and 11.3, but not including third-party
claims with respect to which indemnification may be sought under Section 10.5 or
11.3, shall survive for a period of one (1) year after payment in full of the
Loans and termination of the Revolving Credit Commitments and the Swing Loan
Commitment, and the Banks shall make any claim with respect to the foregoing
within such period, provided that such period shall be extended with respect to
any matters pending at the end of such one (1) year period. Except as otherwise
provided above, all obligations of the Borrower and the other Loan Parties to
the Banks, including indemnification obligations with respect to third-party
claims under Section 10.5 or 11.3, shall survive the payment in full of the
Loans and of all other obligations of the Borrower and the other Loan Parties
and termination of the Revolving Credit Commitments and the Swing Loan
Commitment.
Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of the
Banks, the Agent, the Borrower and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights and
obligations hereunder or any interest herein except under the circumstances
contemplated under Section 8.1(a). Each Bank may, at its own cost, make
assignments of or sell participations in its Revolving Credit Commitment and any
Loan or Loans made by it to one (1) or more banks or other entities, subject to
compliance with the following requirements of this Section 11.11. The consent of
the Borrower shall be required for any assignment or participation except with
respect to fundings by a branch, subsidiary or affiliate pursuant to Section
11.5, and such consent shall not be unreasonably withheld, it being understood
that the Borrower may reasonably withhold such consent only if it determines in
good faith that the prospective assignee or participant is a significant
competitor, provided the consent of the Borrower shall not be required upon the
occurrence and during the continuation of an Event of Default or Potential
Default. The consent of the Agent shall also be required for any assignment
except with respect to fundings by a branch, subsidiary or affiliate pursuant to
Section 11.5, and such consent shall not be unreasonably withheld.
Except (i) as otherwise provided in Section 5.4 (b), or (ii) with the
consent of the Agent and the Borrower which consent may be withheld in their
sole discretion, assignments may not be made in amounts less than $5,000,000.
In the case of an assignment, upon the Agent's and the Borrower's consent
thereto and receipt by the Agent from the assignee of (i) a duly executed
Assignment and Assumption Agreement and (ii) a Three Thousand Five Hundred
Dollar ($3,500) assignment fee payable to the Agent, the assignee shall have, to
the extent of such assignment (unless otherwise provided therein), the same
rights, benefits and obligations as it would have if it had been a signatory
Bank hereunder. The Revolving Credit Commitments in Section 2.1 shall then be
adjusted accordingly and, upon surrender of any Note subject to such assignment,
the Borrower shall execute and deliver a new Revolving Credit Note to the
assignee in an amount equal to the amount of the Revolving Credit Commitment
assumed by it and a new Revolving Credit Note to the assigning Bank in an amount
equal to the Revolving Credit Commitment retained by it hereunder.
In the case of a participation, except as specified in Section 9.2(c), the
participant shall not have any rights under this Agreement or any other Senior
Loan Document, all of such Bank's obligations under this Agreement or any other
Senior Loan Document shall remain unchanged and all amounts payable by the
Borrower hereunder or thereunder shall be determined as if such Bank had not
sold such participation. Any participant's rights against the Bank selling such
participation shall be set forth in the agreement executed by such Bank in favor
of such participant and shall not include any voting rights except with respect
to changes of the type referenced in clauses (i), (ii), (iii) or (iv), of
Section 11.1 and in clause (v) of Section 11.1 with respect to amending clauses
(i), (ii), (iii) or (iv) of Section 11.1.
Each Bank may furnish any publicly available information concerning the
Borrower and, on a confidential basis subject to receipt of a confidentiality
agreement in substantially the form of Exhibit J, any other information
concerning the Borrower in the possession of such Bank from time to time to
assignees and participants (including prospective assignees or participants),
provided such assignees and participants agree to be bound by the provisions of
Section 11.12.
Confidentiality.
The Agent and the Banks each agree to keep confidential all information
obtained from the Borrower which is nonpublic and confidential or proprietary in
nature (including any information the Borrower specifically designates as
confidential), except as provided below, and to use such information only in
connection with their respective capacities under this Agreement and for the
purposes contemplated hereby. The Agent and the Banks shall be permitted to
disclose such information (i) to outside legal counsel, accountants and other
professional advisors who need to know such information in connection with the
administration and enforcement of this Agreement, subject to receipt of written
undertakings from such persons to maintain the confidentiality, (ii) to
prospective assignees and participants as contemplated by Section 11.11 subject
to compliance with the requirements of that Section, (iii) to the extent
requested by any bank regulatory authority or, with notice to the Borrower to
the extent practicable, as otherwise required by applicable Law or by any
subpoena or similar legal process, or in connection with any investigation or
proceeding arising out of the transactions contemplated by this Agreement, (iv)
if such information is already in the possession of the Bank on a
nonconfidential basis or is currently or becomes publicly available other than
as a result of a breach of this Agreement by the Banks or the Agent or is
currently or becomes available to the Banks or the Agent from a source not
subject to confidentiality restrictions, or (v) the Borrower shall have
consented to such disclosure.
Counterparts.
This Agreement may be executed by different parties hereto on any number of
separate counterparts, each of which, when so executed and delivered, shall be
an original, and all such counterparts shall together constitute one and the
same instrument.
The Agent's or the Bank's Consent.
Whenever the Agent's or any Bank's consent is required to be obtained under
this Agreement or any of the other Senior Loan Documents as a condition to any
action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
Exceptions.
The representations, warranties and covenants contained herein shall be
independent of each other and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exception be deemed to permit any action or omission that would be in
contravention of applicable Law (including the Investment Company Act).
Consent to Jurisdiction; Waiver of Jury Trial.
----------------------------------------------
The Borrower hereby irrevocably consents to the non-exclusive jurisdiction
of the Court of Common Pleas of Allegheny County and the United States District
Court for the Western District of Pennsylvania, and waives personal service of
any and all process upon it and consents that all such service of process be
made by certified or registered mail directed to the Borrower at the addresses
provided for in Section 11.6 and service so made shall be deemed to be completed
upon actual receipt thereof. The Borrower waives any objection to jurisdiction
and venue of any action instituted against it as provided herein and agrees not
to assert any defense based on lack of jurisdiction or venue. THE BORROWER, THE
AGENT AND EACH OF THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING OR COUNTERCLAIM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER SENIOR
LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
Limitation of Liability.
TO THE FULLEST EXTENT PERMITTED BY LAW, NO CLAIM MAY BE MADE BY THE
BORROWER OR ANY OTHER LOAN PARTY OR ANY OTHER PERSON AGAINST THE AGENT AND THE
BANKS, OR ANY OF THEM, OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY
OR AGENT OF THE AGENT OR THE BANKS FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES (AS DIFFERENTIATED FROM DIRECT AND ACTUAL DAMAGES) IN RESPECT OF ANY
CLAIM ARISING FROM OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION
HEREWITH OR THEREWITH (WHETHER FOR BREACH OF CONTRACT, TORT OR ANY OTHER THEORY
OF LIABILITY); AND THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE
UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT
KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
The parties to this Agreement are expressly put on notice of the limitation
of liability as set forth in the declarations of trust of certain of the
Borrower's Subsidiaries and agree that the obligations assumed by the Borrower
and its Subsidiaries pursuant to this Agreement and the other Senior Loan
Documents be limited in any case to the Borrower and its Subsidiaries and their
respective assets. The parties to this Agreement shall not seek satisfaction of
any obligation of the Borrower or its Subsidiaries under this Agreement from any
of the shareholders of the Borrower, the trustees, officers or agents of those
entities, or any of them, except as contemplated under the declarations of trust
of certain of the Borrower's Subsidiaries. Notwithstanding the foregoing,
nothing in such declarations of trust or elsewhere shall prohibit the Agent on
behalf of the Banks from pursuing any remedies against any outside professionals
or consultants employed by the Companies.
Tax Withholding Clause.
At least five (5) Business Days prior to the first date on which interest
or fees are payable hereunder for the account of any Bank, each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Agent two (2) duly
completed copies of (i) IRS Form W-9, 4224 or 1001, or other applicable form
prescribed by the IRS, certifying in either case that such Bank is entitled to
receive payments under this Agreement and the other Senior Loan Documents
without deduction or withholding of any United States federal income taxes, or
is subject to such tax at a reduced rate under an applicable tax treaty, or (ii)
Form W-8 or other applicable form or a certificate of the Bank indicating that
no such exemption or reduced rate is allowable with respect to such payments.
Each Bank which so delivers a Form W-8, W-9, 4224 or 1001 further undertakes to
deliver to each of the Borrower and the Agent two (2) additional copies of such
form (or a successor form) on or before the date that such form expires or
becomes obsolete or after the occurrence of any event requiring a change in the
most recent form so delivered by it, and such amendments thereto or extensions
or renewals thereof as may be reasonably requested by the Borrower or the Agent,
either certifying that such Bank is entitled to receive payments under this
Agreement and the other Senior Loan Documents without deduction or withholding
of any United States federal income taxes or is subject to such tax at a reduced
rate under an applicable tax treaty or stating that no such exemption or reduced
rate is allowable. The Agent shall be entitled to withhold United States federal
income taxes at the full withholding rate unless the Bank establishes an
exemption or at the applicable reduced rate as established pursuant to the above
provisions.
[SIGNATURE PAGES FOLLOW]
SIGNATURE PAGE 1 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Second Amended and Restated Credit Agreement as
of the date first above written.
FEDERATED INVESTORS, INC.
By: /s/ Denis McAuley III
--------------------------------------
Name: Denis McAuley, III
Title: Vice President
SIGNATURE PAGE 2 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
individually and as Agent
By: /s/ Bruce G. Shearer
--------------------------------------
Name: Bruce G. Shearer
Title: Vice President
SIGNATURE PAGE 3 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
BANK OF AMERICA, N.A.
By: /s/ Elizabeth W.F. Bishop
--------------------------------------
Name: Elizabeth W.F. Bishop
Title: Vice President
SIGNATURE PAGE 4 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
FIRSTAR BANK, N.A.
By: /s/ David J. Dannemiller
--------------------------------------
Name: David J. Dannemiller
Title: Vice President
SIGNATURE PAGE 5 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
STATE STREET BANK AND TRUST COMPANY
By: /s/ John T. Daley
--------------------------------------
Name: John T. Daley
Title: Vice President
SIGNATURE PAGE 6 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
BANK ONE, NA (Main Office Chicago)
By: /s/ Mona R. Giuliano
--------------------------------------
Name: Mona R. Giuliano
Title: Assistant Vice President
SIGNATURE PAGE 7 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
CITIBANK, N.A.
By: /s/ Pierre Guigui
--------------------------------------
Name: Pierre Guigui
Title: Vice President
SIGNATURE PAGE 8 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
FLEET NATIONAL BANK
By: /s/ Lawrence Davis
--------------------------------------
Name: Lawrence Davis
Title: Portfolio Manager
SIGNATURE PAGE 9 OF 9 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
FIFTH THIRD BANK
By: /s/ Christopher Helmeci
--------------------------------------
Name: Christopher Helmeci
Title: Vice President
SCHEDULE 1.1(a)
COMMITMENTS OF THE BANKS
Amount of Commitment for
Revolving Credit Loans
Bank (US$) Ratable Share %
PNC Bank, National Association $22,500,000 15.0%
Bank of America, National $18,750,000 12.5%
Association
Firstar Bank, N.A. $18,750,000 12.5%
State Street Bank and Trust Company $18,750,000 12.5%
Bank One, NA (Main Office Chicago) $18,750,000 12.5%
Citibank, N.A. $18,750,000 12.5%
Fleet National Bank $18,750,000 12.5%
Fifth Third Bank $15,000,000 10.0%
----------- -----
TOTAL $150,000,000 100.0%
Exhibit 10.30
FEDERATED INVESTORS, INC.
STOCK INCENTIVE PLAN
(Adopted as of February 20, 1998)
(Amended as of August 26,1998)
(Amended as of August 31, 1998)
(Amended as of January 26, 1999)
(Amended as of May 17, 1999)
(Amended as of January 29, 2002)
1. Purpose
The purpose of the Federated Investors, Inc. Stock Incentive Plan (the
"Plan") is to:
Facilitate the assumption by Federated Investors, Inc., as the surviving
corporation of a merger with its parent corporation, Federated Investors, of
certain stock incentive awards previously made by Federated Investors to its
employees; and
Continue to promote the long-term growth and performance of Federated
Investors, Inc. and its affiliates and to attract and retain outstanding
individuals by awarding directors, executive officers and key employees stock
options, stock appreciation rights, performance awards, restricted stock and/or
other stock-based awards.
2. Definitions
The following definitions are applicable to the Plan:
"Award" means the grant of Options, SARs, Performance Awards, Restricted
Stock or other stock-based award under the Plan.
"Board" means the Board of Directors of the Company.
"Board Committee" means the committee of the Board appointed in accordance
with Section 4 to administer the Plan.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class B Common Stock of the Company, no par value
per share.
"Company" means Federated Investors, Inc., a Pennsylvania corporation, and
its successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, on any date, the closing sale price of one share
of Common Stock, as reported on the New York Stock Exchange or any national
securities exchange on which the Common Stock is then listed or on The NASDAQ
Stock Market's National Market ("NNM") if the Common Stock is then quoted
thereon, as published in the Wall Street Journal or another newspaper of general
circulation, as of such date or, if there were no sales reported as of such
date, as of the last date preceding such date as of which a sale was reported.
In the event that the Common Stock is not listed for trading on a national
securities exchange or authorized for quotation on NNM, Fair Market Value shall
be the closing bid price as reported by The NASDAQ Stock Market or The NASDAQ
SmallCap Market (if applicable), or if no such prices shall have been so
reported for such date, on the next preceding date for which such prices were so
reported. In the event that the Common Stock is not listed on the New York Stock
Exchange, a national securities exchange or NNM, and is not listed for quotation
on The NASDAQ Stock Market or The NASDAQ SmallCap Market, Fair Market Value
shall be determined in good faith by the Board Committee in its sole discretion,
and for this purpose the Board Committee shall be entitled to rely on the
opinion of a qualified appraisal firm with respect to such Fair Market Value,
but the Board Committee shall in no event be obligated to obtain such an opinion
in order to determine Fair Market Value.
"Grant Date" means the date on which the grant of an Option under Section
5.1 hereof or a SAR under Section 6.1 hereof becomes effective pursuant to the
terms of the Stock Option Agreement or Stock Appreciation Rights Agreement, as
the case may be, relating thereto.
"Incentive Stock Option" means an option to purchase shares of Common Stock
designated as an incentive stock option and which complies with Section 422 of
the Code.
"Non-Statutory Stock Option" means an option to purchase shares of Common
Stock which is not an Incentive Stock Option.
"Offering" means the initial public offering of Class B Common Stock by
United States and international underwriters.
"Option" means any option to purchase shares of Common Stock granted under
Sections 5.1 or 10.1 hereof.
"Option Price" means the purchase price of each share of Common Stock under
an Option.
"Outside Director" means a member of the Board who is not an employee of
the Company or any Subsidiary.
"Participant" means any salaried employee of the Company and its affiliates
designated by the Board Committee to receive an Award under the Plan.
"Performance Award" means an Award of shares of Common Stock granted under
Section 7.
"Performance Period" means the period of time established by the Board
Committee for achievement of certain objectives under Section 7.1 hereof.
"Restriction Period" means the period of time specified in a Performance
Share Award Agreement or a Restricted Stock Award Agreement, as the case may be,
between the Participant and the Company during which the following conditions
remain in effect: (i) certain restrictions on the sale or other disposition of
shares of Common Stock awarded under the Plan, and (ii) subject to the terms of
the applicable agreement, a requirement of continued employment of the
Participant in order to prevent forfeiture of the Award.
"Stock Appreciation Rights" or "SARs" means the right to receive a cash
payment from the Company equal to the excess of the Fair Market Value of a
stated number of shares of Common Stock at the exercise date over a fixed price
for such shares.
"Subsidiary" means any corporation, business trust or partnership (other
than the Company) in an unbroken chain of corporations, business trusts or
partnerships beginning with the Company if each of the corporations, business
trusts or partnerships (other than the last corporation, business trust or
partnership in the chain) owns stock, beneficial interests or partnership
interests possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations, business trusts or
partnerships in the chain.
"Ten Percent Holder" means a person who owns (within the meaning of Section
424(d) of the Code) more than ten percent of the voting power of all classes of
stock of the Company or of its parent corporation or Subsidiary.
3. Shares Subject to Plan
3.1 Shares Reserved under the Plan. Subject to adjustment as provided in
Section 3.2, the number of shares of Common Stock cumulatively available under
the Plan shall equal 13,500,000 shares. All of such authorized shares of Common
Stock shall be available for the grant of Incentive Stock Options under the
Plan. No Participant shall receive Awards in respect of more than 600,000 shares
of Common Stock in any fiscal year of the Company. In addition, the aggregate
Fair Market Value (determined on the Grant Date) of Common Stock with respect to
which Incentive Stock Options granted a Participant become exercisable for the
first time in any single calendar year shall not exceed $100,000. Any Common
Stock issued by the Company through the assumption or substitution of
outstanding grants from an acquired corporation or entity shall not reduce the
shares available for grants under the Plan. Shares of Common Stock to be issued
pursuant to the Plan may be authorized and unissued shares, treasury shares, or
any combination thereof. Subject to Section 6.2 hereof, if any shares of Common
Stock subject to an Award hereunder are forfeited or any such Award otherwise
terminates without the issuance of such shares of Common Stock to a Participant,
or if any shares of Common Stock are surrendered by a Participant in full or
partial payment of the Option Price of an Option, such shares, to the extent of
any such forfeiture, termination or surrender, shall again be available for
grant under the Plan. 3.2 Adjustments. The aggregate number of shares of Common
Stock which may be awarded under the Plan and the terms of outstanding Awards
shall be adjusted by the Board Committee to reflect a change in the
capitalization of the Company, including but not limited to, a stock dividend or
split, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, spin-off, spin-out or other distribution of assets to
shareholders; provided that the number and price of shares subject to
outstanding Options granted to Outside Directors pursuant to Section 10 hereof
and the number of shares subject to future Options to be granted pursuant to
Section 10 shall be subject to adjustment only as set forth in Section 10
hereof. 3.3 Merger With Federated Investors. Notwithstanding the foregoing, the
Company's merger with Federated Investors and assumption of its outstanding
stock incentive awards will not result in any adjustment to the number of shares
available under the Plan and will reduce the number of shares available under
this Plan accordingly. For purposes of this Plan, after the merger all such
stock incentive awards shall be treated as Awards under this Plan, except that
any Grant Date, Performance Period or Restricted Period shall relate back to the
date on which the awards were made by Federated Investors. 4. Administration of
Plan
4.1 Administration by the Board Committee. The Plan shall be administered
as follows.
(a) Prior to an Offering, the Plan shall be administered by either the
full Board or by the Board Committee if one is established by the
Board. Prior to an Offering, any member of the Board may serve on the
Board Committee.
(b) After an Offering, the Plan shall be administered by the Board
Committee, which shall consist of no fewer than two members of the
Board who are (i) "Non-Employee Directors" for purposes of Rule 16b-3
of the Commission under the Exchange Act and (ii) to the extent
required to ensure that awards under the Plan are exempt for purposes
of Section 162(m) of the Code, "outside directors" for purposes of
Section 162(m); provided, however, that the Board Committee may
delegate some or all of its authority and responsibility under the
Plan with respect to Awards to Participants who are not subject to
Section 16 of the Exchange Act to the Chief Executive Officer of the
Company. In the event that, after an Offering, the Board does not have
two members who qualify as "Non-Employee Directors" for purposes of
Rule 16b-3, the Plan shall be administered by the full Board.
(c) The Board Committee shall have authority to interpret the Plan, to
establish, amend, and rescind any rules and regulations relating to
the Plan, to prescribe the form of any agreement or instrument
executed in connection herewith, and to make all other determinations
necessary or advisable for the administration of the Plan. All such
interpretations, rules, regulations and determinations shall be
conclusive and binding on all persons and for all purposes. In
addition, the Board Committee shall have authority, without amending
the Plan, to grant Awards hereunder to Participants who are foreign
nationals or employed outside the United States or both, on terms and
conditions different from those specified herein as may, in the sole
judgment and discretion of the Board Committee, be necessary or
desirable to further the purpose of the Plan.
(d) Notwithstanding the foregoing, the Board Committee shall not have any
discretion with respect to Options granted to Outside Directors
pursuant to Section 10 hereof. In the event that the Board does not
establish a Board Committee for any reason, any reference in this Plan
to the Board Committee shall be deemed to refer to the full Board.
4.2 Designation of Participants. Participants shall be selected, from time
to time, by the Board Committee, from those executive officers and key employees
of the Company and its affiliates who, in the opinion of the Board Committee,
have the capacity to contribute materially to the continued growth and
successful performance of the Company. Outside Directors shall be Participants
only in accordance with Section 10.
5. Stock Options
5.1 Grants. Options may be granted, from time to time, to such Participants
as may be selected by the Board Committee on such terms, not inconsistent with
this Plan, as the Board Committee shall determine. The Option Price shall be
determined by the Board Committee effective on the Grant Date; provided,
however, that (i) in the case of Incentive Stock Options granted to a
Participant who on the Grant Date is not a Ten Percent Holder, such price shall
not be less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock on the Grant Date, (ii) in the case of an Incentive Stock Option
granted to a Participant who on the Grant Date is a Ten Percent Holder, such
price shall be not less than one hundred and ten percent (110%) of the Fair
Market Value of a share of Common Stock on the Grant Date, and (iii) in the case
of Non-Statutory Stock Options, such price shall be not less than eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the Grant
Date. The number of shares of Common Stock subject to each Option granted to
each Participant, the terms of each Option, and any other terms and conditions
of an Option granted hereunder shall be determined by the Board Committee, in
its sole discretion, effective on the Grant Date; provided, however, that no
Incentive Stock Option shall be exercisable any later than ten (10) years from
the Grant Date. Each Option shall be evidenced by a Stock Option Agreement
between the Participant and the Company which shall specify the type of Option
granted, the Option Price, the term of the Option, the number of shares of
Common Stock to which the Option pertains, the conditions upon which the Option
becomes exercisable and such other terms and conditions as the Board Committee
shall determine.
5.2 Payment of Option Price. No shares of Common Stock shall be issued upon
exercise of an Option until full payment of the Option Price therefor by the
Participant. Upon exercise, the Option Price may be paid in cash, and, subject
to approval by the Board Committee, in shares of Common Stock having a Fair
Market Value equal to the Option Price, or in any combination thereof, or in any
other manner approved by the Board Committee.
5.3 Rights as Shareholders. Participants shall not have any of the rights
of a shareholder with respect to any shares subject to an Option until such
shares have been issued upon the proper exercise of such Option.
5.4 Transferability of Options. Options granted under the Plan may not be
sold, transferred, pledged, assigned, hypothecated or otherwise disposed of
except by will or by the laws of descent and distribution; provided, however,
that, if authorized in the applicable Award agreement, a Participant may make
one or more gifts of Options granted hereunder to members of the Participant's
immediate family or trusts or partnerships for the benefit of such family
members. All Options granted to a Participant under the Plan shall be
exercisable during the lifetime of such Participant only by such Participant,
his agent, guardian or attorney-in-fact; provided, however, that all Options
transferred in a manner consistent with the terms of an Award agreement may be
exercised by the transferee.
5.5 Termination of Employment. If a Participant ceases to be an employee of
either the Company or of any of its affiliates, the Options granted hereunder
shall be exercisable in accordance with the Stock Option Agreement between the
Participant and the Company.
5.6 Designation of Incentive Stock Options. Except as otherwise expressly
provided in the Plan, the Board Committee may, at the time of the grant of an
Option, designate such Option as an Incentive Stock Option under Section 422 of
the Code.
5.7 Certain Incentive Stock Option Terms. In the case of any grant of an
Incentive Stock Option, whenever possible, each provision in the Plan and in any
related agreement shall be interpreted in such a manner as to entitle the Option
holder to the tax treatment afforded by Section 422 of the Code, and if any
provision of this Plan or such agreement shall be held not to comply with
requirements necessary to entitle such Option to such tax treatment, then (i)
such provision shall be deemed to have contained from the outset such language
as shall be necessary to entitle the Option to the tax treatment afforded under
Section 422 of the Code, and (ii) all other provisions of this Plan and the
agreement relating to such Option shall remain in full force and effect. If any
agreement covering an Option designated by the Board Committee to be an
Incentive Stock Option under this Plan shall not explicitly include any terms
required to entitle such Incentive Stock Option to the tax treatment afforded by
Section 422 of the Code, all such terms shall be deemed implicit in the
designation of such Option and the Option shall be deemed to have been granted
subject to all such terms.
6. Stock Appreciation Rights
6.1 Grants. Stock Appreciation Rights may be granted, from time to time, to
such salaried employees of the Company and its affiliates as may be selected by
the Board Committee. SARs may be granted at the discretion of the Board
Committee either (i) in connection with an Option or (ii) independent of an
Option. The price from which appreciation shall be computed shall be established
by the Board Committee at the Grant Date; provided, however, that such price
shall not be less than one-hundred percent (100%) of the Fair Market Value of
the number of shares of Common Stock subject of the grant on the Grant Date. In
the event the SAR is granted in connection with an Option, the fixed price from
which appreciation shall be computed shall be the Option Price. Each grant of a
SAR shall be evidenced by a Stock Appreciation Rights Agreement between the
Participant and the Company which shall specify the type of SAR granted, the
number of SARs, the conditions upon which the SARs vest and such other terms and
conditions as the Board Committee shall determine.
6.2 Exercise of SARs. SARs may be exercised upon such terms and conditions
as the Board Committee shall determine; provided, however, that SARs granted in
connection with Options may be exercised only to the extent the related Options
are then exercisable. Notwithstanding Section 3.1 hereof, upon exercise of a SAR
granted in connection with an Option as to all or some of the shares subject of
such Award, the related Option shall be automatically canceled to the extent of
the number of shares subject of the exercise, and such shares shall no longer be
available for grant hereunder. Conversely, if the related Option is exercised as
to some or all of the shares subject of such Award, the related SAR shall
automatically be canceled to the extent of the number of shares of the exercise,
and such shares shall no longer be available for grant hereunder.
6.3 Payment of Exercise. Upon exercise of a SAR, the holder shall be paid
in cash the excess of the Fair Market Value of the number of shares subject of
the exercise over the fixed price, which in the case of a SAR granted in
connection with an Option shall be the Option Price for such, shares.
6.4 Rights of Shareholders. Participants shall not have any of the rights
of a shareholder with respect to any Options granted in connection with a SAR
until shares have been issued upon the proper exercise of an Option.
6.5 Transferability of SARs. SARs granted under the Plan may not be sold,
transferred, pledged, assigned, hypothecated or otherwise disposed of except by
will or by the laws of descent and distribution. All SARs granted to a
Participant under the Plan shall be exercisable during the lifetime of such
Participant only by such Participant, his agent, guardian, or attorney-in-fact.
6.6 Termination of Employment. If a Participant ceases to be an employee of
either the Company or of any of its affiliates, SARs granted hereunder shall be
exercisable in accordance with the Stock Appreciation Rights Agreement between
the Participant and the Company.
7. Performance Awards
7.1 Awards. Awards of shares of Common Stock may be made, from time to
time, to such Participants as may be selected by the Board Committee. Such
shares shall be delivered to the Participant only upon (i) achievement of such
corporate, sector, division, individual or any other objectives or criteria
during the Performance Period as shall be established by the Board Committee and
(ii) the expiration of the Restriction Period. Except as provided in the
Performance Share Award Agreement between the Participant and the Company,
shares subject to such Awards under this Section 7.1 shall be released to the
Participant only after the expiration of the relevant Restriction Period. Each
Award under this Section 7.1 shall be evidenced by a Performance Share Award
Agreement between the Participant and the Company which shall specify the
applicable performance objectives, the Performance Period, the Restriction
Period, any forfeiture conditions and such other terms and conditions as the
Board Committee shall determine.
7.2 Stock Certificates. Upon an Award of shares of Common Stock under
Section 7.1 of the Plan, the Company shall issue a certificate registered in the
name of the Participant bearing the following legend and any other legend
required by any federal or state securities laws or by the Delaware Business
Trust Act:
"The sale or other transfer of the shares of stock
represented by this certificate is subject to certain
restrictions set forth in the Federated Investors, Inc. Stock
Incentive Plan, administrative rules adopted pursuant to such
Plan and a Performance Share Award Agreement between the
registered owner and Federated Investors, Inc. A copy of the
Plan, such rules and such Agreement may be obtained from the
Secretary of Federated Investors, Inc."
Unless otherwise provided in the Performance Share Award Agreement between
the Participant and the Company, such certificates shall be retained by the
Company until the expiration of the Restriction Period. Upon the expiration of
the Restriction Period, the Company shall (i) cause the removal of the legend
from the certificates for such shares as to which a Participant is entitled in
accordance with the Performance Share Award Agreement between the Participant
and the Company and (ii) release such shares to the custody of the Participant.
7.3 Rights as Shareholders. Subject to the provisions of the Performance
Share Award Agreement between the Participant and the Company, during the
Performance Period, dividends and other distributions paid with respect to all
shares awarded thereto under Section 7.1 hereof shall, in the discretion of the
Board Committee, either be paid to Participants or held in escrow by the Company
and paid to Participants only at such time and to such extent as the related
Performance Award is earned. During the period between the completion of the
Performance Period and the expiration of the Restriction Period, Participants
shall be entitled to receive dividends and other distributions only as to the
number of shares determined in accordance with the Performance Share Award
Agreement between the Participant and the Company.
7.4 Transferability of Shares. Certificates evidencing the shares of Common
Stock awarded under the Plan shall not be sold, exchanged, assigned,
transferred, pledged, hypothecated or otherwise disposed of until the expiration
of the Restriction Period.
7.5 Termination of Employment. If a Participant ceases to be an employee of
either the Company or of one of its affiliates, the number of shares subject of
the Award, if any, to which the Participant shall be entitled shall be
determined in accordance with the Performance Share Award Agreement between the
Participant and the Company.
7.6 Transfer of Employment. If a Participant transfers employment from one
business unit of the Company or any of its affiliates to another business unit
during a Performance Period, such Participant shall be eligible to receive such
number of shares of Common Stock as the Board Committee may determine based upon
such factors as the Board Committee in its sole discretion may deem appropriate.
8. Restricted Stock Awards
8.1 Awards. Awards of shares of Common Stock subject to such restrictions
as to vesting and otherwise as the Board Committee shall determine, may be made,
from time to time, to Participants as may be selected by the Board Committee.
The Board Committee may in its sole discretion at the time of the Award or at
any time thereafter provide for the early vesting of such Award prior to the
expiration of the Restriction Period. Each Award under this Section 8.1 shall be
evidenced by a Restricted Stock Award Agreement between the Participant and the
Company which shall specify the vesting schedule, any rights of acceleration,
any forfeiture conditions, and such other terms and conditions as the Board
Committee shall determine.
8.2 Stock Certificates. Upon an Award of shares of Common Stock under
Section 8.1 of the Plan, the Company shall issue a certificate registered in the
name of the Participant bearing the following legend and any other legend
required by any federal or state securities laws or by the Delaware Business
Trust Act.
"The sale or other transfer of the shares of stock
represented by this certificate is subject to certain
restrictions set forth in the Federated Investors, Inc. Stock
Incentive Plan, administrative rules adopted pursuant to such
Plan and a Restricted Stock Award Agreement between the
registered owner and Federated Investors, Inc. A copy of the
Plan, such rules and such agreement may be obtained form the
Secretary of Federated Investors, Inc."
Unless otherwise provided in the Restricted Stock Award Agreement between
the Participant and the Company, such certificates shall be retained in custody
by the Company until the expiration of the Restriction Period. Upon the
expiration of the Restriction Period, the Company shall (i) cause the removal of
the legend from the certificates for such shares as to which a Participant is
entitled in accordance with the Restricted Stock Award Agreement between the
Participant and the Company and (ii) release such shares to the custody of the
Participant.
8.3 Rights as Shareholders. During the Restriction Period, Participants
shall be entitled to receive dividends and other distributions paid with respect
to all shares awarded thereto under Section 8.1 hereof.
8.4 Transferability of Shares. Certificates evidencing the shares of Common
Stock awarded under the Plan shall not be sold, exchanged, assigned,
transferred, pledged, hypothecated or otherwise disposed of until the expiration
of the Restriction Period.
8.5 Termination of Employment. If a Participant ceases to be an employee of
either the Company or of any of its affiliates, the number of shares subject of
the Award, if any, to which the Participant shall be entitled shall be
determined in accordance with the Restricted Stock Award Agreement between the
Participant and the Company. All remaining shares as to which restrictions apply
at the date of termination of employment shall be forfeited subject to such
exceptions, if any, authorized by the Board Committee.
9. Other Stock-Based Awards
Awards of shares of Common Stock and other awards that are valued in whole
or in part by reference to, or are otherwise based on, Common Stock, may be
made, from time to time, to salaried employees of the Company and its affiliates
as may be selected by the Board Committee. Such Awards may be made alone or in
addition to or in connection with any other Award hereunder. The Board Committee
may in its sole discretion determine the terms and conditions of any such Award.
Each such Award shall be evidenced by an agreement between the Participant and
the Company which shall specify the number of shares of Common Stock subject of
the Award, any consideration therefor, any vesting or performance requirements
and such other terms and conditions as the Board Committee shall determine.
10. Outside Directors' Options
10.1 Initial Grants. Effective on the dates set forth below, each category
of Outside Director of the Company described below shall be automatically
granted an Option to purchase 5,000 shares of Common Stock:
(i) for any Outside Director serving on the Board at the effective date of
the Offering, the effective date of the Offering;
(ii) for any Outside Director elected by the shareholders of the Company
subsequent to the effective time of the Offering, the date of such
Outside Director's initial election to the Board; and
(iii)for any Outside Director appointed by the Board subsequent to the
effective time of the Offering, the date such Outside Director's
appointment to the Board becomes effective.
All such Options shall be Non-Statutory Stock Options. The Option Price for
all Options granted pursuant to this Section 10 shall be the greater of (a)
$19.00 per share or (b) one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the date of grant.
10.2 Annual Grants. Effective on the date of each Annual Meeting of the
shareholders of the Company that occurs after the Offering, each Outside
Director who will be continuing as a director after such Annual Meeting, but not
including any Outside Director who is first elected at such Annual Meeting,
shall automatically be granted an Option to purchase 1,500 shares of Common
Stock. All such Options shall be Non-Statutory Stock Options. The Option price
shall be one-hundred percent (100%) of the Fair Market Value per share of Common
Stock on the date of the grant.
10.3 Exercise of Options. Two thousand (2,000) of the initial Options
granted pursuant to Section 10.1 shall vest in an Outside Director on the first
anniversary of such grant and one thousand five hundred (1,500) of the initial
Options shall vest on each subsequent anniversary of such grant until such
Options are fully vested at the end of three years. All Options granted pursuant
to Section 10.2 shall vest immediately. All vested Options shall be immediately
exercisable and may be exercised by the Outside Director for a period of ten
(10) years from the date of grant; provided, however, that in the event of the
death or disability of an Outside Director, the Option shall be exercisable only
within the twelve (12) months next succeeding the date of death or disability
and only if and to the extent that the Outside Director was entitled to exercise
the Option at the date of the Outside Director's death or disability, as the
case may be; provided further, however, that if an Outside Director's service
with the Company terminates for any reason other than death or disability, the
Option shall be exercisable for thirty (30) days after the date of such
termination and only if and to the extent that the Outside director was entitled
to exercise the Option at the date of such termination. In the case of death,
such Options shall be exercisable only by the executor or administrator of the
Outside Director's estate or by the person or persons to whom the Outside
Director's rights under the Option shall pass by the Outside Director's will or
the laws of descent and distribution. Notwithstanding the foregoing, in no event
shall any Option be exercisable more than ten (10) years after the date of
grant.
10.4 Payment of Option price. An Option granted to an Outside Director
shall be exercisable only upon payment to the Company of the Option price.
Payment for the shares shall be in United States dollars, payable in cash or by
check.
10.5 Adjustments. In case there shall be a merger, reorganization,
consolidation, recapitalization, stock dividend or other change in corporate
structure such that the shares of Common Stock are changed into or become
exchangeable for a larger or smaller number of shares, thereafter the number of
shares subject to outstanding Options granted to Outside Directors and the
number of shares subject to Options to be granted to Outside Directors pursuant
to the provisions of this Section 10 shall be increased or decreased, as the
case may be, in direct proportion to the increase or decrease in the number of
shares of Common Stock by reason of such change in corporate structure, provided
that the number of shares shall always be a whole number, and the purchase price
per share of any outstanding Options shall, in the case of an increase in the
number of shares, be proportionately reduced, and in the case of a decrease in
the number of shares, shall be proportionately increased.
11. Amendment or Termination of Plan
The Board may amend, suspend or terminate the Plan or any part thereof from
time to time, provided that no change may be made which would impair the rights
of a Participant to whom shares of Common Stock have theretofore been awarded
without the consent of said Participant.
12. Miscellaneous
12.1 Rights of Employees. Nothing in the Plan shall interfere with or limit
in any way the right of the Company or any affiliate to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continued employment with the Company or any affiliate.
12.2 Tax Withholding. The Company shall have the authority to withhold, or
to require a Participant to remit to the Company, prior to issuance or delivery
of any shares or cash hereunder, an amount sufficient to satisfy federal, state
and a local tax withholding requirements associated with any Award. In addition,
the Company may, in its sole discretion, permit a Participant to satisfy any tax
withholding requirements, in whole or in part, by (i) delivering to the Company
shares of Common Stock held by such Participant having a Fair Market Value equal
to the amount of the tax; (ii) directing the Company to retain shares of Common
stock otherwise issuable to the Participant under the Plan; or (iii) any other
method approved by the Board Committee.
12.3 Status of Awards. Awards hereunder shall not be deemed compensation
for purposes of computing benefits under any retirement plan of the Company or
affiliate and shall not affect any benefits under any other benefit plan now or
hereafter in effect under which the availability or amount of benefits is
related to the level of compensation.
12.4 Waiver of Restrictions. The Board Committee may, in its sole
discretion, based on such factors as the Board Committee may deem appropriate,
waive in whole or in part, any remaining restrictions or vesting requirements in
connection with any Award hereunder.
12.5 Adjustment of Awards. Subject to Section 11, the Board Committee shall
be authorized to make adjustments in performance award criteria or in the terms
and conditions of other Awards (except Options granted pursuant to Section 10
hereof) in recognition of unusual or nonrecurring events affecting the Company
or its financial statements or changes in applicable laws, regulations or
accounting principles; provided however, that no such adjustment shall impair
the rights of any Participant without his consent. The Board Committee may also
make Awards hereunder in replacement of, or as alternatives to, Awards
previously granted to Participants, including without limitation, previously
granted Options having higher Option Prices and grants or rights under any other
plan of the Company or of any acquired entity. The Board Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan or
any Award in the manner and to the extent it shall deem desirable to carry it
into effect. In the event the Company shall assume outstanding employee benefit
awards or the right or obligation to make future such awards in connection with
the acquisition of another corporation or business entity, the Board Committee
may, in its discretion, make such adjustments in the terms of Awards under the
Plan as it shall deem appropriate. Notwithstanding the above, only the full
Board (and not the Board Committee) shall have the right to make any adjustments
in the terms or conditions of Options granted pursuant to Section 10.
12.6 Consideration for Awards. Except as otherwise required in any
applicable agreement or by the terms of the Plan, Participants under the Plan
shall not be required to make any payment or provide consideration for an Award
other than the rendering of services.
12.7 Special Forfeiture Rule. Notwithstanding any other provision of this
Plan to the contrary, the Board Committee shall be authorized to impose
additional forfeiture restrictions with respect to Awards granted under the
Plan, other than Awards pursuant to Section 10 hereof, including, without
limitation, provisions for forfeiture in the event the Participant shall engage
in competition with the Company or in any other circumstance the Board Committee
may determine.
12.8 Effective Date and Term of Plan. The Plan shall be effective as of the
date it is approved by the Board, subject to the approval thereof by the
shareholders of the Company. Unless terminated under the provisions of Section
11 hereof, the Plan shall continue in effect indefinitely; provided, however,
that no Incentive Stock Options shall be granted after the tenth anniversary of
the effective date of the Plan.
12.9 Compliance with Section 162(m). It is the Company's intent that
compensation payable pursuant to Awards (other than Awards of Restricted Stock
which vest based solely on continued employment) to "covered employees" as such
term is defined in Regulation 1.162-27(c)(2) promulgated under Section 162(m) of
the Code, or any successor provision ("Section 162(m)"), qualify as
"performance-based compensation" as defined in Regulation 1.162-27(e) under
Section 162(m). If any provision of this Plan or an Award is later found to make
compensation intended to be performance-based compensation ineligible for such
treatment, the provision shall be deemed null and void, unless otherwise
determined by a committee of the Board comprised solely of "outside directors"
as such term is defined under Regulation 1.162-27(e)(3) under Section 162(m).
Exhibit 10.31
FEDERATED INVESTORS, INC.
ANNUAL INCENTIVE PLAN
ARTICLE I - GENERAL PROVISIONS
1.1 Purpose
The purpose of the Federated Investors, Inc. Annual Incentive Plan (the
"Plan") is to advance the success of Federated Investors, Inc. and to thereby
increase shareholder value by promoting the attainment of significant business
objectives by the Company and basing a portion of the annual compensation of
selected officers and key employees on the attainment of such objectives. The
Plan is designed to: (i) further align the interests of Participants with the
interests of the Company's shareholders, (ii) reward Participants for creating
shareholder value as measured by objectively determinable performance goals, and
(iii) assist in the attraction and retention of employees vital to the Company's
long-term success.
1.2 Definitions
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended, including
any successor law thereto.
(c) "Company," means Federated Investors, Inc. and, solely for purposes of
determining (i) eligibility for participation in the Plan, (ii)
employment, and (iii) the calculation of any performance goal, shall
include any corporation, partnership, or other organization of which
controls, directly or indirectly, not less than 50 percent of the
total combined voting power of all classes of stock or other equity
interests or which is otherwise consolidated into the Company's
audited financial statements. For purposes of this Plan, the term
"Company" shall also include any successor to Federated Investors,
Inc.
(d) "Committee" means the Compensation Committee of the Board (or any
successor committee of the Board performing a similar function or the
whole Board if the Board performs such functions) or, with respect to
any particular function under the Plan identified by the Committee or
the Board, any subcommittee of the whole Committee established by the
whole Committee or the Board in order to comply with the definition of
Non-Employee Director under Rule 16b-3 of the Exchange Act and the
definition of outside director under Section 162(m) of the Code.
(e) "Common Stock" means the Company's Class B Common Stock, no par value
per share.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(g) "Fair Market Value" means, on any date, the closing sale price of one
share of Common Stock, as reported on the New York Stock Exchange or
any national securities exchange on which the Common Stock is then
listed or on the NASDAQ Stock Market's National Market ("NNM") if the
Common Stock is then quoted thereon, as published in the Wall Street
Journal or another newspaper of general circulation, as of such date
or, if there were no sales reported as of such date, as of the last
date preceding such date as of which a sale was reported. In the event
that the Common Stock is not listed for trading on a national
securities exchange or authorized for quotation on NNM, Fair Market
Value shall be the closing bid price as reported by the NASDAQ Stock
Market or The NASDAQ SmallCap Market (if applicable), or if no such
prices shall have been so reported for such date, on the next
preceding date for which such prices were so reported. In the event
that the Common Stock is not listed on the New York Stock Exchange, a
national securities exchange or NNM, and is not listed for quotation
on The NASDAQ Stock Market or The NASDAQ SmallCap Market, Fair Market
Value shall be determined in good faith by the Committee in its sole
discretion, and for this purpose the Committee shall be entitled to
rely on the opinion of a qualified appraisal firm with respect to such
Fair Market Value, but the Committee shall in no event be obligated to
obtain such an opinion in order to determine Fair Market Value.
(h) "Participant" means any person who has satisfied the eligibility
requirements set forth in Section 1.4 and to whom an award has been
made under the Plan.
(i) "Operating Profits" means the Company's total annual revenues for the
calendar year, less distributions to minority interests and less total
expenses (excluding amortization of intangible assets, impairment
losses and debt expenses, including, without limitation, interest and
loan fees) as reflected in the Company's audited financial statements
for such calendar year.
(j) "Performance Measures" means the criteria upon which awards will be
based and, unless otherwise determined by the Committee, shall be any
one of the following measures: (i) revenues; (ii) operating income;
(iii) net income; (iv) earnings per share; (v) operating expenses;
(vi) assets under management; (vii) product sales or market share;
(viii) the performance of the Common Stock; (ix) the investment
performance of Company products; (x) Operating Profits; (xi)
identification of business opportunities and (xii) project completion.
(k) "Performance Period" means, in relation to any award, the calendar
year, or any other period, for which performance is being calculated,
with each such period constituting a separate Performance Period.
(l) "Performance Threshold" means, in relation to any Performance Period,
the minimum level of performance that must be achieved with respect to
a Performance Measure in order for an award to become payable pursuant
to this Plan.
(m) "Plan Pool" means, in relation to each calendar year, the amount, if
any, that is available for distribution pursuant to the Plan with
respect to such year which amount shall be a percentage of Operating
Profits that shall not exceed 7.5% of the Operating Profits for such
year.
(n) "Target Award" means that percentage of the Plan Pool which the
Committee sets as the maximum amount to be awarded to a Participant
under the Plan for such Performance Period.
1.3 Administration
The Plan shall be administered by the Committee. Subject to the terms of
the Plan, the Committee shall, among other things, determine eligibility for
participation in the Plan, make awards under the Plan, establish the terms and
conditions of such awards (including the Performance Measure(s) to be utilized)
and determine whether the Performance Measures and Performance Thresholds for
any award has been achieved. A majority of the Committee shall constitute a
quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by a majority of the
Committee, shall be deemed the acts of the Committee. Subject to the provisions
of the Plan and to directions by the Board, the Committee is authorized to
interpret the Plan, to adopt administrative rules, regulations, and guidelines
for the Plan, and to impose such terms, conditions, and restrictions on awards
as it deems appropriate. The Committee may, with respect to Participants who are
not subject to Section 162(m) of the Code, delegate such of its powers and
authority under the Plan to the Company's Chairman, President or Chief Executive
Officer as it deems appropriate. In the event of such delegation, all references
to the Committee in this Plan shall be deemed references to such officers as it
relates to those aspects of the Plan that have been delegated.
1.4 Eligibility and Participation
Participation in the Plan shall be limited to officers, who may also be
members of the Board who are determined by the Committee to be eligible for
participation in the Plan and unless otherwise determined by the Committee, the
Chairperson of the Board, the Chief Executive Officer and any executive who is a
member of the Board or is designated as a member of the Chief Executive
Officer's senior staff shall be eligible to participate in the Plan.
ARTICLE II - AWARD TERMS
2.1 Granting of Awards
The Committee may, in its discretion, from time to time make awards to
persons eligible for participation in the Plan pursuant to which the Participant
will earn compensation in the event that the Company achieves the Performance
Thresholds established by the Committee.
2.2 Establishment of Performance Thresholds
Each award shall be conditioned upon the Company's achievement of one or
more Performance Thresholds with respect to the Performance Measure(s)
established by the Committee no later than ninety (90) days after the beginning
of the applicable Performance Period. The Committee, in its discretion, may
establish Performance Thresholds for the Company as a whole or for only the
business unit of the Company in which a given Participant is involved, or a
combination thereof. In addition to establishing a minimum performance level
below which no compensation shall be payable pursuant to an award, the
Committee, in its discretion, may create a performance schedule under which an
amount less than the Target Award may be paid so long as the Performance
Threshold has been exceeded. The Committee may adjust the Performance Thresholds
and measurements to reflect significant unforeseen events and other factors;
provided, however, that the Committee may not make any such adjustment with
respect to any award to an individual who is then a "covered employee" as such
term is defined in Regulation 1.162-27(c)(2) promulgated under Section 162(m) of
the Code, or any successor provision ("Section 162(m)"), if such adjustment
would cause compensation pursuant to such award to cease to be performance-based
compensation under Section 162(m).
2.3 Other Award Terms
The Committee may, in its sole discretion, establish certain additional
performance based conditions that must be satisfied by the Company, a business
unit or the Participant as a condition precedent to the payment of all or a
portion of any awards. Such conditions precedent may include, among other
things, the receipt by a Participant of a specified annual performance rating
and the achievement of specified performance goals by the Company, business unit
or Participant. Furthermore, the Committee may, in its discretion, reduce the
amount of any award to a Participant if it concludes that such reduction is
appropriate based upon (i) evaluations of such Participant's performance, (ii)
comparisons with compensation received by executive officers of other companies
in the Company's industry (iii) the Company's financial results and conditions
and (iv) such other business factors deemed relevant by the Committee. In
addition, the Committee may establish a minimum Bonus Pool that must be
available as a condition precedent to any distribution pursuant to Section 2.5
hereof.
2.4 Certification of Achievement of Bonus Pool Performance Thresholds
The Committee shall, prior to any payment under the Plan, certify in
writing the extent, if any, that the Performance Threshold(s) has been achieved
and the amount, if any, of the Bonus Pool. For purposes of this provision, and
for so long as the Code permits, the approved minutes of the Committee meeting
in which the certification is made shall be treated as written certification.
2.5 Distribution of Awards
Awards under the Plan shall be paid in cash as soon as practicable after
audited financial statements for the Performance Period have been prepared and
the Committee has certified (i) the amount, if any, of the Bonus Pool and (ii)
that the Performance Threshold(s) has been achieved. Notwithstanding the
foregoing, the Committee may, in it sole discretion: (i) elect to pay all or a
portion of the award in four equal quarterly installments during the calendar
year that the lump sum payment would have been paid; or (ii) permit a
Participant to elect to receive all or a portion of the total award value in the
form of non-qualified stock options to purchase Common Stock, in lieu of
receiving cash. Any options granted as payment of an award shall be granted
pursuant to the Federated Investors, Inc. Stock Incentive Plan or any successor
thereto and shall have an exercise price equal to the Fair Market Value of the
Common Stock on the date of grant. The number of stock options to be granted
shall be determined by the Committee and shall be based upon the value of the
options as determined under the Black-Scholes option-pricing model or such other
option valuation model or calculation that the Committee, in its sole
discretion, shall determine is appropriate.
2.6 Termination of Employment
Unless otherwise determined by the Committee, a Participant must be
actively employed by the Company on the date his or her award (or any portion
thereof) is to be paid ("the Payment Date") in order to be entitled to payment
of any award (or portion thereof).
2.7 Maximum Amount Available for Awards
The maximum amount payable pursuant to the Plan to the Company's Chief
Executive Officer for any Performance Period shall be 24% of the Plan Pool. The
maximum amount payable pursuant to the Plan to any other Participant shall be
19% of the Plan Pool.
ARTICLE III - OTHER PROVISIONS
3.1 Withholding Taxes
Whenever payments under the Plan are to be made, the Company will withhold
therefrom an amount sufficient to satisfy any applicable governmental
withholding tax requirements related thereto.
3.2 Adjustments
Awards may be adjusted by the Committee in the manner and to the extent it
determines to be appropriate to reflect stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, reclassifications or other relevant changes in capitalization
occurring after the date of the award; provided, however, that the Committee may
not make any such adjustment with respect to any award to an individual who is
then a "covered employee" as such term is defined in Regulation 1.162-27(c)(2)
promulgated under Section 162(m) of the Code, or any successor provision
("Section 162(m)"), if such adjustment would cause compensation pursuant to such
award to cease to be performance-based compensation under Section 162(m).
3.3 No Right to Employment
Nothing contained in the Plan or in any Award shall confer upon any
Participant any right with respect to continued employment with the Company or
its subsidiaries, nor interfere in any way with the right of the Company or its
subsidiaries to at any time reassign the Participant to a different job, change
the compensation of the Participant or terminate the Participant's employment
for any reason.
3.4 Nontransferability
A Participant's rights under the Plan, including the right to amounts
payable may not be assigned, pledged, or otherwise transferred except, in the
event of a Participant's death, to the Participant's designated beneficiary or,
in the absence of such a designation, by will or by the laws of descent and
distribution.
3.5 Unfunded Plan
Unless otherwise determined by the Committee, the Plan shall be unfunded
and shall not create (or be construed to create) a trust or separate funds. With
respect to any payment not yet made to a Participant, nothing contained herein
shall give any Participant any rights that are greater than those of a general
creditor of the Company.
3.6 Foreign Jurisdictions
The Committee shall have the authority to adopt, amend, or terminate such
arrangements, not inconsistent with the intent of the Plan, as it may deem
necessary or desirable to make available tax or other benefits of the laws of
foreign countries in order to promote achievement of the purposes of the Plan.
3.7 Other Compensation Plans
Nothing contained in this Plan shall prevent the Company from adopting
other or additional compensation arrangements for employees of the Company.
ARTICLE IV - AMENDMENT AND TERMINATION
The Board of Directors may modify, amend, or terminate the Plan at any time
except that, no modification, amendment, or termination of the Plan shall
adversely affect the rights of a Participant under an award previously made to
such Participant without the consent of such Participant.
ARTICLE V - EFFECTIVE DATE
The Plan shall become effective immediately upon the approval and adoption
thereof by Board, but is subject to the further approval and adoption by the
holders of the Class A Common Stock of the Company.
[GRAPHIC OMITTED]
Exhibit 13.01
- -------------------------------------------------------------------------------
Financial Annual Report 2001
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page No.
Selected Consolidated Financial Data..........................................1
Management's Discussion and Analysis..........................................2
Management's Report...........................................................8
Report of Ernst & Young LLP, Independent Auditors.............................9
Consolidated Balance Sheets..................................................10
Consolidated Statements of Income............................................11
Consolidated Statements of Changes in Shareholders' Equity...................12
Consolidated Statements of Cash Flows .......................................13
Notes to Consolidated Financial Statements...................................14
Corporate Information.........................................Inside back cover
Special Note Regarding Forward-Looking Information
Certain statements under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included in Future Cash Requirements and
elsewhere in this report, 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 Federated 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. For a discussion of such risk factors, see the
section titled Risk Factors and Cautionary Statements in Federated's Annual
Report on Form 10-K for the year ended December 31, 2001, and other reports on
file with the Securities and Exchange Commission. Many of these factors may be
more likely to occur as a result of the ongoing threat of terrorism. As a
result, no assurance can be given as to future results, levels of activity,
performance or achievements, and neither Federated nor any other person assumes
responsibility for the accuracy and completeness of such statements.
Selected Consolidated Financial Data
- -------------------------------------------------------------------------------
(dollars in thousands, except per share data)
1 The selected consolidated financial data below should be read in
conjunction with Federated Investors, Inc. and its subsidiaries' (Federated)
Consolidated Financial Statements and Notes. The selected consolidated financial
data (except managed and administered assets) of Federated for the five years
ended December 31, 2001, have been derived from the audited Consolidated
Financial Statements of Federated. See the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section and the Consolidated
Financial Statements which follow.
<table>
<caption>
<s> <c> <c> <c> <c> <c>
Years Ended December 31, 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Statement of Income Data
Total revenue $ $680,768 $601,098 $522,127 $403,719
715,777
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Operating expenses:
Compensation and related 173,462 162,284 152,469 146,927 139,373
Amortization of intangible assets 17,121 7,560 10,405 14,937 13,715
Other operating expenses 214,990 224,014 201,278 177,845 141,004
- -------------------------------------------------------------------------------------------
Total operating expenses 405,573 393,858 364,152 339,709 294,092
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Operating income 310,204 286,910 236,946 182,418 109,627
Nonoperating expenses 29,721 34,180 31,846 27,614 20,060
Minority interest 10,880 10,208 10,219 8,870 7,584
Income tax provision 96,887 87,162 70,861 53,565 30,957
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Income before extraordinary item 172,716 155,360 124,020 92,369 51,026
Extraordinary item, net of tax1 (4,269) 0 0 0 (449)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net income $ 168,447 $155,360 $124,020 $ 92,369 $50,577
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Cash dividends per share2 $ 0.1750 $0.1387 $0.1093 $ 0.0898 $0.0389
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Earnings per share--basic:
Income before extraordinary item2 $ 1.50 $ 1.32 $ 0.99 $ 0.73 $ 0.41
Earnings per share--diluted:
Income before extraordinary item2 $ 1.44 $ 1.27 $ 0.96 $ 0.71 $ 0.41
Operating margin 43% 42% 39% 35% 27%
Balance Sheet Data at Period End
Total assets3 $ 431,553 $704,750 $673,193 $581,656 $338,435
Long-term debt--recourse1 0 70,174 84,446 98,698 98,950
Long-term debt--nonrecourse3 54,954 323,818 309,741 272,850 185,388
Total liabilities 194,093 556,344 553,785 492,279 379,079
Shareholders' equity 237,097 147,868 118,812 88,706 (41,11)
Book value per share2 $ 2.06 $ 1.26 $ 0.97 $ 0.69 $ (0.33)
Managed and Administered Assets at
Period End
(in millions)
Money market funds $ 135,092 $98,797 $83,299 $ 77,055 $63,622
Equity funds 20,760 20,641 20,941 15,503 11,710
Fixed-income funds 17,378 14,268 15,857 16,437 15,067
Separate accounts 6,457 5,878 4,723 2,558 2,141
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total managed assets $ 179,687 $139,584 $124,820 $111,553 $92,540
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total administered assets $ 44,684 $39,732 $41,234 $ 28,165 $46,999
- -------------------------------------------------------------------------------------------
</table>
1 See Note (4) to the Consolidated Financial Statements for information
concerning the early retirement of recourse debt in 2001.
2 Reflects the two-for-one and three-for-two stock splits paid in 1998 and
the three-for-two stock split paid in 2000.
3 See Note (5) to the Consolidated Financial Statements for information
concerning the B-Share sales programs.
Management's Discussion and Analysis
- -------------------------------------------------------------------------------
of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the "Selected Consolidated
Financial Data" section and the Consolidated Financial Statements appearing
elsewhere in this report.
General
Federated is a leading provider of investment management products and
related financial services. The majority of Federated's revenue is derived from
advising, distributing and servicing Federated mutual funds, separately managed
accounts and other Federated-sponsored products, in both domestic and
international markets. Federated also derives revenue from servicing mutual
funds sponsored by third parties.
Investment advisory, distribution and the majority of servicing fees are
based on the net asset value of the investment portfolios that are managed or
administered by Federated. As such, these revenues are dependent upon factors
including market conditions and the ability to attract and maintain assets.
Accordingly, revenues will fluctuate with changes in the total value and
composition of the assets under management or administration.
Asset Highlights
<table>
<caption>
<s> <c> <c> <c> <c> <c>
Average Managed and Administered Assets
dollars in millions for the years 2001 2000 1999 2001 2000
vs. vs.
ended December 31, 2000 1999
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Money market funds $117,784 $ 86,406 $ 79,253 36% 9%
Equity funds 20,682 22,107 17,531 (6%) 26%
Fixed-income funds 15,859 14,713 16,680 8% (12%)
Separate accounts 6,268 5,168 4,109 21% 26%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total average managed assets $160,593 $128,394 $117,573 25% 9%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total average administered $ 41,982 $ 41,966 $ 35,079 0% 20%
assets
- --------------------------------------------------------------------------------------------
Components of Changes in Equity and Fixed-Income Fund Managed Assets
dollars in millions for the years ended December 31, 2001 2000 Percent
Change
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Equity Funds
Beginning assets $20,641 $20,941 (1%)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Sales 5,338 10,306 (48%)
Redemptions (5,99) (7,48) (20%)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net (redemptions) sales (656) 2,817 (123%)
Net exchanges (189) 34 (656%)
Acquisition related 3,383 319 961%
Other1 (2,41) (3,47) 30%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Ending assets $20,760 $20,641 1%
- -------------------------------------------------------------------------------------------
Fixed-Income Funds
Beginning assets $14,268 $15,857 (10%)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Sales 8,809 4,031 119%
Redemptions (6,06) (5,29) 15%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net sales (redemptions) 2,742 (1,26) 317%
Net exchanges 27 (470) 106%
Acquisition related 0 11 (100%)
Other1 341 134 154%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Ending assets $17,378 $14,268 22%
- -------------------------------------------------------------------------------------------
</table>
1 Includes primarily reinvested dividends and distributions, net investment
income and changes in the market value of securities held by the funds.
Period-end managed assets increased 29% in 2001 and 12% in 2000. Average
managed assets grew 25% in 2001 and 9% in 2000. Federated grew total and average
assets during 2001 and 2000 primarily through strong mutual fund sales and, to a
lesser extent, through the completion of three acquisitions. Of the $40.1
billion increase in managed assets in 2001, approximately $3.4 billion or 8% is
the result of acquisitions. In 2001, money market funds led in average asset
growth with a 36% increase. Market conditions were favorable for growth in money
market funds. Declining short-term interest rates, driven by historic Federal
Reserve Bank easings, gave money market funds a persistent yield advantage as
compared to the direct market. Rapid and sustained fluctuations in the equity
markets also caused investors to increase their allocations to money market
investments. Additionally, Federated benefited from the quality and performance
of its products, the strength of its relationships and an increase in
cash-management relationships with corporations, universities, government
entities and broker/dealer organizations. In 2000, Federated experienced
significant growth in both equity fund average assets and money market fund
average assets. Changes in Federated's average asset mix year over year, which
reflect shifts in investor demands, have a direct impact on Federated's total
revenue as money market and fixed-income funds generally carry lower management
fees per invested dollar than equity funds.
The following table shows the percent of total revenue derived from each
asset type over the last three years:
Relative Contribution to Total Revenue
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Money market fund assets 41% 33% 34%
Equity fund assets 35% 37% 31%
Fixed-income fund assets 18% 19% 24%
Other activities 6% 11% 11%
- -----------------------------------------------------------------------
Results of Operations
Net Income. Net income and certain items included in net income for the
three years ended December 31, are summarized in the following table:
<table>
<caption>
Dollars (after-tax, in Diluted Earnings Per Share1
millions)
Years Ended December 31, Years Ended December 31,
<s> <c> <c> <c> <c> <c> <c>
--------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
--------------------------------------------------------------------------------------------
Net income $168.4 $155.4 $124.0 $1.40 $1.27 $0.96
Plus: Extraordinary loss on
recourse debt 4.3 0.0 0.0 0.04 0.00 0.00
prepayment2
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Income before extraordinary 172.7 155.4 124.0 1.44 1.27 0.96
item
--------------------------------------------------------------------------------------------
-------------------------------- ------------------------------------------
Less: Gain on B-share (5.9) 0.0 0.0 (0.05) 0.00 0.00
transaction3
Less: Gain on disposal of 0.0 0.0 (2.0) 0.00 0.00 (0.02)
assets4
Plus: CBO impairment charges5 9.2 1.9 0.0 0.08 0.02 0.00
Plus: Net performance seed
investment 4.9 0.1 (0.4) 0.04 0.00 (0.00)
losses/(gains)6
-------------------------------- ------------------------------------------
--------------------------------------------------------------------------------------------
Net other special items 8.2 2.0 (2.4) 0.07 0.02 (0.02)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Adjusted net income $180.9 $157.4 $121.6 $1.51 $1.29 $0.94
--------------------------------------------------------------------------------------------
</table>
1 Per share amounts have been restated to reflect the three-for-two stock
split paid in July 2000.
2 Federated prepaid the remaining balance of $70.0 million of its recourse
debt utilizing existing cash and incurred an extraordinary make-whole
charge. See Note (4) to the Consolidated Financial Statements contained
elsewhere in this report.
3 Amount relates to Federated's sale of its retained interest in any residual
cash flows from its B-share sales program that was in effect from October
1997 through September 2000. See Note (5) to the Consolidated Financial
Statements contained elsewhere in this report.
4 Amount relates to Federated's sale of certain non-earning assets.
5 Amounts represent impairment charges recorded in "Other (loss) income, net"
in the Consolidated Statements of Income to recognize other-than-temporary
declines in the fair values of Federated's high-yield collateralized bond
obligation (CBO) investments. See Notes (1) and (2) to the Consolidated
Financial Statements contained elsewhere in this report.
6 Amounts represent realized losses/(gains) recorded on the redemption of
performance seed investments and losses incurred as a result of
other-than-temporary declines in the fair values of certain of these
investments as appropriate. See Notes (1) and (2) to the Consolidated
Financial Statements contained elsewhere in this report.
Adjusted net income increased 15% and 29% in 2001 and 2000, respectively,
as compared to the prior year. These increases primarily reflect increased
revenue from managed assets and improved operating margins. Adjusted diluted
earnings per share for 2001 and 2000 increased 17% and 37%, respectively, over
the prior year due to increased net income and reduced weighted-average diluted
shares outstanding resulting from stock repurchases in both years.
Revenue. Revenue for the three years ended December 31, is set forth in the
following table:
<table>
<caption>
<s> <c> <c> <c> <c> <c>
2001 2000
in millions 2001 2000 1999 vs. 2000 vs.
1999
- -------------------------------------------------------------------------------------------
Revenue from managed assets $669.2 $611.3 $534.5 9% 14%
Service-related revenue from
sources other than managed assets 48.4 51.1 46.9 (5%) 9%
Other1 (1.8) 18.4 19.7 (110%) (7%)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total revenue 715.8 680.8 601.1 5% 13%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Adjusted for pretax effect of other 12.6 3.1 (3.8)
special items1
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Adjusted total revenues $728.4 $683.9 $597.3 7% 14%
- -------------------------------------------------------------------------------------------
</table>
1 Adjustments explained by footnotes (3), (4), (5) and (6) to the Net Income
table on page 3 were recorded on a pretax basis in "Other" as presented in
this table.
Adjusted total revenue increased $44.5 million in 2001 and $86.6 million in
2000 primarily as a result of increased revenue from managed assets. In 2001,
the effect of the increase in average managed assets on 2001 revenue was
partially offset by a shift in asset mix toward money market and fixed-income
funds, which earn, on average, lower fees per invested dollar than equity funds.
Service-related revenues from sources other than managed assets decreased
$2.7 million in 2001 largely as a result of a change in customer mix. In 2000,
service-related revenues from sources other than managed assets increased $4.2
million due primarily to the growth in average administered assets.
Other revenue, excluding the items described in footnotes (3), (4), (5) and
(6) to the Net Income table on page 3 for each respective year, decreased $10.7
million in 2001 as compared to 2000. This decrease is primarily the result of a
decline in interest and dividend income in 2001 due to lower investment balances
as a result of cash used to acquire substantially all of the business of
Edgemont Asset Management Corporation (Edgemont Acquisition) in the second
quarter 2001 and decreased investment yields in 2001. Excluding these items,
other revenue for 2000 increased $5.6 million over the prior year primarily as a
result of increased interest and dividend income reflecting increased average
yields in 2000 as compared to 1999.
Operating Expenses. Operating expenses for the three years ended December
31, are set forth in the following table:
<table>
<caption>
<s> <c> <c> <c> <c> <c>
2001 2000
in millions 2001 2000 1999 vs. 2000 vs.
1999
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Compensation and related $173.5 $162.3 $152.5 7% 6%
Advertising and promotional 68.3 60.2 55.1 13% 9%
Amortization of deferred sales 43.9 59.0 48.3 (26%) 22%
commissions
Amortization of intangible assets 17.1 7.6 10.4 125% (27%)
Other 102.8 104.8 97.9 (2%) 7%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total operating expenses $405.6 $393.9 $364.2 3% 8%
- --------------------------------------------------------------------------------------------
</table>
Total operating expenses increased $11.7 million in 2001 and $29.7 million
in 2000. The increases in compensation and related expense primarily reflect
increased base salary and variable-based compensation as a result of the
Edgemont Acquisition in 2001 and as a result of strong sales and performance in
2000. The increases in advertising and promotional expense reflects increases in
marketing allowances due to significant asset growth each year. Amortization of
deferred sales commissions fluctuated in 2001 and 2000 as net asset values of
and cash flows from equity fund assets decreased in 2001 and increased in 2000.
Amortization of intangible assets increased in 2001 as a result of the Edgemont
Acquisition and decreased in 2000 as a result of assets that became fully
amortized during the year. All other expenses remained relatively flat year over
year.
Nonoperating Expenses. Nonoperating expenses decreased in 2001 as a result
of lower levels of outstanding recourse and nonrecourse debt and increased in
2000 as a result of higher levels of outstanding nonrecourse debt partially
offset by lower levels of recourse debt.
Income Taxes. The income tax provision for 2001, 2000 and 1999 was $96.9
million, $87.2 million and $70.9 million, respectively. The provision increased
in 2001 and 2000 over the prior year primarily as a result of the increases in
the level of income before income taxes. The effective tax rate was 35.9% for
both 2001 and 2000 and 36.4% for 1999.
Liquidity and Capital Resources
At December 31, 2001, liquid assets, consisting of cash and cash
equivalents, the current portion of securities available for sale and
receivables, totaled $110.7 million as compared to $272.2 million in 2000. The
decrease is primarily attributable to cash used in the second quarter 2001 to
complete the Edgemont Acquisition. Federated also had $150.0 million available
for borrowings under its credit facility as of December 31, 2001 (see Note (4)
to the Consolidated Financial Statements).
Operating Activities. Cash provided by operating activities totaled $280.6
million for 2001 as compared to $169.8 million for 2000. This increase is
primarily attributable to the sales treatment of upfront commissions financed
subsequent to September 2000 (see "B-Share Sales Programs" described below),
lower sales commissions paid to brokers due to reduced sales of Class B shares
of Federated's mutual funds and higher profitability in 2001.
Investing Activities. In 2001, Federated received $102.3 million from
redemptions of available-for-sale securities, invested $25.5 million in
available-for-sale securities and paid $7.1 million to acquire property and
equipment.
On April 20, 2001, Federated completed the Edgemont Acquisition. The
purchase price for this acquisition was $182.9 million. This price included cash
payments of approximately $174.0 million, including transaction costs, and
315,732 shares of Federated Class B common stock valued at $8.9 million. The
acquisition agreement provides for additional purchase price payments based upon
the achievement of specified revenue growth over the next six years. These
payments could aggregate to approximately $164.0 million, and could result in a
$32.8 million cash payment in the second quarter 2002, if revenue targets are
met. (See Note (17) to the Consolidated Financial Statements for details
regarding the accounting treatment of this business combination.)
Financing Activities. In 2001, Federated used $253.5 million for financing
activities. Federated used $84.3 million to repay recourse debt, $70.0 million
of which represented the early extinguishment of Federated's Senior Secured Note
Purchase Agreements. The notes were due to mature in June 2006 and carried a
fixed interest rate of 7.96%.
In 2001, Federated repurchased 2.8 million shares of Class B common stock
for $78.5 million under the stock repurchase programs. As of December 31, 2001,
Federated can repurchase an additional 2.0 million shares through its authorized
programs. On January 29, 2002, the board of directors approved a new share
buyback program, which authorizes executive management to purchase up to five
million additional shares of Federated Class B common stock through March 31,
2003. Repurchases under these programs are subject to restrictions under the
Second Amended and Restated Credit Agreement entered into on January 22, 2002,
which limit cash payments for additional stock repurchases as of January 31,
2002, to $190.1 million (see Note (18) to the Consolidated Financial
Statements).
Federated paid dividends in 2001 equal to $20.5 million or $0.175 per
share. In January 2002, Federated's board of directors declared a dividend of
$0.046 per share that was paid on February 15, 2002. After considering earnings
through December 31, 2001, certain stock repurchases through January 31, 2002,
and the dividend payment on February 15, 2002, Federated, given current debt
covenants as disclosed in the Subsequent Events footnote (Note (18) to the
Consolidated Financial Statements), has the ability to pay dividends of
approximately $138.3 million.
B-Share Sales Programs. Federated funds upfront commissions paid to
broker/dealers on the sale of Class B shares of Federated mutual funds (B
shares) through the sale of the rights to future cash flow streams associated
with B-share commissions (see Note (5) to the Consolidated Financial Statements)
to an independent third party. Rights to future 12b-1 fees and contingent
deferred sales charges (CDSCs) sold through September 2000 were accounted for as
financings for reporting purposes as a result of Federated's retained interest
in any residual cash flows under this program. Rights to future shareholder
service fees were also accounted for as financings due to the same retained
interest as well as Federated's ongoing involvement in performing
shareholder-servicing activities. Accordingly, nonrecourse debt was recorded.
On December 31, 2001, Federated sold its retained interest in any residual
cash flows under this B-share program to an independent third party. As a
result, Federated recognized sale treatment accounting for B-share 12b-1 fees
and CDSCs sold under this program. The recognition of sale treatment resulted in
a $9.0 million pretax gain for Federated, which was recorded in "Other (loss)
income, net" in the Consolidated Statements of Income, and the reversal of asset
and liability balances related to this program. Additionally, beginning on
January 1, 2002, Federated no longer recognizes revenue and expense items in its
Consolidated Statements of Income for these sold 12b-1 fees and CDSCs as well as
the related asset and liability balances. In 2001, revenue and expenses included
$48.1 million and $45.7 million, respectively, recorded in connection with the
financing accounting treatment of the B-share sales program. Federated continues
to account for the prior sale of rights to future shareholder service fees as
financings as a result of Federated's ongoing involvement in performing
shareholder-servicing activities.
Rights to future B-share-related 12b-1 fees and CDSCs sold subsequent to
September 2000 were accounted for as true sales and a gain on the sale was
recorded in "Other service fees-affiliates" in the Consolidated Statements of
Income. The sale of rights to future shareholder service fees continued to be
accounted for as financings.
The current B-share sales program allows Federated to finance upfront sales
commissions from October 2000 through December 2003.
Future Cash Requirements. Management expects that the principal uses of
cash will be to advance sales commissions, repurchase company stock, fund
strategic business acquisitions including potential contingent payments relating
to the Edgemont Acquisition, pay shareholder dividends, make minimum lease
payments, fund property and equipment acquisitions and seed new products.
Management believes that Federated's existing liquid assets, together with the
expected continuing cash flow from operations, its borrowing capacity under the
current credit facility, the B-share sales program and its ability to issue
stock will be sufficient to meet its present and reasonably foreseeable cash
needs.
Recent Accounting Pronouncements
On April 1, 2001, Federated adopted Emerging Issues Task Force Issue No.
99-20, "Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets" (EITF 99-20). EITF 99-20
states that interest income earned on retained or purchased beneficial interests
in securitized financial assets should be recognized over the life of the
investment based on an anticipated yield determined by periodically estimating
cash flows. Interest income should be revised prospectively for changes in cash
flows. Additionally, impairment should be recognized if the fair value of the
beneficial interest has declined below its carrying amount and the decline is
other than temporary. Because the book value of Federated's asset-backed
securities was less than or equal to the fair value of those investments on
April 1, 2001, Federated did not recognize a transition adjustment as a result
of adopting this statement.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." Statement 141 eliminated the
pooling-of-interests method of accounting for business combinations initiated
after June 30, 2001, and clarified the criteria to recognize intangible assets
separately from goodwill.
Under Statement 142, goodwill and intangible assets with indefinite lives
are no longer amortized but are reviewed at least annually for impairment.
Federated adopted Statement 142 on January 1, 2002, in accordance with its
effective date for calendar-year companies. As a result of adopting this
standard, Federated did not recognize a transition adjustment but anticipates
that annual amortization expense for 2002 as compared to 2001 will decrease by
approximately $6 million.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." One of the primary objectives of this statement
was to establish a single accounting model for long-lived assets to be disposed
of by sale, whether previously held and used or newly acquired. Although
Statement 144 supersedes FASB Statement No. 121 on impairment of long-lived
assets, many of the requirements of Statement 121 regarding the test for and
measurement of impairment losses of long-lived assets were retained. Federated
adopted Statement 144 on January 1, 2002, and does not expect this statement to
have a material impact on its financial condition or results of operations.
Alternative Products
Federated acts as the investment manager for two high-yield collateralized
bond obligation (CBO) products and a mortgage-backed CBO pursuant to the terms
of an investment management agreement between Federated and each CBO. As of
December 31, 2001, assets managed by Federated in the CBOs totaled $1.0 billion.
The financial condition and results of operations of these CBOs are not included
in Federated's Consolidated Financial Statements as of and for the year ended
December 31, 2001, or for any prior period. In each case, there exists a
majority owner(s) that is an independent third party from Federated owning at
least three percent equity in the CBO. Federated does not maintain control over
these entities, has not guaranteed any of the notes issued by the CBOs nor has
any obligations or commitments associated with them.
Critical Accounting Policies
Federated's Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the amounts reported in the Consolidated Financial
Statements and accompanying notes. Of the significant accounting policies
described in Note (1) to the Consolidated Financial Statements, management
believes that its policy regarding the identification, valuation and impairment
of intangible assets involves a higher degree of judgment and complexity (see
Note (1)(i) of the Consolidated Financial Statements).
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of its business, Federated is exposed to the risk of
loss due to fluctuations in the securities market and general economy.
Management is responsible for identifying, assessing and managing market and
other risks. At December 31, 2001, Federated was exposed to price risk with
regard to its investments in fluctuating-value mutual funds. This is the risk
that the fair value of the investments will decline and ultimately result in the
recognition of a loss for Federated. Federated's investments are primarily money
market funds and mutual funds with investments which have a duration of two
years or less. Federated also invests in mutual funds (performance seeds)
sponsored by Federated in order to provide investable cash to the fund allowing
the fund to establish a performance history. Federated may use derivative
financial instruments to hedge these investments. As of December 31, 2001, the
fair value of performance seed investments was $4.4 million. Federated did not
hold any derivative investments to hedge its performance seeds in 2001.
At December 31, 2001, Federated is also exposed to interest rate and credit
risk relating to its investments in asset-backed securities. In periods of
either rising default rates or interest rates, the carrying value of the
investment may be adversely affected by unfavorable changes in cash flow
estimates, declines in the value of the underlying fixed-rate securities, and
increased expected returns. In 2001, Federated recorded a $14.1 million
impairment charge related to other-than-temporary declines in the fair value of
Federated's high-yield collateralized bond obligation investments (see Note (2)
to the Consolidated Financial Statements). At December 31, 2001, Federated's
remaining investments in asset-backed securities totaled $2.5 million.
It is also important to note that a significant portion of Federated's
revenue is based on the market value of managed and administered assets.
Declines in the market values of assets as a result of changes in market or
other conditions will therefore negatively impact revenue and net income.
Management's REPORT
- -------------------------------------------------------------------------------
Federated Investors, Inc.'s (Federated) management takes responsibility for
the integrity and fair presentation of the financial statements in this
financial annual report. These financial statements were prepared from
accounting records which management believes fairly and accurately reflect
Federated's operations and financial position.
The financial statements were prepared in conformity with accounting
principles generally accepted in the United States and, as such, include amounts
based on management's best estimates and judgments considering currently
available information and management's view of current conditions and
circumstances. Management also prepared the other information in this report and
is responsible for its accuracy and consistency with the financial statements.
Management is responsible for establishing and maintaining effective
internal controls designed to provide reasonable assurance that assets are
protected from improper use and accounted for in accordance with its policies
and that transactions are recorded accurately in Federated's records. The
concept of reasonable assurance is based upon a recognition that the cost of the
controls should not exceed the benefit derived. Even effective internal control,
no matter how well designed, has inherent limitations--including the possibility
of circumvention or overriding of controls--and therefore can only provide
reasonable assurance with respect to financial statement preparation and
safeguarding of assets.
The financial statements of Federated have been audited by Ernst & Young
LLP, independent auditors. Their accompanying report is based on an audit
conducted in accordance with auditing standards generally accepted in the United
States.
Federated Investors, Inc.
/s/ J. Christopher Donahue
J. Christopher Donahue
President and Chief Executive Officer
/s/ Thomas R. Donahue
Thomas R. Donahue
Chief Financial Officer
January 31, 2002
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
Shareholders and Board of Directors
Federated Investors, Inc.
We have audited the accompanying consolidated balance sheets of Federated
Investors, Inc. and subsidiaries (Federated) as of December 31, 2001 and 2000,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of Federated's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federated
Investors, Inc. and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 31, 2002
<table>
<caption>
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
(dollars in thousands)
<s> <c> <c>
December 31, 2001 2000
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $73,511 $149,920
Securities available for sale 4,602 85,305
Receivables--affiliates 26,844 31,070
Receivables--other, net of reserve of $315 and $86, respectively 5,737 5,873
Accrued revenue 6,596 6,594
Prepaid expenses 2,633 3,156
Current deferred tax asset, net 2,025 2,349
Other current assets 361 280
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total current assets 122,309 284,547
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Long-Term Assets
Goodwill, net of accumulated amortization of $24,862 and $18,949, 131,867 32,099
respectively
Investment advisory contracts, net of accumulated amortization of 65,409 14,833
$26,172 and $17,392, respectively
Other intangible assets, net of accumulated amortization of $2,563 14,617 45
and $135, respectively
Deferred sales commissions, net of accumulated amortization of 56,875 315,612
$47,222 and $136,409, respectively
Property and equipment, net 34,521 36,406
Other long-term assets 5,955 21,208
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total long-term assets 309,244 420,203
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total assets $431,553 $704,750
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Current Liabilities
Cash overdraft $ 5,085 $ 1,090
Accrued expenses 58,275 56,806
Accounts payable 29,102 30,161
Income taxes payable 26,543 8,162
Other current liabilities 6,103 19,303
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total current liabilities 125,108 115,522
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Long-Term Liabilities
Long-term debt--recourse 0 70,174
Long-term debt--nonrecourse 54,954 323,818
Long-term deferred tax liability, net 7,036 40,565
Other long-term liabilities 6,995 6,265
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total long-term liabilities 68,985 440,822
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total liabilities 194,093 556,344
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Minority interest 363 538
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock:
Class A, no par value, 20,000 shares authorized, 9,000 issued and 189 189
outstanding
Class B, no par value, 900,000,000 shares authorized, 129,505,456 82,299 75,287
shares issued
Additional paid-in capital from treasury stock transactions 3,543 0
Retained earnings 411,447 263,456
Treasury stock, at cost, 14,144,515 and 12,384,647 shares Class B (259,6)6 (187,58)
common stock, respectively
Employee restricted stock plan (469) (736)
Accumulated other comprehensive loss (286) (2,746)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total shareholders' equity 237,097 147,868
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total liabilities, minority interest, and shareholders' equity $431,553 $704,750
- -------------------------------------------------------------------------------------------
</table>
(The accompanying notes are an integral part of these Consolidated Financial
Statements.)
<table>
<caption>
<s> <c> <c> <c>
Consolidated Statements of Income
- -------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
Years Ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Revenue
Investment advisory fees, net--affiliates $412,417 $369,823 $314,957
Investment advisory fees, net--other 10,563 10,411 9,966
Administrative service fees, net--affiliates 109,519 87,268 80,993
Administrative service fees, net--other 20,845 22,602 23,388
Other service fees, net--affiliates 133,585 137,916 124,188
Other service fees, net--other 27,595 28,440 23,512
Commission income 3,102 5,922 4,407
Interest and dividends 9,743 19,042 13,926
(Loss) gain on sale of securities available for sale (7,050) (89) 820
Other (loss) income, net (4,542) (567) 4,941
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total revenue 715,777 680,768 601,098
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Operating Expenses
Compensation and related 173,462 162,284 152,469
Advertising and promotional 68,279 60,162 55,132
Systems and communications 29,142 30,163 27,809
Professional service fees 27,205 26,848 24,431
Office and occupancy 27,124 25,331 25,313
Travel and related 12,993 14,684 13,797
Amortization of deferred sales commissions 43,860 59,041 48,275
Amortization of intangible assets 17,121 7,560 10,405
Other 6,387 7,785 6,521
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total operating expenses 405,573 393,858 364,152
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Operating income 310,204 286,910 236,946
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Nonoperating Expenses
Debt expense--recourse 6,600 8,317 8,867
Debt expense--nonrecourse 23,121 25,863 22,979
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total nonoperating expenses 29,721 34,180 31,846
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Income before minority interest, income taxes and 280,483 252,730 205,100
extraordinary item
Minority interest 10,880 10,208 10,219
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 269,603 242,522 194,881
Income tax provision 96,887 87,162 70,861
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Income before extraordinary item 172,716 155,360 124,020
Extinguishment of recourse debt, net of tax (4,269) 0 0
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net income $168,447 $155,360 $124,020
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Earnings Per Share--Basic1
Income before extraordinary item $ 1.50 $ 1.32 $ 0.99
Extinguishment of recourse debt, net of tax (0.04) 0 0
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net income per share--basic $ 1.46 $ 1.32 $ 0.99
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Earnings Per Share--Diluted1
Income before extraordinary item $ 1.44 $ 1.27 $ 0.96
Extinguishment of recourse debt, net of tax (0.04) 0 0
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net income per share--diluted $ 1.40 $ 1.27 $ 0.96
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Cash dividends per share1 $ 0.1750 $ 0.1387 $0.1093
- -------------------------------------------------------------------------------------------
</table>
1 Per share amounts have been restated to reflect the three-for-two stock
split paid in 2000.
(The accompanying notes are an integral part of these Consolidated
Financial Statements.)
Consolidated Statements of Changes in Shareholders' Equity
- -----------------------------------------------------------------------------
(dollars in thousands)
Years Ended December 31, 2001, 2000 and 1999
<table>
<caption>
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Shares Additional Retained Employee Accumulated Total
Paid-in Earnings Restrict Other Shareholders'
Capital Stock Comprehensive Equity
from Plan Income
Treasury (Loss)
Common Stock Treasury
Stock Transactions Stock
- ---------------------------------------------------- ------------------------------------------------------------------------------
Class A Class B Treasury
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at 6,000 86,198,250 138,750 $75,279 $ 0 $14,556 $ (23) $ (1,512) $ 406 $ 88,706
January 1, 1999
- ----------------------------
- ----------------------------
Net income 0 0 0 0 0 124,020 0 0 0 124,020
Other comprehensive loss,
net of tax:
Unrealized gain on
securities available for
sale, net of
reclassification
adjustment 0 0 0 0 0 0 0 0 (449) (449)
Foreign currency
translation 0 0 0 0 0 0 0 0 (63) (63)
Other 0 0 0 0 0 0 0 0 11 11
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 123,519
- ---------------------------- --------------
- ---------------------------- --------------
Amortization of employee 0 0 0 260 0 0 0 203 0 463
restricted stock plan and
other compensation plans
- ----------------------------
- ----------------------------
Dividends declared 0 0 0 0 0 (13,924) 0 0 0 (13,924)
Restricted stock
forfeitures 0 0 0 (263) 0 0 0 263 0 0
Purchase of treasury stock 0 (4,483,610) 4,483,610 0 0 0 (79,953) 0 0 (79,953)
Other 0 0 0 0 0 1 0 0 0 1
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at 6,000 81,714,640 4,622,360 75,276 0 124,653 (79,976) (1,046) (95) 118,812
December 31, 1999
- ----------------------------
- ----------------------------
Net income 0 0 0 0 0 155,360 0 0 0 155,360
Other comprehensive loss,
net of tax:
Unrealized loss on
securities available for
sale, net of
reclassification
adjustment 0 0 0 0 0 0 0 0 (2,596) (2,596)
Foreign currency
translation 0 0 0 0 0 0 0 0 (55) (55)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 152,709
- ---------------------------- --------------
- ---------------------------- --------------
Amortization of employee 0 0 0 200 0 0 0 310 0 510
restricted stock plan and
other compensation plans
- ----------------------------
- ----------------------------
Issuance of three-for-two 3,000 39,501,774 3,666,682 0 0 0 0 0 0 0
stock split
Dividends declared 0 0 0 0 0 (16,557) 0 0 0 (16,557)
Purchase of treasury stock 0 (4,095,605) 4,095,605 0 0 0 (107,606) 0 0 (107,606)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at 9,000 117,120,809 12,384,647 75,476 0 263,456 (187,582) (736) (2,746) 147,868
December 31, 2000
- ----------------------------
- ----------------------------
Net income 0 0 0 0 0 168,447 0 0 0 168,447
Other comprehensive loss,
net of tax:
Unrealized loss on
securities available for
sale, net of
reclassification
adjustment 0 0 0 0 0 0 0 0 2,510 2,510
Foreign currency
translation 0 0 0 0 0 0 0 0 (50) (50)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 170,907
- ---------------------------- --------------
- ---------------------------- --------------
Amortization of employee 0 0 0 309 0 0 0 267 0 576
restricted stock plan and
other compensation plans
- ----------------------------
- ----------------------------
Dividends declared 0 0 0 0 0 (20,456) 0 0 0 (20,456)
Stock issuance for
business combination 0 315,732 (315,732) 0 6,683 0 2,237 0 0 8,920
Exercise of stock options 0 693,600 (693,60) 6,703 (3,140) 0 4,227 0 0 7,790
Purchase of treasury stock 0 (2,769,200) 2,769,200 0 0 0 (78,508) 0 0 (78,508)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at 9,000 115,360,941 14,144,515 $82,488 $ 3,543 $411,447 $(259,626) $(469) $ (286) $237,097
December 31, 2001
- -----------------------------------------------------------------------------------------------------------------------------------
(The accompanying notes are an integral part of these Consolidated Financial
Statements.)
</table>
(The accompanying notes are an integral part of these Consolidated Financial
Statements.)
<table>
<caption>
<s> <c> <c> <c>
Consolidated Statements of Cash Flows
- ---------------------------------------------------------------------------------------
(dollars in thousands)
Years Ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Operating Activities
Net income $168,447 $155,360 $124,020
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Amortization of intangible assets 17,121 7,560 10,405
Depreciation and other amortization 8,859 8,243 7,712
Amortization of deferred sales commissions 43,860 59,041 48,275
Minority interest 10,880 10,208 10,219
Gain on disposal of assets (5,099) (668) (3,793)
(Benefit) provision for deferred income taxes (18,633) 2,981 4,540
Tax benefit from exercise of stock options 6,703 0 0
Deferred sales commissions paid (69,135) (134,1)5 (128,05)
Contingent deferred sales charges received 30,872 45,564 39,399
Proceeds from sale of certain future revenues 59,580 13,825 0
Other changes in assets and liabilities:
Decrease (increase) in receivables, net 3,544 (1,496) (4,194)
Decrease in other assets 15,128 2,148 2,391
Increase (decrease) in accounts payable and accrued 58 (1,738) 12,129
expenses
Increase in income taxes payable 18,381 5,297 343
Increase (decrease) in other current liabilities 4,919 (4,160) 2,652
(Decrease) increase in other long-term liabilities (14,839) 1,791 6,106
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 280,646 169,841 132,145
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Investing Activities
Proceeds from disposal of property and equipment 43 157 4,007
Additions to property and equipment (7,089) (12,31) (17,451)
Cash paid for business acquisitions and investment in (173,37) (12,19) (2,158)
joint venture
Purchases of securities available for sale (25,505) (35,44) (88,950)
Proceeds from redemptions of securities available for 102,321 2,987 25,828
sale
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net cash used by investing activities (103,60) (56,80) (78,724)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Financing Activities
Distributions to minority interest (11,055) (10,26) (10,294)
Dividends paid (20,456) (16,55) (13,924)
Proceeds from exercise of stock options 1,087 0 0
Purchases of treasury stock (78,508) (107,6)6 (79,953)
Proceeds from new borrowings--nonrecourse 12,214 114,831 123,372
Payments on debt--recourse (84,297) (14,25) (232)
Payments on debt--nonrecourse (72,435) (100,7)4 (86,481)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net cash used by financing activities (253,45) (134,6)3 (67,512)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (76,409) (21,57) (14,091)
Cash and cash equivalents, beginning of period 149,920 171,490 185,581
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 73,511 $149,920 $171,490
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 9,581 $11,223 $ 13,611
Income taxes 102,241 77,990 63,957
(The accompanying notes are an integral part of these Consolidated Financial
Statements.)
</table>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(December 31, 2001, 2000 and 1999, dollar amounts in thousands, except per
share data)
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
Federated Investors, Inc. and its subsidiaries (Federated) sponsor, market
and provide investment advisory, distribution and administrative services
primarily to mutual funds. Federated also provides investment advisory and
administrative services to corporations, employee benefit plans and private
investment advisory accounts. The operations of Federated are organized into
three principal functions: investment advisory, distribution and services.
A large portion of Federated's revenue is derived from investment advisory
services provided to mutual funds and separately managed accounts through
various subsidiaries and affiliates pursuant to investment advisory contracts.
These subsidiaries are registered as investment advisers under the Investment
Advisers Act of 1940 and with certain states.
Shares of the portfolios or classes of shares under management or
administration by Federated are distributed by wholly owned subsidiaries, which
are registered broker/dealers under the Securities Exchange Act of 1934 and
under applicable state laws. Federated's investment products are primarily
distributed within the bank trust, broker/dealer and institutional markets.
Federated provides mutual fund services to support the operation and
administration of all mutual funds it sponsors.
(b) Basis of Presentation
The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results may differ from those estimates, and such
differences may be material to the Consolidated Financial Statements.
(c) Consolidation
The Consolidated Financial Statements include the accounts of Federated
Investors, Inc. and entities in which Federated has a controlling financial
interest. All significant intercompany accounts and transactions have been
eliminated. In determining whether consolidation of Federated's alternative
products is appropriate, Federated considers whether the majority owner of the
entity is an independent third party who has made a substantive capital
investment in the entity, whether the majority owner has the substantive risks
and rewards of ownership and whether the majority owner controls the activities
of the entity.
(d) Business Combinations
Business combinations have been accounted for under the purchase method of
accounting. Results of operations of an acquired business are included from the
date of acquisition. Management allocates the cost of an acquired entity to
acquired assets, including identifiable intangible assets, and assumed
liabilities based on their estimated fair values as of the date of acquisition.
Any excess cost of the acquired entity that exists after this allocation process
is recorded as "Goodwill" on the Consolidated Balance Sheets.
(e) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks and
investments, which consist of interest-bearing deposits with banks, overnight
federal funds sold, money market accounts, and other investments with an
original maturity of less than three months.
(f) Securities Available for Sale
Securities available for sale includes Federated's investments in
fluctuating-value mutual funds and asset-backed securities. These investments
are carried at fair value based on quoted market prices or, in the absence of
quoted market prices, discounted cash flows. These investments are classified as
current or long-term assets and are included in "Securities available for sale"
or "Other long-term assets," respectively, on the Consolidated Balance Sheets
based on management's intention to sell the investment. The unrealized gains or
losses on these securities are included in "Accumulated other comprehensive
loss" on the Consolidated Balance Sheets, net of tax. Realized gains and losses
on these securities are computed on a specific identification basis and
recognized in "(Loss) gain on sale of securities available for sale" in the
Consolidated Statements of Income.
On a periodic basis, management evaluates for impairment the carrying value
of fluctuating-value mutual fund securities that have declined in fair value.
Management considers various criteria, including the duration and extent of the
decline, the ability and intent of management to retain the investment for a
period of time sufficient to allow the value to recover and the financial
condition and near-term prospects of the investment, to determine whether a
decline in fair value is other than temporary. If, after considering these
criteria, management believes that a decline is other than temporary, the
carrying value of the security is written down to fair value through the
Consolidated Statements of Income. With respect to Federated's investments in
asset-backed securities, estimates of future cash flows are updated each quarter
based on actual defaults, changes in anticipated default rates or other
portfolio changes. The carrying values of these investments are written down to
fair value at that time, as appropriate. Impairment adjustments are recognized
in "Other (loss) income, net" in the Consolidated Statements of Income.
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
(December 31, 2001, 2000 and 1999, dollar amounts in thousands, except per
share data)
(g) Property and Equipment
Property and equipment are recorded at cost, or fair value if acquired in
connection with a business combination, and are depreciated using the
straight-line method over their estimated useful lives ranging from three to 25
years. Leasehold improvements are depreciated using the straight-line method
over their estimated useful lives or their respective lease terms, whichever is
shorter. As property and equipment are placed out-of-service, the cost and
related accumulated depreciation are removed and any residual net book value is
reflected as a loss in "Other (loss) income, net" in the Consolidated Statements
of Income.
(h) Costs of Computer Software Developed or Obtained for Internal Use
Certain internal and external costs incurred in connection with developing or
obtaining software for internal use are capitalized in accordance with the
American Institute of Certified Public Accountants' Statement of Position No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." These capitalized costs are included in "Property and equipment,
net" on the Consolidated Balance Sheets and are amortized using the
straight-line method over the shorter of the estimated useful life of the
software or four years.
(i) Intangible Assets
Intangible assets, consisting primarily of goodwill, investment advisory
contracts and employment and noncompete agreements acquired in connection with
various business combinations, are recorded at fair value determined as of the
date of acquisition. For significant acquisitions, Federated obtains an
independent valuation to establish the fair value of assets acquired. For all
other acquired assets, fair value is estimated by management. In either case,
fair value of separately identifiable intangible assets that meet the criteria
for recognition apart from goodwill is generally estimated using a discounted
cash flow model. The discounted cash flow model considers various factors to
project discounted future cash flows expected to be generated from the asset.
Given the investment advisory nature of Federated's business and of the
businesses acquired over the years, these factors typically include: (1) an
estimated attrition rate for underlying managed assets; (2) expected revenue per
managed asset; (3) incremental operating expenses; (4) useful life of the
acquired asset; and (5) a discount rate. Management estimates an attrition rate
for underlying managed assets based on a combination of an estimated rate of
market appreciation or depreciation and an estimated redemption rate. Expected
revenue per managed asset, incremental operating expenses and the useful life of
the acquired asset are generally based on contract terms and historical
experience. The discount rate is equal to Federated's weighted-average cost of
capital. After the fair value of all separately identifiable assets has been
estimated, the cost of the acquisition in excess of the sum of the fair values
of these assets is allocated to goodwill.
Goodwill and other intangible assets are amortized on a straight-line basis
over their estimated useful life, not to exceed 25 years. Investment advisory
contracts are amortized using the straight-line method over their estimated
useful life (five to 14 years). Management continuously evaluates the remaining
useful lives and carrying values of the intangible assets to determine whether
events and circumstances indicate that a change in the useful life or impairment
in value may have occurred. Indicators of impairment monitored by management
include a decline in the level of managed assets, changes to contractual
provisions underlying certain intangible assets and reductions in operating cash
flows. Should there be an indication of a change in the useful life or an
impairment in value, Federated compares the carrying value of the asset and its
related useful life to the projected undiscounted cash flows expected to be
generated from the underlying asset over its remaining useful life to determine
whether an impairment has occurred. If the carrying value of the asset exceeds
the undiscounted cash flows, the asset is written down to fair value determined
using discounted cash flows.
Measuring impairment for investment advisory contract intangible assets is
dependent upon the remaining level of managed assets acquired in connection with
the business combination. A decline in the remaining managed asset balance in
excess of the estimated attrition rate for those managed assets could have a
considerable impact on the underlying value of an investment advisory contract
intangible asset.
(j) Equity Investment
Federated owns a 50% interest in a joint-venture company, Federated Asset
Management GmbH, which administers separate accounts for institutional investors
in Germany. This joint venture is accounted for under the equity method of
accounting. The equity investment is carried at Federated's share of net assets
and included in "Other long-term assets" on the Consolidated Balance Sheets. The
proportionate share of income or loss from this entity is included in "Other
(loss) income, net" in the Consolidated Statements of Income.
(k) Deferred Sales Commissions and Nonrecourse Debt
Federated pays commissions to broker/dealers to promote the sale of certain
mutual fund shares. Under various fund-related contracts, Federated is entitled
to distribution and servicing fees from the mutual fund over the life of such
shares. These fees are calculated as a percentage of average managed assets
associated with the related classes of shares.
Federated capitalizes upfront commissions paid to broker/dealers for the
sale of non-B shares as deferred sales commissions and amortizes them over the
estimated period of benefit not to exceed six years. The distribution and
servicing fees are recognized in the Consolidated Statements of Income over the
life of the mutual fund share class. Contingent deferred sales charges collected
from redeeming shareholders are used to reduce the deferred sales commission
asset.
Federated sells to independent third parties the rights to receive future
12b-1 fees, shareholder service fees and contingent deferred sales charges
(CDSCs) on Class B shares of various mutual funds it manages. For accounting
purposes, sales of 12b-1 fees and CDSCs through September 2000 were reflected as
financings due to Federated retaining an interest in the residual cash flows
under this sales program. Shareholder service fees sold through September 2000
were also accounted for as financings due to the same retained interest as well
as Federated's ongoing involvement in performing shareholder-servicing
activities. As a result, the related upfront commissions paid were capitalized
and nonrecourse debt was recorded. On December 31, 2001, Federated sold its
retained interest in any residual cash flows under this program allowing sales
treatment accounting on the 12b-1 and CDSCs sold through September 2000.
Sales of 12b-1 fees and CDSCs since October 2000 are reflected as true
sales and the related gains were included in "Other service fees,
net--affiliates" in the Consolidated Statements of Income. Sales of shareholder
service fees since October 2000 continued to be accounted for as financings. See
Note (5) for additional detail on these transactions.
(l) Foreign Currency Translation
Federated's equity investment in the joint-venture company is translated at
the current exchange rate as of the end of the accounting period and the related
share of income or loss is translated at the average exchange rate in effect
during the period. Net exchange gains and losses resulting from translation are
excluded from income and are recorded in "Accumulated other comprehensive loss"
on the Consolidated Balance Sheets. Foreign currency transaction gains and
losses relating to Federated's foreign subsidiaries are reflected in the
Consolidated Statements of Income.
(m) Treasury Stock
Federated accounts for acquisitions of treasury stock at cost and reports
total treasury stock held as a deduction from total shareholders' equity on the
Consolidated Balance Sheets. At the date of subsequent reissue, the treasury
stock account is reduced by the cost of such stock on a specific identification
basis. If Federated reissues treasury stock for more or less than the cost of
the shares, the "Additional paid-in capital from treasury stock transactions"
account on the Consolidated Balance Sheets is credited or debited, respectively.
(n) Revenue Recognition
Revenue is recognized during the period in which the services are
performed. Federated may waive certain fees for services (primarily investment
advisory fees) for competitive reasons, or to meet regulatory requirements.
Investment advisory fees, administrative service fees and other service fees are
recorded net of subadvisory arrangements and third-party distribution and
service costs.
(o) Stock-Based Compensation
As allowed under the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
Federated has elected to apply Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based plans.
(p) Reporting on Advertising
Federated expenses the cost of all advertising as incurred.
(q) Income Taxes
Federated accounts for income taxes under the liability method, which
requires the recognition of deferred tax assets and liabilities for the future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
(r) Earnings Per Share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which requires that both
basic and diluted earnings per share be presented. Basic earnings per share are
based on the weighted-average number of common shares outstanding during each
period reduced by nonvested restricted stock. Diluted earnings per share are
based on basic shares as determined above plus incremental shares that would be
issued upon the assumed exercise of in-the-money stock options and nonvested
restricted stock using the treasury stock method.
(s) Comprehensive Income
Federated reports all changes in comprehensive income in the Consolidated
Statements of Changes in Shareholders' Equity, in accordance with the provisions
of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." Comprehensive income includes net income, unrealized gains and losses
on securities available for sale, net of tax, and foreign currency translation
adjustments, net of tax.
(t) Business Segments
Federated has not presented business segment data in accordance with
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
of an Enterprise and Related Information," because it operates predominantly in
one business segment, the investment advisory and asset management business.
(u) Reclassification of Prior Periods' Statements
Certain items previously reported have been reclassified to conform with
the current year presentation.
(v) Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142). Under Statement 142, goodwill and intangible assets with indefinite
lives are no longer amortized but are reviewed at least annually for impairment.
Federated adopted Statement 142 on January 1, 2002, in accordance with its
effective date for calendar year companies. As a result of adopting this
standard, Federated did not recognize a transition adjustment on January 1,
2002, but anticipates that annual amortization expense for 2002 as compared to
2001 will decrease by approximately $6,000.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." One of the primary objectives of this statement
was to establish a single accounting model for long-lived assets to be disposed
of by sale, whether previously held and used or newly acquired. Although
Statement 144 supersedes FASB Statement No. 121 on impairment of long-lived
assets, many of the requirements of Statement 121 regarding the test for and
measurement of impairment losses of long-lived assets were retained. Federated
adopted Statement 144 on January 1, 2002, and does not expect this statement to
have a material impact on its financial condition or results of operations.
(2) Securities Available for Sale
Current and long-term securities available for sale (see Note (1)) were as
follows:
<table>
<caption>
<s> <c> <c> <c> <c>
Estimated
Market
Gross Unrealized Value
--------------------------
--------------------------
Cost Gains (Losses)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Fluctuating-value mutual funds $ 4,783 $ 8 $ (189) $ 4,602
Asset-backed securities 2,500 0 0 2,500
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total as of December 31, 2001 $ 7,283 $ 8 $ (189) $ 7,102
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Fluctuating-value mutual funds $ 88,802 $ 68 $ (4,956) $ 83,914
Asset-backed securities 17,374 844 0 18,218
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total as of December 31, 2000 $106,176 $ 912 $ (4,956) $ 102,132
- -------------------------------------------------------------------------------------------
</table>
Gross realized gains and (losses) on the sale of securities available for
sale were approximately $245 and $(7,295) in 2001; $850 and $(939) in 2000; and
$1,162 and $(342) in 1999, respectively.
During 2001, Federated recorded an impairment charge of $14,126 in "Other
(loss) income, net" in the Consolidated Statements of Income, which resulted in
the write off of the remaining carrying value of Federated's high-yield
collateralized bond obligation (CBO) investments. The fair value of these
investments was reduced to zero as a result of default rates rising during the
second half of 2001.
(3) Property and Equipment
Property and equipment consisted of the following at December 31:
2001 2000
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Computer equipment $23,251 $22,035
Leasehold improvements 21,986 21,209
Software development 12,506 8,785
Office furniture and equipment 12,134 11,972
Transportation equipment 11,908 11,884
- -------------------------------------------------------------------
Total cost/fair value 81,785 75,885
Accumulated depreciation (47,26) (39,47)
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Property and equipment, net $34,521 $36,406
- -------------------------------------------------------------------
Depreciation expense was $8,426, $7,288 and $6,663 for the years ended
December 31, 2001, 2000 and 1999, respectively, and included the amortization of
assets recorded under capital leases.
(4) Long-Term Debt--Recourse
Federated's long-term debt--recourse consisted of the following at December 31:
2001 2000
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Senior Secured Note Purchase Agreements1 $ 0 $84,000
Capitalized leases2 157 454
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Total recourse debt 157 84,454
Less: current portion 157 14,280
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Total long-term debt--recourse $ 0 $70,174
- ------------------------------------------------------------------------
1 On December 31, 2001, Federated used existing cash to repay the remaining
balance of $70,000 on the Senior Secured Note Purchase Agreements (the
Notes), which were scheduled to mature in June 2006. The Notes carried a
fixed interest rate of 7.96%. In connection with the early retirement of
the Notes, Federated paid a make-whole amount equal to $6,567, which was
recorded net of taxes as an extraordinary item in the Consolidated
Statements of Income.
2 The capital leases are scheduled to be fully paid off in 2002.
As of December 31, 2001, Federated was able to borrow up to $150,000 under
the provisions of the Amended and Restated Senior Secured Credit Agreement (the
Credit Facility), the term of which was scheduled to expire in January 2002.
Under this agreement, Federated paid a facility fee of 0.10% on the revolving
credit commitment. At December 31, 2001, the outstanding balance under the
Credit Facility was zero. Borrowings under the Credit Facility were secured by
pledges of all the outstanding common stock or shares of beneficial interest of
all of the domestic subsidiaries wholly owned by Federated Investors, Inc. The
Credit Facility contained various financial and nonfinancial covenants.
Federated was in compliance with all such covenants at both December 31, 2001
and 2000. On January 22, 2002, Federated renewed the Credit Facility (see Note
(18)) for an additional 364-day term.
A wholly owned subsidiary of Federated has a discretionary line of credit
agreement with a bank under which it can borrow up to $45,000 for the payment of
obligations associated with daily net settlements of mutual funds processed
through the National Securities Clearing Corporation. Borrowings under this
agreement bear interest at a rate defined by the bank at the time of the
borrowing and are payable on demand. At December 31, 2001, the outstanding
balance under this agreement was zero.
(5) B-Share Sales Programs
Federated sells its rights to future cash flow streams associated with
B-share deferred sales commissions (distribution and servicing fees as well as
contingent deferred sales charges (CDSCs)) to an independent third party. For
accounting purposes, sales of distribution fees and CDSCs from inception of the
first program in 1997 through September 2000 were accounted for as financings as
a result of Federated's retained interest in any residual cash flows under this
program. Sales of servicing fees under the first program were also accounted for
as financings due to the same retained interest as well as Federated's ongoing
involvement in performing shareholder-servicing activities. Accordingly,
nonrecourse debt was recorded. As a result, "Other service fees, net -
affiliates" in the Consolidated Statements of Income reflect distribution and
servicing fees earned on B shares sold through September 2000. In addition, debt
expense associated with the nonrecourse debt, amortization of deferred sales
commissions and other program-related expenses were recorded for sales through
September 2000.
Beginning in October 2000, pursuant to the terms of a second sales program
with an independent third party, Federated accounted for the sales of its rights
to future distribution fees and CDSCs as true sales and the related gains were
included in "Other service fees, net - affiliates" in the Consolidated
Statements of Income. Sales of Federated's rights to future servicing fees
continued to be accounted for as financings due to Federated's ongoing
involvement in performing shareholder-servicing activities.
On December 31, 2001, Federated sold its retained interest in any residual
cash flows under its first B-share program. As a result, Federated recognized
sale treatment accounting for B-share distribution fees and CDSCs under this
program. The recognition of sale treatment resulted in a $9,017 pretax gain for
Federated, which was recorded in "Other (loss) income, net" in the Consolidated
Statements of Income, and the reversal of asset and liability balances related
to this program. Additionally, beginning on January 1, 2002, Federated no longer
recognizes revenue and expense items on its Consolidated Statements of Income
for the sold distribution fees and CDSCs as well as the related asset and
liability balances. Federated continues to account for the prior sale of rights
to future servicing fees as financings.
Federated's nonrecourse debt balances consisted of the following at December 31:
<table>
<caption>
<s> <c> <c> <c>
Interest Rate 2001 2000
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
1997-1 Class A and B1 7.44% - 9.80% $ 0 $ 46,118
Financings - 10/97 through 9/001 6.68% - 8.60% 41,446 274,949
Financings - 10/00 through 12/01 5.80% - 8.60% 13,508 2,751
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
$ 54,954 $ 323,818
- --------------------------------------------------------------------------------------------
</table>
1 Nonrecourse debt associated with servicing fees sold under Federated's
first program is included in Financings - 10/97 through 9/00 for 2001.
The debt is considered nonrecourse debt for Federated and does not contain
a contractual maturity but is amortized dependent upon the cash flows of the
related B-share assets, which are applied first to interest and then principal.
Interest rates are imputed based on current market conditions at the time of
issuance.
(6) Employee Benefit Plans
(a) 401(k)/Profit Sharing Plan
Federated offers a 401(k) plan covering substantially all employees. Under
the 401(k) plan, employees can make salary deferral contributions at a rate of
1% to 15% of their annual compensation (as defined in the 401(k) plan), subject
to Internal Revenue Code limitations. Federated makes a matching contribution in
an amount equal to 100% of the first 2% that each participant deferred and 50%
of the next 4% of deferral contributions. Forfeitures of nonvested matching
contributions are used to offset future matching contributions. Beginning
January 1, 2002, non-highly-compensated employees will be able to contribute as
much as 25% of their annual compensation to the 401(k) plan, subject to Internal
Revenue Code limitations.
Vesting in Federated's matching contributions commences once a participant
in the 401(k) plan has been employed at least three years and worked at least
1,000 hours per year. Upon completion of three years of service, 20% of
Federated's contribution included in a participant's account vests and 20% vests
for each of the following four years if the participant works 1,000 hours per
year. Employees are immediately vested in their 401(k) salary deferral
contributions. Beginning January 1, 2002, among other revisions to the 401(k)
plan, the employees' vesting schedule will accelerate. Upon completion of two
years of service, 20% of Federated's contribution included in a participant's
account will vest and 20% will vest each year of the subsequent four years of
service.
Matching contributions to the 401(k) plan amounted to $3,377, $3,017 and
$2,241 for the years ended December 31, 2001, 2000 and 1999, respectively.
A Federated employee becomes eligible to participate in the Profit Sharing
Plan upon the first day of employment. The Profit Sharing Plan is a defined
contribution plan to which Federated may contribute amounts as authorized by its
board of directors. No contributions have been made to the Profit Sharing Plan
in 2001, 2000 or 1999. At December 31, 2001, the Profit Sharing Plan held 2.2
million shares of Federated Class B common stock.
(b) Employee Stock Purchase Plan
Federated offers an Employee Stock Purchase Plan which allows employees to
purchase a maximum of 750,000 shares of Class B common stock. Employees may
contribute up to 10% of their salary to purchase shares of Federated's Class B
common stock on a quarterly basis at the market price. The shares under the plan
may be newly issued shares, treasury shares or shares purchased on the open
market. As of December 31, 2001, 46,950 shares were purchased by the plan on the
open market since the plan's inception in 1998.
(7) Other Compensation Plans
(a) Deferred Compensation Plans
In 1997, a deferred compensation arrangement was established for a group of
key employees for the purpose of providing incentives to certain individuals who
contributed substantially to the success of Federated. In July 2001, in
accordance with the terms of the arrangement, Federated paid all amounts due
under the plan. Amounts included in "Compensation and related" expense in the
Consolidated Statements of Income for bonuses earned under this plan were $586,
$706 and $508 for the years ended December 31, 2001, 2000 and 1999,
respectively.
(b) Employee Restricted Stock Plan
Under the Employee Restricted Stock Plan and subject to restrictions,
Federated has sold shares of Class B common stock to certain key employees.
During the restricted period, the recipient receives dividends on the shares.
The compensation cost to Federated (the difference between the estimated fair
value of the stock and the amount paid by the key employees at issuance) is
expensed over the period of employee performance during which the restrictions
lapse, not to exceed 10 years. Federated did not sell any shares of Class B
common stock under the Employee Restricted Stock Plan in 2001, 2000 or 1999.
There were no forfeitures in 2001 or 2000 and 202,500 shares (split adjusted)
were forfeited in 1999. For the years ended December 31, 2001, 2000 and 1999,
compensation expense related to the Employee Restricted Stock Plan was $267,
$310 and $203, respectively.
(c) Stock Options
Option and option-related data have been restated to reflect stock splits.
Stock options are part of the Stock Incentive Plan offered by Federated to
reward its employees and independent directors who have contributed to the
success of Federated and to provide incentive to increase their efforts on
behalf of Federated.
In 1999, 855,000 employee stock options were granted, 300,000 options were
awarded to executive officers in lieu of a portion of their 1998 earned bonus
awards and 4,500 options were awarded to independent directors. In 2000,
5,476,500 employee stock options were granted, 300,000 options were awarded to
executive officers in lieu of a portion of their 1999 earned bonus awards and
4,500 options were awarded to independent directors. In 2001, 45,000 employee
stock options were granted, 199,980 options were awarded to executive officers
in lieu of a portion of their 2000 earned bonus awards and 12,000 options were
awarded to independent directors. In the event the independent appraisals (prior
to the public registration of Federated's Class B common stock in May 1998) or
market value of the Class B common stock exceeds the exercise price of the
options at the time of issuance, the difference is charged to compensation
expense over the vesting period. For existing plans, vesting occurs over a 0- to
10-year period and may be accelerated as a result of meeting specific
performance criteria. Each vested option may be exercised, during the stated
exercise period, for the purchase of one share of Class B common stock at the
exercise price. In 2001, 693,600 stock options were exercised.
For the years ended December 31, 2001, 2000 and 1999, compensation expense
related to stock options was $309, $200 and $260, respectively.
The following table summarizes the status of and changes in Federated's
stock option plan during the past three years:
<table>
<caption>
<s> <c> <c> <c> <c>
Options Weighted-Average Options Weighted-Average
Exercise Exercisable Exercise Price
Price
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Outstanding at beginning of 19995,741,025 $2.63 0 $0.00
Granted 1,159,500 $12.38
Forfeited (197,325) $3.30
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Outstanding at end of 1999 6,703,200 $4.29 310,500 $11.76
Granted 5,781,000 $24.55
Forfeited (317,000) $5.74
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Outstanding at end of 2000 12,167,200 $13.88 1,744,500 $6.54
Granted 256,980 $29.50
Exercised (693,600) $1.57
Forfeited (174,175) $12.09
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Outstanding at end of 2001 11,556,405 $15.00 1,259,880 $13.07
- ------------------------------------------------------------------------------------------
Additional information regarding stock options outstanding at December 31, 2001,
follows:
Range of Outstanding Weighted-AverageWeighted-Average Exercisable Weighted-Average
Exercise Remaining
Price Contractual
Life (in Exercise
Exercise Prices Years) Price
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
$1.28 to $1.29 2,355,300 $1.28 3.6 0 $0.00
$4.00 to $6.20 2,221,875 $4.45 5.7 450,000 $6.20
$11.00 to $13.29 2,206,500 $12.63 7.4 600,900 $12.49
$17.75 to $24.88 2,275,750 $24.16 9.4 4,500 $17.75
$26.95 to $35.00 2,496,980 $31.07 9.4 204,480 $29.79
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
11,556,405 $15.00 7.1 1,259,880 $13.07
- ------------------------------------------------------------------------------------------
</table>
Information regarding the fair value of options granted in 2001, 2000 and 1999
follows:
<table>
<caption>
<s> <c> <c> <c>
2001 2000 1999
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Exercise price equals market price on date of grant:
Weighted-average grant-date fair value $13.07 $10.51 $4.96
Weighted-average exercise price 29.50 20.32 12.37
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Exercise price is more than market price on date of grant:
Weighted-average grant-date fair value $0.00 $11.65 $4.79
Weighted-average exercise price 0.00 31.25 12.67
- ------------------------------------------------------------------------------------------
</table>
No awards were granted with an exercise price that was less than the market
price on the date of grant in 2001, 2000 or 1999.
Federated accounts for stock options and employee restricted stock in
accordance with APB 25. Had compensation costs for stock options and employee
restricted stock been determined based upon fair values at the grant dates in
accordance with SFAS 123, Federated would have experienced net income and
earnings per share similar to the pro forma amounts indicated below for the
years ended December 31. For purposes of pro forma results, the estimated fair
values of the options and restricted stock are recognized as expenses over the
awards' vesting periods.
2001 2000 1999
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Pro forma net income $162,134 $151,703 $122,635
Pro forma basic earnings per share $ 1.41 $ 1.29 $ 0.98
Pro forma diluted earnings per share $ 1.35 $ 1.24 $ 0.95
- ---------------------------------------------------------------------------
Federated estimated the grant-date fair value using the Black-Scholes
option-pricing model with the following weighted-average assumptions for 2001,
2000 and 1999, respectively: dividend yields of 0.53%, 0.68% and 0.88%; expected
volatility factors of 29.9%, 30.6% and 29.2%; risk-free interest rates of 5.30%,
6.35% and 4.96%; and an expected life of 8.3 years, 10.1 years and 8.0 years.
Because options vest over several years and Federated anticipates making
additional grants, the effects of applying SFAS 123 on the pro forma disclosures
are not likely to be representative of the effects on pro forma disclosures for
future years.
(8) Minority Interest in Subsidiaries
A subsidiary of Federated Investors, Inc. has a majority interest (50.5%)
and acts as the general partner in Passport Research Ltd., a limited
partnership. Edward Jones & Co., L.P. is the limited partner with a 49.5%
interest. The partnership acts as investment adviser to two registered
investment companies.
Another subsidiary of Federated Investors, Inc. owns a majority interest
(90%) in InvestLink Technologies, Inc. (InvestLink), a software developer and
marketer of applications for the recordkeeping, administration and servicing of
defined contribution plans. Certain key employees of InvestLink own the
remaining 10% of the subsidiary.
(9) Common Stock
The Class A common stockholder has the entire voting rights of Federated;
however, without the consent of the majority of the holders of the Class B
common stock, the Class A common stockholder cannot alter Federated's structure,
dispose of all or substantially all of Federated's assets, amend the Articles of
Incorporation or Bylaws of Federated to adversely affect the Class B common
stockholders, or liquidate or dissolve Federated.
Federated's Credit Facility contains restrictions on payments of dividends.
The agreement limits cash payments of dividends to 50% of net income earned
during the period from January 1, 2000, to and including the payment date, less
certain payments for dividends and stock repurchases. Cash dividends of $20,456,
$16,557 and $13,924 were paid in 2001, 2000 and 1999, respectively, to holders
of common stock.
In 1999, 2000 and 2001, the board of directors approved various share
repurchase programs authorizing Federated to purchase Federated Class B common
stock. Under the programs, shares can be repurchased in open market and private
transactions over a period of 12 months from the date of the board resolution.
The programs authorize executive management to determine the timing and the
amount of shares for each purchase. The repurchased stock will be held in
treasury for employee benefit plans, potential acquisitions and other corporate
activities. As of December 31, 2001, under these programs, Federated can
repurchase an additional 2.0 million shares subject to current restrictions
under the Second Amended and Restated Credit Agreement entered into on January
22, 2002. As of January 31, 2002, cash payments for stock repurchases were
limited to $190,069 under these restrictions. The restrictions on cash payments
limit stock repurchases to $125,000 plus 50% of net income earned during the
period from January 1, 2000, to and including the payment date, less certain
payments for dividends and stock repurchases. On January 29, 2002, the board of
directors approved another share repurchase program (see Note (18)).
In 2000, as a result of a board resolution, Federated split its Class B
common stock three-for-two. This stock split was effected as a dividend and new
shares were distributed. Earnings and dividends per share, as well as other
share data, have been adjusted to reflect the stock distribution.
(10) Leases
Federated has various operating lease agreements primarily involving
facilities, office and computer equipment, and vehicles. These leases are
noncancellable and expire on various dates through the year 2009. Most leases
include renewal options and, in certain leases, escalation clauses.
The following is a schedule by year of future minimum rental payments
required under the operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 2001:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
2002 $17,885
2003 14,848
2004 13,829
2005 12,340
2006 12,442
2007 and thereafter 14,115
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Total minimum lease payments $85,459
- ------------------------------------------------------------------
Rental expenses were $18,752, $17,940 and $17,723 for the years ended
December 31, 2001, 2000 and 1999, respectively.
(11) Income Taxes
Federated files a consolidated federal income tax return. Financial
statement tax expense is determined under the liability method.
Income tax expense related to continuing operations consisted of the
following components for the years ended December 31:
2001 2000 1999
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Current:
Federal $114,028 $83,165 $64,985
Foreign 508 363 429
State 984 653 907
- ------------------------------------------------------------------
- ------------------------------------------------------------------
115,520 84,181 66,321
Deferred:
Federal (18,63) 2,981 4,540
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Total $96,887 $87,162 $70,861
- ------------------------------------------------------------------
In 2001, Federated recognized a current federal income tax benefit of
$2,298 relating to the extraordinary item.
For the years ended December 31, 2001, 2000 and 1999, the foreign
subsidiaries had net income of $4,449, $3,115 and $2,354, respectively, for
which income tax expense of $1,727, $1,250 and $974, respectively, has been
provided.
The reconciliation between the federal statutory income tax rate and
Federated's effective income tax rate attributable to continuing operations
consisted of the following for the years ended December 31:
2001 2000 1999
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Expected statutory rate 35.0% 35.0% 35.0%
Increase:
State income taxes 0.2 0.2 0.3
Amortization of goodwill 0.3 0.3 0.4
Meals and entertainment limitation 0.4 0.5 0.6
Other 0.0 (0.1) 0.1
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Total 35.9% 35.9% 36.4%
- ------------------------------------------------------------------------
The tax effects of temporary differences that gave rise to significant
portions of deferred tax assets and liabilities consisted of the following as of
December 31:
<table>
<caption>
<s> <c> <c>
2001 2000
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Deferred Tax Assets
Intangible assets $ 8,468 $13,121
Unrealized losses and impairment losses on securities available for 6,066 1,711
sale
Capital losses1 3,670 0
Organization costs 0 1,399
Other 2,750 1,223
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total gross deferred tax asset $20,954 $17,454
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Deferred Tax Liabilities
Deferred sales commissions $21,197 $30,065
Deferred 12b-1 fee income2 0 17,947
Costs of internal-use software 2,842 2,363
Other 1,926 5,295
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total gross deferred tax liability $25,965 $55,670
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Net deferred tax liability $ 5,011 $38,216
- -------------------------------------------------------------------------------------------
</table>
1 $2,595 of this capital loss deferred tax asset will be carried forward and
will expire in 2006. Federated expects to generate sufficient future
capital gains from the disposal of assets to realize the benefit of this
deferred tax asset.
2 The deferred tax liability arising from deferred 12b-1 fee income became
currently payable on December 31, 2001, as a result of Federated's sale of
its retained interest in any residual cash flows from its first B-share
program (see Note (5)).
(12) Earnings Per Share
Share and per share data have been restated to reflect the three-for-two
stock split paid in 2000. The following table sets forth the computation of
basic and diluted earnings per share applicable to income from continuing
operations for the years ended December 31:
<table>
<caption>
<s> <c> <c> <c>
2001 2000 1999
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Numerator
Income before extraordinary item $172,716 $155,360 $124,020
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Denominator (in thousands)
Denominator for basic earnings per share -
weighted-average shares less nonvested restricted 115,012 117,557 125,238
stock
Effect of dilutive securities:
Dilutive potential shares from stock-based 4,980 4,738 3,848
compensation
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 119,992 122,295 129,086
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Basic earnings per share before extraordinary item $ 1.50 $ 1.32 $ 0.99
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Diluted earnings per share before extraordinary item $ 1.44 $ 1.27 $ 0.96
- -------------------------------------------------------------------------------------------
</table>
(13) Disclosures of Fair Value
Estimated fair values of Federated's financial instruments have been
determined using available market information and appropriate valuation
methodologies, as set forth below. These fair values are not necessarily
indicative of the amounts that would be realized upon exchange of these
instruments or Federated's intent to dispose of these instruments.
Carrying amounts approximate fair value for the following financial
instruments due to their short maturities:
1 Cash and cash equivalents
2 Receivables
3 Accounts payable
4 Accrued expenses
Securities available for sale are carried at fair value (see Note (1)).
With respect to Federated's nonrecourse debt, based on the nature of the
debt and the uncertainty of the amounts and timing of the cash flows, Federated
is not able to determine its fair value.
(14) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, are as
follows:
Foreign
Unrealized Currency
Gain/(Loss) Translation
on and Other
Securities Adjustments
Available
for Sale Total
- ------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Balance at January 1, 1999 $ 417 $ (11) $ 406
Total change in market value1 84 0 84
Reclassification adjustment2 (533) 0 (533)
Loss on currency conversion3 0 (63) (63)
Other adjustments 0 11 11
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Balance at December 31, 1999 (32) (63) (95)
Total change in market value1 (2,65) 0 (2,654)
Reclassification adjustment2 58 0 58
Loss on currency conversion3 0 (55) (55)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Balance at December 31, 2000 (2,62) (118) (2,746)
Total change in market value1 (2,07) 0 (2,072)
Reclassification adjustment2 4,582 0 4,582
Loss on currency conversion3 0 (50) (50)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Balance at December 31, 2001 $ (118) $(168) $ (286)
- -----------------------------------------------------------------------------
1 The tax benefit/(expense) on the change in market value of securities
available for sale was $1,116, $1,429 and $(46) for 2001, 2000 and 1999,
respectively.
2 The tax benefit/(expense) on the reclassification adjustment for securities
available for sale was $2,468, $31 and $(287) for 2001, 2000 and 1999,
respectively.
3 The tax benefit on the foreign currency translation loss was $27, $30 and
$34 in 2001, 2000 and 1999, respectively.
(15) Commitments and Contingencies
Federated has claims asserted against it that result from litigation in the
ordinary course of business. Management believes that the ultimate resolution of
such matters will not materially affect the financial position or results of
operations of Federated.
(16) Related Party Transactions
Federated provides investment advisory, administrative, distribution and
shareholder services to various Federated products including the Federated group
of funds (Federated funds). All of these services provided for the Federated
funds are under contracts that definitively set forth the fees to be charged for
these services and are approved by the funds' independent directors/trustees.
Federated may waive certain fees charged for these services (primarily
investment advisory fees) in order to make the Federated funds more competitive
or to meet regulatory requirements.
(17) Business Combinations
In the fourth quarter 2001, assets of three mutual funds previously advised
by Rightime Econometrics, Inc., totaling approximately $148,000 were merged into
Federated Capital Appreciation Fund in connection with an agreement between
Federated, Lincoln Investment Planning, Inc. and Rightime Econometrics, Inc.
In April 2001, Federated completed the acquisition of substantially all of
the business of Edgemont Asset Management Corporation, the former adviser of The
Kaufmann Fund (Edgemont Acquisition). The purchase price for this acquisition
was $182,938. This price included cash payments of $174,018, including
transaction costs, and 315,732 shares of Federated Class B common stock valued
at $8,920. The acquisition agreement provides for additional purchase price
payments and incentive compensation payments based upon the achievement of
specified revenue growth over the next six years. The purchase price payments
will be recorded as additional goodwill at the time of payment while the
incentive compensation payments are recognized as compensation expense during
the periods in which the payments are earned. These contingent payments could
aggregate to approximately $200,000 if revenue targets are met and could result
in the payment of as much as $40,000 in the second quarter 2002.
This acquisition was accounted for using the purchase method of accounting
and, accordingly, the fair value of the assets acquired, primarily $77,000 of
identifiable intangible assets and $105,682 of goodwill, as well as the results
of those assets were included in Federated's Consolidated Financial Statements
beginning on the date of acquisition. The amount assigned to intangible assets
represents the fair value of the advisory contract, the noncompete agreement and
the workforce as of April 2001. These assets are being amortized on a
straight-line basis over their useful lives, which range from four to ten years.
Through December 31, 2001, acquired goodwill was being amortized on a
straight-line basis over 25 years. As a result of the adoption of SFAS 142 on
January 1, 2002 (see Note (1)), Federated no longer amortizes goodwill.
The following unaudited pro forma data for Federated includes the results
of the assets purchased from Edgemont Asset Management Corporation, giving
effect to the acquisition as if it occurred at the beginning of the periods
presented. The pro forma data is based on historical information and does not
reflect the actual results that would have occurred nor is it indicative of
future results of operations.
Pro Forma Data for
the
Year Ended December
31,
in millions except per share data 2001 2000
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Revenue $ 729.2 $ 730.2
Income before extraordinary item 173.9 156.6
Net income 169.6 156.6
Earnings per share:
Basic 1.47 1.33
Diluted 1.41 1.28
- ---------------------------------------------------------------------
(18) Subsequent Events
On January 22, 2002, Federated renewed its $150,000 Credit Facility by
signing the Second Amended and Restated Credit Agreement (the Renewed Credit
Facility). The Renewed Credit Facility has a term of 364 days and can be renewed
for additional 364-day terms. Under the Renewed Credit Facility, borrowings bear
interest, at the option of Federated, at a spread over a defined prime rate, the
Federal Funds rate or the London Interbank Offering Rate. Federated will pay a
facility fee of 0.10% on the revolving credit commitment. The Renewed Credit
Facility contains restrictions which limit cash payments for dividends and stock
repurchases. Cash payments for dividends are restricted to 50% of net income
earned during the period from January 1, 2000, to and including the payment
date, less certain payments for dividends and stock repurchases. Cash payments
for stock repurchases are limited to $125,000 plus 50% of net income earned
during the period from January 1, 2000, to and including the payment date, less
certain payments for dividends and stock repurchases. Unlike the terms of the
original Credit Facility, borrowings under the Renewed Credit Facility are not
secured by pledges of assets of Federated or the outstanding shares of
Federated's domestic subsidiaries. The Renewed Credit Facility includes
financial and nonfinancial covenants, which are similar in nature to the
covenants contained in the original Credit Facility.
On January 29, 2002, the board of directors declared a $0.046 per share
dividend and approved an additional 5,000,000 share stock buyback program
effective through March 31, 2003.
(19) Supplementary Quarterly Financial Data (Unaudited)
<table>
<caption>
<s> <c> <c> <c> <c>
for the quarters ended March 31, June 30, September 30, December 31,
- -------------------------------------------------------------------------------------------
2001
Revenue $171,414 $180,864 $181,167 $182,332
Operating income 75,700 77,213 77,160 80,130
Income before extraordinary item 41,644 42,874 43,191 45,007
Net income 41,644 42,874 43,191 40,738
Basic earnings per share before extraordinary 0.36 0.37 0.37 0.39
item
Diluted earnings per share before 0.35 0.36 0.36 0.38
extraordinary item
Cash dividends per share 0.037 0.046 0.046 0.046
Stock price per share1
High 31.30 32.77 32.80 32.00
Low 23.31 26.75 24.91 25.65
2000
Revenue $168,873 $168,287 $173,100 $170,508
Operating income 69,922 67,884 73,956 75,147
Net income 37,648 36,630 40,012 41,070
Basic earnings per share2 0.31 0.31 0.34 0.36
Diluted earnings per share2 0.30 0.30 0.33 0.34
Cash dividends per share2 0.028 0.0367 0.037 0.037
Stock price per share1, 2
High 18.58 23.75 27.44 31.69
Low 12.46 17.50 21.38 22.69
- -------------------------------------------------------------------------------------------
</table>
1 Federated's common stock is traded on the New York Stock Exchange under the
symbol "FII."
2 Reflects the three-for-two stock split paid in July 2000.
The approximate number of record holders of Federated's Class A and Class B
common stock as of February 27, 2002, was one and 11,606, respectively.
[This page intentionally left blank]
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
<table>
<caption>
<s> <c>
Annual Report The 2001 Annual Report is comprised of the 2001 Summary Annual
Report and the 2001 Financial Annual Report.
Annual Meeting Federated's Annual Shareholders' Meeting will be held in the
Allegheny Ballroom at
The Westin Convention Center, Pittsburgh, 1000 Penn Avenue,
Pittsburgh, PA, at 10:00 a.m. EST on April 24, 2002.
Form 10-K and Shareholder For a complimentary copy of Federated's Annual Report on Form
Publications 10-K, Quarterly Reports on Form 10-Q or Current Reports on
Form 8-K, as filed with the Securities and Exchange Commission
or a recent earnings news release, please contact the Investor
Relations department at 412-288-1054.
Market Listing Federated Investors, Inc. Class B common stock is traded on
the New York Stock Exchange under the trading symbol FII.
Dividend Payments Subject to approval of the board of directors, dividends are
paid on Federated's common stock during the months of
February, May, August and November.
Independent Public Ernst & Young LLP, Pittsburgh, PA
Accountants
Corporate Offices Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Telephone: 1-800-341-7400
Email: investors@federatedinv.com
--------------------------
www.federatedinvestors.com
--------------------------
Worldwide Offices Dublin, Ireland; Frankfurt, Germany; New York, NY; Rockland, MA
Phone Contacts Investor Relations: 412-288-1054
Analyst Inquiries: 412-288-1920
Media Relations & Corporate Communications: 412-288-7895
Shareholder Information: 781-575-3400
Customer Service: 1-800-341-7400
Transfer Agent Shareholders of record with questions concerning account
information, issuing new certificates, replacing lost or
stolen certificates, transferring securities, dividend
payments, requesting direct deposit information or processing
a change of address should contact:
EquiServe Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Telephone: 781-575-3400
www.equiserve.com
</table>
[GRAPHIC OMITTED]
0030705A (3/02)
Federated is a registered mark of Federated Investors, Inc. 2002(C)Federated
Investors, Inc.
EXHIBIT 21.01
SIGNIFICANT SUBSIDIARIES OF FEDERATED INVESTORS, INC.:
Federated Securities Corp., a Pennsylvania corporation
Federated Investors Management Company, a Pennsylvania corporation
FII Holdings, Inc., a Delaware corporation
Federated Investment Management Company, a Delaware business trust
Federated Investment Counseling, a Delaware business trust
Federated Global Investment Management Corp., a Delaware corporation
Federated International Management Limited, an Ireland company
Federated Financial Services, Inc., a Pennsylvania corporation
Passport Research Ltd., a Pennsylvania general partnership
Federated Services Company, a Pennsylvania corporation
Federated Funding 1997-1, Inc., a Delaware corporation
Federated Investors Trust Company, a New Jersey bank
Federated Administrative Services, a Delaware business trust
Federated Shareholder Services Company, a Delaware business trust
Retirement Plan Services Company of America, a Delaware business trust,
doing business as "Federated Retirement Plan Services Company"
Edgewood Services, Inc., a New York corporation
Federated Administrative Services, Inc., a Pennsylvania corporation
Federated Private Asset Management, Inc., a Delaware corporation
Federated International Holdings B.V., a Netherlands company
InvestLink Technologies, Inc., a Delaware corporation
Federated International - Europe GmbH, a German company
Exhibit 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-56429) pertaining to the Federated Investors, Inc. Employee
Stock Purchase Plan and the Registration Statement (Form S-8 No. 333-62471)
pertaining to the Federated Investors, Inc. 2000 Stock Incentive Plan of our
report dated January 31, 2002, with respect to the consolidated financial
statements of Federated Investors, Inc. incorporated by reference in this Annual
Report (Form 10-K) for the year ended December 31, 2001.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 15, 2002